<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[XX] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the period ended July 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to _______________.
Commission File Number - 0-22539
ONLINE INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in charter)
Nevada 11-3360057
- --------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
150 Laser Court, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip code)
(516) 231-7575
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(Registrant's telephone number, including area code)
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 requirement for the past 90 days.
Yes XXX No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,753,622 as of July 31, 1997.
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FORM 10-QSB
FOR THE SIX-MONTH PERIOD ENDED JULY 31, 1997
TABLE OF CONTENTS
Part I Financial Information Page
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Item 1. Financial Statements
Consolidated Balance Sheet - Assets................................ 4
Consolidated Balance Sheet - Liabilities & Shareholders' Equity.... 4
Consolidated Statement of Income................................... 5
Consolidated Statement of Cash Flows............................... 6
Notes to Financial Statements...................................... 8
Item 2. Management's Discussion and Analysis or
Plan of Operation............................................. 9
Part II Other Information.................................................. 12
Page 2
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FINANCIAL STATEMENTS FOLLOW AT PAGES 4 THROUGH 8.
Page 3
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ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1997
UNAUDITED
ASSETS
Cash $ 1,488,671
Accounts receivable, less allowance
for doubtful accounts of $0 1,126,971
Inventory 319,491
Prepaid assets 74,432
Note Receivable- equipment 23,750
Due from affiliates 63,516
Other current asset 68,998
Total Current Assets 3,165,829
PROPERTY, at cost, less accumulated depreciation 905,727
OTHER ASSETS
Deferred taxes 15,467
Investment in subsidiaries 253,454
Deposits 38,147
Total Other Assets 307,068
TOTAL ASSETS $ 4,378,624
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities of long-term debt $ 11,395
Current portion of obligations under capital leases 87,789
Accounts payable 544,337
Accrued expenses 168,720
Total Current Liabilities 812,240
Obligations under capital leases, less current portion 151,097
TOTAL LIABILITIES 963,337
STOCKHOLDERS' EQUITY
5% preferred stock, no par value; 234 shares authorized, 1,577,943
issued and outstanding
Common stock, $.001 par value; 100,000,000 shares authorized, 2,754
2,753,622 shares issued and outstanding
Additional paid-in capital 1,446,535
Retained earnings (deficit) 388,055
TOTAL STOCKHOLDERS' EQUITY 3,415,287
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,378,624
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ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
JULY 31, 1997 JULY 31, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 92,815 $ 129,777
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Gain on sale of subsidiary (82,648)
Gain on sale of equipment (110,394)
Depreciation and amortization 69,227 75,920
Change in:
Accounts Receivable 25,513 461,902
Inventory 212,425 83,922
Prepaid expenses and other current assets 22,119 7,158
Accounts Receivable-sale of subsidiary (68,500)
Accounts Receivable-sale of equipment - (93,750)
Accounts payable (74,556) (566,036)
Accrued expenses and other current liabilities 23,079 (13,101)
Deposits - (1,885)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 219,474 (26,487)
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 5,000 9,000
Acquisitions of property and equipment (51,182) (135,441)
Proceeds from sale of equipment - 275,000
Investment in unconsolidated subsidiary 272,318
NET CASH PROVIDED BY INVESTING ACTIVITIES 226,136 148,559
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (5,621) (5,671)
Payments (to) from affiliate-net - (37,857)
Payments of obligations under capital leases (25,516)
Net Cash Provided by (Used IN) FINANCING ACTIVITIES (31,137) (43,528)
NET INCREASE (DECREASE) IN CASH 414,473 78,544
CASH
Beginning of period 1,074,198 11,470
End of period $ 1,488,671 $ 90,014
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 7,401 $ 16,898
Taxes $ 27,500 -
</TABLE>
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ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
6 MONTHS ENDED 6 MONTHS ENDED
JULY 31, 1997 JULY 31, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 131,818 $ 296,172
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Gain on sale of subsidiary (82,648)
Gain on sale of equipment (110,394)
Depreciation and amortization 138,455 151,369
Change in:
Accounts Receivable (41,718) 519,335
Inventory 459,240 116,509
Prepaid expenses and other current assets (19,838) 4,800
Accounts Receivable-sale of subsidiary (68,500)
Accounts Receivable-sale of equipment - (93,750)
Accounts payable (816,452) (862,869)
Accrued expenses and other current liabilities 48,534 (28,599)
Deposits 3,750 (1,885)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (247,359) (9,312)
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 15,000 15,000
Acquisitions of property and equipment (80,869) (136,967)
Proceeds from sale of equipment - 275,000
Investment in unconsolidated subsidiary 272,318
Net Cash Provided by Investing Activities 206,449 153,033
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (11,291) (11,342)
Payments (to) from affiliate-net - (36,000)
Payments of obligations under capital leases (52,824) (29,708)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (64,115) (77,050)
NET INCREASE (DECREASE) IN CASH (105,025) 66,671
CASH
Beginning of period 1,593,696 23,343
End of period $1,488,671 $ 90,014
SUPPLEMENTAL DISCLOSURES OF CASH FLOW IN FORMATION
Cash paid for:
Interest $ 15,674 $ 38,738
Taxes
</TABLE>
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ONLINE INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
UNAUDITED
<TABLE>
<CAPTION>
3 mo.ended 3 mot ended 6 mot ended 6 mot ended
7/31/97 7/31/96 7/31/97 7/31/96
<S> <C> <C> <C> <C>
SALES - NET $ 2,890,621 $ 2,661,825 $ 5,418,145 $ 5,610,252
COST OF GOODS SOLD 2,393,445 2,473,203 4,550,955 5,071,896
GROSS PROFIT 497,176 188,622 867,190 538,356
SELLING, GENERAL & ADMINISTRATIVE 412,479 202,339 710,993 413,836
INCOME (LOSS) FROM OPERATIONS 84,697 (13,717) 156,197 124,520
OTHER INCOME (EXPENSE) 75,329 143,494 71,075 171,652
INCOME BEFORE INCOME TAXES 160,026 129,777 227,272 296,172
INCOME TAX EXPENSE 67,211 - 95,454
NET INCOME $ 92,815 $ 129,777 $ 131,818 $ 296,172
EARNINGS PER SHARE $ 0.01 $ 0.03 $ 0.02 $0.07
WEIGHTED AVERAGE SHARES OUTSTANDING 6,653,700 4,125,083 6,653,700 4,125,083
</TABLE>
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NOTES TO THE UNAUDITED FINANCIAL STATEMENTS:
The accompanying unaudited financial statements have been prepared in accordance
with instructions to Form 10-QSB and therefore, do not include all information
and footnotes necessary for a complete presentation of financial position,
results of operations, cash flows and stockholders' equity in conformity with
generally accepted accounting principles. Except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
financial statement included in the Company's annual report in the Form 10-SB
for the year ended January 31, 1997. In the opinion of Management, all
adjustments considered necessary for a fair presentation of the results of
operations and financial position have been included and all such adjustments
are of a normal recurring nature. Operating results for the six months ended
July 31, 1997 are not necessarily indicative of the results that can be expected
for the year ending January 31, 1998.
NON-CASH FINANCING TRANSACTION
On July 10, 1997, 16 Series A Preferred Shares were converted into 266,672
common shares.
SALE OF UNCONSOLIDATED SUBSIDIARY
Effective July 1, 1997, the Company sold all of its stock ownership in a 49%
owned subsidiary for approximately $272,000 recognizing a gain of approximately
$82,000.
SUBSEQUENT EVENT
Litigation involving the ownership of WinTex (a 60% owned subsidiary) was
settled effective as of September 9, 1997 wherein the Company sold all of its
stock ownership of WinTex to the other majority shareholder of WinTex for
certain cash payments and a percentage of the gross sales of WinTex for a period
of five (5) years beginning October 1, 1997.
The consolidated financial statements for the periods ended July 31, 1996 have
been restated to exclude the results of the former 60% owned subsidiary.
INVENTORIES: Inventories at July 31, 1997 consist of the following:
Raw Materials: $219,516
Work-in-process: 38,224
Finished goods: 61,751
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$319,491
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company currently has corporate purchase agreements with two lottery
vendors and the two parimutuel vendors. These agreements are in place for both
parties to have the assurance that the Company will have continuing orders and
the customer will receive its products as needed. The agreements contain
cancellation clauses upon thirty (30) days written notice for both parties. The
customers dictate their product requirements through purchase orders, which
cover periods of one month to one year. Standard sale terms are Net 30 days
from date of shipment. The Company is confident that the agreements it has will
continue to be renewed indefinitely.
LIQUIDITY AND CAPITAL RESOURCES
The Issuer's cash position at July 31, 1997 was $1,488,671, an increase of
414,473 from April, 1997. The increase was primarily attributable to the
current year's income and the sale of a 49% owned subsidiary in July, 1997 (see
discussion of sale below).
Accounts receivable at July 31, 1997 were $1,150,721. The lottery and
parimutuel products industry is controlled by a limited number of contractors.
During the six month period ended July 31, 1997, approximately seventy percent
(70%) of the Issuer's sales were to two contractors. In addition, approximately
percent (60%) of the accounts receivable balance at July 31, 1997 are due from
these contractors. The Issuer has not experienced any collection difficulties.
Working capital at July 31, 1997 was $2,353,590, an increase of $267,556
from the working capital of $2,086,034 at January 31, 1997 and an increase of
$249,431 from the working capital of $2,104,159 at April 30, 1997. This
increase in working capital is attributable to the current year's income, offset
by a reduction of current liabilities, primarily accounts payable.
The ratio of current assets to current liabilities is 3.9 to 1 at July 31,
1997 compared to .75 to 1 at July 31, 1996.
The Registrant has no material capital commitments at this time. Future
required capital will be raised either through private investors or through the
sale of common shares.
Page 9
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RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1996 TO THREE MONTHS ENDED JULY 31, 1997
Sales increased $228,000 in the three months ended July 31, 1997 compared
to the three ended July 31, 1996. This increase is primarily attributable to
increased orders during the beginning of the second quarter of the year after
slightly lagging orders during the first quarter (see comment on year to date
sales under Six Months Ended July 31, 1996 to Six Months Ended July 31, 1997.)
The gross profit percentage increased 10% in the quarter ended July 31,
1997 to 17% from 7% in the quarter ended July 31, 1996. This is attributable to
the ability of the Issuer to take advantage of prompt payment discounts on its
paper purchases in 1997 and continued improvements in the manufacturing process
which has reduced the overall waste generation.
During the quarter ended July 31, 1997, all contracts are continuing.
Income from operations for the quarter ended July 31, 1997 was $85,000, an
increase of $97,000 over the quarter ended July 31, 1996 where there was a
($14,000) loss from operations. The primary reason for this increase is higher
profit margins. Selling, general and administrative costs increased $210,000 in
the quarter ended July 31, 1997 as compared to the quarter ended July 31, 1996.
This is directly attributable to the marketing and administrative expenses
incurred by Online International in its efforts to obtain lottery management
contracts.
For the three months ended July 31, 1996 income taxes were not provided for
because the former parent had substantial losses that were utilized by the
Issuer to offset the tax liability it otherwise would have incurred.
During the quarter ended July 31, 1997, the Issuer sold its shares of a 49%
owned unconsolidated subsidiary for approximately $272,000 recognizing a gain of
approximately $82,000 (see footnotes to financial statements).
SIX MONTHS ENDED JULY 31, 1996 TO SIX MONTHS ENDED JULY 31, 1997
Year to date sales at July 31, 1997 are $192,000 lower than the year to
date sales for the six months ended July 31, 1996. This slight decrease is
primarily attributable to lower paper costs (thus a lower selling price) in the
six months ended July 31, 1997 compared to the period ended July 31, 1996.
Quantities sold remain substantially consistent during the two six month
periods.
Page 10
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The gross profit percentage for the six months ended July 31, 1997 was 16%
as compared to a gross profit percentage of 10% for the same period in 1996, an
increase of 6%. As discussed previously, this increase is attributable to the
Issuer's ability to maximize paper purchase discounts and minimize waste in the
manufacturing process.
At July 31, 1997 inventories were $459,240 lower than at January 31, 1997.
This decrease is a result of the Issuer's ability to reduce its raw paper on
hand because of certain arrangements with its paper vendors to warehouse paper
for the Issuer.
For the six months ended July 31, 1996 income taxes were not provided for
because the former parent had substantial losses that were utilized by the
Issuer to offset the tax liability it would otherwise have incurred.
For the period February 1, 1996 through August 7, 1996 and for the year
ended January 31, 1996, PAI filed a consolidated Federal tax return with PAI's
former parent. The Federal tax expense for the year ended January 31, 1997
differs from that which would be obtained by applying the thirty-four percent
(34%) corporate tax rate to the income before income taxes. During the period
of February 1, 1996 through August 7, 1996, the former parent had substantial
losses that were utilized by PAI to offset the tax liability it otherwise would
have incurred. There was no requirement to compensate the former parent for
this benefit.
The Registrant plans to diversify its operations into the gaming, lottery
management, and distribution management sectors. Distribution management is the
term used to encompass the movement of lottery products, supplies and
promotional material to POINT-OF-SALE locations. This will be accomplished
through the acquisition of existing businesses through the issuance of shares of
the Registrant. The Registrant plans to develop a full service lottery
portfolio encompassing printing, online technology, communication and
subscription services.
Page 11
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of July 31, 1997 the Issuer was the subject of litigation instituted in
the state of Texas. The details of this litigation are as follows:
On January 21, 1997, Printing Associates, Incorporated (PAI), a wholly
owned subsidiary of the Issuer, filed an Original Petition and Request for
Declaratory Judgment against Gilberto S. Ocanas, ("Ocanas") as Cause No.
97-00718 in the 201st Judicial District Court of Travis County, Texas. In that
action, PAI has alleged that, among other things, that Ocanas breached his
obligations under a stock option to purchase certain shares of the common stock
of WinTex International, Inc. The Ocanas counsel indicated his intention to
answer the lawsuit and include in his answer one or more counterclaims against
PAI.
On January 22, 1997, an Agreed Temporary Injunction Order was filed with
the Court in which PAI and Ocanas essentially agreed that WinTex International,
Inc. would continue the operation of the GTECH contract, but would not engage in
any new business without the consent of both parties. GTECH, one of PAI's key
customers, is a lottery ticket rseller whose clients include the New York, New
Jersey, Kentucky, Illinois and Indiana, state lotteries.
Ocanas did file his Original Answer with Original Counterclaims on February
28, 1997, wherein he claimed that PAI breached the underlying Shareholder's
Agreement between the parties.
Subsequent to the Six Month Period Ending July 31, 1997, the litigation
involving the ownership of Win-Tex was settled. The effective date of this
settlement was of September 9, 1997 wherein the Registrant sold all of its stock
ownership of Win-Tex to the other majority shareholder of Win-Tex for certain
cash payments and a percentage of the gross sales of Win-Tex. The terms of the
sale are as follows:
A. A cash payment of ninety thousand dollars US (US$90,000) which was
received on September 16, 1997.
B. Three and one-half percent (3.5%) of the gross sales of Win-Tex
generated from the Texas Lottery for a period of five (5) years beginning
October 1, 1997. The percentage payment applies to a maximum annual gross sales
of three million five hundred thousand US (US$3,500,000).
Page 12
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C. An additional cash payment of sixty seven thousand five hundred US
(US$67,500) is due and payable on January 31, 1998.
ITEM 2. CHANGES IN SECURITIES.
There have been no changes in the registered securities of the registrant.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There have been no defaults upon any senior securities of the registrant as
of July 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
There were no matters submitted for vote by security-holders of the
registrant during the period covered by this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required pursuant to Rule 601 of Regulation S-K.
Exhibit
No. Page
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2. Plan of acquisition, reorganization, arrangement,
liquidation, or succession..................................None
4. Instruments defining the rights of holders, including
indentures. Incorporated by reference (see Form
10-SB/A1 filed October 6, 1997)
10. Material contracts
Incorporated by reference (see Form 10-SB/A1 filed
October 6, 1997)
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11. Statement re: computation of per share earnings ................ N/A
(Information included in the Financial Statements, see
Consolidation of Income Statement).
15. Letter on unaudited interim financial information............... None
18. Letter on change in accounting principles ...................... None
19. Reports furnished to security holders. ......................... None
22. Published report regarding matters submitted to vote. .......... None
23. Consent of experts and counsel ................................. None
24. Power of attorney .............................................. None
27. Financial Data Schedule ....................................... 15
99. Additional exhibits ............................................ None
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONLINE INTERNATIONAL CORPORATION
Date Oct 30/97 BY: /s/ James D. Russell
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JAMES D. RUSSELL
President and Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JUL-31-1997
<CASH> 1,488,671
<SECURITIES> 0
<RECEIVABLES> 1,126,971
<ALLOWANCES> 0
<INVENTORY> 319,491
<CURRENT-ASSETS> 3,165,829
<PP&E> 2,775,644
<DEPRECIATION> 1,869,917
<TOTAL-ASSETS> 4,328,624
<CURRENT-LIABILITIES> 812,240
<BONDS> 0
0
1,577,913
<COMMON> 2,754
<OTHER-SE> 1,834,590
<TOTAL-LIABILITY-AND-EQUITY> 4,378,624
<SALES> 5,418,145
<TOTAL-REVENUES> 5,489,220
<CGS> 4,550,955
<TOTAL-COSTS> 710,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227,272
<INCOME-TAX> 95,454
<INCOME-CONTINUING> 131,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,777
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
</TABLE>
