U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 MAY 8, 2000 WAS AS FOLLOWS: 14,722,843 SHARES OF COMMON STOCK AND
34,225,000 SHARES OF CLASS A 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.
CONSOLIDATED
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,772,628 $ 44,523,090
Certificates of deposit and U.S. treasury bills 11,109,806 24,418,038
Restricted cash 107,140 106,597
Offering proceeds subsequently collected 8,139,739
Option exercise proceeds receivable 13,686,560
Accounts receivable 954,620 480,788
Due from affiliates 300,000 435,617
Securities owned at market value 17,035,997 1,211,954
Securities not readily marketable, at fair value 5,731,904 14,559,866
Prepaid expenses and other current assets 1,612,827 503,994
------------- -------------
Total Current Assets 99,311,482 94,379,683
Equity in unconsolidated companies and joint ventures 43,032,901 21,988,559
Investments 918,580 918,580
Licensing and promotion agreements, net of accumulated amortization of $1,391,673 and $850,327 2,109,890 1,973,362
Other assets 115,717 613,895
Fixed assets, net of accumulated depreciation of $297,328 and $186,047 2,094,154 560,571
Goodwill and other intangibles, net of accumulated amortization of $214,478 and $10,469 10,377,801 258,180
------------- -------------
Total $ 157,960,525 $ 120,692,830
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 3,169,519 $ 1,848,439
Due to affiliate 127,200 186,300
Dividends payable - preferred stockholders 38,154 38,154
------------- -------------
Total Current Liabilities 3,334,873 2,072,893
------------- -------------
Noncurrent liability 772,666
Minority interest in consolidated subsidiary -- 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 3/31/00 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; 14,622,843 and 11,818,112 issued
as of 3/31/00 and 12/31/99, respectively 14,623 11,818
Additional paid in capital 190,012,402 146,640,481
Accumulated deficit (30,414,855) (24,657,378)
Unearned compensatory and licensing costs (10,330,745) (7,898,965)
Accumulated other comprehensive income 4,715,419 4,650,070
Subscription receivable (148,083) (148,083)
Treasury stock, at cost, 2,500 common shares (30,000) (30,000)
------------- -------------
Total Stockholders' Equity 153,852,986 118,600,668
------------- -------------
Total $ 157,960,525 $ 120,692,830
============= =============
</TABLE>
See "Notes to Consolidated Financial Statements."
F-1
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------ ------------
<S> <C> <C>
Revenue:
Online trading commission income $ 496,625
Advertising revenue 208,747 $ 20,017
Subscription revenue 92,946
Other revenue 31,062
Net realized and unrealized gains on
marketable and not readily marketable securities 445,112 194,531
Interest income 908,968 11,418
------------ ------------
Total operating revenue 2,183,460 225,966
Operating expenses:
Cost of advertising revenue 86,619
General and administrative expenses 7,462,107 1,350,233
Non-cash compensatory and licensing expenses 2,160,556 736,333
Depreciation and amortization 856,636 137,385
Equity in earnings of unconsolidated
companies and joint ventures (2,605,712)
Minority interest in loss of
consolidated subsidiary (19,269)
------------ ------------
Total operating expenses 7,940,937 2,223,951
------------ ------------
Net loss $ (5,757,477) $ (1,997,985)
============ ============
Basic and diluted loss per share $ (0.37) $ (0.26)
============ ============
Weighted average common shares outstanding
basic and diluted 15,715,428 7,656,000
------------ ------------
</TABLE>
See "Notes to Consolidated Financial Statements."
F-2
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,757,477) $ (1,997,985)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 856,636 137,385
Equity in earnings of unconsolidated companies and joint ventures (2,605,712)
Minority interest in loss of consolidated subsidiary (19,269)
Change in unrealized (appreciation) depreciation of securities (445,112) (194,531)
Compensation to consultants paid with stock and options 2,160,556 736,333
Changes in:
Accounts receivable and due from affiliates (120,611)
Prepaid expenses and other current assets (1,091,356) (328,946)
Licensing and other assets (179,697) (193,162)
Accounts payable and accrued expenses (377,865) (115,517)
Deferred revenue (5,000)
------------ ------------
Net cash used in operating activities (7,579,907) (1,961,423)
Cash flows from investing activities:
Additions to fixed assets (1,554,647)
Collection on certificates of deposits and U.S. treasury bills 12,580,431
Investment in restricted cash (543) (447)
Investment in securities (5,593,192)
Investment in unconsolidated companies and joint ventures (7,577,249)
Acquisition of subsidiaries, net of $86,736 cash received (3,180,264)
------------ ------------
Net cash used in provided by investing activities (5,325,464) (447)
Cash flows from financing activities:
Proceeds from the exercise of options and warrants 9,015,170 2,575,400
Collection of Class A common stock offering proceeds 8,139,739
------------ ------------
Net cash provided by financing activities 17,154,909 2,575,400
Net increase in cash and cash equivalents 4,249,538 613,530
Cash and cash equivalents at beginning of period 44,523,090 1,941,774
------------ ------------
Cash and cash equivalents at end of period $ 48,772,628 $ 2,555,304
============ ============
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 $ 5,455,732
Current and long-term liabilities for acquisitions 1,545,332
Receivable for option exercise proceeds 13,686,560
Gains on equity investee capital increases 10,876,430
</TABLE>
See "Notes to Consolidated Financial Statements."
F-3
<PAGE>
GLOBALNET FINANCIAL.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
(1) FINANCIAL STATEMENT PRESENTATION
The unaudited condensed consolidated financial statements of GlobalNet
Financial.com, Inc. (the "Company" or "GLBN") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC") and, in
the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
of operations for the interim periods presented. Certain information and
footnote disclosures normally included in financial statements, prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such rules and regulations. However, management believes
that the disclosures are adequate to make the information presented not
misleading. The results for the interim periods are not necessarily indicative
of the results for the full fiscal year.
Certain amounts in 1999 have been reclassified to conform to the 2000
presentation.
(2) BUSINESS SEGMENTS
The Company and its subsidiaries have three reportable segments. The Company
operates internet websites, as 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/dealer operations consist
of both an online trading subsidiary, GlobalNet Securities, and International
Capital Growth ("ICG"), which acts as a placement agent in private financings
and as a financial consultant to various companies.
Information with respect to the Company's reportable segments follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
---------------------------------
CORPORATE BROKER/DEALERS INTERNET TOTAL
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 500,324 $ 329,056 $ 829,380
Investment income $ 872,868 462,784 18,429 1,354,080
Depreciation and amortization 753,265 103,371 856,636
Equity in (earnings) loss of unconsolidated companies (2,633,537) 27,825 (2,605,712)
Segment (loss) income (1,572,934) 51,700 (4,236,243) (5,757,477)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation of securities 957,777 445,112 1,402,889
Compensation paid with stock, warrants and options 2,160,556 2,160,556
Segment assets 147,077,644 3,036,175 7,846,706 157,960,525
Expenditures for long-lived assets 103,913 44,598 1,406,136 1,554,647
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------
CORPORATE BROKER/DEALER INTERNET TOTAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues from external customers $ 20,017 $ 20,017
Investment income $ 10,476 $ 942 11,418
Depreciation and amortization 5,034 132,351 137,385
Segment (loss) income (1,009,592) 68,878 (1,057,271) (1,997,985)
SIGNIFICANT NONCASH ITEMS:
Unrealized appreciation of securities 125,250 194,531 319,781
Compensation paid with stock, warrants and options 736,333 736,333
Segment assets 11,427,839 1,329,090 1,399,683 14,156,612
</TABLE>
The Company's geographic data for the three month period ended March 31, 2000 is
as follows:
<TABLE>
<CAPTION>
UNITED STATES EUROPE TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
Revenues from external customers $ 506,712 $ 322,668 $ 829,380
Segment loss (3,176,109) (2,581,368) (5,757,477)
Segment assets 150,937,631 7,022,894 157,960,525
Fixed assets, net 529,525 1,564,629 2,094,154
</TABLE>
During the first quarter of 1999, the Company only operated in the United
States.
F-4
<PAGE>
(3) COMPREHENSIVE LOSS
The following table sets forth the computation of comprehensive loss:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
----------- -----------
<S> <C> <C>
Net loss $(5,757,477) $(1,997,985)
Unrealized gains on securities available for sale:
Change in unrealized gains 957,777 125,250
Foreign currency translation adjustments (892,428)
----------- -----------
Other comprehensive income 65,349 125,250
----------- -----------
Total comprehensive loss $(5,692,128) $(1,872,735)
=========== ===========
</TABLE>
(4) VALUATION OF SECURITIES
Investments in companies which 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 which do not have a readily ascertainable
market value are valued at their estimated fair value as determined by
management. Management considers fair value to be cost unless the value has
deteriorated or where later investments have been concluded by a significant
outside investor, then the investment is valued at the last per share sales
price paid unless circumstances dictate a lower valuation.
Included in securities owned at market is the common stock of Telescan, Inc., a
publicly traded company. The carrying amount of the investment in Telescan, Inc.
at March 31, 2000 was $12,875,625.
(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 GlobalEuroNet Group, Inc., a digital commerce
investment and operating company ("GEN"). The Company invested $3.2 million for
2,895,000 shares or 25% of GEN, which was initially capitalized with 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.
During the quarter ended March 31, 2000, the Company contributed an additional
$2.6 million (or 1.7 million British pounds) to GlobeNet Direct.com, Limited, as
part of its 33.3% investment in this equity investee.
(6) STOCKHOLDER EQUITY TRANSACTIONS DURING THE THREE MONTHS ENDED
MARCH 31, 2000
On January 18, 2000, the Company granted an eighteen month warrant to World
Online to purchase 16,667 shares of the Company's common stock at $11.00 per
share under the terms of 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. 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 8 below), the Company entered into an
F-5
<PAGE>
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 distribution on SOL, 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 of $3.0 million is to be paid upon certain review dates related to
the launch of websites under the terms of the agreements over the next 24
months.
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. At March 31, 2000, the Company received
$7,705,645 and recorded a receivable of $13,686,560 for the exercise of the
option, which was subsequently collected in April 2000. Fees of $250,000 payable
to a consultant in connection with the Telescan transaction were recorded
against the proceeds from Telescan's option exercise.
During the three months ended March 31, 2000, 169,082 shares were issued upon
the exercise of options and warrants previously granted to various consultants
resulting in net proceeds of $1.3 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 and paid $3.0 million in cash. 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 $7.5 million, has been recorded as goodwill and is being
amortized on a straight-line basis over 10 years.
On March 3, 2000, the Company acquired Cyberwolf Limited, a developer of
websites and e-business systems in the United Kingdom, for 1.623 million British
pounds or $2.6 million. 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.
(8) COMMITMENTS AND CONTINGENCIES
The Company has issued a letter of credit in the amount of $100,000 to secure
future rent payments and leasehold improvements at the London office of 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.
On May 2, 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,
which will include both office space for the Company, its majority owned
subsidiary, GlobalNet Securities Corp., and other affiliated and non-affiliated
third party tenants. The Company will be subleasing space to the various
occupants. 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 have filed a motion to dismiss the
complaint which was heard by the court on October 21, 1999. The court has not
issued a decision or ruling on the motion. Management believes that the claims
against ICG are without merit and is vigorously opposing those claims, however,
the outcome is presently undeterminable. In the opinion of management any
potential liability with respect to this litigation is not presently
determinable and no provision has been made in the accompanying financial
statements for any potential liability.
F-6
<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 and Scandinavia.
The Company has also entered into an agreement to provide financial news,
content and e-finance commerce platforms, including online trading, to British
Telecommunication's network of Wireless Application Protocol ("WAP") mobile
phone users. 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.
The traffic on the Company's financial content websites for the fourth quarter
of 1999 and the first quarter of 2000 was as follows:
PAGE VIEWS
-------------------------------
SITE Q4 1999 Q1 2000
- ---- --------- ---------
UK-iNvest.com 23,205,804 46,850,570
Italia-iNvest.com 839,467 5,185,710
America-iNvest.com 2,349,626 3,643,155
UNIQUE VISITORS
-------------------------------
SITE Q4 1999 Q1 2000
- ---- --------- ---------
UK-iNvest.com 1,608,938 7,320,231
Italia-iNvest.com 115,622 694,541
America-iNvest.com 209,427 578,056
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 and www.InsuranceWide.com, offering a full
spectrum of insurance products in the United Kingdom. The Company anticipates
launching its online trading and clearing platforms for the United Kingdom and
Canada this spring. 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:
/bullet/ an anticipated continued rapid growth in usage of the Internet
nationally and internationally;
/bullet/ an increasing acceptance of the Internet as a secure medium through
which to conduct e-commerce.
/bullet/ an increasing world-wide demand for financial news, information and
investment tools; and
/bullet/ 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.
<PAGE>
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 TO
THREE MONTHS ENDED MARCH 31, 1999
OPERATING REVENUE
Online trading commission income increased by $496,625 or 100% for the three
months ended March 31, 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 websites increased to by $188,730 or 943%
to $208,747 for the three months ended March 31, 2000 from $20,017 for the
comparable prior year period. Advertising revenue primarily relates to the
Company's UK-iNvest.com website. Subscription revenue increased to $92,946 or
100% from $0 in the comparable period in 1999 due to subscription services
offered on the Company's new Norwegian website. Other revenue increased by
$31,062 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.
The Company reported revenue from realized and unrealized gains on marketable
and not readily marketable securities of $445,112 for the quarter ending March
31, 2000, an increase of 250,581 or 129%, compared to a gain of $194,531 during
the same period in 1999. This increase was primarily related to unrealized gains
resulting from the mark to market of the Company's broker/dealer portfolio of
securities during the first quarter of 2000 compared to the first quarter of
1999. Interest income increased by $897,550 or 7,861% to $908,968 as compared to
$11,418 during the same quarter in 1999, due to interest earned on proceeds from
the Company's offering in the United Kingdom during the fourth quarter of 1999.
OPERATING EXPENSES
Cost of advertising revenue increased by $86,619 or 100% for the three months
ended March 31, 2000 from $0 for the comparable three month period a year
earlier. Cost of advertising revenue consists of commissions on the advertising
revenue generated by the Company's website, UK-iNvest.com, payable to the
Company's advertising agency, as well as revenue sharing costs to the Company's
partner, Freeserve plc.
General and administrative expenses increased by $6,111,874 or 453% to
$7,462,107 for the three months ended March 31, 2000 compared to $1,350,233
during the same period in 1999. The increase is the result of the Company
becoming an international financial service provider utilizing the internet.
This has resulted in a significant increase in the number of Company employees,
increased rent expense related to the Company's office space in both the United
States and Europe, advertising and promotional costs related to launching the
Company's websites, content and webserver hosting costs and professional fees
incurred in setting up the Company's new websites and joint ventures with
various strategic partners in the United States, United Kingdom and Europe.
Non-cash compensatory and licensing expense increased to $2,160,556 or 193%
during the three month period ending March 31, 2000 compared to $736,333 during
the three month period ending March 31, 1999 which was primarily the result of
the Company utilizing stock and warrants to compensate some of its advisors and
consultants. The largest of these licensing agreements are with Telescan Inc.
and Freeserve plc, for which the Company issued equity securities in 1999 and is
amortizing the value of such securities over the terms of the agreements.
Depreciation and amortization expense increased by $719,251 or 524% to $856,636
during the three months ended March 31, 2000 compared to $137,385 during the
same period in 1999. The increase is primarily related to the amortization of
the Company's licensing and promotion agreements.
Equity in earnings of unconsolidated companies and joint ventures increased by
$2,605,712 or 100% for the three months ended March 31, 2000, from $0 for the
comparable quarter in 1999. The Company's equity earnings for the three months
ended March 31, 2000 are due to income from the Company's investments in
NewMedia Spark and Synaptics, offset by losses in the Company's other financial
websites and online trading ventures.
NET LOSS
The Company's net loss for the three months ended March 31, 2000 increased by
$3,759,492 or 188% from a net loss of $1,997,985 for the three months ended
March 31, 1999 to a net loss of $5,757,477 for the three months ended March 31,
2000. This increase was due to the increased operating costs related to the
Company's rapidly expanding financial internet content and transaction execution
businesses.
<PAGE>
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.
At March 31, 2000, the Company had cash and cash equivalents of $48,772,628 as
well as certificates of deposit and United States treasury bills totalling
$11,216,946, which represent cash equivalents with maturities greater than three
months. Cash and cash equivalents, including certificates of deposit and United
States treasury bills, totals $59,989,574. On March 30, 2000, Telescan, Inc.
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, Inc. purchased 1,782,684 shares for $21,392,205 in cash and acquired
656,330 shares of common stock through a cashless exercise. As of March 31,
2000, $7,705,645 was paid by Telescan, Inc. and the remaining cash payment of
$13,686,560 was collected in April 2000 and is not included in cash and cash
equivalents above.
Net cash used in operating activities increased by $5,618,484 to $7,579,907 for
the three months ended March 31, 2000 from $1,961,423 in the comparable three
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 increased by $5,325,017 from $447 in 1999 to net cash used of
$5,325,464 for the three months ended March 31, 2000. The increase was largely
due to investments in unconsolidated companies and joint ventures totaling
$7,577,249, investments in securities of $5,593,192 and the acquisition of SOL
Bors and Cyberwolf totaling $3,180,264, offset by the collection on certificates
of deposit and U.S. Treasury bills of $12,580,431. Net cash provided by
financing activities increased by $14,579,509 to $17,154,909 for the three
months ended March 31, 2000 from $2,575,400 in the comparable three month period
in 1999. Capital has been provided by the exercise of options and warrants and
collection on the remaining proceeds from the public placement of the Company's
Class A common stock on the Alternative Investment Market in the United Kingdom
in December 1999.
As of March 31, 2000, other than general and administrative operating expenses,
the Company had no material capital commitments through the end of this fiscal
year. Management believes based upon its current business plan that the Company
has enough cash 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 future financial results will vary and losses
will continue in the year 2000. This is the result of the start-up and uncertain
nature of the Company's websites and online transaction joint ventures.
<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 have filed a motion to dismiss the
complaint which was heard by the court on October 21, 1999. The court has not
issued a decision or ruling on the motion. Management believes that the claims
against ICG are without merit and is vigorously opposing those claims, however,
the outcome is presently undeterminable. In the opinion of management any
potential liability with respect to this litigation is not presently
determinable and no provision has been 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 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 common stock at a value of $28.225 per share.
On March 3, 2000, the Company acquired Cyberwolf Limited, and issued 26,352
common shares 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.
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 Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
quarter for which this report was filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLOBALNET FINANCIAL.COM, INC.
Date: May 15, 2000 BY: /S/ STANLEY HOLLANDER
---------------------------------
Stanley Hollander
Chairman of the Board,
President and Chief Executive
Officer
Date: May 15, 2000 BY: /S/ MICHAEL S. JACOBS
---------------------------------
Michael S. Jacobs
Chief Financial Officer,
Secretary and Treasurer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.0
<CASH> 59,989,574
<SECURITIES> 22,767,901
<RECEIVABLES> 14,941,180
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 99,311,482
<PP&E> 2,391,482
<DEPRECIATION> 297,328
<TOTAL-ASSETS> 157,960,525
<CURRENT-LIABILITIES> 3,334,873
<BONDS> 0
0
0
<COMMON> 48,848
<OTHER-SE> 153,804,138
<TOTAL-LIABILITY-AND-EQUITY> 157,960,525
<SALES> 829,380
<TOTAL-REVENUES> 2,183,460
<CGS> 86,619
<TOTAL-COSTS> 7,940,937
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,757,477)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,757,477)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
