SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934.
----------------------
For Quarter Ended JUNE 30, 2000 Commission file number 0-18410
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NETCURRENTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4233050
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9720 Wilshire Blvd., Suite 700, Los Angeles, CA 90212
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 860-0200
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(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON STOCK, $.001 PAR VALUE-- 32,457,389 SHARES AS OF AUGUST 10, 2000
Table Of Contents
PART I - FINANCIAL INFORMATION ...............................................1
ITEM 1. FINANCIAL STATEMENTS.................................................3
ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........13
PART II - OTHER INFORMATION ..................................................13
ITEM 1. LEGAL PROCEEDINGS ..................................................18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ..........................18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ....................................18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ................18
ITEM 5. OTHER INFORMATION ..................................................18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...................................19
Page 2
Part 1. Financial Information
Item 1. Financial Statements
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED) AND
DECEMBER 31, 1999 (AUDITED)
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ASSETS
June 30, December 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $ 7,094,504 $ 798,855
Accounts receivable, net of allowance for
doubtful accounts of nil and nil 625,359 555,667
Prepaid advertising expenses - 583,392
Prepaid assets 43,525 40,342
Subscription receivable - 200,000
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Total current assets 7,763,388 2,178,256
FILM COSTS 224,986 224,988
FIXED ASSETS, at cost, net 399,742 131,559
GOODWILL, less accumulated amortization of
$166,782 and $144,282 796,913 841,913
INVESTMENTS 362,200 725,050
OTHER ASSETS 51,989 38,043
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TOTAL ASSETS $ 9,599,218 $ 4,139,809
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Page 3
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED) AND
DECEMBER 31, 1999 (AUDITED)
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LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
2000 1999
--------------- ----------------
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 874,140 $ 1,202,141
Dividends payable 236,063 108,313
Due to related parties - 44,046
Capital lease obligation - 4,320
Convertible debentures - 619,824
Deferred revenue - 63,025
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Total current liabilities 1,110,203 2,041,669
Total liabilities 1,110,203 2,041,669
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, Series A, C, D, E, and F, $0.001 par value
5,400,000 shares authorized
1,100,000 and 2,625,000 shares issued and outstanding 1,100 2,625
Preferred stock, Series G, $1,000 par value
4,000 shares authorized
30 and 1,875 shares issued and outstanding 30,000 1,875,000
Common stock, $0.001 par value
50,000,000 shares authorized
32,029,653 and 23,070,869 shares issued and outstanding 32,030 23,071
Treasury stock, at cost
93,536 shares (1,010,192) (1,010,192)
Subscription receivable (4,108,569) (398,800)
Additional paid-in capital 47,154,701 30,704,372
Accumulated other comprehensive income (92,113) 225,050
Accumulated deficit (33,517,942) (29,322,986)
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Total shareholders' equity 8,489,015 2,098,140
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,599,218 $ 4,139,809
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Page 4
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000,
AND 1999,
(UNAUDITED)
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For the For the
Three Months Three Months
Ended Ended
June 30, June 30,
2000 1999
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(unaudited) (unaudited)
REVENUES $ 345,363 $ 2,523,653
Costs of Sales
Costs of projects sold 836,124
Write-off Projects in Development 301,037
SELLING GENERAL AND ADMINISTRATIVE
Salaries and Benefits 939,108
Selling and Marketing Expenses 364,581
Professional Fees 268,569
Consulting Fees 225,933
Occupancy Costs 69,297
General and administrative expenses 338,478 949,447
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2,205,966 949,447
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LOSS FROM OPERATIONS (1,860,603) 437,045
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OTHER INCOME (EXPENSE)
Interest and dividend income 157,775 1140
Interest and financing expense (400) (12,447)
Recovery of expenses - (1,042,310)
Write-off of notes receivable and other assets - (166,965)
Amortization of goodwill (22,500) 16,718
Amortization of acquisition costs - 6,070
Settlement expense (95,000) -
Gain on sale of investment - -
Other income (expense) 317 (10,786)
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Total other income (expense) 40,192 (1,208,580)
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LOSS BEFORE PROVISION FOR INCOME TAXES (1,820,411) (771,535)
PROVISION FOR INCOME TAXES (2,405) -
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Page 5
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000,
AND 1999,
(UNAUDITED)
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For the For the
Three Months Three Months
Ended Ended
June 30, June 30,
2000 1999
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(unaudited) (unaudited)
NET INCOME (LOSS) $ (1,822,816) $ (771,535)
DIVIDEND REQUIREMENT OF SERIES A PREFERRED STOCK (106,250) (106,250)
DIVIDEND REQUIREMENT OF SERIES E PREFERRED STOCK (66,250)
BENEFICIAL CONVERSION ON SERIES G PREFERRED STOCK - -
DIVIDEND REQUIREMENT OF SERIES G PREFERRED STOCK - -
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INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS (1,929,066) (944,035)
------------ ------------
UNREALIZED GAIN ON INVESTMENT 487,273 -
------------ -----------
COMPREHENSIVE LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (2,416,338) $ (944,035)
============ ============
BASIC LOSS PER COMMON SHARE $ (.06) $ (0.10)
============ ============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
BASIC 31,886,783 9,085,053
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Page 6
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
AND 1999,
(UNAUDITED)
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For the For the
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
--------------- ------------
unaudited unaudited
REVENUES $ 612,780 $ 2,535,653
Cost of Sales
Costs of projects sold 836,124
Write-off Projects in Development 301,037
SELLING, GENERAL AND ADMINISTRATIVE
Salaries and Benefits 1,755,602
Selling and Marketing Expenses 1,137,202
Professional Fees 523,834
Consulting Fees 434,345
Occupancy Costs 111,216
General and administrative expenses 718,629 1,360,426
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4,680,828 1,360,426
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LOSS FROM OPERATIONS (4,068,048) (38,066)
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OTHER INCOME (EXPENSE)
Interest and dividend income 228,594 1753
Interest and financing expense (7,061) (12,447)
Recovery of expenses - -
Write-off of notes receivable and other assets (55,405) (166,965)
Amortization of goodwill (45,000) (24,282)
Amortization of acquisition costs - -
Settlement expense (166,400) -
Gain on sale of investment 168,250 -
Other income (expense) 6,275 (11,098)
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Total other income (expense) 129,253 (213,039)
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LOSS BEFORE PROVISION FOR INCOME TAXES (3,938,795) (174,973)
PROVISION FOR INCOME TAXES (12,155) -
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Page 7
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
AND 1999,
(UNAUDITED)
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For the For the
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
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NET INCOME (LOSS) $ (3,950,950) $ (174,973)
DIVIDEND REQUIREMENT OF SERIES A PREFERRED STOCK (212,500) (212,500)
DIVIDEND REQUIREMENT OF SERIES E PREFERRED STOCK (66,250)
BENEFICIAL CONVERSION ON SERIES G PREFERRED STOCK - -
DIVIDEND REQUIREMENT OF SERIES G PREFERRED STOCK (22,250) -
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INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS (4,185,700) (453,723)
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UNREALIZED (LOSS) GAIN ON INVESTMENT 317,163 -
------------ -----------
COMPREHENSIVE LOSS APPLICABLE TO COMMON
SHAREHOLDERS $ (4,502,863) $ (436,885)
============ ============
BASIC LOSS PER COMMON SHARE $ (0.14) $ (0.05)
============ ============
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
BASIC 29,859,961 9,085,053
============ ============
Page 8
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
(UNAUDITED)
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PREFERRED STOCK
---------------------------------------
SERIES A, C, D,
E, AND F SERIES G COMMON STOCK
----------------- ------------------- -------------------- TREASURY SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK RECEIVABLE
--------- ------ ------ ---------- ---------- -------- ------------ ------------
BALANCE,
DECEMBER
31, 1999 2,625,000 $2,625 1,875 $1,875,000 23,070,869 $ 23,071 $(1,010,192) $(398,800)
ISSUANCE OF
COMMON
SHARES IN
PAYMENT
OF DIVIDENDS
ON SERIES A
PREFERRED
STOCK 53,662 54
ISSUANCE OF
COMMON
STOCK FOR
THE EXERCISE
OF OPTIONS 701,999 702
ISSUANCE OF
COMMON STOCK
FOR THE
EXERCISE OF
WARRANTS 151,583 152
ISSUANCE OF
COMMON STOCK
FOR PRIVATE
PLACEMENT 1,700,000 1,700
ISSUANCE OF
SERIES G
PREFERRED
STOCK 1,090 1,090,000
ISSUANCE OF
SERIES E
PREFERRED
STOCK
RETIREMENT
OF COMMON
STOCK
Grosso-Jacobson (328,286) (328)
ADJUSTMENT
IN COMMON
STOCK 161
ACCUMU-
LATED
OTHER
ADDITIONAL COMPRE-
PAID-IN HENSIVE ACCUMULATED
CAPITAL INCOME DEFICIT TOTAL
----------- -------- ------------ -----------
BALANCE,
DECEMBER
31, 1999 $30,704,372 $225,050 $(29,322,986) $2,098,140
ISSUANCE OF
COMMON
SHARES IN
PAYMENT
OF DIVIDEND
ON SERIES A
PREFERRED
STOCK 106,196 106,250
ISSUANCE OF
COMMON
STOCK FOR
THE EXERCIS
OF OPTIONS 853,924 854,626
ISSUANCE OF
COMMON STOC
FOR THE
EXERCISE OF
WARRANTS 212,308 212,460
ISSUANCE OF
COMMON STOC
FOR PRIVATE
PLACEMENT 7,648,300 7,650,000
ISSUANCE OF
SERIES G
PREFERRED
STOCK 1,090,000
ISSUANCE OF
SERIES E
PREFERRED
STOCK
RETIREMENT
OF COMMON
STOCK
Grosso-Jacobson 328 -
ADJUSTMENT
IN COMMON
STOCK -
Page 9
NETCURRENTS,INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
(UNAUDITED )
- -------------------------------------------------------------------------------
PREFERRED STOCK
---------------------------------------
SERIES A, C, D,
E, AND F SERIES G COMMON STOCK
----------------- ------------------- -------------------- TREASURY SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK RECEIVABLE
--------- ------ -------- ---------- ---------- -------- ------------ ------------
ISSUANCE OF COMMON
STOCK IN PAYMENT OF
DIVIDENDS ON SERIES
A PREFERRED STOCK $ $ $ $ $
ISSUANCE OF COMMON
STOCK FOR EXERCISE
OF OPTIONS 775,000 775 (1,170,701)
ISSUANCE OF COMMON
STOCK FROM THE
PREFERRED SERIES F
CONVERSION (225,000) (225) 225,000 225
ISSUANCE OF COMMON
STOCK FROM THE
PREFERRED SERIES G
CONVERSION (2,935) (2,935,000) 2,336,318 2,336
ISSUANCE OF COMMON
STOCK FOR CONVERSION
OF SERIES C PREFERRED
STOCK FOR EXERCISE
OF OPTIONS (1,300,000) (1,300) 2,800,000 2,800 (2,499,046)
ISSUANCE OF COMMON
STOCK FOR
SETTLEMENT 30,000 30
ISSUANCE OF COMMON
STOCK FOR CONVERSION
DEBENTURES 513,346 513
DIVIDENDS PAID ON
SERIES A PREFERRED
STOCK
DIVIDENDS PAID ON
SERIES G PREFERRED
STOCK $ $ $ $ $
UNREALIZED LOSS ON
INVESTMENT
REALIZED GAIN ON
INVESTMENT
INTEREST ON SUBSCRIPTION
RECEIVABLE (40,022)
NET LOSS
----------- ------ -------- --------- ---------- ------- ----------- ------------
BALANCE, JUNE 30,2000 1,100,000 $1,100 30 $ 30,000 32,029,652 $32,030 $(1,010,192) $(4,108,569)
=========== ====== ======== ========= ========== ======= ============ ============
ACCUMU-
LATED
OTHER
ADDITIONAL COMPRE-
PAID-IN HENSIVE ACCUMULATED
CAPITAL INCOME DEFICIT TOTAL
----------- -------- ------------ -----------
ISSUANCE OF COMMON
STOCK IN PAYMENT OF
DIVIDENDS ON SERIES
A PREFERRED STOCK $ $ $ $
ISSUANCE OF COMMON
STOCK FOR EXERCISE
OF OPTIONS 1,210,725 40,799
ISSUANCE OF COMMON
STOCK FROM THE
PREFERRED SERIES F
CONVERSION 311,525 311,525
ISSUANCE OF COMMON
STOCK FROM THE
PREFERRED SERIES G
CONVERSION 2,932,664 -
ISSUANCE OF COMMON
STOCK FOR CONVERSION
OF SERIES C PREFERRED
STOCK FOR EXERCISE
OF OPTIONS 2,448,500 (49,046)
ISSUANCE OF COMMON
STOCK FOR
SETTLEMENT 71,370 71,400
ISSUANCE OF COMMON
STOCK FOR CONVERSION
DEBENTURES 644,487 645,000
DIVIDENDS PAID ON
SERIES A PREFERRED
STOCK (212,500) 1,090,000
DIVIDENDS PAID ON
SERIES G PREFERRED
STOCK $ $ $ (21,500) $ (21,500)
UNREALIZED LOSS ON
INVESTMENT (287,600) (287,600)
REALIZED GAIN ON
INVESTMENT (29,563) (29,563)
INTEREST ON SUBSCRIPTION
RECEIVABLE (40,022) (40,022)
NET LOSS (40,022) (3,950,950) (3,950,950)
------------ ---------- ------------- ------------
BALANCE, JUNE 30,2000 $47,154,701 $ (92,113) $(33,517,942) $ 8,489,015
============ ========== ============= ============
Page 10
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999,
(UNAUDITED)
- -------------------------------------------------------------------------------
For the For the
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
-------------- ----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,950,950) $ 62,397
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization of fixed assets 74,936 73,776
Amortization of goodwill 45,000 24282
Amortization of acquisition costs - (5,320)
Write-off of notes receivable and other assets 55,405 -
Issuance of common stock for services rendered 71,400 -
Interest from subscription receivables (109,769) -
Gain on sale of investments (168,250) -
(Increase) decrease in
Accounts receivable (69,692) 1,411,808
Other assets and prepaid expenses 47 (50,003)
Prepaid advertising expenses 583,392 -
Increase (decrease) in
Accounts payable and accrued expenses (328,001) (2,867,950)
Deferred revenue (63,025) (270,669)
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Net cash used in operating activities (3,859,507) (386,214)
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Page 11
NETCURRENTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000,
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999,
(UNAUDITED)
- -------------------------------------------------------------------------------
For the For the
Six Months Six Months
Ended Ended
June 30, June 30,
2000 1999
------------ -----------
(unaudited) (unaudited)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on fixed assets $ (343,119) $ (16,014)
Additions to film costs 2 16,226
(Increase) decrease in receivables from related
parties - 284,821
Additions to goodwill - 809,785
Company acquisitions - 252,122
(Increase) decrease in short-term investments - (800,000)
Increase (decrease) in obligations under capital leases - 28,247
Increase in acquisition costs - 114,589
Purchase of investments (169,316) -
Increase in subscriptions receivable 200,000 -
Proceeds from sale of investments 383,125 -
----------- -----------
Net cash provided by (used in) investing activities 70,692 689,776
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (44,046) (1,210,802)
Borrowings from notes payable - (264,914)
Payments on capital lease obligation (4,320) (37,647)
Proceeds from issuance of preferred stock 311,525 2,680,975
Proceeds from issuance of common stock 8,723,305 (824,785)
Offering costs - (192,500)
Proceeds from convertible debentures, net of
offering costs 1,098,000 -
----------- -----------
Net cash provided by financing activities 10,084,464 150,327
----------- -----------
Net increase in cash and cash equivalents 6,295,649 453,889
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 798,855 (442,645)
----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,094,504 $ 11,244
=========== ============
Page 12
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of NetCurrents, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all material adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2000. The
information contained in this Form 10-QSB should be read in conjunction with the
audited financial statements filed as part of the Company's Form 10-KSB for the
year ended December 31, 1999.
(2) GOODWILL
Goodwill was recorded in connection with the acquisition of MWI
Distribution, Inc. in July 1998 and is being amortized over a period of five
years.
(3) DIVIDENDS ON PREFERRED STOCK
For the three months ended June 30, 2000, the Company issued shares of
its Common Stock at a market value to pay the required $106,250 quarterly
dividend on the Series A Preferred Stock and the required $22,250 quarterly
dividend on the Series G Preferred Stock.
(4) LOSS PER SHARE
Loss per share for the three and six months ended June 30, 2000 has
been computed after deducting the dividend requirements of the Series A and
Series G Preferred Stock. It is based on the weighted average number of common
and common equivalent shares reported outstanding during the entire period ended
on June 30, 2000.
Item 2. Management's Discussion and Analysis or Plan of Operation
FORWARD AND LOOKING STATEMENTS.
This report contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933 with respect to the Company
and its operations that are subject to certain risks and factors which could
cause the Company's future actual results of operations and future financial
condition to differ materially from those described herein. The words "expect,"
"estimate," "anticipate," "predict, "believe" and similar expressions and
variations thereof are intended to identify forward-looking statements. These
statements appear in a number of places in this filing and include statements
regarding the intent, belief or current expectations of the Company with respect
to, among other things: integration of NetCurrents Services Corporation ("NC
Services") into NetCurrents, Inc., execution of business plans, completion of
strategic alliances, the ability to work effectively with our alliance partners:
Burrelle's Information Services, Inc., Thomson Financial Investor Relations, and
Webmind, the conversion of a letter of intent with Kroll Risk Consulting
Services into a strategic alliance agreement, demand for NetDetect, AgencyFacts
and the other premium products and services, the ability to continue to develop
new products and services, the ability to attract sufficient skilled personnel
to meet its targets in the business plans, expected capital expenditures,
anticipated business and economic conditions and trends affecting our financial
condition and our business and strategies. Readers
Page 13
are cautioned not to put undue reliance on such forward-looking statements. With
respect to the NC Services business, such forward-looking statements involve
risks and uncertainties, including the intensity of competition from other
technology companies, the ability of NC Services to meet its staffing
requirements, the ability of NC Services to execute its business plans and the
status of our future liquidity. Readers are further cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in this filing, including, without limitation, those risks and
uncertainties discussed under the headings "Factors That Could Impact Future
Results" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1999 as well as the information set forth below. We do
not ordinarily make projections of our future operating results and we undertake
no obligation to publicly update or revise any forward looking statements,
whether as a result of new information, future events or otherwise.
OVERVIEW
Prior to 1999 our principal business was to acquire, develop, produce
and distribute dramatic, comedy, documentary and instructional television series
and movies and theatrical motion pictures. We distributed our projects in the
United States and in international markets for exhibition on standard broadcast
television (network and syndication), basic cable and pay cable and for video
distribution. We also provided producer and executive producer services in
exchange for fees and participations in future profits from these projects.
In February 1999 we announced our intention to change our business
focus to the Internet and electronic commerce industries. During the next
several months, we significantly contracted our operations as we attempted to
identify a target to expand into these new business lines. In furtherance of our
new business focus, in September 1999, we entered into an agreement to acquire
Infolocity, Inc., a privately-held company in Burlingame, California engaged in
the business of helping public companies minimize the impact of negative
information on the Internet through its proprietary technology. In December 1999
we completed the acquisition for 7,375,001 shares of our common stock and
renamed the company "Net Currents Services Corporation." ("NC Services") We
accounted for the acquisition as a pooling of interests.
Immediately following the acquisition of NC Services, we commenced the
ongoing development and execution of a business plan for that subsidiary. One of
the first steps was to build the management team, the technology group, an
international sales force and a product development team. During the six months
ended June 30, 1999, we completed the senior management team for NC Services by
hiring a Vice-President Sales, a Chief Financial Officer, a Regional Sales
Director for the West Coast Region, a Regional Sales Director for the Central
Region and a Regional Sales Director for the East Coast Region. In addition,
from December 31, 1999 to July 31, 2000, we expanded the international sales
force from 3 to 15 and our technology group from 2 to 6. We are in the formative
stages of creating a product development team.
In April 2000, we released a new product designed for the public and
investor relations markets called AgencyFacts. AgencyFacts includes components
ranging from statistical analysis to online sentiment analysis, delivered on a
secured webportal, comprehensive Web clipping services for each client, analysis
and summary of most talked about topics or issues, analysis and summary of most
active poster information
As part of our marketing and sales strategy, we have determined to seek
out alliances with nationally and internationally recognized "channel"
partners." We believe that these alliances will expedite an increase in our
brand-name recognition, generate sales through the utilization of our partners'
sales force, and can stimulate product development efforts through joint
development and joint market launch of products designed for the needs of our
partners' customers. We established a set of criteria for the selection of these
Page 14
channel partners, including that each partner should be a leader in its market,
have established a national or international brand in their market segment, have
a broad sales force in major cities across the United States and in some cases
major international cities and must support its sales force with strategically
structured marketing programs. To date, we have entered into two such alliances
and entered into a letter of intent for a third.
In May 2000, we announced a strategic alliance with Burrelle's
Information Services, Inc. ("Burrelle's") of Livingston, New Jersey, one of the
world's leading providers of media monitoring services. We provide Burrelle's
with a customized AgencyFacts service that will appear on Burrelle's NewsAlert
client web portals along with the "Powered by NetCurrents" logo. Burrelle's has
agreed that its national sales organization will market this customized product
to thousands of clients as part of the Burrelle's NewsAlert service. Burrelle's
will also market our premium products. We completed the customized Burrelle's
product by July 31, 2000 and plan the product launch for August 2000.
In June 2000, we entered into a strategic alliance with Thomson
Financial Investor Relations ("TFIR"), one of the world's leading providers of
investor relations solutions and strategic advisory services. Under the terms of
the alliance, we and TFIR will co-develop and market new Internet monitoring
services for the investor relations market. Initially, we have customized our
AgencyFacts product for the specific needs of TFIR clients with NetDetect, the
customized product, being offered as an integral part of TFIR's IR Universe
platform. We plan to launch this product to TFIR's more than 3,500 clients in
August 2000 with the roll out planned to take place over a four to five month
period. Sales and marketing will be accomplished through TFIR's national sales
force, which will also sell NC Services premium products. We will also share
office space with TFIR in several major North American cities.
These two strategic relationships will create leveraged sales channels
for NC Services in the investor relations and media monitoring market segments.
As well, we anticipate we will derive benefits from the marketing campaigns and
web site traffic of Burrelle's and TFIR. We will also have the opportunity to
generate new clients through a combined sales force of over 200 sales personnel.
In the past six months, we also modified our premium products to better
meet the needs of our clients. This change has resulted in a modular product
line that allows our clients to more easily select and modify the services they
require.
In April 2000, we entered into a co-location agreement with AboveNet
Communications in San Jose, California under which we will co-locate our servers
with AboveNet. We did this to acquire enhanced security, access to the largest
aggregated bandwidth in the world (up to multi-terabit per second capacity)
which can scale as required. This also reduces the amount of funds we would be
required to invest in equipment.
In June 2000 we announced a strategic alliance with Intelligenesis
Corporation (now known as Webmind Corporation). Webmind has developed and
markets sophisticated artificial intelligence technology that we utilize in the
delivery of our AgencyFacts products. Webmind's technology will allow us to
enhance our AgencyFacts products and deliver expanded monitoring and analysis
capacity without substantially increasing Internet Strategist staffing.
On August 2, 2000, we entered into a letter of intent to establish a
three-year exclusive global strategic alliance with Kroll Risk Consulting
Services Division ("KRCS") of the Kroll-O'Gara Company. KRCS is a leading
worldwide investigations and intelligence firm, providing a full range of risk
mitigation and asset protection services to its over 25,000 clients. KRCS has a
global network of 60 offices in 19 countries. Under the proposed terms of this
alliance, KRCS and we will share offices throughout the world
Page 15
and provide enhanced Internet intelligence services to corporations, individuals
and governments. KRCS and we will establish an exclusive Internet based product
line designed specifically for the security market using the NetCurrents/Kroll
brand name and integrating our FIRST technology. Supported by a co-funded
marketing campaign, the companies will utilize a joint sales force of
approximately 165 salespeople who will sell products to the worldwide security
and intelligence market. The companies anticipate commencement of their joint
sales effort in September 2000. In connection with this alliance, we will grant
to KRCS warrants to purchase 1,750,000 shares of our Common Stock at an exercise
price of $4.00 per share, of which warrants to purchase 350,000 will be
immediately vested and the balance will vest on KRCS meeting certain performance
criteria based on introductions to potential clients.
Management has focused its efforts in the first six months on the
completion of the above- mentioned key strategic alliances as well as the sales,
technology and product modifications necessary to support our business plans.
Aside from the technological advantages achieved through Webmind and AboveNet,
the strategic alliances provide us with strong channel partners in the Investor
Relations and Media Monitoring markets, all of which represent large market
opportunities for us. With the launch of the Burrelle's and TFIR alliances in
the third and fourth quarters of 2000, the impact of joint marketing efforts and
a combined sales force of over 200 salespeople, we have an opportunity to expand
our client base and improve our cash flow over the balance of fiscal 2000 and
2001.
RESULTS OF OPERATIONS
BECAUSE OF THE COMPLETE CHANGE IN THE BUSINESS OF THE COMPANY COMMENCING IN
DECEMBER 1999 WITH THE ACQUISITION OF NC SERVICES, COMPARISONS OF RESULTS FROM
PERIODS IN 1999 TO PERIODS IN 2000 ARE NOT MEANINGFUL.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
Revenues for the three months ended June 30, 2000 were $345,363 and
consisted of sales of $233,878 by our Internet division and $111,485 from our
Entertainment division. Revenues for the three months ended June 30, 1999 were
$2,523,653 and were entirely from sales made by our Entertainment division.
During the three months ended June 30, 1999 we wrote off $301,037 of
projects in development as a result of our determination to pursue a different
business focus.
Selling, general and administrative expenses were $2,205,966 for the
three months ended June 30, 2000 as compared to $949,447 in the three months
ended June30, 1999. As set out in the financial statements above, we expended
$268,569 for professional fees in this period primarily for legal fees relating
to the settlement of certain litigation matters regarding MWI Distribution, Inc.
We also expended $225,933 in consulting fees as a result of the conversion of an
employment agreement into a consulting agreement as well as the payment of fees
to a financial intermediary. Salaries and benefits increased to $939,602 for the
three month period as our staffing levels were augmented to meet our business
plan levels. Sales and marketing expenses were $364,581 as we continued to
expand our sales force in Canada and the United States as well as continuing our
marketing campaigns.
By June 30, 1999, we had significantly reduced our staff and operating
expenses as we reduced our entertainment industry operations. By comparison, we
have greatly expanded our operations in 2000 as a result of the acquisition of
NC Services.
Page 16
The $156,625 increase in interest income during the three months ended
June 30, 2000 as compared to the three months ended June 30, 1999 was due to the
short-term investment of net proceeds from sales of securities to Brown Simpson
in March 2000 (see "Liquidity and Capital Resources")
The recovery of $1,042,310 of expenses during the three months ended
June 30, 1999 was due to the forgiveness by certain executives of certain
obligations owed by us to them.
Settlement expense of $95,000 during the three months ended June 30,
1999 related to the settlement of certain MWI Distribution, Inc. lawsuits.
We paid dividends on our preferred stock by issuing 27,976 shares and
50,746 shares of common stock during the three months ended June 30, 2000 and
1999, respectively.
The net loss applicable to common shareholders was $2,416,338 and
$944,035 for the three months ended June 30, 2000 and 1999, respectively.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
Revenues for the six months ended June 30, 2000 were $612,780 and
consisted of sales of $425,547 by our Internet division and $187,233 from our
Entertainment division. Revenues for the six months ended June 30, 1999 were
$2,535,653 and consisted entirely of sales made by our Entertainment division.
Cost of sales during the six months ended June 30, 1999 consisted
solely of direct costs associated with the production and distribution of our
entertainment products. We did not have any cost of sales in the six months
ended June 30, 2000 and do not anticipate cost of sales related to our Internet
division.
During the six months ended June 30, 1999 we wrote off $301,037 of
projects in development as a result of our determination to pursue a different
business focus.
Selling, general and administrative expenses were $4,680,828 in the six
months ended June 30, 2000. We expended material amounts for professional fees
during the period. Included in these amounts were legal fees relating to the
settlement of certain litigation matters, primarily regarding MWI Distribution,
Inc. As well, we expended additional amounts relating to accounting and audit
costs as a result of our change in fiscal year end from June 30 to December 31
and the resulting requirement to file an additional Form 10-KSB. Consulting fees
increased during this period as a result of the conversion of an employment
agreement into a consulting agreement as well as the payment of consulting fees
to a financial intermediary. Salaries and benefits for the six months ended June
30,2000 continued to rise as we continued to expand our sales force, technology
team and Internet Strategist departments. Sales and marketing expenses continued
to rise as our sales force expanded and we augmented our marketing programs. For
the six months ended June 30, 1999, selling, general and administrative expenses
were $1,360,426. During the six months ended June 30, 1999 the Company had
significantly reduced its staff and operating expenses as it transitioned out of
certain operations in the entertainment industry. The lower general and
administrative costs were primarily due to elimination of certain staff and
costs related to the entertainment business.
The $226,841 increase in interest income during the six months ended
June 30, 2000 as compared to the six months ended June 30, 1999 was due to the
short-term investment of net proceeds from sales of securities to Brown Simpson
in March 2000 (see "Liquidity and Capital Resources").
Settlement expense of $166,400 during the six months ended June 30,
2000 related to the settlement of certain lawsuits.
Page 17
We paid dividends, or will have paid dividends, on our preferred stock
by issuing 52,351 shares and 96,637 shares of common stock during the six months
ended June 30, 2000 and 1999, respectively.
The net loss applicable to common shareholders was $4,502,863 and
$436,885 for the six months ended June 30, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
In March 2000, we issued 1,700,000 shares of common stock and warrants
to purchase, at exercise prices ranging from $6.00 to $9.00, an additional
3,998,000 shares of common stock to Brown Simpson Strategic Growth Fund Ltd and
the Brown Simpson Strategic Growth Fund L.P.(collectively, "Brown Simpson"). The
purchase price for these securities was $8,500,000. The Company can require
Brown Simpson to exercise the warrants if the underlying shares are registered
under the Securities Act of 1933 and the market price of the common stock
exceeds the exercise price by specified amounts ranging from $8.00 per share to
$14.00 per share. If the warrants are exercised in full, the Company would
receive an aggregate of $34,000,000 from the financing.
During the first quarter of 2000 we issued convertible debentures for
net proceeds of $1,090,000. In the six months ended June 30, 2000, all of these
convertible debentures, as well as all other outstanding convertible debentures,
converted into an aggregate of 3,184,077 shares of common stock.
In July 1998, we secured access to a $5,500,000 equity-based line of
credit with an institutional investor, subject to certain minimum trading
qualifications. To date, we have raised $2,500,000 through the sale of
convertible preferred stock to the investor.
We believe that cash flows from operations, cash on hand as well as
other available financing sources, should be sufficient to fund our operations
and service its debt in the foreseeable future. However, unanticipated events,
increased growth and possible acquisitions are a number of factors that could
change our anticipated needs, and could require that we try to raise additional
financing.
IMPACT OF YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits instead of four to define the applicable year. Any of our
computer programs that have time-sensitive software or facilities or equipment
containing embedded micro-controllers may recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations resulting in potential disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. We did not experience any
problems as a result of the advent of the Year 2000.
FACTORS THAT COULD IMPACT FUTURE RESULTS
FACTORS AFFECTING THE COMPANY'S LIQUIDITY AND CAPITAL RESOURCES
RISKS RELATED TO OUR BUSINESS
WE ACQUIRED NC SERVICES IN DECEMBER 1999. IF WE FAIL TO GROW THE NC SERVICES
BUSINESS OUR BUSINESS AND FINANCIAL CONDITION COULD SUFFER.
We acquired NC Services in December 1999 to expand our core business
into the Internet industry and provide us with further opportunities to promote
synergistic business relationships among
Page 18
other Internet companies. However, we cannot be certain that our acquisition of
NC Services will enable our business to realize a higher rate of growth.
We announced our intention to expand our business in the Internet and
electronic commerce industries in February 1999, and we have changed our core
television production business to Internet technology services, primarily
through our acquisition of NC Services. These industries are new, highly
speculative and involve a substantial degree of risk. Since we are in an early
stage of development in these rapidly evolving industries, our prospects are
difficult to predict and could change rapidly and without warning. You must
consider our prospects in light of the risks, expenses and difficulties
frequently encountered by companies in the early stages of developing and
expanding their business, particularly companies in the new and rapidly evolving
Internet technology and online commerce markets. These risks include, but are
not limited to, the inability to attract key personnel knowledgeable in the
Internet markets, the inability to respond promptly to changes in a rapidly
evolving and unpredictable business environment and the inability to manage
potential growth. To address these risks, we must, among other things:
o successfully implement new business plans and marketing
strategies;
o respond to competitive developments; and
o attract and retain qualified personnel.
WE MAY NOT BE SUCCESSFUL IN ENTERING THE INTERNET AND ONLINE COMMERCE FIELDS
SINCE WE HISTORICALLY NEVER HAVE OPERATED IN THESE BUSINESSES. OPERATING IN
THESE BUSINESSES WILL ALSO REQUIRE SUBSTANTIAL WORKING CAPITAL.
The Internet market segments are relatively new business ventures for
us, and are businesses in which we have not historically operated. In addition,
our new business strategy, will require substantial working capital. We will
continue to spend substantial funds to market and expand our new business and to
expand our existing management team with additional experienced Internet
personnel. We cannot assure you that we will be successful in any of these
areas.
FUTURE ACQUISITIONS INVOLVE RISKS FOR US.
We intend to evaluate future acquisitions of complementary product
lines and businesses as part of our business strategy. Any future acquisitions
may result in potentially dilutive issuances of equity securities, the use of
our cash resources, the incurrence of additional debt and increased goodwill,
intangible assets and amortization expense, which could negatively impact our
profitability. In addition, acquisitions involve numerous risks, including
difficulties in the assimilation of the operations and products of the acquired
companies, the diversion of management's attention from other business concerns,
risks of entering markets in which we have no or limited direct prior
experience, and the potential loss of key employees of the acquired company.
Page 19
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE.
We have a history of revenues and losses as follows:
Revenues Losses
Year ended June 30, 1997 $5,521,441 $4,592,145
Year ended June 30, 1998 $22,369,511 $1,411,916
Year ended June 30,1999 $2,991,953 $2,722,239
Six months ended December 31,1999 $342,985 $4,724,582
Six months ended June 30, 2000 $612,780 $3,938,795
(without giving effect to the payment in 1997, 1998, 1999 and 2000 of dividends
of $425,000 annually, on the Series A Preferred Stock and payment in 1999 of
dividends of $66,250 on the Series E Preferred Stock and payment in the six
months ended June 30, 2000 of dividends of $22,250 on the Series G Preferred
Stock). As of June 30, 2000, we had an accumulated deficit of ($33,517,942). If
the cash we generate from our operations cannot sufficiently fund possible
future operating losses, we may need to raise additional funds. Additional
financing may not be available in amounts or on terms acceptable to us, if at
all.
OUR FUTURE OPERATING RESULTS MAY FLUCTUATE AND ARE UNPREDICTABLE. IF WE FAIL TO
MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS, THE MARKET PRICE
OF OUR SECURITIES MAY DECLINE SIGNIFICANTLY.
Our limited operating history in the Internet and online commerce
industries makes it difficult to forecast accurately our revenues, operating
expenses and operating results. As a result, we may be unable to adjust our
spending in these areas in a timely manner to compensate for any unexpected
revenue shortfall.
BECAUSE OF THE LIMITED BARRIERS TO ENTRY IN THE INTERNET INDUSTRY, COMPETITION
IN THESE MARKETS IS INTENSE. IF WE ARE UNABLE TO COMPETE SUCCESSFULLY AGAINST
CURRENT AND FUTURE COMPETITORS THAT ENTER THESE MARKETS, OUR REVENUES AND
OPERATING RESULTS COULD BE IMPAIRED.
The Internet markets are new, rapidly evolving and intensely
competitive, and we expect that competition could further intensify in the
future. Barriers to entry are limited, and current and new competitors can
launch web sites and other similar businesses at a relatively low cost. Many of
our current and potential competitors have longer operating histories and
significantly greater financial, marketing and other resources than us.
Increased competition may result in reduced operating margins and loss of market
share.
We have not yet determined whether we will be able to compete
successfully against our current and future competitors. Further, as a strategic
response to changes in the competitive environment, we may from time to time
make marketing decisions or acquisitions that could adversely affect our
business, prospects, financial condition and results of operations.
OUR GROWTH AND OPERATING RESULTS WILL BE IMPAIRED IF THE INTERNET AND ONLINE
COMMERCE INDUSTRIES DO NOT CONTINUE TO GROW.
Our growth and operating results depend in part on widespread
acceptance and use of the Internet as a point of convergence in the
telecommunications, entertainment and technology industries, as well as on
continued consumer acceptance and use of the Internet for purposes of chat rooms
and other forms of
Page 20
communication. These practices are at an early stage of development, and demand
and market acceptance are uncertain.
The Internet may not become a viable medium for telecommunications,
entertainment and technology convergence or a healthy commercial marketplace due
to inadequate development of network infrastructure and enabling technologies
that address the public's concerns about:
o network performance;
o reliability;
o speed of access;
o ease of use; and
o bandwidth availability.
In addition, the Internet's overall viability could be adversely
affected by increased government regulation. Changes in or insufficient
availability of telecommunications or other services to support the Internet
could also result in slower response times and adversely affect general usage of
the Internet. Also, negative publicity and consumer concern about the security
of transactions conducted on the Internet and the privacy of users may also
inhibit the growth of commerce on the Internet.
BURDENSOME GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD IMPAIR OUR
RESULTS OF OPERATIONS.
It is possible that a number of laws and regulations may be adopted
concerning the Internet, relating to, among other things:
o user privacy;
o content;
o copyrights;
o distribution;
o telecommunications; and
o characteristics and quality of products and services.
The adoption of any additional laws or regulations may decrease the
popularity or expansion of the Internet. A decline in the growth of the Internet
could decrease demand for our services and increase our cost of doing business.
The application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could also harm our
business.
OUR OUTSTANDING OPTIONS AND WARRANTS MAY DILUTE OUR STOCKHOLDERS' INTERESTS AND
COULD HINDER US FROM OBTAINING ADDITIONAL FINANCING.
As of June 30, 2000, we had outstanding options and warrants to
purchase a total of 11,255,747 shares of common stock. To the extent that these
outstanding options and warrants are exercised, our stockholders' interests will
be diluted. Also, we may not be able to obtain additional equity capital on
Page 21
terms we like, since the holders of the outstanding options and warrants will
likely exercise them at a time when we may be able to obtain such capital on
better terms than those in the options and warrants.
THE CONVERSION OF OUR CONVERTIBLE PREFERRED STOCK MAY DILUTE OUR STOCKHOLDERS'
INTERESTS AND COULD HINDER US FROM OBTAINING ADDITIONAL FINANCING.
As of June 30, 2000, we have issued and outstanding 1,000,000 shares of
our Series A Preferred Stock, 50,000 shares of our Series D Preferred Stock,
50,000 shares of our Series F Preferred Stock and 30 shares of our Series G
Preferred Stock. At our option, we can pay the dividends on our Series A
Preferred Stock in cash or in shares of common stock. No dividends are currently
due on the Series C Preferred Stock. We are not required to pay dividends on the
Series F Preferred Stock; however, we are required to pay dividends on our
Series G Preferred Stock.
Holders of our convertible preferred stock could convert their shares
into common stock at any time in the future. To the extent all of the shares of
our outstanding convertible preferred stock are converted into common stock, our
common stockholders' interests will be diluted. Since these shares of common
stock will be registered for sale in the marketplace, future offers to sell such
shares could potentially depress the price of our common stock. In the future,
this could make it difficult for us or our stockholders to sell the common
stock. Also, we may have problems obtaining additional equity capital on terms
we like, since we can expect the holders of our convertible preferred stock to
convert their shares into common stock at a time when we would be able to obtain
any needed capital on more favorable terms than those of the convertible
preferred stock.
STOCK PRICES OF INTERNET-RELATED COMPANIES HAVE FLUCTUATED WIDELY IN RECENT
MONTHS AND THE TRADING PRICE OF OUR SECURITIES IS LIKELY TO BE VOLATILE, WHICH
COULD RESULT IN SUBSTANTIAL LOSSES TO INVESTORS.
As a result of our recent expansion into Internet and online commerce,
the trading price of our securities could become more volatile and could
fluctuate widely in response to factors including the following, some of which
are beyond our control:
o variations in our operating results;
o announcements of technological innovations or new services by us
or our competitors;
o changes in expectations of our future financial performance,
including financial estimates by securities analysts and
investors;
o changes in operating and stock price performance of other
Internet-related companies similar to us;
o conditions or trends in the Internet and technology industries;
o additions or departures of key personnel;
o future sales of our common stock; and
o acceptance by the market of our acquisition of NC Services.
Page 22
Domestic and international stock markets often experience significant
price and volume fluctuations. These fluctuations, as well as general economic
and political conditions unrelated to our performance, may adversely affect the
price of our common stock and redeemable warrants.
TAKEOVER EFFORTS COULD BE DETERRED AS A RESULT OF OUR RIGHT TO ISSUE PREFERRED
STOCK IN THE FUTURE AND CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION.
Our Certificate of Incorporation permits our Board of Directors to
issue up to 20,000,000 shares of "blank check" Preferred Stock, of which we have
issued 4,304,375 shares of Preferred Stock. Our Board of Directors also has the
authority to determine the price, rights, preferences, privileges and
restrictions of those shares without any further vote or action by our
stockholders. If we issue additional preferred stock with voting and conversion
rights, the rights of our common stockholders could be adversely affected by,
among other things, the loss of their voting control to others. Any additional
issuances could also delay, defer or prevent a change in our control, even if
these actions would benefit our stockholders.
Additionally, provisions of Delaware law and our Certificate of
Incorporation could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders.
WE HAVE NEVER PAID DIVIDENDS ON OUR COMMON STOCK. WE PAY ANNUAL CASH OR STOCK
DIVIDENDS ON SOME OF OUR PREFERRED STOCK.
We have never paid cash dividends on our common stock and we do not
expect to pay these dividends in the foreseeable future. Holders of our Series A
Preferred Stock are entitled to annual dividends of 8 1/2% (aggregating $425,000
annually, in cash or stock at our option, assuming no conversion). Holders of
our Series C Preferred Stock are entitled to dividends of 8% annually, so long
as we have net income in excess of $1,000,000 in the applicable fiscal year. We
pay these dividends quarterly, in cash or in shares of our common stock.
Beginning January 1, 2000, holders of our Series G Preferred Stock were entitled
to dividends of $60 per year per share of Series G Preferred Stock, payable
quarterly. For the foreseeable future, we anticipate that we will retain all of
our cash resources and earnings, if any, for the operation and expansion of our
business, except to the extent required to satisfy our obligations under the
terms of the Series A Preferred Stock, Series C Preferred Stock and Series G
Preferred Stock.
SALES OF ADDITIONAL SHARES OF OUR COMMON STOCK INTO THE PUBLIC MARKET MAY CAUSE
OUR STOCK PRICE TO FALL.
If we or our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options and warrants
or upon the conversion of shares of our convertible preferred stock) in the
public market, the market price of our common stock could fall. As of June 30,
2000, we had outstanding 32,029,653 shares of our common stock. The unregistered
common stock and the common stock held by our officers and directors are
"restricted" securities, as that term is defined by Rule 144 under the
Securities Act. In the future, these restricted securities may be sold only in
compliance with Rule 144 or if they are registered under the Securities Act or
under an exemption. Generally, under Rule 144, each person who holds restricted
securities for a period of one year may, every three months, sell in ordinary
brokerage transactions an amount of shares which does not exceed the greater of
1% of our then-outstanding shares of common stock, or the average weekly volume
of trading of our common stock as reported during the preceding four calendar
weeks. A person who has not been an affiliate of ours for at least the three
months immediately preceding the sale and who has beneficially owned shares of
common stock for at least two years can sell such shares under Rule 144 without
regard to any of the limitations described above. Sales of substantial amounts
of
Page 23
common stock in the public market, or the perception that such sales could
occur, may adversely affect the prevailing market price for our common stock and
could impair our ability to raise capital through a public offering of equity
securities.
In addition, as of June 30, 2000, holders of options and warrants may
acquire approximately 11,255,747 shares of common stock and holders of shares of
our Series A Preferred Stock, Series C Preferred Stock, Series F Preferred Stock
and Series G Preferred Stock may acquire shares of common stock at various
conversion rates.
NASDAQ COULD DELIST OUR COMMON STOCK, REDEEMABLE WARRANTS AND/OR SERIES A
PREFERRED STOCK, WHICH COULD MAKE IT MORE DIFFICULT FOR SHAREHOLDERS AND
POTENTIAL SHAREHOLDERS TO SELL OR OBTAIN QUOTATIONS AS TO THE PRICE OF OUR
COMMON STOCK, REDEEMABLE WARRANTS AND/OR SERIES A PREFERRED STOCK.
In order to continue to be listed on Nasdaq, we must meet the following
requirements:
o net tangible assets of at least $2,000,000, or a market
capitalization of $35,000,000 or $500,000 in net income for two
of the last three years;
o a minimum bid price of $1.00;
o two market makers;
o 300 stockholders; o at least 500,000 shares in the public float
or a minimum market value for the public float of $1,000,000; and
o compliance with certain corporate governance standards.
If we cannot satisfy Nasdaq's maintenance criteria in the future,
Nasdaq could delist our common stock and/or redeemable warrants. In the event of
delisting, trading, if any, would be conducted only in the over-the-counter
market in the so-called "pink sheets" or the NASD's Electronic Bulletin Board.
As a result of any delisting, an investor would likely find it more difficult to
sell or obtain quotations as to the price of our common stock and/or redeemable
warrants.
WE HAVE OUTSTANDING WARRANTS THAT TRADE ON NASDAQ, AND THE COMMON STOCK
UNDERLYING THESE WARRANTS ARE NOT CURRENTLY FREELY TRADABLE.
We have issued and outstanding common stock purchase warrants that
trade on the Nasdaq SmallCap Market under the symbol "NTCSW." We initially
registered the shares of common stock underlying these warrants with the SEC
through the filing of a registration statement. However, until March 28, 2000 we
had not updated the registration statement with current information. As a
result, upon exercise of the warrants, the underlying shares of common stock
will not be freely tradable until the post-effective amendment to the
registration statement has been declared effective by the SEC. Until the
post-effective amendment is declared effective, the underlying shares will be
restricted securities under U.S. federal and applicable state laws, and may not
be transferred, sold or otherwise disposed of in the United States except as
permitted under U.S. federal and state securities laws, pursuant to exemption
from registration. The warrant holders should be prepared to hold the shares of
common stock issuable upon exercise of the warrants for an indefinite period of
time.
Page 24
IF THE SOFTWARE, HARDWARE, COMPUTER TECHNOLOGY AND OTHER SYSTEMS AND SERVICES
THAT WE USE ARE NOT YEAR 2000 COMPLIANT, OUR OPERATING RESULTS COULD BE
IMPAIRED.
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
recent change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
We have assessed our hardware and software systems and we believe that
our systems correctly define the year 2000. We have also assessed the embedded
system contained in our leased equipment, which we believe to be Year 2000
compliant.
In addition, we have received information from our key vendors and
customers with respect to their significant Year 2000 exposures that would have
a material effect on us. The financial impact on us of such third parties not
achieving high levels of Year 2000 readiness cannot be estimated with any degree
of accuracy. In the area of business continuity, technological operations
dependent in some way on one or more third parties, the situation is much less
in our ability to predict or control. In some cases, third party dependence is
on vendors who are themselves working toward solutions to Year 2000 problems. In
other cases, third party dependence is on suppliers of products and services to
ascertain the state of Year 2000 readiness of significant third parties. We are
taking steps to attempt to ensure that the third parties on which we are heavily
reliant are Year 2000 ready, but cannot predict the likelihood of such
compliance nor the direct and indirect costs of non-readiness by those third
parties or of securing such services from alternate third parties. We are not
yet aware of any Year 2000 issues relating to third parties with which we have a
material relationship. If such critical third party providers experience
difficulties resulting in disruption of service to us, a shutdown of our
operations at individual facilities could occur for the duration of the
disruption.
Page 25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of our business, we are subject to various claims
and legal actions. We believe that we will not be materially adversely affected
by the ultimate outcome of any of these matters either individually or in the
aggregate. Is there any litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
Page 26
SIGNATURES
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.
NetCurrents, Inc.
(Registrant)
Dated: August 14, 2000 /S/ IRWIN MEYER
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Irwin Meyer, Chief Executive Officer
Dated: August 14, 2000 /S/ MICHAEL ISCOVE
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Michael Iscove, Chief Financial Officer