<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 of 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _____ to _____
Commission file number 0-27185
-------
Global Network, Inc.
----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 88-0367123
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
575 Madison Ave., 10th Floor, New York, New York 10022
------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
(212) 605-0431
---------------------------
(Issuer's Telephone Number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 10,979,000 as of June 30,
2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [x]
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See financial statements beginning on Page F-I.
ITEM 2. PLAN OF OPERATION
During the three and six months ended June 30, 2000 we had revenues of
approximately $79,000 and $94,000 respectively. Revenues for the quarter ended
June 30, 2000 increased approximately 430% over the previous quarter as a result
of additional contacts with major interactive clients and their advertising
agencies. In addition, we have performed several test campaigns and have
received additional orders from initial advertisers. Presently, we have received
and are responding to a rapidly growing number of "requests for proposals" and
as a result expect to see a continued increase in sales activity in future
quarters.
Cost of revenues of approximately $66,000 and $76,000 during the three and
six months ended June 30, 2000 respectively consist primarily of payments to
newspapers for advertising space on their websites.
Selling, general and administrative expense of approximately $334,000 and
$594,000 during the three and six months ended June 30, 2000 consist primarily
of sales and marketing expenses in connection with the solicitation of
customers, expenses associated with operating and maintaining our web site,
salaries and professional fees.
In addition, during the quarter ended June 30, 2000 we continued to enhance
our proprietary software to be able to deliver the on-line advertising
industry's only live verification system, which we believe can be utilized by
newspapers and advertising agencies to better serve their clients. This
enhancement is currently in the process of initial beta testing at two
newspapers and two advertising agencies and is expected to provide a secondary
source of revenue for the Company.
We have engaged a New York based investment banking firm to assist the
Company in achieving maximum shareholder value by seeking a strategic partner
that will either acquire the Company or form a relationship which will allow the
Company to accelerate its growth.
During the quarter ended June 30, 2000 we also prepared the industry's
first "White Paper" on website tracking which identified the associated problems
the industry is experiencing that we believe our proprietary system addresses.
LIQUIDITY AND CAPITAL RESOURCES
From August 1999 through the date of this report, we have raised a total of
approximately $2,168,000, net of approximately $102,000 in fees, from the
following securities offerings:
August 1999 $200,000 Sale of 100,000 shares of common stock
and warrants to purchase an additional
400,000 shares of common stock at a
price of $2 per share at any time until
February 5, 2000
August 1999 $200,000 Sale of 100,000 shares of common stock
pursuant to exercise of warrants
February and $1,768,250 Sale of 1,388,000 shares of common stock
March 2000
In addition, through December 31, 1999 35,000 shares of common stock having
an aggregate fair value of
2
<PAGE> 3
$8,125 and options to purchase 195,000 shares of common stock at $.50 a share
with an aggregate fair value of $76,050 were issued in exchange for services.
During the six months ended June 30, 2000 options to purchase 550,000 shares of
common stock at $.93 per share with an aggregate fair value of $396,000 were
issued in exchange for services.
At June 30, 2000 we had working capital of approximately $1,224,000. Our
principal cash requirements are for the continual development of our business
and solicitation of new customers.
We anticipate that our working capital, together with our projected cash
flows from results of operations will be sufficient to satisfy our cash
requirements for at least twelve and up to twenty four months. In the event that
our plans change due to unanticipated expenses or difficulties or otherwise, or
if our working capital and projected cash flow otherwise prove insufficient to
fund operations, we could be required to seek additional financing sooner than
we currently anticipate. There can be no assurance that additional financing
will be available to us if needed, whether on commercially reasonable terms or
at all. An inability to obtain such additional financing would likely have a
material adverse effect on our long term liquidity.
We do not believe that our business is subject to seasonal trends or
inflation. On an ongoing basis, we will attempt to minimize any effect of
inflation on our operating results by controlling operating costs and whenever
possible, seeking to insure that our customer contracts reflect increases in
costs due to inflation.
YEAR 2000 READINESS DISCLOSURE
As of the date of this report, we have not experienced any significant year
2000 problems, but we cannot be sure that such problems will not arise in the
future, whether arising out of own systems or those of third parties.
Accordingly, we are continuing to monitor the situation. We do not have a
contingency plan in place to deal with year 2000 problems that may occur in the
future, nor do we intend to implement such a plan. If year 2000 problems do
arise, our business and our financial condition could be adversely effected.
As of the date of this report, we have not incurred any material expense
relating to or arising out of the year 2000 problem.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the quarter
for which this report is filed.
3
<PAGE> 4
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: August 18, 2000 GLOBAL NETWORK, INC.
/s/ James C. Mason
----------------------------------------------
James C. Mason
President, CEO and Principal Financial Officer
4
<PAGE> 5
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
I N D E X
PAGE
----
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (Unaudited) AND DECEMBER 31, 1999 F-2
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND
SIX MONTHS ENDED JUNE 30, 2000 AND PERIOD FROM
APRIL 26, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 2000
(Unaudited) F-3
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 AND PERIOD FROM
APRIL 26, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 2000
(Unaudited) F-4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND PERIOD FROM
APRIL 26, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 2000
(Unaudited) F-5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS F-6/9
* * *
F-1
<PAGE> 6
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2000 (Unaudited) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
----------- ------------
(Note 1)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,206,431 $ 14,307
Accounts receivable 53,443 15,000
Advances to officers 67,605 86,203
Other current assets 18,000
----------- ---------
Total current assets 1,345,479 115,510
Capitalized software development costs 367,699 --
Other assets 11,852 --
----------- ---------
Totals $ 1,725,030 $ 115,510
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities - accounts payable and accrued expenses $ 121,734 $ 24,057
----------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
10,979,000 and 10,811,000 shares issued and outstanding 10,979 10,811
Additional paid-in capital 2,500,446 438,364
Deficit accumulated in the development stage (908,129) (357,722)
----------- ---------
Total stockholders' equity 1,603,296 91,453
----------- ---------
Totals $ 1,725,030 $ 115,510
=========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-2
<PAGE> 7
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND PERIOD FROM
APRIL 26, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Three Six
Months Months
Ended Ended Cumulative
June 30, June 30, from
2000 2000 Inception
------------ ------------ ----------
<S> <C> <C> <C>
Revenues $ 79,431 $ 94,431 $ 109,431
Cost of revenues 65,879 75,879 87,180
------------ ------------ ---------
Gross profit 13,552 18,552 22,251
Selling, general and administrative expenses 334,156 594,416 955,837
------------ ------------ ---------
Loss from operations (320,604) (575,864) (933,586)
Interest income 18,752 25,457 25,457
------------ ------------ ---------
Net loss $ (301,852) $ (550,407) $(908,129)
============ ============ =========
Basic net loss per common share $ (.03) $ (.05)
============ ============
Basic weighted average common shares
outstanding 10,979,000 10,936,538
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE> 8
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000 AND PERIOD FROM
APRIL 26, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Stock Additional in the
------------------------- Subscription Paid-in Development
Shares Amount Receivable Capital Stage Total
--------- --------- ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of shares on
April 26, 1999 (as retroac-
tively adjusted to reflect
shares effectively issued
prior to reverse acquisition
on August 5, 1999 and the
effects of certain agree-
ments on September 9, 1999) 9,000,000 $ 100 $ (100)
Effects of reverse acquisition 1,576,000 10,476 100 $ (45,576) $ (35,000)
Sale of units of shares of
common stock and
warrants through private
placement 100,000 100 199,900 200,000
Exercise of warrants 100,000 100 199,900 200,000
Effects of issuance of com-
mon stock in exchange for
services 35,000 35 8,090 8,125
Effects of issuance of stock
options in exchange for
services 76,050 76,050
Net loss (357,722) (357,722)
---------- ------- --------- ---------- --------- ----------
Balance, December 31, 1999 10,811,000 10,811 -- 438,364 (357,722) 91,453
Sale of shares of common
stock, net of expenses of
$102,500 1,343,000 1,343 1,664,907 1,666,250
Cancellation of shares of
common stock (1,175,000) (1,175) 1,175
Effects of issuance of stock
options in exchange for
services 396,000 396,000
Net loss (550,407) (550,407)
---------- ------- --------- ---------- --------- ----------
Balance, June 30, 2000 10,979,000 $10,979 $ -- $2,500,446 $(908,129) $1,603,296
========== ======= ========= ========== ========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE> 9
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND PERIOD FROM
APRIL 26, 1999 (DATE OF INCEPTION) THROUGH JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Six
Months
Ended Cumulative
June 30, from
2000 Inception
----------- ------------
<S> <C> <C>
Operating activities:
Net loss $ (550,407) $ (908,129)
Adjustments to reconcile net loss to net cash used in
operating activities:
Costs of services paid through issuance of common stock
and stock options 72,000 156,175
Changes in operating assets and liabilities:
Accounts receivable (38,443) (53,443)
Advances to officers 18,598 (67,605)
Other current assets (18,000) (18,000)
Accounts payable and accrued expenses 97,677 121,734
----------- -----------
Net cash used in operating activities (418,575) (769,268)
----------- -----------
Investing activities:
Payments for capitalized software development costs (43,699) (43,699)
Increase in other assets (11,852) (11,852)
----------- -----------
Net cash used in investing activities (55,551) (55,551)
----------- -----------
Financing activities:
Proceeds from sale of common stock 1,666,250 1,666,250
Proceeds from sale of units of common stock and warrants 200,000
Proceeds from exercise of warrants 200,000
Payments of costs in connection with reverse acquisition (35,000)
----------- -----------
Net cash provided by financing activities 1,666,250 2,031,250
----------- -----------
Net increase in cash and cash equivalents 1,192,124 1,206,431
Cash and cash equivalents, beginning of period 14,307 --
----------- -----------
Cash and cash equivalents, end of period $ 1,206,431 $ 1,206,431
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE> 10
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and business:
Global Network, Inc. ("Global Nevada") was originally incorporated in
August 1996 in Nevada as Bargain Brokers, Inc. to develop operations as a
liquidator of closeouts, factory overruns, seconds and insurance salvage
goods. However, Global Nevada never generated any significant revenues or
expenses in connection with such operations, and it was an inactive "shell
company" whose common shares were publicly traded at the time of the
exchange of shares described below.
Global Network, Inc. ("Global New York") was originally incorporated on
April 26, 1999 in New York to develop an advertising network of online
local newspaper web sites for the purpose of purchasing unused page views
on these sites and reselling them to national advertisers. During the
period from its inception on April 26, 1999 through June 30, 2000, Global
New York did not generate any significant revenues and, accordingly, it was
in the development stage as of June 30, 2000.
As of August 5, 1999, Global Nevada had, effectively, 1,576,000 shares of
common stock outstanding, with a par value of $.001 per share. As of that
date, Global Nevada issued 9,000,000 shares of common stock to acquire all
of the 9,000,000 shares of common stock, which had no par value, of Global
New York that were, effectively, then outstanding (the "Exchange"). All
references to numbers of shares and per share amounts in these notes and
the accompanying consolidated financial statements have been retroactively
restated, where appropriate, for shares cancelled as a result of (i) the
issuance of shares upon the exercise of warrants on August 10, 1999 and
(ii) the September 1999 agreements (the "Cancellation Agreements") pursuant
to which certain stockholders waived their right to receive and/or agreed
to the cancellation of certain shares which had been held in escrow, as
further explained in Note 5. As a result of the Exchange, Global New York
became a wholly-owned subsidiary of Global Nevada, and Global Nevada had
10,576,000 shares of common stock outstanding, of which 9,000,000 shares,
or 85.1%, were owned by the former stockholders of Global New York and
1,576,000 shares, or 14.9%, were owned by the former stockholders of Global
Nevada. However, since the former stockholders of Global New York became
the owners of a majority of the outstanding common shares of Global Nevada
after the Exchange and Global Nevada had no significant operating
activities or assets and liabilities prior to the Exchange, the Exchange
was treated effective as of August 5, 1999 as a "purchase business
combination" and a "reverse acquisition" for accounting purposes in which
Global Nevada was the legal acquirer and Global New York was the accounting
acquirer.
F-6
<PAGE> 11
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization and business (concluded):
The "Company" as used herein refers to Global New York prior to August 5,
1999, the date of the Exchange, and Global Nevada together with Global New
York subsequent to that date.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial
position of the Company as of June 30, 2000, and its results of operations
for the three and six months ended June 30, 2000, changes in stockholders'
equity and cash flows for the six months ended June 30, 2000 and the
related cumulative amounts for the period from April 26, 1999 (date of
inception) through June 30, 2000. Information included in the condensed
consolidated balance sheet as of December 31, 1999 has been derived from,
and certain terms used herein are defined in, the audited financial
statements of the Company as of December 31, 1999 and for the period from
April 26, 1999 (date of inception) through December 31, 1999 (the "Audited
Financial Statements") included in the Company's Annual Report on Form
10-KSB (the "10-KSB") for the year ended December 31, 1999 that was
previously filed with the United States Securities and Exchange Commission
(the "SEC"). Pursuant to the rules and regulations of the SEC, certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted from these condensed consolidated financial
statements unless significant changes have taken place since the end of the
most recent fiscal year. Accordingly, these unaudited condensed
consolidated financial statements should be read in conjunction with the
Audited Financial Statements and the other information also included in the
10-KSB.
For additional information related to the Exchange and the basis of
presentation of the Company's consolidated financial statements, see Notes
1 and 5 of the notes to the condensed consolidated financial statements in
the 10-KSB.
The results of the Company's operations for the three and six months ended
June 30, 2000 are not necessarily indicative of the results of operations
for the full year ending December 31, 2000.
Note 2 - Net earnings (loss) per common share:
The Company presents "basic" earnings (loss) per common share and, if
applicable, it will present "diluted" earnings per common share pursuant to
the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share." Generally, basic earnings (loss) per common share is
calculated by dividing net income or loss by the weighted average number of
common shares outstanding during each period. The calculation of diluted
earnings per common share is similar to that of basic earnings per common
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all
potentially dilutive common shares, such as those issuable upon the
exercise of warrants, were issued during the period.
F-7
<PAGE> 12
GLOBAL NETWORK, INC.
AND SUBSIDIARY (A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 - Net earnings (loss) per common share (concluded):
Since the Company had a loss for both the three and six months ended June
30, 2000, the assumed effect of the exercise of warrants and options
outstanding at June 30, 2000 would have been anti-dilutive and, therefore,
diluted per share amounts have not been presented in the accompanying
condensed consolidated statements of operations for those periods.
Note 3 - Advances to officers:
Advances to officers of $67,605 as of June 30, 2000 were noninterest
bearing and due on demand.
Note 4 - Income taxes:
Prior to the Exchange on August 5, 1999, Global New York had elected to be
treated as an "S" Corporation under the applicable sections of the Code.
The "S" Corporation election terminated as a result of the Exchange.
As of June 30, 2000, the Company had net operating loss carryforwards of
approximately $908,000 available to reduce future Federal taxable income
which, if not used, will expire at various dates through 2020. The Company
had no other material temporary differences as of that date. Due to the
uncertainties related to, among other things, the changes in the ownership
of the Company, which could subject those loss carryforwards to substantial
annual limitations, and the extent and timing of its future taxable income,
the Company offset the deferred tax assets attributable to the potential
benefits of approximately $309,000 from the utilization of those net
operating loss carryforwards by an equivalent valuation allowance as of
June 30, 2000.
The Company had also offset the potential benefits from net operating loss
carryforwards by an equivalent valuation allowance during the period from
April 26, 1999 through December 31, 1999. As a result of the increase in
the valuation allowance of $103,000 and $216,000 during the three and six
months ended June 30, 2000, respectively, no credits for income taxes are
included in the accompanying condensed consolidated statements of
operations for those periods.
Note 5 - Stockholders' equity:
Preferred stock authorized:
The Company's Articles of Incorporation authorize the issuance of up to
5,000,000 shares of preferred stock with a par value of $.001 per share.
The preferred stock may be issued in one or more series, with terms and
preferences to be determined by the Company's Board of Directors. No shares
of preferred stock had been issued as of June 30, 2000.
F-8
<PAGE> 13
GLOBAL NETWORK, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Stockholders' equity (concluded):
Issuances and cancellations of common stock, options and warrants:
During the six months ended June 30, 2000, the Company received proceeds of
$1,666,250, net of related costs and expenses of $102,500, from the sales
of 1,338,000 shares of common stock that were made through a private
placement intended to be exempt from registration under the Securities Act
of 1933 (the "Act"). Pursuant to the agreements related to the private
placement, the Company is obligated to register certain of the shares under
the Act and incur the costs of such registration. In connection with the
private placement, one of the founders of the Company agreed to return
1,175,000 shares of common stock to the Company, and the Company agreed to
cancel those shares. The Company also issued 5,000 shares of common stock
for financial services related to the private placement.
During the six months ended June 30, 2000, the Company issued options to
purchase 550,000 shares of common stock in exchange for consulting
services. The options are exercisable at $.93 per share at any time prior
to their expiration on February 28, 2003. The options had an approximate
aggregate fair value of $396,000 as determined by using a Black-Scholes
option-pricing model (see Note 5 of the notes to the consolidated financial
statements in the 10-KSB). Certain of the options with an approximate
aggregate fair value of $324,000 were issued for services provided in
connection with the development of the Company's proprietary software and,
accordingly, the fair value of those options, which totaled approximately
$324,000, was capitalized and the remaining options, having an aggregate
fair value of $72,000, were expensed during the six months ended June 30,
2000.
Note 6 - Other related party transactions and commitments:
General and administrative expenses include charges by related parties for
client entertainment, office and secretarial services and other office
expenses totaling approximately $63,000, $73,000 and $147,000 for the three
and six months ended June 30, 2000 and for the period from April 26, 1999
through June 30, 2000, respectively.
* * *
F-9
<PAGE> 14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
27 Financial Data Schedule
