10-Q 1 e10-q.txt PENN-AKRON CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ---------------- Commission File No. 0-12597 PENN-AKRON CORPORATION ---------------------- (Exact name of registrant as specified in its charter) Nevada 11-1843262 ------ ---------- (State of Incorporation) (I.R.S. Employer Identification No.) 3455 Peachtree Road, NE, 5th Floor, Atlanta, Georgia 30326 ---------------------------------------------------------- (Address of principal executive offices) (404) 995-7026 -------------- (Registrant's telephone number, including area code) Not Applicable -------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS 2 State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $0.01 par value per share, 32,237,162 shares issued and outstanding as of July 17, 2000. Transitional Small Business Disclosure Format (check one): YES [ ] NO [X] 3 PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. PENN-AKRON CORPORATION BALANCE SHEETS (UNAUDITED) ASSETS

~~May~~June 3130, ~~2000~~ December 31, ~~(Unaudited)~~2000 1999 ------------ ------------ CURRENT ASSETS: Cash in bank $ 2,~~922~~056 $ 100 Accounts receivable 98,~~179~~998,~~021~~088 3,981,395 Other receivables 2628,~~573~~146 22,808 Employee advances 3243,~~000~~116 2,000 Refundable deposits 4,380 4,380 PrinVest Corp. escrow for OneWeb -- 205,000 Prepaid maintenance and training costs 224,000 224,000 Deferred financing costs -- 45,833 ------------ ------------ Total Current Assets 9,~~468~~299,~~896~~786 4,485,516 ------------ ------------ EQUIPMENT, less accumulated depreciation of $45,~~565~~265 at ~~May~~June 3130, 2000 and $1,065 at December 31, 1999 3534,~~243~~543 4,258 ------------ ------------ OTHER ASSETS: Other assets 3,100 5,116 Investment in Sanswire.net, LLC ~~204~~206,~~535~~202 -- Prepaid maintenance and training costs - long-term ~~322~~303,~~664~~747 415,997 ------------ ------------ Total Other Assets ~~530~~513,~~299~~049 421,113 ------------ ------------ Total Assets $ 109,~~034~~847,~~438~~378 $ 4,910,887 ============ ============

The accompanying notes are an integral part of these financial statements. 4 PENN-AKRON CORPORATION BALANCE SHEETS (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY

~~May~~June 3130, ~~2000~~ December 31, ~~(Unaudited)~~2000 1999 ------------ ------------ CURRENT LIABILITIES: ~~Accounts~~Line ~~payable~~of credit $ 92,~~019~~871,~~352~~114 $ -- Accounts payable and accrued expenses 6,059,106 3,858,406 Employee accounts payable ~~19,810~~-- 1,328 Accrued compensation ~~259~~258,~~186~~833 665,032 Deferred maintenance and training revenue 224,000 224,000 ------------ ------------ Total Current Liabilities 9,~~522~~413,~~348~~053 4,748,766 ------------ ------------ DEFERRED MAINTENANCE AND TRAINING REVENUE - LONG-TERM ~~322~~303,~~664~~997 415,997 ------------ ------------ STOCKHOLDERS' EQUITY: Common stock, 100 million shares authorized, $.001 par value, 28,424,662 shares issued and outstanding at ~~May~~June 3130, 2000; 1,000 shares no par value authorized, 500 shares issued and outstanding at December 31, 1999 28,425 400 Paid-in capital ~~776~~816,~~175~~995 -- Retained earnings (deficit) (~~615~~715,~~174~~092) (254,276) ------------ ------------ Total Stockholders' Equity ~~189~~130,~~426~~328 (253,876) ------------ ------------ Total Liabilities and Stockholders' Equity $ 109,~~034~~847,~~438~~378 $ 4,910,887 ============ ============

The accompanying notes are an integral part of these financial statements. 5 PENN-AKRON CORPORATION STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---------- -------- ---------- -------- REVENUES: Local school installations $6,196,383 $ -- $6,196,383 $ -- Training revenue 9356,~~333~~000 -- 112,000 -- Lan project -- 2,~~695~~313 -- 5,008 T-1 Telecom access -- 5,405 432 1312,~~189~~506 Interest income 4,~~535~~951 -- 6,202 -- ---------- -------- ---------- -------- Total Revenues 6,~~294~~257,~~683~~334 157,~~884~~718 6,315,017 17,514 ---------- -------- ---------- -------- DIRECT COSTS: Local school installations and training 5,970,155 -- 6,~~009~~028,~~809~~726 -- Network operations center -- -- 36,638 -- Lan project -- 2,745 -- 2,745 T-1 Telecom access -- 12,803 7,740 1217,~~301~~421 Other -- -- 1,233 -- ---------- -------- ---------- -------- Total Cost of Sales 65,~~055~~970,~~420~~155 15,~~046~~548 6,074,337 20,166 ---------- -------- ---------- -------- GROSS PROFIT ~~239~~287,~~263~~179 ~~838~~(7,830) 240,680 (2,652) ---------- -------- ---------- -------- EXPENSES: Advertising -- -- 6,000 -- ~~Consulting~~Amortization ~~fees~~-- 5-- 45,~~000~~833 -- Conventions and exhibits 9,066 541 9,816 541 Commissions -- 20,000 ~~Interest~~-- ~~and~~20,000 ~~other~~Director's ~~bank~~ fees 45-- 55,~~833~~137 72,~~715~~750 55,137 Interest -- 8,854 -- 10,668 Legal and accounting 9274,~~289~~553 1428,~~924~~307 136,770 28,987 Meals expense -- 1,678 1,460 1,909 Other subcontractors 5023,~~684~~394 2,308 58,184 6,808 Printing -- 8,~~195~~177 ~~Rent~~ -- ~~office 24~~8,~~410 17,000 Salaries 292,417~~ 408~~,053~~

(Continued) The accompanying notes are an integral part of these financial statements. 6 PENN-AKRON CORPORATION STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Rent - office $ 7,000 $ 10,200 $ 24,410 $ 20,400 Salaries 117,083 155,833 334,917 472,220 Taxes - payroll 219,~~216~~719 86,~~791~~637 24,978 9,668 Telephone 938 31,381 26,~~302~~721 2031,~~074~~978 Travel 2,662 4,290 9,911 5,007 Other expenses 1412,~~823~~010 4,361 19,746 6,~~263~~134 ------------ ------------ ------------ ------------ Total Expenses ~~600~~256,~~161~~425 ~~525~~337,~~280~~704 701,496 677,860 ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 30,754 (~~360~~345,~~898~~534) (~~524~~460,~~442~~816) (680,512) PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ 30,754 $ (~~360~~345,~~898~~534) $ (~~524~~460,~~442~~816) $ (680,512) ============ ============ ============ ============ NET INCOME (LOSS) PER SHARE: Basic $ 0.00 $ (0.03) $ (0.02) $ (0.0507) ============ ============ ============ ============ SHARES USED IN COMPUTING EARNINGS PER SHARE: Basic 1728,~~538~~162,~~513~~162 10,194,826 19,352,872 10,194,826 ============ ============ ============ ============

The accompanying notes are an integral part of these financial statements. 7 PENN-AKRON CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

~~Common Stock~~ Retained ~~--------------------------------~~ Paid-in Earnings Shares Amount Capital (Deficit) ------------- ------------ ------------ ------------ BALANCE at January 1, 1999 500 400 $ -- $ (4,205) Net loss for the year ended December 31, 1999 -- -- -- (250,071) ------------- ------------ ------------ ------------ BALANCE at December 31, 1999 500 400 -- (254,276) Conversion of note payable to Spherus stock 500 -- 250,000 -- Shares of Penn-Akron outstanding at merger 10,542,581 -- (800) -- Recapitalization for change in par value -- 10,143 (10,143) -- Shares issued in merger with Spherus Technologies, Inc. 17,143,581 17,144 ~~532~~573,~~856~~676 -- Issuance of common stock for land subscription receivable 4,500,000 4,500 1,995,500 -- Issuance of common stock to reserve account 687,500 688 (688) -- Issuance of common stock for services 50,000 50 4,950 -- Net loss for the ~~five~~six months ended ~~May~~June 3130, 2000 -- -- -- (~~360~~460,~~898~~816) ------------- ------------ ------------ ------------ 32,924,662 $ 32,925 $ 2,~~771~~812,~~675~~495 $ (~~615~~715,~~174~~092) Less subscription receivable for land (4,500,000) (4,500) (1,995,500) -- ------------- ------------ ------------ ------------ BALANCE at ~~May~~June 3130, 2000 28,424,662 $ 28,425 $ ~~776~~816,~~175~~995 $ (~~615~~715,~~174~~092) ============= ============ ============ ============

The accompanying notes are an integral part of these financial statements. 8 PENN-AKRON CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30, 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Cash received from contracts $ 1,~~092~~292,~~522~~122 $ 7,201 Cash paid to subcontractors, vendors and employees (14,~~860~~972,~~215~~615) (~~199~~253,~~088~~287) Interest paid -- (710,~~715~~668) ------------ ------------ Net Cash Used In Operating Activities (~~767~~3,~~693~~680,493) (~~199~~256,~~602~~754) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Investment in Sanswire.net, LLC (200,000) -- Acquisition of equipment (34,485) (5,323) ------------ ------------ Net Cash Used In Investing Activities (234,485) (5,323) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Receipt of escrow ~~desposit~~deposit 205,000 -- Cash received for common stock ~~550~~590,~~000~~820 -- Cash received for note payable to stockholder 250,000 -- Net change in line of credit --2,871,114 ~~257~~260,~~715~~668 ------------ ------------ Net Cash Provided By Financing Activities 13,~~005~~916,~~000~~934 ~~257~~260,~~715~~668 ------------ ------------ INCREASE (DECREASE) IN CASH 21,~~822~~956 52(1,~~790~~409) CASH, BEGINNING OF PERIOD 100 6,818 ------------ ------------ CASH, END OF PERIOD $ 2,~~922~~056 $ 595,~~608~~409 ============ ============

The accompanying notes are an integral part of these financial statements. 9 PENN-AKRON CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED) RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES

Six Months Ended June 30, 2000 1999 ------------ ------------ Net loss $ (~~360~~460,~~898~~816) $ (~~524~~680,~~442~~512) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 45,833 -- Depreciation 34,~~500~~200 -- Issuance of common stock for services 5,000 -- Increase in accounts receivable (5,~~197~~016,~~626~~693) (810,~~683~~313) Decrease in prepaid maintenance costs 93112,~~333~~250 -- Increase in other current assets (3346,~~765~~454) (2025,092) Increase in other assets (24,~~519~~186) ~~(341)~~-- Increase in accounts payable 52,~~160~~199,~~146~~900 3498,~~367~~123 Increase (decrease) in accrued expenses (~~387~~407,~~364~~527) ~~319~~361,~~589~~040 Decrease in deferred maintenance and training revenues (93112,~~333~~000) -- ------------ ------------ Net Cash Used In Operating Activities $ (~~767~~3,~~693~~680,493) $ (~~199~~256,~~602~~754) ============ ============

NONCASH INVESTING AND FINANCING TRANSACTIONS During the six months ended June 30, 2000, a $250,000 note payable to stockholder was converted to 500 shares of Spherus common stock prior to the merger. During the six months ended June 30, 2000, the Company issued 50,000 shares of common stock for services at $.10 per share. The accompanying notes are an integral part of these financial statements. 10 PENN-AKRON CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to financial statement included in the financial statements on Form 10-Q of Penn-Akron Corporation (doing business as globalseer.com) for the quarter ended May 31, 2000. In the opinion of management, all adjustments necessary to fairly present the financial position as of June 30, 2000, and the results of operations for the three-month and six-month periods ended June 30, 2000 and 1999, and the statements of cash flows and stockholders' equity for the six months ended June 30, 2000 and 1999. Results of operations for interim periods are not necessarily indicative of results for the entire year. The Company prepares its financial statements in accordance with generally accepted accounting principles (GAAP). These principles are established primarily by the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants. The preparation of financial statements in conformity with GAAP requires management to make estimates when recording transactions resulting from business operations, based on information currently available. As additional information becomes available (or actual amounts are determinable), the recorded estimates may be revised and reflected in operating results. Although some variability is inherent in these estimates, management believes the amounts provided are adequate. The Company elected to change its year-end from February 28th to December 31st. The quarterly financial statement periods have also changed to calendar quarters with the second quarter being June 30, 2000, the date of these financial statements. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the consolidated financial statements of Penn-Akron Corporation (the "Company") (including the notes thereto) contained elsewhere in this report. OVERVIEW The Company is currently doing business under the name globalseer.com, providing single-source, media-technology and curriculum-enhancement solutions to kindergarten through twelfth grade public and private schools. The Company is also examining opportunities to provide new and expanded sources of educational content and other learning services to higher education and corporate training providers. RESULTS OF OPERATIONS Our revenues increased to $6,315,017 for the six-month period ended June 30, 2000 from $17,514 for the six-month period ended June 30, 1999, an increase of approximately 3,600%. Our revenues increased to $6,257,334 for the three-month period ended June 30, 2000 from $7,718 for the three-month period ended June 30, 1999. This increase for the three- and six-month period ended June 30, 2000 is primarily due to $6,196,383 of revenue recognized for 71 local school installations under Year 2 of our contract with the Metropolitan Regional Educational Service Agency ("MRESA") and $112,000 of training revenue. Our current customer is MRESA, an administrative services agency of the Georgia Department of Education. Our contract with MRESA was executed in March 1999 and we began performance thereunder in August 1999. This contract presently continues for a three year period. As of December 31, 1999, we had completed Year 1 of the three years under this contract and installed our services at 192 schools. We began performance on Year 2 of our contract with MRESA in early May 2000. We are currently seeking additional customers. The Schools and Library Division ("SLD") of the Universal Services Administrative Company, a non-profit entity under the jurisdiction of the Federal Communications Commission that administers funds pursuant to the federal Telecommunications Act of 1996, provides significant funding to MRESA. The program under which SLD provides funding to MRESA requires a 10% to 50% matching commitment for each school from private or local funds. 12 MRESA has secured funding from the SLD for installations of our services at 71 schools under Year 2 (installations began in May 2000 under our contract with MRESA and are scheduled to be completed by September 30, 2000). We believe that a potential matching commitment from private or local funds for each school for Year 2 of our contract with MRESA has been located. MRESA was successful in securing the required matching commitment for the 192 schools installed in 1999 and we are optimistic that MRESA will secure funding for Year 2. For the first 71 schools to be installed for Year 2, the Company anticipates recognizing in excess of $12 million of revenue. Our total cost of sales increased to $6,074,337 for the six-month period ended June 30, 2000 from $20,166 for the same period of 1999. Our total cost of sales increased to $5,970,155 for the three-month period ended June 30, 2000 from $15,548 for the same period of 1999. This increase is due primarily to the delivery of installations of our services to schools under our contract with MRESA. Our expenses increased to $701,496 for the six-month period ended June 30, 2000 from $677,860 for the same period in 1999. Our expenses decreased to $256,425 for the three-month period ended June 30, 2000 from $337,704 for the same period in 1999. Because we conduct our business primarily through subcontractors, our expenses did not increase proportionally to our revenue. Our salary expense actually decreased to $334,917 from $472,220 for the six-month period ended June 30, 2000, and decreased to 117,083 for the three-month period ended June 30, 2000, due primarily to operational consolidation. Our legal and accounting expenses increased to $136,770 for the six-month period ended June 30, 2000 from $28,987 for the year earlier period because of litigation described under "Legal Proceedings" in Part II of this Form 10-Q and because of the merger between Spherus Technologies, Inc. and Penn-Akron Corporation. Our legal and accounting expenses increased to $75,553 for the three-month period ended June 30, 2000 from 28,307 for the prior year period for the same reason. Our net loss for the six-month period ended June 30, 2000 decreased to ($460,816) from ($680,512) for the prior year period. We had net income of $30,754 and $0.00 net income per share, for the three month period ended June 30, 2000, a significant improvement over a net loss of ($345,534) and ($0.03) net loss per share, for the prior year period. However, we are unable to predict if we will have net income in the coming quarters. We have subcontracted with Lynxus, Inc. to implement and install an Internet-based video distribution and multi-media network for installation at elementary and secondary schools participating in the e-rate program under contract with MRESA. Under the terms of this subcontract, we pay a 95% of the funds received from both the SLD and MRESA to Lynxus. This sub-contract also covers the 36-month maintenance and training requirements under the first and second years of our contract with MRESA. LIQUIDITY AND CAPITAL RESOURCES Our total current assets increased to $9,299,786 at June 30, 2000 from $4,485,516 at December 31, 1999. This increase is due primarily to an increase in accounts receivable resulting from performance under our contract with MRESA. Our total current liabilities 13 increased to $9,413,053 as of June 30, 2000 from $4,748,766 at December 31, 1999. This increase is primarily due to an increase in accounts payable, primarily payable to our subcontractors. The resulting working capital deficit decreased to $114,267 at June 30, 2000 from 256,250 at December 31, 1999. We expect to collect the full amounts owed to the Company by both the SLD and MRESA. Our total stockholders' equity increased to $130,328 at June 30, 2000 from ($253,876) at December 31, 1999. This increase is primarily due to an increase in paid-in capital resulting from the capital infusion that occurred in connection with the merger transaction in March between Spherus Technologies, Inc. and Penn-Akron Corporation. In June 2000 we negotiated a line of credit with PrinVest Corp with a maximum line of credit of $3,500,000. The Company has drawn down approximately $2.8 million on this facility as of August 11, 2000. The Company has a subscription receivable from Tampa Bay Financial in the amount of $2,000,000. See Note 6 to Penn-Akron Corporation's Financial Statements filed in our Report on Form 10-Q for the five-month period ended May 31, 2000. We had $2,056 in cash as of June 30, 2000 and $33,170 on August 11, 2000. The Company believes that it will have sufficient liquidity and capital resources to finance its operations for the remainder of 2000; however, if there is a delay in the receipt of funds from our major stockholder or the collection of our receivables, such delay would have a material adverse effect on our liquidity and capital resources. CAUTIONARY STATEMENTS AND RISK FACTORS Except for the historical information and discussions herein, statements contained in this Form 10-Q may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the Company's failure to continue to develop and market new and innovative products and services and to keep pace with technological change; competitive pressures; failure to obtain intellectual property rights; quarterly fluctuations in revenue and volatility of stock prices; our ability to attract and retain key personnel; dependence on certain suppliers and subcontractors; our ability to manage acquisitions and alliances; legal, political and economic changes and other risks, uncertainties and factors in our other filings with the Securities and Exchange Commission. CURRENT TRADING MARKET FOR OUR SECURITIES. Our common stock recently began trading on the OTC Bulletin Board ("OTCBB"), operated by NASDAQ, under the symbol PNAC. No assurance can be given that an active trading market in our securities will be sustained. OUR SUCCESS DEPENDS UPON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND FEATURES IN THE FACE OF RAPIDLY EVOLVING TECHNOLOGY. 14 Our market is characterized by rapidly changing technologies, frequent new service introductions and evolving industry standards. The recent growth of the Internet and intense competition in our industry exacerbate these market characteristics. Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the performance, features and reliability of our network. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new features, content or network services. In addition, our new enhancements must meet the requirements of our current and prospective users and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our service or infrastructure to adapt to these changes. WE HAVE AN UNPROVEN BUSINESS MODEL AND A LIMITED OPERATING HISTORY. Because our current operating business, operating under the name globalseer.com, was established in 1998 and did not commence material operations until 1999, we have a limited operating history on which investors can base an evaluation of our business and prospects. Our income potential is unproven and our business model is unique and will continue to evolve. An investor in our common stock must carefully consider the risks and difficulties frequently encountered by companies in an early stage of development, as well as the risks we face due to our participation in a new and rapidly evolving market. Our business strategy may not be successful and we may not successfully overcome these risks. WE EXPECT OUR QUARTERLY FINANCIAL RESULTS TO FLUCTUATE AND OUR EARLY STAGE OF DEVELOPMENT LIMITS OUR ABILITY TO PREDICT REVENUES AND EXPENSES PRECISELY. Our quarterly and annual operating results are likely to fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Factors that might cause quarterly fluctuations in our operating results include the factors described in the subheadings below. To respond to these and other factors, we may need to make business decisions that could impact our quarterly operating results. Most of our expenses, such as lease payment obligations, employee compensation and rent, are relatively fixed in the short term. Moreover, our expense levels are based, in part, on our expectations regarding future revenue levels. As a result, if total revenues for a particular quarter are below our expectations we could not proportionately reduce our operating expenses for that quarter. Therefore, this revenue shortfall would have a disproportionate effect on our expected operating results for that quarter. Consequently, we believe that period-to-period comparisons of our operating results are not necessarily meaningful, and should not be viewed as indicators of our future performance. In addition, during future periods our quarterly or annual operating results may fail to meet the expectations of securities analysts or investors. In this case the trading price of our common stock would likely decrease. OUR BUSINESS AND FUTURE REVENUE GROWTH WILL SUFFER IF WE FAIL TO RETAIN AND GROW OUR CUSTOMER BASE. 15 The success of our business will depend on our ability to add customers. Our ability to grow our customer base depends largely on our ability to deploy our network to additional schools. If we are unable to rapidly deploy our network to a large number of additional schools, we will not be able to grow our core school user base, and our ability to generate revenue and implement our strategy will be limited. WE ARE DEPENDENT ON THIRD PARTIES TO DEPLOY OUR NETWORK AND SUPPORT IT ONCE INSTALLED. We plan to rapidly deploy our network to additional schools across the country. We have used, and plan to continue to use, third parties such as OneWeb Systems and Lynxus, Inc. to install and support the globalseer.com network in each school. Any changes in the third parties we contract with to install and support our network could cause delays in the deployment of the globalseer.com network and any inability to install schools according to our plan could limit revenue generated from possible sponsorships, e-commerce and network services. Further, if we do need to hire substitute or additional third-party installers of our network we cannot assure you that we will be able to do so on terms as favorable as our current arrangements, or at all, which could result in higher installation costs to us as well as potential delays in our deployment. We also rely on third parties to provide the majority of support necessary to maintain the globalseer.com network once installed. Any inability to maintain or delays to the maintenance of this equipment could lead to lower revenue. REGULATORY AND LEGAL ISSUES SPECIFIC TO THE INTERNET. The Internet is the subject of an increasing number of laws and regulations. These laws or regulations may relate to liability for information retrieved from or transmitted over the Internet, online content regulation, user privacy, taxation and the quality of products and services. In addition, these new laws have not yet been interpreted by the courts, and consequently their applicability and reach are not defined. Moreover, the applicability to the Internet of existing laws governing issues such as intellectual property is not clearly defined. SCHOOLS MAY USE ALTERNATIVE MEANS TO ACQUIRE INTERNET ACCESS, WHICH COULD REDUCE OUR POTENTIAL CUSTOMER BASE AND MAY LEAD TO LOWER THAN EXPECTED REVENUES. An immediate attraction of our network is immediate access to media via the Internet. However, for a variety of reasons, schools may decide to use other methods to acquire Internet access. If schools decide to use means other than deployment of our network, it will limit our user base, and consequently we will have lower than expected revenues. WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN NEEDED. We expect to use existing cash for general corporate purposes, including expanding our sales and marketing activities, continuing investments in technology and product development and other capital expenditures, as well as working capital and other corporate expenses. Our cash requirements are large and depend on several factors, including cash outflows due to lease obligations, the rate of expansion of our school base, the availability of equipment leases on 16 competitive terms, our success in generating revenues, the growth of sales and marketing, and other factors. If capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. Tampa Bay Financial, Inc., a large shareholder, has provided capital to us in the last few months. Except as provided in the Merger Agreement, Tampa Bay Financial, Inc. is not obligated to make additional capital available to us. WE ARE DEPENDENT ON THE CONTINUED GROWTH IN USE AND POPULARITY OF OUR NETWORK AND THE INTERNET BY OUR USERS AND OUR ABILITY TO SUCCESSFULLY ANTICIPATE THE FREQUENTLY CHANGING TASTES OF OUR USERS. Our business is unlikely to be successful if the popularity of the Internet and related media in schools as an educational tool and among students in general does not continue to increase. Even if the popularity of the Internet and related media does increase, the success of our network in particular depends on our ability to anticipate and keep current with the frequently changing preferences of our users. Any failure on our part to successfully anticipate, identify or react to changes in styles, trends or preferences of our users would lead to reduced interest in and use of the globalseer.com network. Moreover, the globalseer.com brand could be eroded by misjudgments in service offerings or a failure to keep our content current with the evolving preferences of our audience. WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER OUR NETWORK. We may be subject to claims relating to content that is published on or downloaded from the globalseer.com network. Such claims might include defamation or trademark infringement and may involve costs to defend potential claims or to indemnify us for all liability that may be imposed. In addition, any claims like this, with or without merit, could require us to change our network in a manner that could be less attractive to our customers and would result in the diversion of our financial resources and management personnel. WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US. We are dependent on various third parties for software, systems and related services. Several of the third parties that provide software and services to us have a limited operating history, have relatively immature technology and are themselves dependent on reliable delivery of services from others. As a result, our ability to deliver various services to our users may suffer due to the failure of these third parties to provide reliable software, systems and related services to us. Additionally, we make seek to contract with alternative third parties to the ones we have formerly used, which may or may not have a negative effect on our operations. FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS COULD HARM OUR BUSINESS AND STRAIN OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES. 17 We plan to expand our operations. We anticipate that further significant expansion will be required to grow our customer base if we are to be successful in implementing our business strategy. We may not be able to implement management information and control systems in an efficient and timely manner, and our current or planned personnel, systems, procedures and controls may not be adequate to support our future operations. If we are unable to manage growth effectively, our business would suffer. THE LOSS OF KEY PERSONNEL MAY HURT OUR ABILITY TO OPERATE OUR BUSINESS EFFECTIVELY. Our success depends to a significant degree upon the continued contributions of the principal members of our sales and management departments, many of whom perform important management functions and would be difficult to replace. The loss of the services of any key personnel, particularly senior management, could seriously harm our business. IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY, WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES. We may not be able to attract and retain the necessary personnel to accomplish our business objectives, and we may experience constraints that will adversely affect our ability to deploy the globalseer.com network in a timely fashion or to support our users and operations. Recruiting qualified personnel is an intensely competitive and time-consuming process. PART 2 ITEM 1. LEGAL PROCEEDINGS. We filed an action in the Superior Court of Dekalb County, Georgia, (the "Court") seeking injunctive and other relief against Mr. S.J. Neri, a resident of Dekalb County, Georgia ("Mr. Neri"). We alleged that Mr. Neri engaged in deceptive trade practices, misappropriation of trade names, tortious interference with business relations and tortious interference with contractual relations. Mr. Neri formed a company with the name Spherus Technologies, Inc. in an attempt to deceive certain parties with whom we do business. Among other actions, Mr. Neri interfered with our contractual relationship with MRESA. On May 31, 2000, the Court entered a temporary restraining order against Mr. Neri and on June 29, 2000 the Court issued a Permanent Injunction and Final Judgment against Mr. Neri. The Court resolved all issues in our favor and against Mr. Neri, awarding us compensatory damages and attorneys' fees of $88,760.84 and punitive damages in the amount of $250,000. Additionally, Mr. Neri has filed a pro se class action complaint in the United States District Court, Northern District of Georgia - Atlanta Division against us and a number of other companies and individuals. We believe the complaint is completely without merit and have filed a Motion to Dismiss the complaint in its entirety. We expect to have our motion granted and the complaint dismissed. 18 ITEM 5. OTHER INFORMATION Three of our directors, Michael K. Molen, Patty P. Harris and Frank F. Pitts, resigned as directors of the Company. We are currently identifying qualified candidates to fill these vacancies on our Board of Directors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 27 Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K. Current Report on Form 8-K dated April 28, 2000 - reporting Changes in Control of the Registrant, the Acquisition of Assets and the Financial Statements of the business acquired, Spherus Technologies, Inc. ("Spherus"). The Form 8-K included Spherus's audited Balance Sheet as of 12/31/99 as well as the audited Income Statement, Statement of Changes in Stockholder's Equity and Statement of Cash Flows for the year ended 12/31/99. The Form 8-K also included unaudited Pro Forma Condensed, Consolidated Balance Sheet for the Company and Spherus as of 12/31/99 as well as unaudited Pro Forma Condensed, Consolidated Statement of Income for the Company and Spherus for the year ended 12/31/99. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENN-AKRON CORPORATION Date: August 14, 2000 By: /s/ Christopher J.S. Baker ----------------------------------------------------------- Christopher J.S. Baker, Chief Financial Officer (principal financial and accounting officer)

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