<PAGE>
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-KSB/A NO. 1
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MARK ONE
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------------------------
Commission file number 0-26202
EASTBROKERS INTERNATIONAL INCORPORATED
(Exact name of small business issuer as specified in its charter)
----------------------------------
DELAWARE 52-1807562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
15245 SHADY GROVE ROAD, SUITE 340, ROCKVILLE, MARYLAND 20850
(Address of principal executive offices) (Zip Code)
(301) 527-1110
(Issuer's telephone number, including area code)
----------------------------------
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE
EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE
EXCHANGE ACT:
Common Stock, $.05 par value
Class A Warrants
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 |_| No |X|
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year: $10,138,881.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average of the bid and ask price of
such common equity on October 26, 1998 was approximately $13,000,000.
The total number of shares of the registrant's Common Stock, $.05 par value,
outstanding on October 26, 1998, was 4,767,750.
Transitional Small Business Disclosure Format: Yes |_| No |X|
================================================================================
<PAGE>
Explanatory Note
The undersigned registrant hereby amends portions of Item 7, Financial
Statements, of its Form 10-KSB for the fiscal year ended March 31, 1998.
EASTBROKERS INTERNATIONAL INCORPORATED
INDEX TO FORM 10-KSB/A NO. 1
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 7. Financial Statements
Historical Financial Statements
Independent Auditors' Report as at and for the period ended March 31, 1998.......................... 4
Independent Auditors' Report as at and for the period ended March 31, 1997.......................... 5
Consolidated Statements of Financial Condition as at March 31, 1998 and 1997........................ 6
Consolidated Statements of Operations for the 12 months ended March 31, 1998 and 1997............... 7
Consolidated Statements of Changes in Shareholders' Equity for the 12 months
ended March 31, 1998 and 1997..................................................................... 8
Consolidated Statements of Cash Flows for the 12 months ended March 31, 1998 and 1997............... 9
Notes to Consolidated Financial Statements.......................................................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item 7. Financial Statements
<S> <C>
Historical Financial Statements
Independent Auditors' Report..................................................................... 4
Independent Auditors' Report..................................................................... 5
Consolidated Statements of Financial Condition as at March 31, 1998 and 1997..................... 6
Consolidated Statements of Operations for the 12 months ended March 31, 1998 and 1997............ 7
Consolidated Statements of Changes in Shareholders' Equity for the 12 months
ended March 31, 1998 and 1997.................................................................. 8
Consolidated Statements of Cash Flows for the 12 months ended March 31, 1998 and 1997............ 9
Notes to Consolidated Financial Statements....................................................... 11
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Eastbrokers International Incorporated
We have audited the accompanying consolidated statement of financial condition
of Eastbrokers International Incorporated and subsidiaries as of March 31, 1998,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eastbrokers
International Incorporated and subsidiaries as of March 31, 1998, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As discussed in Note 12, the accompanying 1998 financial statements include a
gain of $1,025,429 from a related party transaction.
DELOITTE & TOUCHE LLP
Baltimore, Maryland
October 30, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Eastbrokers International Incorporated
We have audited the accompanying consolidated statements of financial condition
of Eastbrokers International Incorporated and subsidiaries as of March 31, 1997,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eastbrokers
International Incorporated and subsidiaries as of March 31, 1997, and the
results of operations and its cash flows for the year ended March 31, 1997 in
conformity with generally accepted accounting principles.
The financial statements as of March 31, 1997, have been restated.
PANNELL KERR FORSTER PC
June 23, 1997
<PAGE>
<TABLE>
<CAPTION>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, MARCH 31,
1998 1997
-------------- --------------
(As Restated)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,156,702 $ 6,867,624
Cash and securities deposited with clearing organizations 986,233 119,274
Or segregated under federal and other regulations
Securities purchased under agreements to resell 887,170 408,865
Receivables
Customers 4,819,958 1,904,112
Brokers, dealers and clearing organizations 4,404,608 572,399
Affiliated companies 2,286,277 1,511,917
Related to disposition of entity 1,493,913 -
Financial institution 1,018,642 -
Receivable from executive officer 517,221 -
Other 3,384,125 2,043,306
Securities owned, at fair value
Corporate equities 7,985,484 3,349,684
Other sovereign government obligations 692,428 -
Net assets held for sale 868,960 -
Office facilities, furniture and equipment, at cost (less accumulated 1,153,439 926,565
depreciation and amortization of $766,898 and $628,014, respectively)
Deferred taxes 4,558,801 492,098
Available for sale securities - 2,378,054
Investments in affiliated companies 156,800 8,272,240
Goodwill, net 2,073,774 1,894,398
Other assets and deferred amounts 394,318 1,222,193
----------- -----------
Total Assets $44,838,853 $31,962,729
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings
Lines of credit $ 2,570,499 $ 1,602,182
Affiliated companies 31,937 1,480,700
Securities sold under agreements to repurchase - 1,200,793
Bonds payable - 2,307,500
Payables
Customers 5,405,464 1,051,810
Brokers, dealers and clearing organizations 6,169,159 960,226
Accounts payable and accrued expenses 727,512 1,573,104
Other liabilities 1,169,272 1,502,803
------------ ------------
16,073,843 11,679,118
Deferred taxes 84,382 -
Long-term borrowings 2,020,087 934,374
------------ -------------
Total liabilities 18,178,312 12,613,492
----------- -----------
Minority interest in consolidated subsidiaries 8,776,678 1,549,386
------------ ------------
Commitments and contingencies
Shareholders' equity
Preferred stock; $.01 par value; 10,000,000 shares authorized; no shares - -
issued and outstanding at March 31, 1998 or March 31, 1997, respectively
Common stock; $.05 par value; 10,000,000 shares authorized; 4,297,750 and 214,888 146,150
2,923,000, shares issued and outstanding at March 31, 1998 and March 31,
1997, respectively
Paid-in capital 25,640,114 19,314,883
Accumulated deficit (5,517,386) (569,829)
Note receivable - common stock (313,133) -
Treasury stock, at cost - (213,750)
Unrealized loss on available for sale investments - (246,794)
Cumulative translation adjustment (2,140,620) (630,809)
------------- ---------------
Total shareholders' equity 17,883,863 17,799,851
------------ ----------
Total Liabilities and Shareholders' Equity $44,838,853 $31,962,729
=========== -----------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
-----------------------------------------
MARCH 31, MARCH 31,
1998 1997
------------- -----------------
(As Restated)
<S> <C> <C>
Revenues
Commissions $ 2,521,031 $ 439,531
Investment banking 807,803 1,149,195
Principal transactions
Trading 4,735,825 1,806,278
Investment (560,802) 1,872,767
Interest and dividends 391,121 557,188
Equity in losses of unconsolidated subsidiaries (38,388) (396,209)
Gain on sale of investment - related party 1,025,429 -
Other 1,256,862 312,725
---------- ------------
Total revenues 10,138,881 5,741,475
---------- ------------
Costs and expenses
Compensation and benefits 3,748,948 2,181,419
Consulting fees 2,177,145 743,397
Brokerage, clearing, exchange fees and other 1,145,567 -
Occupancy 982,095 333,096
Interest 761,156 236,235
Information processing and communications 678,718 177,473
Office supplies and expenses 426,889 240,448
Professional fees 235,642 123,905
Travel 593,898 209,977
General and administrative 3,698,052 806,056
Depreciation and amortization 590,743 274,573
(Gain)/loss on foreign currency transactions (29,384) 166,044
---------- -------------
Total costs and expenses 15,009,469 5,492,623
---------- -------------
Income (loss) from continuing operations before
provision for income taxes and
minority interest in earnings of subsidiaries (4,870,588) 248,852
Income tax benefit (expense) (285,830) 8,305
Minority interest in earnings of subsidiaries 208,861 105,416
------------ -------------
Income from continuing operations (4,947,557) 362,573
Discontinued operations
Income (loss) from discontinued operations (net of
income taxes of $0 for the year ended March 31, 1997) - 41,899
Loss on sale of discontinued operations - (1,323,083)
------------ - ------------
Net loss $(4,947,557) $ (918,611)
------------ ------------
Earnings (loss) per common share from continuing operations
Basic $(1.57) $0.15
-------------- ------------
Diluted $(1.57) $0.15
-------------- ------------
Earnings per common share
Basic $(1.57) $(0.37)
-------------- -------------
Diluted $(1.57) $(0.37)
-------------- -------------
Average common shares outstanding
Basic 3,149,009 2,497,137
------------ ------------
Diluted 3,149,009 2,497,137
------------ ------------
See notes to consolidated financial statements.
</TABLE>
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1998
<TABLE>
<CAPTION>
Retained Treasury
Earnings Stock &
Common Stock Paid-in (Accumulated Note
Shares Par Value Capital Deficit) Receivable
------------ ------------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balances, April 1, 1996 1,781,000 $ 89,050 $13,693,733 $ 348,782 -
Issuance of common stock in 1,080,000 54,000 5,346,000 - -
Eastbrokers AG acquisition
Issuance of common stock in 25,000 1,250 98,750 - -
Eastbrokers NA acquisition
Issuance of common stock in 37,000 1,850 176,400 - -
compensation for services
Acquisition of treasury stock - - - - $(213,750)
Net unrealized loss on - - - - -
investments
Net loss - - - (918,611) -
Cumulative translation adjustment - - - - -
------------ ------------- -------------- ---------------- --------------
Balances at March 31, 1997 (as 2,923,000 $146,150 $19,314,883 $(569,829) $(213,750)
restated)
Issuance of common stock in 125,000 6,250 716,945 - -
private placement
Retirement of treasury stock (45,000) (2,250) (211,500) - 213,750
Issuance of common stock in 10,000 500 65,480 - -
compensation for services
Issuance of common stock to 50,000 2,500 297,500 - (300,000)
officer for note receivable
Net unrealized gain on - - - - -
investments
Issuance of common stock in 1,227,000 61,350 5,354,619 - -
private placement
Exercise of stock options 7,750 388 49,987 - -
Sale of Subsidiary Stock 52,200
Net loss - - - (4,947,557) -
Accrued interest on note - - - - (13,133)
receivable
Cumulative translation adjustment - - - - -
------------ ------------- -------------- ---------------- --------------
Balances at March 31, 1998 4,297,750 $214,888 $25,640,114 $(5,517,386) $(313,133)
------------ ------------- -------------- ---------------- --------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
Unrealized
Loss on
Available Cumulative
For Sale Translation
Investments Adjustment Total
----------- ----------- ----------
<S> <C> <C> <C>
Balances, April 1, 1996 - $ 558,090 $14,689,655
Issuance of common stock in - - 5,400,000
Eastbrokers AG acquisition
Issuance of common stock in - - 100,000
Eastbrokers NA acquisition
Issuance of common stock in - - 178,250
compensation for services
Acquisition of treasury stock - - (213,750)
Net unrealized loss on $(246,794) - (246,794)
investments
Net loss - - (918,611)
Cumulative translation adjustment - (1,188,899) (1,188,899)
------------- --------------- --------------
Balances at March 31, 1997 (as $(246,794) $(630,809) $17,799,851
restated)
Issuance of common stock in - - 723,195
private placement
Retirement of treasury stock - - -
Issuance of common stoc - - 65,980
compensation for services
Issuance of common stock to - - -
officer for note receivable
Net unrealized gain on 246,794 - 246,794
investments
Issuance of common stock in - - 5,415,969
private placement
Exercise of stock options - - 50,375
Sale of Subsidiary Stock 52,200
Net loss - - (4,947,557)
Accrued interest on note - - (13,133)
receivable
Cumulative translation adjustmen - (1,509,811) (1,509,811)
------------- ------------- ------------
Balances at March 31, 1998 $ - $(2,140,620) $17,883,863
------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
--------------------------------------------
MARCH 31, MARCH 31,
1998 1997
----------------- ----------------
(As Restated)
<S> <C> <C>
Cash flows from operating activities
Net loss $(4,947,557) $ (918,611)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Minority interest in subsidiaries (208,861) (105,416)
Gain on the sale of investment - (884,530)
Loss on sale of discontinued operations - 1,323,083
Depreciation and amortization 590,743 274,573
Deferred taxes (1,696,396) (69,377)
Other (104,368) 396,209
Changes in operating assets and liabilities
Cash and securities segregated for regulatory purposes 82,415 (85,696)
or deposited with regulatory agencies
Securities purchased under agreements to resell (478,305) 6,278,371
Receivables (3,744,971) 2,041,221
Securities owned, at value (6,443,982) (3,233,293)
Other assets and deferred amounts 827,875 (214,931)
Payables
Customers 4,353,654 (8,529,846)
Brokers, dealers and others 5,208,933 77,726
Accounts payable and accrued expenses (879,123) 1,374,879
-------------- --------------
Net cash used in operating activities (7,231,207) (2,275,638)
---------------- ---------------
Cash flows from investing activities
Net proceeds from (payments for)
Acquisition of net assets of Eastbrokers
Beteiligungs AG, net of cash acquired - (1,389,577)
Investments in affiliates (264,036) (3,619,137)
Available for sale securities 2,378,054 6,277,191
Capital expenditures (289,070) (503,336)
---------------- -------------
Net cash provided by investing activities (1,824,948) 765,141
---------------- ------------
Cash flows from financing activities
Net proceeds from (payments for)
Net proceeds from private placements 6,139,164 -
Capital contributions by minority interests - 304,166
Short-term borrowings (1,339,183) 568,303
Securities sold under agreements to repurchase (1,200,793) 1,200,793
Proceeds from long-term debt (1,085,713) -
Repurchase of common stock - (213,750)
Other 102,575 -
-------------- --------------
Net cash provided by financing activities 4,787,476 1,859,512
-------------- --------------
Foreign currency translation adjustment
907,861 1,328,023
-------------- --------------
Increase in cash and cash equivalents
289,078 1,677,038
Cash and cash equivalents, beginning of period
6,867,624 5,190,586
-------------- --------------
Cash and cash equivalents, end of period
$ 7,156,702 $ 6,867,624
============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
MARCH 31, MARCH 31,
1998 1997
------------ ------------
<S> <C> <C>
$ 261,633 $ 371,534
============= ============
Supplemental disclosure of cash flow information
Cash paid for income taxes
Cash paid for interest $ 679,265 $ 87,795
============= ============
Non-cash transactions
Retirement of treasury stock $ 213,750 $ -
============= ============
Common stock sold to a shareholder and officer
received in the disposition of the Hotel Fortuna $ - $ 7,957,012
============= =============
Common shares of CEZ and Vodni stavby, Praha transferred $ - $ 1,550,508
============= =============
in
lieu of cash payment for debt and accrued interest
Eastbrokers International shares issued for acquisition $ - $ 5,400,000
============== =============
of net assets of Eastbrokers Beteiligungs AG
Eastbrokers International shares issued in $ 65,980 $ 178,250
============== =============
compensation for services
Eastbrokers International shares issued for acquisition $ - $ 90,000
============== =============
of net assets of Eastbrokers North America, Inc.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
EASTBROKERS INTERNATIONAL INCORPORATED
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include Eastbrokers International
Incorporated (formerly Czech Industries, Inc.) and its U.S. and
international subsidiaries (collectively, "Eastbrokers" or the "Company").
The shareholders of the Company approved the name change on December 10,
1996 at its Annual Meeting of Shareholders.
These consolidated financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial position and the results of the operations of the
Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Management believes that the estimates
utilized in the preparation of the consolidated financial statements are
prudent and reasonable. Actual results could differ from these estimates.
See Note 18 -"Significant Estimates."
The Company, through its subsidiaries, provides a wide range of financial
services primarily in the United States, Central Europe, and Eastern
Europe. Its businesses include securities underwriting, distribution and
trading; merger, acquisition, restructuring, and other corporate finance
advisory activities; asset management; merchant banking and other principal
investment activities; brokerage and research services; and securities
clearance services. These services are provided to a diversified group of
clients and customers, including corporations, governments, financial
institutions, and individuals. Substantially all of the Company's revenues
and expenses are generated through its European subsidiaries and
affiliates.
FISCAL YEAR-END
The fiscal year-end of Eastbrokers International Incorporated and its U.S.
subsidiaries other than EBI Securities is March 31. At the time of the
Company's acquisition of EBI Securities in May 1998 the fiscal year of EBI
Securities ended September 30. The Company intends to change the fiscal
year of EBI Securities to March 31 effective as of March 31, 1999.
FISCAL YEAR-END OF THE COMPANY'S EUROPEAN SUBSIDIARIES
The fiscal year-end of the Company's European Subsidiaries is December 31.
These subsidiaries are included on the basis of closing dates that precede
the Company's closing date by three months.
FINANCIAL INSTRUMENTS
Substantially all of the Company's financial assets and liabilities and the
Company's trading positions are carried at market or fair values or are
carried at amounts which approximate fair value because of their short-term
nature. Estimates of fair value are made at a specific point in time, based
on relevant market information and information about the financial
instrument, specifically, the value of the underlying financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holdings of a
particular financial instrument. The Company has no investments in
derivatives.
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried at their original
costs. The carrying value of such equity securities is adjusted when
changes in the underlying fair values are readily ascertainable, generally
as evidenced by listed market prices or transactions which directly affect
the value of such equity securities. Downward adjustments
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
relating to such equity securities are made in the event that the Company
determines that the eventual realizable value is less than the carrying
value.
Securities classified as available for sale are carried at fair value with
unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses on these securities are
determined on a specific identification basis and are included in earnings.
COLLATERALIZED SECURITIES TRANSACTIONS
Accounts receivable from and payable to customers include amounts due on
cash transactions. Securities owned by customers are held as collateral for
these receivables. Such collateral is not reflected in the consolidated
financial statements.
Securities purchased under agreements to resell are treated as financing
arrangements and are carried at contract amounts reflecting the amounts at
which the securities will be subsequently resold as specified in the
respective agreements. The Company takes possession of the underlying
securities purchased under agreements to resell and obtains additional
collateral when the market value falls below the contract value. The
maximum term of these agreements is generally less than ninety-one days.
OTHER RECEIVABLES
From time to time, the Company provides operating advances to select
companies as a portion of its merchant banking activities. These
receivables are due on demand.
UNDERWRITINGS
Underwritings include gains, losses, and fees, net of syndicate expenses
arising from securities offerings in which the Company acts as an
underwriter or agent. Underwriting fees are recorded at the time the
underwriting is completed and the income is reasonably determinable. The
Company reflects this income in its investment banking revenue.
FEES
Fees are earned from providing merger and acquisition, financial
restructuring advisory, and general management advisory services. Fees are
recorded based on the type of engagement and terms of the contract entered
into by the Company. The Company reflects this income in its investment
banking revenue.
SECURITIES TRANSACTIONS
Government and agency securities and certain other debt obligations
transactions are recorded on a trade date basis. All other securities
transactions are recorded on a settlement date basis and adjustments are
made to a trade date basis, if significant.
COMMISSIONS
Commissions and related clearing expenses are recorded on a trade-date
basis as securities transactions occur.
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of operations in foreign currencies are translated
at year-end rates of exchange, and the income statements are translated at
weighted average rates of exchange for the year. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation," gains or losses resulting from translating foreign
currency financial statements, net of hedge gains or losses and their
related tax effects, are reflected in cumulative translation adjustments, a
separate component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in net income.
OFFICE FACILITIES, FURNITURE, AND EQUIPMENT
Office facilities and equipment are carried at cost and are depreciated on
a straight-line basis over the estimated useful life of the related assets
ranging from three to ten years.
COMMON STOCK DATA
Earnings per share is based on the weighted average number of common stock
and stock equivalents outstanding. The outstanding warrants and stock
options are currently excluded from the earnings per share calculation as
their effect would be antidilutive.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require, companies to
record compensation expense for stock-based employee compensation plans at
fair value. The Company has elected to account for its stock-based
compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25). Under the provisions of APB No. 25, compensation
cost for stock options is measured as the excess, if any, of the quoted
market price of the Company's common stock at the date of grant over the
amount an employee must pay to acquire the stock.
DEFERRED INCOME TAXES
Deferred income taxes in the accompanying financial statements reflect
temporary differences in reporting results of operations for income tax and
financial accounting purposes. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated financial statements, the Company
considers all demand deposits held in banks and certain highly liquid
investments with maturities of 90 days or less other than those held for
sale in the ordinary course of business to be cash equivalents.
GOODWILL
Goodwill is amortized on a straight line basis over periods from five to 25
years and is periodically evaluated for impairment on an undiscounted cash
flow basis. The accumulated amortization was $132,015 and $46,987 for the
periods ended March 31, 1998 and 1997, respectively.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
<PAGE>
1. Summary of Significant Accounting Policies (continued)
RESTATEMENT OF 1997 FINANCIAL STATEMENT
During fiscal 1998, management determined that the Austrian net operating
losses available for carryforward had been underreported on the
consolidated statement of financial condition as of March 31, 1997. In
addition, management determined that it had inappropriately recognized an
unrealized gain and had incorrectly classified a portion of its investment
in WMP. Accordingly, the accompanying 1997 financial statements have been
restated.
Following is a summary of the effects of the restatement:
<TABLE>
<CAPTION>
As Previously
Reported As Restated
------------- -----------
<S> <C> <C>
Corporate equities $4,253,164 $3,349,684
Deferred tax asset 289,938 492,098
Investments in affiliated companies 7,064,064 8,272,240
Goodwill 2,453,454 1,894,398
Trading revenues 1,886,478 1,806,278
Net loss (866,411) (918,611)
Earnings per common share (0.35) (0.37)
</TABLE>
2. CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
Cash and securities segregated for regulatory purposes or as deposits with
clearing organizations was $119,274 and $986,233 as of March 31, 1997 and
1998, respectively.
3. FINANCIAL INSTRUMENTS
Financial instruments owned consist of the Company's proprietary trading
and investment accounts, securities purchased under agreements to resell,
and investments held for resale. The Company's financial instruments, at
estimated fair market value, are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
(As Restated)
--------- -------------
<S> <C> <C>
Securities purchased under agreements to resell
Sovereign government debt - Austria $ 887,170 $ --
Sovereign government debt - Hungary -- 228,965
Corporate equities - Hungary -- 179,900
------------- ------------
$ 887,170 $408,865
-------------- -------------
Securities owned at fair value
Corporate equities - Austria $ 6,587,220* $ 1,305,143
Corporate equities - Hungary 410,244 --
Corporate equities - Czech Republic -- 871,638
Corporate equities - Slovak Republic 84,074 485,141
Corporate equities - Poland 760,552 687,762
Corporate equities - Other 143,394 --
-------------- --
$ 7,985,48 $ 3,349,684
-------------- ------------
Sovereign government debt
Austria $ 621,35 $ --
Hungary 71,075 --
-------------- ------------
$ 692,428 $ --
-------------- ------------
Available for sale securities
Corporate equities - Austria $ -- $ 40,321
Corporate equities - Czech Republic -- 1,893,115
Corporate equities - Hungary -- 189,610
Corporate equities - Slovak Republic -- 255,008
------------- ------------
$ -- $ 2,378,054
------------- ------------
</TABLE>
<PAGE>
3. FINANCIAL INSTRUMENTS (CONTINUED)
As of March 31, 1998, the Company has 3 significant concentrations in the
securities portfolio. A description of these securities and their respective
carrying amounts are as follows: a security of a Russian chemical producer
traded on the OTC market of the Vienna Stock Exchange -- $1,030,270, a security
of a Bulgarian pharmaceutical company traded on the Bulgarian Stock Exchange
- --$3,185,630, and a security of a Bulgarian oil refinery traded on the Bulgarian
Stock Exchange -- $1,354,830. All other securities are relatively liquid and the
carrying value approximates the market value as of the balance sheet date. The
Company does not have any material concentrations to high yield issuers or
commitments to high-yield issuers as of the balance sheet date.
4. OFFICE FACILITIES, FURNITURE AND EQUIPMENT
Office facilities, furniture and equipment are summarized below:
March 31, March 31,
1998 1997
--------- ---------
Furniture and equipment $ 1,920,337 $ 1,554,579
Less accumulated depreciation (766,898) (628,014)
------------ ------------
$ 1,153,439 $ 926,565
------------ ------------
Depreciation expense for the years ended March 31, 1997 and 1998, was
$108,915 and $418,804, respectively.
5. BUSINESS ACQUISITIONS
EASTBROKERS BETEILIGUNGS AKTIENGESELLSCHAFT
Eastbrokers Vienna is an Austrian based holding company that has
established a presence in 12 Central and Eastern European countries through
its network of subsidiaries and affiliate offices. On August, 1, 1996, the
Company acquired 80 percent of the outstanding stock of Eastbrokers
Beteiligungs Aktiengesellschaft ("Eastbrokers Vienna") through the issuance
of 1,080,000 shares of the Company's common stock valued at $5,400,000. As
a participant in Eastbrokers Vienna's capital increase in the fiscal year
ended March 31, 1997, the Company later acquired an additional 245,320 (out
of a total issue of 270,000 shares) for cash, increasing its ownership
percentage to 83.62 percent. In three separate transactions in November and
December 1996 and March 1997, the Company purchased 81,550 additional
shares, increasing its ownership percentage to approximately 94 percent.
The fair value of the net assets acquired under these transactions
approximated $8,200,000. The acquisition has been accounted for under the
purchase method of accounting. The excess of the purchase price over the
fair value of the net assets acquired resulted in the Company recording
approximately $1,950,000 in goodwill, which is being amortized over 25
years on a straight-line basis. The 1997 consolidated financial statements
include the consolidated results of operations of Eastbrokers Vienna from
the date of acquisition through December 31, 1996 in accordance with Note
1. The purchase agreement contains certain provisions whereby the selling
shareholders may be eligible to receive an additional 120,000 shares of the
Company's common stock in the event certain earnings targets are achieved
by December 31, 1998. No such shares have been earned to date.
In a capital increase for Eastbrokers Vienna in the fiscal year ended March
31, 1998, the Company purchased 389,925 (out of a total issue of 390,000)
for cash, increasing its ownership to 96%.
<PAGE>
5. BUSINESS ACQUISITIONS (CONTINUED)
Eastbrokers Vienna completed the acquisition of its subsidiary, Eastbrokers
Warsaw, in September 1996. This acquisition has been accounted for under
the purchase method of accounting. The fair value of the net assets
acquired under this transaction approximated $1,124,000 as of the date of
acquisition. The excess of the purchase price over the fair value of the
net assets acquired by Eastbrokers Vienna approximated $173,000 which has
been recorded as goodwill and is being amortized over 25 years on a
straight-line basis.
In September 1996, Eastbrokers Vienna acquired additional shares of
Eastbrokers Wertpapiervermittlungs-gesellschaft GmbH ("Eastbrokers GmbH")
and Eastbrokers Slovakia a.s. from related parties (see Note 12). These
acquisitions have been accounted for under the purchase method of
accounting. The fair value of the net assets acquired under this
transaction approximated $46,000 as of the date of acquisition. The excess
of the purchase price over the fair value of the net assets acquired by
Eastbrokers Vienna approximated $438,000 which has been recorded as
goodwill and is being amortized over 25 years on a straight-line basis.
EASTBROKERS NORTH AMERICA, INC.
On March 6, 1997, the Company issued 22,500 shares of Common Stock valued
at $4.00 per share relating to the acquisition of Eastbrokers North
America, Inc. ("Eastbrokers NA"). In a separate but related transaction to
the Eastbrokers NA acquisition, the Company sold 2,500 shares of Common
Stock at $4.00 per share to an officer of the Company in exchange for a
promissory note. These shares were transferred to the selling shareholder
of Eastbrokers NA as part of the acquisition. The net assets acquired under
this transaction approximated $90,000 and the acquisition has been
accounted for under the purchase method of accounting. There was no excess
of the purchase price over the fair value of the net assets received at the
date of acquisition.
PRO FORMA RESULTS OF OPERATIONS
The following summarized, unaudited, pro forma results of operations for
the year ended March 31, 1997 assumes the above listed acquisitions
occurred at the beginning of fiscal 1997.
Year Ended
March 31, 1997
--------------
Revenues from continuing operations $8,559,786
Net income from continuing operations (14,097)
Net income per share from continuing operations (0.01)
6. INVESTMENTS IN AFFILIATED COMPANIES
INVESTMENT IN WMP BANK AKTIENGESELLSCHAFT
Through its subsidiary, Eastbrokers Vienna, the Company acquired a
48.1% interest in the outstanding capital stock of WMP on August 1, 1996. WMP is
a stock broker-dealer and market maker in Vienna, Austria and is licensed as a
class B bank under Austrian law. A Class B bank may, at its discretion, conduct
any of the normal activities associated with a bank with one major exception; it
cannot accept customer deposits. From time to time Eastbrokers Vienna has
carried shares of WMP. Accordingly, since August 1996, the Company's ownership
of WMP has exceeded 50% including WMP shares in its trading portfolio. At
December 31, 1996, the Company's aggregate ownership percentage in WMP,
including its trading position, was 55%. This investment was accounted for using
the equity method in the March 31, 1997 financial statements as the Company
believed that its control of WMP may likely have been lost as the result of the
probable occurrence of certain events that lay outside of its control. In
September, 1997 circumstances surrounding these events were resolved such that
these events were no longer considered probable of occurrence and the Company
deemed its control of WMP was no longer temporary. Accordingly, the Company
began consolidating its investment in WMP effective with its third quarter of
fiscal 1998 financial statements. For the fiscal year ended March 31, 1998, WMP
has been consolidated for the entire year. At December 31, 1997, the Company's
aggregate ownership interest in WMP was 52%.
<PAGE>
6. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
The following unaudited pro forma information for the Company has been
prepared as though WMP was acquired at the beginning of fiscal year 1997
and consolidated from that date:
1997
----
Total revenues $10,138,350
Total assets 44,405,383
.
INVESTMENTS IN OTHER UNCONSOLIDATED AFFILIATES
The Company also has other investments in unconsolidated affiliates through
Eastbrokers Vienna. These affiliates are accounted for using the equity
method of accounting. These investments are predominantly start-up
operations. At December 31, 1996, these unconsolidated affiliate
investments included the following offices: Zagreb, Croatia; Ljubljana,
Slovenia; Almaty, Kazakhstan; Moscow, Russia; Sofia, Bulgaria; and NIF TRUD
Investment Fund. At December 31, 1997, these unconsolidated affiliate
investments included the following offices: Zagreb, Croatia; Ljubljana,
Slovenia; Moscow, Russia; Sofia, Bulgaria; and NIF TRUD Investment Fund.
The combined carrying amounts of these investments as of December 31, 1996
and 1997 was $516,243 and $156,800, respectively. Losses from these
operations totaled approximately $145,000 USD in the period from August 1,
1996 through December 31, 1996. Income from these operations totaled
approximately $122,000 USD for the year ended December 31, 1997.
RECEIVABLES FROM AFFILIATED COMPANIES
Periodically, the Company provides operating advances to its unconsolidated
affiliates. These advances are generally due on demand and are not subject
to interest charges.
7. SHORT-TERM BORROWINGS
The Company meets its short-term financing needs through lines of credit
with financial institutions, advances from affiliates, and by entering into
repurchase agreements whereby securities are sold with a commitment to
repurchase at a future date.
<PAGE>
7. SHORT-TERM BORROWINGS (CONTINUED)
LINES OF CREDIT
The Company had outstanding advances on its lines of credit totaling
$1,602,182 and $2,570,499 as of March 31, 1997 and 1998, respectively. As
of March 31, 1998, the Company had unsecured credit lines available of
approximately $3.5 million. These lines of credit carry interest rates
between 7.00 percent and 12.00 percent and between 6.500 percent and 9.125
percent for the years ended March 31, 1997 and 1998, respectively, as
computed on an annual basis.
ADVANCES FROM AFFILIATED COMPANIES
Periodically, the Company's subsidiaries and affiliates will provide
operating advances to other members in the affiliated group. These advances
are generally due on demand and are not subject to interest charges.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At March 31, 1997, the Company had $1,200,793 outstanding under repurchase
agreements. The weighted average interest rate on these repurchase
agreements was 12.91 percent. Securities listed on the Prague Stock
Exchange Main Market with a market value of approximately $1,700,000 were
used to collateralize this arrangement. During the fiscal year ending March
31, 1998, the underlying securities were sold to a third party for an
amount approximating the Company's cost basis. The repurchase agreements
were transferred to the new owner at the date of sale.
UNSECURED BONDS PAYABLE
The Company had unsecured bonds with a face value of 25 million Austrian
Schillings requiring annual interest payments at 10 percent per annum which
matured on July 31, 1997. At March 31, 1997, the amount due under these
obligations was $2,307,500. These unsecured bonds were redeemed by the
Company on July 31, 1997.
8. LONG-TERM BORROWINGS
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Long-term borrowing arrangement with a
financial institution requiring Note
payable to a finance company, requiring
annual interest payments which cannot
exceed the 10 year government bond rate
plus 2 percent(approximately 10.00 percent),
principal of 12,000,000 Austrian Schillings,
principal due at maturity on December 31, 2001 $ 948,000 $ --
Notes payable to a financial institution requiring
quarterly interest payments computed at 6.50
percent on a 360 day year, collateralized by
157,061 shares of WMP (representing approximately
24% of the Company's WMP shares as of March 31,
1998), principal of 10,000,000 Austrian
Schillings and accrued interest payable in full
on November 30, 2001 804,308 934,374
Notes payable to financial institutions requiring
quarterly interest payments computed at varying
percentages on a 360 day year, with varying
maturity dates but all due in 1999 267,779 --
----------- -----------
$2,020,087 $ 934,374
----------- -----------
</TABLE>
<PAGE>
8. LONG-TERM BORROWINGS (CONTINUED)
The scheduled maturities of long-term debt outstanding at March 31, 1998
are summarized as follows: $267,779 in 1999, $0 in 2000, $0 in 2001,
$1,752,308 in 2002 and $0 thereafter.
9. COMMITMENTS AND CONTINGENCIES
LEASES AND RELATED COMMITMENTS
The Company occupies office space under leases which expire at various
dates through 2003. The various leases contain provisions for periodic
escalations to the extent of increases in certain operating and other
costs. The Company incurred rent expense under non-cancelable operating
leases in the approximate amounts of $35,000 and $131,000 for the periods
ended March 31, 1997, and March 31, 1998, respectively.
Minimum future rentals under these non-cancelable leases for the fiscal
years ending 1999 through 2003 are approximately as follows: 1999 --
$164,000; 2000 -- $164,000; 2001 -- $104,000; 2002 -- $84,000; and 2003 --
$42,000 and in the aggregate $558,000.
The Company's subsidiaries occupy office space under various operating
leases which contain cancellation clauses whereby the Company may cancel
the lease with thirty to ninety days written notice.
HOTEL FORTUNA LEASES
During the year ended March 31, 1997, the Hotel was subject to land and
equipment leases. Under the terms of these leases, the Hotel incurred rent
expense in the approximate amounts of $310,000 during fiscal year 1997.
These leases terminated with the disposition of the Hotel. See Note 15.
10. SHAREHOLDERS' EQUITY
STOCK REPURCHASE
On December 10, 1996, the Board of Directors approved a plan whereby the
Company was authorized to begin a buy-back program of its Common Stock.
Under the terms of this plan, the Company is authorized to repurchase up to
$1,000,000 of Common Stock at a price not to exceed $5.00 per share
beginning in January 1997. On January 23, 1997, the Company repurchased
45,000 of its outstanding shares at $4.75 per share. Currently, no
additional buy-backs are anticipated. This treasury stock was retired
during the fiscal year ended March 31, 1998.
STOCK TRANSACTIONS
On August 1, 1996, the Company issued 1,080,000 shares of its Common Stock
to the selling security holders of Eastbrokers Vienna in a transaction
valued at $5,400,000. During the period surrounding the acquisition, the
Company's common stock was trading approximately between $6.25 and $8.00
per share for its fully registered and unrestricted shares. Due to the
nature of restricted shares and the various covenants restricting the
transfer of these shares, the Board of Directors assigned a value of
$5,400,000 to this transaction.
On March 6, 1997, the Company issued 22,500 shares of Common Stock value
relating to the acquisition of Eastbrokers NA, valued at $4.00 per share.
In a separate but related transaction to the Eastbrokers NA acquisition,
the Company sold 2,500 shares of the Company's stock to an officer of the
Company in exchange for a promissory note. These shares were transferred to
the selling shareholder of Eastbrokers NA as part of the acquisition.
The shares were also valued at $4.00 per share.
During the year ended March 31, 1997, the Company issued a total of 37,000
shares of Common Stock at a per share price approximating the then current
market price for services rendered to the Company.
In April 1997, the Company sold 125,000 shares of Common Stock to three
individuals: Calvin S. Caldwell, Frank Huang and Jay Raubvogel for a total
offering price of $750,000 or $6.00 per share. The net proceeds to the
Company were $723,195. There were no underwriting discounts or commissions.
In September 1997, the Company issued 10,000 shares of Common Stock to Dr.
Michael Sumichrast in compensation for services performed on behalf of the
Company during the previous six months. The average price per share
assigned to this transaction was $6.598 per share based on the average
closing price for the period April 1, 1997 through September 30, 1997.
<PAGE>
10. SHAREHOLDERS' EQUITY (CONTINUED)
In September 1997, Martin A. Sumichrast acquired 50,000 shares of Common
Stock at a price of $6.00 per share in exchange for a note payable bearing
an interest rate of 8 percent in the amount of $300,000 to the Company.
On February 20, 1998, the Company sold 1,227,000 newly issued units
consisting of one share of Common Stock and one Class C Warrant in a
private placement for $6,135,000 in cash, or a price of $5.00 per unit
(approximately 40% below the then current market price as of February 19,
1998.) After deducting offering expenses of $899,031, the Company netted
$5,415,969. These units were offered and sold to various accredited
investors.
Each of the foregoing issuances was made by the Company without
registration under the Securities Act of 1933, as amended (the "Securities
Act"). In each such case the Company relied upon the exemption from
registration provided by Section 4(2) under the Securities Act and
Regulation D promulgated under the Securities Act.
CLASS A WARRANTS
In connection with its June 1995 public offering, the Company issued
5,505,000 Class A Warrants. The Class A Warrants became exercisable on June
7, 1996. By reason of the Company's September 1996 1-for-5 reverse stock
split, immediately after that stock split each five (5) Class A Warrants
represented the right to acquire one (1) share of Common Stock for $20. The
Class A Warrants include redemption provisions at the option of the Company
and, upon thirty (30) days' written notice to all holders of Class A
Warrants, the Company has the right to reduce the exercise price and/or
extend the term of the Class A Warrants, subject to compliance with the
requirements of certain SEC rules and regulations to the extent applicable.
The Class A Warrant Holders are also entitled to certain antidilution
privileges. In April 1998, the Company announced an amendment relating to
the number of warrants outstanding and the exercise price. The adjustment
to the number of warrants reflected the September 1996 reverse stock split
and reduced the number of outstanding warrants by four-fifths (4/5's), such
that one warrant again represents the right to purchase one share of Common
Stock. An adjustment to the exercise price of the Class A Warrants to
$18.00 per share resulted in connection with the February 1998 private
placement. Subsequent to this adjustment, there are 1,101,000 Class A
Warrants outstanding. The Class A Warrants expire in June 2000.
CLASS B WARRANTS
In connection with the aforementioned public offering whereby the Class A
warrants were issued, the Company issued 1,250,000 Class B Warrants to
certain bridge lenders. By reason of the September 1996 1-for-5 reverse
stock split, immediately after that stock split each five (5) Class B
Warrants represented the right to acquire one (1) share of Common Stock for
$21. The other terms of the Class B Warrants are identical to the Class A
Warrants, including the antidilution provisions. In April 1998, the Company
announced an amendment relating to the number of warrants outstanding and
the exercise price. The adjustment to the number of warrants reflected the
September 1996 reverse stock split and reduced the number of outstanding
warrants by four-fifths (4/5's), such that one warrant again represents the
right to purchase one share of Common Stock. An adjustment to the exercise
price of the Class B Warrants to $19.00 per share resulted in connection
with the February 1998 private placement. Subsequent to this adjustment,
there are 250,000 Class B Warrants outstanding. The Class B Warrants have
not been registered. These warrants expire in June 2000.
CLASS C WARRANTS
In connection with the private placement in February 1998, the Company
issued 1,227,000 units, each unit consisting of one share of common stock
and one Class C Warrant. Each Class C Warrant entitles the holder to
purchase one share of Common Stock during the period commencing February
20, 1999 and February 20, 2002 at an exercise price of $7.00 per share,
subject to certain adjustments. Commencing February 20, 1999 these warrants
will be redeemable at a price of $.10 per warrant at any time after the
closing price of the Common Stock is above $10.00 for 20 consecutive
trading days. The shares underlying these warrants are subject to a "demand
registration" right upon receipt of a demand for registration from a
majority of the holders of the common stock and the warrants issued in this
private placement. In connection with the private placement, 1,237,222
Class C Warrants were issued to the placement agents, including 312,583
Class C Warrants issued to Eastbrokers NA as one of the placement agents.
<PAGE>
10. SHAREHOLDERS' EQUITY (CONTINUED)
OTHER
Certain U.S. and non-U.S. subsidiaries are subject to various securities,
commodities and banking regulations, and capital adequacy requirements
promulgated by the regulatory and exchange authorities of the countries in
which they operate. These subsidiaries have consistently operated in excess
of their local capital adequacy requirements.
Cumulative translation adjustments include gains or losses resulting from
translating foreign currency financial statements from their respective
currencies to USD Increases or decreases in the value of the Company's net
foreign investments generally are tax-deferred for U.S. purposes. Certain
of the markets in which the Company operates (I.E., Russia, Kazakhstan and
Bulgaria) are generally reliant on the "soft" or "exotic" currencies. The
Company generally elects not to hedge its net monetary investments in these
markets due to the lack of availability of various currency contracts at
acceptable costs.
11. STOCK OPTION PLAN
During 1996, the Company adopted a non-qualified stock option plan (the
"plan") as part of an overall compensation strategy designed to facilitate
a pay-for-performance policy and promote internal ownership in order to
align the interests of employees with the long-term interests of the
Company's shareholders.
Under the terms of the plan, stock options granted will have an exercise
price not less than the fair value of the Company's Common Stock on the
date of grant. Such options generally become exercisable over a three-year
period and expire 5 years from the date of grant.
A total of 35,000 options at a weighted average exercise price of $6.64 per
share were granted under this plan during the fiscal year ended March 31,
1997. The fair value of the options at the date of grant was estimated
using the Black-Scholes option pricing model utilizing the following
weighted average assumptions: risk-free interest rate - 5 percent; expected
option life in years - 5 years; expected stock price volatility - 97.7
percent; and expected dividend yield - 0.0 percent.
Had compensation cost been determined based on the fair value at the grant
dates consistent with the method of FASB Statement 123, the Company's
earnings and earnings per share would have been reduced to the pro forma
amounts indicated below:
1998 1997
---- ----
(As Restated)
Net loss - as reported $(4,947,557 $(918,611)
- pro forma (4,998,993 (1,606,135)
Primary and fully diluted earnings per share
- as reported $(1.57) $(.37)
- pro forma (1.59) (.64)
During the fiscal year ended March 31, 1997, an additional 200,000 options
were granted outside of the plan at a weighted average exercise price of
$10.00 per share and with an expiration date of August 1, 1999. At March
31, 1998 all 235,000 options outstanding were exercisable. The weighted
average fair value of the options at the various grant dates was $5.24.
12. RELATED PARTY TRANSACTIONS
Prior to the sale by the Company of the Hotel Fortuna a.s. (the "Hotel") on
October 1, 1996, the Company owned 50.2 % of the Hotel. Stratego Invest
a.s., a broker-dealer and financial consulting company organized under the
laws of the Czech Republic, owned 20.6 % of the Hotel. Stratego Invest a.s.
was at that time more than 50% owned by Stratego a.s., which was controlled
by Ing. Petr Bednarik. Mr. Bednarik was President and CEO of the Company
until August 1996. The sales transaction of the Hotel by the Company was
arranged by Stratego Invest a.s. For providing services related to the
transaction, Stratego Invest a.s. was to have received a commission fee of
1,000,000 CZK (approximately $37,000 USD), however, Stratego Invest a.s.
waived its commission related to this transaction.
In September 1996, Mr. Peter Schmid received from Eastbrokers Vienna
3,511,422 Austrian Schillings (approximately $340,000 USD) for his 49.95
percent ownership interest in Eastbrokers
Wertpapiervermittlungs-gesellschaft GmbH ("Eastbrokers GmbH"), an Austrian
Securities Brokerage Company with limited liability. The nominal value of
these shares was 500,000 Austrian Schillings. Mr. Schmid, Chairman,
President, Chief Executive Officer, and Director of the Company, is also a
Director of Eastbrokers GmbH.
In September 1996, Mr. Schmid received 376,275 Austrian Schillings
(approximately $36,500 USD) for his 5.60 percent ownership interest in
Eastbrokers Slovakia a.s., Bratislava ("Eastbrokers Slovakia"). Eastbrokers
Slovakia is the Company's subsidiary operating in the Slovak Republic. The
nominal value of these shares was 280,000 Slovak Koruna.
In September 1996, Mr. August de Roode received 1,110,250 Austrian
Schillings (approximately $107,500 USD) for his 24.40 percent ownership
interest in Eastbrokers Slovakia. The nominal value of these shares was
1,220,000 Slovak Koruna. Mr. de Roode was Chief Executive Officer, Chief
Operating Officer and Director of the Company until March 1997 and he was
also a Director of Eastbrokers Slovakia at the date of this transaction.
The Company entered into various agreements with Randall F. Greene, a
former director of the Company. Mr. Greene provided consulting services
pursuant to an agreement dated July 26, 1996 in connection with the
Company's acquisition of Eastbrokers Vienna. Pursuant to this agreement,
Mr. Green received $20,000 as a non-accountable expense allowance and
10,000 shares of the Company's Common Stock. In addition, during the 1997
fiscal year Mr. Greene was paid $37,000 for consulting services provided to
the Company in connection with potential mergers and/or acquisitions. In
connection with Mr. Greene's resignation from the Board of Directors of the
Company, the Company entered into a six month consulting agreement dated
March 27, 1997 pursuant to which Mr. Greene was paid $24,000 and granted
options to purchase 7,750 shares of the Company's Common Stock at $6.50 per
share. A related letter agreement was entered into with Mr. Green on March
27, 1997, as amended by a letter dated April 29, 1997. Under the related
letter agreement, Mr. Greene was paid $13,750 and granted 12,500 shares of
the Company's Common Stock in full satisfaction for consulting services
rendered during the period August 1, 1996 through March 31, 1997. Also
pursuant to this agreement, the Company agreed to indemnify Mr. Greene
against certain liabilities, the parties exchanged mutual releases and Mr.
Greene agreed to sell his shares of the Company's common stock to the
Company's primary market maker subject to certain conditions.
The Company entered into a one year consulting agreement dated March 31,
1997 with Dr. Sumichrast, a Director of the Company, pursuant to which Dr.
Sumichrast was granted 20,000 shares of the Company's Common Stock to vest
ratably over the term of the agreement. Dr. Sumichrast provided services to
the Company during the period April 1, 1997 through September 30, 1997 and
received 10,000 shares at an average price of $6.598 per share as
compensation for these services.
In March 1997, Eastbrokers Vienna purchased 30,000 shares of Schneiders
1895 AG for 3,618,000 Austrian Schillings (approximately $302,000 USD). Mr.
Peter Schmid is a Director of Schneiders 1895 AG and Mr. Schmid's father is
an officer and Director of Schneiders 1895 AG.
In December 1996, Eastbrokers Vienna loaned Dr. Muller-Tyl approximately
$72,000 USD. Interest on the outstanding balance of this obligation is
computed at 8 percent per annum until paid in full. Dr. Muller-Tyl was the
Chief Operating Officer of the Company until his resignation in January
1998.
<PAGE>
12. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company leases office space from General Partners Immobilenz
("GPI")(formerly Residenz Realbesitz AG ("Residenz")) for its Vienna
operations pursuant to a month-to-month lease. Under the terms of the
leases, the Company incurred occupancy costs of approximately 1,200,000
Austrian Schillings (approximately $95,000 USD) in the fiscal years ended
March 31, 1997 and 1998. The terms of this lease were negotiated such that
the Company is subject to occupancy expenses no greater than the current
market rates. GPI is a subsidiary of General Partners Beteiligungs AG
("General Partners"), an Austrian holding company and the beneficial owner
of 1,477,139 shares of Common Stock. Mr. Kossner, a Director of the Company
and an officer of the Company from August, 1996 until November, 1996, owns
approximately 30 percent of the outstanding shares of GP. He is a member of
GP's Supervisory Board, WMP's Supervisory Board, the Eastbrokers AG
Supervisory Board, and is a Director of the Company.
During 1996, the Company entered into a verbal agreement with RealWorld, an
internet software developer, to design and build an online stock exchange
game and online trading system. The initial deposit to begin development of
the game and system was 530,000 Austrian Schillings (approximately $50,000
USD). Currently the Company has a liability to RealWorld of 208,000
Austrian Schillings (approximately $20,000 USD) representing amounts due on
progress billings. The agreement states that costs will be charged on an
hourly basis and monthly progress billings will be made once the original
deposit has been depleted. Dr. Muller-Tyl is a member of the Supervisory
Board for RealWorld. Venture Capital Holdings Gmbh, an Austrian company
owned and controlled by Mr. De Roode and Mr. Muller-Tyl ("VCH") and Messrs.
Schmid, Kossner, and Muller-Tyl were at that time shareholders of RealWorld
and represented a combined ownership interest of 26 percent.
At December 31, 1996, the Company has a receivable related to securities
transactions from Mr. Kossner in the amount of 2,269,198 Austrian
Schillings (approximately $209,000 USD).
At December 31, 1996, the Company has a receivable related to share
transactions from Z.E. Beteiligungs AG ("ZE") in the amount of 5,537,202
Austrian Schillings (approximately $511,000 USD). ZE is a subsidiary of
General Partners.
WMP is an Austrian broker-dealer, market maker, and member of the Vienna
Stock Exchange. WMP's common stock is publicly traded on the Main Market of
the Vienna Stock Exchange. From time to time, WMP will make a market in
stock of companies that have a direct relationship to the Company through
its Directors.
In October 1997, WMP sold its interest in WMP Vermogensverwaltungs GmbH
("WMP GmbH"), primarily an inactive subsidiary to COR Industrieberatung
GmbH, for 2.5 million Austrian Schillings (approximately $200,000 USD). The
sales price approximated the cost basis of WMP GmbH at the date of
disposition.
In December 1997, Eastbrokers Vienna sold its 51 percent interest in
Su(beta)warenindustrie Beteiligungs GmbH ("SWIB") to Mr. Schmid for 13
million Austrian Schillings (approximately $1,025,000 USD). The Company
acquired its ownership interest in SWIB in mid-1997 for 510,000 Austrian
Schillings (approximately $40,000 USD). At the time of acquisition, the
principal asset of SWIB was an investment in a company which was entering
bankruptcy proceedings and there was considerable uncertainty regarding the
future realizable value of this asset. By December 1997, bankruptcy
proceedings had progressed to a point where an estimate could be made on
the net realizable value of this asset. Based on the information available
at that time, SWIB's value at the date of disposition was determined by the
Board of Directors to be in the range of 12 million to 14 million Austrian
Schillings (approximately $950,000 to $1,100,000 USD). The sale of SWIB
resulted in a gain of approximately $1.0 million USD and is included in the
accompanying consolidated statement of operations.
As of December 31, 1997, ZE, a 26.27% owned subsidiary of General Partners,
owned approximately 25% of UCP Beteiligungs AG ("UCP AG"), an Austrian
holding company. UCP AG, in turn, owns 27.7% of a Russian chemical company,
UCP AOOT. Shares of UCP AOOT are listed over-the-counter on the Vienna
Stock Exchange. WMP is a market maker in the shares of UCP AOOT on the
Vienna Stock Exchange. During 1997, WMP facilitated the purchase and sale
of several blocks of UCP AOOT shares. As of year end, the Company held
approximately 38,000 shares of UCP AOOT as an investment. At this time, the
estimated value of these shares was approximately $1,030,270. This amount
is reported in the Securities owned at value, Corporate equities section of
the financial statements. Subsequent to year end, the Company sold
<PAGE>
approximately 8,000 shares in 6 separate transactions for approximately
$400,000. As of October 26, 1998, the current market price of UCP AOOT
shares was approximately $54 per share on the Vienna Stock Exchange. For
the fiscal year ended March 31, 1998, the Company recorded, as a charge to
earnings, a market value adjustment of approximately ($610,000). Although
12. RELATED PARTY TRANSACTIONS (CONTINUED)
the UCP AOOT shares are trading at a premium to the original cost basis,
the Company wrote down the carrying value of this item based on an
independent valuation of UCP AOOT and the uncertainty surrounding the
Russian economy.
Upon acquiring Eastbrokers Beteiligungs AG on August 1, 1996, the Company
assumed a receivable in the amount of 7,387,697 ATS (approximately
$704,000) from Peter Schmid. As of December 31, 1997, the receivable
increased due to cash advances to 8,046,177 ATS (approximately $635,000) at
the then current exchange rates. These cash advances included the U.S.
Dollar denominated amount fluctuates based on the foreign currency exchange
rate. On May 31, 1998, Mr. Schmid entered into a Non-Negotiable Term Note
in the amount of 8,046,177 Austrian Schillings. This amount is reported in
the Receivable from executive officer in the consolidated statement of
financial condition. This Note bears interest at 8% per annum and matures
May 31, 2000. It was collateralized by 150,000 shares of the Common Stock.
On October 8, 1998, Mr. Schmid repaid 6,748,111 Austrian Schillings of the
total amount due. Mr. Schmid has informed the Company that he intends to
repay the remaining outstanding balance by December 31, 1998.
Periodically, the Company engages in securities transactions with URBI
S.A., ("URBI"), a Spanish investment company. Mr. Kossner was a member of
URBI's Supervisory Board from November 1996 through June 1998 and Mr.
Schmid was a member until May 1997. All transactions between URBI and the
Company were consummated at the then current market prices. At December 31,
1997, the amount due from URBI was 7,023,576 Austrian Schillings or
approximately $555,000, arising exclusively from various securities
transactions. This amount is reported in the Receivable from affiliated
companies in the consolidated statement of financial condition. Prior to
June 30, 1998, URBI had repaid all amounts due with respect to the
transactions open at December 31, 1997. As of June 30, 1998, the Company
had a receivable from URBI in the amount of 4,698,215 Austrian Schillings
or approximately $370,000 related to transactions occurring subsequent to
December 31, 1997. In addition, the Company entered into a repurchase
agreement with URBI in June 1997. This repurchase agreement and the related
shares of Vodni Stavby a.s., a Czech construction company, were sold to a
non-affiliated Czech Republic company in October 1997.
During October 1997, WMP entered into a stock loan transaction with VCH in
the amount of 4,065,000 Austrian Schillings (approximately $325,000). In
August, 1998, VCH repaid the Company in full for this stock loan
transaction. WMP periodically engages in stock loan transactions as a
portion of its normal business operations.
In December 1997, WMP purchased 7,200,000 ATS (approximately $576,000) of
8% bonds due April 1, 2000 of ZE. This amount is reported in the Securities
owned at value, Corporate equities in the consolidated statement of
financial condition. The ZE bonds earn a comparatively higher interest
rates (350 basis point above comparable Austrian governmental rates).
As of December 31, 1997, the Company had a receivable from C.R.F. a.s., a
Slovak privatization company, related to a stock sale transaction and
consulting fees. The total amount due from these transactions was 7,078,500
Austrian Schillings (approximately $559,000). This amount is reported in
the Receivable from affiliated companies in the consolidated statement of
financial condition. Mr. Schmid was the Chairman of the Board of C.R.F.
a.s. from November 1995 through October 1997.
In September 1997, Martin A. Sumichrast acquired 50,000 shares of Common
Stock at a price of $6.00 per share in exchange for a note payable in the
amount of $300,000 to the Company. This amount is recorded in the Note
receivable-common stock in the consolidated statement of financial
condition. This note bears interest at 8% per annum and is due September
15, 1999.
<PAGE>
13. INCOME TAXES
The tax expense recorded of $265,078 for the year ended March 31, 1998
results principally from foreign taxes on earnings at the Company's
subsidiaries.
The differences between the tax provision (benefit) calculated at the
statutory federal income tax rate and the actual tax provision (benefit)
for each period is shown in the table below:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, March 31,
1998 1997
--------------- -------------
<S> <C> <C>
Tax benefit at federal statutory rate $(1,656,000)$ 84,678
State income taxes, net of federal benefit (93,962) 14,402
Foreign taxes 265,078 --
Unrecognized benefit of net operating losses 1,164,189 697,301
Discontinued operations -- (510,975)
Non-taxable income from Slovak Republic -- (191,515)
Other 34,865 (102,196)
------------- -------------
$ 285,830 $(8,305)
------------- -------------
The significant components of the Company's deferred tax asset and
liability are as follows:
Depreciation $ 4,259 $ 6,020
Unrecognized gain from marketable securities 83,437 (105,385)
Accrued expenses 9,390
Capital loss carryforward 45,445
Foreign tax credit carryfoward 32,652
Other 6,468 (11,425)
Net operating loss carryforward 5,748,282 1,112,193
5,929,933 1,001,403
Valuation allowance (1,455,514) (697,301)
--------------- -----------
4,474,419 304,102
Eastbrokers AG deferred taxes acquired -- 187,996
--------------- ------------
$ 4,474,419 $492,098
--------------- --- --------
</TABLE>
At March 31, 1998, the Company has a U.S. federal net operating loss
carryforward of approximately $2,985,000 that may be used against future
U.S. taxable income until it expires between the years March 31, 2012 and
March 31, 2013. The Company also has a U.S. capital loss carryforward of
approximately $118,000 USD that expires March 31, 2002 and a U.S. foreign
tax credit carryforward of approximately $33,000 USD that expires between
the years March 31, 2010 and March 31, 2013. At December 31, 1997, the
Company has an Austrian federal net operating loss carryforward of
approximately $12,850,000 USD that has no expiration period.
The non-taxable income from the Slovak Republic is from privatization
activities in which Eastbrokers Vienna was actively involved. This income
was received in the fourth quarter of the fiscal year ended December 31,
1997. Distributions of this nature are non-taxable under Slovak Republic
regulations.
The undistributed earnings of the foreign subsidiaries are intended to be
permanent in duration.
<PAGE>
14. SEGMENT INFORMATION
Segment information is as follows for the year ended March 31, 1998:
<TABLE>
<CAPTION>
Share of
(Loss) of
Unconsolidated Identifiable Net
Revenues Entities Assets (Loss)
-------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Austria $ 4,152,076 $ (38,388) 22,762,098 $(1,764,309)
Czech Republic 1,100,457 -- 868,961 (279,568)
Hungary 2,108,992 -- 7,533,072 214,017
Poland 1,372,325 -- 2,529,672 33,585
Slovak Republic 9,842 -- 1,945,028 (428,439)
United States 218,199 -- 8,062,958 (2,746,065)
Other 1,176,990 -- 1,137,064 23,222
--------------- ---------------- --------------- ----------------
Total $ 10,138,881 $ (38,388) $44,838,853 $ (4,947,557)
--------------- -------------------- ------------- ----------------
Segment information is as follows for the year ended March 31, 1997 (As
Restated):
Share of
(Loss) of
Unconsolidated Identifiable Net
Revenues Entities Assets (Loss)
-------- -------------- ------------ ------
<S> <C> <C> <C> <C>
Austria $ 1,433,897 $ (396,209) $13,023,750 $ 165,188
Czech Republic 656,079 -- 2,202,134 (130,214)
Hungary 387,519 -- 2,117,066 56,166
Poland 921,856 -- 2,341,507 (20,705)
Slovak Republic 1,124,339 -- 3,071,805 596,560
United States 1,161,940 -- 9,136,486 (1,606,814)
Other 55,845 -- 69,981 21,208
--------------- ---------------- --------------- ---------------
Total $ 5,741,475 $ (396,209) $31,962,729 $ (918,611)
--------------- ---------------- --------------- ---------------
</TABLE>
15. DISCONTINUED OPERATIONS
In October 1996, the Company agreed to sell its interest in the Hotel for
100,000 shares of Ceske energeticke zavody a.s. and 86,570 shares of Vodni
stavby Praha a.s., based on the then current market prices for each stock.
In November 1996, the sales transaction was completed. As of the sale date,
the Company revised its estimate of the net realizable value of the shares
received based on the then current market prices for each stock. As a
result, the Company recognized a loss on the sale of discontinued
operations of ($1,323,083 USD). Income from discontinued operations was
$41,899 through the sale date.
16. SUBSEQUENT EVENTS (UNAUDITED)
In May 1998, a date subsequent to the fiscal year end date of March 31,
1998, the Company acquired all of the outstanding common stock of EBI
Securities, a Denver, Colorado based investment banking and brokerage firm,
in exchange for 445,000 unregistered shares of the Company's Common Stock
and an agreement to advance $1,500,000 in additional working capital to EBI
Securities.
<PAGE>
16. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
EBI Securities is subject to the following legal proceedings.
USCAN FREE TRADE ZONES V. COHIG & ASSOCIATES, INC. (EBI SECURITIES), ET
AL., United States District Court for the Western District of Washington.
In March 1997, USCAN Free Trade Zones, Inc. ("USCAN") filed a complaint
against EBI Securities and Steve Signer, an employee of EBI Securities,
alleging that EBI Securities misled USCAN about the credit worthiness of a
third party in connection with an introduction made by Mr. Signer. EBI
Securities categorically denies this allegation. USCAN informed EBI
Securities that it would be working with a certain third party to secure
certain loans on behalf of USCAN which USCAN would then use to open a
trading account with EBI Securities. Once EBI Securities learned of the
relationship to this third party, it refused to enter into any business
arrangements with USCAN as long as the third party was involved due to
regulatory problems encountered in prior business dealings with this
certain third party. Plaintiff alleges that as a result of Mr. Signer's
referral, it lost the ability to obtain a loan and all lost profits that
might have resulted. Mr. Signer was dismissed as a defendant is this case
due to lack of personal jurisdiction and has received an award of fees.
Plaintiff originally sought a judgment of approximately $86,000,000 in
compensatory and punitive damages. However, USCAN recently stated in a
pleading and during a court deposition taken in October 1998 that its
damage claim had been reduced to $332,000. EBI Securities has filed
counterclaims for defamation based upon certain false and defamatory
representations regarding EBI Securities. A preliminary trial date has been
scheduled for January 1999. EBI Securities believes it has meritorious
defenses and intends to vigorously defend against USCAN's claims as well as
aggressively pursue claims against USCAN and two of its officers for
defamation, abuse of process, and civil conspiracy.
FLORIDA DEPARTMENT OF INSURANCE AS RECEIVER FOR UNITED STATES EMPLOYER
INSURANCE CONSUMER SELF-INSURANCE FUND OF FLORIDA ("USEC") V. DEBENTURE
GUARANTY CORPORATION, ET. AL., United States District Court for the Middle
District of Florida. In November, 1995, the plaintiff, USEC, commenced the
above entitled action against Debenture Guaranty Corporation ("Debenture")
and certain other defendants, including EBI Securities and Steve Signer, an
employee of EBI Securities. In 1994, USEC entered into an arrangement
whereby USEC lent money to Debenture, and Debenture opened an account in
Debenture's name to trade U.S. Treasuries. The note to USEC was in the
amount by which the treasuries could be margined. This transaction was
allegedly part of a scheme whereby USEC was attempting to inflate its
assets for regulatory purposes. Debenture allegedly misappropriated the
funds for its own benefit and USEC subsequently failed. Plaintiffs alleged
that EBI Securities and Signer aided, abetted and conspired with Debenture
to defraud USEC and claimed damages of $11,000,000. After a six week trial
held from September 8, 1998, to October 14, 1998, a jury returned a verdict
in favor of EBI Securities. The plaintiffs have filed a motion for a new
trial. EBI Securities is in the process of preparing an objection to this
motion. EBI Securities is also planning to file a motion for recovery of
its attorney's fees incurred in connection with defending this action.
EURO-AMERICAN INSURANCE COMPANY LTD., ET. AL. V. NATIONAL FAMILY CARE LIFE
INSURANCE COMPANY, ET. AL., 191st Judicial District of Dallas County, Texas
(the "NFC Litigation"). In April, 1996, National Family Care Life Insurance
Company ("NFC") commenced the above action against, among others, EBI
Securities and Steve Signer, an employee of EBI Securities. In late 1994 or
early 1995, NFC entered into an arrangement with Debenture Guaranty
Corporation ("Debenture"), another defendant in the NFC Litigation, whereby
NFC lent money to Debenture, and Debenture opened an account in Debenture's
name to trade U.S. Treasuries. The note to NFC was in the amount by which
the treasuries could be margined. This transaction was allegedly part of a
scheme whereby NFC was attempting to inflate its assets for regulatory
purposes. Debenture allegedly misappropriated the funds for its own
benefit. NFC alleged that EBI Securities and Signer aided, abetted and
conspired with Debenture in allegedly defrauding Plaintiff. NFC has reduced
its damages demand from approximately $11,500,000 to $1,100,000. This case
is related to the USEC litigation, described above, which also involves a
claim of fraud against Debenture. EBI Securities believes it has
meritorious defenses and intends to vigorously defend against NFC's claims.
<PAGE>
16. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
EBI Securities also is involved in an arbitration proceeding related to the
NFC Litigation entitled NATIONAL FAMILY CARE LIFE INSURANCE CO. V. PAULI
COMPANY, INC., ET AL., NASDR Case No. 96-02673 (the "Arbitration"). The
Arbitration panel entered an award against EBI Securities in July 1998 in
favor of third-party plaintiff Pauli & Company, Inc. ("Pauli") of
approximately 370,000, which was significantly below the initial award
sought by Pauli of approximately $1,100,000. EBI Securities has filed a
motion to vacate and plans to vigorously contest this award on appeal.
In addition to the litigation described above, the Company, through its
subsidiaries, is involved in various legal actions and claims arising in
the ordinary course of business. Management believes that each of such
matters will be resolved without material adverse effect on the Company's
financial condition or operating results.
In June 1998, subsequent to the date of this report, but prior to the
filing date, the Company's largest European subsidiary, WMP, successfully
raised 60 million Austrian Schillings (approximately $4,800,000 USD) in a
bond offering. The Company intends to utilize these proceeds to enhance and
further develop its European trading activities. The bonds were issued in
denominations of 10,000 Austrian Schillings (approximately $800 USD at the
then current exchange rates), bear an annual interest rate of 7.5%, payable
at maturity, and mature in June 2002.
In June 1998, the Company sold a 73.55% interest in Eastbrokers Prague a.s.
for 15 million Austrian Schillings (approximately $1,200,000 USD at the
then current exchange rate). The net assets related to this transaction are
presented in the accompanying balance sheet as "Net assets held for sale."
17. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128. The new
standard replaces primary and fully diluted earnings per share with basic
and diluted earnings per share. SFAS No. 128 was adopted by the Company
beginning with the interim reporting period ended December 31, 1997. The
adoption did not affect previously reported earnings per share amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purposes financial statements. This
statement shall be effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. At this time, the Company does not
believe that the addition of this statement will have a significant impact
on the Company.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement established
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
enterprises report selected information about operating segments in interim
financial reports issued to stockholders. This statement is effective for
fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be restated.
At this time, the Company does not believe that this statement will have a
significant impact on the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting For Derivative
Instruments and Hedging Activities". This Statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. At this time, the Company does not believe that this statement
will have a significant impact on the Company.
18. SIGNIFICANT ESTIMATES
As part of the preparation of its fiscal 1998 financial statements, the
Company has made several valuation estimates. Such estimates could be
impacted by changes in facts and circumstances in the near term. Such
changes, if they occur, could have a significant effect on the Company's
financial position and results of operations. The net amounts recorded
related to these estimates are summarized as follows:
18. SIGNIFICANT ESTIMATES (CONTINUED)
. An approximate $1 million receivable from a Serbian
financial institution related to the Company selling its
creditor position with a bankrupt company. This amount is
included in financial institution receivable in the
accompanying 1998 balance sheet.
. An approximate $1 million investment in the shares of UCP
AOOT (See Note 12), a Russian chemical company. This
amount is included in securities owned - corporate
equities in the accompanying 1998 balance sheet.
. An approximate $724,000 receivable related to a
repurchase agreement and the related shares of Vodni
Stavby, a.s. This amount is included in other receivables
in the accompanying 1998 balance sheet.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this amendment to this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EASTBROKERS INTERNATIONAL INCORPORATED
(Registrant)
By /s/ Peter Schmid December 11, 1998
------------------------------ ---------------------
Peter Schmid Date
Chairman, President,
Chief Executive Officer, and Director
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Peter Schmid December 11, 1998
- --------------------------------------------- ---------------------
Peter Schmid Date
Chairman, President,
Chief Executive Officer, and Director
/s/ Martin A. Sumichrast December 11, 1998
- --------------------------------------------- ---------------------
Martin A. Sumichrast Date
Vice Chairman of the Board, Secretary,
and Director
/s/ Kevin D. McNeil December 11, 1998
- --------------------------------------------- ---------------------
Kevin D. McNeil Date
Vice President, Treasurer, and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Michael Sumichrast December 11, 1998
- --------------------------------------------- ---------------------
Michael Sumichrast, Ph.D. Date
Director
/s/ Wolfgang Kossner December 11, 1998
- ---------------------------------------------- ---------------------
Wolfgang Kossner Date
Director
/s/ Siegfried Samm December 11, 1998
- ---------------------------------------------- ---------------------
Siegfried Samm, Ph.D. Date
Director
