UNITED STATES
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 quarterly period ended: March 31, 2003
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______ to ______
Commission file number: 000-27185
GLOBAL NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 88-0367123
- ---------------------------------- ----------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
575 Madison Avenue, 10th Floor, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices)
212-605-0431
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes | | No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 49,928,959
Transitional Small Business Disclosure Format (Check one):
Yes | | No |X|
Part I
Financial Information
Item 1. Financial Statements
See financial statements beginning on page F-1.
Item 2. Management's Discussion and Analysis or Plan of Operation
Except for historical information, the material contained in this
Management's Discussion and Analysis or Plan of Operation is forward-looking.
This discussion includes, in addition to historical information, forward-looking
statements that involve risks and uncertainties. Our actual results could differ
materially from the results discussed in these forward-looking statements. For
the purposes of the safe harbor protection for forward-looking statements
provided by the Private Securities Litigation Reform Act of 1995, readers are
urged to review the list of certain important factors set forth in Cautionary
Statement for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995, which is set forth below after Liquidity and
Capital Resources.
Significant Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of
operations are based upon our unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
consolidated financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates, including those related to accounts
receivable, computer equipment, capitalized software development costs, stock
based compensation, income taxes and contingencies. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The accounting policies and estimates used as of December 31, 2002,
which are explained in the notes to the consolidated financial statements in the
Company's previously filed Form 10-KSB for the year ended December 31, 2002,
have been applied consistently during the three months ended March 31, 2003.
Results of Operations:
During the second half of 2002, we received patent approval for our
proprietary software, completed our marketing plans and began recognizing the
benefits of various strategic alliances which are expected to provide for a more
continuous revenue stream. Accordingly, we are no longer considered a
development stage company for accounting purposes.
Three months ended March 31, 2003 as compared to the three months
ended March 31, 2002:
1
Revenues:
Revenues for the three months ended March 31, 2003 were $142,000 as
compared with $51,000 for the three months ended March 31, 2002, representing an
increase of $91,000 or 178%. Revenues for the three months ended March 31, 2003
include $63,000 of royalties charged for use of our proprietary software. We did
not recognize any such revenue for the comparable three-month period ended March
31, 2002. The increased revenues from advertising were attributable to increased
acceptance of our proprietary software, improved methods used for tracking and
placement for advertisers and enhanced relationships with major advertising
agencies.
Cost of Revenues:
Cost of revenues for the three months ended March 31, 2003 was $28,000
as compared with $14,000 for the three months ended March 31, 2002, representing
an increase of $14,000 or 100%. As a result of the increase in our revenues, our
gross profit for the three months ended March 31, 2003 was $114,000 as compared
with $37,000 for the three months ended March 31, 2002. The increase in our
gross profit resulted primarily from our increased revenues, including
royalties, for which there are no offsetting costs. Cost of revenues associated
with advertising was 35% and 27% for the three months ended March 31, 2003 and
2002, respectively. The increase in cost of revenues associated with advertising
results from cost increases not passed on to customers.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the three months
ended March 31, 2003 were $342,000 as compared with $653,000 for the three
months ended March 31, 2002, representing a decrease of $311,000 or 48%. The
decrease in these costs is primarily a result of management's effort to better
contain costs. In addition, during the three months ended March 31, 2002, we
recognized a non-cash charge of $409,000 associated with the issuance of
3,150,000 shares of our common stock, of which 2,000,000 shares with a fair
value of $260,000 were given to members of our Board of Directors for services
rendered and the remaining 1,150,000 shares with a fair value of $149,000 were
given to consultants for investment services and assistance with the maintenance
and updating of our proprietary software. No such non-cash charges were incurred
during the three months ended March 31, 2003.
Loss from Operations:
Loss from operations for the three months ended March 31, 2003 was
$(227,000) as compared with $(616,000) for the three months ended March 31,
2002. The decrease in loss from operations was primarily attributable to our
improved gross margins and our reductions in selling, general and administrative
expenses as described above.
Net Loss:
Net loss was $(230,000) for the three months ended March 31, 2003 as
compared with $(620,000) for the three months ended March 31, 2002.
2
Liquidity and Capital Resources
Our condensed consolidated financial statements have been prepared
assuming that we will continue as a going concern. We only generated revenues of
approximately $142,000 during the three months ended March 31, 2003. As a
result, in part, of our limited revenues, we incurred a net loss of
approximately $230,000 and negative cash flows from operating activities of
$195,000 during the three months ended March 31, 2003. We had a cash balance of
only $5,000 and an accumulated deficit of approximately $8,378,000 as of March
31, 2003. In addition, we believe that we will continue to incur net losses and
negative cash flows from operating activities through at least March 31, 2004.
These matters raise substantial doubt about our ability to continue as a going
concern.
To enable us to continue as a going concern through at least the
twelve-month period ending March 31, 2004, we plan to continue to seek
opportunities to increase revenues through strategic alliances in the
advertising industry, in addition to those already formed, and the licensing or
sale of our proprietary software for which we were issued Patent #6,401,075 on
June 4, 2002. We intend to execute a series of strategic presentations in New
York, Chicago and Los Angeles. We have entered into an agreement with ValuClick
affording us additional sales representation and revenue opportunities. During
the three months ended March 31, 2003, we raised approximately $114,000 through
the sale of shares of common stock and we intend to continue to seek additional
equity and/or debt financing for the Company. Because we have limited fixed
costs, we believe we will have the ability to curtail our cash usage without
causing a material impact on our overall operations during the twelve-month
period ending March 31, 2004. As a result, we believe, but cannot assure, that
we will have sufficient resources and will be able to continue to operate
through at least March 31, 2004.
Cash Flow from Operating Activities
During the three months ended March 31, 2003 and 2002, we used
approximately $195,000 and $192,000, respectively,
primarily to fund our net losses.
Cash Flow from Investing Activities
During the three months ended March 31, 2003 and 2002, we used
approximately $5,000 in each period for the purchases of computer equipment.
Cash Flow From Financing Activities
During the three months ended March 31, 2003, we had net cash inflow
of $139,000 as compared with $286,000 for the three months ended March 31, 2002.
The decrease resulted primarily from a reduction in the proceeds from sales of
common stock through private placements . During the three months ended March
31, 2003, we raised $114,000, net of expenses of $4,000, through the sale of
1,846,717 shares of common stock as compared with $295,000, net of expenses of
$10,000, through the sale of 4,008,176 shares of common stock during the three
months ended March 31, 2002. During the three months ended March 31, 2003, we
also received proceeds of $10,000 from the payments of a subscription receivable
from a prior sale of common stock. During the three months ended March 31, 2003,
we purchased 10,000 shares of our common stock for our treasury on the open
market at a cost of $3,500. During the three months ended March 31, 2002, we
purchased 20,000 shares of our common stock
3
for our treasury on the open market at a cost of $3,300. During the three months
ended March 31, 2003, we also received proceeds from a $25,000 loan that is
payable through the issuance of 250,000 shares of common stock at such time as
we become authorized to issue a sufficient number of shares to enable us to make
the payment.
Stockholders' equity
Our stockholders' equity at March 31, 2003 was $410,000, including an
accumulated deficit of $8,378,000. Our stockholders' equity at March 31, 2003
was $344,000, including an accumulated deficit of $6,558,000. The components of
the changes in stockholders' equity include the following:
(i) Proceeds of $114,000, net of payments for related costs and
expenses of $4,000 from the sale and issuance of 1,280,917
shares of common stock, through private placements. In
connection therewith, we issued 565,800 shares of common
stock for financial services related to private placements.
A total of 4,500,000 of such shares will be converted into
4,500,000 shares of preferred stock upon the proper filing
of a certificate of designation with respect to the
preferred stock.
(ii) Proceeds of $10,000 from the payment of a subscription
receivable from a prior sale of common stock.
(iii) The purchase of 10,000 shares of stock for our treasury
at a cost of $3,500.
We will require additional capital during the remainder of 2003 to
continue to implement our business strategy. Such additional capital may be
raised through public or private financings, as well as through borrowings and
other resources. To the extent that additional capital is raised through the
sale of equity or equity-related securities, the issuance of such securities
could result in dilution to our stockholders. No assurance can be given,
however, that we will have access to the capital markets in the future, or that
financing will be available on acceptable terms to satisfy our cash requirements
to implement our business strategy. If we are unable to access the capital
markets or obtain acceptable financing, our results of operations and financial
conditions could be materially and adversely affected. If adequate funds are not
available to us, we may be required to curtail operations significantly or to
obtain funds through entering into arrangements with collaborative partners or
others that may require us to relinquish rights to our technology. While we have
begun to receive commercial revenues, there can be no assurance that our revenue
growth will continue or that we will be able to provide adequate cash to sustain
our operations.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of
the Private Securities Litigation Reform Act of 1995
Certain statements contained in our Form 10-QSB contain
"forward-looking statements" within the meaning of the private Securities
Litigation Reform Act of 1995. These are statements that do not relate strictly
to historical or current facts. Such forward-looking statements involve known
and unknown risks and uncertainties. Our actual results could differ
4
materially from the results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences are discussed below. These
risks and uncertainties include, without limitation:
o the rate of market development and acceptance of our technology;
o the limited revenues and significant operating losses we have
granted to date;
o the possibility of significant ongoing capital requirements;
o the loss of any significant customer;
o our ability to compete successfully with current or future
competitors;
o our ability to secure additional financing as and when necessary;
o our ability to retain the services of our key management, and to
attract new members of the management team;
o our ability to effect and retain appropriate patent, copyright
and trademark protection of our products; and
o our ability to achieve adequate levels of revenue to recover our
investment in capitalized software development costs.
For the purpose of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act of 1995,
readers are urged to review the list of certain important factors set forth in
Cautionary Statement for Purpose of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
We undertake no obligation to release publicly any revisions to the
forward-looking statements or to reflect events or circumstances occurring after
the date of this Form 10-QSB.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. We maintain
disclosure controls and procedures designed to provide reasonable assurance that
information required to be disclosed in the reports we file with the SEC is
recorded, processed, summarized and reported within the time periods specified
in the rules of the SEC. Within 90 days prior to the filing of this Quarterly
Report on Form 10-QSB, we carried out an evaluation, under the supervision and
the participation of our management including our Chief Executive Officer of the
design and operation of these disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon this evaluation, management concluded that
tighter controls and procedures need to be set in place regarding our issuance
and sale of common stock. The issue has occurred largely as a result of our
emerging company status and management is now taking steps to establish
appropriate controls and procedures.
(b) Changes in internal controls. There were no significant changes in
internal controls or other factors that could significantly affect our internal
controls subsequent to the date of our evaluation other than set forth in
paragraph (a) above.
5
Part II
Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
During the three months ended March 31, 2003, we received proceeds of
$114,000, net of payments for related costs and expenses of $4,000, from the
sale and issuance of 1,280,917 shares of common stock that were made through
private placements intended to be exempt from registration under the Securities
Act of 1933. In addition, a total of 565,800 shares were issued for financial
services related to private placements.
Defaults Upon Senior Securities
Not applicable.
Item 3. Submission of Matters to a Vote of Security Holders
None.
Item 4. Other Information
None.
Item 5. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the quarter for which
this report is filed.
6
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
May 20, 2003
Global Network, Inc.
/s/ James C. Mason
----------------------------------------
James C. Mason, CEO, President,
Treasurer and Director (Principal Executive,
Financial and Accounting Officer)
CERTIFICATIONS
I, James C. Mason, Chief Financial Officer of Global Network, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of Global
Network, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report.
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.
7
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 20, 2003 /s/ James C. Mason
----------------------------------------
Name: James C. Mason
Title: CEO, President, Treasurer and
Director (Principal Executive, Financial
and Accounting Officer)
GLOBAL NETWORK, INC. AND SUBSIDIARY
I N D E X
---------
PAGE
----
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003 (Unaudited) F-2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) F-3
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
THREE MONTHS ENDED MARCH 31, 2003 (UNAUDITED) F-4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (UNAUDITED) F-5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) F-6/10
* * *
F-1
GLOBAL NETWORK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 4,798
Accounts receivable, net of allowance for
doubtful accounts of $82,598 242,737
Advances to officers 147,358
Other current assets 53,899
-----------
Total current assets 448,792
Equipment, net of accumulated depreciation of $74,629 87,166
Capitalized software development costs, net
of accumulated amortization of $212,058 210,056
Other assets 12,523
-----------
Total $ 758,537
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 284,269
Current portion of notes payable 45,263
Other current liabilities 4,252
-----------
Total current liabilities 333,784
Notes payable, net of current portion 14,906
-----------
Total liabilities 348,690
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued
Common stock, $.001 par value; 50,000,000
shares authorized; 49,928,959 shares issued 49,929
Additional paid-in capital 8,876,510
Stock subscription receivable for 145,000 shares (14,500)
Treasury stock - 166,000 shares, at cost (123,986)
Accumulated deficit (8,378,106)
-----------
Total stockholders' equity 409,847
-----------
Total $ 758,537
===========
See Notes to Condensed Consolidated Financial Statements.
F-2
GLOBAL NETWORK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
------------ ------------
Revenues $ 142,040 $ 51,000
Cost of revenues 27,650 13,603
------------ ------------
Gross profit 114,390 37,397
Selling, general and administrative expenses 341,657 653,189
------------ ------------
Loss from operations (227,267) (615,792)
------------ ------------
Other income (expense):
Interest income 83
Interest expense (2,538) (4,232)
------------ ------------
Totals (2,538) (4,149)
------------ ------------
Net loss $ (229,805) $ (619,941)
============ ============
Basic net loss per common share $ - $ (.03)
============ ============
Basic weighted average common shares outstanding 49,905,014 22,707,090
============ ============
See Notes to Condensed Consolidated Financial Statements.
F-3
GLOBAL NETWORK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Additional Stock
Common Stock Paid-in Subscription
Shares Amount Capital Receivable
---------- ----------- ----------- -----------
Balance, January 1, 2003 48,082,242 $ 48,082 $ 8,764,265 $ (24,500)
Sale of shares of common
stock through private
placements, net of
expenses of $4,000 1,846,717 1,847 112,245 000
Payment of stock
subscription receivable 000 000 000 10,000
Purchases of treasury stock
for cash 000 000 000 000 )
Net loss (229,805) (229,805)
Balance, March 31, 2003 49,928,959 $ 49,929 $ 8,876,510 $ (14,500)
Treasury Stock Accumulated
Shares Amount Deficit Total
------- ----------- ----------- -----------
Balance, January 1, 2003 156,000 $ (120,486) $(8,148,301) $ 519,060
Sale of shares of common
stock through private
placements, net of
expenses of $4,000 000 000 000 114,092
Payment of stock
subscription receivable 000 000 000 10,000
Purchases of treasury stoc k
for cash 10,000 (3,500) 000 (3,500)
Net loss
Balance, March 31, 2003 166,000 $ (123,986) $(8,378,106) $ 409,847
See Notes to Condensed Consolidated Financial Statements.
F-4
GLOBAL NETWORK, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
2003 2002
--------- ---------
Operating activities:
Net loss $(229,805) $(619,941)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for doubtful accounts 29,196 20,000
Depreciation 8,090 7,302
Amortization of software development costs 21,206 21,206
Costs of services paid through issuance
of common stock and stock options 409,500
Changes in operating assets and liabilities:
Accounts receivable (57,838) (47,500)
Advances to officer (11,912) (829)
Other current assets (27,284) (4,525)
Accounts payable and accrued expenses 72,857 22,969
--------- ---------
Net cash used in operating activities (195,490) (191,818)
--------- ---------
Investing activities - purchases of equipment (4,702) (4,655)
--------- ---------
Financing activities:
Proceeds from notes payable 25,000
Payments of notes payable (6,937) (5,241)
Proceeds from sale of common stock and warrants 114,092 295,000
Proceeds from payments of stock subscription receivable 10,000
Purchases of treasury stock (3,500) (3,365)
--------- ---------
Net cash provided by financing activities 138,655 286,394
--------- ---------
Net increase (decrease) in cash and cash equivalents (61,537) 89,921
Cash and cash equivalents, beginning of period 66,335 34,251
--------- ---------
Cash and cash equivalents, end of period $ 4,798 $ 124,172
========= =========
See Notes to Condensed Consolidated Financial Statements.
F-5
GLOBAL NETWORK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and business:
Global Network, Inc. ("GNI") and its subsidiary (collectively, the
"Company") began to develop business operations comprised of packaging
and selling online banner advertising on newspaper web sites to
national advertisers on April 26, 1999. The Company has developed a
proprietary software system that allows national advertisers and their
ad agencies to place ads on multiple newspaper web sites at one time
and to target a specific demographic by having the advertisement
posted in the section of the newspaper that they choose. During the
period from the inception of its operations on April 26, 1999 through
June 30, 2002, the Company did not generate any significant revenues
and, accordingly, it was in the development stage during that period
for accounting purposes and was required to make certain disclosures
related to such development. During the period from July 1, 2002 to
December 31, 2002, the Company received patent approval for its
proprietary software, completed its marketing plans and began
recognizing the benefits of various strategic alliances that are
expected to provide a more continuous revenue stream. Accordingly, the
Company is no longer considered a development stage company for
accounting purposes.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary to present fairly the
financial position of the Company as of March 31, 2003, its results of
operations and cash flows for the three months ended March 31, 2003
and 2002 and its changes in stockholders' equity for the three months
ended March 31, 2003. Pursuant to the rules and regulations of the
United States Securities and Exchange Commission (the "SEC"), certain
information and disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed in or omitted from
these condensed consolidated financial statements unless significant
changes have taken place since the end of the most recent fiscal year.
Accordingly, these unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements as of December 31, 2002 and the notes thereto
(the "Audited Financial Statements") and the other information
included in the Company's Annual Report on Form 10-KSB (the "Form
10-KSB") for the year ended December 31, 2002 that was previously
filed with the SEC.
The results of the Company's operations for the three months ended
March 31, 2003 are not necessarily indicative of the results of
operations for the full year ending December 31, 2003.
F-6
GLOBAL NETWORK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Net earnings (loss) per common share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, it will present "diluted" earnings per common share
pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share". Generally, basic earnings
(loss) per common share is calculated by dividing net income or loss
by the weighted average number of common shares outstanding during
each period. The calculation of diluted earnings per common share is
similar to that of basic earnings per common share, except that the
denominator is increased to include the number of additional common
shares that would have been outstanding if all potentially dilutive
common shares, such as those issuable upon the exercise of options,
were issued during the period.
The Company had options for the purchase of 100,000 shares of common
stock outstanding during a portion of the three months ended March 31,
2003 and 295,000 shares of common stock during all of the three months
ended March 31, 2002. Since the Company had losses for the three
months ended March 31, 2003 and 2002, the assumed effects of the
exercise of the outstanding options and the application of the
treasury stock method would have been anti-dilutive and, therefore,
diluted per share amounts have not been presented in the accompanying
condensed consolidated statements of operations for those periods. As
of March 31, 2003, the Company had no potentially dilutive equity
instruments outstanding.
Note 3 - Basis of presentation:
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
The Company only generated revenues of approximately $142,000 during
the three months ended March 31, 2003. As a result, in part, of its
limited revenues, the Company incurred a net loss of $230,000 and
negative cash flows from operating activities of $195,000 during the
three months ended March 31, 2003. The Company had a cash balance of
only $5,000 and an accumulated deficit of approximately $8,378,000 as
of March 31, 2003. In addition, management believes that the Company
will continue to incur net losses and negative cash flows from
operating activities through at least March 31, 2004. These matters
raise substantial doubt about the Company's ability to continue as a
going concern.
F-7
GLOBAL NETWORK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Basis of presentation (concluded):
To enable the Company to continue as a going concern through at least
the twelve-month period ending March 31, 2004, management plans to
continue to seek opportunities to increase revenues through strategic
alliances in the advertising industry, in addition to those already
formed, and the licensing or sale of the Company's proprietary
software that received patent approval during the second half of 2002.
The Company raised $114,000 through the sale of shares of common stock
during the three months ended March 31, 2003 (see Note 6 herein) and
$1,304,000 through the sale of shares of common stock during the year
ended December 31, 2002. Management intends to continue to seek
additional equity and/or debt financing for the Company. Since the
Company has limited fixed costs, management believes it will have the
ability to curtail the Company's cash usage without causing a material
impact on its overall operations during the twelve-month period ending
March 31, 2004. As a result, management believes, but cannot assure,
that the Company will have sufficient resources and will be able to
continue to operate through at least March 31, 2004.
The accompanying condensed consolidated financial statements do not
include any adjustments related to the recoverability and
classification of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue its operations as a going concern.
Note 4 - Advances to officer:
Advances to officer of $147,358 as of March 31, 2003 were noninterest
bearing and due on demand.
Note 5 - Income taxes:
As of March 31, 2003, the Company had net operating loss carryforwards
of approximately $8,143,000 available to reduce future Federal taxable
income which, if not used, will expire at various dates through 2023.
The Company had no other material temporary differences as of that
date. Due to the uncertainties related to, among other things, the
changes in the ownership of the Company, which could subject those
loss carryforwards to substantial annual limitations, and the extent
and timing of its future taxable income, the Company offset the
deferred tax assets attributable to the potential benefits of
approximately $3,257,000 from the utilization of those net operating
loss carryforwards by an equivalent valuation allowance as of March
31, 2003.
The Company had also offset the potential benefits from net operating
loss carryforwards by equivalent valuation allowances during the years
ended December 31, 2002 and 2001. As a result of the increases in the
valuation allowance of $92,000 and $496,000 during the three months
ended March 31, 2003 and 2002, respectively, there are no credits for
income taxes reflected in the accompanying condensed consolidated
statements of operations to offset pre-tax losses.
F-8
GLOBAL NETWORK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 - Notes payable:
The current portion of notes payable at March 31, 200 includes $25,000
arising from the issuance of a note bearing 5% interest during the
three months ended March 31, 2003. The Company has agreed to repay the
note through the issuance of 250,000 shares of its common stock at
such time as it becomes authorized to issue a sufficient number of
shares to enable it to make the payment.
Note 7 - Stockholders' equity:
Preferred stock authorized:
The Company's Articles of Incorporation authorize the issuance of
up to 5,000,000 shares of preferred stock with a par value of
$.001 per share. The preferred stock may be issued in one or more
series, with terms and preferences to be determined by the
Company's Board of Directors. No shares of preferred stock had
been issued as of March 31, 2003 although certain shares of
common stock issued during the year ended December 31, 2002 will
be converted into shares of preferred stock as explained below.
Issuances of common stock:
During the three months ended March 31, 2003, the Company
received proceeds of $114,092, net of payments for related costs
and expenses of $4,000, from the sale and issuance of 1,280,917
shares of common stock that were made through private placements
intended to be exempt from registration under the Securities Act
of 1933 (the "Act"). In addition, a total of 565,800 shares were
issued for financial services related to the private placements.
A total of 4,500,000 shares of common stock sold through private
placements in prior years will be converted into 4,500,000 shares
of preferred stock upon the proper filing of the certificate of
designation with respect to the preferred stock. Holders of the
preferred shares will be entitled to receive dividends at the
annual rate of 8% and will have voting rights equivalent to those
of a holder of common stock.
Treasury stock:
During 2001 and 2000, the Board of Directors authorized the
repurchase by the Company of up to 300,000 additional shares of
its outstanding common stock. During the three months ended March
31, 2003, the Company repurchased 10,000 shares at a cost of
$3,500. As of March 31, 2003, the Company had repurchased a total
of 166,000 shares pursuant to the authorization by the Board of
Directors.
F-9
GLOBAL NETWORK, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Other related party transactions:
Selling, general and administrative expenses include charges by
related parties for client entertainment, office and secretarial
services and other office expenses totaling approximately $73,000 and
$47,000 for the three months ended March 31, 2003 and 2002,
respectively.
Note 9 - Subsequent event:
During the period from April 1, 2003 through May 16, 2003, the Company
agreed to sell 1,240,000 shares of common stock for $100,000 through a
private placement. The sale will be consummated and the shares will be
issued at such time as the Company becomes authorized to issue a
sufficient number of shares of its common stock.
* * *