U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT.
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 33-21443
GLOBALNET FINANCIAL.COM, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1489574
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
7284 W. PALMETTO PARK ROAD, SUITE 210, BOCA RATON, FL 33433
-----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(561) 417-8053
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ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
7280 W. PALMETTO PARK ROAD, SUITE 202, BOCA RATON, FL 33433
-----------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMAL FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE EXCHANGE ACT 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 [ ]
THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY AS OF NOVEMBER 2, 1999 WAS AS FOLLOWS: 11,358,515 SHARES OF COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [ ] NO [X]
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The interim financial statements required by this Item are included in this
quarterly report on Form 10-QSB immediately following the signature page hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is rapidly becoming an international leader in providing financial
information and services designed to encourage online transaction executions.
The Company's business strategy is to build a pan-European family, or investment
portal of individual "money channels" within leading Internet Service Providers
enabling the Company to leverage its unique collection of financial content and
services through exclusive access to a broad segment of the local online
investment community. The Company then plans to provide online trading and
executions services to visitors of its websites through joint ventures in which
the Company maintains a significant equity ownership.
The Company's money channels provide, in local market language, financial news,
investment and analytical tools, such as realtime stock quotes, performance
graphs, investment ideas, analysts' recommendations from local market experts
and interviews with mutual fund managers and company executives. The Company
currently owns and operates three money channels, UK-iNvest.com, housed within
Freeserve plc, which is the UK's largest ISP; Italia-iNvest.com, in partnership
with the owners of Virgilio, Italy's largest search engine; and
America-iNvest.com, a US equity site with special expertise in the small
capitalization market. The Company is currently developing money channels to be
housed within WorldOnline ISPs in France, Germany, Holland and Denmark. World
Online is one of the largest pan-European ISP which, in aggregate, receives
approximately 160 million monthly page views.
On October 19, 1999, the Company launched its first joint venture which provides
online foreign exchange trading, to be marketed on a global basis through the
Company's money channels and websites of its marketing partners. In addition,
the Company has entered into joint ventures to offer equity securities trading
for the UK, US and Canada, clearing services for online trading firms in the UK
and other online trading ventures for insurance and other products. Each of
these joint ventures is anticipated to commence operations within the next four
months.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements which represent the
Company's expectation or beliefs, including statements regarding, among other
things, (i) the Company's growth strategy or potential, (ii) anticipated trends
in the Company's businesses, (iii) the Company's ability to compete with its
competitors and (iv) the Company's profitability and projected financial
condition. Any statements contained in this quarterly report that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect," "plan,"
"believe," "anticipate," "intent," "estimate" or "continue," the negative
statements are based upon management's beliefs at the time they are made as well
as assumptions made by management based upon information available to it. The
current assumptions regarding the Company's operations, performance, development
and results of its business include (i) the accuracy of estimates of anticipated
increases in the Company's expenses due to implementation of the Company's
business plan, (ii) the ability to attract subscribers and investor relations
clients to its web site, (iii) the maintenance of market conditions affecting
the Company's services, and (iv) appropriate regulatory approvals for certain
corporate actions. Forward-looking statements are inherently subject to various
risks and uncertainties, including those described above, as well as potential
changes in economic or regulatory conditions that are largely beyond the
Company's control. Should one or more of these risks materialize or changes
occur, or should management's assumptions prove to be incorrect, the Company's
actual results may materially vary from those anticipated or projected.
2
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
OPERATING REVENUE
Advertising revenue from the Company's websites increased to $139,822 for the
three months ended September 30, 1999 from $0 for the comparable period a year
earlier. Advertising revenue primarily relates to the Company's UK-iNvest.com
website. Investment banking consulting fees decreased by $111,631 to $0 for the
three months ended September 30, 1999 from $111,631 for the comparable period a
year earlier. The decrease is the result of the Company's shift away from
investment banking activities. Further, private placement fees decreased by
$8,085 to $102,000 from $110,085 for the period one year earlier.
The Company reported revenue from realized and unrealized gains on marketable
and not readily marketable securities of $96,329 for the quarter ending
September 30, 1999, an increase of $363,866, compared to a loss of $267,537
during the same period in 1998. This increase was primarily related to realized
gains on sales of not readily marketable securities during the third quarter of
1999 compared to unrealized losses resulting from the mark to market of
International Capital Growth's (ICG) portfolio of securities in 1998. Interest
income increased by $156,412 to $165,107 as compared to $8,695 during the same
quarter in 1998, due to an increase in interest bearing cash accounts held by
the Company in 1999.
OPERATING EXPENSES
Cost of advertising revenue increased by $75,462 for the three months ended
September 30, 1999 from $0 for the comparable period a year earlier. Cost of
advertising revenue consists of commissions on the advertising revenue generated
by the Company's website, UK-iNvest.com, payable to the Company's advertising
agency, as well as revenue sharing costs to the Company's partner, Freeserve.
Commission expense on private placement fee revenue increased by $30,514 to
$42,000 for the three months ended September 30, 1999 from $11,486 for the
comparable period in 1998.
General and administrative expenses increased by $2,666,483 to $3,334,197 for
the three months ended September 30, 1999 compared to $667,714 during the same
period in 1998. The dramatic increase is the result of the shift in the
Company's business focus to internet website publishing, which has included a
significant increase in the number of Company employees, increased rent expense
related to the Company's office space in both the U.S. and the U.K., advertising
and promotional costs related to launching the Company's new websites and
professional fees incurred in setting up the Company's new websites and joint
ventures with various strategic partners in the U.S., U.K. and Europe. The
Company incurred approximately $300,000 during the quarter in legal and
accounting fees in conjunction with both a registration statement in the U.S. as
well as several joint ventures.
Non-cash compensatory and licensing expense increased to $1,219,474 during the
three month period ending September 30, 1999 compared to $0 during the three
month period ending September 30, 1998 which was primarily the result of the
Company utilizing stock and warrants to compensate some of its advisors and
consultants. Depreciation and amortization expense increased by $420,925 to
$465,033 during the three months ended September 30, 1999 compared to $44,108
during the same period in 1998. The increase is primarily related to the
amortization of the Company's licensing and promotion agreements.
Equity in earnings (loss) of unconsolidated companies and joint ventures
decreased by $20,581 for the three months ended September 30, 1999, from $0 for
the comparable quarter in 1998, to a loss of $20,581 in 1999. The quarter's
decrease was due to losses from the Company's ownership interest in MatchbookFX
and UK Online Clearing and Brokerage. Both of these investments are in the
start-up stages and only incurred expenses during the quarter.
The Company's total operating expenses, including $1,219,474 in non-cash
compensatory and licensing expense, increased by $4,412,439, to $5,156,747 as
compared to $723,308 during the comparable quarter in 1998.
NET LOSS
The Company's net loss for the three months ended September 30, 1999 increased
by $3,893,055 from a net loss of $760,434 for the three months ended September
30, 1998 to a net loss of $4,653,489 for the three months ended September 30,
1999. This increase was due to the shift in business focus and the start-up
costs for the Company's U.S. website (www.america-invest.com), the Company's
U.K. website (www.ukinvest.com) and the Company's Italian website
(www.italia-invest.com) and subsequent website development costs.
3
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 TO
NINE MONTHS ENDED SEPTEMBER 30, 1998
OPERATING REVENUE
Advertising revenue from the Company's websites increased by $193,157 to
$193,157 for the nine months ended September 30, 1999 from $0 for the comparable
period a year earlier. Advertising revenue primarily relates to the Company's
UK-iNvest.com website. Investment banking consulting fees decreased by $349,028
to $0 for the nine months ended September 30, 1999 from $349,028 for the
comparable period a year earlier. The decrease is the result of the Company's
shift away from investment banking activities. Further, private placement fees
decreased by $419,248 to $489,482 from $908,730 for the period one year earlier.
Despite the Company's lack of focus on investment banking, it closed two
transactions in 1999, the largest of which closed in the second quarter of 1999
for which the work was completed in late 1998.
The Company reported revenue from realized and unrealized gains on marketable
and not readily marketable securities of $1,323,008 for the nine months ending
September 30, 1999, an increase of $1,825,219, compared to a loss of $502,211
during the same period in 1998. This increase was primarily related to
unrealized gains resulting from the mark to market of ICG's portfolio of
securities during the nine months ended September 30, 1999. Interest income
increased by $288,502 to $308,884 as compared to $20,382 during the comparable
year-to-date period in 1998, due to an increase in interest bearing cash
accounts held by the Company in 1999.
OPERATING EXPENSES
Cost of advertising revenue increased by $97,249 for the nine months ended
September 30, 1999 from $0 for the comparable period in 1998. Cost of
advertising revenue consists of commissions on the advertising revenue generated
by the Company's website, UK-iNvest.com, payable to the Company's advertising
agency, as well as revenue sharing costs to the Company's partner, Freeserve.
Commission expense on private placement fee revenue increased by $189,592 to
$217,000 for the nine months ended September 30, 1999 from $27,408 for the
comparable period.
General and administrative expenses increased by $4,698,989 to $6,518,691 for
the nine months ended September 30, 1999 compared to $1,819,702 for the same
period in 1998. The dramatic increase is the result of the shift in the
Company's business focus to internet website publishing, which has included a
significant increase in the number of Company employees, increased rent expense
related to the Company's office space in both the U.S. and the U.K., advertising
and promotional costs related to launching the Company's new websites, travel
costs and professional fees incurred in setting up the Company's new websites
and joint ventures with various strategic partners in the U.S., U.K. and Europe.
The Company incurred approximately $300,000 during the third quarter in legal
and accounting fees in conjunction with both a registration statement in the
U.S. as well as several joint ventures.
Non-cash compensatory and licensing expense increased to $4,680,249 during the
nine month period ended September 30, 1999 compared to $0 during the same period
in 1998 which was primarily the result the Company utilizing stock and warrants
to compensate some of its advisors and consultants. The largest of these
licensing agreements are with Telescan Inc. and Freeserve, for which the Company
issued equity securities and is amortizing the value of such securities over the
terms of the agreements.
Most significantly, the Company recorded a non-recurring, non-cash compensatory
charge for options issued for investor relations services of $920,746.
Depreciation and amortization increased by $846,632 to $920,805 during the nine
months ended September 30, 1999 compared to $74,173 during the comparable period
in 1998. The increase is primarily related to the amortization of the Company's
licensing and promotion agreements.
Equity in earnings (loss) of unconsolidated companies and joint ventures
decreased by $40,488 for the nine months ended September 30, 1999, from a loss
of $61,069 for the comparable year-to-date period in 1998, to a loss of $20,581
for the year-to-date period in 1999. The decrease for the nine month period
ended September 30, 1999 was due to the larger write-down of the Company's
investment in an unconsolidated affiliate, Capital Growth Europe (CGE), in the
nine months ended September 30, 1998, offset by the gain on sale of CGE in 1998.
The losses in 1999 result from the Company's ownership interest in MatchbookFX
and UK Online Clearing and Brokerage, both of which are in the start-up stages
and only incurred expenses during the year-to-date period ended September 30,
1999.
The Company's total operating expenses, including $4,680,249 in non-cash
compensatory and licensing expense and $920,746 in non-recurring, non-cash
compensatory expense, increased by $11,392,969, to $13,375,321 as compared to
$1,982,352 during the comparable period in 1998.
4
<PAGE>
NET LOSS
The Company's net loss for the nine months ended September 30, 1999 increased by
$9,854,367 from a net loss of $1,206,423 for the nine months ended September 30,
1998 to a net loss of $11,060,790 for the nine months ended September 30, 1999.
This increase was due to the shift in business focus and the start-up costs for
the Company's U.S. website (www.america-invest.com), the Company's U.K. website
(www.ukinvest.com) and the Company's Italian website (www.italia-invest.com) and
subsequent website development costs.
LIQUIDITY AND CAPITAL RESOURCES
The implementation of the business plan is capital intensive as a result of the
costs incurred in launching financial oriented sites in new countries. In order
to reduce these costs, the Company seeks to partner with and receive investments
from strategic investors.
Net cash used in operating activities increased by $8,936,832 to $9,647,021 for
the nine months ended September 30, 1999 from $710,189 in the comparable nine
month period in 1998, due to lower earnings resulting from increased
expenditures relating to the shift in business focus and the start-up costs for
the Company's internet financial websites. Net cash provided by investing
activities decreased $3,567,174 from $623,878 in 1998 to net cash used of
$2,943,296 for the nine months ended September 30, 1999. The decrease was
largely due to investments in unconsolidated companies and joint ventures, such
as MatchbookF/X, UK Online Brokerage and Clearing, Insurance City and
Italia-iNvest.com (see Note 11 to the accompanying financial statements). Net
cash provided by financing activities increased by $24,650,096 to $26,265,111
for the nine months ended September 30, 1999 from $1,615,015 in the comparable
nine month period in 1998. Capital has been provided by the investments made by
the initial stockholder group and through private placements of the Company's
securities.
In February 1999, the Company raised net proceeds of approximately $2,479,400 in
a private placement of 429,234 shares. In April 1999, the Company raised net
proceeds of approximately $4,650,000 in a private placement of 416,667 shares
with an Italian Investment Consortium that became partners with the Company in
Italia-iNvest.com. In May 1999, the Company received $14,765,338 from Freeserve,
Ltd. which represented the purchase of 1,063,779 shares of common stock at
$12.00 per share and the exercise of a previously issued warrant for 333,333
shares of common stock at $6.00 per share. In May 1999, the Company raised an
additional $897,000 in a private placement of 74,750 shares of Common Stock. In
June 1999, the Company raised an additional $500,000 in a private placement of
41,667 shares of common stock. In June 1999, the Company received $2.5 million
from First Marathon which represented the purchase of 208,334 shares of common
stock. In August 1999, Freeserve purchased an additional 31,250 shares of common
stock for $375,000. The proceeds are being held for additional investment in
America-iNvest.com, UK-iNvest.com and Italia-iNvest.com, as well as to fund
additional websites that the Company anticipates launching and for future
working capital.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs and other business
systems being written using two digits rather than four to represent the year.
Many of the Company's time-sensitive applications and business systems, as well
as vendor third party systems may recognize a date using "00" as the year 1900
rather than the Year 2000, which could result in system failure or disruption of
operations. The Company has made an assessment of the Year 2000 exposure and the
plans to resolve the related issues are being implemented. The Company believes
it will be able to achieve Year 2000 compliance in a timely manner. The Company
also believes that it will satisfactorily resolve all significant Year 2000
problems and that the related costs will not be material. Estimates of Year 2000
related costs are based on numerous assumptions, including the continued
availability of certain resources, the ability to correct all relevant
applications and third party remediation plans. There is no guarantee that the
estimates will be achieved and actual costs could differ materially from those
anticipated.
VARIABILITY OF RESULTS
The Company anticipates that its future financial results will vary
dramatically. This is the result of the start-up and uncertain nature of
America-iNvest.com, UK-iNvest.com and Italia-iNvest.com, as well as the other
web sites and online transaction joint ventures the Company anticipates
launching.
5
<PAGE>
PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On October 12, 1997, all of the Company's 4,001,334 shares of Series A Preferred
Stock and 1,080,000 shares of Series B Preferred Stock automatically converted
on a one-for-one basis into shares of the Company's Class B Common Stock.
Pursuant to the terms of the Certificates of Designation of such preferred
stock, the former holders thereof are entitled to 5% per share annual cumulative
dividends prior to payment of dividends on any other class of capital stock of
the Company. The cumulative dividends on such preferred stock have accrued from
October 12, 1996 through October 12, 1997 and were due and payable on a
quarterly basis commencing December 31, 1996 and on October 24, 1997, ten
business days after the conversion thereof. The aggregate amount of such
arrearage owed by the Company to the former holders of such preferred stock is
$38,154 as of October 12, 1997 and as of the date hereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
for which this report was filed.
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.
GLOBALNET FINANCIAL.COM, INC.
Date: November 15, 1999 BY: /S/ RONALD B. KOENIG
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Ronald B. Koenig
Chairman
Date: November 15, 1999 BY: /S/ MICHAEL S. JACOBS
-------------------------
Michael S. Jacobs
Senior Vice President
(Chief Accounting Officer)
6
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 15,616,568 $ 1,941,774
Restricted cash 106,077 104,664
Accounts receivable 257,183
Due from broker 247,593 44,930
Securities owned at market value 1,141,815 552,719
Securities not readily marketable, at fair value 10,365,246 132,492
Prepaid expenses and other current assets 596,558 61,438
------------ ------------
Total Current Assets 28,331,040 2,838,017
Equity in unconsolidated companies and joint ventures 2,456,142
Investments at cost 457,000
Licensing and promotion agreements, net 2,065,412 354,726
Other assets 317,209 22,154
Fixed assets, net 469,055 290,113
Goodwill, net 71,631
------------ ------------
Total $ 34,167,489 $ 3,505,010
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 799,782 $ 607,656
Dividends payable - preferred stockholders 38,154 38,154
Dividends payable - common stockholders 572,625
Deferred revenue 5,000
------------ ------------
Total Liabilities 837,936 1,223,435
Stockholders' equity:
Preferred Stock - $.001 par value; 20,000,000 shares
authorized, none outstanding
Class B Common Stock - $.001 par value; 25,000,000
authorized, none outstanding
Common Stock - $.001 par value, 16,666,667
shares authorized; 11,270,479 and 7,389,650 issued
as of 9/30/99 and 12/31/98, respectively 11,272 7,390
Additional paid in capital 59,712,970 8,889,809
Accumulated deficit (17,358,911) (6,298,121)
Unearned compensatory and licensing costs (8,727,487) (276,253)
Accumulated other comprehensive loss (278,291) (11,250)
Treasury stock, at cost, 2,500 shares (30,000) (30,000)
------------ ------------
Total Stockholders' Equity 33,329,553 2,281,575
------------ ------------
Total $ 34,167,489 $ 3,505,010
============ ============
</TABLE>
See "Notes to Consolidated Financial Statements."
F-1
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating Revenue
Advertising $ 139,822 $ 193,157
Consulting fees $ 111,631 $ 349,028
Private placement fees 102,000 110,085 489,482 908,730
Net realized and unrealized gains (losses) on
marketable and not readily marketable securities 96,329 (267,537) 1,323,008 (502,211)
Interest income 165,107 8,695 308,884 20,382
------------ ------------ ------------ ------------
Total operating revenue 503,258 (37,126) 2,314,531 775,929
Operating expenses
Cost of advertising revenue 75,462 97,249
Commission 42,000 11,486 217,000 27,408
General and administrative 3,334,197 667,714 6,518,691 1,819,702
Non-cash compensatory and licensing expenses 1,219,474 4,680,249
Non-recurring, non-cash compensatory expense 920,746
Depreciation and amortization 465,033 44,108 920,805 74,173
Equity in loss of unconsolidated
companies and joint ventures 20,581 20,581 61,069
------------ ------------ ------------ ------------
Total operating expenses 5,156,747 723,308 13,375,321 1,982,352
------------ ------------ ------------ ------------
Net loss $ (4,653,489) $ (760,434) $(11,060,790) $ (1,206,423)
============ ============ ============ ============
Basic and diluted loss per share $ (0.42) $ (0.20) $ (1.15) $ (0.37)
============ ============ ============ ============
Weighted average common shares outstanding
basic and diluted 11,178,466 3,857,036 9,618,480 3,302,416
------------ ------------ ------------ ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 30, 1999 SEPT. 30, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,060,790) $ (1,206,423)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 920,805 74,173
Equity in loss of unconsolidated companies and joint ventures 20,581 65,000
Gain on sale of unconsolidated affiliate (3,931)
Receipt of securities in payment of fees (187,500)
Realized gain (953,760) (272,863)
Change in unrealized appreciation/depreciation of securities (367,281) 775,074
Compensation to consultants paid with stock and options 5,600,995
Other items 92,752
Changes in:
Accounts receivable (257,183)
Due from broker (202,663) 228,201
Prepaid expenses and other current assets (535,120) 1,845
Licensing and other assets (2,797,758) (20,000)
Accounts payable and accrued expenses (102,599) (113,284)
Deferred revenue (5,000) (50,481)
------------ ------------
Net cash (used in) operating activities (9,647,021) (710,189)
Cash flows from investing activities:
Additions to fixed assets (357,070) (3,640)
Proceeds from sale of securities 522,437 476,446
Proceeds from sale of unconsolidated affiliate 3,931
Advances to unconsolidated affiliate 209,000
Investment in restricted cash (1,413) (1,859)
Investment in securities (180,000) (60,000)
Investment in unconsolidated companies and joint ventures (2,476,723)
Acquisition of other investments (457,000)
Acquisition of UK-iNvest.com Limited, net of $47,723 cash
received 6,473
------------ ------------
Net cash (used in) provided by investing activities (2,943,296) 623,878
Cash flows from financing activities:
Proceeds from the issuance of common stock 26,837,736 1,945,389
Dividends paid (572,625) (383,974)
Collection of subscription receivable 53,600
------------ ------------
Net cash provided by financing activities 26,265,111 1,615,015
------------ ------------
Net increase in cash and cash equivalents 13,674,794 1,528,704
Cash and cash equivalents at beginning of period 1,941,774 810,659
------------ ------------
Cash and cash equivalents at end of period $ 15,616,568 $ 2,339,363
------------ ------------
</TABLE>
Noncash Transactions: See Note 10 with respect to settlement of certain
obligations by issuance of securities and share exchange transaction with
Telescan, Inc.
See "Notes to Consolidated Financial Statements."
F-3
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited condensed consolidated financial statements of GlobalNet
Financial.com, Inc. (the "Company" or "GLBN") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
of operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations. However, management believes
that the disclosures are adequate to make the information presented not
misleading. The results for the interim periods are not necessarily indicative
of the results for the full fiscal year.
Certain amounts in 1998 have been reclassified to conform to the 1999
presentation.
(2) THE CORPORATION
GlobalNet Financial.com, Inc. (the "Company" or "GLBN") formerly Microcap
Financial Services.com, Inc., prior to that Capital Growth Holdings, Ltd. and
prior to that Galt Financial Corporation, was incorporated in the State of
Colorado on June 15, 1987. On March 14, 1997, GLBN, an inactive company,
acquired 100% of the outstanding capital stock of International Capital Growth,
Ltd. ("ICG") (a company formed in February 1996), a Delaware corporation and
member of the National Association of Securities Dealers, Inc. The acquisition
was consummated through an exchange of shares that resulted in the former ICG
shareholders receiving control of GLBN. The transaction has been treated as a
recapitalization. In connection therewith, ICG's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by GLBN
in the transaction while ICG's historical accumulated deficit was carried
forward. In 1997, after the recapitalization, a Colorado corporation, was merged
into a Delaware corporation, Capital Growth Holdings, Ltd. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
(3) NATURE OF BUSINESS
The Company and its subsidiaries have three reportable segments. The Company
operates internet web-sites, operates as a broker/dealer and has a corporate
administration function. The Company's internet web-sites provide comprehensive,
internet-based electronic publishing of unique financial content and services.
The Company currently owns three "money channels", UK-iNvest.com, housed with
Freeserve plc, which is the UK's largest internet service provider ("ISP"),
Italia-iNvest.com, in partnership with Virgilio, Italy's largest search engine,
and America-iNvest.com (previously, Microcap1000.com), a US equity site with
special expertise in the small capitalization market. The Company also generates
revenue in its broker/dealer operations by acting as a placement agent in
private financings and as a financial consultant to various companies.
F-4
<PAGE>
Information with respect to the Company's reportable segments follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues from external customers 489,482 193,157 682,639
Interest revenue 292,982 11,208 4,694 308,884
Depreciation and amortization 467,508 14,177 439,120 920,805
Segment (loss) income (7,548,951) 1,271,009 (4,782,848) (11,060,790)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation (depreciation) of securities (267,041) 953,760 686,719
Compensation paid with stock, warrants and options 5,660,995 5,600,995
Segment assets 28,826,038 2,845,935 2,089,286 33,761,259
Expenditures for long-lived assets 57,697 299,373 357,070
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues from external customers 102,000 139,822 241,822
Interest revenue 154,351 8,255 2,501 165,107
Depreciation and amortization 356,741 4,110 104,182 465,033
Segment (loss) income (2,463,298) 131,187 (2,321,378) (4,653,489)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation (depreciation) of securities (4,275,839) 40,080 (4,235,759)
Compensation paid with stock, warrants and options 1,219,474 1,219,474
Segment assets 28,826,038 2,845,935 2,089,286 33,761,259
Expenditures for long-lived assets 177,896 177,896
</TABLE>
(4) COMPREHENSIVE LOSS
The following table sets forth the computation of comprehensive loss:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPT. 30, 1999 SEPT. 30, 1998 SEPT. 30, 1999 SEPT. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (4,653,489) $ (760,434) $(11,060,790) $ (1,206,423)
Unrealized gains (losses) on securities available for sale:
Change in unrealized gains (losses) (4,219,590) (137,824)
Less: reclassification adjustment for gains
realized in net income (56,248) (129,217)
------------ ------------ ------------ ------------
Other comprehensive loss (4,275,838) (267,041)
------------ ------------ ------------ ------------
Total comprehensive loss $ (8,929,327) $ (760,434) $(11,327,831) $ (1,206,423)
============ ============ ============ ============
</TABLE>
(5) VALUATION OF SECURITIES
Securities held by GLBN are classified as available-for-sale and are recorded at
their market value. Unrealized gains and losses on securities held by GLBN are
recorded as other comprehensive income.
Unrealized gains and losses on securities held by ICG, a registered
broker/dealer, are recognized as operating income or loss in the statement of
operations. Securities owned, which are listed on a national securities
exchange, are valued at their last reported sales price. Securities which trade
over-the-counter are valued at the "bid" price. Securities which do not have a
readily ascertainable market value are valued at their estimated fair value as
F-5
<PAGE>
determined by management. Management considers fair value to be cost unless
the value has deteriorated or where later investments have been concluded by a
significant outside investor, then the investment is valued at the last per
share sales price paid unless circumstances dictate a lower valuation.
The values of securities owned by the Company can change substantially because
of volatility in the price of each security, changes in the business prospects
of the issuer of the securities, specific events influencing the operations of
the issuer of the securities, and various other circumstances outside the
security issuer's control. Accordingly, the value of the securities could
decline so that a loss would be required to be recognized for the total carrying
amount of such securities.
Included in securities not readily marketable is the common stock of Telescan,
Inc. The carrying amount of the investment in Telescan, Inc. at September 30,
1999 was $8,959,800. Telescan, Inc. is subject to the reporting requirements of
the U.S. Securities and Exchange Commission.
(6) DIVIDEND
In March 1997, the Board of Directors declared annual dividends of $.225 per
share of Common Stock, for the calendar years ended 1997 and 1998, accruing as
of January 1, 1997 payable commencing June 30, 1997 and on a quarterly basis
thereafter. The dividend will be paid after payment of any dividends due on all
classes of stock with priority over Common Stock (currently Series A and B
preferred stock), subject to any operating restrictions. In addition, the Board
of Directors determined that any dividend declared on Class B Common Stock will
be subject to a $.20 per share limitation on annual dividends in 1998. On June
30, 1999, the Company made the $.05625 per share Common Stock dividend payment
due for the periods June 30, 1998, September 30, 1998 and December 31, 1998.
The former holders of Series A and B preferred stock were entitled to a
preferential cumulative dividend equal to $38,154 in the aggregate, which
accrued from October 12, 1996 through October 21, 1997.
(7) NET CAPITAL REQUIREMENTS
ICG is subject to the Securities and Exchange Commission Uniform Net Capital
Rule (Rule 15c3-1), which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net capital, both as
defined, be at least the greater of 6 2/3 of aggregate indebtedness or $5,000.
At September 30, 1999, ICG had net capital of $396,847, which was $267,982 in
excess of its required net capital.
(8) EXEMPTION FROM RULE 15C3-3
ICG is exempt from the reserve requirement of the Securities and Exchange
Commission's Rule 15c3-3 pursuant to Section 15c3-3(k)(2)(ii).
(9) COMMITMENTS
The Company has issued a letter of credit in the amount of $100,000 to secure
future rent payments and leasehold improvements at the London office of
UK-iNvest.com Limited. The letter of credit is secured by a money market
account.
(10) STOCKHOLDER EQUITY TRANSACTIONS DURING THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
On January 7, 1999, the Company issued 45,834 shares of Common Stock in lieu of
payment of $326,517 for services rendered by a consultant during the year ended
December 31, 1998.
On January 27, 1999, the Company entered into a two-year content supply
agreement with Freeserve, plc. Upon execution of the agreement, the Company
granted 333,333 warrants to purchase Common Stock at an exercise price of $6.00
per warrant for a term of three years and paid $207,250. The Company valued
these warrants at approximately $4,007,000, which will be charged to operations
over the term of the agreement. Freeserve exercised their warrants on May 7,
1999, as referred to below.
On February 9, 1999, the Company granted 140,000 options to purchase Common
Stock to a consultant. The consultant could receive an additional 140,000
options throughout the term of the agreement. The Company valued these options
at approximately $921,000. The agreement was terminated by the Company in April
1999 and charged the value of the warrants to operations.
On February 10, 1999, the Company sold 429,234 shares of Common Stock in a
series of private placements yielding net proceeds of approximately $2,479,400.
F-6
<PAGE>
On March 4, 1999, the Company entered into a nonexclusive content supply
agreement and in connection therewith granted 20,834 warrants to purchase common
stock at an exercise price of $10.50 per warrant for a term of two years. The
Company valued these warrants at approximately $95,000, which were charged to
operations. These warrants were exercised in August 1999 and the shares of
common stock were issued.
On March 23, 1999, the Company entered into an agreement with a consultant to
provide investor and public relation services. In connection therewith, the
Company granted 25,000 shares of Common Stock which were valued at their fair
value of $7.56 per share, which will be charged to operations over the term of
the agreement.
On March 29, 1999, the company issued 20,000 shares in lieu of a discount for
certain services provided by a consultant. The transaction was recorded at
$40,000 representing the amount of the discount. In addition, on April 9, 1999,
the Company issued 17,500 shares to this consultant as a bonus for services.
These shares were valued at $321,563.
On March 31, 1999, the Company entered into a stock exchange agreement with
Telescan, Inc. ("TSCN"). The agreement provides for the exchange of 862,694
unregistered shares of the Company's Common Stock, for 520,000 unregistered
shares of TSCN's Common Stock. In addition, the Company entered into a stock
option agreement with TSCN. The agreement provides TSCN a one year option to
increase its ownership in the Company to 19.9% by acquiring additional shares at
a purchase price of $22.50. In consideration thereof, the Company received
25,000 shares of TSCN Common Stock. The option is exercisable through March 30,
2000. In the event that there is a change in control as defined in the
agreement, the Company is required to redeem the option for cash in an amount
equal to the number of unexercised options multiplied by the difference between
the exercise price and consideration received by the Company's stockholders in
connection with the change in control. Also, the Company entered into a service
agreement with TSCN. TSCN will provide information and design services to the
Company's internet sites for a term of two years. The agreement provides for the
issuance of 262,916 (included in 862,694 above) shares of the Company's Common
Stock to TSCN for these services as they are provided. The Company recorded the
transaction with TSCN at $17.125 per share, the fair value of the stock received
on the date of the exchange. The fair value was then allocated to the services
to be provided, the option and securities issued.
In April 1999, the Company granted 75,000 shares of Common Stock to a consultant
to provide financial and investor services for one year. The company valued
these shares at $1,113,750 representing the fair value at the date of grant
which will be charged to expense over the term of the agreement.
On April 19, 1999, the Company acquired all of the outstanding shares of Capital
Growth Europe Limited (CGE), now UK-iNvest.com, for approximately $58,000 and
4,167 unregistered shares of the Company's Common Stock.
On April 30,1999, the Company raised net proceeds of $4,650,000 in a private
placement of 416,667 shares and 333,333 warrants to purchase shares of common
stock exercisable for two years at an exercise price of $27.36 per share.
On May 7, 1999, the Company received $14,765,337 from Freeserve, Ltd. which
represented the purchase of 1,063,779 shares of Common Stock at $12.00 per share
and the exercise of a previously issued warrant for 333,333 shares of Common
Stock at $6.00 per share (see January 27, 1999 above). In addition, the Company
granted Freeserve, Ltd. an option to increase its ownership to 19.9% of the
fully diluted number of shares of Common Stock outstanding. The option is
exercisable at $13.50 per share and expires on November 6, 2001. In addition, in
the event of the subsequent issuance of shares or the granting of rights to
subscribe for or purchase shares at exercise prices less than $13.50 per share,
the Company will allow Freeserve to purchase 15% of the number of shares issued
or underlying the convertible securities at the lower price to increase its
holding to 19.9%.
On May 14, 1999, the Company sold 74,750 shares of Common Stock in a private
placement resulting in net proceeds of approximately $897,500.
On June 17, 1999, the Company's Board of Directors authorized a one-for-six
reverse common stock split effective July 2, 1999, for all shareholders on
record as of the close of business on such date. All share and per share amounts
in the accompanying consolidated financial statements have been restated to give
effect to the common stock split.
On June 22, 1999, the Company sold 41,667 shares of common stock in a private
placement yielding net proceeds of approximately $500,000.
F-7
<PAGE>
On June 25, 1999, the Company entered into a joint venture agreement with First
Marathon Inc. ("First Marathon"). The agreement provides for the Company and
First Marathon to form a holding Company through which they will establish a
registered securities dealer to conduct on-line trading of securities and create
and operate a website providing financial news, analysis, and other financial
products in Canada. On June 25, 1999 First Marathon acquired 208,334 shares of
the Company's common stock for $2,500,000. In addition, the company granted to
First Marathon an option to invest up to $5.0 million in the company's common
stock at the lower of the current market price or $21.00 per share through March
31, 2000 and a warrant to purchase 275,000 shares of the company's common stock
at an exercise price of $17.25 per share through December 15, 2001. If First
Marathon exercises the option the Company shall also grant to First Marathon a
30-month warrant to purchase up to 333,333 shares of the Company's common stock
at an exercise price of $30.00 per share. In connection with the First Marathon
agreement the company issued a warrant to purchase 31,250 shares of the
company's common stock at an exercise price of $12.00.
On June 25, 1999, the Company entered into a license agreement for the use of
electronic trading software. The agreement provides for the payment of $1.0
million and the issuance of 166,667 shares of the Company's common stock upon
delivery of the software to the Company. On July 21, 1999, the Company received
the software, paid $1.0 million and issued 166,667 shares.
On July 1, 1999, the Company entered into a two-year software and maintenance
agreement with Solosearch.com, Inc. for which the Company paid $40,000 and
issued 3,334 shares of unregistered stock.
On August 10, 1999, the Company issued 31,250 shares to Freeserve at $12.00 per
share in connection with its option to purchase shares of the Company to
increase Freeserve's holding in the Company to 19.9%.
On September 17, 1999, the Company entered into a share exchange agreement with
On-Line PLC. As a result of this agreement, the Company issued 33,000 shares of
common stock to On-Line PLC at $12.31 per share and On-Line PLC issued to the
Company 184,673 shares of its common stock. In addition, on October 20, 1999,
the Company issued 2,500 shares of common stock as an introduction fee to an
outside party for the introduction of the Company to On-Line PLC.
On September 24, 1999, the Company entered into an agreement with TwiceTrade.com
SpA to provide investor relations services. In conjunction with this agreement,
the Company issued to TwiceTrade 10,000 shares of the Company's common stock and
250,000 three-year warrants exercisable at $10.31 per share.
During the nine months ended September 30, 1999, the Company granted 298,335
options to purchase common stock to various consultants. The Company valued
these options at $1,539,660, which will be charged to operations over the term
of the agreements.
(11) EQUITY AND COST INVESTMENTS
On July 28, 1999, the Company entered into a common stock subscription agreement
to acquire 554 shares of GRO Corporation's common stock which represents
approximately 5% of the Company for $200,000. GRO provides online trading
utilizing sophisticated technology for frequent traders.
On August 16, 1999, the Company entered into a joint venture agreement with
Freeserve plc, First Marathon Securities and Mesirow Financial in which the
Company owns 25% of a new online trading business, UK Online Clearing and
Brokerage. The Company contributed $401,975 for its equity interest in this
joint venture.
On August 19, 1999, the Company invested $1.5 million to acquire a 33.33% equity
interest in Matchbook F/X L.L.C. Matchbook F/X is equally owned by GlobalNet,
NexTrade, one of nine Electronic Communications Networks ("ECN") and Valhalla
Forex, a dealing operation focused on the spot Foreign Exchange markets.
On August 24, 1999, the Company entered into a 50% partnership with a consortium
that includes De Agostini Holding Group, the second largest publishing company
in Italy and owner of Virgilio, the country's largest search engine, and a few
others, to create Italia-iNvest.com, a website covering the Italian financial
marketplace. The Company's investment in Italia-iNvest.com was for 450,000,000
Lire or approximately $247,000.
On September 10, 1999, the Company entered into a content supply agreement with
World Online, Intl, ("World Online"). The agreement provides for the Company to
develop World Wide Web finance channels to various European countries and
provide content to World Online's channels. In addition, the Company was granted
an exclusive, royalty free eighteen month license to promote, market and
advertise the content the Company provides to the finance channels developed
pursuant to this agreement. In exchange for the content used by World Online,
the Company agreed to pay a total of $400,000 on certain dates throughout the
term of the agreement and granted eighteen month warrants to purchase 83,334
shares of the Company's common stock at $11.00 per share, exercisable upon
various dates throughout the term of the agreement. As of September 30, 1999,
the Company has paid $150,000 and granted 33,333 exercisable warrants to World
Online.
On September 19, 1999, the Company entered into a joint venture agreement with
Freeserve plc, Harrison Son Hill & Co. Limited, Cox Insurance Holdings plc to
create InsuranceCity.com. The Company contributed $327,833 for its 26% equity
interest in this joint venture. InsuranceCity.com, anticipated to be launched in
November 1999, will be the UK's first and only one-stop shop for personal lines
of insurance providing a full spectrum of services.
On September 29, 1999, the Company entered into an agreement with
TradinGear.com, Inc. wherein the Company paid $257,000 in exchange for 500,000
shares of the common stock of TradinGear. In addition, the Company issued 35,000
shares as of October 29, 1999 to TradinGear in exchange for an additional
838,888 shares of the common stock of TradinGear that, together with the 500,000
shares previously purchased, would result in the 10% ownership of TradinGear by
the Company.
F-8
<PAGE>
(12) LITIGATION
On April 1, 1999, ICG was served with a complaint, in which it was named as a
co-defendant to a lawsuit alleging damages of $990,000 plus interest and
punitive damages, with respect to certain investments made by the plaintiffs in
a company called Waste Systems International, Inc. ("WSI"), for which ICG acted
as a financial consultant and placement agent in connection with a private
offering. The plaintiffs allege that the defendants made numerous fraudulent and
negligent misrepresentations to the plaintiffs, that the plaintiffs invested in
WSI based on those fraudulent and negligent misrepresentations and that the
misrepresentations were the direct and proximate cause of injuries suffered by
the plaintiffs. Management believes that the claims against ICG are without
merit and is vigorously opposing those claims, however, the outcome is presently
undeterminable. In the opinion of management any potential liability with
respect to this litigation will not materially affect the Company's financial
position or results of operations.
(13) SUBSEQUENT EVENTS
On October 14, 1999, the Company acquired a 33.3% interest in NewMedia Spark
plc, an investment company seeking high technology and internet related company
investments. The Company acquired 26,666,664 ordinary shares at 2.5p
(approximately $.04) per share each in the capital of NewMedia Spark for
$1,119,334. On October 29, 1999, NewMedia Spark plc went public on the
Alternative Investment Market in the U.K. at 10p (approximately $.16) per share.
As of November 12, 1999, the closing price of NewMedia Spark's common stock was
1.09 (British pounds) per share and as a result, the market value of the
Company's investment was approximately $47.0 million.
F-9
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,722,645
<SECURITIES> 11,507,061
<RECEIVABLES> 504,776
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,331,040
<PP&E> 469,055
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,167,489
<CURRENT-LIABILITIES> 837,936
<BONDS> 0
0
0
<COMMON> 11,272
<OTHER-SE> 34,156,217
<TOTAL-LIABILITY-AND-EQUITY> 34,167,489
<SALES> 0
<TOTAL-REVENUES> 2,314,531
<CGS> 97,249
<TOTAL-COSTS> 13,375,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (11,060,790)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,060,790)
<EPS-BASIC> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
