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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A No. 1
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|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 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
Incorporation Or Organization) Identification No.)
6000 Fairview Road, Suite 1410, Charlotte, North Carolina 28210
(Address Of Principal Executive Offices)
(704) 643-8220
(Issuer's Telephone Number, Including Area Code)
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Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |X| No |_|
Transitional Small Business Disclosure Format: Yes |_| No |X|
The total number of shares of the registrant's Common Stock, $.05 par value,
outstanding on February 14, 2001, was 10,630,839.
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Explanatory Note
The undersigned registrant hereby amends portions of Part I, Item 1,
Financial Statements and Part I, Item 2, Management's Discussion and Analysis or
Plan of Operation of its Form 10-QSB for the quarterly period ended December 31,
2000. The amendments effected hereby are to accurately report certain changes to
the consolidated statements of financial condition, operations, and cash flows
and to notes 1 and 2 of the notes to consolidated financial statements
respectively, and to further clearly reflect the registrant's financial position
for the quarterly period ended December 31, 2000.
GLOBAL CAPITAL PARTNERS, INC.
Index to Form 10-QSB
Page
Part I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Historical Financial Statements
Consolidated Statement of Financial Condition
as of December 31, 2000.................................. 2
Consolidated Statements of Operations
Quarterly and Nine Month Periods Ended
December 31, 2000 and 1999............................... 3
Consolidated Statements of Cash Flows
Nine Month Periods Ended December 31, 2000 and 1999...... 4
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation.. 12
Part II-- OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 18
Item 2. Changes in Securities and Use of Proceeds.................. 19
Item 3. Defaults Upon Senior Securities............................ 19
Item 4. Submission of Matters to a Vote of Security Holders........ 19
Item 5. Other Information.......................................... 19
Item 6. Exhibits and Reports on Form 8-K........................... 20
Signature ......................................................... 21
Part I - FINANCIAL INFORMATION
Financial Statements
GLOBAL CAPITAL PARTNERS INC.
(A Delaware Corporation)
Consolidated Statement of Financial Condition
(In thousands, except share amounts)
December 31,
2000
---------------
(As Restated)
(Unaudited)
ASSETS
Cash and cash equivalents $ 914
Receivables
Broker dealers 1,810
Other 2,969
Securities owned, at value 3,141
Notes receivable 25,500
Furniture and equipment, at cost
(net of accumulated depreciation
and amortization of $817)
1,679
Deferred taxes 152
Goodwill, net 3,324
Other assets and deferred amounts 1,728
-----------
Total Assets $ 41,217
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings $ 1,478
Compensation, benefits, and related taxes 989
Securities sold not yet purchased, at value 171
Accounts payable and accrued expenses 4,178
Other liabilities and deferred amounts 1,216
-----------
8,032
Long-term borrowings 2,083
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Total liabilities 10,115
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Minority interest in consolidated subsidiaries ( 448)
-----------
Commitments and contingencies
Shareholders' equity
Preferred stock; $.01 par value;
10,000,000 shares authorized;
no shares issued and outstanding
at December 31, 2000 -
Common stock; $.05 par value;
25,000,000 shares authorized;
10,630,839 shares issued and
outstanding at December 31, 2000 535
Paid-in capital 46,321
Accumulated deficit ( 14,099)
Notes receivable - common stock and warrants ( 1,207)
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Total shareholders' equity 31,550
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Total Liabilities and Shareholders' Equity $ 41,217
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See notes to consolidated financial statements.
- 2 -
GLOBAL CAPITAL PARTNERS INC.
(A Delaware Corporation)
Consolidated Statements of Operations
(In thousands, except per share amounts)
For the Quarterly Period For the Nine Months
Ended December 31, Ended December 31,
------------------------------ ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(As Restated) (As Restated) (As Restated) (As Restated)
(Unaudited) (Unaudited)
Revenues
Commissions $ 3,882 $ 7,181 $ 16,080 $ 16,157
Investment banking 2,035 725 4,855 2,477
Interest and dividends 143 67 551 188
Principal transactions, net
Trading ( 708) 1,064 ( 229) 2,330
Investment ( 4,387) 828 ( 3,513) 2,496
Other 381 565 1,253 2,028
----------- ----------- ----------- ------------
Total revenues 1,346 10,430 18,997 25,676
----------- ----------- ----------- ------------
Costs and expenses
Compensation and benefits 4,410 7,026 15,831 17,100
Brokerage, clearing, exchange
fees and other 2,178 878 5,099 1,851
General and administrative 1,775 313 3,037 1,117
Occupancy 460 423 1,417 1,353
Communications 248 537 893 1,360
Office supplies and expenses 491 143 1,219 375
Consulting fees 526 86 1,110 314
Interest 74 179 230 461
Depreciation and amortization 87 75 337 210
----------- ----------- ----------- ------------
Total costs and expenses 10,249 9,660 29,173 24,141
----------- ----------- ----------- ------------
Income (loss) before benefit for
income taxes and minority interest ( 8,903) 770 ( 10,176) 1,535
in earnings of subsidiaries
Benefit for income taxes ( 290) 892 - 892
Minority interest in earnings
of subsidiaries 309 ( 3) 383 ( 3)
----------- ----------- ----------- ------------
Income (loss) from
continuing operations ( 8,884) 1,659 ( 9,793) 2,424
----------- ----------- ----------- ------------
Discontinued operations
Income (loss) from discontinued
operations - 43 ( 189) 70
Gain on sale of discontinued
operations - - 1,957 -
----------- ----------- ----------- ------------
Income from discontinued
operations - 43 1,768 70
----------- ----------- ----------- ------------
( 8,884) 1,702 ( 8,025) 2,494
Income before extraordinary item
Extraordinary gain on debt
forgiveness in conjunction
with clearing arrangement 417 - 417 -
----------- ----------- ----------- ------------
Net income (loss) $( 8,467) $ 1,702 $( 7,608) $ 2,494
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Weighted average number of common
shares outstanding
Basic 10,536,601 5,229,457 10,472,849 5,209,010
----------- ----------- ----------- ------------
Diluted 11,907,823 5,805,557 11,844,071 5,401,710
----------- ----------- ----------- ------------
Income (loss) from continuing
operations per share
Basic $ (0.84) $ 0.32 $ (0.94) $ 0.47
----------- ----------- ----------- ------------
Diluted $ (0.75) $ 0.29 $ (0.83) $ 0.45
----------- ----------- ----------- ------------
Income from discontinued
operations per share
Basic $ - $ 0.01 $ 0.17 $ 0.01
----------- ----------- ----------- ------------
Diluted $ - $ 0.01 $ 0.15 $ 0.01
----------- ----------- ----------- ------------
Income from extraordinary
item per share
Basic $ 0.04 $ 0.33 $ 0.04 $ 0.48
----------- ----------- ----------- ------------
Diluted $ 0.04 $ 0.30 $ 0.04 $ 0.46
----------- ----------- ----------- ------------
Net income (loss) per share
Basic $ (0.80) $ 0.33 $ (0.73) $ 0.48
----------- ----------- ----------- ------------
Diluted $ (0.71) $ 0.30 $ (0.64) $ 0.46
----------- ----------- ----------- ------------
See notes to consolidated financial statements.
- 3 -
GLOBAL CAPITAL PARTNERS INC.
(A Delaware Corporation)
Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months Ended
December 31,
-----------------------------------
2000 1999
---------------- ---------------
(As Restated) (As Restated)
Cash flows from operating activities
Net income (loss) from continuing operations $ ( 9,793) $ 2,424
Adjustments to reconcile net income (loss)
to net cash (used in) operating activities
from continuing operations:
Depreciation and amortization 337 210
Minority interest in earnings of subsidiaries ( 383) 3
Deferred taxes - ( 892)
Extraordinary item 417 -
Other 117 ( 143)
Changes in operating assets and liabilities
Receivables 3,766 220
Securities owned, at value 6,169 ( 3,039)
Other assets ( 1,180) 129
Compensation, benefits and related taxes ( 4,118) 304
Securities sold, not yet purchased ( 67) ( 474)
Accounts payable and accrued expenses 2,633 442
Other liabilities 613 728
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Net cash (used in) operating activities from
continuing operations ( 1,489) ( 88)
Net cash (used in) discontinued operations ( 1,319) ( 3,474)
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Net cash (used in) operating activities ( 2,808) ( 3,562)
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Cash flows from investing activities
Net proceeds from (payments for)
Capital expenditures ( 771) ( 511)
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Net cash(used in) investing activities ( 771) ( 511)
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Cash flows from financing activities
Net proceeds from (payments for)
Issuance of common stock 1,528 325
Proceeds from borrowings 1,194 4,603
Repayments of borrowings ( 513) ( 1,250)
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Net cash provided by financing activities 2,209 3,678
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Decrease in cash and cash equivalents ( 1,370) ( 395)
Cash and cash equivalents, beginning of period 2,284 712
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Cash and cash equivalents, end of period $ 914 $ 317
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Supplemental disclosure of cash flow information
Cash paid for income taxes $ - $ -
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Cash paid for interest $ 203 $ 461
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See notes to consolidated financial statements.
- 4 -
GLOBAL CAPITAL PARTNERS, INC.
(A Delaware Corporation)
Consolidated Statements of Cash Flows (continued)
(In thousands)
For the Nine Months Ended
December 31,
-----------------------------
2000 1999
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(As Restated) (As Restated)
Supplemental disclosure of cash flow information
Non-cash transactions
In June 2000, the Company sold its European
operations in exchange for $2,000 in
equity securities and notes receivable
totaling $25,500. The total sales price
was $27,500.
Equity securities received, at market value $ 2,000 $ -
Notes receivable 25,500 -
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Total consideration received in sale of
European operations $ 27,500 $ -
============== ==============
The Company acquired all of the capital stock
of 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
Net cash acquired - -
Cash paid - ( 158)
Common stock issued - ( 2,209)
-------------- --------------
Net liabilities assumed on acquisitions $ - $ 2,554
============== ==============
See notes to consolidated financial statements.
- 5 -
GLOBAL CAPITAL PARTNERS INC.
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Quarterly Period Ended December 31, 2000
(Unaudited)
1. Interim Reporting
The financial statements of Global Capital Partners Inc., its U.S.
subsidiaries and European subsidiaries through the date of disposition
(collectively, "Global Capital Partners" or the "Company") for the
quarterly and nine month periods ended December 31, 2000 have been prepared
by the Company, are unaudited, and are subject to year-end adjustments.
These unaudited financial statements reflect all known adjustments (which
included only normal, recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations, and cash flows for the periods presented in
accordance with generally accepted accounting principles. The results
presented herein for the interim periods are not necessarily indicative of
the actual results to be expected for the fiscal year.
The notes accompanying the consolidated financial statements in the
Company's Annual Report on Form 10-KSB as amended for the year ended March
31, 2000 include accounting policies and additional information pertinent
to an understanding of these interim financial statements.
2. Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements include Global Capital Partners Inc.,
its U.S. subsidiaries, and European subsidiaries through the date of
disposition. Investments in business entities in which the Company does not
have control, but has the ability to exercise significant influence over
the operating and financial policies, are accounted for under the equity
method.
These consolidated financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
consolidated financial position and the results of the operations of the
Company. All significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Management believes that the estimates
utilized in the preparation of the consolidated financial statements are
prudent and reasonable. Actual results could differ from these estimates.
The Company, through its subsidiaries, provides a wide range of financial
services primarily in the United States. Its businesses include securities
underwriting, distribution and trading; merger, acquisition, restructuring,
and other corporate finance advisory activities; asset management; merchant
banking and other principal investment activities; brokerage and research
services; and securities clearance services. These services are provided to
a diversified group of clients and customers, including corporations,
governments, financial institutions, and individuals.
Fiscal Year-End
The fiscal year-end of Global Capital Partners Inc. and its subsidiaries is
March 31.
Financial Instruments
Substantially all of the Company's financial assets and liabilities and the
Company's trading positions are carried at market or fair values or are
carried at amounts which approximate fair value because of their short-term
nature. Estimates of fair value are made at a specific point in time, based
on relevant market information and information about the financial
instrument, specifically, the value of the underlying financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holdings of a
particular financial instrument. The Company has no investments in
derivatives.
-6-
GLOBAL CAPITAL PARTNERS INC.
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Quarterly Period Ended December 31, 2000
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Financial Instruments (continued)
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried at their original
costs. The carrying value of such equity securities is adjusted when
changes in the underlying fair values are readily ascertainable, generally
as evidenced by listed market prices or transactions which directly affect
the value of such equity securities. Downward adjustments relating to such
equity securities are made in the event that the Company determines that
the eventual realizable value is less than the carrying value.
Securities classified as available for sale are carried at fair value with
unrealized gains and losses reported as a separate component of
stockholders' equity. Realized gains and losses on these securities are
determined on a specific identification basis and are included in earnings.
Collateralized Securities Transactions
Accounts receivable from and payable to customers include amounts due on
cash transactions. Securities owned by customers are held as collateral for
these receivables. Such collateral is not reflected in the consolidated
financial statements.
Securities purchased under agreements to resell are treated as financing
arrangements and are carried at contract amounts reflecting the amounts at
which the securities will be subsequently resold as specified in the
respective agreements. The Company takes possession of the underlying
securities purchased under agreements to resell and obtains additional
collateral when the market value falls below the contract value. The
maximum term of these agreements is generally less than ninety-one days.
Other Receivables
From time to time, the Company provides operating advances to select
companies as a portion of its merchant banking activities. These
receivables are due on demand.
Underwritings
Underwritings include gains, losses, and fees, net of syndicate expenses
arising from securities offerings in which the Company acts as an
underwriter or agent. Underwriting fees are recorded at the time the
underwriting is completed and the income is reasonably determinable. The
Company reflects this income in its investment banking revenue.
Fees
Fees are earned from providing merger and acquisition, financial
restructuring advisory, and general management advisory services. Fees are
recorded based on the type of engagement and terms of the contract entered
into by the Company. The Company reflects this income in its investment
banking revenue.
Securities Transactions
Government and agency securities and certain other debt obligations
transactions are recorded on a trade date basis. All other securities
transactions are recorded on a settlement date basis and adjustments are
made to a trade date basis, if significant.
Commissions
Commissions and related clearing expenses are recorded on a trade date
basis as securities transactions occur.
-7-
GLOBAL CAPITAL PARTNERS INC.
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Quarterly Period Ended December 31, 2000
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Translation of Foreign Currencies
Assets and liabilities of operations in foreign currencies are translated
at period end rates of exchange and the income statements are translated at
weighted average rates of exchange for the period. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation," gains or losses resulting from translating foreign
currency financial statements, net of hedge gains or losses and their
related tax effects, are reflected in cumulative translation adjustments, a
separate component of stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in net income.
Furniture, and Equipment
Furniture and equipment are carried at cost and are depreciated on a
straight-line basis over the estimated useful life of the related assets
ranging from three to ten years.
Common Stock Data
Earnings per share is based on the weighted average number of common stock
and stock equivalents outstanding. The outstanding warrants and stock
options are currently excluded from the earnings per share calculation as
their effect would be antidilutive.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No.
123 encourages, but does not require, companies to record compensation
expense for stock-based employee compensation plans at fair value. The
Company has elected to account for its stock-based compensation plans using
the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25").
Under the provisions of APB No. 25, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of grant over the amount an employee must pay to
acquire the stock.
Deferred Income Taxes
Deferred income taxes in the accompanying financial statements reflect
temporary differences in reporting results of operations for income tax and
financial accounting purposes. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
Cash and Cash Equivalents
For purposes of the consolidated financial statements, the Company
considers all demand deposits held in banks and certain highly liquid
investments with maturities of 90 days or less other than those held for
sale in the ordinary course of business to be cash equivalents.
Goodwill
Goodwill is amortized on a straight-line basis over 25 years and is
periodically evaluated for impairment that is other than temporary on an
undiscounted cash flow basis. The carrying value is reviewed to evaluate if
the facts and circumstances support the valuation for recoverability. If a
review of the facts and circumstances, such as significant declines in
sales, earnings or cash flows or material adverse changes in the business
climate beyond normal, cyclical variations, suggest that it may be impaired
and not recoverable, as determined based on the operating performance and
-8-
GLOBAL CAPITAL PARTNERS INC.
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Quarterly Period Ended December 31, 2000
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Goodwill (continued)
the estimated future undiscounted cash flows of the entity acquired,
impairment is measured by comparing the carrying value of goodwill to
estimated fair value. Estimated fair value is determined based on the
viability of the underlying entity acquired on a stand-alone basis,
discounted cash flows, or appraisals.
Reclassifications
Certain amounts in prior periods have been reclassified to conform to the
current presentation.
3. Acquisitions
Global Capital Securities Corporation (formerly, EBI Securities
Corporation)
In May 1998, the Company acquired all of the outstanding common stock of
Cohig & Associates, Inc., a Denver, Colorado based investment banking and
brokerage firm. Following the acquisition, the Company changed the name of
Cohig & Associates, Inc. to EBI Securities Corporation. EBI Securities
Corporation has since changed its name to Global Capital Securities
Corporation. Global Capital Securities Corporation was the first U.S.
acquisition targeting successful medium size investment banking and
brokerage firms both domestically and internationally.
Global Capital Securities Corporation is a full service brokerage firm
specializing in providing investment advice and counsel to individuals and
small to middle market institutions. Global Capital Securities Corporation
provides its brokerage clients with a broad range of traditional investment
products and services. Global Capital Securities Corporation also strives
to differentiate itself in the minds of investors and corporate finance
clients through its commitment to a professional but personalized service,
which not only sets it apart from the large firms, but also serves to
develop long-term client relationships. Its trading department makes a
market in several different securities which include its investment banking
clients and those securities that its research department has identified as
promising, small to middle-market, potentially high growth companies.
Global Capital Securities Corporation's investment banking department
operates with a single goal in mind: to enhance and develop the capital
structures of small to middle market emerging growth companies through
private placements, bridge financing, and public offerings which serves to
enable the firm's corporate finance clients to capitalize on promising
business opportunities, favorable market conditions, and/or late stage
product development.
Global Capital Securities Corporation is registered as a broker-dealer with
the SEC and is licensed in 50 states and the District of Columbia. It is
also a member of the National Association of Securities Dealers ("NASD")
and the Securities Investor Protection Corporation ("SIPC"). Customer
accounts are insured to $25 million under the SIPC excess insurance
program. Global Capital Securities Corporation operates pursuant to the
exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and clears all
transactions with and for customers on a fully disclosed basis.
Global Capital Securities Corporation maintains its clearing arrangement
with Fiserv Correspondent Services, Inc. ("Fiserv"), a subsidiary of
Fiserv, Inc. Fiserv provides Global Capital Securities Corporation with
back office support, transaction processing services on all the principal
national securities exchanges and access to many other financial services
and products. This arrangement enables Global Capital Securities
Corporation to offer its clients a broad range of products and services
that is typically only offered by firms that are larger and/or have a
larger capital base.
-9-
GLOBAL CAPITAL PARTNERS INC.
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Quarterly Period Ended December 31, 2000
(Unaudited)
3. Acquisitions (continued)
Global Capital Markets, LLC
In November 1999, the Company expanded its US investment banking and
brokerage operations further with the acquisition of Global Capital
Markets, LLC (formerly, The JB Sutton Group, LLC), a New York based
brokerage and investment banking firm. Global Capital Markets has one main
office with over 80 registered representatives. Global Capital Markets'
primary focus is the operation of a retail brokerage firm serving
individual investors with a full service approach. Global Capital Markets
has also utilized its corporate finance and trading activities to augment
the services provided to its customer base. Global Capital Markets provides
its retail clients with a broad range of traditional investment products
and services.
Global Capital Markets is registered as a broker-dealer with the SEC and a
member of the NASD and the SIPC.
Global Capital Markets operates pursuant to the exemptive provisions of SEC
Rule 15c3-3(k)(2)(ii) and clears all transactions with and for customers on
a fully disclosed basis.
Global Capital Markets has completed its transition of its clearing
arrangement from CIBC Oppenheimer, a division of CIBC World Markets Corp.
to Fiserv as part of the consolidation of our brokerage operations. It also
maintains an additional relationship with Penson Financial Services Inc., a
division of Service Asset Management Company. Fiserv provides Global
Capital Markets 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 to offer its clients a broad range of products and services that is
typically only offered by firms that are larger and/or have a larger
capital base. Service Asset Management Company provides similar services as
Fiserv, but it is utilized by Global Capital Markets for the online
customer accounts using the Sutton Online, Inc. trading system.
Sutton Online
In addition to our growing US investment banking and brokerage presence,
the Company purchased a majority interest in SuttonOnline, Inc.
("SuttonOnline") an online trading firm that offers individual investors,
money managers and hedge funds, trade executions, level II software & data,
internet service and training for online investors. SuttonOnline also
provides brokerage firms the necessary tools to offer financial products
via the internet.
4. Short-Term Borrowings
The Company meets its short-term financing needs through lines of credit
with financial institutions, advances from affiliates, and by entering into
repurchase agreements whereby securities are sold with a commitment to
repurchase at a future date.
Lines of Credit
These lines of credit carry interest rates between 7.00 percent and 12.00
percent as computed on an annual basis.
Advances from Affiliated Companies
Periodically, the Company's subsidiaries and affiliates will provide
operating advances to other members in the affiliated group. These advances
are generally due on demand and are not subject to interest charges.
-10-
GLOBAL CAPITAL PARTNERS INC.
(A Delaware corporation)
Notes to Consolidated Financial Statements
For the Quarterly Period Ended December 31, 2000
(Unaudited)
5. Discontinued Operations
The Company decided to sell its interest in Eastbrokers Beteiligungs AG and
on June 14, 2000 entered into agreements with certain non-related entities
to sell such subsidiaries for $27,500,000 consisting of equity securities
valued at $2,000,000 and notes of $25,500,000. As of the date of sale, the
foreign subsidiaries' net assets and costs of disposal were approximately
$24,311,000.
The disposal of Eastbrokers Beteiligungs AG has been accounted for as
discontinued operations. Accordingly, its operating results are segregated
and reported as discontinued operations in the accompanying consolidated
statements of operations and cash flows. The fiscal year end of the former
European subsidiaries is December 31. Their financial information is
included on the basis of a closing date that precedes the Company's closing
date by three months.
6. Commitments and contingencies
Leases and Related Commitments
The Company occupies office space under leases which expire at various
dates through 2003. These leases contain provisions for periodic
escalations to the extent of increases in certain operating and other
costs. The Company's subsidiaries occupy office space under various
operating leases which generally contain cancellation clauses whereby the
Company may cancel the lease with thirty to ninety days written notice.
Legal
The Company has been involved in ongoing litigation with regard to
"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
("National Family Care") commenced the above action against, among others,
Global Capital Securities Corporation and Steve Signer, an employee of
Global Capital Securities Corporation. In December 2000, the final claim
against Global Capital Securities Corporation was settled for $550,000. As
of December 31, 2000, the Company has accrued $950,000 against this
settlement and other ongoing litigation.
7. Subsequent events
Convertible Debentures
Subsequent to December 31, 2000 and prior to the date of this filing, the
holder of convertible debentures of our affilate, MoneyZone.com, exercised
its right to convert their MoneyZone.com debentures into similar debentures
of the Company.
In this exchange, the Company issued a 5% convertible debenture in the
principal amount of $3,050,000 and warrants to purchase an aggregate of
50,000 shares of the Company's common stock at an exercise price of $5.50
per share in exchange for a 6% convertible debenture of MoneyZone.com and
warrants to purchase an aggregate of 250,000 shares of MoneyZone.com common
stock at an exercise price of $4.00 per share.
Pursuant to the terms of a registration rights agreement issued to the
holder of the convertible debentures of the Company, a Registration
Statement under the Securities Act of 1933 on Form S-3 relating to the
registration of an aggregate of 2,092,063 shares of the Company's common
stock, par value of $.05 per share, was filed on February 2, 2001. As of
the filing date of this Quarterly Report on Form 10-QSB, this registration
statement has not yet been declared effective.
New Capital
Subsequent to December 31, 2000 and prior to the date of this filing, the
Company has raised over $2.5 million in new capital through a combination
of debt and equity transactions.
-11-
Part I-- FINANCIAL INFORMATION (continued)
Management's Discussion and Analysis or Plan of Operation
Certain information set forth in this report under this caption
"Management's Discussion and Analysis or Plan of Operation" includes "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements may relate to such matters as
anticipated financial performance, future revenues or earnings, business
prospects, projected ventures, new products, anticipated market performance and
similar matters. The words "budgeted", "anticipate", "project", "estimate",
"expect", "may", "believe", "potential" and other similar statements are
intended to be among the statements that are considered "forward looking"
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which are made as of the date hereof. A variety of
factors could cause our actual results to differ materially from the anticipated
results or other expectations expressed in or implied by our forward-looking
statements. These risks and uncertainties, many of which are beyond our control,
include, but are not limited to: (i) transaction volume in the securities
markets, (ii) the volatility of the securities markets, (iii) fluctuations in
interest rates, (iv) changes in regulatory requirements which could affect the
cost of doing business, (v) fluctuations in currency rates, (vi) general
economic conditions, both domestic and international, (vii) changes in the rate
of inflation and related impact on securities markets, (viii) competition from
existing financial institutions and other new participants in the securities
markets, (ix) legal developments affecting the litigation experience of the
securities industry, (x) changes in federal and state tax laws which could
affect the popularity of products sold by us, (xi) significant and rapid changes
in technology which could negatively affect our internet related projects and
(xii) the risks and uncertainties set forth under the caption "Risk Factors"
which appears in Item 1 of our Annual Report on Form 10-KSB as amended for the
fiscal year ended March 31, 2000 (the "Fiscal 2000 Form 10-KSB"). We undertake
no obligation to release publicly any revisions to the forward looking
statements to reflect events or circumstances after the date hereof or to
reflect unanticipated events or developments.
This Form 10-QSB for the quarterly and nine month periods ended December
31, 2000, makes reference to our Fiscal 2000 Form 10-KSB. The Fiscal 2000 Form
10-KSB includes information necessary or useful to an understanding of our
businesses and financial statement presentations. We will furnish a copy of our
Fiscal 2000 Form 10-KSB upon request made directly to our headquarters at 6000
Fairview Road, Suite 1410, Charlotte, North Carolina 28210, telephone number
(704) 643-8220 and facsimile number (704) 643-8097.
We use the following terms of identification to simplify the presentation
of information in this Prospectus. "GCAP and subsidiaries" refers to Global
Capital Partners, Inc. and its subsidiaries. Global Capital Partners, Inc. is
the issuer of the publicly traded common stock covered hereby. "We," "us," or
"our" refer collectively to GCAP and its subsidiaries. The term SEC is sometimes
used to simplify references to the U.S. Securities and Exchange Commission.
Plan of Operation
General Overview
In 1996, we re-evaluated our business strategy and, after considering a
variety of investment opportunities, acquired Eastbrokers Beteiligungs AG.
Eastbrokers Beteiligungs AG is an Austrian brokerage company with offices
throughout Central and Eastern Europe. This acquisition enhanced our development
by both providing us with a vehicle to implement our acquisition strategy and
extending our opportunities beyond the Czech Republic to the entirety of Central
and Eastern Europe.
Our business strategy for European operations was to utilize our emerging
market expertise in the areas of merchant banking, corporate finance,
privatization and trading, in order to expand throughout Central and Eastern
Europe. However, during 1998, we modified our business strategy for Europe, in
response to an overall 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, due 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
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either closed or sold our operations in the Czech Republic, Hungary, Slovakia,
Romania, Turkey, Russia, and 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.
In March 1997, we expanded our brokerage operations into the United States
through the acquisition of an existing New York-based broker dealer. In May
1998, we acquired all of the outstanding common stock of Cohig & Associates,
Inc., a Denver, Colorado based investment banking and brokerage firm. The former
Cohig & Associates, Inc. is currently operating as Global Capital Securities
Corporation.
In July 1999, we completed the merger of our majority owned subsidiary,
EBonlineinc.com, Inc. with and into CERX Venture Corporation. The name of the
surviving corporation was later changed to MoneyZone.com. As a result of this
transaction, we owned approximately 48 percent of MoneyZone.com. At the time of
the merger, CERX Venture Corporation had approximately $1,000 in tangible net
assets and EBonlineinc.com, Inc. had no tangible net assets. EBonlineinc.com,
Inc.'s only asset at that time was an idea that became the framework of the
business plan for MoneyZone.com. Soon thereafter, MoneyZone.com launched
www.MoneyZone.com, a capital formation Internet portal that matches investors
with entrepreneurs. We advanced over $300,000 of the initial development costs
to MoneyZone.com. These advances for the intial development costs were later
repaid upon the completion of a private placement by 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 have recently consolidated the operations of Global Capital
Securities Corporation and Global Capital Markets. We believe we will realize
cost savings from economies of scale which may further enable us to eliminate
duplicate costs and maximize our capital resources.
In November 1999, we also purchased fifty-five percent of the then issued
and outstanding LLC membership interest in Sutton Online, LLC (now, Sutton
Online, Inc.) in exchange for 250,000 unregistered shares of our common stock
and an agreement to advance $250,000 in additional working capital to Sutton
Online, Inc. Sutton Online, Inc. is an online trading firm that offers trade
routing, level II software and data, Internet service and training for online
investors including individuals, hedge funds and money managers, and provides
brokerage firms with the necessary tools to offer financial products via the
Internet.
In May 2000, Sutton Online, Inc. announced the formation of a wholly owned
subsidiary, Sutton Online Europe. Sutton Online Europe intends to develop and
market online trading products and services to European clients. Sutton Online
Europe, whose operations will be based in Germany, intends to utilize the
professional-level online trading platform of Sutton Online, Inc. to execute
trades in U.S. and European securities.
In June 2000, Sutton Online Europe acquired a majority interest in Total
Online s.r.o. and a minority interest in Total Solutions s.r.o. in exchange for
a combined total of 10 percent of the issued and outstanding shares of Sutton
Online Europe. At the time of this acquisition, Sutton Online Europe was a newly
formed holding company and had only minimal value. There was no significant
consideration paid or exchanged to acquire these interests.
Total Online s.r.o. is a Czech Republic based online trading software
developer and Total Solutions s.r.o. is 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.
In June 2000, due to continued net operating losses and persistent net cash
flow deficits, we sold our interest in Eastbrokers Beteiligungs AG and its
subsidiaries for $27.5 million USD in equity securities and notes
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receivable. This disposition was reported on our Current Report on Form 8-K
filed on June 29, 2000. We intend to utilize a portion of the proceeds from this
sale to expand our U.S. brokerage operations and further the development and
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 December 2000, Global Capital Securities and Global Capital Markets
completed the combination of their operations to eliminate redundant functions
and to enhance the efficiency of our brokerage operations. Effective January 1,
2001, the combined company operates under the banner of Global Capital
Securities.
In December 2000, MoneyZone.com announced that it was exploring a range of
strategic alternatives to enhance shareholder value, including the possibility
of a sale or merger.
Global Capital Securities Corporation (formerly, EBI Securities
Corporation)
Global Capital Securities 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 400 people, of which approximately 275 are
registered representatives. Global Capital Securities 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 SIPC. Customer accounts are
insured to $100 million under the SIPC excess insurance program. Global Capital
Securities operates pursuant to the exemptive provisions of SEC Rule
15c3-3(k)(2)(ii) and clears all transactions with and for customers on a fully
disclosed basis. Since its inception, Global Capital Securities has participated
in the underwriting and/or co-underwriting of over $500 million in initial and
secondary equity and debt offerings for over 50 public U.S. companies.
Global Capital Securities maintains its clearing arrangement with Fiserv
Correspondent Services, Inc., a subsidiary of Fiserv, Inc. Fiserv Correspondent
Services provides Global Capital Securities with back office support,
transaction processing services on all the principal national securities
exchanges and access to many other financial services and products. This
arrangement enables Global Capital Securities to offer its clients a broad range
of products and services that is typically only offered by firms that are larger
and/or have a larger capital base.
Global Capital Securities operates primarily as a full-service retail
brokerage firm focusing on individual investors. It also maintains and conducts
corporate finance, proprietary research and trading activities. Global Capital
Securities provides its brokerage clients with a broad range of traditional
investment products and services. Global Capital Securities also strives to
distinguish itself with investors and corporate finance clients through its
commitment to professional but personalized service. Its investment banking
department's mission is to enhance and develop the capital structures of small
to middle-market emerging growth companies through private placements, bridge
financing and public offerings in order to enable the firm's corporate finance
clients to capitalize on promising business opportunities, favorable market
conditions, and/or late stage product development. Global Capital Securities is
also active in the public finance area with offerings of public and private debt
securities. This activity is complemented by a bond trading department that
focuses on government, municipal and corporate obligations.
Global Capital Securities is constantly seeking new opportunities to create
additional revenue sources and cost savings. The potential result is increased
internal growth, which complements external growth through acquisitions. Several
initiatives that Global Capital Securities has undertaken in this regard follow:
1. Fixed Income. In December 1998, Global Capital Securities added a fixed
income department. This group is responsible for the underwriting, trading,
retail distribution and research of government, municipal and corporate bonds.
This group adds an additional profit center to the retail, corporate finance and
equity trading divisions and also has created synergies with the other
departments. As Global Capital Securities works to broaden the product base of
its financial consultants and their customers, the fixed income department
creates or locates new products through underwritings or independent research
ideas. Additionally, the fixed income
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department allows Global Capital Securities' corporate finance to capture
business that would not have been previously available.
2. Asset Allocation. Global Capital Securities has developed an in-house
asset allocation program to augment the efforts of our financial consultants.
This in-house system was developed utilizing industry software which, along with
additional marketing materials, is customized for our use. This approach
represents an investment strategy which is based on a Nobel Prize winning study
called "Modem Portfolio Theory," the basis of which is that people can create
"optimal"-risk-vs.-return portfolios by mixing varying
amounts of different asset classes according to their correlation to one
another. Many market studies suggest that asset allocation, rather than
individual investment selection, accounts for over 90 percent of a typical
portfolio's returns. We concur with this notion, and as a result, are educating
our financial consultants to utilize the program. The results have been very
favorable and we have found this approach to be an effective tool for gathering
more assets. Global Capital Securities believes that the new communication
systems that are being implemented and which will be available at the desk top
level will enhance our financial consultants' ability to utilize the asset
allocation model.
3. Managed Money. In keeping with the changes in the securities industry,
Global Capital Securities is actively entering the field of managed-money and
wrap-fee compensation arrangements in place of the more traditional
fee-per-transaction approaches. In short, the managed money approach charges the
client a flat annual percentage of the money managed rather than a fee for each
transaction. Many people believe that this approach better aligns the investment
advisor's goals with that of the client. This approach requires some additional
accounting and registration procedures, both of which have been implemented by
Global Capital Securities and its applicable business partners. Global Capital
Securities intends to hire additional financial consultants with managed money
experience in addition to actively re-educating our existing financial
consultants.
4. Retail Expansion. Currently, Global Capital Securities is focusing on
filling its existing offices in order to improve efficiencies. In addition,
Global Capital Securities and Global Capital Markets have combined their
brokerage businesses to form a single brokerage operation. Due to recent severe
correction in the over-the-counter U.S. equity markets, several competitors of
Global Capital Securities have ceased business. As a result, numerous
opportunities have arisen that may result in the expansion into several
additional markets. We are actively pursuing these opportunities to continue the
expansion of our operations. Global Capital Markets, LLC (formerly, The JB
Sutton Group, LLC)
Effective January 1, 2001, Global Capital Markets and Global Capital
Securities combined operations to create greater efficiencies and to eliminate
redundant functions. We are continuing this process by undertaking an additional
in-depth review to ascertain whether further streamlining is required. Prior to
the combination of our brokerage operations, Global Capital Markets operated
from a single location with over 80 financial consultants. Similar to Global
Capital Securities, Global Capital Markets operated primarily as a retail
brokerage firm focusing on individual investors. In addition, Global Capital
Markets augmented its product offerings through its corporate finance and
trading activities. Global Capital Markets provided its retail clients with a
broad range of traditional and progressive investment products and services.
Global Capital Markets is a registered broker dealer with the SEC and a member
of the NASD and the SIPC. Global Capital Markets operates pursuant to the
exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and clears all transactions
with and for customers on a fully disclosed basis.
Global Capital Markets transitioned its clearing arrangement from CIBC
Oppenheimer, a division of CIBC World Markets Corp. to Fiserv Correspondent
Services as part of the process of combining our brokerage operations. It also
maintains an additional relationship with Penson Financial Services Inc., a
division of Service Asset Management Company. Fiserv Correspondent Services
provides Global Capital Markets 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 to offer its clients a broad range of products and services that is
typically only offered by firms that are larger and/or have a larger capital
base. Service Asset Management Company provides similar services as Fiserv, but
it is utilized by Global Capital Markets for the online customer accounts using
the Sutton Online trading systems.
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Sutton Online Inc. (formerly, Sutton Online, LLC)
Sutton Online is an online trading firm that offers trade executions, level
II software and data, Internet service and training for online investors to
individual investors, money managers and hedge funds. Sutton Online also
provides brokerage firms the necessary tools to offer financial products via the
Internet.
Sutton Online 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. Its Web Based
Trading system is an entry-level platform for the amateur online trader. Sutton
Online has added an array of products to meet the needs of both retail and
broker-dealer clients. Sutton Online now offers the following direct access
software: SONIC 2000; RealTick III; the Terminator; the EZ Daytrader; and the
JTerminator. Each product targets a specific demographic profile, and has unique
operating characteristics. Sutton Online 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)
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.
In December 2000, MoneyZone.com announced that it was exploring a range of
strategic alternatives to enhance shareholder value, including the possibility
of a sale or merger.
Results of Operations
See Note 1 of the Notes to Consolidated Financial Statements for the
Quarterly and Nine Month Periods Ended December 31, 2000, for an explanation of
the basis of presentation of the financial statements.
Revenues. For the quarterly period ended December 31, 2000, we generated
consolidated revenues in the amount of $1,346,000, compared to $10,430,000, for
the quarterly period ended December 31, 1999. For the nine month period ended
December 31, 2000, we generated consolidated revenues in the amount of
$18,997,000 compared to $25,676,000 for the nine month period ended December 31,
1999. The revenue for the nine month period ended December 30, 1999 includes the
one time gain from the sale of a portion of our interest in MoneyZone of
$1,950,000. After adjusting for the effects of these one time gains, our
revenues were $8,480,000 for the quarterly period ended December 31, 1999 and
$23,726,000 for the nine month period ended December 31, 1999. Our total
revenues for the quarterly and nine month periods ended December 31, 2000, are
lower, respectively, than the same periods from a year earlier due to declines
in the market value of investment and trading equity securities of approximately
$5.1 million. As an inducement for Global Capital Securities Corporation to
continue negotiations towards a new clearing arrangement, Fiserv Correspondent
Clearing Services, Inc. forgave approximately $417,000 of our outstanding
subordinated debt. This forgiveness of debt has been included as an
extraordinary item.
Costs and Expenses. We incurred total consolidated costs and expenses of
$10,249,000 and $29,173,000 for the quarterly and nine month periods ended
December 31, 2000 compared to $9,660,000 and $24,141,000 for the quarterly and
nine month periods ended December 31, 1999. Overall, our increases in costs and
expenses at our US brokerage firms were primarily related to the increased
number of transactions at year end related to customer tax selling in our
brokerage operations and the inclusion of Global Capital Markets and Sutton
Online for the entire quarterly and nine month periods ended December 31, 2000.
Our current quarterly period costs and expenses included additional costs
associated with negative equity customer accounts of approximately $480,000,
one-time customer settlements of approximately $550,000, and costs associated
with the combination of our two brokerage operations of approximately $700,000.
However, our communications costs declined by $289,000 and $467,000 in the
quarterly and nine month periods ended December 31, 2000, respectively, due to
renegotiated contracts which were initially implemented during 1999.
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Income (Loss) from Continuing Operations. Our consolidated loss from
continuing operations for the quarterly and nine month periods ended December
31, 2000 was ($8,884,000) and ($9,793,000), respectively, compared to
consolidated income from continuing operations of $1,659,000 and $2,424,000 for
the quarterly and nine month periods ended December 31, 1999. The income from
continuing operations for the quarterly and nine month periods ended December
31, 1999 includes the one time gain from the sale of a portion of our interest
in MoneyZone of $1,950,000. After adjusting for the effects of the one time gain
from our sale of MoneyZone, our income from continuing operations was
($291,000) and $474,000 for the quarterly and nine month periods ended December
31, 1999, respectively. Our current quarterly period losses are primarily
related to declines in the market value of investment and trading equity
securities of approximately $5.1 million and additional costs associated with
negative equity customer accounts of approximately $480,000, one-time customer
settlements of approximately $550,000, and costs associated with the combination
of our two brokerage operations of approximately $700,000.
Net Income (Loss). Our consolidated net loss for the quarterly and nine
month periods ended December 31, 2000 was ($8,467,000) and ($7,608,000),
respectively, compared to consolidated net income of $1,702,000 and $2,494,000
for the quarterly and nine month periods ended December 31, 1999. The net income
for the nine months ended December 31, 2000 includes the one time gain on the
sale of our European operations of $2,060,000, net of taxes. The net income for
the quarterly and nine month periods ended December 31, 1999 includes the one
time gain from the sale of a portion of our interest in MoneyZone of $1,950,000.
On December 31, 2000, we had total assets of $41,217,000, and total
liabilities of $10,115,000, compared to $35,565,000 and $11,781,000,
respectively, on December 31, 1999, as restated.
Liquidity and Capital Resources. The cash flows for the nine month period
ended December 31, 2000 reflect the volatile nature of the securities industry
and the reallocation of our assets indicative of a growing organization. Our
statement of financial condition reflects a liquid financial position of cash
and cash equivalents convertible to cash representing approximately 2 percent of
total assets as of December 31, 2000.
As a broker dealer in securities, we are subject to net capital and
liquidity requirements. As of December 31, 2000, we were in excess of our
minimum net capital and liquidity requirements. Periodically, we will 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. 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 on
commercially reasonable terms or at all. 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. If we are unable
to obtain any financing when needed, our business, financial condition and
operating results may be materially and adversely affected. We are also
currently evaluating financial and strategic options to increase stockholder
value.
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PART II - OTHER INFORMATION
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 ("National Family Care")
commenced the above action against, among others, Global Capital Securities
Corporation and Steve Signer, an employee of Global Capital Securities
Corporation. In late 1994 or early 1995, National Family Care Life Insurance
Company entered into an arrangement with Debenture Guaranty Corporation, another
defendant in this litigation, whereby National Family Care Life Insurance
Company lent money to Debenture Guaranty Corporation, and Debenture Guaranty
Corporation opened an account in Debenture Guaranty Corporation's name to trade
U.S. Treasuries. The note to National Family Care Life Insurance Company was in
the amount by which the treasuries could be margined. This transaction was
allegedly part of a scheme whereby National Family Care Life Insurance Company
was attempting to inflate its assets for regulatory purposes. Debenture Guaranty
Corporation allegedly misappropriated the funds for its own benefit. National
Family Care Life Insurance Company alleged that Global Capital Securities
Corporation and Mr. Signer aided, abetted and conspired with Debenture Guaranty
Corporation in allegedly defrauding National Family Care. National Family Care
Life Insurance Company reduced its damages demand from approximately $11,500,000
to $1,100,000. Pursuant to a motion filed by Global Capital Securities
Corporation for summary judgment, all claims other than a claim for money had
and received were dismissed. This final claim has been settled for $550,000.
Global Capital Securities Corporation also is involved in an arbitration
proceeding related to the National Family Care Life Insurance Company litigation
entitled National Family Care Life Insurance Co. v. Pauli Company, Inc., et al.,
NASDR Case No. 96-02673 (the "Arbitration"). The Arbitration panel entered an
award against Global Capital Securities Corporation in July 1998 in favor of
third-party plaintiff Pauli & Company, Inc. of approximately $370,000, which was
significantly below the initial award sought by Pauli & Company, Inc. of
approximately $1,100,000. Global Capital Securities Corporation has filed a
motion in the National Family Care Life Insurance Company litigation to vacate
this award and plans to vigorously contest this award on appeal.
Lee Schlessman et al v. Global Capital Partners, Inc. and EBI Securities
Corporation, Denver County District Court, Colorado, Case No. 00 CV 1795. The
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 1999. In February 2000, we inquired as to whether the
noteholders intended to convert. When it was learned that they were not
intending to convert, we prepaid the notes pursuant to their terms, thereby
extinguishing the conversion privilege. The noteholders have sued both Global
Capital Partners Inc. and Global Capital Securities Corporation, claiming that
they have suffered damages as a result of not being entitled to convert and sell
the common stock issued upon conversion. We have filed a motion to compel
arbitration, which has been granted. As of this date, no arbitration claim has
been made. We believe that we have meritorious defenses and intend to vigorously
defend against Plaintiff's claims.
We are involved in a number of judicial, regulatory and arbitration
proceedings (including those described above and actions that have been
separately described in previous filings) concerning matters arising in
connection with the conduct of our businesses. Some of the actions have been
brought on behalf of various classes of claimants and seek damages of material
and indeterminate amounts. We believe, based on currently available information
and advice of counsel, that the results of such proceedings, in the aggregate,
will not have a material adverse effect on our financial condition but might be
material to operating results for any particular period, depending, in part,
upon the operating results for such period.
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Changes in Securities and Use of Proceeds
In November 2000, an officer and an employee of our subsidiary, Global
Capital Securities, each acquired 65,000 shares at a price of $3.00 per share.
In each case, the issued shares were not registered under the Securities
Act of 1933 in reliance on the exemption from registration provided by Section
4(2) under the Securities Act and Regulation D promulgated thereunder.
Defaults on Senior Securities
None
Submission of Matters to a Vote of Security Holders
None
Other Information
As of September 15, 2000, we entered into a Convertible Debenture Purchase
and Exchange Agreement with MoneyZone.com and Cortlandt Investors LLC. Pursuant
to the purchase agreement, MoneyZone.com received gross proceeds of $2,500,000
from the issuance of (i) a 6% convertible and exchangeable debenture in the
principal amount of $2,500,000 and (ii) warrants exercisable to purchase an
aggregate of 250,000 shares of MoneyZone.com's common stock to Cortlandt.
Simultaneously with the execution of the purchase agreement, we and
Cortlandt entered into a Securities Exchange Agreement. Pursuant to the exchange
agreement, we (i) granted Cortlandt the right, during the period commencing on
January 16, 2001 and ending on March 15, 2001, to exchange any unconverted
portion of Cortlandt's MoneyZone.com debenture for our 5% convertible
debenture in a principal amount equal to 120% of the then outstanding principal
amount of the MoneyZone.com debenture and/or any unexercised portion of
Cortlandt's MoneyZone.com warrants for warrants to purchase an aggregate of
50,000 shares of our common stock and (ii) agreed to enter into a registration
rights agreement with Cortlandt on the date Cortlandt exercises its exchange
right.
On January 16, 2001, Cortlandt exercised its exchange right for the entire
principal amount of the MoneyZone.com debenture, accrued interest and all of the
MoneyZone.com warrants.
Our 5% convertible debenture is due and payable on January 24, 2006 and
may, at the option of the holder, be converted into shares of our common stock
at a conversion price equal to the lesser of (i) 110% of the average of the
closing bid prices, as reported on the principal exchange or electronic trading
system on which the shares trade, for our common stock (the "Bid Prices") for
the five trading days immediately preceding the date Cortlandt exercised its
exchange right or (ii) 85% of the average of the lowest three Bid Prices during
the eighteen trading days prior to the date of conversion, subject to anti
dilution protection (the "Conversion Price"). We have the right to prepay the
debenture at any time prior to April 17, 2001 for an amount equal to the greater
of (i) 105% of the outstanding principal amount of the debenture plus accrued
interest on the date of prepayment or (ii) the outstanding principal amount of
the debenture plus accrued interest on the prepayment date divided by the
Conversion Price multiplied by the closing bid price on the prepayment date. Our
warrants are exercisable at any time prior to January 24, 2006 at an exercise
price of $5.50 per share, subject to anti-dilution adjustments.
Pursuant to the registration rights agreement, we agreed to file a
registration statement with the Securities and Exchange Commission within 30
days of the exchange date, and to use our best efforts to have the registration
statement declared effective as soon as possible, but in any event prior to 90
days after the exchange date. The purpose of this registration statement is to
register resales of the shares of our common stock issuable upon conversion of
the debenture and exercise of the warrants we issued in the exchange.
-19-
Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarterly period
ended December 31, 2000.
-20-
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this amendment to this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL CAPITAL PARTNERS INC.
(Registrant)
By /s/ Kevin D. McNeil
Kevin D. McNeil
Executive Vice President, Treasurer,
Secretary, and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: November 2, 2001
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