<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 September 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 October 30, 2000.
Transitional Small Business Disclosure Format (check one):
YES ----- NO _______
Page 1 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
REPORT ON FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Balance Sheets as of September 30, 2000
(Unaudited) and December 31, 1999 3
Condensed Statements of Operations for the three and nine months
ended September 30, 2000 and 1999 (Unaudited) and for the period
from Inception through September 30, 2000 (Unaudited) 4
Condensed Statements of Stockholders' Equity (Deficit) for the
periods ended December 31, 1996, 1997, 1998 and 1999 (Unaudited) and
September 30, 2000 (Unaudited) 5
Condensed Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 (Unaudited), and for the period
from Inception through September 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 1. Legal Proceedings 16
ITEM 2. Changes in Securities and Use of Proceeds 16
ITEM 4. Submission of Matters to a Vote of Security Holders 16
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 18
</TABLE>
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>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 443,863 $ 824,707
Prepaid expenses and other 44,450 60,954
------------ ------------
Total current assets 488,313 885,661
Property and equipment, net 30,491 51,253
Note receivable --- 428,333
Other assets, net 243 4,066
------------ ------------
Total assets $ 519,047 $ 1,369,313
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 58,329 $ 96,878
Accrued payroll and related 23,128 22,396
Current portion of capital lease obligations 679 3,556
Other current liabilities 9,975 5,106
------------ ------------
Total current liabilities 92,111 127,936
Stockholders' Equity:
Preferred Stock- $ .001 par value; 10,000,000 shares
authorized; no shares issued and outstanding --- ---
Common Stock- $.001 par value; 80,000,000 shares authorized;
3,840,925 shares issued and outstanding at
September 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 (7,334,757) (6,510,653)
Deferred compensation (8,682) (24,900)
------------ ------------
Total stockholders' equity 426,936 1,241,377
------------ ------------
Total liabilities and stockholders' equity $ 519,047 $ 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 Nine Month Periods 1996) through
Ended September 30, Ended September 30, September 30,
2000 1999 2000 1999 2000
--------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Services $ ---- $ 57,480 $ $ 458,073 $ 1,082,723
Products ---- ---- ---- ---- 118,848
-------------- ---------- ---------- ----------- -----------
Total revenues ---- 57,480 ---- 458,073 1,201,571
-------------- ---------- ---------- ----------- -----------
Cost of revenues:
Services ---- ---- ---- 255,074 522,449
Products:
Customers ---- ---- ---- ---- 64,852
Former stockholder ---- ---- ---- ---- 17,652
-------------- ---------- ---------- ----------- -----------
Total cost of revenues ---- ---- ---- 255,074 604,953
-------------- ---------- ---------- ----------- -----------
Gross profit ---- 57,480 ---- 202,999 596,618
Selling, general and administrative expenses 278,304 381,682 861,612 1,475,219 7,400,979
-------------- ---------- ---------- ----------- -----------
Operating loss (278,304) (324,202) (861,612) (1,272,220) (6,804,361)
Interest and dividend income (7,924) (17,872) (37,068) (64,718) (343,746)
Interest expense 90 307 294 1,119 46,420
Interest expense to former employees ---- ---- ---- ---- 3,105
Other expense (income) (637) (3,827) (734) 7,544 121,311
Loss realized on sale of short-term investment ---- ---- ---- 48,545 703,306
Write-off of note receivable ---- 402,936 ---- 402,936 ----
-------------- ---------- ---------- ----------- -----------
Net loss $ (269,833) $ (705,746) $ (824,104) $(1,667,646) $(7,334,757)
============== ========== ========== =========== ===========
Loss per share (basic and diluted) $ (0.07) $ (0.20) $ (0.21) $ (0.47)
============== ========== ========== ===========
Shares used in computing loss per share 3,840,925 3,553,267 3,840,925 3,545,910
============== ========== ========== ===========
</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>
Deficit
Common Stock Accumulated Total
--------------------- Warrants During the Stockholder's
Additional to Acquire Development Deferred Equity
Shares Amount Paid-In Capital Common Stock Stage Compensation (Deficit)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <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 ---- ---- ---- 157,500
Net loss and comprehensive loss ---- ---- ---- ---- (44,338) ---- (44,338)
-----------------------------------------------------------------------------------------
Balance at December 31, 1996 1,050,000 1,050 156,450 ---- (44,338) ---- 113,162
Issuance of common stock for cash and
capital subscriptions receivable 1,333,332 1,333 1,398,666 ---- ---- ---- 1,399,999
Issuance of common stock for services
rendered 8,006 8 9,075 ---- ---- ---- 9,083
Deferred compensation ---- ---- 346,325 ---- ---- (322,812) 23,513
Issuance of warrants ---- ---- ---- 108,000 ---- ---- 108,000
Net loss and comprehensive loss ---- ---- ---- ---- (1,806,438) ---- (1,806,438)
----------- ------- ------------- ------------ ----------- ----------- -----------
Balance at December 31, 1997 2,391,338 2,391 1,910,516 108,000 (1,850,776) (322,812) (152,681)
Issuance of common stock and warrants 1,150,000 1,150 5,556,157 115,100 ---- ---- 5,672,407
Exercise of common stock options 833 1 2,082 ---- ---- ---- 2,083
Deferred compensation ---- ---- (1,785) ---- ---- 93,512 91,727
Net loss and comprehensive loss ---- ---- ---- ---- (3,103,130) ---- (3,103,130)
----------- ------- ------------- ------------ ----------- ----------- -----------
Balance at December 31, 1998 3,542,171 3,542 7,466,970 223,100 (4,953,906) (229,300) 2,510,406
Issuance of common stock 285,994 286 199,714 ---- ---- ---- 200,000
Exercise of common stock options 12,760 13 17,532 ---- ---- ---- 17,545
Deferred compensation amortization ---- ---- ---- ---- ---- 64,322 64,322
Forfeiture of stock options ---- ---- (140,078) ---- ---- 140,078 ----
Issuance of stock options ---- ---- 5,851 ---- ---- ---- 5,851
Net loss and comprehensive loss ---- ---- ---- ---- (1,556,747) ---- (1,556,747)
----------- ------- ------------- ------------ ----------- ----------- -----------
Balance at December 31, 1999 3,840,925 3,841 7,549,989 223,100 (6,510,653) (24,900) 1,241,377
Deferred compensation amortization ---- ---- ---- ---- ---- 9,663 9,663
Forfeiture of stock options ---- ---- (6,555) ---- ---- 6,555 ----
Net loss and comprehensive loss ---- ---- ---- ---- (824,104) ---- (824,104)
----------- ------- ------------- ------------ ----------- ----------- -----------
Balance at September 30, 2000 3,840,925 $ 3,841 $ 7,543,434 $ 223,100 $(7,334,757) $ (8,682) $ 426,936
=========== ======= ============= ============ =========== =========== ===========
</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,
Nine Month Periods 1996) through
Ended September 30, September 30,
2000 1999 2000
------------------ ------------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (824,104) $ (1,667,646) $ (7,334,757)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 20,889 23,449 166,856
Amortization of deferred compensation 9,663 58,451 189,225
Non-cash compensation and other expenses 14,743 12,626 1,332,011
Loss realized on sale of short-term investment ---- 48,545 703,306
Write-off of note receivable ---- 402,936 ----
Changes in operating assets and liabilities:
Accounts receivable, net ---- 116,805 ----
Prepaid expenses and other 16,504 ---- (44,450)
Other assets, net 3,823 39,863 54,136
Accounts payable (38,549) (79,356) 58,329
Accrued payroll and related 732 (12,164) 23,128
Other current liabilities 4,869 (28,417) 9,975
------------- -------------- --------------
Net cash (used for) operating activities (791,430) (1,084,908) (4,842,241)
------------- -------------- --------------
INVESTING ACTIVITIES
Bridge loan to American Digital Network 397,828 (382,866) ----
Purchases of property and equipment, net 15,635 3,659 (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 1,801,495 (929,727)
------------- -------------- --------------
FINANCING ACTIVITIES
Proceeds from initial public offering, net of deferred offering ---- ---- 5,672,407
costs
Proceeds from issuance of common stock ---- 17,545 479,628
Proceeds from issuance of Bridge Notes and warrants ---- ---- 600,000
Repayment of Bridge Notes payable ---- ---- (600,000)
Repayment of capital lease obligations (2,877) (4,514) (17,596)
Deferred finance charges ---- ---- (26,820)
Advance from former stockholder ---- ---- 45,586
Repayment of advance from former stockholder ---- ---- (34,874)
Proceeds from stock subscriptions payable ---- 200,000 ----
Collection of capital subscriptions receivable from stockholders ---- ---- 97,500
------------- -------------- --------------
Net cash provided by (used for) financing activities (2,877) 213,031 6,215,831
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (380,844) 929,618 443,863
Cash and cash equivalents at beginning of period 824,707 135,954 ----
------------- -------------- --------------
Cash and cash equivalents at end of the period $ 443,863 $ 1,065,572 $ 443,863
============= ============== ==============
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 16,875
Other Cash Flows Information:
Interest paid 238 1,119 26,598
Income taxes paid 3,405 6,410 13,601
</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
September 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 September 30, 2000, the Company has incurred
recurring operating losses totaling $7,334,757. As of September 30, 2000, the
Company had limited working capital totaling $396,202.
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 nine month period ended September 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 nine month periods ended
September 30, 2000 and 1999 is equal to reported net loss.
New Accounting Pronouncements
-----------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," subsequently
this pronouncement was amended by SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of Effective Date of SFAS No. 133,
'and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an amendment of SFAS No. 133." These statements establish
accounting and reporting standards for derivative instruments and hedging
activities. The Company intends to adopt SFAS No. 133 in the first quarter of
Fiscal year 2001. Currently the Company has no derivative instruments to be
measured.
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
including those 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 or estimates and are subject to
many risks and uncertainties. Actual events or results may differ materially
from those expectations. 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 30,2000.
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.
Results of Operations for the three and nine month periods ended September 30,
------------------------------------------------------------------------------
2000 and 1999
-------------
No revenues were earned for the three months ended September 30, 2000, which
represents a decrease of 100% over the comparable quarter of the prior year, in
which revenues totaled $57,480. 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 nine months ended September 30, 2000, which
represent a decrease of 100% over the comparable period of the prior year, in
which revenues totaled $458,073.
One customer accounted for 93% of the Company's total revenues for the nine
months ended September 30, 1999.
Costs of revenues were not incurred for the three and nine months period ended
September 30, 2000. Cost of revenues were 56% ($255,074) of total revenues for
the nine months period ended September 30, 1999, which represented primarily
personnel related costs of providing consulting services.
Page 10 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Results of Operations for the three and nine month periods ended September 30,
------------------------------------------------------------------------------
2000 and 1999 (continued)
-------------------------
The Company incurred selling, general and administrative expenses for the three
month period ended September 30, 2000, totaling $278,304 compared with $381,682
for the comparable prior year period. The decrease of 27% ($103,378) in selling,
general and administrative expenses is mostly due to cost associated with the
third quarter 1999 contemplated merger transaction with American Digital
Network, which was jointly terminated in October 1999. During the nine months
ended September 30, 2000, the Company incurred selling, general and
administrative expenses totaling $861,612, a decrease of 42% over the comparable
prior year period total of $1,475,219, this decrease is primarily the result of
the March 1999 restructuring efforts, specifically the closure of four regional
offices and the elimination of approximately 14 positions.
Interest and dividend income was $7,924 and $37,068 for the three and nine
months ended September 30, 2000, respectively, compared with $17,872 and $64,718
for the three and nine months ended September 30, 1999, respectively. These
decreases in 2000 reflect a reduction in interest-earning balances in
2000 compared to the 1999 balances. Interest expense totaled $90 and $294 for
the three and nine months ended September 30, 2000, respectively, which for the
most part consisted of interest on capital lease obligations, compared with
total interest expense of $307 and $1,119 for the three and nine months ended
September 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 $791,430 and $1,084,908
during the nine month periods ended September 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 nine
months ended September 30, 2000 and provided cash of $1,801,495 during the nine
month period ending September 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
investments totaling $2,180,702, the net proceeds from the sale of property and
equipment of $3,659, which were offset by the bridge loan advanced to ADN
totaling $382,866 during 1999.
The Company's financing activities used net cash of $2,887 and provided net cash
of $213,031 during the nine months ended September 30, 2000 and 1999,
respectively. The September 30, 2000, financing activities represent cash used
to repay capital lease obligations, while the September 30, 1999, financing
activites represent cash provided by proceeds from stock
subscriptions and issuance of common stock.
Page 11 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Liquidity and Capital Resources (continued)
-------------------------------------------
As of September 30, 2000, the Company had cash and cash equivalents of $443,863
and working capital of $396,202 compared with cash and cash equivalents of
$1,065,572 and working capital of $844,826 at September 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.
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 either 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 to
terminate operations. There is no assurance that any such sales or issuance's
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, capital provided by or required for the operations of
any acquired companies, 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 by the end of January 2001,
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.
Page 12 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
Business Risks and Uncertainties
--------------------------------
GDCC has a Limited Operating History and Limited Experience in Information
Technology and E-Commerce Solutions
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.
History of Operating Losses; Need for Additional Financing
GDCC has experienced significant operating losses since its inception in
September 1996. As of September 30, 2000, GDCC's accumulated deficit was
$7,334,757. 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 at least until
the completion of one or more acquisitions with operations sufficient to
offset GDCC's corporate expense. 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 have been delisted
from the NASDAQ SmallCap Market. 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 or to realize the potential synergies available
to other acquired companies;
Page 13 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
. 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.
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 that 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 or Current Revenue Expectations
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, which 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.
As of September 30, 2000, all of the proceeds from the initial public offering
have been accounted for in the following manner. 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, $20,341 to repay capital leases and accrued interest,
$2,650,527 to pay employees' and officers' salaries and related payroll taxes,
$527,947 for occupancy costs, $268,530 for advertising and promotion, $161,537
for recruiting, $836,860 for other general corporate purposes and realized
investment losses totaling $453,028 net of related interest and dividend income.
ITEM 4: Submission of Matters to a Vote of Security Holders.
A Special Meeting of Stockholders was held August 11, 2000. At the meeting the
stockholders approved a proposal to amend the Certificate of Incorporation to
increase the number of shares of authorized Common Stock to 80 million and to
increase the number of authorized Preferred Stock to 10 million
Proposal Number of Common Shares Voted
-------- ------------------------------------------------
For Against Abstain Non-Votes
----------- --------- --------- ---------
Amendment to the Company's
Certificate of Incorporation 2,673,102 46,365 4,933 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.
Page 16 of 18
<PAGE>
GlobalDigitalCommerce.com, Inc.
(A Development Stage Company)
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
3.1 Certificate of Incorporation, as amended.
3.2* Bylaws
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: November 10, 2000 By: /s/ John Anthony Whalen, Jr.
-------------------------------------
John Anthony Whalen, Jr., President
and Chief Executive Officer
Dated: November 10, 2000 By: /s/ Richard H. Middelberg
-------------------------------------
Richard H. Middelberg
Chief Financial Officer
Page 18 of 18
