10-Q 1 y45604qe10-q.txt PRO NET LINK CORP 1 UNITED STATES 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 December 31, 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 000-26451 PRO NET LINK CORP. Incorporated in the IRS Employer Identification State of Nevada Number 88-0333454 645 Fifth Avenue New York, New York 10022 (212) 688-8838 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 Registrant had 52,129,737 shares of common stock outstanding as of January 31, 2001. ----------------------------------------------------------- This report consists of 14 pages 2 PRO NET LINK CORP. (A DEVELOPMENT STAGE ENTERPRISE) INDEX PART I - FINANCIAL INFORMATION

3 ITEM 1. FINANCIAL STATEMENTS PRO NET LINK CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 4 PRO NET LINK CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 5 PRO NET LINK CORP. (A DEVELOPMENT STAGE ENTERPRISE) CONDENSED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements. 6 PRO NET LINK CORP. (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these financial statements. 7 PRO NET LINK CORP. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note - 1 Interim Financial Statements. The interim financial statements of Pro Net Link Corp. (the "Company" or "Pro Net Link") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company's financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. The results of operations for any interim periods are not necessarily indicative of the results that might be anticipated for the full year. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto from the Company's annual report on Form 10-K for the year ended June 30,2000. Note - 2 Management Agreement. On August 8, 2000, Pro Net Link entered into an agreement with an entity to provide executive management and marketing services to the Company. This relationship was terminated on September 28, 2000. Compensation and legal expenses related to the agreement were approximately $250,000 for the six months ended December 31, 2000. Note - 3 Non-Cash Services Compensation On December 26, 2000, the Company issued a total of 85,000 registered shares of common stock to two employees per employment contracts as compensation. These shares were valued at the market price on December 26, 2000, at $.3594 per share. For the six months ended December 31, 2000, non-cash compensation expense was $30,549. Note - 4 Note Purchase Agreement The Company has a note purchase agreement ("Agreement") with its President that allows the Company to borrow up to $2,000,000. The Agreement ends on October 12, 2001, or the date by which aggregate borrowings total $2,000,000. On that date, aggregate borrowings will be combined to one note that will be due in two years. The note will bear interest at 12% per annum. At December 31, 2000, the aggregate borrowings totaled $150,000. Subsequently, the Company has borrowed an additional $250,000. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INFORMATION REGARDING FORWARD-LOOKING STATEMENTS The following discussion and analysis should be read in conjunction with the financial statements and notes thereto as filed in our Form 10-K for the year ended June 30, 2000. The information set forth below includes forward-looking statements that involve numerous risks and uncertainties including, but not limited to, the demand for the Company's services and the ability of the Company to successfully implement its strategies, each of which may be impacted, among other things, by economic and competitive or technological conditions. Forward-looking statements can be identified by the use of forward-looking terminology such as "estimates," "projects," "anticipates," "expects," "intends," "believes," or the negative thereof or other variations thereon or comparable terminology or by discussions of strategy that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in such forward-looking statements and readers are cautioned not to place undue reliance on any forward-looking statements contained in this report. The Company undertakes no obligation to publish the results of any adjustments to these forward-looking statements that may be made to reflect events on or after the date of this report or to reflect the occurrence of unexpected events. OVERVIEW We are a development stage corporation formed in July 1997 with a limited operating history. We are a business-to-business ("B2B") firm that has historically focused on facilitating the conduct of international trade through various tools and services accessible through our Internet Website. We have historically based our business model on the delivery of international trade-related news, programming and services through this Website. Sources of revenue to date have included registered "premium" user fees, banner advertising, the Leaders in Global Trade program, and, most recently, broadcast services. We have not generated profits since our mid-1997 start-up. Substantial expenses have been incurred since inception associated with our corporate formation, the conduct of market research, the building of an operating infrastructure, product development, solicitation of users, and the design, development and promotion of our Website and related services. Our revenues have been limited. Since inception, Pro Net Link has incurred significant losses, resulting in an accumulated deficit of $9,817,330 as at December 31, 2000. On February 6, 2001, our Board of Directors announced that we had approved a plan to re-focus the Company and to engage a financial services firm to raise equity for the Company. The re-focussing called for a reduction in operating expenses, the sale of the Company's Internet broadcast services, and the completion of the Company's ASP (Application Service Provider) trade transaction solution, termed the "Master Transaction Logic", or "MTL". The Company has significantly reduced staffing, retaining the core executive, administrative and technical staff for the development of the MTL product and maintenance of the Company's website. We have also elected not to renew the marketing services contract with Zagoren-Zozzora, Inc. ("ZZI"), which expired on February 15, 2001. These, and other cost reductions, we see as reducing monthly operating expenses (not including research and development of the MTL product) by over 50%. Glenn Zagoren, President of ZZI, remains as non-executive Chairman of the Board of the Company. We are currently in negotiations with various parties for the sale of all or the majority of our interests in our Internet broadcast services, which include the Virtual Trade Show product, PNLTV, and various broadcast services. We currently intend to retain an equity or other interest in the broadcast services as a condition of sale. However, there can be no assurances that such a transaction will be consummated, or that any such transaction will be consummated in the form currently contemplated by us. 9 All ongoing development will be focused on the Master Transaction Logic (MTL) transaction platform, for which technical specifications have been completed and development has begun. We intend the MTL system to be an independent and open standard based Application Service Provider (ASP) solution that integrates a seamless "end-to-end" online process for SMEs (Small to Mid-Sized Enterprises) engaged in international trade. The MTL is being developed to be a stand-alone transaction module that can be accessed from within the ProNetLink.com site and licensed as an ASP system to any Internet e-commerce entity that wants to profit from its capabilities. We filed a provisional patent application with the U.S. Patent Office for the MTL on January 18, 2001. Although we will maintain our website and associated businesses (such as banner advertising and membership fees), we do not currently intend to focus any significant financial and managerial resources on sales and marketing to develop the revenue models associated with the website. Pending the sale of our broadcast services, we intend to retain the capability to fulfill broadcast services contracts. Under the agreement signed with the financial services firm, the firm will earn fees equal to a percentage of the gross proceeds of any sale of company securities. A draft term sheet, which is annexed to the agreement, contemplates that investors identified by the financial services firm would provide us with up to $10 million under an equity line of credit. Pursuant to this agreement, the firm has identified two potential investors, and we have initiated negotiations with them. However, there can be no assurances that such a transaction will be consummated, or that any such transaction will be consummated in a form currently contemplated by us. We believe that our success will depend, in large part, on our ability to develop the MTL/ASP product, to increase market awareness and acceptance for this product, to raise additional operating capital to build technology and non-technology infrastructures and to continue product research and development. An evaluation of our prospects must be considered in light of the risks associated with companies in the early stages of development, particularly for ones in the rapidly evolving B2B Internet marketplace. Certain risks for us include, but are not limited to, having an unproven business model, capital requirements and, if we successfully expand our operations, management of growth. To address these risks, we must, among other things, raise significant capital to develop our MTL product, continue to develop and successfully execute our business and marketing plans, and continue to develop the MTL product technologically and to market it. There can be no assurance that we will be successful in addressing these risks, and the failure to do so could prevent Pro Net Link from generating profitable operations. RESULTS OF OPERATIONS Six months ended December 31, 2000 and December 31, 1999 Revenues. As noted, during the six month periods ended December 31, 2000 and December 31, 1999, Pro Net Link was a development stage enterprise. Accordingly, it engaged in limited revenue generating operations. Revenue decreased from $27,136 for the six months ended December 31, 1999 to $14,389 for the six months ended December 31, 2000. Expenses. Total expenses decreased from $2,118,659 for the six months ended December 31, 1999 to $2,006,271 for the six months ended December 31, 2000, resulting in a net loss of $1,991,882 for the current period, compared to a loss of $2,091,523 for the previous period. Three months ended December 31, 2000 and December 31, 1999 Revenues. As noted, during the three month periods ended December 31, 2000 and December 31, 1999, Pro Net Link was a development stage enterprise. Accordingly, it engaged in limited revenue generating operations. Revenue decreased from $25,334 for the three months ended December 31, 1999 to $12,259 for the three months ended December 31, 2000. 10 Expenses. Total expenses decreased from $1,458,612 for the three months ended December 31, 1999 to $1,067,280 for the three months ended December 31, 2000, resulting in a net loss of $1,055,021 for the current period, compared to a loss of $1,433,278 for the previous period. The decrease in expenses was primarily attributable to the factors described below: On August 8, 2000, Pro Net Link entered into an agreement with GlobalNet Venture Partners, Inc., to provide executive management and marketing services to the Company. This relationship was terminated on September 28, 2000. Compensation and legal expenses related to the GlobalNet Venture Partners, Inc., relationship were approximately $250,000 for the quarterly period ended September 30, 2000, and thus account for the principal decrease in expense between the two periods. Additional cost increases primarily relate to higher professional fees attributable to filings with the Securities and Exchange Commission associated with our becoming a "reporting company" pursuant to the Securities Exchange Act of 1934, and specifically to the filing of our first 10-K and Proxy Statement during the period. We also incurred significant expenses in holding our Shareholders meeting during the period. These expenses exceeded $100,000. Expenses attributable to Website development declined, as in-house staff performed many of the development and maintenance functions previously outsourced. The decrease in revenues was primarily attributable to the factors described below: The revenue decreases, for the six month periods ended December 31, 2000 as compared to December 31, 1999, are attributable to the net effect of a barter arrangement of $10,000 in broadcast sales for marketing services under a contract with the United Nations. The total value of this contract was $20,000, but only the net revenues of $10,000 were reported as revenue for the period ended December 31, 2000. INFLATION Inflationary factors did not directly bear on our operations during the fiscal periods since our inception. LIQUIDITY AND CAPITAL RESOURCES Pro Net Link has generated negative cash flows from operations in all periods since its inception in July 1997. At December 31, 2000, our net cash position of $96,580 represented an increase of $49,192, compared to June 30, 2000. During the six months ended December 31, 2000, net negative cash from operations of $1,710,808 primarily reflected our $1,991,882 net loss in the period. Net cash provided by financing during this period was $1,760,000, comprised of new loans from a shareholder of $1,650,000, private placement of shares of $510,000, and the repayment of bank debt of $400,000, as follows: On August 8, 2000, our President, Jean Pierre Collardeau, loaned Pro Net Link an aggregate of $1,000,000 in consideration of the issuance of a convertible note bearing interest at 12% per annum and due August 8, 2001. The note is convertible into shares of our common stock at $1.89 per share, subject to adjustments as defined in the convertible note. On October 10, 2000, the note maturity date was extended by one year to August 8, 2002. In September, 2000, our President, Jean Pierre Collardeau, loaned us $500,000. In consideration of the aforesaid loan, we issued a 12% Note to Jean Pierre Collardeau, dated October 10, 2000. Under this note, the loan was repayable on October 12, 2001 and bears interest at the Note of 12% per annum. On October 10, 2000, the note maturity date was extended by one year to October 12, 2002. On October 10, 2000, we sold 666,667 of our shares of common stock in a private placement for $510,000. 11 On October 10, 2000, we entered into a Note Purchase Agreement (the "Agreement") with our President, Jean Pierre Collardeau. Pursuant to the Agreement, subject to certain conditions, the President is obligated to lend us up to an aggregate principal amount of $2,000,000. The commitment terminates at the earlier of October 10, 2001 or the date by which the cumulative principal amount of borrowings under the Agreement reaches $2 million. On the date that the commitment terminates, amounts then outstanding will be combined into one note that will be due in two years. Borrowings will bear interest at 12% per annum. As of December 31, 2000, we had borrowed $150,000 under this Note Purchase Agreement. Subsequent to December 31, 2000, we have drawn down an additional $250,000 against the Note Purchase Agreement as follows: $100,000 on January 10, 2001; $75,000 on January 17, 2001; and $75,000 on January 25, 2001. We currently estimate that our base operating cash requirements (excluding projected expenses for research, development and marketing of the MTL product) for the next six months will approximate $700,000. Additionally, we will need to secure funding through the equity lines of credit currently under negotiation, or from other sources, to complete the development and marketing of the MTL/ASP product. Although we have no material commitments during the next 6 months or beyond, we expect to continue to have substantial capital requirements (a minimum of $4.0 million) in connection with the continued development, implementation and marketing of our MTL/ASP product. There can be no assurances that we will successfully raise the capital required to develop the product or to attain break-even cash flow in any future periods. In the absence of such funding, we will not be able to pursue our primary product, and be forced to consider all future alternatives. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK INTEREST RATE RISK AND USE OF DERIVATIVES During fiscal year 2000, we had available to us a $500,000 secured bank line of credit. Indebtedness under the revolving credit facility was priced on a floating interest rate basis and, accordingly, we were subject to a risk of rising interest rates. Outstanding liabilities under the facility were repaid on August 2, 2000 and we allowed the facility to lapse on August 6, 2000. On October 10, 2000, we entered into a Note Purchase Agreement with our President, Jean Pierre Collardeau, pursuant to which he is obligated to lend the Company up to an aggregate amount of $2,000,000. To date, Mr. Collardeau has funded $400,000 to the Company under this agreement. Under our current risk management policies we do not contemplate using interest rate derivative instruments to manage exposure to rate changes. Since indebtedness under our note purchase facility with Mr. Collardeau does not bear floating interest rates, we do not run the risk that our cost of capital under the facility will fluctuate based upon changes in interest rates. 12 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following exhibits are filed as part of this Form 10-Q.

-------------------------------------------------------------------------------- (1) Filed as an exhibit to the Registrant's Registration Statement on Form 10 filed with the Commission on June 21, 1999. (2) Filed as an exhibit to the Registrant's Registration Statement on Form 10/A filed with the Commission on December 14, 1999. (3) Filed as an exhibit to the Registrant's Quarterly Report for the period ended March 31, 2000 on Form 10-Q filed with the Commission on May 15, 2000. (4) Filed as an exhibit to the Registrant's Report of Form 8-K filed with the Commission on August 8, 2000. (5) Filed as an exhibit to the Registrant's Registration Statement on Form 10-K filed with the Commission on October 13, 2000. (6) Filed on Form S8 with the Commission on December 21, 2000. (7) Filed on Form 12-b-25 with the Commission on February 14, 2001. (b) Reports on Form 8-K. Report on Form 8-K, dated August 8, 2000, announcing certain agreements between Pro Net Link, GlobalNet Venture Partners, Inc. and other parties. Report on Form 8-K, dated September 28, 2000, announcing certain agreements between Pro Net Link, GlobalNet Venture Partners, Inc. and other parties. Report on Form 8-K, dated February 7, 2001, announcing a re-organization of the Company and the retention by the Company of a financial services firm. 13 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. Dated: February 20, 2001 PRO NET LINK CORP. (Registrant) By: /s/ Jean Pierre Collardeau Jean Pierre Collardeau President and Chief Executive Officer

PRO NET LINK CORP 10-Q