<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ______________ to ______________.
Commission File Number: 0-23589
GLOBALDIGITALCOMMERCE.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0775687
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10650 Scripps Ranch Blvd., Suite 210
San Diego, California 92131
(858) 790-1212
(Address and telephone number of principal executive offices)
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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [_]
The number of shares outstanding of the Issuer's Common Stock, $0.001 par value,
was 3,840,925 as of August 9, 2000.
Transitional Small Business Disclosure Format (check one): YES [_] NO [X]
Page 1 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
REPORT ON FORM 10-QSB
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Balance Sheets as of June 30, 2000
(Unaudited) and December 31, 1999 ............................... 3
Condensed Statements of Operations for the three and six
months ended June 30, 2000 and 1999 (Unaudited) and for the
period
from Inception through June 30, 2000 (Unaudited) ................ 4
Condensed Statements of Stockholders' Equity (Deficit)
for the periods ended December 31, 1996, 1997, 1998 and
1999 (Unaudited) and June 30, 2000 (Unaudited) .................. 5
Condensed Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 (Unaudited), and for the period
from Inception through June 30, 2000 (Unaudited) ................ 6
Notes to Condensed Financial Statements (Unaudited) ............. 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 9
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds ....................... 16
ITEM 6. Exhibits and Reports on Form 8-K ................................ 17
SIGNATURES ............................................................... 18
Page 2 of 18
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Note)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................... $ 701,034 $ 824,707
Prepaid expenses and other .............................. 56,415 60,954
----------- -----------
Total current assets ....................................... 757,449 885,661
Property and equipment, net ................................ 37,582 51,253
Note receivable ............................................ -- 428,333
Other assets, net .......................................... 273 4,066
----------- -----------
Total assets ............................................... $ 795,304 $ 1,369,313
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ........................................ $ 73,303 $ 96,878
Accrued payroll and related ............................. 14,865 22,396
Current portion of capital lease obligations ............ 1,669 3,556
Other current liabilities ............................... 10,553 5,106
----------- -----------
Total current liabilities .................................. 100,390 127,936
Stockholders' Equity:
Preferred Stock- $ .001 par value; 1,000,000 shares
authorized; no shares issued and outstanding .......... -- --
Common Stock- $.001 par value; 10,000,000 shares
authorized; 3,840,925 shares issued and outstanding
at June 30, 2000 and December 31, 1999 ................ 3,841 3,841
Additional paid-in capital .............................. 7,543,434 7,549,989
Warrants to acquire common stock ........................ 223,100 223,100
Deficit accumulated during the development stage ........ (7,064,924) (6,510,653)
Deferred compensation ................................... (10,537) (24,900)
----------- -----------
Total stockholders' equity ................................. 694,914 1,241,377
----------- -----------
Total liabilities and stockholders' equity ................. $ 795,304 $ 1,369,313
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed financial statements.
Page 3 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Condensed Statements Of Operations
(Unaudited)
<TABLE>
<CAPTION>
Period from
Inception
(September 17,
Three Month Periods Six Month Periods 1996) through
Ended June 30, Ended June 30, June 30,
2000 1999 2000 1999 2000
----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Services ................................... $ -- $ 126,256 $ -- $ 400,593 $ 1,082,723
Products ................................... -- -- -- -- 118,848
----------- ----------- ----------- ----------- -----------
Total revenues ............................... -- 126,256 -- 400,593 1,201,571
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Services ................................... -- 118,050 -- 255,074 522,449
Products:
Customers ................................ -- -- -- -- 64,852
Former stockholder ....................... -- -- -- -- 17,652
----------- ----------- ----------- ----------- -----------
Total cost of revenues ....................... -- 118,050 -- 255,074 604,953
----------- ----------- ----------- ----------- -----------
Gross profit ................................. -- 8,206 -- 145,519 596,618
Selling, general and administrative expenses . 306,726 310,285 583,308 1,093,537 7,122,675
----------- ----------- ----------- ----------- -----------
Operating loss ............................... (306,726) (302,079) (583,308) (948,018) (6,526,057)
Interest and dividend income ................. (11,323) (17,296) (29,144) (46,846) (335,822)
Interest expense ............................. 76 359 204 812 46,330
Interest expense to former employees ......... -- -- -- -- 3,105
Other expense (income) ....................... (1,007) 4,823 (97) 11,371 121,948
Loss realized on sale of short-term investment -- -- -- 48,545 703,306
----------- ----------- ----------- ----------- -----------
Net loss ..................................... $ (294,472) $ (289,965) $ (554,271) $ (961,900) $(7,064,924)
=========== =========== =========== =========== ===========
Loss per share (basic and diluted) .......... $ (0.08) $ (0.08) $ (0.14) $ (0.27)
=========== =========== =========== ===========
Shares used in computing loss per share ...... 3,840,925 3,542,171 3,840,925 3,542,171
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
Page 4 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc..
(A Development Stage Company)
Condensed Statements of Stockholders' Equity (Deficit)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Warrants
------------------------ Paid-In to Acquire
Shares Amount Capital Common Stock
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at Inception, September 17, 1996 -- $ -- $ -- $ --
Issuance of common stock for cash and
capital subscriptions receivable ..... 1,050,000 1,050 156,450 --
Net loss and comprehensive loss ........ -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1996 ........... 1,050,000 1,050 156,450 --
Issuance of common stock for cash and
capital subscriptions receivable ..... 1,333,332 1,333 1,398,666 --
Issuance of common stock for
services rendered .................... 8,006 8 9,075 --
Deferred compensation .................. -- -- 346,325 --
Issuance of warrants ................... -- -- -- 108,000
Net loss and comprehensive loss ........ -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1997 ........... 2,391,338 2,391 1,910,516 108,000
Issuance of common stock and warrants .. 1,150,000 1,150 5,556,157 115,100
Exercise of common stock options ....... 833 1 2,082 --
Deferred compensation .................. -- -- (1,785) --
Net loss and comprehensive loss ........ -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1998 ........... 3,542,171 3,542 7,466,970 223,100
Issuance of common stock ............... 285,994 286 199,714 --
Exercise of common stock options ....... 12,760 13 17,532 --
Deferred compensation amortization ..... -- -- -- --
Forfeiture of stock options ............ -- -- (140,078) --
Issuance of stock options .............. -- -- 5,851 --
Net loss and comprehensive loss ........ -- -- -- --
----------- ----------- ----------- -----------
Balance at December 31, 1999 ........... 3,840,925 3,841 7,549,989 223,100
Deferred compensation amortization ..... -- -- -- --
Forfeiture of stock options ............ -- -- (6,555) --
Net loss and comprehensive loss ........ -- -- -- --
----------- ----------- ----------- -----------
Balance at June 30, 2000 ............... 3,840,925 $ 3,841 $ 7,543,434 $ 223,100
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
During the Stockholders
Development Deferred Equity
Stage Compensation (Deficit)
----------- ------------ ------------
<S> <C> <C> <C>
Balance at Inception, September 17, 1996 $ -- $ -- $ --
Issuance of common stock for cash and
capital subscriptions receivable ..... -- -- 157,500
Net loss and comprehensive loss ........ (44,338) -- (44,338)
----------- ----------- -----------
Balance at December 31, 1996 ........... (44,338) -- 113,162
Issuance of common stock for cash and
capital subscriptions receivable ..... -- -- 1,399,999
Issuance of common stock for
services rendered .................... -- -- 9,083
Deferred compensation .................. -- (322,812) 23,513
Issuance of warrants ................... -- -- 108,000
Net loss and comprehensive loss ........ (1,806,438) -- (1,806,438)
----------- ----------- -----------
Balance at December 31, 1997 ........... (1,850,776) (322,812) (152,681)
Issuance of common stock and warrants .. -- -- 5,672,407
Exercise of common stock options ....... -- -- 2,083
Deferred compensation .................. -- 93,512 91,727
Net loss and comprehensive loss ........ (3,103,130) -- (3,103,130)
----------- ----------- -----------
Balance at December 31, 1998 ........... (4,953,906) (229,300) 2,510,406
Issuance of common stock ............... -- -- 200,000
Exercise of common stock options ....... -- -- 17,545
Deferred compensation amortization ..... -- 64,322 64,322
Forfeiture of stock options ............ -- 140,078 --
Issuance of stock options .............. -- -- 5,851
Net loss and comprehensive loss ........ (1,556,747) -- (1,556,747)
----------- ----------- -----------
Balance at December 31, 1999 ........... (6,510,653) (24,900) 1,241,377
Deferred compensation amortization ..... -- 7,808 7,808
Forfeiture of stock options ............ -- 6,555 --
Net loss and comprehensive loss ........ (554,271) -- (554,271)
Balance at June 30, 2000 ............... $(7,064,924) $ (10,537) $ 694,914
=========== =========== ===========
</TABLE>
See accompanying notes.
Page 5 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Period from
inception
(Sept. 17,
Six Month Periods 1996) through
Ended June 30, June 30,
2000 1999 2000
--------- ----------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss ................................................................... $(554,271) $ (961,900) $(7,064,924)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization .......................................... 13,798 16,234 159,765
Amortization of deferred compensation .................................. 7,808 42,699 187,370
Non-cash compensation and other expenses ............................... 14,743 11,252 1,332,011
Loss realized on sale of short-term investment ......................... -- 48,545 703,306
Changes in operating assets and liabilities:
Accounts receivable, net ............................................ -- 116,805 --
Prepaid expenses and other .......................................... 4,539 16,805 (56,415)
Other assets, net ................................................... 3,793 -- 54,106
Accounts payable .................................................... (23,575) (47,571) 73,303
Accrued payroll and related ......................................... (7,531) (9,740) 14,865
Other current liabilities ........................................... 5,447 (13,353) 10,553
--------- ----------- -----------
Net cash (used for) operating activities ................................... (535,249) (780,224) (4,586,060)
--------- ----------- -----------
INVESTING ACTIVITIES
Bridge loan to American Digital Network .................................... 397,828 -- --
Purchases of property and equipment, net ................................... 15,635 12,259 (170,617)
Purchase of short-term investment .......................................... -- -- (4,000,000)
Proceeds from sale of short-term investment ................................ -- 2,180,702 3,296,694
Other assets ............................................................... -- -- (55,804)
--------- ----------- -----------
Net cash provided by (used for) investing activities ....................... 413,463 2,192,961 (929,727)
--------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from initial public offering, net of deferred offering costs ...... -- -- 5,672,407
Proceeds from issuance of common stock ..................................... -- -- 479,628
Proceeds from issuance of Bridge Notes and warrants ........................ -- -- 600,000
Repayment of Bridge Notes payable .......................................... -- -- (600,000)
Repayment of capital lease obligations ..................................... (1,887) (2,957) (16,606)
Deferred finance charges ................................................... -- -- (26,820)
Advance from former stockholder ............................................ -- -- 45,586
Repayment of advance from former stockholder ............................... -- -- (34,874)
Collection of capital subscriptions receivable from stockholders ........... -- -- 97,500
--------- ----------- -----------
Net cash provided by (used for) financing activities ....................... (1,887) (2,957) 6,216,821
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ....................... (123,673) 1,409,780 701,034
Cash and cash equivalents at beginning of period ........................... 824,707 135,954 --
--------- ----------- -----------
Cash and cash equivalents at end of the period ............................. $ 701,034 $ 1,545,734 $ 701,034
========= =========== ===========
SUPPLEMENTAL DISCLOSURES
Non-Cash Investing and Financing Activities:
Capital subscriptions receivable from stockholders ......................... $ -- $ -- $ 197,500
Equipment acquired under capital lease obligations ......................... -- -- 18,276
Sale of equipment in exchange for note receivable .......................... -- -- 16,875
Other Cash Flows Information:
Interest paid .............................................................. 195 812 26,555
Income taxes paid .......................................................... 3,180 4,785 13,376
</TABLE>
See accompanying notes.
Page 6 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies
Description of Business
-----------------------
GlobalDigitalCommerce.com, Inc., formerly known as C2i Solutions, Inc. (the
"Company") was incorporated in the State of Delaware on September 30, 1997. The
Company was initially organized as a California limited liability company under
the name of Challenge 2000 International, LLC ("LLC") on September 17, 1996
("Inception"). From Inception through September 30, 1997, the Company operated
under the name of the LLC. On September 30, 1997, the Company reorganized as a
Delaware corporation and changed its name to C2i Solutions, Inc. On September
30, 1997, all LLC Owner Units were converted into 2,391,338 shares of the
Delaware Corporation's common stock and all Owner options were converted into
options to acquire 547,500 shares of common stock. Concurrent with the formation
of the Delaware corporation, the LLC was dissolved. On December 22, 1999 the
Company changed its name from C2i Solutions, Inc. to GlobalDigitalCommerce.com,
Inc.
The accompanying financial statements have been adjusted to give retroactive
effect to the reorganization and capital structure of the Delaware corporation
from Inception.
The Company is focused on pursuing business opportunities in the
business-to-business e-commerce and information technology services and
solutions arenas.
Basis of Presentation
---------------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of conducting business. Since Inception, the Company has been
primarily engaged in organizational activities, including raising capital,
recruiting personnel, and the marketing of its products and services. As of June
30, 2000, the Company has not realized significant revenues and therefore, is
considered to be in the development stage. From Inception (September 17, 1996)
through June 30, 2000, the Company has incurred recurring operating losses
totaling $7,064,924. As of June 30, 2000, the Company had limited working
capital totaling $694,914.
The Company's ability to continue operations, and ultimately to attain
profitable operations, is dependent upon its ability to raise additional capital
through debt or equity financing, to consummate acquisitions and the market
acceptance of its business strategy and any products or services offered by the
entities it acquires. As a result of the Company's failure to meet continued
listing requirements, the Company's securities were delisted from the Nasdaq
SmallCap Market, effective with the close of business on November 8, 1999. This
delisting is expected to have an adverse effect on the Company's ability to
raise capital. There can be no assurances that the Company's business strategy
or its efforts to raise additional capital will be successful. The accompanying
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
Page 7 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Notes to Condensed Financial Statements (Unaudited)
1. Summary of Significant Accounting Policies (continued)
Basis of Presentation (continued)
---------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
financial statements should be read in conjunction with the financial statements
and notes thereto, together with management's discussion and analysis of
financial condition and results of operations contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999. Operating results
for the three month period or the six month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000 or for any other future period.
Comprehensive Income(Loss)
--------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires that all components of comprehensive income, including net
income or loss, be reported in the financial statements in the period in which
they are recognized. SFAS No. 130 requires the change in net unrealized gains
(losses) on available-for-sale securities to be included in comprehensive income
(loss). Comprehensive net loss for the three and six month periods ended June
30, 2000 and 1999 is equal to reported net loss.
2. Capital Transactions
Stock Option Plan
-----------------
During the period from April 1, 2000 through June 30, 2000, the Company granted
incentive stock options and nonqualified stock options to purchase an aggregate
of 576,586 and 107,488, shares of the Company's Common Stock, respectively, at
exercise prices ranging from $0.2188 to $0.5000 per share to certain employees,
consultants and directors of the Company. These options vest ratably over
periods ranging from three to five years, are exercisable at various dates, and
expire five and ten years from date of grant, or earlier in the event of
termination of employment.
In June 2000, the Company's Stockholders approved two amendments to the
Company's 1997 Stock Option Plan (the "Option Plan") to (a) increase the Grant
Limit to 400,000 shares per employee per fiscal year and (b) that upon a Change
of Control, any unexercisable or unvested portion of the outstanding options
will become fully vested and exercisable prior to the Change in Control, and
that to the extent that the options outstanding under the Option Plan are not
exercised prior to such event, they will continue to be exercisable subject to
existing expiration provisions.
Page 8 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-QSB contains certain statements of a forward-looking nature
relating to the Company's acquisition strategy, capital raising plans, the
period during which existing funds are expected to be able to support
operations other future events or the future financial performance of the
Company. Such statements are only predictions and actual events or results may
differ materially. Factors that could cause or contribute to such differences
include, without limitation, those discussed in this Item 2 as well as those
discussed in the Company's Annual Report on Form 10-KSB as filed with the
Securities and Exchange Commission on March 30,1999.
Overview
--------
GlobalDigitalCommerce.com, Inc. ("GDCC" or the "Company") is pursuing business
opportunities in the e-commerce and information technology services and
solutions arenas through mergers and acquisitions. The Company's business
strategy envisions a multi-phased roll-up transaction, with each phase being
comprised of a merger between the Company and one or more privately-held
companies who provide synergistic business to business e-commerce and
information technology services and solutions, as well as a capital infusion
from an external source. The Company's efforts are currently focused on
identifying and evaluating potential merger and acquisition targets. The Company
does not have any binding agreements in place with respect to such acquisitions
or financing.
The Company was founded in late 1996 and has a limited operating history. From
Inception (September 17, 1996) through mid-1997, the majority of the Company's
activities involved raising capital, research, developing the business plan,
establishing relationships and recruiting personnel. Sales and marketing efforts
during the subsequent 18 months were unsuccessful in developing significant
business. As a result, the Company's operations to-date have not produced
significant revenues and the Company is considered to be in the development
stage.
From Inception through the first quarter of 1999, the Company had focused its
efforts on Y2K related business opportunities. At the end of the first quarter
of 1999, the Company reorganized, changing its primary business focus to the
Internet and business to business e-commerce. As a result of this strategic
realignment, the Company completed its Y2K related contracts, closed its four
regional offices, and eliminated approximately 14 positions. The Company
currently has no ongoing client engagements or sales and marketing activities.
There can be no assurance that the Company will be able to successfully expand
into the internet and business-to business e-commerce areas. The Company's
failure to develop products and services through acquisitions within the period
in which the Company has operating capital would materially adversely affect the
Company's business, operating results and financial condition. If the Company
cannot complete these transactions before its available capital is depleted, the
Company would be required to terminate operations. See "Risk Factors-Need to
Develop New Products and Technologies."
In view of the early stage of development and current absence of revenue
producing activities there can be no assurance that the Company will be able to
implement its strategy or achieve or maintain profitable operations. The Company
expects to continue to incur operating losses at least until it can complete an
acquisition or acquisitions that are profitable and will offset GDCC's corporate
expense.
The following discussion should be read in conjunction with the attached
condensed financial statements and notes thereto.
Page 9 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Legal Proceedings
-----------------
On January 10, 2000 the Securities and Exchange Commission entered a Formal
Order of Investigation in a matter entitled Trading in the Securities of C2i
Solutions, Inc. (LA-01970). This order enables the SEC to subpoena documents and
witnesses and to compel their compliance with an inquiry concerning possible
suspicious trading in the Company's Common Stock prior to a July 2, 1999
announcement of an execution of a letter of intent to merge with American
Digital Network, Inc. The Company has received a subpoena to produce additional
documents to the SEC and has provided the documents requested. The Company and
its CEO have also provided documents to the SEC in response to earlier informal
document requests. Pursuant to terms of its Indemnification Agreement with its
CEO, the Company is reimbursing the CEO for legal expenses incurred in this
matter. This investigation may result in substantial expenditures of available
resources, may divert management's attention from executing on the Company's
acquisition strategy and may impair the Company's ability to obtain financing.
As a result, this investigation could have a material adverse effect on the
Company, its results of operations and its prospects.
The Company has been named as a defendant in a lawsuit filed by Allen & Caron,
Inc. in Superior Court located in Orange County, California. The compliant
alleges breach of contract, fraud and related claims associated with alleged
amounts unpaid to Allen & Caron for its consulting services in the areas of
investor relations. The complaint seeks recovery of approximately $21,500 in
unpaid services, plus interest, punitive damages and attorneys fees. The Company
is vigorously contesting liability and intends to resolve this matter through
arbitration pursuant to the terms of the contract with Allen & Caron. Given the
inherent uncertainty involved with litigation or arbitration, the Company is
unable to determine whether or when this matter will be resolved and the extent
of any payments the Company will be required to make.
Results of Operations for the three and six month periods ended June 30, 2000
-----------------------------------------------------------------------------
and 1999
--------
No revenues were earned for the three months ended June 30, 2000, which
represents a decrease of 100% over the comparable quarter of the prior year, in
which revenues totaled $126,256. This decrease in revenues resulted from the
restructuring strategy and completion of Y2K contracts. The Company currently
has no ongoing client engagements or sales and marketing activities.
No revenues were earned for the six months ended June 30, 2000, which represent
a decrease of 100% over the comparable period of the prior year, in which
revenues totaled $400,593.
One customer accounted for 93% of the Company's total revenues for the six
months ended June 30, 1999.
Cost of revenues were not incurred for the three and six months period ended
June 30, 2000. Cost of revenues were 94% ($118,050) of total revenues and 64%
($255,074) of total revenues for the three and six months period ended June 30,
1999, which represented primarily personnel related costs of providing
consulting services.
For the three and six months period ended June 30, 2000, no gross margin was
recorded. For the three and six months period ended June 30, 1999, the gross
margin percentage equaled 6% and 36%, respectively. The significant decrease in
the 1999 second quarter gross margin percentage is the result of the terms of a
contract modification done during the second quarter of 1999.
Page 10 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Results of Operations for the three and six month periods ended June 30, 2000
-----------------------------------------------------------------------------
and 1999 (continued)
--------------------
The Company incurred selling, general and administrative expenses for the three
month period ended June 30, 2000 totaling $306,726 compared with $310,285 for
the comparable prior year period. These similar amounts in selling, general and
administrative expenses are a result of March 1999 restructuring efforts,
specifically the closure of four regional offices and the elimination of
approximately 14 positions. During the six months ended June 30, 2000, the
Company incurred selling, general and administrative expenses totaling $583,308,
a decrease of 47% over the comparable prior year period total of $1,093,537.
Interest and dividend income was $11,323 and $29,144 for the three and six
months ended June 30, 2000, respectively, compared with $17,296 and $46,846 for
the three and six months ended June 30, 1999, respectively. This decrease in
2000 reflects a substantial decrease in interest-earning balances in 2000
compared to the 1999 balances. Interest expense totaled $76 and $204 for the
three and six months ended June 30, 2000, respectively, which consisted entirely
of interest on capital lease obligations, compared with total interest expense
of $359 and $812 for the three and six months ended June 30, 1999, respectively.
Liquidity and Capital Resources
-------------------------------
From Inception (September 17, 1996) through February 1998, the Company financed
its operations primarily through the proceeds from the issuance of Common Stock
and a bridge financing, completed in October 1997, resulting in an aggregate of
$958,000 from the sale and issuance of debt and equity securities, including
warrants. In February 1998, the Company completed an initial public offering of
its Common Stock. This offering provided the Company with net proceeds of
$5,672,407, including proceeds from the exercise of the underwriter's
overallotment option received in March 1998. The Company received $2,083 and
$17,545 in March 1998 and July 1999, respectively, related to the exercise of
stock options. In August 1999 the Company received $200,000 for issuance of its
Common Stock in a private placement to two directors. Funds from these sources
have been and are expected to continue to be used as working capital to fund the
Company's operations.
The Company's operating activities used net cash of $535,249 and $780,224 during
the six month periods ended June 30, 2000 and 1999, respectively. This decrease
in cash used for operating activities in 2000 compared to 1999, results
primarily from the restructuring and reorganization of the Company. The
restructuring decreased operating expenses by lowering the number of employees,
closing four regional offices, and decreasing travel and marketing expenses.
The Company's investing activities provided cash of $413,463 during the six
months ended June 30, 2000 and provided cash of $2,192,961 during the six month
period ending June 30, 1999, respectively. The decrease in cash provided by
investing activities in 2000 compared to cash provided in 1999 relates to the
proceeds from the repayment of the bridge loan to ADN totaling $397,828 and net
proceeds from the sale of property and equipment of $15,635 during 2000,
compared with the proceeds from the sales of the short-term investment totaling
$2,180,702 and net proceeds from the sale of property and equipment of $12,259
during 1999.
The Company's financing activities used net cash of $1,887 and used net cash of
$2,957 during the six months ended June 30, 2000 and 1999, respectively, which
represents cash used to repay capital lease obligations.
As of June 30, 2000, the Company had cash and cash equivalents of $701,034 and
working capital of $694,914 compared with cash and cash equivalents of
$1,545,734 and working capital of $1,591,205 at June 30, 1999. Based on
management's current operating plan, the Company believes that its existing
resources will be sufficient to fund operations through approximately January
31, 2001. However, the Company expects to continue to experience operating
losses and to use cash in operations at least until it can complete an
acquisition or acquisitions that are profitable and will offset GDCC's corporate
expense.
Page 11 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Liquidity and Capital Resources (Continued)
-------------------------------------------
The Company's ability to achieve profitability will be dependent upon a number
of factors, including interest in and support of the Company's merger and
acquisition strategy, as well as management's ability to execute its strategy
and to obtain financing. There can be no assurance that the Company will be able
to successfully execute its strategy, that any such current or future strategy
will provide the Company with expected benefits, or that the Company will ever
be able to generate revenues sufficient to cover its expenses. There is also no
assurance that the Company will be able to obtain future financing on favorable
terms, if at all.
If the Company cannot generate sufficient revenues, which will not happen at
least until consummation of an acquisition and of which there can be no
assurance even after an acquisition, the Company will be required to raise
capital from the sale of equity securities or the issuance of debt or terminate
operations. There is no assurance that any such sales or issuances can be
effected at favorable terms, if at all.
The timing and amount of the Company's capital requirements will depend on a
number of factors, including interest in and support for the Company's merger
and acquisition strategy, as well as management's ability to execute its
strategy, competitive pressures, and the availability of complementary
businesses or technologies that the Company may wish to acquire. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of the Company's stockholders will be diluted and such equity
securities may have rights, preferences or privileges senior to those of the
holders of the Company's Common Stock. There can be no assurance that additional
financing will be available when needed or, that if available, such financing
will include terms favorable to the Company or its stockholders. If adequate
funds are not available on acceptable terms, the Company may be unable to
implement its strategy, develop or enhance its products and services, take
advantage of opportunities or respond to competition, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Additionally, if funds are not available, the Company
will be required to terminate operations.
Interest Rate Risk
------------------
The Company is exposed to changes in interest rates primarily from its
short-term investments in certain available for sale securities. Under its
current policies, the Company does not use interest rate derivative instruments
to manage exposure to interest rate changes. During the year ended December 31,
1999, the Company realized losses on its short-term investments totaling
$48,545. The Company has invested its cash resources in fully-insured money
market accounts, short-term U.S. Government treasury bills and investment grade
commercial paper. The Company believes a hypothetical 100 basis point adverse
move in interest rates along the entire interest rate yield curve would not
materially effect the fair value of interest-sensitive financial instruments it
holds.
Business Risks and Uncertainties
--------------------------------
GDCC has a Limited Operating History; Limited Experience in Information
Technology and E-Commerce Solutions and No Current Revenue Expectations
GDCC was founded in September 1996, has a limited operating history and is in
the development stage. GDCC has limited experience in providing information
technology or E-commerce solutions. GDCC's operations to date have not produced
significant revenues and its decision to refocus on acquisitions means that it
will not produce any revenues at least until it is able to complete an
acquisition. GDCC may not generate any future revenues from the sale of its
services or products after any such acquisition.
Page 12 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
History of Operating Losses; Need for Additional Financing
GDCC has experienced significant operating losses since its inception in
September 1996. As of June 30, 2000, GDCC's accumulated deficit was $7,064,924.
Losses have principally been the result of the various costs associated with
GDCC's selling, general and administrative expenses as GDCC commenced
operations, and began marketing activities and losses on investments. GDCC
expects that it will continue to incur operating losses if no acquisitions are
completed. GDCC believes that its existing capital resources will enable it to
fund its operations until approximately January 31, 2001. GDCC will be required
to seek additional capital to continue its operations beyond that time. GDCC has
no commitments for any future funding, and GDCC may not be able to obtain
additional capital in the future. If GDCC is unable to obtain the necessary
capital, it will be required to significantly curtail its activities or cease
operations. Additionally, while a reduction of operations could prolong its
ability to operate, that reduction would adversely affect the Company's ability
to implement its acquisition strategy.
Due to its continuing losses, and inability to raise sufficient additional
equity, GDCC failed to meet the requirements for continued listing of its shares
on the Nasdaq SmallCap Market. As a result, GDCC's securities were delisted from
the Nasdaq SmallCap Market, effective with the close of business on November 8,
1999. GDCC's securities are currently traded on the OTC Bulletin Board and may
become subject to the regulations applicable to penny stocks. Investors may find
it more difficult to obtain timely and accurate quotes and execute trades in the
Company's securities and the liquidity of GDCC's securities may be impaired.
Before GDCC's securities can be listed on the Nasdaq SmallCap Market, it will
need to satisfy the more stringent initial listing requirements (which require,
among other things, net tangible assets of $4 million and a minimum bid price of
$4.00 per share). GDCC may not be able to meet these requirements.
Need to Develop New Products and Services; Risks Associated with Potential
Unspecified Acquisitions
To date, GDCC has generated substantially all of its revenues from its now
terminated Y2K related activities. As a result of its changed focus, GDCC is
pursuing business opportunities in the Internet and business to business e-
commerce market through mergers and acquisitions, although no specific
acquisitions are ready to be completed or are subject to any binding acquisition
agreements. Any such future acquisitions would be accompanied by the risks
commonly encountered in acquisitions of companies. Such risks include, among
other things:
. The assumption of unforeseen liabilities;
. The difficulty of assimilating the operations and personnel of the
acquired companies;
. The inability of GDCC's management to maximize the financial and
strategic position of GDCC by the incorporation of acquired technology
or business into GDCC;
. The difficulty of maintaining uniform standards, controls, procedures
and policies;
. The potential loss of key employees of the acquiring or acquired
companies; and
. The impairment of relationships with employees, consultants,
customers, and suppliers as a result of changes in management.
Page 13 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
No assurance can be given that GDCC will complete any acquisitions, or that if
an acquisition does occur it will not materially and adversely affect GDCC or
will be successful in enhancing GDCC's business. If GDCC proceeds with one or
more significant acquisitions, a substantial portion of GDCC's available cash
could be used to consummate those transactions. Alternatively, GDCC might issue
equity securities as consideration for an acquisition which might result in
significant dilution of the stockholders' ownership interest in GDCC, or GDCC
could issue debt securities to finance an acquisition, which might reduce the
book value and earnings per share of GDCC common stock. The accounting for
business acquisitions by GDCC is likely to involve the recognition of
significant goodwill and intangible assets in connection with the acquisition
and, as a result, would typically result in substantial charges against GDCC's
reported future operating results. Depending on the size, consideration and
structure chosen, GDCC may be able to consummate one or more acquisitions
without obtaining stockholder approval.
No Follow-On Business
As a result of GDCC's decision not to pursue additional Y2K projects, GDCC
currently has no ongoing projects or expectations of future projects from its
previous customers, including significant customers. The absence of any current
revenue generating client relationships will have a material adverse effect on
GDCC's business, financial condition and results of operations. GDCC will not
have any revenues at least until it completes an acquisition.
Dependence on Key Personnel
GDCC's success will, to a large extent, depend upon the continued services of
its executive officers who have limited experience at managing a business like
GDCC's or in evaluating potential strategic alternatives. The loss of services
of any of these executive officers may materially and adversely affect GDCC.
GDCC's employment agreements with its key personnel may be terminated by either
party, with or without cause, with the exception of its agreement with Mr.
Whalen. Mr. Whalens' employment agreement has a term of five years, expiring in
May 2002, and limits GDCC's ability to terminate him, except for cause, and
provides for six months severance pay, unless Mr. Whalen voluntarily resigns his
position.
Concentration of Share Ownership and Voting Power among Directors and Officers
The directors and officers of GDCC control approximately 45.6% of the voting
power and therefore have close to the number of votes required to elect all of
GDCC's directors and, hence, will be able to significantly influence the affairs
of the Company. In addition, the directors and officers of GDCC will have a
substantial portion of all the votes required to amend GDCC's Certificate of
Incorporation and By-laws and significantly effect fundamental corporate
transactions involving GDCC, including any required acceptance or rejection of
any proposals relating to a merger of GDCC or an acquisition of GDCC by another
entity.
Page 14 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Risk of Shares Being Characterized as Penny Stocks; Impaired Liquidity of the
Shares
The SEC has adopted regulations which define a "penny stock" to be an equity
security that has a market price (as therein defined) less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny stock market.
Disclosure is also required to be made about current quotations for the
securities and about commissions payable to both the broker-dealer and the
registered representative. Finally, broker-dealers must send monthly statements
to purchasers of penny stocks disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The foregoing penny stock restrictions will not apply to shares if:
. They are listed on the Nasdaq SmallCap Market;
. Certain price and volume information is publicly available on current
and continuing basis; and,
. The issuer meets certain minimum net tangible assets or average
revenue criteria.
There can be no assurance that GDCC's securities will qualify for exemption
from the penny stock restrictions. If GDCC's shares were subject to the rules on
penny stocks, the market liquidity for these shares would be adversely affected.
Page 15 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings
See PART I, ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
ITEM 2: Changes in Securities and Use of Proceeds
Pursuant to the Company's Registration Statement on Form SB-2 (No.333-39425),
declared effective by the Commission on February 13, 1998, the Company completed
its initial public offering in February 1998, and the overallotment in March
1998, resulting in aggregate net proceeds to the Company of $5,672,407, after
deducting underwriting discounts and commission and the offering expenses
payable by the Company.
Proceeds of the initial offering were used to repay the Bridge Notes and accrued
interest thereon, totaling $621,412, $17,920 of which was paid to a former
executive officer of the Company. The Company also used $136,445 to purchase
machinery, equipment and other capital additions, $19,307 to repay capital
leases and accrued interest, $2,484,086 to pay employees' and officers' salaries
and related payroll taxes, $516,651 for occupancy costs, $262,930 for
advertising and promotion, $160,002 for recruiting, $755,807 for other general
corporate purposes and realized investment losses totaling $453,028 net of
related interest and dividend income. The remaining proceeds from the initial
public offering have been invested in fully insured, money market accounts and
short-term U.S. government treasury bills pending their use.
ITEM 4: Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders was held June 2, 2000. At the meeting the
following directors were elected:
1. The vote for Class III Directors was as follows:
Director Number of Common Shares Voted
-------- -----------------------------
For Withhold Authority
--------- ------------------
William J. Kaffer 3,682,292 49,459
John Anthony Whalen, Jr. 3,681,459 50,292
2. The vote for Class II Directors was as follows:
Director Number of Common Shares Voted
-------- -----------------------------
For Withhold Authority
--------- ------------------
Richard H. Middelberg 3,682,292 49,459
Page 16 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
ITEM 4: Submission of Matters to a Vote of Security Holders (continued).
In addition, the stockholders approved a proposal to amend the Company's
1997 Stock Option Plan to (a) increase the Grant Limit to 400,000 shares per
employee per fiscal year and (b) provide that upon a Change of Control, any
unexercisable or unvested portion of the outstanding options will become fully
vested and exercisable prior to the Change in Control, and that to the extent
that the options outstanding under the Option Plan are not exercised prior to
such event, they will continue to be exercisable subject to existing expiration
provisions.
Proposal Number of Common Shares Voted
-------- ------------------------------------------
Broker
For Against Abstain Non-Votes
--------- --------- --------- ---------
Amendments to the Company's
1997 Stock Option Plan 3,390,637 63,984 227,130 0
ITEM 6: Exhibits and Reports on Form 8-K:
(a) Exhibits:
See Exhibit Index.
(b) Reports on Form 8-K:
No Reports on Form 8-K were filed during the quarter ended June 30,
2000.
ITEMS 3 and 5 are not applicable and have been omitted.
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
3.1* Certificate of Incorporation (previously filed as an exhibit to
GDCC's Quarterly Report on Form 10-QSB filed on May 15, 1998)
3.2* Bylaws
10.21 Employment agreement dated March 16, 2000 by and between
GlobalDigitalComerce.com, Inc. and Brooks L. Ensign
27.1 Financial Data Schedule
------------------
* Previously filed. Unless otherwise indicated, all previously filed exhibits
were filed as exhibits to the Company's Registration Statement on Form SB-2,
as amended, initially on November 4, 1997.
Page 17 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GlobalDigitalCommerce.com, Inc.
Dated: August 14, 2000 By: /s/ John Anthony Whalen, Jr.
------------------------------
John Anthony Whalen, Jr.
President and Chief Executive Officer
Dated: August 14, 2000 By: /s/ Richard H. Middelberg
---------------------------
Richard H. Middelberg
Chief Financial Officer
Page 18 of 18
