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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 period ended March 31, 2000.
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 000-25799
FINANCIALWEB.COM, INC.
----------------------
(Exact Name of Small Business Issuer in Its Charter)
NEVADA 93-1202428
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
201 PARK PLACE, SUITE 321
ALTAMONTE SPRINGS, FLORIDA 32701
--------------------------------
(Address of Principal Executive Offices)
(407) 834-4443
--------------------------------
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No __
--
As of April 30, 2000, there were 8,881,697 shares of the registrant's common
stock outstanding.
The registrant meets the conditions set forth in General Instruction G(1)(a) and
(b) of Form 10-QSB and is therefore filing this form with the reduced disclosure
format.
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FINANCIALWEB.COM, INC.
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements. 1
(a) Consolidated Statement of Operations.
For the Three Months Ended March 31, 2000 and 1999 1
(b) Consolidated Balance Sheets.
As of March 31, 2000 and December 31, 1999 2
(c) Consolidated Statements of Cash Flows.
For the Three Months Ended March 31, 2000 and 1999 3
(d) Notes to Consolidated Financial Statements. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II. Other Information.
Item 1. Legal Proceedings. 13
Item 2. Changes in Securities and Use of Proceeds. 13
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 14
Signature 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
2000 1999
------------ --------------
(as restated)
<S> <C> <C>
REVENUES $ 130,533 $ 67,335
COST OF REVENUES 83,881 130,855
------------ --------------
GROSS PROFIT 46,652 (63,520)
RESEARCH AND DEVELOPMENT 341,606 214,474
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Stock-Based (Noncash) Employee Compensation 1,152,647 495,833
Stock-Based (Noncash) Consulting Fees 4,397,000 27,599,387
Other (Inclusive of Noncash Stock-Based
Expenses of $125,000 and $0 in 2000 and in 1999, respectively) 1,691,460 450,404
------------ --------------
OPERATING LOSS (7,536,061) (28,823,618)
INTEREST EXPENSE (Inclusive of Noncash Interest
of $128,968 and $2,300,000 in 2000 and 1999, respectively) 133,081 2,325,873
------------ --------------
NET LOSS $ (7,669,142) $ (31,149,491)
============ ==============
NET LOSS PER SHARE - BASIC AND DILUTED $ (1.10) $ (6.34)
============ ==============
See Notes to Consolidated Financial Statements.
</TABLE>
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CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS (unaudited) (as restated)
CURRENT ASSETS:
Cash $ 4,768,177 $ 94,842
Accounts Receivable, net 50,061 120,137
Prepaid Expenses 10,600 16,576
------------- -------------
Total Current Assets 4,828,838 231,555
------------- -------------
PROPERTY AND EQUIPMENT - NET 549,141 310,783
INTANGIBLE ASSETS - NET 150,341 166,023
OTHER ASSETS 8,478 8,478
------------- -------------
TOTAL ASSETS $ 5,536,798 $ 716,839
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 3,055,412 $ 1,761,247
Notes and Loans Payable 90,000 546,468
------------- -------------
Total Current Liabilities 3,145,412 2,307,715
------------- -------------
TOTAL LIABILITIES 3,145,412 2,307,715
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 Par Value, 10,000,000 Shares Authorized,
Zero Issued and 815,487 Subscribed (with a Liquidation Preference
of $3 per share) 816 816
Common Stock, $.001 Par Value, 100,000,000 Shares Authorized,
8,918,240 and 6,580,839 Shares, Respectively, Issued and Outstanding 8,918 6,581
Treasury Stock (208,657) -
Additional Paid-In Capital 75,264,241 61,216,165
Accumulated Deficit (70,752,525) (63,083,383)
Contractual Obligation to Issue Shares - 530,000
Deferred Stock Based Compensation (1,921,407) (261,055)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,391,386 (1,590,876)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,536,798 $ 716,839
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
2
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
2000 1999
------------ --------------
(as restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (7,669,142) $(31,149,491)
Adjustments to reconcile Net (Loss)
to Net Cash Used by Operating Activities
Depreciation and Amortization 40,105 24,478
Noncash Interest Expense 128,968 2,300,000
Noncash Stock Based Expenses 125,000 -
Noncash Stock Based Consulting Fees 4,397,000 27,599,387
Noncash Stock Based Compensation 1,152,647 495,833
Changes in Operating Assets and Liabilities:
Decrease in Accounts Receivable 70,076 -
Decrease in Prepaid Expenses 5,976 9,563
Increase in Accounts Payable and Accrued Expenses 1,154,938 124,114
Increase in Other Assets - (200)
------------ --------------
Net Cash Used by Operating Activities (594,432) (596,316)
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of Property and Equipment (123,553) (39,327)
------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 65,000 800,000
Repayment of Notes Payable (650,436) (50,000)
Issuance of Common Stock 6,296,791 -
Acquisition of Treasury Stock (208,657) -
Stock Issuance Costs (111,378) -
------------ --------------
Net Cash Flows from Financing Activities 5,391,320 750,000
------------ --------------
NET INCREASE IN CASH 4,673,335 114,357
CASH AT BEGINNING OF YEAR 94,842 327,912
------------ --------------
CASH AT MARCH 31, 2000 AND 1999 $ 4,768,177 $ 442,269
============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Period for Interest $ 3,222 $ -
============ ==============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCE ACTIVITIES
Increase in Property and Equipment Included in Accounts Payable $ 139,227 $ -
============ ==============
</TABLE>
See Notes to Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by FinancialWeb.com, Inc. (the "Company") in accordance with the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting and, accordingly, do not include all the
information and disclosures required by generally accepted accounting
principles. In the opinion of management, the unaudited consolidated
financial statements include all adjustments (consisting of normally
recurring adjustments) necessary for the fair presentation of results for the
interim periods presented. These unaudited consolidated financial statements
and notes included herein should be read in conjunction with the Company's
audited consolidated financial statements and notes for the year ended
December 31, 1999 included in the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission. The results of operations
for the interim periods presented are not necessarily indicative of the
results to be expected for any subsequent quarter or for the entire year
ending December 31, 2000.
The accompanying unaudited consolidated financial statements contemplates
continuation of the Company as a going concern. However, the Company has yet
to make a profit and has sustained substantial operating losses and negative
cash flows from operations over the past three years.
Management has sought to obtain outside financing to enable the Company to
finance its operating activities. The Company issued $2,300,000 of
convertible debt, which converted into shares of preferred stock by December
31, 1999 and privately placed common stock for approximately $6,808,000, net
of issuance costs of approximately $1,107,000, through April 30, 2000.
Further, the Company is actively seeking other sources of financing and is
exploring alternate ways of generating revenues through partnerships with
other businesses. However, there are no assurances that the Company will be
successful in these endeavors.
In view of these matters, realization of the Company's assets in the
accompanying consolidated balance sheet is dependent on the Company's ability
to meet its financing requirements, and ultimately on the success of future
operations. Management believes that actions currently being taken provide
the opportunity for the Company to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that may be necessary in the event the Company cannot continue in
existence.
2. RESTATEMENT
Subsequent to the issuance of the Company's March 31, 1999 consolidated
unaudited financial statements, the Company's management determined that the
value of the Company's common stock used to record assets acquired in the
first quarter 1999, and to measure expense related to stock, options and
warrants granted to employees, directors and consultants should have been
based on the value of the Company's common stock as determined by its quoted
market price. Additionally, the Company determined that certain expenses
relating to employee benefits and trade payables had not been properly
recorded. The amounts shown in the accompanying unaudited consolidated
statements of operations have been restated from the Company's previously
reported results on Form 10-QSB.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
Financialweb.com, Inc. and its wholly owned subsidiaries, Slugfest.com, Inc.,
Stock Detective.com, Inc. and Real Time Transalators, S.A.C. All significant
intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
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STOCK-BASED COMPENSATION - The Company has elected to account for its stock-
based compensation granted to employees in accordance with the provisions of
Accounting Principles Board Opinion 25 (APB 25), Accounting for Stock Issued
to Employees. Under APB 25, compensation expense is based on the difference,
if any, on the date of the grant, between the fair value of the Company's
stock and the exercise price of the option. The Company discloses the
information required under Statement of Financial Accounting Standards
Statement No. 123, Accounting for Stock Based Compensation (Statement 123).
Stock issued to non-employees is accounted for under the provisions of
Statement 123 and the Emerging Issues Task Force (EITF) Consensus in Issue
No. 96-18, Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with, Selling Goods or Services
(EITF 96-18).
Under Statement 123, non-employee stock-based compensation is accounted for
based on the fair value of the consideration received or equity instruments
issued, whichever is more readily determinable. However, Statement 123 does
not address the measurement date and recognition period. EITF 96-18 states a
consensus that the measurement date should be the earlier of the date at
which a commitment for performance by the counter party is reached or the
date at which the counter party's performance is complete, and the
recognition period should be the same as if the goods or services had been
exchanged for cash.
The Company's non-employee stock-based compensation is determined using the
Company's quoted closing market price as quoted on the Over-The-Counter
Bulletin Board ("OTCBB") or the Black-Scholes option pricing model.
REVENUE RECOGNITION - The Company's revenues have been derived principally
from the sale of banner advertisements under short-term contracts. To date,
the duration of the Company's advertising commitments have generally averaged
from one to three months. Advertising revenues are recognized ratably in the
period in which the advertisement is displayed, provided that no significant
Company obligations remain and collection of the resulting receivable is
probable. Company obligations typically include the guarantee of a minimum
number of impressions or times that an advertisement appears in pages viewed
by the users of the Company's online properties.
RESEARCH AND DEVELOPMENT COSTS - The Company's research and development
costs, which consist primarily of compensation and benefits for software
programmers and developers, are expensed as incurred.
USE OF ESTIMATES - The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
(FASB) recently issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No 133. Statement 137 defers for one year the effective date of
FASB No. 133 (Statement 133), Accounting for Derivative Instruments and
Hedging Activities. The rule now will apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000. Statement 137 permits early
adoption as of the beginning of any fiscal quarter after its issuance.
Statement 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives will either be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be
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immediately recognized in earnings. The Company has not yet determined if it
will early adopt this pronouncement. The Company does not expect its adoption
will have a material impact on its financial statements, as it does not own
any derivative instruments.
NET LOSS PER SHARE INFORMATION - Basic and diluted loss per share is computed
based on the weighted average shares outstanding during the period. Diluted
net income per share includes the dilutive effect of potential common stock
issuances using the treasury stock method. Common equivalent shares are
excluded from the computation if their effect is anti-dilutive. The Company's
warrants, convertible preferred stock, and options have been excluded from
diluted loss per share since their effect is anti-dilutive.
The following table sets forth the calculation of net loss per share for the
periods ended March 31, 2000 and 1999, respectively:
Three Months Ended March 31,
2000 1999
----------- -----------
Net loss $ 7,669,142 $31,149,491
----------- -----------
Weighted average shares outstanding 6,957,992 4,913,169
----------- -----------
Net loss per share - basic and diluted $ 1.10 $ 6.34
----------- -----------
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at March 31,
2000:
Accounts payable $2,086,150
Accrued consulting fees 198,003
Accrued compensation and employee benefits 25,575
Accrued contingency 591,000
Other 154,684
----------
$3,055,412
==========
5. STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT OF COMMON STOCK - Through March 31, 2000, the Company
privately placed 2,217,601 shares of common stock for approximately
$5,703,000, which is net of issuance costs. In connection with this
placement, the Company agreed to issue approximately 283,028 shares of
restricted common stock as additional compensation valued at $1,769,000 to
the placement agents.
EXPLODING WARRANTS - As a result of the above private placement of common
stock, on January 18, 2000, two consultants of the Company received a warrant
to purchase approximately 467,000 shares of common stock, in the aggregate,
exercisable at $3.00 per share, pursuant to an antidilutive provision in
their respective warrant. The remaining unexercised portion of their
respective warrant
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were repriced to provide for their exercise at $3.00 per share pursuant to a
repricing provision in their respective warrant. The fair value of the
warrants and of the repricing of approximately $2,448,000 was charged to
stock-based consulting fees in the quarter ended March 31, 2000. The
additional warrants issued expire concurrent with the initial warrants issued
pursuant to their respective consulting agreements.
CONSULTANT AGREEMENT - The Company retained the services of a financial
advisor on March 31, 1999. This consulting agreement granted the financial
advisor a warrant to purchase common stock of the Company. This warrant was
terminated on January 18, 2000 and the Company issued a new warrant to such
financial advisor. The new warrant was dependent on the amount raised in the
private placement and on March 31, 2000, the Company issued to the financial
advisor a warrant to purchase 247,713 shares of common stock at $.01 per
share and a warrant to purchase 8,958 shares of common stock at 3.00 per
share. Stock-based consulting fees relating to these warrants, based on their
fair value on the issuance date, amounted to approximately $1,949,000.
DIRECTOR AGREEMENT - On March 1, 2000, the Company entered into an option
agreement with a member of the Board of Directors to purchase 750,000 shares
of common stock at an exercise price of $4.50 per share. The options expire
at the end of seven years. On the date of grant, one-third of the options
vested immediately and the balance of the options vest in twelve equal
monthly installments on the first day of each calendar month commencing on
April 1, 2000. The director's Director Service Agreement provides that his
option vest on an accelerated basis upon a "change in control" of the
Company, as defined in his service agreement. If the Company terminates his
service agreement, the balance of all unvested options immediately vest. At
the date of grant, the Company recorded deferred stock-based compensation of
approximately $2,813,000, which is based on the difference between the stock
closing price on the date of grant and the exercise price. Through March 31,
2000, for those shares that have vested, the Company has recognized stock-
based compensation expense of approximately $1,094,000.
STOCK GRANTED FOR SERVICES - On January 31, 2000, the Company granted 25,000
shares of restricted common stock to an executive recruiting firm in exchange
for services rendered. The Company recorded recruiting expense of $125,000,
as determined by the stock's closing price on the grant date. On November 19,
1999, the Company incurred an obligation to issue 80,000 shares of common
stock to a company for negotiating the StarMedia Networks, Inc. agreement.
The Company recorded stock-based consulting fees of $530,000, based on the
fair value of the shares on the issuance date. The shares were issued March
13, 2000.
6. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS - Between January 1 and March 21, 2000, the Company
entered into employment agreements with five officers of the Company
providing for base annual salaries and, in some cases, providing for bonuses
ranging from 25% to 30% of their respective base pay, depending on their
respective performance. The terms of the agreements are generally for one
year and in some cases, provide for termination benefits of up to six months
at existing rates of pay if the Company terminates the officers under certain
circumstances.
The employment agreements with these five officers included grants of options
to purchase shares of the Company's common stock. Two officers received
options to purchase 990,000 shares of the Company's common stock in the
aggregate at the closing price of the Company's common stock at the date of
grant. Accordingly, no compensation expense has been recorded associated with
these grants.
Additionally, two of the officers were granted participation in a target
option share program for a total of 490,000 target option shares, which
become available when the Company's stock closing
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price closes for three consecutive days over a certain price. Target option
shares are exercisable at market as of the date of grant and are available
when the Company's stock closes at the $9.00, $11.00, $17.00, and $25.00
levels.
7. SUBSEQUENT EVENTS
NEW OFFICE SPACE - In April 2000, the Company deposited $145,000 for 5,400
square feet of office space in Boston, Massachusetts. The term of the lease
is for five years. The lease agreement obligates the Company over the term of
the lease to annual minimum lease payments averaging approximately $190,600.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's audited
financial statements and notes thereto for the year ended December 31, 1999
included in the Company's Annual Report on Form 10-KSB that was filed with the
Securities and Exchange Commission on June 2, 2000. Except for the historical
information contained herein, this and other sections of this Quarterly Report
contain certain forward-looking statements that involve substantial risks and
uncertainties. When used in this Quarterly Report, the words "anticipate,"
"believe," "estimate," "expect" and similar expressions, as they relate to the
Company or its management, are intended to identify such forward-looking
statements. The Company's actual results, performance, or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements.
COMPANY OVERVIEW
The Company is a business-to-business aggregator, developer and distributor
of e-financial content in English and Spanish with other languages planned.
During the first quarter of 2000, the Company hired a new management team and
added two new directors including a new chairman of the board. The new
management redirected the Company's primary focus toward being a business-to-
business aggregator, developer and distributor of e-financial content in English
and Spanish with other languages planned. The Company provides original and
aggregated financial content and access to services to e-businesses that require
financial content and tools in order to attract, retain and serve their Web site
visitors. Under the FinancialWeb brand, the Company plans to expand its
international relationships and enhance its position in the creation,
aggregation and e-distribution of international, multilingual financial content.
The Company is shifting its revenue production from primarily banner
advertising fees to revenue derived from subscription fees for proprietary and
redistributed content and tool that it provides to partner sites.
The Company has yet to achieve significant revenues and its ability to
generate significant revenues is uncertain. Further, in view of the rapidly
evolving nature of the Internet industry and a limited operating history, the
Company has little experience forecasting its revenues. Therefore, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. To date, the Company has incurred substantial costs to create,
introduce and enhance its services, to develop content, and to grow its
business. Consequently, it has incurred operating losses in each fiscal quarter
since it was formed. The Company expects operating losses and negative cash
flows to continue for the foreseeable future as it intends on increasing its
operating expenses to expand its business. It may also incur additional costs
and expenses related to content creation, technology, marketing or acquisitions
of businesses and technologies to respond to changes in this rapidly changing
industry. These costs could
8
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have an adverse effect on the Company's future financial condition or operating
results. See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES
Advertising revenues were $98,370 and $67,335 for the three months ended
March 31, 2000 and 1999, respectively. This increase of 46% was primarily due to
the increase in the number of advertisers and number of banner and sponsorship
ads placed on the Company's Web site as well as the number of users on the
Company's Web site and the resultant page views with advertisements contained on
the pages.
Revenues from co-branding activities were $32,163 or 25% of revenues for the
three months ended March 31, 2000. During the three months ended March 31, 2000,
the Company began to shift its revenue focus to generating revenues through
subscription fees for its proprietary and redistributed content and tools fees
through partner Web sites. The Company believes that future revenues will be
less dependent on the sale of advertising space on the Company's Web site as its
emphasis shifts to generating recurring revenues from subscription fees for its
proprietary and redistributed content and tools as well as revenue sharing with
partner Web sites and to co-branding and private labeling services.
COST OF REVENUES
Cost of revenues were $83,881 and $130,855 for the three months ended March
31, 2000 and 1999, respectively. The Company expects that future costs of
revenues will increase due to the additional network communication lines
required to accommodate increased traffic on the Company's Web sites, increased
equipment and programming costs associated with the Company's redundant back-up
site as described in the "Liquidity and Capital Resources" section below.
As a percentage of revenues, cost of revenues declined to 64% of revenues for
the three months ended March 31, 2000 from 194% for the same period in 1999.
This decrease resulted primarily from the relatively fixed nature of some of our
data costs and other fees while the number of customers, related revenues and
the initiation of co-branding revenues increased.
OPERATING EXPENSES
Research and Development. Research and development costs were $341,606 and
$214,474 for the three months ended March 31, 2000 and 1999, respectively. This
increase of 59% was due primarily to the following: a) increases in the level of
personnel necessary to develop and enhance the Company's Web site and b)
increases in outside consulting fees to assist in developing and designing the
Company's Web site. On an absolute dollar basis, the Company expects costs to
continue to increase as the Company expands its infrastructure and develops
additional product offerings.
Selling, General and Administrative.
Other. Selling, general and administrative expenses were $1,691,460 and
$450,404 for the three months ended March 31, 2000 and 1999, respectively. The
$1,241,056 increase in other selling, general and administrative expenses was
primarily due to the following items: a) increases in professional fees paid for
services such as legal and accounting fees associated with the Company's filing
of its Form 10-KSB and Form 10-QSB with the Securities and Exchange Commission;
b) increases in sales force personnel to generate increased revenues; c)
increases in advertising costs associated with the Company's
9
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strategic partnership with StarMedia Network, Inc.; d) increases in rent due to
the leasing of additional office and network facilities necessitated by
increases in personnel and equipment; e) increases in outside consulting fees
for assistance in developing additional sources of funds to improve the
capitalization of the Company; f) the addition of directors and officers
liability insurance; g) the increase in personnel and associated recruiting fees
needed to support the growth of the business; h) increases in costs related to
the acquisition of additional data feeds as well as proprietary and syndicated
financial content; i) increases in translation costs associated with the opening
of a subsidiary translation office and hiring of translating personnel; and j)
increases in payroll in order to execute upon domestic and international
expansion plans.
The Company expects other selling, general and administrative expenses to
continue to increase in absolute dollars as the Company expands its staff and
incurs additional costs related to the growth of its business.
Stock-Based Non-cash Employee Compensation. In March and September 1999,
under the terms of separate Director Service Agreements, the Company issued
warrants to three new directors of the Company to purchase a total of 300,000
shares of common stock at an exercise price of the $5.00 per share. At the time
of issuance, the Company recorded deferred non-cash stock-based employee
compensation expense of $1,931,200, based on the difference between the exercise
price and the closing price of the common stock on the date of grant. Upon
appointment to the Board of Directors, 25% of the shares of common stock vested
immediately with the remaining shares vesting on a quarterly basis over a one-
year period. During the year ended December 31, 1999, the Company amortized
$1,890,600 as non-cash stock-based employee compensation expense, relating to
these warrants and amortized $20,300 during the three month period ended March
31,2000. The remaining $20,300 will be amortized in the second quarter ending
June 30, 2000. As of March 31, 2000, none of these warrants had been exercised.
On May 21, 1999, the Company granted options to purchase 142,277 shares of
common stock to certain employees under the Company's 1999 Stock Incentive Plan.
The options vest over three to four years of continuous service. At the date of
grant, exercise prices ranged from $5.00 to $14.25. Of the 142,277 options
granted, 37,500 were at exercise prices below the Company's closing stock price
on the date of grant. The Company recorded deferred stock based employee
compensation expense of $346,874 based on the difference between the exercise
price and the closing price of the common stock on the date of the grant. During
the year ended December 31, 1999, and the three month period ended March 31,
2000, the Company amortized $143,086 and $21,680, respectively, as stock- based
employee compensation expense, relating to these options. Compensation expense
was not recorded on the remaining grants since the exercise price equaled the
Company's stock closing price on the date of grant.
On June 14, 1999, the Company granted an option for 20,000 shares of common
stock at an exercise price of $5.00 per share to an officer and director of the
Company. The Company recorded deferred compensation expense of $200,000 which
represented the excess of the exercise price of the options over the closing
price of the common stock on the date of the grant. As of December 31, 1999,
$183,333 has been amortized to stock based non-cash employee compensation
expense, the remaining $16,667 was amortized in the first quarter ended March
31, 2000.
On March 1, 2000, the Company entered into an option agreement with a member
of the Board of Directors to purchase 750,000 shares of common stock at an
exercise price of $4.50 per share. The options expire at the end of seven years.
At the date of grant, one-third of the options vested immediately and the
balance of the options vest in twelve equal monthly installments on the first
day of each calendar month commencing April 1, 2000. At the date of grant, the
Company recorded deferred non-cash stock-based employee compensation expense of
approximately $2,813,000, which is based on the difference between the stock
closing price on the date of grant and the exercise price. During the three
month period ended March 31, 2000, the Company amortized $1,094,000 as non-cash
stock-based employee compensation expense, relating to these options. As of
March 31, 2000, these options have not been exercised.
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Stock-Based Non-cash Consulting Fees. On January 6, and March 10, 1999, the
Company entered into separate agreements with two individuals to provide
financial consulting services to the Company on similar terms and conditions
over a five-year period. As consideration for their services, the Company issued
to each of these individuals a warrant for 1,000,000 shares of the Company's
common stock, exercisable over five years at a price of $4.00 per share. The
warrants were nonforfeitable and were vested upon issuance. In connection with
the issuance of the warrants, the Company recorded $27,599,287 in stock-based
consulting fees expense, based on the fair value of the warrants on the dates of
issuance. As a result of a private placement of common stock by the Company, on
January 18, 2000, two consultants of the Company were issued a warrant to
purchase approximately 467,000 shares of common stock, in the aggregate,
exercisable at $3.00 per share, pursuant to an antidilutive provision in their
respective warrant. The remaining unexercised portion of their respective
warrant were repriced to provide for their exercise at $3.00 per share pursuant
to a repricing provision in their respective warrant. The fair value of the
warrants and of the repricing of approximately $2,448,000 was charged to
deferred stock-based consulting fees and is being amortized over the remaining
life of their respective consulting agreements. The additional warrants issued
expire concurrent with the initial warrants issued pursuant to their respective
consulting agreements.
On March 31, 1999, the Company retained the services of a financial advisor
for a one-year term to perform a variety of services, including matters relating
to entering into one or more strategic partnerships, joint ventures or similar
arrangements, possible mergers or stock sales or other dispositions, sales or
other dispositions of business assets, and other similar or related matters. In
connection with this agreement, the Company issued a warrant for 979,321 shares
of common stock exercisable at $4.00 per share. The warrant was nonforfeitable,
vested upon issuance, and was exercisable for a ten-year term. The Company
recorded a noncash stock-based consulting fee expense of $16,296,659 in November
1999. This warrant was terminated and a new warrant agreement became effective
as a result of the private placement of common stock in January 2000. The new
warrant agreement was dependent on the amount raised by the placement agent. As
a result of the amount raised by the placement agent, the financial advisor was
granted approximately 248,000 and 9,000 warrants for shares of common stock at
strike prices of $.01 and $3.00, respectively, as of March 31, 2000. Stock-
based consulting fees for the three months ended March 31, 2000 relating to
these warrants, based on their fair value on the issuance date, amounted to
$1,949,000.
From January 1, through April 30, 2000, the Company privately placed
2,608,341 shares of common stock for approximately $6,808,000, which is net of
issuance costs of approximately $1,017,000. Included in the issuance costs were
approximately $119,000 paid to an affiliate of a major stockholder of the
Company for placing approximately 398,000 shares of common stock.
Interest Expense. Interest expense consisted primarily of noncash items.
Interest expense was $133,081 for the three months ended March 31, 2000 compared
to $2,325,873 for the same period in 1999. During the first quarter of 2000, as
a result of the private placement, the Company repaid outstanding bridge loans
of $500,000 resulting in the recognition of unamortized debt discount of
$128,968 as interest expense. The Company incurred additional miscellaneous
interest expense of $4,113 during the first quarter relating to remaining
outstanding debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced net losses in each year of its operations, which
losses have caused a working capital deficiency of $2,076,160 and a
stockholders' deficiency of $1,590,876 as of December 31, 1999. The Company has
financed those losses, as well as the growth of the business, through a series
of private placements and private loans. The Company is continuing to seek
sources of financing. For instance, the Company completed a private placement of
its common stock in the first quarter, resulting in net proceeds of
approximately $5,703,000. As a result of the private placement, the Company
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had positive working capital of $1,683,426 and positive equity of approximately
$2,391,000. During the three months ended March 31, 2000, the Company began
shifting its revenue emphasis from primarily advertising to recurring revenues
from subscription fees for its proprietary and redistributed content and tools
as well as co-branding and private labeling services. In addition, the Company
is exploring alternate ways of generating revenues through partnerships with
other businesses. Conversely, the on-going development and maintenance of its
Web site along with international expansion is expected to result in operating
losses for the foreseeable future.
The Company used $594,432 and $596,316 of cash in continuing operating
activities during the first three months of 2000 and 1999, respectively. The
Company anticipates increases in revenues as emphasis shifts to generate
recurring revenues from subscription fees for its proprietary and redistributed
content and tools as well as revenue sharing with partner sites in addition to
co-branding and private labeling services. On going development and maintenance
of its Web site along with international expansion, however, is expected to
result in operating losses for the foreseeable future.
The Company used cash in investing activities of $123,553 and $39,327 for the
three months ended March 31, 2000 and 1999, respectively. This cash was used
primarily to fund the acquisition of computer hardware and software.
The Company's notes payable totaled $675,436 ($365,705, net of discount) as
of December 31, 1999. All of the notes, with the exception of a $25,000 note
payable to a private company, were paid off with a portion of the proceeds of a
private placement offering completed in January 2000. Additionally, the Company
borrowed $65,000 at fixed rate of interest of 8.75% from the spouse of a
director of the Company.
On March 31, 2000, the Company had cash on hand of $4,768,177.
The Company had commitments for capital expenditures as of December 31, 1999
to complete its project to make its systems redundant and to upgrade its
computer systems. The Company has a bandwidth capacity of over 100 million page
views per month, as opposed to its previous monthly capacity of approximately 10
million page views per month. The Company believes this will enable it to
increase market share into the foreseeable future, as well as to offer co-
branded and private label sites and other services to larger entities within the
Internet information industry. The cost to complete this project and upgrade its
computer systems was approximately $392,000 at December 31, 1999. At March 31,
2000, approximately $130,000 remained under this commitment.
As previously mentioned, the Company completed private offerings through
April 2000. In January of 2000, the Company received approximately $1,690,000
from its financing activities. The proceeds from the financing were used to pay
commissions, legal and other fees of the private offering of $348,000, to repay
bridge loans of $506,000, including accrued interest, to repay a promissory note
and accrued interest thereon of $166,000 and to repurchase stock from the former
president and chief executive officer of the Company in the amount of
approximately $209,000, pursuant to his termination agreement. The Company
netted $461,000 to use for working capital purposes. In March and April of 2000,
the Company received $6,135,000, net of issuance costs, from additional
financing activities. After paying fees of the offering and the final repurchase
of stock from the former president and chief executive officer of approximately
$937,000, pursuant to his termination agreement, approximately $4,180,000 was
available for working capital purposes. The Company used a portion of the net
proceeds of the offering to add key members to the management team and to add
sales and marketing personnel. The Company intends to continue development of
its Internet products, to invest in its international expansion and translation
capabilities, to increase the size of the office space currently available to
the Company and to other general corporate purposes.
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The Company anticipates that it will continue to experience an increase in
operating expenses. Operating expenses will continue to consume a material
amount of the Company's cash resources, including the net proceeds of the
Company's recent private placement offering. The Company believes that the net
proceeds of the private offering, together with its existing cash and cash
generated from new business will be sufficient to meet the Company's anticipated
cash needs for working capital and capital expenditures for approximately the
next twelve months. However, if negative cash flows from operations exceed
current estimates, the Company's liquidity could become strained in the third or
fourth quarter of 2000.
Risk Associated with the Year 2000.
To date the Company has not experienced any problems associated with Y2K
issues.
Part II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(c) Recent Sales of Unregistered Securities.
As previously reported in the Company's Form 10-KSB filed on June 2, 2000
with the Securities and Exchange Commission:
On January 18, 2000, the Company sold 563,569 shares of common stock at $3.00
per share to 36 individuals in a private placement for cash consideration of
$1,690,711. The shares of common stock were sold to "accredited investors" as
that term is defined by Rule 501 of Regulation D of the Securities Act of 1933,
as amended (the "Act"), for investment purposes, without solicitation or
advertisement by the Company. Robb Peck McCooey Clearing Corporation ("Robb
Peck") was the principal placement agent for this private placement. A total of
$663,462 was paid to Robb Peck in commissions pursuant to such sale of which
$219,792 was paid by the Company in cash and $443,670 was paid in the form of
147,890 shares of common stock sold at $3.00 per share. The securities were
exempt from registration under Section 4(2) of the Act.
The Company sold shares of common stock to individuals pursuant to private
placements at $3.00 per share as follows: 1,654,032 shares on March 31, 2000 to
52 investors, 115,167 shares on April 10, 2000 to 9 investors and 275,573 shares
on April 20, 2000 to 20 investors, for total cash consideration of $6,134,318.
The shares of common stock were sold to "accredited investors" as that term is
defined by Rule 501 of Regulation D of the Act, for investment purposes, without
solicitation or advertisement by the Company. Robb Peck was the principal
placement agent for the private placement of March 31, 2000. A total of
$1,048,388 was paid to Robb Peck in commissions pursuant to such sale, of which
$642,973 was paid by the Company in cash and $405,415 was paid in the form of
135,138 shares of common stock sold at $3.00 per share. Pinnacle Asset
Management ("Pinnacle") was the principal placement agent for the private
placements of April 10 and April 20, 2000. A total of $119,322 was paid in cash
to Pinnacle as commissions for such sales. An additional $35,167 was paid by the
Company to Robb Peck in cash as a consulting fee in connection with the Pinnacle
sales. The securities were exempt from registration under Section 4(2) of the
Act.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27.1 Financial Data Schedule (in electronic format only).
(b) Reports on Form 8-K:
None.
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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.
FINANCIALWEB.COM, INC.
Dated: June 13, 2000 By: /s/ Leonard von Vital
---------------------------
Leonard von Vital
Chief Financial Officer
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