<PAGE>
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 March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 333-72975
Financial Intranet, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0357272
------ ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
116 Radio Circle, Mt. Kisco, New York 10549
- -------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code: (914) 242-4848
--------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 2000: 43,981,244
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
FINANCIAL INTRANET, INC.
(A Development Stage Company)
Form 10-QSB
Index
Part I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at March 31, 2000 (unaudited)
and December 31, 1999
P.3
Condensed Statements of Operations (unaudited) - For the three
months ended March 31, 1999 and March 31, 2000 and for the period
December 17, 1996 (Inception) to March 31, 2000
P.4
Condensed Statements of Cash Flows (unaudited) - For the three
months ended March 31, 1999 and March 31, 2000 and for the period
December 17, 1996 (Inception) to March 31, 2000
P.5
Statement of Changes in Stockholders' Equity (Defecit)
(unaudited) - For the period from December 17, 1996 (Inception)
to March 31, 2000
P.7
Notes to Condensed Financial Statements P.9
Item 2. Management's Discussion and Analysis or Plan of Operation P.11
Part II - OTHER INFORMATION P.14
Signatures P.15
2
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
CONDENSED AND CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,126,243 $91,368
Accounts receivable 62,168 66,793
Prepaid expenses 15,827 9,274
---------------------------------------
Total current assets 1,204,238 167,436
Property and equipment, net 646,068 692,414
Deferred debt issuance costs - 394,747
Capitalized software development costs, net 71,878 30,378
Capitalized software costs, net 2,217,500 -
Other assets 65,996 33,259
---------------------------------------
Total assets $4,205,679 $1,318,233
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $264,374 $326,376
Note payable 350,000 -
Due to officers - 39,371
---------------------------------------
Total current liabilities 614,374 365,747
Note payable - 588,125
---------------------------------------
Total liabilities 614,374 588,125
---------------------------------------
Commitments and contingencies
Stockholders' Equity (Deficit):
Common stock, $.001 par value; 50,000,000 shares authorized, 43,981,244
and 29,831,195 shares issued and outstanding
March 31, 2000 and December 31, 1999, respectively 43,981 29,831
Additional paid-in capital 11,544,187 7,509,473
Accumulated deficit during the development stage (7,548,606) (6,685,935)
Less: Deferred compensation cost (448,257) (489,008)
---------------------------------------
Total stockholders' equity (deficit) 3,591,305 364,361
---------------------------------------
Total liabilities and stockholders' equity $4,205,679 $1,318,233
=======================================
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Three Months Ended December 17, 1996
March 31, (Inception) through
2000 1999 March 31, 2000
---- ---- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue $34,559 $6,741 $197,400
--------------------------------- ------------------
Operating costs and expenses:
Cost of revenue 35,147 23,341 296,726
Selling, general and administrative 341,026 305,414 3,574,535
Depreciation and amortization 74,114 66,469 544,135
Stock compensation 40,751 224,436 1,459,906
--------------------------------- ------------------
Total operating costs and expenses 491,038 619,659 5,875,302
--------------------------------- ------------------
Loss from operations (456,479) (612,918) (5,677,902)
Other income (expense):
Interest income 2,736 1,633 15,269
Interest expense (408,928) (984,238) (1,884,427)
Other - - (1,546)
--------------------------------- ------------------
Total other (expense) (406,192) (982,605) (1,870,704)
--------------------------------- ------------------
Net loss ($862,671) ($1,595,523) ($7,548,606)
================================= ==================
Basic and diluted net loss per share ($0.03) ($0.09)
=================================
Number of shares used in calculating basic
and diluted net loss per share 34,510,667 18,328,984
=================================
See Notes to Condensed Financial Statements.
</TABLE>
4
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Three Months Ended December 17, 1996
March 31, (Inception) to
2000 1999 March 31, 2000
---- ---- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (862,671) $ (1,595,523) $ (7,548,606)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 74,114 61,677 544,135
Reserve for bad debts - - 41,200
Consulting services paid by issuance of common stock 10,000 722,403
Compensation expense resulting from 40,751 462,556 1,459,906
stock options granted
Interest expense upon conversion of promissory notes 394,747 1,810,711
Changes in operating assets and liabilities:
Accounts receivable 4,625 21,395 (62,168)
Prepaid expenses (6,553) (45,436) (15,827)
Other assets 3,894 (2,589) (29,365)
Accounts payable and accrued liabilities (90,258) (122,393) 200,950
Accrued interest 5,133 13,367 55,534
Accrued payroll and payroll taxes (9,899) (123,997) (38,333)
Deferred rent 2,021 15,222
Accrued interest converted into common stock 8,239 17,785
------------------------------- -----------------
Net cash used in operating activities (425,857) (1,330,943) (2,826,453)
------------------------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (4,045) 64,392 (1,004,771)
Purchase of LNT assets (400,000) (400,000)
Capitalized software development costs (59,222) - (172,558)
Notes receivable advances (36,630) (77,830)
------------------------------- -----------------
Net cash provided by (used in) investing activities (499,897) 64,392 (1,655,160)
------------------------------- -----------------
Cash flows from financing activities:
Repayments of loan payable -
Proceeds from issuance of promissory notes 360,000 2,720,000
Proceeds from issuance of demand notes 350,000
Payment of financing fees (120,000) (346,523)
Proceeds from issuance of common stock 1,770,000 1,114,420 2,869,221
Deferred offering/issuance costs (72,627) (55,991)
Collection of stock subscriptions receivable 70,000
Proceeds from issuance of warrants 1,046
Advances from (payment to) officers (39,371) (56,434) (0)
Cash acquired at inception 71,046
------------------------------- -----------------
Net cash provided by financing activities 1,960,629 1,345,358 5,328,798
------------------------------- -----------------
Net increase in cash and cash equivalents 1,034,875 78,807 847,187
Cash and cash equivalents--beginning 91,368 149,225 2,031
------------------------------- -----------------
Cash and cash equivalents--ending $ 1,126,243 $ 228,031 $ 849,217
=============================== =================
Supplemental disclosure of cash flow information:
Cash paid during the quarter for interest $ 4,104 $ 339 $ 9,230
=============================== =================
</TABLE>
See Notes to Condensed Financial Statements.
5
<PAGE>
The following noncash investing and financing transactions occurred during
the three months ended March 31, 2000:
-- 2,020,731 shares of the Company's common stock were issued to an
investor as a result of a debt conversion.
-- 3,946,591 shares of the Company's common stock were issued to an
investor as a result of a debt conversion.
-- 109,091 shares of the Company's common stock were issued to a
financial advisor as part of their fees for structuring a March, 2000
equity financing.
-- 100,000 shares of the Company's common stock valued at $93,000 were
issued to a financial advisor as part of their fees for structuring a
March, 2000 acquisition. The company issued 1,350,000 shares of common
stock valued at $1,255,500 to acquire the assets of LNT.
-- Warrants to purchase 586,510 shares of the Company's common stock were
issued to a financial advisor as part of their fees for structuring a
March, 2000 acquisition.
-- 150,000 shares of the company's common stock was issued for legal fees
in lieu of cash.
-- 10,000 shares of the Company's common stock was issued for consulting
services.
-- Fees to an investment advisor in connection with the structuring of a
March, 2000 investment were accrued in the amount of $42,000.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from December 17, 1996 (Inception) to March 31, 2000
<TABLE>
<CAPTION>
Additional
Paid-in Subscriptions
Description Shares Amount Capital Receivable
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Balance - December 17, 1996 (inception) 3,700,000 $3,700 $20,900
December 17, 1996 - issuance of stock in lieu of services
by director of former company (Wee Wees) 40,000 40 (40)
December 20, 1996 - issuance of stock in lieu of $10,000 in
consulting fees 240000 240 9,760
Net Loss
------------ ------------ ------------
Balance--December 31, 1996 3,980,000 3,980 30,620
February 29, 1997--issuance of stock in lieu of compensation
to key executives 4,250,000 4,250 148,500
May 1997 through December 31, 1997--Private Placement 6,904,228 6,904 877,823 ($75,000)
August 4, 1997--issuance of stock in lieu of $6,500 in
promotional fees 100,000 100 6,400
September, 1997--issuance of stock to employees and increase in
additional paid in capital from stock options granted 40,000 40 243,594
November 15, 1997--issuance of stock per non-dilution provisions
of consulting agreement 315,000 315 (315)
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance--December 31, 1997. 15,589,228 15,589 1,306,622 (75,000)
January, 1998--issuance of stock subscribed in 1997 400,000 400 29,600 75000
Jan.-July 1998--issuance of stock per non-dilution provisions of
consulting agreement 346,742 347 (347)
May-Dec., 1998--issuance of stock in lieu of services 309,249 309 96,317
June and July, 1998--Promissory notes converted 1,070,800 1,071 463,930
June and October, 1998--Private placement 1,237,666 1,238 443,262
June 11, 1998--issuance of stock in lieu of fees on June, 1998
private placement 38,393 38 (38)
July 17, 1998--issuance of stock to release security interest in
certain equipment 500,000 500 314,500
October 15, 1998--issuance of stock in lieu of fees on 1997
private placement 68,970 69 (69)
October 15, 1998--issuance of stock resulting from exercise of
warrants 1,000,000 1,000 159,000
Increase in additional paid-in capital resulting from stock options
and warrants granted -- -- 1,266,409
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance--December 31, 1998 (carried forward) 20,561,048 20,561 4,079,186 0
<CAPTION>
Accumulated
Deficit
Deferred During the
Stock Development
Description Compensation Stage Total
------------ ----- -----
<S> <C> <C> <C>
Balance - December 17, 1996 (inception) ($24,738) ($138)
December 17, 1996 - issuance of stock in lieu of services
by director of former company (Wee Wees) 0
December 20, 1996 - issuance of stock in lieu of $10,000 in
consulting fees 10,000
Net Loss (9,760) (9,760)
------------ ------------
Balance--December 31, 1996 (34,498) 102
February 29, 1997--issuance of stock in lieu of compensation
to key executives 152,750
May 1997 through December 31, 1997--Private Placement 809,727
August 4, 1997--issuance of stock in lieu of $6,500 in
promotional fees 6,500
September, 1997--issuance of stock to employees and increase in
additional paid in capital from stock options granted ($230,322) 13,312
November 15, 1997--issuance of stock per non-dilution provisions
of consulting agreement 0
Net loss (817,430) (817,430)
------------ ------------ ------------
Balance--December 31, 1997. (230,322) (851,928) 164,961
January, 1998--issuance of stock subscribed in 1997 105,000
Jan.-July 1998--issuance of stock per non-dilution provisions of
consulting agreement 0
May-Dec., 1998--issuance of stock in lieu of services 96,626
June and July, 1998--Promissory notes converted 465,001
June and October, 1998--Private placement 444,500
June 11, 1998--issuance of stock in lieu of fees on June, 1998
private placement 0
July 17, 1998--issuance of stock to release security interest in
certain equipment 315,000
October 15, 1998--issuance of stock in lieu of fees on 1997
private placement 0
October 15, 1998--issuance of stock resulting from exercise of
warrants 160,000
Increase in additional paid-in capital resulting from stock options
and warrants granted (832,556) 433,853
Net loss (2,141,978) (2,141,978)
------------ ------------ ------------
Balance--December 31, 1998 (carried forward) (1,062,878) (2,993,906) 42,963
</TABLE>
7
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from December 17, 1996 (Inception) to March 31, 2000
<TABLE>
<CAPTION>
Additional
Paid-in Subscriptions
Description Shares Amount Capital Receivable
------ ------ ------- ----------
<S> <C> <C> <C> <C>
Balance--December 31, 1998 (brought forward) 20,561,048 $ 20,561 $ 4,079,186 $ -
January 1, 1999--warrants issued in connection with private
placement of debt 148,242
January 1, 1999--issuance of warrants and beneficial conversion
features on debt financing 500,000
January 7, 1999--issuance of stock in lieu of fees on December, 1998
private placement 25,000 25 14,725
January 21, 1999--issuance of stock to principals in consideration
for employment services 611,636 611 458,115
January 25, 1999--issuance of stock resulting from exercise of
warrants 5,812 6 (6)
February 8, 1999--warrants issued in connection with private
placement of debt 197,794
February 8, 1999--issuance of warrants and beneficial conversion
features on debt financing 600,000
February 28, 1999--warrants issued in connection with private
placement of debt 43,720
March 3, 1999--issuance of stock to Founder for exercise of options 879,685 880 166,260
March 3, 1999--issuance of stock in lieu of fees on February, 1999
private placement 30,000 30 33,870
March 10, 1999--issuance of stock as result of debt conversion 600,000 600 239,400
April 27, 1999 - warrants issued for consulting services 148,103
April 28, 1999--issuance of stock in lieu of legal fees 11,111 11 9,989
May 9, 1999--issuance of stock upon conversion of notes 900,000 900 359,100
July 20, 1999 - beneficial conversion feature of debt financing 166,667
July 20, 1999--warrants issued in connection with private placement
of debt 64,148
October 5, 1999--issuance of stock as result of debt conversion 182,315 182 50,684
October 8, 1999 - issuance of stock pursuant to public offering 2,545,455 2,545 298,926
October 20, 1999 - issuance of stock in lieu of fees in connection
with private placement of debt and public offering 70,910 71 21,984
November 5, 1999--issuance of stock in lieu of legal fees 145,455 146 21,877
November 23, 1999--issuance of stock upon conversion of notes 1,250,000 1,250 120,625
December 27, 1999--issuance of stock in lieu of legal fees 150,000 150 33,768
December 31, 1999--issuance of stock upon conversion of notes 1,862,768 1,863 246,817
Amortization of compensatory stock options
Cancellation of debt by shareholder 10,000
Cancellation of stock options (524,521)
Net loss -- -- -- --
------------ ------------ ------------ ------------
Balance--December 31, 1999 29,831,195 29,831 7,509,473 0
January 14, 2000 - issuance of stock in lieu of legal fees 150,000 150 20,850
January 14, 2000--issuance of stock upon conversion of notes 2,020,731 2,021 216,218
January 24, 2000--issuance of stock upon conversion of notes 1,400,000 1,400 124,600
February 4, 2000--issuance of stock upon conversion of notes 1,400,000 1,400 124,600
March 2, 2000--issuance of stock pursuant to consulting contract 10,000 10 9,990
March 2, 2000--issuance of stock upon conversion of notes 1,146,591 1,147 124,978
March 13, 2000-- issuance of stock pursuant to public offering 909,091 909 249,091
March 17, 2000--issuance of stock resulting from exercise of warrants 100,000 100 19,900
March 28, 2000-- issuance of stock pursuant to public offering 5,454,545 5,455 1,494,545
March 28, 2000-- issuance of stock in lieu of fees in connection
with public offering 109,091 109 (109)
March 28, 2000-- issuance of stock in connection with LNT
acquisition 1,350,000 1,350 1,254,150
March 28, 2000-- issuance of stock in lieu of fees in connection
with LNT acquisition 100,000 100 92,900
March 28, 2000--accrual of fees on March 28 investment (42,000)
March 28, 2000--fees paid in connection with March 28 investment (120,000)
March 31, 2000--rebooking of debt by shareholder (10,000)
Amortization of compensatory stock options
Net Loss
------------ ------------ ------------ ------------
Balance--March 31, 2000 43,981,244 $ 43,981 $ 11,069,186 $ -
============ ============ ============ ============
<CAPTION>
Accumulated
Deficit
Deferred During the
Stock Development
Description Compensation Stage Total
------------ ----- -----
<S> <C> <C> <C>
Balance--December 31, 1998 (brought forward) $ (1,062,878) $ (2,993,906) $ 42,963
January 1, 1999--warrants issued in connection with private
placement of debt 148,242
January 1, 1999--issuance of warrants and beneficial conversion
features on debt financing 500,000
January 7, 1999--issuance of stock in lieu of fees on December, 1998
private placement 14,750
January 21, 1999--issuance of stock to principals in consideration
for employment services 458,726
January 25, 1999--issuance of stock resulting from exercise of
warrants 0
February 8, 1999--warrants issued in connection with private
placement of debt 197,794
February 8, 1999--issuance of warrants and beneficial conversion
features on debt financing 600,000
February 28, 1999--warrants issued in connection with private
placement of debt 43,720
March 3, 1999--issuance of stock to Founder for exercise of options 167,140
March 3, 1999--issuance of stock in lieu of fees on February, 1999
private placement 33,900
March 10, 1999--issuance of stock as result of debt conversion 240,000
April 27, 1999 - warrants issued for consulting services 148,103
April 28, 1999--issuance of stock in lieu of legal fees 10,000
May 9, 1999--issuance of stock upon conversion of notes 360,000
July 20, 1999 - beneficial conversion feature of debt financing 166,667
July 20, 1999--warrants issued in connection with private placement
of debt 64,148
October 5, 1999--issuance of stock as result of debt conversion 50,866
October 8, 1999 - issuance of stock pursuant to public offering 301,471
October 20, 1999 - issuance of stock in lieu of fees in connection
with private placement of debt and public offering 22,055
November 5, 1999--issuance of stock in lieu of legal fees 22,023
November 23, 1999--issuance of stock upon conversion of notes 121,875
December 27, 1999--issuance of stock in lieu of legal fees 33,918
December 31, 1999--issuance of stock upon conversion of notes 248,680
Amortization of compensatory stock options 154,254 154,254
Cancellation of debt by shareholder 10,000
Cancellation of stock options 419,616 (104,905)
Net loss (3,692,029) (3,692,029)
------------ ------------ ------------
Balance--December 31, 1999 (489,008) (6,685,935) 364,361
January 14, 2000 - issuance of stock in lieu of legal fees 21,000
January 14, 2000--issuance of stock upon conversion of notes 218,239
January 24, 2000--issuance of stock upon conversion of notes 126,000
February 4, 2000--issuance of stock upon conversion of notes 126,000
March 2, 2000--issuance of stock pursuant to consulting contract 10,000
March 2, 2000--issuance of stock upon conversion of notes 126,125
March 13, 2000-- issuance of stock pursuant to public offering 250,000
March 17, 2000--issuance of stock resulting from exercise of warrants 20,000
March 28, 2000-- issuance of stock pursuant to public offering 1,500,000
March 28, 2000-- issuance of stock in lieu of fees in connection
with public offering 0
March 28, 2000-- issuance of stock in connection with LNT
acquisition 1,255,500
March 28, 2000-- issuance of stock in lieu of fees in connection
with LNT acquisition 93,000
March 28, 2000--accrual of fees on March 28 investment (42,000)
March 28, 2000--fees paid in connection with March 28 investment (120,000)
March 31, 2000--rebooking of debt by shareholder (10,000)
Amortization of compensatory stock options 40,751 40,751
Net Loss (862,671) (862,671)
------------ ------------ ------------
Balance--March 31, 2000 $ (448,257) $ (7,548,606) $ 3,116,305
============ ============ ============
</TABLE>
8
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1--Basis of Interim Financial Statement Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The results of operations for the interim
periods shown in this report are not necessarily indicative of expected
results for any future interim period or for the entire fiscal year.
Financial Intranet, Inc. (the "Company"), a development stage enterprise,
believes that the quarterly information presented includes all adjustments
(consisting only of normal, recurring adjustments) necessary for a fair
presentation in accordance with generally accepted accounting principles.
The accompany condensed financial statements should be read in conjunction
with the Company's Annual Report filed with the Securities and Exchange
Commission on April 13, 2000.
Note 2--Note Payable
In January and February 2000, the Company issued unsecured 8% promissory
notes in the principal amounts of $150,000 and $200,000 respectively,
payable on demand.
The Company paid, as part of these transactions, fees of $31,500.
Note 3--Capital Transactions
Public offering
In February 1999, the Company filed a Registration Statement (Form SB-2)
covering the primary offering of Common stock by the Company and the
offering of common stock by certain selling securityholders. Under the
registration statement as declared effective in October 1999, the Company
registered 10,909,091 Shares of common stock, par value $.001 per share,
to be held for sale. These shares were offered to the public at an
offering price of $.275 per share. Under an alternate prospectus, the
selling securityholders registered 7,310,000 shares of common stock
underlying the warrants, convertible promissory notes, stock previously
issued and stock which will be issued upon conversion of certain
promissory notes.
On March 12, 2000, the Company sold, pursuant to its Registration
Statement, 909,091 shares of common stock to an investor for $250,000.
On March 27, 2000, the Company sold, pursuant to its Registration
Statement, 5,454,545 shares of its common stock to two investors for an
aggregate of $1,500,000.
On March 27, 2000, the Company purchased certain assets of Longyin Network
Technology Co., Ltd., a Chinese Internet content provider. The purchase
price was $400,000 plus 1,350,000 shares of common (valued at $0.93 per
share) which was allocated to the assets acquired based on their
9
<PAGE>
fair values. The acquired assets consist of two internet web sites, an
e-mail magazine and consulting agreements with four key individuals.
Note 4--Contingencies
Litigation
On July 23, 1998, H & H Acquisition Corp., individually and on behalf of the
Company, commenced an action in federal court in the Southern District of
New York against the Company, the founder and certain officers, among
others. The complaint is an action to recover shares of common stock of
the Company previously sold to an officer/stockholder and unspecified
damages. Management believes that the claims against the Company and
certain officers are without merit, and in fact relate solely to the
founder, and is vigorously defending the action. No provision has been
made in these financial statements for any possible losses arising from
this litigation.
10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
THE FOLLOWING ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES THERETO, OF THE COMPANY CONTAINED ELSEWHERE IN
THE FORM 10-QSB.
Financial Intranet, Inc. is an emerging New York based international media and
communications company that delivers services to the investment and business
communities. Our initial objectives are to obtain a share of the telephone
resale market by offering value-added services to broker/dealers and financial
advisors and providing mutual funds, CEO's of publicly traded companies and
other investment managers with a cost-efficient method for distributing
information about their products.
Results of operations
Revenue
The Company's principal source of revenue was from the resale of telephone and
data communications. Revenue for the three months ended March 31, 2000 was
$34,559, as compared with $6,741 in the same period of the prior year, an
increase of over 400%. The increase was due primarily to the stabilization of
the initial customer base during the first quarter this year versus virtual
start-up last year.
Cost of revenue
The Company's cost of revenue consists primarily of telephone communications
lines and Internet access costs required to support and deliver our
communications services. Cost of revenues for the three months ended March 31,
2000 was $35,147 compared with $23,341 in the prior year, an increase of 51%. We
expect cost of revenues to increase in direct relationship to the future
revenues anticipated from increases in usage volume.
Selling, general and administrative expenses
General and administrative expenses consist primarily of:
o promotional, advertising and public relations costs
o employee compensation and related expenses (including payroll taxes and
benefits) for executive, administrative and operations personnel
o licensing, legal and other professional fees
o travel and entertainment
o facility and office-related costs such as rent, insurance, maintenance and
telephone.
These costs increased 12% from $305,414 in 1999 to $341,026 in 2000. Management
expects general and administrative expenses to increase in future periods to
support the growth of the business.
11
<PAGE>
Stock compensation expenses
Other expenses charged to operations consist of non-cash costs of the issuance
of common stock, warrants, and stock options. These expenses decreased over
fourfold from $224,436 in 1999 to $40,751 in 2000.
Depreciation and amortization
Depreciation and amortization consists primarily of depreciation of computer
equipment and amortization of software development costs. Amortization of
software costs and software development costs was $23,722 and $24,210 in the
first three months of 2000 and 1999, respectively. Depreciation expense was
$50,392 and $42,259 for the three months ended March 31, 2000 and 1999,
respectively.
Other income and expense
Other income consists principally of interest from loans, notes receivable and
short-term investments. Interest and other income increased 68% to $2,736 for
the three months ended March 31, 2000 from $1,633 for the three months ended
March 31, 1999. Interest expense consists of interest accrued on loans and
convertible notes payable. Interest expense decreased from $984,238 for the
three months ended March 31, 1999 to $408,928 for the three months ended March
31, 2000. The decrease is primarily attributable to the beneficial conversion
terms of convertible notes charged to expense in February 1999.
Income taxes
No provision for federal and state income taxes has been recorded as the Company
incurred net operating losses in the first quarter of 1999 and 2000. The net
operating losses will be available to offset any future taxable income. Given
the Company's limited operating history, losses incurred to date and the
difficulty in accurately forecasting future results, management does not believe
that the realization of the potential future benefits of these carryforwards
meets the criteria for recognition of a deferred tax asset required by generally
accepted accounting principles. Accordingly, a full 100% valuation allowance has
been provided.
Liquidity and capital resources
Cash and cash equivalents were $1,126,243 and $91,368 at March 31, 2000 and
December 31, 1999, respectively.
The Company had positive working capital of $589,864 at March 31, 2000. Net cash
used in operating activities was $425,857 for the three months ended March 31,
2000. Cash used in operating activities was primarily attributable to a net loss
of $862,761. This was partially offset by non-cash items such as depreciation
and amortization of $74,114, amortization of debt issuance costs of $394,747 and
stock compensation costs of $40,751. Net cash used in operating activities for
the three months ended March 31, 1999 was $1,330,943, which was principally due
to the net loss of $1,595,523.
12
<PAGE>
Net cash used for investing activities of $499,897 for the three months ended
March 31, 2000 was primarily attributable to the purchase of the LNT assets. Net
cash provided by investing activities of $64,392 for the three months ended
March 31, 1999 was principally due to reduction in costs of capital equipment
acquired.
Net cash provided by financing activities for the three months ended March 31,
2000 was $1,960,629 and consisted primarily of proceeds from the issuance of
common stock and demand notes. Net cash provided by financing activities for the
three months ended March 31, 1999 was $1,345,358, and consisted primarily of
proceeds from the issuance of common stock, less related financing fees and
repayments to an officer.
The Company has satisfied its cash requirements to date primarily through public
and private placements of common stock, warrants, debentures convertible into
shares of common stock and the issuance of common stock in lieu of payment for
services. Also, officers have loaned the Company funds as needed to provide
working capital.
We believe that the $1,750,000 proceeds received this year from the offering
under the SB-2, cash on hand and anticipated revenues will be sufficient to meet
anticipated short term cash requirements through the end of the third quarter
although we do not expect to generate positive cash flow from operations until
at least the second half of the year 2000. However, unless we generate
significant revenue or obtain financing in the near future, our operations in
the development stage raise substantial doubt about our ability to continue as a
going concern. There can be no assurance, however, that additional capital
beyond the amounts currently forecasted will not be required, nor that any such
required additional capital will be available on reasonable terms, if at all, at
such time as required by the Company.
Forward-looking statements in this report may prove to be materially inaccurate.
In addition to historical information, this report contains forward-looking
information that involves risks and uncertainties. The words "may", "will",
"expect", "anticipate", "continue", "estimate", "project", "intend" and similar
expressions are intended to identify forward-looking statements. Actual results
may differ materially from those included within the forward-looking statements
as a result of factors, including the risks described above and factors
described elsewhere in this report.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Change in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
Form 8-K on file indicating a change in the registrant's certifying
accountants as of February 2000.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Financial Intranet, Inc.
----------------------------------
(Registrant)
Date May 12, 2000 /s/ Michael Sheppard
----------------------- ----------------------------------
Michael Sheppard
President
Date May 12, 2000 /s/ Corey Rinker
------------------------ ----------------------------------
Corey Rinker
Vice President
15
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,126,243
<SECURITIES> 0
<RECEIVABLES> 62,168
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,204,238
<PP&E> 1,004,772
<DEPRECIATION> 358,704
<TOTAL-ASSETS> 3,730,679
<CURRENT-LIABILITIES> 614,374
<BONDS> 0
0
0
<COMMON> 43,981
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,730,679
<SALES> 34,559
<TOTAL-REVENUES> 37,295
<CGS> 35,147
<TOTAL-COSTS> 456,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408,928
<INCOME-PRETAX> (862,671)
<INCOME-TAX> 0
<INCOME-CONTINUING> (862,671)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (862,671)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
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