SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter ended March 31, 1997Commission File No. 33-27652-NY
(Exact name of registrant as specified in its charter)
Delaware
22-2946374
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
(Address of Principal Executive Office)
Registrant s telephone number, including area code: (203) 328 3071
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
Transitional Small Business Disclosure Format:
Yes: X No:
The number of shares outstanding of the registrant s common stock, $.01 par
value, as March 31, 1997 is 15,824,010.<PAGE>
BusinessNet International Inc.and Subsidiary
(formerly Navigato International Inc.)
INDEX
Page
Part I Financial Information
Consolidated Balance Sheet - March 31, 1997 2-3
Consolidated Statements of Operations - Three Months Ended
March 31, 1997 and Three Months Ended March 31, 19964
Consolidated Statements of Cash Flows - Three Months Ended
March 31,1997 and Three Months Ended March 31, 1996 5
Notes to the Consolidated Financial Statements 6-10
Management s Discussion and Analysis of Financial Condition
and Results of Operations 11-15
Part II Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature page 18
<PAGE>
BUSINESSNET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1997
Assets
Current Assets
Cash $ 1,008,843
Accounts receivable trade and financial
services, net of allowance for doubtful
accounts of $1,427,917 3,290,941
Accounts receivable other, net of
allowance for doubtful accounts
of $25,197 434,542
Accounts receivable - officer 1,100,325
Other receivables 212,854
Securities owned, at market value 684,417
Inventories 204,769
Prepaid expenses 46,164
Total Current Assets 6,982,855
Other Investments
Investment in unconsolidated entities 220,796
Investment in collectibles 437,088
Property and equipment, at cost, net of
accumulated depreciation of $1,301,205 2,174,258
Loan receivable - officer 177,790
Security deposits 126,481
Other Assets
Deferred tax asset 387,707
Other Assets 3,867
Total $10,510,842
<PAGE>
BUSINESSNET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1997
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 3,131,883
Securities sold and not yet purchased 887,280
Due to credit institutions 426,497
Other current liabilities 2,334,475
Taxes payable 537,579
Current portion of long term debt 298,415
Total Current Liabilities 7,616,129
Long Term Debt, net of current portion 782,414
Stockholders' Equity
Common stock, par value $.01 per share,
authorized 50,000,000 shares, issued
and outstanding 15,824,010 shares at
March 31, 1997 158,240
Preferred stock, authorized 1,000,000 shares,
par value $5.00 no shares issued -
Additional paid in capital 3,051,332
Retained deficit (1,006,788)
Cumulative translation adjustment (85,485)
Treasury stock (5,000)
Total Stockholders' Equity 2,112,299
Total Liabilities and Stockholders' Equity $10,510,842
<PAGE>
BUSINESSNET INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three
Months Ended
March 31,
1997 1996
(Restated)
Commissions and Fees $12,361,171 $ 5,439,762
Interest and dividends 15,768 1,854
Other revenue 327,145 25,617
Total Revenue 12,704,084 5,467,233
Operating Expenses
Direct Operating Expenses 1,584,214 873,413
Selling and administrative expenses 6,118,719 3,228,744
Research and development 235,968 68,270
Depreciation expenses 131,473 115,884
Bad debt expense - 88,515
Total Operating Expenses 8,070,374 4,374,826
Income from operations 4,633,710 1,092,407
Other Income (Expense)
(Loss) income on principal trading (2,810,316) 562,633
(Loss) from unconsolidated investees (123,618) (55,131)
Interest expense (81,085) (14,156)
Total Other Income (Expenses) (3,015,019) 493,346
Income before taxes 1,618,691 1,585,753
(Provision for) taxes (399,465) (555,013)
Net Income $ 1,219,226 $ 1,030,740
Net income per share $ .077 $ .066
Weighted average shares outstanding 15,824,010 15,641,760
<PAGE>
BUSINESSNET INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three
Months Ended
March 31,
1997 1996
OPERATING ACTIVITIES (Restated)
Cash Flows Provided by Operating Activities:
Net income $ 1,219,226 $1,030,740
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 131,473 115,884
Loss from unconsolidated investees 123,618 55,131
Provision for bad debts - 88,515
(Increase) decrease in securities purchased
and inventories on hand (301,605) (408,305)
(Increase) in accounts receivable (1,206,366) 349,006
(Increase) decrease in other receivables 124,635 (24,028)
Decrease (increase) in prepaid expenses 14,011 20,303
Increase in accounts payable and accrued
expenses 2,068,186 (16,494)
Increase in taxes payable 359,358 519,961
Decrease (increase) in security deposits (16,268) 2,300
(Decrease) increase in other liabilities 14,707 (339,018)
(Decrease) increase in due to customers (1,376,245) (738,271)
(Decrease) increase in securities sold
and not yet purchased (185,712) 248,374
(Increase)decrease in other assets 6,506 12,804
Net cash provided by operating
activities 975,524 916,802
INVESTING ACTIVITIES
Cash Flows Used In Investment Activities:
Acquisition of fixed assets (138,107) (180,256)
Payment for purchase of investees (260,041) -
Investment in collectibles (26,122) (173,162)
Net cash used in investing activities (424,270) (353,418)
FINANCING ACTIVITIES
Cash Flows Used In Financing Activities:
Proceeds from loans payable 36,684 788,733
Repayment of loans payable (105,035) (6,090)
Advances to related parties (150,301) (3,741)
Net cash used in financing activities (218,652) 778,902
Effect of Exchange Rate Changes on Cash (10,303) (11,450)
Net increase in cash and cash equivalents 322,299 1,330,836
Cash and cash equivalents, beginning of period 686,544 793,573
Cash and cash equivalents, end of period $1,008,843 $2,124,409
<PAGE>
A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997. Earnings per share are based on weighted average
shares outstanding for all periods presented giving retroactive
recognition to an appropriate equivalent change for the reverse split on
May 18, 1993 and includes shares outstanding issued in connection with the
merger with BusinessNet U.K. Limited on June 4, 1996 as if they where
outstanding since May 1, 1994. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Registrant Company and Subsidiaries annual report on Form 10-KSB for the
year ended December 31, 1996.
B. STOCK ISSUANCE, PURCHASE OF NAVIGATO A/S AND MERGER WITH BUSINESSNET U.K.
LTD
In January, 1994 the Company completed a Regulation S offering of
1,200,000 shares which generated gross proceeds of $1,200,000. Direct
offering costs of $87,328 were incurred bringing net proceeds to the
company of $1,112,672. Additionally 50,000 shares, valued at $1.00 per
share were granted to a Placement Agent which assisted in this
transaction.
On January 31, 1994 the Company entered into an agreement to acquire 100%
of the issued and outstanding capital stock of Navigato A/S. The company
acquired 50% of the capital stock through the issuance of 3,400,000 shares
of its common stock. The agreement provided the company the assignable
right, which was exercised on January 31, 1994, to acquire the remaining
50% of the shares of Navigato A/S for a price of DKK 500,000. This reverse
acquisition was recorded as a recapitalization, with Navigato A/S
considered the acquirer.
On March 31, 1995 the Company completed an additional Regulation S
offering of 500,000 shares, each sold for $1.125 per share. This generated
net proceeds of $562,500 to the Company. Additionally 150,000 shares,
valued at $1.125 per share were granted to consultants which assisted in
this transaction.
On June 4, 1996 the Company issued 9,000,000 shares to the shareholders of
BusinessNet U.K. Limited (formerly Dubesco U.K. Limited) in a transaction
accounted for as a pooling of interests pursuant to APB16, and,
accordingly, the consolidated financial statements include the
consolidated results of operations for all periods presented and
historical equity from the date BusinessNet U.K. commenced operations
January 10, 1992).
<PAGE>
C. RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Due to the recapitalization of January 31, 1994, historical Stockholders'
Equity of the Acquirer (Navigato A/S) prior to the merger is retroactively
restated for the equivalent number of shares received in the merger after
giving effect to any difference in par value of the issuer's and
acquirer's stock with an offset to paid-in-capital. Retained deficit of
the acquirer has been carried forward after the acquisition. The 1996
amounts for BusinessNet U.K. Limited have been included in the income
statement, this restatement is due to the pooling of interests discussed
above.
Certain reclassifications have been made to the interim 1996 financial
statements to conform with the 1997 financial statement presentation.
D. RELATED PARTY TRANSACTIONS
Prior to the merger the Company kept funds with a company owned by the
director and current chairman, who from time to time assisted the Company
with its efforts in capital markets. This director was considered an
affiliate and is now the Chairman of the Company.
The Company also rents offices from a company owned by the Chairman and
included in rent expense for 1997 and 1996 is approximately $8,500 and
$8,250, respectively.
Prior to the acquisition discussed in Note B, the "S" Registration also
described in Note B was fully subscribed by a company controlled by the
current chairman.
Accounts receivable - officer includes $1,100,325 of non-interest bearing
advances to the chairman which are expected to be repaid in 1997.
On December 31, 1995, the Board of Directors of the Company originally
approved a loan on $125,000 and subsequently has authorized increases to
the President of the Fleet Management subsidiary, Navigato A/S, in
consideration of the agreement by Mr. Madsen to serve as an Officer and
Director of the Company at a minimal salary during the development stage
of the Company. The loan was originally to be repaid on February 1, 1997
together with interest at the rate of 6% per annum, and has been extended
another year. At March 31, 1997 the total loan receivable - officer was
$177,790
Included in interest income is accrued interest of $2,413 on this loan to
the officer for the three months ended March 31, 1997.
<PAGE>
E. FOREIGN CURRENCY AND OPERATIONS
The financial statements and transactions of Navigato A/S are maintained
in their functional currency (Danish Kroner) and translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No.
52. All balance sheet accounts are translated at the current exchange rate
and income statement items are translated at the average exchange rate for
the applicable period. Any translation adjustments are accumulated in a
separate component of stockholders equity.
At March 31, 1997 the cumulative translation adjustment is as follows:
Balance January 1, 1996 as restated $(3,283)
Translation adjustment - historical value of equity 8,605
Current years (1997) translation from functional
currency DKK (198,303)
Other translation adjustments 47,496
Balance March 31, 1997 $(85,485)
F. CONTINGENCIES
The Company's financial services division is involved in several
litigations with customers, primarily due to complaints in connection with
either the suitability of investments or results of the customers trading
when they are not successful. Frequently these actions were commenced by
customers in defense of the Company enforcing default provisions in fee
and credit arrangements. Generally, the Company has corresponding
receivable balances which have been reserved and included in the allowance
for bad debt. The Company does not anticipate to have claims in excess
of reserves which are already recorded in the accompanying financial
statements.
During the fourth quarter of 1996, the Company recorded as a non-recurring
charge the write off of a receivable totaling $1,066,000 which arose from
the reversal of payments the Company had already received in the form of
checks from a customer. These amounts had previously been recognized as
commission or fee revenues or a reduction of expense. By agreement
amongst Danish banks, the customers correspondent bank reversed the
checks, and such reversal was recognized by the Company's bank. The
customer claim for such reversal is based upon losses incurred by the
customer's president on unauthorized investments. Additionally, the
customer claimed relief on $180,000 of commissions and fees paid by wire,
such claims were not honored by the Company's bank and the Company does
not expect this claim to be honored, nor has it recorded a charge for the
same. The Company's filed a counter claim against the customer arguing
the customer's claim is frivolous, and the company's counter claim
includes the customer's bank, as the Company alleges proceeds from the
check reversal were used to offset debts the customer had with the bank.
The anticipated length of time such a counter claim will take on behalf of
the Company to both prevail and ultimately realize proceeds had created an
uncertainty as to the collectibility of such amounts. If a positive
result is achieved from this litigation, the Company will record the same
as income when the proceeds are in fact received.
<PAGE>
F. CONTINGENCIES - (Continued)
The Company's financial services companies primarily operate in Denmark
and as such have not been subject to the control of a regulatory body. In
December 1995, the Danish authorities announced it would put into place
such controls by June of 1997, including certain criteria for having the
authority to perform many of the revenue producing activities these
subsidiaries now perform in addition to requirements to maintain minimum
levels of capital. The Company has already applied for this approval and
anticipates receiving the same by the required date. The legislation also
allows up to 18 months after the application date to address items the
regulatory body considers to be a short fall in the application. The
Company does not anticipate it will be unable to obtain this approval.
In accordance with Danish law, salaried employees are entitled to three
months notice of termination after six months of employment with the terms
of notice increasing one month for each three years of employment. The
accompanying financial statements do not include any liabilities for such
obligations as the Company has not prematurely terminated any current
employees.
In connection with the investment in unconsolidated investees the Company
has contingent liabilities, for the limited partners' share of non-
recourse liabilities, secured by assets of the limited partnership
investees, totaling 24,024,000DKK or approximately $3,800,000. Due to the
assets secured and the non-recourse nature of the debt, no provisions for
loss contingencies have been recorded by the Company.
.
<PAGE>
G. SEGMENT INFORMATION
The Company operated principally in two industries, financial services and
technological services for the Internet and transportation industries and
other. Operations in the financial service involve assistance to
customers trading options and investment advise for fees and commissions.
Operations in the technological divisions include Internet products
including Internet access tools, website architecture and transportation
monitoring equipment. Total revenue by industry includes both sales to
unaffiliated customers, as reported in the Company's consolidated income
statement
Operating profit is total revenue less operating expenses. In computing
operating profit, none of the following items has been added to expenses,
interest expense, income taxes or extraordinary gain.
To reconcile industry information with consolidated amounts, the following
eliminations have been made:
Intercompany charge for Internet fees $ 119,789
Adjustments
Financial Technological &
Services Services Eliminations Consolidated
Revenue from
unaffiliated
customers $12,376,939 $ 327,145 $ - $12,704,084
Intersegment Revenue - 119,789 (119,789) -
Total Revenue $12,376,939 $ 446,934 $(119,789) $12,704,084
Operating profit $ 3,546,401 $ (1,039,175)$ 32,082 $2,539,308
Loss from unconsolidated investees (123,618)
General corporate expenses (715,914)
Interest expense (81,085)
Income from continuing
operations before income
taxes $ 1,618,691
<PAGE>
MANAGEMENT S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is Management s Discussion and Analysis of certain significant
factors which have affected the Company s financial position and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
GENERAL INTRODUCTION
BusinessNet International Inc. is a diversified group of companies providing
Financial Services and Monetary Instruments to the Danish and International
business community, Information Technology ("IT") services and Fleet Management
Systems and turnkey Internet Services.
The organization includes four operating companies and one holding company.
BusinessNet Danmark A/S, Navigato A/S, Options Invest Danmark A/S and Stock
Options A/S are wholly owned operating companies. BusinessNet Holding A/S is a
holding company that provides service and back office facilities for the four
operating companies.
OPERATING COMPANIES:
BusinessNet Danmark A/S- was organized in March 1996 and is based in Copenhagen,
Denmark. It provides Internet services to the Danish business community. It
operates as a full-service Internet Service Provider ( "IPS") and is believed to
be the first IPS to conduct business in Denmark. The Company offers customized
Internet and Intranet solutions of increasing complexity from the routine
establishment of Domain names to more complex assignments, including homepage
and web-site designs and installation. In addition to initial design and
installation, the Company offers client service and support for a monthly fee.
All products, services and customized solutions, are developed by a dedicated
staff of systems designers and programmers. A Hot-Line Help Desk facility is
available to all clients during extended business hours.
Sales and marketing is handled by personnel located in two regional sales
offices and supplemented by telemarketing department located in Copenhagen,
Denmark. The Company uses television promotion from time-to-time as a medium to
gain market awareness and to reach new prospects.
The first sale was realized in May 1996 and to-date over seven hundred (700)
clients have been added to the customer base for some type of Internet design,
installation or service.
Navigato A/S
The Company was founded in 1993. Navigato s administrative and operations staff
are based in Skive, Denmark. The International Sales Office is based in
Copenhagen, Denmark.
The Company has focused its core business providing Fleet Management solutions.
The Company's main product is the FMS-200 Fleet Management system for managing
medium to large size truck fleets. In addition to this product, the Company is
developing, manufacturing and marketing specific IT-solutions comprising Cargo
Management & Logistics, Booking & Dispatch, Trailer Identification and
Information Distribution System, Fleet Management and Automatic Vehicle Location
("AVL") Systems.
The Company's fleet system employs GPS-based tracking technology tailored to
individual customer requirements. The Company s initial market focus was with
fleet management systems for the transportation industry. A second product
ASSIST-200 using GPS technology is under development. This product is intended
to monitor wheelchair occupants from a central dispatch station in the event of
an emergency. At March 31, 1997, ASSIST-200 now has prototypes in field
testing.
Navigato A/S markets its IT products internationally through a network of high-
profile local and regional distributors.
Options Invest Danmark A/S
The Company was founded in 1991 and based in Copenhagen. This Company provides
financial services and brokerage and is believed to be one of the largest firms
providing options strategies in Denmark.
At March 31, 1997 the Company employed approximately 30 investment consultants
and financial experts who service primarily business owners and executive
clients engaged in small and medium-sized businesses.
The Company specializes in developing and managing options portfolios of a
speculative nature. The Company endeavors to provide its financial services to
meet individual customer requirements.
Stock Options A/S
The Company started operations in 1993 and is based in Aarhus, the second
largest city in Denmark.
The Company provides investment services and specializes in International Stocks
and Options. The Company employs approximately 30 financial experts and
investment consultants.
The Company collaborates with several large investment banking firms and
brokerage firms to better provide its clients with research and an ongoing
financial overview of important developments and trends in the various financial
markets. Clients generally receive a weekly update from the Company which
includes financial market reports, when required, and the status and financial
summary of their individual portfolios.
PRODUCT RESEARCH AND DEVELOPMENT.
The Company believes that its products and services require continuing
development if they are to remain competitive. In order to stay abreast of
emerging new technology and competitive pressures, the Company has adopted an
aggressive product research and development strategy. It intends to actively
pursue and product research and development activity consistent with its
available financial resources.
Information Technology:
BusinessNet Danmark A/S is developing custom software for clients. It has
designed Internet routines, marketing concepts and web design forms for easy
and quick integration to the World Wide Web(WWW) . The Company views its
success in Denmark as a reputable base to extend into Sweden and then Norway.
Success in Scandinavia may open additional opportunities for expansion in
other parts of the European Union (EU).
Navigato A/S continues to enhance and upgrade the capabilities the Navigato
FMS-200 Fleet Management product. A second product TailTag is expected to
better leverage the technologies of Navigato. This product employs a wiring
technique that enables automatic, electronic trailer identification from the
tractor using the vehicles normal electrical wiring. The Company has applied
for worldwide patents on the product and its principles.
<PAGE>
Government Regulation:
Effective on June 30, 1997, both Stock Options A/S and Options Invest Danmark
A/S will be subject to new investment regulations promulgated by
Finanstilsynet (the Danish equivalent of the Securities and Exchange
Commission) in order to transact certain business in Denmark and throughout
the European Union(EU). Both companies have made application for license
approval. The Company expects that its applications will be considered and
accepted prior to June 30,1997.
Finanstilsynet approval would further allow the Company to increase the breath
of its financial services with new products and services and move toward
becoming a more traditional and full-service financial service business.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 vs. March 31, 1996
Total revenue for the three month period ended March 31, 1997 was $12,704,084
compared to $5,467,233 for the three month period ended March 31, 1996,
representing an increase of approximately 132%.
Commission and Fees revenue accounted for $12,361,171, or 97% of total revenue
as compared to $5,439,762, or 99% of total revenue for the quarter ended March
31, 1996. The over two-fold increase in revenue was in keeping with the strength
exhibited in the fourth quarter of fiscal 1996, when revenues rose from
$3,570,998 in the third quarter ended September 30, 1996 to $8,773,830 in the
fourth quarter ended December 31, 1996. These dramatic increases were due
increased investor participation in options trading, often tied to periods of
sustained strength, momentum, and enthusiasm generated by with rising security
markets.
The Fleet Management operations of Navigato A/S only contributed sales of $1,093
for the quarter as compared to revenues of $25,617 for the quarter ended March
31,1996. Navigato has under performed for the past few quarters. Navigato's
marketing efforts in the first quarter were positive to the extent they resulted
in the booking of substantial new orders, that when delivered will effectively
double this subsidiary's installed base and number of clients. Subsequent
shipment of these orders should improve financial results, if delivered
efficiently, and increase customer awareness. One such order was received from
a large and widely respected bank in Saudi Arabia.
The Internet business contributed $326,049 to revenue, continuing the monthly
revenue run rate as customer orders are filled and revenues are realized. The
number of Internet customers was approximately 700 at March 31, 1997, compared
to 650 at December 31, 1996. The business transacted with these customers
varies from establishing a domain name for approximately $260 to website and
installation projects that run from $850 to $26,000 per site, with the average
revenue realized per site of approximately $1,700. Revenue for the quarter ended
December 31,1996 totaled $175,816. No comparison can be made to the same
quarter ended March 31, 1996, since the Company had not yet commenced this
segment of its business.
Operating expenses increased from $4,374,826 for the quarter ended March 31,
1996 to $8,070,374 in the current quarter. Within the various categories of
operating expense, selling and administrative expenses rose $2,889,975 to
$6,118,719, reflecting higher personnel costs resulting from the general
expansion of the business, especially the formation of the Internet services
company. Selling and administrative expenses rose to support a higher revenue
level and to support the Company's development as a full service Internet
Service Provider (ISP).
Research and development expenses rose to $235,968 from $68,270, representing an
increase of $167,698. Prior to the acquisition, the exclusive focus of the
Company's research and development activities had been to improve its fleet
management and vehicle security products. During 1996 and 1997, there were
significant development expenses incurred for writing Internet software and
documentation, that were not present during the first quarter of 1996. The
Company anticipates that R&D will continue to grow in future years, but at a
slower rate than before.
As a result of the foregoing, income from operations before other income
(expense) rose to $4,633,710 compared to $1,092,407 for the quarter ended March
31, 1996 while the other expenses for the quarter amounted to $3,015,019
compared to other income in the quarter ended March 31, 1996 of $493,346. The
Company incurred a loss on principal trading of $2,810,316 for the quarter in
contrast to a gain of $562,633 for the same quarter last year. The loss on
principal trading is consistent with the company's experience of principal
trading losses when commissions and fees rise.
As a result of the foregoing, the Company reported a pretax profit of
$1,618,691 for the three months ended March 31, 1997 compared to $1,585,753
for the three month period ended March 1996.
Net income totaled $1,219,226 or $0.77 per share for the three months ended
March 31, 1997 versus $1,030,740 or $.066 per share for the three months
ended March 31, 1996.
EFFECT OF INFLATION ON OPERATION
To date inflation has not had a significant impact on the Company's operating
results.
SEASONALITY
The Company's business as a whole has not experienced significant seasonal
fluctuations, although the financial services business generally experiences a
lower volume of business during the summer months due to vacations.
CAPITAL RESOURCES AND LIQUIDITY
On February 1, 1994, the Company completed the acquisition of Navigato A/S, a
Danish corporation, through the issuance of 3,400,000 shares of Common Stock of
the Company. In addition, the Company simultaneously completed the sale of
1,200,000 shares of Common Stock to certain foreign investors for total
aggregate consideration of $1,200,000.
On March 31, 1995 the Company completed an additional Regulation S offering of
500,000 shares, each sold for $1.125 per share. This generated net proceeds of
$562,500 to the Company.
At March 31, 1997, the Company had a working capital deficit of $633,274, as
compared to a working capital deficit of $1,720,541 at December 31, 1996.
For the Quarter ended March 31, 1997, cash and cash equivalents increased by
$322,299 to $1,008,843 from $686,544. Accounts receivable rose from $1,206,266
to $3,290,942, which reflects the increased sales for the quarter.
The Company had no material financial commitments at March 31, 1997. The
Company expects to finance its capital requirements in the future through
existing cash balances, cash generated from operations and borrowings from
existing credit facilities. The credit facilities are based on a formula
basis of qualified accounts receivable. At March 31, 1997, the Company had
$426,497 in borrowings outstanding against these facilities.
Based upon the current level of operations and anticipated growth, management
believes that cash flow from operations, together with bank borrowings and other
sources of liquidity, will be adequate to meet the Company's present
requirements for working capital, capital expenditures, and other obligations.
There can be no assurance, that the Company's business will generate sufficient
cash flow from operations or that future working capital borrowings will be
available in sufficient amounts and in required time frames to accomplish all of
the Company's strategic and financial objectives.
The Company's financial leverage as measured by liabilities to equity is 3.97 to
1.0 and when measured by debt to equity is .71 to 1.0.
It should also be emphasized that the Group's financial strength is limited
compared to the size of the organization. Management believes that each of the
business areas would have improved working conditions and will have better
credit ratings when the individual companies have stronger balance sheets.
As stated in earlier filings the financial service companies are presently under
evaluation by the Danish Finanstilsyn (the Danish equivalent of the Securities
and Exchange Commission). According to the law set in effect from January 1,
1996 the financial companies needs the Finanstilsyn approval to conduct
financial services in Denmark and the rest of the European Union (EU).
The companies filed the application with the Finanstilsyn on June 30, 1996. The
negotiations with the Finanstilsyn did not begin until April of this year. The
Finanstilsyn's evaluation is expected to be finished by the end of the second
quarter.
Fiscal 1997 operations may require some structural changes in order to meet the
Finanstilsyn's demands. These changes are likely to include relocation of
personnel within the group. Any structural changes that might be made will be
consistent with long term strategic considerations of the management.
Management is confident that approval will be given. Management also believes
that such an approval will benefit sales in the financial service business. It
should however be emphasized that for the Company such an approval is vital and
as the IT businesses are not yet profitable a lack of approval could result in
a major restructuring of the Company. There is no financial reserve set aside
for this possible outcome.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
The disclosures included in this Form 10-KSB, incorporated documents included by
reference herein and therein, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
identified by words such as "sustained strength", "enthusiasm", and "management
believes" and words of similar import. Forward-looking statements are
inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated.
Future events and actual results, financial and otherwise, may differ
materially from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this Form 10-KSB and other matters detailed from time-to-
time in the Company's Securities and Exchange filings, including the
Company's periodic filings on Form 10-QSB and From 10-KSB.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company, mainly through the financial service business is involved in a
number of legal proceedings, both as a plaintiff and as a defendant.
Most of the claims have been issued by the Company, against former clients. In
total the Company has issued claims of more than $2 million. The Company has,
with few exceptions, made provisions for the outstanding receivable.
Claims and counter claims in excess of $1 million have been issued against the
Company. In regard to the claims where the Company regards the upcoming legal
proceedings as a liability, the Company has made provisions for these claims and
counter claims.
Of the legal proceedings, one suit both by size and circumstances should be
noted:
In the third quarter of 1996 a former customer reversed checks previously paid
to one of the Company's subsidiary's, Options Invest of Denmark, totaling
$1,066,000. This receivable is the subject of litigation under Danish law, as
it represents checks that were paid to the Company for investment transactions
and honored (prior to June 30, 1996) and previously reflected in the Company's
financial statements as wither commission revenue or reduction of cost and
expenses. As a consequence of an internal agreement between Danish banks, the
customers bank was allowed to debit the checks directly from the bank account of
the Company in the form of the reversal of the checks previously paid. The
Company's former customer alleges that the checks, that were signed solely by
the Chief Financial Officer of the client, were false. The rationale of the
former customer's claim is that the internal rules of the client called for two
signatures on the checks, a position which had never been disclosed to the
Company, nor indicated on the checks paid to the Company and which the Company
considers without merit and will vigorously protest.
The Company has commenced legal action whereby the Company seeks retribution
from the customer, the customer's bank and the customer's CFO. The customer has
initiated legal actions seeking the return of approximately $180,000 of fees
paid by wire which the Company has refused to return the former customer.
In the lawsuits filed by the Company, the customer's bank is named and is
considered to be most probable source of payment. The lawsuit claims that the
reversal of checks was inappropriate. In addition it is believed that the bank
incorrectly applied the proceeds of the reversed checks against other debts it
had sought to collect from the former customer. The customer's former Chief
Financial Officer also has been named.
For the period ended December 31, 1996, the Company has taken a one-time charge
of $1,066,000. The charge has been taken solely because it is anticipated that
the ongoing legal proceedings will take years to settle. In the interest of
conservatism, management has therefore found it prudent to take a one-time
charge and pursue legal recovery in the courts.
The Company does not believe that the pending legal actions will result in any
additional material adverse impact to the Company. The Company further believes
that there are reasonable chances of winning the suit, and has included in its
claim against the customers bank and former customer both interest and the
reimbursement of legal fees.
Item 2. Changes in Securities NONE
Item 3. Defaults Upon Senior Securities NONE
Item 4. Submission of Matters to a Vote of Security HoldersNONE
Item 5. Other Information NONE
Item 6. Exhibits and Reports on Form 8-K NONE
<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.
BUSINESSNET INTERNATIONAL, INC.
(Registrant)
May 14, 1997 By:/s/
Carsten Bang Jensen
President and Chief Operating Officer
May 14, 1997 By:/s/
Harald Madsen
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated .
May 14, 1997 By: /s/
Morten B. Skjelborg
Chairman of the Board
May 14, 1997 By: /s/
Carsten Bang Jensen
President and Chief Operating Officer
May 14, 1997 By: /s/
Harald Madsen
Chief Financial Officer
May 14, 1997 By: /s/
William J. Reilley
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,008,843
<SECURITIES> 684,417
<RECEIVABLES> 3,725,483
<ALLOWANCES> (1,453,114)
<INVENTORY> 204,769
<CURRENT-ASSETS> 6,982,855
<PP&E> 2,174,258
<DEPRECIATION> (1,301,205)
<TOTAL-ASSETS> 10,510,842
<CURRENT-LIABILITIES> 7,616,129
<BONDS> 0
0
0
<COMMON> 158,240
<OTHER-SE> 1,954,059
<TOTAL-LIABILITY-AND-EQUITY> 10,510,842
<SALES> 12,704,084
<TOTAL-REVENUES> 12,704,084
<CGS> 0
<TOTAL-COSTS> 8,070,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,933,934
<INTEREST-EXPENSE> 81,085
<INCOME-PRETAX> 1,618,691
<INCOME-TAX> 399,465
<INCOME-CONTINUING> 1,219,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,219,226
<EPS-PRIMARY> .077
<EPS-DILUTED> 0
</TABLE>
