<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
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 October 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
- --------------------------------------------------------------------------------
(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
- ----------------------------------- -----------------------------------
(Address of principal executive offices) (Zip code)
(516) 231-7575
----------------------------------------------------------------
(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 October 31, 1997.
<PAGE>
FORM 10-QSB
FOR THE SIX-MONTH PERIOD ENDED OCTOBER 31, 1997
TABLE OF CONTENTS
Part I Financial Information Page
----
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 INFORMATION FOLLOWS AT PAGES 4 THROUGH 8.
Page 3
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ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
UNAUDITED
ASSETS
- -----------------------------------------------------------
Cash $ 1,093,307
Accounts receivable, less allowance
for doubtful accounts of $0 935,189
Inventory 649,083
Prepaid assets 85,479
Note Receivable- equipment 16,250
Other current asset 237,965
-----------
TOTAL CURRENT ASSETS 3,017,273
-----------
PROPERTY, at cost, less accumulated depreciation 949,863
-----------
OTHER ASSETS
Deferred taxes 15,467
Other Assets 236,214
-----------
TOTAL OTHER ASSETS 251,681
-----------
TOTAL ASSETS $ 4,218,817
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------
Current maturities of long-term debt $ 5,725
Current portion of obligations under capital leases 90,217
Accounts payable 665,372
Accrued expenses 82,138
-----------
TOTAL CURRENT LIABILITIES 843,452
-----------
Obligations under capital leases, less current portion 127,613
-----------
TOTAL LIABILITIES 971,065
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STOCKHOLDERS' EQUITY
5% preferred stock, no par value; 234 shares authori 1,584,855
issued and outstanding
Common stock, $.001 par value; 100,000,000 shares 2,754
2,753,622 shares issued and outstanding
Additional paid-in capital 1,439,623
Retained earnings (deficit) 220,520
-----------
TOTAL STOCKHOLDERS' EQUITY 3,247,752
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,218,817
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ONLINE INTERNATIONAL CORPORATION
CONSOLIDATED INCOME STATEMENT
UNAUDITED
<TABLE>
<CAPTION>
3 MO. ENDED 3 MO. ENDED 9 MO. ENDED 9 MO. ENDED
10/31/97 10/31/96 10/31/97 10/31/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES - NET $ 2,348,165 $ 2,394,876 $ 7,766,310 $ 8,005,128
COST OF GOODS SOLD $ 1,956,979 $ 2,123,831 $ 6,507,934 7,195,727
----------- ----------- ----------- -----------
GROSS PROFIT 391,186 271,045 1,258,376 809,401
SELLING, GENERAL & ADMINISTRATIVE $ 378,148 $ 188,942 $ 884,890 602,778
NEW BUSINESS DEVELOPMENT EXPENSES $ 419,681 $ - $ 623,932
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (406,643) 82,103 (250,446) 206,623
OTHER INCOME (EXPENSE) $ 143,653 $ 44,947 $ 214,728 $ 216,599
----------- ----------- ----------- -----------
INCOME(LOSS) BEFORE INCOME TAXES (262,990) 127,050 (35,718) 423,222
INCOME TAX EXPENSE (BENEFIT) $ (95,454) -
----------- ----------- ----------- -----------
NET INCOME $ (167,536) $ 127,050 $ (35,718) $ 423,222
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER SHARE $ (0.03) $ 0.03 $ (0.01) $ 0.10
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 6,653,700 4,125,083 6,653,700 4,125,083
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Page 5
<PAGE>
ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $ (167,536) $ 127,050
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Gain on sale of subsidiaries (144,094) -
Gain on sale of equipment - -
Depreciation and amortization 69,229 74,205
CHANGE IN:
Accounts Receivable 191,782 38,760
Inventory (329,592) 123,943
Prepaid expenses and other current assets (45,062) (34,628)
Accounts Receivable-sale of subsidiary (333,019) -
Accounts Receivable-sale of equipment - (45,000)
Accounts payable 121,035 (253,703)
Accrued expenses and other current liabilities (86,581) (16,322)
Deposits - (3,000)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (723,838) 11,305
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 7,500 19,905
Acquisitions of property and equipment (113,365) (49,835)
Proceeds from sale of equipment - -
Proceeds from sale of unconsolidated subsidiaries 461,065 -
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NET CASH PROVIDED BY INVESTING ACTIVITIES 355,200 (29,930)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (5,670) (5,671)
Payments (to) from affiliate-net - (18,000)
Payments of obligations under capital leases (21,056) (31,400)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (26,726) (55,071)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH (395,364) (73,696)
CASH
Beginning of period 1,488,671 90,014
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End of period $ 1,093,307 $ 16,318
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 6,637
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Taxes $ - -
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</TABLE>
Page 6
<PAGE>
ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
9 MONTHS ENDED 9 MONTHS ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $ (35,718) $ 423,222
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Gain on sale of subsidiaries (226,742) -
Gain on sale of equipment - (110,394)
Depreciation and amortization 207,682 225,574
CHANGE IN:
Accounts Receivable 150,064 370,595
Inventory 129,648 240,452
Prepaid expenses and other current assets (64,900) (29,828)
Accounts Receivable-sale of subsidiary (401,519) -
Accounts Receivable-sale of equipment - 48,750
Accounts payable (695,417) (1,116,572)
Accrued expenses and other current liabilities (38,047) (44,921)
Deposits 3,750 (4,885)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (971,199) 1,993
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 22,500 34,905
Acquisitions of property and equipment (194,223) (186,802)
Proceeds from sale of equipment - 275,000
Proceeds from sale of unconsolidated subsidiaries 733,383 -
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NET CASH PROVIDED BY INVESTING ACTIVITIES 561,660 123,103
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt (16,961) (17,013)
Payments (to) from affiliate-net (54,000)
Payments of obligations under capital leases (73,880) (61,108)
---------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (90,841) (132,121)
---------------- ----------------
NET INCREASE (DECREASE) IN CASH (500,380) (7,025)
CASH
Beginning of period 1,593,696 23,343
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End of period $ 1,093,316 $ 16,318
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---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 22,311 $ 38,738
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---------------- ----------------
Taxes - -
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</TABLE>
Page 7
<PAGE>
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 nine months ended
October 31, 1997 are not necessarily indicative of the results that can be
expected for the year ending January 31, 1998.
SALE OF UNCONSOLIDATED SUBSIDIARV
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 October 31, 1996
have been restated to exclude the results of the former 60% owned subsidiary.
INVENTORIES
Inventories at October 31, 1997 consist of the following:
Raw Materials: $314,947
Work-in-process: 188,953
Finished goods: 145,183
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$649,083
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Page 8
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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 Company's cash position at October 31, 1997 was $1,093,307, a decrease
of $395,364 from July 31, 1997. This decrease is attributable to the use of
funds in the continuing effort to obtain new contracts internationally.
Accounts receivable at October 31, 1997 were $935,189. The lottery and
parimutuel products industry is controlled by a limited number of contractors.
During the nine month period ended October 31, 1997, approximately seventy one
percent (71%) of the Issuer's sales were to two contractors. In addition,
approximately sixty five percent (65%) of the accounts receivable balance at
October 31, 1997 are due from these contractors. The Issuer has not experienced
any collection difficulties.
Working capital at October 31, 1997 was $2,178,821, an decrease of $179,768
from the working capital of $2,353,589 at July 31, 1997. This decrease in
working capital is attributable to a decrease in cash offset by an increase in
inventories at October 31, 1997.
The ratio of current assets to current liabilities is 3.6 to 1 at October
31, 1997 compared to 3.9 to 1 at July 31, 1997.
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 OCTOBER 31, 1996 TO THREE MONTHS ENDED OCTOBER 31, 1997
Sales in the three month ended period October 31, 1997 remained consistent
with the sales in the three month period ended October 31, 1996.
The gross profit percentage increased 6% in the quarter ended October 31,
1997 to 17% from 11% in the quarter ended October 31, 1996. This is
attributable to the ability of the company 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 October 31, 1997, all contracts are continuing.
The loss from operations for the quarter ended October 31, 1997 was
($406,643), a decrease of $489,000 over the quarter ended October 31, 1996 where
there was an $82,103 profit from operations. The primary reason for this change
is the new business development costs of $419,681. The Company is involved in
license and contract negotiations to manage lotteries in several countries. As
negotiations have progressed, additional expenses have been incurred. These
expenses include travel to several countries and consulting fees to residents of
these countries.
For the three months ended October 31, 1997, the Company sold its share of
a 60% owned unconsolidated subsidiary for approximately $460,000 recognizing a
gain of approximately $144,000 (see footnotes to the financial statements).
NINE MONTHS ENDED OCTOBER 31, 1996 TO NINE MONTHS ENDED OCTOBER 31, 1997.
Year to date sales at October 31, 1997 are $238,818 lower than the year to
date sales for the nine months ended October 31, 1996. This slight decrease is
primarily attributable to lower paper costs (thus a lower selling price) in the
nine months ended October 31, 1997 compared to the period ended October 31,
1996. Quantities sold remain substantially consistent during the two nine month
periods.
The gross profit percentage for the nine months ended October 31, 1997 was
16% as compared to a gross profit percentage of 10%, an increase of 6%. As
discussed previously, this increase is attributable to the Company's ability to
maximize paper purchase discounts and minimize waste in the manufacturing
process.
Page 10
<PAGE>
At October 31, 1997 inventories were $129,648 lower than at January 31,
1997. This decrease is a result of the Company's ability to reduce its raw
paper on hand because of certain arrangements with its paper vendors to
warehouse paper for the Company.
For the nine months ended October 31, 1996 income taxes were not provided
for because the former parent had substantial losses that were utilized by the
Company to offset the tax liability it otherwise would have incurred.
Page 11
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of October 31, 1997 the Issuer was not the subject of any litigation
instituted in the state of Texas. However, on January 21, 1997, Printing
Associates, Incorporated, a then wholly owned subsidiary of the Issuer, (PAI),
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. (WinTex) 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.
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 WinTex was settled. The effective date of this
settlement was of September 9, 1997 wherein the Registrant 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. 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 WinTex
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).
C. An additional cash payment of sixty seven thousand five hundred US
(US$67,500) is due and payable on January 31, 1998.
Page 12
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ITEM 2. CHANGES IS SECURITIES.
There has 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 October 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.
Exhibit Page
No.
(a) 2. Plan of acquisition, reorganization, arrangement,
liquidation, or succession. . . . . . . . . . . . . . . . . .N/A
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)
11. Statement re: computation of per share earnings.. . . . . . .N/A
15. Letter on unaudited interim financial information . . . . . .N/A
18. Letter on change in accounting principles . . . . . . . . . .N/A
19. Reports furnished to security holders.. . . . . . . . . . . None
Page 13
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. CON'T
Exhibit Page
No.
22. Published report regarding matters submitted to vote. . . . None
23. Consent of experts and counsel. . . . . . . . . . . . . . . None
24. Power of attorney . . . . . . . . . . . . . . . . . . . . . .N/A
27. Financial Date 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 12-16-97 By: /s/ James D. Russell
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JAMES D. RUSSELL
President and Chief Financial Officer
Page 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 1,093,307
<SECURITIES> 0
<RECEIVABLES> 935,189
<ALLOWANCES> 0
<INVENTORY> 649,083
<CURRENT-ASSETS> 3,017,273
<PP&E> 2,775,644
<DEPRECIATION> 1,869,917
<TOTAL-ASSETS> 4,218,817
<CURRENT-LIABILITIES> 843,452
<BONDS> 0
0
1,577,943
<COMMON> 2,754
<OTHER-SE> 1,660,145
<TOTAL-LIABILITY-AND-EQUITY> 4,218,817
<SALES> 7,776,310
<TOTAL-REVENUES> 7,981,038
<CGS> 6,507,934
<TOTAL-COSTS> 884,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (35,718)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,718)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
