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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
/X/ Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 FOR THE FISCAL YEAR ENDED JULY 31, 2000
/ / Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ______ to ________
Commission file number 0-23491
GLOBALMEDIA.COM
(Name of Small Business Issuer in its Charter)
NEVADA 91-1842480
(State of Incorporation) (IRS Employer ID No.)
400 ROBSON ST., VANCOUVER, B.C., CANADA V6B 2B4
(Address of Principal Executive Offices) (ZIP Code)
(604) 688-9994
Issuer's Telephone Number, Including Area Code
Securities registered under Section 12(b) of the Exchange Act: NONE
Title of Each Class Name of Each Exchange
On Which Registered
---------------------- --------------------
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES /X/ NO/ /
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. //
State the issuer's revenues for its most recent fiscal year: $486,707
State the aggregate market value of the voting common equity held by
non-affiliates based on the closing sales price for the issuer's common stock on
the Nasdaq National Market as of November 30, 2000: $1,755,062
State the number of shares outstanding of the issuer's common stock, as of
November 30, 2000: 37,149,808
Documents incorporated by reference: NONE, EXCEPT THE CERTAIN EXHIBITS REFERRED
TO ON THE LIST OF EXHIBITS CONTAINED IN ITEM 13 OF THIS REPORT.
Transitional Small Business Disclosure Format (check one): YES / / NO/X/
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TABLE OF CONTENTS
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ITEM OF FORM 10-KSB PAGE
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ITEM 1. DESCRIPTION OF BUSINESS............................................1
ITEM 2. DESCRIPTION OF PROPERTY...........................................11
ITEM 3. LEGAL PROCEEDINGS.................................................11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............11
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................14
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...............................55
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS OF THE REGISTRANT; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.................................55
ITEM 10. EXECUTIVE COMPENSATION............................................58
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................59
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................61
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..................................63
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-KSB contains forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may", "will",
"should", "could", "expects", "plans", "intends", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of such terms
and other comparable terminology. Our forward-looking statements include,
without limitation, statements about our market opportunity, our strategies,
competition, expected activities and expenditures as we pursue our business
plan, and the adequacy of our available cash resources. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. The information set forth under the headings "Description of
Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations", identify important additional factors that could
materially adversely affect our actual results and performance. All
forward-looking statements attributable to us are expressly qualified in their
entirety by the foregoing cautionary statement. Moreover, neither we nor anyone
else assumes responsibility for the accuracy and completeness of such
statements. We undertake no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
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.
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 October 2000, we added a beta version of a default button
to RealNetworks' RealPlayer that accesses GlobalMedia.com from the RealPlayer.
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.
INDUSTRY BACKGROUND
THE INTERNET
The impact of the Internet on, and its importance to, the global
economy is increasing significantly. International Data Corporation estimates
that the number of persons accessing the Web will reach 320 million by 2002 and
total Internet commerce - the purchase of goods and services over the Internet
by both businesses and consumers -
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will approach $250 billion by 2002. Advances in technology, such as streaming
media technologies, and broadband access are making the Internet an increasingly
important new medium for multimedia content delivery and distribution. We
believe that the increase in usage of the Web for commerce and multimedia
content delivery will be due to a number of factors, including the following:
- a large and growing base of personal computers and other
Web-enabled devices such as personal digital assistants and
cell phones in the home and workplace;
- declines in the cost of personal computers and other Web access
devices;
- declines in the cost of Internet access;
- increases in the performance of personal computers;
- broadband access and increases in Internet bandwidth;
- advances in streaming media technologies that enable the
continuous transmission and playback of multimedia content, such
as audio and video, which will improve the type and quality of
content available on the Web;
- the availability of a broader range of online products and
services; and
- growing awareness by businesses and consumers of the benefits of
online shopping combined with the delivery or consumption of
multimedia content.
The Internet is unique as a multipurpose medium for communicating,
delivering and finding information and other content and purchasing products and
services. The Internet offers powerful characteristics, such as instant access
to a wide variety of content and commerce destinations, vast selection,
interactivity and personalization, that differentiate it from traditional media
and commerce distribution channels. We believe that, among other things, these
characteristics will facilitate use of the Internet as a purchasing medium.
International Data Corporation estimates that worldwide business-to-consumer
sales over the Internet will increase from approximately $11 billion in 1998 to
approximately $93 billion by 2002.
INTERNET BROADCASTING
The Internet is now recognized as a new mass medium for communication,
commerce and multimedia content. As an interactive and searchable medium, the
Internet offers a highly engaging experience and allows users unlimited access
to a wide variety and supply of content at their convenience. The Internet also
enables content providers and advertisers to establish personalized experiences
for and communications with consumers. We believe that these features, combined
with advances in media delivery and the increasing availability of broadband
access, are enabling the further development and broad acceptance of the
Internet as a powerful medium for online media delivery and distribution.
Streaming media technology enables the continuous transmission and
playback of multimedia content and represents a significant advancement over
earlier technologies, which required download delays before playback. As a
result, streaming media has enabled live broadcasts over the Internet and has
enhanced and simplified the consumer's online media experience. We believe that
the amount of live video and audio content available on the Internet has
increased dramatically in the last two years. As the demand for streaming media
has grown substantially, many new business models have emerged. Companies are
publishing and aggregating streaming media for consumers over the Internet and
employees over intranets, developing streaming media authoring tools, offering
turnkey services and advertising in a variety of new ways. We believe the demand
for streaming media and media content will grow with the increasing availability
of broadband access technologies such as cable modems and digital subscriber
lines. Cost-effective broadband access will make it possible for consumers to
experience higher-quality streaming media and enable content providers to
deliver to large audiences more compelling and engaging media content. We
believe the emergence of television set-top boxes and other non-PC Web-enabled
devices, such as personal digital assistants and cell phones, will further
extend the reach of online media. As the Internet provides the means to deliver
content at quality levels comparable to those of traditional media, we believe
there will be a significant market opportunity for media companies and
advertisers to provide customized, interactive targeted programming and
advertising.
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RETAIL ENTERTAINMENT MERCHANDISING
Traditional channels of retail entertainment merchandise distribution,
such as music stores, home video stores, bookstores and mass market retailers,
have many limitations, including:
- INCONVENIENCE. Shopping at a physical store can be inconvenient. It
involves time-consuming activities such as making a trip to the store,
finding a parking space, searching for desired merchandise and waiting in
line to make a purchase. Searching for merchandise can be especially
time-consuming if the consumer is simply browsing (i.e., is not looking for
a particular title or artist), since searching generally for entertainment
merchandise that may interest the consumer can involve significant time
combing through aisles of CDs or rows and rows of books or videos.
- NARROW SELECTION. Consumers of entertainment products value the opportunity
to select items from a broad range of products that best fit their
interests. Often, consumers must choose from a narrow selection at
traditional store-based retailers. In the entertainment merchandising
industry, stores often specialize in particular types of products, such as
books or music only, forcing the consumer to make a trip to more than one
store. Even mass market retailers that offer selections from a wide variety
of entertainment product categories often have a narrow selection of titles
or genres within those categories because of limitations on the amount of
shelf-space and the resulting need to offer only the fastest selling
titles, genres or products.
- LACK OF INFORMATION AND PERSONALIZATION. Physical retailers are
space-constrained and invest heavily in inventory, real estate, building
improvements and hiring and training of store personnel. Although some
large entertainment merchandisers have made strides to include customized
information and better opportunities for consumers to sample the products
they carry (such as kiosks at music retailers that allow customers to
preview music CDs), physical retailers generally lack the display space and
resources to provide consumers with in-depth information, such as book or
music reviews and interviews with authors and artists, that could greatly
enhance the shopping experience. Physical retailers also have no way of
instantaneously gauging and responding to an individual consumer's personal
tastes.
Because online retailers of entertainment products incur a fraction of
the costs for physical space and personnel and have almost unlimited "virtual"
shelf space, they can offer consumers a broader range of product categories, and
selections within those categories, than can physical retailers. In addition,
online retailers can provide consumers with a wide range of useful and
entertaining information as part of the online shopping experience, such as
interviews with authors or artists, book, music or video reviews, discographies
and other lists of artists' works, historical perspectives and feedback from
other consumers. The online shopping experience can be interactive, such as
giving consumers the opportunity to provide their own personal reviews of
products that they have bought. Online retailing also offers the opportunity to
create communities of like-minded consumers. Finally, online retailers can also
use technology to instantaneously gauge and respond to a particular consumer's
interests, such as offering online recommendations or suggestions by e-mail
regarding other products the consumer may be interested in based on the buying
patterns of customers who bought the same product or information provided by the
consumer about his or her own interests.
Many online retailers of entertainment merchandise provide a shopping
experience that, while convenient, informative and offering a wide selection of
products, fails to deliver fully on entertainment value. Certain strategic
relationships between online retailers and multimedia content delivery companies
have attempted to create a blended online commerce and entertainment experience.
However, these initiatives are often limited in the product selection offered on
the content deliverer's Web site and give a "piecemeal" impression to consumers,
who are exposed to multiple companies' brands and Web site "look-and-feel" as
part of the shopping/entertainment experience.
OUR STRATEGY
Our objective is to become a leading online solutions provider for
radio and other content providers. Our strategy to achieve this objective is to
build a network of private-label entertainment product storefronts on the Web in
conjunction with an online broadcast solution for the delivery of streaming
media over the Internet. To implement our strategy, we are striving to increase
the number of our network associates, attract a growing base of consumers to our
network associates' Web sites, and provide these consumers with a superior
entertainment and shopping experience. Key elements of our strategy include:
FOCUS ON CORE STRENGTHS AND ENHANCE STRATEGIC RELATIONSHIPS. We intend
to leverage off our management team's extensive experience and understanding of
the entertainment and streaming media industries and the convergence of
entertainment and the Internet to deliver an integrated entertainment broadcast
and merchandise retailing solution. We will rely extensively on third parties
for cutting edge technologies to enable us to provide
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multimedia streaming and e-commerce services, and for order fulfillment and
shipment. By aggregating what we believe is the best in technology, content,
entertainment products and distribution services through strategic relationships
with third parties, we intend to maintain our focus on continuously enhancing
the shopping and entertainment experiences of our customers.
EXTEND REACH THROUGH NETWORK ASSOCIATE PROGRAM. We intend to
aggressively market our network associate program. By offering our network
associates reasonably priced solutions for multimedia streaming capabilities and
selling entertainment products online, we believe that we will extend our
customer reach on the Web more effectively and on a more cost-effective basis
than if we were to try to obtain that reach solely through our own
store.globalmedia.com online store and simulated live internet-only radio
stations. We will also consider strategic opportunities to acquire customers
from other companies of streaming media and other web-related services in our
industry as a way to more rapidly build critical mass in our network.
MAINTAIN TECHNOLOGY FOCUS. We intend to use technology that we develop
or that we acquire or license through strategic relationships with third parties
to enhance our streaming media solutions, improve our site's navigation and
search capabilities, and develop features to further personalize consumers'
multimedia and shopping experiences and their ability to find products and
content. We will also use technology to increase the efficiency of order
processing and fulfillment services.
CONTINUOUSLY IMPROVE OUR ONLINE STORE AND SERVICES. We seek to combine
a wide product selection and eye-catching multimedia content and information
with the unique aspects of the Internet to deliver a convenient, entertaining
and personalized shopping experience. To improve our e-commerce solution and our
own site, we intend to:
- expand our product offerings, both within our existing categories
and by extending into other categories of entertainment-oriented
products and services;
- improve the depth and variety of content, including streamed
audio, video and other multimedia content; and
- offer more personalized services, such as recommendations based on
purchases by consumers of similar product selections or
preferences provided by the customer.
ENSURE QUICK AND EFFICIENT DISTRIBUTION. We intend to continuously
increase the automation and efficiency of our fulfillment and distribution
capabilities. Because we outsource our order fulfillment operations, we intend
to work with our fulfillment partners to find more ways to ensure prompt order
processing and delivery to our customers.
OUR SOLUTIONS
OUR BROADCAST SOLUTION
We have developed our broadcast solution to take advantage of
significant improvements in multimedia streaming or other technologies, the
resulting convergence of radio, television and other multimedia content with the
Internet and e-commerce. Our business will depend significantly on the
successful implementation of our broadcast network, the successful marketing of
that solution to potential broadcast associates in the radio and television
industries, and our ability to maintain those relationships.
Using the GlobalMedia.com Player and the Real Broadcast Network
multimedia streaming infrastructure, our broadcast network enables broadcast
associates to deliver live and simulated live multimedia content such as radio
feeds. Our broadcast network provides cutting-edge multimedia content delivery
capabilities and can be combined with the private-label entertainment product
merchandising solution offered under our network associate program. We will
derive revenues from (a) product sales on each network associate's Web site, (b)
resale of streaming media bandwidth on the Real Broadcast Network to our network
associates, (c) design and implementation fees, and (d) advertising revenues
from advertisements in the GlobalMedia.com Player.
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OUR E-COMMERCE SOLUTION
Our e-commerce solution leverages the Internet's capabilities for
delivering multimedia content, including live video and audio programming, to
create a unique, integrated shopping and entertainment experience for the
customers of our network associates and our own online store. The key features
of our solution consist of the following:
CONVENIENCE. Our online store and those of our network associates may
be reached from wherever the customer has access to the Web, such as the home or
office. Customers may shop 24 hours a day, seven days a week. We deliver
directly to the customer's home or office, eliminating the need for a trip to a
physical store. Customers can quickly search an extensive catalogue of products
using a variety of search parameters.
SELECTION. Without the inventory or shelf-space limitations of physical
retailers, we offer a large selection of CDs, videos, DVDs and books and will
expand that selection as we add more fulfillment partners. We also have become
involved in new forms of distribution of entertainment products, such as direct
download of audio files, and intend to offer complementary products and
services, such as magazine subscriptions and concert and event ticket sales.
CONTENT. Through our online store and those of our network associates,
we offer entertainment-focused content ranging from music and entertainment news
to interviews with artists and authors, biographies and lists of artists' and
authors' works. We also offer content in formats designed to enhance the
customer's shopping experience, such as music clips that customers may sample
before ordering CDs. We have integrated the GlobalMedia.com Player into our
e-commerce solution because we believe that online consumers of entertainment
merchandise expect a more entertaining and informative shopping experience than
they can find at traditional retail stores and in most online stores.
COMMUNITY. To create an online experience that will encourage customers
to return to our main store, we sponsor competitions and plan to build community
by hosting entertainment-oriented chat sessions.
OUR NETWORK ASSOCIATE PROGRAM
Under our network associate program, we offer a complete, tightly
integrated entertainment and online shopping experience. Our solution enables
our network associates to deliver simulated live and live Internet broadcast of
audio, video and other multimedia content from their Web sites. Our broadcast
network is designed so that its streaming media capabilities can be combined
with our private label e-commerce solution consisting of a customized,
merchant-branded storefront on the network associate's own Web site which we
integrate with our own back-end e-commerce systems, order fulfillment services
and customer service support. We believe our network associate program is
attractive for a variety of reasons because it:
- enables companies that lack the financial and technical resources
to develop and maintain their own proprietary streaming and
e-commerce solutions to enter into the business for lower up-front
fees and minimal continuing direct cost (other than what they
spend to market their online stores);
- helps companies expand their Web sites to provide additional
revenue streams and enhance the appeal to their online audiences;
- allows companies to extend their brands onto the Web or maintain
their existing online brands and avoid the "brand dilution" and
disjointed customer experience engendered by industry-prevalent
e-commerce affiliate programs, which are offered under the
merchant partner's own brand - sometimes with an entirely
different "look and feel" from the affiliate's own Web site; and
- allows companies to focus on core businesses and strengths by
outsourcing their streaming and e-commerce business to us.
Our business and results of operations will depend in large part on
the success of our network associate program. As of November 30, 2000, we had
128 network associate agreements in place representing 78 unique broadcasters
and 201 e-commerce stores. We have also recently acquired (a) streaming
contracts for 78 radio stations and Web services contracts for an additional
144 radio stations from OnRadio.com, and (b) streaming and Web services
contracts for an additional 112 stations from Magnitude Networks.
The OnRadio and Magnitude contracts represent the opportunity to
increase our market share by converting the customers under those contracts to
our e-commerce and broadcast solution. These acquired contracts have remaining
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terms that range from 5 to 48 months. However, there is no guarantee that
these customers will sign up with us when their current contracts expire. As of
November 30, 2000, we have signed new contracts with seven of the OnRadio
stations and 35 of the Magnitude stations, and are in the process of
transitioning them to our platform. Not all of the remaining OnRadio and
Magnitude contracts will successfully transition into our network associate
program. To date the conversion of these contracts has been going slowly and
we may need to commit significant resources to that effort in order to realize
our investment in them.
In order to attract and retain significant numbers of network
associates, we must:
- build an efficient sales force to promote our network associate
program, particularly to the radio and television industries, and
successfully promote the benefits of our end-to-end broadcasting and
e-commerce solution to potential network associates;
- be able to offer customized, merchant-branded players and storefronts
with content and merchandise selection that can be specifically
tailored to different types of potential network associates with
different target markets or customers, that work reliably and
effectively with our network associates' own Web sites, and that
reliably fulfill orders of customers who purchase products through our
network associates' storefronts;
- successfully compete against other companies that offer, or in the
future may offer, similar e-commerce and content-delivery solutions,
either on their own or through strategic relationships with other
parties; and
- successfully integrate customers acquired from OnRadio.com and
Magnitude, as well as any we may acquire in the future in connection
with strategic acquisitions or other transactions, into our own
network.
Our business and results of operations may suffer if our network
associates are unsuccessful in attracting significant numbers of visitors to
their Web sites. While we analyze our potential network associates' plans for
increasing traffic to their Web sites, we have no control of the steps they
actually take to attract visitors to their sites except to the extent that the
network associates are contractually obligated.
OUR WEB SITES
OUR MAIN STORE. Visitors to our online store at "store.globalmedia.com"
see a home page that highlights our three product departments: "Music", "Books"
and "Videos", as well as entertainment focused news and interviews with artists
and authors. We periodically rotate specific title promotions in each of the
departments on our store's home page. Shoppers can launch the GlobalMedia.com
Player and enjoy music in various genres while browsing the store. Shoppers
browse the store by clicking on the permanently displayed department names to
move directly to the department home page and to view selected title promotions
within that department, current top-selling titles and additional content
oriented to the products offered in that department. Shoppers can also search
the store by entering text, such as a title, an artist's or author's name, or a
keyword, in the search box at the top of any page. Search results return a list
of one or more products that relate to the search term, and customers can click
on a link to the desired item to obtain more information such as:
- CDs: artist name, genre, label, release date, song titles and
price;
- Books: author name, genre, format (hardcover or paperback),
number of pages, publication date, publisher and prices;
- Videos: director name, names of actors, studio name, format
(video cassette or DVD), available releases and prices.
A shopper can order a product by clicking on the "buy" button next to
the desired product and the product is then added to the shopper's "shopping
cart." The shopper can add or delete items from his or her shopping cart at any
time prior to final purchase. When the shopper finishes selecting the desired
products, he or she goes to checkout. The checkout page presents the shopper
with the various items he or she has selected, the subtotal, tax (if applicable)
and shipping charges. The shopper may add or delete products at this stage or
change the method of shipping. When satisfied with the order, the shopper clicks
on the "purchase" button and the final order is entered into our system. A
shopper will be notified by e-mail of the receipt of the order, if the credit
card information was declined, and when the products ordered have been shipped.
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We strive to use content effectively to encourage purchases by
customers who may be browsing our site without a specific title, author or
artist in mind. All of the textual content we provide on our main home page and
department home pages have direct links to related products. For example, an
interview with a member of a particular rock band might include a "buy" button
that links the customer to the product listing for the band's latest release. We
also seek to use content to enhance the information and entertainment value of
our customers' shopping experience. For example, for many of the CDs we carry,
customers can sample audio tracks before purchasing the CD. We also include
useful and entertaining textual information about many of our products, such as
a summary review of the CD, video or book, information about the artists, and
short excerpts from third party reviews.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers (and those of our network associates) and to
encourage repeat visits and purchases will depend in part on the strength of our
customer support and service operations. We employ 6 customer support and
service staff and automate certain of the tools used by them to enhance the
efficiency and quality of our customer support and service efforts. In addition,
we will seek to achieve frequent communication with and feedback from our
customers to continually improve our broadcasting and e-commerce solutions,
product offerings and related services.
MARKETING AND PROMOTION
We believe that successful implementation of our network associate
program will depend on our ability to establish an aggressive and effective
internal sales organization. As of November 30, 2000, our internal sales team
had 19 members. We may need to increase this sales force in the future in
order to execute our business plan. Our ability to increase our sales force
involves a number of risks and uncertainties, including competition for
employees and the length of time for new sales employees to become productive.
While we view our network associate program as the critical component
of our plan to increase sales of our entertainment products, our marketing
strategy will also focus on:
- increasing listeners of our GlobalMedia.com Player and traffic to
our main online store and the online stores of our network
associates;
- building customer loyalty;
- maximizing repeat purchases; and
- developing incremental revenue opportunities.
We intend to pursue a variety of media, business development and
promotional methods to achieve these goals, including online and traditional
advertising and public relations activities (such as sponsoring concerts and
other events). We may also offer our own affiliate program, which will embed one
or more general or product-specific links to our site on our affiliates' Web
sites. Affiliates would be paid a commission on orders placed by customers who
are directed to our site from the affiliates' Web sites.
STRATEGIC ALLIANCES
In order to maintain and improve our online store and related services
and increase traffic to our site, we seek to enter into strategic relationships
with business partners who can offer technology, content and distribution
capabilities, as well as marketing and cross-promotional opportunities.
FULFILLMENT PARTNERS
We have outsourced all of our order fulfillment and shipping operations
in order to allow us to focus on our core strengths of developing and enhancing
compelling online entertainment product merchandising and content delivery
initiatives, and to avoid the need to invest in warehouse and other distribution
infrastructure or carry inventory. We currently purchase all of the merchandise
we offer online from two fulfillment partners, Baker & Taylor, Inc. and the
iFill division of Valley Media, Inc. We intend to pursue relationships with
other fulfillment partners to expand our product offerings.
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REALNETWORKS
We have entered into a number of transactions with RealNetworks which
are important to our business, including the following:
- a development agreement entered into in April 1999, under which
RealNetworks developed and licenses GlobalMedia.com Player to us,
and a related support and upgrade agreement entered into in
January 2000;
- a streaming media services agreement entered into in January 2000
and amended in June 2000, under which we have agreed, for a five
year term, to use RealNetworks for streaming media services over
the Real Broadcast Network; and
- various marketing related agreements we entered into in the first
quarter of fiscal 2000, including advertising and promotion
agreements and other agreements pursuant to which we are provided
a "channel" and a number of "presets" on the RealPlayer, which is
RealNetworks' client media player that enables end-users to
experience multimedia content.
Our business depends to a significant extent on these relationships
with RealNetworks. Our relationships with RealNetworks involve numerous risks,
including the following:
- we do not own or have exclusive rights to the technology
underlying the GlobalMedia.com Player and RealNetworks therefore
could license that technology to one or more of our existing or
future competitors or could use that technology itself to launch
competitive solutions;
- our streaming media services agreement with RealNetworks obligates
us to use RealNetworks' streaming media services and streaming
media technologies on an exclusive basis until at least June 2001,
except to the extent necessary to service customers we have or may
acquire in certain acquisitions before December 31, 2000 who are
using competitive streaming media technologies or service
providers at the time of acquisition, and this exclusivity
limitation restricts our ability to develop and market streaming
solutions based on other streaming technologies such as the
Windows Media Player or to secure alternative streaming media
services at potentially more favorable costs;
- we have paid RealNetworks significant sums under our contracts
with them and we are not assured of receiving the expected
benefits of those contracts, particularly in the case of our
marketing-related agreements, which may fail to result in
sufficient consumer traffic to our network to pay for the costs we
incurred with RealNetworks under these agreements; and
- any early termination of our agreements with RealNetworks as a
result of our breach or otherwise could significantly disrupt our
business and potentially result in claims against us by customers
of our streaming media services.
STANDARD RADIO INC.
On December 7, 1999, we entered into a strategic relationship with
Standard Radio, Inc. In this transaction (a) Standard invested $2,000,000 in
exchange for 338,983 shares of our 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 was granted options to
purchase 125,000 shares of common stock, (c) we entered into agreements with
eight members of Standard's management team under which they will serve on our
marketing advisory committee and will promote our solutions to other radio
stations in North America, for which each management team member will receive
unvested options to purchase up to 20,000 shares of our common stock, (d)
Standard agreed to cause of the radio stations owned and controlled by it now
and for the next three years to become our e-commerce and broadcast associates,
and (e) Standard received the right to approve agreements between us and radio
stations which compete in the same genre and locale as each of Standard's
stations in Canada. In July 2000, nine radio stations owned by Standard Radio
went live with our streaming and e-commerce solution.
On August 31, 2000, we sold an additional 1,388,888 shares of common
stock and warrants to purchase up to 277,778 shares of common stock for $1.80
per share and an aggregate purchase price of $2.5 million to Standard Radio.
(the "Standard Offering"). These 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 US $7,500,000 on or before December 31, 2000 at a price per
common share less than the price in the Standard Offering, the Company shall
promptly issue to Standard additional
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shares based on a specified anti-dilution formula adjust the exercise price of
the warrants issued to Standard. If we close the follow-on offering, Standard
has agreed to invest another US $2,500,000. As part of the consideration to
Standard for investing additional funds in us, we agreed to waive all of
Standard's fees and expenses under the existing co-marketing agreement with
respect to Standard's current radio stations for a period of three years, or so
long as Standard continues to hold 2% or more of our issued and outstanding
shares.
On November 14, 2000, Standard Radio and two of its executives
invested an additional $500,000 into us. SEE "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Recent
Events--Standard/Mandelbaum $1 Million Investment and Related Transactions."
We expect our relationship with Standard to provide significant
opportunities for future growth in revenues, in addition to the initial cash
investment.
CONTENT PROVIDERS
We currently license content from a variety of sources, including
online publishers of entertainment and music news, artist interviews, games,
animation and multimedia content. In one case we issued unregistered stock to a
content provider in connection with a streaming media content contract.
TECHNOLOGY OPERATIONS
We employ a broad range of technologies for both our e-commerce and
streaming media operations. Our e-commerce systems are being developed using
open source technologies to ensure scalability, reliability and innovation.
Highlights of our e-commerce systems include the following:
NETWORK:
- Partnership with a key tier-one Internet provider to deliver high
bandwidth scalable connectivity
- Several peering arrangements to ensure redundancy, speed, and
minimal network bottlenecks
SYSTEMS AND SOFTWARE:
- Standards-based architecture on open source software
- High portability avoiding "vendor specific lock-in"
- High performance platform
- Modular design for rapid application development
Our streaming media solution was developed through several strategic
technological partnerships and through the implementation of our own proprietary
advancements. In addition, we established a strategic relationship with
RealNetworks to develop the GlobalMedia.com Player, which has been combined with
our e-commerce, ad-serving and other systems to create our broadcast network.
COMPETITION
The markets in which we are engaged are new, rapidly evolving and
intensely competitive. Barriers to entry are relatively low but increasing. We
may not be able to compete successfully against current and future competitors.
Further, as a strategic response to changes in the competitive environment, we
may, from time to time, make certain pricing, service or marketing decisions or
acquisitions that could adversely affect our business, results of operations and
financial condition.
We currently or potentially compete with a number of other companies.
We compete with large, well-established Internet broadcasters such as
Yahoo!Broadcast and BroadcastAmerica.com. We also compete with traditional
physical retailers of entertainment merchandise, including large,
well-established book, music and video stores such as Barnes & Noble, Inc.,
Borders Group, Inc., and Wherehouse Entertainment, Inc., and mass market
retailers such as Wal-Mart Stores, Inc. In the market for online retailing of
books, CDs, video cassettes and DVDs, we compete with large, well-established
companies such as Amazon.com, Inc., Ubrandit.com, and CDNow, Inc.
Certain of our competitors currently offer, either alone or through
strategic relationships with other companies, a blend of multimedia content
delivery and e-commerce services to the principal target market for our network
associate
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program. Certain of our current competitors have longer operating histories,
larger customer bases, greater brand recognition in other business and Internet
markets, and significantly greater financial, marketing, technical and other
resources than us. In addition, other online retailers may be acquired by,
receive investments from, or enter into other commercial relationships with
larger, well-established and well-financed companies as use of the Internet and
other online services increases. Therefore, certain of our competitors with
other revenue sources may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies, and devote
substantially more resources to Web site and systems development than us.
Competitive pressures created by any one of these companies, or by our
competitors collectively, may result in loss of market share and reduced
operating margins, any of which could have a material adverse effect on our
business, results of operations and financial condition.
We may face obstacles in signing up significantly larger numbers of
network associates in the media industry, despite the appeal to radio and
television stations of our private label e-commerce solution bundled with
streaming media services. For example, Yahoo!Broadcast, a leading Internet
broadcaster of radio, television and other multimedia content, has established
relationships with hundreds of radio stations across the country, including
stations in many of the top radio markets in the U.S., and can offer its
streaming media customers some e-commerce solutions that are competitive to our
own through strategic relationships with other companies. Because
Yahoo!Broadcast has exclusive relationships with many of its streaming media
customers, those customers may not be willing or able contractually to become
our network associates.
INTELLECTUAL PROPERTY
We rely or may in the future rely on a combination of patent,
trademark, trade secret and copyright law and contractual restrictions to
protect the proprietary aspects of our technology and proprietary content. These
legal protections afford only limited protection for our intellectual property
and trade secrets. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our proprietary technology
or otherwise obtain and use information that we regard as proprietary.
We are in the process of filing Canadian and U.S. applications for
trademark registration of "GlobalMedia.com," "GlobalMedia.com Network." We may
be unable to secure such trademark registrations. It is also possible that our
competitors or others will adopt service names similar to ours, thereby possibly
leading to customer confusion. Any claims or customer confusion related to our
trademarks, or our failure to obtain trademark registrations, could negatively
affect our business.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets and domain names, and to determine
the validity and scope of the proprietary rights of others. If third parties
prepare and file applications in the United States, Canada or other countries
that claim trademarks used or registered by us, we may oppose those applications
and be required to participate in proceedings before the regulatory agencies
involved determine priority of rights to the trademarks. Any litigation or
adverse priority proceeding could result in substantial costs and diversion of
resources and could seriously harm our business and operating results.
Finally, to the extent that we operate internationally, the laws of
many countries do not protect our proprietary rights to as great an extent as do
the laws of the United States and Canada. Many countries have a "first-to-file"
trademark registration system. As a result, we may be prevented from registering
or using our trademarks in certain countries if third parties have previously
filed applications to register or have registered the same or similar trademark.
Our means of protecting our proprietary rights may not be adequate, and our
competitors could independently develop similar technology.
We hold rights to various Web domain names, including
"globalmedia.com." Governmental agencies typically regulate domain names. These
regulations are subject to change. We may not be able to acquire or maintain
appropriate domain names in all countries in which we do business. Furthermore,
regulations governing domain names may not protect our trademarks and similar
proprietary rights. We may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or diminish the value of our
trademarks and other proprietary rights.
GOVERNMENT REGULATION
Our company, operations and products and services are all subject to
regulations set forth by various United States and Canadian federal, state,
provincial and local regulatory agencies. We take measures to ensure our
compliance with all such regulations as promulgated by these agencies from time
to time. Historically, there have been
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<PAGE>
few laws and regulations directly applicable to the Internet. While laws and
regulations directly applicable to Internet communications, commerce and
advertising are becoming more prevalent, the law governing the Internet remains
largely unsettled, even in areas where there has been some legislative action.
Several states in the United States, however, have proposed legislation that
would limit the uses of personal user information gathered online or require
online services to establish privacy policies, and the Federal Trade Commission
has initiated action against at least one online service regarding the manner in
which personal information is collected from users and provided to third
parties. It is possible that a number of other laws and regulations may be
adopted with respect to the Internet covering issues such as consumer
protection, pricing, content, copyrights and other intellectual property,
distribution, antitrust, obscenity, libel, and characteristics and quality of
products and services.
Governments in foreign jurisdictions may regulate Internet or other
online services in such areas as content, privacy, network security, encryption,
distribution or taxation more stringently than in the United States. This may
affect our ability to conduct business internationally. In addition, because our
sites are accessible worldwide and we facilitate sales of goods to users
worldwide, other jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in a particular state or foreign country. Our
failure to qualify as a foreign corporation in a jurisdiction where it is
required to do so could subject us to taxes and penalties for the failure to
qualify and could result in our inability to enforce contracts in such
jurisdictions.
Any such new United States or foreign legislation or regulation, or the
application or interpretation of existing laws to, the Internet could have a
material adverse effect on our business, results of operations and financial
condition by (a) increasing our cost of doing business, (b) creating uncertainty
in the marketplace that could reduce demand for our products and services or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or (c) otherwise adversely affect our business results
of operations and financial condition.
EMPLOYEES
As of November 30, 2000, we employed approximately 72 full-time
employees. We also engage independent contractors from time to time for Web site
development and to provide content such as editorials. None of our employees is
represented by a labor union, and we consider our employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal executive office is located in Vancouver, British
Columbia, Canada in approximately 13,000 square feet of leased office space. The
lease expires in August 2004. We continue to lease approximately 5,700 square
feet of office space in Nanaimo, British Columbia. This lease expires in July
2002. We currently terminated our New York, New York sublease. We believe our
leased facilities will be adequate for our current operations, and that
additional leased space can be obtained if needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings and claims
which may have a material adverse effect on our business. We are not aware of
any current legal proceedings or claims that will have, individually or in the
aggregate, a material adverse effect on our business, prospects, financial
condition or results of operations.
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 Mandlebaum, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 30, 2000, the Company called a special meeting of the
shareholders. The meeting did not involve the election of any directors.
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At the special meeting, the board of directors recommended to the
shareholders for their approval a proposal to potentially issue over 20% of the
then outstanding common stock of the Company in connection with the issuance by
the Company of Series B, and potentially Series C, Convertible Preferred Stock
and related warrants pursuant to the Securities Purchase Agreement between the
Company and RGC International Investors, LDC dated April 28, 2000. Of the
15,473,930 shares of common stock present at the meeting in person or by proxy,
15,472,130 voted for and 1,800 against the proposal. The proposal received
approval from a majority of the votes present at the meeting.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION, SHAREHOLDERS AND DIVIDENDS
MARKET INFORMATION
Our common stock has been traded on the OTC Bulletin Board, and more
recently on the Nasdaq National Market System under the trading symbol "GLMC"
since August 24, 1998. Prior to that date, our common stock was not traded in
the public market. The following table sets forth, for the periods indicated,
the high and low closing prices for our common stock as reported on the OTC
Bulletin Board and Nasdaq National Market System. The quotations do not reflect
adjustments for retail mark-ups, mark-downs, or commissions and may not
necessarily represent actual transactions. On November 30, 2000, the closing
price for our common stock on the Nasdaq National Market System was $0.15625
per share.
<TABLE>
<CAPTION>
PERIOD LOW CLOSE HIGH CLOSE
<S> <C> <C>
FISCAL YEAR ENDING JULY 31, 2000:
--------------------------------
Fourth Quarter $2.563 $6.000
Third Quarter $4.562 $8.250
Second Quarter $4.312 $8.875
First Quarter $5.437 $8.187
FISCAL YEAR ENDING JULY 31, 1999:
Fourth Quarter $4.000 $13.375
Third Quarter $4.000 $5.100
Second Quarter $0.438 $8.875
First Quarter (from August 24, 1998) $0.438 $2.500
</TABLE>
The market price of our common stock has been, and is likely to
continue to be, highly volatile. Purchasers of our common stock may not be able
to resell their shares following periods of volatility because of the market's
adverse reaction to volatility. The trading prices of many technology and
Internet-related companies' stocks reached historical highs during our 2000
fiscal year, and reflected valuations substantially above historical levels.
During the same period, these companies' stocks have also been highly volatile
and have recorded lows well below historical highs. We cannot assure you that
our stock will trade at the same levels of other Internet stocks or that
Internet stocks in general will sustain their current market prices.
SHAREHOLDERS
As of November 30, 2000, there were 62 holders of record of
37,149,808 shares of our common stock, and one holder of 3,590 shares of our
Series A preferred stock and 5,000 shares of our Series B preferred stock.
DIVIDENDS
To date, we have not declared or paid any dividends on any of our
capital stock. Prior to our acquisition of Westcoast, however, it paid $114,632
in cash dividends in fiscal 1997. We currently intend to retain earnings, if
any, to fund the development and growth of our business and do not anticipate
paying cash dividends in the foreseeable future. Payment of future dividends, if
any, will be at the discretion of our board of directors after taking into
account various factors, including our financial condition, operating results,
current and anticipated cash needs and plans for expansion. So long as shares of
our Series A and Series B preferred stock are outstanding, the payment of
dividends on our common stock will require the consent of the holders of a
majority of the shares of Series A and Series B preferred stock then
outstanding.
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RECENT SALES OF UNREGISTERED SECURITIES
SEE "Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations Recent Events" for a description of financings and
acquisitions involving issuances of securities prior to and since fiscal year
end July 31, 2000.
STOCK OPTION PLANS
The Company has four stock option plans: the 1997 Plan, the 1998 Plan,
the 1999 Plan and the 2000 Plan. As of November 30, 2000 the Company had a total
of 5,572,040 stock options outstanding under two of these plans: 3,489,420
options under the 1999 Stock Option Plan and 2,082,620 options under the 2000
Stock Option Plan. The plans are administered by the Board of Directors who have
sole discretion and authority to determine awards including the conditions of
exercise.
The 1997 plan became effective on April 8, 1997 and provides for the
issuance of 1,000,000 options within a period of 10 years from the effective
date. No options have been granted under the 1997 plan. The Company plans to
cancel the plan in the near future.
The 1998 plan became effective on August 21, 1998 and 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 vested on grant.
During fiscal year 2000, 139,400 of these options were exercised, and 98,100
options remained outstanding at July 31, 2000. Subsequent to the end of the
fiscal year, 23,100 of these outstanding options were exercised and 75,000
expired. The Company will not reissue any of the expired shares.
The 1999 plan became effective on March 24, 1999 and provided for the
issuance of 4,000,000 options within a period of 10 years from the effective
date. In fiscal 2000, the Company granted 285,000 options at an exercise price
of $5.13, 8,000 options at an exercise price of $6.06, 348,060 options at an
exercise price of $6.25, 1,200 options at an exercise price of $6.63 and 454,750
options at an exercise price of $8.00. Of the 3,725,545 total options granted,
2,071,910 options vested immediately upon grant and 1,653,635 vested on a
quarterly basis over one year. During fiscal year 2000, 238,125 options under
the 1999 plan were exercised and 155,900 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 two years from the effective
date. During fiscal year 2000, the Company granted 1,168,540 options at an
exercise price of $6.375, 30,000 options at an exercise price of $5.00, 30,000
options at an exercise price of $4.40, 64,000 options at an exercise price of
$3.69 and 23,000 options at an exercise price of $2.719. Of the 2,082,620
options granted, 166,300 options vested immediately upon grant and the balance
vest over three years, with the first vesting period being one year after the
date of grant. In the second and third years, the vesting dates occur on a
quarterly basis. None of the options granted under the 2000 plan were exercised
during fiscal 2000 and 64,315 options were cancelled.
Activity in the stock option plans for the fiscal year ending July 31,
2000 is as follows:
<TABLE>
<CAPTION>
WEIGHED AVERAGE
OPTION (#) EXERCISE PRICE
--------------------------------------- --------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 3,257,000 $3.81
Granted 2,191,390 $7.01
Exercised (377,525) $3.50
--------------------------------------- --------------------- ------------------
Outstanding, end of period 5,070,865 $5.03
--------------------------------------- --------------------- ------------------
Options exercisable, end of period 3,433,507 $4.51
--------------------------------------- --------------------- ------------------
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements. SEE
"Cautionary Note Regarding Forward-Looking Statements."
--------------------------------------------------------------------------------
OVERVIEW. GlobalMedia.com offers an award-winning streaming media
broadcast solution to radio and other content providers and Internet sites
through our GlobalMedia.com network associate program. The centerpiece of our
broadcast network solution is the GlobalMedia.com Player, a streaming media
player built for us by RealNetworks and further developed by us. The
GlobalMedia.com Player enables Internet users to experience multimedia content
streamed over the Internet. 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.
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.
MARKET OPPORTUNITY. International Data Corporation estimates that the
number of persons accessing the Web will reach 320 million by 2002 and that
worldwide business-to-consumer sales over the Internet will increase from
approximately $11 billion in 1998 to approximately $93 billion by 2002. Advances
in technology, such as streaming media technologies which enable the continuous
transmission and playback of multimedia content, and broadband access are making
the Internet an increasingly important new medium for multimedia content
delivery and distribution. We are positioning ourselves to take advantage of the
convergence of traditional audio and video media with the Internet and
electronic commerce.
NETWORK ASSOCIATE PROGRAM. We offer our network associates solutions to
provide their online customers with an integrated entertainment and online
shopping experience. Our solutions enable our network associates to deliver
simulated live and live Internet broadcast of audio, video and other multimedia
content from their Web sites. We have designed our broadcast network so that our
streaming media solution can be combined with our private label e-commerce
solution. We provide participating network associates with a customized,
merchant-branded storefront on the network associate's own Web site which we
integrate with our own back-end e-commerce systems, order fulfillment services
and customer service support. For example, customers of a network associate that
uses our streaming and e-commerce solutions can listen to live music programming
through the GlobalMedia.com Player and purchase CDs of the featured artists at
the same time. Network associates who use our broadcasting pay us an up-front
fee for design and implementation and ongoing streaming fees based on usage. We
pay our network associates a percentage of advertising revenues and gross margin
for products we sell through their sites.
We believe that our broadcast network will be a compelling solution to
radio and television stations that are interested in extending their brands onto
the Internet and developing new sources of revenues. By establishing network
associate relationships with radio and television stations and other media
businesses, our goal is to leverage off the existing brand identities and
marketing efforts - both online and offline - of our network associates to drive
Internet traffic and sales of entertainment merchandise.
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 October 2000, we added a beta version of a default button
to RealNetworks' RealPlayer that accesses GlobalMedia.com from the RealPlayer.
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 our media player for free. We are continuing the further development of
our online store and e-commerce
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<PAGE>
back-end to provide additional features and expect that these enhancements will
improve the revenue generating potential of our own store and the stores of our
network associates.
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
NOTE: The financial results contained in the following discussion have been
restated to exclude our discontinued call center and home satellite
businesses. SEE Note 3 to our Consolidated Financial Statements.
--------------------------------------------------------------------------------
YEAR ENDED JULY 31, 2000 COMPARED TO YEAR ENDED JULY 31, 1999*
NET REVENUE. We had net revenues of $486,707 from our operations in
fiscal 2000, as compared to $7,091 in fiscal 1999. Our internet-focused business
did not commence development until the third quarter of fiscal 1999.
OPERATING EXPENSES. Our operating expenses increased to $15,327,094 in
fiscal 2000, up from $2,071,596 in fiscal 1999. This increase resulted from
significant growth in our operations and reflects increases in all our operating
expenses as follows:
- General and administrative expenses increased to $7,224,939 in fiscal
2000, up 670% from $938,500 in fiscal 1999, due primarily to a
$1,963,750 deferred compensation charge (SEE Note 11 to our
Consolidated Financial Statements), $533,333 incurred with RealNetworks
under a product support agreement, the cost of developing and expanding
our e-commerce and streaming media technologies and higher costs
associated with multiple office locations and the administration
required for a significantly larger organization.
- Sales and marketing expenses increased to $4,502,176 in fiscal 2000, up
from $67,672 in fiscal 1999. The increase resulted from costs of
$2,399,790 incurred with RealNetworks under various marketing-related
agreements, the costs associated with attending industry related
conferences, marketing of the Network Associate program and expenses
developing a sales force.
- Depreciation and amortization of tangible assets increased to
$1,505,536 in fiscal 2000, up 406% from $297,655 in fiscal 1999, due
primarily to the acquisition and development of significant capital
assets during in fiscal 2000. Amortization of intangible assets
increased to $927,000 in fiscal 2000, up from none in fiscal 1999, due
to the OnRadio contract acquisition costs. SEE Note 12 to our
Consolidated Financial Statements. We expect our depreciation and
amortization expenses to increase significantly in future periods due
to the amortization of acquisition costs, including goodwill,
associated with the OnRadio and Magnitude contract acquisitions. SEE "-
Recent Events."
- Direct costs increased to $657,787 in fiscal 2000, up from none in
fiscal 1999. Our cost of sales in fiscal 2000 consisted primarily of
minimum contractual broadcasting-related charges that were payable as
we continued to develop and expand our network.
- Shareholder communication expenses increased to $509,656 in fiscal
2000, up 133% from $218,969 in fiscal 1999, due primarily to the costs
of improving communications with, and materials provided to, our
shareholders, and to being nationally listed on the Nasdaq National
Market during the third quarter of fiscal 2000.
- Stock option compensation expense was zero in fiscal 2000, compared to
$548,800 during fiscal 1999, as all options issued in fiscal 2000 have
exercise prices at or above the fair market value of stock at the date
of issuance.
NET LOSS FROM CONTINUING OPERATIONS. We experienced a $14,840,387 net
loss from continuing operations for fiscal 2000, up from our $2,064,505 net loss
from continuing operations for fiscal 1999, due primarily to the increase in
operating expenses described above, as we continued to implement our internet
focused business plan.
INTEREST. We incurred net interest expense of $27,570 in fiscal 2000,
down 79% compared to net interest expense of $134,013 in fiscal 1999. The
expense is net of $169,619 in interest income in fiscal 2000, compared to none
in fiscal 1999, due to higher average bank balances.
----------------------
* We have included in this Annual Report the audited financial statements for
our 1999 and 1998 fiscal years because our previous accountant issued the 1999
audit report. However, this Item 6 only discusses fiscal year 2000 as compared
with fiscal year 1999, as required by Regulation S-B.
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<PAGE>
LOSS AND COMPREHENSIVE LOSS. We experienced a $14,909,253 loss and
comprehensive loss for fiscal 2000, up from our $2,231,074 loss and
comprehensive loss for fiscal 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 our Consolidated Financial Statements. This
section should be read in conjunction with " - Results of Operations",
above.
--------------------------------------------------------------------------------
YEAR ENDED JULY 31, 2000 COMPARED TO YEAR ENDED JULY 31, 1999
FINANCING ACTIVITIES. We financed our operations and capital
expenditures in fiscal 2000 primarily from existing cash on hand, issuance of
preferred and common shares in private transactions, and the exercise of
investment and compensatory stock options. Cash received upon the exercise of
stock options, including exercises by RGC of investment options for 1,092,056
shares, totaled $5,809,106 in fiscal 2000. We issued 5,000 Series B convertible
preferred shares, investment options and warrants in a private transaction with
RGC International Investors, LDC for gross proceeds of $5,000,000. SEE Note 10
to Consolidated Financial Statements and "- Recent Events". Under the terms of a
strategic relationship entered into with Standard Radio Inc., we also issued
338,983 common shares to Standard for gross proceeds of $2,000,000.
LOANS. In fiscal 2000, we obtained one loan which consisted of a
$1,000,000 short-term note payable to RealNetworks, due September 1, 2000 with
interest at a rate of 8%. The amount was subsequently repaid. In addition, we
obtained extensions of our lines of credit from three of our suppliers, which
are secured by $170,000 in term deposits. These lines of credit expire on either
May 12, 2001 or June 14, 2001.
CAPITAL EXPENDITURES AND COMMITMENTS. Our capital expenditures
increased to $4,201,670 in fiscal 2000, from $1,483,360 in fiscal 1999,
primarily as the result of development costs associated with our broadcast
solutions and increased requirements for computer hardware, software and
operating equipment. As of July 31, 2000, we had no material commitments
outstanding for purchases of additional capital assets.
WORKING CAPITAL. At July 31, 2000, we had working capital of $2,672,648
and a working capital ratio of 2.20, down from $5,289,038 and 8.32,
respectively, at July 31, 1999.
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
SERIES B PREFERRED OFFERING. On April 28, 2000, we sold to RGC
International Investors, LDC, for an aggregate purchase price of $5,000,000, (a)
5,000 shares of Series B convertible preferred stock, (b) investment options to
purchase the same number of common shares as issued on conversion of our Series
B convertible preferred stock, and (c) warrants to purchase an aggregate of
388,500 shares of common stock at a purchase price of $7.0785 per share. The
common stock issuable upon conversion or exercise of those securities was
registered for resale under a registration statement declared effective by the
SEC on September 26, 2000. The conversion price of the Series B convertible
preferred shares is the lesser of: (a) the average of the seven consecutive
lowest closing bid prices of common shares reported on the 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. We registered for resale the shares
issuable upon conversion of the Series B Preferred and related investment
options and warrants, on a Form S-3 Registration Statement, which the SEC
declared effective on September 26, 2000.
OPTION TO PURCHASE SERIES C PREFERRED. In connection with the sale of
our Series B convertible preferred stock, RGC agreed to invest another
$5,000,000 in us upon the effective date of the prospectus for the registration
statement filed on September 26, 2000, in exchange for 5,000 shares of our
Series C convertible preferred stock, and related investment options and
warrants, subject to the satisfaction of certain other conditions. None of these
conditions
16
<PAGE>
were within our control and did not occur by the effective date of the
prospectus. We therefore agreed to amend the purchase agreement to grant RGC the
option to purchase the Series C convertible preferred stock and related
investment options and warrants at such time as the conditions are satisfied.
RGC continues to have registration rights with respect to the common stock
underlying those securities. The conversion price of the Series C convertible
preferred shares, if issued, will be the lesser of: (a) the average of the seven
consecutive lowest closing bid prices of common shares reported on the Nasdaq
Stock Market during the 35 trading days ending one day prior to the date that
RGC exercises its right to convert; or (b) a fixed conversion price. That fixed
conversion price will be the lesser of: (i) $7.40, or (ii) the average of the
closing bid prices of common shares during the five (5) trading days immediately
preceding the Series C closing date.
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.
17
<PAGE>
INVESTMENT
STANDARD RADIO/JEFF MANDELBAUM INVESTMENT. As of November 14, 2000,
the Company has entered into definitive share purchase agreements for US$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 closing of this new
investment, effective as of November 15, 2000, the following other agreements
were entered into:
- The Company and the Investors entered into a Registration Rights
Agreement in which the Company agrees to register for resale the
newly-issued shares and all other shares of the Company stock held by
the Investors and Mr. Mandelbaum that are not otherwise registered.
- The Company and Standard Radio entered into an amendment of the
existing Private Placement Subscription Agreement between them, dated
September 6, 2000, which repriced the shares sold under that
agreement $0.4375 per share, causing the issuance of an additional
4,325,398 shares to Standard Radio.
- The Company agreed to exchange the common stock purchase warrant,
dated September 6, 2000, held by Standard Radio for an Amended Common
Stock Purchase Warrant which reduces the exercise price from $1.80 to
$0.4375 per share.
- Mr. Metcalfe agreed to sell to Standard Radio, Mr. Slaight and Mr.
Coriat an aggregate of 500,000 shares of Common Stock held by him,
at $0.02 per share.
- The Company agreed to grant Mr. Mandelbaum options to purchase 200,000
shares of common stock in exchange for his continued service as
Chairman of the Board.
- The Company, Mr. Mandelbaum and Mr. Metcalfe amended Mr. Mandelbaum's
Executive Agreement to accelerate Mr. Metcalfe's sale of an
additional 500,000 shares of Common Stock held by Mr. Metcalfe to Mr.
Madelbaum, at $0.02 per share. Mr. Mandelbaum and Mr. Metcalfe
entered into a Share Purchase Agreement effecting that sale.
- The Company and the Investors entered into a 180-day lock-up agreement
with regard to all shares held by the Investors.
- Mr. Barta, Mr. Porter and Mr. Fuller resigned from the board as of the
closing date and the board appointed Mr. Coriat to fill one of the
vacancies.
The Company initially agreed to grant fully vested option to purchase
228,572 shares of common stock to Mr. 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.
18
<PAGE>
ROSE GLEN MODIFICATION AGREEMENT. In connection with this current
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:
- All of RGC's existing investment options and warrants to purchase
Company common stock will be cancelled.
- RGC will convert sufficient of the Company's Series A preferred
shares held by RGC so that RGC holds 4.99% of the Company's
outstanding common shares.
- RGC will agree to modify the conversion price of its remaining Series
A and Series B preferred shares such that 75% of its remaining
preferred shares will be convertible at a fixed price of $0.4373
per share and only 25% will be convertible upon the original formula
price, but will be subject to a $0.4375 per share conversion
floor price.
ACQUISITIONS
ONRADIO.COM TRANSACTION. On June 6, 2000, we entered into an agreement
with OnRadio.com to acquire assignable contracts relating to the provision of
certain Web-related services to 212 radio station customers of OnRadio.com. Of
the contracts we acquired, contracts with 144 stations relate to basic services
like Web-site hosting, content provision and ad placement. An initial closing
involving the acquisition of these contracts occurred on June 7, 2000. The
contracts with the remaining 68 stations relate to streaming media services. We
acquired these contracts in a subsequent closing on June 29, 2000.
We paid OnRadio.com $500,000 in cash and 1,697,619 shares of our common
stock, totaling $9 million in consideration. Of the shares, 450,000 shares of
which are being held in escrow until June 6, 2001, against any purchase price
adjustment or indemnification obligations of OnRadio.com. We also agreed to pay
OnRadio.com additional stock consideration worth up to $3,000,000, payable in
stock at the $5.00 per share closing price, if we conclude customer contracts
with certain identified sales prospects of OnRadio.com, which OnRadio.com has
agreed to transition over to us.
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. Under the transitional service agreement,
OnRadio has agreed to provide certain services over defined periods to assist
us in transitioning the acquired customers to our solutions. We also
licensed, on a cost free basis, certain proprietary OnRadio software and
lease, for a nominal cost, certain computer equipment necessary to provide
certain ongoing services to acquired customers during the transition process.
On November 17, 2000 the SEC declared effective our Form S-3 Registration
Statement covering resale of the shares issued to OnRadio.com in this
transaction. OnRadio agreed that its sales of our shares pursuant to this
registration statement would not exceed certain volume limitations defined by
reference to SEC Rule 144.
The contracts acquired by us from OnRadio have terms ranging from 12 to
18 months during which time the customers of OnRadio will have the opportunity
to convert to our network broadcast program. We need to amortize the acquisition
cost of these contracts, $9,000,000 in total plus a transitional cost of
$270,000, over their term. The Company amortized $927,000 of the total cost
during fiscal 2000. Most of the remaining $8,343,000 will need to be amortized
over fiscal 2001.
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.
19
<PAGE>
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. Most of
these costs will need to be amortized over 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 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:
- potentially dilutive issuances of equity securities to pay for
acquisitions;
- use of cash resources;
- incurrence of contingent liabilities or assumption of known or
unknown liabilities;
- difficulties in assimilating operations, products, technologies,
services and personnel of acquired companies;
- diversion of management's attention from other business concerns;
- impairment of relationships with our employees, advertisers,
customers and content providers or those of companies we may
acquire; and
- inability to maintain uniform standards, controls, procedures and
policies.
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 until the
first 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 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. 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
20
<PAGE>
quarter of each year and are correspondingly lower in other quarters. If similar
seasonal patterns emerge in e-commerce, our revenues may vary significantly from
period to period.
FOREIGN CURRENCY TRANSLATION
We have translated our monetary assets and liabilities which are
denominated in a foreign currency into U.S. dollars at the period-end exchange
rate, and have translated other balances at the rates in effect on the dates of
the transaction. We have translated our income and expense items at the average
exchange rates prevailing during the fiscal period. Exchange gains and losses
arising on translation are reflected in net income for the period.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS 133,
`Accounting for Derivative Instruments and Hedging Activities'. SFAS 133 is
effective for financial statements for fiscal years beginning after June 15,
2000. The Company has not yet determined the impact of SFAS 133.
SAB 101, "Revenue Recognition", is effective in the fourth quarter of
fiscal years beginning after December 15, 1999. It provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
and spells out basic criteria that must be met before registrants can record
revenue. The impact of implementing this standard on the Company's financial
statements is not yet determinable.
RISK FACTORS
WE HAVE A LIMITED HISTORY OF CURRENT OPERATIONS.
We have a very limited operating history and are subject to the risks
and uncertainties frequently encountered by early stage companies in new and
rapidly evolving markets. Our business strategy may be unsuccessful and we may
be unable to address the risks we face in a cost-effective manner, if at all.
Our inability to successfully address these risks would cause significant harm
to our business, financial condition and results of operations.
WE HAVE A HISTORY OF LOSSES AND WE EXPECT LOSSES FOR THE NEAR FUTURE.
Since our inception, we have incurred significant losses, including
losses from our discontinued operations. Since the third quarter of fiscal 1999,
these losses have resulted primarily from costs related to developing our
broadcasting and e-commerce solutions, developing or acquiring technologies to
be used in our business, and general corporate overhead. We have generated
minimal revenues from our new operations. We expect to continue incurring net
losses and negative operating cash flow through the first quarter of fiscal
2002, as we plan to invest in:
- enhancing our broadcasting and e-commerce solutions and improving
their reliability and functionality;
- developing infrastructure and applications; and
- marketing our network associate program.
We believe these expenditures are necessary to attract more customers
to our Web site and the Web sites of our network associates, and to generate
greater online revenues. If our revenue growth is slower than we anticipate or
our operating expenses exceed our expectations, our losses will be significantly
greater and it will take longer to achieve positive operating cash flow and
profitability. We may never achieve or sustain profitability.
OUR FUTURE REVENUES ARE UNPREDICTABLE.
Our revenues for the foreseeable future will derive primarily from
advertising, streaming fees, design and implementation fees and product sales.
Our revenues will depend primarily on:
- the number of network associates to whom we provide solutions;
- the number of listeners on our simulated live stations and the
stations of our network associates;
- the number of other visitors to our Web sites;
- the number of visitors that our network associates are able to
attract to their stores; and
- how many visitors to our and our network associates' sites
purchase our products.
In addition, because the market for our services is relatively new and
changing rapidly, it is difficult to predict future financial results. Our
business expenditures are partially based on our predictions regarding certain
developments for media delivery, Internet advertising, and consumer e-commerce.
To the extent that these predictions prove inaccurate, our operating results may
be negatively affected and fluctuate significantly. Because of these and other
factors, we believe that period-to-period comparisons of our results of
operations are not good indicators of our
21
<PAGE>
future performance. If our operating results fall below the expectations of
investors and other market participants in some future periods, then our stock
price may decline.
WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT.
We are currently experiencing a period of significant expansion. In
order to execute our business plan, we must continue to grow. This growth will
strain our personnel, management, systems, policies and procedures and other
resources. To manage our growth, we must implement operational and financial
systems and controls and recruit, train and manage new employees. If we do not
implement adequate systems and controls, recruit, integrate and retain necessary
personnel or otherwise manage growth effectively, our business, results of
operations and financial condition will be materially and adversely affected.
22
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.)
Consolidated Financial Statements
July 31, 2000
Together with Report of Independent Public Accountants
23
<PAGE>
================================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
================================================================================
To the Stockholders of
GLOBALMEDIA.COM:
We have audited the accompanying consolidated balance sheet of GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.) as of July 31, 2000, and the related consolidated
statements of loss and comprehensive loss, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Globalmedia.com as of July 31, 2000, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has negative cash flows that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The consolidated 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
result should the Company be unable to continue as a going concern.
The consolidated financial statements of Globalmedia.com as of July 31, 1999
were audited by other auditors whose report dated September 23, 1999, expressed
an unqualified opinion on those statements.
/s/ Arthur Andersen
Vancouver, British Columbia
September 29, 2000.
24
<PAGE>
GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.)
CONSOLIDATED BALANCE SHEETS
JULY 31, 2000 AND 1999
(in U.S. dollars)
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,686,560 $ 5,649,073
Short-term investments 174,099 240,000
Trade and other receivables, net of allowance for
doubtful accounts of $89,832 (1999- $Nil) 247,526 84,336
Prepaid expenses (Note 4) 2,783,533 37,760
---------------- ---------------
4,891,718 6,011,169
CAPITAL ASSETS (Note 5) 4,234,637 1,537,434
INTANGIBLE ASSETS, net (Note 12) 8,343,000 -
---------------- ---------------
$ 17,469,355 $ 7,548,603
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 530,620 $ 316,412
Accrued liabilities 516,537 51,682
Deferred revenue 38,333 -
Note payable (Note 6) 1,000,000 -
Due to affiliated company (Note 7) - 132,946
Due to stockholders (Note 7) 65,960 221,091
Current portion of obligations under capital lease 67,620 -
---------------- ---------------
2,219,070 722,131
OBLIGATIONS UNDER CAPITAL LEASE 21,860 -
---------------- ---------------
2,240,930 722,131
================ ===============
COMMITMENTS AND CONTINGENCIES (Note 13)
CONVERTIBLE PREFERRED SHARES
Series A (Note 9) - 7,089,775
Series B (Note 10) 4,365,900 -
---------------- ---------------
4,365,900 7,089,775
================ ===============
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred shares, 100,000,000 authorized
Series A- 4,175 issued and outstanding (Note 9) 3,661,746 -
Common stock, par value $0.001 each, 200,000,000 authorized
25,292,105 (1999- 20,656,331) issued and outstanding 17,295 12,658
---------------- ---------------
3,679,041 12,658
Additional paid in capital 30,746,032 2,617,109
Deferred compensation (Note 11) (1,963,750) -
Accumulated deficit (21,598,798) (2,893,070)
---------------- ---------------
10,862,525 (263,303)
---------------- ---------------
$ 17,469,355 $ 7,548,603
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.)
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED JULY 31, 2000 AND 1999
(in U.S. dollars)
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
REVENUE $ 486,707 $ 7,091
---------------- ---------------
OPERATING EXPENSES
General and administrative (Notes 4 and 11) 7,224,939 938,500
Sales and marketing (Note 4) 4,502,176 67,672
Amortization of capital assets (Note 5) 1,505,536 297,655
Amortization of intangible assets (Note 12) 927,000 -
Direct costs 657,787 -
Stockholder communications 509,656 218,969
Stock option compensation - 548,800
---------------- ---------------
15,327,094 2,071,596
---------------- ---------------
LOSS FROM CONTINUING OPERATIONS
BEFORE OTHER ITEMS (14,840,387) (2,064,505)
OTHER ITEMS
Interest, net (27,570) (134,013)
Foreign exchange (41,296) (29,975)
---------------- ---------------
LOSS AND COMPREHENSIVE LOSS BEFORE
DISCONTINUED OPERATIONS (14,909,253) (2,228,493)
DISCONTINUED OPERATIONS - (2,581)
---------------- ---------------
LOSS AND COMPREHENSIVE LOSS $ (14,909,253) $ (2,231,074)
---------------- ---------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.66) $ (0.11)
---------------- ---------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN THE COMPUTATION OF LOSS PER SHARE 22,601,837 20,245,889
---------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 2000 AND 1999
(in U.S. dollars)
<TABLE>
<CAPTION>
Mandatorily Redeemable
Preferred Stock Preferred Stock Common Stock
---------------------- ---------------------- ------------------------
Shares Amount Shares Amount Shares Amount
--------- ----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, July 31, 1998 - $ - - $ - 19,890,831 $ 11,892
Preferred shares issued
(Note 9) 8,500 7,089,775 - - - -
Warrants issued on
financing (Note 9) - - - - - -
Stock options exercised
(Note 8) - - - - 765,500 766
Compensatory stock options - - - - - -
Loss for the year - - - - - -
BALANCE, July 31, 1999 8,500 7,089,775 - - 20,656,331 12,658
Registration of Series A
preferred shares (8,500) (7,089,775) 8,500 7,089,775 - -
Stock options exercised - - - - 1,469,581 1,470
Accrued preferred share
premium - 53,900 - 342,575 - -
Conversion of preferred
shares Series A (Note 9) - - (4,325) (3,770,604) 1,092,056 1,092
Conversion of amounts due
to stockholder and
affiliated company (Note 7) - - - - 32,535 33
Issue of restricted shares
(Note 8) - - - - 343,983 344
Issue of preferred shares
Series B (Note 10) 5,000 4,312,000 - - - -
Deemed dividend on
beneficial conversion
feature (Note 9) - - - - - -
Warrants issued on
financing (Note 10) - - - - - -
Deferred compensation
(Note 11) - - - - - -
Issue of common shares
(Note 12) - - - - 1,697,619 1,698
Loss for the year - - - - - -
--------- ----------- --------- ----------- ---------- ----------
BALANCE, July 31, 2000 5,000 $ 4,365,900 4,175 $ 3,661,746 25,292,105 $ 17,295
--------- ----------- --------- ----------- ---------- ----------
<CAPTION>
Additional
Deferred Paid-In Accumulated
Compensation Capital Deficit
------------ ---------- ------------
<S> <C> <C> <C>
BALANCE, July 31, 1998 $ - $ 543,525 $ (661,996)
Preferred shares issued
(Note 9) - - -
Warrants issued on
financing (Note 9) - 1,000,000 -
Stock options exercised
(Note 8) - 392,484 -
Compensatory stock options - 681,100 -
Loss for the year - - (2,231,074)
BALANCE, July 31, 1999 - 2,617,109 (2,893,070)
Registration of Series A
preferred shares - - -
Stock options exercised - 5,807,636 -
Accrued preferred share
premium - - (396,475)
Conversion of preferred
shares Series A (Note 9) - 3,769,512 -
Conversion of amounts due
to stockholder and
affiliated company (Note 7) - 203,312 -
Issue of restricted shares
(Note 8) - 2,029,661 -
Issue of preferred shares
Series B (Note 10) - - -
Deemed dividend on
beneficial conversion
feature (Note 9) - 3,400,000 (3,400,000)
Warrants issued on
financing (Note 10) - 493,000 -
Deferred compensation
(Note 11) (3,927,500) 3,927,500 -
Issue of common shares
(Note 12) - 8,498,302 -
Loss for the year 1,963,750 - (14,909,253)
BALANCE, July 31, 2000 $(1,963,750) 30,746,032 (21,598,798)
------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 2000 AND 1999
(in U.S. dollars)
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year $ (14,909,253) $ (2,231,074)
Items not requiring an outlay of cash
Interest on convertible debentures - 101,528
Interest on related party loans - 26,682
Stock option compensation - 548,800
Deferred compensation 1,963,750 -
Stock option professional fees expense - 37,300
Amortization of capital assets 1,505,536 297,655
Amortization of intangible assets 927,000 -
----------------- ----------------
(10,512,967) (1,219,109)
Changes in non-cash operating working capital
Trade and other receivables (163,190) (81,691)
Short-term investments 65,901 (240,000)
Prepaid expenses (2,745,773) (27,539)
Deferred revenue 38,333 -
Accounts payable and accrued liabilities 679,063 8,078
----------------- ----------------
(12,638,633) (1,560,261)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Broadcast network capital expenditures (2,970,000) -
Acquisition of OnRadio.com contracts (Note 12) (770,000) -
Purchase of capital assets (1,231,666) (1,483,360)
----------------- ----------------
(4,971,666) (1,483,360)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (to) stockholders (155,131) 141,822
Advances from (to) affiliated companies (132,946) 157,727
Deferred financing costs - (510,000)
Note payable 1,000,000 -
Lease payable 89,480 -
Issue of restricted shares 2,030,005 -
Issue of preferred shares 4,312,000 7,500,000
Issue of warrants 493,000 1,000,000
Stock options exercised 5,809,106 393,250
----------------- ----------------
13,445,514 8,682,799
----------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 202,272 (5,101)
----------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,962,513) 5,634,077
CASH AND CASH EQUIVALENTS, beginning of year 5,649,073 14,996
----------------- ----------------
CASH AND CASH EQUIVALENTS, end of year $ 1,686,560 $ 5,649,073
----------------- ----------------
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 197,303 $ 184,173
Income taxes paid - -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
GLOBALMEDIA.COM
(FORMERLY GLOBAL MEDIA CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
(in U.S. dollars)
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 broadcasting 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 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 GlobalMedia
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 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 broadcasting 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 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 subsequent to year end
(see Note 15). However, management currently anticipates that it only has
sufficient funds to meet working capital and capital expenditure needs
through November 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 alternative 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.
29
<PAGE>
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.
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost. Amortization is provided over the
estimated useful lives of the assets using the following methods and rates.
In the year of acquisition, one half of the rate is used.
Broadcast network 2 years straight line
Communications infrastructure 3 years straight line
Computer hardware 30% declining balance
Leased computer hardware 30% declining balance
Leasehold improvements 5 years straight line
Office furniture and equipment 20% declining balance
Software 30% declining balance
E-commerce infrastructure 2.5 years straight line
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.
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
All transactions in currencies other than the U.S. dollar are translated at
the exchange rates in effect on the respective transaction dates. Monetary
assets and liabilities denominated in a foreign currency are translated at
the prevailing year end rates of exchange. Non-monetary assets and
liabilities denominated in foreign currencies are translated into U.S.
dollars at the rates of exchange in effect at the date of the transaction.
Exchange gains or losses are included in the consolidated statements of
loss and comprehensive loss for the period.
30
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Assets and liabilities of non-U.S. subsidiaries are translated into U.S.
dollars using the year end rates except for prepaid expenses and property
accounts, which are translated at rates in effect when these assets were
acquired. Revenues and expenses are translated at average rates during the
year except for amortization of prepayments and depreciation, which are
translated at historical rates. The resulting exchange gains or losses are
included in the consolidated statements of loss and comprehensive loss for
the period.
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
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
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.
31
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BANDWIDTH SURCHARGES, STREAMING SURCHARGES AND SET-UP FEES
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.
STOCK OPTIONS
The Company has adopted the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which requires the Company to either adopt a fair
value-based method of expense recognition for all stock-based compensation
awards, or provide pro forma net loss information as if the recognition and
measurement provisions of SFAS No. 123 had been adopted. The Company
decided to continue to account for its stock-based compensation awards
following the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", which requires compensation
expense to be recognized only if the market price of the underlying stock
exceeds the exercise price of stock options on the date of grant. The
effect of applying the SFAS No. 123 fair value method to the Company's
stock-based awards results is disclosed in Note 8.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company's
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and related notes to the
financial statements. Actual results may differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments, which consist
of cash and cash equivalents, short-term investments, accounts receivable
and current liabilities, approximate fair values due to their short-term
nature.
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.
32
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under this method, the Company records
deferred income taxes based on the differences between the financial
reporting and tax bases of assets and liabilities and measures those taxes
using the enacted tax rates and laws that will be in effect when the
Company recovers those assets or settles those liabilities. A valuation
allowance is established when necessary to reduce deferred tax assets to
the amounts expected to be realized.
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.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash includes cash equivalents, which are investments that are held to
maturity and have terms to maturity of three months or less when acquired.
Cash equivalents consist of term deposits with a Canadian chartered bank.
Cash and cash equivalents are carried at cost, which approximates their
fair value.
Short-term investments are investments that are held to maturity and have
terms greater than three months. Short-term investments consist of term
deposits with a Canadian chartered bank. Short-term investments are carried
at cost, which approximates their fair value.
The Company has assigned $170,000 of its term deposits in order to
establish lines of credit with three suppliers. The letters of credit bear
interest at 2.25% and expire on either May 12, 2001 or June 14, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 is effective for financial statements for fiscal years beginning after
June 15, 2000. The Company has not yet determined the impact of SFAS No.
133.
SAB 101, "Revenue Recognition", is effective in the fourth quarter of
fiscal years beginning after December 15, 1999. It provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
and spells out basic criteria that must be met before registrants can
record revenue. The impact of implementing this standard on the Company's
financial statements is not yet determinable.
33
<PAGE>
3. DISCONTINUED OPERATIONS
The Company withdrew from the call center business during the third quarter
of fiscal 1999 and has, therefore, accounted for this business as
discontinued operations, segregated in the accompanying consolidated
statements of loss and comprehensive loss.
4. 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 July 31, 2000, prepaid
advertising expenses amounted to $2,282,782 (sales and marketing) and
prepaid technical services amounted to $466,667 which are being recognized
over the term of the agreement. During the year, $2,399,790 was expensed to
sales and marketing and $533,000 in products support was expensed to
general and administrative expenses.
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
JULY 31, 2000
--------------------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
---------------- ---------------- ---------------
<S> <C> <C> <C>
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
---------------- ---------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
July 31, 1999
--------------------------------------------------------
Accumulated Net Book
Cost Amortization Value
---------------- ---------------- ---------------
<S> <C> <C> <C>
Broadcast network $ 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
E-commerce infrastructure 525,859 88,545 437,314
---------------- ---------------- ---------------
$ 1,754,506 $ 217,072 $ 1,537,434
---------------- ---------------- ---------------
</TABLE>
34
<PAGE>
5. CAPITAL ASSETS (CONTINUED)
During the year ended July 31, 2000, the estimated useful life of the
broadcast network was revised from three years to two years and the
estimated life of the e-commerce infrastructure was revised from three
years to two and one half years. The revised estimates in useful lives
resulted in an increase of depreciation expense for 2000 of $304,491 and a
corresponding increase in the loss for the period in the same amount ($0.01
per share) from what otherwise would have been reported had the change not
been made.
6. NOTE PAYABLE
A loan from RealNetworks in the amount of $1,000,000 due September 1, 2000,
bearing interest at a rate of 8%. The amount was repaid subsequent to year
end.
7. RELATED PARTY TRANSACTIONS
As part of the May 1999 Securities Purchase Agreement with RGC
International Investors LDC ("RGC") (see Note 9), 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 instalments 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 instalments of $18,722
beginning October 31, 1999. As at July 31, 2000, the amount owing to the
affiliated company had been repaid and there are two quarterly payments
outstanding to the stockholder. These payments were made subsequent to year
end.
In the July 26, 1999 agreement, the Company agreed to repay the other half
of the amount owing to the stockholder and affiliated company plus accrued
interest in shares at the agreed upon conversion price of $6.25. As of July
31, 1999, these shares had not been issued. During 2000, 32,535 shares were
issued to the stockholder and the affiliated company in payment of these
amounts.
35
<PAGE>
8. SHARE CAPITAL
STOCK OPTION PLANS
As of July 31, 2000 the Company has stock options outstanding under three
plans: 98,100 options pertaining to the 1998 Stock Option Plan ("1998
Plan"), 3,657,225 options pertaining to the 1999 Stock Option Plan ("1999
Plan"), and 1,315,540 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 1997 plan, which became effective on April 8, 1997, provides for the
issuance of 1,000,000 options within a period of 10 years from the
effective date. No options have been granted under the 1997 plan.
The 1998 Plan, which became effective on August 21, 1998, 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 2000, 139,400 of these options were exercised. Of
the 98,100 options outstanding at July 31, 2000, 23,100 were exercised
subsequent to year end and 75,000 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. During the year, 285,000 options at an exercise price
of $5.13, 1,200 options at an exercise price of $6.63, 8,000 options at an
exercise price of $6.06, 348,060 options at an exercise price of $6.25 and
454,750 options at an exercise price of $8.00 were granted. Of the
3,898,350 options granted in total, 2,071,910 options vested immediately
and 1,826,440 vest on a quarterly basis over one year. As at July 31, 2000,
3,110,307 options are fully vested. During 2000, 238,125 of these options
were exercised and 155,900 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 year, 1,168,540 options at an exercise price of
$6.375, 30,000 options at an exercise price of $5.00, 30,000 options at an
exercise price of $4.40, 64,000 options at an exercise price of $3.69 and
23,000 options at an exercise price of $2.719 were granted. Of the
1,315,540 options granted, 225,100 options vested immediately and one third
of the remaining 1,090,440 outstanding options vest after the first year.
The remaining two thirds of the 1,090,440 options will vest quarterly over
two years, starting in the second year. None of the options offered were
exercised in the year and 64,315 were cancelled during the year.
36
<PAGE>
8. SHARE CAPITAL (CONTINUED)
Activity in the stock option plans for 2000 and 1999 was as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- -----------------------------------
Weighted Weighted
Average Average
Options Exercise Price Options Exercise Price
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 3,257,000 $ 3.81 - $ -
Granted (cancelled) 2,191,390 7.01 4,022,500 3.18
Exercised (377,525) 3.50 (765,500) 0.51
--------------- ---------------- ---------------- ---------------
Outstanding, end of year 5,070,865 $ 5.03 3,257,000 $ 3.81
--------------- ---------------- ---------------- ---------------
Options exercisable at the end
of year 3,433,507 $ 4.51 2,497,167 $ 3.67
--------------- ---------------- ---------------- ---------------
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options as of July 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------------
Weighted Weighted Weighted
Range of Number of Average Average Number of Average
Exercise Prices Options Remaining Life Exercise Price Options Exercise Price
--------------- ------------ -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.50 98,100 0.06 years $ 0.50 98,100 $ 0.50
2.72 23,000 5.00 years 2.72 - 2.72
3.69 64,000 4.92 years 3.69 - 3.69
4.00 2,561,215 3.75 years 4.00 2,561,215 4.00
4.44 30,000 4.81 years 4.44 - 4.44
5.00 30,000 4.80 years 5.00 - 5.00
5.13 285,000 4.33 years 5.13 20,832 5.13
6.25 425,060 4.43 years 6.25 329,310 6.25
6.38 1,168,540 3.75 years 6.38 225,100 6.38
6.63 1,200 3.97 years 6.63 1,200 6.63
8.00 384,750 4.50 years 8.00 197,750 8.00
--------- ------------ ---------
5,070,865 $ 5.05 3,433,507
--------- ------------ ---------
</TABLE>
37
<PAGE>
8. SHARE CAPITAL (CONTINUED)
If the fair values of the options granted had been recognized as
compensation expense on a straight-line basis over the vesting period of
the grant (consistent with the method prescribed by SFAS No. 123),
stock-based compensation costs would have increased the net loss as
follows:
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
Net loss as reported $ (14,909,253) $ (2,231,074)
Pro forma net loss under SFAS No. 123 (17,388,319) (8,446,922)
Net loss per share- Basic, as reported (0.66) (0.11)
Pro forma net loss per share- Basic, under SFAS No. 123 (0.80) (0.42)
</TABLE>
The fair value of option grants is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
Dividend yield $ 0% $ 0%
Expected volatility 100% 105%
Risk-free interest rate 6.0% 5.6%
Expected life of the option 3 YEARS 3 years
</TABLE>
The fair value of stock options granted during 2000 was $3.06 for the
options under the 1999 Plan and $4.92 for the options under the 2000 Plan.
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.
38
<PAGE>
8. SHARE CAPITAL (CONTINUED)
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 to 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 2000, the performance criteria was not met and,
therefore, none of the options granted under the consulting agreements
vested during the period.
ii) Squeeze TV
On August 17, 1999, 5,000 shares of restricted common stock were issued
to the owner of Squeeze TV in payment for the provision of content.
Based on the closing price of the common stock on the date of issuance,
a value of $30,000 was attributed to the content.
9. 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:
(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.
During the year, 4,325 Series A convertible preferred shares and the
accrued premium on those shares were converted to 1,092,056 common shares,
leaving 4,175 Series A convertible preferred shares outstanding at July 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 2000, RGC exercised investment
options to purchase 1,092,056 common shares for net proceeds of $4,488,160.
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.
39
<PAGE>
9. SERIES A CONVERTIBLE PREFERRED STOCK (CONTINUED)
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.
At July 31, 1999, the Series A 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 shares issuable upon conversion of such shares and
upon exercise of the related investment options and warrants. On August 26,
1999, the Company's Form SB-2 registration statement registering the
underlying shares was declared effective by the Securities Exchange
Commission ("SEC"). As a result, the Series A convertible preferred shares
from that date onwards have been classified in stockholders' equity.
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.
10. 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:
(a) the average of the seven consecutive lowest closing bid prices of the
common shares reported on the 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.
As at July 31, 2000, no Series B convertible preferred shares have been
converted.
40
<PAGE>
10. SERIES B AND SERIES C CONVERTIBLE PREFERRED SHARES (CONTINUED)
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:
(a) the average of the seven consecutive lowest closing bid prices of the
common shares reported on the Nasdaq Stock Market during the 35 trading
days ending one day prior to the date that RGC exercises its right to
convert; or
(b) 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 Series C closing date (the "second closing date").
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.
41
<PAGE>
10. SERIES B AND SERIES C CONVERTIBLE PREFERRED SHARES (CONTINUED)
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 July 31, 2000.
11. 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. As at July 31, 2000, $1,963,750 has been expensed in general and
administrative expenses with the remainder recorded as deferred
compensation.
12. 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 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 remaining terms of the
contracts, ranging from 12 to 18 months.
42
<PAGE>
12. PURCHASE OF CONTRACTS FROM ONRADIO.COM (CONTINUED)
INTANGIBLE ASSETS
<TABLE>
<S> <C>
Contracts purchased
Cash outlay $ 500,000
Shares issued 8,500,000
Transaction costs 270,000
Amortization (927,000)
----------------
$ 8,343,000
----------------
</TABLE>
13. 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.
<TABLE>
<CAPTION>
Nanaimo Vancouver
Office Office
----------------- ----------------
<S> <C> <C>
July 31
2001 $ 80,609 $ 92,625
2002 80,609 111,000
2003 - 119,833
2004 - 129,667
2005 - 10,875
----------------- ----------------
$ 161,218 $ 464,000
----------------- ----------------
</TABLE>
14. INCOME TAXES
As at July 31, 2000, the Company had total net operating loss carryforwards
of $13,240,641 comprised of United States net operating loss carryforwards
of $7,315,318 (1999- $1,451,591) which will begin to expire in 2012, and
Canadian net operating loss carryforwards of $5,925,323 (1999- $1,136,522)
which will begin to expire in 2006. Utilization of these loss carryforwards
depends on the generation of future taxable income.
For financial reporting purposes, a valuation allowance has been
established for all deferred tax assets due to the uncertainty of
realization. As a result of certain stock transactions, utilization of the
Company's net operating loss carryforwards may be subject to certain
limitations in the event that a change in ownership has occurred, as
defined in Section 382 of the Internal Revenue Code of 1986, as amended.
43
<PAGE>
14. INCOME TAXES (CONTINUED)
Deferred tax assets reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
2000 1999
---------------- ----------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 5,310,540 $ 1,161,912
Tax versus accounting value in capital assets 537,786 -
Foreign exchange loss - 14,346
---------------- ----------------
Total gross deferred tax assets 5,848,326 1,176,258
Less- Valuation allowance (5,848,326) (1,176,258)
---------------- ----------------
Net deferred tax assets $ - $ -
---------------- ----------------
</TABLE>
15. SUBSEQUENT EVENTS
(a) MAGNITUDE ACQUISITION
On August 4, 2000, the Company entered into an asset purchase agreement
with Magnitude Network, Inc. ("Magnitude") to acquire Magnitude's
assignable radio station contracts, intellectual properties, and
internet streaming technology and related services. The Company also
assumed certain liabilities relating to the assigned contracts and took
an assignment of Magnitude's lease on its offices until December 31,
2000. Pursuant to the agreement, the Company received cash payment of
$238,715 from Magnitude and gave the following consideration to
Magnitude :
i) 1,665,944 shares of restricted common stock;
ii) 416,485 shares of restricted common stock which are subject to an
escrow agreement whereby the shares are to be held for twelve
months against any claims for indemnification for unpaid
liabilities of Magnitude; and
iii) a common stock purchase warrant to acquire 2,000,000 shares of
common stock at $3.60 per share.
The transaction is valued at approximately $6,000,000 based upon the
2,082,049 shares of common stock determined by dividing $6 million by
the average of the last reported sales price per share of the
Registrant's Common Stock on the Nasdaq National market over the five
(5) consecutive trading days ending on the trading day that was four
trading days prior to but not including the Closing Date, which was
$2.88 per share.
44
<PAGE>
15. SUBSEQUENT EVENTS (CONTINUED)
(b)STANDARD RADIO INC.
Effective August 31, 2000, Standard acquired 1,388,888 shares of common
stock from the Company at a price of $2,500,000. In conjunction with
the financing agreement, the Company issued to Standard warrants to
acquire an additional 277,778 shares of common stock at an exercise
price per share equal to $2.25.
45
<PAGE>
GLOBALMEDIA.COM
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at July 31 (in US dollars)
1999 1998
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 5,649,073 14,996
Short-term investments (NOTE 4) 240,000 --
Other receivable 84,336 2,645
Prepaid expenses 37,760 10,221
Due from affiliated companies -- 71,065
--------------------------------------------------------------------------------------------------
6,011,169 98,927
Capital assets (NOTES 3 AND 5) 1,537,434 172,635
--------------------------------------------------------------------------------------------------
7,548,603 271,562
--------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accrued liabilities (NOTE 6) 368,094 252,588
Due to affiliated company (NOTE 6) 132,946 46,284
Due to shareholders (NOTE 6) 221,091 79,269
--------------------------------------------------------------------------------------------------
722,131 378,141
--------------------------------------------------------------------------------------------------
Commitments and contingencies (NOTE 9)
Convertible preferred shares (NOTE 8) 7,089,775 --
100,000,000 authorized, 8,500 issued and outstanding
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common shares, par value $0.001 each, 200,000,000 authorized,
20,656,331 and 19,890,831 issued and outstanding (NOTE 7)
Share capital 12,658 11,892
Additional paid in capital (NOTE 8) 2,617,109 543,525
Deficit (2,893,070) (661,996)
--------------------------------------------------------------------------------------------------
(263,303) (106,579)
--------------------------------------------------------------------------------------------------
7,548,603 271,562
--------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
46
<PAGE>
GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF LOSS
AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Years ended July 31 (in US dollars)
1999 1998
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Sales 7,091 --
--------------------------------------------------------------------------------------------------
Interest income 76,842 --
--------------------------------------------------------------------------------------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Advertising and marketing 67,672 6,691
Amortization (NOTE 8) 297,655 29,973
Bank charges and interest (NOTES 6 AND 8) 210,855 1,298
Foreign exchange 29,975 12,222
Office and miscellaneous 76,670 18,288
Professional fees (NOTE 7) 146,367 93,505
Rent and maintenance 72,436 50,114
Shareholder communications 218,969 53,995
Stock options compensation (NOTE 7) 548,800 --
Technical operations and development 203,420 --
Travel 184,572 21,174
Wages and benefits 255,035 17,659
--------------------------------------------------------------------------------------------------
2,312,426 304,919
--------------------------------------------------------------------------------------------------
Loss and comprehensive loss from continuing operations (2,228,493) (304,919)
--------------------------------------------------------------------------------------------------
Discontinued operations (NOTES 1 AND 3)
Call center -- 108,613
Satellite (2,581) (256,522)
--------------------------------------------------------------------------------------------------
Loss and comprehensive loss from discontinued operations (2,581) (147,909)
--------------------------------------------------------------------------------------------------
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (2,231,074) (452,828)
--------------------------------------------------------------------------------------------------
Loss per common share from continuing operations (0.11) (0.02)
Loss per common share from discontinued operations (0.00) (0.00)
--------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE (0.11) (0.02)
--------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES USED IN THE COMPUTATION
OF LOSS PER SHARE 20,245,889 19,554,402
--------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
47
<PAGE>
GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Years ended July 31 (in US dollars)
PREFERRED STOCK COMMON STOCK ADDITIONAL UNISSUED RETAINED
-------------------- ------------------- PAID-IN SHARE EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL CAPITAL (DEFICIT)
# $ # $ $ $ $
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1997 -- -- 11,059,400 11,059 128,641 144,001 (209,168)
Common shares issued for cash -- -- 730,533 731 364,536 (144,000) --
Common shares issued for other
than cash consideration:
Consideration for shares in
Westcoast Wireless (NOTE 1) -- -- 8,000,000 1 -- (1) --
In kind services -- -- 100,898 101 50,348 -- --
Loss for the year -- -- -- -- -- -- (452,828)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1998 -- -- 19,890,831 11,892 543,525 -- (661,996)
Preferred shares issued (NOTE 8) 8,500 7,089,775 -- -- -- -- --
Warrants issued on financing -- -- -- -- 1,000,000 -- --
(NOTE 8)
Stock options exercised -- -- 765,500 766 392,484 -- --
Compensatory stock options -- -- -- -- 681,100 -- --
Loss for the year -- -- -- -- -- -- (2,231,074)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JULY 31, 1999 8,500 7,089,775 20,656,331 12,658 2,617,109 -- (2,893,070)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
48
<PAGE>
GLOBALMEDIA.COM
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended July 31 (in US dollars)
1999 1998
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss for the year (2,231,074) (452,828)
Items not requiring an outlay of funds
Interest on convertible debentures 101,528 --
Interest on related party loans (NOTE 6) 26,682 --
Share option compensation expense (NOTE 7) 548,800 --
Share option professional fees expense (NOTE 7) 37,300 --
Amortization 297,655 38,658
Services settled through share issuance -- 50,449
--------------------------------------------------------------------------------------------------
(1,219,109) (363,721)
Changes in non-cash operating working capital
Other receivable (81,691) 56,193
Prepaid expenses (27,539) 6,165
Accounts payable and accrued liabilities 8,078 127,815
Deferred revenue -- (12,062)
--------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (1,320,261) (185,610)
--------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (1,483,360) (189,706)
Purchase of short-term investments (NOTE 4) (240,000) --
--------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (1,723,360) (189,706)
--------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Advances from (to) shareholder 141,822 (4,821)
Advances from affiliated companies 157,727 52,997
Common share subscriptions -- 221,267
Stock options exercised 393,250 --
Preferred share subscriptions and warrants (NOTE 8) 8,500,000 --
Deferred financing costs (NOTE 8) (510,000) --
--------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 8,682,799 269,443
--------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (5,101) (1,021)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE YEAR 5,634,077 (106,894)
Cash and cash equivalents, beginning of year 14,996 121,890
--------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR 5,649,073 14,996
--------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest - paid 184,173 9,180
Income taxes paid (recovered) -- (6,783)
--------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES
49
<PAGE>
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
GlobalMedia.com (the "Company") was incorporated on April 8, 1997 in
the State of Nevada and is headquartered in Vancouver, B.C., Canada. The Company
(through its subsidiary Westcoast Wireless Cable Ltd. ("Westcoast Wireless"))
was originally engaged in the marketing of satellite programming and hardware
and later was engaged in the business of providing call center services (see
note 3). The Company discontinued its satellite line of business by the end of
fiscal 1998, and the call center business during the third quarter of fiscal
1999. During the third quarter of fiscal 1999, the company adopted an
internet-focused business plan and was engaged primarily in the development of
an electronic commerce web site, the development of a broadcast network over the
internet, and the development of templates for the application of the e-commerce
back-end system to multiple sites on the internet. A beta version of the
e-commerce web site, globalmedia.com, was launched on May 18, 1999.
On May 20, 1997 the Company issued 8,000,000 common shares and paid
$100,000 in cash for all of the outstanding shares of Westcoast Wireless. Since
the companies were under common control, this transaction was accounted for in a
manner similar to a pooling of interests.
In August 1998, the Company incorporated a new subsidiary, GlobalMedia
(Canada) Entertainment Corp.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all its subsidiaries.
CAPITAL ASSETS AND AMORTIZATION
Capital assets are recorded at cost. Amortization has been calculated
using the following methods and rates, except in the year of acquisition when
one half of the rate is used.
Communications infrastructure 3 year straight line
Computer hardware 30% declining balance
Leasehold improvements 5 year straight line
Office furniture and equipment 20% declining balance
Software 30% declining balance
Web site development 3 year straight line
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
All transactions in currencies other than the United States dollar
during the year are translated at the exchange rates on the transaction dates.
Monetary assets and liabilities denominated in a foreign currency are translated
at the prevailing year end rates of exchange. Non-monetary assets and
liabilities denominated in foreign currencies are translated into United States
dollars at the rates of exchange in effect at the date of the transaction.
Exchange gains or losses are included in the consolidated statements of income
(loss).
WEBSITE DEVELOPMENT COSTS
Website development costs incurred subsequent to establishing
technological feasibility are capitalized. Capitalized costs are amortized using
straight line method over three years. Capitalization ceases and amortization
commences on the date that the software is ready for use.
The recoverability of the website costs is dependent upon realization
of sufficient undiscounted future revenues from this product.
50
<PAGE>
BROADCAST NETWORK DEVELOPMENT COSTS
Broadcast network development costs incurred subsequent to establishing
technological feasibility are capitalized. Capital costs are amortized using the
straight line method over three years. Capitalization ceases and amortization
commences on the date that the network is ready for use.
The recoverability of the network development costs is dependent upon
realization of sufficient undiscounted future revenues from this product.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25 ("APB 25") for stock based compensation for employees.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the Company's
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and related notes to the financial
statements. Actual results may differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments approximate
fair values due to their short term nature, except as otherwise disclosed in the
financial statements.
LOSS PER SHARE
Basic earnings per share is computed using the weighted average number
of common shares outstanding. No dilutive potential common share is included in
the computation of per share amounts because the effect would be anti-dilutive
due to the Company's loss from operations.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash includes cash equivalents, which are investments that are held to
maturity and have terms to maturity of three months or less when acquired. Cash
equivalents consist of term deposits with a Canadian chartered bank. Cash and
cash equivalents are carried at cost, which approximates their fair value.
Short-term investments are investments that are held to maturity and
have terms greater than three months. Short-term investments consist of term
deposits with a Canadian chartered bank. Short-term investments are carried at
cost, which approximates their fair value.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS 133,
`Accounting for Derivative Instruments and Hedging Activities'. SFAS 133 is
effective for financial statements for fiscal years beginning after June 15,
2000. The Company has not yet determined the impact of SFAS 133.
3. DISCONTINUED OPERATIONS
In November 1997, a decision was made by the Canadian Federal Court of
Appeal, ruling that the sale of US satellite and programming services in Canada
was not permitted. Following a period of trading in Canadian satellite and
programming services the management of Westcoast Wireless decided to withdraw
completely from the home satellite business in late fiscal 1998. The home
satellite business included all operations of Westcoast Wireless.
This subsidiary company has been accounted for as a discontinued
operation, and accordingly, its operations have been segregated in the
accompanying consolidated statements of operations.
Revenues of the discontinued satellite operations for the year ended
July 31, 1999 were $nil (1998 - $591,938). At July 31, 1999, net current
liabilities of the discontinued satellite operations were $23,086 (1998 -
$130,076)
51
<PAGE>
consisting principally of accounts payable and balances due to shareholder. Net
non-current assets at July 31, 1999 were $nil (1998 - $15,352).
The Company was engaged in providing call center services until the
third quarter of fiscal 1999. The Company elected to abandon the business during
the third quarter of fiscal 1999 and focus its efforts on its internet-focused
business plan. Accordingly, the call center operations have been segregated and
accounted for as a discontinued operation in the accompanying consolidated
statements of loss and comprehensive loss.
Revenues of the discontinued call center operations for the year ended
July 31, 1999 were $20,130 (1998- $326,279). At July 31, 1999, net current
liabilities of the discontinued call center operations were $nil (1998 -
$19,484) consisting principally of accounts payable.
4. SHORT-TERM INVESTMENTS
The Company has assigned $170,000 of its term deposits in order to establish
lines of credit with three suppliers. The letters of credit have terms of 2.25%
interest and expire on either May 12, 2000 or June 14, 2000.
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
JULY 31, 1999
Broadcast network development 704,803 -- 704,803
Communications infrastructure 89,391 44,463 44,928
Computer hardware 295,417 59,834 235,583
Leasehold improvements 14,925 2,269 12,656
Office furniture and equipment 50,661 6,477 44,184
Software 73,450 15,484 57,966
Web site development (NOTE 7) 525,859 88,545 437,314
--------------------------------------------------------------------------------------------------
1,754,506 217,072 1,537,434
--------------------------------------------------------------------------------------------------
JULY 31, 1998
Communications infrastructure 91,575 17,325 74,250
Computer hardware 70,107 13,117 56,990
Leasehold improvements 8,594 4,905 3,689
Office furniture and equipment 18,859 4,842 14,018
Software 27,209 3,520 23,689
--------------------------------------------------------------------------------------------------
216,344 43,702 172,635
--------------------------------------------------------------------------------------------------
</TABLE>
6. RELATED PARTY TRANSACTIONS
(i) AMOUNTS DUE TO SHAREHOLDERS
The Company was advanced $263,000 by shareholders during the period of
October 1998 through December 1998. At July 31, 1999, a balance of $221,091 was
outstanding.
As part of the Securities Purchase Agreement with RGC International
Investors LDC ("RGC") (see note 8), the Company agreed to restructure the
amounts due to shareholder. The agreement provided that any restructuring of
amounts due to shareholders in common stock be at the conversion price of $6.25,
which was the average closing bid prices of the common shares reported on the
OTC Bulletin Board for the three consecutive days ended April 30, 1999.
On July 26, 1999, the Company entered into an agreement with the
shareholders to convert 50% of the amount due plus interest of $16,455
($127,000) into common stock. The remaining $110,545 will be repaid in four
quarterly installments of $31,750 beginning October 31, 1999 and ending on July
31, 2000.
As of July 31, 1999, the shares had not been issued.
(ii) AMOUNTS DUE TO AFFILIATED COMPANY
52
<PAGE>
The Company was advanced $187,000 by an affiliated company,
wholly-owned by a shareholder, during the period of November 1998 through March
1999. At July 31, 1999, a balance of $132,946 was outstanding.
As part of the Securities Purchase Agreement with RGC International
Investors LDC ("RGC") (see note 8), the Company agreed to restructure the
amounts due to the affiliated company. The agreement provided that any
restructuring of amounts due to the affiliated company in common stock be at the
conversion price of $6.25, which as the average closing bid prices of the common
shares reported on the OTC Bulletin Board for the three consecutive days ended
April 30, 1999.
On July 26, 1999 the Company entered into an agreement with the
affiliated company to convert 50% of the amount due plus interest of $8,413
($74,886) into common stock. The remaining $66,473 will be repaid in four
quarterly installments of $18,722 beginning October 31, 1999 and ending on July
31, 2000.
As of July 31, 1999, the shares had not been issued.
7. SHARE CAPITAL
STOCK OPTION PLANS
As of July 31, 1999, the Company had stock options outstanding under
two plans: 237,500 pertain to the 1998 Stock Option Plan and 3,019,500 pertain
to the 1999 Stock Option Plan. All the plans are administered by the Board of
Directors who have sole discretion and authority to determine individuals
eligible for awards. The conditions of exercise of each grant are determined
individually by the Board at the time of the grant.
The 1997 plan, which became effective on April 8, 1997, provides for
the issuance of 1,000,000 options within a period of 10 years from the effective
date. No options have been granted under the 1997 plan.
The 1998 plan, which became effective on August 21, 1998, provides for
the issuance of 1,000,000 options within a period of 10 years from the effective
date. All 1,000,000 options were granted during 1999 at an exercise price of
$0.50 per share of which 980,000 were granted to employees and 20,000 were
granted to independent contractors. All options vested immediately. Of the
1,000,000 options, 400,000 have a life of 2 years and the remaining 600,000 have
no expiry date. During 1999, 762,500 of these options were exercised.
At the time of granting options under the 1998 plan, the Company's
shares were not yet publicly trading. On the first day of public trading, the
Company's shares had a market price of $1.06 per share. The Company has
recognized compensation expense in 1999 of $548,800 for the granting of these
options to employees in accordance with APB 25. In addition, the Company has
recognized compensation expense of $12,600 in 1999 for the granting of 20,000
options to independent contractors in accordance with SFAS 123.
The 1999 plan, which became effective on March 24, 1999, provides for
the issuance of a total of 4,000,000 options, within a period of 10 years from
the effective date. During 1999, 2,933,000 options at an exercise price of $4.00
and 89,500 options at an exercise price of $6.25 were granted of which 35,000
options were granted to independent contractors. Of these 3,022,500 options,
2,025,000 options vest immediately and 997,500 options vest on a quarterly basis
over one year. The options expire five years from the date of grant. During
1999, 3,000 of the $4.00 options were exercised. The Company has recognized
compensation expense in 1999 of $24,700 for granting 10,000 options to
independent contractors in accordance with SFAS 123.
In addition in 1999, the Company issued 25,000 options to third parties
for the acquisition of the domain name for its website. The Company has
capitalized the fair value of these options in the amount of $95,000.
Activity in the stock option plans for 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ---------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
# $ # $
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year -- -- -- --
Granted 4,022,500 3.18 -- --
53
<PAGE>
Exercised (765,500) 0.51 -- --
--------------------------------------------------------------------------------------------------
Outstanding, end of year 3,257,000 3.81 -- --
--------------------------------------------------------------------------------------------------
Options exercisable at year end 2,497,167
--------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options as of July 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------------
RANGE OF WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS REMAINING EXERCISE PRICE OPTIONS EXERCISE PRICE
$ # LIFE $ # $
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.50 237,500 1.1 years 0.50 237,500 0.50
4.00 2,930,000 4.8 years 4.00 2,259,667 4.00
6.35 89,500 5 years 6.25 -- --
--------------------------------------------------------------------------------------------------
3,257,000 3.25 2,497,167 3.67
--------------------------------------------------------------------------------------------------
</TABLE>
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company applies APB 25 in accounting for its stock option plans for
grants to employees. Where the exercise price is equal to or greater than the
fair value of the stock, no compensation is recorded. When the exercise price is
less than the fair value, compensation expense for each option granted is
recorded to the extent that the fair value exceeds the exercise price.
7. SHARE CAPITAL (CONT'D.)
If the fair values of the options granted had been recognized as
compensation expense on a straight line basis over the vesting period of the
grant (consistent with the method prescribed by SFAS 123), stock based
compensation costs would have increased the net loss as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss as reported (2,231,074) (452,828)
Pro forma net loss under FAS 123 (8,446,922) (452,828)
Net loss per share - basic, as reported (0.11) (0.02)
Pro forma net loss per share - basic, under FAS 123 (0.42) (0.02)
--------------------------------------------------------------------------------------------------
</TABLE>
The fair value of option grants is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------------------------------------------
<S> <C>
Dividend yield 0%
Expected volatility 105%
Risk-free interest rate 5.6%
Expected life of the option 3 years
--------------------------------------------------------------------------------------------------
</TABLE>
The fair value of stock options granted during 1999 was $0.63 for the options
under the 1998 plan and $3.52 for the options under the 1999 plan.
8. CONVERTIBLE PREFERRED SHARES
On May 6, 1999, the Company entered into a Securities Purchase
Agreement and ancillary agreements with RGC International Investors LDC ("RGC")
pursuant to which the Company issued, for cash, a convertible debenture to RGC
in the aggregate principal amount of $8,500,000 at an interest rate of 5%. The
financing was arranged by Broadmark Capital which received a fee of $510,000. An
amendment to the Company's articles of incorporation was approved by the
majority shareholder on July 18, 1999 to allow the issuance of preferred shares
in the Company. On July 19, 1999, the debenture was converted into 8,500
convertible preferred shares with a dividend rate of 5%.
The convertible preferred shares are convertible from time to time at
RGC's option into shares of the Company at the lesser of a fixed conversion
price or a variable conversion price based on the market price of the common
shares at the time of conversion.
54
<PAGE>
The fixed conversion price was determined to be $8.125 per common
share, which represented 130% of the average closing bid prices of the common
shares reported on the OTC Bulletin Board for the three consecutive trading days
ended April 30, 1999.
The variable conversion price will be based on 100% of the average of
the seven consecutive lowest closing bid prices of the common shares reported on
the OTC Bulletin Board during the 35 trading days ending one day prior to the
date that RGC exercises its right to convert.
If the Company's common shares are not approved for trading on the
NASDAQ Stock Market by November 6, 1999, the conversion terms of the preferred
shares change. The conversion term would be the lessor of:
(a) the fixed conversion price of $8.125 per common share;
(b) 80% of the average of the seven consecutive lowest closing bid
prices of the common shares reported on the OTC Bulletin Board during the 35
trading days ending one day prior to the date that RGC exercises its right to
convert; or
(c) 110% of the average closing bid price of the common shares reported
on the OTC Bulletin Board over the ten trading days ending on November 6, 1999.
8. CONVERTIBLE PREFERRED SHARES (CONT'D.)
The amount of preferred shares which are convertible into common shares
includes accrued interest on the convertible debenture prior to its conversion
to convertible preferred shares.
The preferred shares include an investment option, exercisable by RGC
at the time of conversion, to acquire a number of additional common shares equal
to the number of common shares with respect to which RGC is converting the
preferred shares, at an exercise price equal to the conversion price then in
effect. This investment option has a three year term.
The preferred shares have a three year term, after which any previously
unconverted portion is converted automatically into common shares under the same
conversion terms.
In connection with the financing, RGC also received warrants to
purchase 680,000 common shares of the Company at an exercise price of $8.3475.
The warrants have a five year term.
The proceeds from RGC have been allocated to the underlying instruments
in accordance with their fair values at the date of issuance such that
$7,500,000 was allocated to the preferred shares and its investment option and
$1,000,000 was allocated to the warrants and included in additional paid in
capital.
Total financing costs of $621,322 were incurred in respect of this
arrangement. In addition, the Company agreed to provide the agents warrants to
purchase 62,769 of common shares at an exercise price of $8.125 which expire in
five years. During 1999, $41,989 of these finance costs were expensed. The
remaining unamortized finance costs are presented as a reduction of the carrying
value of the preferred shares.
During 1999, amortization expense of $67,580 was recorded in the
statement of loss, as the proceeds allocated to additional paid in capital were
considered a discount to be amortized over the term of the financing. During
1999, interest expense of $101,528 was recorded in the statement of loss as the
financing was classified as debt at the date of issuance. As at July 31, 1999,
the carrying value of the convertible preferred shares comprises the following:
<TABLE>
<CAPTION>
$
--------------------------------------------------------------------------------------------------
<S> <C>
Fair value upon issuance 7,500,000
Accrued interest on debenture 101,528
Amortization of discount 67,580
Less: deferred financing costs (579,333)
--------------------------------------------------------------------------------------------------
7,089,775
--------------------------------------------------------------------------------------------------
</TABLE>
As at July 31, 1999, there existed a mandatory liquidation event with
respect to this financing which was outside of the control of the Company. This
mandatory liquidation event was that the preferred shares would be
55
<PAGE>
mandatorily redeemed should the Company fail to obtain effectiveness with the
Securities and Exchange Commission (SEC) of their registration statement on form
SB-2 which registered for resale the common shares issuable upon exercise of the
preferred shares. As a result, the convertible preferred shares were required to
be classified as mezzanine equity as there was a potential mandatory redemption
event at July 31, 1999.
On August 26, 1999, the Company's form SB-2 registration statement was
declared effective by the SEC. As a result, the preferred shares from this date
onwards will be classified as equity. The accompanying pro forma shareholders'
equity gives effect to the discharge of the mandatory redemption event discussed
above:
<TABLE>
<CAPTION>
PRO FORMA
JULY 31,
1999
$
--------------------------------------------------------------------------------------------------
<S> <C>
SHAREHOLDERS' EQUITY
Convertible preferred shares, net of financing costs 7,089,775
Share capital 12,658
Additional paid in capital 2,617,109
Deficit (2,893,070)
--------------------------------------------------------------------------------------------------
6,826,472
--------------------------------------------------------------------------------------------------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
(i) The Company received notice from an interested party on September 27, 1999
that it believes the Company to be in violation of certain registered
trademarks which it possesses. While no legal proceedings have been
initiated by the other party, the notice represents an asserted claim that
is reasonably possible of assertion.
Management is of the opinion that an estimate of any potential liability,
if any, can not be determined at this time.
(ii) During 1999, the Company has entered into website content agreements with
two companies requiring combined monthly payments of $13,500 for a term of
one year.
(iii)By agreement dated April 20, 1999, as amended on June 4, 1999, the Company
entered into an arrangement to engage RealNetworks, Inc. to perform
consulting services in connection with the GlobalMedia Broadcast Network
project which is for the development of internet-use software. Under the
terms of the agreement, the Company is required to make payments totaling
$3,655,000 over the duration of the project with the final payment date
projected to be December 21, 1999.
At July 31, 1999, the balance of the commitment is $2,970,000. Subsequent
to year end, the Company has made payments with respect to this agreement
aggregating to $2,145,000.
(iv) The Company holds operating leases in respect of office premises in both
Vancouver and Nanaimo. Minimum payments under these lease commitments over
the next five years are represented in the table below.
<TABLE>
<CAPTION>
NANAIMO VANCOUVER
OFFICE OFFICE
$ $
---------------------------------------------------------------------------------------------
<S> <C> <C>
2000 78,078 72,000
2001 80,609 94,500
2002 80,609 112,500
2003 -- 120,500
2004 -- 130,500
---------------------------------------------------------------------------------------------
239,296 530,000
---------------------------------------------------------------------------------------------
</TABLE>
9. COMMITMENTS AND CONTINGENCIES (CONT'D.)
In addition to the basic rent costs identified above for the Vancouver
office, the Company is also responsible for other costs including any applicable
taxes, operating costs, maintenance costs, and any other additional rents as
defined in the lease agreement.
56
<PAGE>
(v) On June 9, 1999, the Company entered into a three year Frame Relay Service
Agreement with MCI WorldCom. The agreement requires a monthly variable
charge based on usage with a minimum monthly commitment of $25,000 per
month.
(vi) YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties will be fully resolved.
10. INCOME TAXES
At July 31, 1999, the Company had total net operating loss
carryforwards of $2,588,114 comprised of United States net operating loss
carryforwards of $1,451,591 (1998 - $240,407) which will begin to expire in
2012, and Canadian net operating loss carryforwards of $1,136,522 (1998 -
$250,671) which will begin to expire in 2006. Utilization of these carryforwards
depends on the recognition of future taxable income.
For financial reporting purposes, a valuation allowance has been
established for all deferred tax assets due to the uncertainty of realization.
As a result of certain stock transactions, utilization of the Company's net
operating loss carryforwards may be subject to certain limitations in the event
that a change in ownership has occurred, as defined in Section 382 of the
Internal Revenue Code of 1986, as amended.
10. INCOME TAXES (CONT'D.)
Deferred tax assets reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards 1,161,912 196,094
Tax vs. accounting value in fixed assets -- 5,431
Foreign exchange loss 14,346 4,155
--------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,176,258 205,680
Less valuation allowance (1,176,258) (205,680)
--------------------------------------------------------------------------------------------------
Net deferred tax assets -- --
--------------------------------------------------------------------------------------------------
Excess book value over tax basis of capital assets (2,314) --
--------------------------------------------------------------------------------------------------
</TABLE>
11. COMPARATIVE FIGURES
Certain amounts for 1998 have been reclassified to conform with the current
year's presentation.
12. SUBSEQUENT EVENTS
(i) CO-MARKETING AND SALES AGREEMENT
On October 7, 1999, the Company entered into a letter of intent for a
strategic relationship with Standard Radio Inc. ("Standard"). Standard will
invest $2 million into the Company and receive 338,983 common shares of the
Company. In return, Standard would cause all radio stations owned by it now or
during the three years following, to become network associates in the
GlobalMedia E-Commerce Network and in the GlobalMedia Broadcast Network.
57
<PAGE>
In connection with the agreement, the Company will be required to
nominate a Standard representative to the Company's Board of Directors. The
nominee, upon accepting a position on the Board, will receive 125,000 options
pursuant to the 1999 Stock Option Plan at an exercise price equal to the closing
price of the common stock on the OTC Bulletin Board on the date of the grant.
The options will vest over a three year period on a quarterly basis from the
date of grant and will expire five years from the grant date.
Furthermore, the Company and each of the six general managers of the
Standard radio stations, Standard's national program director and the general
manger of Standard's syndication division will enter into a consulting
agreement. In exchange for future services granted, the Company will grant each
individual up to 20,000 options pursuant to the 1999 Stock Option Plan at an
exercise price equal to the closing price of the common stock on the OTC
Bulletin Board on the date of the grant. The options will vest over a one year
period from the date of grant and will expire five years from the grant date.
(ii) OPERATING EVENTS
On August 31, 1999, the Company began the implementation of its Network
Associate program services including the launch of e-commerce sites.
(iii) OPTIONS
During August 1999, the Company granted 85,000 additional options under
the 1999 stock option plan at exercise prices of $6.63 and $7.00. The options
expire five years from the date of grant.
58
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective January 27, 2000, we dismissed Ernst & Young LLP,
Chartered Accountants, as our independent accountants, and engaged Arthur
Anderson LLP, Chartered Accountants, as our new independent accountants. The
decision to change independent accountants was approved by our Board of
Directors on January 27, 2000. No consultation regarding accounting policy or
procedures with new auditors occurred prior to their engagement.
In connection with Ernst & Young LLP's audit for the fiscal year for
the period from August 1, 1998 to July 31, 1999, and with the subsequent interim
period through January 27, 2000:
(a) the reports of Ernst & Young LLP did not contain an adverse
opinion or a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles; and
(b) there were no disagreements with Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Ernst & Young
LLP, would have caused them to make reference to the subject matter of the
disagreement in with their reports.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our current directors, executive officers and other key employees, and
their ages, as of November 30, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jeffrey Mandelbaum 40 Chairman of the Board and Chief Executive Officer
Barr Potter (1)(2) 51 Director, President and Chief Operating Officer
Mike McHenry 43 Executive Vice President of Sales and Marketing
Winston V. Barta 29 Vice President Business Development
Annie Ho 30 Vice President of Human Resources
Michael Metcalfe 44 Director
Gary Slaight (1)(2) 49 Director
Davide Coriat (1)(2) 50 Director
---------------------
</TABLE>
(1) Compensation committee member
(2) Audit committee member
JEFFREY MANDELBAUM. Mr. Mandelbaum became our Chairman of the Board in
October 2000, and has been our Chief Executive Officer since May 2000, a
director since February 2000 and was President from February 2000 through
November 15, 2000. Mr. Mandelbaum joined us from RealNetworks, Inc., where he
was Vice President of Media Systems Sales. Before joining RealNetworks in
April 1998, Mr. Mandelbaum was Vice President of Worldwide Sales at Commerce
One, a global leader in business-to-business electronic procurement systems.
Prior to Commerce One, Mr. Mandelbaum held a number of positions at Sybase,
most recently as CEO and President of Sybase Financial Services, Inc. Mr.
Mandelbaum is a graduate of the Executive Program in Business Administration
from the Columbia University Graduate School of Business.
59
<PAGE>
MIKE MCHENRY. Mr. McHenry has been our Executive Vice President of
Sales and Marketing since October 2000. Previously, Mr. McHenry was VP Worldwide
Sales from September 1998 to May 2000, and as VP International Operations from
May 2000 to July 2000 with Loudeye Technologies, a NASDAQ publicly traded
technology company located in Seattle, Washington. Previously, Mr. McHenry held
several senior executive positions including VP Worldwide Sales at iCat/Intel
from December 1996 to September 1998, VP Sales, Western Region at Giga
Information Group from June 1995 to December 1996, and General Manager, Internet
Division at FourGen Technologies from June 1993 to June 1995. Mr. McHenry has a
bachelor of arts in psychology from University of Oregon.
WINSTON V. BARTA. Mr. Barta has been our Vice President of Business
Development since September 1997 and was a director from September 1997 until
November 15, 2000 and was Secretary from September 1997 until August 1999.
Previously, Mr. Barta was a vice president of marketing for Starnet
Communications International, Inc., a publicly traded Internet company
located in Vancouver, B.C., from July 1996 to July 1997, and a senior account
executive at Motion Works Group, a publicly traded consumer software
developer company located in Vancouver, B.C., from June 1995 to April 1996.
Mr. Barta has a bachelor of commerce degree in marketing from Concordia
University in Montreal and an MBA in marketing from Simon Fraser University
in Vancouver, B.C. (See footnote (3) to the above table.)
ANNIE HO. Ms. Ho has been our Director of Human Resources since
April 1999 and Vice President of Human Resources since November 2000.
Previously, Ms. Ho was employed by R.A. Malatest & Associates Ltd. (September
1993 to March 1999), an economic and market research consulting firm, as
Manager, Research Services, located in Victoria, B.C. Ms. Ho has a Masters of
Arts in Organizational Leadership and Training from Royal Roads University in
Victoria, B.C., and a Bachelor of Arts in Economics from the University of
Victoria.
MICHAEL METCALFE. Mr. Metcalfe founded GlobalMedia.com and held the
position of Chairman of the Board from our formation in April 1997 until
October 2000 and the position of President from April 1997 until February
2000. He previously held the same positions with Westcoast Wireless Cable
Ltd. since May 1994. Mr. Metcalfe was director of sales and marketing for
Starscan Communications International, Inc., a marketer of satellite
equipment and television programming located in Vancouver, B.C., from October
1991 to April 1994; and executive director of production for North American
Pictures, Inc., a film production company, located in Vancouver, B.C., from
January 1985 through June 1991.
BARR POTTER. Mr. Potter has been a director of GlobalMedia since May
1999 and became President and Chief Operating Officer on November 15, 2000.
Mr. Potter has been serving as the president and chief operating officer of
My Own Channel, Inc., a company engaged in video-on-demand business, since
February 2000. Prior to February 2000, he served as chairman and chief
executive officer of Tripod Entertainment, Inc., a feature films production
and distribution company located in Los Angeles, California. From April 1994
through March 1999, Mr. Potter was the chairman and chief executive officer
of Largo Entertainment, Inc., a feature films production and distribution
company located in Los Angeles, California and a subsidiary of JVC
Entertainment, Inc. Mr. Potter earned a bachelor of arts degree in economics
from Yale University and a juris doctor degree from Columbia University
School of Law.
60
<PAGE>
GARY SLAIGHT. Mr. Slaight has been a director of GlobalMedia since
December 1999. Since 1986, Mr. Slaight has served as the president and chief
executive officer of Standard Radio, Inc. and, since 2000, the president and
chief executive officer of Broadcasting Corporation Ltd., Standard Radio, Inc.'s
parent company. Mr. Slaight has been in broadcast media for over 20 years. He is
currently on the board of the Canadian Association of Broadcasters. Mr. Slaight
earned a bachelor of arts degree in English from the University of Western
Ontario.
DAVID CORIAT. Mr. Coriat has been a director since November 15, 2000.
Since 1988, Mr. Coriat has served as a director, executive vice president,
chief financial officer and corporate secretary of Standard Broadcasting
Corporation Ltd. and as a director of Standard Radio Inc. Since 1991, Mr.
Coriat has also served as a director of Command Post & Transfer Corporation
and since September 2000, a director of Iceberg Media.com Inc. Mr. Coriat has
been a Canadian Chartered Accountant since 1976 and earned a bachelor of
commerce degree from the University of Toronto in 1974.
BOARD OF DIRECTORS
Under our articles of incorporation and bylaws, our directors hold
office until the next annual meeting of our stockholders and until their
successors have been elected and duly qualified, and the board of directors
appoint our executive officers at the first board of directors' meeting after
each annual meeting of stockholders. Executive officers hold office at the
pleasure of the board of directors. Mr. Metcalfe was appointed a director upon
formation of GlobalMedia and each of Mr. Potter, Mr. Slaight, Mr. Coriat and
Mr. Mandelbaum was appointed by the board of directors to fill a vacancy
created by an increase in the authorized number of directors approved by the
board of directors. The Company agreed to nominate Mr. Slaight for election to
the Board of Directors pursuant to its December 1999 agreement with Standard
Radio Inc., and to nominate Mr. Coriat pursuant to the November 2000 agreement
with Standard Radio. As long as Standard owns sufficient shares, the Company
will nominate Mr. Slaight and Mr. Coriat or other mutually acceptable
candidate each time the Board of Directors is elected.
Our directors do not receive cash compensation for their services as
directors or members of committees of the board of directors, if any, but are
eligible to receive stock options under our stock option plans. Director stock
option grants are determined on a case by case basis. See " - Benefit Plans" and
"Certain Transactions." We also reimburse directors for their reasonable
expenses incurred in attending meetings of the board of directors.
COMMITTEES; MEETINGS OF THE BOARD
We have a Compensation Committee and an Audit Committee, which were
formed in 1999. Messrs. Slaight, Coriat and Potter currently comprise the
Compensation Committee and the Audit Committee. The Compensation Committee
recommends to the Board the compensation of executive officers and serves as
the Administrative Committee for our Stock Option Plans. The Audit Committee
serves as a liaison between the Board and our auditor. The Compensation
Committee met three times, and the Audit Committee met four times, during the
fiscal year ended July 31, 2000.
The Board of Directors held five meetings during the fiscal
year ended July 31, 2000, at which time all the directors were present or
consented in writing to the actions taken at such meetings. No incumbent
director attended fewer than 75% of the meetings, except Mr. Slaight who
attended 60% of the meetings.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on a review of Forms 3, 4 and 5, and any amendments,
furnished to us pursuant to Rule 16a-3(e) during fiscal 1999, and on written
representations of those persons who were officers, directors, and principal
shareholders at any time during fiscal 2000 ("Reporting Persons"), we believe
that the following Reporting Persons were delinquent in satisfying their
filing requirements under Section 16(a) of the Exchange Act:
<TABLE>
<CAPTION>
NUMBER OF TRANSACTIONS
----------------------
NAME OF REPORTING PERSON REPORTED LATE FAILED TO REPORT
------------------------ ------------- -------------------
<S> <C> <C>
Winston Barta 1
Robert Fuller 1
Jack MacDonald(1) 1
Jeffrey Mandelbaum 1
Michael Metcalfe 7
Barr Potter 2
James Porter (1)(2) 1
Monte Walls Burris (2) 2 1
</TABLE>
-------------------
(1) Resigned from the Board of Directors in November, 2000.
61
<PAGE>
(2) Mr. Burris ceased being an officer on October 2, 2000, and Mr. Porter
ceased being a director and officer in November 2000.
ITEM 10: EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to our President, Chief
Executive Officer and Chief Operating Officer during the fiscal year ended July
31, 2000 (collectively, the "Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-----------------
UNDERLYING ALL OTHER
SALARY BONUS SECURITIES COMPENSATION
-----------------
NAME AND PRINCIPAL POSITION ($) ($) OPTIONS (#) ($)
-------------------------------------------------------------- ------------ ------------ ----------------- --------------
<S> <C> <C> <C> <C>
Robert Fuller, Chief Executive Officer until April 2000 81,444 0 0 0
Jeff Mandelbaum, Chief Executive Officer since April 2000 150,000 0 350,000 0
</TABLE>
OPTION GRANTS, OPTION EXERCISES AND OPTION VALUES
The following table sets forth information on stock options or other
similar rights granted to the Named Executives during fiscal 2000:
<TABLE>
<CAPTION>
# OF SECURITIES % OF TOTAL OPTIONS GRANTED TO EXERCISE OR BASE
NAME UNDERLYING OPTIONS GRANTED EMPLOYEES IN FISCAL YEAR PRICE ($/SHARE) EXPIRATION DATE
----------------------- ------------------------ ------------------------------- --------------------- ---------------
<S> <C> <C> <C> <C>
Robert Fuller 0 0%
Jeff Mandelbaum 350,000 17.7% $8.00 2/24/2005
</TABLE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning exercise of stock
options during the last fiscal year by each Named Executive and the value of
unexercised options at the end of fiscal 2000:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FY-END (#) AT FY-END ($)
------------------------------------ ----------------------------
SHARES ACQUIRED VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ON EXERCISE (#) REALIZED
--------------------- ----------------- -------------- ----------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert Fuller 0 $0 417,170 (1) 0 $0 $0
Jeff Mandelbaum 70,000 $0 140,000 140,000 $0 $0
</TABLE>
---------------
(1) In February, 2000, Mr. Fuller surrendered options to acquire 82,830
shares of common stock previously granted to him under the 1999
Stock Option Plan. Mr. Fuller surrendered the options to provide
additional capacity under the 1999 Stock Option Plan so that the
Company could meet is stock option commitments to Mr. Mandelbaum
under its employment agreement with Mr. Mandelbaum described below.
EMPLOYMENT AGREEMENTS
None of our executive officers have employment agreements with us,
except Mr. Mandelbaum. Mr. Mandelbaum's agreement is dated as of December 17,
1999 and has a term of two years expiring January 31, 2002. Mr. Mandelbaum is
entitled to receive a base salary of $300,000 per annum for the first year and
no less than that amount
62
<PAGE>
for the second year. The employment agreement also provides for a milestone
bonus of $100,000 per year to be paid upon achievement of goals and milestones
as determined by the Board of Directors. Mr. Mandelbaum was also granted a five
year option to acquire up to 350,000 shares of the Company's common stock
exercisable at $8.00 per share under the 1999 Stock Option Plan. The stock
options are 20% vested with the balance vesting in equal installments at the end
of each full quarter of continuous service during the first year of the
agreement term. If Mr. Mandelbaum is terminated without cause during the first
year of the agreement term, all unvested options will fully vest. If Mr.
Mandelbaum is terminated or in the event of his death, the Company will be
required to make severance payments to him or his estate, as the case may be,
equal to his monthly salary for the longer of 90 days or the remaining term of
the agreement.
In addition, as part of his joining the Company, Mr. Mandelbaum
acquired 500,000 shares of common stock from Michael Metcalfe for nominal
consideration and has a right to acquire a second 500,000 shares from Mr.
Metcalfe for nominal consideration upon the first year anniversary of his
employment agreement. These shares are subject to a lock-up period of one year
from their respective purchase dates, and a right of repurchase if the Company
terminates Mr. Mandelbaum for cause or he terminates his employment voluntarily
during the one year lock-up period. According to the written agreement between
Mr. Mandelbaum and the Company, the shares are be held in escrow during the
lock-up period, but the parties subsequently agreed to waive the escrow
requirement, and to accelerate Mr. Mandelbaum's right to purchase the second
500,000 shares. SEE "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Events--Standard Radio/Mandelbaum
$1 Million Investment and Related Transactions."
BENEFIT PLANS
We have four stock option plans which provide for the grant of options
to purchase shares of our common stock to executives, directors, employees,
consultants or advisors. The plans are summarized as follows as of November 30,
2000:
<TABLE>
<CAPTION>
EFFECTIVE DATE SHARES OPTIONS AVAILABLE OPTIONS
PLAN NAME RESERVED ISSUED SHARES EXERCISED
--------------------------------- ------------------- --------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
1997 Directors and Officers April 8, 1997 500,000 0 500,000 0
Stock Option Plan
1998 Directors and Officers August 21, 1998 1,000,000 1,000,000 0 925,000
Stock Option Plan
1999 Stock Option Plan March 24, 1999 4,000,000 3,725,545 274,455 241,125
2000 Stock Option Plan April 18, 2000 4,000,000 2,082,620 1,917,380 0
</TABLE>
Each of the plans expires ten years from its effective date. The plans
are administered by the board of directors who have sole discretion and
authority to determine individuals eligible for awards. The conditions of
exercise of each grant are determined individually by the board at the time of
the grant. We intend to cancel the 1997 stock option plan in the near future.
We have registered the options and shares of common stock issuable
under the 1998 and 1999 stock option plans on Form S-8 registration statements,
and intend to register the 2000 stock option plan on Form S-8 in the near
future. The options granted under our 1998 stock option plan had an exercise
price of $.50 per share. All of these options were fully exercisable from the
date of grant. The options granted under our 1999 stock option plan have
exercise prices ranging from $4.00 to $8.00 per share. The options granted under
our 2000 Stock Option Plan have an exercise prices ranging from $0.438 to $6.375
per share. As of November 30, 2000, 1,914,743 of these options are subject to
vesting requirements, and 166,300 are fully exercisable.
KEY MAN INSURANCE
We do not currently have any key man insurance and have no plans to purchase
such insurance in the near future.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 30, 2000 (a) the
number of shares of common stock owned by the persons known to the Company as
beneficially owning more than five percent (5%) of the outstanding shares of
the Company, (b) the number of shares owned by our directors and officers and
(c) the number of shares owned by those directors and executive officers as
a group.
63
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNER (2) CLASS (2)
------------------------------------- ------------------------------ ----------------
<S> <C> <C>
Winston V. Barta 298,000 (3) *
Jeffery Mandelbaum 2,422,857 (4) 6.5%
Mike McHenry 0 (5) *
Annie Ho 60,000 (6) *
Michael Metcalfe 11,197,170 (7) 29.8%
Barr Potter 375,000 (8) *
Gary Slaight 616,962 (9) 1.7%
David Coriat 585,714 (15) 1.5%
--------------------------------------------------------------------------------
All Officers and Directors as a 15,555,703 (10) 40.9%
Group (8 persons shown above)
Rose Glen Investments, LDC 145,101,122 (11) 76.6%
3 Bala Plaza East, Suite 200
251 South Asaphs Road
Bala Cynwyd, PA 19004
Standard Radio Inc. 8,402,476 (12) 22.4%
Suite 1100,
2 Saint Claire Ave. W.
Toronto, ON M4V 1L6
Magnitude Network, Inc. 4,082,429 (13) 10.4%
Suite 202
1525 W. Homer Street, Suite 202
Chicago, IL 60622
Robert Fuller 2,005,170 (14) 5.3%
4737 Vista View Crescent
Nanaimo, B.C.
V9V INB
----------------------------
</TABLE>
* Denotes holdings of less than 1%.
(1) The address for the listed officers and directors is GlobalMedia.com, 400
Robson Street Vancouver, BC V6B 2B4
(2) Shares that a person has the right to acquire within 60 days are treated as
outstanding for determining the amount and percentage of common stock owned
by such person but are not deemed to be outstanding as to any other person
or group.
(3) Includes currently exercisable options to purchase 250,000 shares of common
stock held by Mr. Barta.
(4) Includes currently exercisable options to purchase 210,000 shares of common
stock held by Mr. Mandelbaum.
(5) Does not include unvested options to purchase 250,000 shares of common
stock owned by Mr. McHenry.
(6) Includes currently exercisable options to purchase 60,000 shares of common
stock held by Ms. Ho.
(7) Includes currently exercisable options to purchase 417,170 shares of common
stock held by Mr. Metcalfe.
(8) Includes currently exercisable options to purchase 365,000 shares of common
stock held by Mr. Potter.
(9) Includes currently exercisable options to purchase 81,248 shares of common
stock held by Mr. Slaight. Mr. Slaight disclaims beneficial ownership in
the shares and warrants held by Standard Radio, Inc. of which Mr. Slaight
is President.
(10) Includes currently exercisable options to purchase 1,183,418 shares of
common stock.
(11) Consists of preferred stock and warrants and options held by Rose Glen
which are currently convertible or exercisable into the common stock.
(12) Includes warrants to purchase 277,778 shares of common stock held by
Standard Radio, Inc.
(13) Includes warrants to purchase 2,000,000 shares of common stock held by
Magnitude Network, Inc.
(14) Includes currently exercisable options to purchase 417,170 shares of
common stock held by Mr. Fuller.
(15) Includes currently exercisable options to purchase 50,000 shares of common
stock held by Mr. Coriat.
64
<PAGE>
Mr. Metcalfe is a controlling shareholder, and as such, is able to
substantially influence all matters requiring approval by our stockholders,
including the election of directors, amendments to our articles of
incorporation, and mergers or other business combination transactions. Mr.
Metcalfe's substantial equity stake could also make us a much less attractive
acquisition candidate to potential acquirers, because Mr. Metcalfe alone
could have sufficient votes to prevent the approval or the tax-free treatment
of an acquisition.
If RGC were to retain the common shares issuable upon conversion or
exercise of its preferred stock, investment options and warrants, it also would
have such control. However, to date, RGC has immediately sold all shares of
common stock it has received upon such conversions and exercises.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK ISSUANCES TO FOUNDER AND OTHER INSIDERS
In connection with our formation and initial capitalization in April
1997, we offered and sold a total 11,000,000 shares of our common stock at a
price of $0.01 per share per share to various individual investors, including
Michael Metcalfe, our founder, President and Chairman of the Board till October
2000. Mr. Metcalfe purchased six million shares for total consideration of
$60,000 and Mr. Fuller purchased 1 million shares for total consideration of
$10,000.
Also see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Recent Events--Standard Radio/Mandelbaum
$1,000,000 Investment and Related Transactions, and--Management--Employment
Agreements."
ACQUISITION OF WESTCOAST FROM FOUNDER
In May 1997, we entered into an agreement with Mr. Metcalfe relating to
the acquisition of Westcoast Wireless Cable, Ltd. At the time, Mr. Metcalfe was
the sole shareholder of Westcoast. Under that agreement, we purchased from Mr.
Metcalfe all of his Westcoast stock in exchange for consideration consisting of
eight million shares of our common stock and cash in the amount of $100,000.
In June 2000, West Coast received a sales tax assessment of
approximately $191,500 from the British Columbia Ministry of Finance and
Corporate Relations. The assessment relates to the operations of West Coast
prior to its purchase by us. We are considering an appeal of this assessment, in
addition to other available legal remedies, but may be required to pay it before
resolution of any appeal. In such case, the agreement with Mr. Metcalfe contains
indemnification provisions for pre-acquisition liabilities incurred by us.
LOANS TO AND FROM AFFILIATES
LOANS FROM BENNETT METCALFE. From October 1998 through December 1999,
Bennett Metcalfe, Michael Metcalfe's father and one of our stockholders,
advanced a total of approximately $263,000 to us. The proceeds of these loans
were used for working capital. These loans had no fixed repayment or interest
terms. In connection with our May 1999 convertible debenture and warrant
financing, we agreed to (a) repay one-half of the principal balance outstanding
at May 6, 1999 ($221,091), plus $16,445 in accrued interest, by issuing shares
of our common stock at $6.25 per share, which was the average closing bid prices
of the Common Stock on the OTC Bulletin Board for the three consecutive trading
days ended April 30, 1999, and (b) issue a promissory note for the remaining
one-half of the principal balance plus $16,445 in accrued interest, which was
repaid in four quarterly installments and which bear interest at 9% per annum.
This restructuring was completed effective as of July 26, 1999. Subsequent to
the fiscal year end, the remaining balance of the promissory note was completely
repaid.
65
<PAGE>
LOANS TO AND FROM MICHAEL METCALFE AND AFFILIATES. When we purchased
Westcoast in April 1997, it had a $71,065 receivable due from a company owned by
Michael Metcalfe, and a $79,269 payable due to Michael Metcalfe. In August 1998,
Michael Metcalfe and GlobalMedia agreed to offset the receivable owed Westcoast
by his affiliated company against the payable which Westcoast owed him.
SUBLEASE
Prior to October 2000, we subleased an approximately 1,100 square
foot office in New York, New York from Monty Wallis Burris, a former
executive officer, for $3,000 per month. That sublease was terminated upon
termination of Mr. Burris' employment with us.
OPTION GRANTS TO EXECUTIVE OFFICERS AND DIRECTORS
1998 PLAN. We granted 300,000 of the 1,000,000 options granted under
our 1998 Plan to our directors and executive officers as follows:
<TABLE>
<CAPTION>
NAME POSITION OPTIONS
----------------------- ------------------------------------------------------- -----------
<S> <C> <C>
Michael Metcalfe Director 200,000
Winston V. Barta Vice President of Business Development 100,000
TOTAL 300,000
</TABLE>
None of these options were subject to vesting requirements and were
fully exercisable from the date of grant. These option grants were made as of
August 21, 1998. Prior to that time, there had been no public market for our
common stock and the price at which we last sold any of our common stock was at
$0.50 per share. The options were granted with an exercise price of $0.50 per
share. However, on August 24, 1998, our common stock began trading on the OTC
Bulletin Board and closed that day at $1.06 per share. As a result of the
disparity between the closing price on August 24, 1998 and the exercise price of
the options granted on August 21, 1998, we were required under established
accounting principles to recognize compensation expense totaling $548,800 for
the 980,000 options granted to directors, executive officers and employees. All
options granted to our executives under our 1998 stock option plan have been
exercised.
1999 PLAN. As of November 30, 2000, 1,327,170 options of the total
3,725,545 options granted under our 1999 Plan were granted to directors and
executive officers as follows. Except for Mr. Mandelbaum and Mr. Slaight, all of
these options are fully vested. Options for Mr. Mandelbaum vest over one year at
20% per quarter with 20% vesting at the date of grant, and options for Mr.
Slaight vest quarterly over three years from the date of grant.
<TABLE>
<CAPTION>
NAME POSITION OPTIONS
------------------------- --------------------------------------------------------- --------------
<S> <C> <C>
Jeffrey Mandelbaum Chairman and Chief Executive Officer 350,000
Winston V. Barta Vice President of Business Development 250,000
Annie Ho Vice President of Human Resources 60,000
66
<PAGE>
Michael Metcalfe Director 417,170
Barr Potter Director, President and Chief Operating Officer 125,000
Gary Slaight Director 125,000
------------------------- --------------------------------------------------------- --------------
Total 1,327,170
------------------------- --------------------------------------------------------- --------------
</TABLE>
Each of these option grants, except those to Mr. Mandelbaum and Mr.
Slaight, were granted as of April 23, 1999 at an exercise price of $4.00 per
share. The option grant for Mr. Mandelbaum was granted February 24, 2000 at an
exercise price of $8.00 per share, and in conjunction with the strategic
relationship entered into on December 7, 1999 with Standard Radio Inc., the
option grant for Mr. Slaight was granted December 7, 1999 at an exercise price
of $5.13 per share. On the dates of grant, our common stock traded at or below
the exercise prices of the option grants on the OTC Bulletin Board.
Consequently, we are not required to recognize any related compensation expense.
2000 PLAN. As of November 30, 2000, 1,413,625 options of the total
2,332,620 options granted under our 2000 Plan were granted to directors and
executive officers as follows. Options for Mr. McHenry, Mr. Barta, Ms. Ho and
Mr. Mandelbaum vest over three years with the first vesting date occurring
one year from the date of grant. Options for Mr. Coriat and Mr. Slaight, and
50,000 options held by Mr. Potter, are fully vested as of the date of grant.
<TABLE>
<CAPTION>
NAME POSITION OPTIONS
--------------------------- ------------------------------------------------------------- --------------
<S> <C> <C>
Jeffrey Mandelbaum Chairman and Chief Executive Officer 300,000
Mike McHenry Executive Vice President of Sales and Marketing 375,000
Winston V. Barta Vice President of Business Development 224,000
Annie Ho Vice President of Human Resources 164,625
Barr Potter Director, President and Chief Operating Officer 250,000
Gary Slaight Director 50,000
David Coriat Director 50,000
--------------------------- ------------------------------------------------------------- --------------
Total 1,413,625
--------------------------- ------------------------------------------------------------- --------------
</TABLE>
Initial option grants to Mr. Barta, Ms. Ho, Mr. Potter and Mr.
Slaight were granted as of April 28, 2000 at an exercise price of $6.375 per
share, and the initial option grant for Mr. McHenry was granted October 18,
2000 at an exercise price of $1.50 per share. On November 8, 2000 additional
grants to Mr. McHenry, Mr. Barta and Ms. Ho were granted at an exercise price
of $0.438 per share. The option grant for Mr. Mandelbaum was granted as of
November 14, 2000 at an exercise price of $0.438 per share. On the dates of
grant, our common stock traded at or below the exercise prices of the option
grants on the Nasdaq National Market. Consequently, we are not required to
recognize any related compensation expense. Also see "Footnote 1 to Item 10:
Executive Compensation--Aggregated Option Exercises and Fiscal Year-End Option
Values" regarding the cancellation of options granted under this plan to
Mr. Metcalf.
AGREEMENT WITH BARR POTTER
In connection with appointing Mr. Potter to our board of directors in
May 1999, we entered into an agreement with him in which we agree to (a) appoint
him as an independent director on our board for a one-year term, (b) grant him
125,000 stock options under our 1999 Plan, (c) to sublease space to him in any
Los Angeles office that we may open in the future, and (d) to obtain Directors
and Officers insurance, for which we currently have a policy in effect.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K. GlobalMedia filed the following reports on Form
8-K during the fourth quarter of fiscal 2000:
- Form 8-K filed in May 2000 in connection with sale of our Series B
convertible preferred stock and related investment option and
warrants to RGC International.
67
<PAGE>
- Form 8-K filed in February 2000 in connection with change of our
certifying accountant, as amended by Form 8-K/A filed in the same
month.
(b) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
# DESCRIPTION
------------ ------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of GlobalMedia as filed on April 8,
1997, with the Secretary of State of the State of Nevada. (1)
3.2 Articles of Amendment to the Articles of Incorporation of
GlobalMedia, authorizing the issuance of preferred stock, as
filed on June 30, 1999, with the Secretary of State of the State
of Nevada. (8)
3.3 Certificate of Designation, designating Series A preferred
stock, as filed on June 30, 1999, with the Secretary of State of
the State of Nevada. (8)
3.4 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of GlobalMedia.com. (12)
3.5 Bylaws of GlobalMedia. (1)
4.1 Form of specimen certificate for common stock. (8)
4.2 Form of specimen certificate for preferred stock. (18)
4.3 Registration Rights Agreement, dated May 6, 1999, between
GlobalMedia and RGC International Investors, LDC. (4)
4.4 Registration Rights Agreement dated April 28, 2000 between
GlobalMedia.com and RGC International Investors, LDC. (12)
4.5 Investor Rights Agreement between GlobalMedia and OnRadio.com,
dated June 7, 2000.(13)
4.6 Private Placement Subscription Agreement dated August 31, 2000
between GlobalMedia and Standard Radio, Inc.(16)
10.1 1997 Stock Option Plan. (1)
10.2 1998 Stock Option Plan. (2)
10.3 1999 Stock Option Plan. (3)
10.4 2000 Stock Option Plan(15)
10.5 Offering Sales Agency Agreement, dated April 25, 1997, between
GlobalMedia and Pacific Rim Investment, Inc. (1)
10.6 Plan of Reorganization, dated May 20, 1997, between GlobalMedia
and Westcoast Wireless Cable, Ltd. (1)
10.7 Secured Promissory Note, dated November, 1998, from GlobalMedia
to Rolling Oaks Enterprises, LLC. (5)
10.8 Security Agreement, dated November 30, 1998 from GlobalMedia to
Rolling Oaks Enterprises, LLC. (5)
10.9 Securities Purchase Agreement dated May 6, 1999, between
GlobalMedia and RGC International Investors, LDC. (4)
10.10 Convertible Debenture, dated May 6, 1999, from GlobalMedia to
RGC International Investors, LDC. (4)
10.11 Stock Purchase Warrant dated May 6, 1999 from GlobalMedia to RGC
International Investors, LDC. (4)
10.12 Streaming Media Services Agreement, dated April 19, 1999,
between GlobalMedia and RealNetworks, Inc. (5) (6)
10.13 Letter Agreement for consulting services from RealNetworks, Inc.
to GlobalMedia, dated and accepted on April 20, 1999. (7) (6)
10.14 Letter from RealNetworks, Inc. to GlobalMedia, dated and
accepted on June 4, 1999, amending the April 20, 1999 letter
agreement. (7) (6)
10.15 Order Fulfillment Agreement, dated May 15, 1999, between
GlobalMedia and i.FILL (a division of Valley
Media, Inc.). (6) (8)
10.16 Drop Ship Agreement, dated May 14, 1999, between GlobalMedia and
Baker & Taylor, Inc. (6) (8)
10.17 Distribution Agreement, dated May 14, 1999, between GlobalMedia
and Baker & Taylor, Inc. (6) (8)
10.18 License Agreement, dated August 7, 1998, between GlobalMedia and
Muze Inc. (6) (8)
10.19 Loan Restructure and Subscription Agreement, dated July 26,
1999, between GlobalMedia and Bennett Metcalfe. (9)
68
<PAGE>
10.20 Lease between Thomas Downie Holdings Ltd. and GlobalMedia dated
July 2, 1999 (Vancouver facility).(10)
10.21 Form of Stock Purchase Warrant, dated May 7, 1999, from
GlobalMedia to designees of the placement agents in
GlobalMedia's convertible debenture offering. (9)
10.22 Letter agreement with Barr Potter dated May 1, 1999, and amended
by letter agreement dated September 13, 1999. (9)
10.23 Strategic Investment Agreement dated December 7, 1999 between
Global Media and Standard Radio, Inc. (11)
10.24 Co-Marketing and Sale Agreement dated December 7, 1999 between
Global Media and Standard Radio, Inc. (11)
10.25 Form of Consulting Agreement between Global Media and Individual
Consultants under the Strategic Investment Agreement dated
December 7, 1999 between Global Media and Standard Radio, Inc.
(11)
10.26 Executive Employment Agreement dated December 17, 1999, between
Global Media and Jeff Mandelbaum. (12)
10.27 Streaming Media Services Agreement dated January 19, 2000
between RealNetworks and Global Media. (12)
10.28 RealChannels Agreement between Global Media and RealNetworks,
dated January 19, 2000. (12)
10.29 LiveStations Agreement between Global Media and Real Networks,
dated November 1, 1999.(12)
10.30 Securities Purchase Agreement dated April 28, 2000 between
Global Media and RGC International Investors, LDC.(13)
10.31 Stock Purchase Warrant dated April 28, 2000 from GlobalMedia.com
to RGC International Investors, LDC.(13)
10.32 Asset Purchase Agreement dated June 6, 2000 between Global Media
and OnRadio.com. (14)
10.33 Software License Agreement dated June 7, 2000 between
GlobalMedia and OnRadio.com.(14)
10.34 Lease Agreement dated June 7, 2000 between GlobalMedia and
OnRadio.com.(14)
10.35 Transition Services Agreement dated June 7, 2000 between
GlobalMedia.com and OnRadio.com.(14)
10.36 Form of Non-competition Agreement.(14)
10.37 Loan Extension Agreement dated June 26, 2000 between GlobalMedia
and RealNetworks, Inc.(15)
10.38 First Amendment to Streaming Media Services Agreement dated June
27, 2000 between GlobalMedia and RealNetworks, Inc. (15)
10.39 Asset Purchase Agreement dated August 3, 2000 between
GlobalMedia and Magnitude Network, Inc.(16)
10.40 License Agreement dated August 3, 2000 between Magnitude
Network, Inc. and GlobalMedia.(16)
10.41 Non-Solicitation Agreement dated August 3, 2000 between Icast
Corporation and GlobalMedia.(16)
10.42 Escrow Agreement, dated August 3, 2000, among GlobalMedia,
Magnitude Network, Inc., and State Street Bank and Trust
Company.(16)
10.43 Common Stock Purchase Warrant, dated August 3, 2000, from Global
Media to Magnitude Network, Inc.(16)
10.44 Private Placement Subscription Agreement dated September 7,
2000, between GlobalMedia and Standard Radio, Inc.(17)
10.45 Common Stock Purchase Warrant, dated August 31, 2000, from
GlobalMedia to Standard Radio, Inc.(17)
10.46 Share Purchase Agreement, dated August 31, 2000, between Michael
Metcalfe and Standard Radio, Inc.(17)
21 List of Subsidiaries. (8)
27 Financial Data Schedule. (18)
</TABLE>
--------------------------
(1) Incorporated by reference to Form 10-SB Registration Statement filed on
December 11, 1997.
(2) Incorporated by reference to Form S-8 Registration Statement filed on
August 21, 1998.
(3) Incorporated by reference to Form S-8 Registration Statement filed on
March 24, 1999.
(4) Incorporated by reference to Current Report on Form 8-K filed on May 19,
1999.
(5) Incorporated by reference to Form 10-QSB filed June 14, 1999.
(6) Subject to a request for confidential treatment.
(7) Incorporated by reference to Form 10-QSB/A for the quarter ended
April 30, 1999, filed on June 30, 1999.
69
<PAGE>
(8) Incorporated by reference to Form SB-2 Registration Statement filed on
July 30, 1999.
(9) Incorporated by reference to Form 10-KSB filed November 1, 1999.
(10) Incorporated by reference to Amendment No. 1 to Form SB-2 Registration
Statement filed on July 30, 1999.
(11) Incorporated by reference to Form 10-QSB filed on December 15, 1999.
(12) Incorporated by reference to Form 10-QSB filed on March 16, 2000.
(13) Incorporated by reference to Form 8-K filed May 12, 2000.
(14) Incorporated by reference to Form 10-QSB filed June 14, 2000.
(15) Incorporated by reference to Form S-3 Registration Statement filed
September 11, 2000.
(16) Incorporated by reference to Form 8-K filed August 18, 2000.
(17) Incorporated by reference to Form S-3 Registration Statement filed
September 26, 2000.
(18) Incorporated by reference to Form 10-KSB filed November 14, 2000.
70
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on December 13, 2000.
GLOBALMEDIA.COM
By /s/ Barr Potter
----------------------------------------
Name: Barr Potter
Title: President and Chief
Operating Officer
In accordance with the requirements of the Exchange Act, this report has
been signed by the following persons in the capacities indicated on December
13, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Jeffrey Mandelbaum Chairman of the Board, and Chief Executive
--------------------- Officer (Principal Executive Officer)
Jeffrey Mandelbaum
/s/ Barr Potter Director, President and Chief Operating Officer
---------------------
Barr Potter
/s/ Dale Bennett Controller (Principal Accounting Officer)
---------------------
Dale Bennett
/s/ Michael Metcalfe Director
---------------------
Michael Metcalfe
/s/ Gary Slaight Director
---------------------
Gary Slaight
</TABLE>
Director
---------------------
David Coriat
71
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
# DESCRIPTION
------------ ------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of GlobalMedia as filed on April 8,
1997, with the Secretary of State of the State of Nevada. (1)
3.2 Articles of Amendment to the Articles of Incorporation of
GlobalMedia, authorizing the issuance of preferred stock, as
filed on June 30, 1999, with the Secretary of State of the State
of Nevada. (8)
3.3 Certificate of Designation, designating Series A preferred
stock, as filed on June 30, 1999, with the Secretary of State of
the State of Nevada. (8)
3.4 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of GlobalMedia.com. (12)
3.5 Bylaws of GlobalMedia. (1)
4.1 Form of specimen certificate for common stock. (8)
4.2 Form of specimen certificate for preferred stock. (18)
4.3 Registration Rights Agreement, dated May 6, 1999, between
GlobalMedia and RGC International Investors, LDC. (4)
4.4 Registration Rights Agreement dated April 28, 2000 between
GlobalMedia.com and RGC International Investors, LDC. (12)
4.5 Investor Rights Agreement between GlobalMedia and OnRadio.com,
dated June 7, 2000.(13)
4.6 Private Placement Subscription Agreement dated August 31, 2000
between GlobalMedia and Standard Radio, Inc.(16)
10.1 1997 Stock Option Plan. (1)
10.2 1998 Stock Option Plan. (2)
10.3 1999 Stock Option Plan. (3)
10.4 2000 Stock Option Plan(15)
10.5 Offering Sales Agency Agreement, dated April 25, 1997, between
GlobalMedia and Pacific Rim Investment, Inc. (1)
10.6 Plan of Reorganization, dated May 20, 1997, between GlobalMedia
and Westcoast Wireless Cable, Ltd. (1)
10.7 Secured Promissory Note, dated November, 1998, from GlobalMedia
to Rolling Oaks Enterprises, LLC. (5)
10.8 Security Agreement, dated November 30, 1998 from GlobalMedia to
Rolling Oaks Enterprises, LLC. (5)
10.9 Securities Purchase Agreement dated May 6, 1999, between
GlobalMedia and RGC International Investors, LDC. (4)
10.10 Convertible Debenture, dated May 6, 1999, from GlobalMedia to
RGC International Investors, LDC. (4)
10.11 Stock Purchase Warrant dated May 6, 1999 from GlobalMedia to RGC
International Investors, LDC. (4)
10.12 Streaming Media Services Agreement, dated April 19, 1999,
between GlobalMedia and RealNetworks, Inc. (5) (6)
10.13 Letter Agreement for consulting services from RealNetworks, Inc.
to GlobalMedia, dated and accepted on April 20, 1999. (7) (6)
10.14 Letter from RealNetworks, Inc. to GlobalMedia, dated and
accepted on June 4, 1999, amending the April 20, 1999 letter
agreement. (7) (6)
10.15 Order Fulfillment Agreement, dated May 15, 1999, between
GlobalMedia and i.FILL (a division of Valley Media, Inc.). (6)
(8)
10.16 Drop Ship Agreement, dated May 14, 1999, between GlobalMedia and
Baker & Taylor, Inc. (6) (8)
10.17 Distribution Agreement, dated May 14, 1999, between GlobalMedia
and Baker & Taylor, Inc. (6) (8)
10.18 License Agreement, dated August 7, 1998, between GlobalMedia and
Muze Inc. (6) (8)
10.19 Loan Restructure and Subscription Agreement, dated July 26,
1999, between GlobalMedia and Bennett Metcalfe. (9)
10.20 Lease between Thomas Downie Holdings Ltd. and GlobalMedia dated
July 2, 1999 (Vancouver facility).(10)
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10.21 Form of Stock Purchase Warrant, dated May 7, 1999, from
GlobalMedia to designees of the placement agents in
GlobalMedia's convertible debenture offering. (9)
10.22 Letter agreement with Barr Potter dated May 1, 1999, and amended
by letter agreement dated September 13, 1999. (9)
10.23 Strategic Investment Agreement dated December 7, 1999 between
Global Media and Standard Radio, Inc. (11)
10.24 Co-Marketing and Sale Agreement dated December 7, 1999 between
Global Media and Standard Radio, Inc. (11)
10.25 Form of Consulting Agreement between Global Media and Individual
Consultants under the Strategic Investment Agreement dated
December 7, 1999 between Global Media and Standard Radio, Inc.
(11)
10.26 Executive Employment Agreement dated December 17, 1999, between
Global Media and Jeff Mandelbaum. (12)
10.27 Streaming Media Services Agreement dated January 19, 2000
between RealNetworks and Global Media. (12)
10.28 RealChannels Agreement between Global Media and RealNetworks,
dated January 19, 2000. (12)
10.29 LiveStations Agreement between Global Media and Real Networks,
dated November 1, 1999.(12)
10.30 Securities Purchase Agreement dated April 28, 2000 between
Global Media and RGC International Investors, LDC.(13)
10.31 Stock Purchase Warrant dated April 28, 2000 from GlobalMedia
to RGC International Investors, LDC.(13)
10.32 Asset Purchase Agreement dated June 6, 2000 between Global Media
and OnRadio.com. (14)
10.33 Software License Agreement dated June 7, 2000 between
GlobalMedia and OnRadio.com.(14)
10.34 Lease Agreement dated June 7, 2000 between GlobalMedia and
OnRadio.com.(14)
10.35 Transition Services Agreement dated June 7, 2000 between
GlobalMedia.com and OnRadio.com.(14)
10.36 Form of Non-competition Agreement.(14)
10.37 Loan Extension Agreement dated June 26, 2000 between GlobalMedia
and RealNetworks, Inc.(15)
10.38 First Amendment to Streaming Media Services Agreement dated June
27, 2000 between GlobalMedia and RealNetworks, Inc. (15)
10.39 Asset Purchase Agreement dated August 3, 2000 between
GlobalMedia and Magnitude Network, Inc.(16)
10.40 License Agreement dated August 3, 2000 between Magnitude
Network, Inc. and GlobalMedia.(16)
10.41 Non-Solicitation Agreement dated August 3, 2000 between Icast
Corporation and GlobalMedia.(16)
10.42 Escrow Agreement dated August 3, 2000 among GlobalMedia,
Magnitude Network, Inc., and State Street Bank and Trust
Company.(16)
10.43 Common Stock Purchase Warrant dated August 3, 2000 from Global
Media to Magnitude Network, Inc.(16)
10.44 Private Placement Subscription Agreement dated September 7,
2000, between GlobalMedia and Standard Radio, Inc.(17)
10.45 Common Stock Purchase Warrant dated August 31, 2000 from
GlobalMedia to Standard Radio, Inc.(17)
10.46 Share Purchase Agreement, dated August 31, 2000 between Michael
Metcalfe and Standard Radio, Inc.(17)
21 List of Subsidiaries. (8)
27 Financial Data Schedule. (18)
--------------------------
</TABLE>
(1) Incorporated by reference to Form 10-SB Registration Statement filed on
December 11, 1997.
(2) Incorporated by reference to Form S-8 Registration Statement filed on
August 21, 1998.
(3) Incorporated by reference to Form S-8 Registration Statement filed on
March 24, 1999.
(4) Incorporated by reference to Current Report on Form 8-K filed on May 19,
1999.
(5) Incorporated by reference to Form 10-QSB filed June 14, 1999.
(6) Subject to a request for confidential treatment.
(7) Incorporated by reference to Form 10-QSB/A for the quarter ended April
30, 1999, filed on June 30, 1999.
(8) Incorporated by reference to Form SB-2 Registration Statement filed on
July 30, 1999.
(9) Incorporated by reference to Form 10-KSB filed November 1, 1999.
73
<PAGE>
(10) Incorporated by reference to Amendment No. 1 to Form SB-2 Registration
Statement filed on July 30, 1999.
(11) Incorporated by reference to Form 10-QSB filed on December 15, 1999.
(12) Incorporated by reference to Form 10-QSB filed on March 16, 2000.
(13) Incorporated by reference to Form 8-K filed May 12, 2000.
(14) Incorporated by reference to Form 10-QSB filed June 14, 2000.
(15) Incorporated by reference to Form S-3 Registration Statement filed
September 11, 2000.
(16) Incorporated by reference to Form 8-K filed August 18, 2000.
(17) Incorporated by reference to Form S-3 Registration Statement filed
September 26, 2000.
(18) Incorporated by reference to Form 10-KSB filed November 14, 2000.
74
