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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-26202
GLOBAL CAPITAL PARTNERS INC.
(Exact name of small business issuer as specified in its charter)
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DELAWARE 52-1807562
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6000 Fairview Road, Suite 1410, Charlotte, North Carolina 28210
(Address of principal executive offices) (Zip Code)
(704) 643-8220
(Registrant's telephone number, including area code)
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Check whether the issuer: (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 such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Transitional Small Business Disclosure Format: Yes [ ] No [x]
The total number of shares of the registrant's Common Stock, $.05 par value,
outstanding on November 10, 2000, was 10,460,839.
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<PAGE>
GLOBAL CAPITAL PARTNERS INC.
<TABLE>
<CAPTION>
Page
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Historical Financial Statements
Consolidated Statement of Financial Condition
as of September 30, 2000..................................... 2
Consolidated Statements of Operations
Quarterly and Six Month Periods
Ended September 30, 2000 and 1999.......................... 3
Consolidated Statements of Cash Flows
Six Month Periods Ended September 30, 2000 and 1999.......... 4
Notes to Consolidated Financial Statements ..................... 5
Item 2. Management's Discussion and Analysis or Plan of Operation ..... 11
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 20
Item 2. Changes in Securities and Use of Proceeds...................... 21
Item 3. Defaults Upon Senior Securities................................ 21
Item 4. Submission of Matters to a Vote of Security Holders............ 21
Item 5. Other Information.............................................. 21
Item 6. Exhibits and Reports on Form 8-K .............................. 22
Signature ............................................................. 23
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL CAPITAL PARTNERS INC.
(A Delaware Corporation)
Consolidated Statement of Financial Condition
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30,
----------------
2000
----------------
(Unaudited)
<S> <C>
ASSETS
Cash and cash equivalents $ 598
Receivables
Broker dealers 3,112
Other 2,045
Securities owned, at value 11,520
Notes receivable 25,500
Furniture and equipment, at cost (net of accumulated depreciation
and amortization of $817) 1,830
Deferred income taxes 303
Goodwill, net 3,362
Other assets and deferred amounts 938
----------------
Total Assets $ 49,181
================
LIABILITIES AND SHAREHOLDERS' EQUITY
Employee compensation and related taxes $ 1,946
Securities sold not yet purchased, at value 250
Accounts payable and accrued expenses 4,448
Other liabilities and deferred amounts 957
----------------
7,601
Long-term borrowings 2,500
----------------
Total liabilities 10,101
----------------
Minority interest in consolidated subsidiaries (139)
----------------
Commitments and contingencies
Shareholders' equity
Preferred stock; $.01 par value; 10,000,000 shares authorized; no shares
issued and outstanding at September 30, 2000 -
Common stock; $.05 par value; 25,000,000 shares authorized; 10,460,839
shares issued and outstanding at September 30, 2000 523
Paid-in capital 45,589
Accumulated deficit (5,476)
Notes receivable - common stock and warrants (1,417)
----------------
Total shareholders' equity 39,219
----------------
Total Liabilities and Shareholders' Equity $ 49,181
================
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A Delaware Corporation)
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended September 30, Ended September 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
(As Restated) (As Restated)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 6,492 $ 3,372 $ 12,198 $ 8,976
Investment banking 2,187 667 2,821 1,752
Interest and dividends 265 62 408 122
Principal transactions, net
Trading (567) 277 479 1,265
Investment (20) 1,628 874 1,668
Other 305 778 872 1,462
---------------- ---------------- ---------------- ----------------
Total revenues 8,662 6,784 17,652 15,245
---------------- ---------------- ---------------- ----------------
Costs and expenses
Compensation and benefits 6,048 3,979 11,420 10,074
Brokerage, clearing, exchange fees and other 1,569 451 2,922 973
General and administrative 761 391 1,263 806
Occupancy 542 418 957 930
Communications 299 435 645 823
Office supplies and expense 459 119 728 231
Consulting fees 303 130 584 227
Interest 76 161 155 281
Depreciation and amortization 125 72 250 135
---------------- ---------------- ---------------- ----------------
Total costs and expenses 10,182 6,156 18,924 14,480
---------------- ---------------- ---------------- ----------------
Income before benefit for income taxes and
minority interest in earnings of subsidiaries (1,520) 628 (1,272) 765
Benefit for income taxes - - 290 -
Minority interest in earnings of subsidiaries 28 - 74 -
---------------- ---------------- ---------------- ----------------
Income from continuing operations (1,492) 628 (908) 765
---------------- ---------------- ---------------- ----------------
Discontinued operations
Income (loss) from discontinued operations - (293) (189) 27
Gain on sale of discontinued operations - - 2,060 -
---------------- ---------------- ---------------- ----------------
Income from discontinued operations - (293) 1,871 27
---------------- ---------------- ---------------- ----------------
Net income $ (1,492) $ 335 $ 963 $ 792
================ ================ ================ ================
Weighted average number of common shares outstanding
Basic 10,460,839 5,206,750 10,440,789 5,206,750
================ ================ ================ ================
Diluted 11,832,061 5,206,750 11,812,011 5,206,750
================ ================ ================ ================
Income from continuing operations per share
Basic $ (0.14) $ 0.12 $ (0.09) $ 0.15
================ ================ ================ ================
Diluted $ (0.13) $ 0.12 $ (0.08) $ 0.15
================ ================ ================ ================
Income from discontinued operations per share
Basic $ - $ (0.06) $ 0.18 $ 0.01
================ ================ ================ ================
Diluted $ - $ (0.06) $ 0.16 $ 0.01
================ ================ ================ ================
Net income per common share
Basic $ (0.14) $ 0.06 $ 0.09 $ 0.15
================ ================ ================ ================
Diluted $ (0.13) $ 0.06 $ 0.08 $ 0.15
================ ================ ================ ================
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A Delaware Corporation)
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the Six Month Period
Ended September 30,
------------------------------------
2000 1999
----------------- -----------------
(As restated)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss)from continuing operations $ (909) $ 765
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities from continuing operations:
Depreciation and amortization 250 135
Minority interest in earnings of subsidiaries (74) -
Deferred taxes (290) -
Other (94) (26)
Changes in operating assets and liabilities
Receivables 3,389 1,463
Securities owned, at value (2,209) (1,860)
Other assets (392) 286
Employee compensation and related taxes (3,161) (318)
Securties sold, not yet purchased 12 (755)
Accounts payable and accrued expenses 2,904 (182)
Other liabilities 354 564
---------------- ----------------
Net cash provided by (used in) continuing operations (220) 72
Net cash (used in) discontinued operations (1,319) (2,215)
---------------- ----------------
Net cash (used in) operating activities (1,539) (2,143)
---------------- ----------------
Cash flows from investing activities
Net proceeds from (payments for)
Capital expenditures (846) (451)
---------------- ----------------
Net cash (used in) investing activities (846) (451)
---------------- ----------------
Cash flows from financing activities
Net proceeds from (payments for)
Issuance of common stock 1,079 41
Proceeds from borrowings - 4,071
Repayments of borrowings (380) (2,054)
---------------- ----------------
Net cash provided by financing activities 699 2,058
---------------- ----------------
Decrease in cash and cash equivalents (1,686) (536)
Cash and cash equivalents, beginning of period 2,284 712
---------------- ----------------
Cash and cash equivalents, end of period $ 598 $ 176
================ ================
Supplemental disclosure of cash flow information
Cash paid for income taxes $ - $ -
================ =================
Cash paid for interest $ 155 $ 281
================ =================
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
1. INTERIM REPORTING
The financial statements of Global Capital Partners Inc. and its U.S.
subsidiaries (collectively, "Global Capital Partners" or the "Company") for
the quarterly and six month periods ended September 30, 2000 have been
prepared by the Company, are unaudited, and are subject to year-end
adjustments. These unaudited financial statements reflect all known
adjustments (which included only normal, recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
financial position, results of operations, and cash flows for the periods
presented in accordance with generally accepted accounting principles. The
results presented herein for the interim periods are not necessarily
indicative of the actual results to be expected for the fiscal year.
The notes accompanying the consolidated financial statements in the
Company's Annual Report on Form 10-KSB for the year ended March 31, 2000
include accounting policies and additional information pertinent to an
understanding of these interim financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include Global Capital Partners Inc.
and its U.S. subsidiaries.
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.
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.
FISCAL YEAR-END
The fiscal year-end of Global Capital Partners Inc. and its U.S.
subsidiaries is March 31.
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.
- 5 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS (CONTINUED)
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 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.
- 6 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of operations in foreign currencies are translated
at period end rates of exchange, and the income statements are translated
at weighted average rates of exchange for the period. 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.
FURNITURE, AND EQUIPMENT
Furniture 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 Financial Accounting Standards Board (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 5 to 25
years and is periodically evaluated for impairment on an undiscounted cash
flow basis.
RECLASSIFICATIONS
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
- 7 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
3. ACQUISITIONS
GLOBAL CAPITAL SECURITIES CORPORATION (FORMERLY, EBI SECURITIES
CORPORATION)
In May 1998, the Company acquired all of the outstanding common stock of
Cohig & Associates, Inc., 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. Following the acquisition, the Company changed the name of
Cohig & Associates, Inc. to EBI Securities Corporation. EBI Securities
Corporation has since changed its name to Global Capital Securities
Corporation. The Company intends to develop Global Capital Securities
Corporation as the foundation to expand its U.S. based investment banking
and brokerage presence. Global Capital Securities Corporation was the first
U.S. acquisition targeting successful medium size investment banking and
brokerage firms both domestically and internationally.
Global Capital Securities Corporation is a full service brokerage firm
specializing in providing investment advice and counsel to individuals and
small to middle market institutions. At the present time, Global Capital
Securities Corporation has approximately 200 licensed representatives.
Global Capital Securities Corporation provides its brokerage clients with a
broad range of traditional investment products and services. Global Capital
Securities Corporation also strives to differentiate itself in the minds of
investors and corporate finance clients through its commitment to a
professional but personalized service, which not only sets it apart from
the large firms, but also serves to develop long-term client relationships.
Its trading department makes a market in approximately 100 securities which
include its investment banking clients and those securities that its
research department has identified as promising, small to middle-market,
potentially high growth companies. Global Capital Securities Corporation's
investment banking department operates with a single goal in mind: to
enhance and develop the capital structures of small to middle market
emerging growth companies through private placements, bridge financing, and
public offerings which serves to enable the firm's corporate finance
clients to capitalize on promising business opportunities, favorable market
conditions, and/or late stage product development.
Global Capital Securities Corporation is registered as a broker-dealer with
the SEC and is licensed in 50 states and the District of Columbia. It is
also a member of the National Association of Securities Dealers ("NASD")
and the Securities Investor Protection Corporation ("SIPC"). Customer
accounts are insured to $25 million under the SIPC excess insurance
program. Global Capital Securities Corporation operates pursuant to the
exemptive provisions of SEC Rule 15c3-3 (k)(2)(ii) and clears all
transactions with and for customers on a fully disclosed basis.
Global Capital Securities Corporation maintains its clearing arrangement
with Fiserv Correspondent Services, Inc. ("Fiserv"), a subsidiary of
Fiserv, Inc. (NASDAQ: FISV). Fiserv provides Global Capital Securities
Corporation with back office support, transaction processing services on
all the principal national securities exchanges and access to many other
financial services and products. This arrangement enables Global Capital
Securities Corporation to offer its clients a broad range of products and
services that is typically only offered by firms that are larger and/or
have a larger capital base.
GLOBAL CAPITAL MARKETS, LLC
In November, 1999, The Company expanded its US investment banking and
brokerage operations further with the acquisition of Global Capital
Markets, LLC (formerly, The JB Sutton Group, LLC), a New York based
brokerage and investment banking firm. Global Capital Markets has one main
office with over 80 registered representatives. Global Capital Markets'
primary focus is the operation of a retail brokerage firm serving
individual investors with a full service approach. Global Capital Markets
has also utilized its
- 8 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
GLOBAL CAPITAL MARKETS, LLC (CONTINUED)
corporate finance and trading activities to augment the services provided
to its customer base. Global Capital Markets provides its retail clients
with a broad range of traditional investment products and services.
Global Capital Markets is registered as a broker-dealer with the SEC and a
member of the National Association of Securities Dealers ("NASD") and the
Securities Investor Protection Corporation ("SIPC").
Global Capital Markets operates pursuant to the exemptive provisions of SEC
Rule 15c3-3 (k)(2)(ii) and clears all transactions with and for customers
on a fully disclosed basis.
Global Capital Markets, LLC is currently in the process of transitioning
its clearing arrangement from CIBC Oppenheimer, a division of CIBC World
Markets Corp. to Fiserv Correspondent Services, Inc. as part of the
consolidation of our brokerage operations. It also maintains an additional
relationship with Penson Financial Services Inc., a division of Service
Asset Management Company. Fiserv Correspondent Services, Inc. provides
Global Capital Markets, LLC with back office support, transaction
processing services on all the principal national securities exchanges and
access to many other financial services and products. This arrangement
enables Global Capital Markets, LLC to offer its clients a broad range of
products and services that is typically only offered by firms that are
larger and/or have a larger capital base. Service Asset Management Company
provides similar services as Fiserv, but it is utilized by Global Capital
Markets, LLC for the online customer accounts using the Sutton Online, Inc.
trading system.
SUTTON ONLINE
In addition to our growing US investment banking a brokerage presence, the
Company purchased a majority interest in SuttonOnline, Inc.
("SuttonOnline") (http://www.suttononline.com) an online trading firm that
offers individual investors, money managers and hedge funds, trade
executions, level II software & data, internet service and training for
online investors. SuttonOnline also provides brokerage firms the necessary
tools to offer financial products via the internet.
4. 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.
LINES OF CREDIT
These lines of credit carry interest rates between 7.00 percent and 12.00
percent 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.
- 9 -
<PAGE>
GLOBAL CAPITAL PARTNERS INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
(UNAUDITED)
5. DISCONTINUED OPERATIONS
The Company decided to sell its interest in Eastbrokers Beteiligungs AG and
on June 14, 2000 entered into agreements with certain non-related entities
to sell such subsidiaries for $27,500,000 consisting of equity securities
valued at $2,000,000 and notes of $25,500,000. As of the date of sale, the
foreign subsidiaries' net assets and costs of disposal were approximately
$24,143,000.
The disposal of Eastbrokers Beteiligungs AG has been accounted for as
discontinued operations. Accordingly, its operating results are segregated
and reported as discontinued operations in the accompanying consolidated
statements of operations and cash flows. The fiscal year end of the former
European subsidiaries is December 31. Their financial information is
included on the basis of a closing date that precedes the Company's closing
date by three months.
6. COMMITMENTS AND CONTINGENCIES
LEASES AND RELATED COMMITMENTS
The Company occupies office space under leases which expire at various
dates through 2003. These leases contain provisions for periodic
escalations to the extent of increases in certain operating and other
costs. The Company's subsidiaries occupy office space under various
operating leases which generally contain cancellation clauses whereby the
Company may cancel the lease with thirty to ninety days written notice.
- 10 -
<PAGE>
PART I -- FINANCIAL INFORMATION (CONTINUED)
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain information set forth in this report under this caption
"Management's Discussion and Analysis or Plan of Operation" includes "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. In addition, from time to time, we may publish
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of
1934, as amended, or make oral statements that constitute forward-looking
statements. These forward-looking statements may relate to such matters as
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, new products, anticipated market performance and
similar matters. The words "budgeted", "anticipate", "project", "estimate",
"expect", "may", "believe", "potential" and other similar statements are
intended to be among the statements that are considered "forward looking"
statements. Readers are cautioned not to place undue reliance on these forward
looking statements, which are made as of the date hereof. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, we caution
readers that a variety of factors could cause our actual results to differ
materially from the anticipated results or other expectations expressed in our
forward-looking statements. These risks and uncertainties, many of which are
beyond our control, include, but are not limited to: (i) transaction volume in
the securities markets, (ii) the volatility of the securities markets, (iii)
fluctuations in interest rates, (iv) changes in regulatory requirements which
could affect the cost of doing business, (v) fluctuations in currency rates,
(vi) general economic conditions, both domestic and international, (vii) changes
in the rate of inflation and related impact on securities markets, (viii)
competition from existing financial institutions and other new participants in
the securities markets, (ix) legal developments affecting the litigation
experience of the securities industry, (x) changes in federal and state tax laws
which could affect the popularity of products sold by us, (xi) significant and
rapid changes in technology which could negatively affect our internet related
projects and (xii) the risks and uncertainties set forth under the caption "Risk
Factors" which appears in Item 1 of our Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2000 (the "Report"). We undertake no obligation to
release publicly any revisions to the forward looking statements to reflect
events or circumstances after the date hereof or to reflect unanticipated events
or developments.
This Form 10-QSB for the quarterly and six month periods ended September
30, 2000, makes reference to our Report. The Report includes information
necessary or useful to an understanding of our businesses and financial
statement presentations. We will furnish a copy of this Report upon request made
directly to our headquarters at 6000 Fairview Road, Suite 1410, Charlotte, North
Carolina 28210, telephone number (704) 643-8220 and facsimile number (704)
643-8097.
We use the following terms of identification to simplify the presentation
of information in this Prospectus. "GCAP and subsidiaries" refers to Global
Capital Partners, Inc. and its subsidiaries. Global Capital Partners, Inc. is
the issuer of the publicly traded common stock covered hereby. "We," "us," or
"our" refer collectively to GCAP and its subsidiaries. The term SEC is sometimes
used to simplify references to the U.S. Securities and Exchange Commission.
PLAN OF OPERATION
GENERAL OVERVIEW
In 1996, we re-evaluated our business strategy and, after considering a
variety of investment opportunities, acquired Eastbrokers Beteiligungs AG.
Eastbrokers Beteiligungs AG is an Austrian brokerage company with offices
throughout Central and Eastern Europe. This acquisition enhanced our development
by both providing us with a vehicle to implement our acquisition strategy and
extending our opportunities beyond the Czech Republic to the entirety of Central
and Eastern Europe.
Our business strategy for European operations was to utilize our emerging market
expertise in the areas of merchant banking, corporate finance, privatization and
trading, in order to expand throughout Central and Eastern Europe. However,
during 1998, we modified our business strategy for Europe, in response to an
overall
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economic downturn that covered much of Central and Eastern Europe. This market
downturn, which peaked in the Summer of 1998, led to sharp decreases in stock
markets worldwide, particularly in Central and Eastern Europe. In addition, to
falling prices, the overall liquidity throughout much of the region was
significantly reduced. In order to minimize the negative effects on our
financial operations, we reduced our work force in Austria and either closed or
sold our operations in the Czech Republic, Hungary, Slovakia, Romania, Turkey,
Russia, Bulgaria. In 1999, we continued our restructuring program and closed our
offices in Azerbaijan, Croatia and Kazakhstan. In Austria, Poland and Slovenia,
we made significant changes in our management and cost structures. In 1999, we
re-entered the Czech Republic through the purchase of a minority interest in
Stratego Invest a.s., Prague, as well as signed an agreement to purchase a
minority interest in Unitrust SA, a Swiss financial services company. As of the
date of this filing, the purchase of Unitrust SA is pending due to required
regulatory approvals.
In March 1997, we expanded our brokerage operations into the United States
through the acquisition of an existing New York-based broker dealer. During the
development of this New York broker dealer, we were approached by several U.S.
based broker dealers who were interested in being acquired. We believed that
consolidation within the securities industry, particularly in the United States,
was and is inevitable. This consolidation can be attributed to the volatility
prevailing in the financial markets, the higher degree of capital needed to
maintain solid brokerage functions and the increased regulatory environment. We
decided that as a well-capitalized, professionally managed, international,
publicly-traded, investment banking firm, we would be particularly appealing to
the sellers of medium size brokerage firms. In addition, we believe that the
purchase and roll-up of complementary securities businesses both in the United
States and in Europe can be financed by the issuance of our common stock.
In May 1998, we made a significant step in our roll-up strategy in the
United States through the acquisition of all of the outstanding common stock of
Cohig & Associates, Inc., a Denver, Colorado based investment banking and
brokerage firm. The former Cohig & Associates, Inc. is currently operating as
Global Capital Securities Corporation.
During the most recent fiscal year, we continued our acquisition strategy
by acquiring approximately 48 percent of the outstanding common stock of
MoneyZone.com, all of the outstanding ownership interests of Global Capital
Markets, LLC (then, The JB Sutton Group, LLC), an investment banking and
brokerage firm, and 55 percent of the outstanding ownership interests of Sutton
Online, Inc. (then, Sutton Online, LLC), an online trading company. See
"Acquisitions and Dispositions During the Fiscal Year" on this page. We have
continued to grow our assets under management, our commission revenue,
underwriting fees, and distribution capabilities and remain committed to our
mission of building, through acquisitions and strategic alliances, a highly
successful, global, middle-market, investment banking and securities firm. We
also believe that the rapid development of the internet and technological
revolution will have a significant and lasting impact on the financial services
industry. We have actively positioned ourselves in less than one year, to
participate in this new medium. We believe that our ability to respond quickly
and capitalize on upcoming financial opportunities, such as the creation,
incubation and capitalization of MoneyZone.com could lead to significant new
opportunities for us.
In July 1999, we acquired approximately 48 percent of MoneyZone.com
(formerly EBonlineinc.com) and thereafter launched www.moneyzone.com, a capital
formation Internet portal that matches investors with entrepreneurs, and
provided over $300,000 in initial development costs to MoneyZone.com. We
subsequently disposed of approximately 600,000 shares of our MoneyZone.com
common stock and presently own approximately thirty percent of MoneyZone.com's
outstanding common stock. MoneyZone.com's common stock trades on the
over-the-counter bulletin board under the symbol "MNZN."
In November 1999, we purchased one-hundred percent of the outstanding
ownership interests of Global Capital Markets, LLC (then, The JB Sutton Group,
LLC), a New York based investment banking and brokerage firm in exchange for
700,000 unregistered shares of our common stock and an agreement to provide
$1,500,000 in additional working capital to that firm. Following the
acquisition, we changed the name from The JB Sutton Group, LLC to Global Capital
Markets, LLC. We are currently in the process of consolidating the operations of
Global Capital Securities Corporation and Global Capital Markets. We believe we
will realize cost savings from economies of scale which may further enable us to
eliminate duplicate costs and maximize our capital resources. After this
consolidation, we will then operate a single U.S.-based broker-dealer with 17
offices and over 300 registered representatives.
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In November 1999, we also purchased fifty-five percent of the then issued
and outstanding LLC membership interest in Sutton Online, LLC (now, Sutton
Online, Inc.) in exchange for 250,000 unregistered shares of our common stock
and an agreement to advance $250,000 in additional working capital to Sutton
Online, Inc. Sutton Online, Inc. is an online trading firm that offers trade
routing, level II software and data, Internet service and training for online
investors including individuals, hedge funds and money managers, and provides
brokerage firms with the necessary tools to offer financial products via the
Internet.
We anticipate that our acquisitions of Global Capital Securities
Corporation and Global Capital Markets are the beginning of a series of
acquisitions targeting other successful medium size investment banking and
brokerage firms both domestically and internationally. We believe that our
current organizational structure as an entrepreneurial and international
publicly-traded company will be particularly appealing to potential acquisition
candidates.
In May 2000, Sutton Online, Inc. announced the formation of a wholly owned
subsidiary, Sutton Online Europe. Sutton Online Europe will develop and market
online trading products and services to European clients. Sutton Online Europe,
whose operations will be based in Germany, will utilize the professional-level
online trading platform of Sutton Online, Inc. to execute trades in U.S. and
European securities. We are currently in the process of an extensive executive
search for a chief executive officer to lead this subsidiary, secure financing
and develop proprietary software to access financial markets throughout the
world.
In June 2000, due to continued net operating losses and persistent net cash
flow deficits, we sold our interest in Eastbrokers Beteiligungs AG and its
subsidiaries for $27.5 million USD in equity securities and notes receivable.
This disposition was reported on our Current Report on Form 8-K filed on June
29, 2000. We intend to utilize a portion of the proceeds from this sale to
expand our U.S. brokerage operations and further the development and expansion
of Sutton Online, Inc. We are also in the process of evaluating the purchase of
various strategic investment banking and brokerage operations in Western Europe,
particularly in the rapidly growing German market. We intend to continue
participating in the Eastern European markets through multiple fee-based
franchise agreements with Eastbrokers Beteiligungs AG's operations in Poland,
the Czech Republic and Slovenia.
In June, 2000, Sutton Online Europe, acquired a majority interest in Total
Online s.r.o., a Czech Republic based online trading software developer, and a
minority interest in Total Solutions s.r.o., a Czech Republic based developer of
front and back office financial management software solutions for financial
institutions, investment companies and brokerages. Total Online develops
software for advanced online trading systems that allows users to buy and sell
securities on various worldwide exchanges. One of the products will be able to
be used for trading on the New York, Prague, Vienna, Frankfurt and Amsterdam's
AEX Exchanges, as well as Nasdaq.
We remain committed to our mission of building, through acquisitions and
strategic alliances, a highly successful, global, middle market, investment
banking and securities firm.
GLOBAL CAPITAL SECURITIES CORPORATION (FORMERLY, EBI SECURITIES CORPORATION)
Global Capital Securities Corporation operates 16 retail brokerage offices
in 15 cities across the United States. These offices include 6 company-owned
branches, and 10 franchise branches employing over 250 people. Global Capital
Securities Corporation is a registered broker-dealer with the SEC and is
licensed in 50 states and the District of Columbia. It is also a member of the
NASD and the Securities Investor Protection Corporation ("SIPC"). Customer
accounts are insured to $100 million under the SIPC excess insurance program.
Global Capital Securities Corporation Corporation operates pursuant to the
exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and clears all transactions
with and for customers on a fully disclosed basis. Since its inception, Global
Capital Securities Corporation has participated in the underwriting and/or
co-underwriting of over $500 million in initial and secondary equity and debt
offerings for over 50 public U.S. companies.
Global Capital Securities Corporation maintains its clearing arrangement
with Fiserv Correspondent Services, Inc., a subsidiary of Fiserv, Inc.
(NASDAQ:FISV). Fiserv Correspondent Services, Inc. provides Global Capital
Securities Corporation with back office support, transaction processing services
on all the principal national securities exchanges and access to many other
financial services and products. This
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arrangement enables Global Capital Securities Corporation to offer its clients a
broad range of products and services that is typically only offered by firms
that are larger and/or have a larger capital base.
Global Capital Securities Corporation operates primarily as a full-service
retail brokerage firm focusing on individual investors. It additionally
maintains and conducts corporate finance, proprietary research and trading
activities. Global Capital Securities Corporation provides its brokerage clients
with a broad range of traditional investment products and services. Global
Capital Securities Corporation also strives to establish itself with investors
and corporate finance clients through its commitment to a professional but
personalized service. Its investment banking department's mission is to enhance
and develop the capital structures of small to middle-market emerging growth
companies through private placements, bridge financing, and public offerings in
order to enable our corporate finance clients to capitalize on promising
business opportunities, favorable market conditions and/or late stage product
development. Global Capital Securities Corporation is also active in the public
finance area with offerings of public and private debt securities. This activity
is also complemented by a bond trading department that focuses on government,
municipal and corporate debt obligations.
Global Capital Securities Corporation is constantly seeking new
opportunities to create additional revenue sources and cost savings. The
potential result is increased internal growth, which complements our external
growth through acquisitions. Several initiatives that Global Capital Securities
Corporation has undertaken follow:
1. FIXED INCOME. In December 1998, Global Capital Securities Corporation
added a fixed income department. This group is responsible for the underwriting,
trading, retail distribution and research of government, municipal and corporate
bonds. This group adds an additional profit center to the retail, corporate
finance and equity trading divisions and also has created synergies with the
other departments. As Global Capital Securities Corporation works to broaden the
product base of its financial consultants and their customers, the fixed income
department creates or locates new product through underwritings or independent
research ideas. Additionally, the fixed income department allows Global Capital
Securities Corporation's corporate finance to capture business that would not
have been previously available.
2. ASSET ALLOCATION. Global Capital Securities Corporation has developed an
in-house asset allocation program to augment the efforts of our financial
consultants. This in-house system was developed utilizing industry software
which, along with additional marketing materials, is customized for our use.
This approach represents an investment strategy which is based on a Nobel Prize
winning study called "Modem Portfolio Theory," the basis of which is that people
can create "optimal"-risk-vs.-return portfolios by mixing varying amounts of
different asset classes according to their correlation to one another. Many
market studies suggest that asset allocation rather than individual investment
selection accounts for over 90 percent of a typical portfolio's returns. We
concur with this notion, and as a result, are educating our financial
consultants to utilize the program. The results have been very favorable and we
have found this approach to be an effective tool for gathering more assets.
Global Capital Securities Corporation believes that the new communication
systems that are being implemented and which will be available at the desk top
level will enhance our financial consultant's ability to utilize the asset
allocation model.
3. MANAGED MONEY. In keeping with the changes in the securities industry,
Global Capital Securities Corporation is actively entering the field of
managed-money and wrap-fee compensation arrangements in place of the more
traditional fee-per-transaction approaches. In short, the managed money approach
charges the client a flat annual percentage of the money managed rather than a
fee for each transaction. Many people believe that this approach better aligns
the investment advisor's goals with that of the client. This approach requires
some additional accounting and registration procedures, both of which have been
implemented by Global Capital Securities Corporation and its applicable business
partners. Global Capital Securities Corporation intends to hire additional
financial consultants with managed money experience in addition to actively
re-educating our existing financial consultants.
4. RETAIL EXPANSION. During this fiscal year, Global Capital Securities
Corporation has focused on filling its existing offices in order to improve
efficiencies. In addition, Global Capital Securities Corporation has been
working to integrate the operations of Global Capital Markets into its brokerage
structure.
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However, due to recent severe correction in the over-the-counter US equity
markets, several of the competitors of Global Capital Securities Corporation
have ceased business. As a result, numerous opportunities have arisen that may
result in the expansion into several additional markets. We are actively
pursuing these opportunities to continue the expansion of our operations.
GLOBAL CAPITAL MARKETS, LLC (FORMERLY, THE JB SUTTON GROUP, LLC)
Global Capital Markets, LLC operates from a single location with over 80
financial consultants. Similar to Global Capital Securities Corporation
Corporation, Global Capital Markets, LLC operates primarily as a retail
brokerage firm focusing on individual investors. In addition, Global Capital
Markets, LLC augments its product offerings through its corporate finance and
trading activities. Global Capital Markets, LLC provides its retail clients with
a broad range of traditional and progressive investment products and services.
Global Capital Markets, LLC is a registered broker dealer with the SEC and
a member of the NASD and the SIPC. Global Capital Markets, LLC operates pursuant
to the exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and clears all
transactions with and for customers on a fully disclosed basis.
Global Capital Markets, LLC is currently in the process of transitioning
its clearing arrangement from CIBC Oppenheimer, a division of CIBC World Markets
Corp. to Fiserv Correspondent Services, Inc. as part of the consolidation of our
brokerage operations. It also maintains an additional relationship with Penson
Financial Services Inc., a division of Service Asset Management Company. Fiserv
Correspondent Services, Inc. provides Global Capital Markets, LLC with back
office support, transaction processing services on all the principal national
securities exchanges and access to many other financial services and products.
This arrangement enables Global Capital Markets, LLC to offer its clients a
broad range of products and services that is typically only offered by firms
that are larger and/or have a larger capital base. Service Asset Management
Company provides similar services as Fiserv, but it is utilized by Global
Capital Markets, LLC for the online customer accounts using the Sutton Online,
Inc. trading system.
SUTTON ONLINE INC. (FORMERLY, SUTTON ONLINE, LLC)
Since our November 1999 acquisition of Sutton Online, Inc., Sutton Online,
Inc. has focused its efforts on hiring key personnel, building its
infrastructure, and establishing strategic alliances. It has also expanding its
product offerings which has served to increase the volume of its business.
In January 2000, Sutton Online, Inc. signed an agreement with ECN Access
Europe, S.A. to provide our trading platform to its customers for the purpose of
routing trades in U.S. stocks by European institutional investors through our
system. After delays in the direct digital order routing system implemented by
ECN Access Europe, S.A., Sutton Online, Inc. has begun the route orders for ECN
Access Europe.
In January 2000, Sutton Online, Inc. signed an agreement with Newman Ladd
Capital, a New York brokerage firm, to provide our Direct Access Trading
software and trade routing to Newman Ladd Capital's clients. While Newman Ladd
Capital awaits the necessary regulatory approval for its online broker dealer,
it has not yet marketed our Sonic 2000 trading platform to their internet based
clients. To date, it has only been utilizing our solutions for their in-house
trading desk. Once Newman Ladd Capital establishes its second broker dealer, we
are optimistic that it will actively market our Direct Access Trading software
and which may add considerable online trading revenue.
In February 2000, Sutton Online, Inc. announced a joint marketing and order
flow agreements with Xcaliburtrading.com. The relationship with Excalibur
Trading was formed in order for Sutton Online, Inc. to offer a state-of-the-art
virtual training platform to our subscribers. Xcaliburtrading.com's compensation
under these arrangements is contingent on the volume of trades generated by
their clients.
In March 2000, Sutton Online, Inc. signed an agreement with Shark Fisher,
Ltd., a brokerage and financial consulting firm based in Zurich, Switzerland,
whereby Shark Fisher, Ltd. will exclusively utilize our trading platform and
order-routing service bureau to facilitate European trades in U.S. stocks. Shark
Fisher, Ltd. is currently expanding its banking relationships to offer its
clients greater flexibility to trade online.
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In April 2000, Sutton Online, Inc. formed MPD Trading in a joint venture
arrangement with Mack Arnette. Sutton Online, Inc. and Mr. Arnette have agreed
that Sutton Online, Inc. will purchase Mr. Arnette's ownership interest in MPD
Trading and that Mr. Arnette will then become Vice President of Retail
Development for Sutton Online, Inc. Mr. Arnette is one of the pioneers of the
day-trading industry and is the former president and co-founder of Executioner
LLC, a Real Tick III trading platform vendor.
In May 2000, Paul Mougel joined Sutton Online, Inc. as Vice President of
Broker-Dealer Sales. Mr. Mougel has served as Vice President for sales at
Tradecast Ltd., a software company specializing in the development of financial
trading systems.
In May 2000, Richard W. Joyce agreed to join the board of directors of
Sutton Online, Inc. Mr. Joyce is a London-based senior vice president of
worldwide sales at 3Com Corp., a broad-based global supplier of networking
systems and services. Previously, he was president of 3Com Europe and
Asia/Pacific Rim. Joyce joined 3Com UK in 1987 as manager for the workgroup
systems division, became president of 3Com Europe in 1990 and assumed
responsibility for Asia/Pacific Rim sales in 1993. Before joining 3Com, Joyce
held a variety of management positions at Cambridge International Trading Corp.,
Esso Petroleum and RRL Electronics.
In June 2000, Sutton Online, Inc. signed a letter of intent with Brazil
Securities SA, an investment and financial services company based in Montevideo,
Uruguay, to provide our online trading services on an exclusive basis to their
clients. We are currently in the process of finalizing our arrangement with
them. We anticipate that they will begin processing accounts through our systems
as early as July 1, 2000. Sutton Online, Inc. and Brazil Securities SA are
developing a Portuguese version of the Sutton Online, Inc.'s website, and will
utilize existing quote and order routing system to access the BOVESPA. The
completion will enable clients using our system to trade securities on the South
American markets.
In October 2000, Sutton Online signed an agreement with
GlobalNetFinancial.com, Inc., (NASDAQ: GLBN / LSE: GLFA) to launch their
second-generation online trading platform for U.S. securities.
GlobalNetFinancial's trading platform, which includes the Sutton Online System,
will be a joint venture between Global Capital Partners' brokerage division and
Dalton Kent Securities, GlobalNetFinancial's recently acquired broker-dealer
subsidiary. Under the terms of the joint venture agreement, Global Capital
Partners' brokerage division will service the customer accounts. This platform
will be marketed through GlobalNetFinancial's network of thirteen financial
content sites, including UK-iNvest.com. UK-iNvest.com was recently selected by
Forbes.com as a BEST OF THE WEB FOR INTERNATIONAL INVESTMENT websites in its
September, 2000 issue. As a result of traffic alliances with Internet Service
Providers such as Freeserve, Scandinavia Online and World Online, as well as
wireless and interactive TV providers such as BT's Cellnet and Telewest,
GlobalNet has access to over 27 million customers. During its quarter ended June
30, 2000, GlobalNet's network of financial content sites received 44.1 million
page views. In addition to its trading platform, the system will offer a broad
spectrum of trading applications, including:
>> Web based trading for stocks, options and mutual funds including
portfolio tools, watchlists, account information and transaction
history; and
>> Robust direct access trading platforms offered either with or
without Level II, which provides instant order executions,
dynamically changing multiple charts, direct access order
routing, realtime quotes, stop loss orders and realtime account
management.
We feel that our expanded products and services will greatly enhance our
ability to significantly increase our overall volume of trades. Sutton Online,
Inc. has two principal products, SONIC 2000 and Web Based Trading application.
SONIC 2000 is its flagship product, which provides the user with dynamic
quotations on the NYSE, AMEX, and NASDAQ combined with instant trade routing to
market makers and electronic communication networks. Our Web Based Trading
system is an entry-level platform for the amateur online trader. Over the last
several months, we have added an array of products to meet the needs of both
retail and broker-dealer clients. Sutton Online, Inc. now offers the following
direct access software: SONIC 2000, RealTick III, The Terminator, The EZ
Daytrader, and the JTerminator. RealTick III is the industry's most popular
trading platform, while The Terminator contains some of the fastest technology
on the market. Each
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product targets a specific demographic profile, and has unique operating
characteristics. Sutton Online, Inc. is currently testing two proprietary
filtering devices, The LiveWire Advisor and The Market Sweeper. Both of these
products contain next-generation technology and have the ability to provide both
visual and audio alerts.
MONEYZONE.COM (FORMERLY, EBONLINEINC.COM)
During 2000, MoneyZone.com's activities have been directed toward securing
financing and developing, implementing and marketing an Internet site designed
to facilitate mergers, acquisitions and the funding of corporate finance
activities. In October 1999, MoneyZone.com completed its initial private
placement of $2,200,000. Since January 2000, MoneyZone.com has concentrated on
developing and expanding its business. In September 2000, MoneyZone raised
additional capital through the sale of $2,500,000 of 6 percent convertible
debentures.
MoneyZone.com operates a website which provides five primary services to
its customers the ability to apply for a commercial loan from a network of more
than 100 lenders; the ability to list a business for sale; the ability to post
an equity funding request; search capabilities for professional service
providers; and a business toolkit with resources for business owners.
MoneyZone.com's plan of operation for the next year includes: increasing
its network of commercial lenders and equity funding sources throughout the
United States and Europe; developing improved functionality for the lending and
equity funding sections so that funding seekers and funding sources may monitor
transactions continuously in real time; licensing MoneyZone Capital Corporation
registered as a broker-dealer to enable it to collect investment banking and
advisory fees; enrolling corporate finance affiliates throughout the United
States and Europe to assist in aggregating and facilitating corporate finance
transactions; sponsoring MoneyZone Capital Partners Fund I LLP to invest in
business-to-business Internet companies and early-stage information technology
and information services companies; co-investing with established venture
capital and investment firms; and retaining additional corporate finance
professionals to expand its capabilities in facilitating commercial loan and
investment banking transactions.
RESULTS OF OPERATIONS
SEE Note 1 of the Notes to Consolidated Financial Statements for the
Quarterly and Six Month Periods Ended September 30, 2000, for an explanation of
the basis of presentation of the financial statements.
For the quarterly period ended September 30, 2000, we generated
consolidated revenues in the amount of $8,662,000, compared to $6,784,000, for
the quarterly period ended September 30, 1999. For the six month period ended
September 30, 2000, we generated consolidated revenues in the amount of
$17,652,000 compared to $15,245,000 for the six month period ended September 30,
1999. The revenue for the quarterly and six month period ended September 30,
1999 includes the one time gain from the sale of a portion of our interest in
MoneyZone of $925,000. After adjusting for the effects of these one time gains,
our revenues were $5,859,000 for the quarterly period ended September 30, 1999
and $14,320,000 for the six month period ended September 30, 1999. Our total
revenues for the quarterly and six month periods ended September 30, 2000, are
approximately 48 percent and 23 percent higher, respectively, than the same
periods from a year earlier due to the inclusion of Global Capital Markets and
Sutton Online for the entire periods. However, due to the extremely volatile
markets we have been experiencing, our proprietary trading department posted
losses of over $1,000,000 for the quarter ended September 30, 2000. Because of
this continued extreme volatility and the losses experienced, we have decided to
reallocate a portion of our resources from proprietary trading to other areas of
our business and reduce our exposure in this area.
We incurred total consolidated costs and expenses of $10,182,000 and
$18,924,000 for the quarterly and six month periods ended September 30, 2000
compared to $6,156,000 and $14,480,000 for the quarterly and six month periods
ended September 30, 1999. Overall, our increases in costs and expenses at our US
brokerage firms were primarily related to the increased production levels in our
brokerage operations and the inclusion of Global Capital Markets and Sutton
Online for the entire quarterly and six month periods ended September 30,
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2000. We are pleased to note a significant reduction in our communications costs
due to renegotiated contracts in which were initially implemented during 1999.
We are reporting consolidated loss from continuing operations for the
quarterly and six month periods ending September 30, 2000 of ($1,520,000) and
($1,272,000), respectively compared to consolidated income from continuing
operations of $628,000 and $765,000 for the quarterly and six month periods
ended September 30, 1999. The income from continuing operations for the
quarterly and six month periods ended September 30, 1999 includes the one time
gain from the sale of a portion of our interest in MoneyZone of $925,000. After
adjusting for the effects of the one time gain from our sale of MoneyZone, our
income from continuing operations were ($297,000) and ($160,000) for the
quarterly and six month periods ended September 30, 1999, respectively. Our
current period losses are primarily attributable to the proprietary trading
losses sustained and costs and expenses associated with the expansion of our New
York offices of approximately $550,000.
We are reporting consolidated net income (loss) for the quarterly and six
month periods ending September 30, 2000 of ($1,492,000) and $963,000,
respectively compared to consolidated net income of $335,000 and $792,000 for
the quarterly and six month periods ended September 30, 1999. The net income for
the six months ended September 30, 2000 includes the one time gain on the sale
of our European operations of $2,060,000, net of taxes. The net income for the
quarterly and six month periods ended September 30, 1999 includes the one time
gain from the sale of a portion of our interest in MoneyZone of $925,000.
On September 30, 2000, we had total assets of $49,181,000, and total
liabilities of $10,101,000, compared to $28,320,000, and $8,752,000,
respectively, on September 30, 1999, as restated.
The cash flows for the six month period ended September 30, 2000 reflect
the volatile nature of the securities industry and the reallocation of our
assets indicative of a growing organization. Our statement of financial
condition reflects a liquid financial position of cash and cash equivalents
convertible to cash representing approximately 1 percent of total assets as of
September 30, 2000.
We are subject to net capital and liquidity requirements. As of September
30, 2000, we were in excess of its minimum net capital and liquidity
requirements.
We finance our operations primarily with existing capital and funds
generated from our diversified operations and financing activities.
In the opinion of our management, our existing capital and cash flow from
operations will be adequate to meet our capital needs for at least the next 12
months in light of currently known and reasonably estimable trends. We are
currently exploring our options with regards to additional debt or equity
financing and there can be no assurance such financing will be available.
However, we recognize that with increased liquidity we may be better positioned
to take advantage of potential opportunities in the markets where we maintains
our operations. However, no assurances can be made as to our ability to meet our
cash requirements subsequent to any further business combinations.
As a broker/dealer in securities, we will periodically acquire positions in
securities on behalf of our clients. As disclosed in the notes of the financial
statements, we have title to various financial instruments in the countries in
which we operate. Certain of these investments may be characterized as
relatively illiquid and potentially subject to rapid fluctuations in liquidity.
ACQUISITIONS AND DISPOSITIONS
In May 2000, Sutton Online, Inc. announced the formation of a wholly owned
subsidiary, Sutton Online Europe. Sutton Online Europe will develop and market
online trading products and services to European clients. Sutton Online Europe,
whose operations will be based in Germany, will utilize the professional-level
online trading platform of Sutton Online, Inc. to execute trades in U.S. and
European securities. We are currently in the process of an extensive executive
search for a chief executive officer to lead this subsidiary, secure financing
and develop proprietary software to access financial markets throughout the
world.
In June 2000, due to continued net operating losses and persistent net cash
flow deficits, we sold our interest in Eastbrokers Beteiligungs AG and its
subsidiaries for $27.5 million USD in equity securities and notes
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receivable. This disposition was reported on our Current Report on Form 8-K
filed on June 29, 2000. We intend to utilize a portion of the proceeds from this
sale to expand our U.S. brokerage operations and further the development and
expansion of Sutton Online, Inc. We are also in the process of evaluating the
purchase of various strategic investment banking and brokerage operations in
Western Europe, particularly in the rapidly growing German market. We intend to
continue participating in the Eastern European markets through multiple
fee-based franchise agreements with Eastbrokers Beteiligungs AG's operations in
Poland, the Czech Republic and Slovenia.
In June, 2000, Sutton Online Europe, acquired a majority interest in Total
Online s.r.o., a Czech Republic based online trading software developer, and a
minority interest in Total Solutions s.r.o., a Czech Republic based developer of
front and back office financial management software solutions for financial
institutions, investment companies and brokerages. Total Online develops
software for advanced online trading systems that allows users to buy and sell
securities on various worldwide exchanges. One of the products will be able to
be used for trading on the New York, Prague, Vienna, Frankfurt and Amsterdam's
AEX Exchanges, as well as Nasdaq.
EMPLOYEES
At September 30, 2000, we currently have approximately 450 full-time
employees and 30 part-time employees. No employees are covered by collective
bargaining agreements and we believe our relations are good with both our
employees and our independent contractors and consultants.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
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 us
beginning with the interim reporting period ended December 31, 1997. The
adoption did not impact 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-purpose financial statements. This statement was
adopted by us beginning with the fiscal year ended March 31, 1999.
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 was effective for our annual report for
the fiscal year ended March 31, 1999. In the initial year of application,
comparative information for earlier years was restated. This statement did not
have a significant impact on us.
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. This statement
has had no impact on us.
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<PAGE>
PART II - OTHER INFORMATION
LEGAL PROCEEDINGS
We and our subsidiaries are subject to several legal proceedings in various
jurisdictions throughout the United States.
EURO-AMERICAN INSURANCE COMPANY LTD., ET AL. V. NATIONAL FAMILY CARE LIFE
INSURANCE COMPANY, ET AL., 191st Judicial District of Dallas County, Texas. In
April, 1996, National Family Care Life Insurance Company commenced the above
action against, among others, Global Capital Securities Corporation and Steve
Signer, an employee of Global Capital Securities Corporation. In late 1994 or
early 1995, National Family Care Life Insurance Company entered into an
arrangement with Debenture Guaranty Corporation, another defendant in this
litigation, whereby National Family Care Life Insurance Company lent money to
Debenture Guaranty Corporation, and Debenture Guaranty Corporation opened an
account in Debenture Guaranty Corporation's name to trade U.S. Treasuries. The
note to National Family Care Life Insurance Company was in the amount by which
the treasuries could be margined. This transaction was allegedly part of a
scheme whereby National Family Care Life Insurance Company was attempting to
inflate its assets for regulatory purposes. Debenture Guaranty Corporation
allegedly misappropriated the funds for its own benefit. National Family Care
Life Insurance Company alleged that Global Capital Securities Corporation and
Mr. Signer aided, abetted and conspired with Debenture Guaranty Corporation in
allegedly defrauding Plaintiff. National Family Care Life Insurance Company has
reduced its damages demand from approximately $11,500,000 to $1,100,000.
Pursuant to a motion filed by Global Capital Securities Corporation for summary
judgment, all claims other than a claim for negligence were dismissed. Global
Capital Securities Corporation believes it has meritorious defenses and intends
to vigorously defend against National Family Care Life Insurance Company's
claims. The case is scheduled for trial in January 2001. Global Capital
Securities Corporation intends to file an additional motion for summary judgment
following the completion of the discovery process.
Global Capital Securities Corporation also is involved in an arbitration
proceeding related to the National Family Care Life Insurance Company 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 Global Capital Securities Corporation in July 1998 in favor of
third-party plaintiff Pauli & Company, Inc. of approximately $370,000, which was
significantly below the initial award sought by Pauli & Company, Inc. of
approximately $1,100,000. Global Capital Securities Corporation has filed a
motion in the National Family Care Life Insurance Company litigation to vacate
this award and plans to vigorously contest this award on appeal.
LEE SCHLESSMAN ET AL V. GLOBAL CAPITAL PARTNERS, INC. AND EBI SECURITIES
CORPORATION, Denver County District Court, Colorado, Case No. 00 CV 1795.
Plaintiffs commenced this action in April 2000, alleging that we unlawfully
prepaid $1,350,000 of convertible secured promissory notes without affording the
Plaintiffs the right to convert the notes into common stock. The notes were
issued in March 1999, and entitled the holders to convert at a price of $5.75.
We filed a registration statement covering the conversion, which was declared
effective in August of 1999. In February 2000, we inquired as to whether the
Noteholders intended to convert. When it was learned that they were not
intending to convert, we prepaid the notes pursuant to their terms, thereby
extinguishing the conversion privilege. The Noteholders have sued both Global
Capital Partners Inc. and Global Capital Securities Corporation, claiming that
they have suffered damages as a result of not being entitled to convert and sell
the common stock issued upon conversion. We have filed a motion to compel
arbitration, which has been granted. As of this date, no arbitration claim has
been made. We believe that we have meritorious defenses and intend to vigorously
defend against Plaintiff's claims.
In view of the inherent difficulty of predicting the outcome of such
matters, we cannot predict the eventual outcome of pending matters against
ourselves, Global Capital Securities Corporation or Global Capital Markets, LLC.
We believe, based upon discussions with our counsel, that the outcome of such
matters will not have a material adverse effect on the consolidated financial
condition of our firm but may be material to our
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<PAGE>
operating results for any particular period depending on the outcome of the
matter and the level of our income for such period.
In addition to the litigation described above, we, through our
subsidiaries, are involved in various legal actions and claims arising in the
ordinary course of business. We believe that each of such matters will be
resolved without material adverse effect on our financial condition or operating
results.
CHANGES IN SECURITIES AND USE OF PROCEEDS
None
DEFAULTS ON SENIOR SECURITIES
None
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 21, 2000, we held the 2000 Annual Meeting of Stockholders of
Global Capital Partners Inc. (formerly Eastbrokers International Incorporated)
("Annual Meeting"). At this meeting, our Board of Directors submitted one
proposed amendment to our 1996 Stock Option Plan. The Board of Directors also
submitted proposals to the shareholders to elect two directors for a term of
three years and to ratify the appointment of our independent auditors for the
current fiscal year. The holders of 6,854,027 shares of stock entitled to vote,
which constituted a quorum, were present at the annual meeting in person or by
proxy. As of the record date, there were 10,460,839 shares issued and
outstanding.
Proposal No. 1 - Election of Directors. Two nominees, Michael Sumichrast,
PhD and Paul F. McCurdy, Esq. were submitted to a vote of the shareholders. The
nomination of Messr. Michael Sumichrast to serve as a director for a three year
term was approved with 6,842,423 shareholders voting for the nomination and
11,649 votes were withheld for this nomination. The nomination of Messr. Paul F.
McCurdy to serve as a director for a three year term was approved with 6,842,423
shareholders voting for the nomination and 11,649 votes were withheld for this
nomination.
Proposal No. 2 - Amendment to the Company's 1996 Stock Option Plan. An
amendment was submitted to the shareholders to increase the number of shares
available under the plan from 1,200,000 to 1,500,000. The required affirmative
vote of sixty-six and two thirds percent of the votes received on this issue was
met. 6,769,138 voted in favor of the proposal, 71,874 voted against the
proposal, and 13,060 abstained from voting.
Proposal No. 3 - Ratification of the Appointment of Auditors. The
appointment of the accounting firm of Spicer, Jeffries & Co. for the fiscal year
2001 was confirmed by the shareholders. 6,836,548 voted in favor of the
proposal, 11,115 voted against the proposal, and 6,409 abstained from voting.
OTHER INFORMATION
None
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<PAGE>
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT NO. DESCRIPTION
------------- -----------------
(27) Financial Data Schedule (Electronic Filing Only).
B. There were no reports on Form 8-K filed during the quarterly period
ended September 30, 2000.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GLOBAL CAPITAL PARTNERS INC.
(Registrant)
By /s/ Kevin D. McNeil
----------------------------------------------
Kevin D. McNeil
Executive Vice President, Treasurer,
Secretary, and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 14, 2000
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<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------------------
(27) Financial Data Schedule (Electronic Filing Only).
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