U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 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.
-----------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1489574
----------------------------------------------
(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
--------------
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 AUGUST 30, 1999 WAS AS FOLLOWS: 11,209,140 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
Management of the Company believes that they are taking significant steps in the
Company's quest to become the leading provider of international online financial
news and information services designed to combine unique financial content and
educational programs, investment and analytical tools, on-line trading and other
transaction executions. Through the Company's alliance with Freeserve plc
(NASDAQ: FREE / LS: FRE) the United Kingdom's largest Internet service provider
(ISP), UK-iNvest.com is the exclusive provider of investment information within
Freeserve's Money channel, featuring interviews and commentary with leading
investment managers and analysts about stocks, funds and market trends. The
Company's wholly-owned subsidiary, MicroCap1000.com, focuses on companies with a
market capitalization of under $500 million and is a leading source for
information on the microcap sector featuring original daily articles on a
real-time index.
On July 12, 1999, the Company announced a joint venture agreement with First
Marathon Inc., a leading Canadian investment firm, to jointly develop an online
trading business for Canada and a premiere financial website, Canada-iNvest.com,
in Canada. In conjunction with the joint venture, First Marathon has made a $2.5
million strategic equity investment in GlobalNet Financial. The investment by
First Marathon follows strategic investments by Freeserve Limited, which made a
$15.0 million strategic investment in GlobalNet on May 7, 1999 and a $5.0
million strategic investment on April 30, 1999 from an Italian Consortium
consisting of The De Agostini Holding Group, Banca Commerciale Italiana and
Investitori Associati. GlobalNet's Italia-iNvest.com is under development.
GlobalNet is continuing its worldwide expansion of international investor
oriented financial sites.
The Company has also attracted a variety of noteworthy strategic technology
partners such as Telescan (Nasdaq: TSCN), an industry leader in providing
Internet services and innovative solutions for online technology and data
retrieval tools. GlobalNet owns 545,000 shares of Telescan. GlobalNet's
licensing agreement with NexTrade provides the Company with royalty free,
worldwide rights to NexTrade's proprietary modular Electronic Direct Access
Trading System (E-DAT) for real-time online trading.
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 JUNE 30, 1999 TO
THREE MONTHS ENDED JUNE 30, 1998
OPERATING REVENUE
Advertising revenue from the Company's websites increased to $33,318 for the
three months ended June 30, 1999 from $0 for the comparable period a year
earlier. Advertising revenue primarily relates to the Company's UK-iNvest.com
website, which was launched at the end of April 1999. Investment banking
consulting fees decreased by $185,647 to $0 for the three months ended June 30,
1999 from $185,647 for the comparable period a year earlier. The decrease is the
result of the Company's shift away from investment banking activities. Private
placement fees increased by $15,911 to $387,482 from $371,571 for the period one
year earlier. Despite the Company's lack of focus on investment banking, it
closed a transaction 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 $1,032,148 for the quarter ending June
30, 1999, an increase of $1,066,503, compared to a loss of $34,355 during the
same period in 1998. This increase was primarily a result of the increase in
value of one of the Company's portfolio positions, Common Stock of Worlds, Inc.
Interest income increased by $126,913 to $132,359 as compared to $5,446 during
the same quarter in 1998.
OPERATING EXPENSES
Cost of advertising revenue increased by $21,787 for the three months ended June
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 $159,078 to $175,000 for
the three months ended June 30, 1999 from $15,922 for the comparable period in
1998.
General and administrative expenses increased by $1,246,709 to $1,838,898 for
the three months ended June 30, 1999 compared to $592,189 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.
Non-cash compensatory and licensing expense increased to $2,917,900 during the
three month period ending June 30, 1999 compared to $0 during the three month
period ending June 30, 1998 which was primarily the result of the Company
utilizing stock, options and warrants to compensate some of its advisors and
consultants. Most significantly, the Company recorded a non-recurring, non-cash
compensatory charge for options issued for investor relations services of
$767,288. Depreciation and amortization expense increased by $258,719 to
$273,750 during the three months ended June 30, 1999 compared to $15,031 during
the same period in 1998. The increase is primarily related to the amortization
of the Company's licensing and promotion agreements.
Equity in loss of unconsolidated affiliate decreased by $41,069 for the three
months ended June 30, 1999 to $0, from a loss of $41,069 for the comparable
quarter in 1998. The quarter's decrease was due to the write-off of the
Company's investment in Capital Growth Europe (CGE), offset by the gain on sale
of CGE in 1998.
The Company's total operating expenses, including $2,917,900 in non-cash
compensatory and licensing expenses and $767,288 in non-recurring, non-cash
compensatory expense, increased by $5,330,412, to $5,994,623 as compared to
$664,211 during the comparable quarter in 1998.
NET LOSS
The Company's net loss for the three months ended June 30, 1999 increased by
$4,273,414 from a net loss of $135,902 for the three months ended June 30, 1998
to a net loss of $4,409,316 for the three months ended June 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.microcap1000.com), the Company's U.K. website
(www.ukinvest.com) and subsequent website development costs.
3
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COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO
SIX MONTHS ENDED JUNE 30, 1998
OPERATING REVENUE
Advertising revenue from the Company's websites increased by $53,335 to $53,335
for the six months ended June 30, 1999 from $0 for the comparable period a year
earlier. Investment banking consulting fees decreased by $237,397 to $0 for the
six months ended June 30, 1999 from $237,397 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 $411,163 to
$387,482 from $798,645 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 $1,226,679 for the six months ending
June 30, 1999, an increase of $1,461,353, compared to a loss of $234,674 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
six months ended June 30, 1999. Interest income increased by $132,090 to
$143,777 as compared to $11,687 during the comparable year-to-date period in
1998.
OPERATING EXPENSES
Cost of advertising revenue increased by $21,787 for the six months ended June
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 $159,078 to $175,000 for the six
months ended June 30, 1999 from $15,922 for the comparable period.
General and administrative expenses increased by $2,032,506 to $3,184,494 for
the six months ended June 30, 1999 compared to $1,151,988 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.
Non-cash compensatory and licensing expense increased to $3,460,775 during the
six month period ended June 30, 1999 compared to $0 during the same period in
1998 which was primarily the result of the Company utilizing stock, options 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 $425,707 to $455,772 during the six
months ended June 30, 1999 compared to $30,065 during the comparable period in
1998. The increase is primarily related to the amortization of the Company's
licensing and promotion agreements.
Equity in loss of unconsolidated affiliate decreased by $61,069 for the six
months ended June 30, 1999 to $0, from a loss of $61,069 for the comparable
year-to-date period in 1998. The decrease for the six month period ended June
30, 1999 was due to the write-down of the Company's investment in an
unconsolidated affiliate, CGE, offset by the gain on sale of CGE in 1998.
The Company's total operating expenses, including $3,460,775 in non-cash
compensatory and licensing expense and $920,746 in non-recurring, non-cash
compensatory expense, increased by $6,959,530, to $8,218,574 as compared to
$1,259,044 during the comparable period in 1998.
4
<PAGE>
NET LOSS
The Company's net loss for the six months ended June 30, 1999 increased by
$5,961,312 from a net loss of $445,989 for the six months ended June 30, 1998 to
a net loss of $6,407,301 for the six months ended June 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.microcap1000.com), the Company's U.K. website
(www.ukinvest.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. To this end, in April and May 1999, the Company
received an investment of approximately $5.0 million from an Italian Investment
Consortium that the Company is in discussions with to launch a financially
oriented site in Italy and $15.0 million from its UK partner, Freeserve, Ltd.
On March 31, 1999, the Company acquired 545,000 shares of Common Stock of
Telescan, Inc. ("Telescan") which was received through a share exchange
agreement with Telescan, which at March 31, 1999 was valued at $9,333,125.
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 September 30, 1999 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.
Net cash used in operating activities increased by $4,452,024 to $4,811,468 for
the six months ended June 30, 1999 from $359,444 in the comparable six 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
by $535,959 from $615,867 in 1998 to $79,908 for the six months ended June 30,
1999, largely due to investments in securities and fixed assets in 1999. Net
cash provided by financing activities increased by $25,995,485 to $25,665,111
for the six months ended June 30, 1999 from net cash used of $330,374 in the
comparable six 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. In May 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. In May
1999, the Company raised an additional $897,500 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. The proceeds are being held for additional
investment in Microcap1000.com and UK-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
Microcap1000.com and UK-iNvest.com, as well as the other web sites 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: December 30, 1999 BY: /s/ RONALD B. KOENIG
------------------------
Ronald B. Koenig
Chairman
Date: December 30, 1999 BY: /s/ MICHAEL S. JACOBS
-------------------------
Michael S. Jacobs
Senior Vice President
(Chief Accounting Officer)
6
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 22,875,325 $ 1,941,774
Restricted cash 105,110 104,664
Accounts receivable 29,471
Due from broker 155,355 44,930
Securities owned at market value 751,923 552,719
Securities not readily marketable, at fair value 14,619,766 132,492
Prepaid expenses and other current assets 791,932 61,438
------------ -----------
Total Current Assets 39,328,882 2,838,017
Licensing and promotion agreements, net 1,124,267 354,726
Other assets 279,137 22,154
Fixed assets, net 355,724 290,113
Goodwill, net 73,545
------------ -----------
Total $ 41,161,555 $ 3,505,010
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 1,108,244 $ 607,656
Dividends payable - preferred stockholders 38,154 38,154
Dividends payable - common stockholders 572,625
Deferred revenue 21,950 5,000
------------ -----------
Total Liabilities 1,168,348 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 shares
authorized, none outstanding
Common Stock - $.001 par value, 16,666,667
shares authorized; 11,011,229 and 7,389,650 shares issued
as of 6/30/99 and 12/31/98, respectively 11,013 7,390
Additional paid in capital 55,664,922 8,889,809
Accumulated deficit (12,705,422) (6,298,121)
Unearned compensatory and licensing costs (6,944,854) (276,253)
Accumulated other comprehensive income (loss) 3,997,548 (11,250)
Treasury stock, at cost, 2,500 shares (30,000) (30,000)
------------ -----------
Total Stockholders' Equity 39,993,207 2,281,575
------------ -----------
Total $ 41,161,555 $ 3,505,010
============ ===========
</TABLE>
See "Notes to Consolidated Financial Statements."
F-1
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating Revenue
Advertising $33,318 $53,335
Consulting fees $185,647 $237,397
Private placement fees 387,482 371,571 387,482 798,645
Net realized and unrealized gains (losses) on
marketable and not readily marketable securities 1,032,148 (34,355) 1,226,679 (234,674)
Interest income 132,359 5,446 143,777 11,687
----------- ----------- ----------- ----------
Total operating revenue 1,585,307 528,309 1,811,273 813,055
Operating expenses
Cost of advertising revenue 21,787 21,787
Commission 175,000 15,922 175,000 15,922
General and administrative 1,838,898 592,189 3,184,494 1,151,988
Non-cash compensatory and licensing expenses 2,917,900 3,460,775
Non-recurring, non-cash compensatory expense 767,288 920,746
Depreciation and amortization 273,750 15,031 455,772 30,065
Equity in loss of unconsolidated
affiliate and write down of advance 41,069 61,069
----------- ----------- ----------- ----------
Total operating expenses 5,994,623 664,211 8,218,574 1,259,044
----------- ----------- ----------- ----------
Net loss $(4,409,316) $ (135,902) $(6,407,301) $ (445,989)
=========== =========== =========== ==========
Basic and diluted loss per share $(0.44) $(0.04) $(0.72) $(0.14)
=========== =========== =========== ==========
Weighted average common shares outstanding
basic and diluted 9,913,827 3,302,416 8,887,443 3,302,416
=========== =========== =========== ==========
</TABLE>
See "Notes to Consolidated Financial Statements."
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,407,301) $ (445,989)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 455,772 30,065
Equity in loss of unconsolidated affiliate and write down of advances 65,000
Gain on sale of unconsolidated affiliate (3,931)
Receipt of securities in payment of fees (187,500)
Realized gains on sales of securities (312,999) (272,863)
Change in unrealized appreciation/depreciation of securities (913,680) 507,537
Compensation to consultants paid with stock, options and warrants 4,381,521
Other items 52,781
Changes in:
Accounts receivable (29,471)
Due from broker (110,425) 193,189
Prepaid expenses and other current assets (730,494)
Licensing and other assets (1,419,987) (123,000)
Accounts payable and accrued expenses 205,865 (101,760)
Deferred revenue 16,950 (20,192)
----------- ---------
Net cash used in operating activities (4,811,468) (359,444)
Cash flows from investing activities:
Additions to fixed assets (179,174) (282)
Proceeds from sale of securities 433,055 464,456
Proceeds from sale of unconsolidated affiliate 3,931
Advances to unconsolidated affiliate 209,000
Investment in restricted cash (446) (1,238)
Investment in securities (180,000) (60,000)
Acquisition of UK-iNvest.com Limited, net of $47,723 cash
received 6,473
----------- ---------
Net cash provided by investing activities 79,908 615,867
Cash flows from financing activities:
Proceeds from the issuance of common stock 26,237,736
Dividends paid (572,625) (383,974)
Collection of subscription receivable 53,600
----------- ---------
Net cash provided by (used in) financing activities 25,665,111 (330,374)
----------- ---------
Net increase (decrease) in cash and cash equivalents 20,933,551 (73,951)
Cash and cash equivalents at beginning of period 1,941,774 810,659
----------- ---------
Cash and cash equivalents at end of period $22,875,325 $ 736,708
=========== =========
</TABLE>
Noncash Transactions: See Note 11 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
JUNE 30, 1999
(Unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited 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) RESTATEMENT OF PRIOR QUARTERLY STATEMENT OF OPERATIONS
The Company recorded adjustments that affect the prior interim three month
period ending June 30, 1999. A summary of the adjustments is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------
AS ADJUSTED
REPORTED ADJUSTMENTS RESULTS
---------- -------------- -----------
<S> <C> <C> <C>
Advertising revenue $ 48,318 ($15,000) (a) $ 33,318
Net realized and
Unrealized gains 973,249 58,899 (b) 1,032,148
Interest income 132,336 23 132,359
Total operating revenue 1,541,385 43,922 1,585,307
Cost of advertising revenue 21,787 (c) 21,787
Commission 179,450 (4,450) (d) 175,000
General and administrative 1,979,014 (140,116) (e) 1,838,898
Non-cash compensatory
and licensing expenses 1,383,696 1,534,204 (e) 2,917,900
Depreciation and
amortization 1,168,517 (894,767) (e) 273,750
Total operating expenses 5,477,965 516,658 5,994,623
Net loss (3,936,580) (472,736) (4,409,316)
F-4
<PAGE>
Weighted avg common
shares outstanding 8,887,443 9,913,827 (f)
<FN>
The following explains the principal adjustments:
(a) A revenue recognition adjustment for the termination of a contract.
(b) Mark to market adjustments for unrealized gains on ICG's marketable and not
readily marketable securities.
(c) Adjustment to recognize commissions on advertising revenue and revenue
sharing fees with UK-iNvest.com partner.
(d) Reclassification to general and administrative expenses.
(e) Adjustments to recognize non-cash compensatory and licensing costs in the
period earned. The expenses represent the issuance of stock, options or
warrants at fair value in accordance with the respective agreements.
Additionally, reclassifications were made to segregate the non-cash
licensing expenses from depreciation and amortization expense and non-cash
compensatory expenses from general and administrative expenses.
(f) Restatement of weighted average calculation. The impact on the net loss per
share for the restatement of the quarterly results and the change in the
weighted average number of shares offset each other.
</FN>
</TABLE>
(4) NATURE OF BUSINESS
The Company and its subsidiaries have three reportable segments in 1999. The
Company operates internet web-sites and operates as a broker/dealer. Through the
six months ended June 30, 1998, the Company only operated as a broker/dealer.
The Company's internet web-sites provide comprehensive, internet-based
electronic publishing of unique financial content and services. The Company
currently owns two "money channels", UK-iNvest.com, housed with Freeserve plc,
which is the UK's largest internet service provider ("ISP"), and
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.
Information with respect to the Company's reportable segments follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 387,482 $ 53,335 $ 440,817
Interest revenue $ 138,631 2,953 2,193 143,777
Depreciation and amortization 100,767 10,067 334,938 455,772
Segment (loss) income (5,085,654) 1,139,823 (2,461,470) (6,407,301)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation of securities 4,008,798 913,680 4,922,478
Compensation paid with stock, warrants and options 4,381,521 4,381,521
Segment assets 38,250,962 2,414,027 496,566 41,161,555
Expenditures for long-lived assets 57,697 121,477 179,174
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 387,482 $ 33,318 $ 420,800
Interest revenue $ 128,155 2,011 2,193 132,359
Depreciation and amortization 60,371 5,034 208,345 273,750
Segment (loss) income (4,076,805) 1,071,689 (1,404,200) (4,409,316)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation of securities 3,883,548 719,149 4,602,697
Compensation paid with stock, warrants and options 3,685,188 3,685,188
Segment assets 38,250,962 2,414,027 496,566 41,161,555
Expenditures for long-lived assets 57,697 21,912 76,609
</TABLE>
F-5
<PAGE>
(5) COMPREHENSIVE LOSS
The following table sets forth the computation of comprehensive loss:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(4,409,316) $(135,902) $(6,407,301) $(445,989)
Unrealized gains on securities available for sale:
Change in unrealized gains 3,956,517 4,081,767
Less: reclassification adjustment for gains
realized in net income (72,969) (72,969)
----------- -----------
Other comprehensive income 3,883,548 4,008,798
----------- --------- ----------- ---------
Total comprehensive loss $ (525,768) $(135,902) $(2,398,503) $(445,989)
=========== ========= =========== =========
</TABLE>
(6) 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 accumulated other comprehensive income (loss).
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
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.
Securities not readily marketable include unregistered shares of public
companies.
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 June 30, 1999
was $13,254,400. Telescan, Inc. is subject to the reporting requirements of the
U.S. Securities and Exchange Commission.
(7) DIVIDEND
In March 1997, the Board of Directors declared annual dividends of $1.35 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 $1.20 per share limitation on annual dividends in 1998. On June
30, 1999, the Company made the $.3375 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.
(8) 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 June 30, 1999, ICG had net capital of $1,114,565, which was $1,073,306 in
excess of its required net capital.
F-6
<PAGE>
(9) 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).
(10) 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.
(11) STOCKHOLDER EQUITY TRANSACTIONS DURING THE SIX MONTHS ENDED JUNE 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.
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 provided 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.
F-7
<PAGE>
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 22, 1999, the Company sold 41,667 shares of common stock in a private
placement yielding net proceeds of approximately $500,000.
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
September 30, 1999 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 the introducing third
party 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.
During the six months ended June 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.
(12) LITIGATION
On April 1, 1999, a complaint was filed, in which ICG, and three principal
stockholders of the Company were named as co-defendants to a lawsuit alleging
damages of $990,000 plus interest and punitive damages, with respect to certain
investments made by the plaintiffs in 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 be material to
the Company's financial position or results of operations.
(13) SUBSEQUENT EVENTS
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.
In July 1999, the Company entered into an agreement to acquire a 50% equity
interest in Valhalla Securities Inc. ("Valhalla"). The agreement provides for
Valhalla to deliver to the Company, shares of its common stock equal to 50% of
its fully diluted number of shares of its common stock outstanding. In addition,
Valhalla must change its corporate name to some derivative of GlobalNet, and the
Company, the existing Valhalla principles, and any other Valhalla entity must
contribute $500,000 to Valhalla's equity.
F-8
<PAGE>
(14) REVERSE STOCK SPLIT
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 and notes have been
restated to give effect to the common stock split.
F-9
<PAGE>
Exhibit Index
Exhibit No. Exhibit Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 22,980,435
<SECURITIES> 15,371,689
<RECEIVABLES> 184,826
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,328,882
<PP&E> 355,724
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,161,555
<CURRENT-LIABILITIES> 1,168,348
<BONDS> 0
0
0
<COMMON> 11,013
<OTHER-SE> 39,982,194
<TOTAL-LIABILITY-AND-EQUITY> 41,161,555
<SALES> 0
<TOTAL-REVENUES> 1,811,273
<CGS> 21,787
<TOTAL-COSTS> 8,218,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,407,301)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,407,301)
<EPS-BASIC> (.72)
<EPS-DILUTED> (.72)
</TABLE>
