10-Q 1 f10q930.txt FORM 10Q FOR 9/30/2000 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 333-41389 GLOBAL SOURCES LIMITED ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 13-4020643 -------------------------------- --------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1055 Parsippany Boulevard, Suite 106, Parsippany, New Jersey 07054 . -------------------------------------- (Address of principal executive offices) (973) 316-0399 (Issuer's Telephone Number, Including Area Code) Not Applicable -------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) 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 No X ------ ------- State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: Common Stock, $.001 par value per share - 10,966,999 shares outstanding as of April 26, 2001. Transitional Small Business Disclosure Format: Yes No X ------ ------- GLOBAL SOURCES LIMITED INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of September 30, 2000 (unaudited) and September 30, 1999 Consolidated Statements of Income (unaudited) for the three months ending September 30, 2000 and September 30, 1999 Consolidated Statement of Cash Flows (unaudited) for the three months ended September 30, 2000 and September 30, 1999 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes in Securities and Use of Proceeds Item 4. Submission of Matters to A Vote of Security Holders Item 6. Exhibits and Reports of Form 8-K SIGNATURE -------------------------------------------------------------------------------- Page 2 ITEM 1. FINANCIAL STATEMENTS GLOBAL SOURCES LIMITED CONSOLIDATED BALANCE SHEETS (unaudited)

The accompanying notes are an integral part of these financial statements. -------------------------------------------------------------------------------- Page 3 GLOBAL SOURCES LIMITED CONSOLIDATED BALANCE SHEETS (unaudited)

The accompanying notes are an integral part of these financial statements. -------------------------------------------------------------------------------- Page 5 GLOBAL SOURCES LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

The accompanying notes are an integral part of these financial statements. -------------------------------------------------------------------------------- Page 6 GLOBAL SOURCES LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION Global Sources Limited and its wholly-owned subsidiaries (the "Company") provide strategic staffing solutions in addition to marketing, training and development programs, seminars, and employee benefits. The Company was formerly known as First Sunrise, Inc., a company organized under the State of Delaware on April 28, 1997. First Sunrise, Inc. was organized as a vehicle to acquire or merge with a business or company. On December 9, 1999, First Sunrise, Inc. merged with Platinum Executive Services, Inc. For accounting purposes, Platinum Executive Services, Inc. was treated as the acquirer and the acquisition was accounted for using the purchase method of accounting. On the same date, the merged entity changed its name to Global Sources Limited. The Company has offices in New York, New Jersey, and the United Kingdom. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Global Sources Limited and its subsidiaries after elimination of inter-company transactions. REVENUE RECOGNITION Revenue from permanent staffing is recognized when the candidate has been employed. Executive search and consulting assignments are primarily based upon retainer agreements which provide for periodic billings; revenue is recognized based upon the terms of the agreements. PROPERTY & EQUIPMENT Property and equipment are stated at cost. Depreciation is computed utilizing the straight-line method over the useful lives of the assets which range from three to seven years. INCOME TAXES The Company accounts for income taxes in accordance with the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized. The tax provisions shown in the accompanying statements of operations are zero since the deferred tax assets generated from the net operating losses are offset in their entirety by a valuation allowance. FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, if any, include all highly liquid debt instruments with an original maturity of three months or less at the date of purchase. -------------------------------------------------------------------------------- Page 7 GLOBAL SOURCES LIMITED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) GOODWILL Goodwill is amortized utilizing the straight-line method over a period of 10 to 20 years. The Company evaluates the carrying value and periods of amortization of goodwill to determine whether revised estimates of carrying value or useful lives are warranted. CONCENTRATION OF CREDIT RISK Cash and cash equivalents and trade accounts receivable potentially subject the Company to concentration of credit risk. The Company places its cash and cash equivalents with high credit quality financial institutions. The Company believes its credit risk from accounts receivable is limited due to the relatively large number of customers. Further, the Company assesses the financial strength of its customers and when appropriate, establishes an allowance for uncollectible accounts. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 3 - DEBT The Company presently has two loans outstanding from financial institutions totaling $375,000 plus accrued interest. NOTE 4 - 401(K) PLAN A Company subsidiary has a defined contribution 401(k) plan. Full time employees twenty one years old with one year of service are eligible to participate in the plan. The plan allows the employer to make discretionary contributions on behalf of its employees which vest 20% per year for each year of employee service. No discretionary employer contributions have been declared or paid in years 1999 or 2000. Employees may contribute up to 15% of their compensation, as defined, (subject to Internal Revenue Service maximum contribution limitations) and are immediately 100% vested in their contributions made to the plan. NOTE 5 - STOCK OPTION PLAN The Company's 1999 Stock Option Plan provides for the granting of incentive stock options, non-qualified stock options and stock appreciation rights. It is administered by the Company's Board of directors. The aggregate number of shares of common stock which may be issued or delivered upon exercise of all incentive stock options and non-qualified stock options granted cannot exceed 5,000,000 shares. Option prices for incentive stock options shall not be less than 100% and for non-qualified stock options not less than 85% of the fair market value of such shares on the date on which the option is granted. As of September 30, 2000, there were 1,685,000 options outstanding. -------------------------------------------------------------------------------- Page 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Report contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the Company's recent losses, the Company's need to obtain additional financing and the ability to obtain such financing; outstanding indebtedness; the ability to hire and retain key personnel; successful completion and integration of prior and any future acquisitions; uncertainties relating to business and economic conditions in markets in which the Company operates; uncertainties relating to customer plans and commitments; and the highly competitive environment in which the Company operates. The words "believe", "expect", "anticipate", "intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. RESULTS OF OPERATIONS GENERAL This financial review should be read in conjunction with the accompanying consolidated financial statements and contains management's discussion and analysis of the Company's results of operations and liquidity. The Company at present provides strategic staffing solutions to enterprises in addition to providing marketing, training and development programs, seminars, and employee benefits. The Company was formerly known as First Sunrise, Inc., a company organized under the State of Delaware on April 28, 1997. First Sunrise, Inc. was organized as a vehicle to acquire or merge with a business or company. On December 9, 1999, First Sunrise, Inc. merged with Platinum Executive Services, Inc. For accounting purposes, Platinum Executive Services, Inc. was treated as the acquirer and the acquisition was accounted for using the purchase method of accounting. On the same date, the merged entity changed its name to Global Sources Limited. In July, 2000, the Company acquired a company in the United Kingdom. During the third fiscal quarter 2001, management decided to focus on and growing its business holdings in the United States markets and, as a result, the operating assets of the company in the United Kingdom are being liquidated. RESULTS OF OPERATIONS The Company showed a significant improvement in the results of operations in the three months ending September 30, 2000. As a result of its cost cutting efforts and the disposition of operations that were not contributing to gross profits, the Company showed improvements in both operations and cash flow. The improvement in operations was attributable to reduced costs , including payroll and professional and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES To date the Company has funded its liquidity and capital resources needs primarily through capital contributions from key executives, supplemented by loans and the sale of the company's capital stock. The Company sold approximately $675,000 of common stock in the private placement market for the three months ending September 30, 2000. The Company intends to secure additional capital through private placement of its securities and other financings to fund itself and its acquisition program. There is no assurance that such funds will be available on terms or in quantity acceptable to the Company. -------------------------------------------------------------------------------- Page 9 The Company plans to purchase additional companies that have a strategic fit with the Company's goal of becoming a premier provider of optimal solutions in the human resources fields. Acquisitions will be made primarily through the issuance of common and preferred stock. It is intended that future acquisitions will not be with development stage or start-up companies in order to maximize cash flows to the Company. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits, as detailed as of March 30, 2001 in the Form 10-KSB for the year ended June 30, 2000 filed with the Securities and Exchange Commission. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On September 1, 2000, the Company issued to an individual investor pursuant to a private transaction 750,000 shares of the Company's common stock and warrants to purchase up to 500,000 shares of the Company's common stock. The consideration paid by such individual investor, in the aggregate amount of $250,000, in cash, was based on a price per share of $0.3333. The issuance of such shares and warrants was based, in part, upon representations and warranties of such individual, including a representation as to his status as (i) an "accredited" investor (as such term is defined in Rule 501(a) of Regulation D under the Securities Act). This sale was exempt from the registration requirements of the Securities Act of 1933 pursuant to Regulation D promulgated by the Securities and Exchange Commission under Section 4(2) of the Act. On August 14, 2000, the Company issued to an individual investor pursuant to a private transaction 500,000 shares of the Company's common stock, subject to a keepwell arrangement, and a warrant to purchase up to 100,000 shares of the Company's common stock, exercisable at a price of $1.50 per share. The consideration paid by such individual investor was based on a price per share of $0.50 and made in the form of cash and a promissory note in the principal amount of $150,000, payable in equal monthly installments over three (3) months. The Company had the option to repurchase the shares and to reduce the number of shares issuable upon exercise of the warrant in the event that the investor failed timely to pay in full the Note. No such option was exercised and the Note was paid in full. The issuance of such shares was based, in part, upon representations and warranties of such individual, including a representation as to his status as (i) an "accredited" investor (as such term is defined in Rule 501(a) of Regulation D under the Securities Act). This sale was exempt from the registration requirements of the Securities Act of 1933 pursuant to Regulation D promulgated by the Securities and Exchange Commission under Section 4(2) of the Act. During August 2000 and September 2000 following the commencement of trading of its common stock on the OTC Bulletin Board, the Company issued to individual investors an aggregate of 345,000 shares of the Company's common stock pursuant to a private offering. The consideration paid by such individual investors was based on a price per share of $0.50, for a total offering amount of $172,500. The issuance of such shares was based, in part, upon representations and warranties of such individuals, including a representation as to their status as "accredited" investors (as such term is defined in Rule 501(a) of Regulation D under the Securities Act). These sales were exempt from the registration requirements of the Securities Act of 1933 pursuant to Regulation D promulgated by the Securities and Exchange Commission under Section 4(2) of the Act. On July 21, 2000, the Company issued an aggregate of 1,363,,633 shares of its common stock to the A and B stockholders of Phillips & Chambers Limited, a United Kingdom company, as partial consideration for the purchase of all of the outstanding shares of capital stock of Phillips & Chambers Limited. In issuing these securities, the Company relied on the exemption afforded by Section 4(2) of the 1933 Act and Regulation D, as transactions by an issuer not involving any public offering. -------------------------------------------------------------------------------- Page 10 On July 12, 2000, the Company issued to an individual investor 400,000 shares of the Company's common stock pursuant to a private transaction. Under the terms of the transaction, the investor is entitled, at its sole option, to demand redemption from the Company, in the form of a cash payment of $0.75 per share of the common stock that is demanded to be redeemed, in the event that the Company should default (which default is continuing for more than thirty (30) days) on any of its obligations under any of the transaction documents. The Company is currently in default of its covenant to register the common stock issued to such investor. As of the date of this report, the individual investor has not exercised its right to demand redemption by the Company of the shares. Payment of any amount owing pursuant to a demand redemption is guaranteed by Messrs. Strupp and Mazzuto, officers of the Company. The issuance of such shares was based, in part, upon representations and warranties of such individual, including a representation as to his status as (i) an "accredited" investor (as such term is defined in Rule 501(a) of Regulation D under the Securities Act) and (ii) not a "U.S. Person" (as such term is defined in Rule 902(k) of Regulation S under the Securities Act). The consideration paid by such individual investor was based on a price per share of $0.50. This sale was exempt from the registration requirements of the Securities Act of 1933 pursuant to Regulations D and S promulgated by the Securities and Exchange Commission under Section 4(2) of the Act. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted for a vote of securities holders during the three months ended September 30, 2000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K (i) Report on Form 8-K/A filed September 15, 2000 concerning engaging Richard A. Eisner & Company, LLP as the Company's new auditors. (ii) Report on Form 8-K filed August 7, 2000 concerning the acquisition of Phillips & Chambers Limited, a United Kingdom holding company for The McMillan Partnership Limited. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 27, 2001 GLOBAL SOURCES LIMITED /s/ John D. Mazzuto ------------------------------------------ By: John D. Mazzuto, President and Chief Financial Officer -------------------------------------------------------------------------------- Page 11

GLOBAL SOURCES LTD 10-Q