<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 June 30, 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 June 30, 2000: 43,981,244
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
CONDENSED AND CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 448,078 $ 91,368
Accounts receivable - -
Due from Officers 169,513 -
Prepaid expenses 15,827 9,274
-----------------------------------
Total current assets 633,418 100,642
Property and equipment, net 237,506 172,103
Deferred debt issuance costs - 394,747
Notes Receivable 50,000 -
Capitalized software development costs, net 30,049 30,378
Capitalized software costs, net 2,032,208 -
Other assets 32,179 33,259
Net assets of discontinued operations 53,423 567,005
-----------------------------------
Total assets $3,068,783 $1,298,134
===================================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $ 315,063 $ 306,277
Note payable 950,000 126,125
Due to officers 56,315 39,371
-----------------------------------
Total current liabilities 1,321,378 471,773
Note payable - 462,000
-----------------------------------
Total liabilities 1,321,378 933,773
-----------------------------------
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 (9,433,257) (6,685,935)
Less: Deferred compensation cost (407,506) (489,008)
-----------------------------------
Total stockholders' equity (deficit) 1,747,405 364,361
-----------------------------------
Total liabilities and stockholders' equity $3,068,783 $1,298,134
===================================
</TABLE>
See Notes to Condensed Financial Statements.
F-3
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended Dec. 17, 1996 Three Months Ended
June 30, (Inception) June 30,
2000 1999 to June 30, 2000 2000 1999
---- ---- ---------------- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $0 $0 $0 $0 $0
--------------------------- ----------------- -----------------------------
Operating costs and expenses:
Cost of revenue - - - -
Selling, general and administrative 513,933 465,892 2,939,066 237,951 241,239
Depreciation and amortization 228,631 28,174 385,565 208,501 18,196
Stock compensation 81,502 267,375 1,500,657 40,751 42,939
--------------------------- ----------------- -----------------------------
Total operating costs and expenses 824,066 761,441 4,825,288 487,203 302,374
--------------------------- ----------------- -----------------------------
Loss from operations (824,066) (761,441) (4,825,288) (487,203) (302,374)
Other income (expense):
Interest income 13,995 2,366 26,528 11,259 733
Interest expense (966,301) (1,236,266) (2,441,800) (557,333) (252,028)
Other - - (1,546) - -
--------------------------- ----------------- -----------------------------
Total other (expense) (952,306) (1,233,900) (2,416,818) (546,074) (251,295)
--------------------------- ----------------- -----------------------------
Net loss from continuing operations (1,776,372) (1,995,341) (7,242,106) (1,033,277) (553,669)
--------------------------- ----------------- -----------------------------
Net loss from discontinued operations: (970,952) (246,933) (2,191,154) (851,374) (93,081)
--------------------------- ----------------- -----------------------------
Net Loss ($2,747,324) ($2,242,274) ($9,433,257) ($1,884,651) ($646,750)
=========================== ================= =============================
Basic and diluted net loss per share
Net loss from continuing operations: ($0.05) ($0.09) ($0.02) ($0.02)
--------------------------- -----------------------------
Net loss discontinued operations (0.02) (0.01) (0.02) (0.01)
--------------------------- -----------------------------
Net loss ($0.07) ($0.10) ($0.04) ($0.03)
=========================== =============================
Number of shares used in calculating basic
and diluted net loss per share 39,246,010 22,256,505 43,981,244 22,723,084
=========================== =============================
</TABLE>
See Notes to Condensed Financial Statements.
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Six Months Ended December 17, 1996
June 30, (Inception) to
2000 1999 June 30, 2000
---- ---- -------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,747,324) $ (2,242,274) $ (9,433,259)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 813,772 125,883 1,283,793
Reserve for bad debts - - 41,200
Consulting services paid by issuance of common stock 10,000 - 722,403
Compensation expense resulting from 81,502 505,495 1,500,657
stock options granted - - -
Interest expense upon conversion of promissory notes 394,747 - 1,810,711
Changes in operating assets and liabilities:
Accounts receivable 9,204 29,709 (57,589)
Prepaid expenses (6,553) (31,807) (15,827)
Other assets 1,080 (11,075) (32,179)
Accounts payable and accrued liabilities (27,374) (24,939) 263,834
Accrued interest 12,266 24,810 62,667
Accrued payroll and payroll taxes (9,840) (88,804) (38,274)
Deferred rent (13,201) - (0)
Accrued interest converted into common stock 8,239 - 17,785
--------------------------------------------------------
Net cash used in operating activities (1,473,482) (1,713,001) (3,874,078)
--------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (87,235) 58,472 (1,087,961)
Purchase of LNT assets (400,000) - (400,000)
Capitalized software development costs (80,007) - (193,343)
Notes receivable advances (50,000) - (91,200)
--------------------------------------------------------
Net cash provided by (used in) investing activities (617,242) 58,472 (1,772,505)
--------------------------------------------------------
Cash flows from financing activities:
Repayments of loan payable - -
Proceeds from issuance of promissory notes - - 2,720,000
Proceeds from issuance of demand notes 950,000 - 950,000
Payment of financing fees (120,000) - (346,523)
Proceeds from issuance of common stock 1,770,000 1,686,520 2,869,221
Deferred offering/issuance costs - (72,978) (55,991)
Collection of stock subscriptions receivable - - 70,000
Proceeds from issuance of warrants - - 1,046
Advances from (payment to) officers (152,568) (55,714) (113,197)
Cash acquired at inception - - 102
--------------------------------------------------------
Net cash provided by financing activities 2,447,432 1,557,827 6,094,658
--------------------------------------------------------
Net increase in cash and cash equivalents 356,710 (96,703) 448,078
Cash and cash equivalents--beginning 91,368 (52,529)
--------------------------------------------------------
Cash and cash equivalents--ending $ 448,078 $ 52,522 $ 448,078
========================================================
Supplemental disclosure of cash flow information:
Cash paid during the quarter for interest $ 4,104 $ 1,204 $ 13,334
========================================================
</TABLE>
F-9
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CASH FLOWS --(Continued)
The following noncash investing and financing transactions occurred during
the six months ended June 30, 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 puchase 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 comon stock was issued for legal fees
in lieu of cash.
-- 10,000 shares of the Company's comon stock was issued for consulting
services.
-- Fees to an investment advisor in conection 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.
<PAGE>
FINANCIAL INTRANET, INC.
(a Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from December 17, 1996 (Inception) to June 30, 2000
<TABLE>
<CAPTION>
Additional
Paid-in
Description Shares Amount Capital
------ ------ -------
<S> <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
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
January, 1998--issuance of stock subscribed in 1997 400,000 400 29,600
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
<CAPTION>
Accumulated
Deficit
Deferred During the
Subscriptions Stock Development
Description Receivable Compensation Stage Total
------------- ------------ ------------ -----
<S> <C> <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 ($75,000) 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. (75,000) (230,322) (851,928) 164,961
January, 1998--issuance of stock subscribed in 1997 75000 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) 0 (1,062,878) (2,993,906) 42,963
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional
Paid-in
Description Shares Amount Capital
------ ------ -------
<S> <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 14725
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
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--Issuance of note payable to shareholder (10,000)
March 31, 2000--warrants issued in connection with LNT acquisition 475,000
Amortization of compensatory stock options
Net Loss
------------- -------------- -----------------
Balance--June 30, 2000 43,981,244 $ 43,981 $ 11,544,187
============= ============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Deficit
Deferred During the
Subscriptions Stock Development
Description Receivable Compensation Stage Total
------------- ------------ ------------ -----
<S> <C> <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 0 (489,008) (6,685,932) 364,364
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--issuance of note payable to shareholder (10,000)
March 31, 2000--warrants issued in connection with LNT acquisition 475,000
Amortization of compensatory stock options 81,502 81,502
Net Loss (2,747,324) (2,747,324)
------------- ------------- ------------- ------------
Balance--June 30, 2000 $ -- $ (407,506) $(9,433,257) $ 1,747,405
============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<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.
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 only through the end of the third
quarter and we do not expect to generate positive cash flow from operations
until at least 2001. 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 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.
Note 2 - Restructuring
The Company, in August 2000, affected a restructure of it domestic
operating model. In doing so, it eliminated a significant portion of its
United States based operations, including a planned elimination of its
primary source of ongoing telephony and planned video streaming revenue.
The Company plans on generating revenue in the future from operations from
its remaining assets in the United States, primarily its web site, its
existing assets in the Peoples Republic of China through its 100% wholly
owned operating subsidiary corporation there, once all regulatory approvals
are obtained, and potential synergistic acquisitions both in the United
States and abroad. The Company specifically expects to generate revenues
from its web site and Chinese subsidiary through business-to-business
Internet and website consulting services, advertising domestically and
internationally from both its website and e-magazine, and application
programs and services for websites and other businesses. The Company does
not expect its Chinese subsidiary to generate revenue until at least the
fourth quarter of 2000 or become profitable until some time in 2001.
Net loss from discontinued operations include:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- ------------------------
2000 1999 2000 1999
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue $ 37,059 $ 5,537 $ 71,618 $ 12,278
--------- --------- ---------- ---------
Cost of revenue 73,966 11,629 109,113 34,969
Sales, general and administrative 158,241 36,187 208,247 116,979
Depreciation and amortization 531,157 50,802 585,141 107,293
Other 125,069 0 140,069 0
-----------------------------------------------------
Net loss from
discontinued operations $(851,374) $(93,081) $ (970,952) $(246,933)
=====================================================
</TABLE>
3
<PAGE>
Net assets of discontinued operations consist of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Accounts Receivable 57,589 66,793
Fixed assets 520,311
Accounts Payable (4,166) (20,099)
------------ ------------------
$ $
------------ ------------------
53,423 567,005
------------ ------------------
Note 3--Note Payable
In January and February 2000, the Company issued unsecured 8% convertible
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.
In May 2000, the Company issued an unsecured 8% convertible promissory note in
the principal amount of up to $600,000, payable on demand.
Note 4--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
that 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 fair
values. The acquired assets consist of two Internet web sites, an e-mail
magazine and consulting agreements with four key individuals.
Note 5--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
4
<PAGE>
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.
Note 6 - Subsequent Events
In July 2000, an aggregate of 2,200,000 shares of stock were issued and
5,000,000 warrants granted to certain financial advisors in consideration
for financial considerations, potential commitments and consulting services
to be rendered in the United States and the Peoples Republic in China.
These issuances will result in a charge of approximately $330,000 in the
third quarter of 2000. An additional 12,273 warrants were issued to a
vendor in consideration for placement services.
On August 15, 2000, the Company invested $25,000 for a 1% interest, with a
right of first refusal to match certain dilutive third party investments,
in The Energy Corp., a Florida based intellectual property company with
patents related to the wireless communications industry. The Company
expects to leverage its assets in the Peoples Republic of China as well as
its contacts in the United States to help develop the business and market
its products worldwide. The potential market for The Energy Corp.'s
patented products, once production and distribution has been completed, is
initially the huge market of all industrial workplaces and other areas that
require safe wireless communications.
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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 currently holds a 100% ownership interest in a
Chinese Internet content provider.
Results of operations
Revenue
The Company's principal source of revenue was from the resale of telephone and
data communications, which operations were discontinued commencing in July 2000.
Revenue for the three months ended June 30, 2000 was $37,058, as compared with
$5,537 in the same period of the prior year, a six-fold increase. All such
revenue is included in the net loss from discontinuing operations. The increase
was due primarily to the stabilization of the initial customer base during the
second quarter this year versus virtual start-up last year. The Company does not
expect to report significant revenue from these sources in the future; it does
expect to derive revenue from its web site and Chinese and subsidiary.
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 June 30,
2000 was $73,966 compared with $11,629 in the prior year, also a six-fold
increase.
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 9% from $465,892 in 1999 to $513,933 in 2000 after taking
into consideration certain costs reclassified to net loss from discontinued
operations.
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Management expects general and administrative expenses to decrease in the near
future as a recent restructuring eliminated a portion of the overhead. As
domestic business is increased, such expenses other than consulting fees may
again increase to support future growth.
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 from
$261,375 in 1999 to $81,502 in 2000. The restructuring of the Company should
have no material effect on stock compensation expenses in the near future.
Depreciation and amortization
Depreciation and amortization consists primarily of depreciation of computer
equipment, amortization of software development costs, exclusive of a write down
of assets due to the discontinuance of certain of the Company's domestic
operations. Amortization of software costs and software development costs was
$191,560 and $18,521 in the six months ended June 30, 2000 and 1999,
respectively, $39,896 of which was due to the write off in the second quarter of
2000 of assets associated with discontinued operations. Depreciation expense was
$__________ and $__________ for the six months ended June 30, 2000 and 1999,
respectively, exclusive of $437,277 due to the write off in the second quarter
of 2000 of assets associated with discontinued operations.
Other income and expense
Other income consists principally of interest from loans, notes receivable and
short-term investments. Interest and other income increased to $13,995 for the
six months ended June 30, 2000 from $2,366 for the six months ended June 30,
1999. Interest expense consists of interest accrued on loans and convertible
notes payable, the value of warrants issued with such debt which has been
accounted for as a debt discount and the value of beneficial conversion features
of convertible debt. Interest income or expense is not expected to be affected
by the discontinuance of certain of the Company's operations.
Income taxes
No provision for federal and state income taxes has been recorded as the Company
incurred net operating losses in the second 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 $448,078 and $91,368 at June 30, 2000 and
December 31, 1999, respectively.
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The Company had negative working capital of $687,960 at June 30, 2000. Net cash
used in operating activities was $1,473,482 for the six months ended June 30,
2000. Cash used in operating activities was primarily attributable to a net loss
of $2,747,324. This was partially offset by non-cash items such as depreciation
and amortization of $813,772, interest expense on conversion of promissory notes
into equity of $394,747 and stock compensation costs of $81,502. Net cash used
in operating activities for the six months ended June 30, 1999 was $1,619,920,
which was principally due to the net loss of $2,149,192 offset primarily by a
non-cash compensation expense resulting from stock options granted of $505,495.
Based on the discontinuance of certain operations of the Company, it is
anticipated that net cash used on operating activities on a go forward basis
will decrease in the short term. As part of the accounting for discontinued
operations, accounts receivable were written down by $57,589 and accounts
payable by $4,166 for amounts related to the discontinued operations, for a net
charge of $53,423.
Net cash used for investing activities of $617,242 for the six months ended June
30, 2000 was primarily attributable to the purchase of the LNT assets. Net cash
provided by investing activities of $58,472 for the six months ended June 30,
1999 was principally due to reduction in costs of capital equipment acquired.
Net cash provided by financing activities for the six months ended June 30, 2000
was $2,447,432 and consisted primarily of proceeds from the issuance of common
stock and demand notes. Net cash provided by financing activities for the six
months ended June 30, 1999 was $1,557,827, 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 only through the end of the third
quarter and we do not expect to generate positive cash flow from operations
until at least 2001. 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 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.
Subsequent Events
The Company, in August 2000, affected a restructure of it domestic operating
model. In doing so, it eliminated a significant portion of its United States
based operations, including a planned
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elimination of its primary source of ongoing telephony and planned video
streaming revenue. The Company plans on generating revenue in the future from
operations from its remaining assets in the United States, primarily its web
site, its existing assets in the Peoples Republic of China through its 100%
wholly owned operating subsidiary corporation there, once all regulatory
approvals are obtained, and potential synergistic acquisitions both in the
United States and abroad. The Company specifically expects to generate revenues
from its web site and Chinese subsidiary through business-to-business Internet
and website consulting services, advertising domestically and internationally
from both its website and e-magazine, and application programs and services for
websites and other businesses. The Company does not expect its Chinese
subsidiary to generate revenue until at least the fourth quarter of 2000 or
become profitable until some time in 2001.
On August 15, 2000, the Company invested $25,000 for a 1% interest, with a right
of first refusal to match certain dilutive third party investments, in The
Energy Corp., a Florida based intellectual property company with patents related
to the wireless communications industry. The Company expects to leverage its
assets in the Peoples Republic of China as well as its contacts in the United
States to help develop the business and market its products worldwide. The
potential market for The Energy Corp.'s patented products, once production and
distribution has been completed, is initially the huge market of all industrial
workplaces and other areas that require safe wireless communications.
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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
Shareholders' meeting included the shareholders' vote
approving an increase in the number of authorized common shares to 100,000,000,
the election of the Company's Board of Directors, the approval of the Company's
2000 Stock Option Plan and the failure to approve a class of preferred stock.
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.
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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 August 18, 2000 /s/ Michael Sheppard
-------------------------------- -------------------------
Michael Sheppard
President
Date August 18, 2000 /s/ Corey Rinker
-------------------------------- -------------------------
Corey Rinker
Vice President
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