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 JUNE 30, 2000
[_] 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
(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 4, 2000 WAS AS FOLLOWS: 16,196,214 SHARES OF COMMON STOCK
AND 34,225,000 SHARES OF CLASS A COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [ ] NO [X]
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,945,480 $ 44,523,090
Certificates of deposit and U.S. treasury bills 6,694,425 24,418,038
Restricted cash 2,308,185 106,597
Offering proceeds subsequently collected 8,139,739
Accounts receivable 956,606 480,788
Due from affiliates 222,871 435,617
Securities owned at market value 7,039,800 1,211,954
Securities not readily marketable, at fair value 5,831,246 14,559,866
Prepaid expenses and other current assets 1,687,022 503,994
------------- -------------
Total Current Assets 74,685,635 94,379,683
Equity in unconsolidated companies and joint ventures 53,709,703 21,988,559
Investments 918,580 918,580
Licensing and promotion agreements, net of accumulated
amortization of $2,055,245 and $850,327 2,249,318 1,973,362
Other assets 253,135 613,895
Fixed assets, net of accumulated depreciation of $417,831 and $186,047 2,603,626 560,571
Goodwill, net of accumulated amortization of $653,224 and $10,469 14,589,282 258,180
------------- -------------
Total $ 149,009,279 $ 120,692,830
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,345,100 $ 1,848,439
Due to affiliate 75,500 186,300
Dividends payable - preferred stockholders 38,154
------------- -------------
Total Current Liabilities 3,420,600 2,072,893
------------- -------------
Noncurrent liability 772,666
Minority interest in consolidated subsidiaries 2,606,001 19,269
Commitments and contingencies
Stockholders' equity:
Preferred Stock - $.001 par value; 20,000,000 shares
authorized, none outstanding
Class A common stock - $.001 par value;
50,000,000 shares authorized, 34,225,000 and 32,725,000 outstanding
as of 6/30/00 and 12/31/99, respectively 34,225 32,725
Class B Common Stock - $.001 par value; 25,000,000
authorized, none outstanding
Common Stock - $.001 par value, 50,000,000
shares authorized; 14,732,047 and 11,818,112 issued
as of 6/30/00 and 12/31/99, respectively 14,732 11,818
Additional paid in capital 206,719,917 146,640,481
Accumulated deficit (46,447,693) (24,657,378)
Unearned compensatory and licensing costs (9,980,004) (7,898,965)
Accumulated other comprehensive income (loss) (8,008,207) 4,650,070
Subscription receivable (92,958) (148,083)
Treasury stock, at cost, 2,500 common shares (30,000) (30,000)
------------- -------------
Total Stockholders' Equity 142,210,012 118,600,668
------------- -------------
Total $ 149,009,279 $ 120,692,830
============= =============
</TABLE>
See "Notes to Consolidated Financial Statements."
F-1
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Commission income $ 66,226 -- $ 562,851 --
Advertising revenue 257,860 $ 33,318 466,607 $ 53,335
Subscription revenue 169,265 -- 262,211 --
Private placement fees 264,800 387,482 264,800 387,482
Other revenue 38,140 -- 69,202 --
------------ ------------ ------------ ------------
Total operating revenue 796,291 420,800 1,625,671 440,817
OPERATING EXPENSES:
Cost of advertising revenue 138,955 21,787 225,574 21,787
Commission expense 42,942 175,000 219,829 175,000
General and administrative expenses 8,786,611 1,838,898 16,071,831 3,184,494
Non-cash compensatory and licensing expenses 3,534,241 3,685,188 5,694,797 4,381,521
Depreciation and amortization 1,248,471 273,750 2,105,107 455,772
------------ ------------ ------------ ------------
Total operating expenses 13,751,220 5,994,623 24,317,138 8,218,574
Operating loss (12,954,929) (5,573,823) (22,691,467) (7,777,757)
OTHER INCOME (EXPENSE):
Interest income 841,996 132,359 1,750,964 143,777
Net realized and unrealized gains (losses) on
marketable and not readily marketable
securities (1,053,629) 1,032,148 (608,517) 1,226,679
Equity in losses of unconsolidated
companies and joint ventures (2,881,230) -- (275,518) --
Minority interest in losses of
consolidated subsidiary 14,954 -- 34,223 --
------------ ------------ ------------ ------------
Total other income (expense) (3,077,909) 1,164,507 901,152 1,370,456
------------ ------------ ------------ ------------
Net loss $(16,032,838) $ (4,409,316) $(21,790,315) $ (6,407,301)
============ ============ ============ ============
Basic and diluted loss per share $ (0.89) $ (0.44) $ (1.29) $ (0.72)
============ ============ ============ ============
Weighted average common shares outstanding
basic and diluted 18,082,433 9,913,827 16,898,930 8,887,443
------------ ------------ ------------ ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(21,790,315) $ (6,407,301)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,105,107 455,772
Equity in losses of unconsolidated companies and joint ventures 275,518 --
Minority interest in losses of consolidated subsidiaries (34,223) --
Realized gains on sales of securities -- (312,999)
Change in unrealized (appreciation) depreciation of securities 608,517 (913,680)
Compensation to consultants paid with stock, options and warrants 5,694,797 4,381,521
Receipt of securities in payment of fees (187,500) --
Other items 15,568 52,781
Changes in:
Accounts receivable and due from affiliates 22,998 (29,471)
Prepaid expenses and other current assets (1,151,406) (840,919)
Licensing and other assets (1,120,112) (1,419,987)
Accounts payable and accrued expenses (297,120) 205,865
Deferred revenue -- 16,950
------------ ------------
Net cash used in operating activities (15,858,171) (4,811,468)
Cash flows from investing activities:
Additions to fixed assets (2,305,858) (179,174)
Proceeds from sale of securities -- 433,055
Collection on certificates of deposits and U.S. treasury bills 14,914,586 --
Investment in restricted cash (2,201,588) (446)
Investment in securities (7,178,692) (180,000)
Investment in unconsolidated companies and joint ventures (8,577,249) --
Acquisition of subsidiaries, net of $2,735,747 cash received (4,523,091) 6,473
Other items 106,500 --
------------ ------------
Net cash (used in) provided by investing activities (9,765,392) 79,908
Cash flows from financing activities:
Proceeds from the issuance of common stock -- 24,237,736
Proceeds from the exercise of options and warrants 22,889,243 2,000,000
Collection of Class A common stock offering proceeds 8,139,739 --
Dividends paid (38,154) (572,625)
Collection of subscription receivable 55,125 --
------------ ------------
Net cash provided by financing activities 31,045,953 25,665,111
Net increase in cash and cash equivalents 5,422,390 20,933,551
Cash and cash equivalents at beginning of period 44,523,090 1,941,774
------------ ------------
Cash and cash equivalents at end of period $ 49,945,480 $ 22,875,325
============ ============
Supplemental disclosures of non-cash transactions:
Common stock issued to acquire securities -- $ 9,333,125
Common stock issued to settle debt -- 326,563
Issuance of Common stock for acquisitions $ 6,208,138 --
Current and long-term liabilities for acquisitions 1,545,332 --
Gains on equity investees' capital 23,460,636 --
Note due from affiliate for sale of fixed assets 67,804 --
</TABLE>
See "Notes to Consolidated Financial Statements."
F-3
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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 1999 have been reclassified to conform to the 2000
presentation. During the quarter ended June 30, 2000, management has determined
that a more meaningful presentation consistent with its current strategy is to
show certain revenue and expense categories as components of non-operating
income (expense) for the three and six months ended June 30, 2000, as well as
the comparable prior year period.
(2) BUSINESS SEGMENTS
The Company and its subsidiaries have three reportable segments. The Company
operates Internet websites, broker/dealers, including an online trading
company and has a corporate administration function. The Company's Internet
websites provide comprehensive, internet-based electronic publishing of unique
financial content and services. The Company's broker/dealers segment consists of
online trading execution and mutual fund participation operations, as well as
placement agents in private financings and financial consulting to various
companies.
Information with respect to the Company's reportable segments follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
--------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 342,088 $ 454,203 $ 796,291
Interest income $ 791,016 7,069 43,911 841,996
Depreciation and amortization 1,114,424 10,876 123,171 1,248,471
Equity in loss of unconsolidated companies 2,875,058 6,172 2,881,230
Segment loss (9,752,514) (1,237,671) (5,042,652) (16,032,838)
SIGNIFICANT NONCASH ITEMS:
Unrealized depreciation of securities (10,616,226) (1,053,629) (11,669,855)
Compensation paid with stock, warrants and options 3,534,241 3,534,241
Segment assets 133,530,883 7,320,379 8,158,017 149,009,279
Expenditures for long-lived assets 366,927 34,224 350,060 751,211
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
--------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 387,482 $ 33,318 $ 420,800
Interest income $ 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 79,609
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 842,412 $ 783,259 $ 1,625,671
Interest income $ 1,663,883 24,741 62,340 1,750,964
Depreciation and amortization 1,867,689 10,876 226,542 2,105,107
Equity in loss of unconsolidated companies 241,521 33,997 275,518
Segment loss (11,325,448) (1,185,971) (9,278,896) (21,790,315)
SIGNIFICANT NONCASH ITEMS:
Unrealized depreciation of securities (9,658,449) (608,517) (10,266,966)
Compensation paid with stock, warrants and options 5,694,797 5,694,797
Segment assets 133,530,883 7,320,379 8,158,017 149,009,279
Expenditures for long-lived assets 470,840 78,822 1,756,196 2,305,858
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues from external customers $ 387,482 $ 53,335 $ 440,817
Interest income $ 138,631 2,953 2,193 143,777
Depreciation and amortization 110,767 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
</TABLE>
The Company's geographic data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30,2000 JUNE 30,1999 JUNE 30,2000 JUNE 30,1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from external customers:
United States $ 345,920 $ 387,532 $ 852,632 $ 407,549
Europe 450,371 33,268 773,039 33,268
------------ ------------ ------------ ------------
$ 796,291 $ 420,800 $ 1,625,671 $ 440,817
============ ============ ============ ============
Segment (loss) income:
United States $(12,401,348) $ (4,424,906) $(15,577,457) $ (6,422,891)
Europe (3,631,490) 15,590 (6,212,858) 15,590
------------ ------------ ------------ ------------
$(16,032,838) $ (4,409,316) ($21,790,315) $ (6,407,301)
============ ============ ============ ============
<CAPTION>
JUNE 30,2000
------------
<S> <C>
Segment assets:
United States $134,718,468
Europe 14,290,811
------------
$149,009,279
============
Fixed assets, net
United States $ 438,335
Europe 2,165,291
------------
$ 2,603,626
============
</TABLE>
(3) 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, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(16,032,838) $ (4,409,316) $(21,790,315) $ (6,407,301)
Unrealized gains (losses) on securities
available for sale:
Change in unrealized gains (losses) (10,616,226) 3,956,517 (9,658,449) 4,081,767
Less: reclassification adjustment for gains
realized in net income -- (72,969) -- (72,969)
------------ ------------ ------------ ------------
(10,616,226) 3,883,548 (9,658,449) 4,008,798
Foreign currency translation adjustments (2,107,400) -- (2,999,828) --
------------ ------------ ------------ ------------
Other comprehensive income (loss) (12,723,626) 3,883,548 (12,658,277) 4,008,798
------------ ------------ ------------ ------------
Total comprehensive loss $(28,756,464) $ (525,768) $(34,448,592) $ (2,398,503)
============ ============ ============ ============
</TABLE>
<PAGE>
(4) VALUATION OF SECURITIES
Investments in companies that GLBN owns less than a 20% interest are reviewed
for appropriate classification at the time of purchase and re-evaluated as of
each balance sheet date.
Investments held by GLBN as available-for-sale securities are carried on the
balance sheet at fair market value, with the unrealized gains and losses
reported as "Accumulated other comprehensive income", a separate component of
stockholders' equity. Investments are classified as "held to maturity" when GLBN
has the positive intent and ability to hold the investment to maturity and are
recorded at cost.
Unrealized gains and losses on securities held by the broker/dealers 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 that 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.
Included in securities owned at market is the common stock of Telescan, Inc., a
public company subject to the reporting requirements of the U.S. Securities and
Exchange Commission. The carrying amount of the investment in Telescan, Inc. at
June 30, 2000 was $3,985,313.
(5) EQUITY INVESTMENTS
On February 1, 2000, the Company contributed 2.5 million Canadian dollars or
$1.7 million for its 50% equity interest in Canada Invest Holdings, a holding
company which owns a registered securities dealer, Canada Direct, and a
financial website company, Canada-iNvest.com. Canada- Invest was created as a
result of the joint venture agreement dated June 25, 1999 between the Company
and National Bank Financial.
In March 2000, the Company created Global EuroNet Group, Inc. ("GEN"), a digital
commerce investment and operating company. The Company invested $3.2 million for
2,895,000 shares or approximately 25% of GEN. GEN raised an additional $43.2
million in equity capital contributed by successful digital commerce, Internet,
industrial and financial concerns and entrepreneurs from North America, the
United Kingdom and Europe for which the Company recorded a gain of approximately
$7.8 million on its 23.6% equity interest as of June 30, 2000.
In January and March 2000, the Company contributed an additional $2.6 million
(or 1.7 million British pounds) to GlobeNet Direct.com, Limited, a company
offering online trading of United Kingdom securities through its platform
www.StockAcademy.com in full consideration of the Company's 33.3% equity
interest.
In May 2000, the Company contributed an additional $1.0 million to MatchbookFX
Holdings, Inc. (formerly MatchbookFX, LLC) and was issued shares of preferred
stock that will be redeemed upon subsequent third party financing.
In May 2000, the Company entered into an agreement with EO plc ("EO"), an
internet company in the United Kingdom focusing on the distribution of new
equity securities (IPOs) and securities of unlisted companies seeking new
capital to retail investors, which granted the Company the option to increase
its current interest from 8% to 29.9% of EO through a share swap. Following EO's
recent private placement in July 2000, it is expected that the Company will
issue EO approximately 800,000 shares of common stock as part of the deal. As of
June 30, 2000, included in securities not readily marketable was the Company's
investment in EO totaling $3.2 million.
(6) STOCKHOLDER EQUITY TRANSACTIONS DURING THE SIX MONTHS ENDED
JUNE 30, 2000
On January 18, 2000, the Company granted additional eighteen month warrants to
World Online to purchase 16,667 shares of the Company's common stock at $11.00
per share upon the launch of the first finance channel under the content supply
agreement entered into on September 10, 1999. These warrants which vest
immediately, were valued at their fair market value of $5.54 using the
Black-Scholes pricing model with the following assumptions: interest rate of
6.12%, dividend yield of 0%, volatility factor of 1.05 and an average expected
life of 1.5 years. The Company is amortizing the value of $92,335 to non-cash
licensing expense over the term of the agreement.
On February 25, 2000, in addition to the acquisition of SOL Bors by the Company
(see Note 7 below), the Company entered into an online distribution agreement
with Scandinavia Online ("SOL"). Under the agreement, the Company became the
owner and the exclusive provider of comprehensive finance channels within the
SOL Internet portals in Scandinavia and has exclusive rights to finance
transaction businesses to be offered within the SOL Internet portals. In
exchange for such rights, the Company agreed to pay a total of $7.5 million in
cash and common stock to the three telecommunications and media companies that
own Scandinavia Online in Norway, Denmark and Sweden. At closing, 159,433 shares
of common stock were issued at a value of $28.225 per share, or $4.5 million,
and recorded as unearned compensatory costs which will be amortized over the
term of the agreement. Cash consideration up to $3.0 million is to be paid upon
certain review dates related to the launch of websites under the terms of the
agreements.
<PAGE>
On March 30, 2000, Telescan exercised its option to increase its ownership in
the Company to 19.9% of the then outstanding common and Class A common
equivalent shares by acquiring 2,439,014 shares of the Company's common stock at
a price of $12.00 per share. Telescan purchased 1,782,684 shares for $21,392,205
in cash and acquired 656,330 shares through a cashless exercise of 986,212
options, for which 329,882 options at a price of $35.875 were given up in
consideration for these shares. Fees of $250,000 were paid to a consultant in
connection with the funding of this transaction.
During the six months ended June 30, 2000, 234,516 shares of common stock were
issued upon the exercise of options and warrants previously granted to various
consultants resulting in net proceeds of $1.5 million.
(7) ACQUISITIONS
On February 15, 2000, the Company acquired SOL Bors AS ("SOL Bors"), a company
that owns financial websites in Norway, for $7.5 million in cash and common
stock. As part of the purchase price, the Company issued 159,433 common shares
valued at $4.5 million. The acquisition was accounted for under the purchase
method. The purchase price was allocated based on the estimated fair value of
net tangible assets acquired, which was approximately $44,000 at date of
purchase. SOL Bors results of operations were not material prior to acquisition.
The excess of purchase price over these net assets, approximately $7.7 million,
has been recorded as goodwill and is being amortized on a straight-line basis
over its estimated useful life.
On March 3, 2000, the Company acquired Cyberwolf Limited, a start-up developer
of websites and e-business systems in the United Kingdom, for 1.623 million
British pounds or $2.6 million. As consideration, the Company paid $157,000,
issued 26,352 common shares and recorded a liability to pay the remaining
purchase price in increments of 22,235 shares of common stock on each of the
first and second anniversaries of the acquisition date, valued at approximately
$916,000 and $1.5 million, respectively, calculated at a price of $34.75 per
common share. The consideration of $2.6 million was preliminarily allocated to
tradename and workforce in place as no other significant separately identifiable
tangible or intangible assets were acquired. This amount is being amortized on a
straight-line basis over its estimated useful life.
On June 14, 2000, the Company acquired a 50.1% interest in Investment Funds
Direct Holdings Limited ("IFDH"), a holding company that owns Investment Funds
Direct Limited ("IFDL"), an online seller of participations in managed funds in
the United Kingdom, for $4.0 million in cash and the issuance of 43,770 common
shares of the Company valued at approximately $752,000. The acquisition was
accounted for under the purchase method. The purchase price was allocated based
on the estimated fair value of net tangible assets acquired, which was
approximately $2.6 million at date of purchase. IFDL's results of operations
were not material prior to acquisition. The excess of purchase price over these
net assets, approximately $4.6 million, has been recorded as goodwill and is
being amortized on a straight-line basis over its estimated useful life. The
Company and Farlake Group plc, IFDH's other shareholder, are required to
contribute pro rata up to approximately $12.6 million for new deferred shares in
IFDH, as and when determined by the Board of IFDH, to finance working capital
over the next twelve months. These deferred shares shall carry no voting or
dividend rights and shall only participate on a return of capital in accordance
with the terms of the agreement.
(8) COMMITMENTS AND CONTINGENCIES
In 1999, the Company issued a letter of credit in the amount of $100,000 to
secure future rent payments and leasehold improvements at the London office of
an affiliate. The letter of credit is secured by a money market account.
In April 2000, the Company issued a letter of credit in the amount of $441,745
to secure future rent payments at a new office in Los Angeles, California. The
letter of credit is secured by a certificate of deposit.
In May 2000, the Company issued a letter of credit in the amount of $1,735,425
to secure future rent payments at office space in New York, New York. The
Company anticipates subleasing portions of the office space to affiliates and
other third parties. The letter of credit is secured by a certificate of
deposit.
In 1999, International Capital Growth ("ICG"), a subsidiary of the Company, was
served with a complaint, in which ICG was named as a co-defendant in a lawsuit
alleging damages of approximately $1,000,000 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. ICG and its co-defendants filed a motion for summary judgment
which was heard by the court on October 21, 1999. On June 28, 2000, the court
issued a Memorandum of Decision granting the motion for summary judgment and
dismissing the plaintiffs' complaints against all defendants. Plaintiffs have
indicated that they are likely to take an appeal. Given the court's decision,
management believes it appropriate that no provision be made in the accompanying
financial statements for any potential liability.
<PAGE>
(9) SUBSEQUENT EVENTS
On August 1, 2000, the Company acquired 100% of the outstanding common stock of
Dalton Kent Securities Group, Inc. ("Dalton Kent"), a full service broker dealer
offering stocks, bonds, options and mutual funds catering to both United States
(U.S.) and non-U.S. investors. As consideration, the Company issued 1.45 million
common shares valued at fair market value of $14.00 per share with an aggregate
value of $20.3 million. The acquisition will be accounted for under the purchase
method. The purchase price will be allocated based on the estimated fair value
of net tangible assets acquired, which was approximately $2.1 million at date of
purchase. The excess of purchase price over these net assets, approximately
$18.2 million, will be recorded as goodwill and amortized on a straight-line
basis over its estimated useful life. The transaction is subject to NASD
approval as a change in control.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
GlobalNetFinancial.com, Inc. (the "Company" or "GlobalNetFinancial") is a
rapidly expanding international financial portal providing online financial
news, investment tools and transaction services. The Company is developing a
global network of country-centric financial content websites in local market
language as well as a network of transaction execution platforms, in order to
position itself as an international financial services provider. The Company's
business model is to capture traffic for its financial content sites as a result
of partnering with leading Internet players and then to drive visitors from its
highly trafficked financial content websites to its network of transaction
execution platforms in which it maintains substantial ownership interests. In
this manner, the Company seeks to dramatically reduce its user and account
acquisition costs.
The Company conducts its financial content operations predominantly as the
exclusive provider of financial content and in certain cases the exclusive
provider of financial services for leading Internet Service Providers ("ISP's")
and portals. These services are provided by the Company as the "Money Channel"
for the ISP or portal. As a result, when a user clicks on the "Money" button on
a host ISP's or portal's home page, the user is linked to the Company's website.
The Company provides Money Channel services to Freeserve plc, the United
Kingdom's leading ISP, World Online, the largest pan-European ISP and portal and
Scandinavia OnLine, the dominant consumer Internet portal across Scandinavia.
The Company currently operates, directly or through joint ventures, financial
content websites focusing on the financial markets of the United Kingdom, the
United States, Italy, Canada, France, Denmark, Holland, Scandinavia, Germany and
Spain.
The Company has recently expanded the distribution of its content and execution
platforms to include broadband, television and mobile phone Wireless Application
Protocol ("WAP") access. The Company has entered into agreements to provide
financial news, content and e-finance commerce platforms, including online
trading, to British Telecommunication's network of WAP mobile phone users, as
well as to BTopenworld, BT's mass market broadband portal and high speed ADSL
Internet service. In addition, the Company recently entered into an agreement
with Telewest Flextech plc ("Telewest"), a leading provider of cable
telecommunications and television services for homes and businesses in the
United Kingdom to provide financial news, interactive content and e-finance
commerce platforms on six channels via digital television to Telewest's network
of broadband and cable subscribers. UK-Invest.com was launched as the first
interactive financial channel on Telewest's digital television service.
The traffic on the Company's financial content websites for the second and first
quarter of 2000 and the fourth quarter of 1999 was as follows:
Q2 2000 Q1 2000 Q4 1999
------- ------- -------
Page Views 44,129,190 57,542,323 26,394,897
During the first quarter of 2000, the Company launched Neder-iNvest.com,
Danmark-iNvest.com and France-iNvest.com. During the second quarter of 2000, the
Company launched Deutscher-Finanzmarkt.com, Espana-iNvest.com and
Canada-iNvest.com with its 50% partner, National Bank Financial. The overall
page view decline in the second quarter is consistent in management's view with
the experiences of other industry participants and the result of corrections in
the world markets leading to reduced demand for financial content.
The Company's websites are designed to generate online trading of securities and
other investment products. The Company has substantial equity interests in an
international network of online transaction businesses, including online trading
for North American and European stocks, foreign exchange and other financial
services, such as insurance. The Company has launched www.GlobalNeTrader.com,
its platform for the online trading of U.S. securities, www.Matchbookfx.com for
global foreign exchange trading, www.InsuranceWide.com, offering a full spectrum
of insurance products in the United Kingdom, and www.StockAcademy.com, its
platform for the online trading of United Kingdom securities. The Company is
currently developing additional websites and online trading platforms.
The Company's business model consists of generating revenues from its online
trading platform as well as from advertising and E-commerce and participating in
the earnings of the other transaction execution platforms in which it maintains
ownership interests. In addition, the Company is seeking to create shareholder
and balance sheet value as a result of creating joint ventures with and/or
investments in companies which have the ability to become public or be acquired
over the short term.
Management believes that the opportunities open to the Company are driven by the
following principal factors:
o an anticipated continued rapid growth in usage of the Internet
nationally and internationally;
o an increasing acceptance of the Internet as a secure medium through
which to conduct e-commerce.
o an increasing world-wide demand for financial news, information and
investment tools; and
o the positioning of the Company to capitalize upon the anticipated
growth in the number of online financial transactions in the United
Kingdom and continental Europe.
<PAGE>
FORWARD LOOKING STATEMENTS
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially from
any forward-looking statements that may be deemed to have been made in this
Report or that are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Form 10-QSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that may affect the Company's results
include, but are not limited to, the Company's limited operating history and
prior operating losses and accumulated deficit, the Company's dependence on
advertising revenue and sponsorship, the Company's ability to attract and retain
quality management needed for the Company's expanded operations, various
regulatory requirements of its securities business, and the Company's possible
inability to compete in the advertising and domestic or international Internet
markets. The Company is also subject to other risks detailed herein or detailed
from time to time in the Company's other filings with the Securities and
Exchange Commission (the "Commission"), including the risk factors described in
the Company's Form 10-KSB filed with the Commission on March 30, 2000.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 TO
THREE MONTHS ENDED JUNE 30, 1999
OPERATING REVENUE
Commission income increased by $66,226 or 100% for the three months ended June
30, 2000 from $0 for the comparable period a year earlier. This source of
revenue is from the Company's broker/dealer subsidiary, GlobalNet Securities,
Corp., which the Company acquired in the fourth quarter of 1999. Advertising
revenue from the Company's financial content websites increased by $224,543 or
674% to $257,860 for the three months ended June 30, 2000 from $33,318 for the
comparable prior year period. Advertising revenue primarily relates to the
Company's UK-iNvest.com website. No significant advertising revenue has yet to
be generated from the Company's other websites. Subscription revenue increased
to $169,265 or 100% from $0 in the comparable period in 1999 due to subscription
services on the Company's new Norwegian website. The Company anticipates
offering subscription services on its other websites in the future. Other
revenue increased by $38,140 or 100% as compared to $0 in the comparable period
in the prior year. Other revenue primarily relates to fees from the sale of
broadcast real time information on the Company's websites.
OPERATING EXPENSES
Cost of advertising revenue increased by $117,168 or 538% to $138,955 for the
three months ended June 30, 2000 from $21,787 for the comparable three months
ended June 30, 1999, corresponding to the increase in advertising revenue in the
current year. Commission expense decreased by $132,058 or 75% to $42,942 for the
three months ended June 30, 2000 from $175,000 for the comparable period
primarily due to the decline in private placement fee revenue in the current
year.
General and administrative expenses increased by $6,947,713 or 378% to
$8,786,611 for the three months ended June 30, 2000 compared to $1,838,898
during the same three month period in 1999. This increase is primarily
attributable to an increase in employee salary and benefits associated with the
increase in the number of employees, increased rent expense related to the
Company's expanded office space in both the United States and Europe,
advertising and promotional costs, content and webserver hosting costs and
professional and legal fees incurred in setting up the Company's websites
throughout Europe and joint ventures with various strategic partners in the
United States, United Kingdom and Europe. During the three months ended June 30,
2000, the Company opened offices and hired staff for new websites launched in
Germany and Spain which contributed to the increase in general and
administrative costs.
Non-cash compensatory and licensing expense decreased by $150,947 or 4% to
$3,534,241 during the three months ended June 30, 2000 compared to $3,685,188
during the three month period ending June 30, 1999. Depreciation and
amortization expense increased by $974,721 or 356% to $1,248,471 during the
three months ended June 30, 2000 compared to $273,750 during the same three
month period in 1999. The increase is due to the amortization of the Company's
licensing and promotion agreements as well as goodwill amortization from the
Company's acquisitions in 2000.
NON-OPERATING ITEMS
Interest income increased by $709,637 or 536% to $841,996 as compared to
$132,359 during the same quarter in 1999, due to higher cash balances and
certificates of deposit accounts in the current year compared to 1999.
Net realized and unrealized losses on marketable and not readily marketable
securities of $1,053,629 for the quarter ending June 30, 2000, decreased by
$2,085,777 or 202%, compared to a gain of $1,032,148 during the same period in
1999. This decrease was related to unrealized losses the Company's broker/dealer
portfolio of securities during the second quarter of 2000 compared to the second
quarter of 1999.
<PAGE>
Equity in losses of unconsolidated companies and joint ventures increased by
$2,881,230 or 100% for the three months ended June 30, 2000, from $0 for the
comparable quarter in 1999. The Company's equity losses for the three months
ended June 30, 2000 are primarily due to unrealized losses from NewMedia Spark's
portfolio of investments during the quarter ended June 30, 2000 as well as
losses from the Company's execution platform and financial website equity joint
ventures.
NET LOSS
The Company's net loss for the three months ended June 30, 2000 increased by
$11,623,522 or 2,636% from a net loss of $4,409,316 for the three months ended
June 30, 1999 to a net loss of $16,032,838 for the three months ended June 30,
2000. This increase was due to the increased operating costs related to the
Company's rapidly expanding financial Internet content and transaction execution
businesses.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO
SIX MONTHS ENDED JUNE 30, 1999
OPERATING REVENUE
Commission income increased by $562,851 or 100% for the six months ended June
30, 2000 from $0 for the comparable period a year earlier. This source of
revenue increased over the prior year due to the implementation of online
trading platforms in the current year. Advertising revenue increased by $413,272
or 775% to $466,607 for the six months ended June 30, 2000 from $53,335 for the
comparable period a year earlier. Advertising revenue primarily relates to the
Company's UK-iNvest.com website which was launched during the second quarter of
1999. Subscription revenue increased to $262,211 or 100% for the six months
ended June 30, 2000 from $0 for the comparable prior year period due to
subscription services on the Company's new Norwegian website. Private placement
fees decreased by $122,682 or 32% to $264,800 from $387,482 for the six month
period in the prior year due to the de-emphasis on investment banking.
OPERATING EXPENSES
Cost of advertising revenue increased by $203,787 or 935% to $225,574 for the
six months ended June 30, 2000 from $21,787 for the comparable period in 1999
due to the corresponding increase in advertising revenue. Commission expense
increased by $44,829 or 26% to $219,829 for the six months ended June 30, 2000
from $175,000 for the comparable period.
General and administrative expenses increased by $12,887,337 or 405% to
$16,071,831 for the six months ended June 30, 2000 compared to $3,184,494 for
the same period in 1999. This increase is primarily attributable to an increase
in employee salary and benefits associated with the increase in the number of
employees, increased rent expense related to the Company's expanded office space
in both the United States and Europe, advertising and promotional costs, content
and webserver hosting costs and professional and legal fees incurred in setting
up the Company's websites throughout Europe and joint ventures with various
strategic partners in the United States, United Kingdom and Europe.
Non-cash compensatory and licensing expense increased by $1,313,276 or 30% to
$5,694,797 during the six month period ended June 30, 2000 compared to
$4,381,521 during the same period in 1999 primarily due to the issuance of
stock, options and warrants to compensate some of its advisors and consultants
and in connection with certain licensing agreements. Depreciation and
amortization increased by $1,649,335 or 362% to $2,105,107 during the six months
ended June 30, 2000 compared to $455,772 during the comparable period in 1999.
This increase is primarily related to goodwill amortization and amortization of
the Company's licensing and promotion agreements.
NON-OPERATING ITEMS
Interest income increased by $1,607,187 or 1,118% to $1,750,964 for the six
months ended June 30, 2000 as compared to $143,777 during the comparable
year-to-date period in 1999, due to higher cash balances and certificates of
deposit accounts.
Net realized and unrealized losses on marketable and not readily marketable
securities of $608,517 for the six months ending June 30, 2000, a decrease of
$1,835,196 or 150%, compared to net gains of $1,226,679 during the same period
in 1999. This decrease was primarily related to unrealized losses on the
Company's broker/dealer portfolio of securities during the six months ended June
30, 2000 as compared to the prior year.
Equity in loss of unconsolidated companies and joint ventures increased to
$275,518 or 100% for the six months ended June 30, 2000 from $0 for the
comparable year-to-date period in 1999. The increase for the six months ended
June 30, 2000 was due to losses from the various equity investments of $2.2
million, offset by earnings from NewMedia Spark and Synaptics totaling $1.9
million.
NET LOSS
The Company's net loss for the six months ended June 30, 2000 increased by
$15,383,014 or 240% to a net loss of $21,790,315 for the six months ended June
30, 2000, from a net loss of $6,407,301 for the six months ended June 30, 1999.
This increase was due to the increased operating costs related to the Company's
rapidly expanding financial Internet content and transaction execution
businesses.
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.
Cash and cash equivalents, including certificates of deposit and United States
treasury bills, totals $56,639,905 as of June 30, 2000. Net cash used in
operating activities increased by $11,046,700 to $15,858,168 for the six months
ended June 30, 2000 from $4,811,468 in the comparable six month period in 1999,
due to lower earnings resulting from increased expenditures relating to the
start-up costs for the Company's internet financial websites and online
transactional activities. Net cash used in investing activities decreased by
$9,845,300 from net cash provided of $79,908 for the six months ended June 30,
1999 to net cash used of $9,765,392 for the six months ended June 30, 2000. The
increase was largely due to investments in unconsolidated companies and joint
ventures totaling $8,577,249, investments in securities of $7,178,692 and the
acquisition of SOL Bors, Cyberwolf and Funds Direct totaling $4,523,091, offset
by the collection on certificates of deposit and U.S. Treasury bills of
$14,914,586. Net cash provided by financing activities increased by $5,380,842
to $31,045,953 for the six months ended June 30, 2000 from $25,665,111 in the
comparable six month period in 1999. Capital in the six months ended June 30,
2000 has been provided by the exercise of options and warrants totaling $22.9
million, including $21.4 million on the option exercise by Telescan, and
collection of $8.1 million in remaining proceeds from the public offering of the
Company's Class A common stock on the Alternative Investment Market in the
United Kingdom.
As of June 30, 2000, the Company had no material capital commitments other than
under the SOL distribution agreement which will require a portion of up to $3.0
million to become due upon certain review dates in 2001. Management believes
based upon its current business plan that the Company has enough cash and
marketable securities to fund operations through at least the next twenty-four
months. Long-term liquidity needs will depend upon the Company's ability to
generate profits and rate of its expansion.
VARIABILITY OF RESULTS
The Company anticipates that its losses will continue at least through the
remainder of the year 2000 due to the continued costs of developing the
Company's online businesses. The acquisition of Dalton Kent in August 2000 is
expected to significantly increase operating revenue in the second half of the
year. Commission income, although declining in the second quarter, is expected
to grow within the near term as enhancements are made to the GlobalNetTrader.com
product. However, the start-up and uncertain nature of the Company's websites
and online transaction joint ventures makes it difficult to forecast when
substantial revenues will be generated or when profitability will commence.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1999, International Capital Growth ("ICG"), a subsidiary of the Company, was
served with a complaint, in which ICG was named as a co-defendant in a lawsuit
alleging damages of approximately $1,000,000 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. ICG and its co-defendants filed a motion for summary judgment
which was heard by the court on October 21, 1999. On June 28, 2000, the court
issued a Memorandum of Decision granting the motion for summary judgment and
dismissing the plaintiffs' complaints against all defendants. Plaintiffs have
indicated that they are likely to take an appeal. Given the court's decision,
management believes it appropriate that no provision be made in the accompanying
financial statements for any potential liability.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 18, 2000, in connection with the content supply agreement entered
into on September 10, 1999, with World Online, the Company granted eighteen
month warrants to purchase 16,667 shares of the Company's common stock at $11.00
per share. These warrants vest immediately and were valued at $5.54 per share
using the Black-Scholes pricing model.
On February 25, 2000, in connection with the acquisition of SOL BORS, the
Company issued 318,866 shares of the Company's common stock at a value of
$28.225 per share.
On March 3, 2000, the Company acquired Cyberwolf Limited, and issued 26,352
shares of the Company's common stock valued at $34.75 per share.
On March 30, 2000, in connection with the exercise of the Telescan option, the
Company issued 2,439,014 shares of the Company's common stock at a price of
$12.00 per share.
On June 14, 2000, in connection with the acquisition of Investment Funds Direct
Holdings, the Company issued 43,770 shares of the Company's common stock to
Doyne Investments Limited valued at $17.19 per share.
On August 1, 2000, in connection with the acquisition of Dalton Kent Securities
Group, Inc., the Company issued 1,450,000 shares of the Company's common stock
to various principals of Dalton Kent valued at $14.00 per share.
All of the above securities were issued in transactions exempt from registration
by virtue of Section 4(2) of the Securities Act of 1933 as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
27.1 Financial Data Schedule
27.2 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.
<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.
Date: August 11, 2000 BY: /S/ STANLEY HOLLANDER
-------------------------------------
Stanley Hollander
Chairman of the Board
President and Chief Executive Officer
Date: August 11, 2000 BY: /S/ RICHARD GUEST
-------------------------------------
Richard Guest
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- -----------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
