UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 1998
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number 1-14168
Globix Corporation
(Exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3781263
(IRS Employer Identification No.)
295 Lafayette Street, 3rd. Floor, New York, NY 10012
(Address of principal executive offices)
(212) 334-8500
(Issuer's telephone number)
Bell Technology Group, Ltd.
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes or common
equity, as of the latest practicable date:
4,140,116 shares of Common Stock as of August 5, 1998
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
SEC 2334 (3/94-)
<PAGE>
Globix Corporation
and Subsidiaries
Table of Contents
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet as of June 30, 1998 and
September 30, 1997 2
Consolidated Statements of Operations
For the Three Months Ended June 30, 1998 and 1997 3
Consolidated Statements of Operations
For the Nine Months Ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Shareholders'
Equity For the Nine Months Ended June 30, 1998 5
Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial 10-15
Condition and Results of Operations
PART II - OTHER INFORMATION 16-18
<PAGE>
Globix Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, Sept 30,
Assets 1998 1997
(Unaudited)
Current assets:
Cash $ 1,731,067 $ 2,401,446
Cash equivalents 89,686,070 --
Restricted cash 20,800,000 --
Accounts receivable, net of allowance
for doubtful accounts of $272,986
and $194,684 as of June 30, 1998
and September 30, 1997, respectively 5,034,578 3,259,548
Inventories 717,590 487,542
Prepaid expenses and other current assets 1,092,707 727,765
------------- ------------
Total current assets 119,062,012 6,876,301
Restricted cash and cash equivalents 36,525,000 325,000
Property and equipment, net 8,501,846 3,548,838
Debt issuance costs, net of accumulated
amortization of $156,278 6,407,377 --
Other assets 395,933 274,849
------------- ------------
Total assets $ 170,892,168 $ 11,024,988
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 871,500 $ 2,001,157
Current portion of notes payable 500,428 335,021
Accounts payable 3,074,805 2,010,507
Accrued expenses and other liabilities 437,274 548,898
Accrued interest expense 3,466,667 --
------------- ------------
Total current liabilities 8,350,674 4,895,583
------------- ------------
Notes payable, less current portion 901,757 923,217
Long-term debt, net of discount 157,807,200 --
Other long term liabilities 302,488 191,928
------------- ------------
Total liabilities 167,362,119 6,010,728
------------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value; 500,000
shares authorized; no shares issued and
outstanding -- --
Common Stock, $.01 par value; 20,000,000
shares authorized; 3,626,750
shares issued and outstanding 36,268 34,485
Additional paid-in capital 13,524,159 10,069,474
Accumulated deficit (10,030,378) (5,089,699)
------------- ------------
Total stockholders' equity 3,530,049 5,014,260
------------- ------------
Total liabilities and stockholders'
equity $ 170,892,168 $ 11,024,988
============= ============
The accompanying notes are an integral part of these consolidated
balance sheets.
Page - 2 -
<PAGE>
Globix Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
1998 1997
Revenues $ 5,695,816 $ 4,943,114
Costs and expenses:
Cost of revenues (exclusive of
depreciation expense shown below) 3,799,740 3,723,598
Selling, general and administrative 3,009,563 1,461,377
Depreciation and amortization 396,234 161,530
----------- -----------
Total costs and expenses 7,205,537 5,346,505
----------- -----------
Loss from operations (1,509,721) (403,391)
Interest and financing expenses,
net of interest income of
$1,018,446 in 1998 and $11,168
in 1997 (2,560,282) (54,125)
----------- -----------
Loss before taxes (4,070,003) (457,516)
Provision for taxes -- --
----------- -----------
Net loss $(4,070,003) $ (457,516)
=========== ===========
Basic net loss per share ($1.16) ($0.15)
Basic weighted average shares
outstanding 3,509,765 3,046,267
The accompanying notes are an integral part of these consolidated
statements.
Page - 3 -
<PAGE>
Globix Corporation
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended
June 30,
1998 1997
Revenues $ 14,786,990 $ 13,868,965
Costs and expenses:
Cost of revenues (exclusive of
depreciation expense shown below) 9,657,707 10,657,524
Selling, general and administrative 6,488,917 4,256,888
Depreciation and amortization 902,453 457,620
------------ ------------
Total costs and expenses 17,049,077 15,372,032
------------ ------------
Loss from operations (2,262,087) (1,503,067)
Interest and financing expenses,
net of interest income of
$1,026,240 in 1998 and $32,036
in 1997 (2,678,592) (37,330)
------------ ------------
Loss before taxes (4,940,679) (1,540,397)
Provision for taxes -- --
------------ ------------
Net loss $ (4,940,679) $ (1,540,397)
============ ============
Basic net loss per share ($1.42) ($0.51)
Basic weighted average shares outstanding 3,468,888 3,044,799
The accompanying notes are an integral part of these consolidated
statements.
Page - 4 -
<PAGE>
Globix Corporation
and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
For the Nine Months Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
------ ------ --------------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance as of
September 30, 1997 3,448,450 $34,485 $ 10,069,474 $ (5,089,699) $ 5,014,260
Additional costs
incurred with private
placement from
September, 1997 -- -- (77,638) -- (77,638)
Original issue discount
on $160 million senior
note offering -- -- 2,252,800 -- 2,252,800
Issuance of common stock
upon exercise of options
and warrants, net of
fees incurred 178,300 1,783 1,279,523 -- 1,281,306
Net loss -- -- -- (4,940,679) (4,940,679)
--------- ------- ------------ ------------ -----------
Balance as of
June 30, 1998 3,626,750 $36,268 $ 13,524,159 $(10,030,378) $ 3,530,049
========= ======= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page - 5 -
<PAGE>
Globix Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net loss $ (4,940,679) $(1,540,397)
Adjustments to reconcile net (loss)
to net cash used in operating activities
Depreciation and amortization 902,453 457,620
Interest and financing expenses 60,000 --
Provision for bad debt -- 86,833
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,775,030) (2,164,299)
(Increase) in inventories (230,048) (203,834)
Decrease (increase) in prepaid expenses
and other current assets (364,942) 86,090
Decrease (increase) in other assets (121,084) 18,218
Increase in accounts payable 1,064,298 636,955
(Decrease) in accrued expenses and
other liabilities (111,624) (75,807)
Increase in accrued interest expense 3,466,667 --
Increase in other long-term liabilities 110,560 --
------------- -----------
Net cash used in operations (1,939,429) (2,698,621)
------------- -----------
Cash flows from investing activities:
Purchases of property and equipment (5,855,461) (1,620,126)
Investment of long-term restricted cash
and cash equivalents (36,200,000) --
------------- -----------
Net cash used in investing activities (42,055,461) (1,620,126)
------------- -----------
Cash flows from financing activities:
Proceeds from senior note offering net
of offering expenses of $6,407,377 153,592,623 --
Repayment of short term borrowings (1,129,657) 2,246,549
Net proceeds of notes payable 143,947 1,186,349
Additional costs incurred with private
placement in September 1997 (77,638) --
Proceeds from exercise of stock options and
warrants, net of fees incurred 1,281,306 27,993
Loan to stockholder -- (145,408)
------------- -----------
Net cash provided by financing activities 153,810,581 3,315,483
------------- -----------
Net increase (decrease) in cash,
cash equivalents and restricted cash 109,815,691 (1,003,264)
Cash, cash equivalents and restricted
cash, beginning of period 2,401,446 2,342,011
------------- -----------
Cash, cash equivalents and restricted
cash, end of period $ 112,217,137 $ 1,338,747
============= ===========
The accompanying notes are an integral part of these consolidated
statements
Page - 6 -
<PAGE>
GLOBIX CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated balance sheets as of June 30, 1998, statements of operations
for the three and nine months ended June 30, 1998 and 1997, statement of changes
in shareholders' equity for the nine months ended June 30, 1998 and the
statements of cash flows for the nine months ended June 30, 1998 and 1997 have
been prepared by Globix Corporation (formerly known as Bell Technology Group
Ltd.) (the "Company") without audit. All material inter-company accounts and
transactions have been eliminated. The consolidated results should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's Form 10KSB for the fiscal year ended September 30, 1997 on file
with the Securities and Exchange Commission. Results of operations for the three
month and nine month period are not necessarily indicative of the operating
results for the full year. Interim statements are prepared on a basis consistent
with year-end statements.
In the opinion of management, the unaudited interim financial statement
furnished herein include all adjustments necessary for a fair presentation of
the results of operations of the Company. All such adjustments are of a normal
recurring nature.
2. SENIOR NOTE OFFERING
In April 1998, the Company successfully completed a private offering for
$160,000,000 consisting of 160,000 units, each unit consisting of $1,000
principal amount of 13% Senior Notes due 2005 and one warrant to purchase 3.52
shares of common stock (total of 563,200 shares of common stock) at a purchase
price of $14.03 per share. The Notes will mature on May 1, 2005. Interest on the
notes is payable semi-annually in arrears on May 1 and November 1 of each year,
commencing November 1, 1998. The Company has deposited with an escrow agent
$57,000,000, that together with the interest received thereon, will be
sufficient to pay, when due, the first six interest payments. The Notes are
collateralized by a first priority security interest in the escrow account. The
Notes are senior unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future unsecured and unsubordinated
indebtedness and rank senior in right of payment to any future subordinated
indebtedness. The accrued interest expense on the balance sheet represents two
months of interest on the notes which will be paid from the escrow account on
November 1, 1998. An original issue discount of approximately $2.3 million and
expenses of the offering of approximately $6.6 million are being amortized over
seven years. The escrow account is reflected on the balance sheet as current
restricted cash for the first years interest due of $20.8 million and as long
term restricted cash for the remaining balance.
3. NOTES PAYABLE
The Company has entered into leases for various items of its office furniture
and equipment as well as for its telephone system accounted for as capital
leases. The terms on these leases vary from 36 to 60 month terms.
The Company financed certain of its furniture and computer equipment in April
1997 in the amount of approximately $874,000 with FINOVA Capital Corporation.
Such loan is for a term of three years, bears interest at 12.19% per annum and
is self-liquidating over its term.
Page - 7 -
<PAGE>
4. SUBSEQUENT EVENTS
On July 1, 1998, the Company through BLP Acquisitions LLC, a New York limited
liability company ("BLP"), controlled by the Company, purchased the land and
building located at 139 Centre Street, New York, New York (the "Property") from
Bank Leumi USA, a New York banking corporation. The Property includes a nine
story building containing approximately 160,000 square feet of floor space. The
Company intends to use the Property to house its New York SuperPOP facility and
operations. The Company anticipates occupying the Property beginning February
1999 . The total acquisition cost to date, including the cost of purchasing the
right to acquire the Property, of $17,000,000 was paid for with proceeds from
the Senior Note offering described in Note 2. The Company also entered into a
Purchase Agreement dated June 2, 1998 with the minority member of BLP, (the
"Minority Member") setting forth the terms and conditions pursuant to which the
Minority Member can require the Company to purchase all of such Minority
Member's right, title and interest in BLP and pursuant to which the Company can
require the Minority Member to sell all of its right, title and interest in BLP
to the Company. The purchase price would be $2.6 million payable interest only
for 7 years at which time the principal would be due. Under certain
circumstances, a former owner of the right to purchase the Property may be
entitled to additional consideration if the Company sells the Property. Deposits
and other costs relating to the purchase of the building of approximately $3.3
million have been included in fixed assets as of June 30, 1998.
On June 8, 1998, the Company called for redemption its publicly traded common
stock purchase warrants issued in connection with the Company's initial public
offering in January, 1996 (the "IPO Warrants"). Prior to the redemption date of
July 8, 1998. 581,472 of the 592,055 then outstanding IPO Warrants were
exercised at an exercise price of $7.44 per common share. The remaining 10,483
Warrants were redeemed by the Company at a price of $.10 per IPO Warrant. The
net proceeds recognized by the Company from the warrant redemption amounted to
approximately $4.3 million.
On July 23, 1998, the Company entered into a Securities Purchase Agreement with
Cybernet Data Systems, Inc., a Delaware Corporation ("Cybernet"). Cybernet is
the publisher of the web site "Edgar-Online.com". Under the securities purchase
agreement, the Company purchased for $1,000,000, a 10% Convertible Subordinated
Debenture due 2001 (the "Cybernet Debenture") and a Warrant to Purchase Common
Stock (the "Cybernet Warrant"). The Cybernet Debenture is non-interest bearing
until July 23, 1999. Beginning on July 23, 1999, the Cybernet Debenture will
bear interest at a rate of 10% per annum payable semiannually in advance on July
23 and January 23, in each year until July 23, 2001, when the Cybernet Debenture
is to be redeemed by Cybernet. The Cybernet Debenture is convertible into
670,000 shares of Cybernet common stock. The Cybernet Warrant entitles the
Company to purchase an additional 666,667 shares of Cybernet common stock at an
exercise price of $1.50 per share until the Cybernet Warrant's expiration date
of July 23, 1999. If the Company converted the Cybernet Debenture into common
stock and exercised its Cybernet Warrant, the Company would own approximately
20% of the outstanding shares of Cybernet. In addition, Cybernet has signed a 5
year exclusive contract with the Company to provide web hosting services.
In July 1998, the Company signed a 15 year triple net lease commencing January
15, 1999 to rent approximately 62,000 square feet of office space in Santa
Clara, California at an annual base rental of approximately $1.3 million. The
building is currently under construction, and completion is scheduled for
December 1998. As per the lease agreement, the Company will be required to pay a
security deposit of $400,000 upon completion of certain construction terms.
Page - 8 -
<PAGE>
5. DEPRECIATION AND AMORTIZATION
Depreciation expense relating to cost of revenues is $124,690 and $51,501 for
the three months ended June 30, 1998 and 1997, and $256,596 and $145,300 for the
nine months ended June 30, 1998 and 1997, respectively.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which requires
the presentation of both basic and diluted earnings per share on the face of the
Consolidated Statements of Operations. Options and warrants are not included in
the calculation of diluted earnings per share as the effect would be
antidilutive. Accordingly, basic and diluted net loss per share do not differ
for any period presented.
Net loss per share under the provisions of SFAS 128 for periods prior to the
first quarter of fiscal 1998 did not differ from the net loss per share as
reported in those prior periods.
The following table summarizes securities that were outstanding as of June 30,
1998 and 1997, but not included in the calculation of diluted net loss per share
because such shares are antidilutive.
June 30,
----------------
1998 1997
---- ----
Options 893,230 281,065
Warrants 1,259,649 833,650
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, Reporting Comprehensive Income, which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and presenting information on comprehensive income and its components
(revenues, expenses, gains, losses and currency translation adjustments) in the
financial statements. Also in June 1997, the FASB issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which is
for fiscal years beginning after December 31, 1997. This statement revises
standards for public companies to report financial and descriptive information
about reportable operating segments and certain other geographic information.
The Company is evaluating methods for adoption of these statements, if
necessary, and currently does not expect these new pronouncements to have a
material impact on its consolidated financial statements.
Page - 9 -
<PAGE>
PART I MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has divided its operations for segment reporting into two divisions:
(i) the "Internet Division," which provides high bandwidth dedicated internet
access, web hosting and co-location facilities, web design, web implementation,
3-dimensional computer animation and instructor-led training and (ii) the
"Server and Workstation Sales and Services Division," which provides systems
integration and support.
Results of Operations
For the Three Months Ended June 30, 1998 and 1997
Revenues. Consolidated revenues for the three months ended June 30, 1998
compared to the same period in 1997, increased approximately 15% from
approximately $4,943,000 to approximately $5,696,000. This increase was due
primarily to an increase in sales from the Internet segment which increased
sales from approximately $705,000 for the three months ended June 30, 1997 to
approximately $1,637,000 for the three months ended June 30, 1998 for an
increase of 132%. Sales from the Server and Workstation Sales and Services
segment for the three months ended June 30, 1998 decreased to approximately
$4,063,000 from $4,238,000 in sales for the three months ended June 30, 1997.
The Company's revenue mix has continued to change. For the three months ended
June 30, 1998, 29% of revenues were from the Internet and Media Development
segment as compared to 14% for the comparable period in 1997.
Cost of Revenues. Cost of Revenues for the three months ended June 30, 1998 were
approximately $3,800,000, or approximately 67% of revenues, as compared to
approximately $3,724,000 or approximately 75% of revenues for the comparable
period in fiscal 1997. The primary reason for the decrease in cost of revenues
is the increased sales of the Internet segment as a percentage of total sales.
Cost of Revenues for the Server and Workstation Sales and Services segment for
the three months ended June 30, 1998 were approximately $3,470,000, or
approximately 85% of revenues, as compared to approximately $3,566,000 or
approximately 84% of revenues for the comparable period in fiscal 1997. Cost of
Revenues for the Internet Segment for the three months ended June 30, 1998 were
approximately $317,000 or approximately 22% of revenues, as compared to
approximately $157,000 or approximately 22% of revenues for the comparable
period in fiscal 1997.
Selling, General and Administrative. For the three months ended June 30, 1998,
Selling, General and Administrative expenses increased from approximately
$1,461,000 or 30% of sales to approximately $3,010,000 or approximately 53% of
sales. The increase in 1998 is due to mainly to an increase in payroll,
essentially Internet and computer program sales personnel, and technicians and
engineers in anticipation of the Company's future expansion. The number of
full-time employees increased from 72 as of June 30, 1997 to 120 as of June 30,
1998. In addition, advertising expense increased $186,000 over the three months
ended June 30, 1997 as the Company has increased its presence at industry trade
shows and has began running advertisements in Crain's New York Business, The New
York Times and the Wall Street Journal.
Page - 10 -
<PAGE>
Income Taxes. For the three months ended June 30, 1998 and 1997, respectively,
the Company has not recorded a tax benefit of a net operating loss carryforward
due to the uncertainty of its future utilization.
Net Loss. For the three month period ended June 30, 1998, the Company incurred a
net loss of approximately $4,070,000 or $1.16 per share as compared to a net
loss of approximately $458,000 or $.15 for the corresponding three month period
ending June 30, 1997.
For the Nine Months Ended June 30, 1998 and 1997
Revenues. Consolidated revenues for the nine months ended June 30, 1998
increased approximately 7% from approximately $13,869,000 to approximately
$14,787,000. Sales from the Internet segment for the nine months ended June 30,
1998 increased approximately 165% from approximately $1,660,000 to approximately
$4,405,000. Revenues from the Server and Workstation Sales and Services segment
for the nine months ended June 30, 1998 decreased approximately 18% from
approximately $12,209,000 to approximately $10,371,000.
Cost of Revenues. Cost of Revenues for the nine months ended June 30, 1998 were
approximately $9,658,000 or 65% of revenues, as compared to approximately
$10,658,000, or approximately 77% of revenues for the comparable period in
fiscal 1997. The primary reason for the decrease in cost of revenues is the
increased sales of the Internet segment as a percentage of total sales. Cost of
Revenues from the Server and Workstation Sales and Services for the nine months
ended June 30, 1998 were approximately $8,523,000 or approximately 82% of
revenues, as compared to approximately $10,140,000 or approximately 83% of
revenues for the comparable period in fiscal 1997. Cost of Revenues for the
Internet and Media Development Segment for the nine months ended June 30, 1998
were approximately $1,134,000 or approximately 26% of revenues, as compared to
approximately $518,000 or approximately 31% revenues for the comparable period
in fiscal 1997.
Selling, General and Administrative. For the nine months ended June 30, 1998,
Selling, General and Administrative expenses increased from approximately
$4,257,000 or approximately 31% of sales to approximately $6,489,000 or 44% of
sales. The increase in 1998 is due to mainly to an increase in payroll,
essentially for Internet and computer program sales personnel, and technicians
and engineers in anticipation of the Company's future expansion. The number of
full-time employees increased from 72 as of June 30, 1997 to 120 as of June 30,
1998.
Income Taxes. For the nine months ended June 30, 1998 and 1997, respectively,
the Company has not recorded a tax benefit of a net operating loss carryforward
due to the uncertainty of its future utilization.
Net Loss. For the nine months ended June 30, 1998, the Company incurred a net
loss of approximately $4,941,000 or $1.42 per share as compared to a net loss of
approximately $1,540,000 or $.51 per share.
Page - 11 -
<PAGE>
Liquidity and Capital Resources
The Company has a $2,000,000 credit line from Cisco Systems Capital Corporation
("CSC") to lease Cisco Systems products and associated peripherals. The credit
line is available to the Company for a period of 180 days, is to be repaid over
a 36-month period at an interest rate of approximately 9.2% and is subject to
quarterly financial review by CSC. The Company may not purchase more than
$500,000 on the credit line during any three-month period. As of June 30, 1998,
the Company had used approximately $344,000 of this credit line. At the end of
the lease term, the Company has the option of purchasing the equipment for $1.
In April 1998, the Company successfully completed a private offering for
$160,000,000 consisting of 160,000 units, each unit consisting of $1,000
principal amount of 13% Senior Notes due 2005 and one warrant to purchase 3.52
shares of common stock (total of 563,200 shares of common stock) at a purchase
price of $14.03 per share. The Notes will mature on May 1, 2005. Interest on the
notes are payable semi-annually in arrears on May 1 and November 1 of each year,
commencing November 1, 1998. The Company has deposited with an escrow agent
$57,000,000, that together with the interest received thereon, will be
sufficient to pay, when due, the first six interest payments. The Notes are
collateralized by a first priority security interest in the escrow account. The
Notes are senior unsecured obligations of the Company and rank pari passu in
right of payment with all existing and future unsecured and unsubordinated
indebtedness and rank senior in right of payment to any future subordinated
indebtedness. The Company currently plans to use the net proceeds from the
offering to expand its New York facilities and construct similar facilities in
both London and the San Francisco Bay area and in addition, increase its sales,
marketing, technical and administrative personnel associated with this expansion
strategy. The Company is also seeking strategic acquisitions complimentary to
its core business. The accrued interest expense on the balance sheet represents
two months of interest on the notes which will be paid from the escrow account
on November 1, 1998. An original issue discount of approximately $2.3 million
and expenses of the offering of approximately $6.6 million are being amortized
over seven years. The escrow account is reflected on the balance sheet as
current restricted cash for the first years interest due of $20.8 million and as
long term restricted cash for the remaining balance.
The Company had a positive cash flow of approximately $110 million for the nine
months ended June 30, 1998. This resulted mainly from the proceeds of the senior
note offering which closed in April 1998 which raised (net of offering costs)
approximately $153.6 million less $36.2 million of the $57 million that which
has been placed in long-term escrow to pay, when due, the first six interest
payments on the notes. Cash used in operations consists of the net loss of
approximately $4.9 million which includes an increase in accounts receivable of
approximately $1.8 million offset by an increase in accounts payable of
approximately $1.1 million and approximately $3.5 million of accrued interest
expense relating to the interest expense on the senior note offering. In
addition, the Company purchased property and equipment in the amount of
approximately $5.9 million of which approximately $3.3 million represents
deposits made on a building purchase in July, 1998 which is described in
"Subsequent Events." The other approximate $2.6 million in capital expenditures
resulted from the Company's continuing focus on the development of its Internet
related activities which included the purchase of servers, routers, cabinets,
monitors and other equipment necessary to expand internet operations. The
Company historically has experienced negative cash flow from operations and
incurred net losses. For the fiscal years ended September 30, 1996 and 1997, the
Company generated negative operating cash flows of approximately $1.9 million
and approximately $2.5 million, respectively, and incurred net losses of
approximately $1.9 million and approximately $3.1 million respectively. For the
nine months ended June 30, 1998, the Company generated a negative operating cash
flow of approximately $1,939,000 and incurred a net loss of approximately
$4,941,000. The Company believes its SuperPOP infrastructure will enable it to
achieve further economies of scale as it continues to expand its customer base.
However, there can be no assurance that the Company wil be able to achieve or
sustain revenue growth, positive cash flow or profitability in the future. As of
June 30, 1998, the Company had generated an accumulated deficit of approximately
$10 million.
Page - 12 -
<PAGE>
Recently Issued Accounting Standards
In the first quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings per Share," which requires
the presentation of both basic and diluted earnings per share on the face of the
Consolidated Statements of Operations. Options and warrants are not included in
the calculation of diluted earnings per share if the effect would be
antidilutive. Accordingly, basic and diluted net loss per share do not differ
for any period presented.
Net loss per share under the provisions of SFAS 128 for periods prior to the
first quarter of fiscal 1998 did not differ from the net loss per share as
reported in those prior periods.
The following table summarizes securities that were outstanding as of June 30,
1998 and 1997, but not included in the calculation of diluted net loss per share
because such shares are antidilutive.
June 30,
-----------------
1998 1997
---- ----
Options 893,230 281,065
Warrants 1,251,649 833,650
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, Reporting Comprehensive Income, which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and presenting information on comprehensive income and its components
(revenues, expenses, gains, losses and currency translation adjustments) in the
financial statements. Also in June 1997, the FASB issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which is
for fiscal years beginning after December 31, 1997. This statement revises
standards for public companies to report financial and descriptive information
about reportable operating segments and certain other geographic information.
The Company is evaluating methods for adoption of these statements, if
necessary, and currently does not expect these new pronouncements to have a
material impact on its consolidated financial statements.
SUBSEQUENT EVENTS
On July 1, 1998, the Company through BLP Acquisitions LLC, a New York limited
liability company ("BLP"), controlled by the Company, purchased the land and
building located at 139 Centre Street, New York, New York (the "Property") from
Bank Leumi USA, a New York banking corporation. The Property includes a nine
story building containing approximately 160,000 square feet of floor space. The
Company intends to use the Property to house its New York SuperPOP facility and
operations. The Company anticipates occupying the Property beginning February
1999. The total acquisition cost to date, including the cost of purchasing the
right to acquire the Property, of $17,000,000 was paid for with proceeds from
the Senior note offering described in Note 5. The Company also entered into a
Purchase Agreement dated June 2, 1998 with the minority member of BLP, (the
"Minority Member") setting forth the terms and conditions pursuant to which the
Minority Member can require the Company to purchase all of such Minority
Member's right, title and interest in BLP and pursuant to which the Company can
require the Minority Member to sell all of its right, title and interest in BLP
to the Company. The purchase price would be $2.6 million payable interest only
for 7 years at which time the principal would be due. Under certain
circumstances, a former owner of the right to purchase the Property may be
entitled to additional consideration if the Company sells the Property. Deposits
and other costs relating to the purchase of the building of approximately $3.3
million have been included in fixed assets as of June 30, 1998. The Company is
currently in negotiation with a lending institution to obtain a first mortgage
on the land and building for approximately $19.2 million, 10 year loan at an
annual interest rate of approximately 7.3% per annum. The Company will be
required to maintain a letter of credit of $1.6 million as additional
collateral.
Page - 13 -
<PAGE>
On June 8, 1998, the Company called for redemption its publicly traded common
stock purchase warrants issued in connection with the Company's initial public
offering in January, 1996 (the "IPO Warrants"). Prior to the redemption date of
July 8, 1998. 581,472 of the 592,055 then outstanding IPO Warrants were
exercised at an exercise price of $7.44 per common share. The remaining 10,483
Warrants were redeemed by the Company at a price of $.10 per IPO Warrant. The
net proceeds recognized by the Company from the warrant redemption amounted to
approximately $4.3 million.
On July 23, 1998, the Company entered into a Securities Purchase Agreement with
Cybernet Data Systems, Inc., a Delaware Corporation ("Cybernet"), Cybernet is
the publisher of the web site "Edgar-Online.com". Under the Securities Purchase
Agreement, the Company purchased for $1,000,000, a 10% Convertible Subordinated
Debenture due 2001 (the "Cybernet Debenture") and a Warrant to Purchase Common
Stock (the "Cybernet Warrant"). The Cybernet Debenture is non-interest bearing
until July 23, 1999. Beginning on July 23, 1999, the Cybernet Debenture will
bear interest at a rate of 10% per annum payable semiannually in advance on July
23 and January 23, in each year until July 23, 2001, when the Cybernet Debenture
is to be redeemed by Cybernet. The Cybernet Debenture is convertible into
670,000 shares of Cybernet common stock. The Cybernet Warrant entitles the
Company to purchase an additional 666,667 shares of Cybernet common stock at an
exercise price of $1.50 per share until the Cybernet Warrant's expiration date
of July 23, 1999. If the Company converted the Cybernet Debenture into common
stock and exercised its Cybernet Warrant, the Company would own approximately
20% of the outstanding shares of Cybernet. In addition, Cybernet has signed a 5
year exclusive contract with the Company to provide web hosting services.
In July 1998, the Company signed a 15 year triple net lease commencing January
15, 1999 to rent approximately 62,000 square feet of office space in Santa
Clara, California at an annual base rental of approximately $1.3 million. The
building is currently under construction, and completion is scheduled for
December 1998. As per the lease agreement, the Company will be required to pay a
security deposit of $400,000 upon completion of certain construction terms. The
Company intends to build there a SuperPOP data center and also provide space for
sales and administrative personnel.
Year 2000 Discussion
Many computer programs were designed to perform data computations on the last
two digits of the numerical value of a year. When computations referencing the
year 2000 are performed, these programs may interpret -00- as the year 1900 and
could either corrupt the date-related computations or not process them at all.
As a result, many software and computer systems may need to be upgraded or
replaced in order to comply with such year 2000 requirements.
Page - 14 -
<PAGE>
The Company has reviewed all its computer systems, which are provided by
third-party manufacturers and certain software which has been created by
internal programers. The manufacturers have represented to the Company, that
their systems are or will be year 2000 compliant. The internal programming which
was all done within the last two years was created to be year 2000 compliant.
However, the Company could be adversely impacted by year 2000 issues faced by
significant customers, vendors, suppliers, and financial service organizations
with whom the Company conducts business. The Company is in the process of
determining the impact, if any, that third parties who are not year 2000
compliant may have on its operations.
Forward Looking Statements
The foregoing management discussion and analysis contains certain
forward-looking statements. Due to the fact that the Company faces intense
competition in a business characterized by rapidly changing technology, and must
raise additional capital in order to continue with its existing capital
expenditure program, actual results and outcomes may differ materially from any
such forward looking statements. Future results of operations are, in general,
difficult to forecast due to the fast moving pace of the industry. Additional
information concerning factors that could cause actual results to differ
materially from those in the forward looking statements is contained under the
heading "Risk Factors" listed from time to time in the Company's filings with
the Securities and Exchange Commission.
Page - 15 -
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
a) The Company held its Annual Meeting of Shareholders on April 16, 1998.
b) The directors elected at the Annual Meeting were:
Mr. Marc H. Bell Mr. Martin Fox
Mr. Robert B. Bell Lord Anthony St. John
Mr. Tsuyoshi Shiraishi Mr. Sid Paterson
Dr. Richard Videbeck
c) (i) The shareholders voted on the election of directors as follows:
Name For Withheld
- -------------------------------------------------------------------
Marc H. Bell 2,844,460 20,404
------------- ---------
Robert B. Bell 2,844,110 20,754
------------- ---------
Tsuyoshi Shiraishi 2,842,510 22,354
------------- ---------
Martin Fox 2,844,610 20,254
------------- ---------
Richard Videbeck 2,842,360 22,504
------------- ---------
Lord Anthony St. John 2,841,860 23,004
------------- ---------
Sid Paterson 2,844,960 19,904
------------- ---------
(ii) The shareholders voted on a proposal to approve the Company's 1998
Stock Option Plan as follows:
FOR 2,003,261
---------
AGAINST 47,354
---------
ABSTENTIONS 24,900
---------
Page - 16 -
<PAGE>
(iii) The shareholders voted on a proposal to amend the Company's
Certificate of Incorporation to change the Company's name to Globix Corporation
as follows:
FOR 2,834,439
---------
AGAINST 25,250
---------
ABSTENTIONS 5,175
---------
(iv) The shareholders voted on a proposal to amend the Company's
Certificate of Incorporation to increase the authorized shares of Common Stock
to twenty million (20,000,000) as follows:
FOR 2,809,000
---------
AGAINST 51,164
---------
ABSTENTIONS 4,700
---------
(v) The shareholders voted on a proposal to approve Arthur Andersen
LLP as the Company's independent public accountants as follows:
FOR 2,853,104
---------
AGAINST 8,110
---------
ABSTENTIONS 3,650
---------
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on form 8-K
(b) (i) Date Filed: 4/13/98 Date of Event: 4/27/98
Subject: Press release announcing intent of Company, subject to
market and other conditions, to raise up to $140 million
in a private placement of high yield securities pursuant
to Rule 144A.
(b) (i) Date Filed: 5/11/98 Date of Event: 4/24/98
Subject: Company entered into a Purchase Agreement dated April
24, 1998 to sell ING Baring (U.S.) Securities, Inc.
160,000 Units. Purchase closed on April 30, 1998. Each
Unit consists of $1,000 principal amount of 13% Senior
Notes due 2005 and one warrant to purchase 3.52 shares
of common stock of the Company at $14.03 per share.
$57 million in U.S. Government Securities placed in
escrow with Marine Midland Bank with income therefrom to
be used to pay first six interest payments.
(b) (i) Date Filed: 6/19/98 Date of Event: 6/1/98
Subject: Name change to Globix.
Page - 17 -
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Globix Corporation
Date: August 14, 1998 By: /s/ Marc H. Bell
-------------------------------------
Marc H. Bell, President & CEO
Date: August 14, 1998 By: /s/ Robert B. Bell
-------------------------------------
Robert B. Bell, Exec. Vice President & CFO
Date: August 14, 1998 By: /s/ Alan Levy
-------------------------------------
Alan Levy, Treasurer and Chief Accounting Officer
Page - 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,731,067
<SECURITIES> 110,486,070
<RECEIVABLES> 5,307,564
<ALLOWANCES> 272,986
<INVENTORY> 717,590
<CURRENT-ASSETS> 119,062,012
<PP&E> 8,501,846
<DEPRECIATION> 2,002,936
<TOTAL-ASSETS> 170,892,168
<CURRENT-LIABILITIES> 8,350,674
<BONDS> 0
0
0
<COMMON> 36,268
<OTHER-SE> 3,493,781
<TOTAL-LIABILITY-AND-EQUITY> 170,892,168
<SALES> 5,695,816
<TOTAL-REVENUES> 5,695,816
<CGS> 3,799,740
<TOTAL-COSTS> 7,205,537
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,518,728
<INCOME-PRETAX> (4,070,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,070,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,070,003)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
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