GLOBALMEDIA COM
10QSB, 2000-12-15
COMMUNICATIONS SERVICES, NEC
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

 
 /x/		  
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended October 31, 2000

or

/ / 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

GLOBALMEDIA.COM
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of incorporation
or organization)		   91-1842480
(I.R.S. Employer Identification No.)
 
 400 Robson Street, Vancouver, British Columbia, Canada V6B2B4
(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 December 14, 2000, there were 37,149,808 shares outstanding of the Company's common stock.

ITEM 1. FINANCIAL STATEMENTS


GLOBALMEDIA.COM
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in U.S. dollars)

 
   October 31
2000
   July 31
2000
  
ASSETS  
CURRENT ASSETS              
  Cash and cash equivalents   $ 161,384   $ 1,686,560  
  Short-term investments     174,099     174,099  
  Trade and other receivables, net of allowance for doubtful accounts of $22,697 (July 31, 2000—$89,832)     267,837     247,526  
  Prepaid expenses (Note 3)     1,516,771     2,783,533  
       
 
 
      2,120,091     4,891,718  
CAPITAL ASSETS (Note 4)     4,019,626     4,234,637  
INTANGIBLE ASSETS, net (Notes 10 and 11)     10,372,400     8,343,000  
       
 
 
    $ 16,512,117   $ 17,469,355  
       
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  
CURRENT LIABILITIES              
  Accounts payable and accrued liabilities   $ 1,569,252   $ 1,047,157  
  Deferred revenue     48,083     38,333  
  Note payable     —     1,000,000  
  Due to stockholders     9,096     65,960  
  Current portion of obligations under capital lease     66,664     67,620  
       
 
 
      1,693,095     2,219,070  
OBLIGATIONS UNDER CAPITAL LEASE     6,586     21,860  
       
 
 
      1,699,681     2,240,930  
       
 
 
COMMITMENTS AND CONTINGENCIES (Note 12)              
CONVERTIBLE PREFERRED SHARES              
  Series B (Note 8)     —     4,365,900  
       
 
 
STOCKHOLDERS' EQUITY (DEFICIT)              
  Convertible preferred shares, 100,000,000 authorized
Series A—3,975 issued and outstanding (Note 7)		     3,611,731     3,661,746  
  Convertible preferred shares, 100,000,000 authorized
Series B—5,000 issued and outstanding (Note 8)		     4,433,918     —  
  Common stock, par value $0.001 each, 200,000,000 authorized
29,157,090 (July 31, 2000—25,292,105) issued and outstanding		     21,160     17,295  
       
 
 
      8,066,809     3,679,041  
  Additional paid in capital     39,523,207     30,746,032  
  Deferred compensation (Note 9)     (981,875 )   (1,963,750 )
  Accumulated deficit     (31,795,705 )   (21,598,798 )
       
 
 
      14,812,436     10,862,525  
       
 
 
    $ 16,512,117   $ 17,469,355  
       
 
 

GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Unaudited)
(in U.S. dollars)

 
   For three months
ended October 31
  
 
   2000
   1999
  
REVENUE   $ 285,635   $ 13,645  
OPERATING EXPENSES              
  Amortization of intangible assets (Notes 10 and 11)     3,983,600     —  
  General and administrative (Notes 4 and 9)     3,045,788     797,847  
  Sales and marketing (Note 3)     1,632,563     547,134  
  Direct costs     949,317     72,790  
  Amortization of capital assets (Note 4)     542,727     91,584  
  Stockholder communications     130,618     67,200  
       
 
 
      10,284,613     1,576,555  
       
 
 
LOSS FROM OPERATIONS BEFORE OTHER ITEMS     (9,998,978 )   (1,562,910 )
OTHER ITEMS              
  Interest, net     9,693     12,273  
  Foreign exchange     (8,129 )   (4,635 )
       
 
 
LOSS AND COMPREHENSIVE LOSS   $ (9,997,414 ) $ (1,555,272 )
       
 
 
BASIC AND DILUTED LOSS PER COMMON SHARE   $ (0.37 ) $ (0.08 )
       
 
 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN THE COMPUTATION OF LOSS PER SHARE     27,194,305     20,680,894  
       
 
 


GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(in U.S. dollars)

 
   Mandatorily
Redeemable
Preferred
Stock
    
    
    
    
    
    
    
  
 
   Preferred
Stock
   Common
Stock
    
    
    
  
 
   Deferred
Compensation
   Additional
Paid-In
Capital
   Accumulated
Deficit
  
 
   Shares
   Amount
   Shares
   Amount
   Shares
   Amount
  
BALANCE, July 31, 1999   8,500     7,089,775   —     —   20,656,331     12,658     —     2,617,109     (2,893,070 )
Registration of Series A preferred shares   (8,500 )   (7,089,775 ) 8,500     7,089,775   —     —     —     —     —  
Stock options exercised   —     —   —     —   1,469,581     1,470     —     5,807,636     —  
Accrued preferred share premium   —     53,900   —     342,575   —     —     —     —     (396,475 )
Conversion of preferred shares Series A (Note 7)   —     —   (4,325 )   (3,770,604 ) 1,092,056     1,092     —     3,769,512     —  
Conversion of amounts due to stockholder and affiliated company (Note 5)   —     —   —     —   32,535     33     —     203,312     —  
Issue of restricted shares (Note 6)   —     —   —     —   343,983     344     —     2,029,661     —  
Issue of preferred shares Series B (Note 8)   5,000     4,312,000   —     —   —     —     —     —     —  
Deemed dividend on beneficial conversion feature (Note 7)   —     —   —     —   —     —     —     3,400,000     (3,400,000 )
Warrants issued on financing (Note 8)   —     —   —     —   —     —     —     493,000     —  
Deferred compensation (Note 9)   —     —   —     —   —     —     (3,927,500 )   3,927,500     —  
Issue of common shares (Note 10)   —     —   —     —   1,697,619     1,698     —     8,498,302     —  
Loss for the year   —     —   —     —   —     —     1,963,750     —     (14,909,253 )
   
 
 
 
 
 
 
 
 
 
BALANCE, July 31, 2000   5,000     4,365,900   4,175     3,661,746   25,292,105     17,295     (1,963,750 )   30,746,032     (21,598,798 )
Registration of Series B preferred shares (Note 8)   (5,000 )   (4,365,900 ) 5,000     4,365,900   —     —     —     —     —  
Stock options exercised   —     —   —     —   23,100     23     —     11,527     —  
Accrued preferred share premium   —     —   —     199,493   —     —     —     —     (199,493 )
Conversion of preferred shares Series A (Note 7)   —     —   (200 )   (181,490 ) 370,568     371     —     181,119     —  
Issue of restricted shares (Note 6)   —     —   —     —   1,388,888     1,389     —     2,498,611     —  
Issue of common shares and warrants (Note 11)   —     —   —     —   2,082,429     2,082     —     6,085,918     —  
Loss for the period   —     —   —     —   —     —     981,875     —     (9,997,414 )
   
 
 
 
 
 
 
 
 
 
BALANCE, July 31, 2000   nil   $ nil   8,975   $ 8,045,649   29,157,090   $ 21,160   $ (981,875 ) $ 39,523,207   $ (31,795,705 )
     
 
 
 
 
 
 
 
 
 

GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in U.S. dollars)

 
   For three months
ended October 31
  
 
   2000
   1999
  
CASH FLOWS FROM OPERATING ACTIVITIES              
  Loss for the period   $ (9,997,414 ) $ (1,555,272 )
  Items not requiring an outlay of cash              
    Deferred compensation     981,875     —  
    Amortization of capital assets     542,727     91,584  
    Amortization of intangible assets     3,983,600     —  
   
 
 
      (4,489,212 )   (1,463,688 )
  Changes in non-cash operating working capital              
    Trade and other receivables     (20,312 )   (17,334 )
    Prepaid expenses     1,266,762     19,259  
    Deferred revenue     9,750     —  
    Accounts payable and accrued liabilities     522,094     103,460  
   
 
 
      (2,710,918 )   (1,358,303 )
   
 
 
CASH FLOWS FROM INVESTING ACTIVITIES              
  Broadcast network capital expenditures     —     (2,145,170 )
  Purchase of capital assets     (257,381 )   (402,099 )
   
 
 
      (257,381 )   (2,547,269 )
   
 
 
CASH FLOWS FROM FINANCING ACTIVITIES              
  Advances from (to) stockholders (Note 5)     (56,864 )   2,924  
  Advances from (to) affiliated companies     —     4,037  
  Note payable     (1,000,000 )   —  
  Lease payable     (16,230 )   —  
  Issue of restricted shares (Note 6)     2,500,000     —  
  Stock options exercised     11,550     44,250  
   
 
 
      1,438,456     51,211  
   
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH     4,667     3,171  
   
 
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (1,525,176 )   (3,851,190 )
CASH AND CASH EQUIVALENTS, beginning of period     1,686,560     5,649,073  
   
 
 
CASH AND CASH EQUIVALENTS, end of period   $ 161,384   $ 1,797,883  
       
 
 
SUPPLEMENTAL CASH FLOW DISCLOSURE              
  Interest paid   $ 9,210   $ —  
  Income taxes paid     —     —  

    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 14, 2000.

1.  NATURE OF BUSINESS AND GOING CONCERN

    GlobalMedia.com (formerly Global Media Corp.) (the "Company") was incorporated on April 8, 1997 in the State of Nevada and is headquartered in Vancouver, British Columbia, 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 a broadcast network over the Internet, including streaming services, integrated e-commerce solutions, a customized media player and simulated live internet-only radio stations.

    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 GlobalMedia.com Player 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 GlobalMedia.com 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 GlobalMedia.com Player was commercially launched. In April 2000, the Company changed its name from Global Media Corp. to GlobalMedia.com. Also in April 2000, an on-demand video solution was added to the broadcast network capabilities and three additional simulated live stations were launched and subsequently added to the stations directory presets of the RealPlayer.

    The accompanying financial statements have been prepared on a going concern basis which contemplates that the Company will continue its operations and will be able to realize its assets and discharge its liabilities in the normal course of operations.

    Several conditions and events cast substantial doubt about the Company's ability to continue as a going concern. The Company has a limited operating history in an industry that is characterized by rapid technological change. The Company reported a $9,997,414 net loss for the first quarter of fiscal 2001, and net losses of $14,909,253 and $2,231,074 during the years ended July 31, 2000 and 1999, respectively, and will require additional financing in order to continue its business operations. The Company raised $2,500,000 in additional financing during the quarter and $1,000,000 in additional financing subsequent to the end of the period (see Note 13). However, management currently anticipates that it only has sufficient funds to meet working capital and capital expenditure needs through December 2000. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time.

    The Company's future capital requirements will depend on numerous factors including, but not limited to, continued progress in developing its products, market penetration and profitable operations. Management is actively pursuing additional financing and has had discussions with various third parties, although no firm commitments have been obtained.

    The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. If the Company were unable to continue as a going concern, then substantial adjustments would be necessary to the carrying values of its assets, the reported amounts of its liabilities, the reported revenues and expenses and the balance sheet classifications used.

2.  SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

    The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States and are presented in U.S. dollars.

Principles of consolidation

    The consolidated financial statements include the accounts of the Company and all its subsidiaries. The principal operating subsidiary is Globalmedia.com Entertainment Canada.

Intangible assets and amortization

    Intangible assets are recorded at cost. Amortization is provided over the estimated useful lives of the contracts and has been calculated using the straight-line method.

E-commerce infrastructure

    E-commerce infrastructure costs incurred subsequent to establishing technological feasibility were capitalized. Capitalized costs are amortized using the straight-line method over two and one half years. Capitalization ceased and amortization commenced on the date that the software was ready for use.

    The recoverability of the e-commerce infrastructure is dependent upon realization of sufficient undiscounted future revenues from this product.

Broadcast network

    Broadcast network development costs incurred subsequent to establishing technological feasibility were capitalized. Capital costs are amortized using the straight-line method over two years. Capitalization ceased and amortization commenced on the date that the network was ready for use.

    The recoverability of the network development costs is dependent upon realization of sufficient undiscounted future revenues from this product.

Revenue recognition

    The Company's revenues consist primarily of advertising, bandwidth surcharges, streaming surcharges, set-up fees and revenue from e-commerce transactions.

    Advertising revenue is derived from the sale of advertising on the Company's web sites. Advertising revenue is recognized in the period the advertisement is displayed, provided that no significant Company obligations remain and collection of the resulting receivable is probable. Company obligations include guarantees of a minimum number of impressions, or times that an advertisement is viewed by users of the Company's web sites. Amounts received or billed for which impressions have not yet been delivered are reflected as deferred revenue in the accompanying consolidated balance sheets.

    Revenue from e-commerce transactions is derived from the sale of CDs, videos and books and is recognized once the product has been shipped and payment is assured.

    Set-up fees are primarily related to implementation services most often performed on a time and material basis under separate agreements for the development of a web site. Revenue from set-up fees is recognized once the work is completed. Revenues from bandwidth and streaming surcharges are recognized as the respective services are performed.

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.

Earnings per share

    The Company has adopted SFAS No. 128, "Earnings per Share". This statement requires the presentation of basic and diluted net income or loss per share. Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common and dilutive equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options and warrants. Common equivalent shares, comprising the incremental common shares issuable upon the exercise of stock options and warrants, have not been included as such shares are anti-dilutive for all periods presented.

Accounting for long-lived assets

    Long-lived assets are comprised principally of equipment, fixtures, network costs and intangible assets. The Company periodically evaluates whether events and circumstances have occurred that indicate that the Company should revise the remaining estimated useful lives of these assets or that the Company will not recover the remaining balances of these assets. When factors indicate that the Company should perform an evaluation for possible impairment, the Company uses an estimate of the future cash flows from operations of the related asset as a measure of future recoverability of these assets. The Company has not recorded any impairment losses to date except for the write-down of intangible assets discussed in Notes 10 and 11.

3.  PREPAID EXPENSES

    During the second quarter of fiscal 2000, the Company entered into an agreement with RealNetworks where RealNetworks will provide the Company with advertising through its RealPlayer and banner ads on its web sites, and technical services over various terms. As at October 31, 2000, prepaid advertising expenses amounted to $1,373,343 (sales and marketing) and prepaid technical services amounted to $216,667, which are being recognized over the term of the agreement. During the quarter, $946,868 was expensed to sales and marketing and $250,000 in products support was expensed to general and administrative expenses.

4.  CAPITAL ASSETS

 
   October 31, 2000
 
   Cost
   Accumulated
Amortization
   Net Book
Value
Broadcast network   $ 3,674,865   $ 1,309,334   $ 2,365,531
Communications infrastructure     89,830     82,110     7,720
Computer hardware     1,420,521     341,129     1,079,392
Leased computer hardware     132,576     28,338     104,238
Leasehold improvements     107,515     19,026     88,489
Office furniture and equipment     177,431     30,945     146,486
Software     152,808     50,822     101,986
E-commerce infrastructure     526,676     400,892     125,784
     
 
 
    $ 6,282,222   $ 2,262,596   $ 4,019,626
     
 
 
 
   July 31, 2000
 
   Cost
   Accumulated
Amortization
   Net Book
Value
Broadcast network   $ 3,674,896   $ 1,001,875   $ 2,673,021
Communications infrastructure     90,057     74,812     15,245
Computer hardware     1,179,055     264,600     914,455
Leased computer hardware     132,576     19,886     112,690
Leasehold improvements     72,055     11,015     61,040
Office furniture and equipment     139,660     24,345     115,315
Software     140,831     43,212     97,619
E-commerce infrastructure     527,100     281,848     245,252
     
 
 
    $ 5,956,230   $ 1,721,593   $ 4,234,637
     
 
 

5.  RELATED PARTY TRANSACTIONS

    As part of the May 1999 Securities Purchase Agreement with RGC International Investors LDC ("RGC") (see Note 7), the Company agreed to restructure the amounts due to a stockholder and an affiliated company of a stockholder. The agreement provided that one half of the amounts due to the stockholder and the affiliated company will be repaid by the issue of common stock at a conversion price of $6.25 per share, which was the average closing bid price of common stock 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 to repay half of the amount owing to the stockholder ($110,545) plus half of the accrued interest ($16,455) in four quarterly installments of $31,750 beginning October 31, 1999. At the same time, the Company also agreed to repay half of the amount owing to the affiliated company ($66,473) plus half of the accrued interest ($8,413) in four quarterly installments of $18,722 beginning October 31, 1999. As at October 31, 2000, the amounts owing to the affiliated company and stockholder had been fully repaid.

6.  SHARE CAPITAL

Stock option plans

    As of October 31, 2000 the Company has stock options outstanding under two plans: 3,396,970 options pertaining to the 1999 Stock Option Plan ("1999 Plan"), and 951,985 options pertaining to the 2000 Stock Option Plan ("2000 Plan"). All 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 ten 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 vested on grant. During the first quarter of fiscal 2001, 23,100 options were exercised and the remaining 75,000 options expired.

    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 ten years from the effective date. Of the 3,638,025 options granted in total, 2,071,910 options vested immediately and 1,566,115 vested on a quarterly basis over one year. As at October 31, 2000, 3,023,468 options are fully vested. During the first quarter of fiscal 2001, no additional grants were made, none of the outstanding options were exercised and 260,255 options were cancelled. The options expire five years from the date of grant.

    The 2000 Plan became effective on April 28, 2000 and provided for the issuance of 4,000,000 options within a period of five years from the effective date. During the quarter, 63,000 options at an exercise price of $2.25 and 11,000 options at an exercise price of $1.063 were granted. Of the 951,985 options granted in total, 166,300 options vested immediately and one third of the remaining 785,685 outstanding options vest after the first year. The remaining two thirds of the 785,685 options will vest quarterly over two years, starting in the second year. None of the options offered were exercised during the quarter and 457,360 were cancelled.

    Activity in the stock option plans for the current period and 2000 fiscal year was as follows:

 
   October 31, 2000
   July 31, 2000
 
   Options
   Weighted
Average
Exercise Price
   Options
   Weighted
Average
Exercise Price
Outstanding, beginning of period   5,070,865   $ 5.03   3,257,000   $ 3.81
Granted (cancelled)   (623,810 )   6.15   2,191,390     7.01
Expired   (75,000 )   0.50   —     —
Exercised   (23,100 )   0.50   (377,525 )   3.50
     
 
 
 
Outstanding, end of period   4,348,955   $ 4.97   5,070,865   $ 5.03
     
 
 
 
Options exercisable at the end of period   3,189,768   $ 4.68   3,433,507   $ 4.51
     
 
 
 

Restricted shares

i)
Standard Radio Inc.

    On December 7, 1999, Standard Radio Inc. ("Standard") invested $2,000,000 into the Company and received 338,983 shares of restricted common stock of the Company with 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 GlobalMedia.com E-Commerce Network and GlobalMedia.com Broadcast Network. In connection with the agreement, on December 7, 1999, the Company acted to increase the number of authorized directors by one and appointed Standard's Chief Executive Officer to the Company's Board of Directors. Upon accepting his position on the Board, this person received 125,000 options under the 1999 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, 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 consideration of services to be performed under these agreements, the Company granted each individual options to acquire up to 20,000 shares under the 1999 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 depending on certain performance criteria being met, and will expire five years from the grant date. During fiscal 2000 and the first quarter of fiscal 2001, the performance criteria was not met and, therefore, none of the options granted under the consulting agreements vested during the period.

    On September 7, 2000, the Company sold to Standard Radio Inc. 1,388,888 shares of common stock for $1.80 per share and warrants to purchase up to 277,778 shares of common stock, for an aggregate purchase price of approximately $2,500,000. The warrants have a per share exercise price of $2.25, which is 125% of the per share offering price. If the Company raises a minimum of $7,500,000 on or before December 31, 2000, Standard has agreed to invest an additional $2,500,000 in common equity. However, if subsequent financing is made at a per share price that is less than the price of the Standard investment, the Company shall promptly issue to Standard additional shares based on a specified anti-dilution formula and shall adjust the exercise price of the warrants issued to Standard. As part of the transaction, we agreed to waive all of Standard's fees and expenses under our existing co-marketing agreement with Standard's current radio stations for three years, or so long as Standard continues to hold 2% or more of our issued and outstanding shares.

7.  SERIES A CONVERTIBLE PREFERRED STOCK

    On May 6, 1999, the Company entered into a Securities Purchase Agreement and ancillary agreements with 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 shares of Series A convertible preferred stock with a stated value of $1,000 per share. The Series A 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 Series A convertible 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. The conversion price of the Series A convertible preferred stock is the lesser of:

    During the period, 200 Series A convertible preferred shares and the accrued premium on those shares were converted to 370,568 common shares, leaving 3,975 Series A convertible preferred shares outstanding at October 31, 2000.

    Upon conversion of Series A convertible preferred shares by RGC, RGC has an investment option to acquire, at an exercise price equal to the conversion price then in effect, the same number of shares of common stock as the number of shares of common stock into which the Series A convertible preferred shares are being converted. During the period, RGC did not exercise investment options. To the extent any Series A convertible preferred shares are not converted prior to May 6, 2002, any previously unconverted shares are converted automatically into common shares under the same conversion terms described above.

    In connection with this transaction, the Company issued to RGC warrants to purchase 680,000 common stock 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 Series A convertible preferred shares and the related investment options and $1,000,000 was allocated to the warrants and included in additional paid in capital. The unamortized finance costs are presented as a reduction of the carrying value of the Series A convertible preferred shares.

    Under the terms of the securities purchase agreement with RGC, the conversion terms were adjusted to 80% of their original value when the Company was not listed on the Nasdaq Stock Market 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.  SERIES B AND SERIES C CONVERTIBLE PREFERRED SHARES

    The Company entered into a Securities Purchase Agreement and ancillary agreements with RGC on April 28, 2000 whereby the Company issued, for cash, 5,000 shares of Series B convertible preferred stock with a stated value of $1,000 per share. The Series B 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 Series B convertible preferred stock together with a premium thereon accruing at a per annum rate of 5% is convertible at the lesser of:

    As at October 31, 2000, no Series B convertible preferred shares have been converted.

    Upon conversion of Series B convertible preferred shares by RGC, RGC has an investment option to acquire, at an exercise price equal to the conversion price then in effect, the same number of shares of common stock as the number of shares of common stock into which the Series B convertible preferred shares are being converted. To the extent any Series B convertible preferred shares are not converted prior to April 28, 2003, any previously unconverted portion is automatically converted into common shares under the same conversion terms described above.

    In connection with this transaction, the Company issued to RGC warrants to purchase 388,500 common shares at an exercise price of $7.0785. These warrants have a five-year exercise term.

    The proceeds from RGC were allocated to the underlying instruments in accordance with their fair values at the date of issuance such that $4,507,000 was allocated to the Series B convertible preferred shares and the related investment options, and $493,000 was allocated to the warrants and included in additional paid in capital. The unamortized finance costs are presented as a reduction of the carrying value of the Series B preferred shares.

    At July 31, 2000, the Series B 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 for public resale the common stock issuable upon conversion of such shares and upon exercise of the related investment options and warrants. On September 3, 2000, the Company's Form S-3 registration statement registering the underlying shares was declared effective by the SEC. As a result, the Series A convertible preferred shares from this date onwards have been classified in stockholders' equity.

    Pursuant to the same Securities Purchase Agreement, the Company agreed to issue 5,000 Series C convertible preferred shares with a stated value of $1,000 per share in a second closing. The second closing is subject to certain closing conditions (none of which are within RGC's control). Assuming the closing of the sale and issuance of the Series C convertible preferred shares, such shares will be 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 Series C convertible preferred stock together with a premium thereon accruing at a per annum rate of 5% will be convertible at the lesser of:

    The Series C convertible preferred shares will include investment options on terms similar to the investment options relating to the Series B convertible preferred stock. To the extent any Series C convertible preferred shares are not converted prior to April 28, 2003, any previously unconverted portion will be automatically converted into common shares under the same conversion terms described above.

    If the sale of the Series C convertible preferred stock closes, the Company will issue to RGC warrants to purchase a number of common shares equal to 50% multiplied by the quotient equal to $5,000,000 divided by the average of the closing bid prices of the common shares during the five (5) trading days immediately preceding the second closing date. These warrants will have an exercise price equal to 110% of the lesser of: (i) $7.40, or (ii) the average of the closing bid prices of the common shares during the five (5) trading days immediately preceding the second closing date. The warrants have a five-year exercise term.

    The closing conditions for Series C convertible preferred shares have not been met as of October 31, 2000.

9.  DEFERRED COMPENSATION

    On February 1, 2000, an agreement was entered into to transfer stock from a principal stockholder to an executive of the Company for nominal consideration. The shares are subject to a lock-up period of one year from the date of the transaction, during which time they will be held in escrow. The shares are also subject to the right of repurchase if the Company terminates the executive for cause or the executive resigns during the lock-up period. Deemed compensation expense of $3,927,500 has been calculated on the transaction and is being recognized over the one-year term. During the first quarter of fiscal 2001, $981,875 was expensed in general and administrative expenses.

10. PURCHASE OF CONTRACTS FROM ONRADIO.COM

    On June 7, 2000, the Company entered into a transaction with OnRadio.com ("OnRadio") to acquire certain contracts relating to the provision of certain web-related services to 212 radio station customers of OnRadio. Of these, 144 station contracts relate to basic services such as web site hosting, content provision and ad placement. The contracts with the remaining 68 stations relate to streaming media services. The contracts have remaining lives ranging from 12 to 18 months.

    The Company agreed to pay OnRadio $500,000 cash and issue them 1,697,619 shares of common stock for total consideration of $9,000,000. The Company incurred an additional $270,000 in transaction costs. In connection with this transaction, the Company entered into certain other agreements with OnRadio, including agreements relating to transitional services, licensing of certain OnRadio software, and the lease of certain computer equipment.

    The Company also agreed to pay OnRadio additional stock consideration of up to $3,000,000 (at $5.00 per share) in the event that the Company concludes customer contracts with certain identified sales prospects of OnRadio, which OnRadio agreed to transition over to the Company.

    The Company is working to transition its products and services to the customers under the acquired contracts. There is no guarantee that the Company will be able to transition all customers and the realization of the expected benefits will be dependent on the marketing efforts of the Company. The contracts are being amortized over the lives of the contracts ranging from 12 to 18 months.

Intangible assets

Contracts purchased        
  Cash outlay   $ 500,000  
  Shares issued     8,500,000  
Transaction costs     270,000  
Amortization     (3,708,000 )
       
 
    $ 5,562,000  
       
 

11. PURCHASE OF CONTRACTS FROM MAGNITUDE NETWORKS, INC.

    On August 3, 2000, the Company entered into an asset purchase agreement with Magnitude Network, Inc. ("Magnitude") under which the Company (a) acquired customer contracts and computer hardware used in the online media and streaming solutions business of Magnitude, and (b) assumed certain of Magnitude's ongoing liabilities related the acquired contracts. The Company also licensed certain software and other intellectual property rights from Magnitude. In addition, Magnitude's parent corporation signed a non-solicitation agreement under which it agreed to refrain from soliciting customers the Company acquired in connection with the transaction, or our employees.

    Magnitude paid the Company $238,715 in cash to cover the transition costs and the Company issued Magnitude 2,082,429 shares of common stock for total consideration of $6,000,000, and a stock purchase warrant to acquire 2,000,000 shares of common stock at an exercise price of $3.60. The warrants have an eighteen month exercise term and expire on February 3, 2002. Of the shares issued, 416,485 are being held in escrow for twelve months to satisfy certain indemnity claims that may arise

against Magnitude. The Company also granted Magnitude registration rights with regard to these shares.

    The contracts acquired from Magnitude have terms ranging from 5 to 48 months during which time the customers of Magnitude will have the opportunity to convert to the Company's network broadcast program. There is no guarantee that the Company will be able to transition all customers and the realization of the expected benefits will be dependent on the marketing efforts of the Company. The Company is amortizing the acquisition cost of these contracts over their term.

Intangible assets

Contracts purchased        
  Shares issued   $ 6,000,000  
  Warrants issued     88,000  
Allocation to computer hardware     (75,000 )
Amortization     (1,202,600 )
       
 
    $ 4,810,400  
       
 

12. COMMITMENTS AND CONTINGENCIES

    The Company has entered into 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.

 
   Nanaimo
Office
   Vancouver
Office
July 31            
  2001   $ 60,028   $ 70,875
  2002     80,038     111,000
  2003     —     119,833
  2004     —     129,667
  2005     —     10,875
       
 
    $ 140,066   $ 442,250
       
 

13. SUBSEQUENT EVENTS

    (a)  Standard Radio/Jeff Mandelbaum Investment

    On November 14, 2000, the Company has entered into definitive share purchase agreements for $1 million in new investments from Standard Radio Inc., Gary Slaight, David Coriat and Lama Jama Investments LLC (Jeffrey Mandelbaum's investment entity) (the "Investors"). These agreements call for the Company to issue 2,285,714 common shares to the Investors. In connection with and the closing of this new investment, effective as of November 15, 2000, the following other agreements were entered into:

    The Company initially agreed to grant fully vested options to purchase 228,572 shares of common stock to L. James Porter, in exchange for which Mr. Porter agreed (a) to exercise that option by November 17, 2000 for an aggregate exercise price of $100,000.25, and (b) that one-half of the shares issued would be held in escrow for 90 days after the closing date. This part of the financing transaction was subsequently waived by the Company and the Investors. As a result, these options were not granted to Mr. Porter, and he did not make the corresponding investment.

    (b)  Rose Glen Modification Agreement

    In connection with the Standard/Mandelbaum financing, Rose Glen Capital Management, L.P. and RGC General Partner Corp. on behalf of RGC International Investors, LDC ("Rose Glen") have agreed in principle to certain concessions in regard to Rose Glen's existing preferred share position in the Company, which will be effective upon execution of a Modification Agreement between the Company and Rose Glen, as follows:


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").

Overview

Quarter Ended October 31, 2000

    During the quarter ended October 31, 2000, GlobalMedia.com realized growth in broadcasting and advertising revenues resulting in a 24% increase in total revenues over the previous quarter. We continued to develop programs during the quarter to realize larger scale design and implementation fees as part of our consulting services. We also implemented, on a selective basis, significant enhancements to the GlobalMedia.com Player including a "now playing" feature for live broadcast associates that allows users to view details and purchasing information about content currently streaming through our media player.

    During the quarter a majority of our client growth was realized through the acquisition of 112 broadcast associates from Magnitude Network, Inc. In accordance with our consulting service programs currently under development, we also signed a significant strategic partnership agreement during the quarter with the NFL and Fantastic Entertainment. At October 31, 2000 we had 115 network associate agreements in place representing 66 unique broadcasters and 209 e-commerce stores. We have also recently acquired (a) streaming contracts for 68 radio stations and Web services contracts for an additional 144 radio stations from OnRadio.com, and (b) streaming and Web services contracts for 112 radio stations from Magnitude Network, Inc. Currently, we have 128 network associate agreements in place representing 78 unique broadcasters and 201 e-commerce stores. We commenced the quarter with 110 full time staff and ended the quarter with 102. We currently employ 72 full time staff members.

Our Business

    We offer an award-winning streaming media broadcast solution to radio and other content providers and Internet sites through our network associate program. The centerpiece of our broadcast network solution is the GlobalMedia.com Player, a streaming media player built for us by RealNetworks, Inc. and further developed by us. The GlobalMedia.com Player enables Internet users to experience multimedia content streamed over the Internet. Using our media player, Internet users can stream live and simulated live audio, video and other multimedia content such as radio feeds from our 15 proprietary simulated live music stations and from the stations of each of our broadcast associates. Our media player also allows our network associates to display, within the player, information about an associate or the associate's content, as well as optional features such as games and trivia.

    We also provide e-commerce solutions that can be integrated with our broadcast solution. We sell music CDs and cassettes, home videos and digital video discs (DVDs), books and other entertainment products through our own online store and through the private-label storefronts that we create for network associates in our GlobalMedia.com network associate program. Visitors to a network

associate's Web site can place merchandise orders from the storefront on that site, which we then process through our e-commerce back-end solution and fulfill through our fulfillment partners.

    We launched our broadcast network with the beta version of our media player in October 1999, and incorporated the commercial version into our broadcast network in January 2000. In April 2000, we added another feature to our broadcast network capabilities that allows the user to view pre-recorded videos on demand. In September 2000, we added a "now playing" feature to live broadcast associates that allows users to view details and purchasing information about content currently streaming through our media player. In October 2000, we added a beta version of a default button to RealNetwork's RealPlayer that accesses GlobalMedia.com from the RealPlayer. Subsequent to quarter end, we implemented the pre-stream rich media advertising capability to our media player.

    We launched a beta version of our own e-commerce site in May 1999 and commercially launched our own online store in September 1999. We significantly revised our online store in November 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 GlobalMedia.com Player for free.

    We are continuing the further development of our media player, online store and e-commerce back-end to provide additional features and content, and expect that these enhancements will improve the revenue generating potential of our network associates.

Results of Continuing Operations

Quarter ended October 31, 2000 compared to quarter ended October 31, 1999

    Sales.  We had sales of $285,635 from our operations in the first quarter of fiscal 2001, compared to $13,645 in the first quarter of fiscal 2000. Our internet-focused business did not commence development until the third quarter of fiscal 1999. Our sales for the first quarter of fiscal 2001 increased 24% over total sales of $231,124 in fourth quarter of fiscal 2000.

    Operating Expenses.  Our operating expenses increased to $10,284,613 in the first quarter of fiscal 2001, from $1,576,555 in the first quarter of fiscal 2000. This increase resulted from significant amortization charges related to the acquisition of intangible assets, and growth in our operations which is reflected in increases in all our operating expenses as follows:

    Net Loss from Continuing Operations.  We experienced a $9,998,978 net loss from continuing operations for the first quarter of fiscal 2001, up from our $1,562,910 net loss from continuing operations for the first quarter of fiscal 2000, due primarily to the increases in operating expenses described above as we continue to implement our internet-focused business plan.

    Interest.  We realized net interest income of $9,693 in the first quarter of fiscal 2001, down 21% from net interest income of $12,273 in the first quarter of fiscal 2000. The income is net of $9,210 in interest expense in the first quarter of fiscal 2001, compared to none in the first quarter of fiscal 2000.

    Loss and Comprehensive Loss.  We experienced a $9,997,414 loss and comprehensive loss for the first quarter of fiscal 2001, up from our $1,555,272 loss and comprehensive loss for the first quarter of fiscal 2000.

Liquidity and Capital Resources

Quarter ended October 31, 2000 compared to Quarter ended October 31, 1999

    Working Capital.  At October 31, 2000, we had positive working capital of $426,996 and a working capital ratio of 1.25. This represents a decrease from our October 31, 1999 working capital of $1,325,502 and working capital ratio of 2.59. Excluding prepaid expenses, at October 31, 2000 we had negative working capital of $1,089,775 and a working capital ratio of 0.36, compared with positive working capital at October 31, 1999 of $1,307,001 and a working capital ratio of 2.57.

    Financing Activities.  We financed our operations and capital expenditures in first quarter of fiscal 2001 primarily from existing cash on hand and the issuance of common shares in a private transaction. We issued 1,388,888 common shares and warrants in a private transaction with Standard Radio Inc. for gross proceeds of $2,500,000. See Note 6 to our Consolidated Financial Statements and "—Recent Events".

    Capital Expenditures and Commitments.  Our capital expenditures decreased to $325,992 in first quarter fiscal 2001, from $2,547,269 in first quarter fiscal 2000, primarily due to reduced requirements for additional computer hardware, software and operating equipment purchases and the limited capitalization of development costs subsequent to achieving usable products. As of October 31, 2000, we have no material commitments outstanding for purchases of additional capital assets.

    Loans.  During the first quarter of fiscal 2001 we repaid a $1,000,000 short-term note payable to RealNetworks, due September 1, 2000 with interest at a rate of 8%. At October 31, 2000 no other loans were outstanding excluding capital lease commitments. Also at October 31, 2000, we have lines of credit from three suppliers, which are secured by $170,000 in term deposits. These lines of credit expire on either May 12, 2001 or June 14, 2001.

    Going Concern Qualification.  We currently anticipate that our available funds will be sufficient to meet our anticipated needs for working capital, capital expenditures and business expansion through

December 2000. We will therefore need to raise additional capital to meet our current obligations and operating needs by that time. There is no assurance that additional financing will be available on terms favorable to us or at all. As a result, the report of our auditors for our fiscal 2000 financial statements is qualified on the basis that there is substantial doubt about our ability to continue as a going concern.

Recent Events

Financings

    Standard Radio Financing.  On September 7, 2000, we sold to Standard Radio Inc., an existing investor, 1,388,888 shares of common stock for $1.80 per share and warrants to purchase up to 277,778 shares of common stock, for an aggregate purchase price of approximately $2,500,000 (the "Standard Offering"). The warrants have a per share exercise price of $2.25, which is 125% of the per share offering price in Standard Offering. If we raise a minimum of $7,500,000 on or before December 31, 2000, Standard has agreed to invest another $2,500,000 in us. However if that offering is made at a per share price that is less than the price in the Standard Offering, then the Company shall promptly issue to Standard additional shares based on a specified anti-dilution formula and shall adjust the exercise price of the warrants issued to Standard. As part of the transaction, we agreed to waive all of Standard's fees and expenses under our existing co-marketing agreement with Standard's current radio stations for three years, or so long as Standard continues to hold 2% or more of our issued and outstanding shares.

    Standard Radio/Jeff Mandelbaum Investment.  As of November 14, 2000, the Company entered into definitive share purchase agreements for $1 million in new investments from Standard Radio Inc., Gary Slaight, David Coriat and Lama Jama Investments LLC (Jeffrey Mandelbaum's investment entity) (the "Investors"). These agreements call for the Company to issue 2,285,714 common shares to the Investors. In connection with and the closing of this new investment, effective as of November 15, 2000, the following other agreements were entered into:

    The Company initially agreed to grant fully vested options to purchase 228,572 shares of common stock to L. James Porter, in exchange for which Mr. Porter agreed (a) to exercise that option by November 17, 2000 for an aggregate exercise price of $100,000.25, and (b) that one-half of the shares issued would be held in escrow for 90 days after the closing date. This part of the financing transaction was subsequently waived by the Company and the Investors. As a result, these options were not granted to Mr. Porter, and he did not make the corresponding investment.

    Rose Glen Modification Agreement.  In connection with the Standard/Mandelbaum financing, Rose Glen Capital Management, L.P. and RGC General Partner Corp. on behalf of RGC International Investors, LDC ("Rose Glen") have agreed in principal to certain concessions in regard to Rose Glen's existing preferred share position in the Company, which will be effective upon execution of a Modification Agreement between the Company and Rose Glen, as follows:

Acquisitions

    Magnitude Acquisition.  On August 3, 2000, we entered into an asset purchase agreement with Magnitude Network, Inc., under which we (a) acquired customer contracts, software, trademarks, domain names and web sites, and other tangible and intangible assets used in the online media and streaming solutions business of Magnitude, and (b) assumed certain of Magnitude's liabilities. We also licensed certain software and other intellectual property rights from Magnitude. In addition, Magnitude's parent corporation signed a non-solicitation agreement under which it agreed to refrain from soliciting customers we acquired in connection with the transaction, or our employees.

    Magnitude paid us $238,715 in cash to cover the transition costs and we issued Magnitude 2,082,429 shares of our common stock valued at $6,000,000, and a stock purchase warrant to acquire 2,000,000 shares of our common stock at an exercise price of $3.60. Of these shares, 416,485 are being held in escrow for twelve months to satisfy certain indemnity claims that may arise against Magnitude. We also granted Magnitude registration rights with regard to these shares.

    The contracts acquired by us from Magnitude have terms ranging from 5 to 48 months during which time the customers of Magnitude will have the opportunity to convert to our network broadcast program. The Company will need to amortize the acquisition cost of these contracts over their term. The Company amortized $1,202,600 of the total cost during the first quarter of fiscal 2001. Most of the remaining acquisition costs will need to be amortized during fiscal 2001.

    Acquisition Risks.  The success of our recent OnRadio and Magnitude contract acquisitions in increasing our revenues and providing other expected benefits to our business depends on our ability to integrate customers acquired in connection with these transactions into our business and on our ability to market and sell our own solutions and services to these customers. Until we do so, we will continue to provide the services OnRadio and Magnitude had contracted to provide, partly through ongoing transitional relationships with OnRadio.com and Magnitude. We cannot provide any assurance that substantial numbers of the customers we acquired from OnRadio and Magnitude will enter into new agreements with us, that we will be able to adequately provide the services under the contracts we acquired from OnRadio and Magnitude until the customers transition over to our solutions and enter into new agreements with us, or that even if substantial numbers of these acquired customers do enter into new contracts with us for our own solutions and services that the transaction will ultimately result in the benefits we expect it to provide. We also may consider other acquisitions from time to time. The

OnRadio transaction and Magnitude acquisition, as well as any future acquisitions of technologies, businesses or other assets we consummate in the future, may involve various risks, including the following:

    The failure to address financial and operational risks involved in acquisitions of technology, businesses or other assets could cause material harm to our business and negatively affect our financial condition and results of operations.

Future Capital Requirements

    We expect to incur net losses and negative cash flow at least through the second quarter of fiscal 2002. We currently anticipate that our available funds will be sufficient to meet our anticipated needs for working capital, capital expenditures and business expansion through December 31 2000. We are in discussions with a number of potential strategic investors to obtain additional financing to fund our operating and capital expenditure needs. However, there can be no assurance that additional financing will be available on terms favorable to us or at all.

    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.

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.


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.

    While not expected to have a material adverse effect on us, on October 23, 2000, Monte Wall Burris, our former Vice President of Corporate Affairs, filed a lawsuit against us and our president, Jeffrey Mandelbaum, with the Supreme Court of British Columbia (S.C.B.C. Action No. S005654). In his complaint, Mr. Burris seeks unspecified compensatory and punitive damages for wrongful dismissal allegedly resulting from our termination of his employment on October 2, 2000, and for alleged intentional interference with his employment contract. We believe that Mr. Burris' allegations and claims are wholly without merit and intend to vigorously defend against this lawsuit.

Item 2. Changes in Securities and Use of Proceeds

    On September 7, 2000, we sold to Standard Radio Inc. 1,388,888 shares of common stock for $1.80 per share and warrants to purchase up to 277,778 shares of common stock, for an aggregate purchase price of approximately $2,500,000.

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.

Exhibit
Number
   Description
10.1   Asset Purchase Agreement, dated August 3, 2000, between GlobalMedia.com and Magnitude Network, Inc.(1)
10.2   License Agreement, dated August 3, 2000, between GlobalMedia.com and Magnitude Network, Inc.(1)
10.3   Non-Solicitation Agreement, dated August 3, 2000, between GlobalMedia.com and Magnitude Network, Inc.(1)
10.4   Escrow Agreement, dated August 3, 2000, among GlobalMedia.com, Magnitude Network, Inc., and State Street Bank and Trust Company.(1)
10.5   Common Stock Purchase Warrant, dated August 3, 2000, from GlobalMedia.com to Magnitude Network, Inc.(1)
10.6   Private Placement Subscription Agreement, dated as of September 7, 2000, between GlobalMedia.com and Standard Radio Inc.(2)
10.7   Common Stock Purchase Warrant dated August 31, 2000 from GlobalMedia.com to Standard Radio, Inc.(2)
10.8   Share Purchase Agreement, dated August 31, 2000 between Michael Metcalfe and Standard Radio, Inc.(2)
27   Financial Data Schedule(3)
(1)
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 18, 2000.
(2)
Incorporated by reference to the Company's Amendment No. 1 to Form S-3 Registration Statement filed on September 26, 2000.
(3)
Filed with this Form 10-QSB.

b.  Reports on Form 8-K.

    GlobalMedia.com filed the following reports on Form 8-K during the first quarter of fiscal 2001:


SIGNATURES

    Pursuant to the requirements of the Exchange Act, the registrant has caused this report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: December 15, 2000   GLOBALMEDIA.COM
 
 		  
 		  
By:		  
 		  
/s/ BARR POTTER   
Barr Potter
 President and Chief Operating Officer
 
 		  
 		  
By:		  
 		  
/s/ DALE BENNETT   
Dale Bennett
 Controller (Principal Accounting Officer)


EXHIBIT INDEX

    The following documents are filed as exhibits to this Quarterly Report:

Exhibit
Number
   Description
10.1   Asset Purchase Agreement, dated August 3, 2000, between GlobalMedia.com and Magnitude Network, Inc.(1)
10.2   License Agreement, dated August 3, 2000, between GlobalMedia.com and Magnitude Network, Inc.(1)
10.3   Non-Solicitation Agreement, dated August 3, 2000, between GlobalMedia.com and Magnitude Network, Inc.(1)
10.4   Escrow Agreement, dated August 3, 2000, among GlobalMedia.com, Magnitude Network, Inc., and State Street Bank and Trust Company(1)
10.5   Common Stock Purchase Warrant, dated August 3, 2000, from GlobalMedia.com to Magnitude Network, Inc.(1)
10.6   Private Placement Subscription Agreement, dated as of September 7, 2000, between GlobalMedia.com and Standard Radio Inc.(2)
10.7   Common Stock Purchase Warrant dated August 31, 2000 from GlobalMedia.com to Standard Radio, Inc.(2)
10.8   Share Purchase Agreement, dated August 31, 2000 between Michael Metcalfe and Standard Radio, Inc.(2)
27   Financial Data Schedule(3)
(1)
Incorporated by reference to the Company's Current Report on Form 8-K filed on August 18, 2000.

(2)
Incorporated by reference to the Company's Amendment No. 1 to Form S-3 Registration Statement filed on September 26, 2000.

(3)
Filed with this Form 10-QSB.

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GLOBALMEDIA.COM CONSOLIDATED BALANCE SHEETS (Unaudited) (in U.S. dollars)
GLOBALMEDIA.COM CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS (Unaudited) (in U.S. dollars)
GLOBALMEDIA.COM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (in U.S. dollars)
GLOBALMEDIA.COM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in U.S. dollars)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX


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