<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number: 0-23491
GLOBAL MEDIA CORP.
(Exact name of registrant as specified in its charter)
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<S> <C>
NEVADA 91-1842480
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
400 ROBSON STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6B 2B4
(Address of Principal Executive Offices; Zip Code)
Registrant's telephone number, including area code: (604) 688-9994
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No_____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes____ No____
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: AS OF AUGUST 18, 2000, THERE WERE
27,387,034 SHARES OUTSTANDING OF THE COMPANY'S COMMON STOCK.
THIS REPORT ON FORM 10-QSB/A CONSTITUTES AMENDMENT NO. 1 TO THE REGISTRANT'S
FORM 10-QSB FOR THE QUARTER ENDED JANUARY 31, 2000. THIS REPORT IS INTENDED
TO AMEND CERTAIN INFORMATION CONTAINED IN PART I, ITEMS 1 AND 2. SEE NOTE 7
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE BASIS FOR SUCH AMENDMENTS.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
GLOBAL MEDIA CORP.
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<CAPTION>
CONSOLIDATED BALANCE SHEETS
(as restated - SEE Note 7)
(Unaudited)
(in US dollars)
JANUARY 31 JULY 31
2000 1999
$ $
---------- ---------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 2,542,833 5,649,073
Short-term investments 240,000 240,000
Trade and other receivables 182,200 84,336
Prepaid expenses 40,384 37,760
------------ ----------
3,005,417 6,011,169
Capital assets [NOTE 4] 4,849,440 1,537,434
------------ ----------
7,854,857 7,548,603
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 395,359 368,094
Due to affiliated company [NOTE 5] 52,091 132,946
Due to shareholders [NOTE 5] 94,349 221,091
Current portion of long-term debt 66,180 --
------------ ----------
607,979 722,131
LONG-TERM DEBT
Lease payable 86,407 --
------------ ----------
694,386 722,131
------------ ----------
Commitments and contingencies [NOTE 9]
Convertible preferred shares [NOTE 7] -- 7,089,775
SHAREHOLDERS' EQUITY
Convertible preferred shares [NOTE 7] 5,709,104 --
100,000,000 authorized, 6,625 issued and outstanding
Common shares, par value $0.001 each, 200,000,000 authorized, 14,131 12,658
22,128,826 and 20,656,331 issued and outstanding [NOTE 6]
------------ ----------
5,723,235 12,658
Additional paid in capital [NOTE 7] 12,039,002 2,617,109
Deficit (10,601,766) (2,893,070)
------------ ----------
7,160,471 (263,303)
------------ ----------
7,854,857 7,548,603
============ ==========
</TABLE>
SEE ACCOMPANYING NOTES
2
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GLOBAL MEDIA CORP.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
(Unaudited)
(in US dollars)
FOR 3 MONTHS FOR 6 MONTHS
ENDED JANUARY 31 ENDED JANUARY 31
2000 1999 2000 1999
$ $ $ $
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
SALES 58,635 -- 72,280 --
COST OF SALES 57,923 130,713
----------- --------- --------- ----------
GROSS PROFIT (LOSS) 712 -- (58,433) --
----------- --------- --------- ----------
OPERATING EXPENSES
Depreciation and amortization 256,267 22,230 347,851 35,277
General and administrative 500,701 113,868 790,792 203,269
Sales and marketing 1,114,037 25,265 1,661,171 33,967
Shareholder communications 59,395 52,317 126,595 93,286
Stock options compensation [NOTE 6] -- -- -- 548,800
Technical operations and development 577,817 -- 1,085,573 --
----------- --------- --------- ----------
2,508,217 213,680 4,011,982 914,599
LOSS FROM CONTINUING OPERATIONS AND
BEFORE OTHER ITEMS (2,507,505) (213,680) (4,070,415) (914,599)
----------- --------- --------- ----------
OTHER ITEMS
Interest 64,353 -- 76,626 --
Financing (74,517) (9,905) (74,517) (10,873)
Foreign exchange 9,279 (1,161) 4,644 (4,374)
----------- --------- --------- ----------
LOSS AND COMPREHENSIVE LOSS BEFORE
DISCONTINUED OPERATIONS (2,508,390) (224,746) (4,063,662) (929,846)
DISCONTINUED OPERATIONS [NOTE 3] -- 4,984 -- (2,065)
----------- --------- --------- ----------
LOSS AND COMPREHENSIVE LOSS FOR THE PERIOD
(2,508,390) (219,762) (4,063,662) (931,911)
=========== ========== =========== ==========
LOSS PER COMMON SHARE (0.11) (0.01) (0.19) (0.05)
=========== ========== =========== ==========
WEIGHTED AVERAGE SHARES USED IN THE
COMPUTATION OF LOSS PER SHARE 22,104,264 20,108,698 21,772,984 19,999,764
=========== ========== =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
3
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GLOBAL MEDIA CORP.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
(as restated - SEE NOTE 7)
(Unaudited)
(in US dollars)
ADDITIONAL RETAINED
PREFERRED STOCK COMMON STOCK PAID IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
# $ # $ $ $
--------- ----------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1998 -- -- 19,890,831 11,892 543,525 (661,996)
Preferred shares issued [NOTE 7] 8,500 7,089,775 -- -- -- --
Warrants issued on financing [NOTE -- -- -- -- 1,000,000 --
7]
Stock options exercised -- -- 765,500 766 392,484 --
Compensatory stock options -- -- -- -- 681,100 --
Loss for the year -- -- -- -- -- (2,231,074)
--------- ----------- ----------- ---------- ----------- -------------
BALANCE, JULY 31, 1999 8,500 7,089,775 20,656,331 12,658 2,617,109 (2,893,070)
Stock options exercised -- -- 605,551 606 2,193,714 --
Conversion of preferred shares (1,875) (1,625,705) 495,426 495 1,625,210 __
[NOTE 7]
Conversion of amounts due to __ __ 32,535 33 203,313 __
shareholder __ __ 338,983 339 1,999,656 __
and affiliated company [NOTE 5]
Issue of restricted shares [NOTE 8]
Deemed dividend on beneficial
conversion feature [NOTE 7] -- -- -- 3,400,000 (3,400,000)
Loss for the quarter -- __ -- -- --(4,063,662)
Accrued preferred share premium -- 245,034 -- -- -- (245,034)
--------- ----------- ----------- ---------- ----------- -------------
BALANCE, JANUARY 31, 2000 6,625 5,709,104 22,128,826 14,131 12,039,002 (10,601,766)
========= =========== =========== ========== =========== =============
</TABLE>
SEE ACCOMPANYING NOTES
4
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GLOBAL MEDIA CORP.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in US dollars)
FOR 6 MONTHS
ENDED JANUARY 31
2000 1999
$ $
----------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the period (4,063,662) (931,911)
Items not requiring an outlay of cash
Share option compensation expense [NOTE 6] -- 548,800
Share option professional fees expense [NOTE 6] -- 12,600
Amortization 347,851 50,508
----------- ----------
(3,715,811) (320,003)
Changes in non-cash operating working capital
Trade and other receivables (97,864) --
Inventory -- 1,992
Prepaid expenses (2,624) 4,466
Accounts payable and accrued liabilities 27,265 (74,887)
----------- ----------
CASH USED IN OPERATING ACTIVITIES (3,789,034) (388,432)
----------- ----------
INVESTING ACTIVITIES
Capitalized development costs (2,970,337) --
Purchase of capital assets (728,014) (147,016)
----------- ----------
CASH USED IN INVESTING ACTIVITIES (3,698,351) (147,016)
----------- ----------
FINANCING ACTIVITIES
Advances (to) from shareholders (16,466) 150,131
Advances (to) from affiliated company (14,467) 154,104
Note payable -- 500,000
Lease payable 152,587 --
Issue of restricted shares 1,999,995 --
Stock options exercised 2,194,320 326,800
----------- ----------
CASH PROVIDED BY FINANCING ACTIVITIES 4,315,969 1,131,035
----------- ----------
Effect of exchange rate changes on cash 65,176 (207)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE (3,106,240) 595,380
QUARTER
Cash and cash equivalents, beginning of period 5,649,073 14,996
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 2,542,833 610,376
=========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest - paid 6,728 11,610
=========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
The following notes are to be read in conjunction with the notes to our audited
financial statements contained in our Annual Report on Form 10-KSB, filed with
the Securities and Exchange Commission on November 1, 1999.
1. NATURE OF BUSINESS
Global Media Corp. (the "Company") was incorporated on April 8, 1997 in the
State of Nevada and is headquartered in Vancouver, B.C., Canada. During the
third quarter of fiscal 1999, the company adopted an internet-focused business
plan. Since then, it has been engaged primarily in the development of an
electronic commerce web site, the development of a broadcast network over the
internet, including streaming services, a customized media player and simulated
live internet only radio stations, and the development of templates for the
application of the e-commerce back-end system to multiple sites on the internet.
On May 18, 1999 a beta version of the e-commerce web site was launched and in
September 1999, trial implementations were started for network associate
e-commerce storefronts. On August 31, 1999, the beta implementation of the
Global Media Broadcast Network began with the launch of three live network
associate stations. In October 1999, ten simulated live internet-only stations
were launched by the Company and integrated into the Global Media Player, at
that time in beta form. In November 1999, nine of the simulated live stations
were added to the stations directory presets of the RealPlayer. Also in November
1999, a revised version of the online store was launched. In January 2000, the
Global Media Player was commercially launched.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States.
COMPARATIVE FIGURES
Certain amounts for 1999 have been reclassified to conform with the current
quarter's presentation.
LOSS PER SHARE
Basic and fully diluted earnings per share has been computed using the weighted
average number of common shares outstanding during the applicable period. The
effect of common stock options and warrants would be anti-dilutive and therefore
is not included in the calculation of fully diluted earnings per share.
3. DISCONTINUED OPERATIONS
The Company withdrew from the home satellite business in late fiscal 1998 and
the call center business during the third quarter of fiscal 1999, and has
therefore accounted for these businesses as discontinued operations, segregated
in the accompanying consolidated statements of loss and comprehensive loss.
6
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<CAPTION>
4. CAPITAL ASSETS
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------- ------------- -----------
<S> <C> <C> <C>
JANUARY 31, 2000
Broadcast network development 3,675,140 102,299 3,572,841
Communications infrastructure 91,787 64,075 27,712
Computer hardware 878,708 154,044 724,664
Leasehold improvements 43,993 9,838 34,155
Office furniture and equipment 124,971 25,767 99,204
Software 107,936 33,908 74,028
Web site development 530,322 213,486 316,836
--------- ------------- -----------
5,452,857 603,417 4,849,440
========= ============= ===========
JULY 31, 1999
Broadcast network development 704,803 -- 704,803
Communications infrastructure 89,391 44,463 44,928
Computer hardware 295,417 59,834 235,583
Leasehold improvements 14,925 2,269 12,656
Office furniture and equipment 50,661 6,477 44,184
Software 73,450 15,484 57,966
Web site development 525,859 88,545 437,314
--------- ------------- -----------
1,754,506 217,072 1,537,434
========= ============= ===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
[i] AMOUNTS DUE TO SHAREHOLDER AND AFFILIATED COMPANY
As part of the Securities Purchase Agreement with RGC International
Investors LDC ("RGC") [see note 7], the Company agreed to restructure the
amounts due to a shareholder and an affiliated company of a shareholder.
The agreement provided that one half of the amounts due to the shareholder
and affiliated company will be repaid by the issue of common stock at a
conversion price of $6.25 per share.
In furtherance of this agreement, on July 26, 1999 the Company entered into
an agreement with the shareholder to convert 50% of the amount due plus
interest of $16,455 (for a total of $127,000) into common stock at $6.25
per share and to repay the remaining $127,000 in four quarterly
installments of $31,750. The first payment was made in November 1999.
On July 26, 1999 the Company entered into an agreement with the affiliated
company of a shareholder to convert 50% of the amount due plus interest of
$8,413 (for a total of $74,886) into common stock at $6.25 per share and to
repay the remaining $74,886 in four quarterly installments of $18,722. The
first payment was made in November 1999.
7
<PAGE>
6. SHARE CAPITAL
STOCK OPTION PLANS
As of January 31, 2000, the Company had stock options outstanding under two
plans: 180,500 pertain to the 1998 Stock Option Plan and 3,758,535 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 awards including
the conditions of exercise.
The 1998 plan, which became effective on August 21, 1998, provided 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 the 1999 fiscal year at an
exercise price of $0.50 per share, of which 980,000 were granted to employees
and 20,000 were granted to outside contractors. All options were vested on
grant. During the most recent quarter, 13,500 of these options were exercised.
The 180,500 outstanding options have a remaining life of approximately six
months.
At the time of granting options under the 1998 plan, the Company's shares were
not yet publicly traded. On the first day of public trading, the Company's
shares had a closing market price of $1.06 per share. The Company recognized
compensation expense in the first quarter of the 1999 fiscal year of $548,800
for the granting of these options to employees in accordance with APB 25. In
addition, the Company recognized compensation expense of $12,600 in the first
quarter of the 1999 fiscal year for the granting of 20,000 options to outside
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 the most recent quarter, 285,000 options at an exercise
price of $5.13, and 418,210 at an exercise price of $6.25 were granted. Of the
3,812,660 options granted in total, 2,071,910 options vest immediately and
1,740,750 vest on a quarterly basis over one year. The options expire five years
from the date of grant. During the current quarter, 45,500 options were
exercised providing proceeds of $198,480.
Activity in the stock option plans for the current period and prior year is as
follows:
<TABLE>
<CAPTION>
FOR 6 MONTHS FOR THE FISCAL YEAR
ENDED JANUARY 31, 2000 ENDED JULY 31, 1999
------------------------------ -------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
# $ # $
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 3,257,000 3.81 -- --
Granted 784,535 6.02 4,022,500 3.18
Exercised (102,500) 2.21 (765,500) 0.51
------------- ------------ ------------- --------------
Outstanding, end of period 3,939,035 4.29 3,257,000 3.81
============= ============ ============= ==============
Options exercisable at the end of the
period 3,069,785 3.92 2,497,167 3.67
============= ============ ============= ==============
</TABLE>
8
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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 at the date of the grant, 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.
7. CONVERTIBLE PREFERRED SHARES
On May 6, 1999, the Company entered into a Securities Purchase Agreement and
ancillary agreements with RGC International Investors LDC ("RGC") pursuant to
which the Company issued, for cash, a 5% convertible debenture to RGC in the
aggregate principal amount of $8,500,000. On July 19, 1999, the debenture was
converted into 8,500 convertible preferred shares having a stated value of
$1,000 per share. The convertible preferred shares are convertible from time to
time at RGC's option into shares of common stock of the Company as follows: the
stated value of each share of preferred stock together with a premium thereon
accruing at a per annum rate of 5%, is convertible at the lesser of a fixed
conversion price or a variable conversion price based on the market price of the
common shares at the time of conversion. During the quarter, 1,875 preferred
shares were converted to 495,426 common shares, leaving 6,625 convertible
preferred shares outstanding at quarter end. The conversion price of the
preferred shares is the lesser of:
[a] 80% of the average of the seven consecutive lowest closing bid prices of
the common shares reported on the OTC Bulletin Board (or Nasdaq Stock
Market) during the 35 trading days ending one day prior to the date that
RGC exercises its right to convert; or
[b] $6.435.
Upon conversion of preferred shares by RGC, RGC has an investment option 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. During the quarter, RGC exercised
options to purchase 495,426 common shares for net proceeds of $1,936,804. To the
extent any preferred shares are not converted prior to May 6, 2002, any
previously unconverted portion is converted automatically into common shares
under the same conversion terms described above.
In connection with the financing, RGC 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. In addition, the Company agreed to provide the financing
agents warrants to purchase 62,769 common shares at an exercise price of $8.125
which expire in five years.
The proceeds from RGC were allocated to the underlying instruments in accordance
with their fair values at the date of issuance such that $7,500,000 was
allocated to the preferred shares and the related investment options and
$1,000,000 was allocated to the warrants and included in additional paid in
capital. The unamoritzed finance costs are presented as a reduction of the
carrying value of the preferred shares.
9
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At July 31, 1999, the convertible preferred shares were required to be
classified as mezzanine equity as there was a potential mandatory redemption
event relating to the Company's obligation to register the common shares
issuable upon conversion of the preferred shares and upon exercise of the
related investment options and warrants for public resale. On August 26, 1999,
the Company's Form SB-2 registration statement registering the underlying shares
was declared effective by the SEC. As a result, the preferred shares from this
date onwards have been classified as shareholders' equity.
Subsequent to the issue of the Company's financial statements for the
quarter ended April 30, 2000, the company identified accounting issues with
regard to the recognition of a contingent beneficial conversion feature of
the convertible preferred shares issued to RGC. Under the terms of the
securities purchase agreement with RGC, the conversion terms were adjusted to
80% of their original values when the Company was not listed on the NASDAQ
Stock Exchange by November 6, 1999. In accordance with EITF 98-5, the Company
recorded a deemed dividend and additional paid in capital of $3,400,000 at
November 6, 1999 to account for the realization of the contingent benefit.
8. STRATEGIC RELATIONSHIP AGREEMENT
On December 7, 1999, the Company entered into a strategic relationship with
Standard Radio Inc. ("Standard"). Under the terms of this transaction, Standard
invested $2 million into the Company and received 338,983 restricted common
shares of the Company with customary piggy-back registration rights. Standard
also committed to cause all radio stations owned by it at the time or during the
three years following, to become network associates in the Global Media
E-Commerce Network and Broadcast Network.
In connection with the agreement, on December 7, 1999 Standard's Chief Executive
Officer was appointed to the Company's Board of Directors. Upon accepting his
position on the Board, Standard's CEO received 125,000 options in his capacity
as a director 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 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, effective December 7, 1999 the Company and each of the six general
managers of the Standard radio stations, Standard's national program director
and the general manager of Standard's syndication division entered into
consulting agreements. In exchange for future services granted, the Company
granted 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 vest over a one year
period from the date of grant depending on certain performance criteria being
met, and will expire five years from the grant date.
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 in certain Canadian provinces. While no legal
proceedings have been initiated by this party, the notice represents a
claim that is reasonably possible of assertion. Management believes the
claim is without merit and if asserted, will not be successful. However,
Management believes that if successfully asserted, the impact of the claim
will be immaterial.
[ii] No commitments outside of the regular course of business were entered into
during the quarter.
[iii]During the quarter, the Company entered into support and upgrade and
marketing agreements with RealNetworks, Inc. Combined, the agreements
represented total commitments of $5,320,000, of which $596,000 has been
paid by the Company to date. The remaining commitment will be paid as
follows: $596,000 in the third quarter of fiscal 2000; $4,096,000 in the
fourth quarter of fiscal 2000; and $32,000 in the first quarter of fiscal
2001.
10
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10. INCOME TAXES
For financial reporting purposes, a valuation allowance has been established for
all deferred tax assets due to the uncertainty of realization.
11. SUBSEQUENT EVENTS
[i] OPTIONS
Subsequent to quarter end, RGC International Investors LDC ("RGC")
exercised investment options to purchase 596,630 common shares of the
Company, in conjunction with an equivalent conversion of preferred shares.
The Company received net proceeds of $2,551,355 from the option exercises.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NOTE: The following discussion contains or may contain forward-looking
statements based on current expectations, estimates and projections about the
Company's industry, management's beliefs and certain assumptions made by
management. All statements, trends, analyses and other information contained
herein relative to trends in net sales, gross margin, anticipated expense
levels, liquidity and capital resources, as well as other statements, including,
but not limited to, words such as "anticipate," "believe," "plan," "estimate,"
"expect," "seek" and "intend," and other similar expressions, constitute
forward-looking statements. These forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those anticipated
or expressed in such statements. Except as required by law, the Company
undertakes no obligation to update any forward-looking statement, whether as a
result of new information, future events or otherwise. Readers, however, should
carefully review the factors set forth in other reports or documents that the
Company files from time to time with the Securities and Exchange Commission (the
"SEC").
Subsequent to the issue of the Company's financial statements for the quarter
ended April 30, 2000, the company identified accounting issues with regard to
the recognition of a contingent beneficial conversion feature of convertible
preferred shares. As a result, the Company has restated its financial
statements for the second quarter and six months ended January 31, 2000 in
the form included with this Amendment No. 1 to Quarterly Report on Form
10-QSB/A. The following discussion reflects, where appropriate, changes as a
result of such restatement. SEE Note 7 to the Company's attached financial
statements.
OVERVIEW
QUARTER ENDED JANUARY 31, 2000
During the quarter ended January 31, 2000, our management structure was
substantially enhanced by the addition of several senior executives, including
the addition of Jeff Mandelbaum as President. Mr. Mandelbaum comes to us from
RealNetworks, Inc. where he was Vice President of Media Systems Sales. In that
position, he had line responsibility for sales and services in the Americas
regions and drove strategic opportunities worldwide. Mr. Mandelbaum was brought
on to support the shift in our focus from development to sales.
During the quarter we continued to refine our e-commerce and streaming
infrastructure while expanding our clientele of network and broadcast
associates. Included in this development was the successful design and testing
of our video broadcasting solution which will be commercially implemented in the
third quarter of fiscal 2000. As of January 31, 2000, we had signed up 77
network associates (representing 161 unique e-commerce sites and 27 broadcast
associates). Of these, 134 e-commerce sites were online and 4 broadcasting
associates were streaming by quarter end. This compares to 59 network associates
(representing 104 unique e-commerce sites and 12 broadcasting associates)
signed up as of October 31, 1999, of which 68 e-commerce sites and 3
broadcasting associates were implemented at that time.
Also during the second quarter of fiscal 2000, nine of our proprietary simulated
live internet only radio stations were added to the station directory of the
RealPlayer 7 streaming media player, which was launched by RealNetworks on
November 8, 1999.
We commenced the quarter with 81 full time staff and ended the quarter with
101. We currently employ 108 full time staff members.
We have continued to experience significant growth subsequent to quarter end. As
of March 10, 2000, we had signed up 101 network associates (representing 173
unique e-commerce sites and 36 broadcast associates).
OUR BUSINESS
We offer an award winning streaming media broadcasting solution to radio and
television stations and internet sites through our Global Media Broadcast
Network program. The centerpiece of our Broadcast Network solution is the Global
Media Player, a streaming media player developed in conjunction with
RealNetworks, Inc. The Global Media Player is private-label branded for our
broadcasting associates and enables listeners to stream live and simulated
12
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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.
Our broadcasting solutions are integrated into an e-commerce backend. Through
this e-commerce facility, we sell music CDs and cassettes, home videos and
digital video discs (DVDs), books and other entertainment products. Sales are
made through our own online store and through the private-label storefronts
which we create for the network associates in our Global Media Network program.
Visitors to those storefronts can place merchandise orders from the storefront
on our network associates' Web sites, which we then process through our
e-commerce backend solution and fulfill through our fulfillment partners.
We commercially launched our Broadcast Network program with the alpha version of
the Global Media Player in January 2000, and expect to incorporate our streaming
video solution into the Broadcast Network during the third quarter of fiscal
2000. When our Broadcast Network is fully integrated with our e-commerce
solution, our network associates can offer their customers a tightly integrated
entertainment and online shopping experience. For example, accessing our
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.
We launched a beta version of our own e-commerce site in May 1999 to demonstrate
our e-commerce solution, and commercially launched our own online store in
September 1999, which was significantly revised on November 29, 1999 to offer
greater functionality and ease of use. Our online store combines an extensive
catalogue of music, books, videos and other entertainment products, with
easy-to-use navigation and search capabilities and entertainment-focused
content. Additionally, visitors can download the Global Media Player for free.
We are continuing the further development of our online store and e-commerce
backend to provide additional features and content and expect that these
enhancements will improve the revenue generating potential of our own store and
the stores of our network associates.
Since inception of our internet-focused business plan, we have incurred
significant losses resulting primarily from costs related to developing our
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 operations. We expect to continue incurring net losses
for the foreseeable future, as we plan to invest in:
- promoting our Network Associate program;
- enhancing our e-commerce site and improving its reliability and
functionality;
- developing our infrastructure and applications; and
- hiring additional employees.
Our revenues for the foreseeable future will likely derive primarily from
advertising, product sales and broadcasting related fees and will depend
primarily on the number of network and broadcast associates that we sign up, the
number of listeners on our simulated live stations and
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the live stations of our network associates, the number of visitors that we are
able to attract to our online store and that our network associates are able to
attract to their stores, and on how many of those visitors purchase products we
offer for sale. Our 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 have initiated a program to
market streaming media consulting and development services and expect that over
time this service line could become a significant revenue contributor. We cannot
forecast with any degree of certainty the number of visitors to our online store
or the stores of our network associates, the number of visitors that will become
customers or the number of customers we will be able to secure for our streaming
media services. If our revenue growth is slower than anticipated or our
operating expenses exceed our expectations, our losses will be significantly
greater than anticipated. We may never achieve or sustain profitability.
Because of the development stage of our business and the seasonality inherent in
a retail business, our results of operations discussed below are not necessarily
indicative of the results you should expect for any future comparable period.
SEE " - Seasonality". Inflation has not historically had any material effect on
our operations
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 a call
center, in the third quarter of fiscal 1999.
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RESULTS OF CONTINUING OPERATIONS
NOTE: The financial results contained in the following discussion exclude
results of our discontinued call center and home satellite businesses.
For summary financial results from those operations, SEE " - Note 3 to
the Consolidated Financial Statements."
QUARTER ENDED JANUARY 31, 2000 COMPARED TO QUARTER ENDED JANUARY 31, 1999
SALES. Revenues of $58,635 were generated from the Company's e-commerce
and broadcasting operations in the second quarter of fiscal 2000, compared to
none in the second quarter of fiscal 1999. The Company's internet-focused
business did not commence until the third quarter of fiscal 1999.
COST OF SALES. Expenditures of $57,923 were recorded in the second
quarter of fiscal 2000, compared to none in the second quarter of fiscal 1999,
due primarily from incurring minimum contractual broadcasting related charges
that were payable as we continued to develop our network.
OPERATING EXPENSES. Our operating expenses increased to $2,508,217 in
the second quarter of fiscal 2000, from $213,680 in the second quarter of fiscal
1999. This increase was due primarily to increased marketing expenditures,
professional fees and other expenses related to being a public reporting
company, and personnel, capital assets and other costs associated with the
development and launch of our internet sites and our network associate programs,
as follows:
- Amortization increased to $256,267 in the second quarter of fiscal 2000,
from $22,230 in the second quarter of fiscal 1999, due primarily to the
significant acquisition of additional capital assets.
- General and administrative expenses increased to $500,701 in the second
quarter of fiscal 2000, from $113,868 in the second quarter of fiscal 1999,
due primarily to the costs associated with multiple office locations and
the administration required for a significantly larger organization.
- Sales and marketing expenses increased to $1,114,037 in the second quarter
of fiscal 2000, compared to $25,265 in the second quarter of fiscal 1999.
The increase was primarily due to payments of $596,000 to RealNetworks,
Inc. under various marketing agreements, the costs associated with
attending industry related conferences, marketing of the Network Associate
program and expenses of the developing sales force.
- Shareholder communication expenses increased 14% to $59,395 in the second
quarter of fiscal 2000, from $52,317 in the second quarter of fiscal 1999,
due primarily to the costs of improving the communications with, and
materials provided to our shareholders.
- Technical operations and development expenses were $577,817 in the second
quarter of fiscal 2000, as compared to none in the second quarter of fiscal
1999. These expenses were primarily due to the costs of developing our
e-commerce and streaming media technologies.
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $2,507,505 net
loss from continuing operations for the second quarter of fiscal 2000, up from
our $213,680 net loss from continuing operations for the second quarter of
fiscal 1999, due primarily to the increase in operating expenses as we continue
to implement our internet-focused business plan.
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INTEREST. We earned $64,353 in interest income in the second quarter of
fiscal 2000, compared to none in the second quarter of fiscal 1999, due to
higher bank balances.
NET LOSS FROM ALL OPERATIONS. We experienced a $2,508,390 net loss from
all operations for the second quarter of fiscal 2000, up from our $219,762 net
loss from all operations for the second quarter of fiscal 1999.
6 MONTHS ENDED JANUARY 31, 2000 COMPARED TO 6 MONTHS ENDED JANUARY 31, 1999
SALES. Revenues of $72,280 were generated from the Company's e-commerce
and broadcasting operations in the 6 months ended January 31, 2000, compared to
none in the 6 months ended January 31, 1999. The Company's internet-focused
business did not commence until the third quarter of fiscal 1999.
COST OF SALES. Expenditures of $130,713 were recorded in the 6 months
ended January 31, 2000, compared to none in the 6 months ended January 31, 1999,
due primarily from incurring minimum contractual broadcasting related charges
that were payable as we continued to develop our network.
OPERATING EXPENSES. Our operating expenses increased to $4,011,982 in
the 6 months ended January 31, 2000, from $914,599 in the 6 months ended January
31, 1999. This increase was due primarily to increased marketing expenditures,
professional fees and other expenses related to being a public reporting
company, and personnel, capital assets and other costs associated with the
development and launch of our internet sites and our network associate programs,
as follows:
- Amortization increased to $347,851 in the 6 months ended January 31, 2000,
from $35,277 in the 6 months ended January 31, 1999, due primarily to the
significant acquisition of additional capital assets.
- General and administrative expenses increased to $790,792 in the 6 months
ended January 31, 2000, from $203,269 in the 6 months ended January 31,
1999, due primarily to the costs associated with multiple office locations
and the administration required for a significantly larger organization.
- Sales and marketing expenses increased to $1,661,171 in the 6 months ended
January 31, 2000, compared to $33,967 in the 6 months ended January 31,
1999. The increase was primarily due to payments of $596,000 to
RealNetworks, Inc. under various marketing agreements, the costs associated
with attending industry related conferences, marketing of the Network
Associate program and expenses of the developing sales force.
- Shareholder communication expenses increased 36% to $126,595 in the 6
months ended January 31, 2000, from $93,286 in the 6 months ended January
31, 1999, due primarily to the costs of improving the communications with,
and materials provided to our shareholders.
- Technical operations and development expenses were $1,085,573 in the 6
months ended January 31, 2000, as compared to none in the 6 months ended
January 31, 1999. These expenses were primarily due to the costs of
developing our e-commerce and streaming media technologies.
- We incurred no stock option compensation expense in the 6 months ended
January 31, 2000, compared to $548,800 in the 6 months ended January 31,
1999. SEE " - Note 6 to the Consolidated Financial Statements."
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NET LOSS FROM CONTINUING OPERATIONS. We experienced a $4,070,415 net
loss from continuing operations for the 6 months ended January 31, 2000, up from
our $914,599 net loss from continuing operations for the 6 months ended January
31, 1999, due primarily to the increase in operating expenses as we continue to
implement our internet focused business plan.
INTEREST. We earned $76,626 in interest income in the 6 months ended
January 31, 2000, compared to none in the 6 months ended January 31, 1999, due
to higher bank balances.
NET LOSS FROM ALL OPERATIONS. We experienced a $4,063,622 net loss from
all operations for the 6 months ended January 31, 2000, up from our $931,911 net
loss from all operations for the 6 months ended January 31, 1999.
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. See " - Note 3 to the Consolidated Financial Statements."
QUARTER ENDED JANUARY 31, 2000 COMPARED TO QUARTER ENDED JANUARY 31, 1999
FINANCING ACTIVITIES. We financed our operations and capital
expenditures in second quarter fiscal 2000 primarily from the exercise of stock
options and the sale of shares of common stock in a private transaction. Cash
received upon the exercise of stock options including exercises by RGC of
investment options for 495,426 shares, was $2,194,320 in second quarter fiscal
2000. We also issued 338,983 restricted common shares to Standard Radio Inc. for
net proceeds of $1,999,995.
CAPITAL EXPENDITURES AND COMMITMENTS. Our capital expenditures
increased to $1,151,082 in second quarter fiscal 2000, from $147,016 in second
quarter fiscal 1999, primarily as the result of capitalized development costs
for our Broadcast Network and Global Media Player, and computer hardware,
software and operating equipment purchases.
WORKING CAPITAL (DEFICIENCY). At January 31, 2000, we had positive
working capital of $2,397,438 and a working capital ratio of 4.94. This
represents an improvement from our January 31, 1999 working capital deficiency
of $419,640 and working capital ratio of 0.60.
FUTURE CAPITAL REQUIREMENTS. We expect negative cash flow from operations to
continue for fiscal 2000, as we continue to develop and market our
internet-focused operations, and anticipate achieving cash flow breakeven in the
fourth quarter of fiscal 2001 and accounting profitability during fiscal 2002.
We currently anticipate rapidly expanding our sales, marketing and technical
teams in conjunction with raising new equity financing over the next five
months. We are in discussions with a number of potential strategic and financial
investors to obtain additional financing to fund our operating and capital
expenditure needs. If we are able to secure such additional financing, we expect
that such financing, together with proceeds from the exercise of existing
options and warrants, will enable us to meet all of our existing operating and
capital expenditure needs, including financial obligations to RealNetworks, Inc.
under the agreements we recently entered into with them, until the fourth fiscal
quarter of 2001. However, there can be no assurance that additional financing
will be available on terms favorable to us or at all. If adequate funds are not
available or are not available on acceptable terms, this could negatively impact
our business. In particular, we would be unlikely to meet our payment
obligations to RealNetworks, Inc. under the contracts recently entered into.
Default on these payments would negatively impact our business.
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If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our current 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.
RECENT EVENTS
NASDAQ LISTING
We filed a listing application with Nasdaq on November 15, 1999, for inclusion
on its Small Cap market. We received Nasdaq's initial comment letter on February
22, 2000 and responded to it on March 13, 2000. There is no assurance that our
application will be approved.
STRATEGIC RELATIONSHIP WITH STANDARD RADIO INC.
On December 7, 1999, we entered into a strategic relationship with Standard
Radio Inc. We expect this relationship to provide significant opportunities for
future revenues and growth, in addition to the initial cash investment. In that
transaction (a) Standard invested $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 and chief executive officer, Gary Slaight, was 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 formed a
marketing advisory committee to Global Media, for which each will receive
unvested options to purchase up to 20,000 shares of common stock, (d) Standard
agrees to cause each of the radio stations owned and controlled by it now and
for the next three years to become e-commerce and broadcast associates of Global
Media, and (e) Standard received 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.
REAL NETWORKS, INC.
Recently, we signed several material contracts with RealNetworks which further
define and extend our strategic relationship with them:
STREAMING MEDIA SERVICES AGREEMENT. We signed a new Streaming Media
Services Agreement with RealNetworks under which they will continue to develop
our Global Media Player. We will continue to rely on RealNetwork's streaming
media infrastructure, the Real Broadcast Network, to deliver streaming media
services to our network associates in the Global Media Broadcast Network. Among
other things, the new Streaming Media Services Agreement extends the term of our
existing Streaming Media Services Agreement to five years and provides for
increased payments for such services. Similar to the provisions in the 1999
Streaming Media Services Agreement, we agreed that RealNetworks will be our
exclusive provider of streaming media services.
REALCHANNELS AGREEMENT. We entered into a one-year RealChannels
Agreement with RealNetworks under which they will promote and distribute links
to our media content and headlines as part of their RealChannels program using
their RealPlayer software.
LIVESTATIONS AGREEMENT. We entered into a one-year LiveStations
Agreement with RealNetworks under which the promote and distribute links to our
RealMedia content as part of RealNetworks' LiveStations program. As part of this
agreement, RealNetworks agreed to include five of our LiveStations in the
appropriate genres on RealNetworks' LiveStations Guide
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Page. At the time we entered into the new Streaming Media Services Agreement and
RealChannels Agreement described above, we amended the LiveStations Agreement to
extend it to ten additional LiveStations (for a total of 15), for additional
consideration.
ADDENDUM: CUSTOM SOFTWARE UPGRADE AND SUPPORT TERMS AND CONDITIONS.
This Addendum amends the Consulting Agreement between us and RealNetworks, Inc.
dated April 20, 1999. This Addendum further defines our obligations and the
obligations of RealNetworks in providing support services.
Together, these agreements require us to make aggregate payments of
approximately $5 million to RealNetworks over an approximately five-month period
ending June 15, 2000, of which $500,000 has been paid to date.
SEASONALITY
We expect our operating results to fluctuate significantly from period to
period. Both seasonal fluctuations in internet usage and traditional retail
seasonality may affect our business. Internet usage generally declines during
the summer. Sales in the traditional retail book and music industries usually
increase significantly in the fourth calendar quarter of each year and are
correspondingly lower in other quarters. If similar seasonal patterns emerge in
e-commerce, our revenues may vary significantly from period to period.
FOREIGN CURRENCY TRANSLATION
We have translated our monetary assets and liabilities which are denominated in
a foreign currency into U.S. dollars at the period-end exchange rates. We have
translated our income and expense items at the average exchange rates prevailing
during the fiscal period. Exchange gains and losses arising on translation are
reflected in net income for the period.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims which may
have a material adverse effect on our business. We are not aware of any current
legal proceedings or claims that will have, individually or in the aggregate, a
material adverse effect on our business, prospects, financial condition or
results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
1) On December 7, 1999, we entered into a strategic relationship with
Standard Radio Inc. In that transaction Standard invested $2,000,000 into Global
Media in exchange for 338,983 shares of Common Stock at a purchase price of
$5.90 per share. The sale of Common Stock to Standard Radio Inc. was an
exempt transaction under Section 4(2) of the Securities Act of 1933 because
the sale did not involve any public offering by Global Media.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS.
The following documents are filed as exhibits to this Quarterly Report:
EXHIBIT
NUMBER DESCRIPTION
10.27 Executive Employment Agreement dated December 17, 1999, between
Global Media and Mr. Jeff Mandelbaum.
10.28 Streaming Media Services Agreement between Global Media and
RealNetworks, Inc.
10.29 RealChannels Agreement between Global Media and RealNetworks,
Inc.
10.30 LiveStations Agreement between Global Media and RealNetworks,
Inc.
10.31 Custom Software Upgrades and Support Terms and Conditions
between Global Media and RealNetworks, Inc.
10.32 Advertising Insertion Order between Global Media and
RealNetworks, Inc.
10.33 Sponsorship Insertion Order between Global Media and
RealNetworks, Inc.
27 Financial Data Schedule.
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b. REPORTS ON FORM 8-K.
None during the reporting period.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: March 15, 2000 /S/ L. JAMES PORTER
_________________________
L. James Porter
Chief Financial Officer
(Principal Financial and Accounting Officer,
and authorized signatory for the registrant)
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EXHIBIT INDEX
The following documents are filed as exhibits to this Quarterly Report:
EXHIBIT
NUMBER DESCRIPTION
10.27 Executive Employment Agreement dated December 17, 1999, between
Global Media and Mr. Jeff Mandelbaum.
10.28 Streaming Media Services Agreement between Global Media and
RealNetworks, Inc.
10.29 RealChannels Agreement between Global Media and RealNetworks,
Inc.
10.30 LiveStations Agreement between Global Media and RealNetworks,
Inc.
10.31 Custom Software Upgrades and Support Terms and Conditions
between Global Media and RealNetworks, Inc.
10.32 Advertising Insertion Order between Global Media and
RealNetworks, Inc.
10.33 Sponsorship Insertion Order between Global Media and
RealNetworks, Inc.
27 Financial Data Schedule.
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