Attached files
| file | filename |
|---|---|
| EX-31.1 - Global Technologies Group, Inc. | ex311.htm |
| EX-31.2 - Global Technologies Group, Inc. | ex312.htm |
| EX-32.1 - Global Technologies Group, Inc. | ex321.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
|
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934.
|
For the quarterly period ended: September 30, 2007
|
[ ] Transition Report under Section 13 or 15(d) of the Exchange Act
|
For the transition period from: _______ to _______
Commission file number: 333-120908
|
Global Technologies Group Inc.
|
|
(Name of small business issuer in its charter)
|
|
Global Music International ,Inc.
|
|
(Formerly name, if applicable)
|
|
Florida
|
20-1354562
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer I.D. Number)
|
|
1304 N Lakeshore Drive, Sarasota, Florida 34231
|
941-685-1616
|
|
(Address of principal executive offices)
|
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [_] NO [X]
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 12, 2007, there were 22,284,500 shares of our common stock outstanding.
Transitional Small Business Format Disclosure YES [_] NO [ X ]
-1-
INDEX
|
Page No.
|
|
|
PART 1. FINANCIAL INFORMATION
|
|
|
Item 1. Financial Statements
|
3
|
|
Condensed Balance Sheets, September 30, 2007 (unaudited) and June 30, 2007 (audited)
|
3
|
|
Condensed Statements of Operations, for the three month periods ended
|
|
|
September 30 2007 and 2006 and Cumulative from Inception (July 1, 2004) to
|
|
|
September 30, 2007 (unaudited)
|
4
|
|
Condensed Statement of Changes in Stockholders’ Deficiency, Cumulative from
|
|
|
Inception (July 1, 2004) to September 30, 2007 (unaudited)
|
5
|
|
Condensed Statements of Cash Flows, for the three month periods ended
|
|
|
September 30, 2007 and 2006 and Cumulative from Inception (July 1, 2004) to
|
|
|
September 30, 2007 (unaudited)
|
6
|
|
Notes to Condensed Financial Statements (unaudited)
|
7
|
|
Item 2. Management’s Discussion and Analysis or Plan of Operation
|
14
|
|
Item 3A(T). Controls and Procedures
|
15
|
|
PART II. OTHER INFORMATION
|
|
|
Item 1. Legal Proceedings
|
17
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
17
|
|
Item 3. Defaults Upon Senior Securities
|
17
|
|
Item 4. Submission of Matters to a Vote of Security Holders
|
17
|
|
Item 5. Other Information
|
17
|
|
Item 6. Exhibits
|
17
|
|
Signatures
|
18
|
-2-
|
PART 1.
|
FINANCIAL INFORMATION
|
||||||
|
Item 1.
|
Financial Statements
|
||||||
|
(A DEVELOPMENT STAGE COMPANY)
|
|||||||
|
CONDENSED BALANCE SHEETS
|
|||||||
|
ASSETS
|
|||||||
|
September 30, 2007
|
June 30, 2007
|
|||||||
|
(unaudited)
|
(audited)
|
|||||||
|
Cash
|
$
|
6,769
|
$
|
81,786
|
||||
|
Prepaid License Fees
|
116,200
|
50,000
|
||||||
|
Other Current Assets
|
1,994
|
2,600
|
||||||
|
Total Current Assets
|
124,963
|
134,386
|
||||||
|
Property and Equipment, net
|
25,303
|
25,681
|
||||||
|
TOTAL ASSETS
|
$
|
150,266
|
$
|
160,067
|
||||
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
||||||||
|
LIABILITIES
|
||||||||
|
Accounts Payable
|
$
|
190,000
|
$
|
25,500
|
||||
|
Accrued Expenses
|
47,252
|
20,168
|
||||||
|
Accrued Compensation
|
162,500
|
125,000
|
||||||
|
Convertible Debt
|
2,272,950
|
2,119,609
|
||||||
|
Total Current Liabilities
|
2,672,702
|
2,290,277
|
||||||
|
COMMITMENTS AND CONTINGENCIES (Note 8)
|
-
|
-
|
||||||
|
STOCKHOLDERS' DEFICIENCY
|
||||||||
|
Common Stock, $.0001 par value,
|
||||||||
|
40,000,000 shares authorized
|
2,229
|
2,219
|
||||||
|
Additional Paid-In Capital
|
2,843,347
|
2,745,488
|
||||||
|
Deficit Accumulated During the Development Stage
|
(5,368,012
|
)
|
(4,877,917
|
)
|
||||
|
Total Stockholders' Deficiency
|
(2,522,436
|
)
|
(2,130,210
|
)
|
||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
$
|
150,266
|
$
|
160,067
|
||||
|
The accompanying notes are an integral part of these condensed financial statements
|
||||||||
-3-
|
(A DEVELOPMENT STAGE COMPANY)
|
||||||||||||
|
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
|
||||||||||||
|
Cumulative From Inception
|
||||||||||||
|
Three Month Period Ended
|
(July 1, 2004) To
|
|||||||||||
|
September 30, 2007
|
September 30, 2006
|
September 30, 2007
|
||||||||||
|
Revenues
|
$
|
-
|
$
|
-
|
$
|
127,785
|
||||||
|
Operating expenses
|
||||||||||||
|
Consulting and Professional Fees Expense
|
194,156
|
15,000
|
550,051
|
|||||||||
|
Compensation Expense
|
101,599
|
68,750
|
1,715,525
|
|||||||||
|
General and Administrative Expenses
|
99,809
|
87,815
|
502,517
|
|||||||||
|
License Fees
|
-
|
-
|
150,000
|
|||||||||
|
Interest Expense
|
90,570
|
17,115
|
1,049,239
|
|||||||||
|
Depreciation Expense
|
3,961
|
12,272
|
142,965
|
|||||||||
|
490,095
|
200,952
|
4,110,297
|
||||||||||
|
Loss Before Provision For Income Taxes
|
(490,095
|
)
|
(200,952
|
)
|
(3,982,512
|
)
|
||||||
|
Provision For Income Taxes
|
-
|
-
|
-
|
|||||||||
|
Net Loss
|
$
|
(490,095
|
)
|
$
|
(200,952
|
)
|
$
|
(3,982,512
|
)
|
|||
|
Net Loss Per Common Share, basic and diluted
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
||||||
|
Weighted Average Basic Common Shares Outstanding
|
22,282,302
|
22,118,233
|
||||||||||
|
The accompanying notes are an integral part of these condensed financial statements
|
||||||||||||
-4-
|
(A DEVELOPMENT STAGE COMPANY)
|
||||||||||||||||||||
|
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
|
||||||||||||||||||||
|
CUMULATIVE FROM INCEPTION (JULY 1, 2004) TO SEPTEMBER 30, 2007 (UNAUDITED)
|
||||||||||||||||||||
|
Deficit Accumulated
|
Total
|
|||||||||||||||||||
|
Common Stock
|
Additional
|
During the
|
Stockholders'
|
|||||||||||||||||
|
Shares
|
Value
|
Paid-in Capital
|
Development Stage
|
Deficiency
|
||||||||||||||||
|
Common Stock
|
||||||||||||||||||||
|
Issued in connection with:
|
||||||||||||||||||||
|
Incorporation (July 1, 2004)
|
20,350,000
|
$
|
2,035
|
$
|
-
|
$
|
-
|
$
|
2,035
|
|||||||||||
|
Private Placements
|
1,507,000
|
151
|
589,995
|
-
|
590,146
|
|||||||||||||||
|
Consulting Services and Officers' Compensation
|
427,500
|
43
|
621,025
|
-
|
621,068
|
|||||||||||||||
|
Issuance of Stock Options for Employee Compensation
|
-
|
-
|
864,412
|
-
|
864,412
|
|||||||||||||||
|
Beneficial Conversion Feature Associated with
|
||||||||||||||||||||
|
Convertible Debt
|
-
|
-
|
767,915
|
-
|
767,915
|
|||||||||||||||
|
Dividend
|
-
|
-
|
-
|
(1,385,500
|
)
|
(1,385,500
|
)
|
|||||||||||||
|
Net loss
|
-
|
-
|
-
|
(3,982,512
|
)
|
(3,982,512
|
)
|
|||||||||||||
|
Balance, September 30, 2007
|
22,284,500
|
$
|
2,229
|
$
|
2,843,347
|
$
|
(5,368,012
|
)
|
$
|
(2,522,436
|
)
|
|||||||||
|
The accompanying notes are an integral part of these condensed financial statements
|
||||||||||||||||||||
-5-
|
GLOBAL MUSIC INTERNATIONAL, INC.
|
||||||||||||
|
(A DEVELOPMENT STAGE COMPANY)
|
||||||||||||
|
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
||||||||||||
|
Cumulative From
|
||||||||||||
|
Inception (July 1, 2004)
|
||||||||||||
|
Three Month Period Ended
|
To
|
|||||||||||
|
September 30, 2007
|
September 30, 2006
|
September 30, 2007
|
||||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net loss
|
$
|
(490,095
|
)
|
$
|
(200,952
|
)
|
$
|
(3,982,512
|
)
|
|||
|
Adjustments to reconcile net loss to net cash
|
||||||||||||
|
used in operating activities:
|
||||||||||||
|
Depreciation expense
|
3,961
|
12,272
|
142,965
|
|||||||||
|
Compensation expense pursuant to common stock
|
||||||||||||
|
issued to founders at time of incorporation
|
-
|
-
|
2,035
|
|||||||||
|
Consulting and compensation expense pursuant to common
|
||||||||||||
|
stock issued in exchange for services received
|
26,656
|
84,250
|
621,068
|
|||||||||
|
Compensation expense pursuant to issuance of stock options
|
12,984
|
-
|
864,412
|
|||||||||
|
Amortization of debt discount to interest expense
|
58,229
|
-
|
767,915
|
|||||||||
|
Interest on convertible debt paid in kind
|
32,341
|
17,115
|
277,396
|
|||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
(Increase) decrease in:
|
||||||||||||
|
Accounts Receivable
|
-
|
19,935
|
-
|
|||||||||
|
Prepaid License Fees
|
(66,200
|
)
|
3,408
|
(116,200
|
)
|
|||||||
|
Other Current Assets
|
606
|
-
|
(1,994
|
)
|
||||||||
|
Increase (decrease) in:
|
||||||||||||
|
Accounts Payable
|
164,500
|
19,795
|
190,000
|
|||||||||
|
Accrued Expenses
|
27,084
|
8,764
|
47,252
|
|||||||||
|
Accrued Compensation
|
37,500
|
-
|
162,500
|
|||||||||
|
Net cash used in operating activities
|
(192,434
|
)
|
(35,413
|
)
|
(1,025,163
|
)
|
||||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchases of Property and Equipment
|
(3,583
|
)
|
(9,349
|
)
|
(53,768
|
)
|
||||||
|
Net cash used in investing activities
|
(3,583
|
)
|
(9,349
|
)
|
(53,768
|
)
|
||||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds from Convertible Debt
|
146,000
|
41,000
|
910,928
|
|||||||||
|
Repayments of Convertible Debt
|
(25,000
|
)
|
-
|
(415,374
|
)
|
|||||||
|
Proceeds from Private Placement Offering, net
|
-
|
-
|
590,146
|
|||||||||
|
Net cash provided by financing activities
|
121,000
|
41,000
|
1,085,700
|
|||||||||
|
Increase (decrease) in cash
|
(75,017
|
)
|
(3,762
|
)
|
6,769
|
|||||||
|
Cash, beginning of period
|
81,786
|
5,222
|
-
|
|||||||||
|
Cash, end of period
|
$
|
6,769
|
$
|
1,460
|
$
|
6,769
|
||||||
|
Supplemental disclosures of cash flow information:
|
||||||||||||
|
Non-cash investing and financing activities
|
||||||||||||
|
Note payable recorded in connection with purchase of
|
||||||||||||
|
equipment and recognition of dividend to officer / director
|
$
|
-
|
$
|
-
|
$
|
1,500,000
|
||||||
|
The accompanying notes are an integral part of these condensed financial statements
|
||||||||||||
-6-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. In the Company’s opinion, the unaudited interim financial statements and accompanying notes reflect all adjustments, consisting of normal and recurring adjustments that are necessary for
a fair presentation of its financial position and operating results as of and for the interim periods ended September 30, 2007 and 2006 and cumulative from inception (July 1, 2004) to September 30, 2007.
The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. This Form 10-QSB should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-KSB for the year ended June 30, 2007.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Global Music International, Inc. (a development stage company) (the “Company”) operates in certain geographic segments (the United States and China) of the global cellular entertainment industry for the broadcast of music videos, ring tones and ring back tones on major telecom networks. The Company also operates a website www.IMNTV.com which only broadcasts independent music videos from around the world.
DEVELOPMENT STAGE COMPANY
The Company was incorporated in the State of Florida on July 1, 2004 (inception). Operations from the Company’s inception through September 30, 2007 were devoted primarily to strategic planning, development of music and video content, raising capital and developing revenue-generating opportunities.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company’s licensing agreements provide for the Company to receive a stated percentage of subscriber revenue after a deduction for carrier charges (“royalties”). For those arrangements where royalties are reasonably determinable, the Company recognizes revenue based on estimates of royalties earned during the applicable period and adjusts for differences between the estimated and actual royalties when they become known. For those arrangements in which royalties are not reasonably determinable the Company recognizes revenue upon receipt of royalty statements from the licensee.
-7-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK BASED COMPENSATION
The Company accounts for equity instruments exchanged for services in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment.”Under the provisions of SFAS No. 123R, share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). Share-based compensation issued to non-employees is measured at grant date, based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more readily
measurable, and is recognized as an expense over the requisite service period.
CONVERTIBLE DEBT
The Company accounts for its convertible debt in accordance with the provisions of Emerging Issues Task Force Issue (“EITF”) 98-5 “Accounting for Convertible Securities with Beneficial Conversion Features,” (“EITF 98-5”) and EITF 00-27 “Application of EITF 98-5 to Certain Convertible Instruments,” which require that embedded beneficial conversion features present in convertible securities be valued separately at issuance and should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional
paid-in capital. The Company recognizes the resulting discount as interest expense over the minimum period from the date of issuance through the date of earliest conversion using the effective interest method.
NET LOSS PER COMMON SHARE
The Company presents “basic” earnings (loss) per share and, if applicable, “diluted” earnings per share pursuant to the provisions of SFAS No. 128, Earnings per Share. Basic earnings (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding during each period. The common stock equivalents for the Company’s convertible debt and stock options were not included in the computation of diluted loss per share because to do so would be anti-dilutive.
FOREIGN CURRENCY TRANSACTIONS
The Company accounts for transactions denominated in a foreign currency in accordance with the provisions of SFAS No. 52, “Foreign Currency Translation,” which establishes standards of financial accounting and reporting for foreign currency transactions in the financial statements of a reporting enterprise. At period end, recorded balances denominated in a foreign currency are recorded at the current exchange rate as of the end of the reporting period. All transactions included in the statements of operations are recorded at the average currency exchange rate in effect during the reporting period.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current year presentation.
-8-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 3 – CONTROL
As of September 30, 2007, the Treasurer (formerly the President/CEO) and director owns more than 70% of the Company’s common stock and, therefore, has the effective power to elect all members of the board of directors and to control the vote on substantially all other matters, without the approval of other stockholders.
NOTE 4 - CONVERTIBLE DEBT
The following is a summary of convertible debt as of September 30, 2007 and June 30, 2007:
|
September 30, 2007
|
June 30, 2007
|
|||||||
|
Unsecured working capital advances from Treasurer/Director, due on demand, with interest at 6%
|
$
|
544,946
|
$
|
423,946
|
||||
|
Note payable to Treasurer/Director, secured by substantially all of the assets of the Company, due on demand, with interest at 6%
|
1,131,680
|
1,131,680
|
||||||
|
Term loans payable, due from December 29, 2007 through May 10, 2008, with interest ranging from 6 %– 14%
|
318,928
|
318,928
|
||||||
|
1,995,554
|
1,874,554
|
|||||||
|
Accrued interest on above arrangements
|
277,396
|
245,055
|
||||||
|
$
|
2,272,950
|
$
|
2,119,609
|
|||||
WORKING CAPITAL ADVANCES
The Treasurer/Director has provided various short-term working capital advances. During the three months ended September 30, 2007, short-term working capital advances under this borrowing arrangement totaled $146,000 and repayments totaled $25,000. The advances from inception ( July 1, 2004) through September 30, 2007 were $544,946 and the accrued interest on these advances totaled $28,224 and $21,329 as of September 30, 2007 and June 30, 2007, respectively.
NOTE PAYABLE –TREASURER / DIRECTOR
The note payable to Treasurer/Director represents amounts due to the Company’s founder, who is also the Treasurer/Director of the Company. Accrued interest on this note totaled $238,079 and $221,054 as of September 30, 2007 and June 30, 2007, respectively.
-9-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 4 - CONVERTIBLE DEBT (continued)
TERM LOANS PAYABLE
The Company borrowed funds under five term loan agreements. Accrued interest on these term loans totaled $11,093 and $2,672 as of September 30, 2007 and June 30, 2007, respectively.
The detail of the term loans as of September 30, 2007 and June 30, 2007 is as follows:
|
September 30, 2007
|
June 30,
2007
|
|||||||
|
Note dated February 2, 2007, 9% interest, maturing December 30, 2007
|
$
|
25,000
|
$
|
25,000
|
||||
|
Note dated May 10, 2007, 6% interest, maturing May 10, 2008
|
25,000
|
25,000
|
||||||
|
Note dated May 30, 2007, 14% interest, maturing December 30, 2007
|
101,989
|
101,989
|
||||||
|
Note dated June 7, 2007, 9% interest, maturing December 30, 2007
|
66,939
|
66,939
|
||||||
|
Note dated June 29, 2007, 9% interest, maturing December 29, 2007
|
100,000
|
100,000
|
||||||
|
$
|
318,928
|
$
|
318,928
|
|||||
CONVERSION FEATURE
On February 6, 2007, the Company’s Board of Directors voted to provide an irrevocable option to convert any and all of the outstanding amount of principal and accrued interest on the working capital advances and note payable-treasurer/director into shares of the Company’s common stock at a conversion price of $1 per share. Each of the term loans contain a provision that allows the holder to convert any and all of the principal and accrued interest into shares of the Company’s common stock at a conversion price of $1 per share. The working capital advances, note payable-treasurer/director, term loans and interest accrued thereon are convertible at any time at the option of the holder.
In accordance with EITF 98-5, during the three months ended September 30, 2007, the Company recorded a debt discount of $58,229 relating to working capital advances provided by the Treasurer/Director, term loans, note payable-treasure/director and accrued interest representing the intrinsic value of the conversion options based upon the differences between the fair value of the underlying common stock at the commitment date and the effective conversion price embedded in the debt. In determining the fair value, the Company applied a discount of 33% to the closing market price of the stock, on the commitment date, in consideration of the stock’s lack of marketability (including trading volume) and the doubt
associated with regard to the Company’s ability to continue as a going concern. The Company determined the commitment date for the term loans to be the dates the notes were entered into and for the working capital advances and the note payabe-treausre/director, the date the Board of Directors granted the conversion feature. Since all of the above debt is immediately convertible, the Company recognized interest expense for the entire debt discount of $58,229 during the three months ended September 30, 2007. For the period from inception ( July 1, 2004) through September 30, 2007, the Company has recognized $767,915 of interest expense associated with the conversion options on the working capital advances, note payable-treasurer/director and term loans.
-10-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 5 – STOCK OPTIONS
On August 29, 2007, the Company modified two stock option grants totaling 1,175,000 options. After giving effect to the modifications, the option exercise price was adjusted from $1.00 to $1.15. The Company has determined that there is no financial statement effect related to the modifications to these options.
On August 29, 2007, the Company issued options to acquire an aggregate of 176,250 shares of common stock, to two executive officers at $1.15 per share. These options are exercisable on January 1, 2008 and expire in 2012. The Company recognizes compensation expense, associated with the issuance of these options, over the vesting period.
Stock option activity for the three month period ended September 30, 2007 is as follows:
|
Stock Options
|
Weighted
Average
Exercise Price
|
|||||||
|
Outstanding, June 30, 2007
|
1,175,000
|
$
|
1.15
|
|||||
|
Granted
|
176,250
|
1.15
|
||||||
|
Expired
|
-
|
-
|
||||||
|
Exercised
|
-
|
-
|
||||||
|
Outstanding, September 30, 2007
|
1,351,250
|
1.15
|
||||||
|
Average remaining life (years)
|
4.4
|
|||||||
|
Exerciseable at September 30, 2007
|
1,175,000
|
1.15
|
||||||
|
Intrinsic value:
|
||||||||
|
Outstanding
|
$
|
-0-
|
||||||
|
Exerciseable
|
$
|
-0-
|
||||||
For the three month periods ended September 30, 2007 and 2006, and cumulative from July 1, 2004 (inception) to September 30, 2007, no options were exercised and no cash was received from the exercise of options.
In determining the weighted average fair value of stock option grants for the three months ended September 30, 2007 the Company assumed a dividend yield of 0%, weighted average volatility of 78%, risk-free interest rate of 4.12% and an expected holding period of 2 1/2 years. The Company also applied a discount of 33% to the closing market price of the stock, on the grant date, in consideration of the stock’s lack of marketability (including trading volume) and the doubt associated with regard to the Company’s ability to continue as a going concern.
-11-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 6 – OPERATING LEASES
The Company leases office facilities in the United States and China under operating leases which extend to November 2007 for the United States and June 2008 for China. Future minimum lease payments under these operating leases total $20,900 in 2008 and $-0- for the years ending June 30, 2009 through June 30, 2012. Rental expenses incurred under these operating leases totaled $13,460 and $8,000 for the three months ended September 30, 2007 and 2006, respectively, and $59,834 for the period commencing July 1, 2004 (inception) through September 30, 2007.
NOTE 7 – COMMON STOCK
On January 1, 2007, the Company entered into consulting agreements with two service providers and issued 37,500 shares of common stock valued at $ 1.35 per share for services to be performed during the period from January 1, 2007 through December 31, 2007. The resale of the shares is subject to the limitations imposed pursuant to Rule 144 of the Securities and Exchange Commission. In determining the fair value, the Company applied a discount of 33% to the closing market price of the stock, on the date the services were scheduled to begin, in consideration of the stock’s lack of marketability (including trading volume) and the doubt associated with regard to the Company’s ability to continue as a going
concern. The Company recognized consulting expense related to this grant of $12,656 and $-0- for the three month periods ended September 30, 2007 and 2006, respectively and $37,968 for the period from inception ( July 1, 2004) through September 30, 2007.
On July 2, 2007, the Company entered into a consulting agreement with a service provider and issued 100,000 shares of common stock valued at $1.70 per share for services to be performed from July 1, 2007 through June 30, 2009. The resale of the shares is subject to the limitations imposed pursuant to Rule 144 of the Securities and Exchange Commission. In determining the fair value, the Company applied a discount of 33% to the closing market price of the stock, on the date the services were scheduled to begin, in consideration of the stock’s lack of marketability (including trading volume) and the doubt associated with regard to the Company’s ability to continue as a going concern. The Company recognized
consulting expense related to this grant of $14,000 and $-0- for the three month periods ended September 30, 2007 and 2006, respectively and $14,000 for the period from inception ( July 1, 2004) through September 30, 2007.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
On October 26, 2006 the Company entered into a Music Video Reproduction and Exhibition Agreement with Sony BMG Music Entertainment. This agreement, among other things, requires the Company to make a minimum monthly royalty payment of $50,000 commencing with the product launch, in China, under its agreement with a content distributor in China. The monthly payment requirement is for the 12 month term of the contract, committing the Company to a $600,000 minimum royalty.
On June 18, 2007 the Company entered into a second Music Video Reproduction and Exhibition Agreement with Warner Music Group (Beijing).This agreement, among other things, requires the Company to make two minimum advance deposits of $66,200 each during the 150 day period commencing with the signing of the agreement. During the three month period ended September 30, 2007, the Company made the first of these payments and recorded the amount on its balance sheet as a prepaid license fee.
-12-
GLOBAL MUSIC INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
NOTE 9 – GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As shown in the accompanying financial statements, the Company has a working capital deficiency of $2,547,739 as of September 30, 2007, has earned minimal revenues, and has incurred a net loss from July 1, 2004 (inception) through September 30, 2007 totaling $3,982,512. In addition, the note payable-treasurer/director and working capital advances are due on demand. If the treasurer/director were to call the note or the advances, the Company would be unable to meet these
obligations. Further, no assurance can be given that the Company will maintain its cost structure as presently contemplated, raise additional capital on satisfactory terms, or that the distribution agreements entered into will generate sufficient revenue to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 10 – SUBSEQUENT EVENTS
The Company extended an arrangement with an investment banker pursuant to which the banker agreed to assist the Company in raising between $3 million to $5 million. The Company is still pursuing this transaction.
-13-
Item 2. Management's Discussion and Analysis or Plan of Operation
Forward-Looking Statements
This quarterly report on Form 10-QSB and other statements issued or made from time to time by Global Music International, Inc., a Florida corporation, contain statements which may constitute “Forward-Looking Statements” within the meaning of the Securities Act of 1933, as amended (the “Act”), the Securities Exchange Act of 1934 (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections 77Z-2 and 78U-5 (SUPP. 1996). Those statements include statements regarding the intent, belief or current expectations of Global Music International, Inc. and its officers/directors as well as the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These forward-looking statements are based largely on our current expectations and are subject to a number of uncertainties and risks including the Risk Factors identified in our Annual Report on Form 10-KSB for the year ended June 30, 2007. Actual results could differ materially from these forward-looking statements. Global Music International, Inc. is sometimes referred to herein as “we”, “us”, “our” and the “Company.
Results of Operations for Periods Ended September 30, 2007 and 2006
Since the Company was formed on July 1, 2004, it has generated revenues of $127,785 and incurred a net loss since its inception of $3,982,512. Operations from the Company’s inception through September 30, 2007 have been devoted primarily to strategic planning, raising capital, developing revenue-generating opportunities and seeking to develop strategic relationships. The revenue earned since inception was derived in the United States under our contract with RealNetworks. As we terminated this contract in the fourth quarter of fiscal 2007, we will not be generating any further revenues from this relationship. Content distribution began in China in September 2007 and the Company intends to record revenue when
such amounts are reasonably determinable, which is currently expected to occur in the third quarter of fiscal 2008.
During the three months ended September 30, 2007, we generated no revenues and incurred operating expenses of $477,111 compared to generating no revenues and incurring operating expenses of $200,952 for the three months ended September 30, 2006. The major categories of operating expenses for the three months ended September 30, 2007 and 2006 are as follows:
|
Three Months Ended September 30,
|
||||||||
|
2007
|
2006
|
|||||||
|
Consulting and Professional Fees
|
$
|
194,156
|
$
|
15,000
|
||||
|
Compensation Expense
|
101,599
|
68,750
|
||||||
|
General and Administrative Expenses
|
99,809
|
87,815
|
||||||
|
Interest Expense
|
90,570
|
17,115
|
||||||
|
Depreciation Expense
|
3,961
|
12,272
|
||||||
|
Total Expenses
|
$
|
490,095
|
$
|
200,952
|
||||
Consulting and Professional Fees increased in the three months ended September 30, 2007 from the same period last year by $179,156 due to increased professional fees principally related to compliance reporting.
-14-
Compensation expense increased in the three month period ended September 30, 2007 from the same period last year by $32,849 of which $19,865 is related to an increase in executive salary expense and salaries paid to employees in China and $12,984 is compensation expense related to amortization associated with the grant of options.
Interest expense increased in the three months ended September 30, 2007 from the same period last year by $73,455. This increase is due to the increased interest expense of $15,226 associated with the increased indebtedness outstanding and $58,229 from the amortization of debt discount recorded in connection with the right granted to the holders of debt during the three months ended September 30, 2007 to convert such indebtedness into shares of our common stock at a conversion price of $1 per share. The debt discount represents the intrinsic value of the conversion right based upon the difference between the fair value of the underlying common stock at the commitment date and the effective conversion price embedded
in the debt. In determining fair value we applied a 33.3 % discount to the closing market price of the stock, on the commitment date, in light of the lack of marketability (including limited trading volume) with respect to our common stock and the doubt associated with our ability to continue as a going concern. Since all of such debt is convertible immediately, we recognized interest expense for the entire debt discount of $58,229 during the three months ended September 30, 2007. Had we performed this calculation using no discount, interest expense would have been significantly higher.
Liquidity and Capital Resources
During the three months ended September 30, 2007, cash of $192,434 and $3,583 was used in operating activities and investing activities, respectively. These uses of cash were funded by $121,000provided by financing activities and $75,000 of the cash on hand at the beginning of the period. Net cash provided by financing activities was comprised of $121,000 in working capital advances (net of repayments of $25,000) from Corinne Fallacaro, our principal stockholder, director and treasurer.
During the three months ended September 30, 2006, cash of $35,413 and $9,349 was used in operating activities and investing activities, respectively. These uses of cash were funded by $41,000 provided by financing activities and $5,000 of cash on hand at the beginning of the period. Cash generated from financing activities was comprised of $41,000 in working capital advances from Ms. Fallacaro.
As of September 30, 2007, we had a working capital deficit of approximately $2.55 million. We also expect that during fiscal 2008, we will be required to expend approximately $670,000 for minimum payment obligations to our content providers. We do not currently have the resources to satisfy these obligations as well as our other operating and debt obligations. No assurance can be given that Ms. Fallacaro will continue to finance our operating and other expenses. We are currently exploring potential financing opportunities though no assurance can be given that financing will be available on terms acceptable to us.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
Item 3A(T). Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our
management to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that except as set forth in the next paragraph, our disclosure controls and procedures were effective.
-15-
Subsequent to the September 30, 2007, counsel advised management that we may not have filed on a timely basis certain reports disclosing matters regarding the advances by management of funds to or on our behalf and the interest accrued subsequent to June 30, 2007 with respect to indebtedness owed by us to management (collectively, the "Additional Obligations"). See Note 4 of Notes to our Financial Statements. The Additional Obligations are convertible into shares of our common stock at a conversion price of $1.00. Management believes, among other things, that such information was publicly available inasmuch as we had previously disclosed that future advances or accrued interest would be convertible into common stock
at this conversion price. Nonetheless, to improve the disclosure control environment, management has reviewed the events that trigger the filing of reports with the SEC. Further, we intend to disclose the issuance of such additional advances and accrued interest on obligations owed to management on a quarterly basis to the extent such amounts exceeds $100,000 in any quarter. Notwithstanding the failure to file timely such reports, if and to the extent any such reports were required to be filed, our financial statements reflected, on a timely basis, appropriate accounting for all such arrangements
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
-16-
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2007, the Company received $121,000 (net of repayments of $25,000 of working capital advances) and incurred $32,341 of accrued interest, on all of its debt obligations. These working capital advances and the accrued interest of $32,341 are convertible, at the option of the debt holders, into common stock at $1.00 per share. These issuances were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to section 4(2) thereof inasmuch as all the debt holders are accredited investors.
Item 5. Other Information.
None
Item 6. Exhibits
(a) Index to Exhibits
Exhibit No. Description of Exhibit
31.1 Rule 13a-14(a)/15d-14a(a) certification
31.2 Rule 13a-14(a)/15d-14(a) certification
32.1 Section 1350 certification
-17-
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.
Global Music International, Inc.
Date: September 15, 2011 /s/ James Fallacaro
---------------------------------------
James Fallacaro,
Chief Executive Officer and
President and Director
-18-