SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number: 0-23491
GLOBALMEDIA.COM
(Exact name of registrant as specified in its charter)
NEVADA 91-1842480
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 ROBSON STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6B 2B4
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (604) 688-9994
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
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 court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: AS OF AUGUST 18, 2000, THERE WERE
27,387,034 SHARES OUTSTANDING OF THE COMPANY'S COMMON STOCK.
This report on Form 10-QSB/A constitutes Amendment No. 1 to the Registrant's
Form 10-QSB for the quarter ended April 30, 2000. This report is intended to
amend certain information contained in Part I, Items 1 and 2. SEE Notes 7 and
9 to the Consolidated Financial Statements for the basis for such amendments.
ITEM 1. FINANCIAL STATEMENTS
GLOBALMEDIA.COM
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(As restated--SEE Notes 7 and 9)
(in US dollars)
APRIL 30 JULY 31
2000 1999
$ $
- -------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents 7,849,694 5,649,073
Short-term investments 170,000 240,000
Trade and other receivables 303,858 84,336
Prepaid expenses 39,512 37,760
- -------------------------------------------------------------------------------------------------------
8,363,064 6,011,169
Capital assets [NOTE 4] 4,792,916 1,537,434
- -------------------------------------------------------------------------------------------------------
13,155,980 7,548,603
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 670,412 368,094
Due to affiliated company [NOTE 5] 33,759 132,946
Due to shareholders [NOTE 5] 94,363 221,091
Current portion of long-term debt 66,183 --
- -------------------------------------------------------------------------------------------------------
864,717 722,131
LONG-TERM DEBT
Lease payable 68,074 --
- -------------------------------------------------------------------------------------------------------
932,791 722,131
- -------------------------------------------------------------------------------------------------------
Commitments and contingencies [NOTE 11]
Convertible preferred shares [NOTES 7 AND 8] 4,312,000 7,089,775
SHAREHOLDERS' EQUITY (DEFICIENCY)
Convertible preferred shares [NOTE 7] 3,202,674 --
100,000,000 authorized, 4,175 issued and outstanding
Common shares, par value $0.001 each, 200,000,000 authorized, 15,557 12,658
23,554,986 and 20,656,331 issued and outstanding [NOTE 6]
- -------------------------------------------------------------------------------------------------------
3,218,231 12,658
Additional paid in capital [NOTE 7] 22,571,981 2,617,109
Deferred compensation [NOTE 9] (2,945,625) --
Deficit (14,933,398) (2,893,070)
- -------------------------------------------------------------------------------------------------------
7,911,189 (263,303)
=======================================================================================================
13,155,980 7,548,603
=======================================================================================================
SEE ACCOMPANYING NOTES
2
GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(Unaudited)
(As restated--SEE Notes 7 and 9)
(in US dollars)
FOR 3 MONTHS FOR 9 MONTHS
ENDED APRIL 30 ENDED APRIL 30
2000 1999 2000 1999
$ $ $ $
- -----------------------------------------------------------------------------------------------------------
SALES (note 10) 246,628 -- 318,908 --
COST OF SALES 175,155 -- 305,868 --
- -----------------------------------------------------------------------------------------------------------
GROSS PROFIT 71,473 -- 13,040 --
- -----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Depreciation and amortization 403,441 54,783 751,292 90,060
General and administrative [NOTE 9] 1,511,177 155,011 2,301,969 349,403
Sales and marketing 1,492,705 26,604 3,153,876 69,848
Shareholder communications 212,159 51,361 338,754 144,648
Stock options compensation [NOTE 6] -- -- -- 548,800
Technical operations and development 641,740 -- 1,727,313 --
- -----------------------------------------------------------------------------------------------------------
4,261,222 287,759 8,273,204 1,202,759
LOSS FROM CONTINUING OPERATIONS AND
BEFORE OTHER ITEMS (4,189,749) (287,759) (8,260,164) (1,202,759)
- -----------------------------------------------------------------------------------------------------------
OTHER ITEMS
Interest (57,296) (36,814) (55,187) (47,283)
Foreign exchange (39,662) (2,921) (35,018) (7,280)
- -----------------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS BEFORE
DISCONTINUED OPERATIONS (4,286,707) (327,494) (8,350,369) (1,257,322)
DISCONTINUED OPERATIONS [NOTE 3] -- -- -- (2,080)
- -----------------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD (4,286,707) (327,494) (8,350,369) (1,259,402)
===========================================================================================================
BASIC AND FULLY DILUTED
LOSS PER COMMON SHARE (0.19) (0.02) (0.37) (0.07)
===========================================================================================================
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF LOSS PER SHARE 23,063,507 20,544,431 22,596,167 20,253,942
===========================================================================================================
SEE ACCOMPANYING NOTES
3
GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
(As restated--SEE Notes 7 and 9)
(in US dollars)
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
--------------- ------------ PAID IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
# $ # $ $ $
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998 -- -- 19,890,831 11,892 543,525 (661,996)
Preferred shares issued [NOTE 7] 8,500 7,089,775 -- -- -- --
Warrants issued on financing [NOTE 7] -- -- -- -- 1,000,000 --
Stock options exercised -- -- 765,500 766 392,484 --
Compensatory stock options -- -- -- -- 681,100 --
Loss for the year -- -- -- -- -- (2,231,074)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1999 8,500 7,089,775 20,656,331 12,658 2,617,109 (2,893,070)
Stock options exercised -- -- 1,435,081 1,435 5,755,439 --
Conversion of preferred shares [NOTE 7] (4,325) (4,177,060) 1,092,056 1,092 4,175,959 --
Conversion of amounts due to shareholder
and affiliated company [NOTE 5] -- -- 32,535 33 203,313 --
Issue of restricted shares -- -- 338,983 339 1,999,661 --
Issue of preferred shares [NOTE 8] 5,000 4,312,000 -- -- -- --
Deemed dividend on beneficial
conversion feature [NOTE 7] -- -- -- 3,400,000 (3,400,000)
Warrants issued on financing [NOTE 8] -- -- -- -- 493,000 --
Deferred compensation [NOTE 9] -- -- -- -- 3,927,500 --
Loss for the 9 months -- -- -- -- -- (8,350,369)
Accrued preferred share premium -- 289,959 -- -- -- (289,959)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 30, 2000 9,175 7,514,674 23,554,986 15,557 22,571,981 (14,933,398)
========================================================================================================================
SEE ACCOMPANYING NOTES
4
GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(As restated--SEE Notes 7 and 9)
(in US dollars)
FOR 9 MONTHS
ENDED APRIL 30
2000 1999
$ $
- ------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (8,350,369) (1,259,402)
Items not requiring an outlay of cash
Accrued Interest Expense -- 48,200
Deferred compensation [NOTE 9] 981,875 --
Share option compensation expense [NOTE 6] -- 548,800
Share option professional fees expense [NOTE 6] -- 37,300
Amortization 751,292 90,060
- ------------------------------------------------------------------------------------------------------
(6,617,202) (535,042)
Changes in non-cash operating working capital
Trade and other receivables (219,522) (28,787)
Short Term Investments 70,000
Inventory -- 1,992
Prepaid expenses (1,752) 4,338
Accounts payable and accrued liabilities 302,318 (69,229)
- ------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (6,466,158) (626,728)
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capitalized development costs (2,970,124) --
Purchase of capital assets (1,066,824) (462,463)
- ------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (4,036,948) (462,463)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Advances (to) from shareholders (16,466) 163,267
Advances (to) from affiliated company (37,444) 162,484
Note payable -- 500,000
Lease payable 134,257 --
Issue of restricted shares 1,999,995 --
Issue of preferred shares 4,312,000 --
Issue of warrants 493,000 --
Stock options exercised 5,756,874 326,800
- ------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 12,642,216 1,152,551
- ------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 61,511 6,943
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE 3 QUARTERS 2,200,621 70,303
Cash and cash equivalents, beginning of period 5,649,073 14,996
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 7,849,694 85,299
======================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest - paid 8,320 4,190
======================================================================================================
SEE ACCOMPANYING NOTES
5
The following notes are to be read in conjunction with the notes to our audited
financial statements contained in our Annual Report on Form 10-KSB, filed with
the Securities and Exchange Commission on November 1, 1999.
1. NATURE OF BUSINESS
GlobalMedia.com (the "Company") was incorporated on April 8, 1997 in the State
of Nevada. During the third quarter of fiscal 1999, the company adopted an
internet-focused business plan. Since then, it has been engaged primarily in the
development of a broadcasting and e-commerce network over the internet,
including streaming services, customized player design and simulated live
internet only radio stations, and the development of templates for the
application of the e-commerce back-end system to multiple sites on the
internet.
In May 1999 a beta version of the e-commerce web site was launched and in
September 1999, trial implementations were started for network associate
e-commerce storefronts. On August 31, 1999, the beta implementation of the
GlobalMedia.com broadcasting network began with the launch of three live network
associate stations. In October 1999, ten simulated live internet-only stations
were launched by the Company and integrated into the GlobalMedia.com Player, at
that time in beta form. In November 1999, nine of the simulated live stations
were added to the stations directory presets of the RealPlayer. Also in November
1999, a revised version of the online store was launched. In January 2000, the
GlobalMedia.com Player was commercially launched. During the third quarter of
fiscal 2000, the Company successfully implemented a video broadcasting solution
in addition to enhancing the simulated live internet-only content with the
addition of three new stations.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States.
CAPITAL ASSETS AND AMORTIZATION
In addition to amortization methods and rates disclosed in the Annual Report on
Form 10-KSB as disclosed above, the following additional disclosure is provided.
Broadcast network development 3 year straight line
COMPARATIVE FIGURES
Certain amounts for 1999 have been reclassified to conform the current quarter's
presentation.
LOSS PER SHARE
Basic and fully diluted earnings per share have been computed using the weighted
average number of common shares outstanding during the applicable period. The
effect of common stock options and warrants would be anti-dilutive, and
therefore is not included in the calculation of fully diluted earnings per
share.
3. DISCONTINUED OPERATIONS
The Company withdrew from the call center business during the third quarter of
fiscal 1999, and has therefore accounted for this business as discontinued
operations, segregated in the accompanying consolidated statements of loss and
comprehensive loss.
6
4. CAPITAL ASSETS
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- -------------------------------------------------------------------------------------------------------
APRIL 30, 2000
Broadcast network development 3,674,927 408,562 3,266,365
Communications infrastructure 90,274 67,469 22,805
Computer hardware 1,149,482 217,813 931,669
Leasehold improvements 72,086 13,096 58,990
Office furniture and equipment 143,201 30,193 113,008
Software 133,999 40,712 93,287
Web site development 527,503 220,710 306,793
- -------------------------------------------------------------------------------------------------------
5,791,472 998,555 4,792,917
=======================================================================================================
JULY 31, 1999
Broadcast network development 704,803 -- 704,803
Communications infrastructure 89,391 44,463 44,928
Computer hardware 295,417 59,834 235,583
Leasehold improvements 14,925 2,269 12,656
Office furniture and equipment 50,661 6,477 44,184
Software 73,450 15,484 57,966
Web site development 525,859 88,545 437,314
- -------------------------------------------------------------------------------------------------------
1,754,506 217,072 1,537,434
=======================================================================================================
5. RELATED PARTY TRANSACTIONS
AMOUNTS DUE TO SHAREHOLDER AND AFFILIATED COMPANY
As part of the Securities Purchase Agreement dated May 6, 1999 with RGC
International Investors LDC ("RGC") [see note 7], the Company agreed to
restructure the amounts due to a shareholder and an affiliated company of a
shareholder. The agreement provided that one half of the amounts due to the
shareholder and affiliated company will be repaid by the issue of common stock
at a conversion price of $6.25 per share.
In furtherance of this agreement, on July 26, 1999 the Company entered into an
agreement with the shareholder to convert 50% of the amount due plus interest of
$16,455 (for a total of $127,000) into common stock at $6.25 per share and to
repay the remaining $127,000 in four quarterly installments of $31,750,
beginning November 1999.
On July 26, 1999 the Company entered into an agreement with the affiliated
company of a shareholder to convert 50% of the amount due plus interest of
$8,413 (for a total of $74,886) into common stock at $6.25 per share and to
repay the remaining $74,886 in four quarterly installments of $18,722, beginning
November 1999.
6. SHARE CAPITAL
STOCK OPTION PLANS
As of April 30, 2000 the Company had a total of 5,088,580 stock options
outstanding under three plans: 122,600 options under the 1998 Stock Option Plan,
3,733,625 options under the 1999 Stock Option Plan, and 1,232,355 options under
the 2000 Stock Option Plan. All the plans are administered by the Board of
Directors who have sole discretion and authority to determine awards including
the conditions of exercise.
The 1998 plan became effective on August 21, 1998. All options were granted
during the 1999 fiscal year at an exercise price of $0.50 per share, and vested
immediately on grant. During the most recent quarter, 57,900 options under the
1998 plan were exercised. The 122,600 outstanding options expire on August 21,
2000 if not exercised earlier.
7
The 1999 plan became effective on March 24, 1999 and provided for the issuance
of 4,000,000 options within a period of 10 years from the effective date. In the
third fiscal quarter of 2000, 285,000 options at an exercise price of $5.13 and
418,210 options at an exercise price of $6.25 were granted. Of the 4,000,000
options granted in total, 1,958,540 options were vested immediately upon grant,
2,016,210 vest on a quarterly basis over one year, and 25,250 have been
cancelled since the date of grant. During the most recent quarter, 157,715
options under the 1999 plan were exercised. The options expire five years from
the date of grant.
The 2000 plan became effective on April 18, 2000 and provided for the issuance
of 4,000,000 options within a period of 5 years from the effective date. During
the third fiscal quarter of 2000, the company granted 1,232,355 options at an
exercise price of $6.375, of which 150,000 options were vested immediately upon
grant and the balance vest over three years, with the first vesting period being
one year after the date of grant. In the second and third years, the vesting
dates occurs on a quarterly basis. All the options were offered at a strike
price of $6.375 and none of the options offered under the 2000 plan were
exercised in the third quarter.
Activity in the stock option plans for the current period and prior year is as
follows:
FOR 9 MONTHS FOR THE FISCAL YEAR
ENDED APRIL 30, 2000 ENDED JULY 31, 1999
------------------------------ --------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
# $ # $
- -------------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 3,257,000 3.81 -- --
Granted 2,174,605 6.52 4,022,500 3.18
Exercised (343,025) 3.69 (765,500) 0.51
- -------------------------------------------------------------------------------------------------------------
Outstanding, end of period 5,088,580 4.98 3,257,000 3.81
=============================================================================================================
Options exercisable at the end of the
period 3,241,766 4.31 2,497,167 3.67
=============================================================================================================
7. SERIES A CONVERTIBLE PREFERRED SHARES
On May 6, 1999, the Company entered into a Securities Purchase Agreement and
ancillary agreements with RGC International Investors LDC ("RGC") pursuant to
which the Company issued, for cash, a 5% convertible debenture to RGC in the
aggregate principal amount of $8,500,000. On July 19, 1999, the debenture was
converted into 8,500 shares of Series A convertible preferred stock with a
stated value of $1,000 per share. The Series A convertible preferred shares are
convertible from time to time at RGC's option into shares of common stock of the
Company as follows: the stated value of each share of Series A convertible
preferred stock together with a premium thereon accruing at a per annum rate of
5%, is convertible at the lesser of a fixed conversion price or a variable
conversion price based on the market price of the common shares at the time of
conversion. During the third fiscal quarter of 2000, 2,450 Series A convertible
preferred shares were converted to 596,630 common shares, leaving 4,175 Series A
convertible preferred shares outstanding at quarter end. The conversion price of
the Series A convertible preferred stock is the lesser of:
[a] 80% of the average of the seven consecutive lowest closing bid prices of
the common shares reported on the OTC Bulletin Board (or Nasdaq Stock
Market) during the 35 trading days ending one day prior to the date that
RGC exercises its right to convert; or
[b] $6.435.
8
Upon conversion of Series A convertible preferred shares by RGC, RGC has an
investment option to acquire, at an exercise price equal to the conversion price
then in effect, the same number of shares of common stock as the number of
shares of common stock into which the Series A convertible preferred shares are
being converted. During the quarter, RGC exercised investment options to
purchase 596,630 common shares for net proceeds of $2,551,350. To the extent any
Series A convertible preferred shares are not converted prior to May 6, 2002,
any previously unconverted shares are converted automatically into common shares
under the same conversion terms described above.
In connection with this transaction, the Company issued to RGC warrants to
purchase 680,000 common shares of the Company at an exercise price of $8.3475.
The warrants have a five-year term. In addition, the Company agreed to provide
the financing agents warrants to purchase 62,769 common shares at an exercise
price of $8.125 which expire in five years.
The proceeds from RGC were allocated to the underlying instruments in accordance
with their fair values at the date of issuance such that $7,500,000 was
allocated to the Series A convertible preferred shares and the related
investment options and $1,000,000 was allocated to the warrants and included in
additional paid in capital. The unamortized finance costs are presented as a
reduction of the carrying value of the Series A convertible preferred shares.
At July 31, 1999, the Series A convertible preferred shares were required to be
classified as mezzanine equity as there was a potential mandatory redemption
event relating to the Company's obligation to register for public resale the
common shares issuable upon conversion of such shares and upon exercise of the
related investment options and warrants. On August 26, 1999, the Company's Form
SB-2 registration statement registering the underlying shares was declared
effective by the SEC. As a result, the Series A convertible preferred shares
from this date onwards have been classified as shareholders' equity.
Subsequent to the issue of the Company's financial statements for the quarter
ended April 30, 2000, the company identified accounting issues with regard to
the recognition of a contingent beneficial conversion feature of the
convertible preferred shares issued to RGC. Under the terms of the securities
purchase agreement with RGC, the conversion terms were adjusted to 80% of
their original values when the Company was not listed on the NASDAQ Stock
Exchange by November 6, 1999. In accordance with EITF 98-5, the Company
recorded a deemed dividend and additional paid in capital of $3,400,000 at
November 6, 1999 to account for the realization of the contingent benefit.
8. SERIES B AND SERIES C CONVERTIBLE PREFERRED SHARES
The Company entered into a Securities Purchase Agreement and ancillary
agreements with RGC on April 28, 2000 where the Company issued for cash, 5,000
shares of Series B convertible preferred stock with a stated value of $1,000 per
share. The Series B convertible preferred shares are convertible from time to
time at RGC's option into shares of common stock of the Company as follows: the
stated value of each share of Series B convertible preferred stock together with
a premium thereon accruing at a per annum rate of 5% is convertible at the
lesser of:
[a] The average of the seven consecutive lowest closing bid prices of the
common shares reported on the Nasdaq Stock Market during the 35 trading
days ending one day prior to the date that RGC exercises its right to
convert; or
[b] $6.435.
No Series B convertible preferred shares have been converted as of the date of
this report.
Upon conversion of Series B convertible preferred shares by RGC, RGC has an
investment option to acquire, at an exercise price equal to the conversion price
then in effect, the same number of shares of common stock as the number of
shares of common stock into which the Series B convertible preferred shares are
being converted. To the extent any Series B convertible preferred shares are not
converted prior to April 28, 2003, any previously unconverted portion is
automatically converted into common shares under the same conversion terms
describe above.
In connection with this transaction, the Company issued to RGC warrants to
purchase 388,500 common shares at an exercise price of $7.0785. These warrants
have a five-year exercise term.
The proceeds from RGC were allocated to the underlying instruments in accordance
with their fair values at the date of issuance such that $4,507,000 was
allocated to the Series B convertible preferred shares and the related
investment options, and $493,000 was allocated to the warrants and included in
additional paid in capital. The unamortized finance costs are presented as a
reduction of the carrying value of the preferred shares.
At April 30, 2000, the Series B convertible preferred shares were required to be
classified as mezzanine equity as there was a potential mandatory redemption
event relating to the Company's obligation to register for public resale the
common shares issuable upon conversion of such shares and upon exercise of the
related investment options and warrants.
9
Pursuant to the same Securities Purchase Agreement the Company agreed to
issue 5,000 Series C convertible preferred shares with a stated value of
$1,000 per share in a second closing. The second closing is subject to
certain closing conditions (none of which are within RGC's control). Assuming
the closing of the sale and issuance of the Series C convertible preferred
shares, such shares will be convertible from time to time at RGC's option
into shares of common stock of the Company as follows: the stated value of
each share of Series C convertible preferred stock together with a premium
thereon accruing at a per annum rate of 5% will be convertible at the lesser
of:
[a] The average of the seven consecutive lowest closing bid prices of the
common shares reported on the Nasdaq Stock Market during the 35 trading
days ending one day prior to the date that RGC exercises its right to
convert; or
[b] the lesser of: (i) $7.40, or (ii) the average of the closing bid prices of
the common shares during the five (5) trading days immediately preceding
the Series C closing date (the "second closing date").
The Series C convertible preferred shares will include investment options on
terms similar to the investment options relating to the Series B convertible
preferred stock. To the extent any Series C convertible preferred shares are not
converted prior to April 28, 2003, any previously unconverted portion will be
automatically converted into common shares under the same conversion terms
describe above.
If the sale of the Series C convertible preferred stock closes, the Company will
issue to RGC warrants to purchase a number of common shares equal to 50%
multiplied by the quotient equal to $5,000,000 divided by the average of the
closing bid prices of the common shares during the five (5) trading days
immediately preceding the second closing date. These warrants will have an
exercise price equal to 110% of the lesser of: (i) $7.40, or (ii) the average of
the closing bid prices of the common shares during the five (5) trading days
immediately preceding the second closing date. The warrants have a five-year
exercise term.
As noted above, the closing of the sale and issuance of the Series C convertible
preferred stock is subject to certain conditions to closing, none of which are
in RGC's control. The conditions to the second closing are discussed in greater
detail in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Future Capital
Requirements."
9. DEFERRED COMPENSATION RESTATEMENT
Subsequent to the issuance of the Company's financial statements for the
quarter ended April 30, 2000, the Company identified accounting issues with
regard to its treatment of a February 1, 2000 stock transaction between an
executive of GlobalMedia.com and a principal shareholder whereby the
executive purchased 500,000 common shares from the principal shareholder for
nominal consideration. The shares are subject to a lock-up period of one year
from the date of the transaction during which time they will be held in
escrow. The shares are also subject to a right of repurchase if the Company
terminates the executive for cause or the executive resigns during the
lock-up period. A deemed compensation expense of $3,927,500 has been
calculated on the transaction which will be amortized over the one-year term.
As a result, the Company has restated its financial statements for the three
months ended April 30, 2000.
10. ADVERTISING SALES
During the third quarter of fiscal 2000, the Company exchanged advertising
services with a fair market value of $25,000 in a barter transaction. The
$25,000 in advertising services is included in current revenue, and an
offsetting sales and marketing expenditure has been charged for the same period.
The fair market value of this transaction was determined according to the cash
value of a comparable transaction in the current fiscal period.
11. COMMITMENTS AND CONTINGENCIES
[i] No commitments outside of the regular course of business were entered into
during the most recent quarter.
[ii] In the second quarter, the Company entered into or amended support, upgrade
and marketing agreements with RealNetworks, Inc. Combined, the agreements
represented total commitments of $5,320,000 of which $3,166,665 has been
paid by the Company to the date of this report. Under the existing payment
terms of these agreements, which is currently being renegotiated to extend
the payment schedule, of the remaining amounts, $2,133,332 is due in the
fourth quarter of fiscal 2000; and $20,003 is due in the first quarter of
fiscal 2001.
12. INCOME TAXES
For financial reporting purposes, a valuation allowance has been established for
all deferred tax assets due to the uncertainty of realization.
10
13. SUBSEQUENT EVENT
Recent Acquisition. On June 7, 2000, the Company entered into a
transaction with OnRadio.com to acquire contracts relating to the provision of
certain web-related services to 212 radio stations. Of the these contracts,
contracts with 144 stations relate to non-streaming services such as web-site
hosting, content provision and ad placement. An initial closing involving the
acquisition of these contracts occurred on June 8, 2000. The contracts with
the remaining 68 stations relate to streaming media services. The Company will
acquire these contracts in one or more subsequent closings when the conditions
to such closings have been satisfied. The Company agreed to pay OnRadio total
consideration of $9,000,000, consisting of $500,000 cash and the balance in
shares of common stock based on a price of $5.00 per share. The Company also
agreed to pay OnRadio additional stock consideration of up to $3,000,000 (at
$5.00 per share) in the event that the Company concludes customer contracts
with certain identified sales prospects of OnRadio, which OnRadio agreed to
transition over to the Company. In connection with this transaction, the
Company entered into certain other agreements with OnRadio, including
agreements relating to transitional services, licensing of certain OnRadio
software, and the lease of certain computer equipment. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Recent Developments - OnRadio Transaction" for a more complete description of
this transaction.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
NOTE: The following discussion contains or may contain forward-looking
statements based on current expectations, estimates and projections about the
Company's industry, management's beliefs and certain assumptions made by
management. All statements, trends, analyses and other information contained
herein relative to trends in net sales, gross margin, anticipated expense
levels, liquidity and capital resources, as well as other statements, including,
but not limited to, words such as "anticipate," "believe," "plan," "estimate,"
"expect," "seek" and "intend," and other similar expressions, constitute
forward-looking statements. These forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those anticipated
or expressed in such statements. Except as required by law, the Company
undertakes no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise. Readers, however, should
carefully review the factors set forth in other reports or documents that the
Company files from time to time with the Securities and Exchange Commission (the
"SEC").
Subsequent to the issue of the Company's financial statements for the quarter
ended April 30, 2000, the company identified accounting issues with regard to
its treatment of a stock transaction between an executive of GlobalMedia.com
and a principal shareholder, and the recognition of a contingent beneficial
conversion feature of convertible preferred shares. As a result, the Company
has restated its financial statements for the third quarter and nine months
ended ended April 30, 2000 in the form included with this Amendment No. 1 to
Quarterly Report on Form 10-QSB/A. The following discussion reflects, where
appropriate, changes as a result of such restatement. SEE Notes 7 and 9 to
the Company's attached financial statements.
- --------------------------------------------------------------------------------
OVERVIEW
QUARTER ENDED APRIL 30, 2000
During the quarter ended April 30, 2000, GlobalMedia.com continued to develop
its sales and production infrastructure, resulting in a 321% increase in
revenues over the previous quarter. In addition to realizing increases in
broadcasting and advertising revenues, we commenced programs during the
quarter to realize significant design and implementation fees in the future.
We also commenced programs to enhance our advertising revenues including
sponsorships for our GlobalMedia.com Player.
During the quarter we significantly expanded the quality and diversity of our
network associates by developing key relationships with well-recognized content
providers including AccuWeather, fashiontv.com, and Trafficstation.com. We
continued to refine our streaming and e-commerce infrastructure including the
successful implementation of our video broadcasting solution. As of April 30,
2000, we had signed up 98 network associates (representing 174 unique
e-commerce sites and 37 broadcasting associates). Of these, 156 unique
e-commerce sites were online and 12 broadcasting associates were streaming by
quarter end. This compares to 77 network associates (representing 161 unique
e-commerce sites and 27 broadcasting associates) signed up as of January 31,
2000, of which 134 unique e-commerce sites and 4 broadcasting associates were
implemented at that time. We commenced the quarter with 101 full time staff
and ended the quarter with 112. We currently employ 109 full time staff
members.
We experienced significant client growth subsequent to quarter end. As of June
9, 2000, we had signed up 112 network associates (representing 182 unique
e-commerce sites and 55 broadcasting associates). We have also recently
acquired web services contracts for an additional 144 radio stations and
agreed to acquire streaming contracts for 68 radio stations. SEE " - Recent
Events"
OUR BUSINESS
We offer an award winning streaming media broadcasting solution to radio and
television stations and internet sites through our GlobalMedia.com Network
Associate program. The centerpiece of our broadcasting network solution is the
GlobalMedia.com Player, a streaming media player developed in conjunction with
RealNetworks, Inc. The GlobalMedia.com Player is private-label branded for our
broadcasting associates and enables listeners to stream live and simulated live
audio, video and other multimedia content such as radio feeds from our 13
proprietary internet-only music stations and from the stations of each of our
broadcasting associates.
We are working to integrate our broadcasting solutions with our e-commerce
solutions. Through our e-commerce solution, we sell music CDs and cassettes,
home videos and digital video discs (DVDs), books and other entertainment
products. Sales are made through our own online store and through the
private-label storefronts which we create for the network associates in our
GlobalMedia.com Network Associate program. Visitors to those storefronts can
place merchandise orders from the storefront on our network associates' web
sites, which we then process through our e-commerce backend solution and fulfill
through our fulfillment partners.
We commercially launched our broadcasting solution including the GlobalMedia.com
Player in January 2000, and successfully incorporated our streaming video
solution into the broadcasting network during the current quarter. When our
broadcasting network is fully integrated with our e-commerce solution, our
network associates can offer their customers a tightly integrated entertainment
and online shopping experience. For example, accessing our
12
broadcasting network will enable a network associate's customers to listen to
live music programming through the GlobalMedia.com Player and purchase CDs of
the featured artists at the same time.
We launched a beta version of our own e-commerce site in May 1999 to demonstrate
our e-commerce solution, and commercially launched our own online store in
September 1999, which was significantly revised in November 1999 to offer
greater functionality and ease of use. Our online store combines an extensive
catalogue of music, books, videos and other entertainment products, with
easy-to-use navigation and search capabilities and entertainment-focused
content. Additionally, visitors can download the GlobalMedia.com Player for
free. We are continuing the further development of our online store and
e-commerce backend to provide additional features and content and expect that
these enhancements will improve the revenue generating potential of our own
store and the stores of our network associates.
Since inception of our internet-focused business plan, we have incurred
significant losses resulting primarily from costs related to developing our
broadcasting and e-commerce solutions, developing or acquiring technologies to
be used in our business and general corporate overhead, and have generated
minimal revenues from our operations. We expect to continue incurring net losses
for the foreseeable future, as we plan to invest in:
- - promoting our Network Associate program;
- - enhancing our broadcasting and e-commerce solutions and improving their
reliability and functionality;
- - developing our infrastructure and applications; and
- - hiring additional employees.
Our revenues for the foreseeable future will likely derive primarily from
advertising, streaming fees, design and implementation fees and product sales
and will depend primarily on the number of network associates that we sign up,
the number of listeners on our simulated live stations and the live stations of
our network associates, the number of visitors that we are able to attract to
our online store and that our network associates are able to attract to their
stores, and on how many of those visitors purchase products we offer for sale.
Our broadcasting solution revenues will also depend to a significant extent on
our ability to attract customers (such as radio and television stations) for
these streaming media services. We have initiated a program to market streaming
media consulting and development services and expect that over time this service
line could become a significant revenue contributor. We cannot forecast with any
degree of certainty the number of visitors to our online store or the stores of
our network associates, the number of visitors that will become customers or the
number of customers we will be able to secure for our streaming media services.
If our revenue growth is slower than anticipated or our operating expenses
exceed our expectations, our losses will be significantly greater than
anticipated. We may never achieve or sustain profitability.
Because of the development stage of our business and the seasonality inherent in
a retail business, our results of operations discussed below are not necessarily
indicative of the results you should expect for any future comparable period.
SEE " - Seasonality". Inflation has not historically had any material effect on
our operations.
13
RESULTS OF CONTINUING OPERATIONS
- --------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion exclude
results of our discontinued call center businesses. SEE Note 3 to the
Consolidated Financial Statements.
- --------------------------------------------------------------------------------
QUARTER ENDED APRIL 30, 2000 COMPARED TO QUARTER ENDED APRIL 30, 1999
SALES. We had sales of $246,628 from our operations in the third
quarter of fiscal 2000, compared to none in the third quarter of fiscal 1999.
Our internet-focused business did not commence until the third quarter of fiscal
1999. Our sales for the third quarter of fiscal 2000 increased 321% over the
previous quarter's total sales of $58,635.
COST OF SALES. Our cost of sales totaled $175,155 in the third quarter
of fiscal 2000, compared to none in the third quarter of fiscal 1999. Our cost
of sales in the most recent quarter consisted primarily of minimum contractual
broadcasting-related charges that were payable as we continued to develop and
expand our network.
OPERATING EXPENSES. Our restated operating expenses increased to
$4,261,222 in the third quarter of fiscal 2000, from $287,759 in the third
quarter of fiscal 1999. This increase resulted from significant growth in our
operations and reflects increases in all our operating expenses as follows:
- - Depreciation and amortization increased to $403,441 in the third quarter of
fiscal 2000, from $54,783 in the third quarter of fiscal 1999, due
primarily to the acquisition and development of significant capital assets
during the current fiscal year. We expect our depreciation and amortization
expenses to increase significantly in future periods due to the
amortization of acquisition costs, including goodwill, associated with the
acquisition of customer contracts from OnRadio.com. SEE "- Recent Events."
- - Restated general and administrative expenses increased to $1,511,177 in
the third quarter of fiscal 2000, from $155,011 in the third quarter of
fiscal 1999, due primarily to a $981,875 deferred compensation charge
(SEE Note 9), higher costs associated with multiple office locations and
the administration required for a significantly larger organization.
- - Sales and marketing expenses increased to $1,492,705 in the third quarter
of fiscal 2000, compared to $26,604 in the third quarter of fiscal 1999.
The increase resulted from costs incurred under marketing-related
agreements with RealNetworks, which amounted to $930,664, costs associated
with attending industry related conferences, marketing of the Network
Associate program, and expenses relating to developing our sales force.
- - Shareholder communication expenses increased to $212,159 in the third
quarter of fiscal 2000, from $51,361 in the third quarter of fiscal 1999,
due primarily to improving communication with our shareholders through
materials and services provided, and to being listed on the Nasdaq National
Market during the third quarter.
- - Technical operations and development expenses were $641,740 in the third
quarter of fiscal 2000, as compared to none in the third quarter of fiscal
1999. These expenses were primarily due to the costs of developing and
expanding our e-commerce and streaming media technologies.
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $4,189,749
restated net loss from continuing operations for the third quarter of fiscal
2000, up from our $287,759 net loss from continuing operations for the third
quarter of fiscal 1999, due primarily to the increases in operating expenses
described above as we continue to implement our internet-focused business
plan.
INTEREST. We realized net interest expense of $57,296 in the third
quarter of fiscal 2000, compared to net interest expense of $36,814 in the third
quarter of fiscal 1999. The expense is net of $34,561 in interest income in the
third quarter of fiscal 2000, compared to none in the third quarter of fiscal
1999, due to higher bank balances.
LOSS AND COMPREHENSIVE LOSS. We experienced a $4,287,707 restated
loss and comprehensive loss for the third quarter of fiscal 2000, up from our
$327,494 loss and comprehensive loss for the third quarter of fiscal 1999.
NINE MONTHS ENDED APRIL 31, 2000 COMPARED TO NINE MONTHS ENDED APRIL 30, 1999
SALES. We had revenues of $318,908 from our operations in the nine
months ended April 30, 2000, compared to none in the nine months ended April 30,
1999. Our internet-focused business did not commence until the third quarter of
fiscal 1999.
14
COST OF SALES. Our cost of sales totaled $305,868 in the nine months
ended April 30, 2000, compared to none in the nine months ended April 30, 1999.
Our cost of sales in the nine months ended April 30, 2000 consisted primarily of
minimum contractual broadcasting-related charges that were payable as we
continued to develop and expand our network.
OPERATING EXPENSES. Our restated operating expenses increased to
$8,273,204 in the nine months ended April 30, 2000, from $1,202,759 in the
nine months ended April 30, 1999. This increase resulted from significant
growth in our operations and reflects increases in all our operating expenses
as follows:
- - Depreciation and amortization increased to $751,292 in the nine months
ended April 30, 2000, from $90,060 in the nine months ended April 30, 1999,
due primarily to the acquisition and development of significant capital
assets during the current fiscal year.
- - Restated general and administrative expenses increased to $2,301,969 in
the nine months ended April 30, 2000, from $349,403 in the nine months
ended April 30, 1999, due primarily to a $981,875 deferred compensation
charge (SEE Note 9), higher costs associated with multiple office
locations and the administration required for a significantly larger
organization.
- - Sales and marketing expenses increased to $3,153,876 in the nine months
ended April 30, 2000, compared to $69,848 in the nine months ended April
30, 1999. The increase resulted from costs of $1,526,664 incurred with
RealNetworks, Inc. under various marketing-related agreements, the costs
associated with attending industry related conferences, marketing of the
Network Associate program and expenses developing a sales force.
- - Shareholder communication expenses increased to $338,754 in the nine months
ended April 30, 2000, from $144,648 in the nine months ended April 30,
1999, due primarily to the costs of improving communications with, and
materials provided to, our shareholders, and to being nationally listed on
the Nasdaq Stock Market during the third quarter.
- - Technical operations and development expenses were $1,727,313 in the nine
months ended April 30, 2000, as compared to none in the nine months ended
April 30, 1999. These expenses were primarily due to the costs of
developing and expanding our e-commerce and streaming media technologies.
- - We incurred no stock option compensation expense in the nine months ended
April 30, 2000, compared to $548,800 in the nine months ended April 30,
1999. SEE Note 6 to the Consolidated Financial Statements.
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $8,260,164
restated net loss from continuing operations for the nine months ended April
30, 2000, up from our $1,202,759 net loss from continuing operations for the
nine months ended April 30, 1999, due primarily to the increase in operating
expenses described above as we continued to implement our internet focused
business plan.
INTEREST. We realized net interest expense of $55,187 in the nine
months ended April 30, 2000, compared to net interest expense of $47,283 in the
nine months ended April 30, 1999. The expense is net of $111,187 in interest
income in the nine months ended April 30, 2000, compared to none in the nine
months ended April 30, 1999, due to higher bank balances.
LOSS AND COMPREHENSIVE LOSS. We experienced a $8,350,369 restated
loss and comprehensive loss for the nine months ended April 30, 2000, up from
our $1,259,402 loss and comprehensive loss for the nine months ended April
30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion have been
restated to exclude our discontinued call center businesses. SEE Note 3
to the Consolidated Financial Statements.
- --------------------------------------------------------------------------------
QUARTER ENDED APRIL 30, 2000 COMPARED TO QUARTER ENDED APRIL 30, 1999
WORKING CAPITAL. At April 30, 2000, we had positive working capital of
$7,498,347 and a working capital ratio of 9.67. This represented a significant
improvement from our April 30, 1999 working capital deficiency of $991,176 and
working capital ratio of 0.11. We currently have an estimated working capital at
the date of this report of 3,750,000, and a working capital ratio of 8.33.
15
FINANCING ACTIVITIES. We financed our operations and capital
expenditures in third quarter of fiscal 2000 primarily from existing cash on
hand and the exercise of investment and compensatory stock options. Cash
received upon the exercise of stock options, including exercises by RGC of
investment options for 596,630 shares, totaled $3,562,554 in third quarter
fiscal 2000. We also issued 5,000 Series B convertible preferred shares and
warrants in a private transaction with RGC International Investors, LDC for
gross proceeds of $5,000,000. SEE Note 8 to Consolidated Financial Statements.
CAPITAL EXPENDITURES AND COMMITMENTS. Our capital expenditures
decreased to $338,615 in third quarter fiscal 2000, from $462,463 in third
quarter fiscal 1999, primarily as the result of reduced requirements for
computer hardware, software and operating equipment purchases.
FUTURE CAPITAL REQUIREMENTS. We expect negative cash flow from
operations to continue for fiscal 2000 as we continue to develop and market our
internet-focused operations, and anticipate achieving cash flow breakeven in the
fourth quarter of fiscal 2001 and accounting profitability during fiscal 2002.
We currently anticipate that our available cash will be sufficient to
fund our existing operations to the second quarter of fiscal 2001. As
discussed below, we potentially have access to an additional $5,000,000 in
gross proceeds under our existing agreement with RGC. Additionally, we are in
discussions with a number of potential strategic investors to obtain
additional financing to fund our operating and capital expenditure needs. If
we are able to secure such additional financing, we expect that such
financing, together with proceeds from the exercise of existing investment and
compensatory stock options and warrants, will enable us to meet all of our
existing operating and capital expenditure needs, including financial
obligations to RealNetworks, Inc., through the fourth fiscal quarter of 2001.
However, there can be no assurance that additional financing will be available
on terms favorable to us or at all. If adequate funds are not available or are
not available on acceptable terms, this could negatively impact our business.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our current shareholders will be
reduced, shareholders may experience additional dilution and such securities
may have rights, preferences and privileges senior to those of our common
stock.
Under our recent Securities Purchase Agreement with RGC, RGC has agreed
to purchase 5,000 shares of Series C convertible preferred stock and related
warrants for gross proceeds of $5,000,000. The closing of this part of our
transaction with RGC is subject to certain conditions, none of which are within
RGC's control. The conditions to the second closing are:
(a) the effectiveness of a registration statement we are required to
file with the Securities and Exchange Commission registering for resale the
shares of common stock issued or issuable to RGC upon conversion of the Series B
and Series C convertible preferred stock, exercise of the related investment
options, and exercise of the warrants;
(b) absent shareholder approval of the transactions contemplated in the
Securities Purchase Agreement prior to the second closing date, the number of
shares of common stock issuable upon conversion of the Series B and Series C
convertible preferred stock and exercise of the related investment options
(based on the applicable conversion price in effect prior to the second
closing), may not exceed fifty percent (50%) of the Maximum Share Amount (which
is 4,708,342, or 19.99% of the number of shares of common stock outstanding
immediately prior to the issuance of the Series B convertible preferred stock);
and
(c) whether or not the Company receives shareholder approval as
described above, the number of shares issuable upon conversion of the Series B
and Series C convertible preferred stock and exercise of the related investment
options (based on the applicable conversion price in effect prior to the second
closing) may not exceed 80% of the Maximum Share Amount.
To ensure that the second condition described above is met, we are holding a
special meeting of shareholders on or about June 30, 2000 at which we expect the
RGC transaction to be approved. However, even if our shareholders approve the
RGC transaction, because of the third condition we will not close the sale of
the Series C convertible preferred stock and warrants if the conversion price in
effect at the time we are ready to close is less than approximately $5.35. The
conversion price is based on, and varies with fluctuations in the market price
of, our common stock. See Note 8 to Consolidated Financial Statements. At June
9, 2000, the conversion price would have been $4.33. At this conversion price,
we would not have been able to close the sale of the Series C preferred stock
and warrants at that date. Based on the current price of our common stock,
there is a significant risk that we will not close this transaction.
16
RECENT EVENTS
NASDAQ LISTING
On April 26, 2000, we commenced trading on the Nasdaq National Market tier of
The Nasdaq Stock Market.
OFFERING TO RGC INTERNATIONAL INVESTORS LDC
PREFERRED STOCK. On April 28, 2000, we entered into a Securities
Purchase Agreement and ancillary agreements with RGC International Investors,
LDC. Under this agreement, we issued 5,000 Series B convertible preferred shares
with a stated value of $1,000 per share and 5-year warrants to purchase 388,500
shares at $7.0795 for gross proceeds of $5,000,000. We also agreed to
conditionally issue 5,000 Series C convertible preferred shares with a stated
value of $1,000 per share and additional 5-year warrants for gross proceeds of
$5,000,000. SEE Note 8 to Consolidated Financial Statements. The closing of the
sale of the Series C convertible preferred shares and related warrants is
conditioned upon satisfaction of certain conditions described above under
"- Liquidity and Capital Resources - Future Capital Requirements."
Upon conversion by RGC of shares of Series B convertible preferred
stock and (if issued) shares of Series C convertible preferred stock, RGC has an
investment option to acquire, at an exercise price equal to the conversion price
then in effect, the same number of shares of common stock as the number of
shares of common stock into which the Series B or Series C convertible preferred
shares are being converted. To the extent any Series B or Series C convertible
preferred shares are not converted prior to April 28, 2003, any previously
unconverted shares are automatically converted into common shares under the same
conversion terms.
TERMS OF PREFERRED STOCK. The Series B convertible preferred shares are
and, if issued, the Series C convertible preferred shares will be, convertible
from time to time at RGC's option into shares of common stock of the Company as
follows: the stated value of each share of preferred stock together with a
premium thereon accruing at a per annum rate of 5% is convertible at the lesser
of a fixed conversion price or a variable conversion price based on the market
price of the common shares at the time of conversion. The conversion price of
the Series B convertible preferred shares is the lesser of: (a) the average of
the seven consecutive lowest closing bid prices of common shares reported on the
Nasdaq Stock Market during the 35 trading days ending one day prior to the date
that RGC exercises its right to convert; or (b) $6.435. The conversion price of
the Series C convertible preferred shares, if issued, will be the lesser of: (a)
the average of the seven consecutive lowest closing bid prices of common shares
reported on the Nasdaq Stock Market during the 35 trading days ending one day
prior to the date that RGC exercises its right to convert; or (b) a fixed
conversion price. That fixed conversion price will be the lesser of: (i) $7.40,
or (ii) the average of the closing bid prices of common shares during the five
(5) trading days immediately preceding the Series C closing date.
SERIES C CLOSING CONDITIONS. The Series C Preferred Stock issue is
subject to certain conditions to closing, none of which are in the Investor's
control. The conditions are as described above in "- Liquidity and Capital
Resources - Future Capital Requirements." We can provide no assurance that such
conditions to closing will be satisfied.
RECENT ACQUISITION.
On June 7, 2000, we entered into a transaction with OnRadio.com to
acquire contracts relating to the provision of certain web-related services to
212 radio stations. Of the these contracts, contracts with 144 stations relate
to non-streaming services such as web-site hosting, content provision and ad
placement. An initial closing involving the acquisition of these contracts
occurred on June 8, 2000. The contracts with the remaining 68 stations relate
to streaming media services. We will acquire these contracts in one or more
subsequent closings when the conditions to such closings have been satisfied.
In connection with this transaction, we agreed to pay OnRadio total
consideration of $9,000,000, consisting of $500,000 cash and the balance in
shares 1,697,619 shares of common stock based on an agreed price of $5.00 per
share. We paid OnRadio the cash portion of the purchase price in the initial
closing out of our available cash on hand at that time. We also paid OnRadio a
total of 497,619 shares in the initial closing. An additional 750,000 shares
were placed in escrow to pay OnRadio for streaming media contracts as they are
acquired in subsequent closings. The final closing will occur no later than 120
days after the initial closing. Under the terms of the agreement, shares
representing 25% of the total purchase price were placed in escrow to cover a
purchase price adjustment which may be required if certain levels of customer
attrition are exceeded during the 12 months period after the initial closing. We
also agreed to pay OnRadio additional stock consideration of up to $3,000,000
(at $5.00
17
per share) in the event that we conclude customer contracts with certain
identified sales prospects of OnRadio, which OnRadio has agreed to transition
over to us.
In connection with this transaction, the Company entered into certain
other agreements with OnRadio, including agreements relating to transitional
services, licensing of certain OnRadio software, and the lease of certain
computer equipment. Under the transitional service agreement, OnRadio has agreed
to provide certain services over defined periods to assist us in transitioning
the acquired customers to our solutions. We also licensed, on a cost free basis,
certain proprietary OnRadio software and lease, for a nominal cost, certain
computer equipment necessary to provide certain ongoing services to acquired
customers during the transition process. Under the terms of our equipment lease,
we have the right to acquire certain of the equipment for a nominal buy-out
price. Finally, we agreed to register for public resale the shares issued to
OnRadio in this transaction within certain defined periods beginning as early as
90 days after the initial closing. OnRadio agreed that its sales of our shares
pursuant to the registration statement would not exceed certain volume
limitations defined by reference to SEC Rule 144.
SEASONALITY
We expect our operating results to fluctuate significantly from period
to period. Both seasonal fluctuations in internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book and music industries usually
increase significantly in the fourth calendar quarter of each year and are
correspondingly lower in other quarters. If similar seasonal patterns emerge in
e-commerce, our revenues may vary significantly from period to period.
FOREIGN CURRENCY TRANSLATION
We have translated our monetary assets and liabilities which are denominated in
a foreign currency into U.S. dollars at the period-end exchange rates. We have
translated our income and expense items at the average exchange rates prevailing
during the fiscal period. Exchange gains and losses arising on translation are
reflected in net income for the period.
18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims which may
have a material adverse effect on our business. We are not aware of any current
legal proceedings or claims that will have, individually or in the aggregate, a
material adverse effect on our business, prospects, financial condition or
results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 28, 2000, we entered into a Securities Purchase Agreement and ancillary
agreements with RGC International Investors LDC ("RGC") pursuant to which we
issued 5,000 shares of Series B convertible preferred stock with a stated value
of $1,000 per share and 5-year warrants to acquire 388,500 shares of common
stock for gross proceeds of $5,000,000. The Series B convertible preferred
shares are convertible from time to time into shares of common stock based on a
conversion price that is the lesser of a fixed conversion price or a
market-based conversion price determined at the time of conversion. The Series B
convertible preferred shares include investment options which give the holders
the right to acquired, at an exercise price equal to the conversion price then
in effect, a number of additional shares of common stock equal to the number of
shares into which shares of Series B convertible preferred stock are converted.
Under the terms of the same agreement, we also agreed, subject to certain
closing conditions, to issue for cash, 5,000 shares of Series C convertible
preferred stock having a stated value of $1,000 per share and 5-year warrants to
acquire additional shares of common stock (in an amount determined at the time
of closing) for additional gross proceeds of $5,000,000. We issued (or will
issue) these securities in reliance on Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 thereunder. The holders of the Series B
convertible preferred stock have and the holders of the Series C convertible
preferred stock will have certain preferential rights on liquidation over the
holders of the common stock, as set forth in certificates of designation
relating to the Series B convertible preferred stock and Series C convertible
preferred stock that have been, or in the case of the Series C convertible
preferred stock will be, filed as amendments to our articles of incorporation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of shareholders on April 18, 2000. At the
meeting, our shareholders voted on the following:
Proposal No. 1. Election of Directors
Proposal No. 2. Ratification of Selection of Arthur Andersen LLP, Chartered
Accountants, as the Company's Independent Auditors.
Proposal No. 3. Approval of an Amendment to our Articles of Incorporation to
Change the Name of the Company to "GlobalMedia.com".
Proposal No. 4. Approval of the Global Media Corp. 2000 Stock Option Plan.
19
With regard to the foregoing proposals, the number of votes cast in favor, the
number of votes cast against and the number of votes withheld for each proposal
is outlined below:
Proposal No. 1: 18,551,613 in favor, 9,085 withheld
Proposal No. 2: 18,550,857 in favor, 4,825 against, 5,016 withheld
Proposal No. 3: 18,543,256 in favor, 9,492 against, 6,950 withheld
Proposal No. 4: 15,691,969 in favor, 27,900 against, 20,399 withheld
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
The following documents are filed as exhibits to this Quarterly Report:
EXHIBIT
NUMBER DESCRIPTION
10.34 Securities Purchase Agreement dated April 28, 2000 by and among
GlobalMedia.com and RGC International Investors, LDC. (1)
10.35 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of GlobalMedia.com. (1)
10.36 Stock Purchase Warrant dated April 28, 2000 from GlobalMedia.com
to RGC International Investors, LDC. (1)
10.37 Registration Rights Agreement dated April 28, 2000 by and among
GlobalMedia.com and RGC International Investors, LDC. (1)
10.38 Asset Purchase Agreement dated June 6, 2000 by and among
GlobalMedia.com and OnRadio.com. (2)
10.39 Transition Services Agreement dated June 7, 2000 by and among
GlobalMedia.com and OnRadio.com. (2)
10.40 Investor Rights Agreement dated June 7, 2000 by and among
GlobalMedia.com and OnRadio.com. (2)
10.41 Software License Agreement dated June 7, 2000 by and among by
and among GlobalMedia.com and OnRadio.com. (2)
10.42 Lease Agreement dated June 7, 2000 by and among GlobalMedia.com
and OnRadio.com.(2)
10.43 Transfer Agent Instructions dated June 7, 2000.(2)
10.44 Form of Noncompetition Agreement.(2)
27 Financial Data Schedule.
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
on May 12, 2000.
(2) Filed with this Form 10-QSB on June 14, 2000.
b.REPORTS ON FORM 8-K.
On February 1, 2000, we filed a Current Report on Form 8-K to report a
change in our certifying accountants from Ernst & Young LLP, Chartered
Accountants, to Arthur Andersen, LLP, Chartered Accountants.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 14, 2000 /s/ L. JAMES PORTER
---------------------------------
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L. James Porter
Chief Financial Officer
(Principal Financial and Accounting Officer,
and authorized signatory for the registrant)
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EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
10.34 Securities Purchase Agreement dated April 28, 2000 by and among
GlobalMedia.com and RGC International Investors, LDC. (1)
10.35 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of GlobalMedia.com. (1)
10.36 Stock Purchase Warrant dated April 28, 2000 from GlobalMedia.com
to RGC International Investors, LDC. (1)
10.37 Registration Rights Agreement dated April 28, 2000 by and among
GlobalMedia.com and RGC International Investors, LDC. (1)
10.38 Asset Purchase Agreement dated June 6, 2000 by and among
GlobalMedia.com and OnRadio.com. (2)
10.39 Transition Services Agreement dated June 7, 2000 by and among
GlobalMedia.com and OnRadio.com. (2)
10.40 Investor Rights Agreement dated June 7, 2000 by and among
GlobalMedia.com and OnRadio.com. (2)
10.41 Software License Agreement dated June 7, 2000 by and among by
and among GlobalMedia.com and OnRadio.com. (2)
10.42 Lease Agreement dated June 7, 2000 by and among GlobalMedia.com
and OnRadio.com.(2)
10.43 Transfer Agent Instructions dated June 7, 2000.(2)
10.44 Form of Noncompetition Agreement.(2)
27 Financial Data Schedule.
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
on May 12, 2000.
(2) Filed with this Form 10-QSB on June 14, 2000.
22