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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
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MARK ONE
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT UNDER 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
(Issuer's telephone number, including area code)
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SECURITIES REGISTERED UNDER SECTION 12(B) OF
THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(G) OF
THE EXCHANGE ACT:
Common Stock, $.05 par value
Placement Agent Warrants
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $45,908,499
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average of the bid and ask price of
such common equity on June 28, 2000 was approximately $43,750,000
The total number of shares of the registrant's common stock, $.05 par value,
outstanding on June 28, 2000 was 10,430,839
Transitional Small Business Disclosure Format: Yes [ ] No [x]
Part III of this report incorporates by reference information from the issuer's
proxy statement to be filed by the issuer in connection with its annual meeting
of stockholders for the year 2000.
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GLOBAL CAPITAL PARTNERS, INC.
INDEX TO FORM 10-KSB
PART I
Item 1. Description of Business........................................... 3
Item 2. Description of Property...........................................17
Item 3. Legal Proceedings.................................................17
Item 4. Submission of Matters to a Vote of Security Holders...............18
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..........20
Item 6. Management's Discussion and Analysis or Plan of Operation.........23
Item 7. Financial Statements..............................................33
Historical Financial Statements
Independent Auditors' Report................................34
Consolidated Statements of Financial Condition..............35
Consolidated Statements of Operations.......................36
Consolidated Statements of Changes in Shareholders' Equity..38
Consolidated Statements of Cash Flows.......................39
Notes to Consolidated Financial Statements..................41
Item 8. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................58
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................59
Item 10. Executive Compensation............................................59
Item 11. Security Ownership of Certain Beneficial Owners and Management....59
Item 12. Certain Relationships and Related Transactions....................59
Item 13. Exhibits, List and Reports on Form 8-K...........................59
Signatures...................................................................60
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements. These include
statements about 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 similar statements are
intended to be among the statements that are forward-looking statements. Because
such statements reflect the reality of risk and uncertainty that is inherent in
our business, actual results may differ materially from those expressed or
implied by such 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 our readers that a variety of factors could cause the
actual results of Global Capital Partners, Inc. 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:
o transaction volume in the securities markets;
o the volatility of the securities markets, fluctuations in interest
rates;
o changes in regulatory requirements which could affect the cost of
doing business, fluctuations in currency rates;
o general economic conditions, both domestic and international;
o changes in the rate of inflation and related impact on securities
markets;
o competition from existing financial institutions and other new
participants in the securities markets;
o significant and rapid changes in technology which could negatively
affect our internet related projects;
o legal developments affecting the litigation experience of the
securities industry;
o changes in federal and state tax laws which could affect the
popularity of products sold by Global Capital Partners, Inc.; and
o those risks and uncertainties set forth under the caption
"Risk Factors" on page 8 and in Global Capital Partners, Inc. filings
with the SEC.
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.
IMPORTANT TERMS
We use the following terms of identification to simplify the presentation of
information in this report. "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. "GCAP and subsidiaries,"
"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.
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BACKGROUND
On January 20, 1993, we incorporated in the State of Delaware, as the
Czech Fund Inc. In 1995, we changed our name to Czech Industries Inc., then in
1996 to Eastbrokers International Incorporated. In February 2000, we became
Global Capital Partners, Inc.
Our initial goal was to take advantage of the rapid growth in business
opportunities arising from the privatization of the newly-democratized Czech
Republic by merging with or acquiring Czech businesses. From 1993 through 1996,
we owned an interest in a Czech hotel and an interest in a Czech department
store chain.
We are primarily a holding company for twelve subsidiaries and
affiliates which we directly and indirectly own. Most of our subsidiaries and
affiliates are all engaged in various aspects of financial services. Our
principal strategic objective has been to establish controlling ownership of
independent broker-dealers in the United States and in Europe. This objective
has been furthered in the United States and in Europe through our newly acquired
online trading business, Sutton Online, Inc. (formerly, Sutton Online, LLC) and
our internet finance business MoneyZone.com.
The following section, "Developments," highlights our activities as we have both
responded to and proactively anticipated changes in the markets in which we
operate, and the sections in Item 6 entitled " -- United State Operations"
beginning on page 23 and " -- European Operations" beginning on page 27 provide
a more detailed description of our domestic and European businesses,
respectively.
DEVELOPMENTS
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 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
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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. Following the acquisition, we changed the name from Cohig &
Associates, Inc. to EBI 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.
ACQUISITIONS AND DISPOSITIONS DURING THE FISCAL YEAR
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 intend to consolidate the operations of EBI Securities
Corporation and Global Capital Markets over the next twelve to eighteen months.
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.
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
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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 EBI 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.
ACQUISITIONS AND DISPOSITIONS SUBSEQUENT TO THE FISCAL YEAR END
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.
GOVERNMENT REGULATION
We have operations based in the United States and two foreign
countries. Our business is, and the securities industry in general is, subject
to extensive regulation in each of these jurisdictions at both the federal and
state level, as well as by industry self-regulatory organizations. We are also
subject to regulation by various foreign financial regulatory authorities in the
jurisdictions outside of the United States and Europe where we do business.
In the United States, the Securities and Exchange Commission is the
agency primarily responsible for administration of U.S. federal securities laws.
Much of the regulation of broker-dealers, however, has been delegated by the SEC
to self-regulatory organizations, primarily the National Association of
Securities Dealers ("NASD"). The NASD has the authority to adopt rules (which
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are subject to approval by the SEC) for governing the industry and the NASD
conducts periodic examinations to ensure compliance. The scope of broker dealer
operations of EBI Securities Corporation and Global Capital Markets is subject
to the terms of their respective Restriction Agreements with the NASD. In the
event that EBI Securities Corporation or Global Capital Markets violates the
terms of its Restriction Agreement or NASD rules, its NASD membership can be
suspended or revoked and the NASD may impose fines upon it or censure it. Broker
dealers are also subject to regulation by state securities commissions in the
states in which they are registered. EBI Securities Corporation is registered in
all 50 states and Global Capital Markets is registered in 45 states. EBI
Securities Corporation and Global Capital Markets are subject to the SEC's net
capital rules, which require them to maintain prescribed levels of capital in
order to conduct business. EBI Securities Corporation and Global Capital Markets
maintain their capital in excess of the required minimums.
Our non-U.S. business is also subject to extensive regulation by
various non-U.S. governments, securities exchanges, central banks and regulatory
bodies. Each of these authorities impose regulations on our activities within
the scope of their respective jurisdictions. These regulations are generally
intended to protect the integrity of the stock exchange, bank or financial
market subject to regulation and to protect customers of the regulated agency,
and not primarily to protect investors in the regulated entity. These
regulations may restrict the ability of our subsidiaries and affiliates to pay
dividends or advances to Global Capital Partners, Inc.
The SEC and other governmental authorities and self-regulatory
organizations have the authority to institute administrative or judicial
proceedings against any entity subject to their jurisdiction, and the officers
and employees of any such entity. These proceedings may result in censure, fine,
civil penalties (including treble damages in the case of insider trading
violations), the issuance of cease-and-desist orders, the de-registration or
suspension of a broker dealer, investment adviser or futures commission
merchant, the statutory disqualification of its officers or employees or other
adverse consequences, and, even if none of such actions is taken, could have a
material adverse effect on our perceived creditworthiness, reputation and
competitiveness. Customers of ours or others who allege that they have been
damaged by our violation of applicable regulations also may seek to obtain
compensation from us, including the reversal of any transactions with us.
In addition to the existing laws and regulations affecting us,
additional legislation and regulations, amendments to existing laws and
regulations may be adopted in the future, or changes in interpretations or
enforcement of existing laws and regulations may be adopted in the future. Any
such event could directly affect our manner, operation, and profitability.
See page 40 for a description of NASDAQ-related issues concerning our
10% Convertible Preferred Stock, Series A.
COMPETITION
We are engaged in a highly competitive business. With respect to one or
more aspects of our business, we encounter substantial competition from both
foreign and domestic businesses in the United States and Europe. Our competitors
include an elite list comprised of member organizations of the New York Stock
Exchange and other registered securities exchanges in North America and Europe.
Nearly all of such entities have substantially greater financial resources,
technical expertise and managerial capabilities than us. Discount brokerage
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firms affiliated with commercial banks and companies which provide electronic
on-line trading provide additional competition. In many instances, we compete
directly for customer funds with investment opportunities offered by real
estate, insurance, banking and savings and loan industries. We compete
principally on the basis of service, product selection, location and reputation.
EMPLOYEES
As of June 28, 2000, we had approximately 350 full-time employees and
15 part-time employees. None of our employees are covered by collective
bargaining agreements and we believe our relations are good with both our
employees and our independent contractors and consultants.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
We must comply with various federal, state and local regulations
relating to the protection of the environment. Federal, state, and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment will not, in our opinion, have a material effect on our capital
expenditures, earnings or competitive position.
RISK FACTORS
WE FACE A VARIETY OF RISKS IN THE CONDUCT OF OUR BUSINESS, ANY OF WHICH
COULD MATERIALLY AND ADVERSELY AFFECT US, OUR BUSINESS AND OUR FINANCIAL
PERFORMANCE. SOME OF THESE RISKS ARE SUMMARIZED BELOW. THIS SUMMARY IS NOT
INTENDED TO BE A COMPLETE LIST OF ALL MATTERS THAT COULD ADVERSELY AFFECT US,
AND THERE ARE MANY FACTORS BEYOND OUR CONTROL THAT AFFECT US, OUR BUSINESS AND
OUR FINANCIAL PERFORMANCE.
THE VOLATILE NATURE OF THE SECURITIES BUSINESS COULD ADVERSELY AFFECT
OUR FINANCIAL PERFORMANCE AS WELL AS OUR STOCK PRICE. The securities business is
naturally subject to various risks, particularly in volatile or illiquid
markets. Among the risks are potential losses resulting from the following
activities:
o underwriting or owning securities,
o trading, arbitrage and merchant banking activities,
o failure by the other party to meet commitments,
o customer fraud and employee fraud,
o misconduct and errors,
o failures in connection with processing securities transactions and
o litigation.
Various factors affect a securities firm's business and profitability.
These factors include the firm's credit capacity or perceived creditworthiness
and competitive factors, including the ability to attract and retain highly
skilled employees. These and other factors may contribute to reduced levels of
new issuances of securities or merger, acquisition, restructuring, and leveraged
capital activities, including leveraged buyouts and high-yield financing. Such
factors may also help reduce the level of participation in financing and
investment related to these activities. This generally results in lower revenues
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from investment and merchant banking fees and from underwriting and corporate
development investments. Reduced volume of securities transactions and reduced
market liquidity generally result in lower revenues from dealer and trading
activities and commissions.
Lower price levels of securities may result in a reduced volume of
transactions and in losses from declines in the market value of securities held
in trading, investment and underwriting positions. Sudden sharp declines in
market values of securities and the failure of companies issuing securities and
parties on the other side of a transaction to perform their obligations can
result in illiquid markets. In such markets, we may not be able to sell
securities and may have difficulty covering our securities positions. Such
markets, if prolonged, may also lower our revenues from investment banking,
merchant banking and other investments, and could have a material adverse effect
on our results of operations, financial condition and cash flows.
Our principal business activities (investment banking, securities
sales, trading, and correspondent brokerage services) are naturally highly
competitive and subject to various risks, volatile trading markets and
fluctuations in the volume of market activity. Consequently, our net income and
revenues, as well as our stock price, have been, and may continue to be, subject
to wide fluctuations. This, of course, reflects the impact of many factors that
are beyond our control. These factors include:
o securities market conditions,
o the level and volatility of interest rates,
o competitive conditions and
o the size and timing of transactions.
Numerous other national and international factors affect the securities business
and the profitability of securities firms. These include:
o economic and political conditions,
o broad trends in business and finance,
o legislation and regulation affecting the national and international
business and financial communities,
o currency values,
o inflation,
o market conditions,
o the availability of short-term or long-term funding and capital,
o the credit capacity or perceived creditworthiness of the securities
industry in the marketplace and
o the level and volatility of interest rates.
WE COULD BE ADVERSELY AFFECTED BY THE SIGNIFICANT COMPETITION WITHIN
THE SECURITIES INDUSTRY. We encounter significant competition in all aspects of
the securities business and compete worldwide directly with other domestic and
foreign securities firms. Many of these competitors have greater capital,
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financial and other resources than we have. In addition to competition from
firms currently in the securities business, there has been increasing
competition from other sources, such as commercial banks and investment
boutiques.
We anticipate legislative and regulatory initiatives in the U.S. to
remove or relieve certain restrictions on commercial banks. Thus, it is possible
that competition in some markets currently dominated by investment banks may
increase in the near future.
Such competition could also affect our ability to attract and retain
highly skilled individuals to conduct our various businesses, which may have an
adverse effect on our business. The principal competitive factors influencing
our business are:
o our professional staff,
o our reputation in the marketplace,
o our existing client relationships,
o the ability to commit capital to client transactions, and
o our mix of market capabilities.
The adequacy of our capital levels will also influence our ability to
compete effectively in securities brokerage and investment banking activities.
In addition, our ability to expand our business may depend on our ability to
raise additional capital. See "Description of Business -- Competition" on page
7.
OUR FAILURE TO COMPLY WITH THE EXTENSIVE FEDERAL, STATE AND FOREIGN
REGULATION OF OUR BUSINESS COULD HAVE A MATERIAL ADVERSE EFFECT UPON US. Our
business (and the securities industry generally) is subject to extensive
regulation. First, we are subject to regulation in the United States and in all
European states where our subsidiaries operate at the state level. Second, we
are subject to regulation by various foreign financial regulatory authorities in
the jurisdictions outside of the United States and Europe where we do business.
Finally, we are subject to regulation by industry self-regulatory organizations,
which require strict compliance with their rules and regulations. Our failure to
comply with any of these laws, rules or regulations could result in fines,
suspension or expulsion, which could have a material adverse effect on us and
could affect our stock price accordingly. See "Description of Business -
Government Regulation" on page 6.
Compliance with many of the regulations that apply to us involves a
number of risks, particularly in areas where applicable regulations may be
unclear. The SEC, other governmental regulatory authorities, including state
securities regulators, and self-regulatory organizations, may institute
administrative or judicial proceedings or arbitrations. These proceedings or
arbitrations may result in censure, fine, civil penalties (including treble
damages in the case of insider trading violations), issuance of cease-and-desist
orders, de-registration of or suspension of a broker-dealer, investment adviser
or futures commission merchant, statutory disqualification of our officers or
employees or other adverse consequences. Moreover, even if no such actions are
taken, there could be a material adverse effect on our perceived
creditworthiness, reputation and competitiveness. Customers of ours or others
who allege that our violation of applicable regulations have damaged them also
may seek to obtain compensation from us, including unwinding any transactions
with us. Such unwinding could have an adverse impact on our business.
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Other regulatory and legislative changes may adversely affect our
manner of operation and profitability. These include:
o additional legislation and regulations, including those relating
to the activities of affiliates of broker-dealers,
o changes in rules promulgated by the SEC other foreign governmental
regulatory authorities and self-regulatory organizations, and
o changes in the interpretation or enforcement of existing laws and
rules.
Regulations may materially affect our business in two ways. First,
regulations may directly apply to us in the conduct of our business. Second,
laws, rules and regulations that apply generally to the industry or the market
as a whole may materially affect the market for our products and services. Some
examples of factors that could affect the volume of our underwriting, merger and
acquisition and merchant banking business in any year are:
o existing and proposed tax legislation,
o antitrust policy and other governmental regulations and policies
(including the interest rate policies), and
o changes in interpretation or enforcement of existing laws and rules
that affect the business and financial communities.
From time to time, various forms of anti-takeover legislation and
legislation that could affect the benefits associated with financing leveraged
transactions with high-yield securities have been proposed that, if enacted,
could adversely affect the volume of merger and acquisition and investment
banking business, which in turn could adversely affect our related underwriting,
advisory and trading revenues.
THERE ARE MARKET, CREDIT AND LIQUIDITY RISKS ASSOCIATED WITH OUR
UNDERWRITING AND TRADING ACTIVITIES WHICH COULD HAVE A MATERIAL ADVERSE EFFECT
ON US. We conduct our underwriting, securities trading, market-making and
arbitrage activities as principal and in doing so subject our capital to
significant risks, including market, credit (including counter-party) and
liquidity risks.
Our underwriting, securities trading, market-making and arbitrage
activities often involve the purchase, sale or short sale of securities as
principal in markets that may be characterized by relative illiquidity or that
may be particularly susceptible to rapid fluctuations in liquidity. From time to
time we have large position concentrations in certain types of securities or
commitments and in the securities of or commitments to a single issuer. Through
our subsidiaries and affiliate offices, we engage in proprietary trading of U.S.
and European securities with an emphasis on government and corporate bonds,
local debt instruments and equity securities. These transactions involve risks
associated with the political instability and relative currency values of the
nations in which the issuer principally engages in business, including the risk
of nationalization. Additionally, from time to time we have substantial position
concentrations in high-yield issuers or commitments to high-yield issuers.
These securities generally involve greater risk than investment-grade
debt securities due to credit considerations, liquidity of secondary trading
markets and vulnerability to general economic conditions. The level of our high
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risk securities inventories and the impact of such activities upon our results
of operations can fluctuate from period to period as a result of customer
demands and economic and market considerations.
For competitive and other reasons, the trend in all major capital
markets toward larger commitments on the part of lead underwriters means that,
from time to time, an underwriter may retain significant position concentrations
in individual securities. Such concentrations increase our exposure to specific
credit, market and political risks. Also, material fluctuations in foreign
currencies against the U.S. Dollar, in the absence of countervailing covering or
other procedures, may result in losses or gains in the carrying value of certain
assets located or denominated in non-U.S. jurisdictions or currencies.
We derive much of our revenue from commissions generated by our
broker-dealers from retail brokerage transactions in equity and debt securities,
underwriting activities and private placements. We believe that as the business
of the broker dealers develops, the broker dealers will engage in securities
trading for their own accounts. These activities may involve the purchase, sale
or short sale of securities as principal and may involve certain risks which may
limit our ability to resell securities we purchased or to repurchase securities
sold in such transactions. These risks include change in the market price of
such securities and a decrease in the liquidity of markets. Principal and
underwriting transactions also involve economic, political, credit, currency,
interest rate and other related risks, any of which could result in an adverse
change in the market price of the relevant securities. See "Management's
Discussion and Analysis or Plan of Operation."
OUR MERCHANT BANKING ACTIVITIES ARE VERY CAPITAL INTENSIVE AND HAVE A
POTENTIAL FOR LOSS WHICH COULD HAVE AN ADVERSE AFFECT ON OUR BUSINESS.
Securities firms, such as us, increasingly promote major client transactions and
transactions sponsored by the clients' own pools of capital by using their
capital in a variety of investment activities that have been broadly described
as merchant banking.
Such activities include, among other things, purchasing equity or debt
securities or making commitments to purchase such securities in various
transactions. These include mergers, acquisitions, and restructuring and
leveraged capital transactions, including leveraged buyouts and high-yield
financing. Such positions and commitments may involve substantial amounts of
capital and significant exposure to any one issuer or business, as well as
market, credit and liquidity risks. Purchasers of equity securities in these
transactions generally hold them for appreciation and the securities are not
readily marketable and typically do not provide dividend income. Debt securities
purchased in such transactions typically rank subordinate to bank debt of the
issuer and may rank subordinate to other debt of the issuer. We also provide and
arrange bridge financing. Bridge financing assures funding for major
transactions, with the expectation that refinancing will be obtained through the
placement of high-yield debt or other securities. Such activities may also
involve substantial amounts of capital and significant exposure to any one
issuer as well as various risks associated with credit conditions and
vulnerability to general economic conditions.
There can be no assurance that we will not experience significant
losses as a result of such activities. Such losses may have an adverse effect on
our business. See "Management's Discussion and Analysis or Plan of Operation."
OUR INABILITY TO RAISE ADDITIONAL REQUIRED CAPITAL COULD HAVE A
MATERIAL ADVERSE EFFECT ON US. We may need to raise additional funds to provide
working capital or to respond to unforeseen needs or to take advantage of
unanticipated opportunities. Over the longer term, it is likely that we will
require substantial additional monies to continue to fund our working capital
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and expansion needs. There can be no assurance that any such funds will be
available at the time or times needed, or available on terms acceptable to us.
If adequate funds are not available on acceptable terms, we may not be able to
take advantage of market opportunities, to develop new services or products or
otherwise respond to competitive pressures. Such inability could have a material
adverse effect on our business, financial condition, results of operations and
cash flows.
INADEQUATE FINANCING TO SUPPORT OUR BUSINESSES COULD HAVE A MATERIAL
ADVERSE EFFECT ON US. A substantial portion of our total assets consists of
highly liquid marketable securities and short-term receivables arising from
securities transactions. The highly liquid nature of these assets provides us
with flexibility in financing and managing our business. However, certain of our
activities, such as merchant banking, frequently involve substantial capital
commitments in securities which are often illiquid. Such funds and capital
include equity, long-term debt and short-term borrowings which consist of
securities sold under agreements to repurchase, master notes and committed and
uncommitted lines of credit.
All repurchase transactions and a portion of our bank borrowings are
made on a collateralized basis. This means that we have to pledge assets of ours
in order to secure the funds involved in the repurchase transactions or
borrowings. Liquidity management includes monitoring assets available to pledge
against short-term borrowing. We maintain borrowing relationships with a broad
range of banks, financial institutions, counter parties and others. The volume
of our borrowings generally fluctuates in response to changes in the amount of
resale transactions outstanding, the level of our securities inventories and
overall market conditions. Availability of financing can vary depending upon
market conditions, the volume of certain trading activities, credit ratings,
credit capacity and the overall availability of credit to the securities
industry. There can be no assurance that adequate financing to support our
businesses will continue to be available in the future. See "Management's
Discussion and Analysis or Plan of Operation."
OUR ABILITY TO PAY DIVIDENDS, REPAY DEBT AND REDEEM OR REPURCHASE
SHARES OF OUR OUTSTANDING CAPITAL STOCK COULD BE ADVERSELY AFFECTED BY POTENTIAL
RESTRICTIONS RESULTING FROM NET CAPITAL REQUIREMENTS ON THE BUSINESS OF
REGULATED SUBSIDIARIES AND ON THE WITHDRAWAL OF CAPITAL. As a registered
broker-dealer in the United States, we are required to comply with each of the
countries' regulatory authorities and net capital rules. These rules specify
minimum net capital requirements for registered broker-dealers and stock
exchange members. They attempt to ensure that broker-dealers maintain adequate
regulatory capital in relation to their liabilities and the size of their
customer business. Accordingly, the rules require that at least a substantial
portion of assets be kept in cash or highly liquid investments. Compliance with
such net capital requirements could limit operations that require the intensive
use of capital, such as underwriting and trading activities. These rules also
could restrict our ability to withdraw capital from restricted accounts governed
by regulatory restrictions, even in circumstances where these accounts hold more
than the minimum amount of required capital. This, in turn, could prevent or
limit our ability to pay dividends, repay debt and redeem or repurchase shares
of our outstanding capital stock.
WE HAVE POTENTIAL SECURITIES LAWS LIABILITY EXPOSURE IN CONNECTION WITH
OUR BUSINESS. Many aspects of our business involve substantial risks of
liability. In recent years litigation involving the securities industry has
increased, including class actions that generally seek substantial damages.
Companies engaged in the underwriting and distribution of securities are exposed
to substantial liability under applicable securities laws.
WE DEPEND ON CERTAIN KEY MEMBERS OF MANAGEMENT AND THE LOSS OF ANY ONE
OF THEM COULD HAVE A SIGNIFICANT ADVERSE EFFECT ON OUR PERFORMANCE AS A WHOLE.
Most aspects of our business depend on highly-skilled individuals. We devote
considerable resources to recruiting, training and compensating such individuals
and have taken further steps to encourage such individuals to remain in our
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employ. Individuals employed by us may, however, choose to leave at any time to
pursue other opportunities. Moreover, operating our business depends principally
on certain key management personnel. In particular, Martin A. Sumichrast and
Kevin D. McNeil have played significant roles in promoting, developing and
managing the Company. Messrs. Sumichrast and McNeil are officers, directors and
employees of ours. If we terminate their employment, or if they are unable to
perform their duties, there may be a significant adverse effect on our
performance as a whole. We expect that our potential growth and any expansion
into new areas and activities requiring additional expertise (such as new
markets or the development of new products) will place additional demands on our
human resources. We anticipate such demands will require us to add new
management personnel and to develop additional expertise in our existing
management personnel. The failure to acquire such services or to develop such
expertise could have a material adverse effect on our prospects for success.
Competition for such personnel is intense and we can give no assurance that we
will be able to hire and/or retain adequate personnel. At the present time, we
have key-man life insurance policies in effect on Mr. Sumichrast and Mr. McNeil.
Due to the continued expansion in the U.S. and the sale of Eastbrokers
Beteiligungs AG and its subsidiaries, Mr. Kossner, the former Vice Chairman of
the Board, resigned in May 2000, to pursue other business opportunities.
WE HAVE SUFFERED OPERATING LOSSES AND WE CANNOT PREDICT WHETHER OUR
FUTURE OPERATIONS WILL BE PROFITABLE OR THAT WE WILL HAVE AVAILABLE FUNDS
ADEQUATE TO FUND OUR OPERATIONS. Despite our current years profitability, since
the Company's formation, we have suffered substantial cash flow deficits and
operating losses. The net loss for the fiscal year ended March 31, 1999 was
$5,912,000 and the net loss for the fiscal year ended March 31, 1998 was
$3,677,000. Our accumulated deficit as of March 31, 2000 was a negative
$6,439,000. There can be no assurance that our future operations will be
profitable or that we will have available funds adequate to fund our operations.
Should our operations be profitable, it is likely that we would retain much or
all of our earnings to finance future growth and expansion.
IF OUR COMMON STOCK WERE DELISTED, STOCKHOLDERS MAY HAVE A MORE
DIFFICULT TIME SELLING THEIR SECURITIES. In the event that our common stock were
no longer to meet applicable Nasdaq SmallCap requirements including timely
reporting and were delisted from Nasdaq SmallCap, we would attempt to have our
securities traded in the over-the-counter market via the Electronic Bulletin
Board or the "pink sheets." In such event, holders of our securities would
likely encounter greater difficulty in disposing of these securities and/or
obtaining accurate quotations as to the prices of our securities.
IF AT ANY TIME REGULATORS DELIST THE COMMON STOCK FROM THE NASDAQ
SMALLCAP, TRANSACTIONS INVOLVING THE SECURITIES MAY BECOME SUBJECT TO PENNY
STOCK RULES THAT IMPOSE ADDITIONAL SALES PRACTICE REQUIREMENTS ON BROKER-DEALERS
WHO SELL SUCH SECURITIES TO PERSONS OTHER THAN ESTABLISHED CUSTOMERS AND
ACCREDITED INVESTORS. The SEC has adopted regulations which generally define
"penny stock" to be any equity security that has a market price (as defined) of
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. Since our common stock is currently listed on the
Nasdaq SmallCap we are exempt from the definition of penny stock at this time.
If at any time regulators delist the common stock from the Nasdaq SmallCap,
transactions involving the securities may become subject to penny stock rules
that impose additional sales practice requirements on broker-dealers who sell
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such securities to persons other than established customers and accredited
investors. Generally, an accredited investor is such a person with assets in
excess of $1,000,000 or annual income exceeding $200,000 ($300,000 annual
together with such a person's spouse.) For transactions subject to penny stock
rules, the broker-dealer must make a special suitability determination for the
purchase of such securities and have received the purchaser's written consent to
the transaction prior to the purchase. Additionally, the Commission mandates a
risk disclosure document relating to the penny stock market which the broker
dealer must deliver prior to any transaction involving a penny stock, unless
exempt. The broker dealer also must disclose the commissions payable to both the
broker dealer and the registered representative and disclose current quotations
for the securities. If the broker dealer is the sole market-maker, the
broker-dealer must also disclose this fact as well as its presumed control over
the market. Finally, broker-dealers must send monthly statements disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. Consequently, the penny stock rules may
restrict the ability of broker dealers to sell our securities in the secondary
market.
THERE COULD BE POSSIBLE DILUTIVE AND OTHER ADVERSE EFFECTS OF
OUTSTANDING OPTIONS AND WARRANTS BEING EXERCISED WHICH COULD AFFECT OUR ABILITY
TO RAISE ADDITIONAL CAPITAL. Under the terms of our outstanding Placement Agent
Warrants, Class D Warrants and options issued under our 1996 Stock Option Plan,
as amended, the holders of such warrants and options are given an opportunity to
profit from a rise in the market price of the common stock with a resulting
dilution in the interests of the other stockholders. The existence of such
options and warrants may adversely affect terms on which we may obtain
additional financing. For example, the holders of the warrants might exercise
them at a time when we are attempting to obtain additional capital through a new
offering of securities on terms more favorable than those which the warrants and
options provide.
THE ISSUANCE OF PREFERRED STOCK COULD MAKE A POSSIBLE TAKEOVER OF US OR
REMOVAL OF OUR MANAGEMENT MORE DIFFICULT. As of December 1997, our Board of
Directors has authorized the issuance of up to 10,000,000 shares of preferred
stock. In November 1999, January 2000 and March 2000, a total of 2,000,000
shares of our 10% Convertible Preferred Stock, Series A, were issued to Belle
Holdings, Inc., a company controlled by Martin A. Sumichrast, our Chairman,
President and Chief Executive Officer. Prior to the end of our fiscal year,
Belle Holdings converted all of its preferred shares into common stock, on a
one-to-one basis. As of June 28, 2000, no shares of preferred stock were issued
and outstanding. The Board of Directors has the power to establish the dividend
rates, liquidation preferences, voting rights, redemption and conversion terms,
and all other rights, preferences and privileges with respect to any series of
preferred stock. The issuance of any series of preferred stock having rights
superior to those of the common stock may result in a decrease in the value or
market price of the common stock. The Board of Directors could use this as a
means to prevent a change in control of us. Future issuances of preferred stock
may provide for dividends, certain preferences in liquidation and conversion
rights. Such preferred stock issuance could make the possible takeover of us, or
the removal of our management, more difficult. The issuance of such preferred
stock could discourage hostile bids for control of the our company in which
stockholders could receive premiums for their common stock or warrants, could
adversely affect the voting and other rights of the holders of the common stock,
or could depress the market price of the common stock or warrants.
THERE ARE SPECIFIC RISKS OF THE GEOGRAPHIC AREAS COVERED BY US OUTSIDE
THE UNITED STATES WHICH COULD, IF REALIZED, RESULT IN A MATERIAL ADVERSE EFFECT
ON US. Our investments may include securities of issuers resident in areas
currently in a state of flux. These regions' political institutions and economic
policies now face the challenges of rapid change. Their populations are
ethnically diverse and cultural and religious tensions abound. Memories of
conflicts, past injustices and the legacy of the denial of justice and the
expropriation of property will continue to create tension for years to come.
These problems will compound the difficulties of the change from a centrally
planned economy to a market economy. For these reasons our investments will be
subject to risks of a nature and degree not normally encountered in more
developed economies and additional to those inherent in any equity investment.
Specific examples of some of these risks are described below:
O LIQUIDITY OF OUR INVESTMENTS: The nature of our investments in these
geographic areas limits their potential secondary market. Accordingly, we
may not be able to achieve the full value of our investments on disposal.
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Although we anticipate that liquidity will improve once local stock markets
are operational, there is no guarantee that the markets will be as liquid
as those of developed countries.
O POLITICAL AND ECONOMIC FACTORS: The countries in which some of our
operations are concentrated had centrally-planned, socialist economies for
many years. Attempts at political and economic reform have been made with
limited success and it is impossible to foresee whether such reforms will
achieve their intended aims. Countries may impose restrictions on investing
in specific companies or industries which they consider to be important or
sensitive to national interests, but which also may be the best investment
opportunities available there. Additionally, changes in government policy
may result in countries expropriating investments.
O VALUATION RISK: Accounting and financial reporting standards in selected
countries are not equivalent to International Accounting Standards or U.S.
Generally Accepted Accounting Standards. Consequently, less information is
available to investors in the selected countries than in more developed
capital markets. Nevertheless, we will use valuations and financial reports
of international auditing firms and will apply all other means to monitor
unlisted investments.
O PROBLEMS OF TRANSITION AND BUSINESS FAILURE: Until very recently, virtually
all industrial output within the Comecon and Warsaw Pact countries was
generated from state-owned industry. As a result, few individuals
understand basic capitalistic management skills and techniques.
Privatization of much of the region's industry and the transition to a more
market-orientated economy will be difficult. Industry in the region is
considerably less developed and less efficient than industry in Western
Europe and the United States. In addition to doubts as to the continuing
viability of much of the region's industry, those businesses which survive
are likely to require considerable capital investment and restructuring.
The failure of one or more businesses in which we have invested may have a
significant adverse effect on our performance as a whole.
O CHANGES IN LAW AND ENFORCEMENT OF RIGHTS: In cases where competing claims
arise or in cases of re-nationalization, it may be difficult to enforce our
rights in several of the countries where we operate. There are several
reasons for this. First, legislation relating to securities, stock markets
and property rights may not exist. Second, these countries may only very
recently have introduced such legislation and may introduce significant new
legislation at any time. Finally, existing legislation is likely to be
subject to extensive amendment.
O INVESTMENT AND REPATRIATION RESTRICTIONS: We may require governmental
registration and/or approval in order to repatriate investment income,
capital and the proceeds of sales by foreign investors. A number of
countries in which we may invest do not have freely convertible currencies
or their currencies may only be convertible at rates determined by their
governments. Countries may also impose repatriation restrictions at any
time. Changes in the value of currencies in which our investments are
denominated will result in a corresponding change in the value of our
assets which are generally denominated in the local functional currencies.
Investors should note that the local currencies involved may be subject to
rapid devaluation against the major "hard" currencies, with the
corresponding result that delays in currency conversion may cause
significant losses.
O TAXATION: Taxation of dividends and capital gains received by non-residents
varies among the selected countries. In addition, the selected countries
generally have less well-defined tax laws and procedures, and such laws may
permit retroactive taxation. As a result, we could, in the future, become
subject to local tax liabilities that had not been anticipated in
conducting our investment activities or valuing our assets.
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SIGNIFICANT AND RAPID CHANGES IN TECHNOLOGY COULD NEGATIVELY AFFECT OUR
INTERNET-RELATED PROJECTS. The market for internet products and services has
only recently begun to develop and is rapidly evolving. Significant
technological changes could render our existing internet-related products and
services obsolete. To be successful, we must adapt to this rapidly changing
market by continually improving the responsiveness, functionality and features
of our products and services to meet our customers' needs. If we are unable to
respond to technological advances and conform to emerging industry standards in
a cost-effective and timely basis, certain portions of our business could be
materially adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
We do not own any real property. Leases on the properties we occupy
expire at various times over the next five years. At current production levels,
we believe our leased space is suitable and adequate. However, if volume and
activity increases, it may necessitate leasing additional office space.
Our corporate offices are located in Charlotte, North Carolina. We
lease our office space in Charlotte, North Carolina and, through our
subsidiaries, in various other locations. As of March 31, 2000, we leased office
space in the following locations: (1) Denver, Colorado; (2) Aspen, Colorado; (3)
Colorado Springs, Colorado; (4) Mesa, Arizona; (5) La Jolla, California; (6) Los
Angeles, California; (7) Newark, Delaware; (8) Boca Raton, Florida; (9)
Baltimore, Maryland; (10) Farmington, Michigan; (11) Aberdeen, New Jersey; (12)
Sea Girt, New Jersey; (13) Albuquerque, New Mexico; (14) Charlotte, North
Carolina; (15) Seattle, Washington; (16) Spokane, Washington; (17) New York, New
York; (18) Vienna, Austria; (19) Klagenfurt, Austria; (20) Warsaw, Poland; and
(21) Ljubljana, Slovenia. Due to our recent sale of Eastbrokers Beteiligungs AG
and its subsidiaries (see "Description of Business -Acquisitions and
Dispositions Subsequent to Fiscal Year End" on page 6 and Note 2 to the
financial statements included in this report on page 44), we no longer lease the
offices in Vienna, Austria; Klagenfurt, Austria; Warsaw, Poland; or Ljubljana,
Slovenia. However, through the recent acquisitions of Total Solutions and Total
Online, we now lease office space in the Czech Republic.
ITEM 3. 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, EBI Securities Corporation and Steve Signer, an
employee of EBI 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 EBI 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
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approximately $11,500,000 to $1,100,000. EBI Securities Corporation believes it
has meritorious defenses and intends to vigorously defend against National
Family Care Life Insurance Company's claims. The case is not presently scheduled
for trial.
EBI 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 EBI 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. EBI 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.
JACK G. LARSEN, AS RECEIVER FOR SOUTHWEST INCOME, TRUST ADVANTAGE
INCOME TRUST AND INVESTORS TRADING TRUST V. COHIG AND ASSOCIATES, INC. ET AL.,
Maricopa County Superior Court, Arizona, Case No. CV 98-20281. Plaintiff
commenced this action against EBI Securities Corporation and one of its brokers
in December 1998 (and process was served on EBI Securities Corporation in
January 1999) seeking damages in excess of $8 million dollars against EBI
Securities Corporation as well as an accounting of funds allegedly in possession
of EBI Securities Corporation. Plaintiff, who apparently has been appointed
receiver for three trusts, alleges that customer accounts established at EBI
Securities Corporation by third parties contained funds that actually belonged
to the trusts, and that EBI Securities Corporation negligently failed to
supervise its employees, in failing to determine that the third parties' trading
activities, which allegedly resulted in significant trading losses, were in
violation of the terms of agreements between the third parties and the Trusts.
Plaintiff also contends that EBI Securities Corporation has in its possession
and has wrongfully refused to return approximately $270,000 belonging to the
trusts. This case is presently scheduled for trial in October, 2000. EBI
Securities Corporation believes that it has meritorious defenses and intends to
vigorously defend against Plaintiff's claims.
LEE SCHLESSMAN ET AL V. GLOBAL CAPITAL PARTNERS, INC., 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 EBI 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 not yet answered the complaint. The
answer is due on July 17, 2000. We believe that we have meritorious defenses and
intend to vigorously defend against Plaintiffs claims.
In view of the inherent difficulty of predicting the outcome of such
matters, we cannot predict the eventual outcome of pending matters against
us, EBI Securities Corporation or Global Capital Markets, LLC. We
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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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 31, 2000, we held a special meeting of our stockholders. At
this meeting, our Board of Directors submitted two proposals to the
stockholders. The first proposal was to change the name of our Company to Global
Capital Partners, Inc. from Eastbrokers International Incorporated and the
second proposal was to increase the voting power of our 10% Convertible
Preferred Stock, Series A, and certain issuances of common stock and warrants.
The holders of 5,766,410 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 6,246,750 common and preferred shares issued and
outstanding. The following are the results of the vote of the stockholders
present and entitled to vote:
o With respect to the approval of our certificate of incorporation
to change the corporate name, of the 5,766,410 shares entitled to
vote at the meeting, 5,697,880 voted in favor of this proposal,
63,868 voted against this proposal, and 4,662 abstained from
voting.
o With respect to the approval of an increase in the voting power of
the preferred stock and certain issuances of common stock and
warrants, of the 5,766,410 shares entitled to vote at the meeting,
3,488,748 shares voted in favor of this proposal, 314,342 voted
against this proposal and 11,470 abstained from voting.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq SmallCap under the symbol
"GCAP" (previously, the symbol was "EAST"). The following table sets forth the
reported high and low bid quotations on a fiscal year basis of the common stock
for the periods indicated. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
HIGH LOW
-------------------- --------------------
<S> <C> <C> <C>
FISCAL 1998
First Quarter $10.5000 $4.0000
Second Quarter $14.0000 $4.0000
Third Quarter $ 5.7500 $2.0313
Fourth Quarter $13.0000 $3.7500
FISCAL 1999
First Quarter $ 9.3750 $3.5630
Second Quarter $ 4.7500 $2.3440
Third Quarter $ 6.3440 $1.9380
Fourth Quarter $11.8750 $3.8130
FISCAL 2000
First Quarter (through June 28, 2000) $ 7.9690 $3.3130
</TABLE>
On June 28, 2000, the closing bid price for our common stock as
reported on the Nasdaq SmallCap was $7.0625 per share. On that date, there were
approximately 70 holders of record of our common stock, including entities which
hold stock in street name on behalf of other beneficial owners.
We have not paid any cash dividends on our common stock to date, and do
not anticipate declaring or paying any dividends in the foreseeable future. We
anticipate that for the foreseeable future we will follow a policy of retaining
earnings, if any, in order to finance the expansion and development of our
business. Payment of dividends is within the discretion of our Board of
Directors and will depend upon our earnings, capital requirements and operating
and financial condition, among other factors.
In connection with our February 1998 acquisition of Cohig & Associates,
Inc., we issued 445,000 shares of our common stock to the selling corporation,
Cherry Creek Investments, Ltd. During the five days before the effective date of
the acquisition, the average closing price of our common stock was $9.375 per
share for our fully registered and unrestricted shares. Due to the nature of the
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restricted shares, the relatively large block of shares transferred and other
various restrictive covenants regarding the final allocation of these shares,
our Board of Directors assigned a value of $5.00 per share for a total value of
$2,225,000 to this transaction.
Also in connection with the acquisition of Cohig & Associates, Inc., we
incurred an obligation to deliver 25,000 shares of common stock to The J.B.
Sutton Group, LLC as an investment banking advisory fee. To maintain consistency
with the assigned valuation on the acquisition, our Board of Directors assigned
a value of $5.00 per share for a total value of $125,000 to this transaction.
On November 25, 1998, we sold 10 newly issued units in a private
placement consisting in the aggregate of $1,100,000 in 7% Convertible Debentures
and Class C Common Stock Purchase Warrants to purchase 125,000 shares of common
stock. The 7% Convertible Debentures were redeemed in March 1999 from a portion
of the proceeds of the offering related to our issuance in March 1999 of 10%
Convertible Promissory Notes.
In January 1999, we sold 125,000 restricted shares of our common stock
in a private placement to a private investor for $4.00 per share. We also issued
7,500 shares of its common stock to a broker of EBI Securities Corporation as
compensation for services rendered in connection with this transaction.
In March 1999, we issued 10% Convertible Promissory Notes, due in 2003
in an aggregate principal amount of $1,350,000. Holders of these notes have the
right to convert them into shares of common stock at a conversion price of $5.75
per share. A portion of the proceeds received for the notes was used to redeem
the 7% Convertible Debentures.
In April 1999, the Company issued 2,500 shares of common stock to an
employee as compensation for services. These shares were valued at the market
value on the date issued of $6.00 per share.
In May 1999, the Company issued 22,500 shares of common stock to three
board members as compensation for services. These shares were valued at the
market value on the date issued of $5.00 per share.
In May 1999, we issued 5% Convertible Debentures, due 2002 in aggregate
principal amount of $2,000,000. Holders of these debentures have the right to
convert them 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 to us of a notice of conversion. A
portion of the proceeds of the debentures was used to expand our operations.
On November 9, 1999, in order to partially fund our acquisition of
Global Capital Markets, LLC, we entered into a stock purchase agreement with
Belle Holdings, Inc., a Nevada corporation of which Martin A. Sumichrast, our
chairman, chief executive officer and president, is sole stockholder, director
and officer, pursuant to which Belle Holdings, Inc. purchased 1,000,000 shares
of our 10% Convertible Preferred Stock, Series A, for $2.00 per share and
received an option to purchase up to an additional 1,000,000 of such shares.
Belle Holdings, Inc. also bought a warrant to purchase up to 700,000 shares of
our common stock at an exercise price of $2.85 per share in exchange for a note
in an aggregate amount equal to $0.15 per share. In January and March 2000,
Belle Holdings, Inc. exercised its option with us and purchased an additional
100,000 and 900,000 shares, respectively, of such preferred stock.
Also on November 9, 1999, Corona Corp., Nevada corporation, purchased
from Belle Holdings, Inc. a $2 million note, due December 31, 1999, convertible
into shares of our 10% Convertible Preferred Stock, Series A at a conversion
ratio of .35 shares per $1.00, and an option to purchase
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additional notes of up to $2 million more, each such additional note having the
same terms and conditions as the note issued on November 9, 1999. Corona Corp.
also bought from Belle Holdings, Inc. a warrant to purchase up to 490,000 shares
of our common stock at $2.85 per share. In January and March 2000, Corona Corp.
exercised its option with Belle Holdings, Inc. and purchased an additional
$200,000 note and $1,800,000 note, respectively. Belle Holdings, Inc. used the
proceeds of these notes to purchase the preferred stock and warrants from us.
Although at the time of these transactions, each share of the preferred
stock was entitled to one vote on all matters submitted to the stockholders for
approval, Corona Corp. negotiated as a condition precedent to its transactions
with Belle Holdings, Inc. that we seek stockholder approval to increase the
voting power of the preferred stock from one to four votes per share in order to
more fully align the interests of our management with those of our stockholders.
Subsequent to stockholder approval of such increased voting power, NASDAQ
informed us that its listing guidelines proscribe empowering any class of
security with a higher voting right than any other class. NASDAQ also informed
us that pursuant to certain other listing requirements, the initial $2.00 price
per share that we received for our preferred stock must be adjusted to $2.0625
per share, the closing price on November 8, 1999 of our common stock.
Accordingly, on January 31, 2000, we negotiated the required modification of the
preferred stock purchase price as well as the acceleration of the conversion of
all issued and outstanding shares of our preferred stock and the exercise of all
of the $2.85 warrants purchased by Belle Holdings, Inc.
In consideration of these changes, we sold to Belle Holdings, Inc., in
exchange for an 8% note, due July 1, 2001 in aggregate principal amount of
$375,000, Class D Warrants to purchase up to 1,500,000 shares of our preferred
stock at a price of $5.50 per share, exercisable beginning on the maturity date
of such note and expiring December 31, 2005. Holders of these warrants have
certain anti-dilution protections and are entitled to piggyback registration
after such maturity date.
On November 22, 1999, the Company acquired 100 percent and 55 percent,
respectively, of the then issued and outstanding LLC membership interests of
Global Capital Markets, LLC (then, The JB Sutton Group, LLC) and Sutton Online,
Inc. (then, Sutton Online, LLC) and issued 700,000 and 250,000 shares,
respectively, in redemption of notes payable to the selling members of Global
Capital Markets, LLC and Sutton Online, LLC in accordance with the terms of the
respective LLC interest purchase agreements. The value assigned to these shares
was $2.0625 per share for a total value of $1,443,750 and $515,625,
respectively. In February 2000, the Company issued 50,000 shares of common stock
to two employees for investment banking services in connection with the purchase
of Global Capital Markets, LLC. These shares were valued at market on the date
of issuance or $5.00 per share.
In February 2000, the Company issued 7,500 shares of common stock to a
software consultant as compensation for services performed. The shares were
valued at the market value on the date of issuance at $6.00 per share. The value
was capitalized as a fixed asset addition.
In February 2000, the Company sold 237,130 shares of common stock for
approximately $1,364,000. The proceeds of this sale were used to redeem the
Company's 10% Convertible Promissory Notes due 2003, in the principal amount of
$1,350,000 plus accrued interest. (See Note 6 to the Consolidated Financial
Statements included in this annual report on page 48.)
In March, 2000, options to purchase 10,000 shares of Common Stock at
$4.50 were exercised.
We effected each of the foregoing issuances without registration under
the Securities Act of 1933, as amended. In each case, we relied upon the
exemption from registration provided by Section 4(2) under the Securities Act
and Regulation D promulgated under the Securities Act.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
In addition to the background and general overview of our business and
operations described in this report under the heading "Description of Business"
beginning on page 3, the following sections, "-- United States Operations"
beginning on this page 23, and "-European Operations" beginning on page 27,
provide a more detailed description of certain of our operations both
domestically and abroad.
UNITED STATES OPERATIONS
EBI SECURITIES CORPORATION
EBI 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. EBI 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. EBI 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. Since
its inception, EBI 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.
EBI Securities Corporation maintains its clearing arrangement with
Fiserv Correspondent Services, Inc., a subsidiary of Fiserv, Inc. (NASDAQ:FISV).
Fiserv Correspondent Services, Inc. provides EBI 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 EBI 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.
EBI 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. EBI
Securities Corporation provides its brokerage clients with a broad range of
traditional investment products and services. EBI Securities Corporation also
strives to establish itself with investors and corporate finance clients through
its commitment to a professional but personalized service. Its trading
department makes markets in approximately 100 securities which include its
investment banking clients and those securities that our research department has
identified as promising, small to middle-market, potentially high growth
companies. 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. EBI 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.
EBI Securities Corporation is actively reorganizing itself in order to
create additional revenue opportunities and cost savings. The potential result
is increased internal growth, which complements external growth through
acquisitions. Several initiatives that EBI Securities Corporation has undertaken
follow:
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1. FIXED INCOME. In December 1998, EBI 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 EBI 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 EBI Securities
Corporation corporate finance to capture business that would not have been
previously available.
2. ASSET ALLOCATION. EBI 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. EBI
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, EBI 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 EBI Securities Corporation and its applicable business partners.
EBI 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. Currently, EBI Securities Corporation is focusing
on filling its existing offices in order to improve efficiencies. EBI Securities
Corporation also believes that expansion of our retail brokerage services
through additional offices will be most effective if it occurs in and around the
corporate headquarters in Denver, Colorado. EBI Securities Corporation believes
that through the creation of a more visible presence around the corporate
headquarters will enhance our efforts in several ways. Locations conveniently
located in relation to the corporate offices are more effectively managed from a
corporate perspective. In addition, economies of scale are available in terms of
concentrated marketing and greater overall exposure in the community. This may
serve to enhance the recognition of EBI Securities Corporation as a serious
participant in the markets we serve.
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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 EBI Securities 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 maintains dual arrangements with CIBC
Oppenheimer, a division of CIBC World Markets Corp., and Penson Financial
Services Inc., a division of Service Asset Management Company. CIBC Oppenheimer
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 CIBC Oppenheimer, 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. Due to regulatory requirements and a delay in the direct
digital order routing system implemented by ECN Access Europe, S.A., Sutton
Online, Inc. has been unable to route trades via its data center in Madrid. ECN
Access Europe, S.A. expects to have these issues resolved in the short term. We
anticipate that ECN Access may become one of our larger clients.
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,
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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.
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.
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 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 1999, 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
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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.
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.
EUROPEAN OPERATIONS
AUSTRIA
During 1999, we operated two subsidiaries in Austria, Eastbrokers
Beteiligungs AG, a holding company, and WMP Bank AG, an Austrian broker dealer
and a subsidiary of Eastbrokers Beteiligungs AG. Throughout most of 1999, WMP
Bank AG generated revenues primarily from its specialist function on the Vienna
Stock Exchange. In November 1999, the trading systems changed to a fully
electronic trading system which resulted in a loss of revenues from this
activity. WMP has signed distribution contracts with several important national
and international fund management companies (Fleming, Mercury, Pioneer,
Templeton) and has employed 15 distribution partners to sell these funds
throughout Austria.
POLAND
During 1999, we operated Global Capital Partners Poland SA (formerly
Eastbrokers WDM Poland), a Polish broker-dealer and specialist on the Warsaw
Stock Exchange. Global Capital Partners Poland SA generated revenue from five
main sources: commissions from retail clients; investment banking fees from
initial public offerings; sponsorship fees on the Warsaw Stock Exchange;
principal trading fees; and specialist fees.
With Poland's targeted membership in the European Community, the market
has begun to open very rapidly to domestic and foreign investors. New
regulations came into effect for the securities industry in of March 1999,
necessitating a capital increase of approximately $260,000 USD which we
provided. Management used these funds to restructure operations, to reduce
overhead, and expand its client base. They also modified the compensation
structure to an incentive-based model and renegotiated the lease office to
achieve a thirty-five percent reduction in costs over the prior year. We
replaced the existing sales team with a new sales team subject to an
incentive-based compensation structure. This strategy has proven successful and
our client base in Poland has grown significantly. Last year Global Capital
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Partners Poland SA completed an initial public offering of common stock for an
established tobacco company. The restructuring process has also benefited the
organization by allowing management to concentrate on new business opportunities
such as online-brokerage.
SLOVENIA
During 1999, we operated Global Capital Partners Slovenia (formerly
Eastbrokers Ljubljana). In fiscal 1999, Global Capital Partners Slovenia
improved its financial position and increased its annual turnover on the
Ljubljana Stock Exchange by 136 percent and its assets under administration by
150 percent to 3.7 billion SIT (approximately $18.6 million USD at the then
current exchange rates). Our business strategy is to increase the number of
clients we serve and to increase the amount of assets per each client. The
client base remains diversified between corporate and private clients.
During 1999, Global Capital Partners Slovenia initiated a discretionary
portfolio management service as a new product. We expect to significantly
increase our assets under management by the end of the year 2000. Pension reform
legislation was passed on December 12, 1999, although pension fund companies
have been slow in forming and becoming major players in the local market.
Prospects for 2000 include expanding client money under discretionary
management, utilizing new information and internet technologies, founding a fund
management company, creating the first of two mutual funds and building a
network of independent agents to complement our existing operations.
CZECH REPUBLIC
During 1999, we held a minority interest in Stratego Invest a.s., a
Czech investment banking and brokerage firm. Stratego Invest a.s. derives the
majority of its revenue from traditional financial services such as investment
banking fees, commission revenues, and trading profits. During 1999, Stratego
Invest a.s. experienced growth in trading volumes, particularly in the trading
of non-Czech securities. Stratego Invest a.s. is working with Sutton Online,
Inc. to utilize our trading software for the execution of orders on the U.S. and
other European exchanges.
Central and Eastern Europe's ultimate unification into the European
Economic and Monetary Union is expected to lead to a significant increase in
investor interest in the region. This potential increase in investor interest
will benefit those firms that have had existing operations and relationships in
the region. We believe that through entering into multiple fee-based franchise
agreements with operations in Poland, the Czech Republic and Slovenia, we will
maintain a presence in these markets while reducing management costs and overall
risk exposure.
DISPOSITION OF CERTAIN EUROPEAN HOLDINGS
See "Description of Business -- Acquisitions and Dispositions
Subsequent to Fiscal Year End" on page 6 and Note 2 to the Consolidated
Financial Statements included in this annual report on page 44 for a discussion
of our sale of certain European holdings.
RESULTS OF OPERATIONS
See Note 1 of the Notes to Consolidated Financial Statements for the
year ended March 31, 1999 on page 41 for an explanation of the basis of
presentation of the financial statements.
For the year ended March 31, 2000, we generated consolidated revenues
in the amount of $45,908,000, compared to $16,236,000, for the year ended March
31, 1999. Total revenues were significantly higher than the previous year due to
our acquisition of Global Capital Markets, LLC and the overall increase in U.S.
market activity demonstrated by the record levels achieved by the major U.S.
market indices.
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We incurred total consolidated costs and expenses of $42,553,000, for
the year ended March 31, 2000, compared to $21,401,000, for the year ended March
31, 1999. Total costs and expenses for the year ended March 31, 2000, are
significantly higher than the previous year due to our acquisition of Global
Capital Markets and the variable costs such as compensation, brokerage, clearing
and exchange fees which fluctuate based on the overall volume of transactions
handled by our firm.
Our profit before provision for income taxes and minority interest in
earnings of subsidiaries was $3,355,000 for the year ended March 31, 2000,
compared to a loss of $5,165,000, for year ended March 31, 1999. Our benefit for
income taxes is attributable to the realization of net operating losses incurred
in a prior year being utilized to offset current year's net operating income in
the U.S. The minority interest in earnings of subsidiaries for the year are
attributed primarily to our acquisition of Sutton Online, Inc. and the carrying
value of one of our subsidiaries.
We reported consolidated income from continuing operations of
$4,633,000, for the year ended March 31, 2000, compared to a consolidated loss
from continuing operations of $5,184,000 for the year ended March 31, 1999. The
majority of our financial consultants specialize in the area of over-the-counter
equity securities. A strong economy, low inflation, and low interest rates
provided the necessary conditions for a year of increased investor activity and
confidence, record trading volumes and rising stock prices in the domestic
equity markets. The combination of these factors contributed to the dramatic
shift in our consolidated income from continuing operations. Further, due to the
positive response achieved by MoneyZone.com, we realized a gain of $3,350,000
upon our sale of a portion of our investment in MoneyZone.com. We acquired all
of our shares of MoneyZone.com common stock at once in July 1999 when we merged
our subsidiary, EBonlineinc.com, Inc., a Delaware corporation, into
MoneyZone.com. This is in comparison to 1999, where approximately $1,336,000 of
the loss was from our retail division and approximately $2,650,000 was
attributable to trading losses incurred during August and September 1998.
For the year ended March 31, 1999, our operations were impacted by the
global financial crisis that occurred during the summer of 1998. Specifically,
during this period our European operations, which are shown as discontinued
operations, experienced a slowdown in its commission, trading and corporate
finance business. Further, our European operations incurred costs related to the
reduction of the workforce in several of its European offices. In the U.S., EBI
Securities Corporation incurred higher than expected costs associated with the
expansion of its operations in New York, California and Colorado. In addition,
EBI Securities Corporation experienced a continued slowdown in its gross
commission revenue from August 1998 through October 1998. However, revenue at
EBI Securities Corporation increased significantly in November 1998 through the
end of March, 1999. We also continued to incur higher than expected legal and
consulting fees through October, mainly due to costs associated with the
completion of its audit for the fiscal year ended March 31, 1998, which was
completed on October 30, 1998.
On March 31, 2000, we had total assets of $47,579,000, and total
liabilities of $10,372,000, compared to $26,187,000, and $7,427,000,
respectively, on March 31, 1999. 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 year ended
March 31, 2000, reflect the volatile nature of the securities industry and the
reallocation of our assets indicative of a growing organization.
On November 25, 1998, in order to increase working capital, we sold 10
newly issued units in a private placement consisting in the aggregate of
$1,100,000 in 7% Convertible Debentures and 125,000 Class C Common Stock
Purchase Warrants. The convertible debentures were redeemable at our discretion
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on or before March 24, 1999 at 115 percent of the aggregate price or $1,265,000.
In March 1999, we redeemed the debentures in full and paid an additional 14,000
shares of common stock as consideration for the outstanding accrued interest
through the date of redemption.
In January 1999, we sold 125,000 restricted shares of its common stock
in a private placement to a private investor for $4.00 per share and issued
7,500 shares of common stock to a broker at EBI Securities Corporation as a
placement fee in connection with this transaction.
In March 1999, we issued 10% convertible promissory notes due in 2003
in an aggregate principal amount of $1,350,000. Holders of these notes had the
right to convert them into shares of common stock at $5.75 per share. A portion
of the proceeds of these notes was used to redeem the 7% convertible debentures.
These notes were redeemed in February 2000.
In May 1999, we issued 5% convertible debentures due in 2002 in an
aggregate principal amount of $2,000,000. Holders of these debentures have the
right to convert them 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 to us of the notice of
conversion. A portion of the proceeds of the debentures will be used to expand
our operations. These debentures were converted into common stock in January
2000.
As a broker-dealer, we will periodically acquire positions in
securities on behalf of our clients. Certain of these investments may be
characterized as relatively illiquid and potentially subject to rapid
fluctuations in liquidity.
Our earnings are subject to wide fluctuations since there are many
factors over which we have little or no control. In particular, the overall
volume of trading, the volatility and general level of market prices, and
fluctuations in foreign currency exchange rates are important variables which
may significantly affect our operations.
CALCULATION OF EARNINGS PER SHARE
The calculation of earnings per share on the financial statements
included in this report is based on the weighted average number of shares
outstanding, as calculated.
VIABILITY OF OPERATING RESULTS
We, like many other securities firms, are directly affected by general
economic conditions and market conditions, changes in levels of interest rate,
and demand for our investment and merchant banking services in the countries
where our primary operations are located.
All of these factors have an impact on our net gain from securities
transactions, underwriting, and commissions revenues. In periods of reduced
market activity, profitability is adversely affected because certain expenses,
consisting primarily of non-officer compensation and benefits, communications,
occupancy, and general and administrative expenses remain relatively constant.
LIQUIDITY AND CAPITAL RESOURCES
Our statements of financial condition reflect a liquid financial
position of cash and cash equivalents convertible to cash representing 5 percent
and 3 percent of total assets at March 31, 2000, and March 31, 1999,
respectively.
30
<PAGE>
We are subject to net capital and liquidity requirements. As of March
31, 2000 and 1999, 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. No assurances can be made as to our ability to meet our cash
requirements subsequent to any further business combinations.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128. The new
standard replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. We adopted SFAS No. 128 beginning with the interim
reporting period ended December 31, 1997. The adoption did not affect previously
reported earnings per share amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. We adopted this statement
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. We adopted this statement for the fiscal year ended
March 31, 1999. We have restated the comparative information for earlier years.
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.
31
<PAGE>
SELECTED FINANCIAL DATA
The historical selected financial data set forth below for the
respective periods are derived from our financial statements included elsewhere
in this Form 10-KSB and should be read in conjunction with those financial
statements and notes thereto. Those financial statements have been audited by
Spicer, Jeffries & Co., independent certified public accountants. Spicer,
Jeffries & Co.'s report with respect thereto appears elsewhere in this Form
10-KSB.
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Balance Sheet Data:
Assets $ 47,579 $ 26,187
Liabilities 10,372 7,427
Minority interest in consolidated subsidiaries (57) (97)
Stockholders' equity 37,264 18,857
Statement of Operations Data:
Revenues
Operating revenues, net $ 43,115 $ 14,266
INTEREST, DIVIDENDS & OTHER REVENUES 2,793 1,970
------------- -------------
45,908 16,236
Expenses
Operating expenses 42,553 21,401
Income (loss) from continuing operations 4,633 (5,184)
Loss from discontinued operations (914) (728)
Net income (loss) 3,719 (5,912)
Income (loss) from continuing operations per share
Basic $ 0.76 $ (1.08)
Diluted $ 0.73 $ (1.08)
Loss from discontinued operations per share
Basic $ (0.15) $ (0.15)
Diluted $ (0.14) $ (0.15)
Net income (loss) per share
Basic $ 0.61 $ (1.23)
Diluted $ 0.59 $ (1.23)
</TABLE>
32
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Historical Financial Statements
Independent Auditor's Report...................................... 34
Consolidated Statements of Financial Condition.................... 35
Consolidated Statements of Operations............................. 36
Consolidated Statements of Changes in Shareholders' Equity........ 38
Consolidated Statements of Cash Flows............................. 39
Notes to Consolidated Financial Statements........................ 41
33
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Global Capital Partners, Inc.
We have audited the accompanying consolidated statements of financial condition
of Global Capital Partners, Inc. and subsidiaries as of March 31, 2000 and 1999,
and the related consolidated statements of operations, comprehensive income,
changes in shareholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the management of
Global Capital Partners, Inc. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Capital
Partners, Inc. and subsidiaries as of March 31, 2000 and 1999, and the results
of its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Spicer, Jeffries & Co.
SPICER, JEFFRIES & CO.
Denver, Colorado
June 29, 2000
34
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
--------------- ----------------
(As Restated)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,284 $ 712
Receivables
Broker dealers 7,531 2,143
4,404,2143
608
Other 1,015 1,138
Securities owned, at value 9,310 2,973
Furniture and equipment, at cost (net of accumulated depreciation
and amortization of $661 and $278, respectively)
1,123 1,061
Deferred taxes 1,310 -
Goodwill, net 3,446 726
Net assets of discontinued operations 21,013 16,291
Other assets and deferred amounts 547 1,143
--------------- ----------------
Total Assets $ 47,579 $ 26,187
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 380 $ -
Compensation, benefits, and related taxes 5,106 1,211
Securities sold not yet purchased, at value 238 943
Accounts payable and accrued expenses 1,545 809
Other liabilities and deferred amounts 603 714
--------------- --------------
7,872 3,677
Long-term borrowings 2,500 3,750
--------------- ----------------
Total liabilities 10,372 7,427
--------------- ----------------
Minority interest in consolidated subsidiaries (57) (97)
--------------- ----------------
Commitments and contingencies
Shareholders' equity
Preferred stock; $.01 par value; 10,000,000 shares authorized; no
shares issued and outstanding at March 31, 2000 and 1999,
respectively
Common stock; $.05 par value; 25,000,000 shares authorized;
10,291,668 and 5,160,250 shares issued and outstanding at
March 31, 2000 and 1999, respectively
515 258
Paid-in capital 44,519 29,650
Accumulated deficit (6,439) (10,158)
Notes receivable - common stock and warrants (1,331) (893)
--------------- ----------------
Total shareholders' equity 37,264 18,857
--------------- ----------------
Total Liabilities and Shareholders' Equity $ 47,579 $ 26,187
=============== ================
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED MARCH 31,
-------------------------------------
2000 1999
---------------- -----------------
(As Restated)
<S> <C> <C>
Revenues
Commissions $ 29,657 $ 12,038
Investment banking 2,958 1,851
Interest and dividends 508 318
Principal transactions, net
Trading 6,137 429
Investment 4,363 (52)
Other 2,285 1,652
---------------- -----------------
Total revenues 45,908 16,236
---------------- -----------------
Costs and expenses
Compensation and benefits 30,771 13,119
Brokerage, clearing, exchange fees and other 3,284 922
General and administrative 1,517 843
Occupancy 1,807 1,717
Communications 1,913 1,359
Consulting fees 482 765
Interest 788 613
Professional Fees 638 932
Travel 335 561
Office supplies and expense 632 399
Depreciation and amortization 386 171
---------------- -----------------
Total costs and expenses 42,553 21,401
---------------- -----------------
Income (loss) before benefit for income taxes and
minority interest in earnings of subsidiaries 3,355 (5,165)
Benefit for income taxes 1,310 -
Minority interest in earnings of subsidiaries (32) (19)
---------------- -----------------
Income (loss) from continuing operations 4,633 (5,184)
Discontinued operations
Loss from discontinued operations (914) (728)
Gain on sale of discontinued operations - -
---------------- -----------------
Loss from discontinued operations (914) (728)
---------------- -----------------
Net income (loss) $ 3,719 $ (5,912)
---------------- -----------------
Weighted average number of common shares outstanding
Basic 6,078,458 4,800,551
---------------- -----------------
Diluted 6,363,481 4,800,551
---------------- -----------------
Income (loss) from continuing operations per share
Basic $ 0.76 $ (1.08)
---------------- -----------------
Diluted $ 0.73 $ (1.08)
---------------- -----------------
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
Loss from discontinued operations per share
Basic $ (0.15) $ (0.15)
---------------- -----------------
Diluted $ (0.14) $ (0.15)
---------------- -----------------
Net income (loss) per share
Basic $ 0.61 $ (1.23)
---------------- -----------------
Diluted $ 0.59 $ (1.23)
---------------- -----------------
See notes to consolidated financial statements.
37
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED NOTES
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT RECEIVABLE TOTAL
---------- ----------- ----------- ------------ ------------ ------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31, 1998 (as - $ - 4,297,750 $ 215 $ 25,614 $ (4,246) $ (313) $ 21,270
stated)
Issuance of common stock in
Cohig & Assoc. acquisition - - 470,000 23 2,327 - - 2,350
Redemption of note receivable - - - - - - 335 335
Issuance of common stock
to officer for note receivable - - 200,000 10 690 - (700) -
Issuance of common stock
to officer for note receivable - - 50,000 3 147 - (150)
Issuance of common stock in
private placement - - 125,000 6 464 - - 470
Exercise of stock options - - 10,000 1 70 - - 71
Issuance of common stock
in compensation for services - - 7,500 - 30 - - 30
Issuance of warrants in
connection with debt offerings - - - - 283 - - 283
Issuance of warrants to
officers for note receivables - - - - 25 - (25) -
Net loss - - - - - (5,912) (5,912)
Accrued interest on notes - - - - - - (40) (40)
receivable
---------- ----------- ----------- ------------ ------------ ------------ ---------- ----------
Balances at March 31, 1999 (as - $ - 5,160,250 $ 258 $ 29,650 $ (10,158) $ (893) $ 18,857
restated)
Issuance of common stock in
compensation for services - - 67,500 3 352 - - 355
Issuance of common stock in
compensation to board members - - 22,500 1 111 - - 112
Issuance of common stock
for interest - - 14,000 1 54 - - 55
Issuance of common stock in
redemption of convertible debt - - 728,799 36 2,043 - - 2,079
Issuance of preferred stock in
private placement 2,000,000 20 - - 3,850 - - 3,870
Issuance of common stock in
JB Sutton acquisition - - 700,000 35 1,409 - - 1,444
Issuance of common stock in
Sutton Online acquisition - - 250,000 13 503 - - 516
Issuance of common stock in
conversion of Class C Warrants - - 325,489 16 2262 - - 2,278
Issuance of common stock in
conversion of Placement
Agent Warrants - - 76,000 4 528 - - 532
Issuance of common stock in
conversion of preferred stock (2,000,000) (20) 2,000,000 100 (80) - - -
Issuance of common stock in
conversion of Warrants - - 700,000 35 2,065 - - 2,100
Exercise of stock options - - 10,000 1 45 - - 46
Issuance of common stock for
proceeds for redemption
of notes payable - - 237,130 12 1,352 - - 1,364
Issuance of warrants for
note receivable - - - - 375 - (375) -
Net income - - - - - 3,719 - 3,719
Accrued interest on notes - - - - - - (63) (63)
receivable
---------- ----------- ----------- ------------ ------------ ------------- ------------ -------
Balances at March 31, 2000 - $ - 10,291,668 $ 515 $ 44,519 $ (6,439) $ (1,331) $ 37,264
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
------------------------------------
2000 1999
----------------- ----------------
(As Restated)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) from continuing operations $ 4,633 $ (5,184)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities from continuing operations:
Depreciation and amortization 386 171
Minority interest in earnings of subsidiaries 32 19
Abandonment of software costs 169 -
Deferred taxes ( 1,310) -
Other 200 30
Changes in operating assets and liabilities
Cash and securities segregated for regulatory purposes
or deposited with regulatory agencies
- 50
Receivables (5,111) 1,707
Securities owned, at value (4,574) (460)
Other assets 949 (887)
Compensation, benefits and related taxes 3,703 (786)
Securities sold, not yet purchased (724) (1,886)
Accounts payable and accrued expenses 192 (1,228)
Other liabilities (1,755) 675
----------------- ----------------
NET CASH (USED IN) OPERATING ACTIVITIES FROM CONTINUING OPERATIONS (3,210) (7,779)
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS (5,700) 1,926
----------------- ----------------
NET CASH (USED IN) OPERATING ACTIVITIES (8,910) (5,853)
----------------- ----------------
Cash flows from investing activities
Net proceeds from (payments for)
Net cash acquired on acquisitions - 970
Acquisition of subsidiary (158) -
Capital expenditures (199) (595)
----------------- ----------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (357) 375
----------------- ----------------
Cash flows from financing activities
Net proceeds from (payments for)
Issuance of preferred stock 3,870 -
Issuance of common stock 6,319 500
Proceeds from borrowings 2,000 3,750
Repayments of borrowings (1,350) -
----------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,839 4,250
----------------- ----------------
Increase (decrease) in cash and cash equivalents 1,572 (1,228)
Cash and cash equivalents, beginning of year 712 1,940
----------------- ----------------
Cash and cash equivalents, end of year $ 2,284 $ 712
================= ================
</TABLE>
See notes to consolidated financial statements.
39
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
MARCH 31,
------------------------------------
2000 1999
----------------- ----------------
(As Restated)
<S> <C> <C>
Supplemental disclosure of cash flow information
Cash paid for income taxes $ - $ 131
================= ================
Cash paid for interest $ 569 $ 613
================= ================
Non-cash transactions
Issuance of common stock in redemption of convertible debt $ 2,079 $ -
================= ================
Issuance of warrants for note receivable $ 375 $ -
================= ================
Issuance of common stock for furniture and equipment $ 90 $ -
================= ================
Issuance of note payable for purchase of securities $ 325 $ -
================= ================
Issuance of Class C Warrants in connection with debt offerings $ - $ 284
================= ================
The Company acquired all of the capital stock of EBI Securities
Corporation and Global Capital Markets, LLC and acquired a
majority interest in Sutton Online, LLC. In connection with the
acquisitions, liabilities were assumed as follows:
Fair value $ 4,921 $ 7,966
Net cash acquired - 970
Cash paid (158) -
Common stock issued (2,209) (2,350)
================= ================
Net liabilities assumed on acquisitions $ 2,554 $ 6,586
================= ================
</TABLE>
See notes to consolidated financial statements.
40
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1. 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. subsidiaries
(collectively, "GCAP" or the Company). The shareholders of Global Capital
Partners, Inc. approved the name change at a Special Meeting of Shareholders on
January 31, 2000. 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.
Global Capital Partners, Inc., through its subsidiaries, provides a
wide range of financial services primarily in the United States. 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; and
brokerage and research services. These services are provided to a diversified
group of clients and customers, including corporations, governments, financial
institutions, and individuals.
FINANCIAL INSTRUMENTS
Proprietary securities transactions, commission revenues and related
expenses are recorded on a trade date basis. Securities owned (substantially all
equity securities) and securities sold, but not yet purchased (substantially all
equity securities) are recorded at fair value with resulting net unrealized
gains and losses reflected in earnings. Fair value is generally based on quoted
market prices. If quoted market prices are not available, fair value is
estimated based on other relevant factors, including dealer price quotations and
recent price activity. 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 security. The Company has no investments in
derivatives.
UNDERWRITINGS
Underwritings include gains, losses, and fees, net of syndication
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.
41
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. GCAP reflects this income in its investment banking
revenue.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments,"
requires the Company to report the fair value of financial instruments, as
defined. Substantially all of the Company's assets and liabilities are carried
at fair value or contracted amounts which approximate fair value. Estimates of
fair value are made at a specific point in time, based on relative market
information and information about the financial instrument, specifically, the
value of the underlying financial instrument.
Securities owned and securities sold, but not yet purchased are carried
at fair value. Assets which are recorded at fair value consist largely of
short-term receivables, and certain other receivables. Similarly, the Company's
short-term liabilities are recorded at contracted amounts approximating fair
value. The estimated fair value of the Company's long-term borrowings, based on
market rates of interest and similar maturities, approximates their carrying
value or contracted amounts.
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.
EARNINGS PER SHARE
Basic earnings per share is computed on the basis of the weighted
average number of common shares outstanding. Diluted earnings per share is
computed on the basis of the weighted average number of common shares
outstanding plus the effect of outstanding common stock purchase warrants and
options using the "treasury stock" method. For the year ended March 31, 1999,
the common stock purchase warrants and options were excluded from the
calculation of diluted earnings per share because they were anti-dilutive.
42
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The components of basic and diluted earnings per share were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------------------ -----------------
Weighted average common
shares outstanding 6,078,458 4,800,551
Dilutive effect of:
STOCK WARRANTS AND OPTIONS 285,023 -
------------------ -----------------
Weighted average common shares
OUTSTANDING, ASSUMING DILUTION 6,363,481 4,800,551
------------------ -----------------
</TABLE>
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages, but does not require,
companies to record compensation expense for stock-based employee compensation
plans at fair value. GCAP 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
the benefit relating to net operating losses to be realized in future
operations. 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 25 years and is
periodically evaluated for impairment on an undiscounted cash flow basis. The
accumulated amortization was $131,484 and $57,250 for the years ended March 31,
2000 and 1999, respectively.
43
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior year have been reclassified to conform to
the current year's presentation.
NOTE 2. DISCONTINUED OPERATIONS
During fiscal 1997, the Company acquired Eastbrokers Beteiligungs AG
for common stock and cash. The fair value of the net assets acquired
approximated $8,200,000 and the acquisition was accounted for under the purchase
method of accounting. The excess of the purchase price over the fair value of
the net assets acquired resulted in the Company recording approximately
$1,950,000 in goodwill, which was being amortized over 25 years on a
straight-line basis. Eastbrokers Beteiligungs AG owns 51 percent of WMP Bank AG,
a stock broker-dealer and market maker in Vienna and which was licensed as a
class B bank under Austrian law. In addition, Eastbrokers Beteiligungs AG owns
subsidiaries in Poland, Slovenia, and the Czech Republic.
Subsequent to March 31, 2000, the Company decided to sell its interests
in theses international subsidiaries, 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 are estimated to be approximately $25,000,000.
The disposal of Eastbrokers Beteiligungs AG has been accounted for as a
discontinued operation and, accordingly, its net assets have been segregated
from continuing operations in the accompanying consolidated statements of
financial condition, and 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 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.
Information relating to the discontinued operations of Eastbrokers
Beteiligungs AG is as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------------ ----------------
<S> <C> <C>
Revenues $ 7,067 $ 16,715
Costs and expenses 7,751 17,881
Income (loss) before income tax benefit
and minority interest in earnings of subsidiaries (684) (1,166)
Income tax or (expense) (143) 789
Minority interest in earnings of subsidiaries (87) (351)
------------------ ----------------
Net loss $ (914) $ (728)
------------------ ----------------
</TABLE>
44
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 2. DISCONTINUED OPERATIONS (CONTINUED)
The net assets and liabilities of the discontinued operations of
Eastbrokers Beteiligungs AG are as follows:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
------------------ ----------------
<S> <C> <C>
Cash and cash equivalents $ 1,727 $ 1,503
Receivables 15,740 22,095
Securities 13,798 12,222
Furniture and equipment, net 776 1,001
Other assets 8,027 6,210
------------------ ----------------
40,068 43,031
------------------ ----------------
Short-term borrowings 2,967 2,626
Advances from related entities 3,432 8,089
Payables to customers and broker dealers 4,076 6,158
Accounts payable and other liabilities 1,360 1,249
Long-term borrowings 1,264 1,455
Minority interest 5,956 7,163
------------------ ----------------
Net assets from discontinued operations 19,055 26,740
================== ================
$ 21,013 $ 16,291
================== ================
</TABLE>
NOTE 3. INVESTMENTS IN SUBSIDIARIES
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 a purchase transaction, 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 name was changed to
EBI Securities Corporation. The fair value of the net assets acquired under this
transaction approximated $1,700,000 as of the date of acquisition. The excess of
the purchase price over the fair value of the net assets acquired approximated
$750,000 and has been recorded as goodwill and is being amortized over 25 years
on the straight-line method. EBI 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 MARKETS, LLC
In November 1999, the Company acquired all of the outstanding common
stock of the J.B. Sutton Group, LLC, a New York based investment banking and
brokerage firm, in a purchase transaction, in exchange for 700,000 unregistered
shares of the Company's common stock and an agreement to
45
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 3. INVESTMENTS IN SUBSIDIARIES (CONTINUED)
ADVANCE $1,500,000 IN ADDITIONAL WORKING CAPITAL. FOLLOWING THE ACQUISITION, THE
name was changed to Global Capital Markets, LLC. THE FAIR VALUE OF THE NET
ASSETS ACQUIRED UNDER THIS TRANSACTION APPROXIMATED $(430,000) as of the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired approximated $2,300,000 and has been recorded as goodwill and is
being amortized over 25 years on the straight-line method. The financial
statements include the results of operations of Global Capital Markets, LLC
since December 1, 1999. 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.
SUTTON ONLINE, INC.
In November 1999, the Company acquired a majority interest in Sutton
Online, LLC, a New York based online trading firm, in a PURCHASE TRANSACTION, in
exchange for 250,000 unregistered shares of the Company's common stock.
Following the acquisition, Sutton Online, LLC was merged into Sutton Online,
Inc. The fair value of the net assets acquired under this transaction
approximated $18,000 as of the date of acquisition. The excess of the purchase
price over the fair value of the net assets acquired approximated $500,000 and
has been recorded as goodwill and is being amortized over 25 years on the
straight-line method. The financial statements include the results of operations
of Sutton Online since December 1, 1999.
PRO FORMA RESULTS OF OPERATIONS
The following summarized, unaudited pro forma results of operations for
the years ended March 31, 2000 and 1999 assumes the acquisitions discussed above
occurred at the beginning of fiscal 1999.
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Total revenue $ 51,733 $ 39,485
Income (loss) from continuing operations 4,799 (1,753)
Net income (loss) 3,884 (2,481)
Earnings per common share:
Income (loss) from continuing operations
Basic 0.68 (0.28)
================= ==================
Diluted 0.65 (0.28)
================= ==================
Net income (loss)
Basic 0.55 (0.40)
================= ==================
Diluted 0.53 (0.40)
================= ==================
</TABLE>
The weighted average shares outstanding calculation used in the table
above includes the shares issued in connection with the acquisitions as if they
had been issued for all periods presented.
46
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
In July 1999, the Company acquired approximately 49 percent of the
issued and outstanding common stock of MoneyZone.com, a start-up capital
formation internet portal that matches investors with entrepreneurs. As of March
31, 2000, the Company owns approximately 30 percent of MoneyZone.com's issued
and outstanding common stock. This investment is being carried using the equity
method and is reflected at cost, adjusted for the Company's proportionate share
of the undistributed net earnings or losses. The Company's share of the net
underlying assets of MoneyZone.com is approximately $534,000 and exceeds the
carrying value by approximately the same amount. The amount of the excess that
is being amortized is offset by the Company's share of the net losses of
MoneyZone.com. During the fiscal year Global Capital Partners, Inc. sold a
portion of its interest and realized a profit of $3,350,000.
RECEIVABLES FROM AFFILIATED COMPANIES
Periodically, the Company provides operating advances to its
unconsolidated affiliates. These advances are generally due on demand and are
not subject to interest charges.
NOTE 5. SHORT-TERM BORROWINGS
GCAP periodically 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.
UNSECURED DEBENTURES
On November 25, 1998, Global Capital Partners, Inc. sold 10 newly
issued units in a private placement consisting in the aggregate of $1,100,000 in
7 percent convertible debentures and Class C series warrants to purchase 125,000
shares of common stock. Global Capital Partners, Inc. redeemed these debentures
prior to March 31, 1999.
In May, 1999, the Company issued 5 percent convertible debentures, due
2002 in an aggregate principal amount of $2,000,000. Holders of these debentures
had the right to convert their notes into shares of common stock at the lesser
of $5.50 per share or 90 percent 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. In January 2000, the Company converted the debentures,
including accrued interest of $78,878, into shares of common stock (see Note 8
to the Consolidated Financial Statements included in this annual report on page
49.)
47
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 6. LONG-TERM BORROWINGS
Long-term borrowings consist of the following:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Convertible promissory notes, convertible at $5.75 per share of
common stock, secured by the common stock of EBI Securities
Corporation and certain securities with a fair value of $400,000
bearing interest at 10 percent and due March 25, 2002 $ -- $ 1,249,749
Subordinated note payable to clearing organization, bearing
interest at 10 percent and maturing on June 30, 2000 2,500,000 2,500,000
----------------
----------------
$ 2,500,000 $ 3,749,749
---------------- ----------------
</TABLE>
Subsequent to March 31, 2000, the Company successfully renegotiated the
terms of its subordinated note payable to a clearing organization. As an
inducement to encourage the Company to enter into a five year clearing
arrangement, the clearing organization agreed to forgive the principal portion
of this note in five equal installments beginning in June 2001. Under the terms
of the new note, the new maturity will be June, 2005.
NOTE 7. COMMITMENTS AND CONTINGENCIES
LEASES AND RELATED COMMITMENTS
The Company and occupies office space under leases that expire at
various dates through 2006. The various leases contain provisions for periodic
escalations to the extent of increases in certain operating and other costs.
GCAP incurred rent expense under non-cancelable leases in the approximate
amounts of $1,600,000 and $1,400,000 for the periods ended March 31, 2000 and
1999, respectively.
Minimum future rentals under these non-cancelable leases for the fiscal
years ending March 31, 2001 through 2005 are approximately as follows:
2001-$1,290,000; 2002-$1,290,000; 2003-$1,200,000; 2004-$902,000; 2005-$472,000;
thereafter $660,000 and in the aggregate $5,814,000.
48
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 8. SHAREHOLDERS' EQUITY
STOCK TRANSACTIONS
In January 1999, an officer acquired 200,000 shares of common stock at
a price of $3.50 per share in exchange for a note receivable bearing an interest
rate of 7 percent in the amount of $700,000.
In January 1999, another officer acquired 50,000 shares of common stock
at a price of $3.00 per share in exchange for a note receivable bearing an
interest rate of 7 percent in the amount of $150,000.
In January 1999, Global Capital Partners, Inc. sold 125,000 restricted
shares of its common stock in a private placement to an individual investor for
$4.00 per share. Global Capital Partners, Inc. also issued 7,500 shares of its
common stock to a broker of EBI Securities Corporation as compensation for
services provided in connection with this transaction.
In April 1999, Global Capital Partners, Inc. issued 2,500 shares of
common stock to an employee as compensation for services. These shares were
valued at the market value on the date issued of $6.00 per share.
Also, in February 2000, Global Capital Partners, Inc. issued 7,500
shares of common stock to a software consultant as compensation for services
performed. The shares were valued at the market value on the date of issuance at
$6.00 per share. The value was capitalized as a fixed asset addition.
In April 1999, the Company issued 14,000 shares of common stock at
$3.9375 per share for interest accrued during the year ended March 31, 1999.
In May 1999, Global Capital Partners, Inc. issued 22,500 shares of
common stock to three board members as compensation for services. These shares
were valued at the market value on the date issued of $5.00 per share.
On May 28, 1999, Global Capital Partners, Inc. sold 20 newly issued
units consisting of a $100,000 convertible debenture and 2,000 Common Stock
Series C Warrants per unit in a private placement for $2,000,000 in cash or a
price of $100,000 per unit. In January 2000, Global Capital Partners, Inc.
converted the debentures of $2,000,000, plus accrued interest of $78,878, into
728,799 shares of common stock at 2.8525 per share. (See Note 5 to the
Consolidated Financial Statements included in this annual report on page 47).
On November 9, 1999, Global Capital Partners, Inc. entered into a stock
purchase agreement with Belle Holdings, Inc., a corporation of which Global
Capital Partners, Inc.'s Chairman, CEO and President is the sole stockholder,
director and officer, to issue up to 2,000,000 shares of our 10 percent
Convertible Preferred Stock, Series A, $0.01 par value for $4 million and a
warrant to purchase up to 700,000 shares of the Global Capital Partners, Inc.'s
common stock at an exercise price of $2.85 per share in exchange for a note
receivable of $105,000 ($0.15 per share). Subsequent to the closing of the
agreement and issuance of shares of the preferred stock, pursuant to
notification from NASDAQ, Global Capital Partners, Inc. modified the price of
the Preferred Stock to $2.0625 per share to reflect the market price of the
Company's common
49
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
stock as of November 9, 1999. Global Capital Partners, Inc. 1,000,000 shares of
the preferred stock in November 1999, 100,000 shares in January 2000 and
1,800,000 shares in March 2000. After deducting issue costs of approximately
$225,000, Global Capital Partners, Inc. netted approximately $3,900,000.
In March 2000, the Preferred Stock was converted to 2,000,000 shares of
the Company's common stock and the warrants to purchase 700,000 shares of common
stock were exercised at $2.85 per share for an additional $2,100,000 in proceeds
from the warrants and the note receivable. In March 2000, Global Capital
Partners, Inc. issued 1,500,000 Class D Warrants at $.25 to this related
investor to purchase 1,500,000 shares of common stock at an exercise price of
$5.50 in exchange for a note receivable of $375,000.
In November 1999, Global Capital Partners, Inc. acquired Global Capital
Markets, LLC (then, The JB Sutton Group, LLC) and Sutton Online, Inc. (then,
Sutton Online, LLC) and issued 700,000 and 250,000 shares, respectively, in
redemption of note payables to the selling members of Global Capital Markets,
LLC and Sutton Online, LLC in accordance with the terms of the LLC Interest
Purchase Agreements. The value assigned to these shares was $2.0625 per share
for a total value of $1,443,750 and $515,625, respectively. In February 2000,
The Company issued 50,000 shares of Common Stock to two employees for investment
banking services in connection with the purchase agreement of Global Capital
Markets, LLC. These shares were valued at market on the date of issuance or
$5.00 per share.
In February 2000, Global Capital Partners, Inc. sold 237,130 shares of
common stock for approximately $1,364,000. The proceeds of this sale were used
to redeem the Company's 10% Convertible Promissory Notes due 2002, in the
principal amount of $1,350,000 plus accrued interest. (See Note 6 to the
Consolidated Financial Statements on page 48.)
In March, 2000, options to purchase 10,000 shares of common stock at
$4.50 were exercised.
Global Capital Partners, Inc. effected each of the foregoing issuances
without registration under the Securities Act of 1933, as amended (the
"Securities Act"). In each such case Global Capital Partners, Inc. relied upon
the exemption from registration provided by Section 4(2) under the Securities
Act and Regulation D promulgated under the Securities Act.
CLASS A WARRANTS
In connection with its June 1995 public offering, the Company issued
5,505,000 Class A Warrants. An adjustment to the exercise price of the Class A
Warrants to $18.00 per share resulted in connection with the February 1998
private placement. Subsequent to this adjustment, there were 1,101,000 Class A
Warrants outstanding. The Class A Warrants expired on June 9, 2000 without
exercise.
CLASS B WARRANTS
In connection with the aforementioned public offering whereby the Class
A warrants were issued, the Company issued 1,250,000 Class B Warrants to certain
bridge lenders. An adjustment to the exercise price of the Class B Warrants to
$19.00 per share resulted in connection with the February
50
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 8. SHAREHOLDERS' EQUITY (CONTINUED)
1998 private placement. Subsequent to this adjustment, there were 250,000 Class
B Warrants outstanding. The Class B Warrants have not been registered. These
warrants expired on June 9, 2000 without exercise.
CLASS C WARRANTS
In connection with various common stock and debt offerings, the Company
issued Class C warrants. Each Class C Warrant entitled the holder to purchase
one share of common stock during the period commencing February 20, 1999 and
expiring February 20, 2002 at an exercise price of $7.00 per share, subject to
certain adjustments. Commencing February 20, 1999 these warrants will be
callable for exercise and redeemable at a price of $.10 per warrant at any time
after the average closing price of the common stock is above $10.00 for 20
consecutive trading days. The shares underlying these warrants were subject to a
"demand registration" right upon receipt of a demand for registration from a
majority of the holders of the common stock and the warrants issued in this
private placement. In connection with the private placement, 1,237,222 Class C
Warrants were issued to the placement agents. In May 1999, 40,000 Class C Common
Stock Warrants were issued in association with the $2,000,000 convertible
debenture.
In March 2000, the average closing price of the common stock was above
$10.00 for 20 consecutive trading days. In accordance with the terms of the
Class C Warrants, the Company exercised its right to call the warrants for
conversion. The warrant holders converted approximately 283,000 Class C Warrants
and 118,000 Placement Agent Warrants prior to March 31, 2000. In April, the
warrant holders converted approximately 134,000 Class C Warrants and 42,000
Placement Agent Warrants. The remaining 1,204,000 Class C Warrants are subject
to redemption at $.10 per warrant. Approximately 1,120,000 Placement Agent
Warrants remain outstanding subject to their expiration on February 20, 2002.
CLASS D WARRANTS
In connection with a financing, the Company issued 1,500,000 Class D
Warrants to Belle Holdings, Inc. a corporation which the Company's Chairman and
CEO is the sole stockholder, director and officer, at $.25 in exchange for a
note receivable of $375,000. These warrants are not exercisable before July 1,
2001, carry an exercise price of $5.50, and convert into one common share per
warrant.
On November 25, 1998, the Company sold 10 newly issued units in a
private placement consisting in the aggregate of $1,100,000 in 7 percent
convertible debentures and Class C series warrants to purchase 125,000 shares of
common stock. Global Capital Partners, Inc. redeemed these debentures prior to
March 31, 1999.
51
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 9. STOCK OPTION PLAN
During 1996, the Company adopted a non-qualified stock option plan (the
"plan") as part of an overall compensation strategy designed to facilitate a
pay-for-performance policy and promote internal ownership in order to align the
interests of employees with the long-term interests of the Company's
shareholders.
Under the terms of the plan, stock options granted will have an
exercise price not less than the fair value of the Company's common stock on the
date of grant. Such options generally become exercisable over a three-year
period and expire 5 years from the date of grant.
During the year ended March 31, 1999, 220,000 options were issued under
this plan at a weighted average exercise price of $4.18 per share with the
exercise prices ranging from $4.00 to $6.00 per share. The fair value of the
options at the date of grant was estimated using the Black-Scholes option
pricing model utilizing the following weighted average assumptions: risk-free
interest rate - 4 percent; expected option life in years - 3 years; expected
stock price volatility - 126.8 percent; and expected dividend yield - 0.0
percent. At March 31, 1999, there were 445,000 options outstanding. Of this
amount, 225,000 of the options outstanding were exercisable with 220,000 options
subject to various vesting requirements. The weighted average fair value of the
options at the various grant dates was $6.93.
As of March 31, 2000, 210,000 options were still outstanding. During
the year ended March 31, 2000, 295,000 options were issued under this plan at a
weighted average exercise price of $4.524 per share with the exercise prices
ranging from $4.00 to $7.00 per share. The fair value of the options at the date
of grant was estimated using the Black-Scholes option pricing model utilizing
the following weighted average assumptions: risk-free interest rate - 4 percent;
expected option life in years - 3 years; expected stock price volatility - 82.6
percent; and expected dividend yield - 0.0 percent.
Had compensation cost been determined based on the fair value at the
grant dates consistent with the method of FASB Statement 123, the Company's loss
and loss per share would have been increased to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------------------------- ----------------------------
<S> <C> <C>
Net loss
- as reported $ 3,719 $ (5,912)
- pro forma 3,579 (5,992)
Earnings per share
Basic
- as reported $ 0.61 $ (1.23)
- pro forma 0.57 (1.25)
Diluted
- as reported $ 0.59 $ (1.23)
- pro forma 0.54 (1.25)
</TABLE>
52
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 10. RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company had a receivable related to
securities transactions from Mr. Kossner in the amount of 1,132,776 Austrian
Schillings (approximately $97,000 USD).
At December 31, 1998, the Company had a receivable related to share
transactions from Z.E. Beteiligungs AG in the amount of 7,745,600 Austrian
Schillings (approximately $661,000 USD). Z.E. Beteiligungs AG is a subsidiary of
General Partners AG. General Partners AG is an Austrian holding company and the
beneficial owner of approximately 2,400,000 shares of the Company's common
stock. Mr. Kossner, a former director of the Company, owns approximately 30
percent of the outstanding shares of General Partners AG.
WMP Bank AG is an Austrian broker-dealer, market maker, and member of
the Vienna Stock Exchange. WMP Bank AG's common stock is publicly traded on the
Main Market of the Vienna Stock Exchange. From time to time, WMP Bank AG will
make a market in stock of companies that have a direct relationship to the
Company through its Directors or Shareholders.
Upon acquiring Eastbrokers Beteiligungs AG on August 1, 1996, the
Company assumed a receivable in the amount of 7,387,697 ATS (approximately
$704,000 USD, at the then current exchange rates) from Peter Schmid, at that
time our president and a member of our board of directors. As of December 31,
1997, the receivable increased due to cash advances to 8,046,177 ATS
(approximately $635,000 USD, at the then current exchange rates). The U.S.
Dollar denominated amount fluctuates based on the foreign currency exchange
rate. On May 31, 1998, Mr. Schmid entered into a Non-Negotiable Term Note in the
amount of 8,046,177 Austrian Schillings. This amount was reported as a
"receivable from executive officer" in the consolidated statement of financial
condition for the year ended March 31, 1998. This note was subject to interest
at 8 percent per annum with a maturity of May 31, 2000. It was collateralized by
150,000 shares of the common stock. On October 8, 1998, Mr. Schmid repaid
6,748,111 Austrian Schillings of the total amount due. As of March 31, 1999, Mr.
Schmid did not owe any remaining balance under these arrangements.
Periodically, the Company engages in securities transactions with URBI
S.A., a Spanish investment company. Mr. Kossner was a member of URBI S.A.'s
Supervisory Board from November 1996 through June 1998 and Mr. Schmid was a
member until May 1997. All transactions between URBI S.A. and the Company were
consummated at the then current market prices. At December 31, 1997, the amount
due from URBI S.A. was 7,023,576 Austrian Schillings or approximately $555,000,
arising exclusively from various securities transactions. Prior to June 30,
1998, URBI S.A. had repaid all amounts due with respect to the transactions open
at December 31, 1997. As of December 31, 1998, the Company had a receivable from
URBI S.A. in the amount of 2,780,030 Austrian Schillings or approximately
$236,000 related to transactions occurring subsequent to December 31, 1997. In
addition, the Company entered into a repurchase agreement with URBI S.A. in June
1997. This repurchase agreement and the related shares of Vodni Stavby a.s., a
Czech construction company, were sold to a non-affiliated Czech Republic company
in October 1997.
53
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 11. INCOME TAXES
The tax benefit of $1,310,064, 789,315 and $640,163 for the years ended
March 31,2000, 1999 and 1998, respectively, results primarily from foreign net
operating loss carryforwards of the Company's subsidiaries.
The differences between the tax benefit calculated at the statutory
federal income tax rate and the actual tax benefit for each period is shown in
the table below:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, March 31,
2000 1999
----------------- ---------------
<S> <C> <C>
Tax benefit at federal statutory rate $ 1,140,946 $ 1,756,000
State income taxes, net of federal benefit 161,746 248,939
Unrecognized benefit of net operating losses -- (2,004,939)
Other 7,372 --
----------------- ---------------
$ 1,310,064 $ --
----------------- ---------------
</TABLE>
The significant components of the Company's deferred tax asset and
liability are as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, March 31,
2000 1999
----------------- ---------------
<S> <C> <C>
Capital loss carryforward $ $ 45,445
--
Foreign tax credit carryforward 32,652 32,652
Net operating loss carryforward 1,982,832 3,105,940
----------------- ---------------
2,015,484 3,184,037
Valuation allowance $ ( 705,420) $(3,184,037)
----------------- ---------------
$ 1,310,064 $ --
----------------- ---------------
</TABLE>
The valuation allowance for deferred tax assets was decreased by
$2,478,617, 1,852,564 and $634,191 during the years ended March 31, 2000, 1999
and 1998, respectively.
At March 31, 2000, the Company has U.S. federal net operating loss
carryforwards of approximately $5,017,000 that may be used against future U.S.
taxable income until they expire between the years March 31, 2012 and March 31,
2019. The Company had a U.S. foreign tax credit carryforward of approximately
$33,000 USD that expires between the years March 31, 2000 and March 31, 2003.
54
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 12. REGULATORY REQUIREMENTS
Certain U.S. subsidiaries are subject to various securities,
commodities and banking regulations, and capital adequacy requirements
promulgated by the regulatory and exchange authorities. These subsidiaries have
consistently operated in excess of their local capital adequacy requirements.
EBI Securities Corporation, a subsidiary, is a registered broker-dealer
and, accordingly, is subject to Rule 15c3-1 of the Securities Exchange Act of
1934, as amended (the "net capital rule"), pursuant to which EBI Securities
Corporation is required to maintain a minimum net capital, as defined under such
provisions. At March 31, 2000, the net capital of EBI Securities Corporation of
$2,577,339 exceeded the minimum requirement by $2,214,380.
Global Capital Markets, LLC, another subsidiary, is also a registered
broker-dealer and therefore subject to the net capital rule. At March 31, 2000,
the net capital of Global Capital Markets, LLC of $905,154 exceeded the minimum
requirement by $800,771.
The regulatory rules referred to above may restrict the Company's
ability to withdraw capital from its regulated subsidiaries, which in turn could
restrict the Company's payment of cash dividends and advances.
NOTE 13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's customer activities, through its clearing agencies,
involve the execution, settlement and financing of various customer securities
transactions. These transactions may expose the Company to off-balance sheet
risk in the event that customers are unable to fulfill their contractual
obligations. In the event the customers fail to satisfy their obligations, the
Company may be required to purchase or sell financial instruments at prevailing
market prices in order to fulfill the customers' obligations.
The Company has sold securities that it does not own and it will,
therefore, be obligated to purchase such securities at a future date. GCAP has
recorded this obligation in the financial statements at the market value or fair
value of such securities. GCAP may incur a loss if the market value of the
securities increases subsequent to March 31, 2000.
The Company bears the risk of financial failure by its clearing
agencies. If the clearing agencies should cease doing business, the amounts due
to the Company from these agencies could be subject to forfeiture.
55
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 14. CONTINGENCIES
The Company is subject to the following legal proceedings:
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, EBI Securities Corporation and Steve Signer,
an employee of EBI 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 EBI Securities Corporation and 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. EBI Securities Corporation believes it
has meritorious defenses and intends to vigorously defend against National
Family Care Life Insurance Company's claims.
EBI 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 panel entered an
award against EBI 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. EBI Securities Corporation has filed a motion to
vacate and plans to vigorously contest this award on appeal.
JACK G. LARSEN, AS RECEIVER FOR SOUTHWEST INCOME, TRUST ADVANTAGE
INCOME TRUST AND INVESTORS TRADING TRUST V. COHIG AND ASSOCIATES, INC. ET AL.,
Maricopa County Superior Court, Arizona, Case No. CV 98-20281. Plaintiff
commenced this action against EBI Securities Corporation and one of its brokers
in December 1998 (and process was served on EBI Securities Corporation in
January 1999) seeking damages in excess of $8 million dollars against EBI
Securities Corporation as well as an accounting of funds allegedly in possession
of EBI Securities Corporation. Plaintiff, who apparently has been appointed
receiver for three trusts, alleges that customer accounts established at EBI
Securities Corporation by third parties contained funds that actually belonged
to the Trusts, and that EBI Securities Corporation negligently failed to
supervise its employees, in failing to determine that the third parties' trading
activities, which allegedly resulted in significant trading losses, were in
violation of the terms of agreements between the third parties and the Trusts.
Plaintiff also contends that EBI Securities Corporation has in its possession
and has wrongfully refused to return approximately $270,000 belonging to the
Trusts. EBI Securities Corporation believes that it has meritorious defenses and
intends to vigorously defend against Plaintiff's claims.
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
56
<PAGE>
GLOBAL CAPITAL PARTNERS, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
NOTE 14. CONTINGENCIES (CONTINUED)
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 holders 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 EBI 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
not yet answered the complaint. The answer is due on July 17, 2000. We believe
that we have meritorious defenses and intend to vigorously defend the action.
In addition to the litigation described above, the Company, through its
subsidiaries, is involved in various legal actions and claims arising in the
ordinary course of business. While results of litigation cannot be predicted
with certainty, management, after consultation with counsel, believes that
resolution of all such litigation will have no material adverse effect on the
consolidated financial statements of the Company.
NOTE 15. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128. The new
standard replaces primary and fully diluted earnings per share with basic and
diluted earnings per share. SFAS No. 128 was adopted by the Company beginning
with the interim reporting period ended December 31, 1997. The adoption did not
affect previously reported earnings per share amounts.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement was
adopted by the Company 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 adopted by the Company's for the fiscal year ended
March 31, 1999. In the initial year of application, comparative information for
earlier years is to be restated.
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 the Company.
57
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
During our fiscal year beginning April 1, 1998 and ending March 31,
1999, our principal independent accountants, Deloitte & Touche LLP, declined to
stand for reelection and Spicer, Jeffries & Co. was engaged as our new principal
independent accounts. This change was reported in our Current Reports on Form
8-K dated February 22, 1999, March 16, 1999 and on Form 8-K/A dated March 9,
1999. The decision to change was approved by the Board of Directors. We did not
have any disagreements with Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of Deloitte & Touche LLP,
would have caused it to make reference thereto in their report on the financial
statements.
58
<PAGE>
PART III
ITEMS 9-12 (INCLUSIVE).
The information required by Items 9, 10, 11 and 12 will appear in the
proxy statement for our annual meeting of stockholders for the year 2000, which
will be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, and which is incorporated by reference in this Annual Report
on Form 10-KSB pursuant to General Instruction E(3) of such form (other than
those portions not deemed to be filed for purposes of Section 18 of such act).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B:
See Index to Exhibits on pages 62 - 64 of this Annual Report.
REPORTS ON FORM 8-K
Global Capital Partners, Inc. filed no reports on Form 8-K during the
quarter ended March 31, 2000.
59
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL CAPITAL PARTNERS, INC.
(Registrant)
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Martin A. Sumichrast June 30, 2000
---------------------------------------------- ---------------------
Martin A. Sumichrast Date
Chairman, President, Chief Executive Officer, and Director
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Martin A. Sumichrast June 30, 2000
---------------------------------------------- ---------------------
Martin A. Sumichrast Date
Chairman, President, Chief Executive Officer, and Director
/s/ Kevin D. McNeil June 30, 2000
---------------------------------------------- ---------------------
Kevin D. McNeil Date
Executive Vice President, Treasurer,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
/s/ Michael Sumichrast June 30, 2000
---------------------------------------------- ---------------------
Michael Sumichrast, Ph.D. Date
Director
June ___, 2000
---------------------------------------------- ---------------------
Lawrence Chimerine, Ph.D. Date
Director
/s/ Jay R. Schifferli June 30, 2000
---------------------------------------------- ---------------------
Jay R. Schifferli Date
Director
</TABLE>
60
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
(2.1) Agreement and Plan of Merger dated May 14, 1998 by and
among Global Capital Partners, Inc. (formerly,
Eastbrokers International Incorporated) East Merger
Corporation, Cohig & Associates, and Cherry Creek
Investments, Ltd. (incorporated by reference to the
Current Report on Form 8-K dated May 14, 1998).
(2.2) Amended Independent Auditor's Report (incorporated
by reference to the Current Report on Form 8-K as
amended dated August 1, 1996).
(2.3) Agreement and Plan of Merger, dated as of July 12,
1999, by and among MoneyZone.com (formerly, CERX
Venture Corporation), EBonlineinc.com, Inc. and John D.
Brasher, Jr. (incorporated by reference to
MoneyZone.com's Current Report on Form 8-K filed on
July 15, 1999.
(2.4) LLC Interest Purchase Agreement, dated as of November
22, 1999, by and among Global Capital Partners, Inc.
(formerly, Eastbrokers International Incorporated),
Global Capital Markets, LLC (formerly, The JB Sutton
Group, LLC) and each of the members and special members
thereof (incorporated by reference to Global Capital
Partners, Inc.'s Current Report on Form 8-K filed on
December 7, 1999).
(2.5) Share Purchase Agreement, dated as of June 14, 2000, by
and between Global Capital Partners, Inc. and Beheer-
En Beleggingsmaatschappij Hedera B.V., a company
incorporated and existing under the laws of the
Netherlands (incorporated by reference to the Global
Capital Partners, Inc. Current Report on Form 8-K filed
on June 29, 2000).
(2.6) Share Purchase Agreement, dated as of June 14, 2000, by
and between Global Capital Partners, Inc. and Beheer-
En Beleggingsmaatschappij Jamela B.V., a company
incorporated and existing under the laws of the
Netherlands (incorporated by reference to the Global
Capital Partners, Inc. Current Report on Form 8-K filed
on June 29, 2000).
(2.7) Share Purchase Agreement, dated as of June 14, 2000, by
and between Global Capital Partners, Inc. and
Braydonville Corporation, a company incorporated and
existing under the laws of the Netherlands
(incorporated by reference to the Global Capital
Partners, Inc. Current Report on Form 8-K filed on June
29, 2000).
(3.1) Certificate of Incorporation, as amended (incorporated
by reference to Global Capital Partners, Inc.
(formerly, Eastbrokers International Incorporated) Form
10-QSB for the nine months ended December 31, 1996).
(3.2) Amendments to the Bylaws (incorporated by reference to
Global Capital Partners, Inc. (formerly, Eastbrokers
International Incorporated) Form 10-QSB for the three
months ended June 30, 1996).
(4.1) Specimen copy of Common Stock Certificate, Form of
Class A Warrant Agreement, Form of Class B Warrant
Agreement, and Form of Warrant Agreement (incorporated
by reference to Global Capital Partners, Inc.
(formerly, Eastbrokers International Incorporated)
Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission (No. 33-89544).
(4.3) Warrant Certificate between Global Capital Partners,
Inc. (formerly, Eastbrokers International Incorporated)
and J.B. Sutton Group, LLC, dated March 27, 1997
(incorporated by reference to Global Capital Partners,
Inc. Form S-3 filed with the Securities and Exchange
Commission on May 9, 1997 (No. 333-26825)).
(4.4) Stock Purchase Agreement, dated as of November 9, 1999,
by and among Global Capital Partners, Inc. (formerly,
Eastbrokers International Incorporated) and Belle
Holdings, Inc., as amended (incorporated by reference
to the Schedule 13D filed jointly by Belle Holdings,
Inc. and Martin A. Sumichrast).
(4.5) Warrant Agreement, dated as of November 9, 1999, by and
among Global Capital Partners, Inc. (formerly,
Eastbrokers International Incorporated) and Belle
Holdings, Inc. (incorporated by reference to the
Schedule 13D filed jointly by Belle Holdings, Inc. and
Martin A. Sumichrast).
(4.6) Convertible Note, dated as of November 10, 1999 and due
December 31, 2004, made by Belle Holdings, Inc. in
favor of Global Capital Partners, Inc. (formerly,
Eastbrokers International Incorporated) (incorporated
by reference to the Schedule 13D filed jointly by Belle
Holdings, Inc. and Martin A. Sumichrast).
(10.1) Employment Agreement between Eastbrokers International
Incorporated and Martin A. Sumichrast effective as of
December 31, 1998 (incorporated by reference to Global
Capital Partners, Inc. (formerly, Eastbrokers
International Incorporated) Registration Statement on
Form SB-2 (File No. 333-72359)).
(10.2) Employment Agreement between Eastbrokers International
Incorporated and Kevin McNeil effective as of December
31, 1998 (incorporated by reference to Global Capital
Partners, Inc. (formerly, Eastbrokers International
Incorporated) Registration Statement on Form SB-2 (File
No. 333-72359)).
(10.3) Form of Restrictive Covenants of Wolfgang M. Kossner,
August A. de Roode and Peter Schmid, such covenants
executed on August 1, 1996 (incorporated by reference
to Global Capital Partners, Inc. (formerly, Eastbrokers
International Incorporated) Form 10-QSB for the three
months ended June 30, 1996).
(10.4) Stock Option Agreement between Eastbrokers
International Incorporated and Wolfgang M. Kossner
dated August 1, 1996 (the form of such stock option
agreement is incorporated by reference to Global
Capital Partners, Inc. (formerly, Eastbrokers
International Incorporated) Form 8-K dated August 1,
1996).
(10.5) Stock Option Agreement between Global Capital Partners,
Inc. (formerly, Eastbrokers International Incorporated)
and August A. de Roode dated August 1, 1996 (the form
of such stock option agreement is incorporated by
reference to Global Capital Partners, Inc. (formerly,
Eastbrokers International Incorporated) Form 8-K dated
August 1, 1996).
(10.6) Stock Option Agreement between Global Capital Partners,
Inc. (formerly, Eastbrokers International Incorporated)
and Peter Schmid dated August 1, 1996 (the form of such
stock option agreement is incorporated by reference to
Eastbrokers International Incorporated' Form 8-K dated
August 1, 1996).
(10.7) Stock Option Agreement between Global Capital Partners,
Inc. (formerly, Eastbrokers International Incorporated)
and Sumichrast Enterprises, Inc., dated August 1, 1996
(the form of such stock option agreement is
incorporated by reference from Form 8-K dated August 1,
1996).
(10.8) The 1996 Stock Option Plan of Global Capital Partners,
Inc. (formerly, Eastbrokers International Incorporated)
(incorporated by reference to Eastbrokers International
Incorporated' Quarterly Report on Form 10-QSB for the
nine months ended December 31, 1996).
(10.9) Consulting Agreement between Michael Sumichrast, Ph.D.
and Global Capital Partners, Inc. (formerly,
Eastbrokers International Incorporated) dated April 1,
1997, incorporated by reference to Global Capital
Partners, Inc. Form 10-KSB for the year ended March 31,
1997.
(10.10) Subscription Agreement dated December 11, 1998 for the
Private Placement of Eastbrokers International
Incorporated' shares (incorporated by reference to
Global Capital Partners, Inc. (formerly, Eastbrokers
International Incorporated) Registration Statement on
Form SB-2 (File No. 333-72359)).
(10.11) Consulting Agreement between Wolfgang Kossner and
Global Capital Partners, Inc. (formerly, Eastbrokers
International Incorporated) effective December 31, 1998
(incorporated by reference to Global Capital Partners,
Inc. Registration Statement on Form SB-2 (File No.
333-72359)).
(16.1) Letter on Change in Certifying Accountant, Item 7 of
Current Report on Form 8-K dated November 4, 1997
(incorporated by reference to Global Capital Partners,
Inc. (formerly, Eastbrokers International Incorporated)
Current Report on Form 8-K dated November 4, 1997 (File
No. 0-26202)).
(16.2) Letter on Change in Certifying Accountant (incorporated
by reference to Global Capital Partners, Inc.
(formerly, Eastbrokers International Incorporated)
Current Report on Form 8-K dated January 22, 1998 (File
No. 0-26202)).
(21.1) * Subsidiaries of Global Capital Partners, Inc.
(23.1) * Independent Auditors' Consent.
(27) * Financial Data Schedule (Electronic Filing Only).
----------------
*Filed herewith.
