<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
(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
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Commission File No. 0-12597
PENN-AKRON CORPORATION
----------------------
(Exact name of registrant as specified in its charter)
Nevada 11-1843262
------ ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
3455 Peachtree Road, NE, 5th Floor, Atlanta, Georgia 30326
----------------------------------------------------------
(Address of principal executive offices)
(404) 995-7026
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
<PAGE> 2
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.01 par value per share, 32,237,162 shares issued and
outstanding as of July 17, 2000.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]
<PAGE> 3
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PENN-AKRON CORPORATION
BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash in bank $ 2,056 $ 100
Accounts receivable 8,998,088 3,981,395
Other receivables 28,146 22,808
Employee advances 43,116 2,000
Refundable deposits 4,380 4,380
PrinVest Corp. escrow for OneWeb -- 205,000
Prepaid maintenance and training costs 224,000 224,000
Deferred financing costs -- 45,833
---------- ----------
Total Current Assets 9,299,786 4,485,516
---------- ----------
EQUIPMENT, less accumulated depreciation of $5,265 at
June 30, 2000 and $1,065 at December 31, 1999 34,543 4,258
---------- ----------
OTHER ASSETS:
Other assets 3,100 5,116
Investment in Sanswire.net, LLC 206,202 --
Prepaid maintenance and training costs - long-term 303,747 415,997
---------- ----------
Total Other Assets 513,049 421,113
---------- ----------
Total Assets $9,847,378 $4,910,887
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
PENN-AKRON CORPORATION
BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 2,871,114 $ --
Accounts payable and accrued expenses 6,059,106 3,858,406
Employee accounts payable -- 1,328
Accrued compensation 258,833 665,032
Deferred maintenance and training revenue 224,000 224,000
------------ ------------
Total Current Liabilities 9,413,053 4,748,766
------------ ------------
DEFERRED MAINTENANCE AND TRAINING
REVENUE - LONG-TERM 303,997 415,997
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, 100 million shares authorized, $.001
par value, 28,424,662 shares issued and outstanding
at June 30, 2000; 1,000 shares no par value
authorized, 500 shares issued and outstanding at
December 31, 1999 28,425 400
Paid-in capital 816,995 --
Retained earnings (deficit) (715,092) (254,276)
------------ ------------
Total Stockholders' Equity 130,328 (253,876)
------------ ------------
Total Liabilities and Stockholders' Equity $ 9,847,378 $ 4,910,887
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
PENN-AKRON CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
REVENUES:
Local school installations $6,196,383 $ -- $6,196,383 $ --
Training revenue 56,000 -- 112,000 --
Lan project -- 2,313 -- 5,008
T-1 Telecom access -- 5,405 432 12,506
Interest income 4,951 -- 6,202 --
---------- -------- ---------- --------
Total Revenues 6,257,334 7,718 6,315,017 17,514
---------- -------- ---------- --------
DIRECT COSTS:
Local school installations
and training 5,970,155 -- 6,028,726 --
Network operations center -- -- 36,638 --
Lan project -- 2,745 -- 2,745
T-1 Telecom access -- 12,803 7,740 17,421
Other -- -- 1,233 --
---------- -------- ---------- --------
Total Cost of Sales 5,970,155 15,548 6,074,337 20,166
---------- -------- ---------- --------
GROSS PROFIT 287,179 (7,830) 240,680 (2,652)
---------- -------- ---------- --------
EXPENSES:
Advertising -- -- 6,000 --
Amortization -- -- 45,833 --
Conventions and exhibits 9,066 541 9,816 541
Commissions -- 20,000 -- 20,000
Director's fees -- 55,137 2,750 55,137
Interest -- 8,854 -- 10,668
Legal and accounting 74,553 28,307 136,770 28,987
Meals expense -- 1,678 1,460 1,909
Other subcontractors 23,394 2,308 58,184 6,808
Printing -- 8,177 -- 8,408
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
PENN-AKRON CORPORATION
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Rent - office $ 7,000 $ 10,200 $ 24,410 $ 20,400
Salaries 117,083 155,833 334,917 472,220
Taxes - payroll 9,719 6,637 24,978 9,668
Telephone 938 31,381 26,721 31,978
Travel 2,662 4,290 9,911 5,007
Other expenses 12,010 4,361 19,746 6,134
------------ ------------ ------------ ------------
Total Expenses 256,425 337,704 701,496 677,860
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
PROVISION FOR
INCOME TAXES 30,754 (345,534) (460,816) (680,512)
PROVISION FOR INCOME
TAXES -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 30,754 $ (345,534) $ (460,816) $ (680,512)
============ ============ ============ ============
NET INCOME (LOSS)
PER SHARE:
Basic $ 0.00 $ (0.03) $ (0.02) $ (0.07)
============ ============ ============ ============
SHARES USED IN COMPUTING
EARNINGS PER SHARE:
Basic 28,162,162 10,194,826 19,352,872 10,194,826
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
PENN-AKRON CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Retained
Paid-in Earnings
Shares Amount Capital (Deficit)
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
BALANCE at January 1, 1999 500 400 $ -- $ (4,205)
Net loss for the year ended December 31, 1999 -- -- -- (250,071)
------------- ------------ ------------ ----------
BALANCE at December 31, 1999 500 400 -- (254,276)
Conversion of note payable to Spherus stock 500 -- 250,000 --
Shares of Penn-Akron outstanding at merger 10,542,581 -- (800) --
Recapitalization for change in par value -- 10,143 (10,143) --
Shares issued in merger with Spherus
Technologies, Inc. 17,143,581 17,144 573,676 --
Issuance of common stock for land subscription
receivable 4,500,000 4,500 1,995,500 --
Issuance of common stock to reserve account 687,500 688 (688) --
Issuance of common stock for services 50,000 50 4,950 --
Net loss for the six months ended June 30, 2000 -- -- -- (460,816)
------------- ------------ ------------ ----------
32,924,662 $ 32,925 $ 2,812,495 $ (715,092)
Less subscription receivable for land (4,500,000) (4,500) (1,995,500) --
------------- ------------ ------------ ----------
BALANCE at June 30, 2000 28,424,662 $ 28,425 $ 816,995 $ (715,092)
============= ============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
PENN-AKRON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from contracts $ 1,292,122 $ 7,201
Cash paid to subcontractors, vendors and employees (4,972,615) (253,287)
Interest paid -- (10,668)
----------- -----------
Net Cash Used In Operating Activities (3,680,493) (256,754)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Sanswire.net, LLC (200,000) --
Acquisition of equipment (34,485) (5,323)
----------- -----------
Net Cash Used In Investing Activities (234,485) (5,323)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipt of escrow deposit 205,000 --
Cash received for common stock 590,820 --
Cash received for note payable to stockholder 250,000 --
Net change in line of credit 2,871,114 260,668
----------- -----------
Net Cash Provided By Financing Activities 3,916,934 260,668
----------- -----------
INCREASE (DECREASE) IN CASH 1,956 (1,409)
CASH, BEGINNING OF PERIOD 100 6,818
----------- -----------
CASH, END OF PERIOD $ 2,056 $ 5,409
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
PENN-AKRON CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
----------- -----------
<S> <C> <C>
Net loss $ (460,816) $ (680,512)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization 45,833 --
Depreciation 4,200 --
Issuance of common stock for services 5,000 --
Increase in accounts receivable (5,016,693) (10,313)
Decrease in prepaid maintenance costs 112,250 --
Increase in other current assets (46,454) (25,092)
Increase in other assets (4,186) --
Increase in accounts payable 2,199,900 98,123
Increase (decrease) in accrued expenses (407,527) 361,040
Decrease in deferred maintenance and training revenues (112,000) --
----------- -----------
Net Cash Used In Operating Activities $(3,680,493) $ (256,754)
=========== ===========
</TABLE>
NONCASH INVESTING AND FINANCING TRANSACTIONS
During the six months ended June 30, 2000, a $250,000 note payable to
stockholder was converted to 500 shares of Spherus common stock prior to the
merger.
During the six months ended June 30, 2000, the Company issued 50,000
shares of common stock for services at $.10 per share.
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
PENN-AKRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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-Q and Rule 10-01 of Regulation
S-X. They do not include all information and notes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there has been no material change in the information
disclosed in the notes to financial statement included in the financial
statements on Form 10-Q of Penn-Akron Corporation (doing business as
globalseer.com) for the quarter ended May 31, 2000. In the opinion of
management, all adjustments necessary to fairly present the financial position
as of June 30, 2000, and the results of operations for the three-month and
six-month periods ended June 30, 2000 and 1999, and the statements of cash flows
and stockholders' equity for the six months ended June 30, 2000 and 1999.
Results of operations for interim periods are not necessarily indicative of
results for the entire year.
The Company prepares its financial statements in accordance with
generally accepted accounting principles (GAAP). These principles are
established primarily by the Financial Accounting Standards Board (FASB) and the
American Institute of Certified Public Accountants. The preparation of financial
statements in conformity with GAAP requires management to make estimates when
recording transactions resulting from business operations, based on information
currently available. As additional information becomes available (or actual
amounts are determinable), the recorded estimates may be revised and reflected
in operating results. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
The Company elected to change its year-end from February 28th to
December 31st. The quarterly financial statement periods have also changed to
calendar quarters with the second quarter being June 30, 2000, the date of these
financial statements.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
consolidated financial statements of Penn-Akron Corporation (the "Company")
(including the notes thereto) contained elsewhere in this report.
OVERVIEW
The Company is currently doing business under the name globalseer.com,
providing single-source, media-technology and curriculum-enhancement solutions
to kindergarten through twelfth grade public and private schools. The Company is
also examining opportunities to provide new and expanded sources of educational
content and other learning services to higher education and corporate training
providers.
RESULTS OF OPERATIONS
Our revenues increased to $6,315,017 for the six-month period ended
June 30, 2000 from $17,514 for the six-month period ended June 30, 1999, an
increase of approximately 3,600%. Our revenues increased to $6,257,334 for the
three-month period ended June 30, 2000 from $7,718 for the three-month period
ended June 30, 1999. This increase for the three- and six-month period ended
June 30, 2000 is primarily due to $6,196,383 of revenue recognized for 71 local
school installations under Year 2 of our contract with the Metropolitan Regional
Educational Service Agency ("MRESA") and $112,000 of training revenue.
Our current customer is MRESA, an administrative services agency of the
Georgia Department of Education. Our contract with MRESA was executed in March
1999 and we began performance thereunder in August 1999. This contract presently
continues for a three year period. As of December 31, 1999, we had completed
Year 1 of the three years under this contract and installed our services at 192
schools. We began performance on Year 2 of our contract with MRESA in early May
2000. We are currently seeking additional customers.
The Schools and Library Division ("SLD") of the Universal Services
Administrative Company, a non-profit entity under the jurisdiction of the
Federal Communications Commission that administers funds pursuant to the federal
Telecommunications Act of 1996, provides significant funding to MRESA. The
program under which SLD provides funding to MRESA requires a 10% to 50% matching
commitment for each school from private or local funds.
<PAGE> 12
MRESA has secured funding from the SLD for installations of our
services at 71 schools under Year 2 (installations began in May 2000 under our
contract with MRESA and are scheduled to be completed by September 30, 2000). We
believe that a potential matching commitment from private or local funds for
each school for Year 2 of our contract with MRESA has been located. MRESA was
successful in securing the required matching commitment for the 192 schools
installed in 1999 and we are optimistic that MRESA will secure funding for Year
2. For the first 71 schools to be installed for Year 2, the Company anticipates
recognizing in excess of $12 million of revenue.
Our total cost of sales increased to $6,074,337 for the six-month
period ended June 30, 2000 from $20,166 for the same period of 1999. Our total
cost of sales increased to $5,970,155 for the three-month period ended June 30,
2000 from $15,548 for the same period of 1999. This increase is due primarily to
the delivery of installations of our services to schools under our contract with
MRESA. Our expenses increased to $701,496 for the six-month period ended June
30, 2000 from $677,860 for the same period in 1999. Our expenses decreased to
$256,425 for the three-month period ended June 30, 2000 from $337,704 for the
same period in 1999.
Because we conduct our business primarily through subcontractors, our
expenses did not increase proportionally to our revenue. Our salary expense
actually decreased to $334,917 from $472,220 for the six-month period ended June
30, 2000, and decreased to 117,083 for the three-month period ended June 30,
2000, due primarily to operational consolidation. Our legal and accounting
expenses increased to $136,770 for the six-month period ended June 30, 2000 from
$28,987 for the year earlier period because of litigation described under "Legal
Proceedings" in Part II of this Form 10-Q and because of the merger between
Spherus Technologies, Inc. and Penn-Akron Corporation. Our legal and accounting
expenses increased to $75,553 for the three-month period ended June 30, 2000
from 28,307 for the prior year period for the same reason.
Our net loss for the six-month period ended June 30, 2000 decreased to
($460,816) from ($680,512) for the prior year period. We had net income of
$30,754 and $0.00 net income per share, for the three month period ended June
30, 2000, a significant improvement over a net loss of ($345,534) and ($0.03)
net loss per share, for the prior year period. However, we are unable to predict
if we will have net income in the coming quarters.
We have subcontracted with Lynxus, Inc. to implement and install an
Internet-based video distribution and multi-media network for installation at
elementary and secondary schools participating in the e-rate program under
contract with MRESA. Under the terms of this subcontract, we pay a 95% of the
funds received from both the SLD and MRESA to Lynxus. This sub-contract also
covers the 36-month maintenance and training requirements under the first and
second years of our contract with MRESA.
LIQUIDITY AND CAPITAL RESOURCES
Our total current assets increased to $9,299,786 at June 30, 2000 from
$4,485,516 at December 31, 1999. This increase is due primarily to an increase
in accounts receivable resulting from performance under our contract with MRESA.
Our total current liabilities
<PAGE> 13
increased to $9,413,053 as of June 30, 2000 from $4,748,766 at December 31,
1999. This increase is primarily due to an increase in accounts payable,
primarily payable to our subcontractors. The resulting working capital deficit
decreased to $114,267 at June 30, 2000 from 256,250 at December 31, 1999. We
expect to collect the full amounts owed to the Company by both the SLD and
MRESA.
Our total stockholders' equity increased to $130,328 at June 30, 2000
from ($253,876) at December 31, 1999. This increase is primarily due to an
increase in paid-in capital resulting from the capital infusion that occurred in
connection with the merger transaction in March between Spherus Technologies,
Inc. and Penn-Akron Corporation.
In June 2000 we negotiated a line of credit with PrinVest Corp with a
maximum line of credit of $3,500,000. The Company has drawn down approximately
$2.8 million on this facility as of August 11, 2000. The Company has a
subscription receivable from Tampa Bay Financial in the amount of $2,000,000.
See Note 6 to Penn-Akron Corporation's Financial Statements filed in our Report
on Form 10-Q for the five-month period ended May 31, 2000.
We had $2,056 in cash as of June 30, 2000 and $33,170 on August 11,
2000. The Company believes that it will have sufficient liquidity and capital
resources to finance its operations for the remainder of 2000; however, if there
is a delay in the receipt of funds from our major stockholder or the collection
of our receivables, such delay would have a material adverse effect on our
liquidity and capital resources.
CAUTIONARY STATEMENTS AND RISK FACTORS
Except for the historical information and discussions herein,
statements contained in this Form 10-Q may constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially, including the
Company's failure to continue to develop and market new and innovative products
and services and to keep pace with technological change; competitive pressures;
failure to obtain intellectual property rights; quarterly fluctuations in
revenue and volatility of stock prices; our ability to attract and retain key
personnel; dependence on certain suppliers and subcontractors; our ability to
manage acquisitions and alliances; legal, political and economic changes and
other risks, uncertainties and factors in our other filings with the Securities
and Exchange Commission.
CURRENT TRADING MARKET FOR OUR SECURITIES.
Our common stock recently began trading on the OTC Bulletin Board
("OTCBB"), operated by NASDAQ, under the symbol PNAC. No assurance can be given
that an active trading market in our securities will be sustained.
OUR SUCCESS DEPENDS UPON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND FEATURES
IN THE FACE OF RAPIDLY EVOLVING TECHNOLOGY.
<PAGE> 14
Our market is characterized by rapidly changing technologies, frequent
new service introductions and evolving industry standards. The recent growth of
the Internet and intense competition in our industry exacerbate these market
characteristics. Our future success will depend on our ability to adapt to
rapidly changing technologies by continually improving the performance, features
and reliability of our network. We may experience difficulties that could delay
or prevent the successful development, introduction or marketing of new
features, content or network services. In addition, our new enhancements must
meet the requirements of our current and prospective users and must achieve
significant market acceptance. We could also incur substantial costs if we need
to modify our service or infrastructure to adapt to these changes.
WE HAVE AN UNPROVEN BUSINESS MODEL AND A LIMITED OPERATING HISTORY.
Because our current operating business, operating under the name
globalseer.com, was established in 1998 and did not commence material operations
until 1999, we have a limited operating history on which investors can base an
evaluation of our business and prospects. Our income potential is unproven and
our business model is unique and will continue to evolve.
An investor in our common stock must carefully consider the risks and
difficulties frequently encountered by companies in an early stage of
development, as well as the risks we face due to our participation in a new and
rapidly evolving market. Our business strategy may not be successful and we may
not successfully overcome these risks.
WE EXPECT OUR QUARTERLY FINANCIAL RESULTS TO FLUCTUATE AND OUR EARLY STAGE OF
DEVELOPMENT LIMITS OUR ABILITY TO PREDICT REVENUES AND EXPENSES PRECISELY.
Our quarterly and annual operating results are likely to fluctuate
significantly in the future due to a variety of factors, many of which are
outside of our control. Factors that might cause quarterly fluctuations in our
operating results include the factors described in the subheadings below. To
respond to these and other factors, we may need to make business decisions that
could impact our quarterly operating results. Most of our expenses, such as
lease payment obligations, employee compensation and rent, are relatively fixed
in the short term. Moreover, our expense levels are based, in part, on our
expectations regarding future revenue levels. As a result, if total revenues for
a particular quarter are below our expectations we could not proportionately
reduce our operating expenses for that quarter. Therefore, this revenue
shortfall would have a disproportionate effect on our expected operating results
for that quarter. Consequently, we believe that period-to-period comparisons of
our operating results are not necessarily meaningful, and should not be viewed
as indicators of our future performance. In addition, during future periods our
quarterly or annual operating results may fail to meet the expectations of
securities analysts or investors. In this case the trading price of our common
stock would likely decrease.
OUR BUSINESS AND FUTURE REVENUE GROWTH WILL SUFFER IF WE FAIL TO RETAIN AND GROW
OUR CUSTOMER BASE.
<PAGE> 15
The success of our business will depend on our ability to add
customers. Our ability to grow our customer base depends largely on our ability
to deploy our network to additional schools. If we are unable to rapidly deploy
our network to a large number of additional schools, we will not be able to grow
our core school user base, and our ability to generate revenue and implement our
strategy will be limited.
WE ARE DEPENDENT ON THIRD PARTIES TO DEPLOY OUR NETWORK AND SUPPORT IT ONCE
INSTALLED.
We plan to rapidly deploy our network to additional schools across the
country. We have used, and plan to continue to use, third parties such as OneWeb
Systems and Lynxus, Inc. to install and support the globalseer.com network in
each school. Any changes in the third parties we contract with to install and
support our network could cause delays in the deployment of the globalseer.com
network and any inability to install schools according to our plan could limit
revenue generated from possible sponsorships, e-commerce and network services.
Further, if we do need to hire substitute or additional third-party installers
of our network we cannot assure you that we will be able to do so on terms as
favorable as our current arrangements, or at all, which could result in higher
installation costs to us as well as potential delays in our deployment.
We also rely on third parties to provide the majority of support
necessary to maintain the globalseer.com network once installed. Any inability
to maintain or delays to the maintenance of this equipment could lead to lower
revenue.
REGULATORY AND LEGAL ISSUES SPECIFIC TO THE INTERNET.
The Internet is the subject of an increasing number of laws and
regulations. These laws or regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. In addition, these
new laws have not yet been interpreted by the courts, and consequently their
applicability and reach are not defined. Moreover, the applicability to the
Internet of existing laws governing issues such as intellectual property is not
clearly defined.
SCHOOLS MAY USE ALTERNATIVE MEANS TO ACQUIRE INTERNET ACCESS, WHICH COULD REDUCE
OUR POTENTIAL CUSTOMER BASE AND MAY LEAD TO LOWER THAN EXPECTED REVENUES.
An immediate attraction of our network is immediate access to media via
the Internet. However, for a variety of reasons, schools may decide to use other
methods to acquire Internet access. If schools decide to use means other than
deployment of our network, it will limit our user base, and consequently we will
have lower than expected revenues.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED.
We expect to use existing cash for general corporate purposes,
including expanding our sales and marketing activities, continuing investments
in technology and product development and other capital expenditures, as well as
working capital and other corporate expenses. Our cash requirements are large
and depend on several factors, including cash outflows due to lease obligations,
the rate of expansion of our school base, the availability of equipment leases
on
<PAGE> 16
competitive terms, our success in generating revenues, the growth of sales and
marketing, and other factors. If capital requirements vary materially from those
currently planned, we may require additional financing sooner than anticipated.
Tampa Bay Financial, Inc., a large shareholder, has provided capital to
us in the last few months. Except as provided in the Merger Agreement, Tampa Bay
Financial, Inc. is not obligated to make additional capital available to us.
WE ARE DEPENDENT ON THE CONTINUED GROWTH IN USE AND POPULARITY OF OUR NETWORK
AND THE INTERNET BY OUR USERS AND OUR ABILITY TO SUCCESSFULLY ANTICIPATE THE
FREQUENTLY CHANGING TASTES OF OUR USERS.
Our business is unlikely to be successful if the popularity of the
Internet and related media in schools as an educational tool and among students
in general does not continue to increase. Even if the popularity of the Internet
and related media does increase, the success of our network in particular
depends on our ability to anticipate and keep current with the frequently
changing preferences of our users. Any failure on our part to successfully
anticipate, identify or react to changes in styles, trends or preferences of our
users would lead to reduced interest in and use of the globalseer.com network.
Moreover, the globalseer.com brand could be eroded by misjudgments in service
offerings or a failure to keep our content current with the evolving preferences
of our audience.
WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER OUR
NETWORK.
We may be subject to claims relating to content that is published on or
downloaded from the globalseer.com network. Such claims might include defamation
or trademark infringement and may involve costs to defend potential claims or to
indemnify us for all liability that may be imposed. In addition, any claims like
this, with or without merit, could require us to change our network in a manner
that could be less attractive to our customers and would result in the diversion
of our financial resources and management personnel.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US.
We are dependent on various third parties for software, systems and
related services. Several of the third parties that provide software and
services to us have a limited operating history, have relatively immature
technology and are themselves dependent on reliable delivery of services from
others. As a result, our ability to deliver various services to our users may
suffer due to the failure of these third parties to provide reliable software,
systems and related services to us. Additionally, we make seek to contract with
alternative third parties to the ones we have formerly used, which may or may
not have a negative effect on our operations.
FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS COULD HARM OUR BUSINESS AND
STRAIN OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES.
<PAGE> 17
We plan to expand our operations. We anticipate that further
significant expansion will be required to grow our customer base if we are to be
successful in implementing our business strategy. We may not be able to
implement management information and control systems in an efficient and timely
manner, and our current or planned personnel, systems, procedures and controls
may not be adequate to support our future operations. If we are unable to manage
growth effectively, our business would suffer.
THE LOSS OF KEY PERSONNEL MAY HURT OUR ABILITY TO OPERATE OUR BUSINESS
EFFECTIVELY.
Our success depends to a significant degree upon the continued
contributions of the principal members of our sales and management departments,
many of whom perform important management functions and would be difficult to
replace. The loss of the services of any key personnel, particularly senior
management, could seriously harm our business.
IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES.
We may not be able to attract and retain the necessary personnel to
accomplish our business objectives, and we may experience constraints that will
adversely affect our ability to deploy the globalseer.com network in a timely
fashion or to support our users and operations. Recruiting qualified personnel
is an intensely competitive and time-consuming process.
PART 2
ITEM 1. LEGAL PROCEEDINGS.
We filed an action in the Superior Court of Dekalb County, Georgia, (the
"Court") seeking injunctive and other relief against Mr. S.J. Neri, a resident
of Dekalb County, Georgia ("Mr. Neri"). We alleged that Mr. Neri engaged in
deceptive trade practices, misappropriation of trade names, tortious
interference with business relations and tortious interference with contractual
relations. Mr. Neri formed a company with the name Spherus Technologies, Inc. in
an attempt to deceive certain parties with whom we do business. Among other
actions, Mr. Neri interfered with our contractual relationship with MRESA. On
May 31, 2000, the Court entered a temporary restraining order against Mr. Neri
and on June 29, 2000 the Court issued a Permanent Injunction and Final Judgment
against Mr. Neri. The Court resolved all issues in our favor and against Mr.
Neri, awarding us compensatory damages and attorneys' fees of $88,760.84 and
punitive damages in the amount of $250,000.
Additionally, Mr. Neri has filed a pro se class action complaint in the United
States District Court, Northern District of Georgia - Atlanta Division against
us and a number of other companies and individuals. We believe the complaint is
completely without merit and have filed a Motion to Dismiss the complaint in its
entirety. We expect to have our motion granted and the complaint dismissed.
<PAGE> 18
ITEM 5. OTHER INFORMATION
Three of our directors, Michael K. Molen, Patty P. Harris and Frank F.
Pitts, resigned as directors of the Company. We are currently identifying
qualified candidates to fill these vacancies on our Board of Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
Current Report on Form 8-K dated April 28, 2000 - reporting Changes in
Control of the Registrant, the Acquisition of Assets and the Financial
Statements of the business acquired, Spherus Technologies, Inc.
("Spherus"). The Form 8-K included Spherus's audited Balance Sheet as
of 12/31/99 as well as the audited Income Statement, Statement of
Changes in Stockholder's Equity and Statement of Cash Flows for the
year ended 12/31/99. The Form 8-K also included unaudited Pro Forma
Condensed, Consolidated Balance Sheet for the Company and Spherus as of
12/31/99 as well as unaudited Pro Forma Condensed, Consolidated
Statement of Income for the Company and Spherus for the year ended
12/31/99.
<PAGE> 19
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.
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<S> <C>
PENN-AKRON CORPORATION
Date: August 14, 2000 By: /s/ Christopher J.S. Baker
-----------------------------------------------------------
Christopher J.S. Baker, Chief Financial Officer
(principal financial and accounting officer)
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