SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 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)
83 VICTORIA CRESCENT, NANAIMO, BC, CANADA V9R 5B9
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (250) 716-9949
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 JUNE 11, 1999,
THERE WERE 20,545,431 SHARES OUTSTANDING OF THE COMPANY'S COMMON STOCK.
ITEM 1. FINANCIAL STATEMENTS
GLOBAL MEDIA CORP.
CONSOLIDATED BALANCE SHEETS
Unaudited
(in US dollars)
April 30 July 31
1999 1998
$ $
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ASSETS
CURRENT
Cash 85,299 14,996
Accounts receivable 28,993 206
Inventory -- 1,992
Prepaid expenses 3,891 8,229
Due from affiliated companies [NOTE 4] -- 71,065
Income tax recoverable 2,531 2,439
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120,714 98,927
Capital assets [NOTE 6] 526,942 172,635
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647,656 271,562
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LIABILITIES
CURRENT
Accounts payable and accrued liabilities 158,704 201,234
Employee withholdings 24,747 51,354
Due to affiliated company [NOTE 4] 137,703 46,284
Note Payable [NOTE 9] 548,200 --
Due to shareholders [NOTE 4] 242,536 79,269
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1,111,890 378,141
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital [NOTE 7] 12,546 11,892
Additional paid in capital [NOTE 7] 869,671 543,525
Deficit (1,355,121) (681,819)
Cumulative translation adjustment 8,670 19,823
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(464,234) (106,579)
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647,656 271,562
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SEE ACCOMPANYING NOTES
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(LOSS)
Unaudited
(in US dollars)
For the 3 Months Ended For the 9 Months Ended
---------------------- ----------------------
April 30 April 30 April 30 April 30
1999 1998 1999 1998
$ $ $ $
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REVENUE -- -- -- --
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GENERAL AND ADMINISTRATIVE EXPENSES
Advertising, marketing and investor relations 51,361 505 144,648 3,529
Amortization 54,783 5,645 90,060 16,678
Foreign exchange 2,921 (3,923) 7,280 7,403
Professional fees 36,897 19,112 121,814 86,586
Office and miscellaneous 51,831 17,703 114,740 41,708
Travel 41,583 6,655 75,549 15,590
Wages and benefits 26,604 -- 69,848 --
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265,980 45,697 623,939 171,494
Net interest expense and financing fees 36,814 209 47,283 346
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LOSS FROM CONTINUING OPERATIONS (302,794) (45,906) (671,222) (171,840)
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(Loss) recovery from operations of discontinued call
center and satellite businesses [NOTE 3]
Call center -- 82,631 -- 146,497
Satellite -- (27,401) (2,080) (204,458)
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(LOSS) RECOVERY FROM DISCONTINUED OPERATIONS -- 55,230 (2,080) (57,961)
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NET AND COMPREHENSIVE INCOME (LOSS) FOR PERIOD (302,779) 9,324 (673,302) (229,801)
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Loss per common share from continuing operations (0.01) (0.00) (0.03) (0.01)
Loss per common share from discontinued operations (0.00) (0.00) (0.00) (0.00)
- ----------------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.01) (0.00) (0.03) (0.01)
Shares used in the computation of loss per share 20,544,431 19,890,831 20,253,942 19,619,116
SEE ACCOMPANYING NOTES
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
Unaudited
(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) --
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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) --
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BALANCE, JULY 31, 1998 19,890,831 11,892 543,525 -- (681,819) 19,823
Stock options exercised 653,600 654 326,146
Movement on cumulative translation (11,153)
Loss for the Period (673,302)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, APRIL 30, 1999 20,544,431 12,546 869,671 -- (1,355,121) 8,670
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SEE ACCOMPANYING NOTES
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(in US dollars)
For the 9 Months Ended
----------------------
April 30 April 30
1999 1998
$ $
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the period (673,302) (229,801)
Items not requiring an outlay of funds
Amortization 90,060 16,678
Services settled through share issuance -- 50,449
Deferred revenue -- (12,062)
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(583,242) (174,736)
Changes in non-cash operating working capital
Accounts receivable (28,787) (2,124)
Inventory 1,992 9,275
Prepaid expenses 4,338 (11,000)
Income tax recoverable (92) --
Accounts payable and accrued liabilities (42,530) 34,387
Employee withholdings (26,607) 11,576
Advances from (to) shareholder 163,267 (39,026)
Advances from affiliated companies 162,484 2,329
- ----------------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (349,177) (169,319)
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INVESTING ACTIVITIES
Purchase of capital assets (462,463) (165,414)
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CASH USED IN INVESTING ACTIVITIES (462,463) (165,414)
- ----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Note payable 548,200 --
Share subscriptions 326,800 221,267
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CASH PROVIDED BY FINANCING ACTIVITIES 875,000 221,267
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Effect of exchange rate changes on cash 6,973 4,422
INCREASE (DECREASE) IN CASH DURING THE PERIOD 70,303 (109,044)
Cash, beginning of period 14,996 121,890
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CASH, END OF PERIOD 85,299 12,846
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Interest - paid 4,190 4,470
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SEE ACCOMPANYING NOTES
NOTES TO FINANCIAL STATEMENTS
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 Nanaimo, B.C., Canada. The Company
(through its now-subsidiary Westcoast Wireless Cable Ltd. ("Westcoast
Wireless")) was originally engaged in the marketing of satellite programming
and hardware and later was engaged in the business of providing call center
services (see note 3). The Company discontinued its existing lines of
business by the end of fiscal 1998, and, in the first quarter of fiscal 1999,
adopted an internet-focused business plan. As of April 30, 1999 the Company
had not yet commenced revenue generating activities and was engaged primarily
in the development of an electronic commerce web-site, the development of a
broadcast network over the internet, and the development of templates for the
application of the e-commerce back-end system to multiple sites on the
internet. Subsequent to quarter-end, the e-commerce web-site,
globalmedia.com, was launched on May 18, 1999.
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 and nine months ended April 30, 1999 and April 30, 1998 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 should
therefore be read in conjunction with the audited 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.
The results of operations for the quarters and nine months ended April 30, 1999
and 1998 are not necessarily indicative of the results to be expected or
anticipated for the full fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
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
Purchased software, other than for web site development 20% declining balance
Capitalized development costs and purchased software for web site development 3 year straight line
Computer equipment 30% declining balance
Leasehold improvements 5 year straight line
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 nine
months ended April 30, 1999, the same number of shares were used to compute both
basic and fully diluted earnings per share.
3. DISCONTINUED OPERATIONS
The Company was engaged in providing call center services until the first
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 nine
months ending April 30, 1999 with the exception of:
(i) A partial repayment of a shareholder loan, $ 71,065, which was used
to repay a receivable owed to the Company by an affiliate owned by
the same shareholder;
(ii) Advances from an affiliated company in the amount of $ 162,484; and,
(iii) Shareholder loans of $ 234,332.
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 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
$ $ $
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APRIL 30, 1999
Office furniture and equipment 22,431 2,696 19,735
Computer equipment 134,028 30,728 103,300
Leasehold improvements 3,832 762 3,070
Communications center infrastructure 91,146 33,887 57,259
Web site development costs 307,393 38,420 268,973
Web site purchased software 24,550 3,068 21,482
Other purchased software 65,250 12,127 53,123
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648,630 121,688 526,942
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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 center infrastructure 91,575 17,325 74,250
Web site development costs -- -- --
Web site purchased software -- -- --
Other purchased software 27,209 3,520 23,689
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216,344 43,709 172,635
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7. SHARE CAPITAL
QUARTER ENDED APRIL 30 YEAR ENDED JULY 31
---------------------- ------------------
1999 1998
# #
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AUTHORIZED
Common shares, par value $0.001 each 200,000,000 200,000,000
ISSUED
Common shares 20,544,431 19,890,831
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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 1997 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.
Effective August 21, 1998 the Company adopted the 1998 Directors and Officers
Stock Option Plan (the "1998 Plan"). The 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.
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.
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. NOTE PAYABLE AND DUE TO SHAREHOLDERS
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 was 24% per annum, with an origination fee of 1% payable on receipt of
the funds.
The shareholder loans as of April 30, 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.
10. SUBSEQUENT EVENTS
Effective May 6, 1999 the Company entered into a Securities Purchase Agreement
and ancillary agreements with Rose Glen Capital Group, Inc. ("Rose Glen")
pursuant to which the Company issued, for cash, a convertible debenture to Rose
Glen 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 has a three year term during which the
debenture may be convertible into convertible preferred shares of the Company on
the Company's articles of incorporation being amended to allow for the issuance
of the preferred shares. On June 8, 1999 the Company mailed to its shareholders
an Information Statement concerning this matter and as majority shareholder
approval has already been obtained for the amendment of the Company's articles
of incorporation to allow for the issuance of the preferred 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.
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 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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").
OVERVIEW
As of April 30, 1999, the Company was engaged primarily in the development of an
electronic commerce web-site, the development of a broadcast network over the
internet, and the development of templates for the application of the e-commerce
back-end system to multiple sites on the internet. During the third quarter of
fiscal 1999, the Company made significant progress towards execution of its
business plan.
E-COMMERCE WEB SITE AND LICENSING MARKETING PROGRAM
During the quarter ended April 30, 1999, the Company continued development of
its main e-commerce web site, "globalmedia.com", and therefore did not generate
revenues. The Company launched the site subsequent to quarter-end on May 18,
1999 and began generating revenues. The Company adopted an initial pricing
policy intended to result in a small initial volume of transactions on the
globalmedia.com web site while the site development is fully completed. The
Company intends to generally lower prices during the latter part of the
Company's fourth quarter of fiscal 1999 and/or the first quarter of fiscal 2000,
which is anticipated to have the effect of increasing sales.
The Company's licensing marketing program continued to receive a positive
interest from the radio community and other target markets. The Company
intends to begin adding the e-commerce model to select licensees in the
latter part of fourth quarter fiscal 1999, which is also expected to increase
the Company's sales.
Until the pricing changes are implemented and the e-commerce model is
launched for licensees, the Company does not anticipate earning significant
revenues. Management expects that at that time the Company will be well
positioned to take a leading position in providing complete turnkey solutions
for the retailing of entertainment product online.
MUSIC WEB SITES
The Company also launched its "indieaudio.com" and "indielife.com" web sites
during the quarter. These sites are positioned to be an online center for the
independent music community. The interactive editorial and audio content has
been designed to attract a wide cross-section of
musicians and music fans. Management anticipates that the primary value of the
sites will be in driving traffic to the globalmedia.com web site. The sites will
also generate direct revenue through the sale of digital audio files as well as
through advertising revenue.
CORPORATE WEB SITE
During the quarter the Company continued to update its corporate web site,
"gmcorp.net", in order to showcase its business plan, management team and
provide information about its licensing and affiliate programs.
STRATEGIC ALLIANCES
During the quarter, the Company continued to improve its key strategic alliances
by entering into several agreements with RealNetworks, Inc. for the purpose of
providing audio and video broadcast capability to licensees. These agreements
encompass the building of the Global Media Broadcast Network and the development
of a highly customized RealPlayer. In the opinion of the Company's management,
the relationship with RealNetworks that the Company established during the
quarter represents a significant milestone reached towards successful
implementation of the Company's business plan.
As reported previously, other strategic partners that the Company has developed
relationships with include Muze, Baker and Taylor and Liquid Audio. Muze is the
leading independent source of digital information about music, books and movies
and is the database source for the globalmedia.com web site. Baker & Taylor
manages all packaging, shipping and returns of CDs, videos, DVDs and books sold
through the globalmedia.com 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. Baker & Taylor 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.
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 web sites. These
include network television operators, cable and satellite operators as well as
radio networks. The Company is also seeking partnerships with large internet
portals, search engines and chat sites. The Company views entertainment
development and distribution as an essential element to draw visitors to its
globalmedia.com web site and worked during the quarter to develop relationships
with content developers and distribution technology partners.
RESULTS OF CONTINUING OPERATIONS
During the quarter and nine months ended April 30, 1998, the Company operated
a call center and a satellite marketing business. The Company had
discontinued both of those businesses by the first quarter of fiscal 1999.
The financial results from those periods contained in the following
discussion include only revenues and expenses related to the Company's
corporate activities and exclude any revenues or expenses from those
discontinued lines of business. SEE " --Discontinued Operations."
The results of operations for the quarters and nine months ended April 30, 1999
and 1998 are not necessarily indicative of the results to be expected or
anticipated for any future comparable period or full fiscal year.
NINE MONTHS ENDED APRIL 30, 1999 COMPARED TO NINE MONTHS ENDED APRIL 30, 1998
NET REVENUES. During the nine months ended April 30, 1999 the Company had
not yet commenced earning revenues from its internet business (comparable period
fiscal 1998: Nil).
OPERATING EXPENSES. General and Administrative expenses for the nine
months ended April 30, 1999 were $623,939, as compared to $171,494 for the nine
months ended April 30, 1998. The increase reflects costs associated with ongoing
development of the Company's web sites, more advertising for the preparation of
the launch of the sites, greater amortization due to more capital assets,
increased office expenses, increased corporate travel and the hiring of
additional staff. Wages and benefits of $69,848 (comparable period fiscal 1998:
Nil) reflect the hiring of staff for the Company's licensing and affiliate
programs, corporate web site development and e-commerce web site development.
Advertising, marketing and investor relation expenses increased to $144,648
(comparable period fiscal 1998: $3,529) due to the news releases, internet and
other promotions used to inform shareholders and the general public, and
expenses related to promotion of the web site licensing programs. Amortization
increased to $90,060 (comparable period fiscal 1998: $16,678), due to the
increase in capital assets over the last year. Professional fees increased to
$121,814 (comparable period fiscal 1998: $86,586) in concert with the Company's
general increase in business activities. Office and miscellaneous expenses of
$114,740 (comparable period fiscal 1998: $41,708) increased primarily due to:
rent expense at the larger Nanaimo offices $48,993 (comparable period fiscal
1998: $33,507), telephone $23,955 (comparable period fiscal 1998: $3,690), and
general office expense $18,124 (comparable period fiscal 1998: $3,532). Travel
expense of $75,549 (comparable period fiscal 1998: $15,590) consisted primarily
of travel relating to development of strategic alliances, working with web site
designers and developers and attending industry related conferences.
INTEREST EXPENSE. Net interest expense and financing fees increased to
$47,283 (comparable period fiscal 1998: $346), due primarily to interest
payments on the Rolling Oaks Enterprises, LLC bridge financing which was repaid
subsequent to quarter end.
NET LOSS. The Company experienced a $671,222 loss from continuing
operations for the nine months ended April 30, 1999, as compared to a $171,840
loss from continuing operations for the nine months ended April 30, 1998. This
increase in loss from continuing operations reflects increases in the Company's
development activities including increases in the number of employees, an
increase in amortization as the result of additional computer equipment
purchases, and an increase in office, travel and other costs.
QUARTER ENDED APRIL 30, 1999 COMPARED TO QUARTER ENDED APRIL 30, 1998
NET REVENUES. During the quarter ended April 30, 1999 the Company had
not yet commenced earning revenues from its internet business (third quarter
fiscal 1998: Nil).
OPERATING EXPENSES. General and administrative expenses increased in the
third quarter to $265,980 as compared to $45,697 in third quarter fiscal 1998.
The low comparative prior year figure reflects the fact that development of the
Company's web sites had not yet commenced. The following factors contributed to
larger expenses in the current quarter: greater emphasis on promotion of the
Company to attract quality licensee leads for the e-commerce site increased
advertising to $51,361 (third quarter fiscal 1998: $505); depreciation of a
larger capital base increased amortization costs to $54,783 (third quarter
fiscal 1998: $5,645); increases in corporate travel increased travel costs to
$41,583 (third quarter fiscal 1998: $6,655); increased use of consultants and
legal counsel increased professional fees to $36,897 (third quarter fiscal 1998:
$19,112), and hiring staff increased wages to $26,604 (third
quarter fiscal 1998: Nil).
INTEREST EXPENSE. Net interest expense and financing fees increased to
$36,814 (comparable period fiscal 1998: $209), due primarily to interest
payments on the Rolling Oaks Enterprises, LLC bridge financing which was repaid
subsequent to quarter-end.
NET LOSS. The Company experienced a $302,794 loss from continuing
operations for the quarter ended April 30, 1999, as compared to a $45,906 loss
from continuing operations for the quarter ended April 30, 1998. This increase
in loss reflects the increased development activity of the Company, including
increased number of personnel, increased amortization from increased computer
equipment purchases, and an increase in office, travel and other costs.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended April 30, 1999 the Company financed its operations
and capital expenditures primarily from equity financing and loans from
shareholders and affiliates. As of April 30, 1999 the Company had cash of
$85,229, a working capital ratio of 0.11 and negative shareholders' equity of
$464,234. Subsequent to quarter-end, the Company considerably strengthened
its financial position by entering into a $8.5 million financing arrangement
with an unrelated institutional investor. Under this arrangement, the Company
issued, for cash, $8.5 million of convertible debentures which would be
convertible in certain circumstances into convertible preferred shares. In
such case, the convertible preferred shares would be convertible into common
shares of the Company. Management of the Company currently anticipates that
the debentures will be converted into convertible preferred shares of the
Company prior to the Company's July 31, 1999 year-end.
In the nine months ended April 30, 1999 the Company's cash position increased by
$70,303, from $14,996 to $85,299 (comparable period fiscal 1998: decreased
$109,044). This improvement resulted primarily from the Company obtaining a
bridge loan of $500,000, (comparable period fiscal 1998: Nil) and sales
of common shares pursuant to stock option exercises totaling $326,800,
(comparable period fiscal 1998: $221,267 from the sale of common shares). The
increase in cash was offset by cash used in operating activities of $349,177
(comparable period fiscal 1998: $169,319), and investment in capital assets of
$462,463 (comparable period fiscal 1998: $165,414).
CASH USED BY OPERATIONS
Over the nine months ended April 30, 1999 as compared to the prior year period,
cash used by operating activities increased by $179,858, reflecting the
increased level of activity in the Company. The Company experienced an operating
loss of $673,302 (comparable period fiscal 1998: $229,801) offset by
amortization of $90,060 (comparable period fiscal 1998: $16,678), leaving cash
used by operations, before consideration of changes in non-cash working capital
items, of $583,242 (comparable period fiscal 1998: $174,736).
CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS
In the nine months ended April 30, 1999 cash provided by changes in working
capital resulted from a sale of inventory for $1,992 (comparable period fiscal
1998: $9,275), a decrease in prepaid expenses of $4,338 (comparable period
fiscal 1998: increase of $11,000), an increase in advances from shareholder of
$163,267 (comparable period fiscal 1998: decrease of $39,026) and an increase in
advances from affiliated companies of $162,484 (comparable period fiscal 1998:
$2,329). Cash used by changes in
working capital resulted from an increase in accounts receivable of $28,787, a
decrease in accounts payable and accrued liabilities of $42,530 and a decrease
in employee withholdings payable of $26,607.
INVESTING ACTIVITIES
In the nine months ended April 30, 1999 there was a decrease in cash of $462,463
(comparable period fiscal 1998: $165,414) caused by fixed asset purchases of
computer equipment and software to be used in the e-commerce web sites, and the
expenditure of development costs on these sites.
FINANCING ACTIVITIES
Financing activities provided $875,000 of cash during the nine months ended
April 30, 1999. The Company secured bridge financing in the amount of $500,000
which accrued $48,200 of interest during the period, (comparable period fiscal
1998: Nil), and realized $326,800 from the sale of shares through the exercise
of stock options (comparable period fiscal 1998: $221,267 through the sale of
common shares) under the Company's 1998 Directors and Officers Stock Option Plan
(the "1998 Plan").
Effective March 24, 1999 the Company adopted the 1999 Directors and Officers
Stock Option Plan (the "1999 Plan"). The 1999 Plan (a) is administered by the
Board of Directors who have sole discretion and authority to determine the
individuals eligible for awards under the 1999 Plan and the conditions of
exercise of each grant, and (b) provides for issuance of options to purchase
a total of 4,000,000 shares of the Company's common stock within a period of
ten years from the effective date of the option. The Company has granted
2,933,000 options at exercise prices of $4.00 per share under the 1999 Plan,
all of which occurred in the quarter ended April 30, 1999. As of April 30,
1999, 653,600 options had been exercised under the Company's 1998 Stock
Option Plan and no options had been exercised under the 1999 Plan. No options
have been issued or exercised under the Company's 1997 Directors and Officers
Stock Option Plan.
CAPITAL EXPENDITURES AND COMMITMENTS
The Company made capital expenditures of $314,368 during the third quarter of
fiscal 1999, principally consisting of $201,620 of capitalized development costs
for the globalmedia.com web site and the Company's other initiatives, $59,633 of
computer hardware purchases and $44,328 of software purchases. As of April 30,
1999 the Company had no material commitments outstanding for purchases of
additional capital assets, except for the Company's April 20, 1999 engagement
of RealNetworks Inc. to perform consulting services in connection with the
design and development of the Global Media Broadcast Network. Under the terms of
the agreement, as amended on June 4, 1999, 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.
FUTURE CAPITAL REQUIREMENTS
The Company believes that the net proceeds from its convertible debenture
offering and revenue from its newly opened web site (SEE "Subsequent Events",
below), plus the availability of additional shareholder and other secured loans,
will be sufficient to meet its operating cash requirements and budgeting capital
expenditures for the remainder of fiscal 1999. The Company expects to meet its
long-term cash and operational requirements through equity financings and
revenues from its web site and its licensees' web sites.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's wholly-owned Canadian subsidiary,
Westcoast Wireless Cable Ltd. 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.
DISCONTINUED OPERATIONS
The Company was engaged in the business of providing call center services until
the first 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.
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 SFAS130, "Reporting
comprehensive income", SFAS131, "Disclosures about segments of an enterprise
and related information", SFAS132, "Employers' Disclosures about pensions and
other post-retirement benefits" and SFAS133, "Accounting for derivative
instruments and hedging activities". SFAS130, SFAS131 and SFAS132 are
effective for financial statements for fiscal years beginning after December
15, 1997. SFAS 133 was initially to be effective for financial statement 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.
SFAS130 establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. The Company
anticipates that implementing the provisions of SFAS130 will not have a
significant impact on the Company's existing disclosures. The Company has not
determined the manner in which it will present the information required by
SFAS130 in its fiscal 1999 annual financial statements.
SFAS 131, 132 and 133 currently have no effect on the Company.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
The following documents are filed as exhibits to this Quarterly Report:
EXHIBIT
NUMBER DOCUMENT
- -------- --------
4.1 1999 Directors and Officers Stock Option Plan (1)
10.1 Secured Promissory Note, dated November, 1998, from the Company to
Rolling Oaks Enterprises, LLC. (2)
10.2 Security Agreement, dated November 30, 1998, from the Company to
Rolling Oaks Enterprises, LLC. (2)
10.3 Streaming Media Services Agreement, dated April 19, 1999, between
the Company and RealNetworks, Inc. (2) (3)
10.4 Letter agreement for consulting services from RealNetworks, Inc. to
the Company, dated and accepted on April 20, 1999. (2) (3)
10.5 Letter from RealNetworks, Inc. to the Company, dated and accepted on
June 4, 1999, amending the April 20, 1999 letter agreement. (2) (3)
27 Financial Data Schedule. (2)
------------------------------------------
(1) Incorporated by reference to the Company's Form S-8 Registration Statement
filed with the SEC via Edgar on March 24, 1999.
(2) Filed with this quarterly report on Form 10-QSB.
(3) Subject to a request for confidential treatment filed with the SEC
contemporaneously with this quarterly report on Form 10-QSB.
b. REPORTS ON FORM 8-K.
None during the reporting period.
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, 1999 /s/ L. James Porter
--------------------------------------------
L. James Porter
Chief Financial Officer
(Principal Financial and Accounting Officer,
and authorized signatory for the registrant)
EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
EXHIBIT
NUMBER DOCUMENT
- ------- --------
4.1 1999 Directors and Officers Stock Option Plan (1)
10.1 Secured Promissory Note, dated November, 1998, from the Company to
Rolling Oaks Enterprises, LLC. (2)
10.2 Security Agreement, dated November 30, 1998, from the Company to
Rolling Oaks Enterprises, LLC. (2)
10.3 Streaming Media Services Agreement, dated April 19, 1999, between
the Company and RealNetworks, Inc. (2) (3)
10.4 Letter agreement for consulting services from RealNetworks, Inc. to
the Company, dated and accepted on April 20, 1999. (2) (3)
10.5 Letter from RealNetworks, Inc. to the Company, dated and accepted on
June 4, 1999, amending the April 20, 1999 letter agreement. (2) (3)
27 Financial Data Schedule. (2)
------------------------------------------
(1) Incorporated by reference to the Company's Form S-8 Registration Statement
filed with the SEC via Edgar on March 24, 1999.
(2) Filed with this quarterly report on Form 10-QSB.
(3) Subject to a request for confidential treatment filed with the SEC
contemporaneously with this quarterly report on Form 10-QSB.