U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the period ended June 30, 2000.
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____ to _____.
Commission file number: 000-25799
FINANCIALWEB.COM, INC.
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(Exact Name of Small Business Issuer in Its Charter)
Nevada 93-1202428
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
201 Park Place, Suite 321
Altamonte Springs, Florida 32701
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(Address of Principal Executive Offices)
(407) 834-4443
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(Issuer's Telephone Number)
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 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 __
-
As of June 30, 2000, there were 8,598,679 shares of the registrant's common
stock outstanding.
The registrant meets the conditions set forth in General Instruction G(1)(a) and
(b) of Form 10-QSB and is therefore filing this form with the reduced disclosure
format.
FINANCIALWEB.COM, INC.
INDEX
Page
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Part I. Financial Information
Item 1. Financial Statements. 1
(a) Consolidated Statement of Operations.
For the Three and Six Months Ended June 30, 2000 and 1999 1
(b) Consolidated Balance Sheets.
As of June 30, 2000 and December 31, 1999 2
(c) Consolidated Statements of Cash Flows.
For the Six Months Ended June 30, 2000 and 1999 3
(d) Notes to Consolidated Financial Statements. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Part II. Other Information.
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities and Use of Proceeds. 14
Item 3. Defaults Upon Senior Securities. 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 15
Signature 16
Part I. Financial Information
Item 1. Financial Statements.
FINANCIALWEB.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -----------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
(as restated) (as restated)
REVENUES $ 360,177 $ 67,898 $ 490,710 $ 135,233
COST OF REVENUES 217,008 84,738 300,889 215,593
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GROSS PROFIT 143,169 (16,840) 189,821 (80,360)
RESEARCH AND DEVELOPMENT 343,729 280,475 685,335 494,949
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Stock-Based (Noncash) Compensation 510,730 688,932 1,663,377 1,184,765
Stock-Based (Noncash) Consulting Fees 15,810 16,296,659 4,412,810 43,896,046
Other (Inclusive of Noncash Stock-Based
Expenses of $60,810 and $185,810 in 2000) 2,445,604 714,308 4,137,067 1,164,712
-------------- ------------- ------------- -------------
OPERATING LOSS (3,172,704) (17,997,214) (10,708,768) (46,820,832)
INTEREST EXPENSE (Inclusive of Noncash Interest
of $128,968 and $2,300,000 in Six Months Ended
June 30, 2000 and 1999, respectively) 3,280 69,245 136,361 2,395,118
-------------- ------------- ------------- -------------
NET LOSS $ (3,175,984) $ (18,066,459) $ (10,845,129) $ (49,215,950)
============== ============= ============= =============
NET LOSS PER SHARE - BASIC AND DILUTED $ ( 0.37) $ (3.36) $ (1.39) $ (9.52)
============== ============= ============= =============
See Notes to Consolidated Financial Statements.
1
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
June 30, December 31,
2000 1999
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(unaudited) (as restated)
ASSETS
CURRENT ASSETS:
Cash $ 1,773,017 $ 94,842
Accounts Receivable - Net 216,284 120,137
Prepaid Expenses 17,600 16,576
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Total Current Assets 2,006,901 231,555
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PROPERTY AND EQUIPMENT - NET 716,543 310,783
INTANGIBLE ASSETS - NET 134,658 166,023
OTHER ASSETS 163,679 8,478
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TOTAL ASSETS $ 3,021,781 $ 716,839
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 3,581,934 $ 1,761,247
Notes and Loans Payable 90,000 546,468
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Total Current Liabilities 3,671,934 2,307,715
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TOTAL LIABILITIES 3,671,934 2,307,715
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STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 Par Value, 10,000,000
Shares Authorized, 815,487 Issued and 727,123
Outstanding as of June 30, 2000 and 815,487
Subscribed as of December 31, 1999 (with a
Liquidation Preference of $3 per share) 728 816
Common Stock, $.001 Par Value, 100,000,000
Shares Authorized,
9,405,452 and 6,580,839 Shares
Issued and 8,598,679 and 6,580,839 Outstanding 8,598 6,581
Treasury Stock (1,145,572) -
Additional Paid-In Capital 75,825,281 61,216,165
Accumulated (Deficit) (73,928,510) (63,083,383)
Contractual Obligation to Issue Shares - 530,000
Deferred Stock Based Compensation (1,410,678) (261,055)
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TOTAL STOCKHOLDERS' EQUITY (650,153) (1,590,876)
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,021,781 $ 716,839
=========== ==============
See Notes to Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Six Months Ended
June 30,
----------------------------------
2000 1999
-------------- --------------
(as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (10,845,129) $ (49,215,950)
Adjustments to reconcile Net (Loss)
to Net Cash Used by Operating Activities
Depreciation and Amortization 97,314 49,159
Noncash Interest Expense 128,968 2,300,000
Noncash Stock Based Expenses 170,000 -
Noncash Stock Based Consulting Fees 4,412,810 43,896,046
Noncash Stock Based Compensation 1,663,377 1,184,765
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (96,147) -
(Increase) Decrease in Prepaid Expenses (1,024) 11,426
Increase (Decrease) in Accounts Payable
and Accrued Expenses 1,820,687 186,257
(Increase) in Other Assets (155,201) (200)
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Net Cash Used by Operating Activities (2,804,345) (1,588,497)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (471,708) (126,372)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Notes Payable 65,000 2,300,000
Repayment of Notes Payable (650,436) (75,000)
Issuance of Common Stock 6,898,728 -
Acquisition of Treasury Stock (1,146,378) -
Stock Issuance Costs - Net (212,686) -
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Net Cash Flows from Financing Activities 4,954,228 2,225,000
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NET INCREASE (DECREASE) IN CASH 1,678,175 510,131
CASH AT BEGINNING OF PERIOD 94,842 327,912
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CASH AT JUNE 30, 2000 AND 1999 $ 1,773,017 $ 838,043
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Paid During the Period for Interest $ 4,491 $ -
============= =============
See Notes to Consolidated Financial Statements.
3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by FinancialWeb.com, Inc. (the "Company") in accordance with the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting and, accordingly, do not include all the
information and disclosures required by generally accepted accounting
principles. In the opinion of management, the unaudited consolidated
financial statements include all adjustments (consisting of normally
recurring adjustments) necessary for the fair presentation of results for
the interim periods presented. These unaudited consolidated financial
statements and notes included herein should be read in conjunction with the
Company's audited consolidated financial statements and notes for the year
ended December 31, 1999 included in the Company's Annual Report on Form 10-
KSB filed with the Securities and Exchange Commission on June 2, 2000. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for any subsequent quarter or for
the entire year ending December 31, 2000.
The accompanying unaudited consolidated financial statements contemplates
continuation of the Company as a going concern. However, the Company has
yet to make a profit and has sustained substantial operating losses and
negative cash flows from operations over the past three years.
Management has sought to obtain outside financing to enable the Company to
finance its operating activities. The Company issued $2,300,000 of
convertible debt, which converted into shares of preferred stock by
December 31, 1999 and privately placed common stock for approximately
$6,808,000, net of issuance costs of approximately $1,107,000, through
April 30, 2000. Further, the Company is actively seeking other sources of
financing and is exploring alternate ways of generating revenues through
partnerships with other businesses. However, there are no assurances that
the Company will be successful in these endeavors.
In view of these matters, realization of the Company's assets in the
accompanying consolidated balance sheet is dependent on the Company's
ability to meet its financing requirements, and ultimately on the success
of future operations. Management believes that actions currently being
taken provide the opportunity for the Company to continue as a going
concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets, or the amounts
and classification of liabilities that may be necessary in the event the
Company cannot continue in existence.
2. RESTATEMENT
Subsequent to the issuance of the Company's March 31, 1999 and June 30,
1999 consolidated unaudited financial statements, the Company's management
determined that the value of the Company's common stock used to record
assets acquired in the first and second quarter of 1999, and to measure
expense related to stock, options and warrants granted to employees,
directors and consultants should have been based on the value of the
Company's common stock as determined by its quoted market price.
Additionally, the Company determined that certain expenses relating to
employee benefits and trade payables had not been properly recorded. The
amounts shown in the accompanying unaudited consolidated statements of
operations have been restated from the Company's previously reported
results on Form 10-QSB.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
FinancialWeb.com, Inc. and its wholly owned subsidiaries, Slugfest.com,
Inc., Stock Detective.com, Inc. and Real Time
4
Translators, S.A.C. All significant intercompany accounts and transactions
have been eliminated in the consolidated financial statements.
Stock-Based Compensation - The Company has elected to account for its
stock-based compensation granted to employees in accordance with the
provisions of Accounting Principles Board Opinion 25 (APB 25), Accounting
for Stock Issued to Employees. Under APB 25, compensation expense is based
on the difference, if any, on the date of the grant, between the fair value
of the Company's stock and the exercise price of the option. The Company
discloses the information required under Statement of Financial Accounting
Standards Statement No. 123, Accounting for Stock Based Compensation
(Statement 123). Stock issued to non-employees is accounted for under the
provisions of Statement 123 and the Emerging Issues Task Force (EITF)
Consensus in Issue No. 96-18, Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with,
Selling Goods or Services (EITF 96-18).
Under Statement 123, non-employee stock-based compensation is accounted for
based on the fair value of the consideration received or equity instruments
issued, whichever is more readily determinable. However, Statement 123 does
not address the measurement date and recognition period. EITF 96-18 states
a consensus that the measurement date should be the earlier of the date at
which a commitment for performance by the counter party is reached or the
date at which the counter party's performance is complete, and the
recognition period should be the same as if the goods or services had been
exchanged for cash.
The Company's non-employee stock-based compensation is determined using the
Company's quoted closing market price as quoted on the Over-The-Counter
Bulletin Board ("OTCBB") or the Black-Scholes option pricing model.
Revenue Recognition - The Company's revenues have been derived principally
from the sale of banner advertisements under short-term contracts. To date,
the duration of the Company's advertising commitments have generally
averaged from one to three months. Advertising revenues are recognized
ratably in the period in which the advertisement is displayed, provided
that no significant Company obligations remain and collection of the
resulting receivable is probable. Company obligations typically include the
guarantee of a minimum number of impressions or times that an advertisement
appears in pages viewed by the users of the Company's online properties.
The Company is shifting its revenue mix to subscription fees for the
redistribution of financial content. Subscription fee contracts are
typically entered into for one year and revenue is recognized ratably over
the term of the agreement.
Research and Development Costs - The Company's research and development
costs, which consist primarily of compensation and benefits for software
programmers and developers, are expensed as incurred.
Use of Estimates - The preparation of the 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, the 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. Actual
results could differ from those estimates.
Recent Accounting Pronouncements - The Financial Accounting Standards Board
(FASB) recently issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No 133. Statement 137 defers for one year the effective date of
FASB No. 133 (Statement 133), Accounting for Derivative Instruments and
Hedging Activities. The rule now will apply to all fiscal quarters of all
fiscal years beginning after June 15, 2000. Statement 137 permits early
adoption as of the beginning of any fiscal quarter after its issuance.
5
Statement 133 will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. The Company has not
yet determined if it will early adopt this pronouncement. The Company does
not expect its adoption will have a material impact on its financial
statements, as it does not own any derivative instruments.
Net Loss Per Share Information - Basic and diluted loss per share is
computed based on the weighted average shares outstanding during the
period. Diluted net income per share includes the dilutive effect of
potential common stock issuances using the treasury stock method. Common
equivalent shares are excluded from the computation if their effect is
anti-dilutive. The Company's warrants, convertible preferred stock, and
options have been excluded from diluted loss per share since their effect
is anti-dilutive.
The following table sets forth the calculation of net loss per share for
the three and six month periods ended June 30, 2000 and 1999, respectively:
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
Net loss $ 3,175,984 $ 18,066,459 $ 10,845,129 $ 49,215,950
=========== ============ ============ ============
Weighted average shares outstanding 8,619,209 5,372,097 7,812,226 5,170,247
=========== ============ ============ ============
Net loss per share - basic and diluted $ 0.37 $ 3.36 $ 1.39 $ 9.52
=========== ============ ============ ============
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at June 30,
2000:
Accounts payable $ 2,753,626
Accrued consulting fees 198,003
Accrued compensation and employee benefits 28,611
Accured contingency 591,000
Other 10,694
-----------
$ 3,581,934
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6
5. STOCKHOLDERS' EQUITY
Private Placement of Common Stock - Through June 30, 2000, the Company
privately placed 2,608,341 shares of common stock for approximately
$6,765,000, which is net of issuance costs. In connection with this private
placement, the Company agreed to issue approximately 283,028 shares of
restricted common stock as additional compensation with a fair market value
on the date of the grant of $1,769,000 to the placement agents involved in
the private placement.
Director Agreement - On March 1, 2000, the Company entered into an option
agreement with a member of the Board of Directors to purchase 750,000
shares of common stock at an exercise price of $4.50 per share. The options
expire at the end of seven years. On the date of grant, one-third of the
options vested immediately and the balance of the options vest in twelve
equal monthly installments on the first day of each calendar month
commencing on April 1, 2000. The director's Director Service Agreement
provides that his option vest on an accelerated basis upon a "change in
control" of the Company, as defined in his Director Service Agreement. If
the Company terminates his Director Service Agreement, the balance of all
unvested options immediately vest. At the date of grant, the Company
recorded deferred stock-based compensation of approximately $2,813,000,
which is based on the difference between the stock closing price on the
date of grant and the exercise price. Through June 30, 2000, for those
shares that have vested, the Company has recognized stock-based
compensation expense of approximately $1,563,000. At the commencement of
such directors' second year of service, such director shall be granted an
additional seven year option to purchase 200,000 shares of common stock at
an exercise price of $4.50 per share. The additional options vest in
twenty-four equal monthly installments on the first day of each calendar
month during such directors service commencing in the second anniversary of
the directors appointment to the Board of Directors.
Stock Granted for Services - On January 31, 2000 and April 10, 2000 the
Company granted 25,000 and 2,108 shares, respectively, of restricted common
stock to an executive recruiting firm in exchange for services rendered.
The Company recorded recruiting and consulting expenses of $125,000 and
$60,810, respectively, as determined by the stock's closing price on the
grant date. Additionally, on November 19, 1999, the Company incurred an
obligation to issue 80,000 shares of common stock to a company for
negotiating the StarMedia Networks, Inc. agreement. The Company recorded
stock-based consulting fees of $530,000, based on the fair market value of
the shares on the issuance date. Such shares were issued March 13, 2000.
6. COMMITMENTS AND CONTINGENCIES
Employment Agreements - Between January 1 and June 30, 2000, the Company
entered into employment agreements with six officers of the Company
providing for base annual salaries and, in some cases, providing for
bonuses ranging from 25% to 30% of their respective base pay, depending on
their respective performance. The terms of the agreements are generally for
one year and in some cases, provide for termination benefits of up to six
months at existing rates of pay if the Company terminates the officers
under certain circumstances.
The employment agreements with these five officers included grants of
options to purchase shares of the Company's common stock. Two officers
received options to purchase 990,000 shares of the Company's common stock
in the aggregate at the closing price of the Company's common stock at the
date of grant. Accordingly, no compensation expense has been recorded
associated with these grants.
Additionally, two of the officers were granted participation in a target
option share program for a total of 490,000 target option shares, which
become available when the Company's stock closing price closes for three
consecutive days over a certain price. Target option shares are exercisable
at
7
market as of the date of grant and are available when the Company's stock
closes at the $9.00, $11.00, $17.00, and $25.00 levels.
New Office Space - In April 2000, the Company opened executive offices in
Boston, Massachusetts. The term of the lease is for five years. The lease
agreement obligates the Company over the term of the lease to annual
minimum lease payments averaging approximately $190,600.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1999 included in the Company's Annual Report on Form 10-KSB that
was filed with the Securities and Exchange Commission on June 2, 2000. Except
for the historical information contained herein, this and other sections of this
Quarterly Report contain certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Quarterly Report, the
words "anticipate," "believe," "estimate," "expect" and similar expressions, as
they relate to the Company or its management, are intended to identify such
forward-looking statements. The Company's actual results, performance, or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements.
Company Overview
The Company is a business-to-business aggregator, developer and
distributor of e-financial content in English and Spanish with other languages
planned. During the first quarter of 2000, the Company hired a new management
team and added two new directors including a new chairman of the board. The new
management redirected the Company's primary focus toward being a
business-to-business aggregator, developer and distributor of e-financial
content in English and Spanish. The Company provides original and aggregated
financial content and access to services to e-businesses that require financial
content and tools in order to attract, retain and serve their Web site visitors.
Under the FinancialWeb brand, the Company plans to expand its international
relationships and enhance its position in the creation, aggregation and
e-distribution of international, multilingual financial content.
The Company is shifting its revenue production from primarily banner
advertising fees to revenue derived from subscription fees for proprietary and
redistributed content and tools that it provides to partner sites.
The Company has yet to achieve significant revenues and its ability to
generate significant revenues is uncertain. Further, in view of the rapidly
evolving nature of the Internet industry and a limited operating history, the
Company has little experience forecasting its revenues. Therefore, the Company
believes that period-to-period comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. To date, the Company has incurred substantial costs to create,
introduce and enhance its services, to develop content, and to grow its
business. Consequently, it has incurred operating losses in each fiscal quarter
since it was formed. The Company expects operating losses and negative cash
flows to continue for the foreseeable future as it intends on increasing its
operating expenses to expand its business. It may also incur additional costs
and expenses related to content creation, technology, marketing or acquisitions
of businesses and technologies to respond to changes in this rapidly changing
industry. These costs could have an adverse effect on the Company's future
financial condition or operating results. See "Liquidity and Capital Resources."
Results Of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
8
Revenues
Advertising revenues were $262,534 and $67,898 for the three months ended
June 30, 2000 and 1999, respectively. This increase of 287% was primarily due to
the increase in the number of advertisers and number of banner and sponsorship
ads placed on the Company's Web site as well as the number of users on the
Company's Web site and the resultant page views with advertisements contained on
the pages.
Revenues from co-branding activities were $97,643 or 27% of total revenues
for the three months ended June 30, 2000. During the three months ended June 30,
2000, the Company continued to shift its revenue focus to generating revenues
through subscription fees for its proprietary and redistributed content and
tools fees through partner Web sites. The Company believes that future revenues
will be less dependent on the sale of advertising space on the Company's Web
site as its emphasis shifts to generating recurring revenues from subscription
fees for its proprietary and redistributed content and tools as well as revenue
sharing with partner Web sites and to co-branding and private labeling services.
Cost Of Revenues
Cost of revenues were $217,008 and $84,738 for the three months ended June
30, 2000 and 1999, respectively. The Company expects that future costs of
revenues will remain relatively constant until increased traffic justifies
additional network communication lines required to accommodate the increased
traffic on the Company's Web sites.
As a percentage of revenues, cost of revenues declined to 60% of revenues
for the three months ended June 30, 2000 from 125% for the same period in 1999.
This decrease resulted primarily from the relatively fixed nature of some of our
data costs and other fees while the number of customers, related revenues and
the initiation of co-branding revenues increased.
Operating Expenses
Research and Development. Research and development costs were $343,729 and
$280,475 for the three months ended June 30, 2000 and 1999, respectively. This
increase of $63,254 was due primarily to increases in the level of personnel
necessary to develop and enhance the Company's Web site. On an absolute dollar
basis, the Company expects costs to increase as the Company develops additional
product offerings.
Selling, General and Administrative.
Other. Selling, general and administrative expenses were $2,445,604 and
$714,308 for the three months ended June 30, 2000 and 1999, respectively. The
$1,731,296 increase in other selling, general and administrative expenses was
primarily due to the following items: a) increases in professional fees paid for
services such as legal and accounting fees associated with the Company's filing
of its Form 10-KSB and Form 10-QSB with the Securities and Exchange Commission;
b) increases in sales force personnel to generate increased revenues; c)
increases in advertising costs associated with the Company's partnership with
StarMedia Network, Inc.; d) increases in rent due to the leasing of additional
office and network facilities necessitated by increases in personnel and
equipment; e) the addition of directors and officers liability insurance; f) the
increase in personnel and associated recruiting fees needed to support the
growth of the business; g) increases in costs related to proprietary and
syndicated financial content; h) increases in translation costs associated with
the Company's subsidiary translation office; and i) increases in payroll in
order to execute upon the Company's plans.
9
Stock-Based Non-cash Employee Compensation. In March and September 1999,
under the terms of separate Director Service Agreements, the Company issued
warrants to three new directors of the Company to purchase a total of 300,000
shares of common stock at an exercise price of the $5.00 per share. At the time
of issuance, the Company recorded deferred non-cash stock-based employee
compensation expense of $1,931,200, based on the difference between the exercise
price and the closing price of the common stock on the date of grant. Upon
appointment to the Board of Directors, 25% of the shares of common stock vested
immediately with the remaining shares vesting on a quarterly basis over a one-
year period. During the year ended December 31, 1999, the Company amortized
$1,890,600 as non-cash stock-based employee compensation expense, relating to
these warrants and amortized $20,300 during the three month period ended March
31, 2000. The remaining $20,300 was amortized in the second quarter ended June
30, 2000. As of June 30, 2000, none of these warrants had been exercised.
On May 21, 1999, the Company granted options to purchase 142,277 shares of
common stock to certain employees under the Company's 1999 Stock Incentive Plan.
The options vest over three to four years of continuous service. At the date of
grant, exercise prices ranged from $5.00 to $14.25. Of the 142,277 options
granted, 37,500 were at exercise prices below the Company's closing stock price
on the date of grant. The Company recorded deferred stock based employee
compensation expense of $346,874 based on the difference between the exercise
price and the closing price of the common stock on the date of the grant. During
the year ended December 31, 1999, and the three month periods ended March 31,
and June 30, 2000, the Company amortized $143,086, $21,680 and $21,680
respectively, as stock-based employee compensation expense, relating to these
options. Compensation expense was not recorded on the remaining grants since the
exercise price equaled the Company's stock closing price on the date of grant.
On June 14, 1999, the Company granted an option for 20,000 shares of common
stock at an exercise price of $5.00 per share to an officer and director of the
Company. The Company recorded deferred compensation expense of $200,000 which
represented the excess of the exercise price of the options over the closing
price of the common stock on the date of the grant. As of December 31, 1999,
$183,333 has been amortized to stock based non-cash employee compensation
expense, the remaining $16,667 was amortized in the first quarter ended March
31, 2000.
On March 1, 2000, the Company entered into an option agreement with a
member of the Board of Directors to purchase 750,000 shares of common stock at
an exercise price of $4.50 per share. The options expire at the end of seven
years. At the date of grant, one-third of the options vested immediately and the
balance of the options vest in twelve equal monthly installments on the first
day of each calendar month commencing April 1, 2000. At the date of grant, the
Company recorded deferred non-cash stock-based employee compensation expense of
approximately $2,813,000, which is based on the difference between the stock
closing price on the date of grant and the exercise price. During the three
month periods ended March 31, 2000 and June 30, 2000, the Company amortized
$1,094,000 and $468,750 as non-cash stock-based employee compensation expense,
relating to these options, respectively. As of June 30, 2000, these options have
not been exercised.
Stock-Based Non-cash Consulting Fees. On January 6, and March 10, 1999, the
Company entered into separate agreements with two individuals to provide
financial consulting services to the Company on similar terms and conditions
over a five-year period. As consideration for their services, the Company issued
to each of these individuals a warrant for 1,000,000 shares of the Company's
common stock, exercisable over five years at a price of $4.00 per share. The
warrants were nonforfeitable and were vested upon issuance. In connection with
the issuance of the warrants, the Company recorded $27,599,287 in stock-based
consulting fees expense, based on the fair value of the warrants on the dates of
issuance. As a result of a private placement of common stock by the Company, on
January 18, 2000, such consultants of the Company were issued a warrant to
purchase approximately 467,000 shares of common stock, in the aggregate,
exercisable at $3.00 per share, pursuant to an antidilutive provision in their
respective warrant. The remaining unexercised portion of their respective
warrant were repriced to
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provide for their exercise at $3.00 per share pursuant to a repricing provision
in their respective warrant. The fair value of the warrants and of the repricing
of approximately $2,448,000 was charged to deferred stock-based consulting fees
and is being amortized over the remaining life of their respective consulting
agreements. The additional warrants issued expire concurrent with the initial
warrants issued pursuant to their respective consulting agreements.
On March 31, 1999, the Company retained the services of a financial advisor
for a one-year term to perform a variety of services, including matters relating
to entering into one or more strategic partnerships, joint ventures or similar
arrangements, possible mergers or stock sales or other dispositions, sales or
other dispositions of business assets, and other similar or related matters. In
connection with this agreement, the Company issued a warrant for 979,321 shares
of common stock exercisable at $4.00 per share. The warrant was nonforfeitable,
vested upon issuance, and was exercisable for a ten-year term. The Company
recorded a noncash stock-based consulting fee expense of $16,296,659 in the
second quarter of 2000. This warrant was terminated and a new warrant agreement
became effective as a result of the private placement of common stock in January
2000. The new warrant agreement was dependent on the amount raised by the
placement agent. As a result of the amount raised by the placement agent, the
financial advisor was granted approximately 248,000 and 9,000 warrants for
shares of common stock at strike prices of $.01 and $3.00, respectively, as of
March 31, 2000. Stock-based consulting fees for the three months ended March 31,
2000 relating to these warrants, based on their fair value on the issuance date,
amounted to $1,949,000.
Interest Expense. Interest expense was $3,280 for the three months ended
June 30, 2000 compared to $69,245 for the same period in 1999. The Company
incurred this miscellaneous interest expense relating to outstanding debt.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues
Advertising revenues were $360,903 and $135,233 for the six months ended
June 30, 2000 and 1999, respectively. This increase of 167% was primarily due to
the increase in the number of advertisers and number of banner and sponsorship
ads placed on the Company's Web site as well as the number of users on the
Company's Web site and the resultant page views with advertisements contained on
the pages.
Revenues from co-branding activities were $129,807 or 26% of revenues for
the six months ended June 30, 2000. During the six months ended June 30, 2000,
the Company initiated a shift in its revenue focus to generating revenues
through subscription fees for its proprietary and redistributed content and tool
fees through partner Web sites. The Company believes that future revenues will
be less dependent on the sale of advertising space on the Company's Web site as
its emphasis shifts to generating recurring revenues from subscription fees for
its proprietary and redistributed content and tools as well as revenue sharing
with partner Web sites and to co-branding and private labeling services.
Cost Of Revenues
Cost of revenues were $300,889 and $215,593 for the six months ended June
30, 2000 and 1999, respectively. The Company expects that future costs of
revenues will increase due to the additional network communication lines
required to accommodate increased traffic on the Company's Web sites.
As a percentage of revenues, cost of revenues declined to 61% of revenues
for the six months ended June 30, 2000 from 159% for the same period in 1999.
This decrease resulted primarily from the
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relatively fixed nature of some of our data costs and other fees while the
number of customers, related revenues and the initiation of co-branding revenues
increased.
Operating Expenses
Research and Development. Research and development costs were $685,335 and
$494,949 for the six months ended June 30, 2000 and 1999, respectively. This
increase of 38% was due primarily to the following: a) increases in the level of
personnel necessary to develop and enhance the Company's Web site and b)
increases in outside consulting fees to assist in developing and designing the
Company's Web site. On an absolute dollar basis, the Company expects costs to
increase as the Company develops additional product offerings.
Selling, General and Administrative.
Other. Selling, general and administrative expenses were $4,137,067 and
$1,164,712 for the six months ended June 30, 2000 and 1999, respectively. The
$2,972,355 increase in other selling, general and administrative expenses was
primarily due to the following items: a) increases in professional fees paid for
services such as legal and accounting fees associated with the Company's filing
of its Form 10-KSB and Form 10-QSB with the Securities and Exchange Commission;
b) increases in sales force personnel to generate increased revenues; c)
increases in advertising costs associated with the Company's partnership with
StarMedia Network, Inc.; d) increases in rent due to the leasing of additional
office and network facilities necessitated by increases in personnel and
equipment; e) the addition of directors and officers liability insurance; f) the
increase in personnel and associated recruiting fees needed to support the
growth of the business; g) increases in costs related to the acquisition of
proprietary and syndicated financial content; h) increases in translation costs
associated with the opening of a subsidiary translation office and hiring of
translating personnel; and i) increases in payroll in order to execute upon
domestic and international expansion plans.
The Company expects other selling, general and administrative expenses to
increase in absolute dollars as the Company incurs costs related to the growth
of its business.
Interest Expense. Interest expense consists primarily of non-cash based
items. Interest expense was $136,361 for the six months ended June 30, 2000
compared to $2,395,118 for the same period in 1999. During the first quarter of
2000, as a result of the private placement, the Company repaid outstanding
bridge loans of $500,000 resulting in the recognition of unamortized debt
discount of $128,968 as interest expense. During the first quarter of 1999, as
the result of conversion of debt to preferred stock, the Company recognized
$2,300,000 of noncash interest expense. The Company incurred additional
miscellaneous interest expense of $7,393 during the first and second quarters of
2000 relating to remaining outstanding debt.
Liquidity and Capital Resources
The Company has experienced net losses in each year of its operations,
which losses have caused a working capital deficiency of $2,076,160 and a
stockholders' deficiency of $1,590,876 as of December 31, 1999. The Company has
financed those losses, as well as the growth of the business, through a series
of private placements and private loans. The Company is continuing to seek
sources of financing. For instance, the Company completed a private placement of
its common stock in the first and second quarter of 2000, resulting in net
proceeds of approximately $5,703,000. As a result of this private placement, the
Company has reduced its working capital deficiency to $1,665,033 and its
stockholders' deficiency to $650,153. During the six months ended June 30, 2000,
the Company began shifting its revenue emphasis from primarily advertising to
recurring revenues from subscription fees for its proprietary and redistributed
content and tools as well as co-branding and private labeling services. In
addition, the Company is exploring alternate ways of generating revenues through
partnerships with other businesses. Conversely, the on-going
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development and maintenance of its Web site along with international expansion
plans is expected to result in operating losses for the foreseeable future.
The Company used $2,804,345 and $1,588,497 of cash in continuing operating
activities during the first six months of 2000 and 1999, respectively. The
Company anticipates increases in revenues as emphasis shifts to generate
recurring revenues from subscription fees for its proprietary and redistributed
content and tools as well as revenue sharing with partner sites in addition to
co-branding and private labeling services. On going development and maintenance
of its Web site is expected to result in operating losses for the foreseeable
future.
The Company used cash in investing activities of $471,708 and $126,372 for
the six months ended June 30, 2000 and 1999, respectively. This cash was used
primarily to fund the acquisition of computer hardware and software.
The Company's notes payable totaled $675,436 ($365,705, net of discount) as
of December 31, 1999. All of the notes, with the exception of a $25,000 note
payable to a private company, were paid off with a portion of the proceeds of a
private placement offering completed in January 2000. Additionally, the Company
borrowed $65,000 at a fixed rate of interest of 8.75% from the spouse of a
director of the Company. That note was repaid on July 1, 2000.
On June 30, 2000, the Company had cash on hand of $1,773,017.
The Company had commitments for capital expenditures as of December 31,
1999 to complete its project to make its systems redundant and to upgrade its
computer systems. The Company has a bandwidth capacity of over 100 million page
views per month, as opposed to its previous monthly capacity of approximately 10
million page views per month. The Company believes this will enable it to
increase market share into the foreseeable future, as well as to offer co-
branded and private label sites and other services to larger entities within the
Internet information industry. The cost to complete this project and upgrade its
computer systems was approximately $392,000 at December 31, 1999. The project
was completed during the second quarter ended June 30, 2000.
As previously mentioned herein, the Company completed private placements
through April 2000. In January of 2000, the Company received approximately
$1,690,000 from its financing activities. The proceeds from the financing were
used to pay commissions, legal and other fees of the private offering of
$348,000, to repay bridge loans of $506,000, including accrued interest, to
repay a promissory note and accrued interest thereon of $166,000 and to
repurchase stock from the former president and chief executive officer of the
Company in the amount of approximately $209,000, pursuant to his termination
agreement. The Company netted $461,000 to use for working capital purposes. In
March and April of 2000, the Company received $6,135,000, net of issuance costs,
from additional financing activities. After paying fees of the offering and the
final repurchase of stock from the former president and chief executive officer
of approximately $937,000, pursuant to his termination agreement, approximately
$4,180,000 was available for working capital purposes. The Company used a
portion of the net proceeds of the offering to add key members to the management
team and to add sales and marketing personnel.
The Company anticipates that it will reduce its operating expenses in the
short term until additional funding can be secured. Operating expenses will
continue to consume a material amount of the Company's cash resources, including
the net proceeds of the Company's recent private placement. The Company believes
that the net proceeds of the private placement, together with its existing cash
and cash generated from new business will be sufficient to meet the Company's
anticipated cash needs for working capital and capital expenditures for
approximately the next three to six months.
Risk Associated with the Year 2000.
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To date the Company has not experienced any problems associated with Y2K
issues.
Part II. Other Information
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and use of Proceeds.
(c) Recent Sales of Unregistered Securities.
As previously reported in the Company's Form 10-KSB filed on June 2, 2000
and Form 10-QSB filed on June 13, 2000 with the Securities and Exchange
Commission:
On January 18, 2000, the Company sold 563,569 shares of common stock at
$3.00 per share to 36 individuals in a private placement for cash consideration
of $1,690,711. The shares of common stock were sold to "accredited investors" as
that term is defined by Rule 501 of Regulation D of the Securities Act of 1933,
as amended (the "Act"), for investment purposes, without solicitation or
advertisement by the Company. Robb Peck McCooey Clearing Corporation ("Robb
Peck") was the principal placement agent for this private placement. A total of
$663,462 was paid to Robb Peck in commissions pursuant to such sale of which
$219,792 was paid by the Company in cash and $443,670 was paid in the form of
147,890 shares of common stock sold at $3.00 per share. The securities were
exempt from registration under Section 4(2) of the Act.
The Company sold shares of common stock to individuals pursuant to private
placements at $3.00 per share as follows: 1,654,032 shares on March 31, 2000 to
52 investors, 115,167 shares on April 10, 2000 to 9 investors and 275,573 shares
on April 20, 2000 to 20 investors, for total cash consideration of $6,134,318.
The shares of common stock were sold to "accredited investors" as that term is
defined by Rule 501 of Regulation D of the Act, for investment purposes, without
solicitation or advertisement by the Company. Robb Peck was the principal
placement agent for the private placement of March 31, 2000. A total of
$1,048,388 was paid to Robb Peck in commissions pursuant to such sale, of which
$642,973 was paid by the Company in cash and $405,415 was paid in the form of
135,138 shares of common stock sold at $3.00 per share. Pinnacle Asset
Management ("Pinnacle") was the principal placement agent for the private
placements of April 10 and April 20, 2000. A total of $119,322 was paid in cash
to Pinnacle as commissions for such sales. An additional $35,167 was paid by the
Company to Robb Peck in cash as a consulting fee in connection with the Pinnacle
sales. The securities were exempt from registration under Section 4(2) of the
Act
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submissions of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule (in electronic format only).
(b) Reports on Form 8-K:
None.
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FinancialWeb.com, Inc.
Dated: August 21, 2000 By: /s/ Kevin Leininger
----------------------
Kevin Leininger
Chief Executive Officer
and Chief Accounting Officer
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