<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1999
/ / Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______ to ________
Commission file number 0-23491
GLOBAL MEDIA CORP.
(Name of Small Business Issuer in its Charter)
NEVADA 91-1842480
(State of Incorporation) (IRS Employer ID No.)
400 ROBSON ST., VANCOUVER, B.C., CANADA V6B 2B4
(Address of Principal Executive Offices) (ZIP Code)
(604) 688-9994
Issuer's Telephone Number, Including Area Code
Securities registered under Section 12(b) of the Exchange Act: NONE
Title of Each Class Name of Each Exchange
On Which Registered
---------------------- -----------------------
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES /X/ NO/ /
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. /X/
State the issuer's revenues for its most recent fiscal year: $7,091.
State the aggregate market value of the voting common equity held by
non-affiliates based on the closing sales price for the issuer's common stock on
the OTC Bulletin Board as of October 25, 1999: $29,845,990.
State the number of shares outstanding of the issuer's common stock, as of
October 25, 1999:
20,710,456 SHARES OF COMMON STOCK, $.001 PAR VALUE.
Documents incorporated by reference: NONE, EXCEPT THE CERTAIN EXHIBITS REFERRED
TO ON THE LIST OF EXHIBITS CONTAINED IN ITEM 13
OF THIS REPORT.
Transitional Small Business Disclosure Format (check one): YES / / NO/X/
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM OF FORM 10-KSB PAGE
- -----------------------------------------------------------------------------------------------------
<S> <C>
ITEM 1. DESCRIPTION OF BUSINESS...............................................................1
ITEM 2. DESCRIPTION OF PROPERTY..............................................................15
ITEM 3. LEGAL PROCEEDINGS....................................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS..............................................................................15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................................16
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................23
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..................................................47
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT..................................................................47
ITEM 10 EXECUTIVE COMPENSATION...............................................................49
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...........................................................................51
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................52
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................................54
</TABLE>
<PAGE>
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may", "will",
"should", "could", "expects", "plans", "intends", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of such
terms and other comparable terminology. Our forward-looking statements
include, without limitation, statements about our market opportunity, our
strategies, competition, expected activities and expenditures as we pursue
our business plan, and the adequacy of our available cash resources. Although
we believe that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. The information set forth under the headings
"Description of Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", identify important additional
factors that could materially adversely affect our actual results and
performance. All forward-looking statements attributable to us are expressly
qualified in their entirety by the foregoing cautionary statement. Moreover,
neither we nor anyone else assumes responsibility for the accuracy and
completeness of such statements. We undertake no obligation to publicly
update any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Global Media sells music CDs and cassettes, home videos and digital video
discs (DVDs), books and other entertainment products through our own online
store and through our Global Media Network program, a growing network of
third-party private label storefronts. Under that program, we provide our
"network associates" with an e-commerce solution that consists of a
customizable, private label, entertainment merchandise store on the network
associate's own Web site. This storefront is transparently integrated with
our back-end transaction processing systems, contracted order fulfillment
services and customer service support, which allows customers to place orders
on the network associate's Web site that we process and fulfill.
In addition to our e-commerce solution, we have developed an internet
broadcasting solution, the Global Media Broadcast Network, which includes a
growing network of radio and television stations and internet sites. The
centerpiece of the Global Media Broadcast Network solution is a streaming
media player, the Global Media Player, that is being developed for us by Real
Networks, Inc. The Global Media Player enables subscribers to stream live and
simulated live audio, video and other multimedia content (such as radio
feeds) from our 10 proprietary music stations and from the stations of each
of our "broadcast associates". We launched our Broadcast Network program with
the beta version of the Global Media Player in October 1999, and expect to
incorporate the commercial version into our Broadcast Network in December
1999. When our Broadcast Network is integrated with our e-commerce solution,
our network associates can offer their customers a tightly integrated
entertainment and online shopping experience. For example, subscribing to our
Broadcast Network will enable a network associate's customers to listen to
live music programming through the Global Media Player and purchase CDs of
the featured artists at the same time. Our Broadcast Network can also be
subscribed to by others on a stand-alone basis.
We launched a beta version of our own e-commerce site in May 1999 to
demonstrate our e-commerce solution, and commercially launched our own online
store in September 1999, at "store.globalmedia.com." Our online store
combines an extensive catalogue of music, books, videos and other
entertainment products, with easy-to-use navigation and search capabilities
and entertainment-focused content. Additionally, visitors can download the
Global Media Player for free.
RISK FACTORS
We have a limited operating history and had minimal operating revenues from our
internet business in fiscal 1999. We anticipate operating losses and negative
operating cash flow for fiscal 2000, and anticipate achieving breakeven in
fiscal 2001 and profitability during fiscal 2002. The success of our internet
operations will depend on the growth and commercial acceptance of the
Internet and e-commerce, the viability of our unproven business model, the
implementation of our Network Associate and Broadcast Network programs, our
relationships with strategic partners and key vendors, and the availability
of additional capital. Our business is subject to intense competition, rapid
technological change, government regulation and legal uncertainties
associated with the Internet, e-commerce, systems interruptions and security
risks. Each section of this "Description of Business", the "Management's
1
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations", and
the other sections of this Form 10-KSB, describe these and other risk factors in
more detail.
INDUSTRY BACKGROUND
THE INTERNET
The impact of the Internet on, and its importance to, the global economy is
increasing significantly. International Data Corporation estimates that the
number of persons accessing the Web will reach 320 million by 2002 and total
Internet commerce - the purchase of goods and services over the Internet by
both businesses and consumers - will approach $250 billion by 2002. Advances
in technology, such as streaming media technologies, and broadband access are
making the Internet an increasingly important new medium for multimedia
content delivery and distribution. We believe that the increase in usage of
the Web for commerce and multimedia content delivery will be due to a number
of factors, including the following:
- a large and growing base of personal computers and other Web access
devices in the home and workplace;
- declines in the cost of personal computers and other Web access
devices;
- declines in the cost of Internet access;
- increases in the performance of personal computers;
- broadband access and increases in Internet bandwidth;
- advances in streaming media technologies that enable the continuous
transmission and playback of multimedia content, such as audio and
video, which will improve the type and quality of content available on
the Web;
- the availability of a broader range of online products and services;
and
- growing awareness by businesses and consumers of the benefits of online
shopping and the delivery or consumption of multimedia content.
The Internet is unique as a multipurpose medium for communicating, delivering
and finding information and other content and purchasing products and
services. The Internet offers powerful characteristics, such as instant
access to a wide variety of content and commerce destinations, vast
selection, interactivity and personalization, that differentiate it from
traditional media and commerce distribution channels. We believe that, among
other things, these characteristics will facilitate use of the Internet as a
purchasing medium. International Data Corporation estimates that worldwide
business-to-consumer sales over the Internet will increase from approximately
$11 billion in 1998 to approximately $93 billion by 2002.
E-COMMERCE AND INTERNET BROADCASTING
The e-commerce and internet broadcasting industries are new and rapidly
evolving. Rapid growth in the use of the Web and consumer e-commerce is a
recent phenomenon, and the commercial use of the Internet as a broadcast
medium is in its early stages. Demand for recently introduced services and
products over the Web is subject to a high level of uncertainty. The
development of the Web as a viable commercial marketplace or as a broadcast
medium is subject to a number of factors, including the following:
- e-commerce is at an early stage and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors;
- Internet broadcasts of multimedia content are generally of lower
quality than broadcasts in traditional mediums and are subject to
frequent interruptions and packet loss;
- radio listeners, television viewers and consumers of other
multimedia content may be unwilling to shift their consumption of
such content to the Internet or it may be more difficult to
establish viable revenue streams from Internet broadcasts;
2
<PAGE>
- insufficient availability of internet infrastructure could result
in slower response times;
- adverse publicity and consumer concerns about the security of
commerce transactions on the Internet could discourage its
acceptance and growth;
- transmission of confidential information (such as credit card and
other personal information) over the Internet has been a significant
barrier to e-commerce and communications over the Web;
- unavailability of cost-effective, high-speed Internet service
could limit demand for Web services and products; and
- frequent outages or delays on the Internet could slow Web usage
or cause it to decline.
RETAIL ENTERTAINMENT MERCHANDISING
Traditional channels of retail entertainment merchandise distribution, such as
music stores, home video stores, bookstores and mass market retailers, have many
limitations, including:
- INCONVENIENCE. Shopping at a physical store can be inconvenient. It
involves time-consuming activities such as making a trip to the store,
finding a parking space, searching for desired merchandise and waiting
in line to make a purchase. Searching for merchandise can be especially
time-consuming if the consumer is simply browsing (i.e., is not looking
for a particular title or artist), since searching generally for
entertainment merchandise that may interest the consumer can involve
significant time combing through aisles of CDs or rows and rows of
books or videos.
- NARROW SELECTION. Consumers of entertainment products value the
opportunity to select items from a broad range of products that best
fit their interests. Often, consumers must choose from a narrow
selection at traditional store-based retailers. In the entertainment
merchandising industry, stores often specialize in particular types of
products, such as books or music only, forcing the consumer to make a
trip to more than one store. Even mass market retailers that offer
selections from a wide variety of entertainment product categories
often have a narrow selection of titles or genres within those
categories because of limitations on the amount of shelf-space and the
resulting need to offer only the fastest selling titles, genres or
products.
- LACK OF INFORMATION AND PERSONALIZATION. Physical retailers are
space-constrained and invest heavily in inventory, real estate,
building improvements and hiring and training of store personnel.
Although some large entertainment merchandisers have made strides to
include customized information and better opportunities for consumers
to sample the products they carry (such as kiosks at music retailers
that allow customers to preview CDs), physical retailers generally
lack the display space and resources to provide consumers in-depth
information, such as book or music reviews and interviews with authors
and artists, that could greatly enhance the shopping experience.
Physical retailers also have no way of instantaneously gauging and
responding to an individual consumer's personal tastes.
Because online retailers of entertainment products incur a fraction of the
costs for physical space and personnel and have almost unlimited "virtual"
shelf space, they can offer consumers a broader range of product categories,
and selections within those categories, than can physical retailers. In
addition, online retailers can provide consumers with a wide range of useful
and entertaining information as part of the online shopping experience, such
as interviews with authors or artists, book, music or video reviews,
discographies and other lists of artists' works, historical perspectives and
feedback from other consumers. The online shopping experience can be
interactive, such as giving consumers the opportunity to provide their own
personal reviews of products that they have bought. Online retailing also
offers the opportunity to create communities of like-minded consumers.
Finally, online retailers can also use technology to instantaneously gauge
and respond to a particular consumer's interests, such as offering online
recommendations or suggestions by e-mail of other products the consumer may
be interested in based on the buying patterns of customers who bought the
same product or information provided by the consumer about his or her own
interests.
Many online retailers of entertainment merchandise provide a shopping
experience that, while convenient, informative and offering a wide selection
of products, fails to fully deliver on entertainment value. Certain strategic
relationships between online retailers and multimedia content delivery
companies have attempted to create a blended online commerce and
entertainment experience, but these initiatives are often limited in the
product selection
3
<PAGE>
offered on the content deliverer's Web site and give a "piecemeal" impression
to consumers, who are exposed to multiple companies' brands and Web site
"look-and-feel" as part of the shopping/entertainment experience.
OUR STRATEGY
Our objective is to become a leading online entertainment company. Our
strategy to achieve this objective is to build a network of private label
entertainment product storefronts on the Web and to offer an online broadcast
solution for the delivery of streaming media over the Internet. To implement
our strategy, we are striving to attract a growing base of consumers to our
network associates' Web sites and to our own online store, and to provide
them with a superior shopping and entertainment experience. Key elements of
our strategy include:
FOCUS ON CORE STRENGTHS AND ENHANCE STRATEGIC RELATIONSHIPS. We
intend to leverage off our management team's extensive experience and
understanding of the entertainment industry and the convergence of
entertainment and the Internet to deliver an integrated entertainment
merchandise retailing and content solution. We will rely extensively on third
parties for cutting edge technologies to enable us to provide e-commerce and
multimedia streaming services, and for order fulfillment and shipment. By
aggregating the best in technology, content, entertainment products and
distribution services through strategic relationships with third parties, we
believe that we can maintain our focus on continuously enhancing the shopping
and entertainment experiences of our customers.
CONTINUOUSLY IMPROVE OUR ONLINE STORE AND SERVICES. We seek to
combine a wide product selection and eye-catching multimedia content and
information with the unique aspects of the Internet to deliver a convenient,
entertaining and personalized shopping experience. To improve our e-commerce
solution and our own site, we intend to
- expand our product offerings, both within our existing categories and
by extending into other categories of entertainment-oriented products
and services,
- improve the depth and variety of content, including streamed audio,
video and other multimedia content, and
- offer more personalized services, such as recommendations based on
purchases by consumers of similar product selections or preferences
provided by the customer.
EXTEND REACH THROUGH NETWORK ASSOCIATE AND BROADCASTING NETWORK. We
intend to aggressively promote our Network Associate and Broadcast Network
programs. By offering our network associates a reasonably priced solution for
selling entertainment products online in connection with multimedia content
streaming capabilities, we believe that we will extend our customer reach on
the Web more effectively and on a more cost-effective basis than if we were
to try to obtain that reach solely through our own store.globalmedia.com
online store.
MAINTAIN TECHNOLOGY FOCUS. We intend to use technology that we
develop or that we acquire or license through strategic relationships with
third parties. We will continue to develop our site's navigation and search
capabilities and features to further personalize our customers' shopping
experience and their ability to find products and content. We will also use
technology to increase the efficiency of order processing and fulfillment
services.
ENSURE QUICK AND EFFICIENT DISTRIBUTION. We intend to continuously
increase the automation and efficiency of our fulfillment and distribution
capabilities. Because we outsource our order fulfillment operations, we
intend to work with our fulfillment partners to find more ways to ensure
prompt order processing and delivery to our customers.
OUR SOLUTIONS
OUR E-COMMERCE SOLUTION
Our e-commerce solution leverages the Internet's capabilities for delivering
multimedia content, including live video and audio programming, to create a
unique, integrated shopping and entertainment experience for the customers of
our network associates and our own online store. The key features of our
solution consist of the following:
4
<PAGE>
CONVENIENCE. Our online store and those of our network associates
may be reached from wherever the customer has access to the Web, such as the
home or office. Customers may shop 24 hours a day, seven days a week. We
deliver directly to the customer's home or office, obviating the need for a
trip to a physical store. Customers can quickly search an extensive catalogue
of products using a variety of search parameters.
SELECTION. Without the inventory or shelf-space limitations of
physical retailers, we offer a large selection of CDs, videos, DVDs and books
and will expand that selection as we add more fulfillment partners. We also
have become involved in new forms of distribution of entertainment products,
such as direct download of audio files, and intend to offer complementary
products and services, such as magazine subscriptions and concert and event
ticket sales.
CONTENT. Through our online store and those of our network
associates, we offer entertainment-focused content ranging from music and
entertainment news to interviews with artists and authors, biographies and
lists of their works. We also offer content in formats designed to enhance
the customer's shopping experience, such as music clips that customers may
sample before ordering CDs. We have integrated the Global Media Player into
our e-commerce solution because we believe that online consumers of
entertainment merchandise expect a more entertaining and informative shopping
experience than they can find at traditional retail stores and in most online
stores.
COMMUNITY. To create an online experience that will encourage
customers to return to our main store, we sponsor competitions and plan to
build community by hosting entertainment-oriented chat sessions.
EXTENDED REACH THROUGH NETWORK ASSOCIATE AND BROADCASTING PROGRAMS.
Our Network Associate program will extend our reach on the Web for consumers
of entertainment merchandise. We have initially targeted the radio and
television industry to take advantage of the synergies between that industry
and entertainment product retailing. In order to succeed, we must
- successfully implement our Network Associate program by establishing
broad market acceptance of the program and rapidly rolling out private
label online storefronts for numerous network associates;
- successfully implement our Broadcast Network system and gain broad
market acceptance of the streaming media services we intend to offer
through our Broadcast Network program;
- further develop our site, improve reliability and performance of both
front-end and back-end systems and order fulfillment, and timely and
successfully develop new features and functionality of our online store
and those of our network associates;
- attract a high volume of first-time and repeat customers to the Web
sites of our network associates and our online store.
- successfully respond to competition to our entertainment product
e-commerce operations from Amazon.com, Inc., CDNow, Inc. and others,
and to our streaming media services from Broadcast.com, Inc.,
Netradio.com and others;
- develop and maintain strategic relationships to enhance the features
(including content) and utility of our online store and those of our
network associates and to enable us to deliver streaming media
services;
- recruit and retain key management, technical and other employees; and
- implement adequate internal processes and controls to manage our
growth.
OUR NETWORK ASSOCIATE PROGRAM
Under our Network Associate program, we offer our network associates a
complete, end-to-end entertainment product e-commerce solution. Using
storefront templates that we have developed, we design a customized online
storefront through which the network associate can provide the e-commerce
services and related content that we offer. Unlike the affiliate or associate
programs that are prevalent in the consumer e-commerce industry, our
5
<PAGE>
program enables a network associate to maintain a complete online storefront
under its own brand name consistent with the "look and feel" of its own Web
site. We plan to offer customized private label storefronts which offer
products and related content tailored to the network associate's target
audience. We integrate the network associate's online storefront with our
back end e-commerce system and services. We believe our Network Associate
program is attractive for a variety of reasons because it:
- enables companies that lack the financial and technical resources to
develop and maintain their own proprietary e-commerce solutions to
enter into the e-commerce business for a low up-front cost and minimal
continuing direct cost (other than what they spend to market their
online stores);
- helps companies expand their Web sites to provide additional revenue
streams and enhance the appeal to their online audiences;
- allows companies to extend their brands onto the Web or maintain their
existing online brands and avoid the "brand dilution" and disjointed
customer experience engendered by industry-prevalent e-commerce
affiliate programs, which are offered under the merchant partner's own
brand - sometimes with an entirely different "look and feel" from the
affiliate's own Web site;
- allows companies to focus on core businesses and strengths by
outsourcing their e-commerce business to us; and
- includes the Global Media Player which allows customers to listen to
music while they shop.
Our business and results of operations will depend in large part on the
success of our Network Associate program. As of October 25, 1999, we had 54
Network Associate agreements in place initially covering approximately 99
radio and TV stations and other Internet sites. In order to attract and
retain significant numbers of network associates, we must:
- build a larger sales force to promote our network associate program,
particularly to the radio and television industries, and successfully
promote the benefits of our end-to-end e-commerce solution to potential
network associates;
- be able to offer customized, merchant-branded store fronts with content
and merchandise selection that can be specifically tailored to
different types of potential network associates with different target
markets or customers, that work reliably and effectively with our
network associates' own Web sites, and that reliably fulfill orders of
customers who purchase products through our network associates'
storefronts; and
- successfully compete against other companies that offer, or in the
future may offer, similar e-commerce and content-delivery solutions,
either on their own or through strategic relationships with other
parties.
Our business and results of operations may suffer if our network associates
are unsuccessful in attracting significant numbers of visitors to their Web
sites. While we analyze our potential network associates' plans for
increasing traffic to their Web sites, we have no control of the steps they
actually take to attract visitors to their sites.
OUR BROADCAST NETWORK PROGRAM
We are developing our Broadcast Network to take advantage of significant
improvements in multimedia streaming technologies, the resulting convergence
of radio, television and other multimedia content with the Internet and
e-commerce. Our business will depend significantly on the successful
implementation of our Broadcast Network, the successful marketing of that
solution to potential broadcast associates in the radio and television
industries, and our ability to maintain those relationships.
Using the Global Media Player, a customized RealNetworks multimedia player
and the Real Broadcast Network multimedia streaming infrastructure, our
Broadcast Network enables broad-cast associates to deliver live and simulated
live multimedia content such as radio feeds. Our Broadcast Network provides
cutting-edge multimedia content delivery capabilities and can be combined
with the private label entertainment product merchandising solution offered
under our Network Associate program. We will derive revenues from (a) product
sales on the networks associate's Web site, (b) resale of streaming media
bandwidth on the Real Broadcast Network to our broadcast associates, and (c)
advertising revenues from advertisements in the Global Media Player.
6
<PAGE>
OUR WEB SITES
OUR MAIN STORE.
Visitors to our online store at "store.globalmedia.com" see a home page
that highlights our three product departments: "Music", "Books" and "Videos", as
well as entertainment focused news and interviews with artists and authors. We
periodically rotate specific title promotions in each of the departments on our
store's home page. Shoppers can launch the Global Media Player and enjoy music
in various genres while browsing the store. Shoppers browse the store by
clicking on the permanently displayed department names to move directly to the
department home page and to view selected title promotions within that
department, current top-selling titles and additional content oriented to the
products offered in that department. Shoppers can also search the store by
entering text, such as a title, an artist's or author's name, or a keyword, in
the search box at the top of any page. Search results return a list of one or
more products that relate to the search term, and customers can click on a link
to the desired item to obtain more information such as:
- CDs: artist name, genre, label, release date, song titles and price
- Books: author name, genre, format (hardcover or paperback), number of
pages, publication date, publisher and prices
- Videos: director name, names of actors, studio name, format (video
cassette or DVD), available releases and prices
A shopper can order a product by clicking on the "buy" button next to
the desired product and the product is then added to the shopper's "shopping
cart." The shopper can add or delete items from his or her shopping cart at any
time prior to final purchase. When the shopper finishes selecting the desired
products, he or she goes to checkout. The checkout page presents the shopper
with the various items he or she has selected, the subtotal, tax (if applicable)
and shipping charges. The shopper may add or delete products at this stage or
change the method of shipping. When satisfied with the order, the shopper clicks
on the "purchase" button and the final order is entered into our system. A
shopper will be notified by e-mail of the receipt of the order, if the credit
card information was declined, and when the products ordered have been shipped.
We strive to use content effectively to encourage purchases by
customers who may be browsing our site without a specific title, author or
artist in mind. All of the textual content we provide on our main home page and
department home pages have direct links to related products. For example, an
interview with a member of a particular rock band might include a "buy" button
that links the customer to the product listing for the band's latest release. We
also seek to use content to enhance the information and entertainment value of
our customers' shopping experience. For example, for many of the CDs we carry,
customers can sample audio tracks before purchasing the CD. We also include
useful and entertaining textual information about many of our products, such as
a summary review of the CD, video or book, information about the artists, and
short excerpts from third party reviews.
Indieaudio.com.
Our other Web site, "www.indieaudio.com", focuses on content and
community which is oriented to musicians and fans of alternative music. From
this site, users can download the Global Media Player and use it to play our
proprietary station, Indieaudio Radio, or can click through to our main online
store. While we expect that this site may generate some revenue from advertising
and other activities, we currently view it primarily as means of driving
customer traffic to our main online store. Indieaudio.com currently offers:
- the opportunity for new and independent bands (a) to sign up and have
their music played on Indieaudio Radio, (b) to sell individual songs by
direct download from indieaudio.com ,or (c) to sell their CD's through
Indieaudio's online store;
- the latest alternative music news (from tours to upcoming new
releases), reviews of new music and in-depth interviews with the
artists and other personalities active in the alternative music and
independent lifestyle scenes;
- other news and content about issues of concern or interest to the
target audience; and
7
<PAGE>
- forums to chat with other visitors.
Indieaudio.com is an affiliate in Liquid Audio, Inc.'s "Liquid Music
Network." As a Liquid Music Network associate, indieaudio.com offers for
purchase downloadable, CD-quality audio files from selected titles of various
artists in the Liquid Music Network catalogue. Using Liquid Audio's technology,
customers can purchase individual songs from one or more artists and create
their own unique digital mixes.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term relationships
with our customers (and those of our network associates) and to encourage repeat
visits and purchases will depend in part on the strength of our customer support
and service operations. We employ six customer support and service staff and
automate certain of the tools used by them to enhance the efficiency and quality
of our customer support and service efforts. In addition, we will seek to
achieve frequent communication with and feedback from our customers to
continually improve our e-commerce solution, product offerings and related
services.
MARKETING AND PROMOTION
We believe that successful implementation of our Network Associate and Broadcast
Network programs will depend on our ability to establish an aggressive and
effective internal sales organization. At October 25, 1999, our internal sales
team had nine members. We will need to increase this sales force in the future
in order to execute our business plan. Our ability to increase our sales force
involves a number of risks and uncertainties, including competition for
employees and the length of time for new sales employees to become productive.
If we do not develop an effective internal sales force, we are likely to have
difficulty securing significant numbers of network associates and our business
will be negatively affected.
While we view our Network Associate and Broadcast Network programs as the
critical components of our plan to increase sales of our entertainment products,
our marketing strategy will also focus on:
- increasing traffic to our main online store, the indieaudio.com store
and the online stores of our network associates;
- building customer loyalty;
- maximizing repeat purchases; and
- developing incremental revenue opportunities.
We intend to pursue a variety of media, business development and promotional
methods to achieve these goals, including online and traditional advertising and
public relations activities (such as sponsoring concerts and other events). We
may also offer our own affiliate program, which will embed one or more general
or product-specific links to our site on our affiliates' Web sites. Affiliates
would be paid a commission on orders placed by customers who are directed to our
site from the affiliates' Web sites.
We also intend to establish alliances with other Web sites to increase the
number of visitors to our site. There is intense competition for placements on
these sites, and we may not be able to enter into these relationships on
commercially reasonable terms or at all. Even if we enter into alliances with
other Web sites, they themselves may not attract significant numbers of users to
our site. Moreover, we may have to pay significant fees to establish these
relationships. Our inability to enter into alliances with popular Web sites - or
the failure of such alliances to provide the expected benefits - could adversely
affect our business.
STRATEGIC ALLIANCES
In order to maintain and improve our online store and related services and
increase traffic to our site, we seek to enter into strategic relationships with
business partners who can offer technology, content and distribution
capabilities, as well as marketing and cross-promotional opportunities.
FULFILLMENT PARTNERS.
8
<PAGE>
We have outsourced all of our order fulfillment and shipping operations in order
to allow us to focus on our core strengths of developing and enhancing
compelling online entertainment product merchandising and content delivery
initiatives and to avoid the need to invest in warehouse and other distribution
infrastructure or carry inventory. We currently purchase all of the merchandise
we offer online from two fulfillment partners, Baker & Taylor, Inc. (through its
Entertainment division and Books division) and the iFill division of Valley
Media, Inc. Our agreements with Baker & Taylor and Valley Media have one-year
terms (ending in May 2000) and renew on an annual basis for up to five
succeeding years, but they can be terminated prior to the annual renewal date.
We cannot be certain that these contracts will be renewed or terminated prior to
their expiration.
We intend to pursue other fulfillment partners to expand our product offerings.
However, if for any reason our relationship with Baker & Taylor or Valley Media
were terminated before we were able to establish and implement alternative
fulfillment arrangements, we might be unable to fulfill our customers' orders
and our business would suffer. In addition, our ability to fulfill our
customers' orders may be significantly hampered and our business will suffer
major disruptions if Baker & Taylor, Valley Media, or any alternative
fulfillment partners with whom we may establish relationships in the future:
- fail to comply with federal, state and local regulations that apply to
their performance of services for us;
- breach or terminate their agreements with us;
- suffer adverse developments that affect their ability to supply
products to us, such as employee strikes, system crashes and inclement
weather;
- are unable or unwilling to supply products to us in sufficient
quantities or in a timely manner; or
- are unable or unwilling to ship products to any markets in which we
have customers.
Because we rely on third parties to fulfill orders, we depend on their systems
for tracking inventory and financial data. In addition, our order fulfillment
and distribution process requires us to cooperate extensively with our
fulfillment partners with respect to the coordination of separate information
technology systems. From time to time we have experienced problems relating to
the integration of our systems with those of Baker & Taylor, which has affected
our ability to timely fill customers' orders. While we have corrected these
problems, we cannot ensure that any future problems will be resolved on a timely
basis or at all. In addition, if we establish new fulfillment partner
relationships, we cannot be sure that we will be able to integrate our
respective information systems on a timely basis. If our fulfillment partners'
systems fail or are unable to scale or adapt to changing needs, our ability to
timely fill customers' orders may be hindered and we may not have adequate,
accurate or timely inventory or financial information. Our failure to have
adequate, accurate or timely inventory and financial information would harm our
ability to manage our business effectively.
REALNETWORKS.
We have entered into an agreement with RealNetworks under which it is developing
an advanced multimedia player, the Global Media Player, which is the core of our
Broadcast Network. We launched the beta version of the Global Media Player in
October 1999. We will have no proprietary ownership interest in or exclusive
license to the technologies developed for us by RealNetworks. Although our
rights to use those technologies will be perpetual, they will be non-exclusive.
Consequently, RealNetworks could license those technologies to one or more of
our existing or future competitors or could use those technologies themselves to
launch a competitive solution. We will also rely on RealNetwork's streaming
media infrastructure, the Real Broadcast Network, to deliver streaming media
services to our network associates in our Broadcast Network. Although our
streaming media services agreement with RealNetworks has a term of three years
which automatically renews for successive terms, any early termination of that
agreement as a result of our breach or otherwise would significantly disrupt our
business and potentially result in claims against us by customers of our
streaming media services. Our ability to implement our Broadcast Network would
be negatively affected and our business would be harmed by:
- any termination of our agreement with RealNetworks prior to completion
of the Global Media Player;
- any other unexpected delay in the development or deployment of our
Broadcast Network; or
- failure of our Broadcast Network to provide expected functionality with
third-party systems, to perform as expected, or to operate reliably.
9
<PAGE>
STANDARD RADIO, INC.
In first quarter fiscal 2000, we entered into a letter of intent for a strategic
relationship with Standard Radio, Inc., which is expected to close by the end of
October 1999. The letter of intent contemplates that:
- Standard will invest $2,000,000 in Global Media in exchange for 338,983
shares of Common Stock at a purchase price of $5.90 per share.
- Standard's president, Gary Slaight, will be appointed to our Board of
Directors and will be granted options to purchase 125,000 shares of our
Common Stock under Global Media's 1999 Stock Option Plan upon closing
of Standard's investment in Global Media. As long as Standard owns
sufficient shares, we will nominate either Mr. Slaight or other
mutually acceptable candidate each time the Board of Directors is
elected.
- Eight members of Standard's management team will form a marketing
advisory committee to Global Media. Global Media will grant each of
these advisors options to purchase up to 20,000 shares of Common Stock
under Global Media's 1999 Stock Option Plan, based on participation on
the committee, introductions to potential network associates, and
closings of Network Associate and Broadcast Network agreements as a
result of those introductions. These stock options will have an
exercise price based on the fair market value of our Common Stock on
the grant date and will expire five years after the grant date.
- Each of the radio stations owned and controlled by Standard now and for
the next three years will sign agreements to become network and
broadcast associates of Global Media.
- For three years, Standard will have the right to approve agreements
between Global Media and radio stations which compete in the same genre
and locale as each of Standard's stations in Canada.
Our business may be negatively affected if the transactions described in the
Standard Letter of Intent do not close. SEE "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Recent Events -
Standard Radio, Inc."
CONTENT PROVIDERS.
We currently license content from a variety of sources, including online
publishers of entertainment and music news and artist interviews, games,
animation and multimedia content. In one case we issued unregistered stock to a
content provider in connection with a streaming media content contract.
VENDORS
In addition to our strategic partners, we depend on third parties for important
aspects of our business, including Internet access and Web hosting services,
development of software for our Global Media Broadcast Network system, and new
Web site features and content. We have limited control over these third parties,
and we are not their only client. We may not be able to maintain satisfactory
relationships with any of them on acceptable commercial terms. Further, we
cannot be certain that the quality of products and services that they provide
will remain at levels needed to enable us to conduct our business effectively.
We may not be able to renew agreements with third party vendors on current
terms. Our dependence on other vendors entails various risks, including:
- our current vendors may not continue to provide services to us on
current terms;
- we may not be able to establish new or extend current vendor terms on
a timely basis or at all; and
- we depend on our vendors to comply with federal, state and local
regulations that apply to their performance of services for us.
If we cannot develop and maintain relationships with vendors that allow us to
obtain sufficient quantities of merchandise or necessary services on acceptable
commercial terms or if our vendors fail to comply with applicable law, our
business may be harmed.
We also rely on third-party carriers for product shipments, including shipments
to and from our fulfillment partners' distribution facilities. We are therefore
subject to the risks, including employee strikes and inclement weather,
10
<PAGE>
associated with third-party carriers' ability to provide delivery services to
meet our shipping needs. Failure to deliver products to our customers in a
timely and accurate manner would harm our reputation, and our business and
results of operations.
TECHNOLOGY OPERATIONS
We employ a broad range of technologies for both our e-commerce and streaming
media operations. Our e-commerce systems are being developed using open source
technologies to ensure scalability, reliability and innovation.
Highlights of our e-commerce systems include the following:
NETWORK:
- Partnership with a key tier 1 Internet provider to deliver high
bandwidth scalable connectivity
- Several peering arrangements to ensure redundancy, speed, and minimal
network bottlenecks
SYSTEMS AND SOFTWARE:
- Standards-based architecture on open source software
- High portability avoiding "vendor specific lock-in"
- High performance platform
- Modular design for rapid application development
Our streaming media solution is being developed through several strategic
technological partnerships and through the implementation of our own proprietary
advancements. In addition, we have established a strategic relationship with
RealNetworks to develop the Global Media Player, which has been combined with
our e-commerce, ad-serving and other systems to create our Broadcast Network.
We depend on the efficient operation of Internet connections from customers to
our systems. These connections, in turn, depend on the efficient operation of
Web browsers, Internet service providers and Internet backbone service
providers, all of which have had periodic operational problems or experienced
outages. Any system delays, failures or loss of data, whatever the cause, could
reduce customer satisfaction with our applications and services and harm our
business.
Substantially all of our computer and communications hardware is located at our
leased facilities in Nanaimo and Vancouver, British Columbia, Canada, and our
systems infrastructure is hosted at third-party hosting providers' facilities in
Vancouver, British Columbia, and Seattle, Washington. The continuing and
uninterrupted performance of those systems is critical to our success. Our
systems and operations and those of our hosting providers are vulnerable to
damage or interruption from fire, flood, power loss, telecommunications failure,
earthquakes and similar events. In addition, our servers are vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of data or the inability to
accept and fulfill customer orders. Sustained or repeated system failures or
interruptions of our site connection services would reduce the attractiveness of
our site to customers, and could therefore have a material adverse effect on our
business. We do not currently have redundant systems or a formal disaster
recovery plan and do not carry sufficient business interruption insurance to
compensate for losses that may occur. Our fulfillment partners, including Baker
& Taylor and Valley Media, may also face these risks.
We retain confidential customer information in our processing centers.
Therefore, it is critical that our facilities and infrastructure remain secure
and that our facilities and infrastructure are perceived by the marketplace to
be secure. A material security breach could damage our reputation or result in
liability to us.
The satisfactory performance, reliability and availability of our
recently-opened online store, transaction processing systems and network
infrastructure are critical to our reputation and our ability to attract and
retain customers and maintain adequate customer service levels. From time to
time, we have experienced temporary system interruptions for a variety of
reasons, including software bugs and lack of reliable integration between
various elements of our e-commerce and other systems and those of our vendors.
We may not be able to correct any problem in a timely manner. Because we
outsource certain aspects of our system and because some of the reasons for a
systems
11
<PAGE>
interruption may be outside of our control, we also may not exercise sufficient
control to remedy the problem quickly or at all. Any future system interruption
that results in the unavailability of our site or reduced order fulfillment
performance could result in negative publicity and reduce the volume of goods
sold and the attractiveness of our online store, which would negatively affect
our business.
To the extent that customer traffic on our sites and those of our network
associates grows substantially, we may need to expand the capacity of our
systems to accommodate a larger number of visitors. We may be required to add
additional software and hardware and further develop and upgrade our existing
technology, transaction-processing systems, network infrastructure and
distribution capabilities to accommodate the increased traffic. To be
successful, we must adapt to rapidly changing Internet technologies and
continually enhance the features and services provided on our online store and
to our network associates. We could incur substantial, unanticipated costs if we
need to modify our online store, software and infrastructure to incorporate new
technologies demanded by our customers or our network associates. We may use new
technologies ineffectively or we may fail to adapt our site,
transaction-processing systems and network infrastructure to user requirements
or emerging industry standards. Any inability to scale our systems may cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and speed of order fulfillment, or delays
in reporting accurate financial information.
COMPETITION
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites. We may not be able to compete successfully against current and future
competitors. Further, as a strategic response to changes in the competitive
environment, we may, from time to time, make certain pricing, service or
marketing decisions or acquisitions that could adversely affect our business,
results of operations and financial condition.
We currently or potentially compete with a number of other companies. We compete
with traditional physical retailers of entertainment merchandise, including
large, well-established book, music and video stores such as Barnes & Noble,
Inc., Borders Group, Inc. and Wherehouse Entertainment, Inc., and mass market
retailers such as Wal-Mart Stores, Inc. and Kmart Corporation. In the market for
online retailing of books, CDs, video cassettes and DVDs, we compete with large,
well-established companies such as Amazon.com, CDNow.com, barnesandnoble.com and
borders.com. We compete with large, well-established Internet broadcasters such
as Broadcast.com, Onradio.com and InterVU.
We may encounter significant barriers to our ability to establish a large base
of network associates with a substantial online customer presence, particularly
in the radio and television industries. We may face obstacles in signing up
significant numbers of network associates in the media industry, despite the
appeal to radio and television stations of our private label e-commerce solution
bundled with streaming media services. For example, Broadcast.com, a leading
Internet broadcaster of radio, television and other multimedia content, has
established relationships with more than 400 radio stations across the country,
including stations in 18 of the top 20 radio markets in the U.S., and can offer
its streaming media customers some e-commerce solutions that are competitive to
our own through strategic relationships with other companies such as Amazon.com.
Because Broadcast.com has exclusive relationships with many of its streaming
media customers, those customers may not be willing or able contractually to
become network associates.
Certain of our competitors currently offer, either alone or through strategic
relationships with other companies, a blend of multimedia content delivery and
e-commerce services to the principal target market for our network associate
program. For example, a visitor to the Web site of Broadcast.com, which
broadcasts the radio signals of over 400 radio stations and over 40 television
stations, can listen to a CD on Broadcast.com's site and purchase it by
seamlessly clicking through to Amazon.com's site to place an order, or can
listen to an audio book and purchase the print version from Amazon.com. In
addition, other companies offer e-commerce and content delivery services,
including streaming media, to the radio industry, such as Onradio.com, which
provides content delivery and e-commerce capabilities through strategic
relationships with Amazon.com (for e-commerce), Microsoft (for its Media
Player), InterVU (for streaming media services) and Vibe/SPIN Ventures (for
other music-focused content). Because companies like Broadcast.com and
Onradio.com already have established relationships with significant numbers of
radio stations (in many cases, under exclusive contracts), we may have
difficulty establishing market acceptance of our network associate program in
the media industry even if we can offer a better integrated content delivery and
e-commerce solution than these and other companies. Moreover, since our solution
relies on
12
<PAGE>
technologies which are not proprietary to us, other competitors could license,
acquire or develop the same or similar technologies to deliver a similar
solution.
Certain of our current and many of our potential competitors have longer
operating histories, larger customer bases, greater brand recognition in other
business and Internet markets and significantly greater financial, marketing,
technical and other resources than us. In addition, other online retailers may
be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Therefore, certain of our
competitors with other revenue sources may be able to devote greater resources
to marketing and promotional campaigns, adopt more aggressive pricing policies
and devote substantially more resources to Web site and systems development than
us. Competitive pressures created by any one of these companies, or by our
competitors collectively, may result in loss of market share and reduced
operating margins, either of which could have a material adverse effect on our
business, results of operations and financial condition.
INTELLECTUAL PROPERTY
We rely or may in the future rely on a combination of patent, trademark, trade
secret and copyright law and contractual restrictions to protect the proprietary
aspects of our technology and proprietary content. These legal protections
afford only limited protection for our intellectual property and trade secrets.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our proprietary technology or otherwise obtain and
use information that we regard as proprietary.
We are in the process of applying for Canadian and U.S. trademark registration
of "Global Media", " "store.globalmedia.com", "Global Media Network", "Global
Media Broadcast Network" and other of our trademarks; however, there is no
assurance that we will secure them. It is also possible that our competitors or
others will adopt service names similar to ours, possibly leading to customer
confusion. In addition, there could be potential trade name or trademark
infringement claims brought by owners of other registered trademarks or
trademarks that incorporate variations of the term "Global Media." Any claims or
customer confusion related to our trademarks, or our failure to obtain trademark
registrations, could negatively affect our business. In September 1999, we
received a letter claiming trademark infringement by our use of the phrases
"Global Media Network", "Global Media Broadcast Network" and "Global Network"
solely in Canada. We believe that this claim will ultimately be unsuccessful.
However, success on the claim could have a material adverse effect on our name
recognition in the Canadian marketplace. We do not believe that the claim, even
if successful, would have a material adverse effect on our business, results of
operations or financial condition.
Third parties may also claim infringement by us with respect to past, current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, or require us to
enter into royalty or licensing agreements. Such royalty or licensing agreements
might not be available on terms acceptable to us or at all.
Because we post our own content and content licensed from third parties on our
site, we face potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that we post. Such claims have been brought, and sometimes
successfully pressed, against Internet content distributors. In addition, we
could be exposed to liability with respect to the unauthorized duplication of
content.
Finally, to the extent that we sell our products internationally, the laws of
many countries do not protect our proprietary rights to as great an extent as do
the laws of the United States. Many countries have a "first-to-file" trademark
registration system. As a result, we may be prevented from registering or using
our trademarks in certain countries if third parties have previously filed
applications to register or have registered the same or similar trademark. Our
means of protecting our proprietary rights may not be adequate, and our
competitors could independently develop similar technology.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets and domain names and determine the validity
and scope of the proprietary rights of others. If third parties prepare and file
applications in the United States or other countries that claim trademarks used
or registered by us, we may oppose those applications and be required to
participate in proceedings before the United States Patent and Trademark Office
or foreign regulatory agencies to determine priority of rights to the trademark.
Although we maintain general liability insurance, our insurance may not cover
potential claims of the types described above or
13
<PAGE>
may not be adequate to indemnify us for all liability that may be imposed. Any
litigation, adverse priority proceeding, or imposition of liability that is not
covered by insurance or is in excess of insurance coverage, could result in
substantial costs and diversion of resources and could seriously harm our
business and operating results.
GOVERNMENT REGULATION
Our company, operations and products and services are all subject to regulations
set forth by various U.S. and Canadian federal, state, provincial and local
regulatory agencies. We take measures to ensure our compliance with all such
regulations as promulgated by these agencies from time to time. Historically,
there have been few laws and regulations directly applicable to the Internet.
While laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, the law governing the
Internet remains largely unsettled, even in areas where there has been some
legislative action. Several states in the U.S., however, have proposed
legislation that would limit the uses of personal user information gathered
online or require online services to establish privacy policies and the Federal
Trade Commission has initiated action against at least one online service
regarding the manner in which personal information is collected from users and
provided to third parties. It is possible that a number of other laws and
regulations may be adopted with respect to the Internet covering issues such as
consumer protection, pricing, content, copyrights and other intellectual
property, distribution, antitrust, obscenity, libel and characteristics and
quality of products and services.
We currently do not collect sales or other similar taxes in respect of goods
sold by us. There is currently a U.S. federal moratorium on the imposition of
new taxes on the sale of goods and services through the Internet which expires
in October 2001. Tax authorities in a number of states in the U.S. are currently
reviewing the appropriate tax treatment of companies engaged in online commerce,
and new state tax regulations may subject us to additional state sales and
income taxes.
Governments in foreign jurisdictions may regulate Internet or other online
services in such areas as content, privacy, network security, encryption,
distribution or taxation more stringently than in the United States. This may
affect our ability to conduct business internationally. In addition, because our
sites are accessible worldwide and we facilitate sales of goods to users
worldwide, other jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in a particular state or foreign country. Our
failure to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject us to taxes and penalties for the failure to
qualify and could result in our inability to enforce contracts in such
jurisdictions.
Any such new U.S. or foreign legislation or regulation, or the application or
interpretation of existing laws to, the Internet could have a material adverse
effect on our business, results of operations and financial condition by (a)
increasing our cost of doing business, (b) creating uncertainty in the
marketplace that could reduce demand for our products and services or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs, or (c) otherwise adversely affect our business results of
operations and financial condition.
EMPLOYEES
As of October 25, 1999, we employed approximately 70 full time staff. We also
engage independent contractors from time to time for Web site development and to
provide content such as editorials. None of our employees is represented by a
labor union, and we consider our employee relations to be good. Competition for
qualified personnel in our industry is intense, particularly for software
development and other technical staff and management. We believe our future
success will depend in part on our ability to attract, hire and retain qualified
personnel.
Our performance is substantially dependent on the continued services of our
executive officers and other key employees, particularly Michael Metcalfe, our
Chairman and President, Robert Fuller, our Chief Executive Officer, L. James
Porter, our Chief Financial Officer and Winston V. Barta, our Vice President of
Marketing and Business Development. The loss of the services of any of our
executive officers could materially and adversely affect our business. We do not
maintain key man insurance on any of our employees. Additionally, we believe we
will need to attract, retain and motivate talented management and other highly
skilled employees, particularly those with technical backgrounds, to be
successful. Competition for employees that possess knowledge of both the
Internet industry and our target market is intense. We may be unable to retain
our key employees or attract, assimilate and retain other highly qualified
employees in the future.
14
<PAGE>
MANAGEMENT OF GROWTH
We are currently experiencing a period of significant expansion. In order to
execute our business plan, we must continue to grow significantly. This growth
will strain our personnel, management, systems, policies and procedures and
other resources. To manage our growth, we must implement operational and
financial systems and controls and recruit, train and manage new employees. We
cannot be certain that we will be able to integrate new executives and other
employees into our organization effectively. If we do not implement adequate
systems and controls, recruit, integrate and retain necessary personnel or
otherwise manage growth effectively, our business, results of operations and
financial condition will be materially and adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive office and operations are located in Vancouver, British
Columbia, Canada in approximately 13,000 square feet of leased office space. The
lease expires in August 2004. We continue to lease approximately 5,700 square
feet of office space in Nanaimo, British Columbia. This lease expires in July
2002. We also lease approximately 1,100 square feet of office space in New York,
New York. That lease expires in September 2000. We are considering leasing space
in Los Angeles, California. We believe our leased facilities, when combined with
an additional U.S. office, will be adequate for our current operations, and that
additional leased space can be obtained if needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims which may
have a material adverse effect on our business. We are not aware of any current
legal proceedings or claims that will have, individually or in the aggregate, a
material adverse effect on our business, prospects, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1999, the following actions were adopted by
written consent in lieu of a meeting of the shareholders, as permitted by Nevada
law and our bylaws:
- an amendment of our Articles of Incorporation to authorize 100,000,000
shares of $0.001 par value preferred stock, the rights and preferences
of which may be set from time to time by the Board of Directors,
- an amendment to our Articles of Incorporation to eliminate limitations
on the number of directors and shareholders Global Media may have, and
- approval of the potential issuance of in excess of 20% of Global
Media's outstanding common stock to RGC International Investors, LDC,
in connection with the Securities Purchase Agreement dated May 6, 1999
between Global Media and RGC.
Global Media sent an Information Statement describing such actions by written
consent to its shareholders and the actions described in the written consent
became effective June 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION, SHAREHOLDERS AND DIVIDENDS
MARKET INFORMATION
Our common stock has been traded on the OTC Bulletin Board under the trading
symbol "GLMC" since August 24, 1998. Prior to that date, our common stock was
not traded in the public market. The following table sets forth, for the periods
indicated, the high and low closing prices for our common stock as reported on
the OTC Bulletin Board. The quotations do not reflect adjustments for retail
mark-ups, mark-downs, or commissions and may not necessarily represent actual
transactions. On October 25, 1999, the closing price for our common stock on the
OTC Bulletin Board was $6.062 per share.
15
<PAGE>
<TABLE>
<CAPTION>
PERIOD LOW CLOSE HIGH CLOSE
Fiscal Year Ending July 31, 1999:
- --------------------------------
<S> <C> <C>
Fourth Quarter $4.00 $13.375
Third Quarter $4.00 $ 5.100
Second Quarter $ .4375 $ 8.875
First Quarter (from August 24, 1998) $ .4375 $ 2.500
</TABLE>
The market price of our common stock has been, and is likely to continue to be,
highly volatile. Purchasers of our common stock may not be able to resell their
shares following periods of volatility because of the market's adverse reaction
to volatility. The trading prices of many technology and Internet-related
companies' stocks reached historical highs during our 1999 fiscal year, and
reflected valuations substantially above historical levels. During the same
period, these companies' stocks have also been highly volatile and have recorded
lows well below historical highs. We cannot assure you that our stock will trade
at the same levels of other Internet stocks or that Internet stocks in general
will sustain their current market prices.
SHAREHOLDERS
As of October 25, 1999, there were 37 holders of record of 20,710,456 shares of
the Common Stock, and one holder of 8,500 shares of Global Media's Series A
preferred stock.
DIVIDENDS
To date, we have not declared or paid any dividends on any of our capital stock.
Prior to our acquisition of Westcoast, however, it paid $114,632 in cash
dividends in fiscal 1997. We currently intend to retain earnings, if any, to
fund the development and growth of our business and do not anticipate paying
cash dividends in the foreseeable future. Payment of future dividends, if any,
will be at the discretion of our board of directors after taking into account
various factors, including our financial condition, operating results, current
and anticipated cash needs and plans for expansion. So long as shares of our
Series A preferred stock are outstanding, the payment of dividends on our common
stock will require the consent of the holders of a majority of the shares of
Series A preferred stock then outstanding.
RECENT SALES OF UNREGISTERED SECURITIES
CONVERTIBLE DEBENTURE OFFERING AND CONVERSION TO PREFERRED STOCK
In May 1999, we raised $8.5 million through the sale of a convertible debenture,
in the original principal amount of $8.5 million, and a five-year warrant to
purchase 680,000 shares of common stock, to RGC International Investors LDC
("RGC"). The debenture and warrants were sold pursuant to a Securities Purchase
Agreement between us and RGC, in a private placement pursuant to Regulation D
under the Securities Act of 1933. The debenture was convertible at our option
into shares of Series A preferred stock pending satisfaction of certain
conditions. On July 19, 1999, having satisfied those conditions, we exercised
our right to convert the debenture into 8,500 shares of Series A preferred
stock. Effective as of August 26, 1999, Global Media registered, on a Form SB-2
Registration Statement, 7,443,153 shares of our common stock which the selling
holders of those shares may acquire on conversion or exercise of shares of the
outstanding Series A convertible preferred stock, related investment options and
the warrants referenced above. As of October 25, 1999, none of the Series A
preferred stock, related investment options or warrants had been converted into
shares of Common Stock. SEE "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Events - Offering to RGC
International Investors LDC."
PLACEMENT AGENT WARRANTS
In connection with the convertible debenture offering described above, Global
Media agreed to issue warrants to purchase 62,769 shares of Common Stock to the
placement agents in that offering, for an exercise price of $8.125 per share.
The warrants have a five-year term and contain piggyback registration rights
provisions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
16
<PAGE>
- --------------------------------------------------------------------------------
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements. SEE
"Cautionary Note Regarding Forward-Looking Statements."
- --------------------------------------------------------------------------------
OVERVIEW
We were incorporated in April 1997 and acquired Westcoast Wireless Cable Ltd. in
May 1997 from our controlling shareholder. We discontinued Westcoast's
historical operations, the sale and servicing of direct-to-home satellite
broadcast hardware and programming services, in the fourth quarter of fiscal
1998, and discontinued our other historical operations, the operation of an
investor relations call center, in the third quarter of fiscal 1999. SEE " -
Discontinued Operations." We launched our main e-commerce site in May 1999. We
have entered into our first network associate contracts for private label
e-commerce sites, and we do not anticipate launching our Broadcast Network until
December 1999.
Since our inception, we have incurred significant losses, including losses from
our discontinued operations. Since refocusing our business on the online
merchandising of entertainment products and the offering of streaming media
services, we have continued to incur net losses, resulting primarily from costs
related to developing our e-commerce products and our Web sites, developing or
acquiring technologies to be used in our business and general corporate
overhead, and have generated minimal revenues from our new operations. We expect
to continue incurring net losses for the foreseeable future, as we plan to
invest heavily in:
- promoting our Network Associate program;
- completing, launching and marketing our Broadcast Network;
- enhancing our e-commerce site and improving its reliability and
functionality;
- development of infrastructure and applications;
- marketing and promotion; and
- hiring additional employees.
We believe these expenditures are necessary to attract more customers to our
site and the Web sites of our network associates, and to generate greater online
revenues. However, if our revenue growth is slower than we anticipate or our
operating expenses exceed our expectations, our losses will be significantly
greater. We may never achieve or sustain profitability.
Our revenues for the foreseeable future will depend primarily on the number of
visitors that we are able to attract to our site and that our network associates
are able to attract to their sites, and on how many of those visitors purchase
our products. Our Broadcast Network revenues will also depend to a significant
extent on our ability to attract customers (such as radio and television
stations) for these streaming media services. We cannot forecast with any degree
of certainty the number of visitors to our online or the Web sites of our
network associates, the number of visitors that will become customers, the
number of customers we will be able to secure for our streaming media services,
or the amount of entertainment product sales and streaming media services
revenues.
Because of our discontinued operations, and because of the seasonality inherent
in a retail business, our results of operations discussed below are not
necessarily indicative of the results you should expect for any future
comparable period. SEE " - Seasonality". Inflation has not historically had any
material effect on our operations
17
<PAGE>
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion have been
restated to exclude our discontinued call center and home satellite
businesses. For summary financial results from those operations, SEE " -
Discontinued Operations."
- --------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998
NET REVENUES. We had $7,091 in revenues from our e-commerce operations
in fiscal 1999, and none in fiscal 1998, as our internet-focused business did
not begin generating revenue until after the end of fiscal 1999. SEE " - Recent
Events."
OPERATING EXPENSES. Our operating expenses increased 658% to $2,312,426
in fiscal 1999, from $304,919 in fiscal 1998. This increase was due primarily to
compensation expense relating to stock option grants to our employees and
directors, increased legal, accounting and other expense related to being a
public reporting company, expenses related to our new facility, and development
and launch of our internet sites and our network associate programs, as follows:
- - Advertising and marketing expenses increased 911% to $67,672 in fiscal
1999, from $6,691 in fiscal 1998, due to investigations regarding
development of the e-commerce model, marketing of the network associate
program, and related press releases.
- - Amortization increased 893% to $297,655 in fiscal 1999, from $29,973 in
fiscal 1998, due primarily to our acquisition of additional capital assets
and the amortization of costs associated with our financing activities.
- - Professional fees increased 57% to $146,367 in fiscal 1999, from $93,505 in
fiscal 1998, due primarily to the issuance of stock options in lieu of
consulting fees.
- - Shareholder communication expenses increased 306% to $218,969 in fiscal
1999, from $53,995 in fiscal 1998, due primarily to press releases and
other costs of becoming a publicly-traded company.
- - Technical operations and development expense were $203,420 in fiscal 1999,
as compared and zero in fiscal 1998. These expenses were primarily due to
non-software related costs of developing our e-commerce and streaming media
technology.
- - Travel expense increased 772% to $184,572 in fiscal 1999, from $21,174 in
fiscal 1998, due primarily to travel relating to development of strategic
alliances, working with web site designers and developers, attending
industry related conferences, and meeting with potential financing sources.
- - We incurred stock option compensation expenses of $548,800 in fiscal 1999,
compared to none in fiscal 1998, as the result of issuing stock options to
certain officers and employees of Global Media for less than the market
trading price of our common stock on the date we began trading on the OTC
Bulletin Board. SEE "Certain Transactions."
INTEREST. We earned $76,842 in interest income in fiscal 1999, compared
to zero in fiscal 1998, on the funds received in our Convertible Debenture and
Warrant Offering. We incurred interest expense of $210,855 in fiscal 1999,
compared to $1,298 in fiscal 1998. This increase was due primarily to interest
accruing on the Rolling Oaks Enterprises, LLC loan, the Convertible Debenture
and the Shareholder loans. SEE "- Liquidity and Capital Resources" and "Certain
Transactions."
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $2,228,493 net
loss from continuing operations for fiscal 1999, up 631% from our $304,919 net
loss from continuing operations for fiscal 1998, due primarily to the increase
in operating expenses and the lack of revenues from continuing operations.
NET LOSS FROM ALL OPERATIONS. We experienced a $2,231,074 net loss from
all operations for fiscal 1999, up 393% from our $452,828 net loss from all
operations for fiscal 1999. SEE " - Discontinued Operations."
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion have been
restated to exclude our discontinued call center and home satellite
businesses. For summary financial results from those operations, SEE " -
Discontinued Operations." This section should be read in conjunction with
"Results of Operations", above.
- --------------------------------------------------------------------------------
YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998
FINANCING ACTIVITIES. We financed our operations and capital
expenditures in fiscal 1999 primarily from the proceeds of common stock sales
and loans from stockholders and third-party lenders.
COMMON STOCK. Cash received upon the exercise of stock options
was $393,250 in fiscal 1999, due to the exercise of 769,500 options. No stock
options were exercised in fiscal 1998. However, cash received from sales of
common stock was $221,267 in fiscal 1998.
LOANS. In fiscal 1999, we obtained cash from three loans. The
loans consisted of (a) a one-year loan of $500,000, with a 24% interest rate,
from Rolling Oaks Enterprises, LLC, (b) $299,549 in net short-term loans from
stockholders and affiliates, as compared to $48,176 in fiscal 1998, and (c) $8.5
million from our May 1999 convertible debenture offering which was offset by a
finder's fee of $510,000. The Rolling Oak loan was paid off from the proceeds of
the convertible debenture offering. We have entered into agreements with the
stockholders to convert 50% of the loans into common stock and the remaining 50%
into notes that will be repaid with interest within the next year. The
convertible debenture was converted into 8,500 shares of our Series A preferred
stock on July 19, 1999. SEE " - Recent Events." In addition, we obtained lines
of credit from three of our suppliers, which are secured by $170,000 in term
deposits funded from the proceeds of our convertible debenture offering. These
lines of credit expire on either May 12, 2000 or June 14, 2000.
CAPITAL EXPENDITURES AND COMMITMENTS. Our capital expenditures
increased 682% to $1,483,360 in fiscal 1999, from $189,706 in fiscal 1998,
primarily as the result of capitalized development costs for our Web sites and
computer hardware and software purchases. As of July 31, 1999, we had no
material commitments outstanding for purchases of additional capital assets,
except for our April 20, 1999 engagement of RealNetworks to perform consulting
services in connection with the design and development of our Broadcast Network.
Under the terms of the agreement, as amended on June 4, 1999, we are required to
make payments totaling $3,655,000 over the duration of the project with the
final payment date projected to be December 21, 1999.
WORKING CAPITAL (DEFICIENCY). At July 31, 1999, we had working capital
of $5,289,038 and a working capital ratio of 8.32. At July 31, 1998, we had a
working capital deficiency of $279,214 and a working capital ratio of .26.
RECENT EVENTS
OFFERING TO RGC INTERNATIONAL INVESTORS LDC.
CONVERTIBLE DEBENTURE. In May 1999, we raised $8.5 million through the
sale of a convertible debenture, in the original principal amount of $8.5
million to RGC International Investors LDC. The debenture and warrants were sold
pursuant to a Securities Purchase Agreement between us and RGC, in a private
placement pursuant to Regulation D under the Securities Act of 1933.
WARRANTS. In connection with the issuance of the convertible debenture,
we issued RGC a five-year warrant to purchase 680,000 shares of Common Stock.
These warrants are exercisable at $8.3475 per share (135% of the average closing
bid price of our common stock for the three trading days ending April 30, 1999,
the date RGC committed to the investment). In addition, we issued warrants to
purchase 62,769 shares of Common Stock to the placement agents in that offering,
for an exercise price of $8.125 per share. The placement agent warrants contain
piggyback registration rights provisions.
CONVERSION INTO PREFERRED STOCK. The debenture was convertible at our
option into shares of Series A preferred stock pending satisfaction of certain
conditions, including stockholder approval of an amendment to our articles of
incorporation creating 100 million shares of preferred stock and authorizing our
board of directors to designate the number and the rights, preferences,
privileges and restrictions of that preferred stock from time to time
19
<PAGE>
in series and certain corporate filings with the Nevada Secretary of State. On
July 19, 1999, having satisfied those conditions, we exercised our right to
convert the debenture into 8,500 shares of Series A preferred stock.
TERMS OF PREFERRED STOCK. The stated value of each share of Series A
preferred stock ($1,000), plus an amount accruing thereon at the rate of 5% per
annum, is convertible from time to time into shares of our common stock based
upon the lesser (a) a fixed conversion price of $8.125, which is 130% of the
three-day average ending April 30, 1999, the date RGC committed to the
investment, or (b) a variable conversion price equal to 100% of the future
market price of the common stock at the time of conversion. The Series A
preferred stock has no voting rights, except that the holders of the Series A
preferred stock have the right to vote on issues directly affecting the Series A
preferred stock as a class. Under certain circumstances, Global Media may be
required to redeem the Series A preferred stock upon the occurrence of certain
events that are within the control of Global Media.
NASDAQ LISTING. The fixed conversion price and the applicable
percentage of the future market price used in the variable conversion price
calculation are subject to downward adjustment if our common stock is not
listed on the Nasdaq National Market or the Nasdaq SmallCap Market by
November 6, 1999. We have requested RGC to consider extending this date for a
period sufficient to prepare and file an application that includes this Form
10-KSB and for that application to be processed by Nasdaq. However, there is
no assurance that an extension of the filing date will be granted or that our
Nasdaq listing will be approved. If either of these events occurs, the
decrease in the fixed and variable conversion prices will increase the number
of shares of Common Stock issuable upon conversion, which could cause
substantial dilution to other holders of our Common Stock.
RELATED INVESTMENT OPTIONS. Under the terms of the Series A preferred
stock, RGC or its assigns have the option, exercisable simultaneously with their
conversion of the Series A preferred stock into common stock from time to time,
to purchase an equal number of additional shares of common stock at a per share
price equal to the conversion price in effect at the time of conversion. Without
giving effect to the accrual of additional amounts on the stated value of the
Series A preferred stock since May 6, 1999, the exercise in full of the these
investment options could result in an additional $8.5 million being invested by
RGC, for a total investment by RGC of $17 million. To the extent not previously
converted, the shares of Series A preferred stock will automatically convert
into common stock on May 6, 2002.
REGISTRATION OF UNDERLYING COMMON SHARES. Effective as of August 26,
1999, Global Media registered, on a Form SB-2 Registration Statement, 7,443,153
shares of our common stock which the selling holders of those shares may acquire
on conversion or exercise of shares of the outstanding Series A convertible
preferred stock, related warrants and related investment options. As of October
25, 1999, none of our Series A preferred stock or related warrants had been
converted into shares of Common Stock. SEE "Market for Common Equity - Recent
Sales of Unregistered Securities - Convertible Debenture Offering and Conversion
to Preferred Stock."
LOAN REPAYMENT.
In May 1999, we repaid the $500,000 loan from Rolling Oaks Enterprises, LLC,
plus $48,200 in accrued interest, from the proceeds of the convertible debenture
offering described above.
LAUNCH OF E-COMMERCE SITE.
We launched a beta version of our online store in May 1999 and commercially
launched it under the name "store.globalmedia.com" in October 1999. We adopted
an initial pricing policy intended to result in a small initial volume of
transactions while site development and systems integration was fully completed.
We reduced prices during the first quarter of fiscal 2000. We intend to continue
reducing prices during fiscal 2000, which we expect to result in increased
sales. We do not anticipate earning significant revenues until we implement the
pricing changes and launch a substantial number of private label online stores
for associates participating in our Network Associate program.
SHAREHOLDER LOAN RESTRUCTURE.
Effective July 26, 1999, we completed a restructure of loans received from
Bennett Metcalfe, and from a company affiliated with Robert Fuller. SEE "Certain
Transactions." In that restructure, we issued the following shares of common
stock and promissory notes pursuant to the exemption from registration contained
in Section 4(2) of the Securities Act:
- - 20,320 shares of common stock and a promissory note for $127,000 in
initial principal balance to Bennett Metcalfe; and
20
<PAGE>
- - 12,215 shares of common stock and a promissory note for $74,886 in
initial principal balance to Sandcastle Inn Ltd.
STRATEGIC RELATIONSHIP WITH STANDARD RADIO, INC.
In first quarter fiscal 2000, we entered into a letter of intent for a strategic
relationship with Standard Radio, Inc., which is expected to close by the end of
October 1999. In that letter of intent (a) Standard agrees to invest $2,000,000
into Global Media in exchange for 338,983 shares of Common Stock at a purchase
price of $5.90 per share, (b) Standard's president, Gary Slaight, will be
appointed to a seat on our Board of Directors and granted options to purchase
125,000 shares of Common Stock, (c) eight members of Standard's management team
would form a marketing advisory committee of Global Media, for which each would
receive unvested options to purchase up to 20,000 shares of Common Stock, (d)
each of the radio stations owned and controlled by Standard now and for the next
three years agrees to become e-commerce and broadcast associates of Global
Media, and (e) Standard will have the right to approve agreements between Global
Media and radio stations which compete in the same genre and locale as each of
Standard's stations in Canada. Global Media expects this relationship to provide
significant opportunities for future revenues and growth, in addition to the
initial cash investment. SEE "Business - Strategic Relationships - Standard
Radio, Inc." Our business may be negatively affected if the transactions
described in the Standard Letter of Intent do not close.
FUTURE CAPITAL REQUIREMENTS
We expect negative cash flow from operations to continue for fiscal 2000, as we
continue to develop and market our internet-focused operations, and anticipate
achieving breakeven in fiscal 2001 and profitability during fiscal 2002.
However, we currently anticipate that our available funds will be sufficient to
meet our anticipated needs for working capital, capital expenditures and
business expansion through fiscal 2000.
We may need to raise additional funds sooner in order to fund more rapid
expansion, to develop new or enhanced services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, stockholders may experience additional dilution and such securities
may have rights, preferences and privileges senior to those of our common stock.
There can be no assurance that additional financing will be available on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may not be able to develop or enhance services
or products, respond to competitive pressures, fund expansion or take advantage
of unanticipated acquisition opportunities. Such inability could negatively
impact our business.
SEASONALITY
We expect our operating results to fluctuate significantly from period to
period. Both seasonal fluctuations in internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book and music industries usually
increase significantly in the fourth calendar quarter of each year and are
correspondingly lower in other quarters. If similar seasonal patterns emerge in
e-commerce, our revenues may vary significantly from period to period.
FOREIGN CURRENCY TRANSLATION
We have translated our monetary assets and liabilities which are denominated in
a foreign currency into U.S. dollars at the period-end exchange rate, and have
translated other balances at the rates in effect on the dates of the
transaction. We have translated our income and expense items at the average
exchange rates prevailing during the fiscal period. Exchange gains and losses
arising on translation are reflected in net income for the period.
DISCONTINUED OPERATIONS
CALL CENTER BUSINESS.
Our discontinued call center business provided small U.S. and Canadian public
companies with investor relations and information dissemination services in
various industries, using its customized contact management software and contact
database. This database was based in part on the customer list from our home
satellite business. SEE "-
21
<PAGE>
Home Satellite Business." We began our call center business in the first quarter
of fiscal 1998 and discontinued it in the third quarter of fiscal 1999, due to
the difficulty of replacing a terminated key employee and our decision to focus
on e-commerce activities. We have accounted for the call center business as a
discontinued operation, and accordingly, its operations have been segregated in
the accompanying consolidated statements of operations. The following chart
summarizes Global Media's revenue and expenses from the call center business:
<TABLE>
<CAPTION>
Years Ended
July 31,
-------------------------------------
1998 1999
-------------------------------------
<S> <C> <C>
Total revenue $326,279 $20,130
General and administrative expenses 217,666 $20,130
-------- -------
Net profit (loss) $108,613 $0
======== ==
</TABLE>
HOME SATELLITE BUSINESS.
Westcoast Wireless Cable Ltd., one of our wholly-owned subsidiaries, was in the
business of direct marketing of home satellite programming and hardware since
May 1994. Our president, Michael Metcalfe, was originally the sole owner of
Westcoast. Global Media acquired all of the stock of Westcoast from Mr. Metcalfe
in May 1997, in exchange for 8,000,000 shares of Global Media's common stock and
$100,000 in cash. SEE "Certain Transactions." Westcoast discontinued its home
satellite operations in the fourth quarter of fiscal 1998 following a decision
by the Canadian Federal Court of Appeal in November, 1997 prohibiting the sale
of U.S.-based satellite and programming services in Canada. Westcoast has been
accounted for as a discontinued operation, and accordingly, its operations have
been segregated in the accompanying consolidated statements of operations. The
following chart summarizes Westcoast's revenue and expenses:
<TABLE>
<CAPTION>
Year Ended
July 31, 1998
----------------
<S> <C>
Total revenue $591,938
Cost of sales 418,167
Commission paid 133,934
----------------
Gross profit 39,837
General and administrative expenses 305,041
Income tax recovery 8,682
----------------
Net profit (loss) $(256,522)
================
</TABLE>
RISKS ASSOCIATED WITH THE YEAR 2000
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. Any failure of our material systems, our vendors' material
systems or the Internet to be year 2000 compliant would have material adverse
consequences for us. These consequences would include difficulties in operating
our site effectively, taking product orders, making product deliveries or
conducting other fundamental parts of our business.
We have assessed the year 2000 readiness of the software, computer technology
and other systems that we use internally. Based on our review, we do not believe
that we have material exposure to the year 2000 issue with respect to our own
information systems since our existing systems correctly define the year 2000.
We have begun inquiries of our material vendors as to the year 2000 compliance
of their own systems or whether they have or finalized any contingency plans to
address year 2000 problems that may arise. We have received information from
Baker & Taylor and Valley Media asserting that they are year 2000 compliant. We
are currently unable to predict the extent to which the year 2000 issue will
affect our other suppliers, or the extent to which we would be vulnerable to our
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 our systems
could have a material adverse effect on us.
22
<PAGE>
We also depend on the year 2000 compliance of the computer systems and financial
services used by consumers. A significant disruption in the ability of consumers
to reliably access the Internet or portions of it or to use their credit cards
would have an adverse effect on demand for our products and services. We
anticipate that most of the sales through our e-commerce sites will be made with
credit cards. Our business and results of operations therefore may be materially
adversely affected to the extent that our customers are unable to use their
credit cards due to year 2000 issues that are not rectified by credit card
providers. One further, and more extreme, case may be the failure of the
communication mode (telephone, cable or satellite) over the Internet, which
could significantly impact our ability to generate sales.
At this time, we have not yet developed a contingency plan to address situations
that may result if we, our suppliers or the credit card systems used by our
customers are unable to achieve year 2000 compliance. The cost of developing and
implementing such a plan, if necessary, could be significant and could have a
material adverse effect on our business.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS133, "Accounting for
derivative instruments and hedging activities". SFAS 133 is effective for
financial statements for fiscal years beginning after June 15, 2000. We are
unable to predict to what extent, if any, that our business will be effected
once SFAS 133 is effective.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
23
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
GLOBAL MEDIA CORP.
JULY 31, 1999
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
GLOBAL MEDIA CORP.
We have audited the accompanying consolidated balance sheets of GLOBAL MEDIA
CORP. as of July 31, 1999 and 1998 and the related consolidated statements of
loss and comprehensive loss, shareholders' equity (deficiency) and cash flows
for the years then 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, these financial statements present fairly, in all material
respects, the financial position of Global Media Corp. of July 31, 1999 and
1998 and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Vancouver, Canada,
September 23, 1999 (except as to
Notes 9[i] and 12[i] which are
as at October 19, 1999). Chartered Accountants
25
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED BALANCE SHEETS
As at July 31 (in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 5,649,073 14,996
Short-term investments [NOTE 4] 240,000 --
Other receivable 84,336 2,645
Prepaid expenses 37,760 10,221
Due from affiliated companies -- 71,065
- --------------------------------------------------------------------------------------------------
6,011,169 98,927
Capital assets [NOTES 3 AND 5] 1,537,434 172,635
- --------------------------------------------------------------------------------------------------
7,548,603 271,562
- --------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accrued liabilities [NOTE 6] 368,094 252,588
Due to affiliated company [NOTE 6] 132,946 46,284
Due to shareholders [NOTE 6] 221,091 79,269
- --------------------------------------------------------------------------------------------------
722,131 378,141
- --------------------------------------------------------------------------------------------------
Commitments and contingencies [NOTE 9]
Convertible preferred shares [NOTE 8] 7,089,775 --
100,000,000 authorized, 8,500 issued and outstanding
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common shares, par value $0.001 each, 200,000,000
authorized, 20,656,331 and 19,890,831 issued and
outstanding [NOTE 7]
Share capital 12,658 11,892
Additional paid in capital [NOTE 8] 2,617,109 543,525
Deficit (2,893,070) (661,996)
- --------------------------------------------------------------------------------------------------
(263,303) (106,579)
- --------------------------------------------------------------------------------------------------
7,548,603 271,562
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
26
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
Years ended July 31 (in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Sales 7,091 --
Interest income 76,842 --
- --------------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising and marketing 67,672 6,691
Amortization [NOTE 8] 297,655 29,973
Bank charges and interest [NOTES 6 AND 8] 210,855 1,298
Foreign exchange 29,975 12,222
Office and miscellaneous 76,670 18,288
Professional fees [NOTE 7] 146,367 93,505
Rent and maintenance 72,436 50,114
Shareholder communications 218,969 53,995
Stock options compensation [NOTE 7] 548,800 --
Technical operations and development 203,420 --
Travel 184,572 21,174
Wages and benefits 255,035 17,659
- --------------------------------------------------------------------------------------------------
2,312,426 304,919
- --------------------------------------------------------------------------------------------------
Loss and comprehensive loss from continuing operations (2,228,493) (304,919)
- --------------------------------------------------------------------------------------------------
Discontinued operations [NOTES 1 AND 3]
Call center -- 108,613
Satellite (2,581) (256,522)
- --------------------------------------------------------------------------------------------------
Loss and comprehensive loss from discontinued operations (2,581) (147,909)
- --------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (2,231,074) (452,828)
- --------------------------------------------------------------------------------------------------
Loss per common share from continuing operations (0.11) (0.02)
Loss per common share from discontinued operations (0.00) (0.00)
- --------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.11) (0.02)
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION
OF LOSS PER SHARE 20,245,889 19,554,402
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
27
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
Years ended July 31 (in US dollars)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL UNISSUED RETAINED
--------------- --------------------- PAID-IN SHARE EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL CAPITAL (DEFICIT)
# $ # $ $ $ $
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1997 -- -- 11,059,400 11,059 128,641 144,001 (209,168)
Common shares issued for cash -- -- 730,533 731 364,536 (144,000) --
Common shares issued for other than
cash consideration:
Consideration for shares in
Westcoast Wireless [NOTE 1] -- -- 8,000,000 1 -- (1) --
In kind services -- -- 100,898 101 50,348 -- --
Loss for the year -- -- -- -- -- -- (452,828)
- ----------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998 -- -- 19,890,831 11,892 543,525 -- (661,996)
Preferred shares issued [NOTE 8] 8,500 7,089,775 -- -- -- -- --
Warrants issued on financing [NOTE 8] -- -- -- -- 1,000,000 -- --
Stock options exercised -- -- 765,500 766 392,484 -- --
Compensatory stock options -- -- -- -- 681,100 -- --
Loss for the year -- -- -- -- -- -- (2,231,074)
- ----------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1999 8,500 7,089,775 20,656,331 12,658 2,617,109 -- (2,893,070)
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
28
<PAGE>
GLOBAL MEDIA CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31 (in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the year (2,231,074) (452,828)
Items not requiring an outlay of funds
Interest on convertible debentures 101,528 --
Interest on related party loans [NOTE 6] 26,682 --
Share option compensation expense [NOTE 7] 548,800 --
Share option professional fees expense [NOTE 7] 37,300 --
Amortization 297,655 38,658
Services settled through share issuance -- 50,449
- --------------------------------------------------------------------------------------------------
(1,219,109) (363,721)
Changes in non-cash operating working capital
Other receivable (81,691) 56,193
Prepaid expenses (27,539) 6,165
Accounts payable and accrued liabilities 8,078 127,815
Deferred revenue -- (12,062)
- --------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (1,320,261) (185,610)
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (1,483,360) (189,706)
Purchase of short-term investments [NOTE 4] (240,000) --
- --------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (1,723,360) (189,706)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Advances from (to) shareholder 141,822 (4,821)
Advances from affiliated companies 157,727 52,997
Common share subscriptions -- 221,267
Stock options exercised 393,250 --
Preferred share subscriptions and warrants [NOTE 8] 8,500,000 --
Deferred financing costs [NOTE 8] (510,000) --
- --------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 8,682,799 269,443
- --------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (5,101) (1,021)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR 5,634,077 (106,894)
Cash and cash equivalents, beginning of year 14,996 121,890
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 5,649,073 14,996
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest - paid 184,173 9,180
Income taxes paid (recovered) -- (6,783)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
29
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (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 headquartered in Vancouver, B.C., Canada. The Company
(through its subsidiary Westcoast Wireless Cable Ltd. ("Westcoast Wireless"))
was originally engaged in the marketing of satellite programming and hardware
and later was engaged in the business of providing call center services
[see note 3]. The Company discontinued its satellite line of business by the
end of fiscal 1998, and the call center business during the third quarter of
fiscal 1999. During the third quarter of fiscal 1999, the company adopted an
internet-focused business plan and was engaged primarily in the development
of an electronic commerce web site, the development of a broadcast network
over the internet, and the development of templates for the application of
the e-commerce back-end system to multiple sites on the internet. A beta
version of the e-commerce web site, globalmedia.com, was launched on May 18,
1999.
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. Since the
companies were under common control, this transaction was accounted for in a
manner similar to a pooling of interests.
In August 1998, the Company incorporated a new subsidiary, Global Media
(Canada) Entertainment Corp.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all its subsidiaries.
30
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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.
<TABLE>
<S> <C>
Communications infrastructure 3 year straight line
Computer hardware 30% declining balance
Leasehold improvements 5 year straight line
Office furniture and equipment 20% declining balance
Software 30% declining balance
Web site development 3 year straight line
</TABLE>
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
All transactions in currencies other than the United States dollar during the
year are translated at the exchange rates on the transaction dates. Monetary
assets and liabilities denominated in a foreign currency are translated at the
prevailing year end rates of exchange. Non-monetary assets and liabilities
denominated in foreign currencies are translated into United States dollars at
the rates of exchange in effect at the date of the transaction. Exchange gains
or losses are included in the consolidated statements of income (loss).
WEBSITE DEVELOPMENT COSTS
Website development costs incurred subsequent to establishing technological
feasibility are capitalized. Capitalized costs are amortized using straight
line method over three years. Capitalization ceases and amortization
commences on the date that the software is ready for use.
The recoverability of the website costs is dependent upon realization of
sufficient undiscounted future revenues from this product.
31
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
BROADCAST NETWORK DEVELOPMENT COSTS
Broadcast network development costs incurred subsequent to establishing
technological feasibility are capitalized. Capital costs are amortized using the
straight line method over three years. Capitalization ceases and amortization
commences on the date that the network is ready for use.
The recoverability of the network development costs is dependent upon
realization of sufficient undiscounted future revenues from this product.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25
("APB 25") for stock based compensation for employees.
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 due to their short term nature, except as otherwise disclosed in the
financial statements.
LOSS PER SHARE
Basic earnings per share is computed using the weighted average number of
common shares outstanding. No dilutive potential common share is included in
the computation of per share amounts because the effect would be
anti-dilutive due to the Company's loss from operations.
32
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash includes cash equivalents, which are investments that are held to
maturity and have terms to maturity of three months or less when acquired.
Cash equivalents consist of term deposits with a Canadian chartered bank.
Cash and cash equivalents are carried at cost, which approximates their fair
value.
Short-term investments are investments that are held to maturity and have
terms greater than three months. Short-term investments consist of term
deposits with a Canadian chartered bank. Short-term investments are carried
at cost, which approximates their fair value.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS 133, `Accounting for
Derivative Instruments and Hedging Activities'. SFAS 133 is effective for
financial statements for fiscal years beginning after June 15, 2000. The
Company has not yet determined the impact of SFAS 133.
3. DISCONTINUED OPERATIONS
In November 1997, a decision was made by the Canadian Federal Court of
Appeal, ruling that the 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 included 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.
33
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
3. DISCONTINUED OPERATIONS (CONT'D.)
Revenues of the discontinued satellite operations for the year ended July 31,
1999 were $nil [1998 - $591,938]. At July 31, 1999, net current liabilities
of the discontinued satellite operations were $23,086 [1998 - $130,076]
consisting principally of accounts payable and balances due to shareholder.
Net non-current assets at July 31, 1999 were $nil [1998 - $15,352].
The Company was engaged in providing call center services until the third
quarter of fiscal 1999. The Company elected to abandon the business during
the third quarter of fiscal 1999 and focus its efforts on its
internet-focused business plan. Accordingly, the call center operations have
been segregated and accounted for as a discontinued operation in the
accompanying consolidated statements of loss and comprehensive loss.
Revenues of the discontinued call center operations for the year ended July
31, 1999 were $20,130 [1998- $326,279]. At July 31, 1999, net current
liabilities of the discontinued call center operations were $nil
[1998 - $19,484] consisting principally of accounts payable.
4. SHORT-TERM INVESTMENTS
The Company has assigned $170,000 of its term deposits in order to establish
lines of credit with three suppliers. The letters of credit have terms of
2.25% interest and expire on either May 12, 2000 or June 14, 2000.
34
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JULY 31, 1999
Broadcast network development 704,803 -- 704,803
Communications infrastructure 89,391 44,463 44,928
Computer hardware 295,417 59,834 235,583
Leasehold improvements 14,925 2,269 12,656
Office furniture and equipment 50,661 6,477 44,184
Software 73,450 15,484 57,966
Web site development [NOTE 7] 525,859 88,545 437,314
- --------------------------------------------------------------------------------------------------
1,754,506 217,072 1,537,434
- --------------------------------------------------------------------------------------------------
JULY 31, 1998
Communications infrastructure 91,575 17,325 74,250
Computer hardware 70,107 13,117 56,990
Leasehold improvements 8,594 4,905 3,689
Office furniture and equipment 18,859 4,842 14,018
Software 27,209 3,520 23,689
- --------------------------------------------------------------------------------------------------
216,344 43,702 172,635
- --------------------------------------------------------------------------------------------------
</TABLE>
6. RELATED PARTY TRANSACTIONS
[i] AMOUNTS DUE TO SHAREHOLDERS
The Company was advanced $263,000 by shareholders during the period of
October 1998 through December 1998. At July 31, 1999, a balance of $221,091
was outstanding.
As part of the Securities Purchase Agreement with RGC International
Investors LDC ("RGC") [see note 8], the Company agreed to restructure the
amounts due to shareholder. The agreement provided that any restructuring
of amounts due to shareholders in common stock be at the conversion price
of $6.25, which was the average closing bid prices of the common shares
reported on the OTC Bulletin Board for the three consecutive days ended
April 30, 1999.
35
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
6. RELATED PARTY TRANSACTIONS (CONT'D).
On July 26, 1999, the Company entered into an agreement with the shareholders
to convert 50% of the amount due plus interest of $16,455 ($127,000)
into common stock. The remaining $110,545 will be repaid in four
quarterly instalments of $31,750 beginning October 31, 1999 and ending
on July 31, 2000.
As of July 31, 1999, the shares had not been issued.
[ii] AMOUNTS DUE TO AFFILIATED COMPANY
The Company was advanced $187,000 by an affiliated company, wholly-owned by
a shareholder, during the period of November 1998 through March 1999. At
July 31, 1999, a balance of $132,946 was outstanding.
As part of the Securities Purchase Agreement with RGC International Investors
LDC ("RGC") [see note 8], the Company agreed to restructure the amounts
due to the affiliated company. The agreement provided that any
restructuring of amounts due to the affiliated company in common stock
be at the conversion price of $6.25, which as the average closing bid
prices of the common shares reported on the OTC Bulletin Board for the
three consecutive days ended April 30, 1999.
On July 26, 1999 the Company entered into an agreement with the affiliated
company to convert 50% of the amount due plus interest of $8,413
($74,886) into common stock. The remaining $66,473 will be repaid in
four quarterly instalments of $18,722 beginning October 31, 1999 and
ending on July 31, 2000.
As of July 31, 1999, the shares had not been issued.
36
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
7. SHARE CAPITAL
STOCK OPTION PLANS
As of July 31, 1999, the Company had stock options outstanding under two
plans: 237,500 pertain to the 1998 Stock Option Plan and 3,019,500 pertain to
the 1999 Stock Option Plan. All the plans are administered by the Board of
Directors who have sole discretion and authority to determine individuals
eligible for awards. The conditions of exercise of each grant are determined
individually by the Board at the time of the grant.
The 1997 plan, which became effective on April 8, 1997, provides for the
issuance of 1,000,000 options within a period of 10 years from the effective
date. No options have been granted under the 1997 plan.
The 1998 plan, which became effective on August 21, 1998, provides for the
issuance of 1,000,000 options within a period of 10 years from the effective
date. All 1,000,000 options were granted during 1999 at an exercise price of
$0.50 per share of which 980,000 were granted to employees and 20,000 were
granted to independent contractors. All options vested immediately. Of the
1,000,000 options, 400,000 have a life of 2 years and the remaining 600,000
have no expiry date. During 1999, 762,500 of these options were exercised.
At the time of granting options under the 1998 plan, the Company's shares
were not yet publicly trading. On the first day of public trading, the
Company's shares had a market price of $1.06 per share. The Company has
recognized compensation expense in 1999 of $548,800 for the granting of these
options to employees in accordance with APB 25. In addition, the Company has
recognized compensation expense of $12,600 in 1999 for the granting of 20,000
options to independent contractors in accordance with SFAS 123.
The 1999 plan, which became effective on March 24, 1999, provides for the
issuance of a total of 4,000,000 options, within a period of 10 years from
the effective date. During 1999, 2,933,000 options at an exercise price of
$4.00 and 89,500 options at an exercise price of $6.25 were granted of which
35,000 options were granted to independent contractors. Of these 3,022,500
options, 2,025,000 options vest immediately and 997,500 options vest on a
quarterly basis over one year. The options expire five years from the date of
grant. During 1999, 3,000 of the $4.00 options were exercised. The Company
has recognized compensation expense in 1999 of $24,700 for granting 10,000
options to independent contractors in accordance with SFAS 123.
37
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
7. SHARE CAPITAL (CONT'D.)
In addition in 1999, the Company issued 25,000 options to third parties for the
acquisition of the domain name for its website. The Company has capitalized the
fair value of these options in the amount of $95,000.
Activity in the stock option plans for 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
# $ # $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year -- -- -- --
Granted 4,022,500 3.18 -- --
Exercised (765,500) 0.51 -- --
- --------------------------------------------------------------------------------------------------
Outstanding, end of year 3,257,000 3.81 -- --
- --------------------------------------------------------------------------------------------------
Options exercisable at year end 2,497,167
- --------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options as of July 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
RANGE OF ---------------------------------------------------- ---------------------------------
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICES OPTIONS REMAINING EXERCISE PRICE OPTIONS EXERCISE PRICE
$ # LIFE $ # $
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.50 237,500 1.1 years 0.50 237,500 0.50
4.00 2,930,000 4.8 years 4.00 2,259,667 4.00
6.35 89,500 5 years 6.25 -- --
- -------------------------------------------------------------------------------------------------------
3,257,000 3.25 2,497,167 3.67
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies APB 25 in accounting for its stock option plans for
grants to employees. Where the exercise price is equal to or greater than the
fair value of the stock, no compensation is recorded. When the exercise price
is less than the fair value, compensation expense for each option granted is
recorded to the extent that the fair value exceeds the exercise price.
38
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
7. SHARE CAPITAL (CONT'D.)
If the fair values of the options granted had been recognized as compensation
expense on a straight line basis over the vesting period of the grant
(consistent with the method prescribed by SFAS 123), stock based compensation
costs would have increased the net loss as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss as reported (2,231,074) (452,828)
Pro forma net loss under FAS 123 (8,446,922) (452,828)
Net loss per share - basic, as reported (0.11) (0.02)
Pro forma net loss per share - basic, under FAS 123 (0.42) (0.02)
- --------------------------------------------------------------------------------------------------
</TABLE>
The fair value of option grants is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999
- --------------------------------------------------------------------------------------------------
<S> <C>
Dividend yield 0%
Expected volatility 105%
Risk-free interest rate 5.6%
Expected life of the option 3 years
- --------------------------------------------------------------------------------------------------
</TABLE>
The fair value of stock options granted during 1999 was $0.63 for the options
under the 1998 plan and $3.52 for the options under the 1999 plan.
39
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31,1999 (in US dollars)
8. CONVERTIBLE PREFERRED SHARES
On May 6, 1999, the Company entered into a Securities Purchase Agreement and
ancillary agreements with RGC International Investors LDC ("RGC") pursuant to
which the Company issued, for cash, a convertible debenture to RGC in the
aggregate principal amount of $8,500,000 at an interest rate of 5%. The
financing was arranged by Broadmark Capital which received a fee of $510,000.
An amendment to the Company's articles of incorporation was approved by the
majority shareholder on July 18, 1999 to allow the issuance of preferred
shares in the Company. On July 19, 1999, the debenture was converted into
8,500 convertible preferred shares with a dividend rate of 5%.
The convertible preferred shares are convertible from time to time at RGC's
option into shares of the Company at the lesser of a fixed conversion price
or a variable conversion price based on the market price of the common shares
at the time of conversion.
The fixed conversion price was determined to be $8.125 per common share,
which represented 130% of the average closing bid prices of the common shares
reported on the OTC Bulletin Board for the three consecutive trading days
ended April 30, 1999.
The variable conversion price will be based on 100% of the average of the
seven consecutive lowest closing bid prices of the common shares reported on
the OTC Bulletin Board during the 35 trading days ending one day prior to the
date that RGC exercises its right to convert.
If the Company's common shares are not approved for trading on the NASDAQ
Stock Market by November 6, 1999, the conversion terms of the preferred
shares change. The conversion term would be the lessor of:
[a] the fixed conversion price of $8.125 per common share;
[b] 80% of the average of the seven consecutive lowest closing bid prices of
the common shares reported on the OTC Bulletin Board during the 35 trading
days ending one day prior to the date that RGC exercises its right to
convert; or
[c] 110% of the average closing bid price of the common shares reported on the
OTC Bulletin Board over the ten trading days ending on November 6, 1999.
40
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31,1999 (in US dollars)
8. CONVERTIBLE PREFERRED SHARES (CONT'D.)
The amount of preferred shares which are convertible into common shares
includes accrued interest on the convertible debenture prior to its
conversion to convertible preferred shares.
The preferred shares include an investment option, exercisable by RGC at the
time of conversion, to acquire a number of additional common shares equal to
the number of common shares with respect to which RGC is converting the
preferred shares, at an exercise price equal to the conversion price then in
effect. This investment option has a three year term.
The preferred shares have a three year term, after which any previously
unconverted portion is converted automatically into common shares under the
same conversion terms.
In connection with the financing, RGC also received warrants to purchase
680,000 common shares of the Company at an exercise price of $8.3475. The
warrants have a five year term.
The proceeds from RGC have been allocated to the underlying instruments in
accordance with their fair values at the date of issuance such that
$7,500,000 was allocated to the preferred shares and its investment option
and $1,000,000 was allocated to the warrants and included in additional paid
in capital.
Total financing costs of $621,322 were incurred in respect of this
arrangement. In addition, the Company agreed to provide the agents warrants
to purchase 62,769 of common shares at an exercise price of $8.125 which
expire in five years. During 1999, $41,989 of these finance costs were
expensed. The remaining unamoritzed finance costs are presented as a
reduction of the carrying value of the preferred shares.
41
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31,1999 (in US dollars)
8. CONVERTIBLE PREFERRED SHARES (CONT'D.)
During 1999, amortization expense of $67,580 was recorded in the statement of
loss, as the proceeds allocated to additional paid in capital were considered
a discount to be amortized over the term of the financing. During 1999,
interest expense of $101,528 was recorded in the statement of loss as the
financing was classified as debt at the date of issuance. As at July 31,
1999, the carrying value of the convertible preferred shares comprises the
following:
<TABLE>
<CAPTION>
$
- ---------------------------------------------------------------------
<S> <C>
Fair value upon issuance 7,500,000
Accrued interest on debenture 101,528
Amortization of discount 67,580
Less: deferred financing costs (579,333)
- ---------------------------------------------------------------------
7,089,775
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
As at July 31, 1999, there existed a mandatory liquidation event with respect
to this financing which was outside of the control of the Company. This
mandatory liquidation event was that the preferred shares would be
mandatorily redeemed should the Company fail to obtain effectiveness with the
Securities and Exchange Commission (SEC) of their registration statement on
form SB-2 which registered for resale the common shares issuable upon
exercise of the preferred shares. As a result, the convertible preferred
shares were required to be classified as mezzanine equity as there was a
potential mandatory redemption event at July 31, 1999.
On August 26, 1999, the Company's form SB-2 registration statement was
declared effective by the SEC. As a result, the preferred shares from this
date onwards will be classified as equity. The accompanying pro forma
shareholders' equity gives effect to the discharge of the mandatory
redemption event discussed above:
<TABLE>
<CAPTION>
PRO FORMA
JULY 31,
1999
$
- ---------------------------------------------------------------------
<S> <C>
SHAREHOLDERS' EQUITY
Convertible preferred shares, net of financing costs 7,089,775
Share capital 12,658
Additional paid in capital 2,617,109
Deficit (2,893,070)
- ---------------------------------------------------------------------
6,826,472
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
</TABLE>
42
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
9. COMMITMENTS AND CONTINGENCIES
[i] The Company received notice from an interested party on September 27, 1999
that it believes the Company to be in violation of certain registered
trademarks which it possesses. While no legal proceedings have been
initiated by the other party, the notice represents an asserted claim that
is reasonably possible of assertion.
Management is of the opinion that an estimate of any potential liability,
if any, can not be determined at this time.
[ii] During 1999, the Company has entered into website content agreements with
two companies requiring combined monthly payments of $13,500 for a term of
one year.
[iii] By agreement dated April 20, 1999, as amended on June 4, 1999, the Company
entered into an arrangement to engage RealNetworks, Inc. to perform
consulting services in connection with the Global Media Broadcast Network
project which is for the development of internet-use software. Under the
terms of the agreement, the Company is required to make payments totaling
$3,655,000 over the duration of the project with the final payment date
projected to be December 21, 1999.
At July 31, 1999, the balance of the commitment is $2,970,000. Subsequent
to year end, the Company has made payments with respect to this agreement
aggregating to $2,145,000.
[iv] The Company holds operating leases in respect of office premises in both
Vancouver and Nanaimo. Minimum payments under these lease commitments over
the next five years are represented in the table below.
<TABLE>
<CAPTION>
NANAIMO VANCOUVER
OFFICE OFFICE
$ $
---------------------------------------------------------------------------------------------
<S> <C> <C>
2000 78,078 72,000
2001 80,609 94,500
2002 80,609 112,500
2003 -- 120,500
2004 -- 130,500
---------------------------------------------------------------------------------------------
239,296 530,000
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
9. COMMITMENTS AND CONTINGENCIES (CONT'D.)
In addition to the basic rent costs identified above for the Vancouver
office, the Company is also responsible for other costs including any
applicable taxes, operating costs, maintenance costs, and any other
additional rents as defined in the lease agreement.
[v] On June 9, 1999, the Company entered into a three year Frame Relay Service
Agreement with MCI WorldCom. The agreement requires a monthly variable
charge based on usage with a minimum monthly commitment of $25,000 per
month.
[vi] YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. The effects of the Year
2000 Issue may be experienced before, on, or after January 1, 2000,
and, if not addressed, the impact on operations and financial reporting
may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties will be fully resolved.
10. INCOME TAXES
At July 31, 1999, the Company had total net operating loss carryforwards of
$2,588,114 comprised of United States net operating loss carryforwards of
$1,451,591 [1998 - $240,407] which will begin to expire in 2012, and Canadian
net operating loss carryforwards of $1,136,522 [1998 - $250,671] which will
begin to expire in 2006. 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.
44
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
10. 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:
<TABLE>
<CAPTION>
1999 1998
$ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards 1,161,912 196,094
Tax vs. accounting value in fixed assets -- 5,431
Foreign exchange loss 14,346 4,155
- --------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,176,258 205,680
Less valuation allowance (1,176,258) (205,680)
- --------------------------------------------------------------------------------------------------
Net deferred tax assets -- --
- --------------------------------------------------------------------------------------------------
Excess book value over tax basis of capital assets (2,314) --
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
11. COMPARATIVE FIGURES
Certain amounts for 1998 have been reclassified to conform with the current
year's presentation.
45
<PAGE>
GLOBAL MEDIA CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
July 31, 1999 (in US dollars)
12. SUBSEQUENT EVENTS
[i] CO-MARKETING AND SALES AGREEMENT
On October 7, 1999, the Company entered into a letter of intent for a
strategic relationship with Standard Radio Inc. ("Standard"). Standard
will invest $2 million into the Company and receive 338,983 common
shares of the Company. In return, Standard would cause all radio
stations owned by it now or during the three years following, to become
network associates in the Global Media E-Commerce Network and in the
Global Media Broadcast Network.
In connection with the agreement, the Company will be required to
nominate a Standard representative to the Company's Board of Directors.
The nominee, upon accepting a position on the Board, will receive
125,000 options pursuant to the 1999 Stock Option Plan at an exercise
price equal to the closing price of the common stock on the OTC
Bulletin Board on the date of the grant. The options will vest over a
three year period on a quarterly basis from the date of grant and will
expire five years from the grant date.
Furthermore, the Company and each of the six general managers of the
Standard radio stations, Standard's national program director and
the general manger of Standard's syndication division will enter into a
consulting agreement. In exchange for future services granted, the
Company will grant each individual up to 20,000 options pursuant to the
1999 Stock Option Plan at an exercise price equal to the closing price
of the common stock on the OTC Bulletin Board on the date of the grant.
The options will vest over a one year period from the date of grant and
will expire five years from the grant date.
[ii] OPERATING EVENTS
On August 31, 1999, the Company began the implementation of its Network
Associate program services including the launch of e-commerce sites.
[iii] OPTIONS
During August 1999, the Company granted 85,000 additional options under
the 1999 stock option plan at exercise prices of $6.63 and $7.00. The
options expire five years from the date of grant.
46
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our current directors, executive officers and other key employees, and their
ages, as of October 25, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------- ----- ---------
<S> <C> <C>
Michael Metcalfe 43 Chairman of the Board and President
Robert Fuller (1) 39 Director and Chief Executive Officer
Winston V. Barta 28 Director, Vice President of Marketing and
Business Development
L. James Porter (2) 34 Director, Chief Financial Officer, Vice President
of Finance and Administration and Secretary
Jack MacDonald (1)(2) 70 Director
Barr Potter (1)(2) 50 Director
Monte Walls-Burris 29 Vice President of Corporate Affairs
</TABLE>
- -------------------------------------
47
<PAGE>
(1) Compensation committee member
(2) Audit committee member
MICHAEL METCALFE. Mr. Metcalfe is Global Media's founder. Mr. Metcalfe
has held the positions of Chairman of the Board and President since Global
Media's formation in April 1997, and previously held the same positions with
Westcoast Wireless Cable Ltd. since May 1994. Mr. Metcalfe was director of sales
and marketing for Starscan Communications International, Inc., a marketer of
satellite equipment and television programming located in Vancouver, B.C., from
October 1991 to April 1994; and executive director of production for North
American Pictures, Inc., a film production company, located in Vancouver, B.C.,
from January 1985 through June 1991.
ROBERT FULLER. Mr. Fuller has been our Chief Executive Officer and a
director since May 1997. Mr. Fuller has also been the president and a director
of Lifestyle Development Ltd., a private fitness center operator located in
Nanaimo, B.C. since September 1991. Prior to joining Global Media, Mr. Fuller
was the president and a director of 375801 BC Ltd., a private operator of a
hotel and pub located in Bamfield, B.C., from June 1994 to May 1997; the
president and a director of Promark Construction Co. Inc., a private real estate
developer located in Nanaimo, B.C., from February 1992 to December 1997; and an
accountant with, and then a manager in, the Entrepreneurial Division of Ernst &
Young, Chartered Accountants in Vancouver, B.C. from May 1983 to September 1989.
Mr. Fuller is a Canadian Chartered Accountant and received a bachelor of
commerce degree from the University of British Columbia in accounting and
management information systems.
WINSTON V. BARTA. Mr. Barta has been our Vice President of Marketing
and Business Development, and a director since September 1997 and was Secretary
from that time until August 1999. Previously, Mr. Barta was a vice president of
marketing for Starnet Communications International, Inc., a publicly traded
Internet company located in Vancouver, B.C., from July 1996 to July 1997, and a
senior account executive at Motion Works Group, a publicly traded consumer
software developer company located in Vancouver, B.C., from June 1995 to April
1996. Mr. Barta has a bachelor of commerce degree in marketing from Concordia
University in Montreal and an MBA in marketing from Simon Fraser University in
Vancouver, B.C.
L. JAMES PORTER. Mr. Porter has been our Chief Financial Officer
since April 1999, Assistant Secretary since May 1999, and a director, Vice
President of Finance and Administration and Secretary since August 1999.
Since August 1998, Mr. Porter has served as president of LJ Ventures, a
financial consulting firm. From February 1995 through July 1998, Mr. Porter
was a director, chief financial officer and secretary of Harriston
Corporation, a diversified holding company with offices in Vancouver, B.C.,
New York, New York and Costa Mesa, California. From September 1987 through
January 1995, Mr. Porter was a senior manager and held other positions with
Arthur Andersen, Chartered Accountants, in Vancouver, B.C. Mr. Porter has a
bachelor of commerce degree in Finance from the University of British
Columbia. He is a Canadian Chartered Accountant, a U.S. Certified Public
Accountant, and a U.S. Chartered Financial Analyst.
JACK D. MACDONALD. Mr. MacDonald has been director of Global Media
since November 1997 and is chair of its Audit and Compensation committees. Mr.
MacDonald was a director of TKO Resources Inc., a publicly traded mining
exploration company located in Vancouver, B.C., from May 1996 to September 1997,
and was the president, chief executive officer and a director of Salus Resource
Corp., and of its predecessor, Arapaho Mining Corp., a publicly-traded mining
exploration company located in Vancouver, B.C., from May 1990 to October 1996.
BARR POTTER. Mr. Potter has been a director of Global Media since May
1999. Mr. Potter currently serves as the chairman and chief executive officer of
Tripod Entertainment, Inc., a feature films production and distribution company
located in Los Angeles, California. From April 1994 through March 1999, Mr.
Potter was the chairman and chief executive officer of Largo Entertainment,
Inc., a feature films production and distribution company located in Los
Angeles, California and a subsidiary of JVC Entertainment, Inc. ("JVC
Entertainment"). Mr. Potter earned a bachelor of arts degree in economics from
Yale University and a juris doctor degree from Columbia University School of
Law.
MONTE WALLS-BURRIS. Mr. Burris has been our Vice President of Corporate
Affairs since January 1998. Previously, Mr. Burris was an institutional trader
at Dominick & Dominick, a private stock brokerage and market maker located in
New York, New York, with offices in Vancouver, B.C., from August 1996 to January
1998. From January 1995 to June 1996, he was a vice president, international
business at Hansa Bank in the British West Indies. Mr. Burris earned a bachelor
of arts degree in Art History and 20th Century American History from the
University of Western Ontario.
48
<PAGE>
BOARD OF DIRECTORS
Under our articles of incorporation and bylaws, our directors hold office until
the next annual meeting of Global Media's stockholders and until their
successors have been elected and duly qualified, and the board of directors
appoint our executive officers at the first board of directors' meeting after
each annual meeting of stockholders. Executive officers hold office at the
pleasure of the board of directors. To date, we have not held a stockholders
meeting to elect directors or otherwise. Mr. Metcalfe was appointed a director
upon formation of Global Media and each of Mr. Fuller, Mr. Barta, Mr. MacDonald,
Mr. Potter, and Mr. Porter was appointed by the board of directors to fill a
vacancy created by an increase in the authorized number of directors approved by
the board of directors.
Our directors do not receive cash compensation for their services as directors
or members of committees of the board of directors, if any, but are eligible to
receive stock options under our stock option plans. Director stock option grants
are determined on a case by case basis. SEE " - Benefit Plans" and "Certain
Transactions." We also reimburse directors for their reasonable expenses
incurred in attending meetings of the board of directors.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on a review of Forms 3, 4 and 5, and any amendments, furnished to
Global Media pursuant to Rule 16a-3(e) during fiscal 1999, and on written
representations Global Media's officers, directors, and principal shareholders
("Reporting Persons"), Global Media believes that the Reporting Persons complied
in all material respects in fiscal 1999 with all applicable filing requirements
under Section 16(a) of the Exchange Act.
ITEM 10 EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for services
in all capacities awarded to, earned by or paid to our President and Chief
Executive Officer during the fiscal year ended July 31, 1999 (collectively, the
"Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- --------------------- ALL OTHER
UNDERLYING SECURITIES COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) ($)
- ------------------------------------------ -------------- ------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Michael Metcalfe, President 0 0 700,000 0
Robert Fuller, Chief Executive Officer 0 0 700,000 0
</TABLE>
OPTION GRANTS, OPTION EXERCISES AND OPTION VALUES
The following table sets forth information on grants of stock options or other
similar rights by Global Media during the last fiscal year to the Named
Executives.
49
<PAGE>
<TABLE>
<CAPTION>
# OF SECURITIES % OF TOTAL OPTIONS EXERCISE OR
NAME UNDERLYING OPTIONS GRANTED TO EMPLOYEES IN BASE PRICE EXPIRATION
GRANTED FISCAL YEAR ($/SHARE) DATE
- ---------------------- -------------------------- --------------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Michael Metcalfe 200,000 (1) .50 8/21/00
500,000 4.00 4/23/04
--------------------------
Total 700,000 17.4%
Robert Fuller 200,000(1) .50 8/21/00
500,000 4.00 4/23/04
--------------------------
Total 700,000 17.4%
- -----------------
</TABLE>
(1) These option grants were made as of August 21, 1998. Prior to that time,
there had been no public market for our common stock and the price at which
we last sold any of our common stock was at $0.50 per share. The options
were granted with an exercise price of $0.50 per share. However, on August
24, 1998, our common stock began trading on the OTC Bulletin Board and
closed that day at $1.06 per share. As a result of the disparity between
the closing price on August 24, 1998 and the exercise price of the options
granted on August 21, 1998, we were required under established accounting
principles to recognize compensation expense totaling $548,800 for the
980,000 options granted to directors, executive officers and employees. SEE
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Fiscal Year Ending July 31, 1999
compared to Fiscal Year Ending July 31, 1998."
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning exercise of stock options
during the last fiscal year by each Named Executive and the fiscal year-end
value of unexercised options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END (#) AT FY-END ($)
SHARES ACQUIRED ----------------------------- -------------------------------
NAME ON EXERCISE (#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ------------------ ---------------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael Metcalfe 200,000 $700,000 500,000 0 $1,968,500 0
Robert Fuller 200,000 $700,000 500,000 0 $1,968,500 0
</TABLE>
EMPLOYMENT AGREEMENTS
None of our executive officers have employment agreements with us.
BENEFIT PLANS
We have three stock option plans which provide for the grant of options to
purchase shares of our common stock to executives, directors, employees,
consultants or advisors. The plans are summarized as follows as of October 25,
1999:
<TABLE>
<CAPTION>
SHARES OPTIONS AVAILABLE OPTIONS
PLAN NAME EFFECTIVE DATE RESERVED ISSUED SHARES EXERCISED
- ----------------------------------------------- ------------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
1997 Directors and Officers Stock Option Plan April 8, 1997 500,000 0 500,000 0
1998 Directors and Officers Stock Option Plan August 21, 1998 1,000,000 1,000,000 0 802,000
1999 Stock Option Plan March 24, 1999 4,000,000 3,123,700 876,300 8,625
</TABLE>
50
<PAGE>
Each of the plans expires ten years from its effective date. The plans are
administered by the board of directors who have sole discretion and authority to
determine individuals eligible for awards. The conditions of exercise of each
grant are determined individually by the board at the time of the grant. We
intend to cancel the 1997 stock option plan in the near future.
We have registered the options and shares of common stock issuable under the
1998 and 1999 stock option plans on Form S-8 registration statements. The
options granted under our 1998 stock option plan had an exercise price of $.50
per share. All of these options were fully exercisable from the date of grant.
The options granted under our 1999 stock option plan have exercise prices
ranging from $4.00 to $8.00 per share. As of October 25, 1999, 618,416 of these
options are subject to vesting requirements, and 2,505,284 are fully
exercisable.
KEY MAN INSURANCE
We do not currently have any key man insurance and have no plans to purchase
such insurance in the near future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, to the best of our knowledge, the common stock
beneficially owned as of October 25, 1999, by:
- each person, or group of affiliated persons, who we know beneficially
owns 5% or more of our common stock (as determined under Rule 13d-3 of
the Exchange Act);
- each of our directors and executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated in the footnotes to the table, (a) the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own, and (b) the address of each beneficial owner
listed below is c/o Global Media Corp., 400 Robson Street, Vancouver, British
Columbia, Canada V6B 2B4.
None of the shares beneficially owned by the following directors and officers
will be offered for sale or sold in this offering.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED (1) PERCENT OF CLASS(1)
- -------------------------------------------------------------------- ------------------------ -----------------------
<S> <C> <C>
Michael Metcalfe 14,600,000 (2) 68.8
Robert Fuller 2,088,000 (3) 9.8
Winston V. Barta 299,000 (4) 1.4
Jack MacDonald 75,000 (5) *
Barr Potter 125,000 (6) *
L. James Porter 200,000 (7) *
Monte Walls-Burris 283,000 (8) 1.4
-----------
All Officers and Directors as a Group
(7 persons shown above) 17,670,000 78.2
===========
</TABLE>
- ---------------------
* Less than 1%.
(1) Shares that a person has the right to acquire within 60 days are
treated as outstanding for determining the amount and percentage of
common stock owned by such person but are not deemed to be outstanding
as to any other person or group.
(2) Includes currently exercisable options to purchase 500,000 shares of
common stock.
51
<PAGE>
(3) Includes (a) currently exercisable options to purchase 500,000 shares
of common stock owned by Mr. Fuller, and (b) 200,000 shares owned by
Mr. Fuller's spouse.
(4) Includes currently exercisable options to purchase 250,000 shares of
common stock.
(5) Includes currently exercisable options to purchase 25,000 shares of
common stock.
(6) Consists of currently exercisable options to purchase 125,000 shares
of common stock.
(7) Consists of currently exercisable options to purchase 200,000 shares
of common stock.
(8) Includes currently exercisable options to purchase 250,000 shares of
common stock.
Michael Metcalfe, our Chairman and President and majority shareholder, is able
to control substantially all matters requiring approval by our stockholders,
including the election of directors, amendments to our articles of
incorporation, and mergers or other business combination transactions. Mr.
Metcalfe's substantial equity stake could also make us a much less attractive
acquisition candidate to potential acquirers, because Mr. Metcalfe alone could
have sufficient votes to prevent the approval or the tax-free treatment of an
acquisition.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK ISSUANCES TO FOUNDER AND OTHER INSIDERS
In connection with our formation and initial capitalization in April 1997, we
offered and sold a total 11,000,000 shares of our common stock at a price of
$0.01 per share per share to various individual investors, including Michael
Metcalfe, our founder, President and Chairman of the Board. Mr. Metcalfe
purchased six million shares for total consideration of $60,000 and Mr. Fuller
purchased 1 million shares for total consideration of $10,000.
In connection with our second round of financing, from June 1997 until November
1997, we offered and sold a total of 890,831 shares of our common stock at a
price of $0.50 per share to various individual and other investors, including
Robert Fuller, our Chief Executive Officer and a director. Mr. Fuller purchased
288,000 shares for total consideration of $144,000.
ACQUISITION OF WESTCOAST FROM FOUNDER
In May 1997, we entered into an agreement with Mr. Metcalfe relating to the
acquisition of Westcoast Wireless Cable, Ltd. At the time, Mr. Metcalfe was the
sole shareholder of Westcoast. Under that agreement, we purchased from Mr.
Metcalfe all of his Westcoast stock in exchange for consideration consisting of
eight million shares of our common stock and cash in the amount of $100,000.
LOANS TO AND FROM AFFILIATES
LOANS FROM BENNETT METCALFE. From October 1998 through December 1999,
Bennett Metcalfe, Michael Metcalfe's father and one of our stockholders,
advanced a total of approximately $263,000 to us. The proceeds of these loans
were used for working capital. These loans had no fixed repayment or interest
terms. In connection with our convertible debenture and warrant financing
described in "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Events", we agreed to (a) repay one-half of the
principal balance outstanding at May 6, 1999 ($221,091), plus $16,445 in accrued
interest, by issuing shares of our common stock at $6.25 per share, which was
the average closing bid prices of the Common Stock on the OTC Bulletin Board for
the three consecutive trading days ended April 30, 1999, and (b) issue a
promissory note for the remaining one-half of the principal balance plus $16,445
in accrued interest, which is to be repaid in four quarterly installments and
which will bear interest at 9% per annum. This restructuring was completed
effective as of July 26, 1999.
LOANS FROM ROBERT FULLER AND AFFILIATES. From November 1998 to March
1999, Mr. Fuller and companies which his family controls, advanced a total of
approximately $187,000 to us. The proceeds of these loans were used for working
capital. These loans had no fixed repayment or interest terms. In connection
with our convertible debenture and warrant financing, we agreed to (a) repay Mr.
Fuller $8,413 plus approximately $1,352 in interest from the proceeds of the
convertible debenture offering proceeds, (b) repay one-half of the remaining
principal balance outstanding at May 6, 1999 ($132,946), plus $8,413 in accrued
interest, by issuing shares of our common
52
<PAGE>
stock at $6.25 per share, which was the average closing bid prices of the
Common Stock on the OTC Bulletin Board for the three consecutive trading days
ended April 30, 1999, and (c) issue a promissory note for the remaining
one-half of the principal balance plus $8,413 in accrued interest, which is
to be repaid in four quarterly installments and which will bear interest at
9% per annum. This restructuring was completed effective as of July 26, 1999.
LOANS TO AND FROM MICHAEL METCALFE AND AFFILIATES. When we purchased
Westcoast in April 1997, it had a $71,065 receivable due from a company owned
by Michael Metcalfe, and a $79,269 payable due to Michael Metcalfe. In August
1998, Michael Metcalfe and Global Media agreed to offset the receivable owed
Westcoast by his affiliated company against the payable which Westcoast owed
him.
FISCAL 1999 OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
1998 PLAN. We granted 600,000 of the 1,000,000 options granted under
our 1998 Plan to our directors and executive officers as follows:
<TABLE>
<CAPTION>
NAME POSITION OPTIONS
---- -------- -------
<S> <C> <C>
Michael Metcalfe Chairman of the Board; President 200,000
Robert Fuller Chief Executive Officer; Director 200,000
Winston V. Barta Vice President of Marketing and 100,000
Business Development; Director
Monte Walls Burris Vice President of Corporate Affairs 100,000
-------------
TOTAL 600,000
</TABLE>
None of these options were subject to vesting requirements and were fully
exercisable from the date of grant. These option grants were made as of
August 21, 1998. Prior to that time, there had been no public market for our
common stock and the price at which we last sold any of our common stock was
at $0.50 per share. The options were granted with an exercise price of $0.50
per share. However, on August 24, 1998, our common stock began trading on the
OTC Bulletin Board and closed that day at $1.06 per share. As a result of the
disparity between the closing price on August 24, 1998 and the exercise price
of the options granted on August 21, 1998, we were required under established
accounting principles to recognize compensation expense totaling $548,800 for
the 980,000 options granted to directors, executive officers and employees.
SEE "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations - Fiscal Year Ending July 31,1999
compared to Fiscal Year Ending July 31, 1998." All options granted to our
executives under our 1998 stock option plan have been exercised.
1999 PLAN. As of October 25, 1999, 1,850,000 options of the total
3,123,700 options granted under our 1999 Plan were granted to directors and
executive officers as follows. All of these options are fully vested.
<TABLE>
<CAPTION>
NAME POSITION OPTIONS
---- -------- -------
<S> <C> <C>
Michael Metcalfe Chairman of the Board; President 500,000
Robert Fuller Chief Executive Officer; Director 500,000
Winston V. Barta Vice President of Marketing and 250,000
Business Development, Director
L. James Porter Chief Financial Officer, Secretary, 200,000
Vice President of Finance and
Administration; Director
Monte Walls Burris Vice President of Corporate Affairs 250,000
Jack McDonald Director 25,000
Barr Potter Director 125,000
---------
TOTAL 1,850,000
</TABLE>
These option grants were granted as of April 23, 1999 at an exercise price of
$4.00 per share. During that day, our common stock traded at $4.00 per share
on the OTC Bulletin Board. Consequently, we are not required to recognize any
related compensation expense.
AGREEMENT WITH BARR POTTER
In connection with appointing Mr. Potter to our board of directors in May
1999, we entered into an agreement with him in which we agree to (a) appoint
him as an independent director on our board for a one-year term, (b) grant
him 125,000 stock options under our 1999 Plan (SEE "Security Ownership Of
Certain Beneficial Owners And Management" and " - Fiscal 1999 Option Grants
to Executive Officers and Directors - 1999 Plan"), (c) to sublease
53
<PAGE>
space to him in any Los Angeles office that we may open in the future. (SEE
"Description of Business Properties"), and (d) to obtain Directors and
Officers insurance, for which we are currently in the process of applying.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K. Global Media filed the following reports on
Form 8-K during the fourth quarter of fiscal 1999:
- Form 8-K filed in May 1999, in connection with closing of Global
Media's convertible debenture offering.
(b) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of Global Media as filed on
April 8, 1997, with the Secretary of State of the State
of Nevada. (1)
3.2 Articles of Amendment to the Articles of Incorporation of
Global Media, authorizing the issuance of preferred stock,
as filed on June 30, 1999, with the Secretary of State of
the State of Nevada. (8)
3.3 Certificate of Designation, designating Series A
preferred stock, as filed on June 30, 1999, with
the Secretary of State of the State of Nevada. (8)
3.4 Bylaws of Global Media. (1)
4.1 Form of specimen certificate for common stock. (8)
4.2 Registration Rights Agreement, dated May 6, 1999,
between Global Media and RGC International
Investors, LDC. (4)
10.1 1997 Stock Option Plan. (1)
10.2 1998 Stock Option Plan. (2)
10.3 1999 Stock Option Plan. (3)
10.4 Offering Sales Agency Agreement, dated April 25, 1997,
between Global Media and Pacific Rim Investment, Inc. (1)
10.5 Plan of Reorganization, dated May 20, 1997, between Global
Media and Westcoast Wireless Cable, Ltd. (1)
10.6 Secured Promissory Note, dated November, 1998, from Global
Media to Rolling Oaks Enterprises, LLC. (5)
10.7 Security Agreement, dated November 30, 1998 from Global
Media to Rolling Oaks Enterprises, LLC. (5)
10.8 Securities Purchase Agreement dated May 6, 1999,
between Global Media and RGC International Investors, LDC. (4)
10.9 Convertible Debenture, dated May 6, 1999, from Global
Media to RGC International Investors, LDC. (4)
10.10 Stock Purchase Warrant dated May 6, 1999 from Global Media
to RGC International Investors, LDC. (4)
10.11 Streaming Media Services Agreement, dated April 19, 1999,
between Global Media and RealNetworks, Inc. (5) (6)
10.12 Letter Agreement for consulting services from
RealNetworks, Inc. to Global Media, dated and
accepted on April 20, 1999. (7) (6)
10.13 Letter from RealNetworks, Inc. to Global Media, dated
and accepted on June 4, 1999, amending the
April 20, 1999 letter agreement. (7) (6)
10.14 Order Fulfillment Agreement, dated May 15, 1999,
between Global Media and i.FILL (a division of
Valley Media, Inc.). (6) (8)
10.15 Drop Ship Agreement, dated May 14, 1999, between Global
Media and Baker & Taylor, Inc. (6) (8)
10.16 Distribution Agreement, dated May 14, 1999, between Global
Media and Baker & Taylor, Inc. (6) (8)
10.17 License Agreement, dated August 7, 1998, between Global
Media and Muze Inc. (6) (8)
10.18 Loan Restructure and Subscription Agreement, dated July
26, 1999, between Global Media and Bennett Metcalfe. (10)
10.19 Loan Restructure and Subscription Agreement, dated
July 26, 1999, between Global Media and Sandcastle Inn Ltd. (10)
54
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.20 Lease between Thomas Downie Holdings Ltd. and Global
Media dated July 2, 1999 (Vancouver facility).(9)
10.21 Confidential Term Sheet for Strategic Relationship
between Global Media and Standard Radio, Inc.
dated October 7, 1999. (10)
10.22 Form of Stock Purchase Warrant, dated May 7, 1999, from
Global Media to designees of the placement agents in
Global Media's convertible debenture offering. (10)
10.23 Letter agreement with Barr Potter dated May 1, 1999, and
amended by letter agreement dated September 13, 1999. (10)
21 List of Subsidiaries. (8)
23.1 Consent of Ernst & Young, LLP. (10)
27 Financial Data Schedule. (10)
</TABLE>
- ------------------------
(1) Incorporated by reference to Global Media's Form 10-SB Registration
Statement filed on December 11, 1997.
(2) Incorporated by reference to Global Media's Form S-8 Registration
Statement filed on August 21, 1998.
(3) Incorporated by reference to Global Media's Form S-8 Registration
Statement filed on March 24, 1999.
(4) Incorporated by reference to Global Media's Current Report on Form 8-K
filed on May 19, 1999.
(5) Incorporated by reference to Global Media's Form 10-QSB filed June 14,
1999.
(6) Subject to a request for confidential treatment.
(7) Incorporated by reference to Global Media's Form 10-QSB/A for the quarter
ended April 30, 1999, filed on June 30, 1999.
(8) Incorporated by reference to Global Media's Form SB-2 Registration
Statement filed on July 30, 1999.
(9) Filed with Amendment No. 1 to Global Media's Form SB-2 Registration
Statement filed on July 30, 1999.
(10) Filed with this Form 10-KSB.
55
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on October 29, 1999.
GLOBAL MEDIA CORP.
By /s/ Robert Fuller
--------------------------------
Robert Fuller
Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been signed by
the following persons on behalf of the registration and in the following
capacities on October 29, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<S> <C>
/s/ Michael Metcalfe
- --------------------------
Michael Metcalfe Chairman of the Board and President
/s/ Robert Fuller
- --------------------------
Robert Fuller Director and Chief Executive Officer
(Principal Executive Officer)
/s/ Winston V. Barta
- --------------------------
Winston V. Barta Director, Vice President of Marketing
and Business Development
/s/ L. James Porter
- --------------------------
L. James Porter Director, Chief Financial Officer, Vice
President of Finance and Administration
and Secretary
(Principal Accounting Officer)
/s/ Jack MacDonald
- --------------------------
Jack MacDonald Director
/s/ Barr Potter
- --------------------------
Barr Potter Director
</TABLE>
56
<PAGE>
Exhibit 10.18
LOAN RESTRUCTURE AND
SUBSCRIPTION AGREEMENT
This Agreement is made as of July 26, 1999, between GLOBAL MEDIA CORP.,
a Washington corporation (the "Company"), and BENNETT METCALFE (the "Lender").
BACKGROUND
A. Between October 1, 1998 and December 1, 1998, the Lender advanced
funds to the Company on an open account (the "Advances"), and the Company made
partial payments against the Advances, in the amounts listed on the attached
EXHIBIT A.
B. In connection with the Company's recent convertible debt offering,
the Company and the Lender agreed to restructure and document the Advances as
set forth in this Agreement.
AGREEMENT
In consideration of the terms and conditions of this Agreement, the
parties agree as follows:
1. CONFIRMATION OF AMOUNT AND TITLE. The Lender confirms and agrees
that the outstanding principal amount of the Advances as of the date of this
Agreement is $220,552. The Lender represents and warrants that it is the sole
owner of the Advances and that it has not transferred, assigned, pledged,
mortgaged, or conveyed any of its interest in the Advances.
2. RESTRUCTURE. Upon execution and delivery of this Agreement, the
Company shall execute and deliver to the Lender:
2.1 NOTE. A Note in the initial principal amount of $127,000, in
substantially the form attached as EXHIBIT B (the "Note"). The initial Note
amount is equal to $110,276 (one-half of the current balance of the Advances)
plus $16,724 in accrued interest.
2.2 SHARES. Instructions to the Company's Transfer Agent to issue a
certificate representing 20,320 shares of the Company's common stock (the
"Shares"), subject to Section 5.4, below. The number of Shares is equal to
$110,276 (one-half of the current balance of the Advances) plus $16,724 in
accrued interest, divided by $6.25.
3. CANCELLATION OF ADVANCES. The Lender hereby accepts the Note and the
Shares as payment in full of the Advances, and cancels any obligation of the
Company to repay the Advances, except as set forth in the Note.
4. SUBSCRIPTION. The Lender hereby irrevocably subscribes for the
Shares at a price of $6.25 per share, for a total purchase price of $127,000.
The Lender certifies that it is an "Accredited Investor" as defined in
Regulation D of the Securities Act of 1933, as amended.
5. OTHER SECURITIES ISSUES.
5.1 RISK OF LOSS. The Lender recognizes that an investment in the
Company involves certain substantial risks which could result in the loss of
the Lender's entire investment.
1
<PAGE>
5.2 INVESTMENT INTENT. The Lender certifies that it is purchasing
the Note and the Shares for investment for its own account and not on behalf
of any other person, nor with a view to, or for resale or other distribution
of the Note or the Shares.
5.3 NO REGISTRATION. The Lender acknowledges and understands that:
(a) the Note and the Shares have not been registered under either federal or
state securities laws; (b) the Note and the Shares are being offered and sold
to the Lender pursuant to Section 4(2) or other exemption available under the
Securities Act of 1933, as amended, and comparable state securities
exemptions; and (c) no federal or state agency has made any finding or
determination as to the fairness of this offering for investment, nor any
recommendation or endorsement of the Note or the Shares.
5.4 LEGEND. The Lender consents to the placement of a legend on the
Note and all certificates representing the Shares in substantially the
following form:
These securities have not been registered under the Securities
Act of 1933, the Securities Act of Washington, or the
securities act of any other state. They may not be sold or
offered for sale in the absence of an effective registration
statement under the applicable act, or an opinion of counsel
satisfactory to the issuer of the securities that an exemption
under the applicable act is available and that such
registration is not required.
5.5 RESTRICTIONS ON TRANSFER. The Lender understands and
acknowledges that: (a) no assignment, sale, transfer, exchange or other
disposition of the Note or the Shares can be made except in accordance with
applicable federal and state securities laws; (b) the Note and the Shares
cannot be sold or otherwise distributed in the absence of registration or an
exemption from the registration requirements of federal and state securities
laws; and (c) the Company is not obligated to take any actions to register the
Note or the Shares or make available any exemptions from federal or state
registration requirements.
5.6 RESIDENCE. The Lender certifies that it is a resident of the
jurisdiction set forth beneath its signature.
6. GENERAL PROVISIONS.
6.1 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall be for the benefit of the parties and their respective
successors and assigns.
6.2 AMENDMENT; WAIVER. The provisions of this Agreement, or of any
agreement or document executed in connection with this Agreement, may be
amended or waived only in a written agreement signed by the party against
which enforcement of such amendment or waiver is sought. Any waiver of any
right or breach under this Agreement shall not be construed as a waiver of any
other or any subsequent right or breach.
6.3 SEVERABILITY. If any portion of this Agreement is held to be
invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
2
<PAGE>
6.4 GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington, other than
its conflict of law rules. The parties consent to the jurisdiction of and
venue in any appropriate court in King County, Washington.
6.5 INDEPENDENT COUNSEL. The Lender acknowledges that it has been
represented by independent legal counsel with regard to this Agreement, and
has had an adequate opportunity to seek independent legal counsel with regard
to all documents executed in connection with this Agreement. The Lender
acknowledges that Davis Wright Tremaine LLP has represented the Company and
has not represented the Lender.
6.6 NOTICES. The parties shall deliver any notices required under
this Agreement in writing by personal or courier delivery, facsimile
transmission, or by registered or certified mail, return receipt requested,
postage prepaid, to the addresses set forth below, or to such other address as
specified by a party in writing. Notices shall be deemed effective as of the
date of personal or courier delivery, confirmed facsimile transmission, or
three days after the date on the postmark affixed to the notice.
6.7 ASSIGNMENT; BENEFIT. No party may voluntarily or involuntarily
assign its interest under this Agreement without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding
upon and shall insure to the benefit of the parties and their respective
successors and assigns.
<TABLE>
<CAPTION>
- ----------------------------------------- -------------------------------------
IF TO THE COMPANY: WITH A COPY TO:
- ----------------------------------------- -------------------------------------
<S> <C>
Global Media Corp. Davis Wright Tremaine LLP
400 Robson Street 2600 Century Square
Vancouver, BC Canada V6B 2B4 1501 Fourth Avenue
FACSIMILE: (604) 688-9996 Seattle, Washington 98101-1688
ATTENTION: James L. Porter, FACSIMILE: (206) 386-7500
Chief Financial Officer ATTENTION: Eugenie D. Mansfield, Esq.
- ----------------------------------------- -------------------------------------
IF TO LENDER: WITH A COPY TO:
- ----------------------------------------- -------------------------------------
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Facsimile:___________________________ Facsimile:___________________________
Attention:___________________________ Attention:___________________________
- ----------------------------------------- -------------------------------------
</TABLE>
6.8 ATTORNEY FEES. The prevailing party in any arbitration or
litigation concerning this Agreement is entitled to reimbursement of its
reasonable attorneys' fees, costs and expenses from the non-prevailing party,
including fees, costs and expenses incurred on appeal or in bankruptcy
proceedings.
6.9 ENTIRE AGREEMENT. This Agreement, its attached schedules and
exhibits, and the documents executed in connection with this Agreement,
contain the entire agreement of the parties with respect to the subject matter
of this Agreement, and supersede any and all prior agreements, written or
oral, relating to their subject matter.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which
together will constitute the same instrument.
3
<PAGE>
Executed as of the first date written above.
LENDER:
BENNETT METCALFE
/s/ Bennett Metcalfe
---------------------------------------
Jurisdiction of Residence:
-------------
COMPANY:
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
-----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
4
<PAGE>
EXHIBIT A
ADVANCE AND PAYMENT HISTORY
<TABLE>
<CAPTION>
DATE CDN FUNDS EXCHANGE RATE US FUNDS CUMULATIVE TOTAL
(US FUNDS)
$ $ $ $
<S> <C> <C> <C> <C>
10/01/98 50,407 1.47 34,290.48 34,290
10/13/98 (31,250) 1.47 (21,258.50) 13,032
10/23/98 (15,575) 1.47 (10,595.20) 2,437
11/20/98 150,000 1.47 102,040.80 104,478
12/08/98 100,000 1.47 68,027.21 172,506
12/09/98 30,000 202,505
12/29/98 (11,000) 191,505
12/01/98 28,890 220,395*
</TABLE>
* Plus $157 foreign currency translation adjustment.
5
<PAGE>
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, THE
SECURITIES ACT OF WASHINGTON, OR THE SECURITIES ACT OF ANY OTHER STATE. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE APPLICABLE ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THE SECURITIES THAT AN EXEMPTION UNDER THE APPLICABLE ACT IS AVAILABLE
AND THAT SUCH REGISTRATION IS NOT REQUIRED.
NOTE
PRINCIPAL: $127,000.00 DATE: July 26, 1999
1. PROMISE TO PAY. In return for value received, GLOBAL MEDIA CORP.
("Borrower") promises to pay to the order of BENNETT METCALFE ("Lender"), at
the address below the Lender's signature, or at such other place as Lender may
designate, the principal amount of One Hundred Twenty-Seven Thousand Dollars
($127,000.00), plus interest and all other sums due under this Note.
2. INTEREST. Interest on the unpaid principal balance of this Note
shall accrue daily at rate 9% per annum, until all sums due under this Note
are paid in full.
3. PAYMENTS. Borrower shall make payments of $31,750.00 in principal
plus accrued and unpaid interest to Lender on October 31, 1999, January 31,
2000, April 30, 2000, and July 31, 2000 (the "Due Date"). On the Due Date, the
Borrower shall also pay to Lender all outstanding principal, accrued interest,
and any other unpaid sums due under this Note. The Borrower may completely or
partially prepay this Note at any time. The Borrower, however, must continue to
make all payments when due, despite any prepayments. Lender shall apply every
payment or prepayment first to Lender's charges and costs, then to unpaid
accrued interest due under this Note, and then to the principal balance.
4. DEFAULT. Lender may declare the Borrower to be in default, and all
amounts due under this Note immediately due in full if the Borrower fails to
make any payment when due under this Note. However, Lender's failure to exercise
any right available to it upon the Borrower's default, or to strictly enforce
any term of this Note, the Loan Agreement or the Security Documents, does not
constitute a waiver of that right or term.
5. USURY. Lender and the Borrower specifically intend this Note to bear
a lawful rate of interest. If any competent court finds that this Note's rate of
interest is unlawful, the interest rate shall be reduced to the highest legal
rate. Lender shall apply any excess interest previously collected to this Note's
unpaid principal balance, or, if this Note is fully repaid, return it to the
Borrower.
6
<PAGE>
6. WAIVERS. The Borrower and all other persons liable or to become
liable on this Note waive presentment, demand of payment, notice of dishonor,
protest, notice of nonpayment, and all other notices and demands.
7. APPLICABLE LAW, JURISDICTION; VENUE. This Note shall be governed by,
construed, and enforced under the laws of the state of Washington. The Borrower
submits to the jurisdiction and venue of any court located in King County,
Washington.
8. ATTORNEY FEES AND COSTS. The Borrower agrees to pay all of Lender's
reasonable costs incurred, with or without legal action, in collecting any
amounts due under this Note, or upon appeal or bankruptcy proceedings, including
attorneys' fees incurred as a result of a lawsuit, appeal and/or bankruptcy
proceeding.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
7
<PAGE>
Exhibit 10.19
LOAN RESTRUCTURE AND
SUBSCRIPTION AGREEMENT
This Agreement is made as of July 26, 1999, between GLOBAL MEDIA CORP.,
a Washington corporation (the "Company"), and SANDCASTLE INN LTD. (the
"Lender").
BACKGROUND
A. Between November 15, 1997 and March 31, 1999, the Lender advanced
funds to the Company on an open account (the "Advances"), and the Company made
partial payments against the Advances, in the amounts listed on the attached
EXHIBIT A.
B. In connection with the Company's recent convertible debt offering,
the Company and the Lender agreed to restructure and document the Advances as
set forth in this Agreement.
AGREEMENT
In consideration of the terms and conditions of this Agreement, the
parties agree as follows:
1. CONFIRMATION OF AMOUNT AND TITLE. The Lender confirms and agrees
that the outstanding principal amount of the Advances as of the date of this
Agreement is Cdn $200,000 (approximately U.S. $132,776 as of the date of this
Agreement). The Lender represents and warrants that it is the sole owner of the
Advances and that it has not transferred, assigned, pledged, mortgaged, or
conveyed any of its interest in the Advances.
2. RESTRUCTURE. Upon execution and delivery of this Agreement, the
Company shall execute and deliver to the Lender:
2.1 NOTE. A Note in the initial principal amount of Cdn
$115,000 (approximately U.S. $76,346 as of the date of this Agreement), in
substantially the form attached as EXHIBIT B (the "Note"). The initial Note
amount is equal to Cdn $100,000 (one-half of the current balance of the Advances
and approximately U.S. $66,388 as of the date of this Agreement) plus Cdn
$15,000 (approximately U.S. $9,958 as of the date of this Agreement) in accrued
interest.
2.2 SHARES. Instructions to the Company's Transfer Agent to
issue a certificate representing 12,215 shares of the Company's common stock
(the "Shares"), subject to Section 5.4, below. The number of Shares is equal to
U.S. $66,388 (one-half of the current balance of the Advances) plus U.S. $9,958
in accrued interest, divided by $6.25.
1
<PAGE>
3. CANCELLATION OF ADVANCES. The Lender hereby accepts the Note and the
Shares as payment in full of the Advances, and cancels any obligation of the
Company to repay the Advances, except as set forth in the Note.
4. SUBSCRIPTION. The Lender hereby irrevocably subscribes for the
Shares at a price of $6.25 per share, for a total purchase price of $76,346. The
Lender certifies that it is an "Accredited Investor" as defined in Regulation D
of the Securities Act of 1933, as amended.
5. OTHER SECURITIES ISSUES.
5.1 RISK OF LOSS. The Lender recognizes that an investment in
the Company involves certain substantial risks which could result in the loss of
the Lender's entire investment.
5.2 INVESTMENT INTENT. The Lender certifies that it is
purchasing the Note and the Shares for investment for its own account and not on
behalf of any other person, nor with a view to, or for resale or other
distribution of the Note or the Shares.
5.3 NO REGISTRATION. The Lender acknowledges and understands
that: (a) the Note and the Shares have not been registered under either federal
or state securities laws; (b) the Note and the Shares are being offered and sold
to the Lender pursuant to Section 4(2) or other exemption available under the
Securities Act of 1933, as amended, and comparable state securities exemptions;
and (c) no federal or state agency has made any finding or determination as to
the fairness of this offering for investment, nor any recommendation or
endorsement of the Note or the Shares.
5.4 LEGEND. The Lender consents to the placement of a legend
on the Note and all certificates representing the Shares in substantially the
following form:
These securities have not been registered under the Securities
Act of 1933, the Securities Act of Washington, or the
securities act of any other state. They may not be sold or
offered for sale in the absence of an effective registration
statement under the applicable act, or an opinion of counsel
satisfactory to the issuer of the securities that an exemption
under the applicable act is available and that such
registration is not required.
5.5 RESTRICTIONS ON TRANSFER. The Lender understands and
acknowledges that: (a) no assignment, sale, transfer, exchange or other
disposition of the Note or the Shares can be made except in accordance with
applicable federal and state securities laws; (b) the Note and the Shares cannot
be sold or otherwise distributed in the absence of registration or an exemption
from the registration requirements of federal and state securities laws; and (c)
the Company is not obligated to take any actions to register the Note or the
Shares or make available any exemptions from federal or state registration
requirements.
5.6 RESIDENCE. The Lender certifies that it is a resident of
the jurisdiction set forth beneath its signature.
6. GENERAL PROVISIONS.
6.1 ASSIGNMENT; BENEFIT. No party may voluntarily or
involuntarily assign its interest under this Agreement without the prior written
consent of the other party. Subject to the
2
<PAGE>
foregoing, this Agreement shall be binding upon and shall be for the benefit
of the parties and their respective successors and assigns.
6.2 AMENDMENT; WAIVER. The provisions of this Agreement, or of
any agreement or document executed in connection with this Agreement, may be
amended or waived only in a written agreement signed by the party against which
enforcement of such amendment or waiver is sought. Any waiver of any right or
breach under this Agreement shall not be construed as a waiver of any other or
any subsequent right or breach.
6.3 SEVERABILITY. If any portion of this Agreement is held to
be invalid by a court of competent jurisdiction, the remaining terms of this
Agreement shall remain in full force and effect to the extent possible.
6.4 GOVERNING LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of Washington, other than
its conflict of law rules. The parties consent to the jurisdiction of and venue
in any appropriate court in King County, Washington.
6.5 INDEPENDENT COUNSEL. The Lender acknowledges that it has
been represented by independent legal counsel with regard to this Agreement, and
has had an adequate opportunity to seek independent legal counsel with regard to
all documents executed in connection with this Agreement. The Lender
acknowledges that Davis Wright Tremaine LLP has represented the Company and has
not represented the Lender.
6.6 NOTICES. The parties shall deliver any notices required
under this Agreement in writing by personal or courier delivery, facsimile
transmission, or by registered or certified mail, return receipt requested,
postage prepaid, to the addresses set forth below, or to such other address as
specified by a party in writing. Notices shall be deemed effective as of the
date of personal or courier delivery, confirmed facsimile transmission, or three
days after the date on the postmark affixed to the notice.
6.7 ASSIGNMENT; BENEFIT. No party may voluntarily or
involuntarily assign its interest under this Agreement without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
binding upon and shall insure to the benefit of the parties and their respective
successors and assigns.
<TABLE>
<CAPTION>
- --------------------------------------- -------------------------------------
IF TO THE COMPANY: WITH A COPY TO:
- --------------------------------------- -------------------------------------
<S> <C>
Global Media Corp. Davis Wright Tremaine LLP
400 Robson Street 2600 Century Square
Vancouver, BC Canada V6B 2B4 1501 Fourth Avenue
FACSIMILE: (604) 688-9996 Seattle, Washington 98101-1688
ATTENTION: James L. Porter, FACSIMILE: (206) 386-7500
Chief Financial Officer ATTENTION: Eugenie D. Mansfield, Esq.
- --------------------------------------- -------------------------------------
IF TO LENDER: WITH A COPY TO:
- --------------------------------------- -------------------------------------
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Facsimile:___________________________ Facsimile:___________________________
Attention: __________________________ Attention: __________________________
- --------------------------------------- -------------------------------------
</TABLE>
3
<PAGE>
6.8 ATTORNEY FEES. The prevailing party in any arbitration or
litigation concerning this Agreement is entitled to reimbursement of its
reasonable attorneys' fees, costs and expenses from the non-prevailing party,
including fees, costs and expenses incurred on appeal or in bankruptcy
proceedings.
6.9 ENTIRE AGREEMENT. This Agreement, its attached schedules
and exhibits, and the documents executed in connection with this Agreement,
contain the entire agreement of the parties with respect to the subject matter
of this Agreement, and supersede any and all prior agreements, written or oral,
relating to their subject matter.
6.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original but all of which
together will constitute the same instrument.
Executed as of the first date written above.
LENDER:
SANDCASTLE INN LTD.
By: /s/ Robert Fuller
----------------------------------
Name: Robert Fuller
--------------------------------
Title:
-------------------------------
Jurisdiction of Residence:
-----------
COMPANY:
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
----------------------------------
Name: L. James Porter
Title: Chief Financial Officer
4
<PAGE>
EXHIBIT A
ADVANCE AND PAYMENT HISTORY
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
DATE CANADIAN FUNDS (CANADIAN FUNDS)
$ $
<S> <C> <C>
11/15/97 5,950 5,950
11/30/97 840 6,790
12/05/97 7,588 14,378
12/05/97 465 14,843
12/05/97 480 15,323
12/09/97 138 15,761
12/15/97 11,214 26,975
12/15/97 785 27,760
12/31/97 3,061 30,821
12/31/97 187 31,008
01/03/98 2,210 33,218
01/12/98 2,091 35,309
137 35,446
01/14/98 3,327 38,773
232 39,005
02/02/98 6,000 45,005
03/03/98 1,935 46,940
03/05/98 2,182 49,122
03/25/98 332 49,454
04/02/98 11,095 60,549
04/27/98 (13,283) 47,266
04/28/98 (12,000) 35,266
04/30/98 2,266 37,534
05/01/98 1,824 39,358
05/03/98 200 39,558
05/15/98 10,948 50,506
05/19/98 8,970 59,476
05/31/98 7,844 67,320
06/05/98 (20,000) 47,320
06/03/98 857 48,177
06/05/98 (20,000) 28,177
06/15/98 7,505 35,682
06/15/98 625 36,307
06/18/98 3,698 40,005
06/30/98 9,438 49,443
06/30/98 12,000 61,443
07/03/98 (11,573) 49,870
07/09/98 8,967 58,837
07/10/98 5,000 63,837
07/31/98 6,140 69,977 (YEAR END)
08/07/98 13,173 83,150
08/07/98 (15,000) 68,150
5
<PAGE>
08/11/98 623 68,773
08/18/98 10,000 78,773
08/21/98 10,000 88,773
08/24/98 10,000 98,773
09/01/98 10,000 108,773
09/15/98 10,000 118,773
09/23/98 5,000 123,773
09/28/98 50,000 173,773
10/01/98 6,000 179,773
10/16/98 5,000 184,773
10/19/98 10,000 194,773
03/31/99 (194,773) 0
03/31/99 200,000 200,000
</TABLE>
6
<PAGE>
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, THE
SECURITIES ACT OF WASHINGTON, OR THE SECURITIES ACT OF ANY OTHER STATE. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE APPLICABLE ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THE SECURITIES THAT AN EXEMPTION UNDER THE APPLICABLE ACT IS AVAILABLE
AND THAT SUCH REGISTRATION IS NOT REQUIRED.
NOTE
PRINCIPAL: Cdn $115,000.00 DATE: July 26, 1999
1. PROMISE TO PAY. In return for value received, GLOBAL MEDIA CORP.
("Borrower") promises to pay to the order of SANDCASTLE INN LTD. ("Lender"), at
the address below the Lender's signature, or at such other place as Lender may
designate, the principal amount of One Hundred Fifteen Thousand Canadian Dollars
(Cdn $115,000), plus interest and all other sums due under this Note.
2. INTEREST. Interest on the unpaid principal balance of this Note
shall accrue daily at rate 9% per annum, until all sums due under this Note are
paid in full.
3. PAYMENTS. Borrower shall make payments of Cdn $28,750 in principal
plus accrued and unpaid interest to Lender on October 31, 1999, January 31,
2000, April 30, 2000, and July 31, 2000 (the "Due Date"). On the Due Date, the
Borrower shall also pay to Lender all outstanding principal, accrued interest,
and any other unpaid sums due under this Note. The Borrower may completely or
partially prepay this Note at any time. The Borrower, however, must continue to
make all payments when due, despite any prepayments. Lender shall apply every
payment or prepayment first to Lender's charges and costs, then to unpaid
accrued interest due under this Note, and then to the principal balance.
4. DEFAULT. Lender may declare the Borrower to be in default, and all
amounts due under this Note immediately due in full if the Borrower fails to
make any payment when due under this Note. However, Lender's failure to exercise
any right available to it upon the Borrower's default, or to strictly enforce
any term of this Note, the Loan Agreement or the Security Documents, does not
constitute a waiver of that right or term.
5. USURY. Lender and the Borrower specifically intend this Note to bear
a lawful rate of interest. If any competent court finds that this Note's rate of
interest is unlawful, the interest rate shall be reduced to the highest legal
rate. Lender shall apply any excess interest previously collected to this Note's
unpaid principal balance, or, if this Note is fully repaid, return it to the
Borrower.
7
<PAGE>
6. WAIVERS. The Borrower and all other persons liable or to become
liable on this Note waive presentment, demand of payment, notice of dishonor,
protest, notice of nonpayment, and all other notices and demands.
7. APPLICABLE LAW, JURISDICTION; VENUE. This Note shall be governed by,
construed, and enforced under the laws of the state of Washington. The Borrower
submits to the jurisdiction and venue of any court located in King County,
Washington.
8. ATTORNEY FEES AND COSTS. The Borrower agrees to pay all of Lender's
reasonable costs incurred, with or without legal action, in collecting any
amounts due under this Note, or upon appeal or bankruptcy proceedings, including
attorneys' fees incurred as a result of a lawsuit, appeal and/or bankruptcy
proceeding.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
GLOBAL MEDIA CORP.
By: /s/ L. James Porter
------------------------------------
Name: L. James Porter
Title: Chief Financial Officer
8
<PAGE>
EXHIBIT 10.21
CONFIDENTIAL TERM SHEET FOR STRATEGIC RELATIONSHIP
BETWEEN
GLOBAL MEDIA CORP. ("GLOBAL MEDIA")
AND
STANDARD RADIO INC. ("STANDARD")
This Term Sheet is entered into between Global Media and Standard as of October
8, 1999 (the "Effective Date") and summarizes the principal terms with respect
to a strategic relationship between Global Media and Standard (the "Strategic
Relationship"):
TOTAL
INVESTMENT: U.S. $2 million (the "Investment")
SHARES: 338,983 shares (the "Shares") of Global Media's newly issued
common stock, par value U.S. $0.001 per share ("Common
Stock"). The Shares will be unregistered, restricted stock
bearing a restrictive legend. Global Media will grant
piggyback registration rights to Standard with regard to the
Shares, for the shorter of three years after the Effective
Date or the expiration of the applicable holding period
under Rule 144 of the Securities Act of 1933.
PRICE PER SHARE: U.S. $5.90
CLOSING: The signing of definitive documents and closing of
the Investment and the other transactions provided
for in this Term Sheet (the "Closing") will be
effective as of the close of business on the
Effective Date, and the Closing will take place by no
later than October 22, 1999, subject to extension by
mutual agreement (the "Closing Date"). Global Media
will provide such definitive documents by October 15, 1999.
BOARD
REPRESENTATION: Global Media will appoint Gary Slaight, Standard's president,
subject to closing of the Investment, to fill a vacant
position on Global Media's board of directors for a term
beginning as of the day after the Effective Date. For the
shorter of three years after the Effective Date or as long
as Standard owns at least 25% of the Shares, Global Media
will nominate Slaight (or another mutually-acceptable designee
of Standard) for election to Global Media's board of
directors. Upon Slaight initially accepting a position on
Global Media's board of directors, Global Media will award
Slaight options to purchase 125,000 shares of Global Media's
Common Stock, pursuant to Global Media's 1999 Stock Option
Plan, for an exercise price equal to the closing sales price
of the Common Stock on the OTC Bulletin Board on the date of
grant (the "Fair Market Value").
<PAGE>
E-COMMERCE AND
STREAMING MEDIA
AGREEMENTS: Standard will cause all radio stations owned by it now or
during the three years following the Effective Date (the
"Standard Stations") to become network associates in the
Global Media Network for private label e-commerce and in the
Global Media Broadcast Network for streaming media. Standard
and each Standard Station will enter into a mutually
acceptable co-marketing and sale agreement (the "Network
Associate Agreement") for a term of three years. Global
Media will not charge any set-up fee for installing Global
Media's private-label e-commerce solution or its streaming
media solution on the web sites of the existing Standard
Stations and of up to 12 additional stations controlled by
Standard. Under the Network Associate Agreements, Global
Media will pay to Standard 60% of the gross margin on all
sales made through each Standard Station's web site. "Gross
margin" means the sales price of products sold through each
Standard Station's web site, less applicable taxes and
Global Media's actual, direct cost of goods sold with respect
to such products. In addition, for the first year after the
Effective Date, Standard will pay to Global a fee equal to
Global Media's cost of providing streaming media services to
each of the Standard Stations. For the remaining two years
of the term, Standard will pay Global a fee equal to the
greater of (a) Global Media's cost of providing streaming
media services to the Standard Stations, or (b) 75% of
the lowest streaming media fee charged by Global Media to any
other broadcast network associate.
FIRST MOVER
STATUS: Global Media will not commercially launch any new features,
developments or components of Global Media's e-commerce or
streaming media solutions, that are logically implemented
on a station-by-station basis, on the web sites of any other
of its network associates that are located in Canada, unless
and until such developments have been first made commercially
available for one month on the web sites of the stations
controlled by Standard located in Canada. In addition, Global
Media will agree to obtain Standard's approval before entering
into any network associate agreements with radio stations
located in Canada which are direct competitors of Standard in
the same programming genre and broadcast range as the stations
controlled by Standard in Canada.
CONSULTING
AGREEMENTS: Global Media and each of the six general managers of the
Standard Stations, Standard's national program director
and the general manager of Standard's syndication division
(collectively, the "Consultants") will enter into a
mutually-acceptable consulting agreement. In that consulting
agreement, each Consultant will agree to serve on an ad hoc
advisory committee to review and provide customer-centric
feedback on features of Global Media's e-commerce and
broadcasting systems, particularly new developments prior to
their commercial implementation. In such capacity, each
Consultant will make him or herself reasonably available on
an as-
<PAGE>
needed basis to review and consult with Global Media on
such features. In addition, during the year following the
Closing, each Consultant will agree to attend, either in
person or telephonically, up to six meetings of the ad hoc
committee with representatives of Global Media. It is
expected that three meetings will occur during the first
quarter following the Closing, with one meeting per quarter
thereafter. In addition to service on the ad hoc committee,
each Consultant will (a) assist Global Media in promoting the
Global Media Network and the Global Media Broadcast Network
to potential network associates, (b) introduce Global Media
representatives to the Consultants' contacts in the radio
industry who are or may know potential network associates,
and (c) facilitate the successful consummation of
agreements with potential network associates whom the
Consultants have introduced to Global Media. In exchange for
such services, Global Media will grant each Consultant
options to purchase up to a maximum of 20,000 shares of
Global Media's common stock, pursuant to its 1999 Stock
Option Plan. Such options will vest as follows:
(1) 1,500 options per meeting of the ad hoc advisory
committee actually attended;
(2) 1,000 options per Prospect, as defined
below, for each personal introduction to the
decision maker at that Prospect; and
(3) 1,500 additional options per Prospect with
whom Global Media has successfully closed
any network associate agreements.
Options will be exercisable only to the extent vested
in accordance with the terms above.
"Prospect" means an entity that owns or operates
radio stations that the Consultant believes in good
faith will be interested in subscribing to the Global
Media E-Commerce Network and/or the Global Media
Broadcast Network, where Global Media does not have a
then-existing relationship with or contact at such
entity or its constituent radio stations.
These options will be have an exercise price equal to
the Fair Market Value of the shares underlying the
options and will be granted pursuant to Global
Media's 1999 Stock Option Plan.
CONFIDENTIALITY: Except as provided below, the parties agree to keep this Term
Sheet and its contents confidential and not to distribute it
to, or discuss it with, any third party (other than their
respective legal, financial or accounting advisors, who will
be informed of the confidential nature of this document),
without the prior written consent of the other party.
Following execution of this Term Sheet, Global Media may
prepare a press release with respect to the Strategic
Relationship and submit it to Standard for its review and
approval, which will not be withheld unreasonably. Global
Media may,
<PAGE>
without Standard's prior consent, disclose this
Term Sheet and its contents, as well as the definitive
agreements with respect to the Strategic Relationship, in
its filings with the U.S. Securities and Exchange Commission.
EFFECT OF
TERM SHEET: This Term Sheet is a binding agreement of the
parties to enter into definitive documents effecting
the Strategic Relationship pursuant to the terms of
this Term Sheet, subject to the parties' negotiation
of a mutually acceptable form of Network Associate
Agreement. Standard has no rights as a shareholder of
Global Media until consummation of the Closing.
GENERAL
PROVISIONS: This Term Sheet supersedes any prior discussions concerning
the Investment or the Strategic Relationship and will be
governed by and construed under Nevada law. Time is of the
essence of each and every term, covenant and condition of
this Term Sheet. The parties are each responsible for
their own expenses incurred in connection with the
negotiation, preparation, execution and delivery of this Term
Sheet and the definitive documents evidencing the Investment
and the Strategic Relationship. All such documents will be
drafted by Davis Wright Tremaine LLP, counsel for Global
Media. Standard acknowledges that it has had the opportunity
to seek the advice of independent legal counsel with regard
to this Term Sheet. This Term Sheet may be executed in two
or more counterparts, all of which will constitute but one
and the same instrument.
Executed as of the first date written above.
GLOBAL MEDIA CORP.
By: /S/ L. James Porter
-------------------
Name: L. James Porter
---------------
Title: Chief Financial Officer
-----------------------
STANDARD RADIO INC.
By: /S/ David Coriat
----------------
Name: David Coriat
------------
Title: Exec. VP
--------
<PAGE>
EXHIBIT 10.22
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN AND WILL NOT BE, AS OF THE TIME OF ISSUANCE, REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW, AND
MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER SUCH ACT. THIS WARRANT AND SUCH SHARES MAY BE TRANSFERRED ONLY
IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.
GLOBAL MEDIA CORP.
COMMON STOCK PURCHASE WARRANT
ISSUE DATE: May 7, 1999
EXPIRATION DATE: May 7, 2004
GLOBAL MEDIA CORP., a Nevada corporation (the "Company"), for value
received, hereby certifies that __________________________ ("Holder"), is
entitled to purchase ____________________________ (_________) shares (the
"Warrant Shares") of the Company's common stock, $.001 par value per share (the
"Common Stock") at the times and according to the terms set forth in this
Warrant.
1. EXERCISE PRICE. The exercise price for each Warrant Share is U.S.
$8.125 (the "Exercise Price").
2. EXERCISE PERIOD. The Holder may exercise this Warrant at any time
during the Company's regular business hours on any business day after the Issue
Date and before 5:00 p.m., Pacific Time, on the Expiration Date (the "Exercise
Period").
3. EXERCISE PROCEDURE. In order to exercise this Warrant, the Holder
must surrender this Warrant to the Company at the Company's principal office
during the Exercise Period, accompanied by each of the following:
3.1 SUBSCRIPTION AGREEMENT. An executed subscription agreement
in substantially the form of the attached EXHIBIT A (the "Subscription").
3.2 EXERCISE PRICE. Payment of an amount in U.S. funds equal to
(a) the number of Warrant Shares designated in the Subscription, multiplied by
(b) the Exercise Price (the "Exercise Payment"), by either of the following
methods, at the Holder's election:
3.2.1 CASH. In cash, by certified or official bank check
payable to the order of the Company, by wire transfer or other immediately
available funds, or by any combination of such methods; or
1
<PAGE>
3.2.2 CASHLESS EXERCISE. By directing on the Subscription
that the Company retain that portion of the Warrant Shares designated in the
Subscription that have a value equal to the Exercise Payment, based on the
closing sale price of the Common Stock on the NASD Over-the Counter Bulletin
Board on the trading day preceding the Effective Date any of exercise. In each
exercise under this SECTION 3.2.2, the number of Warrant Shares retained by the
Company as the Exercise Payment shall be rounded up to the nearest full share.
4. PARTIAL EXERCISE ALLOWED; ISSUANCE OF SUBSTITUTE WARRANT. The
Holder may exercise all or a portion of this Warrant at any one time. If the
Holder exercises only a portion of this Warrant, then the Company shall issue
the Holder a replacement Warrant ("Replacement Warrant") within ten business
days after the Effective Date of the partial exercise. The Replacement Warrant
shall have terms identical to this Warrant, except that the number of Warrant
Shares issuable under the Replacement Warrant shall be reduced by the number of
Warrant Shares exercised in the partial exercise.
5. EFFECTIVENESS OF EXERCISE. Any exercise of this Warrant shall be
effective immediately before close of business on the business day on which all
of the conditions of SECTION 3 have been met (the "Effective Date"). On the
Effective Date of any exercise, (a) the Holder shall be entitled to receive the
number of Warrant Shares indicated on the Subscription for that exercise, less
any Warrant Shares retained by the Company as the Exercise Payment under SECTION
3.2.2, and (b) the person or persons in whose name or names any certificate or
certificates for Warrant Shares are to be issued upon such exercise shall be
deemed for all corporate purposes to have become the holder of record of such
Warrant Shares (the "Shareholder").
6. DELIVERY OF STOCK CERTIFICATES. Within ten business days after the
Exercise Date, the Company will cause to be issued in the name of and delivered
to the Shareholder, a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares issued
upon such exercise. The Company will pay any expenses incurred in connection
with issuance and delivery of the certificates, including the payment of any
applicable issue or transfer taxes.
7. ANTI-DILUTION. The Company will adjust the number of unissued
Warrant Shares and the Exercise Price proportionally with any split, reverse
split or subdivision of the outstanding shares of Common Stock (except by
payment of a dividend in Common Stock) which occurs at any time before the
expiration date of this Warrant.
8. RESERVATION OF SHARES. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, the number of shares of Common Stock issuable under this Warrant or any
Replacement Warrant. All such shares of Common Stock shall be duly authorized
and, when issued upon such exercise, shall be validly issued, fully paid and
nonassessable with no liability on the part of Holder, except as may have been
caused by the Holder.
9. OWNERSHIP; TRANSFER. The Company will treat the Holder as the
owner of this Warrant for all purposes, unless and until the Company receives
notice to the contrary. Subject to federal and state securities laws, this
Warrant shall be transferable by Holder. The Company shall recognize on its
books and records any lawful transfer of this Warrant upon receipt of notice of
such
2
<PAGE>
transfer from Holder. After such transfer, the Holder's transferee shall be
considered the Holder for purposes of this Warrant.
10. LOSS OR DESTRUCTION. If this Warrant is lost, stolen or mutilated,
the Company will issue the Holder a common stock purchase warrant identical to
this Warrant upon the Company's receipt of (a) evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and (b) an indemnity from the Holder in a form and amount reasonably
satisfactory to the Company.
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing shall give or
shall be construed to give Holder any of the rights of a shareholder of the
Company including: (a) the right to vote on matters requiring the vote of
shareholders, (b) the right to receive any dividends declared and payable to the
holders of Common Stock, or (c) the right to a pro-rata distribution upon the
Company's dissolution.
12. REPRESENTATIONS; WARRANTIES. The Company represents and warrants
that:
12.1 The Company is duly organized, validly existing, and in
good standing under the laws of the State of Nevada, and has the requisite power
and authority to issue this Warrant and the Warrant Shares.
12.2 The number of Warrant Shares issuable upon the entire
exercise of this Warrant are presently authorized but unissued.
12.3 The issuance of this Warrant and the Warrant Shares has
been authorized and approved by all necessary corporate action.
12.4 The execution, delivery and issuance of this Warrant and
the Warrant Shares will not (a) violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Company or the provision or
provisions of any agreement to which the Company is a party or is subject, or by
which any of the Company's property is bound, (b) conflict with or constitute a
material default thereunder, (c) result in the creation or imposition of any
lien pursuant to the terms of any such agreement, (d) constitute a breach of any
fiduciary duty owed by the Company to any third party, or (d) require the
approval of any third party pursuant to any contract, agreement, instrument,
relationship or legal obligation to which the Company is subject or to which any
of its properties may be subject.
12.5 When issued, this Warrant and the Warrant Shares shall be
duly and validly issued, fully paid and nonassessable.
13. NOTICES. All notices and other communications provided for in this
Warrant shall be delivered or mailed by first-class mail, postage prepaid, and
addressed (a) if to any Holder or Shareholder, at the registered address of such
person as set forth in the register kept at the Company's principal office, or
(b) if to the Company, at its principal office, or to such other location as the
Company shall have furnished to each Holder or Shareholder in writing; provided,
however, that the exercise of this Warrant shall be effective only in the manner
provided in SECTION 3.
3
<PAGE>
14. MISCELLANEOUS. This Warrant embodies the entire agreement and
understanding between the parties with respect to the subject matter of this
Warrant and supersedes all prior agreements and understandings relating to the
subject matter of this Warrant. There are no unwritten oral agreements between
the parties with respect to the subject matter of this Warrant. This Warrant and
any term of this Warrant may be changed, waived, discharged or terminated only
by an instrument in writing signed by the party against which enforcement of
such change, waiver, discharge or termination is sought. This Warrant shall be
governed by the laws of the State of Nevada. Time is of the essence of each and
every term, covenant and condition of this Warrant.
GLOBAL MEDIA CORP.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
4
<PAGE>
EXHIBIT A
SUBSCRIPTION
TO BE EXECUTED BY THE HOLDER OF THE WARRANT IN ORDER TO EXERCISE THE RIGHT TO
PURCHASE COMMON STOCK EVIDENCED BY THE WARRANT.
To: GLOBAL MEDIA CORP.
400 Robson Street
Vancouver, British Columbia
Canada V6B 2B4
The undersigned hereby irrevocably subscribes for ___________ shares (the
"Shares") of the common stock, $.001 par value per share, of GLOBAL MEDIA CORP.,
a Nevada corporation, for an exercise price of $8.125 per share, pursuant to and
in accordance with the terms and conditions of a Warrant dated May 7, 1999 (the
"Warrant"). The undersigned requests that a certificate for the Shares be issued
in the name of ______________________ and be delivered to the following address:
-------------------------------
-------------------------------
The undersigned acknowledges that the Company shall have no obligation to issue
the Shares until the Company has received (a) the original of this Subscription
and the attached SCHEDULE 1 both signed by the holder of the Warrant, (b) the
original Warrant, (c) payment for the Shares as indicated below, and (d) any
other documents that the Company may reasonably require in connection with such
exercise. Payment is made as follows (check one):
/ / CASH. $_________ cash, cashiers check, or wire transfer.
/ / CASHLESS EXERCISE. The Company is directed to retain a portion
of the Shares as computed pursuant to SECTION 3.3.2 of the Warrant.
Date: Name:
---------------- -------------------------------
By
-----------------------------
Its
----------------------------
Address:
-------------------------------
-------------------------------
Taxpayer ID #:
-----------------
5
<PAGE>
SCHEDULE 1
TO: GLOBAL MEDIA CORP.
400 Robson Street
Vancouver, British Columbia
Canada V6B 2B4
RE: ___________ SHARES OF COMMON STOCK OF GLOBAL MEDIA CORP. (THE "SHARES")
This letter is given to you in connection with the undersigned's
acquisition of the above described Shares.
1. The Shares are being acquired by the undersigned for investment
for the undersigned's own account and not on behalf of any other persons, and
not with a view to, or for resale or other distribution in connection with, any
distribution of all or any part of the Shares, unless pursuant to a transaction
exempt from the registration and prospectus delivery requirements of state and
federal securities laws.
2. You shall not be required to effect, permit or recognize any sale,
offer for sale, exchange, transfer, assignment or pledge of any or all of the
Shares unless they are registered under the Securities Act of 1933, and any
applicable state securities acts (collectively, the "Acts"), or unless you are
furnished with an attorney's opinion, reasonably acceptable to you, that such
registration is not required. You shall be entitled to cause legends to this
effect to be endorsed on any certificates evidencing the Shares. Further, you
shall have the right to place a stop-transfer order with your Secretary or
transfer agent pursuant to which transfer of all or any portion of the Shares
shall be prohibited except upon a proper showing of compliance with this letter.
3. The undersigned understands that it must bear the economic risk of
this investment for an indefinite period of time because the Shares have not
been registered under the Acts, and consequently cannot be sold or otherwise
transferred unless they are subsequently registered under the Acts or exemptions
from registration are available.
Very truly yours,
Dated:
---------------- ----------------------------
6
<PAGE>
EXHIBIT 10.23
Dated as of May 1, 1999
Mr. Michael Metcalf
President, Chairman
Global Media Corp.
83 Victoria Crescent
Nanaimo, BC
Canada V9R 5B9
Re: Outside Director of Global Media Corp.
Dear Michael:
The purpose of this letter is to set forth the major terms and conditions under
which I will become a non-exclusive outside member of the board of directors of
Global Media Corp. ("GMC"). There may be many related issues which we will need
to address over the next few months, but I believe the points set forth below
reflect the agreement we have reached at this time.
1. NATURE OF RELATIONSHIP: I agree to serve as a non-exclusive
outside member of the board of directors of GMC for twelve months beginning
as of May 1, 1999 (the "Term"). As a non-exclusive outside director, it is
understood and agreed that I will be able to pursue other business activities
that are not competitive with GMC. As you know, I am in the process of trying
to put together an independent production, financing and distribution company
which would function in much the same way as my previous company, Largo
Entertainment, Inc. ("Largo"), and you have acknowledged that this activity
is not in conflict with my involvement with GMC.
2. DUTIES AND RESPONSIBILITIES: I will become familiar with all
aspects of GMC's business, and will become actively involved in all areas,
especially in the area of strategic planning for GMC in general.
3. TIME COMMITMENT: I will be available on an "as needed/as
available" basis.
4. OPTIONS: As consideration for my services to GMC during the Term,
I will be granted 125,000 options for GMC stock, with each option
representing one share of stock, under the following terms and conditions:
a. 10,416 options will vest at the end of each month during the
Term, except for the last month of the Term, at which time 10,424 options
will vest.
<PAGE>
b. All options will vest each month during the Term at $4.00 each.
c. If at any time during the Term my relationship with GMC is
involuntarily terminated, all unvested options will vest immediately at $4.00
each.
d. All options covered by this Section 4 will remain exercisable
for ten years following their respective vesting date.
5. INDEMNITY/INSURANCE: GMC will hold me harmless with respect to any
liability in my capacity as a non-exclusive outside director, and will
provide me with the following:
a. A corporate indemnity with respect to such liability.
b. Proof of a policy for directors and officers liability
insurance, issued within the next 60 days, which covers me as of the date
hereof and is in effect for the duration of the Term.
6. MISCELLANEOUS:
a. All travel during the Term shall be at business class rates.
b. GMC will reimburse me for all expenses incurred in my capacity
as an outside director, including my business class airfare to the Cannes
Film Festival.
c. GMC will provide me with a laptop computer, which I will
return to GMC at the end of the Term if it is not extended.
d. If GMC establishes an office in Los Angeles, and makes space
available for me in that office, it is understood that I will be allowed to
pursue my outside activities from that facility as long as I am serving as a
non-exclusive outside director.
e. We will mutually approve the content and timing of a press
release announcing my appointment.
7. ADDITIONAL GENERAL PROVISIONS:
a. This letter agreement shall be governed by the laws of the
State of California as if fully executed and performed within this State.
b. It may be necessary to amend or replace this letter agreement
by a more complete long-form agreement at a later date. However, until such
long-form agreement is fully executed (if ever), this letter agreement shall
represent the entire agreement between us, and there are no other oral or
written understandings between us which govern our relationship.
c. This letter agreement cannot be modified except by a written
document executed by both of us.
<PAGE>
d. This letter agreement can be signed in counterparts, which
taken together shall constitute a valid and binding fully-executed document.
IF THE CONTENTS OF THIS LETTER ACCURATELY REFLECT YOUR UNDERSTANDING OF OUR
AGREEMENT, PLEASE SIGN IN THE SPACE INDICATED BELOW.
Sincerely yours,
/s/ Barr B. Potter
Barr B. Potter
ACCEPTED AND AGREED TO:
Global Media Corp.
By: /s/ Michael Metcalfe
---------------------------
Michael Metcalfe
President, Chairman
<PAGE>
Dated as of September 13, 1999
Mr. Michael Metcalf
President, Chairman
Global Media Corp.
400 Robson Street
Nanaimo, BC
Canada V6B 2B4
Re: Outside Director of Global Media Corp.
Dear Michael:
The purpose of this letter is to modify certain of the terms and conditions
of the Letter Agreement, dated as of May 1, 1999, between me and Global Media
Corp. ("GMC"), pursuant to which I agreed to become associated with GMC as a
non-exclusive outside member of the board of directors.
Section 4 of the Letter Agreement shall be deleted in its entirety, and the
following substitute therefore:
"4. OPTIONS: As consideration for my services to GMC during the Term,
I will be granted 125,000 options for GMC stock, with each option
representing one share of stock, under the following terms and conditions:
a. All options shall be deemed to have vested as of April 23, 1999.
b. All options shall have vested at $4.00 each.
c. All options shall remain exercisable until April 23, 2004."
Except as otherwise modified above, all terms and conditions of the Letter
Agreement shall remain in full force and effect.
<PAGE>
IF THE FOREGOING ACCURATELY REFLECTS YOUR UNDERSTANDING OF THE WAY IN WHICH THE
LETTER AGREEMENT SHALL BE AMENDED, PLEASE SIGN IN THE SPACE INDICATED BELOW.
Sincerely yours,
/s/ Barr B. Potter
Barr B. Potter
ACCEPTED AND AGREED TO:
Global Media Corp.
By: /s/ Michael Metcalfe
---------------------------
Michael Metcalfe
President, Chairman
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the use in this Annual Report (Form 10-KSB) of Global Media
Corp. of our report with respect to the Company's consolidated financial
statements for the year ended July 31, 1999.
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-62027 pertaining to the 1998 Stock Option Plan and No.
333-74921 pertaining to the Global Media Stock Option Plan) of Global Media
Corp., and in the related prospectuses, of our report dated September 23,
1999 (except as to note 9(i) and 12(i) which are as of October 19, 1999) with
respect to the consolidated financial statements of Global Media Corp.
incorporated by reference in the Annual Report (Form 10-KSB) for the year
ended July 31, 1999.
/s/ Ernst & Young LLP
-----------------------------------
Vancouver, Canada Chartered Accountants
October 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 5,649,073
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,011,169
<PP&E> 1,754,506
<DEPRECIATION> 217,072
<TOTAL-ASSETS> 7,548,603
<CURRENT-LIABILITIES> 722,131
<BONDS> 0
7,089,775
0
<COMMON> 12,658
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,548,603
<SALES> 0
<TOTAL-REVENUES> 7,091
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,312,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278,435
<INCOME-PRETAX> (2,228,493)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,228,493)
<DISCONTINUED> (2,581)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,231,074)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
