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 May 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 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 (SEE INDEPENDENT ACCOUNTANT'S REPORT) MAY 31, 2000 AND DECEMBER 31, 1999 ASSETS

(Continued) The accompanying notes are an integral part of these financial statements. 1 4 PENN-AKRON CORPORATION BALANCE SHEETS (SEE INDEPENDENT ACCOUNTANT'S REPORT) MAY 31, 2000 AND DECEMBER 31, 1999 LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these financial statements. 2 5 PENN-AKRON CORPORATION STATEMENTS OF INCOME (SEE INDEPENDENT ACCOUNTANT'S REPORT) FOR THE FIVE MONTHS ENDED MAY 31, 2000 AND 1999

(Continued) The accompanying notes are an integral part of these financial statements. 3 6 PENN-AKRON CORPORATION STATEMENTS OF INCOME (SEE INDEPENDENT ACCOUNTANT'S REPORT) FOR THE FIVE MONTHS ENDED MAY 31, 2000 AND 1999

The accompanying notes are an integral part of these financial statements. 4 7 PENN-AKRON CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (SEE INDEPENDENT ACCOUNTANT'S REPORT) FOR THE FIVE MONTHS ENDED MAY 31, 2000 AND THE YEAR ENDED DECEMBER 31, 1999

The accompanying notes are an integral part of these financial statements. 5 8 PENN-AKRON CORPORATION STATEMENTS OF CASH FLOWS (SEE INDEPENDENT ACCOUNTANT'S REPORT) FOR THE FIVE MONTHS ENDED MAY 31, 2000 AND 1999

(Continued) The accompanying notes are an integral part of these financial statements. 6 9 PENN-AKRON CORPORATION STATEMENTS OF CASH FLOWS (SEE INDEPENDENT ACCOUNTANT'S REPORT) FOR THE FIVE MONTHS ENDED MAY 31, 2000 AND 1999 RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES

NONCASH INVESTING AND FINANCING TRANSACTIONS During the five months ended May 31, 2000, a $250,000 note payable to stockholder was converted to 500 shares of Spherus common stock prior to the merger. During the five months ended May 31, 2000, the Company issued 50,000 shares of common stock for services at $.10 per share. See Note 1 for merger transaction. The accompanying notes are an integral part of these financial statements. 7 10 PENN-AKRON CORPORATION NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 AND DECEMBER 31, 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES On March 24, 2000 Penn-Akron Corporation (the Company) acquired all the outstanding stock of Spherus Technologies, Inc. (Spherus), doing business as globalseer.com, in a stock for cash and stock merger, accounted for as a purchase transaction whereby Spherus was deemed to be the acquirer. The stockholders of Spherus received 17,143,581 shares of common stock of the Company, including 1,000,000 shares issued as commission for the acquisition. After the acquisition, the former shareholders of Spherus had received over 50% of the outstanding shares of the Company. On March 13, 2000 the Company changed its domicile from the state of Delaware to Nevada and changed its authorized common capital stock from 10,000,000 shares with a par value of $.01 to 100,000,000 shares with a par value of $.001. The Company is in the business of providing turnkey installations of an Internet-based video distribution and multimedia network to school districts primarily in metropolitan Atlanta, Savannah and Brunswick, Georgia. The balance sheet as of December 31, 1999 includes the accounts of Spherus only. At the date of merger, Penn-Akron Corporation had $800 of liabilities and ($800) in equity consisting of $942,469 in paid in capital and ($943,269) in retained earnings (deficit). There was no activity in Penn-Akron Corporation for the prior 12 months. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements are as follows: The preparation of the financial statements in conformity with generally accepted accounting principles requires management 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. 8 11 PENN-AKRON CORPORATION NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 AND DECEMBER 31, 1999 Revenue for the installation at each participating school is recorded when each phase of the installation project is complete. The contract calls for initial training, maintenance and support of each school for 36-months from installation. The revenue and expense related to the training, maintenance and support have been deferred and will be amortized over the 36-month period. The Company estimated that no gross profit needs to be deferred related to the training and maintenance agreements. Accounts receivable are stated at estimated net realizable value. An allowance for doubtful accounts has not been established because management is of the opinion that all accounts are collectible. Deferred financing costs resulted from a line of credit and were amortized over the term of the line of credit utilizing the straight-line method. Equipment is stated at original cost. Depreciation is provided using the straight-line method over the estimated useful lives of three to five years. Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding after the stock split. The Company issued contingent shares to three stockholders on January 1, 2000 to be earned over 5 years. Because these contingent shares are antidilutive in nature, the Company does not report fully diluted earnings (loss) per share. There are no temporary differences in the recognition of assets and liabilities for financial statement and income tax purposes at December 31, 1999, hence no provision for deferred taxes has been recorded. The Company has a net operating loss carryforward of approximately $940,000 from Penn-Akron and $85,000 from Spherus and has provided a 100% valuation reserve because utilization of the loss carryforward in the future is not assured. 2. CONTRACT WITH METROPOLITAN REGIONAL EDUCATIONAL SERVICE AGENCY The Company receives funding from the Schools and Library Division (SLD) of the Universal Service Administrative Company, through a contract with Metropolitan Regional Educational Service Agency (MRESA). This program requires a 10 - 50% matching commitment for each school from private or local funds. Through May 31, 2000, the Company has approval for installations at 71 schools under the second year funding under the contract. These schools represent gross revenues in excess of $12,000,000 which include the SLD and MRESA funds. All performance under the MRESA contract has been assigned to Lynxus (see Note 3) and MRESA 9 12 PENN-AKRON CORPORATION NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 AND DECEMBER 31, 1999 has no recourse against Spherus for matters assigned to Lynxus. The Company and its subcontractor has completed the first of three phases of the project at each of the 71 schools at May 31, 2000. Through December 31, 1999, the Company and its subcontractors completed the installations at 192 schools under the first year funding under the contract. Funds representing 58% in 2000 and 88% in 1999 of revenues were from the SLD. The contract with MRESA covers a three-year term beginning in 1999, which coincides with the SLD award of grant money to certain schools in the 14 districts covered by MRESA. The fee for each school is approximately $174,000 for year 2 schools and $105,000 for year 1 schools under the contract. SLD pays for 50%-90% of the fee based on certain criteria. The schools and MRESA are responsible for finding the matching money through private or local funds. MRESA pays 10-50% of the fee based on what the SLD pays. The Company has a receivable from MRESA of approximately $2,900,000 from year 1 schools which is being held as retainage until MRESA signs off on final acceptance of the year 1 project. Management has not provided a reserve in anticipation of collecting 100% of this receivable. Upon collection of the receivable, approximately 95% is payable to Lynxus (See Note 3). At May 31, 2000, the Company has an additional $2,600,735 due from MRESA for year 2 projects. The contract with MRESA automatically renews for 1 subsequent annual phase (2001) of the project to the extent that SLD funding or other alternative funding remains available. The contract may be terminated by the Company or MRESA under certain circumstances, including if less than 50% of the schools join the project. 3. CONTRACT WITH LYNXUS, INC. The Company has subcontracted with Lynxus, Inc. to coordinate and manage the delivery, installation and testing requirements relating to the MRESA contract for all schools in 11 out of the 14 school districts in year 1 (which ended December 31, 1999), and in all districts in years 2 and 3. This contract can be terminated under certain circumstances. Under the terms of the contract, the Company is to pay 95% of the funds received from MRESA and the SLD to Lynxus. This contract also covers the 36-month maintenance and training requirements under the first and second year funding. 10 13 PENN-AKRON CORPORATION NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 AND DECEMBER 31, 1999 4. EMPLOYMENT AGREEMENTS There are employment agreements which provide for performance bonuses to 3 employees/stockholders in the amount of the greater of $140,000 or 3% of earnings before interest, taxes, depreciation and amortization (EBITDA) to be paid by the end of calendar year 1999. In addition, the Company agreed to pay another employee/stockholder a bonus of $220,000. The Company accrued $640,000 in the financial statements at December 31, 1999. At May 31, 2000, approximately $200,000 of this amount is left to be paid. In March 2000, the Company approved a consultant compensation agreement for one consultant which entitles them to 100,000 shares of common stock of the Company. As of May 31, 2000, 50,000 shares have been issued under this agreement for a fair value of $5,000. 5. LINE OF CREDIT At December 31, 1999, the Company had an $11,000,000 line of credit through March 2000 with PrinVest Corp. The agreement contained covenants the Company must meet on a monthly basis. The Company's cash, accounts receivable, equipment, contract rights, and all other assets were used to secure the agreement. Interest was payable at Prime plus 5.75% per annum calculated on a per diem basis, on the net outstanding balance of monies advanced to, or on behalf of the Company. Loan origination fees of $275,000 were capitalized and amortized over the life of the agreement. There was no amount outstanding on this line of credit at December 31, 1999. The Company signed a new agreement with PrinVest Corp. on June 8, 2000 for a maximum line of credit of $3,500,000. This agreement includes a commitment fee of 3% at the time of the initial funding, a credit facility fee of 1% of the prevailing credit line, and a servicing fee of 1% on the outstanding funded amount. Interest is payable at Prime plus 2.0% per annum calculated on a per diem basis on the net outstanding balance of monies advanced to, or on behalf of, the Company. The covenants and security discussed above also apply to this revised agreement. At December 31, 1999, the Company deposited $205,000 in escrow with PrinVest Corp. to be paid to OneWeb, a software vendor, upon release of retainage from MRESA of the project. This amount has been paid and released from escrow in 2000. OneWeb's remaining obligation relates to maintenance and upgrades only. 11 14 PENN-AKRON CORPORATION NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 AND DECEMBER 31, 1999 6. SUBSCRIPTION RECEIVABLE On March 14, 2000, the Company acquired certain contract rights to 16 1/2 acres of commercial property (with an estimated value by management of $2,800,000 subject to a mortgage of $800,000) from an existing stockholder for the issuance of 4.5 million post split shares of the Company. The Company also has the right to sell the property and realize net cash proceeds of $2 million. If the Company elects not to sell this property, the stockholder is obligated to purchase this property from the Company at a net purchase price of $2 million. 7. STOCK EARN OUT AGREEMENT As part of the merger between the Company and Spherus, certain Spherus stockholders were granted additional shares of stock upon the accomplishment of certain earn out goals. The term of this Earn Out is for five fiscal years beginning January 1, 2000. This Earn Out provides that the Company shall issue four additional shares of its common stock among the eligible stockholders for every dollar of annual income (as defined in the agreement) achieved by the Company for each such fiscal year in excess of the amount necessary to earn $0.15 per share for the Company in the year. The Company accounts for its stock-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized for these stock awards because the number of shares to be received is unknown. The Company has not adopted the disclosure option of Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" because management believes the effect would be immaterial and the amounts are indeterminable. 8. INVESTMENT The Company has invested $200,000 in a promissory note of Sanswire.net, LLC, an organization in which the Company was considering doing business. Interest accrues at 10% per annum and is due and payable in full on the maturity date. The note is due 10 business days following the date on which a Change in Control occurs. 12 15 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 $6,294,683 for the five month period ended May 31, 2000 from $15,884 for the five month period ended May 31, 1999, an increase of 3,960%. This increase is primarily due to $6,196,383 of revenue recognized for 71 local school installations under Year 2 of our contract and $93,333 of training revenue. Our current customer is the Metropolitan Regional Educational Service Agency ("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. 16 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 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. For the first 71 schools to be installed for Year 2, the Company will recognize revenues in excess of $12 million Our total cost of sales increased to $6,055,420 for the five-month period ended May 31, 2000 from $15,046 for the same period of 1999. This increase is due to the delivery of installations of our services to schools under our contract with MRESA. Our expenses increased to $600,161 for the five-month period ended May 31, 2000 from $525,280 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 $292,417 from $408,053 due primarily to operational consolidation. Our legal and accounting expenses increased to $92,289 from $14,924 due to contractual issues, including litigation described under "Legal Proceedings" in Part II of this Form 10-Q, as well as the merger between Spherus Technologies, Inc. and Penn-Akron Corporation. We have subcontracted with Lynxus, Inc. to implement and install an internet-based video distribution and multi-media network at elementary and secondary schools participating in the e-rate program under contract with MRESA. Under the terms of this subcontract, we pay 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 $9,468,896 at May 31, 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 increased to $9,522,348 as of May 31, 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 ($53,452) at May 31, 2000 from ($263,250) 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 $189,426 at May 31, 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. 17 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 July 27, 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 with this report. We had $2,922 in cash as of May 31, 2000 and $55,496 on July 27, 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 or the collection of our receivables, such delay may 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. 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. 18 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. 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 19 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 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. 20 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. 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. 21 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. 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. 22 3.1 Amended and Restated Bylaws of Penn-Akron Corporation (Amended and Restated as of July 5, 2000) 10.1 Financing and Security Agreement between PrinVest Financial Corp. and Penn-Akron Corporation, executed June 8, 2000 10.2 Promissory Note, executed June 8, 2000, from Penn-Akron Corporation to PrinVest Financial Corp. 10.3 Obligation to Forward Payments by Penn-Akron to PrinVest Financial Corp., executed June 8, 2000 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. 23 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: July 28, 2000 By: /s/ Christopher J.S. Baker -------------------------------------------------- Christopher J.S. Baker, Chief Financial Officer (principal financial and accounting officer)

PENN AKRON CORP 10-Q