UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ________ TO________.
COMMISSION FILE NUMBER: 0-25053
THEGLOBE.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
| STATE OF DELAWARE | 14-1782422 |
| (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |
(I.R.S. EMPLOYER IDENTIFICATION NO.) |
5949 SHERRY LANE, SUITE 950, DALLAS, TX 75225
c/o Toombs Hall and Foster
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
(214) 369-5695
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | |
| Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | x |
| Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes x No ¨
The number of shares outstanding of the Registrant’s Common Stock, $.001 par value (the “Common Stock”) as of March 31, 2018 was 441,484,838.
THEGLOBE.COM, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THEGLOBE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| MARCH 31, 2018 (UNAUDITED) | DECEMBER 31, 2017 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 2,268 | $ | 440 | ||||
| Total current assets | $ | 2,268 | $ | 440 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accrued expenses and other current liabilities | $ | 65,469 | $ | 26,000 | ||||
| Accrued interest due to related party | 277 | — | ||||||
| Notes payable due to related party | 54,959 | — | ||||||
| Total current liabilities | 120,705 | 26,000 | ||||||
| Stockholders’ Deficit: | ||||||||
| Common stock, $0.001 par value; 500,000,000 shares authorized; 441,484,838 issued and outstanding at March 31, 2018 and December 31, 2017 | 441,485 | 441,485 | ||||||
| Additional paid-in capital | 296,594,037 | 296,594,037 | ||||||
| Accumulated deficit | (297,153,959 | ) | (297,061,082 | ) | ||||
| Total stockholders’ deficit | (118,437 | ) | (25,560 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 2,268 | $ | 440 | ||||
See notes to unaudited condensed consolidated financial statements.
| 1 |
THEGLOBE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (UNAUDITED) | ||||||||
| Net Revenue | $ | — | $ | — | ||||
| Operating Expenses: | ||||||||
| General and administrative | 92,600 | 23,444 | ||||||
| Related party transactions | — | 60,000 | ||||||
| 92,600 | 83,444 | |||||||
| Operating Loss from Continuing Operations | (92,600 | ) | (83,444 | ) | ||||
| Other Expense: | ||||||||
| Related party interest expense | 277 | 14,836 | ||||||
| Loss from Continuing Operations | ||||||||
| Before Income Tax | (92,877 | ) | (98,280 | ) | ||||
| Income Tax Provision | — | — | ||||||
| Loss from Continuing Operations | (92,877 | ) | (98,280 | ) | ||||
| Discontinued Operations, net of tax | — | (225 | ) | |||||
| Net Loss | $ | (92,877 | ) | $ | (98,505 | ) | ||
| Loss Per Share - | ||||||||
| Basic and Diluted: | ||||||||
| Continuing Operations | $ | — | $ | — | ||||
| Discontinued Operations | $ | — | $ | — | ||||
| Weighted Average Common Shares Outstanding | $ | 441,484,838 | $ | 441,484,838 | ||||
See notes to unaudited condensed consolidated financial statements.
| 2 |
THEGLOBE.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Three Months Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
| (UNAUDITED) | ||||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Loss | $ | (92,877 | ) | $ | (98,505 | ) | ||
| Add back: loss from discontinued operations | — | 225 | ||||||
| Net loss from continuing operations | (92,877 | ) | (98,280 | ) | ||||
| Adjustments to reconcile net loss from continuing operations to net cash flows used in operating activities | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid and other current assets | — | (441 | ) | |||||
| Accounts payable to related party | — | 60,000 | ||||||
| Accounts payable | — | 2,819 | ||||||
| Accrued expenses and other current liabilities | 39,469 | (2,760 | ) | |||||
| Accrued interest due to related party | 277 | 14,836 | ||||||
| Net cash flows used in operating activities of continuing operations | (53,131 | ) | (23,826 | ) | ||||
| Net cash flows used in operating activities of discontinued operations | — | (225 | ) | |||||
| Net cash flows used in operating activities | (53,131 | ) | (24,051 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Borrowings on Notes Payable | 54,959 | 50,000 | ||||||
| Net cash flows provided by financing activities | 54,959 | 50,000 | ||||||
| Net Increase in Cash | 1,828 | 25,949 | ||||||
| Cash at beginning of period | 440 | 31,285 | ||||||
| Cash at end of period | $ | 2,268 | $ | 57,234 | ||||
See notes to unaudited condensed consolidated financial statements.
| 3 |
THEGLOBE.COM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (1) | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
DESCRIPTION OF THEGLOBE.COM
theglobe.com, inc. (the “Company,” “theglobe,” “we” or “us”) was incorporated on May 1, 1995 and commenced operations on that date. Originally, we were an online community with registered members and users in the United States and abroad. On September 29, 2008, we consummated the sale of the business and substantially all of the assets of our subsidiary, Tralliance Corporation (“Tralliance”), to Tralliance Registry Management Company, LLC (“Tralliance Registry Management”), an entity controlled by Michael S. Egan, our former Chairman and Chief Executive Officer. As a result of and on the effective date of the sale of our Tralliance business, which was our last remaining operating business, we became a “shell company,” as that term is defined in Rule 12b-2 of the Exchange Act, with no material operations or assets.
On December 20, 2017, Delfin Midstream LLC (“Delfin”) entered into a Common Stock Purchase Agreement with certain of our stockholders for the purchase of a total of 312,825,952 shares of our Common Stock, par value $0.001 per share (“Common Stock”), representing 70.9% of our Common Stock. On December 31, 2017 (the “Closing Date”), Mr. Egan, Edward A. Cespedes and Robin S. Lebowitz resigned from their respective positions as officers and directors of the Company. William “Rusty” Nichols was appointed the sole member of our Board and our sole executive officer.
As a shell company, our operating expenses have consisted primarily of, and we expect them to continue to consist primarily of, customary public company expenses, including personnel, accounting, financial reporting, legal, audit and other related public company costs.
As of March 31, 2018, as reflected in our accompanying Consolidated Balance Sheet, our current liabilities exceed our total assets. Additionally, we received a report from our independent registered public accountants, relating to our December 31, 2017 audited financial statements, containing an explanatory paragraph regarding our ability to continue as a going concern. We prefer to avoid filing for protection under the U.S. Bankruptcy Code. However, unless we are successful in raising additional funds through the offering of debt or equity securities, we may not be able to continue to operate as a going concern for any significant length of time in the future. Notwithstanding the above, we currently intend to continue operating as a public company and making all the requisite filings under the Exchange Act.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial statements of the Company as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 included herein have been prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as amended. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations relating to interim condensed consolidated financial statements.
In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at March 31, 2018 and the results of its operations and its cash flows for the three months ended March 31, 2018 and 2017. The results of operations and cash flows for such periods are not necessarily indicative of results expected for the full year or for any future period.
| 4 |
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates and assumptions relate primarily to valuations of accounts payable and accrued expenses
NET INCOME PER SHARE
The Company reports basic and diluted net income per common share in accordance with FASB ASC Topic 260, “Earnings Per Share.” Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Common equivalent shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method). Common equivalent shares are excluded from the calculation if their effect is anti-dilutive.
Due to the anti-dilutive effect of potentially dilutive securities or common stock equivalents that could be issued, such securities were excluded from the diluted net loss per common share calculation for all periods presented. Such potentially dilutive securities and common stock equivalents consisted of the following for the periods ended March 31:
| 2018 | 2017 | |||||||
| Options to purchase common stock | — | — |
RECENT ACCOUNTING PRONOUNCEMENTS
Management has determined that all recently issued accounting pronouncements will not have a material impact on the Company’s financial statements or do not apply to the Company’s operations.
| (2) | LIQUIDITY AND GOING CONCERN CONSIDERATIONS |
LIQUIDITY AND GOING CONCERN CONSIDERATIONS
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. However, for the reasons described below, Company management does not believe that cash on hand and cash flow generated internally by the Company will be adequate to fund its limited overhead and other cash requirements beyond a short period of time. These reasons raise substantial doubt about the Company’s ability to continue as a going concern.
Since 2008, the Company was able to continue operating as a going concern due principally to funding of $500,000 received during 2008 under a Revolving Loan Agreement with an entity controlled by Michael S. Egan, the former Chairman and Chief Executive Officer and total proceeds of approximately $2,437,000 received during 2009 through the second quarter of 2015 under an Earn-out Agreement with an entity also controlled by Mr. Egan (as more fully discussed below), as well as the forbearance of its creditors. More recently, the Company received fundings of $50,000 each in March 2016, November 2016 and March 2017 as well as $10,000 of $50,000 in November 2017 under Promissory Notes entered into with the same entity that provided funding under the Revolving Loan Agreement (the “Promissory Notes”). See Note 4, “Debt” in our consolidated financial statements for further details. In connection with the Closing with Delfin Midstream LLC the Promissory Notes have been fully satisfied.
| 5 |
At March 31, 2018, the Company had a net working capital deficit of approximately $118,000. Such working capital deficit included accrued expenses of $65,000 and $55,000 in principal and accrued interest owed under the March 2018 Promissory Note with Delfin, the Company’s majority shareholder.
On December 20, 2017, Michael S. Egan, our former Chief Executive Officer and majority stockholder, and certain of our other stockholders (each a “Seller” and collectively the “Sellers”) entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Delfin. Pursuant to the terms of the Purchase Agreement, Delfin agreed to purchase from the Sellers an aggregate of 312,825,952 shares of our Common Stock, representing approximately 70.9% of the issued and outstanding shares of our Common Stock. The closing of the purchase and sale transaction occurred on December 31, 2017 (the “Closing Date”). In connection with the transaction, we terminated the Master Services Agreement (See Note 4) we had entered into with an entity controlled by Mr. Egan and satisfied all promissory notes and other borrowings under the credit line with respect to indebtedness owed to related parties. Delfin beneficially owns approximately 70.9% of our Common Stock and continues to beneficially own such amount as of the date of this filing.
MANAGEMENT’S PLANS
Management anticipates continued funding from Delfin as it determines the direction of the Company.
| (3) | DISCONTINUED OPERATIONS |
In March 2007, management and the Board of Directors of the Company decided to discontinue the operating, research and development activities of its VoIP telephony services business and terminate all of the remaining employees of the business. The Company’s decision to discontinue the operations of its VoIP telephony services business was based primarily on the historical losses sustained by this business, management’s expectations of continued losses for the foreseeable future and estimates of the amount of capital required to successfully monetize this business. All elements of its VoIP telephony services business shutdown plan were completed by the Company in 2007 except for the resolution of certain disputed vendor accounts payables, totaling approximately $1,000,000, and the payment of remaining non-disputed accounts payable. The disputed accounts payables related primarily to telecommunications network service fees charged by various former telecommunication vendors during the period from 2004 to 2007. These charges were disputed by the Company primarily due to such items as incorrect quantities, rates, in-service dates, regulatory fees/charges, late fees and contract termination charges.
During the fourth quarter of 2012, the Company re-evaluated all remaining liabilities of its VoIP telephony services business in light of the passage of time and applicable state statute of limitation laws. Based upon this re-evaluation, the Company derecognized accounts payable liabilities related to six (6) former telecommunication vendors totaling approximately $1,354,000, including the disputed liabilities of approximately $1,000,000 discussed earlier. During the second quarter of 2015, a former VoIP telephony service vendor agreed to forgive its remaining non-disputed accounts payable balance of $41,000. Accordingly, such amount was written off the balance sheet with a corresponding gain on forgiveness of debt included within Discontinued Operations for the year ended December 31, 2015. There are no assets or liabilities of discontinued operations at March 31, 2018.
| (4) | DEBT |
Debt consists of notes payables due to a related party, as summarized below:
| March 31, | ||||||||
| 2018 | 2017 | |||||||
| 2008 Revolving Loan Notes due to a related party; due on demand | $ | — | $ | 500,000 | ||||
| March 2016 Promissory Note due to a related party; due on demand | — | 50,000 | ||||||
| November 2016 Promissory Note due to a related party; due on demand | — | 50,000 | ||||||
| March 2017 Promissory Note due to a related party; due on demand | — | 50,000 | ||||||
| November 2017 Promissory Note due to a related party; due on demand | — | — | ||||||
| March 2018 Promissory Note due to a related party; due on demand | 54,959 | — | ||||||
| $ | 54,959 | $ | 650,000 | |||||
| 6 |
The Company received fundings of $50 thousand each in March 2016, November 2016 and March 2017 as well as $10 thousand of $50 thousand in November 2017 under Promissory Notes entered into with the same entity that provided funding under the Revolving Loan Agreement (the “Promissory Notes”). In connection with the Closing with Delfin Midstream LLC the Promissory Notes have been fully satisfied.
In March 2018, the Company executed a Promissory Note with Delfin for up to $150 thousand, of which $55 thousand was advanced. Interest accrues on the unpaid principal balance at a rate of eight (8%) per annum, and is payable on the maturity date, calculated on a 365/66 day year, as applicable. The Promissory Note is due upon demand. It may be prepaid in whole or in party at any time prior to the maturity date. The Company expects continued funding from Delfin.
On June 6, 2008, we and our subsidiaries, as guarantors, entered into a Revolving Loan Agreement with Dancing Bear, pursuant to which Dancing Bear may loan up to $500,000 to the Company on a revolving basis (the “Credit Line”). In connection with its entry into the Credit Line, we borrowed $100,000 under the Credit Line, and during the remainder of 2008, we made additional borrowings totaling $400,000 under the Credit Line. Accrued interest of $ 0 and $423,233 related to the Credit Line have been reflected as current liabilities in our Consolidated Balance Sheet as of December 31, 2017 and December 31, 2016, respectively. We recognized $50,000 of Related Party Interest Expense on our Consolidated Statement of Operations for both of the years ended December 31, 2017 and 2016 related to the Credit Line.
As of December 31, 2017, the outstanding principal and accrued interest of $923,233 related to the Credit Line was satisfied and the Credit Line was terminated in connection with the transactions contemplated by the Purchase Agreement.
| (5) | STOCK OPTION PLANS |
As of March 31, 2018, all of the Company’s stock option plans have been terminated and there are no shares available for grant under these plans. Remaining stock options outstanding and exercisable expired in August 2016.
There were no stock option grants or exercises during each of the three months ended March 31, 2018 and 2017.
| (6) | RELATED PARTY TRANSACTIONS |
In connection with the closing of the Tralliance Purchase Transaction, the Company also entered into a Master Services Agreement (“Services Agreement”) with Dancing Bear Investments, Inc. (“Dancing Bear”), an entity which was controlled by Mr. Egan, our former Chairman and CEO. Under the terms of the Services Agreement, for a fee of $20,000 per month ($240,000 per annum), Dancing Bear provides personnel and services to the Company so as to enable it to continue its existence as a public company without the necessity of any full-time employees of its own. The Services Agreement had an initial term of one year. In connection with the Delfin transaction, the Services Agreement has been terminated. Services under the Services Agreement include, without limitation, accounting, assistance with financial reporting, accounts payable, treasury/financial planning, record retention and secretarial and investor relations functions. Related party transactions expense related to the Master Services Agreement of $60,000 was recognized in our Consolidated Statement of Operations during the three months ended March 31, 2017. Any balances owed under the Services agreement were satisfied with the Delfin transaction. There we no such transactions for the three months ended March 31, 2018.
In March 2018, the Company executed a Promissory Note with Delfin for up to $150 thousand, of which $55 thousand was advanced. The Company expects continued funding from Delfin. The Company’s Condensed Consolidated Balance Sheet at March 31, 2017 included certain related party debt liabilities owed to Dancing Bear, which were satisfied with the Delphin transaction. Related party interest expense associated with such debt totaling $ 277 and $14,836 has been recognized in our Condensed Consolidated Statement of Operations for the three months ended March 31, 2018 and 2017, respectively. See Note 4, “Debt,” for a more complete discussion of related party debt.
| 7 |
| (7) | SUBSEQUENT EVENTS |
The Company’s management evaluated subsequent events through the time of the filing of this report on Form 10-Q. The Company’s management is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on its consolidated financial statements.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements concern expectations, beliefs, projections, plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terminology, such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “intend,” “potential” or “continue” or the negative of such terms or other comparable terminology, although not all forward-looking statements contain such terms. In addition, these forward-looking statements include, but are not limited to, statements regarding:
| ● | our need for additional equity and debt capital financing to continue as a going concern, and the sources of such capital; |
| ● | our intent with respect to future dividends; |
| ● | the continued forbearance of certain related parties from making demand for payment under certain contractual obligations of, and loans to, the Company; and |
| ● | our estimates with respect to certain accounting and tax matters. |
These forward-looking statements reflect our current view about future events and are subject to risks, uncertainties and assumptions. Unless required by law, we do not intend to update any of the forward-looking statements after the date of this Form 10-Q or to conform these statements to actual results. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. A description of risks that could cause our results to vary appears under “Risk Factors” and elsewhere in this Form 10-Q. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
| ● | our ability to raise additional and sufficient capital; |
| ● | our ability to continue to receive funding from related parties; and |
| ● | our ability to successfully estimate the impact of certain accounting and tax matters. |
The following discussion should be read together in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto and the audited consolidated financial statements and notes to those statements contained in the Annual Report on Form 10-K for the year ended December 31, 2017.
| 8 |
OVERVIEW
theglobe.com, inc. (the “Company,” “theglobe,” “we” or “us”) was incorporated on May 1, 1995 and commenced operations on that date. Originally, we were an online community with registered members and users in the United States and abroad. On September 29, 2008, we consummated the sale of the business and substantially all of the assets of our subsidiary, Tralliance Corporation (“Tralliance”), to Tralliance Registry Management Company, LLC, an entity controlled by Michael S. Egan, our former Chairman and Chief Executive Officer. As a result of and on the effective date of the sale of our Tralliance business, which was our last remaining operating business, we became a “shell company,” as that term is defined in Rule 12b-2 of the Exchange Act, with no material operations or assets. We currently have no material operations or assets.
On December 20, 2017, our former Chief Executive Officer and majority stockholder, Mr. Egan entered into the Purchase Agreement with Delfin for the purchase by Delfin of shares owned by Mr. Egan representing approximately 70.9% of our Common Stock. On the Closing Date, Mr. Egan, Mr. Cespedes and Ms. Lebowitz resigned from their respective positions as officers and directors of the Company. Mr. Nichols was appointed the sole member of our Board and our sole executive officer.
As a shell company, our operating expenses have consisted primarily of, and we expect them to continue to consist primarily of, customary public company expenses, including personnel, accounting, financial reporting, legal, audit and other related public company costs.
As of March 31, 2018, as reflected in our accompanying Consolidated Balance Sheet, our current liabilities exceed our total assets.
BASIS OF PRESENTATION OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS; GOING CONCERN
We received a report from our independent registered public accountants, relating to our December 31, 2017 audited consolidated financial statements, containing an explanatory paragraph regarding our ability to continue as a going concern. As a shell company, our management believes that we will not be able to generate operating cash flows sufficient to fund our operations and pay our existing current liabilities in the foreseeable future. Based upon our current limited cash resources and without the infusion of additional capital and/or the continued forbearance of our creditors, our management does not believe we can operate as a going concern beyond a short period of time. See “Future and Critical Need for Capital” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, our condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.
THREE MONTHS
ENDED MARCH 31, 2018 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 2017
CONTINUING OPERATIONS
NET REVENUE. Commensurate with the sale of our Tralliance business on September 29, 2008, we became a shell company. As a result, net revenue for both the three months ended March 31, 2018 and 2017 was $0.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include only customary public company expenses, including accounting, legal, audit, insurance and other related public company costs. General and administrative expenses totaled approximately $93 thousand in the first quarter of 2018 as compared to approximately $23 thousand for the same quarter of the prior year.
RELATED PARTY TRANSACTIONS. Related party transaction expense totaled $0 for the three months ended March 31, 2018 as compared to approximately $60 thousand for the same quarter of the prior year relating to management services fees payable to Dancing Bear for accounting, finance, administrative and managerial support.
RELATED PARTY INTEREST EXPENSE. Related party interest expense for the three months ended March 31, 2018 totaled $277 compared to approximately $15 thousand for the three months ended March 31, 2017 and consisted of interest due and payable to Dancing Bear under the Revolving Loan Agreement and Promissory Notes, for the prior year period.
| 9 |
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW ITEMS
As of March 31, 2018, we had $2,268 in cash as compared to $440 as of December 31, 2017. Net cash flows used in operating activities of continuing operations totaled approximately $53 thousand for the three months ended March 31, 2018 compared to net cash flows used in operating activities of continuing operations of $24 thousand for the three months ended March 31, 2017.
FUTURE AND CRITICAL NEED FOR CAPITAL
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern. However, for the reasons described below, our management does not believe that cash on hand and cash flow generated internally by us will be adequate to fund our limited overhead and other cash requirements beyond a short period of time. These reasons raise substantial doubt about our ability to continue as a going concern.
Since 2008, we have been able to continue operating as a going concern due principally to funding of $500,000 received during 2008 under a Revolving Loan Agreement with an entity controlled by Mr. Egan, our former Chairman and Chief Executive Officer, and total proceeds of approximately $2.437 million received during 2009 through the second quarter of 2015 under an Earn-out Agreement with an entity also controlled by Mr. Egan (as more fully discussed below), as well as the forbearance of our creditors. More recently, we received funding of $50,000 each in March 2016, November 2016 and March 2017 as well as $10,000 of $50,000 in November 2017 under Promissory Notes entered into with the same entity that provided funding under the Revolving Loan Agreement. See Note 4, “Debt” in our consolidated financial statements for further details. In connection with the closing of the purchase of Common Stock by Delfin, the Promissory Notes were fully satisfied.
In March 2018, the Company executed a Promissory Note with Delfin for up to $150 thousand, of which $55 thousand was advanced. Interest accrues on the unpaid principal balance at a rate of eight (8%) per annum, and is payable on the maturity date, calculated on a 365/66 day year, as applicable. The Promissory Note is due upon demand. It may be prepaid in whole or in any part at any time prior to the maturity date. Management anticipates continued funding from Delfin as it determines the direction of the Company.
At March 31, 2018, we had a net working capital deficit of approximately $118 thousand. This deficit included accrued expenses of $65 thousand and $55 thousand in principal and accrued interest owed under the March 2018 Promissory Note with Delfin, the Company’s majority shareholder.
Management believes that inflation has not had a significant effect on our results of operations during 2018 and 2017.
| 10 |
MANAGEMENT’S DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.
Certain of our accounting policies require higher degrees of judgment than others in their application. Primarily, these include valuation of accounts payable and accrued expenses.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Management has determined that all recently issued accounting pronouncements will not have a material impact on the Company’s financial statements or do not apply to the Company’s operations.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK |
Not applicable to smaller reporting companies such as the Company.
| ITEM 4. | CONTROLS AND PROCEDURES |
We maintain disclosure controls and procedures that are designed to ensure (1) that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms, and (2) that this information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective in alerting them in a timely manner to material information regarding us (including our consolidated subsidiaries) that is required to be included in our periodic reports to the SEC.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated any change in our internal control over financial reporting that occurred during the quarter ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, and have determined there to be no reportable changes.
| ITEM 1. | LEGAL PROCEEDINGS |
None.
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| ITEM 1A. | RISK FACTORS |
In addition to the other information in this report, the following factors should be carefully considered in evaluating our business and prospects.
RISKS RELATING TO OUR BUSINESS GENERALLY
We may not be able to continue as a going concern.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should we be unable to continue as a going concern. However, for the reasons described below, we do not believe that cash on hand and cash flow generated internally by us will be adequate to fund our limited overhead and other cash requirements beyond a short period of time. These reasons raise significant doubt about our ability to continue as a going concern. In addition, our independent registered public accounting firm has issued a report that included an explanatory paragraph referring to our significant net losses, accumulated deficit of approximately $297 million as of December 31, 2017 and the previous sale of our last remaining operating business, which as it noted raised substantial doubt about our ability to continue as a going concern.
Since 2008, we were able to continue operating as a going concern due principally to funding of $500 thousand received during 2008 under a Revolving Loan Agreement with an entity controlled by Mr. Egan, our former Chairman and Chief Executive Officer, and total proceeds of approximately $2.437 million received during 2009 through the second quarter of 2015 under an Earn-out Agreement with an entity also controlled by Mr. Egan (as more fully discussed below), as well as the forbearance of our creditors. More recently, we received funding of $50 thousand each in March 2016, November 2016 and March 2017 as well as $10 thousand of $50 thousand in November 2017 under promissory notes entered into with the same entity that provided funding under the Revolving Loan Agreement. See Note 4, “Debt,” in our consolidated financial statements for further details. In connection with the closing of the purchase of Common Stock by Delfin, the promissory notes were fully satisfied.
At March 31, 2018, we had a net working capital deficit of approximately $118 thousand. This deficit included accrued expenses of $65 thousand and $55 thousand in principal and accrued interest owed under the March 2018 Promissory Note with Delfin, the Company’s majority shareholder.
On a short term liquidity basis, we must receive capital contributions or loans from Delfin or its affiliates in order to continue as a going concern.
We prefer to avoid filing for protection under the U.S. Bankruptcy Code. However, based upon our current financial condition as discussed above, we believe that we will need to raise additional debt or equity capital in order for us to continue to operate as a going concern on a long-term basis. Any such capital would likely come from Delfin, as we currently have no access to credit facilities and have traditionally relied on borrowings from related parties to meet short-term liquidity needs. Any equity capital raised would likely result in substantial dilution in the number of outstanding shares of our Common Stock. We intend to use the proceeds from the 2018 Promissory Note and seek other loans from Delfin and related entities, if necessary, to fund our public company operating costs while we explores our options related to the future of theglobe.
In 2018, we borrowed $55 thousand under a promissory note from Delfin.
Our management may have other interests that may conflict with the interests of our stockholders.
Mr. Nichols became our Chief Executive Officer effective December 31, 2017. Mr. Nichols previously served as a director of the predecessor entity of Fairwood , which is the parent of Delfin, our controlling stockholder.
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Due to the relationships with his related entities, Mr. Nichols will have an inherent conflict of interest in making any decision related to transactions between the related entities and us. Furthermore, since Mr. Nichols is also the sole member of our Board of Directors, our Board presently is not “independent.” We intend to review related party transactions in the future on a case-by-case basis.
We currently have no business operations and are a shell company.
Immediately following the closing of the Tralliance Purchase Transaction, we became a shell company with no material operations or assets, and no source of revenue other than under the “net revenue” earn-out arrangement with Tralliance Registry Management. We expect that our future operating expenses as a public shell company will consist primarily of customary public company expenses, including legal, audit and other miscellaneous public company costs which will need to be paid by Delfin. In addition, our lack of operations, assets and current prospects makes it difficult for investors to evaluate our future performance.
We may suffer adverse consequences if we are deemed an investment company (defined below) and we may incur significant costs to avoid investment company status.
We believe that we are not an investment company as defined by the Investment Company Act of 1940. If the Commission or a court were to disagree with us, we could be required to register as an investment company. This would negatively affect our ability to consummate a potential acquisition of an operating company, subjecting us to disclosure and accounting guidance geared toward investment, rather than operating companies; limiting our liability to borrow money, issue options, issue multiple classes of stock and debt, and engage in transactions with affiliates; and requiring us to undertake significant costs and expenses to meet disclosure and regulatory requirements to which we would be subject as a registered investment company.
RISKS RELATING TO OUR COMMON STOCK
We are controlled by our majority stockholder, which may limit the ability of our other stockholders to influence future corporate action.
In connection with the Purchase Agreement, as described above, Delfin purchased an aggregate of 312,825,952 shares of our Common Stock, representing approximately 70.9% of the issued and outstanding shares of our Common Stock. Accordingly, Delfin continues to be in a position to control the vote on all corporate actions in the future.
The delisting of our Common Stock makes it more difficult for investors to sell shares.
The shares of our Common Stock were delisted from the NASDAQ national market in April 2001 and are now traded in the over-the-counter market on what is commonly referred to as the electronic bulletin board or “OTCBB.” As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of the securities, if at all. The delisting has made trading our shares more difficult for investors. It has also made it more difficult for us to raise additional capital. We may also incur additional costs under state blue-sky laws if we sell equity due to our delisting.
We do not currently intend to pay dividends on our Common Stock and, consequently, the ability of our stockholders to achieve a return on their investment in our Common Stock will depend on appreciation in the price of our Common Stock.
We do not expect to pay cash dividends on our Common Stock. Any future dividend payment are within the absolute discretion of our Board of Directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our Board of Directors may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends on our Common Stock. As a result, the success of an investment in our Common Stock will depend on future appreciation in its value. The price of our Common Stock may not appreciate in value or even maintain the price at which our stockholders purchased shares. If our Common Stock does not appreciate in value, investors could suffer losses in their investment in our Common Stock.
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Our Common Stock is subject to certain “penny stock” rules which may make it a less attractive investment.
Since the trading price of our Common Stock is less than $5.00 per share and our net tangible assets are less than $2.0 million, trading in our Common Stock is subject to the requirements of Rule 15g-9 of the Exchange Act. Under Rule 15g-9, brokers who recommend penny stocks to persons who are not established customers and accredited investors, as defined in the Exchange Act, must satisfy special sales practice requirements, including requirements that they make an individualized written suitability determination for the purchaser; and receive the purchaser’s written consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosures in connection with any trades involving a penny stock, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated with that market. Such requirements may severely limit the market liquidity of our Common Stock and the ability of purchasers of our equity securities to sell their securities in the secondary market. For all of these reasons, an investment in our equity securities may not be attractive to our potential investors.
As a shell company, we are subject to more stringent reporting requirements.
We have no or nominal operations and assets, and pursuant to Rule 405 and Exchange Act Rule 12b-2, we are a shell company. Applicable securities rules prohibit shell companies from using a Form S-8 to register securities pursuant to employee compensation plans. However, the rules do not prevent us from registering securities pursuant to certain other registration statements. Additionally, Form 8-K requires shell companies to provide more detailed disclosure upon completion of a transaction that causes it to cease being a shell company. To the extent we acquire a business in the future, we must file a current report on Form 8-K containing the information required in a registration statement on Form 10, within four business days following completion of the transaction together with financial information of the private operating company. In order to assist the SEC in the identification of shell companies, we are also required to check a box on Form 10-Q and Form 10-K indicating that we are a shell company. To the extent that we are required to comply with additional disclosure because we are a shell company, we may be delayed in executing any mergers or acquiring other assets that would cause us to cease being a shell company.
Rule 144 is not generally available to holders of our Common Stock which makes it difficult to resell shares in the future.
With limited exceptions related to restrictive securities acquired before we became a “shell company”, holders of our restricted securities are limited in their ability to resell their securities pursuant to Rule 144. Preclusion from the use of the resale exemption from registration afforded by Rule 144 may make it more difficult for us to sell equity securities in the future, and for stockholders to resell their restricted securities.
Our need for capital will create additional risks and create dilution to existing stockholders.
As mentioned above, we will need to raise additional capital in the future, which may be funded from unrelated third party sources, including the incurring of debt and/or the sale of additional equity securities. In addition, we may require additional financing to fund working capital and operating losses in the future should the need arise. The incurrence of debt creates additional financial leverage and therefore an increase in the financial risk of our operations. The sale of additional equity securities will be dilutive to the interests of our current stockholders. In addition, there can be no assurance that such additional financing, whether debt or equity, will be available to us or that it will be available on acceptable commercial terms. Any inability to secure such additional financing on acceptable terms could have a materially adverse impact on our business, financial condition and operating results.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| (a) | Unregistered Sales of Equity Securities. |
None.
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| (b) | Use of Proceeds From Sales of Registered Securities. |
Not applicable.
| (c) | Repurchases. |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| ITEM 5. | OTHER INFORMATION |
None.
| ITEM 6. | EXHIBITS |
| 10.25 | Amended and Restated Promissory Note, May 9, 2018. |
| 31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a). |
| 31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a). |
| 32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. |
| 101.1NS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document |
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Pursuant to the requirements of Section 13 or 15(d) 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.
| theglobe.com, inc. | ||
| Dated: May 15, 2018 | By: | /s/ William R. Nichols |
| William R. Nichols | ||
| Chief Executive Officer and Chief Financial Officer | ||
| (Principal Executive Officer) | ||
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EXHIBIT INDEX
| 101.1NS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definitions Linkbase Document |
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