SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 1 TO
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999
[ ] 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
GLOBAL MEDIA CORP.
(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, BC, 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 OCTOBER 25, 1999, THERE
WERE 20,710,456 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 January 31, 1999. This report is intended
to amend certain information contained in Part I, Items 1 and 2, and Part II,
Item 2. SEE "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for the basis for such amendments.
1
ITEM 1. FINANCIAL STATEMENTS
GLOBAL MEDIA CORP.
CONSOLIDATED BALANCE SHEETS
Unaudited
(As restated - SEE Note 12)
(in US dollars)
January 31 July 31
1999 1998
$ $
- -------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash 610,376 14,996
Accounts receivable 206 206
Inventory -- 1,992
Prepaid expenses 3,761 8,229
Due from affiliated companies [NOTE 4] -- 71,065
Income taxes recoverable [NOTE 5] 2,441 2,439
- ------------------------------------------------------------------------------------
616,784 98,927
Capital assets [NOTE 6] 269,143 172,635
- ------------------------------------------------------------------------------------
885,927 271,562
- ------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 135,728 201,234
Taxes payable 41,973 51,354
Due to affiliated company [NOTE 4] 129,323 46,284
Note payable [NOTE 9] 500,000 --
Due to shareholders [NOTE 4] 229,400 79,269
- -------------------------------------------------------------------------------------
1,036,424 378,141
- -------------------------------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
Share capital [NOTE 7] 12,546 11,892
Additional paid in capital [NOTE 7] 1,431,071 543,525
Deficit (1,613,730) (681,819)
Cumulative translation adjustment 19,616 19,823
- ------------------------------------------------------------------------------------
(150,497) (106,579)
- ------------------------------------------------------------------------------------
885,927 271,562
====================================================================================
SEE ACCOMPANYING NOTES
2
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
Unaudited
(As restated - SEE Note 12)
(in US dollars)
For the 3 Months Ending For the 6 Months Ending
January 31 January 31 January 31 January 31
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
REVENUE -- -- -- --
GENERAL AND ADMINISTRATIVE EXPENSES [NOTE 4]
Advertising and marketing 52,317 2,755 93,286 2,755
Amortization 22,230 -- 35,277 8,448
Bank charges, interest and financing fees 9,905 92 10,873 137
Foreign exchange 1,161 6,478 4,374 11,595
Professional fees 38,149 6,495 75,255 19,053
Office and miscellaneous 45,227 43,136 84,921 67,479
Travel 25,265 2,753 33,967 8,935
Wages and benefits 30,492 -- 43,093 --
Share options compensation expense -- -- 548,800 --
- -----------------------------------------------------------------------------------------------------------------------
224,746 61,709 929,846 118,402
- -----------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (224,746) (61,709) (929,846) (118,402)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations of discontinued call center
and satellite businesses [NOTE 3]
Call center -- 13,872 -- 58,919
Satellite 4,984 (114,384) (2,065) (179,642)
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 4,984 (100,512) (2,065) (120,723)
- -----------------------------------------------------------------------------------------------------------------------
NET AND COMPREHENSIVE LOSS FOR PERIOD (219,762) (162,221) (931,911) (239,125)
=======================================================================================================================
Loss per common share from continuing operations (0.01) (0.00) (0.05) (0.00)
Loss per common share from discontinued operations (0.00) (0.01) (0.00) (0.01)
- -----------------------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.01) (0.01) (0.05) (0.01)
=======================================================================================================================
Shares used in the computation of loss per share 20,108,698 19,475,116 19,999,764 19,267,258
SEE ACCOMPANYING NOTES
3
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
(in US dollars)
COMMON STOCK ADDITIONAL UNISSUED RETAINED CUMULATIVE
----------------------- PAID-IN SHARE EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL CAPITAL (DEFICIT) ADJUSTMENT
# $ $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1996 [NOTE 7] -- -- -- 1 14,486 (408)
Common shares issued for cash 11,059,400 11,059 128,641 -- -- --
Unissued common shares [NOTE 7] -- -- -- 144,000 -- --
Movement on cumulative translation -- -- -- -- -- 385
Loss for the year -- -- -- -- (108,999) --
Dividends declared and paid -- -- -- -- (114,632) --
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1997 11,059,400 11,059 128,641 144,001 (209,145) (23)
Common shares issued for cash [NOTE 7] 730,533 731 364,536 (144,000) -- --
Common shares issued for other than
cash consideration:
Consideration for shares in
Westcoast Wireless [NOTES 1 AND 7] 8,000,000 1 -- (1) -- --
In kind services 100,898 101 50,348 -- -- --
Movement on cumulative translation -- -- -- -- -- 19,846
Loss for the year -- -- -- -- (472,674) --
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998 19,890,831 11,892 543,525 -- (681,819) 19,823
Stock options exercised 653,600 654 326,146
Stock options charges 561,400
Movement on cumulative translation (207)
Loss for the Period (931,911)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1999 20,544,431 12,546 1,431,071 -- (1,613,730) 19,616
=======================================================================================================================
SEE ACCOMPANYING NOTES
4
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(As restated - SEE Note 12)
(in US dollars)
For the 6 Months Ending
---------------------------
January 31 January 31
1999 1998
$ $
- ----------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (931,911) (239,125)
Items not requiring an outlay of funds
Share option compensation expense 548,800 --
Share option professional fees expense 12,600 --
Amortization 50,508 11,563
Services settled through share issuance -- 50,449
Deferred revenue -- (12,062)
- ---------------------------------------------------------------------------------
(320,003) (189,175)
Changes in non-cash operating working capital
Accounts receivable -- (11,002)
Inventory 1,992 1,525
Prepaid expenses 4,466 (16,713)
Accounts payable and accrued liabilities (65,506) 62,575
Taxes payable (9,381) (2,067)
Advances from (to) shareholder 150,131 (31,629)
Advances from (to) affiliated companies 154,104 3,645
- ---------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (84,197) (182,841)
- ---------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (147,016) (144,195)
- ---------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (147,016) (144,195)
- ---------------------------------------------------------------------------------
FINANCING ACTIVITIES
Note payable 500,000 --
Share subscriptions 326,800 221,267
- ---------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 826,800 221,267
- ---------------------------------------------------------------------------------
Effect of exchange rate changes on cash (207) 8,886
INCREASE (DECREASE) IN CASH DURING THE PERIOD 595,380 (96,883)
Cash, beginning of period 14,996 121,890
- ---------------------------------------------------------------------------------
CASH, END OF PERIOD 610,376 25,007
=================================================================================
Interest - paid 11,610 11,675
=================================================================================
SEE ACCOMPANYING NOTES
5
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Global Media Corp. (the "Company") was incorporated on April 8, 1997 in the
State of Nevada and is headquartered in Vancouver, B.C., Canada. The Company
(through its now-subsidiary Westcoast Wireless Cable Ltd. ("Westcoast Wireless")
was originally engaged in the business of providing call center services, both
of which lines of business are now discontinued (SEE note 3).
The accompanying unaudited interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States of America ("GAAP"). All significant intercompany amounts have
been eliminated in the consolidation process. The preparation of financial
statements in conformity with GAAP requires the Company's management to make
estimates and assumptions that affect the amounts reported in the financial
statements and related notes. Actual results may differ from these estimates. In
the opinion of management, all adjustments necessary to fairly state the results
for the quarters ended January 31, 1999 have been made. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These unaudited interim
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended July 31, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is recorded at the lower of cost, using the first in, first out
method, and net realizable value.
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost. Amortization has been calculated using the
following methods and rates, except in the year of acquisition when one half of
the rate is used.
Communications infrastructure 3 year straight line
Office furniture and equipment 20% declining balance
Software 20% declining balance
Computer equipment 30% declining balance
Leasehold improvements 5 year straight line
6
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's wholly owned Canadian subsidiaries
Westcoast Wireless and Global Media Entertainment Corp. are translated into US
dollars at the period-end exchange rate. Income and expense items are translated
at average exchange rates prevailing during the fiscal period. The resulting
translation adjustments are recorded as a separate component of shareholders'
equity.
Monetary assets and liabilities of the Company denominated in a foreign currency
are translated into US dollars at period end exchange rates. Other balances are
recorded at rates in effect on the dates of the transaction. Exchange gains and
losses arising on translation are reflected in net income for the period.
LOSS PER SHARE
The Company has adopted SFAS128, "Earnings per share" in the current year on a
retroactive basis. In accordance with Statement 128, basic earnings per share is
computed using the weighted average number of common shares outstanding. Diluted
earnings per share is computed using the weighted average number of common
shares per dilutive common share equivalents outstanding during the period using
the treasury stock method. Due to the net loss during the quarter and six months
ended January 31, 1999, the same number of shares were used to compute both
basic and fully diluted earnings per share.
3. DISCONTINUED OPERATION
The Company was engaged in providing call center services until the third
quarter of fiscal 1999, and Westcoast Wireless was engaged in the marketing of
direct-to-home satellite hardware and programming services until the fourth
quarter of 1998.
4. RELATED PARTY TRANSACTIONS
The affiliated companies are related to the Company by virtue of control by an
officer of the Company. No related party transactions occurred during the six
months ending January 31, 1999 with the exception of:
(i) A partial repayment ($71,065) of a shareholder loan, which was used
to repay a receivable owed to the Company by an affiliate owned by
the same shareholder; and,
(ii) Advances from an affiliated company in the amount of $80,366.
7
5. INCOME TAXES
For financial reporting purposes, a valuation allowance has been established for
all deferred tax assets due to the uncertainty of realization. As a result of
certain stock transactions, utilization of the Company's net operating loss
carryforwards may be subject to certain limitations in the event that a change
in ownership has occurred, as defined in Section 382 of the Internal Revenue
Code of 1986, as amended.
6. CAPITAL ASSETS
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- -------------------------------------------------------------------------
JANUARY 31, 1999
Office furniture and equipment 24,303 12,207 12,096
Computer equipment 81,580 27,418 54,162
Leasehold improvements 8,412 5,082 3,330
Communications infrastructure 92,312 27,525 64,787
Software 156,753 21,985 134,768
- -------------------------------------------------------------------------
363,360 94,217 269,143
=========================================================================
JULY 31, 1998
Office furniture and equipment 18,859 4,842 14,018
Computer equipment 70,107 13,117 56,990
Leasehold improvements 8,594 4,905 3,689
Communications infrastructure 91,575 17,325 74,250
Software 27,209 3,520 23,689
- -------------------------------------------------------------------------
216,344 43,709 172,635
=========================================================================
7. SHARE CAPITAL
QUARTER ENDED JANUARY 31 YEAR ENDED JULY 31
1999 1998
# #
- -----------------------------------------------------------------------------------------------
AUTHORIZED
Common shares, par value $0.001 each 200,000,000 200,000,000
ISSUED
Common shares 20,544,431 19,890,831
===============================================================================================
STOCK OPTION PLANS
Effective April 8, 1997 the Company adopted the 1997 Directors and Officers
Stock Option Plan (the "1997 Plan"). The 1997 Plan is administered by the Board
of Directors who have sole discretion and authority to determine individuals
eligible for awards under the 1997 Plan. The Plan provides for issuance of a
total of 500,000 options, within a period of 10 years from the effective date.
The conditions of exercise of each grant are determined individually by the
Board at the time of the grant. No options have been granted under this plan.
8
7. SHARE CAPITAL (CONT'D.)
Effective August 21, 1998 the Company adopted the 1998 Directors and Officers
Stock Option Plan (the "1998 Plan"). The 1998 Plan is administered by the Board
of Directors who have sole discretion and authority to determine individuals
eligible for awards under the 1998 Plan. The 1998 Plan provides for issuance of
a total of 1,000,000 options, within a period of 10 years from the effective
date. The conditions of exercise of each grant are determined individually by
the Board at the time of the grant. 1,000,000 options at an exercise price of
$0.50 per share have been granted under this plan. No grants occurred in the
quarter ended April 30, 1999. Of these options, 980,000 were granted to
directors, officers, employees and inside consultants, and the $548,800 imputed
value thereof as calculated pursuant to APB 25 has been charged to compensation
expense. The remaining 20,000 were granted to an outside consultant and the
$12,600 imputed value thereof as calculated pursuant to FAS 123 has been charged
to professional fees expense. SEE Note 12.
Effective March 24, 1999 the Company adopted the 1999 Directors and Officers
Stock Option Plan (the "1999 Plan"). The 1999 Plan is administered by the Board
of Directors who have sole discretion and authority to determine individuals
eligible for awards under the 1999 Plan. The 1999 Plan provides for issuance of
a total of 4,000,000 options, within a period of 10 years from the effective
date. The conditions of exercise of each grant are determined individually by
the Board at the time of the grant. 2,933,000 options at exercise prices of
$4.00 have been granted under this plan and all of these grants occurred in the
quarter ended April 30, 1999. Of these options, 25,000 were issued to acquire
the globalmedia.com domain name and the $95,000 imputed value thereof has been
capitalized to web site development costs. Additionally, 10,000 were issued to
an outside consultant and the $24,700 imputed value thereof, as calculated
pursuant to FAS 123, has been charged to professional fees expense. SEE Note 12.
As of April 30, 1999, 653,600 options had been exercised under the 1998 Plan and
no options had been exercised under the 1999 Plan.
8. COMMITMENTS AND CONTINGENCIES
The Company entered into a commercial lease for office space effective
October 1, 1997, and will pay a total of $52,939 per year until July 31, 2002.
By agreement dated April 20, 1999, as amended on June 4, 1999, the Company
entered into an arrangement to engage RealNetworks, Inc. to perform consulting
services in connection with the Global Media Broadcast Network project. Under
the terms of the agreement, the Company is required to make payments totaling
$3,655,000 over the duration of the project with the final payment date
projected to be December 21, 1999.
9
9. NOTE PAYABLE AND DUE TO SHAREHOLDERS
The shareholder loans as of January 31, 1999 had no fixed terms of repayment and
therefore are classified as current liabilities on the balance sheet. Subsequent
to quarter-end, the Company and the shareholders agreed to settle the loans by
way of the issuance of shares, partial repayment and partial conversion to new
promissory notes.
On November 5, 1998, the Company entered into a bridge loan agreement with
Rolling Oaks Enterprises, LLC allowing the Company to draw on a line of credit
of up to $500,000, repayable within one year. The interest rate on the credit
facility is 24% per annum, with an origination fee of 1% payable on the receipt
of funds.
10. SUBSEQUENT EVENTS
Effective 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 convertible debenture to RGC in the
aggregate principal amount of $8,500,000 and warrants to purchase 680,000 shares
of the Company's common stock at an exercise price of $8.4375 per share. The
convertible debenture is convertible from time to time at RGC's option into
shares of Common Stock of the Company at the lesser of a fixed conversion price
or a variable conversion price based on the market price of the Common Stock at
the time of conversion. The debenture includes an investment option, exercisable
by RGC at the time of conversion, to acquire a number of additional shares of
Common Stock equal to the number of shares with respect to which RGC is
converting the debenture, at an exercise price equal to the conversion price
then in effect. The debenture may be converted at the option of the Company into
convertible preferred shares of the Company (having the same basic terms as the
convertible debenture) once the Company's articles of incorporation have been
amended to allow for the issuance of the preferred shares. On or about June 9,
1999 the Company mailed to its shareholders an Information Statement concerning
this matter, and as majority shareholder approval has already been obtained for
the shares, the Company expects that the convertible debentures will have been
converted into convertible preferred shares of the Company by July 31, 1999, the
Company's fiscal year-end. Further details on this matter are also available by
referring to the Company's Form 8-K filing made May 20, 1999.
On May 18, 1999 the Company fully repaid its $500,000 line of credit, and
$48,200 of accrued interest, to Rolling Oaks Enterprises, LLC.
The Company launched its main e-commerce internet site, globalmedia.com, on May
18, 1999.
10
11. RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company does not believe that it has material exposure to the Year 2000
issue with respect to its own information systems since its existing systems
correctly define the Year 2000. The Company is in the process of inquiring as to
the extent to which its major suppliers' systems (insofar as they relate to the
Company's business) are subject to the Year 2000 issue. The Company is currently
unable to predict the extent to which the Year 2000 issue will affect its
suppliers, or the extent to which it would be vulnerable to its suppliers'
failure to remediate any Year 2000 issued on a timely basis. The failure of a
major supplier subject to the Year 2000 issue to convert its systems on a timely
basis or a conversion that is incompatible with the Company's systems could have
a material adverse effect on the Company. In addition, historically most of the
purchases from the Company will be made with credit cards and the Company's
operations may be materially adversely affected to the extent its customers are
unable to use their credit cards due to Year 2000 issues that are not rectified
by their credit card providers. One further, and more extreme, case may be the
failure of the communication mode (telephone, cable or satellite), over the
internet, which could significantly impact the Company's ability to generate
sales.
12. RESTATEMENT
Subsequent to the issuance of the Company's financial statements for the quarter
ended April 30, 1999, the Company identified accounting issues with regard to
its treatment of stock options granted during the first and third quarters of
fiscal 1999. SEE Note 7. As a result, the Company has restated its financial
statements for the three months ended January 31, 1999. The effects of such
restatement, and of the Company's discontinuance of its call center operation
(SEE Note 3) are summarized as follows:
Three months ended Six months ended
January 31, 1999 January 31, 1999
------------------- -----------------
Net sales before restatement 1,141 21,271
Net sales after restatement -- --
General and administrative expenses before restatement 225,887 389,717
General and administrative expenses after restatement 224,746 929,846
Net loss before restatement (219,762) (370,511)
Net loss after restatement (219,762) (931,911)
Net loss per common share before restatement (0.01) (0.01)
Net loss per common share after restatement (0.01) (0.05)
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains 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 in this report 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 issuance of the Company's financial statements for the quarter
ended April 30, 1999, the Company identified accounting issues with regard to
its treatment of stock options granted during the first and third quarters of
fiscal 1999. SEE Note 7. As a result, the Company has restated its financial
statements for the second quarter and six months ended January 31, 1999 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
effects of such restatement. SEE "Note 7" and "Note 12" to the Company's
attached financial statements.
RESULTS OF OPERATIONS
Operating losses of $929,846 (1998 - $118,402), were incurred during the first
six months of the year. This was a result of fundamental changes in the
company's business and corresponding decreasing revenues. The Company, Global
Media Corp. is in the process of developing web sites and associated licensing
programs to sell music CDs, video cassettes, DVDs, books, magazine subscriptions
and other entertainment products via a series of Internet web sites. The Company
also plans to be a major participant in the newest method of music and video
distribution via direct Internet download and is developing a web site to
showcase this technology and allow independent artists to feature their work on
the site.
As the Company has moved into a development cycle, it does not expect further
revenues pending the launch of its web sites. Consequently, revenues decreased
to $nil during the first half of the year, ending January 31, 1999.
12
General and Administrative expenses for the first six month period ending
January 31, 1999 were $929,846 (1998 - $118,402). The increase in expenses
reflects ongoing development of the company's web sites and the inclusion of
share options compensation expense. Share options compensation expense of
$548,800 consists of the imputed benefit calculated pursuant to APB 25 of stock
options granted immediately prior to August 24, 1998, the date the Company's
shares commenced trading on the NASD OTC Bulletin Board. SEE "Note 7" and "Note
12" to the Company's Financial Statements. More advertising for the preparation
of the launch of the sites; greater amortization due to more capital assets;
more professional fees in developing corporate licensing and other legal
agreements; more office expenses; increased corporate travel; and hiring
additional staff all lead to an increase in expenses.
Advertising expenses increased to $93,286 (1998 - $2,755) due to the news
releases, Internet and other promotions used to inform the shareholders and
general public, and expenses related to promotion of the web site licensing
programs. Amortization increased to $35,277 (1998 - $8,448), due to the increase
in capital assets over the last year. Bank charges and interest increased to
$10,873 (1998 - $137) due to interest payment on the bridge financing.
Professional fees increased to $75,255 (1998 - $19,053) mainly relating to
corporate web site development agreements, generation of investor leads and
costs associated with listing in Standard and Poor's Corporation Records.
Professional fees also include $12,600 in imputed benefit related to stock
options mentioned above.
Office expense of $84,921 (1998 - $67,479) increased primarily due to rent
expense at the larger Nanaimo offices and other expenses associated with a
growing company such as increased telephone and general office expenses. Office
expense consisted mainly of accounting and legal fees $22,209 (1998 - $48,421);
rent $32,351 (1998 - $18,343); telephone $2,067 (1998 - $4,180); and general
office expense $10,176 (1998 - $2,497). Travel expense of $33,967 (1998 -
$8,935) consisted primarily of travel relating to development of strategic
alliances, working with web site designers and developers and attending industry
related conferences. Wages of $43,093 (1998 - $nil) increased due to hiring
additional staff for our licensing and affiliate programs, our corporate web
site development, and our e-commerce web site development.
General and administrative expenses increased in the second quarter to $225,887,
(1998-$47,837). The prior period reflects the Company initiating and developing
its call center whereas the most recent quarter reflects an increase in activity
related to the ongoing development of the company's web sites. The following
factors contributed to larger expenses in the current period. Greater emphasis
on promotion of our company to attract quality licensee leads for the e-commerce
site increased advertising to $ 52,317 (1998-$2,755). Depreciation of a larger
capital base increased amortization costs to$22,230. Increased activity in
developing corporate licensing and other legal agreements increased professional
fees to $38,149 (1998-$6,495). Increases in corporate travel to industry related
events and web developers increased the travel costs to $25,265 (1998-$2,753),
while hiring additional staff increased wages to $30,492 (1998-$9,406).
13
LIQUIDITY AND CAPITAL RESOURCES
Since the year-end, the Company's cash position has improved considerably. Cash
has increased by $595,380 (1998 - decrease of $96,883) primarily resulting from
the Company obtaining a bridge loan of $500,000, (1998 - Nil) and stock options
being exercised totaling $326,800, (1998 - $221,267 from the sale of common
shares). This increase in cash was offset by cash used in operating activities
of $84,197, (1998 - $182,841; and purchase of capital assets of $147,016 (1998 -
$144,195).
Net losses for the first six months were $931,911 (1998 - $239,125) offset by
amortization of $50,508 (1998 - $11,563). These losses were the result of
decreased revenues combined with increased general and administrative expenses
as noted above.
CHANGES IN NON-CASH OPERATING CAPITAL
Over the last six months, cash used by operating activities decreased by $84,197
(1998 - $182,841). The Company had a net loss of $931,911 (1998 -$239,125)
offset by amortization of $50,508 (1998 - $11,563) leaving cash used by
operations of $320,003 (1998 - $189,175). The loss from operations was offset by
the following changes in non-cash working capital.
Increases in cash were caused by: the sale of inventory for $1,992 (1998
- - $1,525); decrease in prepaid expenses of $4,466 (increase in 1998 - $16,713)
due to use of presentation folders for mailing corporate information and
expensing of prepaid rent; shareholder advances of $150,131 (repayment of
shareholder loan 1998 - $31,629); and advances from affiliated companies
totaling $154,104 (1998 - $3,645).
Decreases in cash were caused by a reduction of accounts payable of $65,506
(increase in 1998 - $62,575); and a reduction of taxes payable of $9,381
(1998 - $2,067).
INVESTING ACTIVITIES
There was a decrease in cash of $147,016 (1998 - $144,195) caused by fixed
asset purchases of computer equipment and software to be used in the
entertainment websites.
FINANCING ACTIVITIES
The increase in cash was mainly due to two financing activities. The Company
secured bridge financing in the amount of $500,000 (1998 - $nil) together
with the sale of shares through the exercise of stock options for $326,800
(1998 -$221,267 through the sale of common shares).
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GENERAL
During the quarter, the Company made significant strides toward execution of
its business plan. The Company launched its licensing program and online
licensing application center. Response to the program has been better than
accepted. The Company has received applications from companies representing
over 1000 media entities. The Company continues development its web site and
associated licensing program. Toward its commitment to developing an
excellent corporate culture, Global Media has continued to hire excellent
people who share the Company's vision and hard working philosophy.
The Company also began development of its Indieaudio.com and Indielife.com
web sites. These sites are positioned to be an online center for the
independent music community. The interactive and compelling editorial and
audio content is being designed to attract a wide cross-section of musicians
and music fans. The primary value of the sites will be in driving traffic to
the Global Media entertainment and sales site. The sites will also generate
direct revenue through the sale of digital audio files as well as through
advertising revenue.
The Company also continued development of its communications center which
managed Global Media's investor relations over multiple mediums including
phone, fax and e-mail. The communications center also managed the
distribution of corporate information via the Internet, fax and physical
packages. The communications center continues to allow Global Media to
maintain and develop relationships with its shareholders, the investment
community and the media. It is also being used to develop and manage
relationships with the large number of companies and individuals expressing
interest in Global Media's licensing and affiliate programs.
The Company continues to develop its corporate web site in order to showcase
its business plan, management and partnerships with its shareholders, the
investment community and the media. The corporate web site is also being used
to provide information to businesses and individuals about the Global Media's
licensing and affiliate programs.
During the quarter, Global Media also continued to improve its key strategic
alliances including Muze Inc., Baker & Taylor and Liquid Audio. These
alliances represent significant steps toward execution of the company's
business plan. Muze Inc. is the leading independent source of digital
information about music, books and movies, to include Muze's music and home
video content and will be the database source for the web site. Baker &
Taylor will manage all packaging, shipping and returns of CDs, videos and
DVDs sold through Global Media's web site. Operating worldwide, Baker &
Taylor distributes a wide range of products, including books, video, audio,
software, and related services to retail stores and libraries. The company
has 11 inventory distribution centers across the United Sates. Liquid Audio's
technology allows consumers to preview and purchase CD-quality music over the
Internet, while ensuring copyright protection and tracking royalties.
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As part of its growth strategy, the Company seeks to establish strategic
alliances with global on-line, music and media companies to attract
additional users to, and increase brand awareness of, the Company's websites.
These include network television operators, cable and satellite operators as
well as radio networks. These types of partnerships not only bring
credibility and financial backing but have access to leverage existing
viewers to a sales web site. The Company is also seeking partnerships with
large Internet portals, search engines and chat. Global Media views
entertainment development and distribution as an essential, compelling
element to draw visitors to its site and worked during the quarter to develop
relationships with content developers and distribution technology partners.
The Company continues to be in a development cycle and does not expect
further revenues pending the launch of its web site. With the success of the
licensing program, the Company expects to begin to generating revenues
immediately proceeding the launch of its site and licensees. Management
believes the Company is well positioned to take a leading position in
providing complete turnkey, end to end solutions for the retailing of
entertainment product online.
DISCONTINUED OPERATIONS
The Company was engaged in the business of providing call center services
until the third quarter of fiscal 1999, at which time it discontinued those
operations. In addition, the Company's wholly-owned subsidiary Westcoast
Wireless Cable Ltd., a Canadian limited company, was engaged in the home
satellite business until the fourth quarter of fiscal 1998 at which time it
discontinued its operations following a decision by the Canadian Federal
Court of Appeal in November, 1997 prohibiting the sale of US based satellite
and programming services in Canada.
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
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The Company does not believe that it has material exposure to the Year 2000
issue with respect to its own information systems since its existing systems
correctly define the Year 2000. The Company is in the process of inquiring as
to the extent to which its major suppliers' systems (insofar as they relate
to the Company's business) are subject to the Year 2000 issue. The Company is
currently unable to predict the extent to which the Year 2000 issue will
affect its suppliers, or the extent to which it would be vulnerable to its
suppliers' failure to remediate any Year 2000 issues on a timely basis. The
failure of a major supplier subject to the Year 2000 issue to convert its
systems on a timely basis or a conversion that is incompatible with the
Company's systems could have a material adverse effect on the Company. In
addition, historically most of the purchases from the Company will be made
with credit cards and the Company's operations may be materially adversely
affected to the extent its customers are unable to use their credit cards due
to Year 2000 issues that are not rectified by their credit card providers.
One further, and more extreme, case may be the failure of the communication
mode (telephone, cable or satellite), over the internet, which could
significantly impact the Company's ability to generate sales.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS133, "Accounting for
derivative instruments and hedging activities". SFAS 133 was initially to be
effective for financial statements for fiscal years beginning after June 15,
1999. On May 19, 1999, FASB voted to delay the effective date of SFAS 133 by
one year. The consequences of that vote are not yet known.
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PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no legal proceedings to report.
ITEM 2 - CHANGES IN SECURITIES
On November 5, 1998, the Company entered into a loan agreement with
Rolling Oaks Enterprises, LLC allowing the Company to draw on a line of
credit of up to $500,000, repayable within one year. The interest rate
on the credit facility is 24% per annum, with an origination fee of 1%
payable on the receipt of funds. The loan is collateralized by a first
charge on all available fixed assets of the Company, and 1,000,000 of
common shares in the Company. The Company relied upon the section 4(2)
exemption from the registration requirements of section 5 of the
Securities Act for entering into the loan agreement based upon the fact
that the transaction does not involve a public offering in that there
was only one offer of the loan agreement to a sophisticated investor
who had access to all material information regarding the Company.
ITEM 3. - DEFAULT UPON SENIOR SECURITIES
There are no defaults to report.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the quarter.
ITEM 5. - OTHER INFORMATION
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBIT.
The following document is filed as an exhibit to this Quarterly Report:
EXHIBIT
NUMBER DOCUMENT
- --------- --------
27 Financial Data Schedule. (1)
- ----------------------------
(1) Filed with this Form 10-QSB/A for the period ended January 31, 1999.
b. REPORTS ON FORM 8-K.
None during the reporting period.
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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.
GLOBAL MEDIA CORPORATION
/s/ L. James Porter
L. James Porter
Chief Financial Officer
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