SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ X ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Information Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Global Media Corp.
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(Name of Registrant as Specified in Its Charter)
Payment of filing fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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GLOBAL MEDIA CORP.
INFORMATION STATEMENT
For the Consent to Action in Lieu of a Meeting of Shareholders
To be Effective, Friday, June 30, 1999
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY
The enclosed information is being furnished by the Board of Directors of Global
Media Corp. ("Corporation") in connection with (i) shareholder approval of an
amendment to the Corporation's Articles of Incorporation (the "Amendment")
described below, and (ii) solely for the purposes of satisfying the "Shareholder
Approval" requirements of Rule 4310(25)(H) of the Nasdaq Stock Market (the
"Nasdaq 20% Rule"), shareholder approval of a transaction (the "RGC
International Investors Transaction") involving the potential issuance by the
Corporation of common stock, par value $0.001, of the Corporation (the "Common
Stock") equal to 20 percent or more of the Common Stock outstanding before such
issuance. Pursuant to the Amendment, (i) Article Six will be amended to
authorize 100,000,000 shares of Preferred Stock, which may be issued in such
series and such amounts, and subject to such rights and preferences, as the
Board of Directors shall approve, and (ii) Article Four will be amended to
eliminate under the Articles of Incorporation a limitation on the number of
directors of the Corporation and a limitation on the number of shareholders of
the Corporation.
A Consent in Lieu of a Meeting of Shareholders of the Corporation (the "Consent
to Action") adopting and approving the Amendment and approving the RGC
International Investors Transaction for purposes of satisfying the Nasdaq 20%
Rule has been executed by the holders of a majority of the outstanding shares of
Common Stock of the Company. The Consent to Action was taken pursuant to Section
78.315 of the Nevada General Corporation Law, which permits any action that may
be taken at a meeting of the shareholders to be taken by the written consent to
the action by the holders of the number of shares of voting stock required to
approve the action at a meeting.
All necessary corporate approvals in connection with the matters referred to
herein have been obtained. This Information Statement is being furnished to all
shareholders of the Company pursuant to Section 14(c) of the Securities and
Exchange Act of 1934 ("Exchange Act")and the rules thereunder solely for the
purpose of informing shareholders of these corporate actions before they take
effect. In accordance with Rule 14c-2 under the Exchange Act, the Consent to
Action and the approval of the matters thereunder will be effective 20 calendar
days following the mailing of this Information Statement.
We are not asking you for a proxy and you are requested not to send us a proxy.
The term "Corporation," as used herein, includes the Corporation and the
Corporation's subsidiaries as the context indicates. This Information Statement
is being mailed to shareholders on or about June 7, 1999.
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VOTING SECURITIES AND PRINCIPAL HOLDERS
The record date for purposes of the Consent to Action is May 5, 1999. However,
no persons other than certain officers and directors of the Corporation will
execute the Consent to Action. On May 5, 1999 there were 20,544,431 shares of
common stock of the Corporation outstanding and entitled to vote. Each
outstanding share of common stock is entitled to one vote per share on any
matter submitted to a vote of the Shareholders.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the persons known to the Corporation as
beneficially owning more than five percent (5%) of the outstanding shares of the
Corporation, the directors and officers and number of shares of the Company's
Common Stock beneficially owned as of May 25, 1999, by individual directors and
executive officers and by all directors and executive officers of the Company as
a group.
Title of Class Name and Address Amount and Nature % of
of Beneficial Owner of Beneficial Owner Class (1)
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Common Stock Michael Metcalfe 14,600,000 (2) 66.0%
3524 Dowsley Court
North Vancouver
Canada V7H 6X3
Common Stock Robert Fuller 2,068,000 (3) 9.3%
3218 Shearwater Drive
Nanaimo, BC V9T 5W9
Common Stock Winston V. Barta 300,000 (4) 1.4%
2001-1277 Nelson St.
Vancouver, BC V6E 4M8
Common Stock Jack MacDonald 50,000 0.2%
1904-1111 Beach Ave.
Vancouver, B.C. V6E 1T9
Common Stock Barr Potter 125,000 (5) 0.6%
2029 Century Park East
Suite 2500
Los Angeles, CA 90067
Common Stock L. James Porter 200,000 (6) 0.9%
604-1790 Bayshore Drive
Vancouver, B.C. V6G 3G5
Common Stock Monte Walls-Burris 300,000 (7) 1.4%
901-1288 Marinaside Crescent
Vancouver, B.C. V6Z 2W5
Common Stock All Officers and 17,643,000 (1) 79.8%
Directors as a Group
(7 persons)
(1) Assuming the exercise of all of the options to acquire a total of 1,575,000
shares held by Management.
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(2) This amount includes shares that may be acquired by the exercise of options
to acquire 500,000 shares of common stock pursuant to the Corporation's stock
option plans.
(3) This amount includes shares that may be acquired by the exercise of options
to acquire 500,000 shares of common stock pursuant to the Corporation's stock
option plans.
(4) This amount includes shares that may be acquired by the exercise of options
to acquire 250,000 shares of common stock pursuant to the Corporation's stock
option plans.
(5) This amount includes shares that may be acquired by the exercise of options
to acquire 125,000 shares of common stock pursuant to the Corporation's stock
option plans.
(6) This amount includes shares that may be acquired by the exercise of options
to acquire 200,000 shares of common stock pursuant to the Corporation's stock
option plans.
(7) This amount includes shares that may be acquired by the exercise of options
to acquire 250,000 shares of common stock pursuant to the Corporation's stock
option plans.
CONSENT TO ACTION ITEM I: AMENDMENT TO THE ARTICLES OF INCORPORATION TO
AUTHORIZE A CLASS OF PREFERRED STOCK
The Board of Directors has approved an amendment to Article Six of the Articles
of Incorporation to establish a class of 100,000,000 shares of Preferred Stock,
which may be issued in such series and such amounts, and subject to such rights
and preferences, as the Board of Directors shall approve from time to time, and
recommended the adoption and approval of said amendment by the shareholders of
the Corporation. The amendment to Article Six of the Articles of Incorporation
was adopted pursuant to the Consent to Action. Article Six, as so amended, will
provide as follows:
ARTICLE SIX
The total authorized capitalization of this Corporation shall be and is the
sum of 200,000,000 shares of Common Stock at $0.001 par value and
100,000,000 shares of Preferred Stock at $0.001 par value. The common stock
shall carry full voting power and the common stock shall be issued fully
paid at such time as the Board of Directors may designate in exchange for
cash, property, or services, the stock of other corporations or other
values, rights, or things, and the judgement of the Board of Directors as
to the value thereof shall be conclusive. The Preferred Stock may be issued
in different series, the rights and preferences thereof shall be determined
by the Board of Directors.
As indicated above, the Preferred Stock will be issuable from time to time in
such series and in such amounts, and subject to such rights and preferences, as
the Board of Directors shall determine prior to issuance without further action
or approval by the shareholders ("Blank Check Preferred"). These rights and
preferences can be superior to those of Common Stock and include but are not
limited to dividend preferences, special voting rights, rights to convert into
Common Stock, redemption rights, and priority over Common Stock on distributions
of assets in the event of liquidation or dissolution of the Corporation.
A series of Preferred Stock may also be used to create voting impediments or to
frustrate persons seeking to effect a merger or to otherwise gain control of the
Corporation. If used for such an anti-takeover purpose, such series of Preferred
Stock could be privately placed with persons affiliated with the Corporation or
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its management with an agreement or understanding as to the manner in which the
shares of such series of Preferred Stock would be voted. Management does not
contemplate the declaration of an anti-takeover series of Preferred Stock.
Moreover, upon the issuance of the Series A Preferred Stock described below, the
Corporation could not create such a series of Preferred Stock without the
approval by the holders of at least a majority of the Series A Preferred Stock.
The issuance of series of Preferred Stock from time to time would likely affect
the holders of Common Stock by taking priority as to distributions by the
Corporation of dividends or of assets upon the liquidation or dissolution of the
Corporation remaining after the payment of creditors. In addition, special
voting rights and rights to convert Preferred Stock into Common Stock would
reduce the voting power of holders of the Common Stock.
The Board of Directors adopted the amendment to Article Six in connection with
the RGC International Investors Transaction described below. In connection with
that transaction, the Corporation issued and sold to an investor in a private
transaction convertible debentures in the aggregate original principal amount of
$8,500,000 (the "Convertible Debentures"). However, in accordance with the terms
of the Convertible Debentures, under certain circumstances they may be converted
at the option of the Corporation into shares of Series A Convertible Preferred
Stock (the "Series A Preferred Stock") having the rights and preferences
described below. See "Contemplated Issuance of Series A Preferred Stock." The
Board of Directors has, by resolution, adopted a Certificate of Designations,
Preferences, and Rights of Series A Convertible Preferred Stock ("Certificate of
Designations"), subject to shareholder approval of the amendment to Article Six
described above authorizing the Blank Check Preferred and the filing of said
amendment with the Secretary of State of the State of Nevada (the "Secretary of
State").
In adopting the amendment to Article Six and recommending its adoption and
approval to the shareholders of the Corporation, the Board of Directors
determined, among other things, that it was in the best interests of the
Corporation and its shareholders to enable the Corporation to effect the
conversion of the Convertible Debentures into shares of Series A Preferred
Stock. While the Convertible Debentures must be reflected on the Corporation's
balance sheet as debt, the Corporation believes that the Series A Preferred
Stock, once issued on conversion of the Convertible Debentures, will be
reflected on the Corporation's balance sheet as equity. Consequently, the Board
of Directors believes that the conversion of the Convertible Debentures to
shares of Series A Preferred Stock will improve the financial position of the
Corporation. Once the shareholders' adoption and approval of the amendment to
Article Six is effective, it will provide the Corporation the general
authorization of Preferred Stock that is necessary for the Certificate of
Designations to become effective and thereby enable the Corporation to effect
the conversion of the Convertible Debentures to Series A Preferred Stock.
authorizing the believes that approval of the class of preferred stock and the
below described Series A Preferred Stock is in the best interest of the
Corporation and its shareholders and recommends approval of the Amendment to the
Articles of Incorporation. In addition, the Board of Directors believes that it
is in the best interests of the Corporation and its shareholders to have the
ability to create additional series of Preferred Stock with rights and
preferences specifically designed for other transactions in the future.
CONTEMPLATED ISSUANCE OF SERIES A PREFERRED STOCK
As discussed above, in connection with the RGC International Investors
Transaction, the Board approved the Certificate of Designation relating to the
Series A Preferred Stock, subject to adoption and approval of the amendment to
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Article Six authorizing the Blank Check Preferred and the filing of that
amendment with the Secretary of State. The actual number of shares designated as
Series A Preferred Stock will be determined at the time of the conversion of the
Convertible Debentures based on the outstanding principal amount and other
amounts outstanding at the time of Conversion. Following the effectiveness of
the Consent to Action, the filing of the Amendment with the Secretary of State,
the Corporation intends to file the Certificate of Designations with the
Secretary of State and effect the conversion of the Convertible Debentures into
shares of Series A Preferred Stock.
The following is a summary of the rights and preferences of the Series A
Preferred Stock. This summary is qualified in its entirety by the complete terms
and conditions of the Certificate of Designation.
DIVIDENDS: The Series A Preferred Stock does not bear any preferential
dividends. However, so long as Series A Preferred Stock is outstanding, no
dividends may be declared on the Common Stock or any other subsequently
designated and issued junior securities without the prior consent of the holders
of a majority of the outstanding shares Series A Preferred Stock.
LIQUIDATION PREFERENCE: In the event of the Corporation's bankruptcy,
insolvency, appointment of a receiver or similar event resulting in the
liquidation, dissolution or winding up of the Corporation and there are assets
and funds available for distribution to the holders of the Corporation's capital
stock, the holders of the outstanding shares of Series A Preferred Stock will
receive an amount equal to the stated value per share of said Series A Preferred
Stock plus five percent per annum from May 6, 1999 (the "Liquidation
Preference") prior to the any distribution to Common Stock. At the option of the
holders of the Series A Preferred Stock, certain fundamental corporate changes
(such as mergers, consolidations and the sale of shares representing 50% or more
of the voting power of the Corporation) may be treated as a liquidating event,
enabling the holders to receive an amount equal to 118% of the Liquidation
Preference.
MANDATORY REDEMPTION: In the event of a Mandatory Redemption Event (as defined
in the Certificate of Designation), the Corporation must redeem outstanding
Series A Preferred Stock upon the demand of the holders of at least fifty
percent (50%) of the Series A Preferred Stock, or automatically, in the case of
certain Mandatory Redemption Events. Mandatory Redemption Events include: the
failure to timely issue Common Stock upon conversion of the Series A Preferred
Stock; failure to obtain effectiveness of a registration statement for the
purpose of enabling the holders of the Series A Preferred Stock to publicly
resell the shares of Common Stock acquired on conversion; the bankruptcy,
insolvency or similar event of the Corporation; and failure to maintain the
listing of the common stock on the Over-the-Counter Bulletin Board or, after
becoming listed on the Nasdaq Stock Market or certain other designated
securities markets, the failure to maintain such listing.
The redemption would be at an amount equal to the greater of (i) one hundred and
twenty percent (120%) of the stated value (as defined in the Certificate of
Designations) of the shares being redeemed plus five percent (5%) per annum
thereon from May 6, 1999 through the redemption payment date, together with
certain other payments due under the Certificate of Designation or related
agreements with respect to certain covenant defaults, and (ii) the "Parity
Value" of the shares to be redeemed (the "Mandatory Redemption Amount"). The
Parity Value is an amount equal to the maximum number of shares of Common Stock
issuable to the holder of the Series A Preferred Stock times the highest closing
price for the Common Stock during the period between the date of the Mandatory
Redemption Event and the effective date of the redemption.
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TRADING MARKET REDEMPTION: In the event the Series A Preferred Stock is not
convertible as a result of limitations imposed on the Corporation by any stock
exchange or the Nasdaq Stock Market requiring shareholder approval, and the
Corporation has not obtained such shareholder approval, then the Corporation
must immediately redeem number of shares not convertible as a result of such
limitation at the Mandatory Redemption Amount.
CONVERSION RIGHTS: The Series A Preferred Stock may be converted into Common
Stock of the Corporation at the option of the holder thereof in whole or in
part. The conversion amount is determined by dividing (i) the sum of the Stated
Value of the Series A Preferred Stock being converted plus a Premium Amount
(equal to the Stated Value, multiplied by .05, multipled by N/365 where N is
equal to the number of days elapsed since May 6, 1999 through and including the
Conversion Date) by (ii) the Conversion Price (described below) in effect on the
Conversion Date. However, in no event may a holder exercise the conversion
rights in excess of an amount that will result in the holder's beneficial
ownership of Common Stock being greater than 4.9% of the outstanding common
stock. The Conversion Price is the lesser of the Fixed Conversion Price or the
Variable Conversion Price. The Variable Conversion Price is equal to 100% of the
lowest average Closing Bid Prices for the Common Stock for any seven consecutive
trading days during the thirty-five trading days prior to the date of conversion
(the "Market Price"). However, if the Common Stock is not listed for trading on
the Nasdaq National Market or Nasdaq SmallCap Market prior to November 6, 1999,
then (i) the Fixed Conversion Price will be the lesser of $8.125 and 110% of the
average of Closing Bid Prices for the Common Stock for the ten consecutive
trading days ended November 6, 1999 and (ii) the applicable percentage of the
Market Price for purposes of determining the Variable Conversion Price from time
to time will be 80%. The Conversion Price is also subject to adjustment as a
result of stock splits, stock dividends, merger, consolidation or exchange of
shares or periods during which the Registration Statement is not effective.
INVESTMENT OPTIONS: On any Conversion Date, for each share of Common Stock
issuable to the holder converting shares of Series A Preferred Stock, such
holder has the option to acquire one additional share of Common Stock by paying
to the Corporation an amount per share equal to the Conversion Price.
AUTOMATIC CONVERSION: Subject to the terms and conditions of set forth in the
Certificate of Designations, each share of Series A Preferred Stock outstanding
on May 6, 2002 shall be converted into Common Stock at the then applicable
Conversion Price.
VOTING RIGHTS: The Series A Preferred Stock does not have voting rights except
as required by Nevada law or the Certificate of Designations. The holders of the
Series A Preferred Stock are entitled to receive the same notice as holders of
Common Stock of any shareholders meeting or corporate action. In the event a
vote of the holders of the Series A Preferred as a class is required, each share
of Series A Preferred Stock shall be entitled to one vote and a majority of the
shares shall constitute approval of the class.
PROTECTIVE RIGHTS: So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not take the following actions without the
prior approval of at least a majority of the then outstanding shares of the
Series A Preferred Stock:
a. alter or change the rights, preferences or privileges of the Series A
Preferred Stock or any capital stock of the Corporation so as to
adversely affect the Series A Preferred Stock; 8
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b. create or issue any new class or series or capital stock having a
preference over the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation;
c. create or issue any new class or series or capital stock ranking the
same as the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation;
d. increase the authorized number or par value of shares of Series A
Preferred Stock;
e. do any act not authorized or contemplated by the Certificate of
Designation which would result in taxation of the holders of the
Series A Preferred Stock.
CONSENT TO ACTION ITEM II: AMENDMENT TO THE ARTICLES OF INCORPORATION TO AMEND
ARTICLE FOUR
The Board of Directors has approved an amendment to Article Four of the Articles
of Incorporation to eliminate a limitation under said article on the number of
directors and the number of shareholders of the Corporation. While the current
limitations set forth in Article Four can, under the terms of said article, be
increased or decreased by amendment to the Corporation's By-Laws, the Board of
Directors determined that the limitations in the Articles of Incorporation
served no useful purpose and believes it is in the best interests of the
Corporation and its shareholders to eliminate such limitations. The amendment to
Article Six of the Articles of Incorporation was adopted pursuant to the Consent
to Action. Article Six, as so amended, will provide as follows:
ARTICLE FOUR
The members of the governing board shall be styled Directors. The number of
directors of this corporation shall be determined in the manner specified
by the Bylaws and may be increased or decreased from time to time in the
manner provided therein.
CONSENT TO ACTION ITEM III: APPROVAL OF THE POTENTIAL ISSUANCE OF IN EXCESS OF
TWENTY PERCENT OF THE OUTSTANDING COMMON STOCK
Pursuant to a Securities Purchase Agreement dated as of May 6, 1999, the
Corporation issued and sold to RGC International Investors, LDC Convertible
Debentures in the original principal amount of $8,500,000 and stock purchase
warrants (the "Warrants") to acquire 680,000 shares of Common Stock at a price
per share of $8.4375 (the "RGC International Investors Transaction"). The
Convertible Debentures have substantially the same terms as the Series A
Preferred Stock described above, and in particular are convertible at the option
of the holders thereof into shares of Common Stock on substantially the same
terms as the Series A Preferred Stock. As described above, the Convertible
Debentures are convertible at the option of the Corporation into shares of
Series A Preferred Stock (subject to shareholder approval of the Amendment and
the filing thereof with the Secretary of State, the filing of the Certificate of
Designation with the Secretary of State and certain other conditions).
Simultaneously with the execution of the Securities Purchase Agreement and the
issuance of the Convertible Debentures and Warrants, the Corporation executed a
Registration Rights Agreement requiring the Corporation to file with the
Securities and Exchange Commission a registration statement covering all of the
Common Stock issuable upon conversion of the Convertible Debentures or the
Series A Preferred Stock, as applicable, as well upon exercise of the related
investment options, and issuable upon exercise of the Warrants.
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Notwithstanding certain limitations in the Convertible Debentures and the
Certificate of Designations on the number of shares into which the Convertible
Debentures or the Series A Preferred Stock could be converted at any one time,
the aggregate number of shares of Common Stock issuable in connection with the
RGC International Investors Transaction is potentially more than 19.99% of the
number of shares of Common Stock outstanding. Consequently, for the reasons
described below, the Board of Directors determined to submit to the shareholders
of the Corporation for their approval the potential issuance of Common Stock in
excess of 19.99% of the outstanding Common Stock pursuant to the conversion
Convertible Debentures or shares of Series A Preferred Stock and the exercise of
the Warrants (the "Potential 20% Common Stock Issuance").
The Board of Directors recommended shareholder approval of the Potential 20%
Common Stock Issuance for several reasons. First, in contemplation of the
Corporation's application for listing of the Common Stock on the Nasdaq Stock
Market, such approval is expected to satisfy Nasdaq Stock Market Rule
4310(25)(H)(the "Nasdaq 20% Rule"), which obligates a company with securities
listed on the Nasdaq Stock Market to obtain shareholder approval prior to the
issuance in a private transaction of common stock (or securities convertible
into or exercisable for common stock) equal to twenty percent of the company's
outstanding shares of Common Stock. Second, the Corporation agreed under the
Securities Purchase Agreement to use its best efforts to secure such approval.
Finally, obtaining shareholder approval of the Potential 20% Common Stock
Issuance will enable the Corporation to avoid having to redeem any of the
Convertible Debentures or the Series A Preferred Stock as a result of the
Trading Market Redemption provisions described above.
While the Corporation is not presently subject to the Nasdaq Stock Market
corporate governance requirements, the Board of Directors believes that
voluntary compliance with the requirements will be advantageous to the
Corporation's application to list its Common Stock on the Nasdaq Stock Market.
NUMBER OF SHARES REQUIRED FOR APPROVAL OF THE CONSENT TO ACTION
The Consent to Action has been executed by the holder or holders of a majority
of the shares entitled to vote (14,500,00 shares of 20,544,431 shares
outstanding as of May 5, 1999).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE SIX MONTH PERIOD ENDING JANUARY 31, 1999
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").
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Results of Operations
Operating losses of $ 370,511 (1998-$239,125), 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 $21,271 (1998 - $139,454) during the first half of the year, ending January
31, 1999.
General and Administrative expenses for the first six month period ending
January 31, 1999 were $389,717, (1998 - $198,937). The increase in expenses
reflects 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; 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 $
11,610, (1998-$137), due to interest payment on the bridge financing.
Professional fees increased to $62,655 (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.
Office expense of $89,602 (1998 - $76,606) 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 $15,757 (1998 - $4,180); and general
office expense $10,176 (1998 - $2,497).
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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 $58,946 (1998-
$36,408) increased due to hiring additional staff for our licensing and
affiliate programs, our corporate web site development, and our e-commerce web
site development.
Losses from discontinued operations decreased significantly to $ 2,065
(1998-$179,642) as a result of winding down the home satellite business.
Operating results for the most recent quarter ending January 31, 1999 consisted
of a loss of $219,762 (1998-$162,221). The combination of minimal revenues $
1,141 (1998-$49,454), with increased general and administrative expenses
resulted in larger losses than in the same period last year.
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).
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).
Operating losses for the first six months were $370,511 (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.
12
<PAGE>
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 an operating loss of $370,511 (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 were
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).
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.
13
<PAGE>
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.
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.
14
<PAGE>
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 1998
OVERVIEW
Global Media is a publicly traded company on the NASD Over the Counter Bulletin
Board (OTC:BB). The Company's trading symbol is GLMC. The Company will
specialize in the use of technology and the integration of sophisticated
multi-media communications. Thus, enabling the Company to be on the leading edge
of marketing and distribution of entertainment products over the Internet. The
Company is developing a web site 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.
Global Media will strive to offer an online shopping experience that involves
visual, audio and literary entertainment, discovery and fulfilment for its
customers. The Company plans to operate an entertaining, sophisticated and
comprehensive online entertainment product distribution network. The main
business strategy will focus on the acquisition of market share. The Company
believes that the principal competitive factors in its market are brand
recognition, selection, personalized services, convenience, price,
accessibility, customer service, quality of search tools, quality of editorial
and other site content, and reliability and speed of fulfilment. Other
competitive elements include the breadth of entertainment content offered, the
utility of the site as an entertainment destination versus a simple retail
outlet, personalization of the web page to suit each customer's needs and
licensing the Company's back end to other web sites who will sell the Company's
product.
In order to gain increased market share, Global Media will license use of its
back end database and secure transaction processing, ordering and fulfilment
systems to third party Internet marketers. This will allow companies without
sufficient development expertise or funding to use an existing system to target
various niche markets. For an up front charge and ongoing revenue sharing,
companies will be able to license unique front end web sites running off Global
Media's back end.
15
<PAGE>
Global Media has agreements with Muze Inc., Baker & Taylor and Liquid Audio.
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.
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 has assembled a strong management team with relevant experience and
a stake in the Company's success.
RESULTS OF OPERATIONS
NET REVENUES
Revenues of $ 326,279, ( 1997 - $ Nil) were generated by the call center from
third parties contracts to disseminate information via the telephone, fax and
internet. Using the Company's integrated telephony network and contact
Management database, the call center was contracted by various public companies
to distribute information to their selected groups of shareholders and brokers
and to handle all incoming calls.
GENERAL AND ADMINISTRATIVE
The call center was developed and operational in 1998. One time costs including
consultants and hiring and training of staff were incurred in order to begin
operations. Ongoing costs including annual rent of a 6,000 square foot facility,
$ 49,000; staffing, $ 128,000; telephone $ 30,000; and other overhead costs
added to 1998 expenses. Also one time costs associated with the process of going
public were incurred in excess of $ 100,000, (1997 - $ 49,386) during the year.
The costs of establishing the call center, a significant bad debt and the costs
of completing the going public process contributed to an increase in general &
administrative expenses to $ 522,585, ( 1997 72,214).
Advertising expense of $ 6,691, ( 1997 - $ Nil) consists of the cost of press
releases. Amortization increased to $ 29,973, ( 1997 $ Nil) as a result of the
purchase of computer equipment, development of the call center, leasehold
improvements and office furniture for the new location in Nanaimo, B.C., Canada.
A bad debts expense of $ 76,942, ( 1997 - $Nil) was caused mainly by a $ 70,000
receivable from a call center customer being deemed uncollectable by management.
A bad debt of this magnitude is not expected in the future. Professional fees
increased to $ 147,500, ( 1997 - $ 49,386), due to legal and accounting costs
associated with going public and consulting
16
<PAGE>
fees to train call center staff. Office expenses increased to $ 98,379, (1997 -
$ 21,842) mainly as a result of rent and telephone costs associated with the new
call center facility. Travel expenses of $ 21,174, ( 1997 - $ Nil) were a result
of management travel to the call center location during development and travel
associated with developing strategic alliances for the e-commerce site. Wages
and benefits increased to $ 128,406, ( 1997- 1,461) since the call center began
operation in Fiscal 1998. All wage expenses related to personnel employed by the
call center including secretarial and managerial staff, approximately 15 people.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed it operations and capital expenditures primarily from
equity financing, loans from shareholders and affiliates and revenue generated
from the call center. As at July 31, 1998, the Company had a cash balance of $
14,996, (1997 - $ 121,890). The Company expects negative cash flow from
operations to continue for its foreseeable future, as it continues to develop
and market its operations. Inflation has not had any material effect on the
Company's operations.
Net cash utilized by operating activities for the year ended July 31, 1998 was
$157,280, (1997 - $68,378). This included a net loss of $472,674, (1997 -
$108,999), which was offset by items not requiring an outflow of funds including
amortization of $38,658, (1997 - $ 3,957 ) and services settled through an
issuance of shares for $50,449, (1997 - Nil ).
Cash provided by changes in operating working capital resulted from a decrease
in accounts receivable of $58,632 , (1997 - $ 47,216), and a decrease in
inventory of $13,477, (1997 - $20,233), (both due to the winding down of the
operations of Westcoast Wireless Cable); an increase in accounts payable and
accrued liabilities of $106,585, (1997 - $ 11,909); an increase in taxes payable
$21,230, (1997 - $ 5,034 ) and increases in advances from affiliated companies
of $52,997, (loans to affiliates in 1997 - $ 80,309 ). Cash used by changes in
operating working capital resulted from an increase of prepaid expenses of
$7,312, (decrease in 1997 - $599 ), relating to prepaid rent; increase in income
taxes recoverable of $2,439, (1997 - $ Nil), due to Canadian tax recovery; and a
partial repayment of shareholder loan of $4,821, (advance by shareholder in 1997
- - $ 79,266).
Purchases of capital assets totaling $189,706, (1997 - $ 13,209), consisting
primarily of hardware and software purchased for the Nanaimo call center and the
cost of designing and installing the related infrastructure. Purchases included
office equipment of $9,065; leasehold improvements of $6,565; computer equipment
of $61,293; software of $21,208 and call center infrastructure of $91,575.
Net cash provided by financing was $221,267, (1997 - $ 283,700). This financing
was provided by the sale of share subscriptions at $0.50 per share.
The Company expects to meet its short term capital and operational requirements
through shareholder and other secured loans expected to total $500,000. The
Company expects to meet it long term cash and operational requirements through
an equity financing.
DISCONTINUED OPERATIONS: WHOLLY OWNED SUBSIDIARY "WESTCOAST WIRELESS CABLE"
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,
the management of Westcoast Wireless decided to withdraw from the home satellite
business. The home satellite business includes all operations of Westcoast
Wireless
17
<PAGE>
The Subsidiary company has been accounted for as a discontinued operation, and
accordingly, its operations have been segregated in the accompanying
consolidated statements of earnings. A breakdown of revenue and expenses follow:
1998 1997
----- -----
Total Revenue $ 591,938 $ 1,637,732
Cost of sales $ 418,167 $ 755,446
Commission paid $ 133,934 $ 621,597
-------- ---------
Gross Margin $ 39,837 $ 260,689
General & Administrative expenses $ 324,887 $ 297,474
-------- ---------
Loss before provision
for income taxes $ 285,050 $ 36,785
Income tax recovery $ 8,682
Loss for the year $ 276,368
Revenue decreased substantially as a result of a decline in retail prices of
over 50% in the first half of the year combined with the company being
prohibited from selling US based products in Canada.
Cost of sales decreased as a result of two main factors. The average selling
price on US based systems decreased by over 50% without corresponding decreases
in the cost of the systems. Also, the higher cost of Canadian systems and
competition in the Canadian market produced gross margins of only $ 50.00 per
system. Commission decreased due to fewer satellite sales in the year and lower
commission rates as a result of shrinking margins.
General & administrative increased during the year. A considerable amount of
time and manpower, including hiring and training additional sales staff were
devoted to increasing the sales volume for the year. Unfortunately, the Court
ruling prohibiting the sale of US based systems in Canada negated this sales
effort. The satellite division had to incur additional costs in retraining the
existing sales staff for the Canadian system. Consequentially, wages and benefit
expense in the division increased to $150,931, ( 1997 - $ 42,673). These
additional costs contributed to an overall loss of $ 276,368, ( 1997 loss $
36,785).
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 others, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
18
<PAGE>
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 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, 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 the failure of the communication mode,
(telephone, cable or satellite), over the internet which could significantly
impact the Company's ability to generate sales.
By order of the Board of Directors of Global Media Corp.
/s/ L. JAMES PORTER
- -----------------
L. James Porter, Assistant Secretary
May 25, 1999
19
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements for Fiscal Year Ended July 31, 1998
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements Of Shareholders'
Equity (Deficiency) F-4
Consolidated Statements Of Cash Flows F-5
Notes To Consolidated Financial Statements F-6
Unaudited Financial Statements for Six Month Period Ended January 31, 1999
Consolidated Balance Sheets F-16
Consolidated Statements of Operations F-17
Consolidated Statements Of Shareholders'
Equity (Deficiency) F-18
Consolidated Statements Of Cash Flows F-19
Notes To Consolidated Financial Statements F-20
F-0
20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- -----------------------------------------------------------------------------
To the Board of Directors of GLOBAL MEDIA CORP.
We have audited the accompanying consolidated balance sheets of Global Media
Corp. as at July 31, 1998 and 1997 and the consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for the years when
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of the company as at
July 31, 1998 and 1997 and the consolidated results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Vancouver, Canada,
October 23, 1998 (except as to Note 10 which is as of November 5, 1998).
By _____/s/_____________
Earnst & Young, L.L.P.
Chartered Accountants
F-1
21
<PAGE>
- ---------------------------------------------------------------------------
Global Media Corp.
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
As at July 31 (in US dollars)
1998 1997
$ $
- -----------------------------------------------------------------------------
ASSETS
Current
Cash 14,996 121,890
Accounts receivable, net of allowance
for doubtful accounts of $92,366
[1997 - $13,307] 206 58,838
Inventory 1,992 15,469
Prepaid expenses 8,229 917
Due from affiliated companies [note 4] 71,065 77,778
Income taxes recoverable [note 5] 2,439 -
- -----------------------------------------------------------------------------
98,927 274,892
Capital assets [notes 4 and 6] 172,635 20,566
- -----------------------------------------------------------------------------
271,562 295,458
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 201,234 94,649
Taxes payable 51,354 30,124
Due to affiliated company [note 4] 46,284 -
Due to shareholders [note 4] 79,269 84,090
- -----------------------------------------------------------------------------
378,141 208,863
Deferred revenue - 12,062
- -----------------------------------------------------------------------------
378,141 220,925
- -----------------------------------------------------------------------------
Shareholders' equity (deficiency)
Share capital [note 7] 11,892 11,059
Additional paid in capital [note 7] 543,525 128,641
Unissued share capital [note 7] - 144,001
Deficit (681,819) (209,145)
Cumulative translation adjustment 19,823 (23)
- -----------------------------------------------------------------------------
(106,579) 74,533
- -----------------------------------------------------------------------------
271,562 295,458
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
See accompanying notes
F-2
22
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------
Year ended July 31 (in US dollars)
1998 1997
$ $
- -----------------------------------------------------------------------------
Revenue
Sales 326,279 -
- -----------------------------------------------------------------------------
General and administrative expenses [note 4]
Advertising and marketing 6,691 -
Amortization 29,973 -
Bad debts 76,942 -
Bank charges, interest and financing fees 1,298 445
Foreign exchange 12,222 (920)
Professional fees 147,500 49,386
Office and miscellaneous 98,379 21,842
Travel 21,174 -
Wages and benefits 128,406 1,461
- -----------------------------------------------------------------------------
522,585 72,214
Loss from continuing operations
before and after provision for income taxes (196,306) (72,214)
- -----------------------------------------------------------------------------
Loss from operations of discontinued home satellite
business, less applicable income tax recovery
of $8,682 [1997 - $nil] [note 3] (276,368) (36,785)
- -----------------------------------------------------------------------------
Loss for the year (472,674) (108,999)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Loss per common share from continuing operations (0.01) (0.01)
Loss per common share from discontinued
operations (0.01) (0.00)
Loss per common share (0.02) (0.01)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
See accompanying notes
F-3
23
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended July 31 (in US dollars)
Additional Unissued Retained Cumulative
Common stock paid-in share earnings translation
____________ capital capital (deficit) adjustment
Shares Amount
# $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-4
24
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
Year ended July 31 (in US dollars)
1998 1997
$ $
- ----------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the year (472,674) (108,999)
Items not requiring an outlay of funds
Amortization 38,658 3,957
Services settled through share issuance 50,449 -
Deferred revenue (12,062) 12,062
- -----------------------------------------------------------------------------
(395,629) (92,980)
Changes in non-cash operating working capital
Accounts receivable 58,632 47,216
Inventory 13,477 20,233
Prepaid expenses (7,312) 599
Income taxes recoverable (2,439) -
Accounts payable and accrued liabilities 106,585 11,090
Accrued wages payable - (58,527)
Taxes payable 21,230 5,034
Advances from (to) shareholder (4,821) 79,266
Advances from (to) affiliated companies 52,997 (80,309)
- -----------------------------------------------------------------------------
Cash used in operating activities (157,280) (68,378)
- -----------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (189,706) (13,209)
Decrease in loan receivable from shareholder - 18,306
- -----------------------------------------------------------------------------
Cash provided by (used in) investing activities (189,706) 5,097
- -----------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends - (114,632)
Share subscriptions 221,267 283,700
- -----------------------------------------------------------------------------
Cash provided by financing activities 221,267 169,068
- -----------------------------------------------------------------------------
Effect of exchange rate changes on cash 18,825 198
Increase (decrease) in cash during the year (106,894) 105,985
Cash, beginning of year 121,890 15,905
- -----------------------------------------------------------------------------
Cash, end of year 14,996 121,890
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Interest - paid 9,180 357
Income taxes paid (recovered) (6,783) 10,354
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
See accompanying notes
F-5
25
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
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 engaged in providing internet-integrated call center
services from its location in Nanaimo, Canada. Until the 4th quarter of 1998,
the Company was also engaged in the marketing of direct to home satellite
hardware and programming services to both commercial and private individuals
primarily in Western Canada [note 3]. The Company commenced its
internet-integrated call center in September, 1997. The Company is also in the
process of developing an electronic commerce web site for the distribution and
eventual downloading of music and video over the internet.
On May 20, 1997 the Company issued 8,000,000 common shares and paid $100,000 in
cash for all of the outstanding shares of Westcoast Wireless Cable Ltd.
("Westcoast Wireless"), a company which markets direct to home satellite
hardware and programming services.
Westcoast Wireless contracted for the sales of certain satellite hardware and
programming services, therefore the majority of the purchases were sourced from
a single supplier.
These financial statements reflect the continuity of interests of the former
shareholder of Westcoast Wireless, due to the continuation of common control.
The consolidated statements of operations, shareholders' equity (deficiency),
and cash flows for the period from August 1, 1996 to May 20, 1997 (included in
the results for the year ended July 31, 1997) represent the results of
operations and cash flows of Westcoast Wireless during those periods.
References to "the Company" in these financial statements include Westcoast
Wireless (for events occurring prior to May 20, 1997).
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America.
F-6
26
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (cont'd.)
The Company has not yet achieved a profitable level of operations. The Company's
continued operation is dependent upon achieving a profitable level of operations
from its electronic commerce web site, scheduled to commence operations in March
1999, and upon obtaining additional financing and the continued support of the
Company's shareholders [note 10], to fund both current operations, and web site
construction.
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.
Call center 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
F-7
27
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
REVENUE RECOGNITION
Revenues from the call center are recognized on a straight line basis over the
term of the contract.
Revenues are recorded at the time of installation for hardware sales, and at
contract inception for sales of programming.
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiary, Westcoast
Wireless, are translated into US dollars at fiscal period end exchange rates.
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 at period end exchange rates. Other balances are recorded at
rates in effect on the dates of the transaction. Exchange gains and losses
arising are reflected in net income for the period.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company's management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related notes to the financial statements.
Actual results may differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments approximate fair
values, except as otherwise disclosed in the financial statements.
F-8
28
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
LOSS PER SHARE
The Company has adopted SFAS128, 'Earnings per share' in the current year on
retroactive basis. There is no impact on previously reported loss per share
amounts.
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
postretirement 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. SFAS133 is
effective for financial statements for fiscal years beginning after June 15,
1999.
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.
SFAS131, SFAS132 and SFAS133 currently have no impact on the Company.
F-9
29
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
3. DISCONTINUED OPERATION
In November 1997, a decision was made by the Canadian Federal Court of Appeal
of, ruling that sale of US satellite and programming services in Canada was not
permitted. Following a period of trading in Canadian satellite and programming
services the management of Westcoast Wireless decided to withdraw completely
from the home satellite business in late fiscal 1998. The home satellite
business includes all operations of Westcoast Wireless.
This subsidiary company has been accounted for as a discontinued operation, and
accordingly, its operations have been segregated in the accompanying
consolidated statements of operations.
Revenues of the discontinued company for the year ended July 31, 1998 were
$591,938 [1997 - $1,617,528]. At July 31, 1998, net current liabilities of the
discontinued operation were $130,076 [1997 - $31,578] consisting principally of
accounts payable and balances due to shareholder. Net non-current assets at July
31, 1998 were $15,352 [1997 - $8,504].
4. RELATED PARTY TRANSACTIONS
All related party balances as disclosed in the balance sheet are non-interest
bearing and without specific terms of repayment.
The affiliated companies are related to Global Media Corp. by virtue of control
by officers of the Company. The fair values of the balances are not determinable
since they have no fixed repayment terms.
The Company's consolidated statement of operations for the year ended July 31,
1998 includes the following related party transactions:
- wages and benefits expense of $81,747 [1997 - $45,565], to a shareholder
and spouse.
- income from recharge of wages of $nil [1997 - $72,610], to a company
related by virtue of control by an officer of the Company.
F-10
30
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
4. RELATED PARTY TRANSACTIONS (cont'd.)
During the year ended July 31, 1998 the following capital asset additions were
purchased from related parties:
- $32,909 [1997 - $nil] for call center development from shareholders of
the Company.
- $2,454 [1997 - $nil] for call center development from an officer of the
Company.
- $5,709 [1997 - $nil] for office equipment, $4,171 [1997 - $nil] for
leasehold improvements and $12,170 [1997 - $nil] for call center
development from a company controlled by an officer of the Company.
5. INCOME TAXES
At July 31, 1998, the Company had a domestic net operating loss of $240,407
which will begin to expire in 2011, and foreign net operating loss carryforwards
of $250,671 which will expire in 2005. Utilization of these carryforwards
depends on the recognition of future taxable income.
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.
F-11
31
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
5. INCOME TAXES (cont'd.)
Deferred tax assets reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
July 31,
1998
$
- -----------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards 196,094
Tax vs. accounting value in fixed assets 5,431
Unrealized foreign exchange loss 4,155
- -----------------------------------------------------------------------------
Total gross deferred tax assets 205,680
Less valuation allowance (205,680)
Deferred tax liability -
- -----------------------------------------------------------------------------
Net deferred tax assets -
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
6. CAPITAL ASSETS
Accumulated Net Book
Cost Amortization Value
$ $ $
- -----------------------------------------------------------------------------
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
Call center infrastructure 91,575 17,325 74,250
Software 27,209 3,520 23,689
- -----------------------------------------------------------------------------
216,344 43,702 172,635
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
July 31, 1997
Office furniture and equipment 9,794 2,576 7,218
Computer equipment 8,814 2,187 6,627
Leasehold improvements 2,029 709 1,320
Software 6,001 600 5,401
- -----------------------------------------------------------------------------
26,638 6,072 20,566
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
F-12
32
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
7. SHARE CAPITAL
1998 1997
# #
- -----------------------------------------------------------------------------
Authorized
Common shares, par value $0.001 each 200,000,000 200,000,000
Issued
Common shares 19,890,831 11,059,400
Unissued common shares - 8,288,000
- -----------------------------------------------------------------------------
As at July 31, 1997, 8,000,000 shares issued in consideration for the shares in
Westcoast Wireless and 288,000 of the shares issued for cash had not been
issued; however, legal agreements for the issue of these shares were in place at
July 31, 1997. The amounts were recorded as unissued share capital of $1 and
$144,000 respectively as at July 31, 1997. All of these shares were issued in
the year ended July 31, 1998.
Effective April 8, 1997 the Company adopted the 1997 Directors and Officers
Stock Option Plan (the "Plan"). The Plan is administered by the Board of
Directors who have sole discretion and authority to determine individuals
eligible for awards under the 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. During the current year, this plan was amended to
increase the number of options from 500,000 to 1,000,000 shares.
At July 31, 1998, no options were outstanding under the Plan.
8. SEGMENTED INFORMATION
The Company's business segment which derived revenue from the marketing of
direct to home satellite hardware and programming services, has been presented
as a discontinued operation in the current year [note 3].
The remaining segment of the business relates to call center services. The
Global Media call center provides internet integrated call center services to US
based clients from its location in Nanaimo, Canada. The Global Media call center
commenced operations in September of 1997 and comprises all continuing
operations of the Company.
F-13
33
<PAGE>
- -----------------------------------------------------------------------------
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
JULY 31, 1998 (in US dollars)
9. COMMITMENTS AND CONTINGENCIES
Global Media 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.
10. SUBSEQUENT EVENT
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 at a price of $1 per
share currently in issue.
Since July 31, 1998, two principal shareholders of the Company have advanced
funds of $218,000 to the Company. The shareholder loans at July 31, 1998, and
advanced since the balance sheet date, have no fixed terms of repayment and
therefore are classified as current liabilities in the balance sheet. However,
the shareholders have indicated their intent to continue to support the
operations of the Company, and to not request repayment of the loans until a
profitable level of operations have been achieved
F-14
34
<PAGE>
Global Media Corp.
Unaudited Financial Statements for The six month period ending January 31, 1999
(in US dollars)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Period Ending For the Year Ending
January 31 July 31 July 31
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current
Cash 610,376 14,996 121,890
Accounts receivable, net of allowance for doubtful
Accounts of $Nil [July 31, 1998 - $ 92,366;
July 31,1997 - $13,307] 206 206 58,838
Inventory -- 1,992 15,469
Prepaid expenses 3,761 8,229 917
Due from affiliated companies [note 4] -- 71,065 77,778
Income taxes recoverable [note 5] 2,441 2,439 --
- ---------------------------------------------------------------------------------------------
616,784 98,927 274,892
Capital assets [notes 4 and 6] 269,143 172,635 20,566
- ---------------------------------------------------------------------------------------------
885,927 271,562 295,458
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 135,728 201,234 94,649
Taxes payable 41,973 51,354 30,124
Due to affiliated company [note 4] 129,323 46,284 --
Note Payable [note 10] 500,000
Due to shareholders [note 4] 229,400 79,269 84,090
- ---------------------------------------------------------------------------------------------
1,036,424 378,141 208,863
Deferred revenue -- -- 12,062
- ---------------------------------------------------------------------------------------------
1,036,424 378,141 220,925
- ---------------------------------------------------------------------------------------------
Shareholders' equity (deficiency)
Share capital [note 7] 12,546 11,892 11,059
Additional paid in capital [note 7] 869,671 543,525 128,641
Unissued share capital [note 7] -- -- 144,001
Deficit (1,052,330) (681,819) (209,145)
Cumulative translation adjustment 19,616 19,823 (23)
- ----------------------------------------------------------------------------------------------
(150,497) (106,579) 74,533
- ----------------------------------------------------------------------------------------------
885,927 271,562 295,458
==============================================================================================
</TABLE>
See accompanying notes
F-15
35
<PAGE>
Global Media Corp.
Unaudited Financial Statements for The six month period ending January 31, 1999
(in US dollars)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the 3 Months Ending For the 6 Months Ending For the Year Ending
January 31 January 31 January 31 January 31 July 31 July 31
----------------------- ----------------------- -------------------
1999 1998 1999 1998 1998 1997
$ $ $ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Sales 1,141 49,454 21,271 139,454 326,279 --
- ---------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses [note 4]
Advertising and marketing 52,317 2,755 93,286 2,755 6,691 --
Amortization 22,230 -- 35,277 8,448 29,973 --
Bad debts -- 17,500 -- 35,000 76,942 --
Bank charges, interest and financing fees 10,642 92 11,610 137 1,298 445
Foreign exchange 1,161 6,478 4,374 11,595 12,222 (920)
Professional fees 38,149 6,495 62,655 19,053 147,500 49,386
Office and miscellaneous 45,631 51,812 89,602 76,606 98,379 21,842
Travel 25,265 2,753 33,967 8,935 21,174 --
Wages and benefits 30,492 9,406 58,946 36,408 128,406 1,461
- ---------------------------------------------------------------------------------------------------------------------------------
225,887 97,291 389,717 198,937 522,585 72,214
- ---------------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations
before and after provision for income taxes (224,746) (47,837) (368,446) (59,483) (196,306) (72,214)
- ---------------------------------------------------------------------------------------------------------------------------------
(Loss) recovery from operations of discontinued home
satellite business, less applicable income tax recovery
of $8,682 [1997 - $nil] [note 3] 4,984 (114,384) (2,065) (179,642) (276,368) (36,785)
- ---------------------------------------------------------------------------------------------------------------------------------
Loss for the year (219,762) (162,221) (370,511) (239,125) (472,674) (108,999)
=================================================================================================================================
Loss per common share from continuing operations (0.01) (0.00) (0.01) (0.00) (0.01) (0.01)
Loss per common share from discontinued operations (0.00) (0.01) (0.00) (0.01) (0.01) (0.00)
------ ------ ------ ------
Loss per common share (0.01) (0.01) (0.01) (0.01) (0.02) (0.01)
=================================================================================================================================
</TABLE>
See accompanying notes
F-16
36
<PAGE>
Global Media Corp.
Unaudited Financial Statements for The six month period ending January 31, 1999
(in US dollars)
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Additional Unissued Retained Cumulative
Common stock paid-in share earnings translation
Shares Amount capital capital (deficit) adjustment
# $ $ $ $ $
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
Movement on cumulative translation (207)
Loss for the Period (370,511)
- -------------------------------------------------------------------------------------------------------------
Balance, October 31, 20,544,431 12,546 869,671 -- (1,052,330) 19,616
=============================================================================================================
</TABLE>
See accompanying notes
F-17
37
<PAGE>
Global Media Corp.
Unaudited Financial Statements for The six month period ending January 31, 1999
(in US dollars)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the 6 Months Ending For the Year Ending
----------------------- -------------------
January 31 January 31 July 31 July 31
1999 1998 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Loss for the period (370,511) (239,125) (472,674) (108,999)
Items not requiring an outlay of funds
Amortization 50,508 11,563 38,658 3,957
Services settled through share issuance -- 50,449 50,449 --
Deferred revenue -- (12,062) (12,062) 12,062
- -----------------------------------------------------------------------------------------------------------
(320,003) (189,175) (395,629) (92,980)
Changes in non-cash operating working capital
Accounts receivable -- (11,002) 58,632 47,216
Inventory 1,992 1,525 13,477 20,233
Prepaid expenses 4,466 (16,713) (7,312) 599
Income taxes recoverable -- -- (2,439) --
Accounts payable and accrued liabilities (65,506) 62,575 106,585 11,090
Accrued wages payable -- -- -- (58,527)
Taxes payable (9,381) (2,067) 21,230 5,034
Advances from (to) shareholder 150,131 (31,629) (4,821) 79,266
Advances from (to) affiliated companies 154,104 3,645 52,997 (80,309)
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities (84,197) (182,841) (157,280) (68,378)
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (147,016) (144,195) (189,706) (13,209)
Decrease in loan receivable from shareholder -- -- -- 18,306
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (147,016) (144,195) (189,706) 5,097
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Dividends -- -- (114,632)
Note payable 500,000
Share subscriptions 326,800 221,267 221,267 283,700
- ------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 826,800 221,267 221,267 169,068
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (207) 8,886 18,825 198
Increase (decrease) in cash during the period 595,380 (96,883) (106,894) 105,985
Cash, beginning of period 14,996 121,890 121,890 15,905
- ------------------------------------------------------------------------------------------------------------
Cash, end of period 610,376 25,007 14,996 121,890
============================================================================================================
Interest - paid 11,610 11,675 9,180 357
Income taxes paid (recovered) -- -- (6,783) 10,354
=============================================================================================================
</TABLE>
See accompanying notes
F-18
38
<PAGE>
NOTES TO UNAUDITED 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 engaged in providing internet-integrated call center
services from its location in Nanaimo, B.C., Canada. Until the 4th quarter of
1998, the Company was also engaged in the marketing of direct to home satellite
hardware and programming services to both commercial and private individuals
primarily in Western Canada [note 3]. The Company commenced its
internet-integrated call center in September, 1997. The Company is also in the
process of developing an electronic commerce web site for the distribution and
eventual downloading of music and video over the internet.
On May 20, 1997 the Company issued 8,000,000 common shares and paid $100,000 in
cash for all of the outstanding shares of Westcoast Wireless Cable Ltd.
("Westcoast Wireless"), a company which markets direct to home satellite
hardware and programming services.
Westcoast Wireless contracted for the sales of certain satellite hardware and
programming services, therefore the majority of the purchases were sourced from
a single supplier.
These financial statements reflect the continuity of interests of the former
shareholder of Westcoast Wireless, due to the continuation of common control.
The consolidated statements of operations, shareholders' equity (deficiency),
and cash flows for the period from August 1, 1996 to May 20, 1997 (included in
the results for the year ended July 31, 1997) represent the results of
operations and cash flows of Westcoast Wireless during those periods.
References to "the Company" in these financial statements include Westcoast
Wireless (for events occurring prior to May 20, 1997).
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America.
The Company has not yet achieved a profitable level of operations. The Company's
continued operation is dependent upon achieving a profitable level of operations
from its electronic commerce web site, scheduled to commence operations in March
and May of 1999, upon obtaining additional financing and the continued support
of the Company's shareholders [note 10], to fund both current operations, and
web site construction.
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.
Call center 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
F-19
39
<PAGE>
Revenue recognition
- -------------------
Revenues from the call center are recognized on a straight line basis over the
term of the contract.
Revenues are recorded at the time of installation for hardware sales, and at
contract inception for sales of programming.
Advertising and marketing costs
- -------------------------------
Advertising and marketing costs are expensed as incurred.
Foreign currency translation
- ----------------------------
The assets and liabilities of the Company's foreign subsidiary, Westcoast
Wireless, are translated into US dollars at fiscal period end exchange rates.
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 at period end exchange rates. Other balances are recorded at
rates in effect on the dates of the transaction. Exchange gains and losses
arising are reflected in net income for the period.
Use of estimates
- ----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company's management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related notes to the financial statements.
Actual results may differ from those estimates.
Financial instruments
- ---------------------
The carrying values of the Company's financial instruments approximate fair
values, except as otherwise disclosed in the financial statements.
Loss per share
- --------------
The Company has adopted SFAS128, 'Earnings per share' in the current year on a
retroactive basis. There is no impact on previously reported loss per share
amounts.
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. SFAS133 is
effective for financial statements for fiscal years beginning after June 15,
1999.
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.
SFAS131, SFAS132 and SFAS133 currently have no impact on the Company.
F-20
40
<PAGE>
3. DISCONTINUED OPERATION
In November 1997, a decision was made by the Canadian Federal Court of Appeal
of, ruling that sale of US satellite and programming services in Canada was not
permitted. Following a period of trading in Canadian satellite and programming
services the management of Westcoast Wireless decided to withdraw completely
from the home satellite business in late fiscal 1998. The home satellite
business includes all operations of Westcoast Wireless.
This subsidiary company has been accounted for as a discontinued operation, and
accordingly, its operations have been segregated in the accompanying
consolidated statements of operations.
Revenues of the discontinued company for the period ending January 31, 1999 were
Nil, (1998-$568,154) and for the year ended July 31, 1998 were $591,938 [1997 -
$1,617,528]. At January 31, 1999, net current liabilities of the discontinued
operation were $ 73,168, (1998-$108,522) and at July 31, 1998 were $130,076
[1997 - $31,578] consisting principally of accounts payable and balances due to
shareholder. Net non-current assets at January 31, 1999 were $Nil,
(1998-$21,407) and at July 31, 1998 were $15,352 [1997 - $8,504].
4. RELATED PARTY TRANSACTIONS
All related party balances as disclosed in the balance sheet are non-interest
bearing and without specific terms of repayment.
The affiliated companies are related to Global Media Corp. by virtue of control
by officers of the Company. The fair values of the balances are not determinable
since they have no fixed repayment terms.
The Company's consolidated statement of operations for the period ended January
31, 1999 and year ended July 31, 1998 includes the following related party
transactions:
- - wages and benefits expense of $Nil, July 31,1998 were $81,747 [1997 -
$45,565], to a shareholder and spouse.
- - income from recharge of wages of $Nil, July 31, 1998 were $Nil [1997 -
$72,610], to a company related by virtue of control by an officer of the
Company.
During the year ended July 31, 1998 the following capital asset additions were
purchased from related parties:
- - $32,909 [1997 - $nil] for call center development from shareholders of the
Company.
- - $2,454 [1997 - $nil] for call center development from an officer of the
Company.
- - $5,709 [1997 - $nil] for office equipment, $4,171 [1997 - $nil] for
leasehold improvements and $12,170 [1997 - $nil] for call center
development from a company controlled by an officer of the Company.
No related party transactions occurred during the period ending January 31, 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 affiliated companies for $ 154,104;
(iii) Shareholder loans of $ 222,231.
5. INCOME TAXES
At July 31, 1998, the Company had a domestic net operating loss of $240,407
which will begin to expire in 2011, and foreign net operating loss carryforwards
of $250,671 which will expire in 2005. Utilization of these carryforwards
depends on the recognition of future taxable income.
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.
F-21
41
<PAGE>
Deferred tax assets reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
July 31,
1998
$
- ----------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards 196,094
Tax vs. accounting value in fixed assets 5,431
Unrealized foreign exchange loss 4,155
- ----------------------------------------------------------------------
Total gross deferred tax assets 205,680
Less valuation allowance (205,680)
Deferred tax liability --
- ----------------------------------------------------------------------
Net deferred tax assets --
======================================================================
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
Call center 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
Call center infrastructure 91,575 17,325 74,250
Software 27,209 3,520 23,689
- --------------------------------------------------------------------------------
216,344 43,709 172,635
================================================================================
July 31, 1997
Office furniture and equipment 9,794 2,576 7,218
Computer equipment 8,814 2,187 6,627
Leasehold improvements 2,029 709 1,320
Software 6,001 600 5,401
- --------------------------------------------------------------------------------
26,638 6,072 20,566
================================================================================
7. SHARE CAPITAL
Period Ended Year Ended
January 31 July 31
---------- -------
1999 1998 1997
# # #
- --------------------------------------------------------------------------------
Authorized
Common shares, par value $0.001 each 200,000,000 200,000,000 200,000,000
Issued
Common shares 20,544,431 19,890,831 11,059,400
Unissued common shares -- 8,288,000
================================================================================
As at July 31, 1997, 8,000,000 shares issued in consideration for the shares in
Westcoast Wireless and 288,000 of the shares issued for cash had not been
issued; however, legal agreements for the issue of these shares were in place at
July 31, 1997. The amounts were recorded as unissued share capital of $1 and
$144,000 respectively as at July 31, 1997. All of these shares were issued in
the year ended July 31, 1998.
Effective April 8, 1997 the Company adopted the 1997 Directors and Officers
Stock Option Plan (the "Plan"). The Plan is administered by the Board of
Directors who have sole discretion and authority to determine individuals
eligible for awards under the 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. During the current year, this plan was amended to
increase the number of options from 500,000 to 1,000,000 shares.
During the first quarter 1,000,000 options at an exercise price of $0.50 per
share were granted to various officers, directors and employees of the company.
At January 31, 1999, 653,300 options have been exercised.
8. SEGMENTED INFORMATION
The Company's business segment which derived revenue from the marketing of
direct to home satellite hardware and programming services, has been presented
as a discontinued operation in the current year [note 3].
The remaining segment of the business relates to call center services. The
Global Media call center provides internet integrated call center services to US
based clients from its location in Nanaimo, Canada. The Global Media call center
commenced operations in September of 1997 and comprises all continuing
operations of the Company. The call center is presently providing services to
the Company by obtaining licensing contacts for the entertainment web site and
fielding investor and shareholder
inquiries relating to the Company and its operations.
9. COMMITMENTS AND CONTINGENCIES
Global Media 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.
10. NOTE PAYABLE
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.
Two principal shareholders of the Company have advanced funds to the Company.
The shareholder loans at January 31, 1999, have no fixed terms of repayment and
therefore are classified as current liabilities in the balance sheet. However,
the shareholders have indicated their intent to continue to support the
operations of the Company.
F-22
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