<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997 Commission File No. 0-22361
NET.B@NK, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2224352
---------------------- ------------------
(State of incorporation) (I.R.S. Employer Identification Number)
7000 Peachtree Dunwoody Road
Building 10, Suite 300
Atlanta, Georgia 30328
------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 392-4990
------------------
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 NO X
----------- -----------
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date:
Class Shares Outstanding at July 31, 1997
----------------------------- ------------------------------------
Common Stock, par value $.01 6,145,562
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are included in this report:
1. Balance sheets as of June 30,1997 and as of December 31, 1996.
2. Statements of operations for the quarters ended June 30, 1997 and
1996, the six months ended June 30, 1997 and the periods from
February 20, 1996 (date of incorporation) to June 30, 1996 and 1997.
3. Statements of shareholders' deficit from February 20, 1996 to June
30, 1997.
4. Statements of cash flows for the six months ended June 30, 1997 and
the periods from February 20, 1996 (date of inception) to June 30,
1996 and 1997.
<PAGE>
NET.B@NK, INC. (A Development Stage Enterprise)
BALANCE SHEETS
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 36,385 $ 768,666
License agreements--current................................................. 97,565 155,600
Other assets................................................................ 11,174 24,542
Deferred offering costs..................................................... 527,318 74,758
Organizational costs, net................................................... 68,326 10,533
Premier advance............................................................. 55,000
------------ ------------
Total current assets........................................................ 795,768 1,034,099
LICENSE AGREEMENTS.......................................................... 27,837 46,366
FURNITURE AND EQUIPMENT--Net................................................ 141,233 165,984
------------ ------------
$ 964,838 $1,246,449
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Amounts due to affiliate.................................................... $ 1,901,340 $ 883,606
Other payables and accrued liabilities...................................... 1,112,744 748,916
------------ ------------
Total current liabilities................................................... 3,014,084 1,632,522
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS DEFICIT:
Preferred stock, no par (10,000,000 shares authorized, none outstanding)
Common stock, $.01 par (100,000,000 shares authorized, 1,279,156 and
1,249,342 shares issued and outstanding).................................. 12,792 12,493
Additional paid-in capital.................................................. 1,463,458 1,069,088
Common stock subscribed (1,325,000 and 1,354,814 shares).................... 3,840,000 3,844,185
Stock subscriptions receivable (no shares and 29,814 shares)............... (4,185)
Unamortized affiliate service contract expense.............................. (1,440,000)
Unamortized stock plan expense.............................................. (306,184) (28,472)
Deficit accumulated during the development stage............................ (7,059,312) (3,839,182)
------------ ------------
Total shareholders' deficit................................................. (2,049,246) (386,073)
------------ ------------
$ 964,838 $1,246,449
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
2
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
SIX MONTHS 1996 (DATE OF
THREE MONTHS ENDED ENDED INCORPORATION)
JUNE 30, JUNE 30 TO JUNE 30,
------------------------- ---------- -------------------------
1997 1996 1997 1996 1997
------------- ---------- ------------- ---------- -------------
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C> <C> <C>
REVENUES:
Management fees from affiliate............. $ -- $ 20,000 $ -- $ 60,000 $ 60,000
Interest income............................ 841 6,616 14,325
------------- ---------- ------------- ---------- -------------
Total revenues............................. 841 20,000 6,616 60,000 74,325
EXPENSES:
Amortization of service contract with
affiliate................................ 576,000 1,440,000 3,840,000
Salaries and consulting fees............... 552,837 48,483 1,077,808 62,836 1,914,770
Marketing.................................. 24,203 16 84,698 16 281,809
Professional fees.......................... 20,178 41,455 125,088
Logo/web site.............................. 900 19,845 93,171
Monthly user fees.......................... 52,912 105,473 165,925
Travel, meetings, and entertainment........ 6,481 3,754 10,885 4,146 49,679
Occupancy.................................. 5,950 2,975 35,700 2,975 53,550
Depreciation............................... 8,389 15,268 32,674
Other operating expenses................... 135,614 803 255,607 1,325 436,964
Interest expense........................... 37,482 140,007 140,007
------------- ---------- ------------- ---------- -------------
Total expenses............................. 1,420,946 56,031 3,226,746 71,298 7,133,637
------------- ---------- ------------- ---------- -------------
NET LOSS................................... $ (1,420,105) $ (36,031) $ (3,220,130) $ (11,298) $ (7,059,312)
------------- ---------- ------------- ---------- -------------
------------- ---------- ------------- ---------- -------------
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE......................... $ (0.52) $ (0.01) $ (1.17) $ --
------------- ---------- ------------- ----------
------------- ---------- ------------- ----------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING............ 2,744,107 2,744,107 2,744,107 2,744,107
------------- ---------- ------------- ----------
------------- ---------- ------------- ----------
</TABLE>
See notes to financial statements.
3
<PAGE>
NET.B@NK, INC.
(A Development Stage Enterprise)
STATEMENTS OF SHAREHOLDERS' DEFICIT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNAMORTIZED
PREFERRED AFFILIATE
COMMON STOCK ADDITIONAL COMMON STOCK SERVICE UNAMORTIZED
COMMON STOCK (NO PAR) PAID-IN STOCK SUBSCRIPTIONS CONTRACT STOCK PLAN
SHARES ($.01 PAR) CAPITAL SUBSCRIBED RECEIVABLE EXPENSE EXPENSE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -
February 19, $ - $ - $ - $ - $ - $ - $-
1996 ---------- ----------- ---------- ------------ ------------ ------------ ------------ ------------
Proceeds
from
issuance
of common
stock:
Incorporation,
February
20, 1996.. 759,094 7,591 (7,362)
March 15,
1996,..... 49,688 497 (482)
April 1,
1996,..... 142,438 1,424 18,571
September
17,
1996,..... 298,122 2,981 997,129
Contribution
of
services
from
affiliate.. 31,232
Issuance of
1,354,814
shares of
common
stock
subscriptions.. 3,844,185 (4,185) (3,840,000)
Issuance of
16,562
compensatory
stock
options... 30,000 (30,000)
Amortization
of stock
plan
expense... 1,528
Net loss,
including
amortization of
service contract.. 2,400,000
-------- ---------- -------- -------- ---------- ------- ---------- -------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE
FEBRUARY 19, DEVELOPMENT
1996 STAGE TOTAL
BALANCE - $ - $ -
- ------------ ------------ -------------
<S> <C> <C>
Proceeds
from
issuance
of common
stock:
Incorporation,
February
20, 1996.. 229
March 15,
1996,..... 15
April 1,
1996,..... 19,995
September
17,
1996,..... 1,000,110
Contribution
of
services
from
affiliate.. 31,232
Issuance of
1,354,814
shares of
common
stock
subscriptions --
Issuance of
16,562
compensatory
stock
options... --
Amortization
of stock
plan
expense... 1,528
Net loss,
including
amortization
of service
contract.. (3,839,182) (1,439,182)
----------- ----------
</TABLE>
<TABLE>
<CAPTION>
UNAMORTIZED
PREFERRED STOCK AFFILIATE
COMMON STOCK ADDITIONAL COMMON SUBSCRIPTIONS SERVICE UNAMORTIZED
COMMON STOCK (NO PAR) PAID-IN STOCK RECEIVABLE CONTRACT STOCK PLAN
SHARES ($.01 PAR) CAPITAL SUBSCRIBED EXPENSE EXPENSE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $-
---------- ----------- ---------- ------------ ------------ ------------ ------------ ------------
BALANCE--
December
31, 1996.. 1,249,342 12,493 1,069,088 3,844,185 (4,185) (1,440,000) (28,472)
Proceeds
from issuance
of common stock
March 31, 1997
(unaudited)... 19,876 199 2,591 (2,790) 2,790
Issuance
of 163,976
compensatory
stock options
(unaudited)... 390,484 (390,484)
Amortization of
service contract
(unaudited).... 864,000
Amortization of
stock plan expense
(unaudited).... 40,677
Net loss for the
three months ended
March 31, 1997
(unaudited)...
-------- ------ ------- -------- -------- ------- -------- ----------
DEFECIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
$ - $ -
------------ ------------
<S> <C> <C>
------------ -------------
BALANCE--
December
31, 1996.. (3,839,182) (386,073)
Proceeds
from issuance
of common stock
March 31, 1997
(unaudited)... 2,790
Issuance
of 163,976
compensatory
stock options
(unaudited)... --
Amortization of
service contract
(unaudited).... 864,000
Amortization of
stock plan expenses
(unaudited).... 40,677
Net loss for the
three months ended
March 31, 1997
(unaudited)... (1,800,025) (1,800,025)
UNAMORTIZED
PREFERRED STOCK AFFILIATE
COMMON STOCK ADDITIONAL COMMON SUBSCRIPTIONS SERVICE UNAMORTIZED
COMMON STOCK (NO PAR) PAID-IN STOCK RECEIVABLE CONTRACT STOCK PLAN
SHARES ($.01 PAR) CAPITAL SUBSCRIBED EXPENSE EXPENSE
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ - $-
---------- ----------- ---------- ------------ ------------ ------------ ------------ ------------
BALANCE
MARCH 31,
1997
(unaudited) 1,269,218 12,692 1,462,163 3,841,395 (1,395) (576,000) (378,279)
Proceeds
from
issuance
of common
stock
April 2,
1997
(unaudited).. 9,938 100 1,295 (1,395) 1,395
Amortization
of service
contract
(unaudited).. 576,000
Amortization
of stock
plan
expense
(unaudited).. 72,095
Net loss for
the three
months
ended June
30, 1997
(unaudited)..
---------- ----------- ---------- ------------ ------------ ------------ ------------ ------------
DEFICIT
ACCUMULATED
DURING THE
DEVELOPMENT
STAGE TOTAL
$ - $ -
------------ ------------
<S> <C> <C>
------------ -------------
BALANCE--
March
31, 1996.. (5,639,207) (1,278,631)
Proceeds
from issuauce
of common stock
April 2, 1997
(unaudited)... 1,395
Amortization of
service contract
(unaudited).... 576,000
Amortization of
stock plan expense
(unaudited).... 72,095
Net loss for the
three months ended
March 31, 1997
(unaudited)... (1,420,105) $(1,420,105)
BALANCE--
JUNE 30,
1997
(UNAUDITED).. 1,279,156 $ 12,792 $ -- $ 1,463,458 $ 3,840,000 $ -- $ -- $ (306,184)
---------- ----------- ---------- ------------ ------------ ------------ ------------ ------------
---------- ----------- ---------- ------------ ------------ ------------ ------------ ------------
BALANCE--
JUNE 30,
1997
(UNAUDITED)$ (7,059,312) $ (2,049,246)
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
4
<PAGE>
NET.B@NK, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1996
(DATE OF
SIX MONTHS INCORPORATION)
ENDED TO
JUNE 30, JUNE 30,
1997 -------------------------
1996 1997
------------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................................ $ (3,220,130) $ (11,298) $ (7,059,312)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation............................................................ 15,268 32,674
Amortization of service contract........................................ 1,440,000 3,840,000
Contribution of services from affiliate................................. 31,232
Amortization of stock plan expense...................................... 112,772 114,300
Changes in assets and liabilities which provide (use) cash:
Other assets............................................................ 13,368 (7,138) (252,065)
License agreements...................................................... 76,564 30,198
Offering costs.......................................................... (452,560)
Organizational costs, net............................................... (57,793)
Premier advance......................................................... (55,000)
Payables and accrued liabilities........................................ 363,828 769 1,112,744
------------- ---------- -------------
Net cash used in operating activities................................... (1,763,683) (17,667) (2,715,582)
INVESTING ACTIVITIES:
Capital expenditures.................................................... (8,255) (191,645)
Proceeds from return of equipment....................................... 17,738 17,738
------------- ---------- -------------
Net cash provided by (used in) investing activities..................... 9,483 (173,907)
FINANCING ACTIVITIES:
Advances from affiliate................................................. 1,017,734 1,901,340
Proceeds from the sale of stock......................................... 4,185 20,239 1,024,534
------------- ---------- -------------
Net cash provided by financing activities............................... 1,021,919 20,239 2,925,874
------------- ---------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... (732,281) 2,572 36,385
CASH AND CASH EQUIVALENTS:
Beginning of Period..................................................... 768,666
------------- ---------- -------------
End of Period........................................................... $ 36,385 $ 2,572 $ 36,385
------------- ---------- -------------
------------- ---------- -------------
</TABLE>
See notes to financial statements.
5
<PAGE>
NET.B@NK, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
AND FOR THE PERIODS FEBRUARY 20, 1996 (DATE OF
INCORPORATION ) TO JUNE 30, 1996 AND 1997
- ------------------------------------------------------------------------
1. BASIS OF PRESENTATION
Net.B@nk, Inc. (the "Company") was incorporated February 20, 1996 for the
primary purpose of forming and, ultimately operating Atlanta Internet Bank
("AIB"). As of June 30, 1997 pending regulatory approval and the
acquisition of a bank charter, AIB was operating under an agreement with
Carolina First Bank ("CFB") whereby CFB agreed to hold and service the
deposit accounts generated by the Internet banking operation of the Company
in exchange for 1,325,000 shares of the Company's common stock valued at
$3,840,000. As of June 30, 1997 the Company was also party to an agreement
with First Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to
which the Company had agreed to purchase the charter of First Alliance's
subsidiary, Premier Bank, and a minimum amount of assets and liabilities
for $2,150,000 in cash, 41,406 shares of the Company's common stock valued
at $125,000, and a maximum of $100,000 in additional cash for reimbursement
of direct out-of-pocket expenses.
On July 11, 1997 the final regulatory approval from the Office of Thrift
Supervision was issued. On July 28, 1997, the Company sold 3,500,000
shares of its common stock to the public in an Initial Public Offering (the
"Offering"). On July 31, 1997 the Company received approximately $38.4
million in net proceeds from the Offering and consummated its agreements
with both First Alliance and CFB. As a result AIB, a federal savings bank,
became a wholly owned subsidiary of the Company.
The financial statements contained in this report are unaudited and reflect
the Company's operations as of June 30, 1997, prior to the offering. All
adjustments, consisting only of normal, recurring accruals, which are, in
the opinion of management, necessary to a fair statement of the results for
the interim period have been reflected. Certain information and footnote
disclosures normally included in financial statements have been condensed
or omitted pursuant to applicable rules and regulations of the Securities
and Exchange Commission ("SEC"). The results of operations for the interim
period reported herein are not necessarily indicative of results to be
expected for the full year.
The financial statements included herein should be read in conjunction with
the financial statements and notes thereto, and the Independent Auditors'
Report included in the Company's Form S-1 (Regis. No. 333-23717).
2. ACCOUNTING POLICIES
Reference is made to the accounting policies of the Company described in
the notes to financial statements contained in the Company's Form S-1
(Regis. No. 333-23717). The Company has followed those policies in
preparing this report.
6
<PAGE>
3. NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Net loss per common and common equivalent share is computed based on the
weighted average number of common and common equivalent shares outstanding
during the period. All common and common equivalent shares issued have
been considered to be outstanding for all periods in accordance with Staff
Accounting Bulletin 83.
4. DEPOSITS HELD BY CFB
As of June 30, 1997 deposits generated by the Internet banking operations
of the Company and held and serviced by CFB on behalf of the Company were
$43.1 million, which consisted of $31.8 million in money market accounts,
$824,000 in interest checking accounts, and $10.5 million in certificates
of deposit.
5. SUBSEQUENT EVENT
On July 30, 1997 the Company granted 15,000 nonqualified stock options at
an exercise price of $11.00 per share under its 1996 Stock Incentive Plan.
The options vest one-third on the first anniversary of the date of
issuance, one-third on the second anniversary of the date of issuance, and
one-third on the third anniversary of the date of issuance.
6. IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 128, "Earnings per
Share." SFAS 128 established standards for computing and presenting
earnings per share and applies to entities with publicly held common stock
or potential common stock.
In June 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income" and
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general purpose financial statements. SFAS 131
establishes standards for, among other things, reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders.
SFAS 128 is effective for financial statements issued for periods beginning
before December 15, 1997. SFAS 130 and SFAS 131 are effective for financial
statements issued for periods beginning after December 15, 1997. None of
these statements are expected to have a material effect on the Company's
financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL - The Company was incorporated as a Georgia corporation on February
20, 1996 for the purpose of forming and ultimately, operating Atlanta
Internet Bank ("AIB") as a wholly owned federal savings bank subsidiary.
As of June 30, 1997, pending regulatory approval and the acquisition of a
bank charter, AIB was operating under an agreement with Carolina First Bank
("CFB") whereby CFB agreed to hold and service the deposit accounts
generated by the Internet banking operations of the Company in exchange for
1,325,000 shares of the Company's common stock valued at $3,840,000. As of
June 30, 1997, the Company was also party to an agreement with First
Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to which the
Company had agreed to purchase the charter of First Alliance's subsidiary,
Premier Bank, and a minimum amount of assets and liabilities for $2,150,000
in cash, 41,406 shares of the Company's common stock valued at $125,000 and
a maximum of $100,000 in additional cash for reimbursement of direct
out-of-pocket expenses. On July 11, 1997, the final regulatory approval
from the Office of Thrift Supervision was issued. On July 28, 1997, the
Company sold 3,500,000 shares of its common stock to the public in an
Initial Public Offering ("the Offering"). On July 31, 1997, the Company
received approximately $38.4 million in net proceeds from the Offering and
consummated its agreements with both First Alliance and CFB. As a result
AIB, a federal savings bank, became a wholly owned subsidiary of the
Company. As of June 30, 1997, CFB had funded $1,901,340 of operating
expenses. Also, as of June 30, 1997, the Bank had 2,637 accounts and
approximately $43.1 million in deposits.
Management believes the Bank will provide convenient, cost-effective, and
secure banking services utilizing the Internet as the primary channel for
delivery of its commercial and financial services to the growing number of
consumers who use the Internet. Customer convenience and operating
efficiency are two key components of the Company's strategy. Customers
will be able to access the Bank through the Internet, a telephone, or an
ATM on a 7x24 basis.
Management does not intend to have a traditional branch/teller system as a
delivery channel, thereby reducing typical salary and overhead occupancy
costs. It is also management's intent to limit internal operating costs
for systems processing and programming services by outsourcing as many
operations as is practicable. Management believes it can take advantage of
the economies of scale of large providers of these services. In August
1996, the Company entered into a systems processing agreement with BISYS
effective through July 1999, subject to automatic renewal for three-year
periods absent a six-month notice of termination by either party. Pursuant
to agreements with AT&T, the Company receives technical, marketing, and
customer service support, including professional programming services from
Edify and electronic bill paying processing services from CheckFree. See
"Business-Operations-Service Providers"
8
<PAGE>
RESULTS OF OPERATIONS--The following table summarizes the statements of
operations of the Company for the three-month periods ended June 30, 1996 and
1997, the six-month period ended June 30, 1997, and for the period from February
20, 1996 (date of incorporation) to June 30, 1996.
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
THREE MONTHS ENDED JUNE 30, FEBRUARY 20, 1996
--------------------------------------------------- FOR THE SIX MONTHS (DATE OF
% OF % OF ENDED % OF INCORPORATION)
1997 EXPENSES 1996 EXPENSES JUNE 30,1997 EXPENSES TO JUNE 30, 1996
------------- ----------- ---------- ----------- ------------------ ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES... $ 841 $ 20,000 $ 6,616 $ 60,000
EXPENSES:
Amortization
of
service
contract.. 576,000 40.5% 0.0% 1,440,000 44.6%
Salaries
and
consulting
fees..... 552,837 38.9% 48,483 86.5% 1,077,808 33.4% 62,836
Marketing.. 24,203 1.7% 16 0.0% 84,698 2.6% 16
Professional
fees..... 20,178 1.4% 0.0% 41,455 1.3% 2
Logo/web
site..... 900 0.1% 0.0% 19,845 0.6%
Monthly
user
fees..... 52,912 3.7% 0.0% 105,473 3.3%
Travel,
meetings
and
entertainment.. 6,481 0.5% 3,754 6.7% 10,885 0.3% 4,146
Occupancy.. 5,950 0.4% 2,975 5.3% 35,700 1.1% 2,975
Depreciation.. 8,389 0.6% 0.0% 15,268 0.5%
Other
operating
expenses.. 135,614 9.5% 803 1.5% 255,607 7.9% 1,325
Interest
expense.. 37,482 2.6% 0.0% 140,007 4.3%
------------- ----- ---------- ----- ------------------ ----- --------
Total
expenses.. 1,420,946 100.0% 56,031 100.0% 3,226,746 100.0% 71,298
------------- ----- ---------- ----- ------------------ ----- --------
----- ----- -----
Net income
(loss)... $ (1,420,105) $ (36,031) $ (3,220,130) $ (11,298)
------------- ---------- ------------------ --------
------------- ---------- ------------------ --------
DEPOSITS
(2,637
ACCOUNTS
SERVICED
BY CFB AT
JUNE 30,
1997)..... $ 43,144,859 $ 43,144,859
------------ -----------
------------ -----------
<CAPTION>
% OF
EXPENSES
-----------
<S> <C>
REVENUES...
EXPENSES:
Amortization
of
service
contract.. 0.0%
Salaries
and
consulting
fees..... 88.1%
Marketing.. 0.0%
Professional
fees..... 0.0%
Logo/web
site..... 0.0%
Monthly
user
fees..... 0.0%
Travel,
meetings
and
entertainment 5.8%
Occupancy.. 4.2%
Depreciation 0.0%
Other
operating
expenses.. 1.9%
Interest
expense.. 0.0%
-----
Total
expenses.. 100.0%
-----
-----
Net income
(loss)...
-----
-----
DEPOSITS
(2,637
ACCOUNTS
SERVICED
BY CFB AT
JUNE 30,
1997)
</TABLE>
9
<PAGE>
The statement of operations reflects the initial phase of the Company's
operations, including the acquisition, testing and implementation of the
Internet banking platform, marketing expenses, and the accrual of CFB's expense
reimbursements. Under the Operation Agreement, deposits and related assets
resulting from the Company's marketing efforts, which began in August 1996, are
included in CFB's financial operations. As of June 30, 1997, CFB had recorded
$43,144,859 in deposits for the Bank in 2,637 accounts consisting of:
$31,832,619 in money market deposit accounts; $10,488,277 in certificates of
deposit; and $823,963 in interest checking accounts. The amount of interest
expense net of interest paid to the Bank by CFB for such deposits for the
three-month and six-month periods ended June 30, 1997 was $37,482 and $140,007,
respectively. No such interest expense was paid during the period from February
20, 1996 to June 30, 1996 as no deposits had yet been generated. Only
miscellaneous fees and consulting revenues are included in Revenues for the
three and six month periods ended June 30, 1996. Revenue for the three and
six-month periods ended June 30, 1997 is comprised of interest income on cash
invested.
For the Three-Month and Six-Month Periods Ended June 30, 1997
AMORTIZATION OF AMOUNTS DUE UNDER OPERATION AGREEMENT - The Company has
agreed to issue to CFB 1,325,000 shares of its Common Stock appraised at
$3,840,000 on the date of the Operation Agreement, July 15, 1996. This
amount was amortized to expense over the estimated life of the Operation
Agreement and was fully amortized as of June 30, 1997.
SALARIES AND CONSULTING FEES - For the three-month period ending June 30,
1997, these expenses included $284,711 of Company salary and benefit
expenses, $153,714 of compensation expense to CFB, and $114,412 of
consulting services for accounting, regulatory compliance and service
development expenses to T. Stephen Johnson and Associates ("TSJA") (a
consulting firm owned by the chairman of the Company). For the six-month
period ended June 30, 1997, Company salary and benefits were $567,715,
compensation expense to CFB was $324,272; and fees for consulting services
provided by TSJA totaled $185,821.
MARKETING - Expenses for both the three- and six-month periods ending June
30, 1997 include Internet based advertising on selected Internet service
providers, primarily AT&T's Worldnet and America Online as well as
newspaper advertising primarily in the Atlanta area.
PROFESSIONAL FEES - Expenses for both the three and six-month periods
ending June 30, 1997 include legal and accounting fees.
MONTHLY USER FEES - Pursuant to an agreement with AT&T dated August 16,
1996 (the "AT&T Agreement"), the Company pays an initial customer support
fee and ongoing monthly user fees for technical, marketing, and customer
support services. The Company paid $44,662 and $97,224 to AT&T in monthly
user fees for the three-month and six-month periods ended June 30, 1997,
respectively.
OTHER EXPENSES - These expenses include copying costs, office supplies,
monthly data processing charges and communication charges.
INTEREST EXPENSE - Pursuant to the Operation Agreement, CFB agreed to hold
and service the deposits generated by the Company until the Company's
receipt of regulatory approval for operations and the successful completion
of an initial public offering. The consideration to CFB includes
reimbursement for net interest expense, if any, on deposits generated by
the Company. For the three-month and
10
<PAGE>
six-month periods ended June 30, 1997, interest expense, calculated at
contracted deposit rates, exceeded interest income calculated at the Fed
Funds rate, paid to the Bank by CFB for such deposits, by $37,482, and
$104,007, respectively.
STOCK OPTIONS AND OTHER COMPENSATION - The Company has a 1996 Stock
Incentive Plan (the "Plan") which provides that key employees, officers,
directors, and consultants of the Company may be granted nonqualified and
incentive stock options to purchase shares of Common Stock of the Company,
derivative securities related to the value of the Common Stock or cash
awards. The Plan limits the total number of share which may be awarded to
397,500, which have been reserved for the Plan. Awards to officers and
employees under the Plan during the six-month period ended June 30, 1997
were as follows: 124,219 nonqualified stock options at an exercise price
of $1.21 per share on January 5, 1997; 39,750 incentive stock options at an
exercise price of $3.62 per share on February 25, 1997; and 173,906
incentive stock options at an exercise price of $10.00 per share on
February 25, 1997. In connection with the awards, the Company will record
total compensation expense of $390,484 over the vesting period of the
options. The options vest over a three-year period; however, when the
Offering is completed, all of the nonqualified options will vest
immediately.
NEW ACOUNTING PRONOUNCEMENTS - In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS 128, "Earnings per Share." SFAS 128
established standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common
stock.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income"
and 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS 131
establishes standards for, among other things, reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders.
SFAS 128 is effective for financial statements issued for periods beginning
before December 15, 1997. SFAS 130 and SFAS 131 are effective for financial
statements issued for periods beginning after December 15, 1997. None of
these statements are expected to have a material effect on the Company's
financial statements.
CAPITAL RESOURCES - Management believes it has sufficient capital on hand and
under the Operation Agreement with CFB to satisfy current working capital
needs for 1997. On July 28, 1997, the Company sold 3,500,000 shares of its
common stock to the public in the Offering. On July 31, 1997, the Company
received approximately $38.4 million in net proceeds from the Offering. The
Office of Thrift Supervision required the Company to contribute a minimum of
$25 million of the Offering proceeds to the Bank. The balance of the net
proceeds was used for the Premier Bank stock purchase ($2.3 million),
reimbursement of CFB expenses ($2.1 million), reimbursement of professional
and operational expenses (approximately $510,000), bonus payments ($450,000),
and for general corporate purposes.
SUBSEQUENT EVENT - On July 30, 1997 the Company granted 15,000 nonqualified
stock options at an exercise price of $11.00 per share under its 1996 Stock
Incentive Plan. The options vest one-third of the first anniversary of the
date of issuance, one-third on the second anniversary of the date of
issuance, and one-third on the third anniversary of the date of issuance.
11
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of shareholders held on April 23, 1997, the
shareholders of the Company took the following actions by the votes
indicated:
1. Election of the following persons as directors of the Company:
Votes Abstentions and
Votes For Withheld Broker Non-Votes
--------- ---------- ----------------
D.R. Grimes 937,139 0 0
T. Stephen Johnson 937,139 0 0
Mack I. Whittle, Jr. 937,139 0 0
Robert E. Bowers 937,139 0 0
Ward H. Clegg 937,139 0 0
J. Stephen Heard 937,139 0 0
W. James Stokes 937,139 0 0
Robin C. Kelton 937,139 0 0
John T. Moore 937,139 0 0
Thomas H. Muller, Jr. 937,139 0 0
Donald S. Shapleigh, Jr. 937,139 0 0
2. Approval of the 1996 Stock Incentive Plan.
Abstentions and
Votes For Votes Against Broker Non-Votes
-------- ------------ ------------------
937,139 0 0
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement regarding computing of per share earnings
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
<PAGE>
SIGNATURE
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.
NET.B@NK, INC.
By: /s/ Robert E. Bowers
---------------------
Robert E. Bowers
Chief Financial Officer
Dated: August 14, 1997
::ODMA\PCDOCS\ATL\9356\1
<PAGE>
Exhibit 11.1
NET B@NK, INC.
Schedule Regarding Computation of Per Share Loss
<TABLE>
<CAPTION>
For the period
For the Three February 20, 1996 For the Three For the Six
Months Ended (Date of Incorporation) Months Ended Months Ended
ACTUAL June 30, 1996 to June 30, 1996 June 30, 1997 June 30, 1997
- ------ ------------- --------------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (36,031) $ (11,298) $ (1,420,105) $(3,220,130)
---------- ------------- ------------ -----------
---------- ------------- ------------ -----------
Shares issued and outstanding 1,279,156 1,279,156 1,279,156 1,279,156
Incremental shares applicable to
common stock subscriptions 1,325,000 1,325,000 1,325,000 1,325,000
Incremental shares applicable to
stock options 139,951 139,951 139,951 139,951
---------- ------------- ------------ -----------
Weighted average common and
common equivalent shares
outstanding 2,744,107 2,744,107 2,744,107 2,744,107
---------- ------------- ------------ -----------
---------- ------------- ------------ -----------
Net income (loss) per common
and common equivalent share $(.01) $-- $(.52) $(1.17)
---------- ------------- ------------ -----------
---------- ------------- ------------ -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FILED WITH THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 36,385
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 964,838
<DEPOSITS> 0<F1>
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,014,084
<LONG-TERM> 0
0
0
<COMMON> 12,792
<OTHER-SE> (2,062,038)
<TOTAL-LIABILITIES-AND-EQUITY> 964,838
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 841
<INTEREST-TOTAL> 841
<INTEREST-DEPOSIT> 37,482
<INTEREST-EXPENSE> 37,482
<INTEREST-INCOME-NET> (36,641)
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,383,464
<INCOME-PRETAX> (1,420,105)
<INCOME-PRE-EXTRAORDINARY> (1,420,105)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,420,105)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>As of June 30, 1997, deposits generated by the internet banking
operations of the Company and held and serviced by CFB on behalf of
the Company were $ 43.1 million, which consisted of $ 31.8 million
in money market accounts, $ 824,000 in interest checking accounts
and $ 10.5 million in certificates of deposit.
</FN>
</TABLE>
