<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
--- Act of 1934 for the quarterly period ended September 30, 2000
--- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------- --------------------
Commission File number 0-28058
VILLAGEWORLD.COM, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-3137508
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
620 Johnson Avenue, Bohemia, New York 11716
(Address of Principal Executive Offices)
(631) 218-0700
(Issuer's Telephone Number Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date: At November 10, 2000, the issuer had
outstanding 19,446,203 shares of Common Stock, par value $.001 per share.
(Assuming the conversion of all outstanding Class B Preferred Stock the
outstanding common stock at November 10, 2000 would increase to 89,571,179
shares).
<PAGE> 2
VILLAGEWORLD.COM, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED SEPTEMBER 30, 2000
ITEMS IN FORM 10-QSB
<TABLE>
<CAPTION>
PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities and Use of Proceeds None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE> 3
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited) *
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 139,351 $ 800,561
Accounts receivable 861,766 494,820
Inventory 188,391 96,791
Refundable income taxes 126,000 126,000
Prepaid expenses and other current assets 133,887 129,094
----------- -----------
Total Current Assets 1,449,395 1,647,266
Fixed assets, net of accumulated depreciation 329,651 325,285
Intangible assets, net of accumulated amortization 2,481,555 2,694,252
Deferred tax asset 28,400 28,400
Other assets 82,503 13,230
----------- -----------
TOTAL $ 4,371,504 $ 4,708,433
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 75,000 $ 200,000
Accounts payable and accrued expenses 1,222,164 411,693
Deferred income 228,248 49,520
Net current liabilities attributable to discontinued operations -- 492,227
Other current liabilities 69,159 63,551
----------- -----------
Total Current Liabilities 1,594,571 1,216,991
Loans payable 575,811 567,885
Accrued preferred stock cumulative dividends 53,550 --
Security deposits payable 2,316 2,316
----------- -----------
Total Liabilities 2,226,248 1,787,192
----------- -----------
Stockholders' Equity:
Convertible Class B preferred stock; $.001 par value; 1,000,000
shares authorized; 508,152 shares issued and outstanding 508 508
Convertible (redeemable at $117.50) Class C preferred stock;
$.001 par value; 25,000 shares authorized; 11,900 and 15,800
shares issued at September 30, 2000 and December 31, 1999.
(Note E) 12 16
Common stock; $.001 par value; 200,000,000 shares authorized;
19,511,482 and 17,404,584 shares issued at September 30, 2000
and December 31, 1999. 19,511 17,405
Additional paid in capital 5,519,872 4,597,599
Stock subscription receivable (2,520) --
Accumulated deficit (3,327,503) (1,629,663)
Treasury stock (65,279 shares at cost) (64,624) (64,624)
----------- -----------
Total stockholders' equity 2,145,256 2,921,241
----------- -----------
TOTAL $ 4,371,504 $ 4,708,433
=========== ===========
-- --
</TABLE>
* Derived from audited financial statements.
The accompanying notes are an integral part of the financial statements. 3
<PAGE> 4
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES:
Subscription services $ 325,609 $ 91,649 $ 595,684 $ 271,957
Hardware sales 597,351 428,977 1,294,353 428,977
Installation services 127,217 55,867 233,703 55,867
Maintenance/Consulting 102,086 -- 260,656 --
Private label cd roms 46,377 -- 439,877 --
Other 77 78,221 67,220 78,221
---------- ---------- ----------- ----------
Total revenues 1,198,717 654,714 2,891,493 835,022
---------- ---------- ----------- ----------
COSTS AND EXPENSES:
Cost of sales 1,012,892 482,390 2,319,010 584,114
Selling, general and administrative 554,492 420,694 1,822,584 502,414
Amortization of excess of cost over
fair value of net assets acquired 70,879 70,879 212,638 70,879
Interest expense 5,840 105,236 13,051 106,520
Allowance granted to discontinued franchisee 50,000 -- 50,000 --
---------- ---------- ----------- ----------
Total costs and expenses 1,694,103 1,079,199 4,417,283 1,263,927
---------- ---------- ----------- ----------
Loss from operations before income taxes (495,386) (424,485) (1,525,790) (428,905)
Recoverable income taxes -- (41,900) -- (39,500)
---------- ---------- ----------- ----------
Net loss $ (495,386) $ (382,585) $(1,525,790) $ (389,405)
---------- ---------- ----------- ----------
Basic and diluted net loss per common share $ (0.01) $-- $ (0.02) $(0.01)
---------- ----------- ----------- ----------
Basic and diluted weighted average common
shares outstanding, giving effect to the
conversion to common stock of all Class B
Preferred Stock outstanding 89,571,179 86,768,667 89,196,367 55,344,650
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements. 4
<PAGE> 5
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class B Class C
Preferred Stock Preferred Stock Common Stock Additional
--------------- --------------- ------------ Paid-In
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 508,152 $ 508 15,800 $ 16 17,404,584 $ 17,405 $ 4,597,599
Stock issued to satisfy accrued
professional fees 11,111 11 9,989
Stock issued for promotional
services 152,000 152 94,848
Stocks issued for franchise
settlements 150,000 150 65,350
Preferred stock converted to
common stock (3,900) (4) 1,018,650 1,019 (441)
Stock issued in lieu of Class C
preferred stock dividend 1,470 1 (575)
Stock issued for cash net
of $10,000 private placement fee 666,667 666 489,334
Stock issued upon exercise
of option 7,000 7 6,868
Stock issued for executive
compensation 100,000 100 138,400
Accrued preferred stock
cumulative dividends
Beneficial conversion of
preferred stock 118,500
Net loss -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, September 30, 2000 508,152 $ 508 11,900 $ 12 19,511,482 $ 19,511 $ 5,519,872
=========== =========== =========== =========== =========== =========== ===========
-- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Stock Treasury Stock
Subscription -------------- Accumulated
Receivable Shares Amount Deficit Total
------------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 2000 -- (65,279) $ (64,624) $(1,629,663) $ 2,921,241
Stock issued to satisfy accrued
professional fees 10,000
Stock issued for promotional
services (1,520) 93,480
Stocks issued for franchise
settlements 65,500
Preferred stock converted to
common stock 574
Stock issued in lieu of Class C
preferred stock dividend (574)
Stock issued for cash net
of $10,000 private placement fee 490,000
Stock issued upon exercise
of option 6,875
Stock issued for executive
compensation (1,000) 137,500
Accrued preferred stock
cumulative dividends (53,550) (53,550)
Beneficial conversion of
preferred stock (118,500) --
Net loss -- -- -- (1,525,790) (1,525,790)
----------- ----------- ----------- ------------ -----------
Balance, September 30, 2000 $ (2,520) (65,279) $ (64,624) $(3,327,503) $ 2,145,256
=========== =========== =========== ============ ===========
-- -- -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements. 5
<PAGE> 6
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,525,790) $ (389,405)
----------- -----------
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation and amortization 273,423 99,469
Deferred promotional costs 27,265
Gain on disposal of fixed assets (6,500)
Interest imputed on bridge loans 96,500
Stock issued for compensation 137,500 125,000
Decrease (Increase) in:
Accounts receivable (366,946) (62,487)
Inventory (91,600) (93,355)
Prepaid expenses and other current assets (4,793) (78,325)
Net assets attributable to discontinued operations (364,055)
Increase (Decrease) in:
Accounts payable and accrued expenses 820,471 219,269
Related party advances --
Deferred revenue 178,728 (9,755)
Net current liabilities attributable to discontinued operations (426,727) --
Other current liabilities 5,608 --
----------- -----------
Total adjustments 546,429 (67,739)
----------- -----------
Net cash used by operating activities (979,361) (457,144)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in merger -- 139,306
Purchase of fixed assets (65,092) (106,769)
Proceeds from sale of fixed assets 6,500
Increase in deposits (3,058) --
----------- -----------
Net cash provided (used) by investing activities (61,650) 32,537
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable (200,000) --
Proceeds of note payable 75,000 120,000
Proceeds from issuance of common stock 496,875
Proceeds from bridge loan 400,000
Proceeds of loans payable 7,926 (15,111)
----------- -----------
Net cash provided by financing activities 379,801 504,889
----------- -----------
NET INCREASE (DECREASE) IN CASH (661,210) 80,282
Cash, beginning of period 800,561 21,897
----------- -----------
Cash, end of period $ 139,351 $ 102,179
=========== ===========
--
</TABLE>
The accompanying notes are an integral part of the financial statements. 6
<PAGE> 7
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES:
Cash paid during the year for:
Interest $ 13,051 $ 4,720
Income taxes 1,950 6,066
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND FINANCING ACTIVITIES:
11,111 shares of common stock issued for payment of accounts payable:
Accounts payable $ 10,000
150,000 shares of common stock issued for refund of franchise fees and
store deposit:
Franchise fees $ 80,500
Common stock (150)
Additional paid in capital (65,350)
----------
Cash paid $ 15,000
==========
152,000 shares of common stock deemed issued for
deferred promotional agreement $ 93,480
Cumulative $6 Class C preferred stock dividend accrued $ 53,550
On July 1, 1999 the Company issued 254,076 shares of Preferred Stock and
12,274,237 shares of Common Stock in a merger
Excess of fair value over net assets acquired in merger $ 2,835,173
Preferred stock (254)
Common stock (12,275)
Additional paid in capital (1,834,617)
Treasury stock 64,624
Accounts receivable 651,086
Inventory 47,189
Current assets attributable to discontinued operations 159,520
Prepaid expenses and other current assets 44,085
Fixed assets 94,478
Other assets attributable to discontinued operations 448,661
Security deposits and other assets 15,736
Note payable - bank (80,000)
Accounts payable and accrued expenses (325,773)
Current liabilities attributable to discontinued operations (1,557,843)
Other current liabilities (26,659)
Loans payable (516,531)
Deferred taxes (6,600)
</TABLE>
The accompanying notes are an integral part of the financial statements. 7
<PAGE> 8
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - THE COMPANY AND BASIS OF PRESENTATION
The Company is a provider of Internet on-line services,
offering its subscribers a wide variety of services including
electronic mail, software, computing support, and easy access
of the Internet. In addition, the Company provides small
businesses with fully managed services that include Internet
connections, remote dial access and Web hosting services. The
Company also provides full service system integration
specializing in high-end computer networking infrastructures,
Internet solutions, and Local and Wide Area Network
installations.
The information herein is unaudited. However, in the opinion
of management, such information reflects all adjustments
(consisting only of normal recurring adjustments) necessary to
make the financial statements not misleading. Additionally, in
accordance with applicable standards for interim reporting,
the accompanying financial statements do not include all
disclosures in conformity with generally accepted accounting
principles.
The results of operations for the nine months ended September
30, 2000 are not necessarily indicative of the results of
operations for the full year ending December 31, 2000. The
results of operations and cash flows for the three months
ended September 30, 1999 include ICS, which was acquired on
July 1, 1999. The accompanying financial statements should be
read in conjunction with the Company's financial statements
for the year ended December 31, 1999 appearing in the
Company's Annual Report on Form 10-KSB.
(NOTE B) - CONVERSION OF PREFERRED STOCK
During the quarter ended March 31, 2000, 3,900 shares of
preferred stock were converted into 1,020,120 shares of the
Company's common stock including 1,470 shares for cumulative
preferred stock dividends aggregating $574. No conversions
occurred during the quarters ended June 30, 2000 or September
30, 2000.
(NOTE C) - COMMON STOCK
In February 2000 the Company issued 11,111 shares of its
common stock to an attorney in payment of $10,000 for legal
services previously rendered by such attorney for the Company.
In February 2000 the Company granted five-year warrants to
four persons to purchase an aggregate of 152,000 shares of the
Company's common stock at an exercise price of $0.01 per share
for the following services:
(1) to one person, for acting as a public spokesman for
the Company, a warrant to purchase 70,000 shares;
(2) to two companies for arranging the transaction with
the spokesman, warrants to purchase an aggregate of 80,000
shares; and
(3) to one person for legal services provided in such
transaction, a warrant to purchase 2,000 shares.
-8-
<PAGE> 9
(NOTE C) - COMMON STOCK (CONTINUED)
In addition to the shares issued to the spokesman, the related
promotional agreement provided for a cash fee of $30,000 per
year payable each year in advance.
Due to the nominal amount of the exercise price, the Company
has recognized the deemed issuance of these 152,000 shares at
the fair value of the Company's common stock at the date of
issuance, $0.625 per share. The excess of such fair value over
the unpaid subscription receivable, $93,480 has been charged
to a deferred cost account, which is being amortized over the
two-year term of the related promotional agreement.
In March 2000 the Company issued an aggregate of 150,000
shares of its common stock to five persons in settlement of
their prior claims against the Company arising from the
Company's discontinued bagel franchising operations.
The Company entered into a memorandum of understanding with
Mr. Robert Appel, pursuant to which he became Chief Executive
Officer. The memorandum provides for employment on a full-time
basis and contains provisions that Mr. Appel will not compete
or engage in a business competitive with the Company's
business until twelve months after the termination of the
agreement. The memorandum provides for a base salary of
$75,000 per annum and the grant of an option to purchase
100,000 shares of the Company's common stock at an exercise
price of $.01 per share. Due to the nominal amount of the
exercise price, the Company recognized at April 14, 2000 the
deemed issuance of the 100,000 shares at the then fair value
of the Company's common stock of $1.375 per share. The
memorandum also provided for the grant of two other 100,000
share options, the first exercisable until December 31, 2000,
conditioned upon the Company raising $5,000,000 of additional
equity funding by that date and the second exercisable until
December 31, 2001, if the Company's common stock is trading at
or above $4.00 per share prior to or at such date.
On April 17, 2000 the Company completed a private placement
funding of $500,000 with Millennium Capital Partners, LLC
("MCP"), an investment group, whereby MCP purchased 666,667
shares of the Company's common stock and a five-year warrant
to purchase 666,667 shares of the Company's common stock at an
exercise price of $1.00 per share, for an aggregate investment
of $500,000. In connection with such transaction the Company
issued a five-year warrant to Perrin, Holden and Davenport
Capital Corp. to purchase 5,000 shares of the Company's common
stock exercisable at a price of $1.00 per share.
(NOTE D) - COMMON STOCK OPTIONS
Pursuant to the Company's 1996 Performance Equity Plan ("1996
Plan"), on March 31st of each calendar year during the term of
the 1996 Plan, assuming there are enough shares then available
for grant under the 1996 Plan, each person who is then a
director of the Company is awarded stock options to purchase
2,000 shares of common stock at the fair market value thereof
(as determined in accordance with the 1996 Plan), all of which
options are immediately exercisable as of the date of grant
and have a term of ten years. These are the only awards which
may be granted to a director of the Company under the 1996
Plan. On March 31, 2000, the directors of the Company received
this automatic grant of options to purchase an aggregate of
10,000 shares of common stock at an exercise price of $2.3125
per share.
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<PAGE> 10
(NOTE E)- RECLASSIFICATIONS AND RELATED ADJUSTMENTS
The stockholders' equity section of the December 31, 1999
balance sheet has been reclassified to reflect the actual par
value of the Class C Preferred Stock.
Certain components of revenue initially reported in the March
31, 2000 income statement have been reclassified to reflect
the increased significance of revenues from maintenance and
consulting agreements.
The registrant's quarterly results of operations for the three
and six-month periods ended June 30, 1999 reported on the June
30, 2000 Form 10-QSB each overstated selling, general and
administrative expense by $16,500. As a result, net income for
such periods should have been reported as $22,736 and $26,180,
respectively; income per share was unaffected by the change.
The three and nine-month periods ended September 30, 1999
presented herein give effect to such correction.
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<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's financial statements and the notes thereto. The discussion of
results, causes and trends should not be construed to imply any conclusion that
such results or trends will necessarily continue in the future.
FORWARD-LOOKING STATEMENTS
When used in the Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"management expects" or "the Company expects," "will continue," "is
anticipated," "estimated" or similar expressions are intended to identify
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Readers are cautioned not to place undue
reliance on any such forward-looking statements, each of which speak only as of
the date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results and
those presently anticipated or projected. The Company has no obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
The Company's total revenues increased 83%, to $1,198,717 for the three
months ended September 30, 2000, from $654,714 for the three months ended
September 30, 1999. This revenue growth was primarily attributable to an
increase in the number of subscribers, dedicated users and partnerships with
several community-based Internet services.
Cost of sales related to subscription services consist primarily of cost
for circuit and local line charges to provide service to our customers and
commission expense to private label partners. The cost of sales related to
systems integration consist primarily of direct labor and material cost.
Cost of sales was $1,012,892, representing 84% of total revenue for the
three months ended September 30, 2000, compared to $482,390, representing 74% of
total revenues for the three months ended September 30, 1999. This increase in
cost of sales as a percentage of sales was primarily attributable to upgrading
our backbone service and redundancy to ensure connectivity. These costs have
increased without any significant increase in related revenues. This was
undertaken with the intent to position the Company for expansion of its Internet
business. In addition, low margins on the sale of private label CD roms
contributed to this percentage increase in cost of sales.
Selling, general and administrative expenses (SG&A) were $554,492 for the
three months ended September 30, 2000 an increase of 32% from $420,694 for the
three months ended September 30, 1999. This increase was primarily the result of
higher payroll costs. Payroll cost increased 85% to $295,184 for the three
months ended September 30, 2000 from $159,740 in the three months ended
September 30, 1999, a result of hiring approximately 12 new employees in the
technical and customer service departments. This increase in personnel was done
to increase technical support and service to our customers. Marketing and
newspaper advertising increased by $58,202 for the three months ended September
30, 2000, an increase of 100% compared to the three months ended September 30,
1999. This increase represents the launching of the Company's Internet
franchising program.
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<PAGE> 12
Interest expense was $5,840 for the three months ended September 30, 2000,
a decrease of $99,396 from $105,236 for the three months ended September 30,
1999. This decrease was primarily attributable to the previous repayment of debt
financing and bridge loans relating to the private placement of class C
Preferred Stock.
In September 2000, the Company granted a $50,000 allowance to a
discontinued bagel franchisee to settle an outstanding note receivable in the
amount of $80,000 and received net payment of $30,000. Such action was taken to
maximize the recovery from this franchisee. The loss of $50,000 had not
previously been provided for.
Net loss for the three months ended September 30, 2000 was $495,386
compared to a net loss of $382,585 for the three months ended September 30,
1999. The primary reasons for the increase in the current period loss were: (i)
additional Internet and telephone connection costs; (ii) goodwill amortization;
(iii) higher payroll costs; (iv) advertising and marketing; and (v) the
allowance to the former franchisee.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
The Company's total revenues increased 246%, to $2,891,493 for the nine
months ended September 30, 2000, from $835,022 for the nine months ended
September 30, 1999. This revenue growth was primarily attributable to the
addition of ICS sales of $1,790,095 for the nine months ended September 30,
2000, of which $290,666 represents increased sales for the third quarter; ICS is
not included in the Company's consolidated financial statements prior to July 1,
1999. ICS sales are comprised of: hardware sales, installation services and
maintenance/consulting. Subscription service revenue increased by $323,727 for
the nine months ended September 30, 2000. This increase was primarily
attributable to an increase in the number of subscribers, dedicated users and
partnerships with several community-based Internet services. Private label CD
rom production is a new product for the Company, generated revenues of $439,877
for the nine months ended September 30, 2000.
Cost of sales was $2,319,010, representing 80% of total revenue for the
nine months ended September 30, 2000, compared to $584,114, representing 70% of
total revenues for the nine months ended September 30, 1999. This increase in
cost of sales as a percentage of sales was primarily attributable to the
addition of ICS's computer network business for the nine months ended September
30, 2000. Cost of sales of ICS was $1,268,130, or 71% of hardware sales,
installation services and maintenance/consulting for the nine months ended
September 30, 2000. Cost of sales of VillageWorld was $1,050,880, or 95% of
revenues for subscription services, private label CD rom production and other
revenues for the nine months ended September 30, 2000. VillageWorld incurred
costs in upgrading its backbone service and redundancy to ensure connectivity.
These costs have increased without any significant increase in related revenues.
This was undertaken with the intent to position the Company for expansion of our
Internet business. In addition, low margins on the sale of private label CD roms
contributed to this percentage increase in cost of sales.
Selling, general and administrative expenses (SG&A) were $1,822,584 for the
nine months ended September 30, 2000, an increase of 263% from $502,414 for the
nine months ended September 30, 1999. This increase was primarily attributable
to the addition of the SG&A expenses of ICS for the nine months ended September
30, 2000. Of the total SG&A expenses, $796,266 represents VillageWorld for the
nine months ended September 30, 2000 and $1,026,318 represents ICS for the nine
months ended September 30, 2000.
Depreciation and amortization increased to $273,423 for the nine months
ended September 30, 2000 from $99,469 for the nine months ended September 30,
1999, an increase of 175%. This increase is attributable to the additional
depreciation on fixed asset purchases and the amortization of goodwill
associated with the Company's merger.
Interest expense was $13,051 for the nine months ended September 30, 2000,
a decrease of $93,469 from $106,520 for the nine months ended September 30,
1999. This decrease was primarily attributable to repayment of debt financing
and bridge loans relating to the private placement of class C Preferred Stock.
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<PAGE> 13
Net loss for the nine months ended September 30, 2000 was $1,525,790
compared to a net loss of $389,405 for the nine months ended September 30, 1999.
The primary reasons for the increase in the current period loss were: (i) the
incorporation of the results of operations of ICS amounting to a loss of
$516,059 for the nine months ended September 30, 2000 compared to a net loss of
$47,521 for the prior period; (ii) additional Internet and telephone connection
costs; (iii) goodwill amortization; (iv) higher payroll costs; (v) advertising
and marketing; and (vi) the allowance to the former franchisee as discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2000 were $139,351 compared to
$800,561 at December 31, 1999. This decrease in cash was primarily attributable
to the funding of our net loss from operations and to pay liabilities associated
with discontinued operations.
Accounts receivable increased to $861,766 at September 30, 2000 from
$494,820 at December 31, 1999. This increase was due to: (i) the invoicing of
the Great Neck School District Technology Implementation contract of $70,000,
constituting approximately 42% of the total contract; (ii) approximately
$276,000 of various new projects, most of which were billed in the September
quarter; and (iii) a slow-down in the collection of receivables.
Inventory increased to $188,391 at September 30, 2000 from $96,791 at
December 31, 1999 due to equipment purchased for the Great Neck School District
Technology Implementation contract. Completion of this project is expected by
late November 2000.
Prepaid expenses and other current assets increased to $133,887 at
September 30, 2000 from $129,094 at December 31, 1999, due primarily to an
increase in prepaid advertising.
Other assets increased to $82,503 at September 30, 2000 from $13,230 at
December 31, 1999. This was attributable to the costs associated with securing
the services of a celebrity spokesperson, which are being amortized over the
two-year term of the contract.
The combination of accounts payable and accrued expenses increased to
$1,222,164 at September 30, 2000 from $411,693 at December 31, 1999. This
increase was primarily attributable to slow cash collection of accounts
receivable and the paydown of bank debt.
Notes and loans payable decreased to $650,811 at September 30, 2000 from
$767,885 at December 31, 1999, primarily attributable to the repayment of
$125,000 of bank loans.
At September 30, 2000, we had a deficiency of working capital of $145,176
and a current ratio of .91. The Company is currently in the process of
formulating plans to improve working capital.
Our operating activities used cash of $979,361 for the nine months ended
September 30, 2000 as compared to $457,144 provided by operating activities for
the nine months ended September 30, 1999. This increase in use of cash was
primarily due to the funding of our net loss from operations and to pay
liabilities associated with discontinued operations.
For the nine months ended September 30, 2000, cash used in investing
activities amounted to $61,650 compared to cash provided of $32,537 for the same
period in 1999. This change was primarily due to the net effect of cash acquired
in the merger in 1999 and decreased capital expenditures in 2000.
Since the merger, we have funded our operating losses and working capital
needs primarily through private placement of equity securities. We have a credit
line with a bank with a maximum borrowing of $200,000, of which $125,000 was
available at September 30, 2000. We will require additional working capital to
finance operations.
-13-
<PAGE> 14
In March 2000 we entered into franchise separation agreements with former
franchisees in which we paid $15,000 and issued 150,000 shares of common stock.
In September 2000 we granted a $50,000 credit allowance to a former franchisee
to induce him to settle his outstanding indebtedness to the Company. All
arrangements with former franchisees except one have now been settled. The
remaining matter is expected to be resolved with no significant adjustment to
the amount previously provided in connection with the decision to discontinue
the bagel operations.
On April 17, 2000 we completed a private placement funding of $500,000 with
Millenium Capital Partners, LLC ("MCP"), an investment group, whereby MCP
purchased 666,667 shares of the Company's common stock and a five-year warrant
to purchase 666,667 shares of the Company's common stock at an exercise price of
$1.00 per share, for an aggregate investment of $500,000.
The Company is investigating the possibility of acquiring other Internet
companies currently outsourcing Internet access needs that are compatible with
the ISP services offered by the Company. By then placing these companies on its
existing backbone infrastructure, we expect to add services, attract new
Internet users and increase revenue through the elimination of outsourcing costs
of the acquired companies.
OTHER MATTERS
Recent Developments
We announced the development of multiple Franchises in the states of
Maryland and New York. This marks the launch of the first publicly traded
Internet Service Provider (ISP) Franchising program. VillageWorld.com
Franchisees are granted exclusive territorial rights to sell VillageWorld.com
services. Franchisees build on-line villages tailored to meet the needs of their
geographic communities. Each village will be the central point for local content
including: commerce, news, politics, and advertising. A key feature on the
Franchise Homepage is VillageWorld.com's proprietary suite of community tools,
such as message boards, chat rooms, and a community calendar. The community
suite and local content will serve to foster a real community experience within
each virtual village.
On October 15, 2000 John Campagna was named President of ICS, our systems
integration division. ICS has also recently been awarded a contract from the
Lawrence, NY school district. In addition, ICS has completed the Commack School
District project and is 90% complete with the Great Neck School District and
William Floyd School District projects.
-14-
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER
------
27* Financial Data Schedule (9/30/00)
------------
* Filed herewith
(b) REPORTS ON FORM 8-K
None
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this export to be signed on its behalf by the
undersigned thereunto duly authorized.
VillageWorld.com, Inc.
----------------------
(Registrant)
Dated: November 14, 2000 By: /s/ Robert Appel
-----------------------------------------
Robert Appel, Chief Executive Officer
By: /s/ Edilberto Enriquez
------------------------------------------
Edilberto Enriquez, Treasurer and Chief
Financial Officer
-16-
<PAGE> 17
Index to Exhibits
EXHIBIT
NUMBER
------
27* Financial Data Schedule (9/30/00)
------------
* Filed herewith
-17-
