<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 1997
Commission file number: 33-20323
GlobeNet International I, Inc. (Formerly Mighty Power U.S.A., Inc.)
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(exact name of registrant as specified in its charter)
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Delaware 75-2224643
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(State of Incorporation) (IRS Employer ID No.)
10575 Newkirk, Suite 780, Dallas, Texas 75220
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 972-401-0052
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Act of 1934
during the past 12 months and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Shares of common stock outstanding at June 30, 1997:
12,220,185
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Operations for the quarters ended June 30,
1997 and 1996 4
Condensed Consolidated Statements of
Operations for the six months ended June 30,
1997 and 1996 5
Condensed Consolidated Statements of
Cash Flows for the six months ended June 30,
1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 13-16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Matters 17
</TABLE>
<PAGE> 3
Item 1. FINANCIAL STATEMENTS
GLOBENET INTERNATIONAL I, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 168,422 $ 94,630
Accounts receivable 83,667 27,030
Inventories 1,690,797 1,229,672
Prepaids and other 96,457 63,560
------------ ------------
Total current assets 2,039,343 1,414,892
Property & equipment, net 632,913 487,803
Goodwill, net 2,082,570 2,009,803
Other assets 157,054 54,995
------------ ------------
$ 4,911,880 $ 3,967,493
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 65,097 $ 63,833
Notes payable 223,864 65,199
Accounts payable 731,471 843,151
Accrued liabilities 989,721 591,890
------------ ------------
Total current liabilities 2,010,153 1,564,073
Long term debt, net of current portion 1,049,061 367,571
Note payable to shareholder -- 51,768
Shareholders' equity:
Common stock, $0.001 par value;
50,000,000 shares authorized;
12,220,185 and 12,101,905 shares
issued and outstanding, respectively 12,220 12,102
Paid in capital 9,370,730 9,303,610
Accumulated deficit (7,530,999) (7,333,212)
Cumulative translation adjustment 715 1,581
------------ ------------
1,852,666 1,984,081
------------ ------------
$ 4,911,880 $ 3,967,493
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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GLOBENET INTERNATIONAL I, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended June 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 3,464,508 $ 1,892,725
Cost of goods sold 843,110 490,241
------------ ------------
Gross margin 2,621,398 1,402,484
Operating expenses
Distributor commissions 1,266,877 735,032
Selling, general and administrative 1,553,155 602,139
------------ ------------
Total operating expenses 2,820,032 1,337,171
------------ ------------
Income (loss) before income taxes (198,634) 65,313
Provision for income taxes -- 7,520
------------ ------------
Net income (loss) $ (198,634) $ 57,793
============ ============
Income (loss) per share:
Weighted average common shares outstanding 12,175,736 11,007,613
Income (loss) per share $ (0.02) $ 0.01
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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GLOBENET INTERNATIONAL I, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Sales $ 6,232,555 $ 3,433,167
Cost of goods sold 1,581,428 1,007,543
------------ ------------
Gross margin 4,651,127 2,425,624
Operating expenses
Distributor commissions 2,257,095 1,215,883
Selling, general and administrative 2,591,819 1,139,343
------------ ------------
Total operating expenses 4,848,914 2,355,226
------------ ------------
Income (loss) before income taxes (197,787) 70,398
Provision for income taxes -- 12,339
------------ ------------
Net income (loss) $ (197,787) $ 58,059
============ ============
Income (loss) per share:
Weighted average common shares outstanding 12,138,821 10,756,678
Income (loss) per share $ (0.02) $ 0.01
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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GLOBENET INTERNATIONAL I, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1997 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (197,787) $ 58,059
Adjustment for non-cash items:
Depreciation and amortization 130,272 82,647
(Increase) decrease in accounts receivable (44,884) (49,499)
(Increase) decrease in inventory (354,208) (209,894)
(Increase) decrease in prepaids and other (33,223) (33,917)
(Increase) decrease in other assets (57,623) 85,350
Increase (decrease) in accounts payable
and accrued expenses 32,857 465,477
Increase (decrease) in notes payable (41,901) --
------------ ------------
Total cash provided by (used for) operating activities (566,497) 398,223
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (74,444) (66,102)
Proceeds from sale of equipment 15,000 1,050
Cash acquired by merger 61,694 --
------------ ------------
Total cash provided by (used for) investing activities 2,250 (65,052)
------------ ------------
Cash flows from investing activities:
Proceeds from private placement -- 162,500
Issuance of long term debt 725,000 --
Payments of long term debt and capital leases (36,802) (39,107)
Repayment of advances from shareholder (51,028) (162,729)
------------ ------------
Total cash provided by (used for) financing activities 637,170 (39,336)
------------ ------------
Effect of exchange rate changes on cash flows 869 (1,380)
------------ ------------
Net increase (decrease) in cash 73,792 292,455
Cash, beginning of period 94,630 74,703
------------ ------------
Cash, end of period $ 168,422 $ 367,158
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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GLOBENET INTERNATIONAL I, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The accompanying condensed consolidated financial statements were prepared by
management without audit. These financial statements have not been examined by
independent public accountants. Management believes that these financial
statements present fairly, in all material respects, the information set forth
therein. However, certain disclosures required by generally accepted
accounting principles have been omitted or condensed. These financial
statements should be read in conjunction with the Company's Form 10-K for the
year ended December 31, 1996, the Company's Form 10-Q for the quarter ended
March 31, 1997 and the Company's Form 8-K/A dated June 3, 1997.
NOTE 2 - BUSINESS HISTORY:
The Company was organized February 12, 1988, as a Delaware corporation under
the name Jason Ray Corporation. On July 1, 1988, the Company's name was
changed to Seven Oaks Farms, Ltd. and conducted operations that were ultimately
liquidated in 1991. The Company conducted no operating activities from 1991
through October 1995.
Effective November 1, 1995 the Company merged with Mighty Power USA, Inc.
(Mighty Power), an Oklahoma corporation in the development stage. Mighty Power
was being organized to distribute nutritional and food supplements through a
network of independent distributors. In connection with this merger the Company
changed its name to Mighty Power USA, Inc.
Effective April 1, 1997 the Company merged with GlobeNet Inc. (GNI), a Texas
corporation. In connection with this merger the Company changed its name to
GlobeNet International I, Inc.
Through its subsidiaries and licensees, GNI was engaged in the distribution of
personal and skin care products and nutritional supplements through a network
of independent distributors in the U.S., Canada, Sweden, Indonesia and Japan.
GNI conducted its U.S. operations through its wholly owned subsidiaries Royal
BodyCare, Inc. (RBC-US) and Arlington Laboratories, Inc. GNI conducted its
Canadian operations through wholly owned subsidiaries Royal BodyCare, Inc.
(Canada) (RBC-Canada) and Pure Life International Products, Inc. (Pure Life).
RBC-Canada and Pure Life are organized under the Canadian Business Corporation
Act. A subsidiary of the Company, Kalo Vita, Inc. (KV) filed for bankruptcy in
1994. The Company does not have control of this entity; therefore it is not
consolidated in these financial statements.
In addition to operations conducted by its subsidiaries, GNI also distributed
products through license arrangements with third parties in Sweden, Indonesia
and Japan.
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NOTE 3 - MERGER WITH GNI:
Effective April 1, 1997, the Company merged with GNI. Under the terms of the
merger agreements, the Company effected a reverse split of its common stock on
the basis of one share for every seven shares outstanding. GNI then exchanged
all of its outstanding common stock for 10,407,750 shares, or 86%, of the
Company's common stock. Of the shares that were transferred to the GNI,
7,866,323 shares were newly issued shares of the Company. The remaining
2,541,427 shares were transferred to GNI by certain shareholders of the
Company. In connection with this merger the Company changed its name to
GlobeNet International I, Inc.
This transaction, a purchase, was accounted for as a reverse merger with GNI
being the acquirer. Accordingly, GNI's historical financial statements are now
the Company's historical financial statements.
Concurrent with the merger, an affiliate of the Company, Great Xpectations
Marketing, Inc. (GXI), acquired all of the assets and liabilities of two other
affiliates of the Company, Health Thru Nature, Inc. (HTN) and Mighty Power USA,
L.C. (MPLC) for $100,000 in notes payable. The Company then purchased all of
the outstanding common stock of GXI for a $100,000 note payable.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the Mighty Power/GNI merger had occurred at the
beginning of periods presented, after including the impact of certain
adjustments including amortization of intangibles.
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 6,643,344 $ 5,805,027
Net income (loss) (173,702) 81,581
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results.
NOTE 4 - INVENTORIES:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- ------------------
<S> <C> <C>
Finished goods $ 1,190,085 $ 1,057,998
Packaging materials and other 500,712 171,674
------------ ------------
$ 1,690,797 $ 1,229,672
============ ============
</TABLE>
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NOTE 5 - GOODWILL:
Goodwill was recorded as a result of several acquisitions made by the Company
(including certain pre merger acquisitions by GNI):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------ -----------------
<S> <C> <C>
Pure Life $ 843,622 $ 843,622
Light Force, Inc. (Light Force) 1,407,623 1,407,623
HTN 51,511 --
GXI 79,170 --
------------ ------------
2,381,926 2,251,245
Less - accumulated amortization (299,356) (241,442)
------------ ------------
$ 2,082,570 $ 2,009,803
============ ============
</TABLE>
Goodwill is amortized over 20 years and is reviewed for impairment on an annual
basis.
NOTE 6 - NOTES PAYABLE:
In connection with the Company's acquisition of certain affiliates described in
Note 3, the Company issued or assumed no interest notes payable aggregating
$200,000. $100,000 of these notes are due August 31, 1997 with the remainder
due September 30, 1997.
Also included in notes payable are short term borrowings under a line of credit
arrangement between RBC-Canada and a Canadian bank. The line of credit
arrangement is renewable on an annual basis and borrowings thereunder bear
interest at 10% per annum.
NOTE 7 - ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Distributor commissions $ 463,486 $ 386,263
Sales tax 207,605 30,164
Accrued payroll expenses 114,060 46,232
Accrued marketing expenses 59,226 12,964
Other 145,344 116,267
------------ ------------
$ 989,721 $ 591,890
============ ============
</TABLE>
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<PAGE> 10
NOTE 8 - LONG TERM DEBT:
Long term debt consists of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Convertible notes $ 583,000 $ --
Note payable - former KV shareholder 250,000 250,000
Notes payable - banks 59,894 62,381
Notes payable 108,351 --
Debentures 25,000 50,000
Capital leases 87,913 69,023
------------ ------------
1,114,158 431,404
Less - current portion (65,097) (63,833)
------------ ------------
$ 1,049,061 $ 367,571
============ ============
</TABLE>
In the first quarter of 1997, GNI sold convertible notes to certain
individuals, principally shareholders, foreign affiliates and distributors.
Aggregate proceeds from the sale of the notes was $740,000, including the
exchange of a $25,000 debenture for a $25,000 convertible note as described
below. The convertible notes bear interest at 10%, payable quarterly, and are
due two years from the date of issuance. In accordance with the terms of the
merger agreements, these notes are convertible into common stock of the Company
at any time prior to maturity at the option of the holder based on a per share
conversion price of $1.32, adjusted for the effect of the merger and reverse
stock split. As of June 30, 1997, $157,000 of these notes had been converted
into 118,280 shares of the Company's common stock.
In connection with the acquisition of KV in November 1994, the former owner of
KV advanced to RBC-US $250,000 under a one-year note which, in December 1995,
was converted to a four-year note payable interest only on a monthly basis
until its maturity in December 1999, at which time all principal and unpaid
interest is due. Interest accrues on this note at the rate of 12.5% per annum
and the note is personally guaranteed by the Company's president.
Included in notes payable - banks are two notes. One note is a five year bank
note assumed as part of the Light Force acquisition in June 1996. The interest
rate of this note is prime plus 3%. The second note is a note made in January
1995 by RBC-Canada whereby it borrowed funds for a three-year term payable in
monthly principal installments of $600, plus interest, with interest calculated
at prime plus 1.5%. Proceeds of this borrowing were used to purchase leasehold
improvements at RBC-Canada's office/warehouse facility in Vancouver, B.C.,
Canada.
In October 1995 the Company issued one year notes payable which were amended to
be three year notes due October 31, 1999. These notes bear interest at 12% per
annum, payable quarterly.
In 1994, RBC-US sold two debentures in the amount of $25,000 each, the proceeds
of which were used for working capital. The principal portion of these
debentures is due
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<PAGE> 11
upon maturity in 1998. Interest on the debentures is payable monthly at a rate
of 15% for one debenture and 10% for the other. The 15% debenture was exchanged
for a convertible note in the first quarter of 1997.
NOTE 9 - SHAREHOLDERS' EQUITY:
In 1996, as adjusted for the effect of the merger and reverse stock split, GNI
sold 271,200 shares of common stock through a private placement offering at a
per share price of $1.11. The proceeds were used to pay accounts payable, to
repay a portion of the note to shareholder and for international expansion.
Following is a schedule of the restatement of shareholders' equity that
resulted from the reverse merger:
<TABLE>
<CAPTION>
Cumulative Total
Common Paid In Accumulated Translation Shareholders'
Stock Capital Deficit Adjustment Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances, Dec. 31,1996 $ 29,650 $ 170,650 $ (314,869) $ -- $ (114,569)
Net Income -- -- 24,808 -- 24,808
------------ ------------ ------------ ------------ ------------
Balances, Mar. 31, 1997 29,650 170,650 (290,061) -- (89,761)
Reverse split of
common stock (25,414) 25,414 -- -- --
Reverse merger 7,866 9,017,784 (7,043,151) 673 1,983,172
------------ ------------ ------------ ------------ ------------
Balances, Mar. 31, 1997
(adjusted for the reverse
stock split and
reverse merger) 12,102 9,213,848 (7,333,212) 673 1,893,411
Conversion of
convertible notes 118 156,882 -- -- 157,000
Net loss -- -- (197,787) -- (197,787)
Translation adjustment -- -- -- 42 42
------------ ------------ ------------ ------------ ------------
Balances, June 30, 1997 $ 12,220 $ 9,370,730 $ (7,530,999) $ 715 $ 1,852,666
============ ============ ============ ============ ============
</TABLE>
Shareholders' equity balances at December 31, 1996 have been restated to reflect
the effect of the reverse stock split and reverse merger.
NOTE 10 - INCOME TAXES:
The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". The Statement requires the use of an asset and
liability approach for the accounting and financial reporting of income taxes.
No deferred tax asset has
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<PAGE> 12
been recognized for the Company's operating loss carryforwards as there is no
assurance that the Company will be able to recognize the benefit in future
periods.
The Company files a consolidated tax return with its subsidiaries. Deferred
income taxes are the result of temporary differences between the amount of
assets and liabilities recognized for financial reporting and tax purposes for
the Company's Canadian subsidiaries.
NOTE 11 - NON-CASH INVESTING AND FINANCING ACTIVITIES:
Following is a summary of assets and liabilities acquired in connection with
the Company's reverse merger with GNI and its acquisition of three affiliates
(described in Note 3) through the issuance of a total of $200,000 in notes
payable.
<TABLE>
<S> <C>
Cash $ 61,694
Accounts receivable 11,762
Inventory 110,153
Property and equipment 119,069
Distributor list and other 40,515
Goodwill 130,680
Accounts payable and accrued liabilities 255,284
Notes payable 200,000
Long term debt 108,351
</TABLE>
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<PAGE> 13
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
BACKGROUND
As described in Notes 2 and 3 to the Condensed Consolidated Financial
Statements included elsewhere in the report, effective April 1, 1997 the
Company merged with GlobeNet Inc. (GNI), a Texas corporation. This transaction,
a purchase, was accounted for as a reverse merger with GNI being the acquirer,
although legally, the Company was the survivor. Because the transaction was
accounted for as a reverse merger, GNI's historical financial statements are
now the historical financial statements of the Company. In connection with the
merger, the Company's name was changed to GlobeNet International I, Inc.
(GNII).
GNI was a holding company that, through its subsidiaries and licensees, engaged
in the international distribution of personal care and skin care products and
nutritional supplements through a network of independent distributors (the RBC
operations). RBC's U.S. operations are conducted principally by Royal Bodycare,
Inc. (RBC-US) while RBC's Canadian operations are conducted principally by
Royal Bodycare, Inc. (Canada) (RBC-Canada). RBC also distributes its product
line through third party licensees in Sweden, Indonesia and Japan.
Concurrent with the merger, an affiliate of the Company, Great Xpectations
Marketing, Inc. (GXI) acquired all of the assets and liabilities of two other
affiliates. The Company then purchased all of the outstanding common stock of
GXI and transferred its pre merger operations to GXI (the GXI operations).
RESULTS OF OPERATIONS
Quarter Ended June 30, 1997 Compared with the Quarter Ended June 30, 1996
Sales for the quarter ended June 30, 1997 were $3,465,000 compared with same
quarter sales in the prior year of $1,893,000, an increase of $1,572,000 or
83%. This increase was attributable to the addition of GXI sales resulting
from the merger which amounted to $467,000 and an increase in RBC sales of
$1,105,000. The increase in RBC sales was mainly the result of (i) U.S. sales
associated with the acquisition of the operations of Light Force, Inc. (Light
Force) in June 1996, (ii) growth in RBC's independent distributor base in the
U.S. and Canada and (iii) the addition of KV's distributor base to RBC's U.S.
operations in October 1996. KV is a subsidiary of the Company that was
acquired in November 1994 and then filed bankruptcy shortly thereafter. Prior
to October 1996, sales generated by KV's distributors and a proportionate
amount of operating expenses were recorded as sales and expenses of KV. Upon
approval of a plan of liquidation for KV by the Court in September 1996, the
sales generated by KV's distributor base and related expenses became part of
RBC operations. Operations of KV as a separate company are not consolidated in
the Company's financial statements because the Company did not have control of
this entity.
Cost of goods sold for the quarter ended June 30, 1997 was $843,000 compared
with same
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<PAGE> 14
quarter cost of goods sold in the prior year of $490,000, an increase of
$353,000 or 72%. As a percentage of sales, cost of goods sold in the second
quarter of 1997 was 24.3% compared with 25.9% in the second quarter of 1996.
The improvement in cost of goods sold as percentage of sales in 1997 was due to
the decline, as a percentage of total sales, of export sales to RBC's licensees
in the second quarter of 1997. Export sales have a higher cost of goods sold
as a percentage of sales since the Company does not pay distributor commissions
on these sales. In addition the Company realized some improvement in gross
margin due to increased volumes.
Distributor commissions for the quarter ended June 30, 1997 were $1,267,000
compared with same quarter distributor commissions in the prior year of
$735,000, an increase of $532,000 or 72%. As a percentage of sales, distributor
commissions in the second quarter of 1997 were 36.6% compared with 38.8% in the
second quarter of 1996. The decline in distributor commissions as a percentage
of sales was mainly due to the addition of the Light Force product line in June
1996. A significant portion of the Light Force product line pays a lower
commission rate (relative to the product sales price) than other RBC products.
Selling, general and administrative expenses (S,G&A) for the quarter ended June
30, 1997 were $1,553,000 compared with same quarter S,G&A in the prior year of
$602,000, an increase of $951,000 or 158%. As percentage of sales, S,G&A in
the second quarter of 1997 was 44.8% compared with 31.8% in the second quarter
of 1996. The increase in S,G&A was attributable to the addition of GXI S,G&A
resulting from the merger which amounted to $182,000 and an increase in S,G&A
related to RBC operations of $769,000. The increase in RBC S,G & A was due to
the addition of S,G&A expenses related to KV (as described above) and costs
associated with an intensive distributor recruiting effort which began in the
first quarter of 1997. This recruiting effort resulted in the addition of a
significant number of new distributors to the Company's active distributor
base. The Company also incurred additional S,G&A to upgrade internal systems
and increase personnel to support the additional distributors and related sales
growth. The Company began to experience increased sales in the second quarter
from the addition of these new distributors and expects this sales growth to
continue in future periods.
Net loss for the quarter ended June 30, 1997 was $199,000, or $.02 per share,
compared with same quarter net income in the prior year of $58,000, or $.01 per
share. The Company incurred a net loss in the second quarter of 1997 primarily
due to the expenses incurred to attract new distributors and to set up internal
systems and staffing required to support anticipated sales growth. The Company
believes that these investments will result in an increase in sales and
earnings that will more than justify the expense.
Six Months Ended June 30, 1997 Compared with the Six Months Ended June 30, 1996
Sales for the six months ended June 30, 1997 were $6,233,000 compared with
sales in the same period of the prior year of $3,433,000, an increase of
$2,800,000 or 82%. This increase was attributable to the addition of GXI sales
resulting from the merger which amounted to $467,000 and an increase in RBC
sales of $2,333,000. The increase in RBC sales was mainly the result of (i)
U.S. sales associated with the acquisition of the operations of Light Force,
Inc.
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<PAGE> 15
(Light Force) in June 1996, (ii) growth in RBC's independent distributor base
in the U.S. and Canada and (iii) the addition of KV's distributor base to RBC's
U.S. operations in October 1996, as described above.
Cost of goods sold for the six months ended June 30, 1997 was $1,581,000
compared with cost of goods sold in the same period of the prior year of
$1,008,000, an increase of $573,000 or 57%. As a percentage of sales, cost of
goods sold in the first six months of 1997 was 25.4% compared with 29.3% in the
first six months of 1996. The improvement in cost of goods sold as percentage
of sales in 1997 was due to the decline in export sales to RBC's licensees in
the first six months of 1997. Export sales have a higher cost of goods sold as
a percentage of sales since the Company does not pay distributor commissions on
these sales. In addition the Company realized some improvement in gross margin
due to increased volumes.
Distributor commissions for the six months ended June 30, 1997 were $2,257,000
compared with distributor commissions in the same period of the prior year of
$1,216,000, an increase of $1,041,000 or 86%. As a percentage of sales,
distributor commissions in the first six months of 1997 were 36.2% compared
with 35.4% in the first six months of 1996. The increase in distributor
commissions as a percentage of sales was mainly due to the decline in export
sales to RBC's licensees in the first six months of 1997. The Company does not
pay distributor commissions on these sales.
Selling, general and administrative expenses (S,G&A) for the six months ended
June 30, 1997 were $2,592,000 compared with S,G&A in the same period of the
prior year of $1,139,000, an increase of $1,453,000 or 128%. As percentage of
sales, S,G&A in the first six months of 1997 was 41.6% compared with 33.2% in
the first six months of 1996. The increase in S,G&A was attributable to the
addition of GXI S,G&A resulting from the merger which amounted to $182,000 and
an increase in S,G&A related to RBC operations of $1,271,000. The increase in
RBC S,G&A was due to the addition of S,G&A expenses related to KV (as described
above) and costs associated with an intensive distributor recruiting effort
which began in the first quarter of 1997. This recruiting effort resulted in
the addition of a significant number of new distributors to the Company's
active distributor base. The Company also incurred additional S,G&A to upgrade
internal systems and increase personnel to support the additional distributors
and related sales growth. The Company began to experience increased sales in
the second quarter from the addition of these new distributors and expects this
sales growth to continue in future periods.
Net loss for the six months ended June 30, 1997 was $198,000, or $.02 per
share, compared with net income in the same period of the prior year of
$58,000, or $.01 per share. The Company incurred a net loss in the first six
months of 1997 primarily due to the expenses incurred to attract new
distributors and to set up internal systems and staffing required to support
anticipated sales growth. The Company believes that these investments will
result in an increase in sales and earnings that will more than justify the
expense.
There have been no economic events or changes that have effected the sales or
operating results of the Company and the Company is not aware of any economic
trends or uncertainties that the would have a material impact on future sales
or the operating results. The Company believes that it has purchased its
products at the best price available and that any price
-15-
<PAGE> 16
increases in the foreseeable future will be small. Any such price increases
would be passed through to the Company's customers. In addition, the Company
does not believe at this time that inflation will have a material impact on its
operating results.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1997, the Company had a net increase in cash of
$74,000. This increase in cash resulted primarily from net cash provided by
investing activities of $637,000 that was partially offset by the net cash used
by operations of $566,000. The net cash provided by investing activities came
from the Company's sale of 10%, two year convertible notes that raised $740,000
in the first quarter of 1997. The net cash used by operations was primarily
the result of cash used to fund the Company's $198,000 net loss and the
$354,000 increase in inventory. The Company increased its inventory to help
insure adequate product availability to supply its anticipated sales growth.
Consistent with industry practice, most of the Company's sales are paid at the
time of order. Therefore, the Company's primary working capital need is to
fund the increases in inventory necessary to support sales growth. Because the
Company's sales are generated through independent distributors who do not
maintain a significant inventory, it is necessary for the Company to have
products on hand when the distributors place their orders. During periods of
sales growth, the Company must purchase the inventory in anticipation of sales
which creates the need for additional working capital.
The Company believes that it will be able to fund a moderate sales increase
through its operations. Should sales growth increase beyond the Company's
ability to finance its growth internally, the Company would seek outside
sources of capital including bank borrowings, other types of debt financing or
an equity offering. There is no assurance, however, that the Company would be
able to obtain any outside financing.
The Company has no plans or requirements for any significant capital
expenditures during the next twelve months. Other than those factors already
described, the Company is not aware of any trends or uncertainties that would
significantly effect its liquidity or capital resources in the future.
-16-
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has continued to pursue an end to an outstanding legal
claim in which the Company is a defendant. The Registrant believes that the
suit is without merit and that the likelihood of any loss to the Company is
remote.
Item 2 Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
None
-17-
<PAGE> 18
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.
Globenet International I, Inc.
---------------------------------------
Registrant
By: /s/ CLINTON H. HOWARD
------------------------------------
Clinton H. Howard
Its: President
DATE: August 19, 1997
Dallas, Texas
-18-
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 168,422
<SECURITIES> 0
<RECEIVABLES> 83,667
<ALLOWANCES> 0
<INVENTORY> 1,690,797
<CURRENT-ASSETS> 2,039,343
<PP&E> 632,913
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,911,880
<CURRENT-LIABILITIES> 2,010,153
<BONDS> 1,049,061
0
0
<COMMON> 12,220
<OTHER-SE> 1,840,446
<TOTAL-LIABILITY-AND-EQUITY> 4,911,880
<SALES> 6,232,555
<TOTAL-REVENUES> 6,232,555
<CGS> 1,581,428
<TOTAL-COSTS> 1,581,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (197,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (197,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,787)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
