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 MARCH 31, 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)
7280 W. PALMETTO PARK ROAD, SUITE 202, BOCA RATON, FL 33433
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(561) 417-8053
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE
MICROCAP FINANCIAL SERVICES.COM, INC.
(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 MAY 17, 1999 WAS AS FOLLOWS: 64,545,626 SHARES OF COMMON
STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [ ] NO [X]
<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
OVERVIEW
GlobalNet Financial.com, Inc. (the "Company" or "GLBN") is a global
multimedia provider of online financial information and services to the
investment community. The Company's U.S. based website, www.microcap1000.com,
operated through its subsidiary MicroCap1000.com, Ltd. ("MicroCap1000"), focuses
on companies with a market capitalization of under $500 million and is designed
to be a leading source for information on the MicroCap sector. This website has
nearly 165,000 registered users. The Company's first international site launched
on April 28, 1999, www.ukinvest.com, is operated by its subsidiary,
UK-iNvest.com, Limited ("UK-iNvest"). This website was developed through an
alliance with Freeserve Limited, the United Kingdom's largest Internet Service
Provider ("ISP") with more than 1.1 million active accounts and a subsidiary of
Dixons Group, plc, the United Kingdom's largest electronics retailer. This site
is the exclusive provider of investment information on the financial markets
within Freeserve's money channel and provides information on a wide range of
securities including all publicly listed stocks and bonds.
The Company's goal is to be a worldwide provider of unique financial
content and financial services. The Company intends to achieve this goal by
developing a series of websites which will provide information on the major
world markets. Once developed, management believes these websites will position
GlobalNet as a portal for worldwide market information and global investing.
Such a portal would enable subscribers to access information about the different
markets throughout the world. Towards this end, GlobalNet is seeking to
replicate the model it created for UK-iNvest.com by establishing exclusive
relationships with ISP's and search engines and portals throughout the globe,
leveraging its expertise in providing unique content and investor services in
partnership with entities which have large subscriber bases.
The Company intends to leverage upon the traffic generated by our
sites, as well as those of our strategic partners, to provide financial
services, particularly on-line trading, to our viewers worldwide. As the initial
step in implementing this plan, the Company has entered into a letter agreement
with GRO Corporation ("GRO") of Houston, Texas, a NASD licensed broker/dealer
which provides on-line Electronic Direct Access Trading ("E-DAT") services to
institutional and individual accounts. Pursuant to this agreement the Company
will acquire an equity interest in GRO and provide on-line trading services on
our website and our affiliated website. GRO provides training and a system for
providing remote E-DAT and execution for their clients. Direct Access Trading
allows the customer to instantly enter and execute trades with stock exchanges,
market makers and Electronic Communication Networks ("ECNs"). Management
believes Direct Access Trading will complement the Company's internet based
financial content and analytical tools. The closing of this transaction is
subject to completion of due diligence, documentation and NASD approval.
2
<PAGE>
The Company anticipates expanding into other areas of online and E-DAT trading.
During 1999, GlobalNet and its subsidiaries entered into a number of
joint ventures, content alliances and advertising agreements. Freeserve, Ltd.,
invested approximately $15.0 million in exchange for 13% of GLBN. Telescan, Inc.
(Nasdaq: TSCN) acquired 9.9% of the then outstanding number of shares of GLBN as
a result of a technology license agreement as well as a strategic share
exchange. UK-iNvest.com, Ltd. hired 24/7 Media Europe as its advertising agency
and entered into a co-branding agreement with the Motley Fool UK and
TheStreet.com whereby The Motley Fool UK will provide a broad range of content
on UK-iNvest.com. Further, MicroCap1000.com, Ltd. teamed up with Lycos whereby
MicroCap1000 will be showcased through advertising within Lycos.com's Money Web
Guide.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements which
represents 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 Prospectus 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.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 TO
THREE MONTHS ENDED MARCH 31, 1998
REVENUES
For the three months ended March 31, 1999 total revenues decreased by
$58,750 to $225,966 from $284,746 in the three months ended March 31, 1998. The
revenues generated in the first quarter's of both 1999 and 1998 resulting
primarily from activities of the Company's investment banking subsidiary,
International Capital Growth, Ltd. ("ICG") which acted as placement agent and
financial consultants for certain entities. The Company has shifted its focus
from ICG to financial publishing. Revenues generated in the first quarter of
1999 result from the marking to market of ICG's portfolio of securities. The
value of the portfolio increased by $394,850 generating revenue of $194,513 for
the quarter ending March 31, 1999 compared to a loss of ($200,319) during the
same period in 1998. This was primarily the result of the increase in value of
one of the Company's portfolio positions, Common Stock of Worlds, Inc. The
Company anticipates liquidating ICG's portfolio during 1999. Revenues generated
from consulting fees decreased from $51,750 to $0. Interest income increased by
$5,177 to $11,418 as compared to $6,241 during the same quarter in 1998.
3
<PAGE>
OPERATING EXPENSES
The Company's total operating expenses increased by $1,649,118, to
$2,223,951 as compared to $574,833 during the comparable quarter in 1998. 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) and the Company's U.K. website
(www.ukinvest.com) and subsequent website development fees.
NET LOSS
The Company's net loss for the three months ended March 31, 1999
increased by $1,687,898 from a net loss of ($310,087) for the three months ended
March 31, 1998 to a net loss of ($1,997,985) for the three months ended March
31, 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) and U.K. website
(www.ukinvest.com) and subsequent web development expenses.
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
and our vendors 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. An
assessment of the Year 2000 exposure has been made by the Company 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.
LIQUIDITY AND CAPITAL RESOURCES
The implementation of our 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 May 1999, the
Company received an investment of approximately $15.0 million from its UK
partner Freeserve, Ltd. and $5.0 million from an Italian Investment Consortium
the Company is in discussions with to launch a financially oriented site in
Italy. 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.
In addition to the foregoing, capital for the Company 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 $2,575,400 in a private placement of 2,575,400 shares.
In May 1999, the Company raised proceeds of $5,000,000 in a private placement of
2,500,000 shares. In May 1999 the Company received $14,765,338 from
4
<PAGE>
Freeserve, Ltd. which represented the purchase of 6,382,669 shares of Common
Stock at $2.00 per share and the exercise of a warrant to purchase 2,000,000
shares of Common Stock at $1.00 per share. In May, 1999, the Company raised an
additional $897,000 in a private placement of 448,500 shares of Common Stock.
The proceeds are being held for additional investment in MicroCap1000 and
UK-iNvest and other websites we anticipate launching as well as for working
capital.
As of March 25, 1997, the Board of Directors declared an annual
cumulative dividend of $.225 per share on the Common Stock for the calendar
years 1997 and 1998. The dividend is due and payable to the holders of record on
the day the Board of Directors adopted the resolution to pay such dividend and
is subject to (1) the payment of dividends on any class of capital stock with
priority over the Common Stock, (2) applicable net capital requirements and (3)
restrictions under applicable law. The dividend, which began accruing as of
January 1, 1997, was payable on a quarterly basis ending on December 31, 1998.
Although we made all prior dividend payments in a timely manner, the Company has
not yet made the June 30, 1998, September 30, 1998 and December 31, 1998
dividend payments.
On October 12, 1997, each share of the Company's 4,001,334 shares of
Series A Preferred Stock, par value $.001 per share (the "Series A Preferred
Stock"), and 1,080,000 shares of 5% Cumulative Convertible Series B Preferred
Stock, par value $.001 per share, converted into shares of Class B Common Stock.
Pursuant to the terms of the Certificates of Designation of such preferred
stock, the holders thereof were entitled to 5% per share annual cumulative
dividends prior to payment of dividends on any other class of capital stock. The
cumulative dividends on such preferred stock have accrued unpaid since October
12, 1997 and were 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 owned by us to the former holders of such
preferred stock as of December 31, 1998 is $38,154.
The Company does not anticipate declaring any additional dividends on
any of our classes of capital stock. Any future dividend declarations and
payments would be subject o the restrictions set forth above, approval of our
Board of Directors and any contractual restrictions.
The Company has no material capital commitments other than annual
salaries to its executive officers and employees of approximately $1,547,200 and
a letter of credit in the amount of $100,000 to secure future rent payments at
the Company's London office. The Company currently has enough cash resources to
enable it to meet its current obligations.
VARIABILITY OF RESULTS
The Company anticipates that its future financial results will vary
dramatically. This is the result of the start-up 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.
6
<PAGE>
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.
Dated: May 21, 1999 By: /s/ DONALD B. KOENIG
---------------------------------
Ronald B. Koenig
Chairman
Dated: May 21, 1999 By: /s/ MICHAEL S. JACOBS
---------------------------------
Michael S. Jacobs
Senior Vice President
(Chief Accounting Officer)
7
<PAGE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
A S S E T S
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash and cash equivalents ........................................ 2,555,304 1,941,774
Restricted cash .................................................. 105,111 104,664
Due from broker .................................................. 44,930 44,930
Securities owned at market value ................................. 890,774 552,719
Securities not readily marketable, at fair value ................. 9,447,343 132,492
Prepaid Expenses ................................................. 389,447 61,438
------------ -----------
TOTAL CURRENT ASSETS ............................................. 13,432,909 2,838,017
Furniture, fixtures, equipment, and leasehold improvements ....... 266,228 290,113
Licensing and promotion agreements ............................... 450,337 354,726
Other Assets ..................................................... 7,138 22,154
------------ -----------
TOTAL ASSETS ..................................................... $ 14,156,612 $ 3,505,010
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses ............................ $ 165,578 $ 607,656
Dividends payable - preferred stockholders ....................... 38,154 38,154
Dividends payable - common stockholders .......................... 572,625 572,625
Deferred revenue ................................................. 0 5,000
------------ -----------
Total Liabilities ................................................ 776,357 1,223,435
Stockholders' equity:
Preferred Stock - $.001 par value; 20,000,000 shares
authorized, none outstanding ................................. 0 0
Class B Common Stock - $.001 par value; 25,000,000
authorized, none outstanding ................................. 0 0
Common Stock - $.001 par value, 100,000,000 shares authorized;
52,634,457 issued; 44,337,896 issued
as of 3/31/99 and 12/31/98, respectively ..................... 52,634 44,337
Additional Paid in Capital ............................................ 29,948,460 8,852,862
Accumulated Deficit ................................................... (8,296,110) (6,298,121)
Unearned compensatory and licensing costs ............................. (8,408,729) (276,253)
Accumulated other comprehensive loss .................................. 114,000 (11,250)
Treasury Stock (15,000 Shares) ........................................ (30,000) (30,000)
------------ -----------
Total stockholders' equity ....................................... 13,380,255 2,281,575
T O T A L ........................................................ $ 14,156,612 $ 3,505,010
============ ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Revenues:
Consulting fees ......................................... 0 $ 51,750
Advertising and MC1000 revenue .......................... 20,017 0
Private placement fees .................................. 0 427,074
Net realized and unrealized gain(loss) on marketable
and not readily marketable securities .............. 194,531 (200,319)
Interest income ......................................... 11,418 6,241
------------ ------------
Total revenue ................................................ $ 225,966 $ 284,746
------------ ------------
Operating expenses
General and administrative .............................. 2,223,951 574,833
Write-Down of advances to unconsolidated affiliate ...... 0 20,000
------------ ------------
Total operating expenses ........................... 2,223,951 594,833
Net loss ..................................................... $ (1,997,985) $ (310,087)
============ ============
Basic and diluted loss per share ............................. $ (0.04) $ (0.02)
============ ============
Weighted average common shares outstanding - basic and diluted
loss per share ............................................... 45,936,000 19,814,000
============ ============
</TABLE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED STATEMENT OF
COMPREHENSIVE LOSS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Net Loss $(1,997,985) $(310,087)
Other Comprehensive Income:
Unrealized gain on available for sale securities 125,250
----------- ---------
Comprehensive Loss $(1,872,735) $(310,087)
=========== =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
<TABLE>
<CAPTION>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. (1,997,986) (310,087)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ....................................... 137,385 14,929
Equity In loss of unconsolidated affiliate and write-down of advances 0 20,000
Compensation to consultants paid with stock and options ............. 736,333 0
Change in unrealized depreciation of securities ..................... (194,531) 200,319
Receipt of securities in payment of fees ............................ 0 (187,500)
Changes in:
Due from broker ................................................. 0 136,987
Prepaid expenses and other assets ............................... (522,107) 2,000
Accounts payable and accrued expenses ........................... (115,517) (47,551)
Deferred revenues ............................................... (5,000) (10,096)
---------- --------
Net cash (used in) operating activities ................... (1,961,423) (180,999)
---------- --------
Cash flows from investing activities:
Proceeds from sale of securities .......................................... 0 135,970
Investment in restricted cash ............................................. (447) (675)
---------- --------
Net cash (used in) investing activities ................... (447) (135,295)
---------- --------
Cash flows from financing activities:
Proceeds from the issuance of common stock ................................ 2,575,400
Dividends paid ............................................................ 0 (191,165)
---------- --------
Net cash provided by (used in) financing activities ....... 2,575,400 (191,165)
========== ========
Net increase (decrease) in cash and cash equivalents ........................... 613,530 (236,869)
Cash and cash equivalents at beginning of period ............................... 1,941,774 810,659
---------- --------
Cash and cash equivalents at end of period ..................................... 2,555,304 573,790
========== ========
</TABLE>
Noncash Transactions: See Note 9 with respect to settlement of certain
obligations by issuance of securities and share exchange transaction with
Telescan, Inc.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited 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 only of normal recurring
accruals) necessary to present fairly 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 of the full fiscal year.
(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
subsidiary, ICG and the wholly owned subsidiary of ICG, Microcap1000.Com Ltd.
("MCAP 1000"). 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 a broker/dealer and an internet web-site. The Company generates
revenues by acting as a placement agent in private financings and as a financial
consultant to various companies. The Company's wholly owned subsidiary, MCAP
1000 provides comprehensive, internet-based electronic publishing of unique
content on the MicroCap sector, generated by analysts and money managers
("MC1000 Gurus"); internet investor access for public companies; and broadcasts
over the internet through video-streamed netcasts of various financial programs.
The Company also maintains their proprietary MicroCap1000 Index, a real-time
index following the stock performance of 1000 companies with market
capitalizations of between $25 million and $500 million.
11
<PAGE>
Information with respect to reportable segments follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
MARCH 31, 1999
- ----------------------------------------------------------------------------------------------------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from external customers 0 0 20,017 20,017
- ----------------------------------------------------------------------------------------------------------------------------
Interest revenue 10,476 942 0 11,418
- ----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 0 5,034 132,351 137,385
- ----------------------------------------------------------------------------------------------------------------------------
Segment (loss) income 629,448 68,878 (1,437,415) (1,997,985)
- ----------------------------------------------------------------------------------------------------------------------------
SIGNIFICANT NONCASH ITEMS:
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized gain of securities 0 194,531 0 194,531
- ----------------------------------------------------------------------------------------------------------------------------
Compensation paid with securities 333,458 0 362,875 696,333
- ----------------------------------------------------------------------------------------------------------------------------
Segment assets 11,427,839 1,329,090 1,399,683 14,156,612
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MARCH 31, 1998
- ----------------------------------------------------------------------------------------------------------
CORPORATE BROKER/DEALER TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues from external customers 0 284,746 284,746
- ----------------------------------------------------------------------------------------------------------
Interest revenue 428 5,813 6,241
- ----------------------------------------------------------------------------------------------------------
Depreciation and amortization 0 14,929 14,929
- ----------------------------------------------------------------------------------------------------------
Segment loss (17,007) (293,080) (310,087)
- ----------------------------------------------------------------------------------------------------------
SIGNIFICANT NONCASH ITEMS:
- ----------------------------------------------------------------------------------------------------------
Unrealized gain of securities 0 (200,319) (200,319)
- ----------------------------------------------------------------------------------------------------------
Segment assets 263,601 2,178,683 2,442,284
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(3) 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
determined by the 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 owned at market value is the Common Stock of Worlds, Inc.
and Telescan, Inc. The carrying amount of the investment in Worlds, Inc. at
March 31, 1999 was $622,500 and the carrying amount of the investment in
Telescan, Inc. at March 31, 1999 was $9,333,125. (See Note 9.) Both Worlds,
Inc. and Telescan, Inc. are subject to the reporting requirements of the U.S.
Securities and
12
<PAGE>
Exchange Commission.
Unaudited summarized financial information of Worlds, Inc. (a development stage
enterprise) is as follows:
- ---------------------------------------------------------------
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Current assets $ 957,606
- ---------------------------------------------------------------
Noncurrent assets 378,246
- ---------------------------------------------------------------
Current liabilities 1,091,465
- ---------------------------------------------------------------
Noncurrent liabilities 1,852,518
- ---------------------------------------------------------------
Income Statement:
- ---------------------------------------------------------------
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Net Revenues $ 35,177
- ---------------------------------------------------------------
Gross profits 13,713
- ---------------------------------------------------------------
Operating loss before
extraordinary item (628,238)
- ---------------------------------------------------------------
Net loss (628,238)
- ---------------------------------------------------------------
Unaudited summarized financial information of Telescan, Inc. is as follows:
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Current assets $ 26,533,000
- ---------------------------------------------------------------
Noncurrent assets 8,011,000
- ---------------------------------------------------------------
Current liabilities 7,104,000
- ---------------------------------------------------------------
Noncurrent liabilities 342,000
- ---------------------------------------------------------------
Income Statement:
- ---------------------------------------------------------------
MARCH 31, 1999
- ---------------------------------------------------------------
(UNAUDITED)
- ---------------------------------------------------------------
Net Revenues $ 3,428,000
- ---------------------------------------------------------------
Gross profits 452,000
- ---------------------------------------------------------------
Operating loss before
extraordinary item (872,000)
- ---------------------------------------------------------------
Net loss (872,000)
- ---------------------------------------------------------------
(4) 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. The
Company has determined not to make the $.05625 per share Common Stock dividend
payment on June 30, 1998, September 30, 1998 and December 31, 1998 dividend
payments. The Company recognizes such payments as an obligation.
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.
(5) REVENUE RECOGNITION
Consulting fees and private placement fees are recorded when earned. In
addition, the Company earns fees in the form of securities. These securities are
valued at market on the date they are earned. Security transactions are recorded
on a trade date basis.
13
<PAGE>
(6) 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 March 31, 1999, ICG had net capital of $1,038,540 which was $1,028,756 in
excess of its required net capital.
(7) 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).
(8) 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 Capital
Growth Europe. The letter of credit is secured by a money market account.
(9) STOCKHOLDER EQUITY TRANSACTIONS DURING QUARTER ENDED MARCH 31, 1999
On January 7, 1999, the Company issued 275,000 shares of Common Stock in lieu of
payment of $308,000 for services rendered by a consultant during the year ended
December 31, 1998.
On January 27, 1999, the Company entered into a content supply agreement. Upon
execution of the agreement, the Company granted 2,000,000 warrants to purchase
Common Stock at an exercise price of $1.00 per warrant for a term of three years
and paid $207,250. The Company valued these warrants at approximately
$4,007,000.
On February 9, 1999, the Company granted 840,000 options to purchase Common
Stock to a consultant. The consultant will receive an additional 840,000 options
throughout the term of the agreement. The Company valued these warrants at
approximately $921,000.
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 150,000 shares of Common Stock which were valued at their fair
value of $1.40 per share.
The fair market value of Common Stock, options and warrants issued in connection
with the above agreements will be recorded as expense over the term of the
related agreements.
The Company sold 2,575,400 shares of Common Stock in February 1999 in a series
of private placements yielding net proceeds of approximately $2,575,400.
On March 29, 1999, the Company issued 120,000 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.
On March 31, 1999, the Company entered into a stock exchange agreement with
Telescan, Inc. ("TSCN"). The agreement provides for the exchange of 5,176,161
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 $3.75. 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, 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
14
<PAGE>
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 1,577,491 (included in
5,176,161 above) shares of the Company's Common Stock to TSCN for these services
as they are provided.
(10) SUBSEQUENT EVENTS
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.
On April 13,1999, the Company acquired all of the outstanding shares of CGE for
approximately $43,000.00 and $25,000 unregistered shares of the Company's Common
Stock.
In April 1999 the Company granted 450,000 shares of Common Stock to a consultant
to provide financial and investor services for one year. The company valued
these shares at $1,237,500 representing the fair value at the date of grant
which will be charged to expense over the term of the agreement.
On May 14, 1999, the Company sold 448,500 shares of Common Stock in a private
placement resulting in net proceeds of approximately $897,500.
In April 1999 the Company raised proceeds of $5,000,000 in a private placement
of 2,500,000 shares.
In May 1999 the Company received $14,765,338 from Freeserve, Ltd. which
represented the purchase of 6,832,669 shares of Common Stock at $2.00 per share
and the exercise of a warrant for 2,000,000 shares of Common Stock at $1.00 per
share. (See Note 9). 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. T he option is exercisable at $2.25 per share and
expires on October 2001.
(11) 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.
15
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,555,304
<SECURITIES> 10,338,117
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,432,909
<PP&E> 226,228
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,156,612
<CURRENT-LIABILITIES> 776,357
<BONDS> 0
0
0
<COMMON> 52,633
<OTHER-SE> 13,327,622
<TOTAL-LIABILITY-AND-EQUITY> 14,156,612
<SALES> 0
<TOTAL-REVENUES> 225,966
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,223,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,997,985)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
