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 27, 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"). The decision to become a BDC was made primarily to better reflect the Company's anticipated future business and development relationships. A BDC is an investment company designed to assist eligible portfolio companies with capital formation. 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 is made to "Risk Factors Involved In Investing In A BDC" herein. Special attention should be paid to Note A (1) of the Notes to Financial Statements contained herein with respect to a discussion of conditions which raise substantial doubt about the Company's ability to continue as a going concern.
Investment Portfolio
As at February 28, 2003, 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) Genitope Corporation ("Genitope") - 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. Genitope's lead product, GTOP-99, is currently in a pivotal Phase 3 Trial and has completed several Phase 2 trials. Genitope has a website at www.Genitope.com.
(ii) ExSar, Inc. (formerly Carta Proteomics, Inc.) ("ExSar") - a privately held drug discovery company dedicated to improving and accelerating the development and optimization of small molecule drugs that target cell surface receptor proteins. ExSAR states "ExSAR is a drug discovery company focused on the rational design of optimized nuclear hormone receptor (NHR) modulators with reduced receptor-mediated toxicity. ExSAR's proprietary discovery platform enables intrinsic drug activity profiling at the molecular level by illuminating the activation mechanism of drug compounds on their respective targets. ExSAR's advanced hydrogen/deuterium-exchange technology empirically visualizes the molecular mechanism of drug-target interactions and thereby affords rapid structure/activity relationships." ExSAR has a website at www.ExSAR.com.
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 herein and to the following subcaption.
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 herein.
The following table, and the footnotes thereto, set forth certain specified information concerning the investments of the Company as at February 28, 2003, 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, 2002 are also set forth. Investments listed in the table include only those, the value of which, as at February 28, 2003, 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 2/28/03 2/28/02 Employed ------- ------- --------
Genitope Corp. $1,130,000(1) $1,508,000(1) Fair Value ExSar, Inc. $ 188,000(2) $ 188,000(2) Fair Value ---------- ---------- $1,318,000 $1,696,000 ---------- ----------
Notes to Table:
(1) Represents equity investment - 420,858 shares of Series A Preferred and 332,992 shares Series B Preferred owned at each date.
(2) Represents equity investment - 33,333 shares of Common Stock, 100,000 shares of Series A Preferred Stock and 10,000 shares of Series B Preferred Stock owned at each date.
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.
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.
For further information regarding BDC governance, please consult with www.SEC.gov.
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. As a BDC, such risks are 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 Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" 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. Prior to February 11, 1991, the Company's Common Stock was traded in the over-the-counter market, but it is no longer traded in that or any other "established public trading market" as that term is defined in Securities & Exchange Commission regulations. On May 7, 2001 the National Quotation Bureau advised the Company that the last bid price for the Common Stock of the Company shown on its records was for $.25 on September 22, 1999. Such bid price, however, does not represent an actual transaction. A data and statistics search made by the Company on the Website of the National Quotation Bureau on the Internet on May 5, 2001 showed "no results" for the Company and "'gpix' security is not recognized" for a "symbol lookup" quote search.
(b) Holders. The number of holders of record of the Common Stock of the Company as of February 28, 2003, was approximately 215.
(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 data set forth below is derived from our audited financial statements. This selected financial data should be read in conjunction with the section under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements included in this annual report on Form 10-K:
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies - Note 1 to our financial statements included in this report includes a summary of the significant accounting policies and methods used in the preparation of our financial statements. The following is a brief discussion of the more significant accounting policies and methods used by us.
General. 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, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.
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 including the financial condition and operating results of the issuer, the nature of the investment and prices paid in private sales of such securities and capital market conditions. These values may differ significantly from the values that ultimately would be realized.
Valuation of Deferred Tax Assets. We account for taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of tax benefits or expense on the temporary differences between the tax basis and book basis of its assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those timing differences are expected to be recovered or settled. Deferred tax amounts as of February 28, 2003, which consist principally of the tax benefit of net operating loss carryforwards, a capital loss carryforward and accrued expenses, amounts to $1,384,000. After consideration of all the evidence, both positive and negative, especially the fact that we have sustained operating losses during 2003, management has determined that a valuation allowance at February 28, 2003 was necessary to fully offset the deferred tax assets based on the likelihood of future realization.
Results of Operations --- The Company's principal activity is the making of investments in other companies.
At February 28, 2003, the Company had total assets of $1,333,000, compared to $1,761,000 as at February 28, 2002 and $1,419,000 as at February 28, 2001. Included in total assets at such dates were investments of $1,318,000 (2003), $1,748,000 (2002) and $1,387,000 (2001). Shareholders' equity (deficiency) at such dates was ($1,163,000) (2003), $(414,000) (2002) and $(518,000) (2001). Gain (loss) on investments for such periods amounted to $(428,000) (2003), $436,000 (2002) and $(416,000) (2001). Included in such gains (losses) were $(776,000) of realized loss on investments and $348,000 of change in unrealized gain on investments for 2003; $18,000 of realized gain on investments and $418,000 of change in unrealized gain on investments for 2002; and $56,000 of realized gain on investments and $(472,000) of change in unrealized (loss) on investments for 2001. The Company's net loss on investments of ($428,000) in 2003 is the result of 1) the write-off of the Company's investment in ValiGen ($50,000) due to the closing of ValiGen's American
facilities and uncertain future, and 2) the write-down of the Company's investment in Genitope Corporation ($378,000), based on, among other things, a recently completed private placement. The Company sold the remaining 468 shares of Repligen Corporation in November 2002 and the remaining 204 shares of Tumbleweed Communications Inc. in October 2002 for aggregate sales proceeds of approximately $2,000. The sales proceeds were used to pay operating expenses. Operating expenses, including interest charges, amounted to $362,000 for 2003; $373,000 for 2002 and $320,000 for 2001. Included in operating expenses were interest charges of $29,000 for 2003, $22,000 for 2002 and $15,000 for 2001. Income (loss) from operations, after provision (benefit) for taxes, was $(749,000) for 2003, $104,000 for 2002 and $(703,000) for 2001. Net earnings (loss) per share were $(0.32) for 2003; $0.04 for 2002 and $(0.30) for 2001. The weighted average number of shares of Common Stock outstanding was 2,345,335 for 2003, and 2,347,257 for 2002 and 2001.
Liquidity, Capital Resources and Other Matters Affecting Financial Condition
The Company's cash position as at February 28, 2003 is $0. Amounts owing to members of the Globus family is approximately $2,402,000 as follows: (i) the amount of loans payable at such date (including accrued interest) to Mr. Stephen E. Globus (i.e., approximately $217,000); (ii) the amount of loans payable at such date (including accrued interest) to Mr. Richard D. Globus (i.e., approximately $1,000) (iii) the amount of loans payable at such date (including accrued interest) to SRG Capital Partnership, which Messrs. Stephen E. and Richard D. Globus are the two sole partners, (i.e., approximately $238,000); (iv) 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 $520,000); and (v) the amount of accrued salary owing at such date to Stephen and Richard Globus, aggregating approximately $1,427,000. SRG Capital Partnership has periodically loaned the Company various amounts during the year: $20,000 on March 14, 2002; $5,000 on April 18, 2002; $20,000 on May 22, 2002. The principal loan balance at February 28, 2003 is $200,500, and accrues interest at 7.75%. Mrs. Jane Globus has also periodically loaned the Company various amounts during the year: $9,500 on May 1, 2002; $15,000 on June 18, 2002; $5,000 on June 20, 2002; $5,000 on July 18, 2002; $6,500 on July 31, 2002; $3,500 on August 2, 2002; $5,000 on August 21, 2002; $8,000 on August 23, 2002; $7,000 on August 26, 2002; $5,500 on September 5, 2002; $3,000 on September 17, 2002; $5,000 on September 27, 2002; $4,000 on October 2, 2002; $7,000 on October 17, 2002; $3,000 on October 23, 2002; $8,000 on November 18, 2002; $7,000 on November 26, 2002; $5,000 on November 29, 2002; $5,000 on December 18, 2002; $5,000 on December 30, 2002; $6,000 on January 21, 2003; $5,000 on January 29, 2003; $7,500 on February 13, 2003; $8,500 on February 18, 2003; $8,000 on February 26, 2003. The principal loan balance at February 28, 2003 is approximately $355,000, and accrues interest at 5.0%.
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) and Note C 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 $326,000 at February 28, 2001; approximately $405,000 at February 28, 2002 and approximately $455,000 at February 28, 2003. As at April 30, 2003, such indebtedness aggregated approximately $457,000. As at April 30, 2003 the indebtedness owing by the Company to Ms. Jane Globus aggregated approximately $556,000. As at April 30, 2003, unpaid salaries owing to Messrs. Stephen E. and Richard D. Globus aggregated approximately $1,443,000; 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 $2,456,000.
There are in fact presently no known events that can be considered certain to occur which would materially change favorably or unfavorably 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, 2003 are more fully discussed in Item 1 of this Report and in Notes A and B of Notes to Financial Statements elsewhere herein and reference should be made to such Item and such Note.
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:
Independent Auditors' Report Balance Sheets as at February 28, 2003 and February 28, 2002 Statements of Operations For the Three Years Ended February 28, 2003 Statements of Changes in Shareholders' Equity (Capital Deficit) For the Three Years Ended February 28, 2003 Statements of Cash Flows For the Three Years Ended February 28, 2003 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.
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. (the "Company") as of February 28, 2003 and 2002, and the related statements of operations, changes in shareholders' equity (capital deficit) and cash flows for each of the years in the three-year period ended February 28, 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 auditing standards generally accepted in the United States of America. 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. as of February 28, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the three-year period ended February 28, 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 A[1] to the financial statements, the Company has a capital deficit and is dependent upon the sale of its investments in privately held securities to generate funds to meet its obligations together with continued financial support from its officers/shareholders, neither of which events are assured. These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management's plans in regard to these matters are also described in Note A[1]. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As explained in Note B, the financial statements include securities valued at $1,318,000 at February 28, 2003 (99% of assets) and at $1,746,000 at February 28, 2002 (99% of assets), whose values have been estimated by the Board of Directors. Those estimated values may differ significantly from the values that ultimately would be realized.
Eisner LLP
New York, New York May 6, 2003
GLOBUS GROWTH GROUP, INC.
Balance Sheets (Note A)
See notes to financial statements
GLOBUS GROWTH GROUP, INC.
Statements of Operations (Note A)
See notes to financial statements
GLOBUS GROWTH GROUP, INC.
Statements of Changes in Shareholders' Equity (Capital Deficit)
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, 2003 and 2002
NOTE A - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
[1] The Company and basis of presentation:
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 accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company's principal assets are its investments, which unless sold, do not generate any cash flow. At February 28, 2003, the Company has a capital deficit of $1,163,000. 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. This raises substantial doubt about the Company's ability to continue as a going concern. Management intends to closely monitor its investments for events and circumstances which lead to a sale of such positions. Ultimately, if a liquidity event does not occur, management will consider other alternatives including filing for bankruptcy or entering into a transaction to take the Company private. The financial statements do not include any adjustment relating to recoverability of recorded assets or the amount of liabilities that might be necessary as a result of this uncertainty.
[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 including the financial condition and operating results of the issuer, the nature of the investment and prices paid in private sales of such securities and capital market conditions. These values may differ significantly from the values that ultimately would be realized.
[3] 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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 2003 and 2002
NOTE B - INVESTMENTS
Restricted and not readily marketable securities were valued at a total fair value of $1,318,000 and $1,746,000 at February 28, 2003 and 2002, respectively, as determined by the Board of Directors. At February 28, 2002, the values of Tumbleweed Communications Corp. and Repligen Corporation are based on quoted market values (both at $1,000).
The Company invests in biotechnology, and computer technology, at February 28, 2003 - 100% in biotechnology, at February 28, 2002 - 99.9%, and 0.1%, respectively. All investments are in U.S. companies and are non-income producing.
* In fiscal 2003, the Company wrote off its investment in Valigen, N.V. and Catamount Brewing Co. and recognized a realized loss of approximately $444,000 and $326,000, respectively.
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 2003 and 2002
NOTE B - INVESTMENTS (CONTINUED)
The unrealized appreciation and depreciation at the end of the Company's fiscal year end is as follows:
February 28, ---------------------- 2003 2002 -------- --------- Unrealized appreciation $500,000 $ 878,000 Unrealized depreciation 0 (726,000) -------- ---------
Net appreciation $500,000 $ 152,000 ======== =========
NOTE C - LOANS PAYABLE
Loans from officer/shareholders and a relative of theirs are due on demand and bear annual interest at 5% - 7.75% (see Note A[1]).
The estimated fair value of these financial instruments approximates their carrying amount. However, due to the nature of the relationship of the parties, the amounts are not necessarily indicative of the amounts that could be realized in a current market exchange.
NOTE D - INCOME TAXES
The Company accounts for income taxes under the provision of Financial Accounting Standards Board ("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, 2003, the Company has available NOL carryforwards for regular federal income tax purposes of approximately $801,000, which expire at various dates through 2023. In addition, the Company has available a capital loss carryforward of approximately $893,000 which expires in 2008.
The components of the deferred income tax assets and liabilities were as follows as at:
February 28, ---------------------------- 2003 2002 ----------- ----------- Deferred tax assets (liabilities): Net operating loss carryforwards $ 368,000 $ 332,000 Capital loss carryforward 411,000 0 Accrued expenses not deductible for income tax purposes 835,000 776,000 Unrealized (gain) on investments (230,000) (70,000) ----------- -----------
1,384,000 1,038,000 Less valuation allowance 1,384,000 1,038,000 ----------- -----------
$ 0 $ 0 =========== ===========
GLOBUS GROWTH GROUP, INC.
Notes to Financial Statements February 28, 2003 and 2002
NOTE D - INCOME TAXES (CONTINUED)
The amounts of income taxes (benefit) provided varied from the amounts, which would be "expected" provided at the statutory federal income tax rates in effect for the following reasons:
NOTE E - 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.
During 2003, the Company repurchased 11,500 shares of its common stock at $.01 per share.
NOTE F - PER SHARE DATA
Per share data is based on the weighted average number of shares of common stock outstanding.
NOTE G - RELATED PARTY TRANSACTIONS
The Company incurred approximately $21,000 for rent to a company affiliated with a shareholder for each of the years ended February 28, 2003, 2002 and 2001.
NOTE H - SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
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
STEPHEN E. GLOBUS, age 56, 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 Nematron Corporation, a publicly held company, and Plasmaco, Inc., a wholly-owned subsidiary of Matsushita (Panasonic).
RICHARD D. GLOBUS, age 56, 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 57, is currently managing director of KSCA, a global Public Relations company. Stanley Wunderlich is the former founding partner of Consulting For Strategic Growth, Ltd., an investor relations firm and The Renaissance Group, Ltd., and Krieger Wunderlich, Fialkov, Scheinman & Company; two investment banking firms. Mr. Wunderlich was in charge of corporate development for clients within the above-mentioned firms. In addition, he was responsible for activities including initial public offerings, private placements of equities and institutional private equity offerings. He holds a law degree from LaSalle Law School. He has been a director of the Company since his election as such on December 3, 1992.
RONALD J. FRANK, age 52, 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 62, 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 TEAM Mucho, Inc. and has been a director of the Company since his election as such on December 3, 1992.
LISA VISLOCKY, age 45, is a Certified Public Accountant and holds an MBA in Federal Taxation from Fairleigh Dickinson University. She 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.
Item 11.
Item 11. EXECUTIVE COMPENSATION
(a) (b) Summary Compensation Table:
(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 fiscal year ended February 28, 2003. Messrs. Stephen E. and Richard D. Globus participated in all deliberations and decisions of the Board of Directors of the Company during that 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 April 30, 2003, 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 21 Ronald J. Frank 1,000 (4) Stanley Wunderlich none -- Joseph Mancuso none -- Jane Globus* 312,292(5) 13
All Directors and Officers as a Group(6 persons) 1,044,500 45(2)
* 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 April 30, 2003, (2,335,757).
(3) Includes 1,000 shares held for benefit of 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
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 Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein. Commencing March 1, 1988, loans owing to Stephen E. Globus (the principal amount of which was approximately $215,000 at such date) with accrued interest at the rate of 5% per annum, and commencing May 14, 1999, loans owing to SRG Capital Partnership (the principal amount of which was approximately $150,000 at such date) accrued interest at the rate of 7.75% per annum. The Company is also indebted to Messrs. Stephen E. and Richard D. Globus for unpaid salaries 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 Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein.
Item 14.
Item 14. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the filing of this annual report, an evaluation of the effectiveness of our disclosure controls and procedures was made under the supervision and with the participation of our management, including our chief executive officer and principal accounting officer. Based on that evaluation, the chief executive officer and principal accounting officer have concluded that our current disclosure controls and procedures, as designed and implemented, were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, there were no significant changes in our internal controls. There were no significant material weaknesses identified in the course of such review and evaluation and therefore no corrective measures were taken by the Company.
PART IV
Item 15.
Item 15. 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
Exhibit A
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).
99 Certification pursuant to Section 906 of Sarbanes-Oxley Act of
(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.
Exhibit A
June 12, 2003
Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549
Re: Globus Growth Group, Inc. File No. 0-9987
Dear Sirs:
We refer to the accompanying periodic report on Form 10-K. To the best of the knowledge of each of the undersigned, this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The information contained in this report fairly presents in all material respects the Registrant's financial condition and results of operations as of the periods stated.
Very truly yours,
/s/Stephen E. Globus Stephen E. Globus Chief Executive Officer
/s/Lisa Vislocky Lisa Vislocky Principal Accounting Officer
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 12, 2003
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, Stephen E. Globus Principal Executive Officer June 12, 2003
/s/ Richard D. Globus - ---------------------- Richard D. Globus President, Director June 12, 2003
/s/ Lisa Vislocky - ---------------------- Lisa Vislocky Vice President June 12, 2003
/s/ Stanley Wunderlich - ---------------------- Stanley Wunderlich Director June 12, 2003
/s/ Ronald J. Frank - ---------------------- Ronald J. Frank Director June 12, 2003
- ---------------------- Joseph Mancuso Director June 12, 2003
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen E. Globus, Chief Executive officer, certify that:
1. I have reviewed this annual report on Form 10-K of Globus Growth Group, Inc.;
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. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 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 quarterly report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
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. The registrant's other certifying officers and 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 our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
June 12, 2003 /s/ Stephen E. Globus ----------------------- Stephen E. Globus Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
I, Lisa Vislocky, Principal Accounting Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Globus Growth Group, Inc.;
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. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 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 quarterly report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
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. The registrant's other certifying officers and 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 our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
June 12, 2003 /s/ Lisa Vislocky ---------------------------- Lisa Vislocky Principal Accounting Officer