Item 1. BUSINESS
General Background
The Company, a New York corporation, was organized on August 6, 1976 under the name of Globuscope, Inc. On August 7, 1984, its name was changed to Globus Growth Group, Inc., which is its present name.
On February 27, 1986, the stockholders of the Company approved the divestiture and sale of those assets of the Company as pertained to its then camera manufacturing and photography operations as well as the sale of certain shares of stock in a photographic related company owned by it and its interest in the Company's then owned premises. The sale was consummated as of February 28, 1986. After such divestiture, the Company's activities consisted of the holding of interests in various companies and the seeking out of acquisition and joint-venture opportunities in various fields of business endeavor. On May 31, 1988, the Company filed with the Securities and Exchange Commission a notification of election to be treated as a "Business Development Company" ("BDC") as that term is defined in the Investment Company Act of 1940 (the "1940 Act"). For a summary description of certain restrictions imposed upon a BDC by the 1940 Act, reference should be made to "Governmental Regulation" elsewhere herein. For a summary description of the risk factors involved in an investment in the securities of a BDC due to the nature of such a company's investment portfolio, reference should be made to "Risk Factors Involved In Investing In A BDC" elsewhere herein.
Investment Portfolio
As at February 28, 1999, the Company held investments in the following investee companies: (investments listed include only those the value of which have not been written down to zero).
(i) Catamount Brewing Company - a privately held beer brewing company located in Windsor, Vermont. Operations of the brewery commenced on January 22, 1987. Sales of the product are presently being made principally in Vermont, New Hampshire and Massachusetts. A small secondary sales market for the product also occurs in parts of Connecticut, New York, Rhode Island, New Jersey and Washington, D.C. Richard D. Globus, an officer and director of the Company, is no longer a director of Catamount, having resigned June 28, 1998. Various members of the Globus family, two of whom are Directors of the Company, are also stockholders of Catamount.
(ii) Interface Systems, Inc. - a publicly held company that provides interfacing solutions for proprietary computer architectures (such as IBM mainframes) and other peripheral devices such as printers, PC's, cash registers and open systems computers. Its products consist of hardware and proprietary software; including a laser printer product line and software that interfaces a Unix-based workstation with an IBM mainframe. Various members of the Globus family, two of whom are Directors of the Company, are also stockholders of Interface.
(iii) Kimeragen, Inc. - a privately held non-affiliated development stage company founded in 1994 for the purpose of engaging in research and development in the field of developing gene therapy products for the treatment of hereditary and acquired diseases. Stephen E. Globus, an officer and director of the Company, is a director of Kimeragen.
(iv) Repligen Corporation ("Repligen") - a publicly held research and development corporation founded in 1981. Its field of activity is primarily focused on the development of new therapies for chronic and acute inflammation and immunosuppression and the development of enabling technologies for discovery of new drugs by rapid screening of combinatorial chemical libraries. In March of 1996, Repligen acquired Glycan Pharmaceuticals ( a former investee of the Company). As a result of that transaction, Repligen acquired a
majority interest in Proscure, Inc. (another former investee of the Company). Subsequently, the Company exchanged its interests in Proscure, Inc. and Glycan Pharmaceuticals for an aggregate of 100,468 shares of Common Stock of Repligen. For additional information concerning Proscure, Inc. reference is made to Item 1 of the Company's Form 10-K for its fiscal year ended February 29, 1996 and to Note B of the Notes To Financial Statements contained in such Form 10-K, which Item and Note are incorporated herein by reference.
(v) Genitope Corporation - a privately held research and development company that holds proprietary technology having applications in the field of cancer therapy. It focuses upon the development and production of custom cancer vaccines for the treatment of Non-Hodgkin's Lymphoma.
(vi) Thermaphore Sciences, Inc. - a privately held, newly formed drug discovery company dedicated to improving and accelerating the development and optimization of small molecule drugs that target cell surface receptor proteins. Stephen E. Globus, an officer and director of the Company, is a director of Thermaphore.
No representation is made by the Company that any or all of its investees: (a) has, or will have in the immediate future, sufficient funds to continue to carry on business activities; (b) will be able to achieve any of their respective business objectives; (c) will be able to achieve or maintain profitable operations; or (d) will not be obliged to attempt to obtain additional funding.
For additional information concerning each of the above specified investments, reference should be made to Note B of the Notes to Financial Statements contained elsewhere herein.
Valuation of Investments
Investments are carried at fair value, which, for readily marketable securities, represents the last reported sales price or bid price on the valuation date. Investments in restricted securities and securities which are not readily marketable are carried at fair value as determined in good faith by the Board of Directors, in the exercise of its judgment, after taking into consideration various indications of value available to the Board. See also Notes A and B of Notes To Financial Statements elsewhere herein.
The following table, and the footnotes thereto, set forth certain specified information concerning the investments of the Company as at February 28, 1999, and as to the valuations thereof, specified in dollars, ascribed to them by the Board of Directors of the Company as at such date. For comparative purposes only, the valuations (as applicable) ascribed as at February 28, 1998 are also set forth. Investments listed in the table include only those the value of which, as at February 28, 1999, had not, then or previously, been written down to zero or disposed of. The table and notes should be read in conjunction with Notes A and B of Notes To Financial Statements elsewhere herein. (Amounts are in dollars and are rounded to the nearest thousand.)
Basis 2/28/99 2/28/98 Employed ------- ------- --------
Catamount Brewing Company $ 219,000 (1) $ 326,000 (1) Fair Value Interface Systems, Inc. $ 2,000 (2) $ 3,000 (2) Market Kimeragen, Inc. $ 294,000 (3) $ 805,000 (3) Fair Value Repligen Corp. $ 157,000 (4) $ 116,000 (4) Market Genitope Corp. $ 630,000 (5) $ 630,000 (5) Fair Value Thermaphore Sciences, Inc. $ 112,000 (6) ---------- Fair Value ---------- $1,414,000 $1,880,000 ---------- ----------
Notes to Table:
(1) Represents equity investment - 23,215 common shares and 4,286 preferred shares owned at each date. During the year,the Company loaned Catamount a total of $105,000 on a demand loan basis.
(2) Represents equity investment - 775 shares owned at each date.
(3) Represents equity investment - 108,827 shares of Class A Common Stock and 35,000 shares of Class B Common Stock owned at each date. On May 1, 1999, the Company purchased an additional 60,000 shares of Series A Preferred Stock for $150,000. The funds for such purpose were loaned to the Company by Messrs. Stephen E. and Richard D. Globus.
(4) Represents equity investment - 100,468 shares owned at each date.
(5) Represents equity investment - 420,858 shares of Series A Preferred and 332,992 shares Series B Preferred owned at each date.
(6) Represents equity investment - 8,333 shares of Common Stock and 66,667 shares of Series A Preferred Stock owned at 2/28/99. On March 5, 1999, the Company purchased an additional 33,333 shares of Series A Preferred Stock for $50,000.
Because of valuation factors, increases or decreases in the dollar amount of any particular investment, business judgment, and other investment decision factors, the amount of the Company's interest in any particular investee may vary from time to time.
The preceding table does not include the Company's investment in Woodstock Communications, Inc., which consisted of a Promissory Note of such entity in the amount of $50,000 dated November 19, 1996 representing a loan to it by the Company in such amount. The maturity date of such Note was the earlier to occur of November 19, 1998 or the date of consummation of a corporate financing by Woodstock in an amount exceeding $1,750,000. On the maturity date, the Company would have had the right to elect to receive (by way of interest) either a cash interest payment of 10% simple interest per annum, or, in lieu of cash interest, a number of shares of Class A Common Stock of Woodstock equating to 1% ownership interest in Woodstock on the date of the Note, subject to certain dilutive effects of subsequent transactions. Woodstock's planned financing was not completed and they have ceased operations effective February 1, 1998. Therefore, the Company's management has written off this note and accrued interest as uncollectible.
Governmental Regulation
The 1940 Act imposes many and varied restrictions on the activities of a BDC, including restrictions on the nature of its investments. Some, but not all, of the restrictions imposed on the activities of a BDC by such Act are described in the following three paragraphs.
Generally speaking, the 1940 Act prohibits a BDC from investing in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act limits the type of assets that a BDC may acquire to "qualifying assets" and certain assets necessary for its operations (such as office furniture, equipment and facilities) if, at the time of acquisition, less than 70% of the value of its assets consist of qualifying assets. Qualifying assets include: (i) securities of companies that were eligible portfolio companies (as defined in the 1940 Act) at the time that the BDC acquired their securities; (ii) securities of bankrupt or insolvent companies that are not otherwise eligible portfolio companies; (iii) securities acquired as follow-on investments in companies that were eligible at the time of the BDC's initial acquisition of their securities but are no longer eligible, provided that the BDC has maintained a substantial portion of its initial investment in those companies; (iv) securities received in exchange for or distributed in or with respect to any of the foregoing; and (v) cash items, Government securities and high-quality short-term debt. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons from whom, securities can be purchased in order for the securities to be considered qualifying assets.
A BDC is permitted, under specified conditions, to issue multiple classes of senior debt and a single class of preferred stock if its asset coverage, as defined in such Act, is at least 200% after the issuance of the debt or the preferred stock.
A majority of the members of the Board of Directors of a BDC must not be "interested persons" of the BDC as that term is defined in the 1940 Act. Most transactions involving a BDC and its affiliates (as well as affiliates of those affiliates) require the prior approval of a majority of the BDC's independent directors and a majority of the directors having no financial interest in such transactions. Some transactions involving certain closely affiliated persons of the BDC, including its directors, officers and employees, still require the prior approval of the Securities and Exchange Commission (the "Commission"). In general, (a) any person who owns, controls, or holds with power to vote, more than 5% of a BDC's outstanding Common Stock, (b) any director, executive officer or general partner of that person, and (c) any person who directly or indirectly controls, is controlled by, or is under common control with, that person, must obtain the prior approval of the BDC's independent directors, and, in some instances, the prior approval of the Commission, before engaging in certain transactions involving the BDC or any company controlled by the BDC.
Risk Factors Involved In Investing In A BDC
Due to the nature of the usual investment portfolio of a BDC similar to the limited size and scope of the Company, an investment in the securities of such a BDC involves a degree of risk that exceeds the risks involved in investing in an operating company. Since the Company has elected to become a BDC, such risks are now applicable to the securities of the Company. The following, generally speaking, includes some, but not all, of such risks:
(a) The usual principal business objective of a BDC is to seek long-term capital appreciation by making venture capital investments primarily in new and developing companies which management of the BDC believes offer significant long term potential for capital appreciation.
(b) An investment in a development stage company or in a new and developing company subjects the BDC to a number of the same risks to which such investee entity is subject, namely: (i) the problems, expenses, difficulties, complications and delays that can be expected to be encountered by such an entity in connection with the attempted development of a commercially viable product and bringing such product to market, (ii) possible need by such entity of additional financing, (iii) competition encountered by such entity, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and service capabilities and a larger number of qualified managerial and technical personnel.
(c) Many of the securities acquired by a BDC are "restricted securities" within the meaning of the Securities Act of 1933 ("Securities Act") and cannot be resold without compliance with the Securities Act. Such restrictions on resale will most likely adversely affect the liquidity and marketability of such securities. Registration for sale of restricted securities under the Securities Act is within the sole province of the issuer concerned. Such registration is likely to be a time-consuming and expensive process and the BDC in certain cases may have to bear the expense of such registration. In addition, a BDC always bears the risk, because of the delays inherent in the registration process, that it will be unable to resell the securities held by it, or that it will not be able to obtain an attractive price for them. In the event the BDC is unable to cause the securities to be registered for resale, it will have to seek to rely upon an exemption from registration. Among other exemptions, Rule 144 promulgated under the Securities Act imposes a one-year holding period prior to the sale of restricted securities and establishes volume limitations on the amount of any restricted securities that can be sold within certain defined time periods. Furthermore, there cannot be any assurance that there ever will be a market for the securities held by a BDC; or if a market should develop, that such market will be an established market and able to absorb the sale of a sizable amount of securities.
(d) It may become necessary to make additional investments in investee companies so as to protect a prior investment. Such follow-on investments may limit the number of companies in which a small size BDC has the financial ability to invest. Furthermore, a BDC with limited funds available may not have sufficient funds to make as many follow-on investments as it deems necessary and any follow-on investments which it makes may not be sufficient to protect its prior investments in such entity, with the result that it may experience significant losses in such investments. A decision not to make a particular follow-on investment, or the financial inability to make it, may have a material adverse impact on the investee.
(e) A BDC similar in size and scope to the Company is a "closed-end non-diversified company" as that term is defined in the 1940 Act. Such small size prevents it from being able to commit its funds to the acquisition of securities of a large number of companies and prevents it from being able to achieve the same type of diversification as larger entities engaged in venture capital activities. Furthermore, such small size places it at a competitive disadvantage with other venture capital investing entities that have far greater financial resources available.
(f) The investment objective of a BDC similar in size and scope to the Company is long-term capital appreciation. To the extent that any income is derived from operations, it is likely that it will be used entirely to fund additional investments and continuing working capital needs rather than be distributed to stockholders.
(g) In order to increase its ability to invest in eligible portfolio companies, a BDC similar in size and scope to the Company may borrow monies and pay interest on such borrowings. Any investment gains made with the additional monies in excess of interest paid will cause the net asset value of the BDC's stock to rise faster than would otherwise be the case. On the other hand, if the investment performance of the additional securities purchased fails to cover their cost (including any interest paid on the money borrowed), the net asset value of the BDC will decrease faster than would otherwise be the case. This is known as "leveraging."
For further details concerning the financial condition of the Company and its ability to make investments, reference should be made to "Management's Discussion and Analysis of Financial Condition and Results of Operations" elsewhere herein.
Personnel
The Company presently employs three persons (including Messrs. Stephen and Richard Globus) on a full-time basis.
Item 2.
Item 2. PROPERTIES
The Company continues to occupy office space at the premises formerly owned by it (44 West 24th Street, New York, New York). While no formal lease was ever entered into with Idex (now Globus Studios, Inc.) the Company is paying a charge of $1,785 per month, which charge includes office space and electricity.
Item 3.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
Item 5.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS.
(a) Market information. The Company's Common Stock is traded in the over-the-counter market. Prior to February 11, 1991, such Common Stock was quoted by the National Association of Securities Dealers Automated Quotation System (NASDAQ), but such quotation was discontinued on February 11, 1991. While quotations are presently available from a dealer upon request, the market for the Company's Common Stock would not appear to qualify as an "established public trading market" as such term is defined in Securities and Exchange Commission regulations. Management of the Company is not aware of high and low bid prices for the Company's Common Stock for the quarterly periods within the past two fiscal years except that: (i) the National Stock Summary Guide, published by the National Quotation Bureau, publishes the range of quotations for the Company's Common Stock on a monthly and semi-annual basis to the extent that same are available; (ii) the "Pink Sheets" published by the National Quotation Bureau (formerly published on a daily basis and since June, 1997 published on a weekly basis) publishes quotations for the Company's Common Stock to the extent that same are available; (iii) such "Pink Sheets" for the week ended March 10, 1997 indicate a bid price of $.125 per share but no asked price; (iv) such "Pink Sheets" for the week ended February 27, 1998 indicate a closing bid of $.25 per share but no asked price; (v) such "Pink Sheets" for the week ended February 26, 1999 indicate a bid price of $.25 per share but no asked price; (vi) such "Pink Sheets" for the week ended April 23, 1999 indicate the same price as for the week ended February 26, 1999; (vii) in April, 1996, the Company acquired in the open market 1,000 shares of Common Stock for its Treasury at a cost of approximately $.16 per share; (viii) in September, 1997, the Company acquired in the open market 15,303 shares of its Common Stock for its Treasury at a cost of approximately $.25 per share; and (ix) in December, 1997, the Company acquired in the open market 2,300 shares of its Common Stock for its Treasury at a cost of approximately $.25 per share. Generally speaking, the "Pink Sheets" reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and, unless otherwise specified, do not represent actual transactions.
(b) Holders. The number of holders of record of the Common Stock of the Company as of June 30, 1998, was approximately 216.
(c) Dividends. No dividends on the Common Stock have been paid since the organization of the Company.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The following selected financial information was abstracted from the financial statements of the Company appearing elsewhere herein and reference should be made to such statements for more details: (All figures are in dollars and are rounded)
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations -- Prior to fiscal 1987, the Company was engaged in the camera and photography business. On February 28, 1986, the Company sold its operating business to an affiliated company and since that date the Company's principal activity has been the making of investments in other companies.
At February 28, 1999, the Company had total assets of $1,795,000, compared to $2,730,000 as at February 28, 1998 and $3,318,000 as at February 28, 1997. Included in total assets at such dates were investments of $1,414,000 (1999), $1,880,000 (1998) and $2,737,000 (1997). Shareholders' equity at such dates was $139,000 (1999), $953,000 (1998) and $1,475,000 (1997). Gain (loss) on investments for such periods amounted to ($578,000) (1999), ($270,000) (1998) and $819,000 (1997). Included in such gains (losses) were no realized gain on investments and ($578,000) of change in unrealized gain (loss) on investments for 1999; $969,000 of realized gain on investments and ($1,239,000) of change in unrealized gain (loss) on investments for 1998; and $46,000 of realized gain on investments and $773,000 of change in unrealized gain (loss) on investments for 1997. Operating expenses, including interest charges, amounted to $328,000 for 1999; $309,000 for 1998 and $264,000 for 1997. Included in operating expenses were interest charges of $19,000 for 1999, $28,000 for 1998 and $35,000 for 1997. Included in expenses at February 28, 1998 is $51,000 of promissory note and accrued interest written off as uncollectible (see Note C of Notes to Financial Statements). Income (loss) from operations, after provision for taxes, was ($814,000) for 1999; ($518,000) for 1998 and $647,000 for 1997. Net earnings (loss) per share were ($0.35) for 1999; ($0.22) for 1998 and $0.27 for 1997. The weighted average number of shares of Common Stock outstanding at such dates was 2,347,257 for 1999, 2,358,014 for 1998 and 2,364,964 for 1997.
Liquidity, Capital Resources and Other Matters Affecting Financial Condition
The Company's cash position as at February 28, 1999 (i.e., $233,000) is offsetable by approximately $1,603,000 owing to members of the Globus family as follows: (i) the amount of loans payable at such date (including accrued interest) to Mr. Stephen E. Globus (i.e., approximately $221,000); (ii) the amount of loans payable at such date (including accrued interest) to Ms. Jane Globus, the mother of Stephen and Richard Globus (i.e., approximately $353,000); and (iii) the amount of accrued salary owing at such date to Stephen and Richard Globus, aggregating approximately $1,029,000. During the past fiscal year Mr. Stephen Globus' loan account was reduced by payments to him of $99,000 and Mr. Richard Globus' loan account was reduced to zero by payments to him of $10,000, plus $40,000 of accrued interest. Mr. Richard Globus also received $26,000 of accrued salary.
The near term liquidity of the Company, as well as its near term capital resources position, are presently principally dependent upon the continued willingness, as to which there can be no assurance whatsoever, of the members of the Globus family who have made loans to the Company not to demand full or substantially full repayment of such loans and the continued willingness, as to which there can be no assurance whatsoever, of the members of the Globus family who have made loans to the Company to continue to make loans to the Company if necessary. See also Note A (1) of Notes to Financial Statements elsewhere herein.
In connection with loans payable by the Company, including accrued interest, to Messrs. Stephen E. and Richard D. Globus, such indebtedness aggregated: approximately $528,000 at February 28, 1997; approximately $364,000 at February 28, 1998 and approximately $221,000 at February 28, 1999. As at April 30, 1999, such indebtedness aggregated approximately $220,000, which amount was owed to Stephen E. Globus. As at April 30, 1999 the indebtedness owing by the Company to Ms. Jane Globus aggregated approximately $355,000. As at April 30, 1999, unpaid salaries owing to Messrs. Stephen E. and Richard D. Globus aggregated approximately $1,045,000; so that as at such date the total of monies owed to Messrs. Stephen E. Globus, Richard D. Globus and Ms. Jane Globus aggregated approximately $1,620,000. In May 1999, Messrs. Stephen E. and Richard D. Globus loaned the Company an additional $150,000 for the purpose of purchasing an additional equity investment in Kimeragen.
There are in fact presently no known events that can be considered reasonably certain to occur which would materially change favorably either the short term or long term liquidity (i.e., ability of the Company to generate adequate amounts of cash to meet its needs for cash) or capital resources position (i.e., source of funds) of the Company from that in which it presently finds itself, and absent continuation of the presently existing loans without call for full or substantially full repayment, or additional loans from the Globus family, the present liquidity and capital resources position of the Company necessarily adversely affects the financial condition of the Company and its ability to make new investments. (In such connection it must be noted that: the profitability of a BDC, like the Company, is largely dependent upon its ability to make investments and upon increases in the value of its investments; and a BDC is also subject to a number of risks which are not generally present in an operating company, and which are discussed generally in Item 1 of this Report to which Item reference should be made.)
The nature and extent of the Company's investments as at February 28, 1999 are more fully discussed in Item 1 of this Report and in Note B of Notes to Financial Statements elsewhere herein and reference should be made to such Item and such Note.
The Year 2000 Problem
The fact that most existing and unmodified computer systems may not be able to distinguish the year 2000 from the year 1900 has created what is generally known as the "Year 2000 Problem" (hereinafter "Y2K"). The full extent of the Y2K problem is not yet known, and it is generally agreed that if not timely corrected, it could adversely affect many businesses.
While the Company does not believe that its own internal systems will be materially affected by the Y2K problem, there can be no assurance that: (a) the computer systems and applications of the Company's various investees will be converted timely, or, (b) that a failure to so correct by one or more material investees would not have a material adverse effect on the Company's financial condition.
The Company is making what it believes, under the circumstances, to be diligent inquiry of its investees in an attempt to ascertain: (i) the opinion of each investee as to whether any of its business or results of operations or financial condition, is or will be, or could be, affected by a Y2K problem; and (ii) the extent, if any, of related Y2K matters.
As of the date hereof the Company has received responses from all of its investees which responses answer inquiry "(i)" above in the negative. Necessarily, the Company cannot make any representation as to the accuracy of any of the responses it receives. Furthermore, such responses should not be construed to indicate that any investee is in fact immune to business problems and market conditions related to Y2K matters that may be faced by entities, if any, that may do business with any particular investee.
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 appears at pages through (inclusive) of this Report, which pages follow Item 14 of this Report. The following is an Index to the referred to Financial Statements and Supplementary Data:
Report of Independent Auditors
((Richard A. Eisner & Company, LLP)
Balance Sheets as at February 28, 1999 and February 28, 1998 Statements of Operations For the Three Years Ended February 28, 1999 Statement of Changes in Shareholders' Equity For the Three Years Ended February 28, 1999 Statement of Cash Flows For the Three Years Ended February 28, 1999 Notes to Financial Statements
All schedules supporting financial statements are omitted because they are not applicable or the required information is included in the financial statements or notes thereto.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
EISNER Richard A. Eisner & Company, LLP Accountants and Consultants
575 Madison Avenue New York, NY 10022-2597 Tel 212.355.1700 Fax 212.355.2414 www.rae.com
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders Globus Growth Group, Inc. New York, New York
We have audited the accompanying balance sheets of Globus Growth Group, Inc. as of February 28, 1999 and 1998, and the related statements of operations, changes in shareholders' equity and cash flows for each of the years in the three-year period ended February 28, 1999. 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 generally accepted auditing standards. 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 enumerated above present fairly, in all material respects, the financial position of Globus Growth Group, Inc. at February 28, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended February 28, 1999 in conformity with generally accepted accounting principles.
As explained in Note B, the financial statements include securities valued at $1,255,000 at February 28, 1999 (70% of assets) and $1,761,000 at February 28, 1998 (65% of assets), whose values have been estimated by the Board of Directors in the absence of readily ascertainable market values. We have reviewed the procedures used by the Board of Directors in arriving at its estimate of value of such securities and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.
/s/ Richard A. Eisner & Company, LLP
New York, New York April 22, 1999
GLOBUS GROWTH GROUP, INC.
Balance Sheets (Note A)
See notes to financial statements
GLOBUS GROWTH GROUP, INC.
Statements of Operations (Note A)
GLOBUS GROWTH GROUP, INC.
Statements of Changes in Shareholders' Equity
See notes to financial statements
GLOBUS GROWTH GROUP, INC.
Statements of Cash Flows
See notes to financial statements
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 1999 and 1998
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
[1] The Company:
The Company's principal activity is investing in other companies. Effective May 27, 1988, the Company elected to be treated as a Business Development Company.
The Company's principal assets are its investments which, unless sold, do not generate any cash flow. As a result, the Company has been dependent upon advances from its officer/shareholders in order to meet its obligations. The Company's ability to continue to meet its obligations is dependent upon a ready market for its investments or upon the continued financial support of the officer/shareholders including their willingness to refrain from demanding amounts due them.
[2] Security valuation:
Investments are carried at fair value, which, for readily marketable securities, represents the last reported sales price or bid price on the valuation date. Investments in restricted securities and securities which are not readily marketable are carried at fair value as determined in good faith by the Board of Directors, in the exercise of its judgment, after taking into consideration various indications of value available to the Board.
[3] Use of estimates:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
[4] Fair value of financial instruments:
Financial instruments include cash, investments, loans payable, trade payables and accrued expenses, the carrying value of which approximates fair market value.
[5] Reclassification:
Certain amounts for the year ended February 28, 1998 have been reclassified to conform to the current year's presentation.
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 1999 and 1998
NOTE B - INVESTMENTS
Restricted and not readily marketable securities were valued at a total fair value of $1,255,000 and $1,761,000 at February 28, 1999 and 1998, respectively, as determined by the Board of Directors. Such investments consisted of all securities except Interface Systems Inc. and Repligen Corp. for which values are based on quoted market values.
The Company invests in biotechnology, computer technology and beverage companies. At February 28, 1999 - 84.37%, 0.14% and 15.49%, respectively. At February 28, 1998 - 82.5%, 0.2% and 17.3%, respectively. All investments are in U.S. companies and are non income producing.
(1) Represents in excess of 5% of outstanding voting securities of investee.
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 1999 and 1998
NOTE B - INVESTMENTS (CONTINUED)
The unrealized appreciation and depreciation is as follows:
February 28, ----------------------- 1999 1998 ---------- ----------
Unrealized appreciation $ 511,000 Unrealized depreciation $ (145,000) (78,000) ---------- ---------- Net (depreciation) appreciation $ (145,000) $ 433,000 ========== ==========
NOTE C - PROMISSORY NOTE RECEIVABLE
During the year, the Company loaned $105,000 to Catamount Brewing Co. The loans are payable on demand and bear interest at 12% on $75,000 of principal and 8.5% on the balance.
NOTE D - LOANS PAYABLE
Loans from officer/shareholders and a relative of theirs are due on demand and bear annual interest at 5%.
The estimated fair value of these financial instruments is not readily determinable due to the nature of the relationship of the parties. The amounts presented are not necessarily indicative of the amounts that could be realized in a current market exchange.
NOTE E - INCOME TAXES
The Company accounts for income taxes under the provision of FASB Statement No. 109, "Accounting for Income Taxes," which requires the Company to recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, FASB Statement No. 109 requires the recognition of future tax benefits, such as net operating loss ("NOL") carryforwards, to the extent that realization of such benefits is more likely than not.
At February 28, 1999, the Company had available NOL carryforwards for regular federal income tax purposes of approximately $220,000, which expire at various dates through 2012.
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 1999 and 1998
NOTE E - INCOME TAXES (CONTINUED)
The components of the deferred income tax assets and liabilities were as follows as at:
The amounts of income taxes provided varied from the amounts which would be "expected" to be provided at the statutory federal income tax rates in effect for the following reasons:
NOTE F - SHAREHOLDERS' EQUITY
The Board of Directors has authorized the future sale of up to 300,000 shares of the Company's authorized, but unissued, common stock at a price of $.50 per share to individuals to be determined at the discretion of the Board. No such shares have been issued.
NOTE G - PER SHARE DATA
Per share data is based on the weighted average number of shares of common stock outstanding.
NOTE H - RELATED PARTY TRANSACTIONS
The Company paid approximately $21,000, $14,000 and $14,000 for rent to a related party for each of the years ended February 28, 1999, 1998 and 1997, respectively.
The Company charged two officer/shareholders $66,000 as reimbursement for general and administrative costs and for their use of the Company's office and personnel during each of the years ended February 28, 1998 and 1997. There was no charge for the year ended February 28, 1999.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Stephen E. Globus Chairman of the Board Richard D. Globus President and Director Stanley Wunderlich Director Ronald J. Frank Director Joseph Mancuso Director Lisa Vislocky Vice President
Note: The office of Secretary of the Company does not have any policy-making function, and accordingly, Mr. Harry Balterman, who is the Secretary, is not an Executive Officer of the Company.
STEPHEN E. GLOBUS, age 52, has been an officer and director of the Company since its organization in 1973, and is currently its Chairman of the Board and Chief Executive Officer. He is a director of Kimeragen, Inc. and Thermaphore Sciences, Inc. He is also a director of Nematron Corporation, a publicly held company, and Plasmaco, Inc., a wholly-owned subsidiary of Matsushita (Panasonic).
RICHARD D. GLOBUS, age 52, as well as his brother referred to above, has also been an officer and director of the Company since its organization in 1973, and is currently its President and Chief Operating Officer. He is also a director of Globus Studios, Inc. (formerly Idex, Inc.).
STANLEY WUNDERLICH, age 53, holds a BS degree from Brooklyn College and an LL.B. degree from LaSalle Law School. He is presently, and has been since the beginning of 1995, engaged in investment banking and financial consulting activities for various organizations. From 1991 until 1994 he was the Managing Director of the Institutional Services Department of Robert Todd Financial Corp. (an investment banking firm). From 1977 until 1987, he was Managing Director of Krieger, Wunderlich, Fialkov, Scheinman & Co. (a broker-dealer); and from 1972 until 1977 he was a Vice President of Blyth, Eastman, Dillon Union Securities (a broker-dealer). He is a former member of the Arbitration Committee of the American Stock Exchange and a former Vice President of the Long Island Forum of Technology. Mr. Wunderlich is a director of C.P.I. Aerostructures Corp. and has been a director of the Company since his election as such on December 3, 1992.
RONALD J. FRANK, age 48, is presently, and has been since June 1990, a private investor. From January 1989 to June 1990, he was associated with Profit Concepts, Ltd., which was a general partner of an investment partnership and from March 1987 to January 1989 he was a private financial consultant. Mr. Frank has been a director of the Company since his election as such on December 3, 1992.
JOSEPH MANCUSO, age 59, holds an Electrical Engineering degree from Worcester Polytechnic Institute in Massachusetts, an MBA from the Harvard Business School and a Ph.D. in Educational Administration from Boston University. He has been Chairman of the Management Department at Worcester Polytechnic Institute and is presently the head of the Center for Entrepreneurial Management, Inc. and of the Chief Executive Officers Club in New York City. Mr. Mancuso is the author of a number of books which have been published by Simon & Schuster. Mr. Mancuso is a director of Interscience Corp. and has been a director of the Company since his election as such on December 3, 1992.
LISA VISLOCKY, age 41, is a Certified Public Accountant and has been employed by the Company, on a full-time basis, since March 1986. From September 1983 until February 1986, she was employed by Weiner and Company, Certified Public Accountants and from 1979 to May 1983 she was an internal auditor for International Telephone & Telegraph Co., Inc.
Messrs. Wunderlich, Frank and Mancuso are considered to be the members of the Board of Directors of the Company who are the "independent directors" as required by the Investment Company Act of 1940. (See the caption "Governmental Regulation" in Item 1 above.)
Directors are elected at the annual meeting of stockholders and hold office until the following annual meeting. The most recent annual meeting of stockholders was held on December 3, 1992. The terms of all officers expire at the annual meeting of directors following the annual stockholders meeting. Subject to their contract rights to compensation, if any, officers may be removed at any time by the Board of Directors.
(c) Option/SAR Grants Table -- Not Applicable. (d) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table - -- Not Applicable. (e) Long-Term Incentive Plan ("LTIP") Awards Table -- Not Applicable. (f) Defined Benefit or Actuarial Plan Disclosure -- Not Applicable. (g) Compensation of Directors -- There are presently no arrangements pursuant to which Directors of the Company are compensated for any services provided as a director, including any amounts payable for committee participation or special assignments. (h) Employment Contracts and Termination of Employment and Change-In-Control Arrangements -- Not Applicable. (i) Report on Repricing of Options/SAR's -- Not Applicable. (j) Compensation Committee Interlocks and Insider Participation -- The Board of Directors of the Company did not have any compensation committee or board committee performing equivalent functions during the last completed fiscal year. Messrs. Stephen E. and Richard D. Globus participated in all deliberations and decisions of the Board of Directors of the Company during its last completed fiscal year. (k) Board Compensation Committee Report on Executive Compensation -- Not Applicable. (l) Performance Graph -- Not Applicable.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 15, 1999, regarding each person known by the Company to own beneficially more than 5% of the Company's Common Stock, each director of the Company who owns shares of Common Stock, and all directors and officers as a group.
Approximate Amount and Nature of Percent Name Beneficial Ownership (1) of Class (2) -------- ---------------------------- -------------
Stephen E. Globus * 514,750 (3) 22 Richard D. Globus * 513,750 22 Ronald P. Globus * 500,000 22 Ronald J. Frank 1,000 (4) Stanley Wunderlich none -- Joseph Mancuso none --
All Directors and Officers as a Group (7 persons) 1,048,200 44 (2)
Jane Globus 201 Crandon Blvd. Key Biscayne, FL 33149 312,292 (5) 13
* 44 West 24th Street, New York, NY 10010
(1) Unless otherwise indicated, all shares are directly owned, and the sole investment and voting power is held, by the persons named. Information in table has been supplied by the persons concerned or has been obtained from Company records. (2) Approximate percent of class has been computed on the basis of the number of shares of Common Stock outstanding as of March 15, 1999, (2,347,257). (3) Includes 1,000 shares held for benefit of minor son. (4) Less than 1%. (5) 16,500 shares are held of record and beneficially and the remainder are beneficially owned. Mrs. Globus is the mother of the three Globus brothers who disclaim any beneficial ownership of the shares owned by her.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(i) From time to time Messrs. Stephen E. and Richard D. Globus have made loans to the Company. For details as to amounts owed to them by the Company, reference should be made to the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" elsewhere herein. Commencing March 1, 1988, loans owing to Mr. Stephen E. Globus (the principal amount of which was approximately $215,000 at such date) accrued interest at the rate of 5% per annum (which is the same rate of interest paid on loans owing to Mr. Richard D. Globus). The Company is also indebted to Messrs. Stephen E. and Richard D. Globus for unpaid salaries owed to them and is indebted to Ms. Jane Globus for monies loaned to it by her. For details as to amounts owed reference should be made to the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" elsewhere herein.
(ii) During the previous fiscal year Messrs. Stephen E. and Richard D. Globus, as applicable, agreed to offset a total of $66,000 of monies owed to one or both of them by the Company in return for the personal use by one or both of such two persons of facilities, personnel and other services of the Company. This past year there was no offset of expenses.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)(2) Financial Statements and Financial Statement Schedules
A list of the Financial Statements and Financial Statement Schedules filed as a part of this Report is set forth in Item 8 of this Report, which list is incorporated herein by reference.
(a)(3) Exhibits
3(a) Articles of Incorporation and Amendments Thereto (Incorporated by reference to Exhibits 2(a), 2(b) and 2(c) filed with Registrant's Form S-18 Registration Statement, File # 2-72220 NY and to Exhibit 3-1 filed with Registrant's Form 8-K for event of August 7, 1984, File #0-9987.
3(b) By-Laws (Incorporated by reference to Exhibit 2(d) filed with Registrant's Form S- 18 Registration Statement, File # 2-72220 NY.
10 Sale of Assets Agreement between Registrant and Idex, Inc. dated December 11, 1985 (Incorporated by reference to Exhibit 1 to Registrant's Form 8-K for event of February 27, 1986).
11 Statement re computation of per share earnings. (Included in Note F of Notes To Financial Statements filed as part of this Report).
27 Financial Data Schedule
(b) Reports on Form 8-K
During the last quarter of the period covered by this Report, no reports on Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GLOBUS GROWTH GROUP, INC.
By /s/ Stephen E. Globus ------------------------------ Stephen E. Globus Chairman of the Board
Dated: New York, NY June 9, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dated indicated:
Signature Title Date - ---------------------- --------------------------------- ------------
/s/Stephen E. Globus Chairman of the Board, - ---------------------- (Principal Executive Officer) June 9, 1999 Stephen E. Globus
/s/Richard D. Globus President, Director - ---------------------- Richard D. Globus June 9, 1999
/s/Lisa Vislocky Vice President - ---------------------- Lisa Vislocky June 9, 1999
/s/Stanley Wunderlich Director - ---------------------- Stanley Wunderlich June 9, 1999
/s/Ronald J. Frank Director - ---------------------- Ronald J. Frank June 9, 1999
/s/Joseph Mancuso Director - ---------------------- Joseph Mancuso June 9, 1999
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