U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 NOVEMBER 6, 2000 WAS AS FOLLOWS: 16,352,881 SHARES OF COMMON STOCK
AND 34,225,000 SHARES OF CLASS A COMMON STOCK, CONVERTIBLE INTO 3,422,500 SHARES
OF COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [ ] NO [X]
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
GLOBALNET FINANCIAL.COM, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,653,784 $ 44,523,090
Certificates of deposit and U.S. treasury bills 5,501,991 24,418,038
Restricted cash 2,119,637 106,597
Offering proceeds subsequently collected 8,139,739
Accounts receivable 633,028 480,788
Due from affiliates 451,662 435,617
Securities owned at market value 610,990 1,211,954
Securities not readily marketable, at fair value 14,559,866
Prepaid expenses and other current assets 3,323,006 503,994
------------- -------------
Total Current Assets 58,294,098 94,379,683
Equity in unconsolidated companies and joint ventures 40,422,692 21,988,559
Investments - available for sale 32,182,603 918,580
Licensing and promotion agreements, net of accumulated amortization of $3,452,984 and
$850,327 1,245,578 1,973,362
Other assets 301,697 613,895
Fixed assets, net of accumulated depreciation of $643,507 and $186,047 3,104,608 560,571
Goodwill, net of accumulated amortization of $2,591,841 and $10,469 31,556,609 258,180
------------- -------------
Total $ 167,107,885 $ 120,692,830
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 6,051,114 $ 1,848,439
Due to affiliate 29,600 186,300
Dividends payable - preferred stockholders 38,154
------------- -------------
Total Current Liabilities 6,080,714 2,072,893
------------- -------------
Noncurrent liability 34,413
Minority interest in consolidated subsidiaries 3,645,247 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 9/30/00 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; 16,352,881 and 11,818,112 issued
as of 9/30/00 and 12/31/99, respectively 16,353 11,818
Additional paid in capital 227,927,903 146,640,481
Common Stock payable 16,822,239
Accumulated deficit (73,553,134) (24,657,378)
Unearned compensatory and licensing costs (4,880,371) (7,898,965)
Accumulated other comprehensive income (loss) (5,339,182) 4,650,070
Subscription receivable (32,958) (148,083)
Treasury stock, at cost, 551,495 common shares (3,647,564) (30,000)
------------- -------------
Total Stockholders' Equity 157,347,511 118,600,668
------------- -------------
Total $ 167,107,885 $ 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 NINE MONTHS ENDED
SEPT. 30, 2000 SEPT. 30, 1999 SEPT. 30, 2000 SEPT. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Advertising revenue $ 172,927 $ 139,822 $ 639,534 $ 193,157
Subscription revenue 171,137 433,348
Commission income 1,563,832 2,126,683
Net gains on principal transactions 1,032,315 1,032,315
Private placement fees 102,000 264,800 489,482
Other revenue 605,691 674,893
------------ ------------ ------------ ------------
Total operating revenue 3,545,902 241,822 5,171,573 682,639
OPERATING EXPENSES:
Cost of advertising revenue 6,905 75,462 232,479 97,249
Commission expense 1,102,397 42,000 1,322,226 217,000
General and administrative expenses 19,421,223 4,553,671 41,187,851 12,119,686
Depreciation and amortization 3,562,033 465,033 5,667,140 920,805
------------ ------------ ------------ ------------
Total operating expenses 24,092,558 5,136,166 48,409,696 13,354,740
Operating loss (20,546,656) (4,894,344) (43,238,123) (12,672,101)
OTHER INCOME (EXPENSE):
Interest income 767,884 165,107 2,518,848 308,884
Net realized and unrealized gains (losses) on
investments (5,966,654) 96,329 (6,575,171) 1,323,008
Equity in losses of unconsolidated
companies and joint ventures (1,487,582) (20,581) (1,763,100) (20,581)
Minority interest in losses of
consolidated subsidiary 127,567 161,790
------------ ------------ ------------ ------------
Total other income (expense) (6,558,785) 240,855 (5,657,633) 1,611,311
------------ ------------ ------------ ------------
Net loss $(27,105,441) $ (4,653,489) $(48,895,756) $(11,060,790)
============ ============ ============ ============
Basic and diluted loss per share $ (1.43) $ (0.42) $ (2.78) $ (1.15)
============ ============ ============ ============
Weighted average common shares outstanding
basic and diluted 18,931,353 11,178,466 17,576,405 9,618,480
------------ ------------ ------------ ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 30, 2000 SEPT. 30, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(48,895,756) $(11,060,790)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 5,667,140 920,805
Equity in losses of unconsolidated companies and joint ventures 1,763,100 20,581
Minority interest in losses of consolidated subsidiaries (161,790)
Realized (gains) losses on sales of securities 5,595,794 (953,760)
Change in unrealized (appreciation) depreciation of securities 979,377 (367,281)
Compensation to consultants paid with stock, options and warrants 12,958,102 5,600,995
Receipt of securities in payment of fees (375,000)
Other items 15,568 92,752
Changes in:
Accounts receivable and due from affiliates 49,981 (459,846)
Securities owned at market 391,346
Prepaid expenses and other current assets (1,905,466) (535,120)
Licensing and other assets (1,531,074) (2,797,758)
Accounts payable and accrued expenses 532,551 (102,599)
Deferred revenue (5,000)
Long term liabilities 34,413
------------ ------------
Net cash used in operating activities (24,881,714) (9,647,021)
Cash flows from investing activities:
Additions to fixed assets (2,904,695) (357,070)
Proceeds from sale of securities 3,720,097 522,437
Collection on certificates of deposits and U.S. treasury bills 18,916,047
Investment in restricted cash (1,783,957) (1,413)
Investment in securities (7,178,692) (180,000)
Investment in unconsolidated companies and joint ventures (8,577,249) (2,476,723)
Acquisition of subsidiaries, net of $3,337,895 cash received (3,920,943) 6,473
Other items 106,500 (457,000)
------------ ------------
Net cash used in investing activities (1,622,892) (2,943,296)
Cash flows from financing activities:
Proceeds from the issuance of common stock 24,237,736
Proceeds from the exercise of options and warrants 23,094,477 2,600,000
Collection of Class A common stock offering proceeds 8,139,739
Dividends paid (38,154) (572,625)
Collection of subscription receivable 115,125
------------ ------------
Net cash provided by financing activities 31,311,187 26,265,111
Effect of exchange rate changes on cash (3,675,886)
Net increase in cash and cash equivalents 1,130,694 13,674,794
Cash and cash equivalents at beginning of period 44,523,090 1,941,774
------------ ------------
Cash and cash equivalents at end of period $ 45,653,784 $ 15,616,568
============ ============
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 $ 26,508,138
Common stock payable for acquisitions 1,545,332
Common stock payable for equity investments 15,276,907
Gains on equity investees' capital 23,460,636
Current liability and share exchange to purchase treasury stock 3,617,564
Securities received 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
SEPTEMBER 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.
Net loss per share is based on the weighted average number of shares of Common
Stock and Class A Common Stock outstanding during the year. Common stock
equivalents representing options, warrants and contingently issuable shares have
not been included as they would be antidilutive.
Certain amounts in 1999 have been reclassified to conform to the 2000
presentation.
(2) FAILED ACQUISITION AND RELATED CHARGES
On August 17, 2000, the Company entered into a merger agreement with Telescan,
Inc. ("Telescan"), an Internet services provider to financial and publishing
industries, as well as providing proprietary analytics and content to investors.
During the due diligence period, the companies determined that each of their
strategies would be best served if pursued separately. On September 25, 2000,
the Company signed a termination agreement with Telescan. As part of the
termination agreement, the Company entered into a share exchange in which
272,500 shares of the Company's stock held by Telescan, valued at $2.0 million,
were exchanged for 545,000 shares of Telescan held by the Company, for which the
Company recorded a realized loss of $7.4 million. In addition, the Company
purchased 276,495 shares of its Common stock from Telescan at $6.00 per share,
valued at $1.66 million, and would pay $250,000 to cover some of Telescan's
expenses associated with the merger. The common stock the Company purchased from
Telescan is shown as treasury stock as of September 30, 2000 and the Company
recorded a liability of $1.91 million for the shares and expenses that was
subsequently paid. In addition, the Company expensed $1.1 million of acquisition
costs and wrote-off $923,000 of non-cash compensatory costs related to the
failed acquisition in September 2000.
(3) RESTRUCTURING CHARGES
With the appointment of Tom Hodgson as the Company's new President and Chief
Executive Officer ("CEO") on September 27, 2000, the Company set about a plan of
restructuring the Company. As part of the restructuring plan, the former
President and CEO remained Chairman of the Board of Directors, but as a
non-employee director. In addition, several other positions in both the London
and Los Angeles offices were terminated as the Company pursues a new operational
structure to simplify the lines of business. As of September 30, 2000, the
Company recorded approximately $1.4 million in restructuring charges related to
termination payments to identified employees, as well as for executive leased
office space in Los Angeles that the Company no longer needed.
(4) 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
traditional and online securities sales, including equity securities, options
and mutual funds as well as acting as placement agents in private placements,
public offerings and providing financial advisory services.
Information with respect to the Company's reportable segments follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPT. 30, 2000
---------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 397,500 $ 2,672,499 $ 475,903 $ 3,545,902
Interest income 647,766 63,827 56,291 767,884
Depreciation and amortization 2,965,288 489,076 107,669 3,562,033
Equity in loss of unconsolidated companies 1,473,642 13,940 1,487,582
Segment loss (20,947,322) (2,288,444) (3,869,675) (27,105,441)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation (depreciation) of securities 3,390,841 (370,860) 3,019,981
Compensation paid with stock, warrants and options 6,096,492 1,166,813 7,263,305
Segment assets 134,237,338 27,469,885 5,400,662 167,107,885
Expenditures for long-lived assets 366,508 84,659 147,670 598,837
<CAPTION>
THREE MONTHS ENDED SEPT. 30, 1999
---------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 102,000 $ 139,822 $ 241,822
Interest income $ 154,351 8,255 2,501 165,107
Depreciation and amortization 356,741 4,110 104,182 465,033
Equity in loss of unconsolidated companies 20,581 20,581
Segment (loss) income (2,463,298) 131,187 (2,321,378) (4,653,489)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation (depreciation) of securities (4,275,839) 40,080 4,235,759
Compensation paid with stock, warrants and options 1,219,474 1,219,474
Segment assets 28,826,038 2,845,935 2,089,286 33,761,259
Expenditures for long-lived assets 177,896 177,896
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT. 30, 2000
--------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 397,500 $ 3,514,911 $ 1,259,162 $ 5,171,573
Interest income 2,311,649 88,568 118,631 2,518,848
Depreciation and amortization 4,832,977 499,952 334,211 5,667,140
Equity in loss of unconsolidated companies 1,715,163 47,937 1,763,100
Segment loss (32,272,770) (3,474,415) (13,148,571) (48,895,756)
SIGNIFICANT NONCASH ITEMS:
Unrealized depreciation of securities (6,267,608) (979,377) (7,246,985)
Compensation paid with stock, warrants and options 11,791,289 1,166,813 12,958,102
Segment assets 134,237,338 27,469,885 5,400,662 167,107,885
Expenditures for long-lived assets 837,348 163,481 1,903,866 2,904,695
<CAPTION>
NINE MONTHS ENDED SEPT. 30, 1999
--------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 489,482 $ 193,157 $ 682,639
Interest income $ 292,982 11,208 4,694 308,884
Depreciation and amortization 467,508 14,177 439,120 920,805
Equity in loss of unconsolidated companies 20,581 20,581
Segment (loss) income (7,548,951) 1,271,009 (4,782,848) (11,060,790)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation (depreciation) of securities (267,041) 953,760 686,719
Compensation paid with stock, warrants and options 5,600,995 5,600,995
Segment assets 28,826,038 2,845,935 2,089,286 33,761,259
Expenditures for long-lived assets 57,697 299,373 357,070
</TABLE>
The Company's geographic data is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPT. 30, 2000 SEPT. 30, 1999 SEPT. 30, 2000 SEPT. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues from external customers:
United States $ 3,073,391 $ 122,451 $ 3,926,023 $ 529,999
Europe 472,511 119,371 1,245,550 152,640
------------ ------------ ------------ ------------
$ 3,545,902 $ 241,822 $ 5,171,573 $ 682,639
============ ============ ============ ============
Segment (loss) income:
United States $(23,564,251) $ (4,056,344) $(39,141,707) $(10,479,235)
Europe (3,541,190) (597,145) (9,754,049) (581,555)
------------ ------------ ------------ ------------
$(27,105,441) $ (4,653,489) ($48,895,756) $(11,060,790)
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SEPT. 30, 2000
--------------
<S> <C>
Segment assets:
United States $155,449,096
Europe 11,732,149
------------
$167,107,885
============
Fixed assets, net
United States $ 590,228
Europe 2,514,380
------------
$ 3,104,608
============
</TABLE>
<PAGE>
(5) COMPREHENSIVE LOSS
The following table sets forth the computation of comprehensive loss:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------- --------------------------------
SEPT. 30, 2000 SEPT. 30, 1999 SEPT. 30, 2000 SEPT. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $(27,105,441) $ (4,653,489) $(48,895,756) $(11,060,790)
Unrealized gains (losses) on securities available for sale:
Change in unrealized gains (losses) (2,204,953) (4,219,590) (11,863,402) (137,824)
Less: reclassification adjustment for (gains) losses
realized in net income 5,595,794 (56,248) 5,595,794 (129,217)
------------ ------------ ------------ ------------
3,390,841 (4,275,838) (6,267,608) (267,041)
Foreign currency translation adjustments (721,816) (3,721,644)
------------ ------------ ------------ ------------
Other comprehensive income (loss) 2,669,025 (4,275,838) (9,989,252) (267,041)
------------ ------------ ------------ ------------
Total comprehensive loss $(24,436,416) $ (8,929,327) $(58,885,008) $(11,327,831)
============ ============ ============ ============
</TABLE>
<PAGE>
(6) 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.
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.
(7) ARIZONA TECHNICAL OFFICE SPIN OFF
In June 2000, the Arizona technical office spun off from the Company and formed
24x7 Development.com, Inc. ("24x7"). The Company was given 5,000,000 shares in
24x7, valued at $67,803, representing the business assets given up. On July 31,
2000, 24x7 announced that it was merging with Digital Bridge, Inc. ("Digital
Bridge"). As a result of the merger, the Company's shares in 24x7 converted to
2,000,000 shares of Digital Bridge at a value of $.94 per share for a realized
gain of $1.8 million.
The Company still used the services of 24x7 for its website maintenance for the
period June through October 2000, while technical support for the Company
transitioned to the Cyberwolf technical department in the United Kingdom.
Through September 30, 2000, the Company paid 24x7 $600,000 in website
maintenance costs, included in general and administrative expenses.
(8) 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 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 against
additional paid in capital 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 for 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.
On July 28, 2000, the Company entered into an agreement terminating any previous
arrangements with Twice Sim, S.p.A. ("Twice Sim"), an affiliated partner in the
Company's Italia-iNvest.com, S.p.A. equity investment. In accordance with such
agreement, the Company gave a 10% beneficial interest in Canada Invest Holdings
("Canada"), a 50% equity investment of the Company, to Twice Sim. The value of
this 10% interest, approximately $287,000, was charged to non-cash compensatory
expense and the Company began recording its equity loss from Canada at 40%. In
addition, the Company was to sell half of its 8% interest in EO plc ("EO") to
Twice Sim. On August 4, 2000, the Company sold 4% of its interest to Twice Sim
for $1.5 million.
On August 25, 2000, the Company exercised its option to increase its interest
from 4% to 29.9% of 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, through a share
swap. The value of the Company's common stock payable to EO totals $15.3 million
and will be paid in common shares using the 20 day trading average of the
Company's stock price for the period ending January 31, 2001, with a minimum
conversion share price of $8.00 per share. If such shares had been issued as of
September 30, 2000, the Company would have issued 1.8 million common shares for
its 29.9% interest in EO.
During the quarter ending September 30, 2000, due to the change in the Company's
ability to exercise significant influence over NewMedia Spark, Plc. ("NewMedia
Spark"), not exclusive of the dilution of the Company's investment from 33.3% to
8.3%, the Company is no longer equity accounting for its investment in NewMedia
Spark. The value of the Company's NewMedia Spark investment was reclassified to
available for sale securities and was carried at fair market value of $24.6
million at September 30, 2000.
<PAGE>
(9) 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. The Company has classified
its $1,545,332 liability for the acquisition as common stock payable as of
September 30, 2000.
On June 14, 2000, the Company acquired a 50.1% interest in Investment Funds
Direct Holdings Limited ("IFDH"), a holding company that purchased 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 $2.1 million, has been recorded as goodwill and is
being amortized on a straight-line basis over its estimated useful life. The
Company's result of operations include IFDH from June 14, 2000. 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.
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 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 $1.6 million at date of
purchase. The excess of purchase price over these net assets, approximately
$18.9 million, has been recorded as goodwill and amortized on a straight-line
basis over its estimated useful life. The Company contributed the investment in
Dalton Kent to a 94.2% owned subsidiary, GlobalNet Securities Holdings ("GLS
Holdings"), for which GLS Holdings recorded a non-cash compensatory charge of
$1.2 million. The Company's result in operations include Dalton Kent from August
1, 2000.
(10) STOCKHOLDER EQUITY TRANSACTIONS DURING THE NINE MONTHS ENDED SEPTEMBER
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 9 above), 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 on SOL, the Company agreed
<PAGE>
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.
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.
On August 1, 2000, the Company issued 1,450,000 common shares for the
acquisition of Dalton Kent Securities Group, Inc. (see Note 9 above).
On September 27, 2000, the Company entered into agreements to issue 115,000
shares of common stock valued at $6.125 per share to two companies it had
contractual obligations with. The Company charged $704,375 as non-cash
compensatory costs in September 2000.
During the nine months ended September 30, 2000, 290,350 shares of common stock
were issued upon the exercise of options and warrants previously granted to
various consultants and employees resulting in net proceeds of $1.7 million.
(11) 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. In
September 2000, the Company terminated its commitment to this new office space
due to the Company's restructuring and recorded rent termination expense of
$275,000.
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. By order dated
October 31, 2000, the Court denied Plaintiffs' Motion for New Trial, on
Alternatively, to Alter or Amend Judgment, which ICG and its co-defendants had
opposed. Plaintiffs have indicated that they are likely to take an appeal, and,
should they choose to do so, must file a Notice of Appeal by November 30, 2000.
Given the court's decision, management believes it appropriate that no provision
be made in the accompanying financial statements for any potential liability.
In September 2000, an action was commenced against the Company and certain of
its officers and directors by Daniel Uslander and Ronald Comerchero in the
Supreme Court of the State of New York. Mr. Uslander and Mr. Comerchero, who are
minority shareholders and directors of GlobalNet Securities, Corp., a registered
broker/dealer in which the Company owns the majority interest, allege, among
other things, that the defendants are in breach of the stock purchase agreement
and exchange agreement pursuant to which the Company purchased its interest in
GlobalNet Securities, Corp. The complaint in the action seeks damages in an
amount to be determined at trial. The Company believes that the suit is without
merit and intends to defend the claims vigorously. Management
<PAGE>
believes it appropriate that no provision be made in the accompanying financial
statements for any potential liability.
(12) SUBSEQUENT EVENTS
On October 2, 2000, the Company contributed an additional $730,000 (or 500,000
British pounds) to GlobeNet Direct.com, Limited for non-cumulative redeemable
preferred stock.
On October 6, 2000, the Company contributed an additional $50,000 to MatchbookFX
Holdings, Inc. that along with $135,000 of the Company's due from affiliates
balance from MatchbookFX at September 30, 2000 was to be treated as a
convertible subordinated loan that will automatically convert equity of
MatchbookFX on the 45 day, unless the loan has been repaid.
<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 has developed a
global network of country-centric financial content websites in local market
language intrinsically linked to 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.
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. 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 entered into an agreement with
Telewest Flextech plc ("Telewest"), a leading provider of cable 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
Telewest's network of broadband and cable subscribers.
The traffic on the Company's financial content websites for the last four
quarters was as follows:
Q3 2000 Q2 2000 Q1 2000 Q4 1999
------- ------- ------- -------
Page Views 55,800,000 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 increase in the third quarter is due to expansion in the new European
websites.
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 relaunched its U.S. securities
online trading platform and rebranded it under the name of
www.AladdinTrader.com, launched 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 long term sustainable 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 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 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 SEPTEMBER 30, 2000 TO
THREE MONTHS ENDED SEPTEMBER 30, 1999
OPERATING REVENUE
Advertising revenue from the Company's financial content websites increased by
$33,105 or 24% for the three months ended September 30, 2000 for the comparable
prior year period. The advertising revenue increase primarily relates to the
Company's Norwegian website. Subscription revenue increased by $171,137 or 100%
from the comparable period in 1999 due to subscription services on the Company's
Norwegian website. Commission income increased by $1.6 million or 100% from the
comparable three month period in 1999 largely due to the Company's new
broker/dealer subsidiary, Dalton Kent, which the Company acquired in August
2000. Net gains on principal transactions increased by $1.0 million or 100% over
the third quarter last year due to Dalton Kent's operations. Other revenue
increased by $605,691 or 100% from the comparable period in 1999. Other revenue
primarily relates to consulting fees earned by GlobalNet Financial for
introducing various business parties to each other, fees from the sale of
broadcast real time information on the Company's websites and other investment
income from Dalton Kent.
OPERATING EXPENSES
Cost of advertising revenue decreased by $68,557 or 91% for the three months
ended September 30, 2000 as compared to the prior three month period in 1999,
due to some credits being recorded in the current quarter. Commission expense
increased by $1.1 million or 2,525% from the comparable prior year period
primarily due to commissions on Dalton Kent's income.
General and administrative expenses increased by $14.9 million or 326% from the
prior year three month period. Excluding failed acquisition costs of $1.1
million and restructuring charges of $1.4 million in the quarter ending
September 30, 2000, general and administrative expenses increased by $12.4
million or 273% to $17.0 million as compared to $4.6 million in the comparable
three month period ending September 30, 1999. Included in general and
administrative expenses for the three months ended September 30, 2000 is $7.3
million in non-cash compensatory and licensing expenses, an increase of $6.0
million or 496% from the comparable three month period in 1999. Part of this
increase in non-cash compensatory and licensing expenses is due to $1.9 million
in accelerated write-offs on licenses that no longer have any future value to
the Company due to change in technology needs of the Company's new U.S. online
platform, AladdinTrader.com, and a $923,000 write-off of Telescan non-cash
compensatory expenses due to the termination of contractual obligations. In
addition, $1.2 million in non-cash compensatory costs related to the Company
contributing its investment in Dalton Kent to a 94.2% owned subsidiary was also
recorded in the quarter. The remaining increase in general and administrative
expenses of $6.4 million or 192% is primarily attributable to an increase in
employee salary and benefits of $2.5 million, $664,000 increase in advertising
and promotional costs, $560,000 increase in content and webserver hosting costs,
$359,000 in clearing, execution and brokerage costs and $1.4 million increase in
various branch office costs for Company's websites throughout Europe.
Depreciation and amortization expense increased by $3.1 million or 666% compared
to the prior three month period in 1999 due to goodwill amortization from the
Company's acquisitions in 2000 and amortization of the Company's licensing and
promotion agreements, including $723,000 in accelerated amortization of licenses
that no longer have any future value to the Company due to change in technology
needs.
NON-OPERATING ITEMS
Interest income increased by $602,778 or 365% compared to the third quarter in
1999, due to higher cash balances and certificates of deposit accounts in the
current year.
<PAGE>
Net realized and unrealized losses on investments increased by $6.1 million or
6,294% primarily related to a $7.4 million realized loss on the Telescan stock
exchange swap in the third quarter of 2000, offset by a $1.8 million realized
gain from the conversion of the Company's shares in 24x7 Development.com, Inc.,
formerly the Company's Arizona technical department, to shares in Digital
Bridge, Inc. upon the merger of the two companies, as well as an increase of
$411,000 in unrealized losses on the Company's broker/dealer portfolio of
securities.
Equity in losses of unconsolidated companies and joint ventures increased by
$1.5 million or 7,128% from the prior year quarter. The Company's equity losses
for the three months ended September 30, 2000 are primarily due to unrealized
losses from the Company's execution platform equity joint ventures.
NET LOSS
The Company's net loss for the three months ended September 30, 2000 increased
by $22.5 million or 482% compared to the prior year quarter. Excluding $5.3
million in general and administrative expenses, consisting of $1.1 million in
failed acquisition costs, $1.4 million in restructuring charges and $2.8 million
in accelerated write-offs of non-cash compensatory and licensing costs, $723,000
in depreciation and amortization related to accelerated write-off of licenses
and $7.4 million in non-operating realized losses related to the Telescan share
exchange from the quarter ending September 30, 2000, the Company's net loss was
$13.8 million, an increase of $9.1 million or 196% as compared to a net loss of
$4.7 million for the comparable period in 1999. This increase was primarily due
to an increase in operating expenses of $13.0 million, including an increase of
$3.2 million in other non-cash compensatory and licensing expenses.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
OPERATING REVENUE
Advertising revenue increased by $446,377 or 231% over the nine months ending
September 30, 1999. Advertising revenue primarily relates to the Company's
UK-iNvest.com website, as well as the Company's Norwegian website. Subscription
revenue increased by $433,348 or 100% compared to the nine months ending
September 30, 1999 due to subscription services on the Company's Norwegian
website. Commission income increased by $2.2 million or 100% compared to the
nine months ended September 30, 1999 due to the acquisition of Dalton Kent in
August 2000. Net gains on principal transactions increased by $1.0 million or
100% from the comparable prior year period due to Dalton Kent's operations.
Private placement fees decreased by $224,682 or 46% from the nine month period
in the prior year due to the Company's de-emphasis on investment banking. Other
revenue increased by $674,893 or 100% from the comparable period in the prior
year. Other revenue primarily relates to consulting fees earned by GlobalNet
Financial for introducing various business parties to each other, fees from the
sale of broadcast real time information on the Company's websites and other
investment income from Dalton Kent.
OPERATING EXPENSES
Cost of advertising revenue increased by $135,230 or 139% from the comparable
period in 1999 due to the corresponding increase in advertising revenue.
Commission expense increased by $1,105,226 or 509% for the comparable period due
to Dalton Kent's operations in the current year.
General and administrative expenses increased by $29.1 million or 240% as
compared to the same nine month period in 1999. Excluding failed acquisition
costs of $1.1 million and restructuring charges of $1.4 million incurred in
2000, general and administrative expenses increased by $26.6 million or 220%
from the comparable nine month period in 1999. Included in general and
administrative expenses for the nine months ended September 30, 2000 is $13.0
million in non-cash compensatory and licensing expenses, an increase of $7.4
million or 131% from the comparable nine month period in 1999. Part of this
increase in non-cash compensatory and licensing expenses is due to $1.9 million
in accelerated write-offs in the third quarter of 2000 on licenses that no
longer have any future value to the Company due to change in technology needs of
the Company's new U.S. online platform, AladdinTrader.com, and a $923,000
write-off of Telescan non-cash compensatory expenses due to the termination of
contractual obligations. In addition, $1.2 million in non-cash compensatory
costs related to the Company contributing its investment in Dalton Kent to a
94.2% owned subsidiary was also recorded. The remaining increase in general and
administrative expenses of $19.3 million or 296% is primarily attributable to a
$6.4 million increase in employee salary and benefits associated with the
increase in the number of employees, a $2.3 million increase in advertising and
promotional costs, a $1.8 million increase in content and webserver hosting
costs and $1.4 million in 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 and Europe.
Depreciation and amortization increased by $4.0 million or 437% from the
comparable period in 1999, due to goodwill amortization from the Company's
acquisitions in 2000 and amortization of the Company's licensing and promotion
agreements, including $723,000 in accelerated amortization of licenses that no
longer have any future value to the Company due to change in technology needs.
<PAGE>
NON-OPERATING ITEMS
Interest income increased by $2.2 million or 715% compared to the prior year
period in 1999, due to higher cash balances and certificates of deposit accounts
in 2000.
Net realized and unrealized losses on investments increased by $7.9 million or
597% compared to the same period in 1999. This decrease was related to a $7.4
million realized loss on the Telescan stock exchange swap in the third quarter
of 2000, offset by a $1.8 million realized gain from the conversion of the
Company's shares in 24x7 Development.com, Inc., formerly the Company's Arizona
technical department, to shares in Digital Bridge, Inc. upon the merger of the
two companies, as well as an increase of $2.2 million in unrealized losses on
the Company's broker/dealer portfolio of securities.
Equity in losses of unconsolidated companies and joint ventures increased by
$1.7 million or 8,467% as compared to the prior year period. This increase was
largely due to losses from the various execution platform equity investments,
offset by earnings from NewMedia Spark through the first six months of 2000 when
it was still reported as an equity investment.
NET LOSS
The Company's net loss for the nine months ended September 30, 2000 increased by
$37.8 million or 342% from the prior year comparable nine month period.
Excluding $5.3 million in general and administrative expenses, consisting of
$1.1 million in failed acquisition costs, $1.4 million in restructuring charges
and $2.8 million in accelerated write-offs of licenses, $723,000 in depreciation
and amortization related to accelerated write-off of licenses and $7.4 million
in non-operating realized losses related to the Telescan share exchange from
2000, the Company's net loss was $35.6 million, an increase of $24.5 million or
222%, as compared to a net loss of $11.1 million for the comparable period in
1999. This increase was primarily due to an increase in operating expenses of
$29.1 million, including an increase of $4.6 million in other non-cash
compensatory and licensing expenses.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, including certificates of deposit and United States
treasury bills, totals $51,155,775 as of September 30, 2000. Net cash used in
operating activities increased by $15,234,693 to $24,881,714 for the nine months
ended September 30, 2000 from $9,647,021 in the comparable nine 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
$1,320,404 from net cash used of $2,943,296 for the nine months ended September
30, 1999 to net cash used of $1,622,892 for the nine months ended September 30,
2000. The increase was largely due to increses in investments in unconsolidated
companies and joint ventures of $6.1 million, investments in securities of
$7.0 million and acquisitions of $3.9 million, offset by the collection on
certificates of deposit and U.S. Treasury bills of $18.9 million. Net cash
provided by financing activities increased by $5,046,076 to $31,311,187 for the
nine months ended September 30, 2000 from $26,265,111 in the comparable nine
month period in 1999. Capital in the nine months ended September 30, 2000 has
been provided by the exercise of options and warrants totaling $23.1 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 September 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 eighteen
months. Long-term liquidity needs will depend upon the Company's ability to
generate profits and the rate of its expansion.
VARIABILITY OF RESULTS
The Company anticipates that its underlying losses will continue at least
through the remainder of the year 2000. The acquisition of Dalton Kent in August
2000 significantly increased both operating revenue and expense during the third
quarter of 2000 and is expected to at least break even in 2000. 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. By order dated
October 31, 2000, the Court denied Plaintiffs' Motion for New Trial, on
Alternatively, to Alter or Amend Judgment, which ICG and its co-defendants had
opposed. Plaintiffs have indicated that they are likely to take an appeal, and,
should they choose to do so, must file a Notice of Appeal by November 30, 2000.
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.
In September 2000, an action was commenced against the Company and certain of
its officers and directors by Daniel Uslander and Ronald Comerchero in the
Supreme Court of the State of New York. Mr. Uslander and Mr. Comerchero, who are
minority shareholders and directors of GlobalNet Securities, Corp., a registered
broker/dealer in which the Company owns the majority interest, allege, among
other things, that the defendants are in breach of the stock purchase agreement
and exchange agreement pursuant to which the Company purchased its interest in
GlobalNet Securities, Corp. The complaint in the action seeks damages in an
amount to be determined at trial. The Company believes that the suit is without
merit and intends to defend the claims vigorously.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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.
The securities below were issued in transactions exempt from registration by
virtue of Section 4(2) of the Securities Act of 1933 as amended:
On August 21, 2000, in connection with the exercise of a previously issued
warrant to a consultant, the Company issued 41,667 shares of the Company's
common stock at a price of $1.50 per share.
On September 27, 2000, in connection with the resolution of a contractual
obligation with Camden Commercial Services, the Company issued 15,000 shares of
the Company's common stock at a price of $6.13 per share.
On September 27, 2000, in connection with the resolution of a contractual
obligation with Twice International, S.A., the Company issued 100,000 shares of
the Company's common stock at a price of $6.13 per share.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
Form 8-K Dated August 1, 2000, filed August 15, 2000
----------------------------------------------------
The Company reported that on August 1, 2000, the Company
acquired 100% of the outstanding common stock of Dalton Kent
Securities Group, Inc. A copy of the Agreement and Plan of
Merger was filed as Exhibit 2.1 to that Form 8-K.
Form 8-K Dated August 17, 2000, filed August 17, 2000
-----------------------------------------------------
The Company reported a merger agreement with Telescan, Inc. A
press release issued by the Company on August 17, 2000 was
attached as Exhibit 99.1
Form 8-K/A Dated September 27, 2000, filed September 27, 2000
-------------------------------------------------------------
The Company reported on terminating the Agreement and Plan of
Merger dated August 16, 2000 with Telescan, Inc. A press
release issued by the Company on September 26, 2000 was
attached as Exhibit 99.1.
Form 8-K/A Dated August 1, 2000, filed October 2, 2000 and 5,
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2000
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The Company filed, regarding the acquisition of the
outstanding common stock of Dalton Kent Securities Group,
Inc., the audited financial statements of Dalton Kent
Securities Group, Inc. for the year ended December 31, 1999
as Exhibit 99.1, the unaudited financial statements of Dalton
Kent Securities Group, for the six months ended June 30, 2000
and June 30, 1999 as Exhibit 99.2 and the pro forma financial
information for the year ended December 31, 1999 and for the
six months ended June 30, 2000 as Exhibit 99.3
<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: November 14, 2000 BY: /S/ W. THOMAS HODGSON
W. Thomas Hodgson
President and Chief Executive
Officer
Date: November 14, 2000 BY: /S/ RICHARD GUEST
Richard Guest
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 Financial Data Schedule
