UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2009
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number: 814-00708
INFINITY CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 16-1675285
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
80 Broad Street, 5th Floor, New York, New York 10004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(212) 962-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class registered Name of each exchange
on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001
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(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files)
Yes |_| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
|X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
----------------------------- ----------- -------------------------- ----------
Large accelerated filer [___] Accelerated filer [___]
----------------------------- ----------- -------------------------- ----------
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $31,116 as of March 31, 2010.
There were 6,547,391 shares outstanding of the registrant's Common Stock as of
March 31, 2010.
TABLE OF CONTENTS
PART I
ITEM 1 Business 4
ITEM 1 A. Risk Factors 20
ITEM 1 B. Unresolved Staff Comments 31
ITEM 2 Properties 31
ITEM 3 Legal Proceedings 31
ITEM 4 Removed and Reserved 32
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder Matters and 32
Issuer Purchases of Equity Securities
ITEM 6 Selected Financial Data 34
ITEM 7 Management's Discussion and Analysis of Financial Condition and Results of 34
Operations
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 38
ITEM 8 Financial Statements and Supplementary Data 38
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial 39
Disclosure
ITEM 9 A. Controls and Procedures 39
ITEM 9 A(T) Controls and Procedures 39
ITEM 9 B Other Information 40
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 40
ITEM 11 Executive Compensation 44
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related 49
Stockholder Matters
ITEM 13 Certain Relationships and Related Transactions, and Director Independence 51
ITEM 14 Principal Accounting Fees and Services 51
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 52
SIGNATURES
NOTE ABOUT FORWARD-LOOKING STATEMENTS
THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENTS RELATING
TO OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, PLANS, OBJECTIVES, FUTURE
PERFORMANCE AND BUSINESS OPERATIONS. THESE STATEMENTS RELATE TO EXPECTATIONS
CONCERNING MATTERS THAT ARE NOT HISTORICAL FACTS. THESE FORWARD-LOOKING
STATEMENTS REFLECT OUR CURRENT VIEWS AND EXPECTATIONS BASED LARGELY UPON THE
INFORMATION CURRENTLY AVAILABLE TO US AND ARE SUBJECT TO INHERENT RISKS AND
UNCERTAINTIES. ALTHOUGH WE BELIEVE OUR EXPECTATIONS ARE BASED ON REASONABLE
ASSUMPTIONS, THEY ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND THERE ARE A
NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. BY MAKING
THESE FORWARD-LOOKING STATEMENTS, WE DO NOT UNDERTAKE TO UPDATE THEM IN ANY
MANNER EXCEPT AS MAY BE REQUIRED BY OUR DISCLOSURE OBLIGATIONS IN FILINGS WE
MAKE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FEDERAL SECURITIES
LAWS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM OUR FORWARD-LOOKING
STATEMENTS.
PART I
ITEM 1. BUSINESS
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GENERAL
THE FOLLOWING IS A SUMMARY OF SOME OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS DOCUMENT TO
"WE," "US," "OUR," "INFINITY," OR THE "COMPANY" ARE TO INFINITY CAPITAL GROUP,
INC.
INFINITY CAPITAL GROUP, INC.
Infinity Capital Group, Inc. is a non-diversified closed-end management
investment company which has filed a notice of election to be regulated as a
business development company under the 1940 Act. Infinity was incorporated on
July 8, 2003, in Maryland. The Company has its principal office located at 80
Broad Street, 5th Floor, New York, New York 10004, and its telephone number is
(212) 962-4400. The Company maintains a website at WWW.INFINITYBDC.COM, such
website is not incorporated into this document.
During the year ended December 31, 2008, we acquired 6,203,960 shares of NPI08,
Inc. On December 31, 2009, the Company entered into a Share Purchase Agreement
with BlackStar Energy Group, Inc. ("Buyer") whereby the Buyer agreed to purchase
all of the equity NPI08, Inc., a portfolio company held by the Company, for
$125,000 cash and 50,000 common shares of NPI08, Inc.
On June 8, 2009, the Company signed an Investment Term Sheet with Infotech
Global, Inc. with an effectiveness of June 8, 2009 through August 3, 2009. The
Investment Term Sheet has lapsed and the Company has been unable to raise the
required capital. The Investment Term Sheet was cancelled on August 21, 2009.
On September 15, 2009, the holders of Company notes totaling $125,000 foreclosed
on collateral of 200,000 shares of Strategic Environmental owned by the Company
and 250,000 shares of the Company pledged by GHL Group, Ltd. a company
controlled by Gregory Laborde, an Officer and Director of the Company. In their
foreclosure notice the lenders put a value of $20,000 on the shares of Strategic
Environmental and $250 on the Company shares. The Company has reduced the debt
by these values in the financial statements.
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On November 24, 2009, the Company entered into a Custody Agreement with The
Huntington National Bank ("Huntington"). The Custody Agreement appoints
Huntington to act as its custodian and its foreign custody manager for all
investments and cash owned by its clients during the term of the Custody
Agreement.
On September 30, 2009, a Notice for Summary Judgment in Lieu of Complaint was
filed by Jonathan Schwartz against Infinity Capital Group, Inc. in the Civil
Court of the City of New York, County of New York, Index No. 0046377.
On December 9, 2009, the Company and Jonathan Schwartz entered into a
Stipulation of Settlement ("Settlement") for $18,000 regarding the Complaint
filed by Jonathan Schwartz against the Company in the Civil Court of the City of
New York, County of New York, Index No. 0046377. The Settlement terms were as
follows:
* $1,500 paid upon signing of the Stipulation of Settlement;
* $6,000 paid within 10 days; and
* Remaining balance of $10,500 due within 60 days from December 9, 2009.
As of this filing, the Company has complied with all terms of the Settlement.
On March 25, 2010, the Company received a demand letter for full payment of
principal and interest on a $15,000 promissory note, dated October 10, 2005 (the
Note.) The Note accrues interest at 7% per annum and had an original due date of
November 10, 2005. The holder of the Note, Mr. Wulf Rehder, an affiliate of the
Company, granted the Company extensions of the Note until June 20, 2006 and then
until July 30, 2006. Mr. Rehder has given the Company notice of his intent to
pursue legal action unless payment in full is received by April 16, 2010. As of
March 31, 2010, the Company owes Mr. Rehder $15,000 in principal and accrued
interest of $4,695 for a total of $19,695. The Company has entered into
discussions with Mr. Rehder to resolve the default. The Company can make no
assurances that it will be able to come to a satisfactory resolution to the
situation.
On March 17, 2010, the Company filed a preliminary Proxy Information Statement
on Form 14(c) with the SEC to be finalized after review by the SEC and mailed to
our shareholders. The Proxy Information on Form 14(c) intends to give notice to
our shareholders of the Company's intention to elect out of Business Development
Company status and that we intend to effect a reverse split our common stock in
a ratio up to a 10:1, as to be decided by the Board of Directors. The Company's
shareholders are not being asked to vote on such items, but are being informed
that the Company has the necessary votes to pass such items.
In order to withdraw its status as a Business Development Company, the Company
will file a Form N-54C with the SEC. Subsequent to the filing of the Form N-54C,
the Company intends to pursue other business opportunities. The Company will at
all times conduct its activities in such a way that it will not be deemed an
"investment company" subject to regulation under the 1940 Act. Thus, it will not
hold itself out as being engaged primarily in the business of investing,
reinvesting or trading in securities. In addition, the Company will conduct its
business in such a manner as to ensure that it will not own or propose to
acquire investment securities having a value exceeding 40 percent of the
Company's total assets at any one time.
There is no assurance that any business opportunities will be finalized or that
any stockholder will realize any return on their shares after such a
transaction. Any merger or acquisition completed by us can be expected to have a
significant dilutive effect on the percentage of shares held by our current
stockholders. We believe we are an insignificant participant among the firms
which engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns that have significantly
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greater financial and personnel resources and technical expertise than we have.
In view of our limited financial resources and limited management availability,
we will continue to be at a significant competitive disadvantage compared to our
competitors.
GENERAL DESCRIPTION OF INFINITY
We are currently in the business of providing growth capital to small businesses
and assisting these companies and actively helping to build those companies. We
have focused on emerging growth companies that satisfy our Company's minimum
financial or "quantitative" as well as qualitative criteria prior to our
investment. Typically, our quantitative criteria precludes us from investing in
any company that has not yet begun operations or is otherwise at the start up
stage of development. We have chosen to focus on businesses that have a minimum
operating history of one year with a revenues run rate approaching or in excess
of one million dollars and which are seeking capital to expand their business
product or service offerings or seek capital to access the public equity markets
via a near term Offering or merger with another corporation. By focusing on
companies that are in the expansion and mezzanine round of financing, we can be
classified as a later stage venture capital firm.
CURRENT PORTFOLIO COMPANIES
The following table sets forth certain information as of December 31, 2009
regarding each portfolio company in which the Company had an investment. Other
than these investments, our only relationships with our portfolio companies are
the managerial assistance we may separately provide to our portfolio companies,
which services would be ancillary to our investments.
NAME & ADDRESS NATURE OF ITS % OF CLASS FAIR VALUE AT
OF PORTFOLIO PRINCIPAL TITLE OF HELD BY COST OF DECEMBER 31,
COMPANY BUSINESS SECURITIES INFINITY INVESTMENT 2009
----------------- ----------------- ----------- --------------- ----------------- -----------------
Strategic Industrial Common 3.00% $134,515 $90,449
Environmental & Services For Stock
Energy Environmental,
Resources, Inc. Energy and Rail Warrants 0.50% $24,490 $14,477
(Pink Sheets: Transport to buy
SENR) Common
7801 Brighton Stock
Road
Commerce City,
CO 80022
INVESTMENT OBJECTIVES
CAPITAL APPRECIATION. Our primary investment objective is to provide our
investors with long term capital appreciation by investing primarily in private
placements of common stock, convertible preferred or convertible debt securities
("Debentures") of small and medium sized public companies or in private
placements of common stock, convertible preferred or Debentures of private
companies seeking to go public within the next six to twenty four months. Our
investment objective is to restrict our investments to emerging growth companies
which meet or exceed our quantitative and qualitative investment criteria,
thereby reducing the risks associated with investments in early stage companies,
but in those companies which we believe offer special opportunities for growth.
Our goal is to provide mezzanine and expansion capital to our portfolio
companies in order to assist them in devising a comprehensive growth strategy,
possibly involving a consolidation of similarly situated businesses or a
geographic expansion of existing product or service offerings. We plan on
investing in and providing strategic, managerial, and operational support to
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emerging growth companies that in the opinion of the management team, afford an
opportunity for significant appreciation of our net investment within six to
twenty four months from the date of investment.
CAPITAL PRESERVATION. A second investment objective is to preserve investor
capital through risk management and active involvement in the management of our
portfolio companies. Among the risk management techniques which we expect to
employ are: (i) limiting our investments in very early stage companies, (ii)
acquiring significant interests in one or more portfolio companies that have a
positive cash flow; (iii) co-investing in portfolio companies with other
professional venture capital investors; and (iv) investing primarily in
portfolio companies where we have a defined exit strategy from the outset. While
we believe that active involvement in the management of portfolio companies is
essential to achieving our investment objectives, we may not always provide
significant managerial services to all of our portfolio companies. Any single
venture capital investment is risky. Many will not provide any gain, and some
will be complete losses. Professional venture capital investors expect, however,
that the gains on successful investments will offset the losses and provide a
satisfactory percentage return on the entire portfolio.
INFINITY'S APPROACH COMPARED TO TRADITIONAL SOURCES OF VENTURE FINANCING
Emerging companies traditionally seek financing for growth from two primary
sources: independent private venture capital funds and corporate strategic
investors. Each of these sources has advantages but also notable disadvantages
for the emerging company. Venture capital funds generally are established for a
limited term and their primary goal is to maximize their financial return within
a short time frame. A venture capital fund often seeks to liquidate its
investment in the emerging company by encouraging either an early initial public
offering or a sale. This often can jeopardize an emerging company's chances for
success especially if its technology has not been fully developed or its
intellectual property fully safeguarded prior to its debut into the market.
Traditional venture capital funds generally have limited resources available to
provide managerial and operational support to an emerging company.
Corporate strategic investors are typically large corporations that invest in
emerging companies to gain access to a promising product or technology without
incurring the initial cost of development or the diversion of managerial time
and attention necessary to develop new products or technologies. Often these
investments involve both financing support to the emerging company and an
arrangement under which the strategic investor obtains the right to use, and
intellectual property ownership of, the products or technology of the emerging
company. While strategic investors are generally able to provide business
development support, the rationale behind the investment of a strategic investor
may be incompatible with the development of the emerging company. Strategic
investors often discourage the emerging company from becoming a public company,
selling to competitors of the strategic investor or from retaining the
intellectual property rights to products developed jointly with the strategic
investor.
We believe that our relationship with our future portfolio companies will offer
many of the benefits of both the private venture capital financing model and the
strategic investor financing model without most of the related drawbacks. By
raising investment capital for our portfolio companies through an offering of
our own Common Stock to the public and actively working to create a secondary
market for such Common Stock, we anticipate having greater financing flexibility
and tolerance for allowing further development of our eligible portfolio
companies prior to their sale or their initial public offerings. By creating an
actively traded secondary market for our Common Stock, we hope to have access to
additional equity capital that may be needed for follow on investments. Thus,
unlike a traditional venture capital fund, we will seek to create a secondary
market for our Common Stock with sufficient depth and liquidity to allow us to
access additional equity capital more easily than such capital could be attained
through private placements to select investors and investment pools. We believe
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that we will have a greater ability to raise capital for "follow on" investments
for our portfolio companies than a traditional private venture capital fund that
is fully invested. We may not be successful in raising additional funds for such
follow on investments or in establishing and sustaining an actively traded
secondary market for our stock.
If an active secondary market for our common stock develops, our shareholders
will have the advantage of liquidity in their investment, unlike investors in a
traditional private venture equity fund. The access to capital and shareholder
liquidity resulting from an actively traded secondary market for our common
stock will differentiate us from traditional private venture capital funds by
potentially reducing the pressure for us to take certain actions that may be
detrimental to the interests of our shareholders, such as liquidating one or
more of our portfolio companies or initiating a premature initial public
offering of a portfolio company that has not fully developed its products or
technology. An investor in our common stock will be able to liquidate his or her
investment without having to wait for the liquidation of our Company or the sale
of our investments in our portfolio companies. A shareholder of a private
venture capital fund would typically only be able to realize value (or loss) if
the Company either liquidated its positions in its portfolio companies, or
liquidated itself.
We believe that we have an advantage over a strategic investor in that our
interests are more closely aligned with those of the emerging company. We share
the emerging company's interest in maximizing its success by developing and
retaining ownership rights in a marketable product or technology, which in turn
would maximize our return on investment. An initial public offering of the
emerging company, often required to raise the additional capital investment
necessary to fully develop a company's product or technology, would also benefit
us by creating liquidity in our investment.
INVESTMENT POLICIES OF INFINITY
For purposes of these investment policies and unless otherwise specified,
references to the percentage of our total assets "invested" in securities of a
company will be deemed to refer, in the case of financings in which we commit to
provide financing prior to funding the commitment, to the amount of our total
assets represented by the value of the maximum amount of securities to be issued
by the eligible portfolio company to us pursuant to such commitment. We will not
be required to divest securities in our portfolio or decline to fund an existing
commitment because of a subsequent change in the value of securities we have
previously acquired or committed to purchase.
INVESTMENT OBJECTIVES THAT MAY NOT BE CHANGED OR MODIFIED WITHOUT A SHAREHOLDER
VOTE
The following investment objectives cannot be changed without a vote of the
holders of a majority of our voting securities. The manner in which we intend on
achieving our investment objectives, however, is within the discretion of our
Board and management team and may be changed at any time.
QUANTITATIVE CRITERIA.
Infinity has sought to invest 90% of Infinity's total investment capital in
equity of companies that meet the following criteria:
o The company has been in operations for a minimum of one year;
o The company has a minimum annual revenue run rate approaching or in
excess of $1,000,000;
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o The company has a positive EBITDA run rate, or through deleveraging
and/or through additional equity capitalization, the company will have
a positive EBITDA; and
o The company has cash or other ability to fund its operations for a
minimum of six months.
We will not change the quantitative criteria we will require of our portfolio
companies. It is our goal to invest solely in profitable or near profitable
companies which have been operating for at least one fiscal year and have an
annual revenue run rate approaching or in excess of one million dollars.
However, we may invest in companies which do not have a minimum annual revenue
run rate approaching or in excess of one million dollars if such company is
publicly traded and we have determined that an investment in the securities of
such company is reasonable and will allow us to exit our investment within
twenty four months, either through registration of the securities we have
purchased or through resale pursuant to the provisions of Rule 144 of the
Securities Act. We define a "revenue run rate" as the anticipated revenues to be
received within the next twelve months based upon the most recent operating
results as modified for anticipated changes. We will limit our investment to
$500,000 (or in the event that Company's net assets exceed $5,000,000, then 10%
of such Company assets) in public companies which do not meet our quantitative
criteria.
Although we will seek to invest in companies with existing positive EBITDA
(Earnings before interest, income taxes, depreciation and amortization), we will
consider turn around situations where we can clearly identify the source(s) of
financial distress and we can through our investment, or through co-investment
with other private equity funding sources, readily ascertain performance
improvements that will result from deleveraging or through equity placement. We
will not change our investment intent of investing in a diverse array of
industries by restricting our investment criteria to any single industry or
sector.
Our goal is to identify and invest in portfolio companies whose equity has the
potential for significant appreciation, and to minimize portfolio losses by
careful selection of such portfolio companies, diversification and active
participation in the management of portfolio companies. Upon the successful
completion of the Offering, we will seek to raise additional equity capital to
invest in companies engaged in businesses in our opinion have strong growth
forecasts in the upcoming several years. We intend to invest in companies in
various industries that are seeking to expand their market position and which
are at a stage of development that would benefit from our business development
and management support, financing, and market knowledge.
We expect to realize value for our shareholders by selling the equity securities
of our portfolio companies for a profit, either to private investors or by
taking the portfolio companies public. We do not anticipate paying any dividends
or making other distributions until such time as we realize proceeds from the
sale of one of our investments. Until such time as Infinity is qualified and the
board of directors deems it appropriate to make the election to be taxed as a
regulated investment company ("RIC") under the Internal Revenue Code, dividends
will be declared as deemed appropriate by our Board of Directors. If RIC status
is elected, then dividends will be paid out in accordance with the RIC rules. We
may not be successful in selling any equity securities of our portfolio
companies for a profit at any time in the future.
UNLESS OTHERWISE STATED HEREIN, OR PROHIBITED BY THE 1940 ACT, ALL OF THE
FOLLOWING INVESTMENT POLICIES ARE SUBJECT TO CHANGE WITHOUT THE PRIOR VOTE OF
THE HOLDERS OF A MAJORITY OF THE VOTING SECURITIES OF INFINITY. SEE "RISK
FACTORS."
In selecting investments for our portfolio, we will endeavor to meet the
following investment guidelines, as established by our Board. We may, however,
make investments that do not conform to one or more of these guidelines when
deemed appropriate by our Board of Directors. Such investments might be made if
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we believe that a failure to conform in one area is offset by exceptional
strength in another or is compensated for by a higher yield, favorable warrant
issuance or other attractive terms or features.
Our investment will typically be negotiated directly with the issuer in private
transactions. Our investments in portfolio companies may be in the form of
common stock or in the form of preferred stock and/or debentures that is
convertible into common stock under certain circumstances, including the sale by
the company of shares of its common stock in an initial public offering or
secondary distribution, post merger with a publicly traded company. Preferred
stock offers many advantages over common stock, including:
o In the event the company is liquidated or sold, the holders of
preferred stock receive payment prior to and in preference to the
holders of common stock.
o Preferred stockholders typically have protective provisions that can
have the effect of prohibiting certain transactions, including a sale
of the company, unless the holders of a majority of the preferred
stock approve such transaction.
o Holders of preferred shares are often granted the right to elect one
or more members of the company's board of directors.
We retain the right to invest in other assets if we believe that such
alternative investments are in your best interests. Such other assets might
include, debt securities such as debentures (which may be or may not be
convertible into equity securities) and warrants or options to purchase equity
securities.
After our initial investment, we anticipate that we will often provide
additional or follow on financing or introduce our portfolio companies to other
private equity funding sources for such follow on investments.
INVESTMENT CRITERIA
STAGE OF DEVELOPMENT CRITERIA. We are a special situations Company. We will
primarily look for opportunities which we believe will provide our stockholders
with a return on investment within a short period of time, typically less than
twenty four months. Our objective is to invest in private corporations which
meet our quantitative requirements as previously described as well as
qualitative requirements that we look for in each investment opportunity. In
addition, we will look to invest in public corporations which have a small
market capitalization but which either have shifted in business direction, been
subject to a reorganization or recapitalization or other significant change. In
such instances, we may relax our quantitative requirements with the view to
assist such companies in developing a strategic business plan which may include
merger or acquisition of other private operating businesses which may be
synergistic to the existing business of the public corporation. Our ultimate
goal in providing such managerial assistance is to provide the portfolio company
and its shareholders with a new and valuable growth strategy as well as benefit
our stockholders with an opportunity to profit from our ability to restructure
and assist an otherwise dormant corporation in regaining investment value. In
addition, by assisting small distressed public corporations realign themselves
with new operations as well as benefit our private portfolio companies with an
opportunity to access the public equity markets via merger, we will essentially
provide positive and valuable assistance to stockholders of the merged entities.
In the event that the Company's net assets exceeds $10 million, we may seek to
diversify our portfolio based on the stage of development of eligible portfolio
companies by limiting our aggregate investment in securities of companies that,
in the opinion of the Board, are in the start-up stage to a maximum of 5% of our
total assets, except that we may invest up to 2% of Infinity's total assets in
securities of companies that, in our opinion, are in the seed capital stage. We
will seek to invest the remainder of our assets in securities of companies that,
-10-
in our opinion, are in the expansion stage or mezzanine stage. Infinity may
invest in seed capital stage companies for strategic purposes, with the goal of
making additional, larger investments if the company succeeds. For purposes of
these investment guidelines, the stages of development are defined as follows:
o Seed capital companies represent the earliest stage of development.
These companies have raised relatively modest equity capital to prove
a concept and qualify for start-up capital. Their activities generally
are limited to product development, scientific and market research,
recruiting a management team and developing a business plan. These
companies likely do not have financial support from either venture
capitalists or larger companies making strategic investments.
o Start-up stage companies are completing or have recently completed
product development and initial marketing, but have not sold their
products commercially. Generally such firms have made market studies,
assembled key management, developed a business plan and are ready to
commence operations.
o Expansion stage companies have initiated or are about to initiate
full-scale operations and sales, but may not be showing a profit.
o Mezzanine stage companies are approaching or have attained break even
or profitability and are continuing to expand. An acquisition or
initial public offering may be imminent.
Classification of a company by stage of development necessarily involves a
subjective judgment by Infinity, and it is possible that other investors or
market analysts would classify a company differently than the classification
used by Infinity.
QUALITATIVE CRITERIA. All potential portfolio companies will first be evaluated
and assessed based on their relative stage of development and the quality of an
investment in such portfolio company based on the above criteria. Once
Infinity's management team has determined that a potential portfolio company
satisfies the above criteria and is suitable for investment, it will then be
evaluated using the eight step process described below. After completion of the
process, receipt and review of all internal and outside reports and evaluations
of the potential portfolio company, the Board will submit the matter of
investing in the potential portfolio company to a vote. If the Board approves
the investment, Infinity will then proceed with a written offer, establish a
disbursement of proceeds schedule, and prepare appropriate documents to reflect
Infinity's investment and any management service contracts between the potential
portfolio company and Infinity.
(1) READ BUSINESS PLAN/ASSESS TEAM. Request a business plan description
and complete resumes of management from all entrepreneurs. Members of
our management team will meet with the best of these entrepreneurs,
attempting to identify key traits that have been associated with
entrepreneurial success in the past, such as high energy, a must-win
attitude, intellectual brilliance, high personal integrity, relevant
experience, a strong work ethic, and the ability to prioritize and
focus. A business plan submitted for evaluation to us should contain
the following information:
o Overview of the business concept as well as the company's
strategic focus and direction.
o Discussion of competition including a discussion of specialized
expertise, intellectual property, patents, and/or other unique
advantages held by either the company or its competitors.
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o Sources and uses of cash with respect to investment capital
sought.
o Pro forma financial projections for at least the current year and
two subsequent years including expected capital requirements from
the time of the investment capital received through the two
subsequent years.
o Operating plan including current and projected staffing,
equipment, and space requirements.
o Discussion of minimum dollar proceeds necessary in order to
implement the business plan.
o Marketing plan.
o Discussion of conflicts of interest with investors together with
steps being taken by the portfolio company to mitigate such
conflicts of interest and to protect against future conflicts of
interest.
o Resumes for all key officers/managers.
(2) EVALUATE POTENTIAL MARKET. We have developed relationships with
many experts, who represent a valuable source of information about a
target investment's market. We will call upon these contacts as well as
create new ones in the markets of each company seeking funding. As we
evaluate markets, we must become confident that the company can attain
a competitive market position over time.
(3) EXAMINE STRUCTURE OF BUSINESS MODEL. We will examine the structure
upon which the business plan is built. The Board has indicated a
distinct bias toward business models calling for high gross margins and
relatively low capital intensiveness. Such businesses have the
potential for higher internally sustainable growth rates than average
and superior return on equity invested. In addition, we will require,
whenever possible, implementation of the following policies into the
articles, bylaws or operating agreements of its portfolio companies:
o There can be only one class of common shares, all with equal
voting rights, and all distributions of capital or earnings can
only be made to all members based upon their percentage interest
without preference;
o Compensation of the key officers/managers and their affiliates,
including, but not limited to, all salary, bonuses, commissions
and/or fees, shall be based upon the success of the portfolio
company in reaching predetermined milestones;
o The primary responsibility of the management/officers of the
entity is to serve as fiduciaries charged with serving the best
interests of the stockholders/members even when such interests
may be in conflict with the management, officers or other
employees of the entity; and
o No "poison pill" defenses to takeovers will be allowed.
(4) CHECK REFERENCES. We will require that each entrepreneur supply a
list of references in order that we may get a better sense of the
entrepreneur's past experience, strengths, weaknesses, and work habits.
We make it a point to get references outside of this list as well, in
order to avoid only "cherry-picked references." We believe that these
checks are important to develop a more complete and accurate picture of
the team.
-12-
(5) CALL CUSTOMERS AND SUPPLIERS. We intend to call a number of current
and/or prospective customers and suppliers to get a sense of how they
view the targeted investment including its products and the market.
(6) EVALUATE PRODUCTS/TECHNOLOGY. As part of our analysis, we will
evaluate the target investment's current products, development pipeline
and underlying technology. To evaluate technology, we will not rely on
in-house expertise alone, but will contact and hire appropriate
specialists and consultants.
(7) EVALUATE RISKS/REWARDS. Evaluate the pro-forma financials, the
likelihood of an exit after a 6 month to 24 month holding period.
(8) NEGOTIATE INVESTMENT TERMS. When deciding on making an investment,
we will draw up a term sheet for negotiation. Valuation, board seats,
requirements for additional investment, vesting schedules, salaries,
and so forth will all be discussed, and terms will be agreed upon.
In addition, consideration of an investment in mezzanine and growth
stage companies will require a careful evaluation of their financial
records, including an evaluation of the following:
o Financial statements and notes to the financial statements
including: management discussion of operations and liquidity;
details regarding all forms of actual compensation of management
and affiliates to compensation by the entity; number of shares
outstanding at the beginning of the period and the end of the
period and an explanation of the difference, if any; and a
detailed discussion of the entity's rights and obligations under
any joint ventures entered into along with a full discussion of
any conflicts of interest management may have in entering into
such joint ventures on behalf of the entity;
o Equipment list and appraisal of equipment;
o Facilities, current product descriptions;
o Current management resumes, employment contracts;
o All material contracts (and amendments) currently in effect,
including, without limitation, leases, sales, purchase,
financing, distribution, franchise, intellectual property,
employment, insurance, employee benefit, and joint venture
contracts; currently outstanding contractual offers by and to the
company;
o Correspondence with contracting parties regarding contract
interpretation, claims, or threats of contract litigation;
o Documents relating to the company's internal determinations as to
whether it can, or should, fulfill a particular contract;
o Documents relating to material acquisitions and divestitures for
the immediately preceding five years, particularly agreements
involving covenants by or in favor of the company;
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o Certified copies of the company's Certificate or Articles of
Incorporation and all amendments thereto to date, as well as any
proposed amendments;
o Certified copies of the company's bylaws, as amended to date;
o Minute books of the company, including minutes of the meetings of
the board of directors, any committee (whether of the board or
otherwise), and shareholders for the last five years to date;
o The company's stock transfer or stock ledger books;
o The form(s) of the company's stock certificates and the language
of all legends or specific terms appearing thereon;
o All stock option, bonus, incentive, or pension plans, and any
other agreements to issue shares of the company or any of its
subsidiaries in the future;
o All agreements relating to the beneficial ownership, voting
rights, or pledge of the company's common stock;
o All agreements under which registration or preemptive-rights are
granted to shareholders of the company;
o All agreements, offering circulars, letters of intent, written
proposals, or memoranda of any oral proposals for the
disposition, acquisition, or distribution of any of the assets or
shares of the company;
o List of all shareholders of the company, cross-checked against
the stock books and disclosing the status of ownership of each
(e.g., joint, in trust, minor);
o An opinion from legal counsel regarding the fully paid and
nonassessable character of the company's shares; and
o All shareholder correspondence with the company for the last
year.
LACK OF DIVERSIFICATION. As a BDC, we must invest at least 70% of our total
assets in Qualifying Assets consisting of eligible portfolio companies and
certain other assets including cash and cash equivalents. In order to be
eligible to receive favorable pass-through tax treatment on its distributions to
its shareholders, we intend over time to diversify our pool of investments in
such a manner so as to qualify as a diversified closed end management investment
company. However, because of size of the current Offering, and our plan to
invest in no more than six to eight eligible portfolio companies, we will
initially be classified as a "non-diversified" closed end investment company
under the 1940 Act. Until we qualify as a RIC and the board of directors deems
it appropriate to make the election, we will not be subject to the
diversification requirements applicable to RICs under the Internal Revenue Code
nor will we receive favorable pass through tax treatment on distributions made
to shareholders. We plan to raise additional funds in the future and to increase
the diversification of our portfolio so as to make it possible to meet the RIC
diversification requirements, as described below. We may not be able to raise
any additional funds nor meet those requirements and/or the board of directors
may not deem it appropriate to make the RIC election.
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To qualify as an RIC, we must meet certain diversification standards under the
Internal Revenue Code which require that, at the close of each quarter of our
taxable year, (i) not more than 25% of the market value of our total assets is
invested in the securities of a single issuer, and (ii) at least 50% of the
market value of our total assets is represented by cash, cash items, government
securities, securities of other RICs and other securities (with each investment
in such other securities limited so that not more than 5% of the market value of
our total assets is invested in the securities of a single issuer and we do not
own more than 10% of the outstanding voting securities of a single issuer). For
purposes of the diversification requirements under the Internal Revenue Code,
the percentage of our total assets "invested" in securities of a company will be
deemed to refer, in the case of financings in which we commit to provide
financing prior to funding the commitment, to the amount of our total assets
represented by the value of the securities issued by the eligible portfolio
company to us at the time each portion of the commitment is funded.
WARRANTS AND EQUITY SECURITIES. We expect to acquire warrants to purchase equity
securities and/or convertible preferred stock of eligible portfolio companies in
connection with providing venture financing. The terms of the warrants,
including the expiration date, exercise price and terms of the equity security
for which the warrant may be exercised, will be negotiated individually with
each eligible portfolio company, and will likely be affected by the price and
terms of securities issued by the eligible portfolio company to other venture
capitalists and other holders. It is anticipated that most warrants will be for
a term of five to ten years, and will have an exercise price related to the
price at which the eligible portfolio company most recently issued equity
securities or, if a new equity offering is imminent, will next issue equity
securities. The equity securities for which a warrant can be exercised generally
will be common stock (of which there may be one or more classes) or convertible
preferred stock. Substantially all of the warrants and underlying equity
securities to be obtained by us will be restricted securities under the
Securities Act at the time of their issuance. We intend to negotiate
registration rights with portfolio companies such as (i) "piggyback"
registration rights, which would permit us under certain circumstances to
include some or all of the securities owned by us in a registration statement
filed by the eligible portfolio company, or (ii) in rare circumstances, "demand"
registration rights permitting us under certain circumstances to require the
eligible portfolio company to register the securities under the Securities Act
(in some cases at our expense). We also intend to request "net issuance"
provisions in the warrants, which would allow us to receive, upon exercise of
the warrant without payment of any cash, a net amount of shares determined by
the increase in the value of the issuer's stock above the exercise price stated
in the warrant.
We anticipate providing significant managerial assistance through our officers
to certain companies whose securities are held in our portfolio, but we will not
be obligated to do so. Each warrant or preferred stock purchase is expected to
contain customary and negotiated representations, warranties, covenants and
events of default to protect us. We also intend to obtain a seat on the board of
directors of the eligible portfolio company and request covenants against
subordination of its dividend and liquidation preferences associated with its
preferred shares.
LEVERAGE. We intend to borrow money from and issue debt securities to banks,
insurance companies and other lenders to obtain additional funds. Under the 1940
Act, we may not incur borrowings unless, immediately after the borrowing is
incurred, such borrowings would have "Asset Coverage" of at least 200%. "Asset
Coverage" means the ratio which the value of our total assets, less all
liabilities not represented by (i) the borrowings and (ii) any other liabilities
constituting senior securities under the 1940 Act, bears to the aggregate amount
of such borrowings and senior securities. The practical effect of this
limitation is to limit our borrowings and other senior securities to 50% of our
total assets less our liabilities other than the borrowings and other senior
securities. The 1940 Act also requires that, if we borrow money, provision be
made to prohibit the declaration of any dividends or other distribution on our
common stock (other than a dividend payable in common stock), or the repurchase
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by us of our common stock, if, after payment of such dividend or repurchase of
common stock, the Asset Coverage of such borrowings would be below 200%. If we
are unable to pay dividends or distributions in the amounts required under the
Internal Revenue Code, we might not be able to qualify as an RIC or, if
qualified, to continue to so qualify. The use of leverage increases investment
risk. Lenders may require that we pledge portfolio assets as collateral for
loans. If we are unable to service the borrowings, we may risk the loss of such
pledged assets. Lenders are also expected to require that we agree to covenants
limiting our ability to incur additional debt or otherwise limiting our
flexibility. Typically, such loan agreements provide for acceleration of the
maturity of the indebtedness if certain financial tests are not met.
TEMPORARY INVESTMENTS. Pending investment in venture financing transactions and
pending distributions, we will invest seventy percent of our excess cash in (i)
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities; (ii) repurchase agreements fully collateralized by U.S.
government securities; (iii) short-term high-quality debt instruments of U.S.
corporations; and (iv) pooled investment funds whose investments are restricted
to those described above. All such investments will mature in one year or less.
The U.S. government securities in which we may invest include U.S. government
securities backed by the full faith and credit of the U.S. government (such as
treasury bills, notes and bonds) as well as securities backed only by the credit
of the issuing agency.
We also may enter into repurchase agreements that are fully collateralized by
U.S. government securities with banks or recognized securities dealers in which
we purchase a U.S. government security from the institution and simultaneously
agrees to resell it to the seller at an agreed-upon date and price. The
repurchase price is related to an agreed-upon market rate of interest rather
than the coupon of the debt security and, in that sense, these agreements are
analogous to secured loans from us to the seller. Repurchase agreements carry
certain risks not associated with direct investments in securities, including
possible declines in the market value of the underlying securities and delays
and costs to us if the other party to the transaction defaults.
RESERVE MANAGEMENT. We may retain reserves for a number of years after the
Offering Close Date in order to have sufficient funds for equity-oriented
follow-on investments in portfolio companies. We intend to sell additional
common stock to meet the funding requirements for such follow on investments. If
such sales are successful, we expect to have cash reserves. In order to enhance
the rate of return on these reserves and increase the amounts ultimately
available for equity-oriented investments and our management fees, we plan to
engage in a reserve management strategy that may include making secured loans to
portfolio companies, potential portfolio companies, or similar types of
corporations. We also expect to invest some portion of these reserves in either
publicly traded securities or in mutual funds, subject to applicable legal
limits or SEC exemptive orders.
AVERAGE INVESTMENT. The amount of funds committed to a portfolio company and the
ownership percentage received will vary depending on the funds available to us,
the quality and completeness of the portfolio company's management team, the
perceived business opportunity, the capital required compared to existing
capital, and the potential return. Although investment amounts will vary
considerably, we expect that the average investment (excluding follow-on
investments) will be between $250,000 and $2,000,000.
OTHER INVESTMENT POLICIES. We may sell securities short or acquire significant
amounts of equity securities within a single issuer so as to control such
issuer. We will not purchase securities on margin (except to the extent our
permitted borrowings are deemed to constitute margin purchases), write puts or
calls, purchase or sell commodities or commodity contracts. We will not
underwrite the securities of other companies, except to the extent we may be
deemed an underwriter upon the disposition of restricted securities acquired in
the ordinary course of our business.
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REGULATION OF BUSINESS DEVELOPMENT COMPANIES
The Small Business Incentive Act of 1980 ("1980 Provisions") modified the
provisions of the 1940 Act that are applicable to a closed-end investment
company. After filing its election to be treated as a BDC, a company may not
withdraw its election without first obtaining the approval of holders of a
majority of its outstanding voting securities (as defined under the 1940 Act).
The following is a brief description of the relevant provisions of the 1940 Act,
as modified by the 1980 Provisions, and is qualified in its entirety by
reference to the full text of the 1940 Act and the rules thereunder.
Generally, to be eligible to elect BDC status, a company must engage in the
business of furnishing capital and offering significant managerial assistance to
"eligible portfolio companies." More specifically, in order to qualify as a BDC,
a company must (i) be a domestic company; (ii) have registered a class of its
securities or have filed a registration statement with the SEC pursuant to
Section 12 of the Exchange Act; (iii) operate for the purpose of investing in
the securities of certain types of eligible portfolio companies; (iv) offer to
extend significant managerial assistance to such eligible portfolio companies;
(v) have a majority of disinterested directors; and (vi) file (or under certain
circumstances, intend to file) a proper notice of election with the SEC. The
National Securities Markets Improvement Act of 1996 relaxed the requirement set
forth in clause (iv), above in certain respects: a BDC is not required to offer
significant managerial assistance to an issuer (x) which has total assets of not
more than $4 million and capital and surplus of not less than $2 million or (y)
with respect to any other issuer that meets such criteria as the SEC otherwise
may provide.
"Making available significant managerial assistance" is defined under the 1940
Act, in relevant part, as (i) an arrangement whereby the BDC, through its
officers, directors, employees or general partners, offers to provide and, if
accepted, does provide, significant guidance and counsel concerning the
management, operations or business objectives of a portfolio company; or (ii)
the exercise by a BDC of a controlling influence over the management or polices
of the portfolio company, acting individually or as part of a group acting
together which controls the portfolio company. The officers of Infinity intend
to offer to provide managerial assistance, including advice on equipment
acquisition and financing, cash flow and expense management, general financing
opportunities, acquisition opportunities and opportunities to access the public
securities markets, to the majority of companies to whom Infinity provides
venture financing. In many instances, officers of Infinity will serve on the
boards of directors of portfolio companies.
The 1940 Act prohibits or restricts BDCs 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 types of
assets that BDCs may acquire to certain prescribed 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 the
BDC's assets consist of Qualifying Assets. Qualifying Assets include: (i)
privately acquired securities of companies that were eligible portfolio
companies at the time the BDC acquired their securities; (ii) securities of
bankrupt or insolvent companies; (iii) securities of eligible portfolio
companies controlled by a BDC; (iv) securities received in exchange for or
distributed 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 transactions in which, and the persons from whom,
securities can be purchased in order for the securities to be considered
Qualifying Assets. Such restrictions include limiting purchases to transactions
not involving a public offering and the requirement that securities be acquired
directly from either the portfolio company or its officers, directors or
affiliates.
Infinity, as a BDC, may not sell its securities at a price that is below its net
asset value per share unless (i) our Board of Directors have determined that
such sale would be in the best interests of Infinity and our shareholders and
(ii) the holders of a majority of Infinity's outstanding voting securities,
including a majority of the voting securities held by non-affiliated persons,
-17-
have approved such policy or practice within one year of such sale. A majority
of the disinterested directors also must determine in good faith, in
consultation with the underwriters of the offering if the offering is
underwritten, that the price of the securities being sold is not less than a
price which closely approximates market value of the securities, less any
distribution discounts or commissions. As defined in the 1940 Act, the term
"majority of the outstanding voting securities" of Infinity means the vote of
(i) 67% or more of Infinity's common stock present at a meeting, if the holders
of more than 50% of the outstanding common stock are present or represented by
proxy, or (ii) more than 50% of Infinity's outstanding common stock, whichever
is less.
Many of the transactions involving a company and its affiliates (as well as
affiliates of those affiliates) which were prohibited without the prior approval
of the SEC under the 1940 Act prior to its amendment by the 1980 Provisions are
permissible for BDCs, including Infinity, upon the prior approval of a majority
of Infinity's disinterested directors and a majority of the directors having no
financial interest in the transactions. However, certain transactions involving
certain persons related to Infinity, including its directors, officers, and any
future adviser to Infinity, may still require the prior approval of the SEC. In
general, (i) any person who owns, controls, or holds power to vote more than 5%
of Infinity's outstanding common stock; (ii) any director, executive officer, or
general partner of that person; and (iii) any person who directly or indirectly
controls, is controlled by, or is under common control with, that person, must
obtain the prior approval of a majority of Infinity's disinterested directors,
and, in some situations, the prior approval of the SEC, before engaging in
certain transactions with Infinity or any company controlled by Infinity. The
1940 Act generally does not restrict transactions between Infinity and its
eligible portfolio companies. While a BDC may change the nature of its business
so as to cease being a BDC (and in connection therewith withdraw its election to
be treated as a BDC) only if authorized to do so by a majority vote (as defined
by the 1940 Act) of its outstanding voting securities, shareholder approval of
changes in other fundamental investment policies of a BDC is not required (in
contrast to the general 1940 Act requirement, which requires shareholder
approval for a change in any fundamental investment policy).
DETERMINATION OF NET ASSET VALUE
We determine the net asset value per share of our common stock quarterly. The
net asset value per share of our common stock is equal to the value of our total
assets minus total liabilities divided by the total number of shares of common
stock outstanding.
At December 31, 2009, the Company had a net asset value of $(442,884), which is
$(0.07) per share. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i)
the market price for those securities for which a market quotation is readily
available and (ii) for all other securities and assets, fair value as determined
in good faith by the board of directors. Since there is typically no readily
available market value for the investments in our portfolio, we value
substantially all of our investments at fair value as determined in good faith
by our board of directors. In making its determination, our board of directors
considers valuation appraisals provided by an independent valuation service
provider. Because of the inherent uncertainty of determining the fair value of
investments that do not have a readily available market value, the fair value of
our investments determined in good faith by our board of directors may differ
significantly from the values that would have been used had a ready market
existed for the investments, and the differences could be material.
There is no single standard for determining fair value in good faith. As a
result, determining fair value requires that judgment be applied to the specific
facts and circumstances of each portfolio investment while employing a
consistently applied valuation process for the types of investments we make. We
will record unrealized depreciation on investments when we believe that an
investment has become impaired, including where realization of an equity
security is doubtful. Conversely, we will record unrealized appreciation if we
have an indication that the underlying portfolio company has appreciated in
value and, therefore, our equity security has also appreciated in value, where
appropriate.
-18-
Factors that the Board of Directors may consider in determining fair value of an
individual investment are financial performance and condition, nature and
realizable value of any collateral, business plan and progress towards plan,
restrictions on the investment securities, liquidity, trading activity,
financing activity, discounted cash flow, relative valuation to comparable
companies and other relevant factors.
With respect to our investments for which market quotations are not readily
available and/or investments subject to restrictions, our Board of Directors
recently adopted a multi-step valuation process for each quarter as described
below:
1. Management reviews all investments and summarizes current status;
2. An independent valuation firm conducts independent appraisals of
all investments;
3. The audit committee of our board of directors reviews the
managements summary and the report of the independent valuation
firm and supplements with additional comments; and
4. The Board of Directors discusses valuation and determines the
fair value of each investment in our portfolio in good faith
based on the input of management, the independent valuation firm
and the audit committee.
Because such valuations, and particularly valuations of private securities and
private companies, are inherently uncertain, may fluctuate over short periods of
time and may be based on estimates, our determinations of fair value may differ
materially from the values that would have been used if a ready market for these
securities existed. Our net asset value could be adversely affected if our
determinations regarding the fair value of our investments were materially
higher than the values that we ultimately realize upon the disposal of such
securities.
We have retained Chartered Capital Advisers, Inc. to provide us with quarterly
valuations of our portfolio of equity securities.
ACCESS TO SEC REPORTS
Infinity Capital Group, Inc.'s internet website address is WWW.INFINITYBDC.COM,
which is not incorporated in and is not a part of this report. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to section
13(a) or 15(d) of the Exchange Act are available free of charge through a link
on our website to the Securities and Exchange Commission's website. It is the
intention of management to publish these reports on the Company's web site as
soon as reasonably practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission. Until the reports are
available on the company's web site anyone can request the report from the
Company at the above address and the Company will furnish the report free of
charge.
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ITEM 1A. RISK FACTORS
---------------------
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
LIMITED RESOURCES; LIMITED SOURCE OF REVENUES; LIMITED OPERATING HISTORY.
We have limited resources and limited operating history. We will rely
exclusively on the skills and expertise of our management team in conducting our
business. Our management team has limited experience in identifying, evaluating
and acquiring prospective businesses in which we may ultimately invest.
Accordingly, there is only a limited basis upon which to evaluate our prospects
for achieving our intended business objectives.
We will be wholly dependent for the selection, structuring, closing and
monitoring of all of its investments on the diligence and skill of our
management team, under the supervision of our Board of Directors. There can be
no assurance that we will attain our investment objective. The management team
will have primary responsibility for the selection of companies in which we will
invest, the terms of such investments and the monitoring of such investments
after they are made. However, not all of the management team will devote all of
their time to managing us. These factors may affect our returns.
BDC STATUS.
We have filed with the SEC our election to be regulated as a Business
Development Company under the Investment Company Act of 1940 ("1940 Act") and be
subject to Sections 54 through 65 of said 1940 Act ("BDC Provisions"). Since
making this election, the Company is subject to the provisions of 1940 Act as it
applies to Business Development Companies.
We intend upon the approval of a Preliminary Proxy Information Statement on Form
14(c) to elect out of Business Development Company status. In order to withdraw
its status as a Business Development Company, the Company will file a Form N-54C
with the SEC. Subsequent to the filing of the Form N-54C, the Company intends to
pursue other business opportunities although there is no assurance that any such
opportunities will be finalized.
RISKS ASSOCIATED WITH THE WITHDRAWAL OF ELECTION TO BE REGULATED AS A BDC
When the Company ceases to be a BDC, the shareholders will lose certain
protections, including the following:
o The Company will no longer be subject to the requirement that it
maintain a ratio of assets to senior securities of at least 200%;
o The Company will no longer be prohibited from protecting director
or officer against any liability to the Company or Company's
shareholders arising from willful malfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved the
conduct of that person's office;
o The Company will no longer be required to provide and maintain
bond issued by a reputable fidelity insurance company to protect
against larceny and embezzlement;
o The Company will no longer be required to ensure that a majority
the directors are persons who are not "interested persons," as
term is defined in Section 2(a)(19) of the 1940 Act, and persons
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that would be prevented from acting in the capacity employee,
officer or director of the Company if it were a BDC (as persons
convicted of certain malfeasance) will be able to on the
Company's board;
o The Company will no longer be subject to provisions of the 1940
Act regulating transactions between BDCs and certain affiliates
restricting the Company's ability to issue warrants and options;
o The Company will no longer be prohibited from issuing its shares
for services;
o The Company will be able to change the nature of its business
without having to obtain the approval of its shareholders;
o The Company will no longer be subject to provisions of the 1940
Act prohibiting the issuance of securities at below net asset
value book value; and
o The Company will no longer be required to disclose its net value
per share on the face of its financial statements.
o The Company will no longer be subject to the other provisions
protections set forth in Sections 55 through 64 of the 1940 Act
and the rules and regulations promulgated thereunder.
However, the Board will still be subject to customary principles of fiduciary
duty under the Maryland General Corporation Law with respect to the Company and
its shareholders.
WE COMMENCED INVESTMENT OPERATIONS IN 2004, AND AS A RESULT HAVE A LIMITED
OPERATING HISTORY.
We commenced investment operations in 2004. As a result, we have limited
financial information. We are subject to all of the business risks and
uncertainties associated with any new business, including the risks that we will
not achieve our investment objective.
REGULATIONS GOVERNING OUR OPERATIONS AS A BUSINESS DEVELOPMENT COMPANY AFFECT
OUR ABILITY TO, AND THE MANNER IN WHICH, WE RAISE ADDITIONAL CAPITAL, WHICH MAY
EXPOSE US TO RISKS.
Our business will require a substantial amount of capital. We may acquire
additional capital from the issuance of senior securities, including borrowings
or other indebtedness, or the issuance of additional shares of our common stock.
However, we may not be able to raise additional capital in the future on
favorable terms or at all. We may issue debt securities, other evidences of
indebtedness or preferred stock, and we may borrow money from banks or other
financial institutions, which we refer to collectively as "senior securities,"
up to the maximum amount permitted by the 1940 Act. The 1940 Act permits us to
issue senior securities in amounts such that our asset coverage, as defined in
the 1940 Act, equals at least 200% after each issuance of senior securities. Our
ability to pay dividends or issue additional senior securities would be
restricted if our asset coverage ratio were not at least 200%. If the value of
our assets declines, we may be unable to satisfy this test. If that happens, we
may be required to liquidate a portion of our investments and repay a portion of
our indebtedness at a time when such sales may be disadvantageous. As a result
of issuing senior securities, we would also be exposed to typical risks
associated with leverage, including an increased risk of loss. If we issue
preferred stock, the preferred stock would rank "senior" to common stock in our
capital structure, preferred stockholders would have separate voting rights and
might have rights, preferences, or privileges more favorable than those of our
common stockholders. If we raise additional funds by issuing more common stock
or senior securities convertible into, or exchangeable for, our common stock,
then the percentage ownership of our stockholders at that time will decrease.
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IF WE ARE UNABLE TO SATISFY INTERNAL REVENUE CODE REQUIREMENTS FOR QUALIFICATION
AS A RIC AND/OR OUR BOARD OF DIRECTORS DEEMS IT NOT APPROPRIATE TO MAKE THE RIC
ELECTION, THEN WE WILL BE SUBJECT TO CORPORATE-LEVEL INCOME TAX, WHICH WOULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND COULD ADVERSELY EFFECT OUR
FINANCIAL CONDITION.
If the Board of Directors deems it appropriate and we elect, and if we qualify,
to be treated as a RIC, we can generally avoid corporate-level federal income
taxes on income distributed to our stockholders as dividends. We will not
qualify for this pass-through tax treatment if we are unable to comply with the
source of income, diversification, or distribution requirements contained in
Subchapter M of the Code, or if we fail to maintain our election to be regulated
as a business development company under the 1940 Act. If we fail to qualify for
the federal income tax benefits allowable to RICs for any reason and remain or
become subject to a corporate-level income tax, the resulting taxes could
substantially reduce our net assets, the amount of income available for
distribution to our stockholders, and the actual amount of our distributions.
Such a failure could have a material adverse effect on us and the net asset
value of our common stock.
WE HAVE A LIMITED AMOUNT OF FUNDS AVAILABLE FOR INVESTMENT IN PORTFOLIO
COMPANIES AND AS A RESULT OUR INVESTMENTS LACK DIVERSIFICATION.
Based on the amount of our existing available funds, it is unlikely that we will
be able to commit our funds to investments in, and the acquisition of,
securities of a large number of companies. Until we file Form N-54C with the SEC
we will continue to operate as a non-diversified investment company within the
meaning of the 1940 Act. Prospective investors should understand that our
current investments are not, and in the future may not be, substantially
diversified. We may not achieve the same level of diversification as larger
entities engaged in similar venture capital activities. Therefore, our assets
may be subject to greater risk of loss than if they were more widely
diversified. The loss of one or more of our limited number of investments could
have a material adverse effect on our financial condition.
OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE, ON THE EXPERTISE AND EXPERIENCE OF
THE MEMBERS OF OUR MANAGEMENT TEAM.
Our success in identifying investment opportunities and pursuing and managing
such investments is, to a large degree, dependent upon the expertise and
experience of the management team and their ability to attract and retain
quality personnel.
POSSIBLE PORTFOLIO COMPANY DIRECTOR LIABILITY.
We will participate actively in the management of many portfolio companies,
often having a representative serve as a member of a portfolio company's board
of directors. Consequently, we may be subject to liability from lawsuits against
our representatives in their capacity as directors. Because director liability
insurance is typically not available at a reasonable price to small companies,
our assets, including assets not related to those portfolio companies, may be
exposed to the claims of creditors of such portfolio companies. Our management
will try to limit our exposure to such claims and liabilities where practical;
however, such efforts may not be successful. Although investors will not be
liable for claims against us, liability for claims against portfolio companies
would adversely affect our investment results and the amount of cash available
for distribution to our investors.
-22-
NON-DIVERSIFIED STATUS.
Until we file Form N-54C with the SEC we will be classified as a
"non-diversified" investment company under the 1940 Act. Our assets may be
subject to a greater risk of loss than if our investments were more widely
diversified.
RISKS RELATING TO OUR STOCK
THERE IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR SHARES AND SIGNIFICANT
TRADING ACTIVITY MAY OR MAY NOT COMMENCE IN THE REASONABLE NEAR FUTURE.
ADDITIONALLY, BECAUSE WE ARE A CLOSED END INVESTMENT COMPANY, OUR SHARES MAY
TRADE AT A DISCOUNT TO NET ASSET VALUE.
We cannot assure that our shares will trade at or above our net asset value. In
fact, it is common of publicly traded closed end investment companies to trade
at a discount to their net asset value. Additionally, because we are a closed
end investment company, we cannot redeem our shares on an ongoing basis and our
stockholders cannot exchange their shares of our common stock for shares of any
other fund.
WE ARE A CLOSED END INVESTMENT COMPANY AND WILL NOT REDEEM OUR SHARES.
HISTORICALLY, THE SHARES OF CLOSED-END INVESTMENT COMPANIES, AND BUSINESS
DEVELOPMENT COMPANIES IN PARTICULAR, HAVE TRADED AT A DISCOUNT TO THEIR NET
ASSET VALUE.
We are a closed end company and will not redeem our shares at the request of
shareholders and shareholders cannot exchange shares of our common stock for
shares of any other investment company. This means that if you wish to sell our
shares you must do so on the market at the then prevailing price. Historically,
the shares of closed end investment companies have traded at a discount to their
net asset value. Although closed end investment companies which distribute net
gains in the form of dividends do not trade at a discount, there can be no
assurance that we will realize any net capital gains to distribute in the form
of dividends in the foreseeable future and thus cannot rely on such positive
trading results. Business development companies typically trade at even deeper
discounts than other closed end investment companies.
MARKETING.
The markets for new products and services may be highly competitive, rapidly
changing, or both. Commercial success is frequently dependent on marketing and
support resources, the effectiveness and sufficiency of which are very difficult
to predict accurately. While this is a significant risk for all portfolio
companies, it is one of the principal economic risks of mezzanine and expansion
stage portfolio companies, which are anticipated to receive a large portion of
our equity investments. The marketing efforts of any particular portfolio
company may not be successful or such company's products or services may not be
able to be sold at a price and volume that will allow it to be profitable. The
products or services of a particular portfolio company may become obsolete or
require significant capital to obtain or maintain an adequate market share for
the success of the business.
THERE IS A RISK THAT INVESTORS MAY NOT RECEIVE DIVIDENDS OR THAT OUR DIVIDENDS
MAY NOT GROW OVER TIME.
We intend to make distributions on a quarterly basis to our stockholders. We
cannot assure you that we will achieve investment results that will allow us to
make a specified level of cash distributions or year-to-year increases in cash
distributions. In addition, due to the asset coverage test applicable to us as a
business development company, we may be limited in our ability to make
distributions.
-23-
WE HAVE NOT YET IDENTIFIED ALL OF THE PORTFOLIO COMPANIES IN WHICH WE WILL
INVEST.
Our investments are selected by our management team, subject to the approval of
our Directors, and stockholders do not have input into investment decisions.
RISKS RELATING TO OUR INVESTMENTS
THE INABILITY OF OUR PORTFOLIO COMPANIES TO ADEQUATELY EXECUTE THEIR GROWTH OR
EXPANSION STRATEGIES WOULD HAVE A NEGATIVE IMPACT ON OUR INVESTMENT RETURNS.
The possibility that our portfolio companies will not be able to fully carry out
or execute on their expansion or growth plans presents significant risk. Our
investment in our portfolio companies will ultimately depend on the secondary
market for our portfolio company's stock and our ability to liquidate securities
purchased by us in the portfolio company in such secondary market. If the
intended expansion or growth plan that was one of the main reasons we had
originally invested does not come to fruition or is otherwise impeded, the
secondary market value of the portfolio company's stock may negatively reflect
this information, making our investment not profitable or may subject us to a
substantial loss. Further, we may invest in portfolio companies for which no
secondary market for its securities exists on an exchange or other electronic
trading facility, in which case, the portfolio companies failure to complete or
execute its expansion or growth plan may severely inhibit such a secondary
market from developing. In such case, we may incur an entire loss of our
investment.
INVESTMENT IN PRIVATELY-HELD COMPANIES PRESENTS CERTAIN CHALLENGES, INCLUDING
THE LACK OF AVAILABLE INFORMATION ABOUT THESE COMPANIES, A DEPENDENCE ON THE
TALENTS AND EFFORTS OF ONLY A FEW INDIVIDUAL PORTFOLIO COMPANY MANAGERS AND A
GREATER VULNERABILITY TO ECONOMIC DOWNTURNS.
Infinity primarily focuses on public companies and we will invest in
privately-held companies in the process of becoming public or expecting to
become public in the future. Generally, very little public information exists
about these companies and we will be required to rely on the ability of the
management team to obtain adequate information to evaluate the potential returns
from investing in these companies. Also, privately-held companies frequently
have less diverse product lines and smaller market presence than larger
competitors. They are thus generally more vulnerable to economic downturns and
may experience substantial variations in operating results. These factors could
affect our investment returns.
OUR PORTFOLIO COMPANIES WILL LIKELY HAVE SIGNIFICANT COMPETITION FROM MORE
ESTABLISHED COMPANIES AS WELL AS INNOVATIVE EARLY STAGE COMPANIES.
Emerging growth companies often face significant competition, both from early
stage companies and from more established companies. Early stage competitors may
have strategic capabilities such as an innovative management team or an ability
to react quickly to changing market conditions, while more established companies
may possess significantly more experience and greater financial resources than
our portfolio companies. These factors could affect our investment returns.
-24-
OUR INVESTMENT RETURNS WILL DEPEND ON THE SUCCESS OF OUR PORTFOLIO COMPANIES
AND, ULTIMATELY, THE ABILITIES OF THEIR KEY PERSONNEL.
Our success will depend upon the success of our portfolio companies. Their
success, in turn, will depend in large part upon the abilities of their key
personnel. The day-to-day operations of our portfolio companies will remain the
responsibility of their key personnel. The loss of one or a few key managers can
hinder or delay a company's implementation of its business plan. Our portfolio
companies may not be able to attract qualified managers and personnel. Any
inability to do so may negatively impact our investment returns.
SOME OF OUR PORTFOLIO COMPANIES MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE
READILY AVAILABLE.
Companies in which we make expansion or mezzanine round investments will often
require substantial additional equity financing to fully execute their growth
strategies. Each round of venture financing is typically intended to provide a
company with only enough capital to reach the next stage of development, or in
the case of our financings, the turn around stage or Offering stage which will
provide us with a liquidity event. We cannot predict the circumstances or market
conditions under which our portfolio companies may seek additional capital. It
is possible that one or more of our portfolio companies will not be able to
raise additional financing or may be able to do so at a price or on terms which
are unfavorable to us, either of which could negatively impact our investment
returns.
RISKS OF THE COMPANY
THERE IS CURRENTLY A LIMITED PUBLIC MARKET FOR OUR SHARES AND SIGNIFICANT
TRADING ACTIVITY MAY OR MAY NOT COMMENCE IN THE REASONABLE NEAR FUTURE.
ADDITIONALLY, BECAUSE WE ARE A CLOSED END INVESTMENT COMPANY, OUR SHARES MAY
TRADE AT A DISCOUNT TO NET ASSET VALUE.
We cannot assure that our shares will trade at or above our net asset value. In
fact, it is common of publicly traded closed end investment companies to trade
at a discount to their net asset value. Additionally, because we are a closed
end investment company, we cannot redeem our shares on an ongoing basis and our
stockholders cannot exchange their shares of our common stock for shares of any
other fund.
WE ARE A CLOSED END INVESTMENT COMPANY AND WILL NOT REDEEM OUR SHARES.
HISTORICALLY, THE SHARES OF CLOSED-END INVESTMENT COMPANIES, AND BUSINESS
DEVELOPMENT COMPANIES IN PARTICULAR, HAVE TRADED AT A DISCOUNT TO THEIR NET
ASSET VALUE.
We are a closed end company and will not redeem our shares at the request of
shareholders and shareholders cannot exchange shares of our common stock for
shares of any other investment company. This means that if you wish to sell our
shares you must do so on the market at the then prevailing price. Historically,
the shares of closed end investment companies have traded at a discount to their
net asset value. Although closed end investment companies which distribute net
gains in the form of dividends do not trade at a discount, there can be no
assurance that we will realize any net capital gains to distribute in the form
of dividends in the foreseeable future and thus cannot rely on such positive
trading results. Business development companies typically trade at even deeper
discounts than other closed end investment companies.
-25-
WE MAY NOT REALIZE RETURNS ON OUR INVESTMENTS IN PORTFOLIO COMPANIES FOR SEVERAL
YEARS. THUS, AN INVESTMENT IN SHARES OF OUR COMMON STOCK IS ONLY APPROPRIATE FOR
INVESTORS WHO DO NOT NEED SHORT TERM LIQUIDITY IN THEIR MONEY.
We intend to make investments as quickly as possible consistent with our
investment objective in those investments that meet our criteria. However, it is
likely that a significant period of time will be required before we are fully
subscribed in the Offering and an additional amount of time before we are able
to fully invest the proceeds of the Offering. A majority of the securities that
we will own in our portfolio companies will be "restricted" under Rule 144 of
the Securities Act and thus cannot be sold unless we satisfy the requirements of
Rule 144. Accordingly it will likely be one or more years before we are able to
sell the entire position that we hold in an eligible portfolio company and make
any distributions of gains to our stockholders.
Regulations governing operations of a business development company will affect
the Company's ability to raise, and the way in which the Company raises
additional capital. Under the provisions of the 1940 Act, the Company is
permitted, as a business development company, to issue senior securities only in
amounts such that asset coverage, as defined in the 1940 Act, equals at least
200% after each issuance of senior securities. If the value of portfolio assets
declines, the Company may be unable to satisfy this test. If that happens, the
Company may be required to sell a portion of its investments and, depending on
the nature of the Company's leverage, repay a portion of its indebtedness at a
time when such sales may be disadvantageous and result in unfavorable prices.
Applicable law requires that business development companies may invest 70% of
its assets only in privately held U.S. companies, small, publicly traded U.S.
companies, certain high-quality debt, and cash.
The Company is not generally able to issue and sell common stock at a price
below net asset value per share. The Company may, however, sell common stock, or
warrants, options or rights to acquire common stock, at prices below the current
net asset value of the common stock if the Board of Directors determines that
such sale is in the best interests of the Company and its stockholders approve
such sale. In any such case, the price at which the Company's securities are to
be issued and sold may not be less than a price which, in the determination of
the Board of Directors, closely approximates the market value of such securities
(less any distributing commission or discount).
OUR SUCCESS WILL DEPEND, TO A LARGE DEGREE, ON THE EXPERTISE AND EXPERIENCE OF
THE MEMBERS OF OUR MANAGEMENT TEAM.
Our success in identifying investment opportunities and pursuing and managing
such investments is, to a large degree, dependent upon the expertise and
experience of the management team and their ability to attract and retain
quality personnel.
POSSIBLE PORTFOLIO COMPANY DIRECTOR LIABILITY.
We will participate actively in the management of many portfolio companies,
often having a representative serve as a member of a portfolio company's board
of directors. Consequently, we may be subject to liability from lawsuits against
our representatives in their capacity as directors. Because director liability
insurance is typically not available at a reasonable price to small companies,
our assets, including assets not related to those portfolio companies, may be
exposed to the claims of creditors of such portfolio companies. Our management
will try to limit our exposure to such claims and liabilities where practical;
however, such efforts may not be successful. Although investors will not be
liable for claims against us, liability for claims against portfolio companies
would adversely affect our investment results and the amount of cash available
for distribution to our investors.
-26-
NON-DIVERSIFIED STATUS.
Until we file Form N-54C with the SEC we will be classified as a
"non-diversified" investment company under the 1940 Act. At such time as we meet
certain asset diversification requirements, we may qualify and elect to be
treated as a RIC under the Internal Revenue Code and will thereafter seek to
meet the diversification standards thereunder. Nevertheless, our assets may be
subject to a greater risk of loss than if our investments were more widely
diversified.
COMPETITION FOR INVESTMENTS.
We expect to encounter competition from other entities having similar investment
objectives, some of whom may have greater resources than us. Historically, the
primary competition for venture capital investments has been from venture
capital funds and corporations, venture capital affiliates of large industrial
and financial companies, small business investment companies, and wealthy
individuals. Additional competition is anticipated from foreign investors and
from large industrial and financial companies investing directly rather than
through venture capital affiliates. Furthermore, our need to comply with
provisions of the 1940 Act pertaining to BDCs and, if we qualify and elect to be
treated as a RIC, provisions of the Internal Revenue Code pertaining to RICs,
might restrict our flexibility as compared with our competitors. Many of our
competitors are subject to regulatory requirements substantially different from
those to which we are subject, and, as a consequence, they may have a
competitive advantage to the extent that the regulations under which we operate
restrict our ability to take certain actions. The need to compete for investment
opportunities may make it necessary for us to offer portfolio companies more
attractive transaction terms than otherwise might be the case. We anticipate
being a co-investor with other professional venture capital groups, and these
relationships with other groups may expand our access to investment
opportunities.
PERSONNEL.
The success of any business is dependent upon the availability of qualified
personnel. Although our management team, in conjunction with other venture
capital investors, expect to provide our portfolio companies with a great deal
of assistance (particularly with regard to capital formation, major personnel
decisions, and strategic planning), the day-to-day operations crucial to success
will be in the hands of the management of each portfolio company. Each company's
management must have a philosophy and personality appropriate for that company's
particular stage of development. Early-stage companies typically need
entrepreneurial talents, while more mature companies require a higher level of
infrastructure and managerial coordination. Competition for qualified personnel
is intense at any stage of development. High turnover of personnel has become
endemic in many rapidly growing industries and could severely disrupt a
portfolio company's implementation of its business plan. Similarly, the ability
of a portfolio company's personnel, particularly its founders, to accept and
make the difficult transitions that occur as the company matures is hard to
predict or manage. Portfolio companies may not be able to attract and retain the
qualified personnel necessary for success. Our management may not be able to
select portfolio companies that have, or can obtain, the necessary management
resources.
COMPETITION.
Most emerging markets are highly competitive. We anticipate that nearly all our
portfolio companies will compete against firms with greater financial resources,
more extensive development, manufacturing, marketing, and service capabilities,
and a larger number of qualified managerial and technical personnel.
ILLIQUID NATURE OF INVESTMENTS.
We anticipate that substantially all of our portfolio investments (other than
short-term investments) will consist of securities that at the time of
acquisition are subject to restrictions on sale and for which no ready market
will exist, or if such a market does in fact exist, that it may not have
-27-
sufficient depth and liquidity to allow us to quickly sell our shares.
Restricted securities cannot be sold publicly without prior agreement with the
issuer to register the securities under the Securities Act, or by selling such
securities under Rule 144 or other provisions of the Securities Act which permit
only limited sales under specified conditions. Venture capital investments in
the securities of portfolio companies are privately negotiated transactions.
There may be no established trading market in which such securities can be sold.
In the case of warrants or equity securities in private companies, we generally
will realize the value of such securities only if the issuer is able to make an
initial public offering of its shares, or enters into a business combination
with another company which purchases our warrants or equity securities or
exchanges them for publicly traded securities of the acquirer. The feasibility
of such transactions depends upon the portfolio company's financial results as
well as general economic and equity market conditions. Furthermore, even if the
restricted warrants or equity securities owned become publicly-traded, our
ability to sell such securities may be limited by the lack of or limited nature
of a trading market for such securities. When restricted securities are sold to
the public, Infinity, under certain circumstances, may be deemed an
"underwriter" or a controlling person with respect thereto for the purposes of
the Securities Act, and be subject to potential liabilities as such under that
Act. Because of the illiquid nature of our investments, a substantial portion of
our assets will be carried on its books at fair value as determined by the
Board. This value will not necessarily reflect the amount which could be
realized upon a sale.
NEED FOR ADDITIONAL CAPITAL.
We expect that most portfolio companies will require additional equity financing
to satisfy their working capital requirements. The amount of additional equity
financing needed will depend upon the maturity and objectives of the particular
company. Each round of venture financing (whether from Infinity or other
investors) is typically intended to provide a portfolio company with enough
capital to reach the next major valuation milestone. If the funds provided are
not sufficient, a company may have to raise additional capital at a price or at
terms unfavorable to the existing investors, including Infinity. Although our
goal is to structure a liquidity event for our investment within 6 to 24 months
from the date we initially invest, the overall success may be reliant upon
securing additional capital from PIPE ("Private Investment in Public Equity")
investors for our portfolio companies. This additional PIPE financing or the
availability of any form of equity or debt capital is generally a function of
capital market conditions that are beyond the control of Infinity or any
portfolio company. Our management team may not be able to predict accurately the
future capital requirements necessary for success. Additional funds may not be
available from any source.
A SIGNIFICANT PORTION OF OUR INVESTMENT PORTFOLIO IS AND WILL CONTINUE TO BE
RECORDED AT FAIR VALUE AS DETERMINED IN GOOD FAITH BY OUR BOARD OF DIRECTORS
AND, AS A RESULT, THERE IS AND WILL CONTINUE TO BE UNCERTAINTY AS TO THE VALUE
OF OUR PORTFOLIO INVESTMENTS.
Under the 1940 Act, we will be required to carry our portfolio investments at
market value or, if there is no readily available market value, at fair value as
determined by our board of directors. We will not be permitted to maintain a
general reserve for anticipated losses. Instead, we will be required by the 1940
Act to specifically value each individual investment and record an unrealized
loss for any asset we believe has decreased in value. Typically there is not a
public market for the securities of the privately-held companies in which we
have invested and will generally continue to invest. As a result, we value our
investments in privately-held companies on a quarterly basis based on a
determination of their fair value made in good faith. Factors that the Board of
Directors may consider in determining fair value of an individual investment are
financial performance and condition, nature and realizable value of any
collateral, business plan and progress towards plan, restrictions on the
investment securities, liquidity, trading activity, financing activity,
discounted cash flow, relative valuation to comparable companies and other
relevant factors.
-28-
With respect to our investments for which market quotations are not readily
available and/or investments subject to restrictions, our Board of Directors
recently adopted a multi-step valuation process for each quarter as described
below:
1. Management reviews all investments and summarizes current status;
2. An independent valuation firm conducts independent appraisals of
all investments;
3. The audit committee of our board of directors reviews the
managements summary and the report of the independent valuation
firm and supplements with additional comments; and
4. The Board of Directors discusses valuation and determines the
fair value of each investment in our portfolio in good faith
based on the input of management, the independent valuation firm
and the audit committee.
Because such valuations, and particularly valuations of private securities and
private companies, are inherently uncertain, may fluctuate over short periods of
time and may be based on estimates, our determinations of fair value may differ
materially from the values that would have been used if a ready market for these
securities existed. Our net asset value could be adversely affected if our
determinations regarding the fair value of our investments were materially
higher than the values that we ultimately realize upon the disposal of such
securities.
OUR PORTFOLIO IS AND MAY CONTINUE TO BE CONCENTRATED IN A LIMITED NUMBER OF
PORTFOLIO COMPANIES AND INDUSTRIES, WHICH WILL SUBJECT US TO A RISK OF
SIGNIFICANT LOSS IF ANY OF THESE COMPANIES DEFAULTS ON ITS OBLIGATIONS UNDER ANY
OF ITS DEBT INSTRUMENTS OR BY A DOWNTURN IN THE PARTICULAR INDUSTRY.
Our portfolio is and may continue to be concentrated in a limited number of
portfolio companies and industries. Beyond the asset diversification
requirements associated with our goal to qualify as a RIC, we do not have fixed
guidelines for diversification, and while we are not targeting any specific
industries, our investments are, and could continue to be, concentrated in
relatively few industries. As a result, the aggregate returns we realize may be
significantly adversely affected if a small number of investments perform poorly
or if we need to write down the value of any one investment. Additionally, a
downturn in any particular industry in which we are invested could also
significantly impact the aggregate returns we realize.
WE MAY NOT CONTROL ANY OF OUR PORTFOLIO COMPANIES.
We may not control any of our portfolio companies, even though we may have board
representation or board observation rights. As a result, we are subject to the
risk that a portfolio company in which we invest may make business decisions
with which we disagree, may take risks or otherwise act in ways that do not
serve our interests.
WE MAY NOT REALIZE GAINS FROM OUR EQUITY INVESTMENTS.
Our goal is ultimately to dispose of the equity interests we acquire from our
portfolio companies and realize gains upon our disposition of such interests.
However, the equity interests we receive may not appreciate in value and, in
fact, may decline in value. Accordingly, we may not be able to realize gains
from our equity interests, and any gains that we do realize on the disposition
of any equity interests may not be sufficient to offset any other losses we
experience.
-29-
OUR ABILITY TO INVEST IN CERTAIN PRIVATE AND PUBLIC COMPANIES MAY BE LIMITED IN
CERTAIN CIRCUMSTANCES.
As a business development company, we must not acquire any assets other than
"qualifying assets" unless, at the time of and after giving effect to such
acquisition, at least 70% of our total assets are qualifying assets. We expect
that substantially all of our assets will be "qualifying assets," although we
may decide to make other investments that are not "qualifying assets" to the
extent permitted by the 1940 Act.
Amendments promulgated in 1998 by the Federal Reserve expanded the definition of
a marginable security under the Federal Reserve's margin rules to include any
non-equity security. Thus, any debt securities issued by any entity are
marginable securities under the Federal Reserve's current margin rules. As a
result, the staff of the SEC has raised the question to the business development
company industry as to whether a private company that has outstanding debt
securities would qualify as an "eligible portfolio company" under the 1940 Act.
In late 2006 the SEC expanded the definition of eligible portfolio company to
include all domestic operating companies that had no class of securities on a
national securities exchange. On July 21 2008, the SEC adopted rules providing
for an additional definition of eligible portfolio company, and expands the
ability of business development companies (BDCs) to invest in small cap
companies that list a class of securities on an exchange. The new rules provides
for the expansion of the definition of "eligible portfolio company" to include
certain public companies that list their securities on a national securities
exchange. The SEC amended the definition of "eligible portfolio company" to
include, a domestic operating company with a class of securities on a national
exchange may now qualify, so long as the company has a market capitalization of
less than $250 million (not subject to future adjustment for inflation) computed
as of any date in the 60 days prior to the BDC's acquisition of the company's
securities. A BDC follow on investment in such company more than 60 days after
the company's market capitalization was last below $250 million generally would
be considered an investment in an eligible portfolio company. If at the time of
the original investment by the BDC the company met the definition of eligible
portfolio company, and subsequently would not meet the definition because the
company no longer meets the requirements of the rule (i.e. following the BDC's
initial investment(s) in the company, the company listed its securities on an
Exchange), subject to certain conditions. These conditions permit a BDC to make
a follow-on investment only if the BDC, at the time of the follow-on investment:
(1) owns at least 50% of (a) the greater number of equity securities of such
company, including securities convertible into or exchangeable, for such
securities, and (b) the greater amount of certain debt securities of such
company held by the BDC at any time during the period when such company was an
eligible portfolio company; and (2) is one of the twenty largest holders of
record of the company's outstanding voting securities.
THE INABILITY OF OUR PORTFOLIO COMPANIES TO COMMERCIALIZE THEIR TECHNOLOGIES OR
CREATE OR DEVELOP COMMERCIALLY VIABLE PRODUCTS OR BUSINESSES WOULD HAVE A
NEGATIVE IMPACT ON OUR INVESTMENT RETURNS.
The possibility that our portfolio companies will not be able to commercialize
their technology, products or business concepts presents significant risks to
the value of our investment. Additionally, although some of our portfolio
companies may already have a commercially successful product or product line
when we invest, technology related products and services often have a more
limited market or life span than have products in other industries. Thus, the
ultimate success of these companies often depends on their ability to
continually innovate in increasingly competitive markets. Their inability to do
so could affect our investment return. We cannot assure you that any of our
portfolio companies will successfully acquire or develop any new technologies,
or that the intellectual property the companies currently hold will remain
viable. Even if our portfolio companies are able to develop commercially viable
products, the market for new products and services is highly competitive and
-30-
rapidly changing. Neither our portfolio companies nor we have any control over
the pace of technology development. Commercial success is difficult to predict,
and the marketing efforts of our portfolio companies may not be successful.
ITEM 1B. UNRESOLVED STAFF COMMENTS
----------------------------------
On August 14, 2009, we received a staff comment letter regarding our Form 1-E,
which was filed with the SEC on June 15, 2009. The comment letter dealt with BDC
compliance issues, clarification of disclosures on Form 1-E and the related
offering circular and formatting and disclosure in the Company's financial
statements. On November 27, 2009, we filed a response with the staff of the SEC
and as of this filing have not heard any further from the SEC.
ITEM 2. PROPERTIES
------------------
FACILITIES
The current corporate address is 80 Broad Street, 5th Floor, New York, New York
10004. The telephone number is 212-962-4400. The Company entered into a lease
effective December 2006 for twelve months and is continuing on a month-to-month
basis. The lease is noncancellable with a minimum monthly payment of $100 and
provision for additional charges for use of facilities and services utilized on
an as-needed basis. Rent expense incurred under the lease in the years ended
December 31, 2009 and 2008 was approximately $2,538 and $2,885, respectively.
REAL PROPERTY
None.
MINERAL PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
On September 30, 2009, a Notice for Summary Judgment in Lieu of Complaint was
filed by Jonathan Schwartz against Infinity Capital Group, Inc. in the Civil
Court of the City of New York, County of New York, Index No. 0046377.
On December 9, 2009 Infinity Capital Group, Inc. and Jonathan Schwartz entered
into a Stipulation of Settlement ("Settlement") for $18,000 regarding the
Complaint filed by Jonathan Schwartz against Infinity Capital Group, Inc. in the
Civil Court of the City of New York, County of New York, Index No. 0046377. The
Settlement terms were as follows:
* $1,500 paid upon signing of the Stipulation of Settlement;
* $6,000 paid within 10 days; and
* Remaining balance of $10,500 due within 60 days from December 9,
2009.
As of this filing, the Company has complied with all terms of the Settlement.
Infinity anticipates that it (including any future subsidiaries) will from time
to time become subject to claims and legal proceedings arising in the ordinary
course of business. It is not feasible to predict the outcome of any such
proceedings and Infinity cannot assure that their ultimate disposition will not
have a materially adverse effect on the Company's business, financial condition,
-31-
cash flows or results of operations. The Company is not a party to any pending
legal proceedings, nor is the Company aware of any civil proceeding or
government authority contemplating any legal proceeding as of the date of this
filing.
ITEM 4. (REMOVED AND RESERVED)
------------------------------
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------------------------------------------------
On August 25, 2008, the Company's common stock was approved for trading on the
OTC Bulletin Board by FINRA. The Company's Common Stock is traded on the OTC
Bulletin Board under the symbol "ICGP".
MARKET INFORMATION
FISCAL YEAR ENDED DECEMBER 31, 2009: HIGH LOW
------------ ------------
Quarter Ended March 31, 2009 $0.50 $0.12
Quarter Ended June 30, 2009 $0.50 $0.11
Quarter Ended September 30, 2009 $0.40 $0.11
Quarter Ended December 31, 2009 $0.25 $0.08
FISCAL YEAR ENDED DECEMBER 31, 2008: HIGH LOW
------------ ------------
Quarter Ended March 31, 2008 - -
Quarter Ended June 30, 2008 - -
Quarter ended September 30, 2008 $0.80 $0.55
Quarter ended December 31, 2008 $0.60 $0.40
The above quotations reflect inter-dealer prices, without mark-up, mark-down or
commission, as reported through Bloomberg and may not represent actual
transactions.
HOLDERS
As of December 31, 2009, the Company had approximately 42 holders of record of
the Common Stock. Since a portion of the Company's common stock may be held in
"street" or nominee name, the Company is unable to determine the exact number of
beneficial holders.
PENNY STOCK RULES
The shares of Company common stock are covered by Section 15(g) of the
Securities Exchange Act of 1934 and SEC Rules 15g-1 through 15g-6, which impose
additional sales practice requirements on broker-dealers who sell Company
securities to persons other than established customers and accredited investors.
Rule 15g-2 declares unlawful any broker-dealer transactions in penny stocks
unless the broker-dealer has first provided to the customer a standardized
disclosure document.
Rule 15g-3 provides that it is unlawful for a broker-dealer to engage in a penny
stock transaction unless the broker-dealer first discloses and subsequently
confirms to the customer the current quotation prices or similar market
information concerning the penny stock in question.
-32-
Rule 15g-4 prohibits broker-dealers from completing penny stock transactions for
a customer unless the broker-dealer first discloses to the customer the amount
of compensation or other remuneration received as a result of the penny stock
transaction.
Rule 15g-5 requires that a broker-dealer executing a penny stock transaction,
other than one exempt under Rule 15g-1, disclose to its customer, at the time of
or prior to the transaction, information about the sales persons' compensation.
Because a "penny stock" is, generally speaking, one selling for less than $5.00
per share, the Company's common stock may be subject to the foregoing rules. The
application of the penny stock rules may affect stockholders' ability to sell
their shares because some broker-dealers may not be willing to make a market in
the Company's common stock because of the burdens imposed upon them by the penny
stock rules.
DIVIDEND POLICY
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Since its
inception, the Company has never declared or paid any cash dividends on its
Common Stock. Any determination to pay dividends in the future is at the
discretion of the Company's Board of Directors and will depend upon the
Company's financial condition, results of operations, capital requirements,
limitations contained in loan agreements and such other factors as the Board of
Directors deems relevant. However, the Company may from time to time distribute
shares or interests in portfolio companies.
SHARES ELIGIBLE FOR FUTURE SALE
Infinity currently has 6,547,391 shares of common stock outstanding as of
December 31, 2009. A current shareholder who is an "affiliate" of Infinity,
defined in Rule 144 as a person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
Infinity will be required to comply with the resale limitations of Rule 144. Of
these shares a total of 4,473,008 shares have been held for 6 months or more and
are eligible for resale under Rule 144. Sales by affiliates will be subject to
the volume and other limitations of Rule 144, including certain restrictions
regarding the manner of sale, notice requirements, and the availability of
current public information about Infinity. The volume limitations generally
permit an affiliate to sell, within any three month period, a number of shares
that does not exceed the greater of one percent of the outstanding shares of
common stock or the average weekly trading volume during the four calendar weeks
preceding his sale. A person who ceases to be an affiliate at least three months
before the sale of restricted securities beneficially owned for at least two
years may sell the restricted securities under Rule 144 without regard to any of
the Rule 144 limitations.
RECENT SALES OF UNREGISTERED SECURITIES
We made the following unregistered sales and issuances of its securities from
January 1, 2009 through December 31, 2009.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
---------------------- --------------------- ---------------- --------------------- -----------------------
June 1, 2009 Common stock 21,592 Payment of $4,298 Business Associate
Interest Due On Note
Payment of $2,500 Due
June 1, 2009 Common stock 12,500 on Note Business Associate
-33-
EXEMPTION FROM REGISTRATION CLAIMED
All of the sales by us of our unregistered securities were made in reliance upon
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). The
entity listed above that purchased the unregistered securities was an existing
shareholder, known to us and our management, through pre-existing business
relationships, as a long standing business associate. The entity was provided
access to all material information, which it requested, and all information
necessary to verify such information and was afforded access to our management
in connection with the purchases. The purchaser of the unregistered securities
acquired such securities for investment and not with a view toward distribution,
acknowledging such intent to us. All certificates or agreements representing
such securities that were issued contained restrictive legends, prohibiting
further transfer of the certificates or agreements representing such securities,
without such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
ISSUER PURCHASES OF EQUITY SECURITIES
Infinity Capital Group, Inc. did not repurchase any shares of its common stock
during the quarter ended December 31, 2009.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF ANY
NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" ON PAGE 20 AND
ELSEWHERE IN THIS REPORT.
OVERVIEW
Infinity Capital Group is a non-diversified, closed-end management investment
company that has elected to be treated as a Business Development Company ("BDC")
under the Investment Company Act of 1940 ("1940 Act"). As a BDC, the Company
must be primarily engaged in the business of furnishing capital and making
available managerial assistance to companies that generally do not have ready
access to capital through conventional financial channels. Such companies are
termed "portfolio" companies. On September 10, 2008, the Company commenced
trading on the OTC Bulletin Board under the symbol ICGP.
During the year ended December 31, 2008, we acquired 6,203,960 shares of NPI08,
Inc. On December 31, 2009, the Company entered into a Share Purchase Agreement
with BlackStar Energy Group, Inc. ("Buyer") whereby the Buyer agreed to purchase
all of the equity NPI08, Inc., a portfolio company held by the Company., for
$125,000 cash and 50,000 common shares of NPI08, Inc.
On September 30, 2009, a Notice for Summary Judgment in Lieu of Complaint was
filed by Jonathan Schwartz against Infinity Capital Group, Inc. in the Civil
Court of the City of New York, County of New York, Index No. 0046377.
-34-
On December 9, 2009 Infinity Capital Group, Inc. and Jonathan Schwartz entered
into a Stipulation of Settlement ("Settlement") for $18,000 regarding the
Complaint filed by Jonathan Schwartz against Infinity Capital Group, Inc. in the
Civil Court of the City of New York, County of New York, Index No. 0046377. The
Settlement terms were as follows:
* $1,500 paid upon signing of the Stipulation of Settlement;
* $6,000 paid within 10 days; and
* Remaining balance of $10,500 due within 60 days from December 9,
2009.
As of this filing, the Company has complied with all terms of the Settlement.
On March 25, 2010, the Company received a demand letter for full payment of
principal and interest on a $15,000 promissory note, dated October 10, 2005 (the
Note.) The Note accrues interest at 7% per annum and had an original due date of
November 10, 2005. The holder of the Note, Mr. Wulf Rehder, an affiliate of the
Company, granted the Company extensions of the Note until June 20, 2006 and then
until July 30, 2006. Mr. Rehder has given the Company notice of his intent to
pursue legal action unless payment in full is received by April 16, 2010. As of
March 31, 2010, the Company owes Mr. Rehder $15,000 in principal and accrued
interest of $4,695 for a total of $19,695. The Company has entered into
discussions with Mr. Rehder to resolve the default. The Company can make no
assurances that it will be able to come to a satisfactory resolution to the
situation.
On March 17, 2010, the Company filed a preliminary Proxy Information Statement
on Form 14(c) with the SEC to be finalized after review by the SEC and mailed to
our shareholders. The Proxy Information on Form 14(c) intends to give notice to
our shareholders of the Company's intention to elect out of Business Development
Company status and that we intend to effect a reverse split our common stock in
a ratio up to a 10:1, as to be decided by the Board of Directors. The Company's
shareholders are not being asked to vote on such items, but are being informed
that the Company has the necessary votes to pass such items.
In order to withdraw its status as a Business Development Company, the Company
will file a Form N-54C with the SEC. Subsequent to the filing of the Form N-54C,
the Company intends to pursue other business opportunities. The Company will at
all times conduct its activities in such a way that it will not be deemed an
"investment company" subject to regulation under the 1940 Act. Thus, it will not
hold itself out as being engaged primarily in the business of investing,
reinvesting or trading in securities. In addition, the Company will conduct its
business in such a manner as to ensure that it will not own or propose to
acquire investment securities having a value exceeding 40 percent of the
Company's total assets at any one time.
There is no assurance that any business opportunities will be finalized or that
any stockholder will realize any return on their shares after such a
transaction. Any merger or acquisition completed by us can be expected to have a
significant dilutive effect on the percentage of shares held by our current
stockholders. We believe we are an insignificant participant among the firms
which engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns that have significantly
greater financial and personnel resources and technical expertise than we have.
In view of our limited financial resources and limited management availability,
we will continue to be at a significant competitive disadvantage compared to our
competitors.
The Company has no plans at this time for purchases or sales of fixed assets
which would occur in the next twelve months.
Other than the resignation of Joseph M. Chiappetta, the Company's Vice-President
of Business Development on March 17, 2010, the Company has no expectation or
-35-
anticipation of significant changes in number of employees in the next twelve
months; it may acquire or add employees of an unknown number in the next twelve
months.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED DECEMBER 31,
2008
The Company recognized $2,820 in investment income during the year ended
December 31, 2009 compared to $1,406 during the year ended December 31, 2008.
The increase of $1,414 was a result of additional interest income.
Total expenses during the year ended December 31, 2009 were $240,278 compared to
$308,158 during the year ended December 31, 2008. The decrease of $67,880 was a
result of a decrease of $56,205 in non-cash director fees resulting from the
issuance of 404,000 options to purchase the Company's stock pursuant to the
shareholder approved 2008 Stock Option Plan, a decrease of $18,597 in interest
and settlement costs resulting from a non-repeating settlement agreement with
two of the Company's debtors under which they received partial repayment of
their loan and were issued 100,000 shares of the Company's stock, a decrease of
$34,458 in professional fees due to non-repeating consulting services related to
the Company's investment in Strategic Environmental and Energy Solutions and
fees related to setting up the Company's stock option plan, a decrease of
$21,984 in net management fees and officers' salary primarily due to increased
waiver of contracted salary amounts by Mr. Laborde and Mr. Greenberg, offset by
an increase of $74,823 in payroll expenses due to the Company hiring Joseph M.
Chiappetta as Vice President of Business Development including $52,823 in
non-cash compensation resulting from the issuance of 196,000 options to purchase
the Company's stock pursuant to the shareholder approved 2008 Stock Option Plan.
During the year ended December 31, 2009, the Company had a net investment loss
of $407,556 compared to a net investment loss of $170,628 in the year ended
December 31, 2008. The decrease of $236,928 is a result of an increase of
$306,222 in income tax provision offset by a decrease in net investment loss of
$69,294 and the decrease in total expenses, described above. Income tax
provision includes reversal of prior deferred tax benefits related to offsetting
prior unrealized investment gains.
During the year ended December 31, 2009, the Company had net realized and
unrealized losses of $519,912 (net of income tax benefit of $170,098) compared
to net realized and unrealized gains of $264,240 (net of income taxes of
$136,124) during the year ended December 31, 2008. In 2009, the losses are
largely the result of a decrease in value in the Company's investment in
Strategic Environmental and Energy Solutions. In 2008, the gains were largely
the result of a decrease in value in the Company's investment in Strategic
Environmental and Energy Solutions.
During the year ended December 31, 2009, the Company had a net decrease in net
assets from operations of $927,468 compared to a net increase in net assets of
$93,612 during the year ended December 31, 2008. The decrease in net assets was
a result of the increase in net realized and unrealized losses, increase in
income tax provision and increase in total expenses, as discussed above.
Net assets per share from operations decreased $0.14 per share during the year
ended December 31, 2009 and increased by $0.01 per share during the year ended
December 31, 2008. The Company will continue to have operating losses in the
future unless adequate income can be achieved to meet expenses.
The United States and the global business community is experiencing severe
instability in the commercial and investment banking systems which is likely to
-36-
continue to have far-reaching effects on the economic activity in the country
for an indeterminable period. The long-term impact on the United States economy
and the Company's operating activities and ability to raise capital cannot be
predicted at this time, but may be substantial.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance at December 31, 2009 of $1,002 compared to $2,891
at December 31, 2008. Current liabilities exceed current assets by $567,810. The
Company had $104,926 in non-controlled investments at December 31, 2009.
The notes payable of the Company increased from $260,800 as of December 31, 2008
to $291,820 as of December 31, 2009. This net increase was attributable to the
following: i) In the first quarter of 2009, the Company sold $10,000 in
promissory notes to various individuals the proceeds of which were used for
general corporate purposes; (ii) In the second quarter of 2009, the Company sold
a $125,000 promissory Note to an individual the proceeds of which were used to
pay off $75,000 in delinquent notes payable and related interest expense as well
as general corporate purposes; (iii) In the third quarter of 2009 holders of
$125,000 in notes payable claimed collateral being held against their notes
which were in default. The note holders put a value of $20,250 on the collateral
which we feel undervalues the collateral but we have shown this amount as
partial repayment of the notes in the financial statements contained herein;
(iv) In the fourth quarter of 2009, the company used part of the proceeds from
selling its position in NPI08, Inc. to repay $9,500 in notes payable.
During the year ended December 31, 2009, the Company used $39,707 in operating
activities. During the year ended December 31, 2008, the Company used $400,556
in operating activities. The reduced decrease of $360,849 was primarily the
non-repeating purchase of investments in Strategic Environmental and Energy
Services and NPI08. During the year ended December 31, 2009, the Company had an
increase in accounts payable of $42,180 and an increase in accrued expenses of
$60,339.
During the years ended December 31, 2009 and 2008, the Company did not use or
receive funds from its investing activities. During the year ended December 31,
2009, the Company received funds of $37,818 from financing activities. The
Company received funds of $135,770 from notes payable and made payments of
$104,750 on notes payables. The Company issued shares of its common stock valued
at $6,798 as partial payment on notes payable and related interest expense.
During the year ended December 31, 2008, the Company received funds of $335,838
from its financing activities.
NEED FOR ADDITIONAL FINANCING
No commitments to provide additional funds have been made by management or other
stockholders. Accordingly, there can be no assurance that any additional funds
will be available to the Company to allow it to cover expenses as they may be
incurred.
GOING CONCERN
The Company has a deficit in working capital and assets, which may be illiquid.
Management plans to fund operations of the Company through interest bearing
advances from existing shareholders and the sale of its securities, until such
time as a business combination or other profitable investment may be achieved.
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2009 and 2008 includes a "going concern"
explanatory paragraph that describes substantial doubt about the Company's
ability to continue as a going concern.
-37-
The Company may raise additional capital through the sale of its equity
securities, through an offering of debt securities, or through borrowings from
financial institutions or individuals. Management believes that actions
presently being taken to obtain additional funding provide the opportunity for
the Company to continue as a going concern. There are no written agreements in
place for such funding, and there can be no assurance that such funding will be
available in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
Our Company's business activities contain elements of risk. Neither our
investments nor an investment in us is intended to constitute a balanced
investment program.
A substantial portion of our assets is comprised of small publicly traded
companies whose market for their securities are thinly traded, and small private
companies seeking expansion. These businesses tend to be thinly capitalized,
unproven, small companies that lack management depth and have not attained
profitability or have limited history of operations. Because of the speculative
nature and the lack of or limited public market for these investments, there is
significantly greater risk of loss than is the case with traditional investment
securities. We expect that some of our investments will be a complete loss or
will be unprofitable and that some will appear to be likely to become successful
but never realize their potential. Even when our private equity investments
become publicly traded, the market for the unseasoned publicly traded securities
may be relatively illiquid.
Because there is typically no or a limited public market for our interests in
the small companies in which we invest, the valuation of the equity interests in
that portion of our portfolio is determined in good faith by or under the
direction of our Board of Directors, in accordance with our valuation
procedures. In the absence of a readily ascertainable market value, the
determined value of our portfolio of equity interests may differ significantly
from the values that would be placed on the portfolio if a liquid ready market
for the equity interests existed. Any changes in valuation are recorded in our
consolidated statements of operations as "Net increase (decrease) in unrealized
appreciation on investments." Changes in valuation of any of our investments in
public and privately held companies from one period to another may be volatile.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------
The audited financial statements of Infinity Capital Group, Inc. for the year
ended December 31, 2009 appear as pages F-1 through F-24.
-38-
INFINITY CAPITAL GROUP, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
AUDITED
F-1
INFINITY CAPITAL GROUP, INC.
Financial Statements
TABLE OF CONTENTS
PAGE
------
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Larry O'Donnell, P.C. F-3
FINANCIAL STATEMENTS
Balance sheets F-4
Statements of operations F-5
Statements of changes in net assets F-6
Statements of cash flows F-7
Schedule of investments F-8-F-9
Notes to financial statements F-10-F-24
F-2
Larry O'Donnell, CPA, P.C.
Telephone (303)745-4545 2228 South Fraser Street
E-mail larryodonnellcpa@comcast.net Unit 1
www.larryodonnellcpa.com Aurora, Colorado 80014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Infinity Capital Group, Inc.
New York, New York
I have audited the accompanying balance sheets of Infinity Capital Group, Inc.
including the schedule of investments as of December 31, 2009 and 2008, and the
related statements of operations, changes in net assets and cash flows for the
years then ended and the financial highlights for the years ended December 31,
2009, 2008, 2007, 2006 and 2005. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audits.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audits provide a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Infinity Capital Group, Inc. as of
December 31, 2009 and 2008 and the results of its operations, changes in net
assets and cash flows for the years then ended 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 9 to the
financial statements the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 9. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Larry O'Donnell, CPA, P.C.
-------------------------------
LARRY O'DONNELL, CPA, P.C.
March 29, 2010
F-3
INFINITY CAPITAL GROUP, INC.
BALANCE SHEETS
December December
31, 2009 31, 2008
--------------- ---------------
Assets
Non Affiliated Investments (Cost - $159,005 and $228,439) $ 104,926 $ 724,075
Controlled Investments (Cost - $232,000) - 244,852
Promissory Note 50,730 27,477
Stock Sale Receivable 110,750 -
Cash 1,002 2,891
Deferred offering costs - 4,608
Other assets 7,353 9,775
--------------- ---------------
Total assets $ 274,761 $ 1,013,678
=============== ===============
Liabilities
Accounts payable nonaffiliates $ 276,514 $ 234,334
Accrued expenses payable others 53,374 23,965
Notes payable others 164,020 133,000
Total Payable To Officers & Directors 223,737 192,807
--------------- ---------------
Total liabilities 717,645 584,106
--------------- ---------------
Net Assets $ (442,884) $ 429,572
=============== ===============
Composition of net assets
Preferred stock, $0.001 par value,
10,000,000 shares authorized,
none issued or outstanding.
Common Stock. $0.001 par value,
100,000,000 shares authorized 6,547,391 and
6,513,399 issued and outstanding, respectively $ 6,547 $ 6,513
Additional paid-in capital 820,735 765,756
Accumulated income (deficit)
Accumulated net operating (deficit), net of tax (1,273,783) (866,226)
Net realized gain on investments, net of tax 57,696 178,794
Net unrealized increase (decrease) of investments, net of tax (54,079) 344,735
--------------- ---------------
Net Assets $ (442,884) $ 429,572
=============== ===============
Net Asset Value Per Share $ (0.07) $ 0.07
=============== ===============
The accompanying notes are an integral part of the financial statements
F-4
INFINITY CAPITAL GROUP, INC.
STATEMENTS OF OPERATIONS
Year Ended
December 31,
2009 2008
------------- ------------
Investment Income
Interest Income 2,820 1,406
------------- ------------
Total Investment Income 2,820 1,406
------------- ------------
Expenses
Salaries and wages 98,823 24,000
Waiver of Salaries and wages (6,000) -
Director Fees - 56,205
Management fees 90,000 90,000
Waiver of Management Fees (61,617) (45,633)
Professional fees 46,283 80,741
General and administrative 33,915 45,374
Interest & Settlement Costs 38,874 57,471
------------- ------------
Total Expenses 240,278 308,158
------------- ------------
Net Investment Income (Loss) before taxes (237,458) (306,752)
Provision for income tax, all deferred 170,098 (136,124)
------------- ------------
Net investment income (loss) (407,556) (170,628)
------------- ------------
Net realized and unrealized gains (losses):
Net realized gain (loss) on investments
Affiliates (106,250) -
Net realized gain (loss) on investments
Non-affilates (21,193) (43,046)
------------- ------------
Net realized gain (loss) on investments (127,443) (43,046)
Deferred tax on realized gains (6,345) (14,636)
------------- ------------
Net realized gain (loss), net of tax (121,098) (28,410)
------------- ------------
Net change in unrealized increase (decrease),
Affiilates (12,852) 12,852
Net change in unrealized increase (decrease),
Non-affiliates (549,715) 430,558
------------- ------------
Net change in unrealized increase (decrease), (562,567) 443,410
Deferred tax on change in unrealized (163,753) 150,760
------------- ------------
Net change in unrealized, net of tax (398,814) 292,650
------------- ------------
Net realized and unrealized gains (losses) (519,912) 264,240
------------- ------------
Net increase (decrease) in net assets
from operations $ (927,468) $ 93,612
============= ============
Net increase (decrease) in net assets per share from continuing operations
Basic $ (0.14) $ 0.01
Diluted $ (0.14) $ 0.01
============= ============
Weighted average number of shares outstanding
Basic 6,531,811 6,375,601
Diluted 6,531,811 6,573,138
============= ============
The accompanying notes are an integral part of the financial statements
F-5
INFINITY CAPITAL GROUP, INC.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2009 2008
------------------ -------------------
Changes in net assets from operations:
Net investment loss $ (407,556) $ (170,628)
Net realized gain (loss) on investments, net of tax (121,098) (28,410)
Net change in unrealized increase (decrease), net of tax (398,814) 292,651
------------------ -------------------
Net (decrease) increase in net assets from operations (927,468) 93,612
------------------ -------------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from issuance of common stock, net of offering costs 2,189 175,001
Grant of director & employee stock options 52,823 56,205
------------------ -------------------
Net increase in net assets from stock transactions 55,012 231,206
------------------ -------------------
Net (decrease)increase in net assets (872,456) 324,818
Net assets at beginning of year 429,572 104,754
------------------ -------------------
NET ASSETS AT END OF PERIOD (ACCUMULATED NET INVESTMENT
LOSS OF $1,273,783 AND $866,226) $ (442,884) $ 429,572
================== ===================
The accompanying notes are an integral part of the financial statements
F-6
INFINITY CAPITAL GROUP, INC.
STATEMENT OF CASH FLOWS
Year Ended
December 31, December 31,
2009 2008
-------------- ---------------
Cash Flows from Operating Activities:
Net (decrease) increase in net assets from operations $ (927,468) $ 93,612
Adjustments to reconcile net increase (decrease) in net assets
from operations to net cash used in operating activities
Change in unrealized (increase) decrease of investments, pre-tax 562,567 (443,410)
Proceeds from disposition of investment securities 173,991 65,072
Realized loss on investments, pre-tax 127,443 43,046
Net purchase of investments - (338,166)
Stock sale receivable (110,750) -
Loan receivable and accrued interest (increase) decrease (23,253) 22,523
Depreciation and amortization 1,394 1,159
Grant of stock options to directors & employees 52,823 56,205
Other assets (increase) decrease 1,027 (3,944)
Accounts payable and credit cards 42,180 72,485
Accrued expenses payable 60,339 30,862
-------------- ---------------
Net cash provided by (used for)
operating activities (39,707) (400,556)
-------------- ---------------
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Proceeds from notes payable 135,770 153,780
Payments on notes payable (104,750) (25,000)
Deferred offering costs 4,608 32,056
Stock issued to purchase investment - 82,000
Sale of stock, net of offering costs (4,608) 53,162
Stock issued pursuant to settlement 6,798 39,840
-------------- ---------------
Net cash provided by (used for)
financing activities 37,818 335,838
-------------- ---------------
Decrease in Cash (1,889) (64,718)
Cash and Cash Equivalents - Beginning of Period 2,891 67,609
-------------- ---------------
Cash and Cash Equivalents - End of Period $ 1,002 $ 2,891
============== ===============
The accompanying notes are an integral part of the financial statements
F-7
SCHEDULE OF INVESTMENTS
December 31, 2009
Original
Date of Original Fair
Shares Warrants Acquisition Cost Value
------------------------------- ---------- ------------
Non Affiliate Investments
328,125(1) Nov-04 Strategic Environmental & Energy Resources Inc $ 69,294 $ 69,322
100,000(2) Mar-08 publicly traded over the counter, 65,221 21,127
125,000 Mar-08 provider of technology-based industrial services 24,490 14,477
in the environmental, energy and rail transport(3)
---------- ------------
Subtotal $ 159,005 $ 104,926
---------- ------------
TOTAL INVESTMENTS $ 159,005 $ 104,926
========== ============
Percentage of net asset information is not provided since net assets are
negative and would be misleading.
(1) Company reverse split the stock at 1 for 4 shares January 22, 2008
(2) Note plus $50,000 cash exchanged for Shares and Warrants of SENR
(3) Formerly Satellite Organizing Systems, Inc.
NOTES TO SCHEDULE OF INVESTMENTS
The above investments are non-income producing. Equity investments that
have not paid dividends within the last twelve months are considering
non-income producing.
The value of all securities for which there is no readily available
market value is determined in good faith by the Board of Directors. In
making its determination, the Board of Directors has considered
valuation appraisals provided by an independent valuation provider. See
Note 1 to the Financial Statements.
As of December 31, 2009, all securities in Strategic Environmental &
Energy Resources, Inc. owned by the Company are subject to legal
restrictions on resale. As a result, the Company's ability to sell or
otherwise transfer these securities is limited.
The accompanying notes are an integral part of the financial statements
F-8
SCHEDULE OF INVESTMENTS
December 31, 2008
Original
Date of Original Fair
Shares Warrants Acquisition Cost Value
-------------------------------------- ------------- -------------
Common stock in controlled affiliates, 57% of net assets
6,203,960 Jun-08 NPI08, Inc. publicly traded over the counter, $ 232,000 $ 244,852
57% of net assets, previously an education and college
preparation company, currently inactive (1)
------------- -------------
Subtotal $ 232,000 $ 244,852
------------- -------------
Noncontrol Affiliate Investments, 169% of net assets
528,125(2) Nov-04 Strategic Environmental & Energy Resources Inc $ 115,198 $ 561,890
125,000(3) Mar-08 publicly traded over the counter, 81,526 132,992
125,000 Mar-08 provider of technology-based industrial services 24,490 26,899
in the environmental, energy and rail transport,
168% of net assets (4)
717,500 Aug-04 Lumonall, Inc. publicly traded over the counter, $ 7,225 $ 2,294
global supplier of photoluminescent products,
1% of net assets (5)
------------- -------------
Subtotal $ 228,439 $ 724,075
------------- -------------
TOTAL INVESTMENTS $ 460,439 $ 968,927
============= =============
(1) Acquired for a total of $150,000 cash and 102,500 shares of Infinity common stock
(2) Company reverse split the stock at 1 for 4 shares January 22, 2008
(3) Note plus $50,000 cash exchanged for Shares and Warrants of SENR
(4) Formerly Satellite Organizing Systems, Inc.
(5) Formerly Midland International Corporation
NOTES TO SCHEDULE OF INVESTMENTS
The above investments are non-income producing. Equity investments that have not
paid dividends within the last twelve months are considering non-income
producing.
The value of all securities for which there is no readily available market value
is determined in good faith by the Board of Directors. In making its
determination, the Board of Directors has considered valuation appraisals
provided by an independent valuation provider. See Note 1 to the Financial
Statements.
As of December 31, 2008, all securities in NPI08, Inc. and Strategic
Environmental & Energy Resources, Inc. owned by the Company are subject to legal
restrictions on resale. As a result, the Company's ability to sell or otherwise
transfer these securities is limited.
The Company owns more than 25% of the outstanding common stock of NPI08, Inc.
The accompanying notes are an integral part of the financial statements
F-9
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Infinity Capital Group, Inc. ("ICG", the "Company"), was incorporated in the
State of Maryland on July 8, 2003. ICG is a non-diversified, closed-end
management investment company that has elected to be treated as a Business
Development Company ("BDC") under the Investment Company Act of 1940 ("1940
Act").
On April 29, 2005, the Company entered into a Plan of Merger with Fayber Group,
Inc. ("Fayber"). The Company acquired all of the outstanding shares of Fayber
for the purposes of accomplishing the Merger of the Company and Fayber. All
shares of Fayber were retired by virtue of the merger. The Merger was completed
on May 2, 2005 with the Company as the surviving corporation. The Company
acquired 100% of Fayber in exchange for 100,000 shares of common stock and a
$20,000 Promissory Note.
As a BDC, the Company must be primarily engaged in the business of furnishing
capital and making available managerial assistance to companies that generally
do not have ready access to capital through conventional financial channels.
Such companies are termed "portfolio" companies.
The Company invests in portfolio companies that management identifies as
emerging growth companies positioned to benefit from additional financing and
managerial assistance. The portfolio companies frequently have little or no
prior operating history. The Company intends on investing in emerging growth
companies, defined as (A) publicly traded companies whose market for their
securities are thinly traded which may be caused by a shift in business
direction, change in market or industry in which they operate, or various other
factors causing their stock and trading in their stock to not be in or fall out
of favor; (B) publicly traded companies that have non-marginable securities and
seek expansion or mezzanine capital to implement growth strategies executable
within 12-24 months; and (C) private companies seeking expansion or mezzanine
financing and which wish to access the equity capital markets within the next 12
months.
The Company received a letter from the Securities and Exchange Commission
("SEC") dated August 14, 2009 detailing comments on the Company's Regulation E
filing in the second quarter of 2009. In response to the letter the Company
withdrew its Regulation E filing and has made some revisions to the format of
its financial statements. As a result of issues raised in the comment letter,
the Company has determined that there are weaknesses in its internal controls.
The Company has filed its response to the SEC, has answered all concerns raised
and has complied with all recommendations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect 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.
CASH AND EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less as cash equivalents.
F-10
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
ACCOUNTS RECEIVABLE
The Company has established an allowance for doubtful accounts, with accounts
deemed uncollectible written off to bad debt expense. No amounts were written
off to bad debt expense for the years ended December 31, 2009 and 2008.
INCOME TAX
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss
carryforwards and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
REVENUE RECOGNITION
Revenue is recognized on an accrual basis as earned under contract terms.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, as reported in the
accompanying balance sheets, approximates fair value.
SEGMENT DISCLOSURES
Management considers the Company as operating in only one segment, investment in
emerging growth companies. Assets are held domestically and all operations are
domestic.
STOCK-BASED COMPENSATION
The Company follows FASB Accounting Standards Codification No. 718 -
Compensation - Stock Compensation for share based payments to employees. The
Company follows FASB Accounting Standards Codification No. 505 for share based
payments to Non-Employees. For the year ended December 31, 2009, 196,000 options
to purchase the Company's common stock were issued to the Company's Vice
President of Business Development pursuant to the Company's 2008 stock option
plan. For the year ended December 31, 2008 404,000 options to purchase the
Company's common stock were issued to the Company's independent directors
pursuant to the Company's 2008 stock option plan.
INVESTMENTS
Investments are stated at "value" as defined in the 1940 Act and in the
applicable regulations of the Securities and Exchange Commission. Value, as
defined in Section 2(a) (41) of the 1940 Act, is (1) the market price for those
securities for which a quotation is readily available and (ii) the fair value as
determined in good faith by, or under the direction of, the Board of Directors
for all other assets.
F-11
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
The Company, as a BDC, will generally invest in illiquid and restricted
securities. The Company's investments may be subject to certain restrictions on
resale and may have no ready trading market. The Company values substantially
all of its investments at fair value as determined in good faith by the Board of
Directors in accordance with the Company's valuation policy. The Company
determines fair value to be the amount for which an investment could be
exchanged in orderly disposition over a reasonable period of time between
willing parties other than in a forced or liquidation sale. Factors that the
Board of Directors may consider in determining fair value of an individual
investment are financial performance and condition, business plan and progress
towards plan, restrictions on the investment securities, liquidity, trading
activity, financing activity and relative valuation to comparable companies.
With respect to our investments for which market quotations are not readily
available and/or investments subject to restrictions, our Board of Directors has
adopted a multi-step valuation process for each quarter as described below:
(1) Management reviews all investments and summarizes current status;
(2) An independent valuation firm conducts independent appraisals of all
investments;
(3) The audit committee of our board of directors reviews the management's
summary and the report of the independent valuation firm and
supplements with additional comments; and
(4) The Board of Directors discusses valuation and determines the fair
value of each investment in our portfolio in good faith based on the
input of management, the independent valuation firm and the audit
committee.
Without a readily available market value, the values of the Company's
investments may differ significantly from the values that would be used if there
existed a ready market for such investments. All investments owned at December
31, 2009 and 2008 (undefined % of net assets in 2009 and 226% of net assets in
2008, respectively) are stated at fair value as determined by the Board of
Directors, in the absence of readily available fair values. The Company
generally uses the first-in, first-out (FIFO) method of accounting for sales of
its investments.
RECLASSIFICATION
In order to conform with the presentation of the financial statements herein,
certain items in the financial statements for the prior periods have been
reclassified.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2008, the Company adopted SFAS No. 159, THE FAIR VALUE
OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES - including an amendment
of FASB Statement No. 115. SFAS No. 159 expands the use of fair value
measurement by permitting entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. The Company's most significant financial
instruments are its investments, which are currently carried at fair value. The
Company did not elect the fair value option under SFAS No. 159 for any other of
its financial assets or liabilities.
In April 2009, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position ("FSP") Issue No. FAS No. 157-4, "Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions that are not Orderly" ("FSP FAS No.
157-4"). FSP FAS No. 157-4 provides additional guidance for estimating fair
value in accordance with SFAS No. 157. This FSP No. 157-4 is effective for
interim and annual financial periods ending after June 15, 2009. The adoption of
FSP FAS No. 157-4 will not have a material impact on the Company's financial
statements.
F-12
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
In May 2009, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Codification Topic No. 855, Subsequent Events. This guidance
establishes general standards of accounting for and, disclosure of, events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. It sets forth (i) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The guidance
is effective for interim or annual financial periods ending after June 15, 2009
and was adopted with no material effect on the Company's statement of financial
condition or results of operations.
In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles a
replacement of FASB Statement No. 162" ("SFAS 168"). Under SFAS 168, the FASB
Accounting Standards Codification (Codification) will become the sole source of
authoritative U.S. GAAP to be applied by non-governmental entities. SFAS 168 is
effective for the financial statements issued for interim and annual periods
ending after September 15, 2009. The adoption will have no material impact on
the Company's financial statements but will require that interim and annual
filings include references to the Codification.
In June 2009, the FASB issued Accounting Standards Codification Topic No.
105-10, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles ("ASC 105-10"). This guidance
establishes the FASB Accounting Standards Codification (the "Codification") as
the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates ("ASUs"). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide
background information about the guidance and provide the basis for conclusions
on the change(s) in the Codification. References made to FASB guidance
throughout this document have been updated for the Codification.
In October 2009, the FASB issued Accounting Standards Codification Topic No.
605, Multiple-Deliverable Revenue Arrangements. This guidance establishes a
selling price hierarchy for determining the selling price of a deliverable and
expands the disclosures required for multiple-deliverable revenue arrangements.
This guidance is effective for revenue arrangements that are entered into or are
materially modified in fiscal years beginning on or after June 15, 2010, with
early adoption permitted. The adoption will have no material impact on the
Company's financial statements.
There were various other accounting standards and interpretations issued in 2009
and 2008, none of which are expected to have a material impact on the Company's
financial position, operations or cash flows.
F-13
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2. RELATED PARTY TRANSACTIONS
Employment Contracts - On April 20, 2006 Gregory Laborde and Theodore A.
Greenberg signed employment contracts with the Company with annual compensation
set at $90,000 for each. Mr. Greenberg has agreed to reduced compensation of
$2,000 per month until the company has completed its planned Regulation E
offering for at least $1,500,000 and to defer a proportionate amount of his
compensation if the offering raises less than $3,000,000. Such deferral until
the Company has raised additional capital or sufficient income from fees and/or
investments is achieved. In lieu of Mr. Laborde's salary, management fees have
been paid to a company he is affiliated with. As indicated on the Statement of
Operations, Mr. Laborde agreed to waive $61,617 and $45,633 in each of the years
ended December 31, 2009 and 2008 respective periods resulting in a net expense
of $28,383 and $44,367 respectively. Mr. Greenberg agreed to waive $6,000 for
year ended December 31, 2009 resulting in a net salary $24,000 and $18,000
respectively for the years ended December 31, 2009 and 2008 which is included
salaries and wages in the Statement of Operations..
Notes Payable - During the year ended December 31, 2008, Theodore A. Greenberg
advanced the Company $127,800 under a series of promissory notes at an annual
interest rate of 7%. These are included in note 6 below.
NOTE 3. LEASE COMMITMENTS
The Company entered into a lease effective December, 2006 for twelve months and
is continuing on a month-to-month basis. The lease is noncancellable with a
minimum monthly payment of $100 and provision for additional charges for use of
facilities and services utilized on an as-needed basis. Rent expense incurred
under the leases in 2009 and 2008 was approximately $2,538 and $2,885,
respectively.
NOTE 4. INVESTMENTS
Equity securities at December 31, 2009 and 2008 (undefined and 226% of net
assets, respectively) were valued at fair value as determined by the Board of
Directors, with the assistance of appraisals provided by an independent
valuation service provider, in the absence of readily available market values.
The values assigned to these securities are based upon available information and
may not reflect amounts that could be realized if the Company found it necessary
to immediately sell such securities, or amounts that ultimately may be realized.
Accordingly, the fair values included in the accompanying schedule of
investments may differ from the values that would have been used had a ready
market existed for these securities and such differences could be significant.
In September 2003, the Company acquired 18,000,000 common shares in Azonic
Corporation, giving the Company 75% ownership of Azonic. In August, 2004, the
Company sold 17,840,000 of its Azonic common shares, recording a gain of
$84,272. The Company subsequently in August, 2004, purchased 4,300,000 Azonic
common shares for $43,000, then paid various expense obligations with 250,000
Azonic common shares, recording a gain of $12,230. Azonic Corporation
subsequently changed its name to Midland International Corporation. During the
year 2007 Midland International Corporation changed its name to Lumonall, Inc.
the Company sold 3,303,615 of its Midland/Lumonall shares recording a gain of
$53,797. During the year ended December 31, 2008, the Company sold 188,885 of
its Lumonall shares recording a gain of $2,810. During the year ended December
31, 2009, the Company sold its remaining 717,500 Lumonall shares recording a
loss of $6,384 and terminating the Company's interest in Lumonall.
F-14
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
In June 2004 the Company acquired 123,750 common shares of Heartland, Inc.,
valued at $12,500, when an Officer and Director of the Company contributed the
shares as additional capital for no consideration. During the year ended
December 31, 2005 the Company sold 25,000 common shares of Heartland, Inc. for a
realized gain of $26,753. During the year ended December 31, 2006 the Company
sold 98,750 common shares of Heartland, Inc. for a realized gain of $28,309.
This terminated the Company's interest in Heartland, Inc.
In November 2004, the Company acquired 2,500,000 common shares of Satellite
Organizing Solutions, Inc. ("Satellite") for $138,500, giving the Company 71%
ownership of Satellite. The Company subsequently paid various expense
obligations with 310,000 Satellite common shares, recording a gain of $23,086.
In January 2008, Satellite changed its name to Strategic Environmental & Energy
Resources, Inc. ("SEER") and reverse split its stock 1 for 4 shares. On January
22, 2008, SEER acquired all the outstanding interests in Resource Environmental
Group Services, LLC and Tactical Cleaning Company, LLC in an all stock
transaction. As further detailed in the note 6 below, holders of Company notes
payable totaling $125,000 foreclosed on collateral which included 200,000 of the
Company's SEER shares related to which the Company recorded a loss of $25,903.
In May 2007, the Company acquired 21,250 shares in Fluid Media Networks
("Fluid") for providing consulting services to Fluid. At the time of issuance
the shares were valued at $85,000 and that value was recorded as consulting
income. In August 2008, the Company sold all its shares in Fluid and realized a
loss of $55,250 from the value at the time of issuance.
In September 2007, the Company was issued a promissory note of $50,000 by
Resource Environmental Group Services, LLC ("REGS"). In March 2008, the Company
converted the promissory note into 62,500 shares of SEER and purchased an
additional 62,500 shares or SEER for $50,000. In conjunction with the conversion
and purchase the Company received 125,000 warrants to purchase additional shares
in SEER at $1 per share. In June, 2009 the Company paid an expense obligation
with 10,000 SEER shares, recording a gain of $4,078. In June, 2009 the Company
transferred 15,000 SEER shares as partial consideration for issuance of $125,000
in promissory notes, the value of the shares was recorded as interest expense
over the term of the notes and the Company recorded a gain of $7,017 on the
15,000 SEER shares.
In September of 2008 the Company acquired an 87.5% interest in NPI08 for
$232,000 consisting of 102,500 shares in Company stock and $150,000 cash. NPI08
is a publicly traded shell which the Company intended to hold for possible
future merger or acquisition. In December, 2009 the Company sold its interest in
NPI08 to Black Star Energy Group, Inc. for $125,000 and was to receive 50,000
newly issued shares in NPI 08 post closing resulting in a realized loss of
$106,250. The stock sale receivable of $110,750 on the December 31, 2009 balance
sheet relates to this transaction.
The Company classifies the inputs used to measure fair values into the following
hierarchy:
Level 1: Quoted prices in active markets for identical assets or
liabilities
Level 2: Quoted prices for similar assets or liabilities in active markets,
or quoted prices for identical or similar assets or liabilities in markets
that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable and significant inputs to determining the fair value.
F-15
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
The carrying values and estimated fair values of the Company's findings:
SIGNIFICANT
QUOTE PRICES IN SIGNIFICANT OTHER UNOBSERVABLE
ACTIVE MARKETS OBSERVABLE INPUTS INPUTS
CARRYING VALUE (LEVEL 1) (LEVEL 2) (LEVEL 3)
------------------ ------------------ ---------------------- -----------------
December 31, 2009:
Investment Securities;
Strategic Environmental Stock $ 90,449 $ -- $ 90,449 $ --
Strategic Environmental Warrants $ 14,477 $ -- $ 14,477 $ --
------------------ ------------------ ---------------------- -----------------
Total Investment Securities $ 104,926 $ -- $ 104,926 $ --
================== ================== ====================== =================
The following table presents additional information about assets measured at
fair value using Level 3 inputs for the year ended December 31, 2009:
INVESTMENT IN NPI08, INC.
-----------------------------------
Balance as of January 1, 2009 $244,852
Realized loss included in net change in assets from operations (106,250)
Unrealized loss included in net change in assets from operations (12,852)
Sales (125,750)
-----------------------------------
Balance as of December 30, 2009 $-0-
===================================
Without a readily available market value, the value of the Company's portfolio
of equity securities may differ significantly from the values that would be
placed on the portfolio if there existed a ready market for such equity
securities. All equity securities owned at December 31, 2009 and December 31,
2008 are stated at fair value as determined by the Board of Directors, in the
absence of readily available fair values. The Company generally uses the
first-in, first-out (FIFO) method of accounting for sales of its investments but
will sometimes sell specifically identified investments or shares.
F-16
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES
Deferred income taxes arise from the temporary differences between financial
statement and income tax recognition of net operating losses and other items.
Loss carryovers are limited under the Internal Revenue Code should a significant
change in ownership occur.
At December 31, 2009, the Company had approximately $936,000 of unused federal
net operating loss carryforwards, which begin to expire in the year 2023 and
approximately $127,000 of unused capital loss carryforwards which expire in
2014. A deferred tax asset has been offset by a 100% valuation allowance.
The components of the Company's deferred tax assets and liabilities are as
follows:
December 31, December 31,
2009 2008
-------------- ---------------
Deferred tax liability $ - $ (172,900)
Deferred tax asset arising from:
Net operating loss carryforwards 318,200 286,000
Capital loss carryforward 43,300
--------------- ----------------
361,500 113,,100
Valuation allowance (361,500) (113,100)
--------------- ----------------
Net Deferred Taxes $ - $ -
=============== ================
Income taxes at Federal and state statutory rates are reconciled to the
Company's actual income taxes as follows:
December 31, December 31,
2009 2008
-------------- ---------------
Tax at federal statutory rate (34%) $ 162,643 $ (117,700)
State income tax -
Net operating loss benefit - used - -
Net deferred taxes (163,753) 116,500
Other book/tax differences 1,100 1,200
-------------- ---------------
$ (-) $ (-)
============== ===============
The Company recognizes deferred income taxes for each category of income. For
the year ended December 31, 2009 the Company had an decrease in unrealized gains
from prior years resulting in an deferred income tax benefit to unrealized and
realized gains (for losses incurred in 2009) and deferred income tax charge to
net investment income reversing prior deferred tax benefit from net investment
loss in prior years. For the year ended December 31, 2008 the Company had an
increase in unrealized gains resulting in an deferred income tax to unrealized
and realized gains and deferred income tax benefit reducing net investment loss.
The Company complies with the accounting and disclosure for uncertain tax
positions by requiring that a tax position meet a "more likely than not
threshold" for the benefit of the tax position to be recognized in the financial
statements in accordance with GAAP. A tax position that fails to meet the more
likely than not recognition threshold will result in either a reduction of a
current or deferred tax asset or receivable, or the recording of a current or
deferred tax liability.
F-17
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
In searching for uncertain tax positions that would potentially result in a tax
liability, the Company has reviewed its tax filings and has found no such
position that fails to meet the more likely than not recognition threshold. In
addition, the Company has not received a notice of audit for any of its federal,
state or local income tax returns.
As of December 31, 2009 and 2008 the Company's aggregate unrealized appreciation
of securities in which there is an excess of value over tax cost was $-0- and
$513,419 respectively.
As of December 31, 2009 and 2008 the Company's aggregate unrealized depreciation
of securities in which there is an excess of tax cost over value was $54,079 and
$4,931 respectively.
As of December 31, 2009 and 2008 the Company's net aggregate unrealized
appreciation (depreciation) of value over tax cost of all its securities was
$(54,079) and $508,488 respectively.
As of December 31, 2009 and 2008 the Company's aggregate cost of securities for
federal income tax purposes was $159,005 and $460,439 respectively.
NOTE 6. NOTES PAYABLE & INTEREST EXPENSE
December 31, December 31,
2009 2008
-------------- ---------------
Notes payable, several parties, unsecured, $187,070 $185,800
interest 7% per annum, all of which are in
default but none have resulted in demand
for payment
Note payable, individual, secured by - 75,000
portfolio company stock, int. 7% per
annum. Note was overdue and parties
reached a settlement agreement January 17,
2008, lender received 50,000 in cash and
was issued 100,000 shares of Infinity.
Note was fully redeemed in 2009.
Notes payable, two parties, int. 10% per 104,750 -
annum. Note was overdue and on September
15, 2009 holders foreclosed on collateral.
Remaining balance is currently in default
(see details below).
-------------- ---------------
Total notes payable (all current) $291,820 $260,800
============== ===============
Notes payable are stated at the original principal amount less any repayments
made. The Company has not elected the fair value option under SFAS No. 159 for
its financial liabilities.
F-18
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
On September 15, 2009 the holders of Company notes totaling $125,000 foreclosed
on collateral of 200,000 shares of Strategic Environmental owned by the Company
and 250,000 shares of the Company pledged by GHL Group, Ltd. a company
controlled by Gregory Laborde, an Officer and Director of the Company. In their
foreclosure notice the lenders put a value of $20,000 on the shares of Strategic
Environmental and $250 on the Company shares. The Company does not agree with
these valuations but has taken a conservative approach and reduced the debt by
these values in the financial statements.
On September 30, 2009, a Notice for Summary Judgment in Lieu of Complaint was
filed by Jonathan Schwartz against Infinity Capital Group, Inc. in the Civil
Court of the City of New York, County of New York, Index No. 0046377. Mr.
Schwartz holds a $15,000 promissory note dated March 23, 2006, the Promissory
Note had a due date of May 23, 2006 and was secured by 40,000 shares of
Heartland Corporation, which were to be transferred to the holder of the
promissory note in the case of default. Mr. Schwartz was claiming a breach of
contract for monies owed under the promissory note. On October 21, 2009, Mr.
Schwartz was granted an Order of Summary Judgment on his claim of breach of
contract. On December 9, 2009 the Company paid Mr. Schwartz to $1,500 and
reached an agreement to pay the balance due him within 60 days.
During the years ended December 31, 2009 and 2008, the Company incurred interest
expense, origination costs and settlement costs on notes payable of $35,635 and
$57,471 respectively.
NOTE 7. STOCKHOLDERS' EQUITY
COMMON STOCK
During the year ended December 31, 2009 the Company issued 21,492 shares to pay
interest expense on a promissory note and 12,500 shares as partial repayment on
the note.
During the year ended December 31, 2008 the Company issued 40,500 shares from
the exercise of Class A warrants, 100,000 shares as partial settlement on a note
payable, 102,000 shares as partial consideration for the purchase of a majority
interest in NPI08, Inc. and sold 99,825 shares pursuant to the Company's
regulation E offering.
STOCK OPTIONS AND WARRANTS
At December 31, 2009 and 2008, the Company had stock options and warrants
outstanding as described below.
NON-EMPLOYEE STOCK OPTIONS AND WARRANTS
The Company accounts for non-employee stock options and warrants under SFAS
123R, whereby option and warrant costs are recorded based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable.
The Class A warrants allow the holder to purchase one share of common stock per
warrant, exercisable immediately at $0.25 per share with the warrant terms
expiring in 2008, Class B warrants allow the holder to purchase one share of
common stock per warrant, exercisable immediately at $0.75 per share with the
warrant terms expiring in 2009, and the Class C warrants allow the holder to
purchase on share of common stock per warrant, exercisable immediately at $1.50
per share with the warrant terms expiring in 2009.
F-19
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
CLASS A CLASS B CLASS C
---------------- -------------- ----------------
Balance, December 31, 2003 248,750
Issued 508,000 100,000
Cancelled (200,000)
Exercised (30,000)
---------------- -------------- ----------------
Balance, December 31, 2004 526,750 100,000
Issued 300,000 85,125
Cancelled (76,000) (300,000) (185,125)
Exercised (260,250)
---------------- -------------- ----------------
Balance, December 31, 2005 190,500 -0- -0-
---------------- -------------- ----------------
Balance, December 31, 2006 190,500
Exercised 150,000
----------------
Balance, December 31, 2007 40,500
----------------
Exercised 40,500
----------------
Balance, December 31, 2008 -0-
----------------
Balance, December 31, 2009 -0-
----------------
NOTE 8. STOCK BASED COMPENSATION PLANS
The Company follows FASB Accounting Standards Codification No. 718 -
Compensation - Stock Compensation for share based payments to employees. The
Company follows FASB Accounting Standards Codification No. 505 for share based
payments to Non-Employees.
The Company recognized expense in the amount of $52,823 and $56,205 for the
years ended December 31, 2009 and 2008, respectively. In the year ended December
31, 2009, 196,000 options were granted period of which 50,000 vested
immediately, 73,000 vest on the one year anniversary and 73,000 vest on the two
year anniversary of the employee's hiring. Please see subsequent events footnote
11 which details the resignation of the employee who received these options. In
the year ended December 31, 2008 404,000 options were granted, all of which
vested immediately. The cost of options vesting immediately was recorded in the
respective year and the cost of options vesting in the future is being recorded
on a straight-line basis over the vesting period. The related impact on basic
and diluted earnings per share for the year ended December 31, 2009 and 2008 was
less than $0.01 per share in each year. There was no impact on the Company's
cash flow in either year.
F-20
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
The Company's stock incentive plan is the Infinity Capital Group, Inc. 2008
Stock Option Plan (the "Plan") which has not been approved by the shareholders.
The Plan provides for the grant of non-qualified stock options to selected
employees and directors. The Plan is administered by the Compensation Committee
of the Board and authorizes the grant of options 970,934. The Compensation
Committee determines which eligible individuals are to receive options or other
awards under the Plan, the terms and conditions of those awards, the applicable
vesting schedule, the option price and term for any granted options, and all
other terms and conditions governing the option grants and other awards made
under the Plans.
The fair value of each option award was estimated on the date of grant using the
Black-Scholes option valuation model using the assumptions noted as follows: for
the year ended December 31, 2009 expected volatility was based on historical
trading in the Company's stock from inception of trading on September 11, 2008
through January 2, 2009 which was the last day of trading before the options
were issued. For the year ended December 31, 2008, since the Company's stock had
not begun trading at the time of grant, expected volatility was based on
historical volatility of the Willshire 5000 stock index. The expected term of
options granted was determined using the simplified method under SAB 107 and
represents one-half the exercise period. The risk-free rate is calculated using
the U.S. Treasury yield curve, and is based on the expected term of the option.
Since the initial grant of options immediately vest, the Company has estimated
there will be no forfeitures.
During the year ended December 31, 2009, 196,000 options were granted to Joseph
M. Chiappetta, the Company's Vice-President for Corporate Development; please
see subsequent events footnote 11 which details Mr. Chiappetta's resignation.
During the year ended December 31, 2008, 404,000 options were granted, all to
the Company's non-employee directors. The Black-Scholes option pricing model was
used with the following weighted-average assumptions for options granted during
the years ended December 31, 2009 and 2008 respectively:
For the Year Ended December 31,
---------------------------------------
2009 2008
---------------------------------------
Risk-free interest rate 1.67% 3.16%
Expected option life 10.0 years 10.0 years
Expected volatility 87.71% 9.91%
Expected dividend yield 0.0% 0.0%
F-21
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
Further information relating to stock options is as follows:
Weighted
Weighted Average
Number Average Remaining
of Exercise Contract
Shares Price Life (years)
------------- -------------- ------------
Outstanding options at 12/31/07 - $ -
Granted 404,000 0.80 8.55
Exercised - - -
Forfeited/expired - - -
Outstanding options at 12/31/08 404,000 $ 0.80 8.55
Granted 196,000 0.50 9.00
Exercised - - -
Forfeited/expired - - -
Outstanding options at 12/31/09 600,000 $ 0.70 8.70
Exercisable on 12/31/08 404,000
Exercisable on 12/31/09 454,000
The options have a contractual term of ten years. The aggregate intrinsic value
of shares outstanding and exercisable was $0 at December 31, 2009 and 2008 as
the market price of the Company's common stock was below the weighted-average
exercise price of all of the options. Total intrinsic value of options exercised
was $0 for the years ended December 31, 2009 and 2008 as no options were
exercised during this period.
At December 31, 2009, shares available for future stock option grants to
employees and directors under the 2008 Stock Option Plan were 370,934.
NOTE 9. GOING CONCERN
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has accumulated
significant losses from operations and in all likelihood will be required to
make significant future expenditures in connection with continuing acquisition
and marketing efforts along with general administrative expenses. The Company's
current liabilities exceeded current assets by $567,810 and $539,355 at December
31, 2009 and December 31, 2008 respectively. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its
ability to develop additional sources of capital or locate a merger candidate
and ultimately, achieve profitable operations. There can be no assurance that
the Company will be successful in obtaining such financing, or that it will
attain positive cash flow from operations. Management believes that actions
presently being taken provide the opportunity for the Company to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Management is seeking new capital to carry forward the purposes of the Company.
F-22
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
The Company may raise additional capital through the sale of its equity
securities, through an offering of debt securities, or through borrowings from
financial institutions or individuals. Management believes that actions
presently being taken to obtain additional funding provide the opportunity for
the Company to continue as a going concern.
NOTE 10. FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights for the years ended December
31, 2009, December 31, 2008, December 31, 2007, December 31, 2006 and December
31, 2005:
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC 31, DEC 31, DEC. 31, DEC. 31, DEC. 31,
2009 2008 2007 2006 2005
--------------- --------------- -------------- -------------- --------------
Per share information
Net asset value, beginning of period 0.07 0.02 (0.01) 0.04 0.16
--------------- --------------- -------------- -------------- --------------
Net investment income (loss) (1) (0.06) (0.03) (0.00) (0.03) (0.04)
Net realized and unrealized gain (loss) (1) (0.09) 0.04 0.01 (0.03) (0.11)
--------------- --------------- -------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations (1) (0.15) 0.01 0.01 (0.06) (0.15)
Issuance of common stock, warrants
and other new equity (1) 0.01 0.04 0.02 0.01 0.03
--------------- --------------- -------------- -------------- --------------
Net asset (deficit) value, end of year (0.07) 0.07 0.02 (0.01) 0.04
=============== =============== ============== ============== ==============
Per share market value, end of year (2) $0.08 $0.50 N/A N/A N/A
Total Return Based Upon Net Asset Value (3) -216% 62% N/A -150% -94%
Ratios and Supplemental Data
Net assets (deficit), end of year (442,884) 429,572 104,754 (72,927) 215,494
Common shares outstanding at end of year 6,547,391 6,513,399 6,170,774 5,883,687 5,739,187
Diluted weighted average number of
shares outstanding during the year 6,531,811 6,573,138 6,103,745 5,752,888 5,541,117
Ratio of expenses to average net assets (4) 228% 41% 1531% 930% 48%
Ratio of net increase (decrease) in net assets
from operations to average net assets (4) -879% 12% 314% -1627% -186%
Portfolio Turnover 0% 5% 29% 0% 2%
Average Debt Outstanding 288,786 216,364 134,509 147,625 194,067
Average Debt Per Share (1) 0.04 0.03 0.02 0.03 0.04
(1) Calculated based on diluted weighted average number of shares outstanding
during the year.
(2) The Company's stock began trading in 2008
(3) 2007 did not start with positive net assets so cannot compute
(4) Average net assets were low in 2006, 2007 & 2009 resulting in calculation
out of scale
F-23
INFINITY CAPITAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11. SUBSEQUENT EVENTS
On March 17, 2010, Joseph Chiappetta resigned as Vice President of Development
and Managing Director of the Company. The Company reached a settlement in which
Mr. Chiappetta will be paid $12,000 by March 17, 2011 and he will retain 86,500
options to purchase the Company's stock at a price of 50 cents per share.
On March 17, 2010, the Company filed a preliminary Proxy Information Statement
on Form 14(c) with the SEC to be finalized after review by the SEC and mailed to
our shareholders. The Proxy Information on Form 14(c) intends to give notice to
our shareholders of the Company's intention to elect out of Business Development
Company status and that we intend to effect a reverse split our common stock in
a ratio up to a 10:1, as to be decided by the Board of Directors. The Company's
shareholders are not being asked to vote on such items, but are being informed
that the Company has the necessary votes to pass such items.
On March 25, 2010, the Company received a demand letter for full payment of
principal and interest on a $15,000 promissory note, dated October 10, 2005 (the
Note.) The Note accrues interest at 7% per annum and had an original due date of
November 10, 2005. The holder of the Note, Mr. Wulf Rehder, an affiliate of the
Company, granted the Company extensions of the Note until June 20, 2006 and then
until July 30, 2006. Mr. Rehder has given the Company notice of his intent to
pursue legal action unless payment in full is received by April 16, 2010. As of
March 31, 2010, the Company owes Mr. Rehder $15,000 in principal and accrued
interest of $4,695 for a total of $19,695. The Company has entered into
discussions with Mr. Rehder to resolve the default. The Company can make no
assurances that it will be able to come to a satisfactory resolution to the
situation.
The Company evaluated events through March 31, 2010 for consideration as a
subsequent event to be included in its December 31, 2009 financial statements
herein and found no other events, other than the above.
F-24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------
The Company maintains a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in the Company's SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to the Company's management,
including the Chief Executive Officer as appropriate to allow timely decisions
regarding required disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures as defined in Exchange Act Rules 13a-14(c) as of December 31, 2009
(the "Evaluation Date") concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were effective to ensure that material
information relating to the Company would be made known to them by individuals
within those entities, particularly during the period in which this annual
report was being prepared and that information required to be disclosed in the
Company's SEC reports is recorded, processed, summarized, and reported within
the time periods specified in the SEC's rules and forms.
ITEM 9A(T). CONTROLS AND PROCEDURES
-----------------------------------
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Infinity's management, including the Chief Executive Officer and Chief Financial
Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. The Company's internal control over financial reporting
includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the Company's assets;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that the Company's receipts and expenditures are being made only
in accordance with authorizations of Infinity's management and
directors; and
(3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Company's assets that could have a material effect on Infinity's
financial statements.
Management's assessment of the effectiveness of the registrant's internal
control over financial reporting is as of December 31, 2009. In making this
assessment, Management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control--Integrated Framework.
-39-
Based on such criteria, Management believes that material weakness in internal
controls over financial reporting exist. In response to a Form 1-E, Notice Under
Regulation E, that the Company filed on June 15, 2009 in conjunction with a
planned capital raise, we received an SEC comment letter which among other
points questioned why the Company on numerous occasions requested an extension
of time to file its SEC reports and how certain accounting information and
disclosures were shown in our financial statements. In our response to the
comment letter, we acknowledged weakness in our internal control and outlined
steps we are taking to increase the controls over financial reporting. Our
September 30, 2009 Form 10Q was timely filed and we revised our financial
statements for the accounting and disclosure comments with that filing. The
accounting and disclosure changes do provide more detailed information but we do
not believe our financial statements as filed were materially misleading.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
There was no change in the Company's internal control over financial reporting
that occurred during the fiscal quarter ended December 31, 2009, that has
materially affected, or is reasonably likely to materially affect, its internal
control over financial reporting.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
ITEM 9B. OTHER INFORMATION
--------------------------
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
---------------------------------------------------------------
The following table sets forth information as to persons who currently serve as
Infinity Capital Group, Inc. directors or executive officers, including their
ages as of December 31, 2009.
NAME AGE POSITION
------------------------- ------ ----------------------------------------------
Gregory H. Laborde * 45 President, CEO and Chairman of the Board
Theodore A. Greenberg * 50 CFO, CIO, Secretary and Director
Pierce McNally 61 Director
Conrad R. Huss 59 Director
Ernest D. Chu 63 Director
*Interested Directors of Infinity within the meaning of the 1940 Act.
Infinity's officers are elected by the Company's shareholders and hold office
until their successors are duly elected and qualified under Infinity's bylaws.
-40-
The directors named above will serve until the next annual meeting of Infinity
stockholders. Thereafter, directors will be elected for one-year terms at the
annual stockholders' meeting.
BIOGRAPHICAL INFORMATION
The following is a brief account of the business experience during at least the
past five years of the persons designated to be new directors and Officers of
Infinity, indicating the principal occupation and employment during that period
by each, and the name and principal business of the organizations by which they
were employed.
GREGORY H. LABORDE, age 45, President, Chief Executive Officer and Chairman of
the Board, has over 21 years experience on Wall Street in the areas of
investment banking, trading, sales and financial consulting. From 1986 to 1997,
Mr. Laborde worked in corporate finance at a number of prestigious NYC based
investment banks, including: Drexel Burnham Lambert, Lehman Brothers, Gruntal &
Co., and Whale Securities. During his Wall Street tenure, Mr. Laborde was
involved in over 20 public and private financing transactions totaling over 100
million dollars. In 1999 he founded and took public Origin Investment Group, a
business development company that was involved in investing in IT related
businesses. While serving as Chairman & CEO, Mr. Laborde was responsible for
providing 2 million in direct equity investments, a 10 million equity credit
line, as well as successfully negotiating definitive agreements to acquire
several private businesses. Mr. Laborde is currently the Chairman of GHL Group,
Ltd., a firm that provides capital formation and mergers and acquisition
services to select publicly traded companies or rapidly expanding private
businesses seeking to go public. Mr. Laborde currently serves as the President &
CEO of NPIO8, Inc. (NPIE: Pink Sheets), and is the former President & CEO of
Azonic Corporation (now renamed Lumonall Corporation (LUMN:OTCBB) a manufacturer
of low cost disposable wireless devices, and has been President, CEO and
Director of Infinity Capital Group since inception. Mr. Laborde holds a Bachelor
of Science degree in Engineering from Lafayette College.
THEODORE A. GREENBERG, age 50, Director, Chief Financial Officer, Secretary and
Chief Investment Officer as of November 15, 2005, is a senior financial
executive with more than 26 years experience in private equity, consulting,
industry and public accounting. He was a General Partner and co-founder of Park
Avenue Equity Partners, LP, a $110 million private equity fund focused on the
middle market. In his five years with Park Avenue, Ted sourced, evaluated and
negotiated deals and worked extensively with portfolio companies post
acquisition. Prior to founding Park Avenue, he worked with Development Capital,
LLC on direct equity investments and served as consulting CFO to one of
Development Capital's portfolio companies. Previously, Ted directed the
financial services practice at Marcum & Kliegman, LLP, a New York Metropolitan
area accounting and consulting firm where he advised on merger and acquisition
transactions, as well as operations and taxation. From 1980 to 1993 Ted provided
operations, finance and taxation consulting services to a variety of real estate
partnerships, financial service companies and entrepreneurial ventures. He
graduated with a BS in Accounting, Cum Laude, from the State University of New
York at Albany and received an MBA in Finance & Business Policy from the
University of Chicago. Mr. Greenberg earned certification as a Certified Public
Accountant in New York State.
PIERCE MCNALLY, age 61, Director, serves of counsel to Gray Plant Mooty,
(Minneapolis, St. Cloud, MN and Washington, D.C.) practicing in the areas of
business law and entrepreneurial services. He has served as Chairman and
Director of Lockermate Corporation of Minnetonka, Minnesota, a company that
provides locker organizing systems and fashion accessories to the retail trade.
He served as Minnesota American's Chairman of the Board, Chief Executive Officer
and Secretary from October 1994 until January 2000, when Minnesota American
merged with CorVu Corporation (OTC: CRVU). He served as Chairman and Director of
Corporate Development of Nicollet Process Engineering, Inc. from May 1995 until
April 1999, when he retired from the board. He also serves on the board of
directors of Digital Town (OTC:BB DGTW) and Outsell, LLC.
-41-
In December, 1983, Pierce was elected to the board of directors of his family
company, Midwest Communications, Inc., owner of numerous broadcast properties
including WCCO-TV, WCCO-AM and WLTE in the Twin Cities. In 1989, he was
subsequently also elected an officer of the company and he served in both
capacities until the company merged with CBS, Inc. (NYSE:CBS) in 1992.
Pierce also began investing in start up and early stage companies with which he
would also develop an advisory or management relationship. He owned and operated
KTPK-FM in Topeka, Kansas and he was the executive producer of a television
program about the entrepreneurial process called "Working On the Dream."
Pierce completed his undergraduate studies at Stanford University. He received
his law degree from the University of Wisconsin Law School in 1978. He is a
member of Order of the Coif.
CONRAD R. HUSS, age 59, Director, is a financial professional with over
twenty-six years of investment banking and operating experience. Mr. Huss
graduated from New York University with a BS in Accounting and Finance, and
received his MBA from Adelphi University. Over the course of his career, Mr.
Huss has served as Managing Director for a number of investment banking units at
small and middle market firms, as a Founding Partner of a boutique bank
specializing in technology and health care, and as Chief Executive Officer of a
medical technology company.
Presently, Mr. Huss is a principal at Southridge Investment Group, a boutique
Investment Bank focusing on emerging growth companies.
Previously, Mr. Huss was Managing Director at Hobbs Melville Securities Corp.
where he was responsible for overseeing and managing the Investment Banking
department, capital markets and administrative functions. Prior to Hobbs
Melville, Mr. Huss served as the Managing Director for Auerbach, Pollak &
Richardson, Inc. There, he specialized in the technology, health care and
consumer product industries and developed operating plans for the banking
department, among other initiatives. Mr. Huss previously served as Managing
Director, Corporate Finance at Credit Lyonnais USA, Inc. He was responsible for
originating transactions for both domestic and non-US clients and for
cross-border merger & acquisition assignments and equity offerings.
Mr. Huss served as the Chief Executive Officer at Matrix Instruments, Inc., a
public medical technology company.
Mr. Huss began his career in the management training program at Pepsico Inc. and
held a series of positions in business development and the mergers and
acquisitions and group.
ERNEST D. CHU, Director, age 63, received his B.A. with honors in History from
Amherst College in 1968 and was a Moore Fellow at Columbia University's
Institute of Far Eastern Studies in 1969. Since 1995, Mr. Chu has been the
Chairman and Managing Director of Corporate Builders, LP, a corporate consulting
and venture development partnership. From 2004-2006 he served Acting Chief
Financial Officer for High Speed Video Holdings Corp., a privately held video
conference technology company. From 1995-97, Mr. Chu was a director and advisor
to Nu Wave Technologies, Inc., a company which he helped to found. From
1998-2000, Chu also served as director and Chief Financial Officer of World Wide
Web Institute. He started his career as a journalist for the Wall St. Journal in
1968, and subsequently entered the securities business in 1969 with Cogan
Berlind Weill & Levitt. In 1971, he joined Walters, Yeckes and Gallant, where he
became an Allied Member of the NYSE and an NASD principal. He started his
corporate career in 1979, as VP of Finance of Haber Inc., a NJ publicly held
technology company and has had more than 30 years of experience in management of
early stage emerging companies. He is a contributor to three books on management
and finance, and published many articles on raising money and entrepreneurial
success.
-42-
No appointee for a director position has been found guilty of any civil
regulatory or criminal offense or is currently the subject of any civil
regulatory proceeding or any criminal proceeding.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires that the Company's officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten percent stockholders are
required by regulation to furnish to the Company copies of all Section 16(s)
forms they file.
The following persons failed to file forms on a timely basis during the past two
fiscal years as required under Section 16(a) as follows:
None.
CONFLICTS OF INTEREST
Members of the Company's management are associated with other firms involved in
a range of business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of the Company.
Insofar as the officers and directors are engaged in other business activities,
management anticipates it will devote only a minor amount of time to the
Company's affairs.
The Company's Board of Directors has adopted a policy that the Company will not
seek a merger with, or acquisition of, any entity in which any officer or
director serves as an officer or director or in which they or their family
members own or hold a controlling ownership interest. Although the Board of
Directors could elect to change this policy, the Board of Directors has no
present intention to do so.
There can be no assurance that management will resolve all conflicts of interest
in favor of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Infinity is managed under the direction of its board of directors.
EXECUTIVE COMMITTEE
Infinity does not have an executive committee, at this time.
AUDIT COMMITTEE
The Audit Committee was formed in April 2006 to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2) the
compliance by the Company with legal and regulatory requirements and (3) the
independence and performance of the Company's internal and external auditors.
Pierce McNally, as Chairman, and Conrad R. Huss act as the initial members of
the Audit Committee.
CONFLICTS OF INTEREST - GENERAL.
The Company's directors and officers are, or may become, in their individual
capacities, officers, directors, controlling shareholder and/or partners of
other entities engaged in a variety of businesses. Thus, there exist potential
conflicts of interest including, among other things, time, efforts and
corporation opportunity, involved in participation with such other business
-43-
entities. While each officer and director of the Company's business is engaged
in business activities outside of its business, the amount of time they devote
to Infinity's business will be up to approximately 40 hours per week.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in the Company's Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of the Company's
business to disclose to Infinity's business opportunities which come to their
attention. The Company's officers and directors do, however, have a fiduciary
duty of loyalty to Infinity to disclose to it any business opportunities which
come to their attention, in their capacity as an officer and/or director or
otherwise. Excluded from this duty would be opportunities which the person
learns about through his involvement as an officer and director of another
company. The Company has no intention of merging with or acquiring an affiliate,
associate person or business opportunity from any affiliate or any client of any
such person.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The following table sets forth the compensation paid to officers during the
fiscal years ended December 31, 2009, 2008 and 2007. The table sets forth this
information for Infinity Capital Group, Inc., including salary, bonus, and
certain other compensation to the named executive officers for the past three
fiscal years and includes all Officers as of December 31, 2009.
SUMMARY EXECUTIVES COMPENSATION TABLE
NON-EQUITY NON-QUALIFIED
INCENTIVE DEFERRED
STOCK OPTION PLAN COMPENSATION ALL OTHER
SALARY BONUS AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME & POSITION YEAR ($) ($) ($) ($) ($) ($) ($) ($)
-------------------- -------- --------- -------- --------- ------- --------------- -------------- --------------- ----------
Gregory H. 2009 28,383(3) 0 0 0 0 0 0 28,383
Laborde, President 2008 44,367(2) 0 0 0 0 0 0 44,367
and CEO 2007 38,177(1) 0 0 0 0 0 0 38,177
Theodore A. 2009 18,000(5) 0 0 0 0 0 0 18,000
Greenberg, CFO, 2008 24,000(4) 0 0 0 0 0 0 24,000
CIO and Secretary 2007 0 0 0 0 0 0 0 0
(1) During the year ended December 31, 2007, GHL Group, Ltd., a company
affiliated with Gregory H. Laborde, was paid $38,177. The payment was included
in management fee expenses for payment to GHL Group, Ltd. See "Related Party
Transactions" for a discussion of Gregory Laborde and his affiliation with GHL
Group, Ltd., with which the Company contracts for consulting services and to
which it pays fees. By contract Mr. Laborde was due annual compensation of
$90,000 of which he waived $51,823.
(2) During the year ended December 31, 2008, GHL Group, Ltd., a company
affiliated with Gregory H. Laborde, was paid $44,367. The payment was included
in management fee expenses for payment to GHL Group, Ltd. See "Related Party
Transactions" for a discussion of Gregory Laborde and his affiliation with GHL
Group, Ltd., with which the Company contracts for consulting services and to
which it pays fees. By contract Mr. Laborde was due annual compensation of
$90,000 of which he waived $45,633.
(3) During the year ended December 31, 2009, GHL Group, Ltd., a company
affiliated with Gregory H. Laborde, was paid $28,383. The payment was included
in management fee expenses for payment to GHL Group, Ltd. See "Related Party
Transactions" for a discussion of Gregory Laborde and his affiliation with GHL
-44-
Group, Ltd., with which the Company contracts for consulting services and to
which it pays fees. By contract Mr. Laborde was due annual compensation of
$90,000 of which he waived $61,617.
(4) During the year ended December 31, 2008, Theodore A. Greenberg earned salary
of $24,000. The compensation was accrued but not actually paid and is included
in accrued expenses.
(5) During the year ended December 31, 2009, Theodore A. Greenberg earned salary
of $18,000. The compensation was accrued but not actually paid and is included
in accrued expenses. By contract Mr. Greenberg was due annual compensation of
$24,000 of which he waived $6,000.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
COMPENSATION PURSUANT TO STOCK OPTION PLAN
On August 7, 2008 our directors approved the Company's 2008 Stock Option Plan
(the "Plan") authorizing the plan to grant options to purchase up to 970,934
shares of our common stock. The board's responsibility will include the
selection of option recipients, as well as, the type of option granted and the
number of shares covered by the option and the exercise price.
Plan options may either qualify as non-qualified options or incentive stock
options under Section 422 of the Internal Revenue Code. Any incentive stock
option granted under the plan must provide for an exercise price of at least
100% of the fair market value on the date of such grant and a maximum term of
ten years. If the employee owns more than 10% of our stock, the exercise price
of any incentive option granted must be at least 110% of fair market value and
must be exercised within five years after the grant.
All of our officers, directors, key employees and consultants will be eligible
to receive non-qualified options under the plan. Only officers, directors and
employees who are formally employed by the Company are eligible to receive
incentive options.
All incentive options are non-assignable and non-transferable, except by will or
by the laws of descent and distribution. If an optionee's employment is
terminated for any reason other than death, disability or termination for cause,
the stock option will lapse on the earlier of the expiration date or three
months following the date of termination. If the optionee dies during the term
of employment, the stock option will lapse on the earlier of the expiration date
of the option or the date one-year following the date of death. If the optionee
is permanently and totally disabled within the meaning of Section22(e)(3) of the
Internal Revenue Code, the plan option will lapse on the earlier of the
expiration date of the option or one year following the date of such disability.
Aggregated Option/SAR Exercises in Last Fiscal Year,
and Fiscal Year-End Option/SAR Values
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END FY-END ($)
---------------------- ------------------
NAME SHARES VALUE EXERCISABLE/ EXERCISABLE/
ACQUIRED ON REALIZED UNEXERCISABLE UNEXERCISABLE
EXERCISE (#) ($)
--------------------- --------------- ----------- ---------------------- ------------------
Joseph M. Chiappetta 0 0 50,000/146,000 $0/0
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On January 5, 2009, Joseph M. Chiappetta signed an employment agreement with the
Company with annual compensation of $60,000 per year and a grant of 196,000
employee stock options with an exercise price of $0.50 per share; 50,000 of
which vested immediately, 73,000 of which vested on his first anniversary with
the Company and 73,000 of which vested on his second anniversary with the
Company. On June 5, 2009 Mr. Chiappetta's contract was amended to reflect annual
compensation of $12,000 per year.
On March 17, 2010, Mr. Chiappetta resigned from the Company and a settlement was
reached for Mr. Chiappetta to be paid $12,000 by March 17, 2011 and he will
retain 83,500 of his options.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Employment Contracts - On April 20, 2006, Gregory Laborde and Theodore A.
Greenberg signed employment contracts with the Company with annual compensation
set at $90,000 for each. Mr. Greenberg has agreed to reduced compensation of
$2,000 per month until the Company has completed its planned Regulation E
offering for at least $1,500,000 and to defer a proportionate amount of his
compensation if the offering raises less than $3,000,000. Such deferral until
the Company has raised additional capital or sufficient income from fees and/or
investments is achieved. In lieu of Mr. Laborde's salary, management fees have
been paid to a company he is affiliated. These fees have been in an amount lower
than the contractual amount. Mr. Laborde and Mr. Greenberg have agreed to waive
all salary amounts due under their contracts which were not paid or accrued by
December 31, 2009.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In August 2008, the Board of Directors approved and created a compensation
committee. The committee consists of the independent directors of the Company.
DIRECTOR COMPENSATION
The Company does not pay any Directors fees for meeting attendance.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-46-
The following table sets forth certain information concerning compensation paid
to the Company's directors during the year ended December 31, 2009:
NON-QUALIFIED
NON-EQUITY DEFERRED
FEES INCENTIVE PLAN COMPENSATION ALL OTHER
EARNED STOCK OPTION COMPENSATION EARNINGS COMPENSATION TOTAL
NAME OR PAID AWARDS AWARDS ($) ($) ($) ($)
IN CASH ($) ($)
($)
--------------- --------- ---------- ---------- ---------------- ----------------- ---------------- ------------
Gregory H. $ -0- $ -0- $ -0- $ -0- $ -0- $ 28,383 $ 28,383
Laborde (1)
Theodore A. $ -0- $ -0- $ -0- $ -0- $ -0- $ 18,000 $ 18,000
Greenberg (2)
Pierce $ -0- $ -0- $-0- $ -0- $-0- $ -0- $-0-
McNally
Conrad R. $ -0- $ -0- $-0- $ -0- $-0- $ -0- $-0-
Huss
Ernest D. Chu $ -0- $ -0- $-0- $ -0- $-0- $ -0- $-0-
(1) During the year ended December 31, 2009, GHL Group, Ltd., a company
affiliated with Gregory H. Laborde, was paid $28,383. The payment was included
in management fee expenses for payment to GHL Group, Ltd. See "Related Party
Transactions" for a discussion of Gregory Laborde and his affiliation with GHL
Group, Ltd., with which the Company contracts for consulting services and to
which it pays fees.
(2) During the year ended December 31, 2009, Theodore A. Greenberg earned salary
of $18,000 for his services as an officer of the Company. The compensation was
accrued but not actually paid and is included in accrued expenses.
All of the Company's officers and/or directors will continue to be active in
other companies. All officers and directors have retained the right to conduct
their own independent business interests.
EXECUTIVE COMPENSATION
Infinity's management currently consists of the following persons along with
their executive compensation:
NAME/ADDRESS (1) POSITION COMPENSATION
------------------------ --------------------------------------- ------------
Gregory H. Laborde Chief Executive Officer and Chairman $90,000
of the Board and Director
Theodore A. Greenberg Chief Investment Officer, Chief $90,000
Financial Officer, Secretary and
Director
(1) Address of each Officer is 80 Broad Street, 5th Floor, New York, NY 10004.
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In lieu of Mr. Laborde's salary, management fees have been paid to a company he
is affiliated with at a rate substantially below his contracted amount. Mr.
Greenberg has agreed to reduced compensation of $2,000 per month until the
Company has completed its planned Regulation E offering for at least $1,500,000
and to defer a proportionate amount of his compensation if the offering raises
less than $3,000,000. Mr. Laborde and Mr. Greenberg have agreed to waive all
salary amounts due under their contracts which were not paid or accrued by
December 31, 2009.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Infinity's officers and directors are indemnified as provided by the Maryland
Revised Statutes and the bylaws.
Under the Maryland Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. The
Company's Articles of Incorporation do not specifically limit the directors'
immunity. Excepted from that immunity are: (a) a willful failure to deal fairly
with Infinity or its shareholders in connection with a matter in which the
director has a material conflict of interest; (b) a violation of criminal law,
unless the director had reasonable cause to believe that his or her conduct was
lawful or no reasonable cause to believe that his or her conduct was unlawful;
(c) a transaction from which the director derived an improper personal profit;
and (d) willful misconduct.
The Company's bylaws provide that it will indemnify the directors to the fullest
extent not prohibited by Maryland law; provided, however, that it may modify the
extent of such indemnification by individual contracts with the directors and
officers; and, provided, further, that the Company shall not be required to
indemnify any director or officer in connection with any proceeding, or part
thereof, initiated by such person unless such indemnification: (a) is expressly
required to be made by law, (b) the proceeding was authorized by the board of
directors, (c) is provided by the Company, in sole discretion, pursuant to the
powers vested under Maryland law or (d) is required to be made pursuant to the
bylaws.
The Company's bylaws provide that it will advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of Infinity as a director or
executive officer of another company, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly following
request therefore, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under the bylaws or otherwise.
The Company's bylaws provide that no advance shall be made by Infinity to an
officer except by reason of the fact that such officer is or was the Company's
director in which event this paragraph shall not apply, in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made: (a) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of Infinity Capital Group, Inc.
-48-
EQUITY COMPENSATION PLAN INFORMATION
STOCK OPTION PLAN
The Company has an Option Plan. As of December 31, 2009, 600,000 options are
outstanding under the 2008 Option Plan of which 454,000 are exercisable. During
the year ended December 31, 2009, we did not issue any shares under the option
plan. We have reserved 970,934 shares of common stock for issuance under the
2008 Option Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------------------
The following table sets forth information with respect to the beneficial
ownership of Infinity Capital Group, Inc. outstanding common stock by:
o each person who is known by Infinity to be the beneficial owner
of five percent (5%) or more of Infinity's common stock;
o Infinity's chief executive officer, its other executive officers,
and each director as identified in the "Management -- Executive
Compensation" section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of the Company's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Infinity Capital
Group, Inc. common stock that Infinity believes was beneficially owned by each
person or entity as of December 31, 2009, including options exercisable within
60 days.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
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TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF PERCENT OF CLASS
OWNER BENEFICIAL OWNER (1)
------------------------ -------------------------------- ----------------------- --------------------
Common Restricted Gregory H. Laborde, President, 2,957,250 45.17%
CEO, and Chairman of the Board
(Beneficially through GHL
Group, Ltd.)
Common Restricted Theodore A. Greenberg, CFO, 1,100,000 16.80%
CIO, Secretary and Director
Options Pierce McNally, Director (2) 156,000 0%
Options Conrad R. Huss, Director (2) 137,000 0%
Options Ernest D. Chu, Director (2) 111,000 0%
Common Restricted Wulf Rehder 415,758 6.35%
Common Restricted All Directors and Executive 4,057,250 61.97%
Officers as a Group (5 persons)
------------------------
(1) At December 31, 2009, the Company had 6,547,391 shares of its common
stock issued and outstanding. The Company had 600,000 options issued
and outstanding, but the options are not included in this calculation
as the Company considers them to be "out of the money" and does not
expect the status to change in the next 60 days.
(2) These directors hold options that are considered to be "out of the
money."
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
-50-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
RELATED PARTY TRANSACTIONS
GHL Group, Ltd., a company affiliated with Gregory H. Laborde, was paid $28,383
during the year ended December 31, 2009. The payment was included in management
fee expenses in the Statement of Operations. Mr. Laborde is the sole shareholder
of GHL Group, Ltd. and is President, CEO and Chairman of the Board of the
Company.
During the year ended December 31, 2009, Theodore A. Greenberg, an officer and
director of the company, earned salary of $18,000. The compensation was accrued
but not actually paid and is included in accrued expenses. By contract Mr.
Greenberg was due annual compensation of $24,000 of which he waived $6,000.
On September 15, 2009, the holders of Company notes totaling $125,000 foreclosed
on collateral of 200,000 shares of Strategic Environmental owned by the Company
and 250,000 shares of the Company pledged by GHL Group, Ltd. a company
controlled by Gregory Laborde, an Officer and Director of the Company. In their
foreclosure notice the lenders put a value of $20,000 on the shares of Strategic
Environmental and $250 on the Company shares. The Company has reduced the debt
by these values in the financial statements.
On March 25, 2010, the Company received a demand letter for full payment of
principal and interest on a $15,000 promissory note, dated October 10, 2005 (the
Note.) The Note accrues interest at 7% per annum and had an original due date of
November 10, 2005. The holder of the Note, Mr. Wulf Rehder, an affiliate of the
Company, granted the Company extensions of the Note until June 20, 2006 and then
until July 30, 2006. Mr. Rehder has given the Company notice of his intent to
pursue legal action unless payment in full is received by April 16, 2010. As of
March 31, 2010, the Company owes Mr. Rehder $15,000 in principal and accrued
interest of $4,695 for a total of $19,695. The Company has entered into
discussions with Mr. Rehder to resolve the default. The Company can make no
assurances that it will be able to come to a satisfactory resolution to the
situation.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
-----------------------------------------------
GENERAL. Larry O'Donnell, CPA, P.C. ("O'Donnell") is the Company's principal
auditing accountant firm. The Company's Board of Directors has considered
whether the provisions of audit services is compatible with maintaining
O'Donnell's independence.
The following table represents aggregate fees billed to the Company for the
years ended December 31, 2009 and December 31, 2008 by Larry O'Donnell, CPA,
P.C.
Year Ended December 31,
2009 2008
--------------------- --------------------
Audit Fees $6,000 $7,780
Audit-related Fees (a) $0 $0
Tax Fees $0 $0
All Other Fees $0 $0
--------------------- --------------------
Total Fees $6,000 $7,780
All audit work was performed by the auditors' full time employees.
-51-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
------------------------------------------------
The following is a complete list of exhibits filed as part of this Form 10K.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
(a) Audited financial statements for years ended December 31, 2009 and 2008
(b) EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Articles of Incorporation of Infinity Capital Group, Inc. (1)
3.2 Bylaws of Infinity Capital Group, Inc. (1)
10.1 Custody Agreement (2)
31.1 Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act
32.1 Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act
32.2 Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act
(1) Incorporated by reference from the exhibits included in the Company's Form
8K12g3 filed with the Securities and Exchange Commission (www.sec.gov), dated
May 5, 2005. A copy can be provided by mail, free of charge, by sending a
written request to Infinity Capital Group, Inc., 80 Broad Street, 5th Floor, NY,
NY 10004.
(2) Incorporated by reference from the exhibits included in the Company's Form
8K filed with the SEC on December 4, 2009.
-52-
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.
Infinity Capital Group, Inc.
Dated: March 31, 2010
By: /s/ Gregory H. Laborde
-------------------------------------------------
Gregory H. Laborde, President, Chief Executive
Officer and Chairman of the Board
By: /s/ Theodore A. Greenberg
-------------------------------------------------
Theodore A. Greenberg, Chief Financial Officer,
Chief Investment Officer, Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: March 31, 2010
Infinity Capital Group, Inc.
----------------------------------------------------
/s/ Gregory H. Laborde
----------------------------------------------------
Gregory H. Laborde, Director
/s/ Theodore A. Greenberg
----------------------------------------------------
Theodore A. Greenberg, Director
/s/ Pierce McNally
----------------------------------------------------
Pierce McNally, Director
/s/ Conrad R. Huss
----------------------------------------------------
Conrad R. Huss, Director
/s/ Ernest D. Chu
----------------------------------------------------
Ernest D. Chu, Director
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