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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-QSB
-----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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)
EASTBROKERS INTERNATIONAL INCORPORATED
(Former name, former address, and former fiscal year,
if changed from last report)
-----------------------
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 February 11, 2000, was 8,029,563.
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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 .................. 2
Consolidated Statements of Operations
Quarterly and Nine Month Periods
Ended December 31, 1999 and 1998 ............................ 3
Consolidated Statements of Comprehensive Income
Quarterly and Nine Month Periods
Ended December 31, 1999 and 1998 ............................ 4
Consolidated Statements of Cash Flows
Quarterly and Nine Month Periods
Ended December 31, 1999 and 1998 ............................ 5
Notes to Consolidated Financial Statements ..................... 7
Item 2. Management's Discussion and Analysis or Plan of Operation ..... 14
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............ 23
Item 6. Exhibits and Reports on Form 8-K .............................. 23
Signature ............................................................. 24
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL CAPITAL PARTNERS, INC.
(A Delaware Corporation)
Consolidated Statement of Financial Condition
<TABLE>
<CAPTION>
December 31,
----------------
1999
----------------
(Unaudited)
<S> <C>
ASSETS
Cash and cash equivalents $ 2,763,950
Cash and securities segregated for regulatory
purposes or deposited with clearing organizations 31,390
Securities borrowed 2,404,888
Receivables
Customers 199,638
Broker dealers 1,705,659
Affiliated companies 3,633,373
Other 5,719,900
Securities owned, at value
Corporate equities 17,176,205
Other sovereign government obligations 681,697
Furniture and equipment, at cost (net of accumulated
depreciation and amortization of $1,502,620) 2,390,731
Deferred taxes 5,722,704
Investments in affiliated companies 2,895,845
Goodwill 4,452,180
Other assets and deferred amounts 2,048,345
-----------------
Total assets $ 51,826,505
=================
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 7,787,966
Advances from affiliated companies 448,664
Payables
Customers 2,113,397
Broker dealers and other 1,736,822
Securities sold under agreements to repurchase 1,454,372
Securities sold, not yet purchased, at value 2,388,906
Accounts payable and accrued expenses 1,849,939
Other liabilities and deferred amounts 1,592,181
-----------------
19,372,247
Long-term borrowings 3,832,940
-----------------
Total liabilities 23,205,187
-----------------
Minority interest in consolidated subsidiaries 7,173,785
-----------------
Shareholders' equity
Preferred stock; $.01 par value; 10,000,000 shares authorized;
1,000,000 shares issued and outstanding at December 31, 1999 10,000
Common stock; $.05 par value; 10,000,000 shares authorized;
6,423,164 shares issued and outstanding at December 31, 1999 271,159
Paid-in capital 32,266,386
Accumulated deficit (7,663,750)
Note receivable - common stock and warrants (939,167)
Accumulated other comprehensive income (2,497,095)
-----------------
Total shareholders' equity 21,447,533
-----------------
Total Liabilities and Shareholders' Equity $ 51,826,505
=================
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A Delaware Corporation)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Quarterly Period For the Nine Months
Ended December 31, Ended December 31,
------------------------------------ ------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Commissions $ 7,383,301 $ 3,625,667 $ 17,683,620 $ 8,237,084
Fees 793,198 1,443,299 2,638,897 2,146,639
Interest and dividends 233,508 444,175 377,832 846,381
Principal transactions, net
Trading 1,609,418 268,008 3,101,185 2,657,607
Investment 772,667 88,077 2,506,741 231,440
Gain on sale of interest in subsidiary - - - 1,312,057
Other 799,094 759,653 3,268,726 1,542,668
Equity in earnings of unconsolidated affiliates 5,698 54,988 86,421 54,988
---------------- ---------------- ---------------- ----------------
Total revenues 11,596,884 6,683,867 29,663,422 17,028,864
---------------- ---------------- ---------------- ----------------
Costs and expenses
Compensation and benefits 7,343,436 4,323,418 18,258,599 10,687,266
Brokerage, clearing, exchange fees and other 1,075,720 84,308 2,244,675 1,324,647
Occupancy 564,092 499,012 1,724,806 1,302,584
Communications 599,602 537,555 1,565,037 1,314,265
Office supplies and expenses 162,860 326,626 477,730 1,001,600
Interest 144,118 230,854 782,064 335,116
Professional fees 116,876 196,618 579,766 818,009
Consulting fees 133,422 277,626 495,276 887,787
Travel 62,811 154,985 213,651 472,013
General and administrative 461,472 218,744 1,148,436 1,088,917
Depreciation and amortization 124,237 166,736 362,480 355,774
---------------- ---------------- ---------------- ----------------
Total costs and expenses 10,788,646 7,016,482 27,852,520 19,587,978
---------------- ---------------- ---------------- ----------------
Income (loss) before provision for income taxes
and minority interest in earnings of subsidiaries 808,238 (332,615) 1,810,902 (2,559,114)
Provision for income taxes 890,288 446,676 774,138 (218,757)
Minority interest in earnings of subsidiaries 3,719 (60,422) (90,507) (233,402)
---------------- ---------------- ---------------- ----------------
Net income (loss) $ 1,702,245 $ 53,639 $ 2,494,533 $ (3,011,273)
================ ================ ================ ================
Weighted average number of common
shares outstanding
Basic 5,229,457 4,767,750 5,209,010 4,595,202
================ ================ ================ ================
Diluted 5,805,557 4,767,750 5,401,710 4,595,202
================ ================ ================ ================
Earnings per share
Basic $ 0.33 $ 0.01 $ 0.48 $ (0.66)
================ ================ ================ ================
Diluted $ 0.29 $ 0.01 $ 0.46 $ (0.66)
================ ================ ================ ================
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A Delaware Corporation)
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
For the Quarterly Period For the Nine Months
Ended December 31, Ended December 31,
------------------------------------ ------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,702,245 $ 53,639 $ 2,494,533 $ (3,011,273)
Other comprehensive income (loss)
Foreign currency translation adjustments 273,137 2,024,309 (1,286,933) 1,925,988
---------------- ---------------- ---------------- ----------------
Comprehensive income (loss) $ 1,975,382 $ 2,077,948 $ 1,207,600 $ (1,085,285)
================ ================ ================ ================
</TABLE>
- 4 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A Delaware Corporation)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months
Ended December 31,
------------------------------------
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 2,494,533 $ (3,011,273)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Minority interest in earnings of subsidiaries 90,507 233,402
Depreciation and amortization 362,480 355,774
Deferred taxes 668,760 384,470
Gain on sale of interest in subsidiary - (1,312,057)
Equity in earnings (loss) of unconsolidated affiliates (86,421) (54,988)
Changes in operating assets and liabilities
Cash and securities segregated for regulatory purposes
or deposited with regulatory agencies 19,041 887,981
Securities borrowed (751,146) (651,872)
Receivables
Customers 3,940,378 4,627,744
Brokers, dealers and others 651,306 (3,260,547)
Affiliated companies (1,529,444) 543,073
Other 3,814,865 (9,120,268)
Securities owned, at value (4,316,346) (13,855,772)
Other assets 1,458,818 (86,149)
Payables
Customers (570,946) (1,098,454)
Brokers, dealers and others (1,096,206) 1,067,561
Accounts payable and accrued expenses 261,644 594,443
----------------- ----------------
Net cash provided by (used in) operating activities 5,411,823 (23,756,932)
----------------- ----------------
Cash flows from investing activities
Net proceeds from (payments for)
Net cash acquired - EBI Securities - 970,056
Investments in affiliates (5,103,382) -
Sale of interest in subsidiary - 1,180,500
Investments held for resale - 693,173
Purchases of furniture and equipment (526,761) (689,446)
----------------- ----------------
Net cash provided by (used in) investing activities (5,630,143) 2,154,283
----------------- ----------------
Cash flows from financing activities
Net proceeds from (payments for)
Sale of convertible preferred stock 2,000,000 -
Securities loaned 1,239,560 4,187,159
Short-term financings 4,437,417 2,092,219
Short-term borrowings from affiliated companies (4,251,157) 1,738,647
Other long-term debt (1,371,322) 7,367,627
----------------- ----------------
Net cash provided by (used in) financing activities 2,054,498 15,385,652
----------------- ----------------
Foreign currency translation adjustment (1,286,933) 1,614,171
----------------- ----------------
Increase (decrease) in cash and cash equivalents 549,245 (4,602,826)
Cash and cash equivalents, beginning of period 2,214,705 7,156,702
----------------- ----------------
Cash and cash equivalents, end of period $ 2,763,950 $ 2,553,876
================= ================
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A Delaware Corporation)
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
For the Nine Months
Ended December 31,
------------------------------------
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
Supplemental disclosure of cash flow information
Cash paid for income taxes $ - $ -
================= ================
Cash paid for interest $ 782,064 $ 335,116
================= ================
Non-cash transactions
Eastbrokers International shares issued as part of
EBI Securities Corporation acquisition $ - $ 2,350,000
================= ================
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
1. INTERIM REPORTING
The financial statements of Global Capital Partners, Inc. (formerly
Eastbrokers International Incorporated) and its U.S. and international
subsidiaries (collectively, "Global Capital Partners" or the "Company") for
the quarterly and nine month period ended December 31, 1999 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, 1999
include accounting policies and additional information pertinent to an
understanding of these interim financial statements.
For the quarterly and nine month period ended December 31, 1999, the
accompanying consolidated financial statements include the financial
position, results of operations, comprehensive income and cash flows of
Eastbrokers Beteiligungs Aktiengesellschaft ("Eastbrokers AG") for the
quarterly period ended December 31, 1999, of EBI Securities Corporation
("EBI Securities") (formerly Cohig & Associates) and the Company for the
quarterly period ended December 31, 1999.
For the quarterly period ended December 31, 1998, the accompanying
consolidated financial statements include the financial position, results
of operations, comprehensive income, and cash flows of Eastbrokers AG for
the quarterly period ended December 31, 1998, of EBI Securities from the
date of acquisition (May 14, 1998) through December 31, 1998, and the
Company for the quarterly period ended December 31, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include Global Capital Partners, Inc.
(formerly Eastbrokers International Incorporated) and its U.S. and
international 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.
See Note 18 -"Significant Estimates" in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1999.
- 7 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. (formerly Eastbrokers
International Incorporated) and its U.S. subsidiaries is March 31.
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 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.
- 8 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
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.
- 9 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
3. ACQUISITIONS
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. The Company intends
to develop EBI Securities as the foundation to expand its U.S. based
investment banking and brokerage presence. EBI Securities was the first
acquisition targeting successful medium size investment banking and
brokerage firms both domestically and internationally.
- 10 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
3. ACQUISITIONS (CONTINUED)
EBI SECURITIES CORPORATION (CONTINUED)
EBI Securities 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, EBI Securities has approximately 200
licensed representatives. EBI Securities provides its brokerage clients
with a broad range of traditional investment products and services. EBI
Securities 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. EBI Securities' 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.
EBI Securities 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. EBI Securities
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.
EBI Securities maintains its clearing arrangement with Fiserv Correspondent
Services, Inc. ("Fiserv"), a subsidiary of Fiserv, Inc. (NASDAQ: FISV).
Fiserv provides EBI Securities 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 EBI Securities 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.
THE JB SUTTON GROUP
In November, 1999, The Company expanded its US investment banking and
brokerage operations further with the acquisition of The JB Sutton Group,
LLC, ("The JB Sutton Group") a New York based brokerage and investment
banking firm. The JB Sutton Group has one main office with over 80
registered representatives. The JB Sutton Group primary focus is the
operation of a retail brokerage firm serving individual investors with a
full service approach. The JB Sutton Group has also utilized its corporate
finance and trading activities to augment the services provided to its
customer base. The JB Sutton Group provides its retail clients with a broad
range of traditional investment products and services.
The JB Sutton Group 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"). The JB Sutton Group
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.
The JB Sutton Group maintains dual clearing arrangements with CIBC
Oppenheimer, a division of CIBC World Markets Corp. ("OPPCO"), and Penson
Financial Services Inc., a division of Service Asset Management Company
("Penson"). OPPCO provides The JB Sutton Group with back office support,
- 11 -
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
transaction processing services on all the principal national securities
exchanges and access to many other financial services and products. This
arrangement enables The JB Sutton Group 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. Penson provides similar services
as OPPCO, but it is utilized by JB Sutton primarily to facilitate the
trading activity in the customer accounts using the SuttonOnline trading
system.
SUTTONONLINE
In addition to our growing US investment banking a brokerage presence, the
Company purchased a majority interest in SuttonOnline, LLC ("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.
In March 1999, Global Capital Partners issued 10 percent Convertible
Promissory Notes due 2003 (the "10 percent Notes") in an aggregate
principal amount of $1,350,000. Holders of the 10 percent Notes have the
right to convert their 10 percent Notes into shares of Common Stock at
$5.75 per share. A portion of the proceeds of the Notes was used to redeem
the 7 percent Convertible Debentures issued in November 1998.
In May 1999, Global Capital Partners issued 5 percent Convertible
Debentures due 2002 (the "5 percent Debentures") in an aggregate principal
amount of $2,000,000. Holders of the 5 percent Debentures have the right to
convert their 5 percent Notes into shares of Common Stock at the lesser of
$5.50 per share or 90% of the average of the three lowest closing bid
prices for the 20 trading days ending five days before the date of delivery
of the notice of conversion. A portion of the proceeds of the Debentures
has been used to expand the Company's operations.
In December 1999, approximately $500,000 of the 5 percent Debentures was
converted into common shares as the 5 percent Debenture holders exercised
their right to convert their notes. The remainder of the 5 percent
Debenture holders converted their notes into common shares during January
2000.
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.
5. SALE OF INTERESTS IN SUBSIDIARIES
In June 1998, the Company sold 73.55 percent of its interest in Eastbrokers
Prague a.s. for 15 million Austrian Schillings (approximately $1,180,000
USD at the then current exchange rates). The Company recognized a gain on
the sale of this interest in Eastbrokers Prague a.s. before taxes of
approximately $1,312,000, at the then current exchange rates.
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GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
(UNAUDITED)
In December 1998, the Company sold its entire interest in its subsidiary,
Eastbrokers Budapest Rt. for 217,000,000 HUF (approximately $1,000,000 USD
at the then current exchange rates).
6. LIQUIDATION OF INTERESTS IN SUBSIDIARIES
The Company also has liquidated its investments Eastbrokers Romania and
Eastbrokers Slovakia as of December 31, 1998. The effects are a net loss of
$776,197 on the liquidation of Eastbrokers Slovakia and a net loss on the
liquidation of Eastbrokers Romania of $158,247 for a total loss on
liquidations of $934,444.
7. 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.
8. COMPREHENSIVE INCOME
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 the Company beginning with the fiscal year ended
March 31, 1999 and the appropriate prior periods have been restated.
Due to the nature of the items reflected in the Statement of Comprehensive
Operations, no effect for income taxes has been recognized. Foreign
currency translation adjustments are primarily related to the investment in
the Company's foreign operations. As noted in the Company's Annual Report
on Form 10-KSB for the year ended March 31, 1999, the Company has
substantial net operating loss carryforwards which it may or may not be
able to utilize prior to their expiration. Accordingly, no tax effect for
these additional projected losses has been reflected in these financial
statements.
9. SUBSEQUENT EVENTS
In January 2000, WMP Bank AG purchased 43 percent of Unitrust Holdings SA,
a Swiss investment bank, for 26 million Austrian Schillings (approximately
$2 million US Dollars at the then current exchange rate). WMP intends to
utilize this acquisition to not only expand its more traditional services,
but also to develop private banking services for its European customers.
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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, 1999 (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 nine month period ended December 31,
1999, 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.
References to "us", "our", or "we" collectively refer to Global Capital
Partners, Inc. ("Global Capital Partners", (formerly Eastbrokers International
Incorporated)) and its subsidiaries.
PLAN OF OPERATION
GENERAL OVERVIEW
Prior to August, 1996, we were engaged in the purchase and sale of newly
privatized businesses in the Czech Republic. In August, 1996, we entered the
Central and Eastern European investment banking and securities business through
our acquisition of Eastbrokers Beteiligungs AG, an Austrian holding company
providing financial services in Eastern and Central Europe through its network
of subsidiaries. Our acquisition of Eastbrokers AG was intended to not only
provide an earnings stream from brokerage activities, but also position us to
provide investment banking and corporate finance services throughout Central and
Eastern Europe.
In March 1997, we expanded our brokerage operations in the United States
through the acquisition of an existing New York-based broker dealer. In May
1998, we continued the expansion of our U.S. operations through the acquisition
of Cohig & Associates ("EBI Securities"), a Denver, Colorado based investment
banking
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and brokerage firm. In November, 1999, we expanded our US investment banking and
brokerage operations further with the acquisition of The JB Sutton Group, LLC, a
New York based brokerage and investment banking firm. The JB Sutton Group has
one main office with over 80 registered representatives.
The JB Sutton Group 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"). The JB Sutton Group
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.
The JB Sutton Group maintains dual clearing arrangements with CIBC
Oppenheimer, a division of CIBC World Markets Corp. ("OPPCO"), and Penson
Financial Services Inc., a division of Service Asset Management Company
("Pension"). OPPCO provides The JB Sutton Group 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 The JB Sutton Group 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. Pension provides similar services as OPPCO,
but it utilized by JB Sutton for the online customer accounts using the Sutton
Online trading system.
In addition to our growing US investment banking a brokerage presence, the
Company purchased a majority interest in Sutton Online, LLC
(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. Sutton Online also
provides brokerage firms the necessary tools to offer financial products via the
internet.
In January, we changed our name to Global Capital Partners Inc., which we
feel better reflects our business identity. Global Capital Partners is a
holdings company which owns and operates a highly diversified investment banking
and securities network, with 22 US offices and 8 international branches and
affiliates located in the following countries: Austria; Czech Republic; Poland;
Kazakhstan; Croatia; Slovenia and Azerbaijan.
Overall, our fiscal year ended March 31, 1999, was a very challenging year.
First, we had to contend with the global financial crisis, which resulted in
collapses in the Asian and Russian markets and caused enormous turmoil
throughout the emerging markets of Central and Eastern Europe. Second, we had to
contend with the correction in the US equities market, which devastated an
already depressed small and micro-cap market. These two factors directly
accounted for 77 percent of our loss for the year ended March 31, 1999.
Despite these unprecedented market conditions, we have continued to grow
our assets under management, our commission revenue, underwriting fees and
distribution capabilities. Our first and second quarters of the current fiscal
year continued these trends. We have streamlined our operations in Europe and
under-performing assets have been sold or liquidated. We have also launched our
newly formed subsidiary, MoneyZone,com (formerly
EBONLINEinc.com)(http://www.MoneyZone.com), which merged into a publicly-traded
entity in July 1999 and trades over the counter under the symbol "MNZN".
Based on our current trends, we anticipate that our fourth quarter will
also be profitable. We remain committed to our mission of building, through
acquisitions and strategic alliances, a highly successful, global, middle
market, investment banking and securities firm.
EUROPEAN OPERATIONS
Since our acquisition of Eastbrokers AG, in August, 1996, the business
strategy for our 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 in Europe. This was in response
to an overall economic downturn that covered much of Central and Eastern Europe.
This market downturn, which peaked during 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 in the financial
markets 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
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closed our operations in Slovakia, Romania, Turkey, Russia and Bulgaria. In
Austria, Poland, and Croatia, we made significant changes in our management and
cost structures. In the Czech Republic and Hungary, we sold our operations.
However, we continue to maintain an affiliate relationship with the management
in Hungary. We have re-entered the Czech Republic through the purchase of a
minority interest in Stratego Invest a.s. Prague. Due to increased interest in
the region, we also organized an office in Baku, Azerbaijan.
Despite the negative sentiment in emerging markets during 1998, we believe
that Central and Eastern Europe's ultimate unification into the European
Economic and Monetary Union, will lead to a significant increase in investor
interest in the region. This potential increase in the emerging market interest
will benefit those firms that have had existing operations in the region. We
intend to maintain solid long-term involvement in the region and to continue to
provide our clients with quality brokerage and investment banking services. We
also intend to expand our operations into other markets of Western Europe
through possible acquisitions, mergers, joint ventures and/or strategic
relationships.
With the acquisition of EBI Securities in May 1998, our European
subsidiaries now have direct access to the US securities marketplace. During
1999, our two main subsidiaries, EBI Securities and WMP Bank AG ("WMP Bank"),
have begun the process to cross-market to their respective retail and
institutional clientele, their research, corporate finance and trading products.
We believe that it is possible to significantly increase our overall revenue, if
we are successful in marketing US securities to Western European institutional
clientele, and vice-versa.
Our abilities have been further enhanced with the addition of the JB Sutton
Group and SuttonOnline. We believe that it is possible to significantly increase
our overall revenue, if we are successful in marketing US securities to Western
European institutional clientele, and vice-versa. We also believe that
SuttonOnline will be able utilize our existing European infrastructure and
contacts and will be expanding in online capabilities into Europe. SuttonOnline
has announced several contracts and alliances since our acquisition in November
1999. We expect continued expansion of SuttonOnline during the next two fiscal
years. In addition, our acquisition of 43% of Unitrust Holdings SA, of Geneva
Swizterland, gives us access to the lucrative Swiss market. We also expect to
further expand our activities in Western Europe, particularly in Germany.
While investing in the emerging markets of Central and Eastern Europe
involves risk considerations not typically associated with investing in
securities of U.S. issuers, we believe that such considerations are outweighed
by the benefits of diversification and potentially superior returns. Among the
considerations involved in investing in emerging markets, such as Central and
Eastern Europe, is that less information may be available about foreign
companies than about domestic companies. Foreign companies are also not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic companies. In addition, unlike investing in U.S.
companies, securities of non-U.S. companies are generally denominated in foreign
currencies, thereby subjecting each security to changes in value when the
underlying foreign currency strengthens or weakens against the U.S. dollar.
Currency exchange rates can also be affected unpredictably by intervention of
U.S. or foreign governments or central banks or by currency controls or
political developments in the U.S. and abroad.
The value of international fixed income products also responds to interest
rate changes in the U.S. and abroad. In general, the value of such products will
rise when interest rates fall, and fall when interest rates rise. However,
interest rates in each foreign country and the U.S. may change independently of
each other. Debt and equity securities in emerging markets such as Central and
Eastern Europe may also not be as liquid as U.S. securities and their markets.
Securities of some foreign companies may involve greater risk than securities of
U.S companies. Investing in Central and Eastern European securities may further
result in higher expenses than investing in domestic securities because of costs
associated with converting foreign currencies to U.S. dollars and expenses
related to foreign custody procedures. Investment in Central and Eastern
European securities may also be subject to local economic or political risks,
including instability of some foreign governments, inadequate market controls,
the possibility of currency blockage or the imposition of withholding taxes on
dividend or interest payments and the potential for expropriation,
re-nationalization or confiscatory taxation and limitations on the use or
repatriation of funds or other assets.
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UNITED STATES OPERATIONS
EBI SECURITIES CORPORATION
Subsequent to the acquisition of Eastbrokers AG, we commenced expansion of
our brokerage operations in the United States. Our goal was to build a strong
U.S. brokerage presence that would enable us to distribute European middle
market, corporate finance product in the U.S. and also to provide our European
operations access to U.S. corporate finance product, trading and research
capabilities. In the Spring of 1997, we purchased our first U.S. based
broker-dealer, Eastbrokers North America, Inc. Since establishing this
broker-dealer, we have been approached by numerous U.S. based broker-dealers
interested in becoming an acquisition target. We believe that continued
consolidation within the securities industry, particularly in the United States,
is inevitable. We believe that this consolidation can be attributed to the
current volatility prevailing in the world financial markets, the higher degree
of capitalization necessary to maintain sound brokerage operations and the
increased regulatory environment. We believe that our structure as a
well-capitalized, entrepreneurially managed, international, publicly-traded,
investment banking firm, has the potential to 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. We acquired all of the outstanding common stock of Cohig &
Associates, Inc., a Denver, Colorado based investment banking and brokerage
firm. Following the acquisition, we changed the name of Cohig & Associates, Inc.
to EBI Securities Corporation. The office space previously occupied by
Eastbrokers North America, has been converted into a branch office of EBI
Securities. EBI Securities was our first acquisition targeting other successful
medium size investment banking and brokerage firms.
EBI Securities operates 20 retail brokerage offices in 16 cities across the
United States. These offices include 10 company owned branches, and 10 franchise
branches employing over 200 people, of which 200 are registered representatives.
EBI Securities 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 NASD and the
Securities Investor Protection Corporation ("SIPC"). Customer accounts are
insured to $25 million under the SIPC excess insurance program. EBI Securities
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 Cohig/EBI has participated in the underwriting and/or
co-underwriting of over $400 million in initial and secondary equity and debt
offerings for over 30 public U.S. companies.
EBI Securities maintains its clearing arrangement with Fiserv Correspondent
Services, Inc. ("Fiserv"), a subsidiary of Fiserv, Inc. (NASDAQ: FISV). Fiserv
provides EBI Securities 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 EBI Securities
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. Fiserv
has advised us that it is aware of the year 2000 computer issue and is working
to mitigate the effect of the year 2000 issue on its operations. See
"Management's Discussion and Analysis or Plan of Operation - Impact of the Year
2000".
EBI Securities has primarily operated as a retail brokerage firm focusing
on individual investors with a focus on a full service approach which has been
augmented through its corporate finance, proprietary research and trading
activities. EBI Securities provides our retail clients with a broad range of
traditional investment products and services. EBI Securities also strives to
distinguish itself with investors and corporate finance clients through a
commitment to professional but personalized service. The trading department
makes markets 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. The
investment banking departments' 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
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to enable the firm's corporate finance clients to capitalize on promising
business opportunities, favorable market conditions, and/or late stage product
development.
EBI Securities is actively realigning itself to not only generate
additional revenues through the leverage of our existing resources but also to
create a more stable and consistent revenue base. The potential result is
increased internal growth, which compliments external growth through
acquisitions. Several initiatives that EBI Securities has undertaken in this
regard are as follows:
1. Fixed Income. In December 1998, EBI Securities added a fixed income
department. This department is responsible for the generation of new fixed
income products and underwriting, trading, retail distribution and research of
government, municipal and corporate bonds. This department also provides
additional revenue generating opportunities and synergies to three of our other
departments, retail, corporate finance and equity trading. As EBI Securities
continues to expand the products and services available to our retail brokers
and their customers, this department provides additional investment
opportunities through new products, underwritings and/or independent research
ideas. Additionally, this department allows us to capture new business
opportunities that previously were outside the scope of our available services.
2. Asset Allocation. EBI Securities has developed an in-house asset
allocation program to augment the breadth of our sales force's efforts. This
program was developed utilizing industry software which, along with additional
marketing materials, has been customized for our use. This approach utilized by
this program represents an investment strategy based on the Noble Prize winning
study called "Modem Portfolio Theory" (MPT). MPT's premise is that a
personalized strategy can be created for each client whereby "optimal" risk vs.
return portfolios are generated 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. EBI Securities
concurs with this notion, and as a result, is educating our sales force to
effectively utilize this program. The results to date have been very favorable
and this process is also seen as an effective tool for gathering assets. With
the new communication systems we are implementing, we expect this service will
be available at the desk top level to all brokers and will also enhance the
sales forces ability to effectively utilize this asset allocation program.
3. Managed Money. Recognizing the ongoing changes in the retail brokerage
business, EBI Securities 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 set in motion by
the firm and its applicable business partners. EBI Securities intends to hire
additional salespeople with managed money experience in addition to actively
re-educating the existing sales force. In August 1999, EBI Securities received
its license as a Registered Investment Advisor (RIA) in Colorado. We are current
licensed as an RIA in three states, including New York.
4. Premier Customer Accounts. The formation of an account for the firm's
biggest customers may allow better utilization of several of the initiatives
mentioned above. In addition, this sort of account may also give a customer a
good introduction into several other parts of the business. The most obvious of
these is online trading. Others include joint ventures and cross selling
opportunities with local community banks, mortgage companies, investment sites
and others.
5. Retail Expansion. Currently, EBI Securities is focusing on filling its
existing retail space in order to improve efficiencies. EBI Securities also
believes that retail expansion through additional offices will be most effective
if it occurs in and around the corporate headquarters in Denver, Colorado. EBI
Securities believes that creating a more visible sales force around the
corporate headquarters will create a number of efficiencies on several fronts.
These locations would also be easier and less expensive to manage from a
corporate perspective. In addition, economies of scale are created in terms of
advertising and community development, which can help
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to enhance the EBI Securities name and make it a more recognizable entity
amongst retail clients, corporate finance clients and additional salespeople.
THE JB SUTTON GROUP, LLC
In November, 1999, we expanded our US investment banking and brokerage
operations further with the acquisition of The JB Sutton Group, LLC, a New York
based brokerage and investment banking firm. The JB Sutton Group has one main
office with over 80 registered representatives. Similar to EBI Securities, The
JB Sutton Group primarily operates as a retail brokerage firm focusing on
individual investors with a focus on a full service approach, which has been
augmented through its corporate finance and trading activities. The JB Sutton
Group provides its retail clients with a broad range of traditional investment
products and services.
The JB Sutton Group 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"). The JB Sutton Group
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.
The JB Sutton Group maintains dual clearing arrangements with CIBC
Oppenheimer, a division of CIBC World Markets Corp. ("OPPCO"), and Penson
Financial Services Inc., a division of Service Asset Management Company
("Pension"). OPPCO provides The JB Sutton Group 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 The JB Sutton Group 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. Pension provides similar services as OPPCO,
but it utilized by JB Sutton for the online customer accounts using the Sutton
Online trading system.
SUTTON ONLINE LLC
In addition to our growing US investment banking a brokerage presence, the
Company purchased a majority interest in Sutton Online, LLC
(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. Sutton Online also
provides brokerage firms the necessary tools to offer financial products via the
internet.
MONEYZONE.COM (FORMERLY EBONLINEINC.COM)
In April 1999, we launched a new subsidiary, MoneyZone.com (formerly
EBonlineinc.com) ("EBonline") which was merged into a publicly traded company in
July 1999. MoneyZone.com common shares trade in the over-the-counter market
under the symbol "MNZN". As of the date of this filing, we own 2,000,000 of
MoneyZone.com common stock. MoneyZone.com closed at $5.50 on the OTC on February
14, 2000.
MoneyZone.com is a Web-based business consisting of a website, globally
accessible via the Internet, designed to facilitate merger, acquisition and
corporate finance activity. The site attracts businesses looking to sell, make
an acquisition, seek a merger or joint venture partner, obtain debt or equity
capital or simply gain exposure within the international investment banking
community. In addition, the site attracts accredited investors looking for
investment opportunities. It is anticipated that MoneyZone.com may provide
additional ancillary business for our broker-dealer operations. As of the date
of this filing, MoneyZone.com now has over 4,000 business listings in its
database.
RESULTS OF OPERATIONS
SEE Note 1 of the Notes to Consolidated Financial Statements for the
Quarterly Period Ended December 31, 1999, for an explanation of the basis of
presentation of the financial statements.
For the quarterly period ended December 31, 1999, we generated consolidated
revenues of $11,596,884, compared to $6,683,867, for the quarterly period ended
December 31, 1998. For the nine month
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period ended December 31, 1999, we generated consolidated revenues of
$29,663,422 compared to $17,028,864 for the nine month period ended December 31,
1998. The revenue for the quarterly and nine month period ended December 31,
1999 includes the one time gain from the sale of a portion of our interest in
MoneyZone of $1,950,000. The revenue for the quarterly and nine month period
ended December 31, 1998 includes the one time gain from the sale of our interest
in subsidiary of $1,312,057. After adjusting for the effects of these one time
gains, our revenues were $9,646,884 and $6,683,867 for the quarterly periods
ended December 31, 1999 and 1998, respectively and $27,713,422 and $15,078,864
for the nine month periods ended December 31, 1999 and 1998, respectively. Our
total revenues for the quarterly and nine month periods ended December 31, 1999,
are significantly higher than the same period in the previous year due primarily
to increases in overall commission, and investment banking revenue. Total
revenue for the quarterly and nine month periods was also affected by the prior
year sales of Eastbrokers Prague a.s. and Eastbrokers Budapest and the December
1998 liquidations of Eastbrokers Slovakia and Eastbrokers Romania. However,
increases in revenue at EBI Securities more than compensated for the reductions
in revenue from the sale and liquidation of our European subsidiaries in the
prior year. For the quarterly and nine month periods ended December 31, 1999,
EBI Securities generated approximately $8,076,000 and $21,449,000, respectively
compared with revenue of approximately $4,933,000 and $9,300,000, respectively
from the same periods of a year earlier.
We incurred total consolidated costs and expenses of $10,788,646 and
$27,852,520 for the quarterly and nine month periods ended December 31, 1999
compared to $7,016,482 and $19,587,978 for the quarterly and nine month periods
ended December 31, 1998. Total costs and expenses for the quarterly and nine
month periods were also affected by the prior year sales of Eastbrokers Prague
a.s. and Eastbrokers Budapest and the December 1998 liquidations of Eastbrokers
Slovakia and Eastbrokers Romania. However, increases in costs and expenses at
EBI Securities were related to the increased production levels. For the
quarterly and nine month periods ended December 31, 1999, EBI Securities
incurred costs and expenses of approximately $7,807,000 and $21,510,000,
respectively compared with costs and expenses of approximately $5,073,000 and
$11,703,000, respectively from the same periods of a year earlier.
We are reporting consolidated net income for the quarterly and nine month
periods ending December 31, 1999 of $1,702,245 and $2,494,533, respectively
compared to consolidated net income(loss) of $53,639 and ($3,011,273) for the
quarterly and nine month periods ended December 31, 1998. The net income for the
quarterly and nine month periods ended December 31, 1999 includes the one time
gain from the sale of a portion of our interest in MoneyZone of $1,950,000. The
Other contributing factors to the net income in the current year are primarily
attributable to the reorganization of our European offices, the elimination of
several non-performing assets in Europe and reduction of the losses at EBI
Securities. This reduction in losses at EBI Securities can be attributed to
increased commission and investment banking revenue and better than expected
performance of the trading department.
On December 31, 1999, we had total assets of $51,826,505, and total
liabilities of $23,205,187, compared to $61,516,532, and $34,127,514,
respectively, on December 31, 1998. As of the date of this filing, we believe
that we have adequate liquidity to meet our current obligations. However, no
assurances can be made as to our ability to meet our cash requirements in
connection with any expansion of our operations or any possible business
combinations.
The cash flows for the quarterly period ended December 31,1999, reflect the
volatile nature of the securities industry and the reallocation of our assets
indicative of a growing organization. The change in the foreign currency
translation adjustment is primarily related to the fluctuations in the various
currencies to the U.S. dollar. The U.S. dollar and its unexpected strength
coupled with the unexpected weakness of the European currencies (including the
German Deutchmarke) have negatively impacted our overall earnings as well as the
cumulative translation adjustment. The primary currencies affecting us are the
U.S. Dollar, Austrian Schilling, Czech Koruna, and the Polish Zloty.
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.
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<PAGE>
ACQUISITIONS AND DISPOSITIONS
In February 1999, our Austrian subsidiary WMP Bank, purchased a forty-nine
(49%) percent equity interest in Stratego Invest a.s. Prague, a Czech securities
and investment firm. The purchase price was valued at approximately $2.9 million
USD at the then current exchange rates. The book value of Stratego Invest at the
time of purchase was approximately 190 million Czech koruna, or approximately
$6.1 million USD at the then current exchange rates.
Stratego Invest is one of the leading Czech securities and investment
firms. The current management of Stratego Invest has a proven record of
profitability and they have well positioned the firm in order to expand into the
international securities marketplace. The partnership with Stratego Invest will
give us a strong partner in the Czech marketplace, and at the same time, will
provide Stratego Invest access to the international marketplace through our
operations in Europe and the US.
THE JB SUTTON GROUP, LLC
In November, 1999, we expanded our US investment banking and brokerage
operations further with the acquisition of The JB Sutton Group, LLC, a New York
based brokerage and investment banking firm. The JB Sutton Group has one main
office with over 80 registered representatives. Similar to EBI Securities, The
JB Sutton Group primarily operates as a retail brokerage firm focusing on
individual investors with a focus on a full service approach, which has been
augmented through its corporate finance and trading activities. The JB Sutton
Group provides its retail clients with a broad range of traditional investment
products and services.
The JB Sutton Group 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"). The JB Sutton Group
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.
The JB Sutton Group maintains dual clearing arrangements with CIBC
Oppenheimer, a division of CIBC World Markets Corp. ("OPPCO"), and Penson
Financial Services Inc., a division of Service Asset Management Company
("Pension"). OPPCO provides The JB Sutton Group 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 The JB Sutton Group 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. Pension provides similar services as OPPCO,
but it utilized by JB Sutton for the online customer accounts using the Sutton
Online trading system.
SUTTONONLINE LLC
In addition to our growing US investment banking a brokerage presence, the
Company purchased a majority interest in SuttonOnline, LLC
(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.
EMPLOYEES
At December 31, 1999, we currently have approximately 425 full-time
employees and 25 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.
- 21 -
<PAGE>
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, 2000. At this time,
we do not believe that this statement will have a significant impact on us.
IMPACT OF THE YEAR 2000
We undertook a multiphase project to ensure limited disruptions in our
services due to problems associated with the Year 2000 issue, which included
coordinating with other entities with which our systems electronically
interacted. Further, we contacted our major external counterparties and
suppliers to assess their compliance and remediation efforts and our exposure to
them.
As a result of our efforts, we experienced minimal disruptions in our
services throughout our company. Of the problems we did encounter, most of them
were very minor issues that were resolved by restarting the affected systems.
IMPACT OF THE EURO
The Euro issue is the result of the Economic and Monetary Union (the "EMU")
which came into effect on January 1, 1999 and the conversion of member states to
a single currency known as the Euro. The introduction of the Euro will have a
profound impact on the way enterprises operate. Further, it will be one of the
most important changes in the economic landscape of Europe in the next few
years.
The single currency is expected to contribute significantly to further
market integration throughout the member countries. Prices will be easier to
compare which should increase market transparency. As businesses recognize that
they will no longer be exposed to foreign currency exchange rate risks and the
related costs of currency conversion, cross-border transactions within the EMU
are expected to become more attractive.
The introduction of the Euro has been described as a unique event in
history. This uniqueness is also the root of potential problems. During the
transition period, companies will be required to use two different currency
units. This could create a basic input functionality problem whereby enterprises
will receive financial information in both the Euro and the national currency
units. A potential output functionality problem may be that companies will be
required to produce financial information in either the Euro or the national
currency unit or in some cases both currencies. Further adding to potential
problems is a requirement that historical financial information stored in the
system must be converted to the Euro unit.
The Global Capital Partners Group is currently in the process of a systems
upgrade unrelated to the year 2000 or Euro issues. In the course of this upgrade
and addressing the Year 2000 issue, the Global Capital Partners Group will be
installing new software that is Euro capable and will evaluate any potential
problems identified that could be related to the Euro issue. The Global Capital
Partners Group is also monitoring the compliance of its software suppliers in
addressing this issue. Based on a recent evaluation, the Global Capital Partners
Group has determined that material costs and resources will not be required to
permit its computer systems to properly handle Euro reporting and transactions.
- 22 -
<PAGE>
PART II - OTHER INFORMATION
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 9, 1999, we held the 1999 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 one directors for a term of
three years, to approve an amendment to the Certificate of Incorporation to
increase the number of authorized shares of common stock and to ratify the
appointment of our independent auditors for the current fiscal year. The holders
of 4,761,023 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 5,206,750 shares issued and outstanding.
Proposal No. 1 - Election of Directors. One nominee, Dr. Lawrence
Chimerine, was submitted to a vote of the shareholders. The nomination of Messr.
Lawrence Chimerine to serve as a director for a three year term was approved
with 4,710,540 shareholders voting for the nomination and 50,483 voting against
the 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 850,000 to 1,200,000. The required affirmative
vote of sixty-six and two thirds percent of the votes received on this issue was
met. 2,270,782 voted in favor of the proposal, 163,045 voted against the
proposal, and 7,248 abstained from voting.
Proposal No. 3 - Amendment to the Company's Certificate of Incorporation.
An amendment was submitted to the shareholders to increase the number of
authorized shares of common stock, $0.05 par value per share, to 25,000,000 and
to increase the total number of authorized shares of all classes of capital
stock to 35,000,000. The required affirmative vote of sixty-six and two thirds
percent of the votes received on this issue was met. 2,270,782 voted in favor of
the proposal, 163,045 voted against the proposal, and 7,248 abstained from
voting.
Proposal No. 4 - Ratification of the Appointment of Auditors. The
appointment of the accounting firm of Spicer, Jeffries & Co. for the fiscal year
2000 was confirmed by the shareholders. 4,381,071 voted in favor of the
proposal, 47,522 voted against the proposal, and 32,430 abstained from voting.
EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT NO. DESCRIPTION
------------- -----------------
(27) Financial Data Schedule (Electronic Filing Only).
B. There was one report on Form 8-K filed during the quarterly period ended
December 31, 1999, incorporated by reference to the Current Report on Form
8-K dated December 7, 1999 (File No. 000-26202).
- 23 -
<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: February 14, 2000
- 24 -
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------------------
(27) Financial Data Schedule (Electronic Filing Only).
- 25 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,763,950
<SECURITIES> 20,294,180
<RECEIVABLES> 11,258,570
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,316,700
<PP&E> 3,893,351
<DEPRECIATION> 1,502,620
<TOTAL-ASSETS> 51,826,505
<CURRENT-LIABILITIES> 19,372,247
<BONDS> 3,832,940
0
10,000
<COMMON> 271,159
<OTHER-SE> 21,166,374
<TOTAL-LIABILITY-AND-EQUITY> 51,826,505
<SALES> 0
<TOTAL-REVENUES> 29,663,422
<CGS> 0
<TOTAL-COSTS> 27,852,520
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 782,064
<INCOME-PRETAX> 1,810,902
<INCOME-TAX> (774,138)
<INCOME-CONTINUING> 2,494,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,494,533
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.46
</TABLE>
