UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 10, 2000
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Go Online Networks Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
O-23845 33-0873993
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(Commission File Number) (IRS Employer Identification No.)
5681 Beach Blvd., Suite 101/100, Buena Park, CA 20621
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(Address of principal executive offices) (Zip Code)
(714) 736-0988
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Registrant's telephone number, including area code:
Westlake Capital Corp.
5660 South Beech Court
Greenwood Village, CO 80121
(303) 221-7376
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(Former name, address and telephone number)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a Stock Exchange Agreement (the "Exchange Agreement") dated
as of January 10, 2000 between Westlake Capital Corp. ("Westlake"), a Colorado
corporation, and Go Online Networks Corporation, a Delaware corporation, all the
outstanding shares of common stock of Westlake Capital Corp. were exchanged for
3,000,000 shares of common stock of Go Online Networks Corporation ("GONT" or
the "Company") in a transaction in which GONT became the parent corporation of
Westlake.
The Exchange Agreement was adopted by the unanimous consent of the Board
of Directors of Westlake and approved by the written consent of the shareholders
of Westlake on January 10, 2000. The Exchange Agreement was adopted by the
unanimous consent of the Board of Directors of GONT on January 10, 2000. No
approval of the shareholders of GONT is required under applicable state
corporate law.
Prior to the merger, Westlake had 2,000,000 shares of common stock
outstanding which shares were exchanged for 3,000,000 shares of common stock of
GONT. By virtue of the exchange, GONT acquired 100% of the issued and
outstanding common stock of Westlake.
Prior to the effectiveness of the Exchange Agreement, GONT had an
aggregate of 70,052,677 shares of common stock, par value $.001, issued and
outstanding, and 499,333 shares of Series A preferred stock outstanding, $.001
par value
Upon effectiveness of the merger, GONT had an aggregate of 73,052,677
shares of common stock outstanding.
The officers of GONT continue as officers of GONT subsequent to the
Exchange Agreement. See "Management" below. The officers, directors, and
by-laws of GONT will continue without change.
A copy of the Exchange Agreement is attached hereto as an exhibit. The
foregoing description is modified by such reference.
(b) The following table sets forth certain information regarding
beneficial ownership of the common stock and series A preferred stock of GONT as
of September 30, 1999 (prior to the issuance of 3,000,000 shares pursuant to the
Exchange Agreement) by:
* each person or entity known to own beneficially more than
5% of the common stock or 5% of the preferred stock;
* each of GONT's directors;
* each of GONT's named executive officers; and
* all executive officers and directors of GONT as a group.
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and Address of Amount and Nature of Percent of
Title of Class Beneficial Owner (1) Beneficial Ownership Class
- -------------- -------------------- -------------------- -----------
Common Stock Joseph M. Naughton 5,307,125 (2) 7.6%
Preferred Stock 0 0.0%
Common Stock James M. Cannon 1,008,000 (3) 1.4%
Preferred Stock 0 0.0%
Common Stock Scott Claverie 1,250,000 1.8%
Preferred Stock 0 0.0%
Common Stock Michael Abelson 485,000 (4) 0.7%
Preferred Stock 0 0.0%
Preferred Stock Nicanor Concepcion & Fahma
Concepcion, Joint Tenants
624 Park Ave.
Norton, VA 24273 130,000 26.0%
Preferred Stock Avelino Rosales
23 White Drive
Cedarhurst, NY 11516 63,333 12.7%
Preferred Stock Bill Tillson
14623 Deervale Place
Sherman Oaks, CA 91403 40,000 8.0%
Preferred Stock Bradley B. Hinshew
3918 River Road
Sneeds Ferry, NC 28460 35,000 7.0%
Common Stock All Officers and Directors
as a Group (4 persons) 6,800,125 (2,3,4) 9.5%
</TABLE>
1. Except as otherwise set forth, the address for each of these shareholders
is c/o Go Online Networks Corporation, 5681 Beach Boulevard, Suite 101/100,
Buena Park, CA 90621.
2. Mr. Naughton's shares are held through several different entities and
trusts, as to which Mr. Naughton is the primary beneficial owner.
3. Reflects 8,000 shares which Mr. Cannon owns director and up to 1,000,000
shares which Mr. Cannon could obtain upon the exercise of a warrant to purchase
shares of common stock at $.20 per share.
4. In addition, Mr. Abelson will receive options to purchase 25,000 shares
of common stock for each $500,000 in gross revenues attributable to the real
estate website developed by us.
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement was
negotiated between Westlake and GONT.
In evaluating GONT as a candidate for the proposed acquisition, Westlake
used criteria such as the value of the assets of GONT, its present stock price
as set forth on the over-the-counter bulletin board, its internet e-commerce
businesses and its hotel internet kiosk business and other anticipated
operations, and GONT's business name and reputation. Westlake determined that
the consideration for the merger was reasonable.
(b) GONT intends to continue its historical businesses and proposed
businesses as set forth more fully immediately below.
BUSINESS
SUMMARY
Go Online Networks Corporation operates in the high technology and
e-commerce business utilizing a three-tiered revenue model. In initiating our
new strategy, we recently acquired and currently operate three distinct
divisions, each described below:
Internet Kiosk Division
We are pursuing a strategy in the installation of internet kiosks in the
mid-priced hotel market. Our internet kiosks, designed in three primary models,
are installed in the hotel lobby or an alternative centralized public access
room. Our kiosk division has developed two suppliers capable of manufacturing
small, integrated kiosks that can provide pay-as-you-use stand-alone internet
access. At no cost to the hotel owner and sharing revenues with us and the
owner, our internet kiosks have been and will continue to be marketed to these
mostly mid-priced hotels by sales agent organizations employed by our kiosk
division. Presently, 369 hotels have signed contracts and 167 have been
installed as of January 10, 2000. We believe that we will have many more by
year end and hope to reach our goals of installation of enough kiosks to make us
profitable by the first quarter of 2001.
ShopGoOnline.com
Utilizing online video and audio technology to assist with customer review,
our ShopGoOnline.com internet website offers a variety of products and services
via the world wide web. ShopGoOnline.com sells products such as jewelry, coins,
collectibles, electronics, computers, skin care and beauty products, and
personal fitness products. At ShopGoOnline.com, the customer can search for
products we have to sell by category or by product name and obtain a full
description of the product offer including a complete audio presentation of the
product as well as a video demonstration when appropriate.
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Auctionomics.com
The internet auction method of e-commerce has become increasingly accepted
in todays internet environment. By adding Auctionomics.com to our e-commerce
business strategy, we are attempting to take advantage of those opportunities.
As a complimentary component of our network of e-commerce web sites,
Auctionomics will link traffic to the ShopGoOnline.com virtual shopping mall,
and vice versa.
THE HOTEL INTERNET KIOSK
We believe the demand for internet access by travelers will continue to
grow as more of the United States and world population continues to go on line.
Travelers, whether business or personal, are a substantial potential market.
Business strategies to service the traveler's needs range from internet services
located in airports and hotels, to remote, hand held or car based devices. User
demand, capital requirements, and operating costs of alternative technologies,
along with the business models to service these travelers are all evolving, and
have mostly resulted to date in substantial operating losses.
Within the hotel industry, the primary attention paid to travelers to date
has been in the upscale, high priced and luxury hotels segments. These affluent
travelers are viewed as the most likely to pay for the cost of technological
solutions to internet access and entertainment demand. The twin demand drivers,
entertainment and internet, are expected to pay for these sophisticated
technological solutions.
On the other hand, little attention has been directed to mid-priced hotels
which is our primary focus, aside from possible provision of a modem jack on
phones. Cable or a satellite service is considered for entertainment. Owners
of franchises are resisting orders from chain corporations to spend significant
sums, such as electronic upgrades of room locks and other amenities.
In the upscale and luxury hotel category, the two leading companies, On
Command and LodgeNet have reported substantial losses in building their in-room
entertainment and internet access business in luxury hotels. LodgeNet now
services 4,700 lodging properties with 725,000 rooms, providing on demand
movies, video games, high-speed internet access and other programming.
LodgeNet's losses narrowed in the first six months of 1999 to ($16 million) from
($36 million) in the first half of 1998. Its competitor, On Command, claims an
installed base of 942,000 rooms, of which 11,000 rooms represent installation of
its new OCX platform including high-speed internet access. Losses at On Command
for the first six months of 1999 remained flat at ($15 million) with the
comparable 1998 period.
Aside from the current losses encountered in acquiring and installing new
accounts, and building new service technologies that include high speed internet
access, the room based services in upscale hotels require the companies to front
a high cost per room investment. Capital outlays of $400 per room are common.
High-speed internet access generally revolves around installation of a T1
network service (essentially a high speed digital type of telephone line) that,
while available, has significant installation, maintenance, and operating costs.
Daily per room fees for this unlimited internet access approach $10. Both
companies offer differing versions of in-room connectivity for laptops.
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Airport based internet access holds significant potential. There are
significant complexities, costs, and time encountered for marketing,
contracting, and installing with multiple airport public authorities. The
prototype units being installed are generally sophisticated, expensive units
that integrate internet services with multiple advertising side panels with
electronic traveler information systems. GTE is a major factor in this large
market.
THE MID-PRICED HOTEL MARKET
Market segmentation of the hotel industry began in 1981, with the
mid-priced and economy segments rapidly developing. This design and operational
model was coupled with franchising, and eventually consolidations, to build
large numbers of hotel properties and rooms. Brand identification programs for
these chains, e.g., Days Inn and Motel 6, were launched to promote occupancy and
brand loyalty. Leveraged buyout firms such as KKR acquired major brand names,
such as Motel 6. Economically priced hotels with minimal amenities and
standardized design have now became commonplace.
Today, to name just a few, corporations such as Choice Hotels International
have franchised over 3,600 mid-priced and budget hotels in the United States
operating under name chain brands such as Sleep, Comfort, Quality, Roadway, and
EconoLodge. Choice Hotels has developed mid-priced longer stay hotels under the
brand name Main Stay Suite. Cendant Corp developed the DaysInn franchise, which
includes 1,755 hotels in the United States. Other chains, including Holiday
Inn, Ramada, and Howard Johnson are expanding rapidly. Our business model is
intended to address the build up of mid-priced hotels by providing efficient and
cost-effective internet access for the guests in these mid strata hotels.
This segment of hotels generates substantial numbers of travelers and
potential internet users. For example, a 150-bed hotel at 70% occupancy
generates 38,325 occupied rooms per year. If one-third of the occupied rooms
are double occupied on average, 51,000 potential internet users per year stay in
the hotel. In a 500-room hotel with 70% occupancy, and with half of the rooms
averaging two people, the number of annual potential users rises to 192,000. In
good locations, occupancy rates as well as double occupancy, run significantly
higher. Location too will also affect the mix of business travelers, a more
intense internet user. Younger family members entertain themselves by Web
surfing. Our internet kiosk business model addresses this pool of travelers at
middle and lower priced hotels for both the hotel and Go Online.
GROWTH OF THE ONLINE AUCTION
The internet offers for the first time the opportunity to create a
marketplace for person-to-person trading--the exchange of goods between
individuals. This trading has traditionally been conducted through trading
forums, such as classified advertisements, collectibles shows, garage sales and
flea markets, or through intermediaries, such as auction houses and local dealer
shops. These markets are inefficient because, among other things:
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* their fragmented, regional nature makes it difficult and expensive for
buyers and sellers to meet, exchange information and complete
transactions;
* they offer a limited variety and breadth of goods;
* they often have high transaction costs from intermediaries; and
* they are information inefficient, as buyers and sellers lack a reliable and
convenient means of setting prices for sales or purchases.
An internet-based centralized trading place can overcome the inefficiencies
associated with traditional person-to-person trading by facilitating buyers and
sellers meeting, listing items for sale, exchanging information, interacting
with each other and, ultimately, consummating transactions. Through such a
trading place, buyers can access a significantly broader selection of goods to
purchase and sellers have the opportunity to sell their goods efficiently to a
broader base of buyers. Because of the internet's efficiency, the number of
online auction purchasers is expected to increase.
OUR PRODUCTS AND SERVICES
SHOPGOONLINE.COM
Mr. Scott Claverie, the current President, formed the ShopGoOnline.com
division as a small venture to develop internet e-commerce solutions. Through
our AMS Acquisition Corp. subsidiary, we provided seed financing in exchange for
a 75% interest in the ShopGoOnline.com website. This initial financing
contained an option for Mr. Claverie to reacquire majority ownership. This
option was recently extinguished for 1,250,000 shares of our common stock and
certain cash consideration. We own 75% of the equity, and are committed to
provide overall division financing and direction. ShopGoOnline.com is a dba of
AMS Acquisition Corp.
ShopGoOnline.com offers a variety of products and services via the world
wide web. ShopGoOnline.com sells products such as household items, jewelry,
coins, collectibles, electronics, computers,skin care and beauty products, and
personal fitness products. Almost anything that is normally offered to the
public through traditional retail or exclusive TV offers or infomercials can be
available through e-commerce on the internet.
At ShopGoOnline.com, the customer can search for products by category or by
product name and obtain a full description of the product offer including a full
color picture and full-motion video. In addition, the customer will be able to
view the TV offer in part or in its entirety all from the ShopGoOnline.com web
site.
When fully implemented, our ShopGoOnline.com web site will be a place where
a customer can find favorite products as well as some of those seen advertised
on TV. Our customers can shop from hundreds of products and add them to their
electronic shopping cart. At the checkout counter, the customer purchases all
the products selected from one easy location. Our ShopGoOnline.com division
then processes the orders and has the products delivered right to the customers'
door.
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Our ShopGoOnline.com division derives revenue from three different sources:
1. Direct Sales B from selling product and services that are offered on the
web site.
2. Indirect sales B by referring our customers to "link share" numbers to
purchase products advertised on our web site.
3. Web hosting B by hosting other web pages that reside on our server
Our ShopGoOnline.com web site opened for business on July 6, 1999. Our
site is now open 24 hours a day, 365 days a year. We are in the initial growth
phase of our sales and advertising. For the period from inception of our web
site until November 30, 1999, we have had total gross sales of $10,059.68 on
total expenses associated with ShopGoOnline of $184,851.64 B a loss of
$174,791.96. Our products are shipped by our vendors via a method of the
vendor's choice, although to date most of our vendors have selected UPS as their
primary shipper.
Currently, our ShopGoOnline.com web, file, print and fax servers operate on
industry standard hardware (including Intel processors, Seagate and IBM hard
drives and Linux software), that can be easily replaced if problems arise. Our
online video and audio technology is provided through our relationship with Real
Networks, Inc., and their RealAudioJ and RealVideoJ products which have become
widely utilized and accepted on the internet. Our use of their products is
producing videos that the compatible with the users home/work internet
connection and software.
Our internal and external web server software is balanced and maintained
using a server-load based rotation scheme. If a server becomes busy, the next
available server will receive and process the request. As the requests grow
beyond the capacity of the equipment, new machines will be added to the rotation
scheme in short order. This scheme allows for growth and failure redundancy.
To our knowledge, there are no known material limitation or upgrades necessary.
We supply the products sold on ShopGoOnline.com directly from agreements
with vendors who sell on our site. These vendors include 5th Avenue, Ingram
Micro, Ingram Entertainment, Panda America, Guthey Renker and Carefree Traders.
We generally do not warehouse any inventory ourselves for resale. We make
arrangements with each individual vendor to package, ship and notify us of sale
and delivery. We obtain payment from our customers and pay the vendors directly
for these products.
On September 15, 1999 we entered into an agreement with Panoscan, Inc.,
through which Panoscan will work with ShopGoOnline to develop new ways to
present and promote products using digital imaging. Specifically, Panoscan
agreed to use its camera system to capture images for use on the Vera's in the
Glen area of the ShopGoOnline site. We agreed to credit Panoscan in our
promotions and press releases. Panoscan has completed their work on the
specific site section and it has been implemented on our web site.
INTERNET KIOSK DIVISION
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Our internet kiosk, designed in three primary models, is designed to be
installed in a hotel lobby or an alternative centralized public access area.
Our primary strategy is to place these internet access kiosks in mid-price
hotels in the lobby or another high access area.
We have contractual arrangements with iCom Network, Inc. as well as
Infotouch Technologies, Inc., two suppliers who manufacture small, integrated
kiosks that can provide pay as you use stand alone internet access. Our
agreement with iCom provides that we agree to purchase five hundred internet
kiosks over twelve months with a minimum of 25 per month at a cost to us of
$3,250.00 per kiosk (payable net 15 days after shipment). On June 22, 1999 we
agreed to purchase 50 surfnet internet terminals from Infotouch during the
subsequent 45 days at between $3,195.00 and $3,395.00 each (depending on the
specific model chosen).
At no cost to the owner and in a revenue sharing model, our internet kiosks
have been and will continue to be marketed to mostly mid-priced hotels by sales
agent organizations employed by our Kiosk Division.
Available kiosks range from 23 inches wide to 30 inches wide, and 20 inches
high for the table top versions to 68.5 inches high for some of the stand alone
versions. The hotel chooses from our agreement the type of kiosk they desire,
the manufacturer and the kiosk finish color. Each kiosk includes a mechanism
for accepting currency and a traditional internet browser familiar to customers
for browsing the internet and obtaining email.
The hotel is required to provide free space, approximately 9-12 square
feet, under a four-year, renewable internet exclusive contract. The hotel
receives in exchange a 10% share of kiosk revenues with a $45 monthly minimum.
The contract is renewable by the hotel for an additional four years or eight
years in total. We agree to maintain the kiosk from our share of the revenues.
Presently, the total direct installed cost of each internet kiosk is
approximately $3,300, which has been brought down from our initial cost of
$5,100.
After entering into a contract with the hotel owner, we order the kiosks
from the manufacturer (providing a direct shipping address for the location),
order a telephone line approximately two weeks prior to installation, order the
internet service provider for the location and confirm that appropriate
telephone line and RJ11 jacks are installed and telephone service is active.
When the kiosk is shipped from the manufacturer and arrives at the site, we
dispatch an installation crew to install the kiosk and train the location owner
and employees on the use of the system. We later contact the location owner to
confirm the unit has been installed and respond to all questions or concerns
that he or she may have.
The kiosk division business plan has several multi-level, integrated
strategies to maximize our revenues and business value from the kiosks. These
revenue and valuation sources are as follows:
* Revenues and earnings streams generated by the existing and potential
kiosks.
* Advertising revenues to be sold as spots and banners on the hotels' kiosks.
This revenue is based on "eyeballs" generated.
* A value derived from the exclusive 4-year internet service contract for a
hotel (with potential for 8 year exclusive contracts). The aggregate
value of these contracts should grow geometrically as hotels are added,
representing future revenue streams and the exclusive right to provide
that hotel's guests with internet services. Operating experience will
refine the value. Tie-ins to our other services by usage promotional
affinity programs, including ShopGoOnline.com.
* Develop branded "rewards" programs for hotels to give their guests that
operate through the kiosk.
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Although we cannot be sure that we will be successful in marketing our
internet kiosks, we intend to have the 2,000 internet kiosks installed and
operating in hotels at the end of a two-year period. Presently, 369 hotels have
signed contracts and 167 have been installed as of January 10, 2000 in 25
different states. Our existing customers include franchises of Ramada Inns,
Holiday Inns, Howard Johnsons, Econolodge, Radisson Inn and Country Suites. No
one customer or chain accounts for a substantial portion of our business to
date. A majority of our kiosk sites are in metropolitan areas such as: Atlanta,
GA; Washington, DC; Birmingham, AL; Houston, TX; Dallas, TX; San Antonio, TX;
Orlando, FL; Chicago, IL; Phoenix, AZ; Nashville, TN; Charlotte, NC; Grand
Rapids, MI; Oklahoma City, OK etc. 329 of the 369 sites are located within 10
miles of an international or regional airport.
AUCTIONOMICS, INC.
Auctionomics, Inc. incorporated in the state of Nevada in June 1999. This
division was created solely for the pursuit our desire to capture a share of the
online auction market. Auctionomics.com is structured to perform as a focused
auction marketing resource for some items, but more particularly as a referral
website B specifically to direct traffic to auction web sites which are our
partners. Auctionomics.com commenced operation in August 1999 and launched in
September 1999. To date, we have concentrated the Auctionomics.com site on
marketing for brand development to build traffic and the development of a
working operational web site. To date we do not have any direct auction sales
through our site.
Our Auctionomics.com website primarily operates as a referral website
initially to ClassifiedAuctions.com, on online auction website which commenced
operations in June 1999. ClassifiedAuctions.com is owned and operated by
Express Auction Specialists, Inc., an auction company. ClassifiedAuctions.com
primarily conducts person to person auctons that offer assets to be provided for
online sale, including primarily artwork, jewelry, collectibles and real estate.
ClassifiedAuctions.com has needed marketing assistance to build traffic and
sales which is beneficial to us since we can drive activity to their site.
We entered into a marketing agreement with ClassifiedAuctions.com to
provide referrals to their site in exchange for fees. Under that agreement,
Auctionomics.com will receive 20% of the gross revenue derived from each sale
made by ClassifiedAuctions.com which is referred to by us. Our plan is to
advertise and market Auctionomics through web browsers and search engines and
build traffic that we would then convert to online transactions referred to
ClassifiedAuctions.com, for a fee. At present, the majority seller on
Classified Auctions is Express Auction Specialists, Inc. (an entity unaffiliated
with us), which is headed by Larry Makowski.
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Auction transactions which we referred to ClassifiedAuctions.com and which
are intended to produce revenue for us have been minimal since the opening.
Since its own opening, ClassifiedAuctions.com has resulted in the exchange of
items with an exchange value as set by the auction price of approximately
$300,000 in approximately 15 auction categories through November 15, 1999. To
date, none of these sales has resulted in any revenue for Auctionomics.com.
Within minutes of registering with ClassifiedAuctions.com, online users can
list items for sale or auction. Users may browse familiar classified categories
for sale items or bid on items posted for auction in a fully automated, secure
online service.
The founders of Auctionomics, Inc., Messrs. Harvey A. Turell and Nathan A.
Wolfstein IV, have experience in the marketing of real estate auctions. We
acquired a 75% interest in Auctionomics, Inc. from the two founders/shareholders
in June 1999. The consideration was 500,000 shares of our common stock and a
two-year warrant to acquire an additional 500,000 shares of our common stock at
$0.50. The shareholders, Messrs. Turell and Wolfstein, are entitled to receive
a bonus of 25% of Auctionomics.com pre-tax income, so long as they retain their
25% ownership. If their shareholdings are reduced, the bonus is reduced
proportionally. We provided Auctionomics, Inc. with $25,000 for working capital
shortly after the acquisition in June 1999.
While we are likely to showcase real property because of past experience of
our founders, we intend to use Auctionomics for the sale of other high-end
goods, such as automobiles and jewelry. Once traffic is established,
consumer-oriented, product auction sections will be created similar to Ebay and
Ubid. Also, as a complimentary component of the our network of e-commerce web
sites, Auctionomics will be designed to drive traffic to the ShopGoOnline.com
virtual mall, and vice versa.
Auctionomics.com can become an auction e-trading community providing
sellers and buyers access to specially selected sales events and the
ShopGoOnline.com virtual mall.
When fully completed, Auctionomics.com will feature product/asset
e-marketing, enhanced with digital graphics, streaming audio and video in an
online auction environment that presents and promotes each product or other
asset featured. We intend that the process will replicate the appearance of a
live auction broadcast TV over the internet within a secure online electronic
bidding and payment process.
Customers will search through product/asset listings included in scheduled
sales events in a virtual auction mall setting, place products/assets in an
electronic shopping cart and bid/ purchase via credit card in a secure
transaction environment.
Auctionomics will earn fees for marketing services rendered and receive a
sliding commission of 10% to 30% of the gross earned revenue derived from each
sale, depending on the product type and gross dollar valuation.
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Auctionomics will work with several leading auction companies on the
marketing and positioning of several auction events which we expect to be
newsworthy, including military surplus, industrial machinery, real estate,
excess inventories and on-going business opportunities. We do not know if our
work will lead to actual auction events or revenues.
We are working to enhance the marketing of these auction companies clients
and auction events, both on-site and online, by helping them to incorporate
interactive digital enhancements and proven auction selling techniques which our
Auctionomics.com management has determined is effective from prior auction
experiences.
Auctionomics.com provides users methods to effectively market and sell
their goods. These include:
* Digital literature and emailings to targeted buyer lists and the
presentation of products for sale in online events through digital
presentations
* Internet search engine marketing
ShopGoOnline.com virtual shopping mall
Streaming video and streaming digital audio online of certain key items in
an auction as a way to provide visual and audio views of the items in the
online auction marketing program.
* Television/cable Broadcasting. For selected online events, Auctionomics
intends to contract for satellite broadcast of a live auction event, with
live interactive bidding in real time Credit card payments online
COMPETITION
The electronic commerce market, particularly over the internet, is new,
rapidly evolving and competitive, and we expect competition to intensify in the
future. We will compete with many other companies which either offer the same
types of merchandise or provide the same or a similar type of sales format to
customers.
* ShopGoOnline.
Current competitors for our ShopGoOnline division include companies with online
commerce sites such as Onsale, Inc., Intermallamerica.com, iVillage.com,
Egghead, Amazon.com, Inc., AOL.com, Beyond.com Corporation, Buy.com Inc.,
Cyberian Outpost, Inc., Dell Computer Corporation and numerous other companies
marketing goods over the internet. Most of these companies have substantially
greater resources than we do and consequently have the ability to market their
products more effectively. This is not an exhaustive list of current
competitors.
We intend to compete with these companies by utilizing the key differentiation
of our streaming audio and video, as well as link to other sites and undertake
traditional advertising. In addition, it is not difficult to enter the online
commerce market, and current and new competitors can launch new online commerce
web sites at relatively low cost.
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* Internet Kiosks.
Our internet kiosk division competes on a national scale with other internet
kiosk competitors and other competitors for services to hotel guests. There are
numerous other potential competitors that could use their existing
infrastructure to provide internet services to the lodging industry, including
franchised cable operators, wireless cable operators, telecommunications
companies, major technology companies and DBS providers.
Our internet kiosk division also indirectly competes with "in-room" internet
suppliers such as Lodgenet and On Command, as well as other in-room internet
access providers. We are not seeking to compete in this market, but rather have
focused our marketing efforts on mid-priced hotels which are not likely to
commit the resources required to make in-room access available in the near
future. We also believe that the hotel lobby resource is easier for quick
access to email and other quick look ups similar to pay telephone resources.
* Auctionomics.
Our Auctionomics internet auction site competes with numerous, well-established
internet auction sites. The biggest competitor in that market is ebay.com, but
there are numerous other sites such as onsale.com, bid.com, ubid.com,
egghead.com, 2themart.com and many others which have competitive auction sites.
New competitors can enter this market very easily. If we do not properly market
our site, our competitors will have more market share.
We believe that we can effectively compete for a portion of this market through
the ability to provide referrals to on-line and live auctions with auction
enhancements, primarily in the streaming audio and video which can showcase the
products to be marketed in an improved format which could create demand and spur
the potential buyer to either make an on-line bid or go to the live event.
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GOVERNMENT REGULATION
Our internet and e-commerce businesses may become subject to increasing
government regulation as various government regulators continue their focus on
improving internet commerce. Several states, including California and
Washington, have laws regulating the disclosure of pricing information by
wholesalers and comparable businesses. In the future, governments of California,
Washington and other states could require additional disclosure in order to
comply with other regulations. In addition, several states have laws that
regulate auctions and auction companies within their jurisdiction. Some states
may interpret their statutes to apply to our transactions with consumers in such
states, even if those transactions originate over the internet. The burdens of
complying with auctioneering laws could materially increase our cost of doing
business. Similarly, states may construe their existing laws governing issues
such as property ownership, sales tax, libel and personal privacy to apply to
internet companies servicing consumers within their boundaries. Resolution of
whether or how these laws will be applied is uncertain and may take years to
resolve.
SALES AND MARKETING
Web Promotion -- Advertising
As with any internet company, we actively market our web sites and drive
traffic to them. We plan to market and brand our Go Online web sites through
conventional banner ads and reciprocal links placed throughout highly visible
online locations and print publications.
It is a standard in the industry to team with web promoters in order to
market our sites electronically. Web promoters (also known as media sales
companies) are actively involved in banner placement and swapping, search engine
registration, and other activities associated with Web promotion. Because of
their existing relationships and the ability to "package" deals, these firms
constitute the quickest, most cost-effective way to promote a site. Typically,
these firms take a percentage of their clients' total ad revenue (usually
35-50%) as compensation for their services.
Specifically, these firms provide :
* Exclusive sales representation
* Support by a sales force of experienced media professionals
* Increased focus on long-term sponsorship programs
* Total inventory and ad management
* Additional revenue streams from local and international ad sales efforts
To date, we have entered into agreements with Website Results, LinkShare
Corporation and Doubleclick. Our Websites Result contract is designed to assist
us in building traffic to our website by developing key indices on search
engines. ShopGoOnline.com is a Platinum Program subscriber to Website Results
which specializes in developing multiple "doorway" pages for internet customers
for their subscribers. The "doorway" program is a system to rank multiple
keyword phrases for Website Result's clients to establish high ranking for those
phrases with the major search engines to build traffic by optimizing rankings in
order to produce quality targeted traffic for our website. We also have an
agreement with LinkShare through which we receive revenues and pay fees for
receiving traffic from other better known sites and referring web traffic
through our sites. We have agreed with DoubleClick to obtain 1,000,000
impressions on Doubleclick with "click through" to our ShopGoOnline website. We
paid $15,000 for this first agreement.
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In the coming months, our management intends to pursue expanded traditional
and nontraditional marketing with our Website Results, Doubleclick, Linkshare
and other agreements to build consumer awareness of ShopGoOnline.com. The media
campaign, which we generally launched with the grand opening of
ShopGoOnline.com, was expanded with nationwide newspaper display ads which
reached a substantial number of readers in the eight major internet markets. We
placed display ads in the Boston Globe, San Francisco Examiner, Chicago Times,
New York Times, Miami Herald, San Diego Union Tribune, Los Angeles Times and
Dallas Morning News.
Following the display ads, our plan is for our ShopGoOnline.com division to
deliver a targeted investor promotional piece via direct mail drop to selected
demographic sections of these same major internet markets.
These new branding campaigns will continue to be supported by agreements
with DoubleClick, through the Dynamic Advertising Reporting and Targeting
Program, and Website Results, both designed to direct traffic to the
ShopGoOnline Web site. We are also gearing up to increase revenues generated by
the sale of advertising space on ShopGoOnline.com as well as the expansion of
advertising sales on our internet kiosks.
Key to the success of Auctionomics.com is to stay connected to the auction
community, both on- and offline. Therefore, our plan is to advertise in
publications that target the auction enthusiast. Currently, Auctionomics.com is
running a full-page advertisement in Auction Weekly, one of the most respected
publications in the auction arena.
Since 1994, Auction Weekly has been published by Auction Advisory. Auction
Advisory has now taken its auction expertise online at auctionadvisory.com.
Auction Weekly lists only live auctions, those auctions conducted by
professional auctioneers and government agencies. The publishers and principals
of Auction Advisory are deeply involved in the auction industry, and have been
for the past 18 years.
The paper version of Auction Weekly has always listed 300+ auctions each
week while the online database is updated daily. Auction Advisory gives users
early warning and up to the minute changes, similar to traditional, short-notice
"public notices".
Auction Weekly is mailed first class every Tuesday. This 32-page newsletter
comprehensively lists all auctions in the Southwest (AZ, CA, CO, NM, NV, TX,
UT). The newsletter lists virtually every type of auction from large to small.
Auction Weekly lists government auctions, estates, IRS, U.S. customs, city,
county, state, bankruptcy, lien auctions, antiques, business liquidations, U.S.
Dept. of Defense, and U.S. Marshal.
Internet Kiosk Marketing
While we cannot be sure we will succeed with our goal, we intend to seek to
have the 2,000 internet kiosks installed and operating in hotels at the end of a
two-year period. To accelerate penetration of the hotel market and the use of
the installed kiosks, in September 1999 we initiated a major 45-day marketing
campaign for our kiosk division. The sales and marketing campaign includes:
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* Advertising in trade magazines and attending trade shows to enhance our
kiosk program's visibility with hotel operators. An example is the
Asian-American Hotel Association, which represents approximately 60% of the
franchised mid and economy priced hotel owners.
* Providing the hotel upon kiosk installation with a full marketing program
to increase guest usage. This includes signage, which will be intended to draw
guests to the kiosk, and obtaining email while traveling. Guest access to their
email requires only knowing the short address of the mail servers of their
internet service providers (ISP) and password they currently use to access their
mail. This information is the same that is inputted into their home or office
email program and is readily available to the traveler before he/she departs.
* Distribute plastic affinity cards to reward users with credits to be spent
at our ShopGoOnline.com web site. Affinity members or guests of certain hotels
will be offered free minutes to check for their e-mail at check-in. Some hotels
look to also use the kiosks as a center around which to develop a stay rewards
program for their guests.
* Develop catalogs for periodic mailing to users of the kiosks for purchase
opportunities at our online sites.
* Retain sales agencies to represent our kiosk division to acquire agreements
to place internet kiosks in hotels within the United States and internationally.
Our most recent sales agreement was with Midwest Internet Solutions, Inc.
covering Indiana, Michigan, and Ohio.
* Through January 10, 2000, we have installed a total of 167 kiosks and have
agreements signed with 369 sites.
OUR BACKGROUND
Go Online Networks Corporation became a publicly traded corporation on the
over-the-counter bulletin board in April 1990 by the "reverse acquisition" of
Valencia Capital, a Colorado corporation. From this acquisition, our
shareholders became the majority shareholders and the corporation in November
1990 was renamed Jones Naughton Entertainment, IncA one for four reverse stock
split was accomplished at the same time, resulting in nine million common shares
then outstanding.
Under our then president, Mr. Spike Jones, Jr., we initially produced
infomercials but ceased infomercial production in 1993. Mr. Jones left us and
in 1995, we acquired Real Estate Television Network, Inc., a satellite real
estate TV network. Real Estate Television Network's target market was the
independent real estate office of the large franchised office networks, e.g.
Century 21. In 1996, many of the large independent real estate firms were
acquired by HSF, Inc., which resulted in a consolidated industry. The
consolidation led to the decision to internally produce and provide training and
other services, which were originally provided by outside vendors like Real
Estate Television Network. In 1996, we sold Real Estate Television Network to
AmeriNet Financial Services, Inc.
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In late 1997 and 1998, we made the strategic decision to pursue
opportunities involving the internet. In the first quarter of 1998, we acquired
the assets of a small advertising agency, Affiliated Marketing Services, Inc
which we intended to move into internet advertising. We determined that
Affiliated Marketing Services, Inc.'s internet progress was insufficient, and
during the fourth quarter of 1998, we sold Affiliated Marketing Services, Inc.
back to its management.
Subsequent to the sale, we made our initial investment in AMS Acquisition
Corp., a previously unaffiliated corporate entity which was and continues to be
the developer of ShopGoOnline.com, investing $25,000 for a 75% equity interest.
AMS Acquisition Corp. was formed in Nevada on June 29, 1998. Management of that
corporation received a repurchase option to acquire back 26% of the outstanding
shares from us. We subsequently purchased this repurchase option. We issued to
management (primarily its President Scott Claverie) 1,250,000 shares of our
common stock, along with cash consideration.
During March 1998 we entered into an agreement to acquire the assets of
Sign Products of America, Inc., an unaffiliated business formed in November 1995
in California, which was engaged in the manufacturing, marketing, management and
display of advertising and informational kiosks. The purchase price was $50,000
with a down payment of $25,000 plus four equal quarterly installments at the 90
day, 180 day, 270 day and 350 day anniversaries of the closing date. We
subsequently resold this business back to its original owners when we determined
it would not be sufficiently profitable for us.
We acquired a 75% interest in Auctionomics, Inc. from Nathan A. Wolfstein
IV and Harvey A. Turell, the two previously unaffiliated founders/shareholders
in June 1999. Auctionomics, Inc. was formed in Nevada in June 1999. The
consideration was 500,000 shares of our common stock and a two-year warrant to
acquire an additional 500,000 shares of our common stock at $0.50. The
shareholders, Messrs. Turell and Wolfstein, are entitled to receive a bonus of
25% of Auctionomics.com pre-tax income, so long as they retain their 25%
ownership. If their shareholdings are reduced, the bonus is reduced
proportionally. We provided Auctionomics, Inc. with $25,000 for working capital
shortly after the acquisition in June 1999.
At a meeting of shareholders held on September 8, 1999, we reincorporated
in Delaware and changed our name to Go Online Networks Corporation. This change
was designed to provide us with the advantages of Delaware law for a public
corporation and to change the name to reflect our new internet businesses.
On January 10, 2000, we entered into an agreement with Westlake Capital
Corp., pursuant to which we issued 3,000,000 of our newly-issued shares of
common stock to acquire Westlake. Westlake was a reporting company with the
Securities and Exchange Commission. As part of the acquisition, we elected to
have successor issuer status under rule 12g-3 of the Securities Exchange Act of
1934, which makes us a reporting company.
RESEARCH AND DEVELOPMENT
We have not spent any measurable amount of time on research and development
activities.
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EMPLOYEES
As of August 31, 1999, we had 14 full-time employees and 6 part time
employees, including employees in each of our divisions. Of these employees,
three work in our administrative offices, three are employed by our internet
kiosk division, nine are employed by our ShopGoOnline.com division and five are
employed by our Auctionomics division. None of our employees is covered by any
collective bargaining agreement. We believe that our relations with our
employees are good.
FACILITIES
Our principal executive offices are located at 5681 Beach Boulevard, Suite
101/100, Buena Park, California 90621. Effective July 21, 1999 we entered into
a lease for this office space. The term of the lease is for 3 years with
monthly base rent payments of $1,600. The rent for the first year was prepaid.
Future base rent commitments during the years ended December 31 under this lease
are summarized as follows: 2000 - $ 8,000; 2001 - $ 19,200; and 2002 - $
11,200.
Effective May 15, 1999, we entered into a lease for office space in
northern California used by our ShopGoOnline.com division. The term of the
lease is for 5 years with monthly base rent payments of $1,615. The base rent
amounts are subject to increases of 3% per annum. We have the right to
terminate the lease between May 15, 2000 and June 15, 2000 and also between May
15, 2002 and June 15, 2002. The first years rent was prepaid. Future base rent
commitments during the years ended December 31 under this lease are summarized
as follows: 2000 - $ 19,380; 2001 - $19,380; 2002 - $ 19,380; 2003 - $ 19,380;
and 2004 - $ 8,075.
Effective August 12, 1999, we entered into a lease for office space for our
marketing department located at 13101 Washington Blvd., Suite 231, Culver City,
California. The term of the lease is until September 30, 2000, with a month to
month tenancy thereafter, with monthly base rental of $1,254.00 per month.
At the end of the lease terms for all of our rental space, we believe that
we can lease the same or comparable offices at approximately the same monthly
rate.
MARKET FOR GONT'S SECURITIES
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GONT has been a non-reporting publicly traded company with certain of
its securities exempt from registration under the Securities Act of 1933
pursuant to Rules 504 of Regulation D and Rule 144 of the General Rules and
Regulations of the Securities and Exchange Commission. GONT's common stock is
traded on the OTC Bulletin Board operated by Nasdaq under the symbol GONT.
Although GONT filed an SB-2 Registration Statement seeking to register certain
securities for resale by selling shareholders and obtain reporting status, that
SB-2 Registration Statement was withdrawn. Consequently, GONT has not become or
otherwise been a reporting company under the Securities Exchange Act of 1934.
The Nasdaq Stock Market has implemented a change in its rules requiring all
companies trading securities on the OTC Bulletin Board to become reporting
companies under the Securities Exchange Act of 1934. GONT is required to become
a reporting company by the close of business on January 13, 2000 or no longer be
listed on the OTC Bulletin Board. GONT effected the stock exchange transaction
with Westlake on January 10, 2000 and became a successor issuer thereto in order
to comply with the reporting company requirements implemented by the
over-the-counter bulletin board.
The following table sets forth the high and low closing prices for shares
of GONT common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Prior to September 22, 1999, GONT common stock
was listed under the symbol "JNNE." Effective on September 22, 1999, the
trading symbol for GONT common stock changed to GONT.
CLOSING PRICES
YEAR PERIOD HIGH LOW
---- ------ ------- -------
1999 First quarter .09 .02
Second quarter .74 .09
Third quarter .70 .36
Fourth quarter .49 .12
1998 First quarter .07 .04
Second quarter .16 .03
Third quarter .10 .03
Fourth quarter .05 .02
The number of beneficial holders of record of GONT common stock as of the
close of business on September 24, 1999 was approximately 223. Many of the
shares of Go Online's common stock are held in "street name" and consequently
reflect numerous additional beneficial owners, which we are advised is
approximately 9,925 as of August 24, 1999.
At September 30, 1999, GONT had outstanding options to purchase 2,450,000
shares of common stock at exercise prices ranging from $.20 to $5.50, with a
weighted average option price of $.27.
At September 30, 1999, GONT had 2,614,523 shares of common stock which
could be sold pursuant to Rule 144. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including one of our
affiliates, who has beneficially owned restricted shares of common stock for at
least one year is entitled to sell, in certain brokerage transactions, within
any three-month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class, or the average
weekly trading volume during the four calendar weeks immediately preceding the
sale. A person who presently is not and who has not been an affiliate for at
least three months immediately preceding the sale and who has beneficially owned
the shares of common stock for at least two years is entitled to sell such
shares under Rule 144 without regard to any of the volume limitations described
above.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the current directors
and executive officers of GONT who will remain so with the combined entity,
their principal offices and positions and the date each such person became a
director or executive officer. Our executive officers are elected annually by
the Board of Directors. Our directors serve one year terms until their
successors are elected. The executive officers serve terms of one year or until
their death, resignation or removal by the Board of Directors. There are no
family relationships between any of the directors and executive officers. In
addition, there was no arrangement or understanding between any executive
officer and any other person pursuant to which any person was selected as an
executive officer.
Our directors and executive officers are as follows:
Name Age Positions
- ---- --- ---------
Joseph M. Naughton 56 Chairman, Chief Executive Officer,
Director
Scott Claverie 39 Director; President of AMS Acquisition Corp.
Dba GoOn-line.com
Jim Cannon 65 Director; Director of Operations, Go Online
Kiosk Division; Secretary
Michael Abelson 51 Director
JOSEPH M. NAUGHTON, Chairman B Mr. Naughton has been our President since
May 1991. From September 1986 through October 1987, Mr. Naughton was Operations
Manager for Shop Television Network in which he oversaw the marketing and
merchandising from that company. In October 1987 Mr. Naughton was elected to
Shop Television Network's Board and Directors and appointed simultaneously
Executive Vice President and Chief Operating Officer. Shop Television Network's
wholly-owned subsidiary ShopTV, Inc. was acquired by the JC Penney Company in
1988 and Mr. Naughton was a Vice President of Operations for the renamed JC
Penny Television Shopping Channel, the TV home shopping program arm of the JC
Penney Company until June 1991. Mr. Naughton was responsible for overseeing the
video production and cable distribution for the JC Penney and Shop Television
Network. Prior to Shop Television Network, Mr. Naughton served as VP/General
Merchandising Manager for the GEMCO division of Lucky Stores from January 1985.
From May 1970 until October 1986, Mr. Naughton worked for Lucky Stores, Inc. and
its wholly owned subsidiary Gemco Stores.
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SCOTT CLAVERIE, Director and President of AMS Acquisition Corp. B Mr.
Claverie will be directing the operations and marketing efforts of
ShopGoOnline.com. From June 1997 until June 1999, Mr. Claverie was Business
Operations Manager for Cal State University at Chico where he was responsible
for management and support of the support staff for the university's voice
network. From February 1994 until June 1996, he was a branch manager for
Computer Telephone Corp. Computer Telephone Corp. markets a large variety of
telecommunication services and was responsible for managing a significant
portion of Pacific Bell's customer base. From September 1991 to February 1994,
Mr. Claverie was an account executive for MCI Telecommunications, where he
marketed communication products and services to the business community. From
June 1987 through August 1990, he was Advertising Director of the Chico News &
Review, where he supervised and coordinated activities of sales personnel in the
display and classified departments. From May 1981 through September 1986, Mr.
Claverie was a retail manager for Gemco Stores, managing the operations for the
fine jewelry and camera department.
JIM CANNON, Director of Operations -- Mr. Cannon has over 30 years of
experience in the hospitality, lodging, and food and beverage industry. A
graduate of Cornell University with a Bachelor's of Science degree in Business
and Food Technology. He is an eleven-year veteran of the Days Inn organization,
serving as Vice President of Franchise Operations. From September 1998 until
April 1999, Mr. Cannon was with ShoLodge Franchise Systems. From March 1997
until September 1998, Mr. Cannon was Director of Franchise Sales for Country &
Hearth Inns in Atlanta, Georgia. From August 1990 through August 1996, Mr.
Cannon was National Director of Franchise Development for Hospitality
International, Inc. in Atlanta, Georgia. During 1990 and 1991, Mr. Cannon
worked in sales of Friendship Inn and Econolodge franchises for Econolodges of
America, Inc. in North Bergen, New Jersey. In addition, Mr. Cannon's past
experience includes senior level executive positions with Columbia Sussex
Corporation, Inc. (a Holiday Inn Franchise Group), Days Inn or America, Inc and
other hotels and restaurants.
DR. MICHAEL ABELSON, Director. Dr. Abelson is President of Abelson &
Company, a firm he founded in 1986, which specializes in improving real estate
management and sales associate profitability. Dr. Abelson is also on the
faculty of Texas A&M University in the Department of Management, which he joined
in 1981.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following GONT summary compensation table shows certain compensation
information for services rendered in all capacities for the three fiscal years
ended December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999.
Other than as set forth herein, no executive officer's salary and bonus exceeded
$100,000 in any of the applicable years. The following information includes the
dollar value of base salaries, bonus awards, the number of stock options granted
and certain other compensation, if any, whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------- -------------------------------
Awards Payouts
--------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION STOCK Awards OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL YEAR ($) ($) ($) ($) SARS (#) ($) ($)
POSITION
Joseph Naughton 1999 $15,500 -0- -0- -0- -0- -0- -0-
(President, CEO) (6/30)
1998 25,515 -0- -0- - 0 - - 0 - -0- -0-
(12/31)
1997 34,750 -0- -0- -0- -0- -0- -0-
(12/31)
1996 48,000 -0- -0- -0- -0- -0- -0-
(12/31)
Jim Cannon (1) 1998 - 0 - -0- -0- -0- -0- -0- -0-
(12/31)
1999 15,000 -0- -0- - 0 - - 0 - -0- -0-
(6/30)
Michael English (2) 1996 $48,000 -0- -0- -0- -0- -0- -0-
(12/31)
</TABLE>
(1) Mr. Cannon commenced his employment with the Company in 1999.
(2) Mr. English was President of the Company until his resignation during 1996.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
<S> <C> <C> <C> <C>
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S GRANTED
OPTIONS/SAR'S GRANTED TO EMPLOYEES IN FISCAL EXERCISE OF BASE PRICE
NAME (#) YEAR ($/SH) EXPIRATION DATE
- ----------------------------------------------------------------------------------------------------------------------
Joseph M. Naughton -0- -- -- --
- ------------------ ---------------------- ---------------------- ----------------------- ---------------
James Cannon -0- -- -- --
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
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<S> <C> <C> <C> <C>
NUMBER OF UNEXCERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-
OPTIONS/SARS AT FY-END (#) MONEY OPTION/SARS
SHARES ACQUIRED ON EXERCISABLE/UNEXERCISABLE AT FY-END ($)
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE
------------------- ------------------ -------------------------- -----------------------------
Joseph M. Naughton -0- -0- - 0 - --
- ------------------ ------------------- ------------------ -------------------------- -----------------------------
James Cannon -0- -0- - 0 - --
</TABLE>
Compensation of Directors
Our Directors have not received any compensation for serving in such
capacity. We currently contemplate that we will pay each outside director up to
$500 to attend meetings will provide certain option grants and/or restricted
stock awards as compensation for its outside Directors in the future for serving
in such capacity.
Employment Agreements
Effective May 1, 1999 we entered into a consulting agreement with Michael
Abelson, one of our directors, whereby Mr. Abelson was engaged to assist in the
creation of our real estate website for our ShopGoOnline.com operating division.
The term of the agreement is for one year but can be terminated by us with or
without cause with 30 days notice. Compensation to Mr. Abelson is summarized as
follows:
* Monthly cash consulting fee of $5,000;
* Quarterly bonus equal to 15% of the gross revenues earned by us through our
real estate web site developed by Mr. Abelson; and
options to acquire 25,000 shares of stock for each $500,000 in gross
revenues attributable to the real estate web site developed by us.
Effective April 12, 1999 we entered into an employment agreement with James
Cannon. The agreement is for a term of one year but is subject to termination
by us for cause. Both we and Mr. Cannon have the right to terminate the
agreement after giving the other party thirty days notice. In the event that
the agreement is terminated by us without cause, Mr. Cannon will be entitled to
compensation earned computed pro-rata up to the date of termination. Mr.
Cannon's compensation during the term of the agreement will be as follows:
* Base salary of $60,000 per year;
* Quarterly bonus of 20% of the net advertising revenues of the Community
Marquee Division generated as a result of Mr. Cannon's direct efforts
during the previous quarter;
* Alternative quarterly bonus equal to 25% of the net advertising revenues of
the Community Marquee Division generated by parties other than Mr. Cannon;
and
* Options to purchase 25,000 shares of our common stock for each
twenty-five kiosks shipped up to a maximum of 150 kiosks. The exercise
price of the options shall be equal to 60% of the closing bid price of
our common stock on the last business day of the month in which Mr.
Cannon becomes eligible.
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CERTAIN TRANSACTIONS
Joseph M. Naughton, our Chief Executive Officer has made several loans to
Go Online. As of December 31, 1998 and as of June 30, 1999 the amounts payable
to Mr. Naughton for advances totaled $130,242 and $124,222 respectively. In
addition there is unpaid compensation due to him of $48,000 for 1996, $61,250
for 1997, $70,485 for 1998 and $32,500 for the six months ended June 30, 1999.
The balances payable for compensation to Mr. Naughton totaled $179,735 at
December 31, 1998 and $212,235 at June 30, 1999. The balances payable to Mr.
Naughton are uncollateralized, bear no interest and are payable on demand. This
loan is on terms which are substantially better than could be obtained from
third parties.
Effective February 26, 1999 we entered into a joint venture agreement with
Scott Claverie whereby 25,000 shares of AMS Acquisition Corp. were transferred
(25% ownership of AMS) to Mr. Claverie. We also granted Mr. Claverie warrants
to acquire an additional 26,000 shares of AMS at $1.00 per share following the
end of the first profitable quarter of operations, but in no event later than
twelve months after the February 26, 1999 agreement date. Effective April 19,
1999 we exchanged 1,250,000 restricted shares of our common stock for the
warrants. These 1,250,000 shares were recorded at $.275 per share, one half of
the market value of free trading shares of our common stock on April 19, 1999,
and recorded as an expense totaling $343,750. As a part of the joint venture
agreement, we agreed to provide AMS with $25,000 for working capital. Mr.
Claverie transferred to AMS all equipment, intellectual property, technology
associated with the individuals internet-based business. These transactions
were all on terms as fair as those obtainable from third parties.
During 1996 we sold our wholly-owned subsidiary Real Estate Television
Network, Inc. in exchange for shares of stock of AmeriNet Financial Services,
Inc., the entity that acquired Real Estate Television Network. Since we were
unable to receive free trading shares of AmeriNet as agreed, on July 9, 1998 we
filed a lawsuit against AmeriNet and certain of its officers and directors
alleging breaches of written contracts, fraud and violations of various
Corporate Code sections. On September 2, 1998, AmeriNet filed a cross-complaint
against us alleging fraud and misrepresentation, breaches of contracts and
conspiracy. In the cross-complaint AmeriNet sought damages in the approximate
amount of $12,000,000, together with exemplary and punitive damages, attorney's
fees and cost of the suit. The actual losses identified by the cross-complaint
were less than $500,000. Effective on December 15, 1999, we entered into a
settlement with AmeriNet which provided for AmeriNet (which had subsequently
been renamed Homespace, Inc.) to issue to us 200,000 shares of Homespace common
stock and pay us $100,000, with mutual releases of claims on both sides.
On December 3, 1998, related to a different litigation matter, a default
judgment was entered against us in the approximate amount of $55,000 for alleged
amounts owed by Real Estate Television Network for which the plaintiff alleges
was also owed by us. On July 14, 1999 the default judgement was set aside
based on the fact that we were never properly served with a summons and
complaint. We contend that we are not liable for the amounts due since Real
Estate Television Network was a separate corporation and we never guaranteed
this obligation.
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RISK FACTORS
INVESTORS CANNOT DETERMINE POTENTIAL REVENUES, PROFITS OR FAILURES FROM OUR
HISTORY BECAUSE OUR INTERNET RELATED BUSINESSES HAVE EXISTED FOR ONLY A SHORT
PERIOD OF TIME. . Our executive officers commenced our major lines of business
- -- the Shop Go Online e-commerce site, our Go Online kiosk businesses and our
Auctionomics business -- relatively recently. Accordingly, you can evaluate our
business, and therefore our future prospects, based only on a limited operating
history. In addition, you must consider our prospects in light of the risks and
uncertainties encountered by companies in an early stage of development in new
and rapidly evolving markets.
WE HAVE NEVER BEEN PROFITABLE AND MAY NOT BE PROFITABLE IN THE FUTURE. We
have incurred losses in our business operation since our inception. We expect to
continue to lose money for the foreseeable future, and we do not know when we
will become profitable, if at all. Failure to achieve and maintain
profitability may adversely affect the market price of our common stock.
OUR AUDITORS HAVE ADVISED THAT WE HAVE TO OBTAIN ADDITIONAL CAPITAL TO
CONTINUE IN BUSINESS. Our auditors in their report included in this prospectus
have expressed doubt about our ability to continue as a going company. That
risk is primarily dependent on our ability to raise sufficient money to
undertake our new business plan. If we do not continue as a business, our stock
would be worth substantially less.
WE MAY BE UNABLE TO MEET OUR CAPITAL REQUIREMENTS WHICH MAY SLOW DOWN OR
CURTAIL OUR BUSINESS PLANS . If our capital is insufficient to conduct our
business and if we are unable to obtain needed financing, we will be unable to
promote our two e-commerce websites, build and place sufficient kiosks or
otherwise maintain our competitive position. Since we intend to rapidly commence
advertising our e-commerce sites and since we desire to place internet kiosks
rapidly to get market share, it is certain that we will require additional
capital. We have not thoroughly investigated whether this capital would be
available, who would provide it, and on what terms. If we are unable to raise
the capital required to fund our growth, on acceptable terms, our business may
be seriously harmed or even terminated.
IF OUR ONLINE SERVERS FOR OTHER SHOPGOONLINE OR AUCTIONOMICS BECAME
UNAVAILABLE, WE COULD LOSE CUSTOMERS. We could lose existing or potential
customers for our ShopGoOnline and Auctionomics businesses if they do not have
ready access to our online servers, or if our online servers and computer
systems do not perform reliably and to our customers' satisfaction. Network
interruptions or other computer system shortcomings, such as inadequate
capacity, could reduce customer satisfaction with our services or prevent
customers from accessing our services and seriously damage our reputation. As
the number of individual users increases, we will need to expand and upgrade the
technology underlying our online services. We may be unable to predict
accurately changes in the volume of traffic and therefore may be unable to
expand and upgrade our systems and infrastructure in time to avoid system
interruptions.
WE CANNOT ALWAYS CONTROL THE AVAILABILITY AND QUALITY OF OUR PRODUCTS,
THEREBY INCREASING THE POSSIBILITY OF PROBLEMS WITH CUSTOMERS, BECAUSE WE RELY
ON THIRD-PARTY MERCHANDISE VENDORS FOR SUPPLY, SHIPPING AND QUALITY OF PRODUCTS
FOR OUR SHOPGOONLINE SITE. We rely on various vendors to supply us with
merchandise. We will likely not have any long-term contracts or arrangements
with our vendors that guarantee the availability of merchandise. We may not be
able to obtain sufficient quality and quantities of merchandise at competitive
prices. Also, the quality of service provided by such parties may fall below the
standard needed to enable us to conduct our business effectively.
24
<PAGE>
OUR OPERATIONS MAY BE HARMED BY ACTIONS OUTSIDE OF OUR CONTROL BECAUSE WE
RELY ON OTHER THIRD PARTIES IN CONDUCTING OUR E-COMMERCE OPERATIONS. In
conducting our operations, we have decided that most activities will be
completed by several other third parties. We consequently cannot control the
quality of the products or the level of service they provide. This could hurt
our e-commerce businesses because customers could become dissatisfied. Our
third party vendors include the following:
Fulfillment. Third parties will fulfill a significant portion of our sales.
Any service interruptions experienced by these distribution centers as a result
of labor problems or otherwise could disrupt or prevent fulfillment of customer
orders;
Payment processing. We will rely on one or two processors of credit card
transactions. If computer systems failures or other problems were to prevent
them from processing our credit card transactions, we would experience delays
and business disruptions; and
Shipping. We will use one or two primary delivery services to ship our
products. Our business would suffer if labor problems or other causes prevented
these or any other major carriers from delivering our products for significant
time periods. We may not be able to maintain satisfactory relationships with any
of the above parties on acceptable commercial terms, and the quality of services
that they provide may not remain at the levels needed to enable us to conduct
our business effectively.
DEPENDENCE ON THE LODGING INDUSTRY AND CHANGES IN VIEWING HABITS FOR OUR
KIOSK BUSINESS COULD ADVERSELY EFFECT OUR PROFITS. Our kiosk business is closely
linked to the performance of the lodging industry. Declines in hotel occupancy
or changes in the mix of hotel guests as a result of general business, economic,
seasonal and other factors can have a significant impact on our kiosk revenues.
RELIANCE ON KIOSK PROVIDERS MAY DELAY DELIVERY AND SLOW REVENUES FROM OUR
KIOSK DIVISION. We currently rely upon two suppliers who developed and who
manufacturer our internet kiosks. The loss of either of these suppliers could
slow our ability to deliver kiosks in accordance with our hotel contracts and
consequently could hurt our relationships with those hotels and our revenues
would decrease. While we believe that we could find other suppliers who could
manufacture our kiosks, we may incur increased costs and require additional time
to deliver those kiosks.
WE MAY NOT BE ABLE TO ACCURATELY PROJECT THE RATE OR TIMING OF INCREASES,
IF ANY, IN THE USERS OF OUR SHOPGOONLINE WEBSITE OR OUR INTERNET AUCTION SERVICE
SUFFICIENTLY TO TIMELY EXPAND AND UPGRADE OUR SYSTEMS AND INFRASTRUCTURE TO
ACCOMMODATE ANY INCREASES. We intend to use internally developed systems to
operate our service and for transaction processing, including billing and
collections processing. We will be required continually to improve these systems
in order to accommodate the level of use of our auction website. In addition, we
may add new features and functionality to our services that would result in the
need to develop or license additional technologies. Our inability to add
additional software and hardware or to upgrade our technology, transaction
processing systems or network infrastructure to accommodate increased traffic or
transaction volume could cause unanticipated system disruptions, slower response
times, degradation in levels of customer support, impaired quality of the users'
experience on our service and delays in reporting accurate financial
information.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
25
<PAGE>
ITEM 5. OTHER EVENTS
Successor Issuer Election.
Upon execution of the Exchange Agreement and delivery of the GONT shares to
the shareholders of Westlake, pursuant to Rule 12g-3(a) of the General Rules and
Regulations of the Securities and Exchange Commission, GONT became the successor
issuer to Westlake for reporting purposes under the Securities Exchange Act
of 1934 and elected to report under the Act effective January 10, 2000.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of GONT for the fiscal year ending December 31,
1998 and for the nine months ended September 30, 1999 are included herein. In
addition, pro forma financial statements reflecting the combined financial
statements of Westlake and GONT at September 30, 1999 are included herein.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Go Online Networks Corporation
Buena Park, California
We have audited the accompanying balance sheet of Go Online Networks Corporation
and Consolidated Subsidiaries as of December 31, 1998, and the related
statements of operations, stockholders' (deficit) and cash flows for the two
years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, present fairly, in
all material respects, the financial position of Go Online Networks Corporation
and Consolidated Subsidiaries as of December 31, 1998 and the results of its
operations, changes in its stockholders' (deficit) and its cash flows for the
two years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, the Company
has suffered recurring losses from operations and has a net capital deficiency
that raise substantial doubts about its ability to continue as a going concern.
Management's plan to continue in operations is contained in Note 1 to the
financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Schumacher & Associates
Certified Public Accountants
12835 E. Arapahoe Road
Tower II, Suite 110
Englewood, CO 80112
August 27, 1999
26
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
27
<PAGE>
<S> <C> <C>
December 31, September 30,
1998 1999
--------------------------------
(Unaudited)
Current Assets:
Cash $ 2,271 $ 189,617
Accounts receivable - 2,647
Prepaid expenses - 5,958
Trust account receivable (Note 1) 137,946 -
------------------ --------------
Total Current Assets 140,217 198,222
Designs and trademarks, net of
accumulated amortization of $12,500
at December 31, 1998 and $21,875 at
September 30, 1999 (Note 9) 37,500 28,125
Security deposits - 2,500
Equipment, net of accumulated depreciation
of $36,081 at September 30, 1999 - 382,577
------------------ --------------
TOTAL ASSETS $ 177,717 $ 611,424
================== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 66,041 $ 133,663
Notes payable and accrued interest
(Note 8) 129,291 134,673
Unearned revenue (Note 1) - 145,000
Advances from and accrued expenses
to officer (Note 2) 309,977 377,707
Other liabilities (Notes 9 and 10) 37,500 -
------------------ --------------
Total Current Liabilities 542,809 791,043
Convertible debentures (Note 4) - 538,462
------------------ --------------
TOTAL LIABILITIES 542,809 1,329,505
------------------ --------------
Commitments and contingencies
(Notes 1,2,3,4,5,6,7,8,9 and 10) - -
Stockholders' (Deficit):
Convertible preferred stock, no par
value, 100,000,000 shares authorized,
638,333 issued and outstanding as of
December 31, 1998 and 499,333 shares
at September 30, 1999 217,533 168,883
Common stock, no par value,
100,000,000 shares authorized,
54,450,028 shares issued and
outstanding at December 31, 1998 and
71,873,510 shares at September 30, 1999 5,785,303 7,453,689
Accumulated (Deficit) (6,367,928) (8,340,653)
------------------ --------------
TOTAL STOCKHOLDERS' (DEFICIT) (365,092) (718,081)
------------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 177,717 $ 611,424
================== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C>
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ -------------- ----------------- --------------
(Unaudited) (Unaudited)
Revenue
Sales $ - $ - $ - $ 13,017
-------------- --------------- --------------- ----------------
Expenses:
Advertising - - - 12,259
Amortization and
depreciation - 12,500 9,375 45,455
Rent 7,472 7,451 5,610 36,135
Legal fees 39,317 120,048 91,136 306,612
Stock issued for services 20,000 124,375 93,280 -
Salary and payroll taxes - - - 117,055
Compensation, officer 96,000 96,000 72,000 72,000
Common stock issued for
Website development (Note 10) - - - 180,000
Other 2,552 82,100 62,600 364,049
-------------- ----------------- -------------- -------------
Total Operating Expenses 165,341 442,474 334,001 1,133,565
-------------- ----------------- -------------- -------------
Net (Loss) Before Other
Income (Expense) (165,341) (442,474) (334,001) (1,120,548)
Other (Expense):
Option buy back (Note 10) - - - (625,000)
Operating loss of segment
disposed of - (145,203) - -
Discount on convertible
debentures (Note 4) - - - (188,462)
Loss from disposition of
segment disposed of (Note 5) - (94,845) - -
Interest expense (7,176) (121,322) (90,942) (38,715)
-------------- ----------------- --------------- ---------------
Net (Loss) $ (172,517) $ (803,844) $ (424,943) $ 1,972,725)
============== ============= =============== ===============
Per Common Share $ (.01) $ (.02) $ (.01) $ (.02)
============== ================= =============== ===============
Weighted Average
Shares Outstanding 31,682,602 44,558,017 40,869,284 65,823,983
============== ================ =============== ===============
</TABLE>
The acconpanying notes are an integral part of the financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
------------------------------------------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From December 31, 1996 through December 31, 1998
and from January 1, 1999 through September 30, 1999 (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Accumulated
No./Shares Amount No./Shares Amount (Deficit) Total
----------- ------ ---------- ---------- ------------- -------
Balance at December 31, 1996 1,064,667 $ 366,750 28,699,328 $4,592,728 $(5,391,567) $ (432,089)
Common stock issued - - 5,840,000 129,150 - 129,150
Preferred stock converted (126,667) (44,333) 126,667 44,333 - -
Loss for the year ended
December 31, 1997 - - (172,517) (172,517)
----------- ---------- ------------ ------------- ------------- ----------
Balance at December 31, 1997 938,000 322,417 34,665,995 4,766,211 (5,564,084) (475,456)
Common stock issued - - 19,484,366 914,208 - 914,208
Preferred stock converted (299,667) (104,884) 299,667 104,884 - -
Loss for the year ended
December 31, 1998 - - - - (803,844) (803,844)
----------- ---------- ---------- ---------- ------------- ------------
Balance at December 31, 1998 638,333 217,533 54,450,028 5,785,303 (6,367,928) (365,092)
Common stock issued - - 17,284,482 1,619,736 - 1,619,736
Preferred stock converted (139,000) (48,650) 139,000 48,650 - -
Loss for the nine months ended
September 30, 1999 - - - - (1,972,725) (1,972,725)
----------- ---------- ---------- ---------- ------------- ------------
Balance at September 30, 1999
(Unaudited) 499,333 $ 168,883 71,873,510 $7,453,689 $ (8,340,653) $ (718,081)
=========== ========== ========== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C> <C> <C>
Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ ------------- -------------- ----------------
(Unaudited) (Unaudited)
Operating Activities:
Net (Loss) $(172,517) $(803,844) $ (424,943) $ (1,972,725)
Adjustments to reconcile net
(loss) to net cash (used in)
operating activities:
Amortization and depreciation - 12,500 9,375 45,455
Increase (decrease) in accounts
payable and accrued expenses (6,172) 46,651 35,929 67,623
Increase in unearned revenue - - - 145,000
Discount on debenture - - - 188,462
Other (26,335) 126,382 109,540 342,453
---------- ---------- ----------- ------------
Net Cash (Used in) Operating
Activities (205,024) (618,311) (270,099) (1,183,732)
---------- ---------- ----------- ------------
Investing Activities:
Investment in equipment - - - (418,658)
Investment in designs and
trade name - (50,000) - -
---------- ---------- ------------ -----------
Net Cash Provided by (Used in)
Investing Activities - (50,000) - (418,658)
---------- ---------- ----------- -----------
Financing Activities:
Repayment of notes and advances
payable - (31,427) (23,570) -
Common stock issued 178,483 694,883 290,112 1,439,736
Proceeds from notes and
advances payable 28,515 - - 350,000
---------- ---------- ---------- ----------
Net Cash Provided by
Financing Activities 206,998 663,456 266,542 1,789,736
---------- ---------- ---------- -----------
Increase (decrease) in Cash 1,974 (4,855) (3,557) 187,346
Cash at Beginning of Period 5,152 7,126 7,126 2,271
---------- ---------- ----------- ---------
Cash at End of Period $ 7,126 $ 2,271 $ 3,569 189,617
========== ========== ========== ==========
Interest Paid $ 7,176 $ 121,322 $ 60,500 $ 38,715
========== ========== =========== ==========
Income Taxes Paid $ - $ - $ - $ -
========== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(1) Summary of Significant Accounting Policies
----------------------------------------------
A. Organization and Principles of Consolidation
------------------------------------------------
The consolidated financial statements of Go Online Networks Corporation,
formerly Jones Naughton Entertainment, Inc. and Consolidated Subsidiaries
include the accounts of Go Online Networks Corporation, incorporated in Colorado
on October 20, 1987, and its subsidiaries AMS Acquisition Corp. (AMS),
incorporated in Nevada on June 2, 1998 and Auctionomics, Inc., incorporated in
Nevada on June 8, 1999. Jones Naughton Entertainment, Inc. changed its name to
Go Online Networks Corporation on September 8, 1999. References to the Company
refer to Go Online Networks Corporation and its subsidiaries. As of December
31, 1998, AMS was a wholly-owned subsidiary of Go Online Networks Corporation.
As of September 30, 1999, AMS and Auctionomics are 75% owned subsidiaries of Go
Online Networks Corporation. The Company is in the information technology
business. All intercompany accounts have been eliminated in the consolidation.
The Company has selected December 31 as its year end.
B. Use of Estimates in the Preparation of Financial Statements
-------------------------------------------------------------------
The preparation of 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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
C. Basis of Presentation - Going Concern
------------------------------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. However, the Company has sustained operating losses
since its inception and has a net capital deficiency. Management's plan to
continue in operations is to continue to attempt to raise additional debt or
equity capital including the proposal to publicly offer securities subject to
the effectiveness of a registration statement with the Securities and Exchange
Commission. During the nine month period ended September 30, 1999, the Company
had proceeds of approximately $1,400,000 from debt and equity transactions.
In view of these matters, realization of certain of the assets in the
accompanying financial statements is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financial requirements, raise additional capital, and the success of its future
operations. Management believes that its ability to raise additional capital
provides the opportunity for the Company to continue as a going concern.
32
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(1) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
D. Per Share Information
-----------------------
The per share information is computed based upon the weighted average number of
shares outstanding.
E. Equipment
---------
The Company carries its investment in equipment, principally consisting of
office equipment and computer access kiosks installed at customer locations, at
cost net of accumulated depreciation. Depreciation is provided over a five year
period on a straight-line basis.
F. Geographic Area of Operations
--------------------------------
The Company's customers are principally in the U.S.A. The potential for severe
financial impact can result from negative effects of economic conditions within
the market or geographic area. Since the Company's business is principally in
one area and in one industry, this concentration of operations results in an
associated risk of uncertainty.
G. Intangible Assets
------------------
The Company reviews the carrying value of its intangible assets on a periodic
basis, at least quarterly, to determine if there is any impairment in carrying
value. As of September 30, 1999 and the Company believes that there is no
impairment in value of the carrying value of its intangible assets.
H. Stock Issued for Services and Stock Options Granted for Services
--------------------------------------------------------------------
The Company has issued stock and granted stock options for services. The market
value of the shares issued for services was recorded as an expense in the
accompanying financial statements. All options granted were at market value or
higher at the time of the grant. No compensation was recorded for the options
granted since any compensatory amounts would be immaterial since the options
were granted at prices at least equal to market.
I. Income Taxes
-------------
The Company as of December 31, 1998 had approximately $5,500,000 of net
operating loss carryovers which expire in years through 2018. A change in
ownership of more than 50% of the Company my result in the inability of the
Company to utilize the carryovers. As of December 31, 1998 the Company had
deferred tax assets of approximately $1,650,000 related to net operating loss
carryovers. A valuation allowance has been provided for the total amount since
the amounts, if any, of future revenues necessary to be able to utilize the
carryovers are uncertain.
33
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(1) Summary of Significant Accounting Policies, Continued
----------------------------------------------------------
J. Trust Account Receivable
--------------------------
At December 31, 1998 the Company had funds on deposit with its legal counsel
held for the Company's benefit totaling $137,946. There were no restrictions
on the use of the funds.
K. Preferred Stock
----------------
The Company has outstanding 499,333 shares of Series A Preferred Stock. Each
share of Series A Preferred stock is convertible into one share of common stock
at the option of the holder. The Series A Preferred Stock votes on an equal per
share basis with the common stock, and is eligible to receive equivalent
dividends to the shares of common stock. In the event of liquidation of the
Company, the Series A Preferred Stock has a liquidation preference of the number
of shares plus 8% from the time of issuance.
L. Advertising
-----------
The Company expenses advertising costs as incurred.
M. Unearned Revenue
-----------------
The Company received $145,000 related to future advertising on the Internet
kiosks which has been accounted for as unearned revenue. The advertising
revenue will be recognized as income when the Company has sufficient kiosks in
operation to meet the terms of the agreement and will be amortized over the
periods then covered on a straight-line basis. Failure to meet the number of
kiosks specified by the agreement could result in the requirement to refund the
unearned advertising fees.
N. Unaudited Financial Statements
--------------------------------
The balance sheet as of September 30, 1999, the statements of operations and the
statements of cash flows for the nine month periods ended September 30, 1998 and
1999, and the statement of changes in stockholders= (deficit) for the nine month
period ended September 30, 1999 have been prepared by management without audit.
In the opinion of management all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations, cash flows and changes in stockholders (deficit) at
September 30, 1999 and for all periods presented have been made.
O. Concentration of Credit Risks
--------------------------------
The Company carries its cash accounts in banks. As of September 30, 1999 the
Company had $89,617 in a bank account in excess of the amount insured by the
F.D.I.C.
34
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(2) Advances and Accrued Expenses, Related Party
-------------------------------------------------
The Company's Chief Executive Officer has loaned various amounts to the Company.
As of December 31, 1998 and as of September 30, 1999 the amounts payable to the
officer for advances totaled $130,242 and $149,222 respectively. In addition
there is unpaid compensation due to him of $48,000 for 1996, $61,250 for 1997,
$70,485 for 1998 and $48,750 for the nine months ended September 30, 1999. The
balances payable for compensation to the CEO totaled $179,735 at December 31,
1998 and $228,485 at September 30, 1999. The balances payable to the related
party are uncollateralized, bear no interest and are payable on demand.
<TABLE>
<CAPTION>
The following summarizes earned options granted, exercised and outstanding:
<S> <C> <C> <C>
Option Expiration
Date of Grant # of Shares Price Date
- -------------------- ------------ --------- ---------
February 27, 1996 1,000,000 $ .35 November 1, 1997
------------ ---------
Balance outstanding
December 31, 1996 1,000,000 $ .35 Average option price of $.35
April 10, 1997 100,000 $ .25 November 1, 1997
April 10, 1997 100,000 $ .10 May 1, 1998
April 10, 1997 100,000 $ .15 November 1, 1998
April 1, 1997 100,000 $ .25 November 1, 1999
February 27, 1996 (1,000,000) $ .35 Expired November 1, 1997
April 10, 1997 (100,000) $ .05 Expired November 1, 1997
------------ ---------
Balance outstanding
December 31, 1997 300,000 $.10-$.25
April 10, 1997 (100,000) $ .10 Expired May 1, 1998
April 10, 1997 (100,000) $ .15 Expired November 1, 1998
May 3, 1998 500,000 $ .07 February 2, 1999
May 3, 1998 500,000 $ .125 February 2, 1999
May 3, 1998 500,000 $ .25 February 2, 1999
July 27, 1998 500,000 $ .25 February 2, 1999
------------ ---------
Balance outstanding
December 31, 1998 2,100,000 $.07-$.25 Average option price of $.18
May 3, 1998 (500,000) $ .07 Exercised February 2, 1999
April 12, 1999 150,000 $ .25 April 11, 2001
April 12, 1999 1,000,000 $ .20 April 11, 2001
August 9, 1999 200,000 $ .32 August 8, 2000
September 15, 1999 1,000,000 $ .50 December 31, 2000
May 3, 1998 (500,000) $ .125 Expired February 2, 1999
May 3, 1998 (500,000) $ .25 Expired February 2, 1999
July 27, 1998 (500,000) $ .25 Expired February 2, 1999
------------ ---------
Balance outstanding
September 30, 1999
(Unaudited) 2,450,000 $.20-$.50 Average option price of $.27
============ =========
</TABLE>
35
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(3) Stock Options, Continued
--------------------------
The Company has other various option agreements with employees, independent
contractors and consultants that have contingencies associated with the rights
to exercise. These other contingent option agreements are disclosed at various
locations throughout the notes to the financial statements. The above summary
represents all options that are not subject to any contingencies. All options
were granted at exercise prices equal to or in excess of market prices of the
stock at the date of grant, therefore no compensation expense was recorded for
the options.
In addition to options disclosed elsewhere in the notes to the financial
statements, the Company has issued the following options to acquire restricted
common stock of the Company:
A. 31,640 shares exercisable at $.20 per share at any time within one year
after the Company's common stock first trades at or above $1.20 per share for
thirty consecutive trading days.
B. 31,640 shares exercisable at $.40 per share exercisable at any time
within one year after the publicly traded common stock of the Company has traded
at $2.00 per share on each trading date for thirty consecutive days.
C. 31,640 shares exercisable at $1.00 per share at any time within one year
after the publicly trade common stock of the Company has traded at $2.80 per
share for thirty consecutive trading days. Such shares cannot be traded for a
period of ninety days after the exercise of this option.
D. 31,640 shares exercisable at $2.00 per share, exercisable at any time
within one year after the publicly traded stock of the Company has traded at
$3.60 per share for thirty consecutive trading days. Such shares cannot be
traded for a period of sixty days after the exercise of this option.
(4) Convertible Debentures
-----------------------
During the year ended December 31, 1998 and the nine month period ended
September 30, 1999 the Company issued approximately $343,000 and $100,000,
respectively of convertible debentures which have been converted to common
stock. The debentures were converted to common stock at 75% of the market value
of the common stock. The difference between the exercise price and the market
price upon exercise has been recorded as interest expense in the accompanying
1998 and 1999 financial statements in the amount of $114,333 and $33,333,
respectively. In addition during September, 1999, the Company issued $538,462
of convertible debentures for $350,000. The discount of $188,462 has been
recorded as an other expense similar to interest in the financial statements.
As additional consideration for the purchase of the debenture, the purchaser was
granted a warrant to purchase 175,000 shares of common stock of the Company at a
price of $.50 per share which will expire on December 31, 2000. Since the
exercise price was in excess of the market value of the stock at the time of
issuance, no consideration was recorded in the financial statements. If not
converted to common stock, the debenture accrues interest at 8% per annum, due
and payable quarterly in arrears with the first payment due on December 31,
1999. The $538,462 convertible debenture is convertible at the option of the
holder into common stock at a conversion price for each share of common stock
equal to the
36
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(4) Convertible Debentures, Continued
-----------------------------------
lesser of (1) 125% of the closing bid price for the common stock on the date of
issuance of the debenture or (2) a percentage of the average of the three lowest
closing bid prices for the common stock for the 20 trading days immediately
preceding the conversion date. The applicable percentage shall be equal to the
following: (I) for conversions made on or before 120 days after the date of the
37
<PAGE>
debenture, 105%; (ii) between 121 and 150 days, 103%; (iii) between 151 and 180
days, 100%; (iv) between 181 and 210 days, 97% or (v) after 210 days, 95%.
(5) Investment in and Disposition of Investment in Publishing and
---------------------------------------------------------------------
Advertising Business
-------------
On July 8, 1998 AMS Acquisition Corp., a newly formed wholly-owned subsidiary of
the Company acquired the assets and liabilities of a business operating several
different publishing and advertising divisions located in San Diego, California.
The total investment in the acquisition of the business assets approximated
$240,000 including related acquisition expenses. After operating the business
for approximately six months, the assets and liabilities were sold back to the
original seller in exchange for assuming the then existing liabilities of the
business. This sale back was effective December 31, 1998. At the time of the
return of the business, the total assets of the business including goodwill of
approximately $500,000, totaled approximately $858,000, and liabilities totaled
approximately $904,000. While the liabilities were assumed in the sale back
transaction, AMS remains contingently liable for any amounts not paid by the
purchaser. The assets and the liabilities have been subsequently sold again
after the buy back from AMS. The financial statements have no provision for
future losses, if any, related to this contingency. The ultimate resolution of
this matter cannot presently be determined.
The consolidated financial statements include a loss from the operations of this
discontinued business in the amount of $145,203 and a loss from disposition of
this business totaling $94,845.
(6) Consulting Agreements
----------------------
Effective February 3, 1998 the Company entered into a consulting agreement with
an individual to provide financial support and market makers for the Company's
publicly traded common stock. In accordance with the terms of the agreement
the consultant was issued 400,000 shares valued at $.035 per share and 1,250,000
shares at $03 per share as compensation for consulting services. In addition,
the consultant was granted an option to acquire 1,000,000 shares at $.05,
1,000,000 at $.07 and 1,000,000 at $.09 per share. At the time of the grant of
the options, the option price was in excess of the market price of the stock.
The options for the 1,000,000 shares at $.05 and the 1,000,000 shares at $.07
were exercised. The option for the 1,000,000 shares at $.09 expired
unexercised.
Effective July 27, 1998 the Company entered into a consulting agreement with an
individual for a 90 day period. The individual was paid $6,000 per month
for providing services to assist in developing financial support for the
Company's publicly traded common stock. In addition, the consultant was granted
an option to purchase 500,000 shares of the Company's common stock at $.125 per
share within one year of the effective date of the agreement. The option
expired unexercised.
38
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(6) Consulting Agreements, Continued
----------------------------------
Effective March 9, 1998 the Company entered into an internet public relations
agreement with an entity for a three month period. For services performed, the
Company issued 125,000 shares of its common stock valued at $.025 per share.
The entity was also granted a ninety day option to acquire 50,000 additional
shares at $.075 per share. The option expired unexercised.
Effective October 17, 1997 the Company entered into a consulting agreement with
an individual whereby the individual prepared news releases and other services
requested by the Company in connection with its securities market, broker dealer
relationships and investor relations. The Company issued the individual 150,000
shares valued at $.066 per share for compensation related to the services
performed.
39
<PAGE>
(7) Commitments and Contingencies
-------------------------------
During 1996 the Company sold its wholly-owned subsidiary RETN in exchange for
shares of stock of the entity acquiring RETN. Since the Company has been unable
to receive free trading shares of the entity, the Company on July 9, 1998 filed
a lawsuit against the purchaser and certain of its officers and directors
alleging breaches of written contracts, fraud and violations of various
Corporate Code sections. In this litigation, the Company is seeking damages in
excess of $60,000,000, together with exemplary and punitive damages, attorney's
fees and costs of the suit. On September 2, 1998, the purchasing entity filed a
cross-complaint against the Company alleging fraud and misrepresentation,
breaches of contracts and conspiracy. In the cross-complaint the entity is
seeking damages in the approximate amount of $12,000,000, together with
exemplary and punitive damages, attorney's fees and cost of the suit. The actual
losses identified by the cross-complaint are less than $500,000. The purchasing
entity has recently made a settlement offer to the Company which included a
payment to the Company of a combination of stock and cash, however the amounts
offered were insufficient and rejected by the Company and the litigation is
continuing. Contingencies exist with respect to this matter, the ultimate
resolution of which cannot presently be determined. The financial statements of
the Company include no provisions for losses or gains with respect to this
matter.
On December 3, 1998, related to a different litigation matter, a default
judgement was entered against the Company in the approximate amount of $55,000
for alleged amounts owed by RETN for which the plaintiff alleges is also owed by
the Company. On July 14, 1999 the default judgement was set aside based on the
fact that the Company was never properly served with a summons and complaint.
The Company contends that it is not liable for the amounts due since RETN was a
separate corporation and the Company never guaranteed this obligation. The
financial statements do not include any loss provision with respect this matter.
A contingency exists with respect to this matter, the ultimate resolution of
which cannot presently be determined.
Management does not believe that the above contingencies will result in material
adverse effects on the financial statements.
40
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(8) Notes Payable
--------------
On March 5, 1995 the Company borrowed $49,500 and $52,500 from an individual and
from a corporation, respectively. The notes bear interest at 7% per annum and
are uncollateralized. The notes were due and not paid on May 29, 1996. The
lenders have the right to demand payment in full on the notes and failure to pay
on demand would increase the interest rate to 18% per annum. The lenders have
the right to convert the notes to common stock of the Company at a rate of $.125
per share. The balance payable on December 31, 1998 on the notes total $62,744
and $66,547, respectively, including accrued interest.
(9) Acquisition of Assets
-----------------------
During March 1998 the Company entered into an agreement to acquire the assets of
a business engaged in the manufacturing, marketing, management and display of
advertising and informational kiosks. The purchase price was $50,000 with a
down payment of $25,000 plus four equal quarterly installments at the 90 day,
180 day, 270 day and 350 day anniversaries of the closing date. As of December
31, 1998 the balance payable under the terms of the agreement was $12,500.
Since the value of tangible assets acquired was minimal, the total $50,000 was
recorded in the accompanying financial statements as an intangible asset related
to the designs, trademarks, trade names, contract rights and other intangible
assets. This intangible asset is being amortized on a straight line basis over
a three year period.
(10) Other Events and Transactions
--------------------------------
Effective February 26, 1999 the Company entered into a joint venture agreement
with an individual, the current President of AMS, whereby 25,000 shares of (AMS)
Acquisition Corp. were transferred (25% ownership of AMS) to the individual.
The Company also granted the individual warrants to acquire an additional 26,000
shares of AMS at $1.00 per share following the end of the first profitable
quarter of operations, but in no event later than twelve months after the
February 26, 1999 agreement date. Effective April 19, 1999 the Company
exchanged 1,250,000 restricted shares of Go Online Networks Corporation common
stock for the warrants. These 1,250,000 shares were recorded at $.50 per
share, ninety percent of the market value of free trading shares of the
Company's Common Stock on April 19, 1999, and recorded as an expense totaling
$625,000. As a part of the joint venture agreement, the Company agreed to
provide AMS with $25,000 for working capital.
Effective May 15, 1999 the Company entered into a lease for office space in
northern California. The term of the lease is for 5 years with monthly base
rent payments of $1,615. The base rent amounts are subject to increases of 3%
per annum. The Company has the right to terminate the lease between May 15,
2000 and June 15, 2000 and also between May 15, 2002 and June 15, 2002. Future
base rent commitments during the years ended December 31 under this lease are
summarized as follows:
41
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
1999 $ 11,305
2000 $ 19,380
2001 $ 19,380
2002 $ 19,380
2003 $ 19,380
2004 $ 8,075
Effective July 21, 1999 the Company entered into a lease for office space in
Buena Park California. The term of the lease is for 3 years with monthly base
rent payments of $1,600. Future base rent commitments during the years ended
December 31 under this lease are summarized as follows:
1999 $ 8,000
2000 $ 19,200
2001 $ 19,200
2002 $ 11,200
During May, 1999, the Company entered into a settlement agreement whereby the
Company paid $25,000 in cash to an entity for the full and final release of a
liability of the Company with respect to the Company's guarantee of certain
commitments of RETN to the entity. The $25,000 liability has been included with
the liabilities of the Company as of December 31, 1998.
Effective June 10, 1999 the Company entered into a stock purchase agreement
whereby the Company acquired 75% ownership if Auctionomics, Inc., a Nevada
corporation. Auctionomics, Inc. had no business or liabilities at
the time of the acquisition. The Company had issued 500,000
restricted shares of its common stock and a warrant for an additional 500,000
shares exercisable for two years at an exercise price of $.50 per share. The
shares were recorded at $.36 per share, ninety percent of the market value, due
to the size of the block and the restricted nature of the stock. The $180,000
value of the shares issued was recorded as an expense in the accompanying
financial statements since the substance of the transaction was to engage the
services of the principals of Auctionomics to assist the Company in developing
an Internet web site. The Company agreed to and has provided $25,000 of working
capital. The agreement also provides that the 25% shareholders of Auctionomics
will be entitled to a bonus equal to 25% of the net income before taxes of
Auctionomics each year for as long as they remain shareholders of Auctionomics.
The Company also entered into consulting agreements with the 25% shareholders of
Auctionomics whereby they will receive 20% of the gross revenues generated to
Auctionomics through efforts of the consultants as long as they are shareholders
of Auctionomics.
Effective August 9, 1999 the Company entered into an employment agreement with
an individual whereby the individual was engaged to be Vice President and
Director of Marketing. The agreement is for a term of five years but is subject
to termination by the Company for cause. The Company or the employee have the
right to terminate the agreement after giving the other party thirty days
notice. In the event that the agreement is terminated by the Company without
cause, the employee shall be entitled to compensation earned computed pro-rata
up to the date of termination plus
42
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
ninety days of salary. The employee's compensation during the term of the
agreement shall be as follows:
A. Base salary of $75,000 per year.
B. Quarterly bonus of one quarter of one percent of the sales of the
Company's shopgoonline.com and Auctionomics.com divisions.
C. Quarterly bonus of 3% of the net advertising revenues generated by the
Company, after reduction for account fees and commissions payable by the
Company.
D. Bonus of 25% of the gross revenue generated by an internal advertising
agency to be formed by the Company. The difference between the exercise
price and the option price at the time when the options are earned will be
expensed in the financial statements as compensation.
E. The employee shall be granted options to purchase up to 200,000 shares AF
common stock of the Company at a price of $.32 per share at the end of year one
of the employment agreement. In addition, at the end of each of years 2
through 5, the employee will become eligible to purchase up to 200,000 shares of
common stock at a price equal to 75% of the average closing bid price on the
five business days immediately preceding the anniversary date of the agreement.
The difference between the exercise price and the option price at the time when
the options are earned will be expensed in the financial statements as
compensation.
Effective April 12, 1999 the Company entered into an employment agreement with
an individual. The agreement is for a term of one year but is subject to
termination by the Company for cause. The Company or the employee have the
right to terminate the agreement after giving the other party thirty days
notice. In the event that the agreement is terminated by the Company without
cause, the Employee shall be entitled to compensation earned computed pro-rata
up to the date of termination. The employees compensation during the term of
the agreement shall be as follows:
A. Base salary of $60,000 per year.
B. Quarterly bonus of 20% of the net advertising revenues of the Community
Marquee Division generated as a result of the employee's direct efforts during
the previous quarter.
C. Alternative quarterly bonus in lieu of B. above equal to 25% of the net
adverting revenues of the Community Marquee Division generated by partes other
than the employee.
D. The employee shall be granted options to purchase 25,000 shares of the
Company's common stock for each twenty-five kiosks shipped up to a maximum of
150 kiosks. The exercise price of the options shall be equal to 60% of the
closing bid price on the last business day of the month in which the employee
becomes eligible. The difference between the exercise price and the option
price at the time when the options are earned will be expensed in the financial
statements as compensation.
43
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
Effective May 1, 1999 the Company entered into a consulting agreement with an
individual whereby the consultant was engaged to assist in the creation of the
Company's real estate website for its GoOn-line.com operating division. The
term of the agreement is for one year but can be terminated by the Company with
or without cause with 30 days notice.
Compensation to the consultant is summarized as follows:
A. Monthly cash consulting fee of $5,000.
B. Quarterly bonus equal to 15% of the gross revenues earned by the Company
through its real estate web site developed by the consultant.
C. The consultant shall be granted options to acquire 25,000 shares of stock
for each $500,000 in gross revenues attributable to the real estate web site
developed by the Company.
Effective May 20, 1999 the Company entered into a marketing agreement with an
entity, whereby the entity agreed to introduce various hotels, motels and other
lodging businesses to the Company for the purpose of placing computer access
kiosks in their facilities. The Company will compensate the entity 20% for all
adjusted gross usage and 10% of advertising revenue generated as a result of the
site agreements negotiated during the term of the agreement. The site owner will
also be paid not More than 10% of adjusted gross revenue. The entity will be
paid 25% of all the adjusted gross usage and 15% of the advertising revenue for
any site agreement that is signed for a duration exceeding 4 years. The Company
granted the entity a 60 month exclusive representation for the marketing of the
Company's kiosk system for South Florida, define as south of Interstate 40. In
order to maintain exclusivity, the entity must sign 20 new sites per month for
the 60 month contract period and must agree to procure a minimum of 8
advertising contracts per kiosk installed. Upon execution of the first 100 site
agreements the Company will grant the entity an option to purchase 100,000
shares of stock at $.45 per share exercisable for a two year period. Upon
execution of the first 500 site agreements the Company will grant the entity the
right to purchase 250,000 shares at $.75 per share for two years. Upon
execution of the first 1,000 site agreements the Company will grant the entity
the right to purchase 250,000 shares at $1.25 per share for two years. The
difference, if any, between the exercise price and ninety percent of the market
value of the stock will be recorded as additional compensation to the extent
ninety percent of the market price exceeds the exercise price of the option
granted. If the entity installs additional ad panels on the Company's kiosks
using a secondary ad panel furnished by the Company the entity will be
compensated 10% for all ad revenue up to $15,000 per year per ad panel and 90%
of all ad revenues generated per panel in excess of $15,000 per year.
Effective May 15, 1999 the Company entered into a marketing agreement with an
entity, whereby the entity agreed to introduce various hotels, motels and other
lodging businesses to the Company for the purpose of placing computer access
kiosks in their facilities. The Company will compensate the entity 20% for all
adjusted gross usage and 10% of advertising revenue generated as a result of the
site agreements negotiated during the term of the agreement. The site owner will
also be paid not more than 10% of adjusted gross revenue. The entity will be
paid 25% of all the adjusted gross usage and 15% of the advertising revenue for
any site agreement that is signed for a duration exceeding 4 years. The Company
granted the
44
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
entity a 60 month exclusive representation for the marketing of the Company's
kiosk system for Southern California, defined as Los Angeles County and south of
Los Angeles County, and also Arizona and Nevada. In order to maintain
exclusivity, the entity must sign 20 new sites per month for the 60 month
contract period and must agree to procure a minimum of 8 advertising contracts
per kiosk installed. Upon execution of the first 100 site agreements the
Company will grant the entity an option to purchase 100,000 shares of stock at
$.75 per share exercisable within one year. Upon execution of the first 1,000
site agreements the Company will grant the entity the right to purchase 250,000
shares at $1.25 within one year. The difference, if any, between the exercise
price and ninety percent of the market value of the stock will be recorded as
additional compensation to the extent ninety percent of the market price
exceeds the exercise price of the option granted. If the entity installs
additional ad panels on the Company's kiosks using a secondary ad panel
furnished by the Company the entity will be compensated 10% for all ad revenue
up to $15,000 per year per ad panel and 90% of all ad revenues generated per
panel in excess of $15,000 per year. In addition, the Company agreed to pay
the entity $350 for each 4 year site agreement and $200 for all other site
agreements exceeding one year. The Company also agreed to pay the entity
$2,000 per month in advance for marketing expenses drawn against future site
agreement fees and commissions as long as the entity signs not less that
10 new site agreements for the following month.
During August, 1999, the Company entered into a marketing agreement with an
entity whereby the entity agreed to provide certain marketing services for the
Company. The entity agreed to introduce various hotels, motels and other
lodging businesses to the Company and to assist in negotiating kiosk site
agreements for the Company. The entity will be compensated as follows:
A. The entity will receive 20% for all adjusted gross usage revenue and 10%
of advertising revenue generated as a result of the site agreements negotiated
for the duration of the agreement. The site agreement will provide for a
commission to be paid to the site owner of not more than 10% of the adjusted
gross revenue. For purposes of the contract, adjusted gross revenue is defined
as revenue less cost for purchasing and installing the kiosk.
B. The entity will be paid 25% of all adjusted gross usage and 15% of the
advertising revenue for any site agreement that is signed for a duration
exceeding four years.
C. The entity will be paid $150 for each site agreement of four years or
greater and $100 for each site agreement less than four years.
D. The entity was granted a 60 month exclusive representation for the
marketing of the kiosk system for Indiana, Michigan and Ohio.
E. In order to maintain the exclusive marketing agreement, the entity agreed
to deliver 20 signed site agreements per month for the 60 month contract period
and agreed to produce a minimum of eight advertising contracts per kiosk.
F. Upon the execution of the first 100 site agreements the company agreed to
grant to the entity an option to purchase 100,000 shares of the company's common
stock for the price of $1.00 per share for one year.
45
<PAGE>
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(10) Other Events and Transactions, Continued
--------------------------------------------
G. Upon the execution of the first 500 site agreements the company agreed to
grant to the entity an option to purchase 250,000 shares of the Company's common
stock for the price of $1.25 per share for one year.
H. If the entity installs additional advertising panels on the kiosks using
secondary advertising panel display units, the entity will be compensated 10%
for all advertising revenue up to $15,000 per year. Advertising revenues
generating more than $15,000 per year will earn the entity 90% and 10% will be
paid to the Company.
(11) Subsequent Events
------------------
During October, 1999, 308,333 restricted shares of common stock were issued as
consideration for amounts owed for legal fees totaling $73,750. The September
30, 1999 financial statements included an accrual for legal fees which include
the $73,750. Also, the September 30, 1999 financial statements included an
expense provision for the $37,000 difference between the $.24 agreed upon price
of the stock and nintey percent of the market value of the publicly traded stock
Effective October 1, 1999, the Company entered into an employment agreement with
an individual for a three year period. The individual will serve as Executive
Vice President and Director of Technical Support.
A. The employee will receive an annual salary of $80,000 for the first year,
$90,000 for the second year and $100,000 for the third year.
B. The employee shall also receive a cash bonus payable following the end of
each fiscal year equal to one eighth of one percent of the gross sales of the
Company, if and only if the Company is profitable for the corresponding year.
C. In addition to the salary and bonus set forth above, the employee shall
be granted options to acquire common stock of the Company as follows:
At the end of the first year the employee shall be eligible to purchase up to
200,000 shares of common stock at $.25 per share. At the end of years two and
three the employee shall become eligible to purchase 200,000 shares of stock at
the average closing bid price on the five business days immediately preceding
the anniversary of the employment agreement. All options granted shall be
exercisable for a period of two years from their date of grant.
D. The agreement may be terminated for cause at any time. The agreement may
be terminated by the Company or the employee with 30 days notice. If terminated
by the Company, the employee shall be entitled to compensation earned up to the
date of termination plus 90 days severance pay. If terminated by the employee,
the employee shall be entitled to compensation earned prior to the date of
termination.
Effective October 6, 1999, the Company entered into an employment agreement with
an individual. The agreement is for a term of one year but is subject to
termination by the Company for cause. The Company or the employee have the
right to terminate the agreement after giving the other party thirty days
notice. In the event that the agreement is terminated by the Company without
cause, the Employee shall be entitled to compensation earned computed pro-rata
up to the date of termination.
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998 and September 30, 1998 and 1999 (Unaudited)
(11) Subsequent Events, Continued
------------------------------
The employee's compensation during the term of the agreement shall be as
follows:
A. Base salary of $60,000 per year.
46
<PAGE>
B. Quarterly bonus of 10% of the net advertising revenues of the Go Online
kiosk's generated as a result of the employee's direct efforts during the
previous quarter.
C. The employee shall be granted options to acquire common stock of the
Company as follows: For his 1st year of employment, employee is granted an
option to purchase 100,000 shares at .32 per share. In addition, for every
seventy-five (75) kiosks shipped and installed by the division, up to a maximum
of three hundred seventy-five (375) kiosks, employee shall receive options to
acquire 25,000 shares of Company common stock at an exercise price equal to
seventy-five percent (75%) of the closing bid price on the last business day of
the month in which employee became eligible hereunder. Parties to this contract
agree that this option starts at a level of 225 units already in existence when
employee signed this agreement. The initial option expires December 31, 2000.
Subsequent options expire on the 31st of December of the next calendar year that
those options become effective in.
47
<PAGE>
48
<PAGE>
Index to Pro Forma Financial Statements
WESTLAKE CAPITAL CORP. (WCC)
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES (GONT)
Pro Forma Combined Financial Statements (unaudited)
Pro Forma Financial Statements:
Balance Sheets
Statements of Operations
Notes to Pro Forma Financial Statements
49
<PAGE>
<TABLE>
<CAPTION>
WESTLAKE CAPITAL CORP. (WCC)
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES (GONT)
PRO FORMA BALANCE SHEET
(Unaudited)
<S> <C> <C> <C> <C>
GONT WCC
September 31, September 30,
1998 1999 Adjustments Combined
----------------- -------------- --------------- ---------------
ASSETS
Current Assets:
Cash $ 189,617 $ - $ - $ 189,617
Accounts receivable 2,647 - - 2,647
Other 5,958 5,223 - 11.101
------------------ -------------- --------------- ---------------
Total Current Assets 198,222 5,223 - 203,455
TOTAL ASSETS $ 611,424 $ 5.223 $ - $ 616,657
================== ============== --------------- ---------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses $ 133,663 $ 3,168 $ - $ 136,831
Other 657,380 - - 657,380
------------------ -------------- ---------------- ---------------
Total Current Liabilities 791,043 3,168 - 794,211
Convertible debentures 538,462 - - 538,462
------------------ -------------- ---------------- ---------------
TOTAL LIABILITIES 1,329,505 3,168 - 1,332,673
Stockholders' (Deficit):
Preferred stock 168,883 - - 168,883
Common stock 7,453,689 16,350 (1) (16,350) 8,213,689
(2) 760,000
Accumulated (Deficit) (8,340,653) (14,285) (1) 16,350 (9,048,588)
(2) (760,000)
------------------ -------------- ---------------- ---------------
TOTAL STOCKHOLDERS' (DEFICIT) (718,081) 2,065 - (716,016)
------------------ -------------- ---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 611,424 $ 5,233 $ - $ 616,657
================== ============== ---------------- ---------------
</TABLE>
The accompanying notes are an integral part of the pro forma
financial statements
50
<PAGE>
<TABLE>
<CAPTION>
WESTLAKE CAPITAL CORP. (WCC)
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES (GONT)
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
GONT WCC
Nine Months Nine Months
Ended Ended
September 30, September 30, Pro Forma Pro Forma
1997 1998 Adjustments Combined
------------ ---------------- ----------------- --------------
Revenue
Sales $ 13,017 $ - $ - $ 13,017
-------------- --------------- --------------- --------------
Operating Expenses 1,133,565 5,896 - 1,139,461
-------------- --------------- --------------- ---------------
Operating (Loss) (1,120,548) (5,896) - (1,126,444)
Other (Expense) (852,177) - - (852,177)
-------------- --------------- --------------- ---------------
Net (Loss) $ (1,972,725) $ (5,896) $ - $ (1,978,621)
============== =============== ================ ===============
Net (Loss) Per Common Share $ (.03)
===============
Weighted Average
Number of Common Shares Outstanding 69,623,983
===============
</TABLE>
The acconpanying notes are an integral part of the pro forma
financial statements
51
<PAGE>
<TABLE>
<CAPTION>
WESTLAKE CAPITAL CORP. (WCC)
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES (GONT)
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C> <C> <C>
GONT WCC
Year Ended Year Ended
December, 31, December, 31, Pro Forma Pro Forma
1998 1998 Adjustments Combined
------------ ----------------- --------------- ---------------
Revenue
Sales $ - $ - $ - $ -
-------------- ---------------- --------------- ---------------
Operating Expenses 334,001 8,389 - 342,390
-------------- ---------------- --------------- ---------------
Operating (Loss) (334,001) (8,389) - (342,390)
Other (Expense) (90,942) - - (90,942)
-------------- ---------------- --------------- ---------------
Net (Loss) $ (424,943) $ (8,389) $ - $ (433,332)
============== ================ =============== ===============
Net (Loss) Per Common Share $ (.01)
===============
Weighted Average
Number of Common Shares Outstanding 48,358,017
===============
</TABLE>
The acconpanying notes are an integral part of the pro forma
financial statements
52
<PAGE>
WESTLAKE CAPITAL CORP. (WCC)
GO ONLINE NETWORKS CORPORATION AND CONSOLIDATED SUBSIDIARIES (GONT)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(1) General
On January 10, 2000, GONT issued 3,000,000 shares of its common stock
pursuant to the acquisition of WCC. This business combination will be
accounted for as a purchase.
(2) Pro Forma Information
The pro forma financial statements give effect to the acquisition of
WCC by GONT as if the acquisition had taken place at the beginning of
the respective periods.
(3) Pro Forma Adjustments
(1) This entry gives effect to eliminating WCC stockholders' equity.
(2) This entry gives effect to issuing 3,000,000 shares of GONT
common stock pursuant to the WCC business combination agreement
with the shares recorded at $.20, approximately ninety percent
of the market value at January 10, 2000.
53
<PAGE>
ITEM 8. CHANGE IN FISCAL YEAR
GONT as the successor issuer has a fiscal year end of December 31 which
is the same as Westlake's fiscal year.
EXHIBITS
1.1. Share Exchange Agreement between Westlake Capital Corp. And
Go Online Networks Corporation, dated as of January 10, 2000.
23.1 Consent of Schumacher & Associates, independent public accountants
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 hereunto duly authorized.
GO ONLINE NETWORKS CORPORATION
By /s/ Joseph M. Naughton
----------------------------------
Chief Executive Officer, Director
Date: January 10, 2000
54
<PAGE>
ACQUISITION AGREEMENT
Agreement dated as of January 10, 2000 between GO ONLINE NETWORKS CORPORATION, a
Delaware corporation ("GONT"), and Westlake Capital Corporation, a Colorado
corporation ("Westlake").
The parties agree as follows:
1. THE ACQUISITION.
1.1_ Purchase and Sale Subject to the Terms and Conditions of this
Agreement. At the Closing to be held as provided in Section 2, GONT shall sell
the GONT Shares (defined below) to the shareholders of Westlake, and the
shareholders of Westlake shall purchase the GONT Shares from GONT, free and
clear of all Encumbrances other than restrictions imposed by Federal and State
securities laws.
1.2 Purchase Price. GONT will exchange 3,000,000 shares of its restricted
common stock (the "GONT Shares") for 2,000,000 shares of Westlake, representing
all of the outstanding common shares and preferred shares of Westlake (the
"Westlake Shares"). The GONT Shares shall be issued and delivered to the
Shareholders of Westlake as set forth in Exhibit "A" hereto.
2. THE CLOSING.
2.1 Place and Time. The closing of the sale and exchange of the GONT Shares
for the Westlake Shares (the "Closing") shall take place at Cutler Law Group,
610 Newport Center Drive, Suite 800, Newport Beach, CA 92660 no later than the
close of business (Orange County California time) on January 10, 2000 or at such
other place, date and time as the parties may agree in writing.
2.2 Deliveries by Westlake. At the Closing, Westlake shall deliver the
following to GONT:
1. Certificates representing the Westlake Shares, duly endorsed for transfer
to GONT and accompanied by appropriate medallion guaranteed stock powers;
Westlake shall immediately change those certificates for, and to deliver to GONT
at the Closing, a certificate representing the Westlake Shares registered in the
name of GONT (without any legend or other reference to any Encumbrance other
than appropriate federal securities law limitations).
1.
1
<PAGE>
2. The documents contemplated by Section 3.
3. All other documents, instruments and writings required by this Agreement
to be delivered by Westlake at the Closing and any other documents or records
relating to Westlake's business reasonably requested by GONT in connection with
this Agreement.
2.3 Deliveries by GONT. At the Closing, GONT shall deliver the following to
Westlake:
a The GONT Shares for further delivery to the Westlake shareholders as
contemplated by section 1.
2. The documents contemplated by Section 4.
3. All other documents, instruments and writings required by this Agreement
to be delivered by GONT at the Closing.
3. CONDITIONS TO GONT'S OBLIGATIONS.
The obligations of GONT to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by GONT:
3.1 No Injunction. There shall not be in effect any injunction, order or
decree of a court of competent jurisdiction that prevents the consummation of
the transactions contemplated by this Agreement, that prohibits GONT's
acquisition of the Westlake Shares or the GONT Shares or that will require any
divestiture as a result of GONT's acquisition of the Westlake Shares or that
will require all or any part of the business of GONT to be held separate and no
litigation or proceedings seeking the issuance of such an injunction, order or
decree or seeking to impose substantial penalties on GONT or Westlake if this
Agreement is consummated shall be pending.
2
<PAGE>
3.2 Representations, Warranties and Agreements. (a) The representations and
warranties of Westlake set forth in this Agreement shall be true and complete in
all material respects as of the Closing Date as though made at such time, (b)
Westlake shall have performed and complied in all material respects with the
agreements contained in this Agreement required to be performed and complied
with by it at or prior to the Closing and (c) GONT shall have received a
certificate to that effect signed by an authorized representative of Westlake.
3.3 Regulatory Approvals. All licenses, authorizations, consents, orders
and regulatory approvals of Governmental Bodies necessary for the consummation
of GONT's acquisition of the Westlake Shares shall have been obtained and shall
be in full force and effect.
3.4 Resignations of Director. All directors of Westlake whose resignations
shall have been requested by GONT shall have submitted their resignations or
been removed effective as of the Closing Date.
4. CONDITIONS TO WESTLAKE'S OBLIGATIONS.
The obligations of Westlake to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Westlake:
4.1 No Injunction. There shall not be in effect any injunction, order or
decree of a court of competent jurisdiction that prevents the consummation of
the transactions contemplated by this Agreement, that prohibits GONT's
acquisition of the Westlake Shares or Westlake's acquisition of the GONT Shares
or that will require any divestiture as a result of GONT's acquisition of the
Shares or Westlake's acquisition of the GONT Shares or that will require all or
any part of the business of GONT or Westlake to be held separate and no
litigation or proceedings seeking the issuance of such an injunction, order or
decree or seeking to impose substantial penalties on GONT or Westlake if this
Agreement is consummated shall be pending.
4.2 Representations, Warranties and Agreements. (a) The representations and
warranties of GONT set forth in this Agreement shall be true and complete in all
material respects as of the Closing Date as though made at such time, (b) GONT
shall have performed and complied in all material respects with the agreements
contained in this Agreement required to be performed and complied with by it at
or prior to the Closing and (c) Westlake shall have received a certificate to
that effect signed by an authorized representative of GONT.
3
<PAGE>
4.3 Regulatory Approvals. All licenses, authorizations, consents, orders
and regulatory approvals of Governmental Bodies necessary for the consummation
of GONT's acquisition of the Westlake Shares and Westlake's acquisition of the
GONT Shares shall have been obtained and shall be in full force and effect.
5. REPRESENTATIONS AND WARRANTIES OF WESTLAKE.
Westlake represents and warrants to GONT that, to the Knowledge of Westlake
(which limitation shall not apply to Section 5.3), and except as set forth in
the Westlake Disclosure Letter:
5.1 Organization of Westlake; Authorization. Westlake is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Colorado with full corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
corporate action of Westlake and this Agreement constitutes a valid and binding
obligation of Westlake; enforceable against it in accordance with its terms.
5.2 Capitalization. The authorized capital stock of Westlake consists of
105,000,000 authorized shares, consisting of 100,000,000 common stock, no par
value, and 5,000,000 preferred shares, no par value, of which 2,000,000 common
shares and no preferred shares are presently issued and outstanding. No shares
have been registered under state or federal securities laws. As of the Closing
Date, all of the issued and outstanding shares of common stock of Westlake are
validly issued, fully paid and non-assessable. As of the Closing Date there
will not be outstanding any warrants, options or other agreements on the part of
Westlake obligating Westlake to issue any additional shares of common or
preferred stock or any of its securities of any kind. Except as otherwise set
forth herein, Westlake will not issue any shares of capital stock from the date
of this Agreement through the Closing Date.
5.3 No Conflict as to Westlake. Neither the execution and delivery of this
Agreement nor the consummation of the sale of the Westlake Shares to GONT will
(a) violate any provision of the certificate of incorporation or by-laws of
Westlake or (b) violate, be in conflict with, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under any agreement to which Westlake is a party or (c) violate any statute or
law or any judgment, decree, order, regulation or rule of any court or other
Governmental Body applicable to Westlake.
4
<PAGE>
5.4 Ownership of Westlake Shares. The delivery of certificates to GONT
provided in Section 2.2 will result in GONT's immediate acquisition of record
and beneficial ownership of the Westlake Shares, free and clear of all
Encumbrances subject to applicable State and Federal securities laws. There are
no outstanding options, rights, conversion rights, agreements or commitments of
any kind relating to the issuance, sale or transfer of any Equity Securities or
other securities of Westlake.
5.5 No Conflict as to Westlake and Subsidiaries. Neither the execution and
delivery of this Agreement nor the consummation of the sale of the Westlake
Shares to GONT will (a) violate any provision of the certificate of
incorporation or by-laws (or other governing instrument) of Westlake or any of
its Subsidiaries or (b) violate, or be in conflict with, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or excuse performance by any Person of any of its obligations
under, or cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any Encumbrance upon any
property or assets of Westlake or any of its Subsidiaries under, any material
agreement or commitment to which Westlake or any of its Subsidiaries is a party
or by which any of their respective property or assets is bound, or to which any
of the property or assets of Westlake or any of its Subsidiaries is subject, or
(c) violate any statute or law or any judgment, decree, order, regulation or
rule of any court or other Governmental Body applicable to Westlake or any of
its Subsidiaries except, in the case of violations, conflicts, defaults,
terminations, accelerations or Encumbrances described in clause (b) of this
Section 5.5, for such matters which are not likely to have a material adverse
effect on the business or financial condition of Westlake and its Subsidiaries,
taken as a whole.
5.6 Consents and Approvals of Governmental Authorities. Except with respect
to applicable State and Federal securities laws, no consent, approval or
authorization of, or declaration, filing or registration with, any Governmental
Body is required to be made or obtained by Westlake or GONT or any of its
Subsidiaries in connection with the execution, delivery and performance of this
Agreement by Westlake or the consummation of the sale of the Westlake Shares to
GONT.
5
<PAGE>
5.7 Other Consents. No consent of any Person is required to be obtained by
Westlake or GONT to the execution, delivery and performance of this Agreement or
the consummation of the sale of the Westlake Shares to GONT, including, but not
limited to, consents from parties to leases or other agreements or commitments,
except for any consent which the failure to obtain would not be likely to have a
material adverse effect on the business and financial condition of Westlake or
GONT.
5.8 Financial Statements. Westlake has delivered to GONT consolidated
balance sheets of Westlake and its Subsidiaries as at December 31, 1998 and
September 30, 1999, and statements of income and changes in financial position
for the period from inception to the period then ended, together with the report
thereon of Westlake's independent accountant (the "Westlake Financial
Statements"). Such Westlake Financial Statements are internally prepared and
unaudited but fairly present the consolidated financial condition and results of
operations of Westlake and its Subsidiaries as at the respective dates thereof
and for the periods therein referred to, all in accordance with generally
accepted United States accounting principles consistently applied throughout the
periods involved, except as set forth in the notes thereto.
6
<PAGE>
5.9 Title to Properties. Either Westlake or one of its Subsidiaries owns
all the material properties and assets that they purport to own (real, personal
and mixed, tangible and intangible), including, without limitation, all the
material properties and assets reflected in the Westlake Financial Statements,
and all the material properties and assets purchased or otherwise acquired by
Westlake or any of its Subsidiaries since the date of the Westlake Financial
Statements. All properties and assets reflected in the Westlake Financial
Statements are free and clear of all material Encumbrances and are not, in the
case of real property, subject to any material rights of way, building use
restrictions, exceptions, variances, reservations or limitations of any nature
whatsoever except, with respect to all such properties and assets, (a) mortgages
or security interests shown on the Westlake Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or event
which, with notice or lapse of time or both, would constitute a default) exists,
and all of which are listed in the Westlake Disclosure Letter, (b) mortgages or
security interests incurred in connection with the purchase of property or
assets after the date of the Westlake Financial Statements (such mortgages and
security interests being limited to the property or assets so acquired), with
respect to which no default (or event which, with notice or lapse of time or
both, would constitute a default) exists, (c) as to real property, (i)
imperfections of title, if any, none of which materially detracts from the value
or impairs the use of the property subject thereto, or impairs the operations of
Westlake or any of its Subsidiaries and (ii) zoning laws that do not impair the
present or anticipated use of the property subject thereto, and (d) liens for
current taxes not yet due. The properties and assets of Westlake and its
Subsidiaries include all rights, properties and other assets necessary to permit
Westlake and its Subsidiaries to conduct Westlake's business in all material
respects in the same manner as it is conducted on the date of this Agreement.
5.10 Buildings, Plants and Equipment. The buildings, plants, structures and
material items of equipment and other personal property owned or leased by
Westlake or its Subsidiaries are, in all respects material to the business or
financial condition of Westlake and its Subsidiaries, taken as a whole, in good
operating condition and repair (ordinary wear and tear excepted) and are
adequate in all such respects for the purposes for which they are being used.
Westlake has not received notification that it or any of its Subsidiaries is in
violation of any applicable building, zoning, anti-pollution, health, safety or
other law, ordinance or regulation in respect of its buildings, plants or
structures or their operations, which violation is likely to have a material
adverse effect on the business or financial condition of Westlake and its
Subsidiaries, taken as a whole or which would require a payment by Westlake or
GONT or any of their subsidiaries in excess of $2,000 in the aggregate, and
which has not been cured.
5.11 No Condemnation or Expropriation. Neither the whole nor any portion of
the property or leaseholds owned or held by Westlake or any of its Subsidiaries
is subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any Governmental Body or other Person with or
without payment of compensation therefor, which action is likely to have a
material adverse effect on the business or financial condition of GONT and its
Subsidiaries, taken as a whole.
5.12 Litigation. There is no action, suit, inquiry, proceeding or
investigation by or before any court or Governmental Body pending or threatened
in writing against or involving Westlake or any of its Subsidiaries which is
likely to have a material adverse effect on the business or financial condition
of Westlake, GONT and any of their Subsidiaries, taken as whole, or which would
require a payment by Westlake or its subsidiaries in excess of $2,000 in the
aggregate or which questions or challenges the validity of this Agreement.
Neither Westlake nor any or its Subsidiaries is subject to any judgment, order
or decree that is likely to have a material adverse effect on the business or
financial condition of Westlake, GONT or any of their Subsidiaries, taken as a
whole, or which would require a payment by Westlake or its subsidiaries in
excess of $2,000 in the aggregate.
7
<PAGE>
5.13 Absence of Certain Changes. Since the date of the Westlake Financial
Statements, neither Westlake nor any of its Subsidiaries has:
1. suffered the damage or destruction of any of its properties or assets
(whether or not covered by insurance) which is materially adverse to the
business or financial condition of Westlake and its Subsidiaries, taken as a
whole, or made any disposition of any of its material properties or assets other
than in the ordinary course of business;
2. made any change or amendment in its certificate of incorporation or
by-laws, or other governing instruments;
3. issued or sold any Equity Securities or other securities, acquired,
directly or indirectly, by redemption or otherwise, any such Equity Securities,
reclassified, split-up or otherwise changed any such Equity Security, or granted
or entered into any options, warrants, calls or commitments of any kind with
respect thereto;
4. organized any new Subsidiary or acquired any Equity Securities of any
Person or any equity or ownership interest in any business;
5. borrowed any funds or incurred, or assumed or become subject to, whether
directly or by way of guarantee or otherwise, any obligation or liability with
respect to any such indebtedness for borrowed money;
6. paid, discharged or satisfied any material claim, liability or obligation
(absolute, accrued, contingent or otherwise), other than in the ordinary course
of business;
7. prepaid any material obligation having a maturity of more than 90 days
from the date such obligation was issued or incurred;
8. canceled any material debts or waived any material claims or rights,
except in the ordinary course of business;
9. disposed of or permitted to lapse any rights to the use of any material
patent or registered trademark or copyright or other intellectual property owned
or used by it;
8
<PAGE>
10. granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any employee benefit plan);
11. purchased or entered into any contract or commitment to purchase any
material quantity of raw materials or supplies, or sold or entered into any
contract or commitment to sell any material quantity of property or assets,
except (i) normal contracts or commitments for the purchase of, and normal
purchases of, raw materials or supplies, made in the ordinary course business,
(ii) normal contracts or commitments for the sale of, and normal sales of,
inventory in the ordinary course of business, and (iii) other contracts,
commitments, purchases or sales in the ordinary course of business;
12. made any capital expenditures or additions to property, plant or
equipment or acquired any other property or assets (other than raw materials and
supplies) at a cost in excess of $100,000 in the aggregate;
13. written off or been required to write off any notes or accounts
receivable in an aggregate amount in excess of $2,000;
14. written down or been required to write down any inventory in an
aggregate amount in excess of $ 2,000;
15. entered into any collective bargaining or union contract or agreement;
or
16. other than the ordinary course of business, incurred any liability
required by generally accepted accounting principles to be reflected on a
balance sheet and material to the business or financial condition of Westlake
and its subsidiaries taken as a whole.
5.14 No Material Adverse Change. Since the date of the Westlake Financial
Statements, there has not been any material adverse change in the business or
financial condition of Westlake and its Subsidiaries taken as a whole, other
than changes resulting from economic conditions prevailing in the United States
precious coins, collectibles and metals industry.
5.15 Contracts and Commitments. Neither Westlake nor any of its Subsidiaries
is a party to any:
9
<PAGE>
1. Contract or agreement (other than purchase or sales orders entered into
in the ordinary course of business) involving any liability on the part of
Westlake or one of its Subsidiaries of more than $25,000 and not cancelable by
Westlake or the relevant Subsidiary (without liability to Westlake or such
Subsidiary) within 60 days;
2. Except with respect to the lease on its business location, lease of
personal property involving annual rental payments in excess of $25,000 and not
cancelable by Westlake or the relevant Subsidiary (without liability to Westlake
or such Subsidiary) within 90 days;
3. Except with respect to the options referenced above, Employee bonus,
stock option or stock purchase, performance unit, profit-sharing, pension,
savings, retirement, health, deferred or incentive compensation, insurance or
other material employee benefit plan (as defined in Section 2(3) of ERISA) or
program for any of the employees, former employees or retired employees of
Westlake or any of its Subsidiaries;
4. Commitment, contract or agreement that is currently expected by the
management of Westlake to result in any material loss upon completion or
performance thereof;
5. Contract, agreement or commitment that is material to the business of
Westlake and its Subsidiaries, taken as a whole, with any officer, employee,
agent, consultant, advisor, salesman, sales representative, value added
reseller, distributor or dealer; or
6. Employment agreement or other similar agreement that contains any
severance or termination pay, liabilities or obligations.
All such contracts and agreements are in full force and effect. Neither Westlake
nor any or its Subsidiaries is in breach of, in violation of or in default
under, any agreement, instrument, indenture, deed of trust, commitment, contract
or other obligation of any type to which Westlake or any of its Subsidiaries is
a party or is or may be bound that relates to the business of Westlake or any
of its Subsidiaries or to which any of the assets or properties of Westlake or
any of its Subsidiaries is subject, the effect of which breach, violation or
default is likely to materially and adversely affect the business or financial
condition of Westlake and its Subsidiaries, taken as a whole. GONT has not
guaranteed or assumed and specifically does not guarantee or assume any
obligations of Westlake or any of its Subsidiaries.
10
<PAGE>
5.16 Labor Relations. Neither Westlake nor any of its Subsidiaries is a
party to any collective bargaining agreement. Except for any matter which is not
likely to have a material adverse effect on the business or financial condition
of Westlake and its Subsidiaries, taken as a whole, (a) Westlake and each of its
Subsidiaries is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice, (b) there is no unfair labor
practice complaint against Westlake or any of its Subsidiaries pending before
the National Labor Relations Board, (c) there is no labor strike, dispute,
slowdown or stoppage actually pending or threatened against Westlake or any of
its Subsidiaries, (d) no representation question exists respecting the employees
of Westlake or any of its Subsidiaries, (e) neither Westlake nor any of its
Subsidiaries has experienced any strike, work stoppage or other labor
difficulty, and (f) no collective bargaining agreement relating to employees of
Westlake or any of its Subsidiaries is currently being negotiated.
5.17 Employee Benefit Plans. No material employee pension and welfare
benefit plans covering employees of Westlake is (1) a multi-employer plan as
defined in Section 3(37) of ERISA, or (2) a defined benefit plan as defined in
Section 3(35) of ERISA, any listed individual account pension plan is duly
qualified as tax exempt under the applicable sections of the Code, each listed
benefit plan and related funding arrangement, if any, has been maintained in all
material respects in compliance with its terms and the provisions of ERISA and
the Code.
5.18 Compliance with Law. The operations of Westlake and its Subsidiaries
have been conducted in accordance with all applicable laws and regulations of
all Governmental Bodies having jurisdiction over them, except for violations
thereof which are not likely to have a material adverse effect on the business
or financial condition of Westlake and its Subsidiaries, taken as a whole, or
which would not require a payment by Westlake or its Subsidiaries in excess of
$2,000 in the aggregate, or which have been cured. Neither Westlake nor any of
its Subsidiaries has received any notification of any asserted present or past
failure by it to comply with any such applicable laws or regulations. Westlake
and its Subsidiaries have all material licenses, permits, orders or approvals
from the Governmental Bodies required for the conduct of their businesses, and
are not in material violation of any such licenses, permits, orders and
approvals. All such licenses, permits, orders and approvals are in full force
and effect, and no suspension or cancellation of any thereof has been
threatened.
11
<PAGE>
5.19 Tax Matters.
1. Westlake and each of its Subsidiaries (1) has filed all nonconsolidated
and noncombined Tax Returns and all consolidated or combined Tax Returns that
include only Westlake and/or its Subsidiaries and not Seller or its other
Affiliates (for the purposes of this Section 5.19, such tax Returns shall be
considered nonconsolidated and noncombined Tax Returns) required to be filed
through the date hereof and has paid any Tax due through the date hereof with
respect to the time periods covered by such nonconsolidated and noncombined Tax
Returns and shall timely pay any such Taxes required to be paid by it after the
date hereof with respect to such Tax Returns and (2) shall prepare and timely
file all such nonconsolidated and noncombined Tax Returns required to be filed
after the date hereof and through the Closing Date and pay all Taxes required to
be paid by it with respect to the periods covered by such Tax Returns; (B) all
such Tax Returns filed pursuant to clause (A) after the date hereof shall, in
each case, be prepared and filed in a manner consistent in all material respects
(including elections and accounting methods and conventions) with such Tax
Return most recently filed in the relevant jurisdiction prior to the date
hereof, except as otherwise required by law or regulation. Any such Tax Return
filed or required to be filed after the date hereof shall not reflect any new
elections or the adoption of any new accounting methods or conventions or other
similar items, except to the extent such particular reflection or adoption is
required to comply with any law or regulation.
12
<PAGE>
2. All consolidated or combined Tax Returns (except those described in
subparagraph (a) above) required to be filed by any person through the date
hereof that are required or permitted to include the income, or reflect the
activities, operations and transactions, of Westlake or any of its Subsidiaries
for any taxable period have been timely filed, and the income, activities,
operations and transactions of Westlake and Subsidiaries have been properly
included and reflected thereon. Westlake shall prepare and file, or cause to be
prepared and filed, all such consolidated or combined Tax Returns that are
required or permitted to include the income, or reflect the activities,
operations and transactions, of Westlake or any Subsidiary, with respect to any
taxable year or the portion thereof ending on or prior to the Closing Date,
including, without limitation, Westlake's consolidated federal income tax return
for such taxable years. Westlake will timely file a consolidated federal income
tax return for the taxable year ended December 31, 1998 and such return shall
include and reflect the income, activities, operations and transactions of
Westlake and Subsidiaries for the taxable period then ended, and hereby
expressly covenants and agrees to file a consolidated federal income tax return,
and to include and reflect thereon the income, activities, operations and
transactions of Westlake and Subsidiaries for the taxable period through the
Closing Date. All Tax Returns filed pursuant to this subparagraph (b) after the
date hereof shall, in each case, to the extent that such Tax Returns
specifically relate to Westlake or any of its Subsidiaries and do not generally
relate to matters affecting other members of Westlake's consolidated group, be
prepared and filed in a manner consistent in all material respects (including
elections and accounting methods and conventions) with the Tax Return most
recently filed in the relevant jurisdictions prior to the date hereof, except as
otherwise required by law or regulation. Westlake has paid or will pay all
Taxes that may now or hereafter be due with respect to the taxable periods
covered by such consolidated or combined Tax Returns.
3. Neither Westlake nor any of its Subsidiaries has agreed, or is required,
to make any adjustment (x) under Section 481(a) of the Code by reason of a
change in accounting method or otherwise or (y) pursuant to any provision of the
Tax Reform Act of 1986, the Revenue Act of 1987 or the Technical and
Miscellaneous Revenue Act of 1988.
4. Neither Westlake nor any of its Subsidiaries or any predecessor or
Affiliate of the foregoing has, at any time, filed a consent under Section
341(f)(1) of the Code, or agreed under Section 341(f)(3) of the Code, to have
the provisions of Section 341(f)(2) of the Code apply to any sale of its stock.
5. There is no (nor has there been any request for an) agreement, waiver or
consent providing for an extension of time with respect to the assessment of any
Taxes attributable to Westlake or its Subsidiaries, or their assets or
operations and no power of attorney granted by Westlake or any of its
Subsidiaries with respect to any Tax matter is currently in force.
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6. There is no action, suit, proceeding, investigation, audit, claim,
demand, deficiency or additional assessment in progress, pending or threatened
against or with respect to any Tax attributable to Westlake, its Subsidiaries or
their assets or operations.
7. All amounts required to be withheld as of the Closing Date for Taxes or
otherwise have been withheld and paid when due to the appropriate agency or
authority.
8. No property of Westlake is "tax-exempt use property " within the meaning
of Section 168(h) of the Code nor property that Westlake and/or its Subsidiaries
will be required to treat as being owned by another person pursuant to Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986.
9. There have been delivered or made available to GONT true and complete
copies of all income Tax Returns (or with respect to consolidated or combined
returns, the portion thereof) and any other Tax Returns requested by GONT as may
be relevant to Westlake, its Subsidiaries, or their assets or operations for any
and all periods ending after December 31, 1998, or for any Tax years which are
subject to audit or investigation by any taxing authority or entity.
10. There is no contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of Westlake or its Subsidiaries that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to Section 280G or 162 of the Code.
5.20 Environmental Matters.
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1. At all times prior to the date hereof, Westlake and its Subsidiaries have
complied in all material respects with applicable environmental laws, orders,
regulations, rules and ordinances relating to the Properties (as hereinafter
defined), the violation of which would have a material adverse effect on the
business or financial condition of Westlake and its Subsidiaries, taken as a
whole, or which would require a payment by Westlake or its Subsidiaries in
excess of $2,000 in the aggregate, and which have been duly adopted, imposed or
promulgated by any legislative, executive, administrative or judicial body or
officer of any Governmental Body.
2. The environmental licenses, permits and authorizations that are material
to the operations of Westlake and its Subsidiaries, taken as a whole, are in
full force and effect.
3. Neither Westlake nor any of its Subsidiaries has released or caused to
be released on or about the properties currently owned or leased by Westlake or
any of its Subsidiaries (the "Properties") any (i) pollutants, (ii)
contaminants, (iii) "Hazardous Substances," as that term is defined in Section
101(14) of the Comprehensive Environmental Response Act, as amended or (iv)
"Regulated Substances," as that term in defined in Section 9001 of the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended,
which would be required to be remediated by any governmental agency with
jurisdiction over the Properties under the authority of laws, regulations and
ordinances as in effect and currently interpreted on the date hereof, which
remediation would have a material adverse effect on the business or financial
condition of Westlake and its Subsidiaries, taken as a whole.
5.21 Brokers or Finders. Other than Terry Siebelt, Westlake has not employed
any broker or finder or incurred any liability for any brokerage or finder's
fees or commissions or similar payments in connection with the sale of the
Westlake Shares to GONT.
5.22 Absence of Certain Commercial Practices. Neither Westlake nor any of
its Subsidiaries has, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, government official or other party, in the United States or
any other country, which is in any manner related to the business or operations
of Westlake or its Subsidiaries, which Westlake or one of its Subsidiaries
knows or has reason to believe to have been illegal under any federal, state or
local laws of the United States or any other country having jurisdiction; and
neither Westlake nor any of its Subsidiaries has participated, directly or
indirectly, in any boycotts or other similar practices affecting any of its
actual or potential customers in violation of any applicable law or regulation.
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5.23 Transactions with Directors and Officers. Westlake and its
Subsidiaries do not engage in business with any Person in which any of
Westlake's directors or officers has a material equity interest. No director or
officer of Westlake owns any property, asset or right which is material to the
business of Westlake and its Subsidiaries, taken as a whole.
5.24 Borrowing and Guarantees. Westlake and its Subsidiaries (a) do not have
any indebtedness for borrowed money, (b) are not lending or committed to lend
any money (except for advances to employees in the ordinary course of business),
and (c) are not guarantors or sureties with respect to the obligations of any
Person.
6. REPRESENTATIONS AND WARRANTIES OF GONT.
GONT represents and warrants to Westlake that, to the Knowledge of GONT (which
limitation shall not apply to Section 6.3), and except as set forth in the GONT
Disclosure Letter:
6.1 Organization of GONT; Authorization. GONT is a corporation duly
organized, validly existing and in good standing under the laws of Delaware with
full corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action of
GONT and this Agreement constitutes a valid and binding obligation of GONT;
enforceable against it in accordance with its terms.
6.2 Capitalization. The authorized capital stock of GONT consists of
100,000,000 shares of common stock, par value $.001 per share, and 10,000,000
shares of preferred stock, par value $.001 per share. As of October 1, 1999,
GONT had 70,052,677 shares of common stock issued and outstanding and 499,333
shares of Series A Preferred Stock issued and outstanding. As of the Closing
Date, all of the issued and outstanding shares of common stock of GONT are
validly issued, fully paid and non-assessable. The Common Stock of GONT is
presently listed and trading on the Nasdaq Over-the-Counter Bulletin Board under
the symbol "GONT."
6.3 Ownership of GONT Shares. The delivery of certificates to Westlake
provided in Section 2.3 will result in the Shareholders' of Westlake immediate
acquisition of record and beneficial ownership of the GONT Shares, free and
clear of all Encumbrances other than as required by Federal and State securities
laws.
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6.4 No Conflict as to GONT and Subsidiaries. Neither the execution and
delivery of this Agreement nor the consummation of the sale of the GONT Shares
to Westlake will (a) violate any provision of the certificate of incorporation
or by-laws (or other governing instrument) of GONT or any of its Subsidiaries
or (b) violate, or be in conflict with, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
excuse performance by any Person of any of its obligations under, or cause the
acceleration of the maturity of any debt or obligation pursuant to, or result in
the creation or imposition of any Encumbrance upon any property or assets of
GONT or any of its Subsidiaries under, any material agreement or commitment to
which GONT or any of its Subsidiaries is a party or by which any of their
respective property or assets is bound, or to which any of the property or
assets of GONT or any of its Subsidiaries is subject, or (c) violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or other Governmental Body applicable to GONT or any of its Subsidiaries except,
in the case of violations, conflicts, defaults, terminations, accelerations or
Encumbrances described in clause (b) of this Section 6.4, for such matters which
are not likely to have a material adverse effect on the business or financial
condition of GONT and its Subsidiaries, taken as a whole.
6.5 Consents and Approvals of Governmental Authorities. No consent, approval
or authorization of, or declaration, filing or registration with, any
Governmental Body is required to be made or obtained by GONT or Westlake or any
of either of their Subsidiaries in connection with the execution, delivery and
performance of this Agreement by GONT or the consummation of the sale of the
GONT Shares to Westlake.
6.6 Other Consents. No consent of any Person is required to be obtained by
Westlake or GONT to the execution, delivery and performance of this Agreement or
the consummation of the sale of the GONT Shares to Westlake, including, but not
limited to, consents from parties to leases or other agreements or commitments,
except for any consent which the failure to obtain would not be likely to have a
material adverse effect on the business and financial condition of Westlake or
GONT.
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6.7 Financial Statements. GONT has delivered to Westlake consolidated
balance sheets of GONT and its Subsidiaries as at December 31, 1998 and
September 30, 1999, and statements of income and changes in financial position
for each of the years in the two-year period then ended, together with the
report thereon of GONT's independent accountant (the "GONT Financial
Statements"). Such GONT Financial Statements and notes fairly present the
consolidated financial condition and results of operations of GONT and its
Subsidiaries as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United States accounting
principles consistently applied throughout the periods involved, except as set
forth in the notes thereto, and shall be utilizable in any SEC filing in
compliance with Rule 310 of Regulation S-B promulgated under the Securities Act.
6.8 Brokers or Finders. GONT has not employed any broker or finder or
incurred any liability for any brokerage or finder's fees or commissions or
similar payments in connection with the sale of the GONT Shares to Westlake.
6.9 Purchase for Investment. GONT is purchasing the Westlake Shares solely
for its own account for the purpose of investment and not with a view to, or for
sale in connection with, any distribution of any portion thereof in violation of
any applicable securities law.
7. Access and Reporting; Filings With Governmental Authorities; Other
Covenants.
7.1 Access Between the date of this Agreement and the Closing Date. Each of
Westlake and GONT shall (a) give to the other and its authorized representatives
reasonable access to all plants, offices, warehouse and other facilities and
properties of Westlake or GONT, as the case may be, and to its books and
records, (b) permit the other to make inspections thereof, and (c) cause its
officers and its advisors to furnish the other with such financial and operating
data and other information with respect to the business and properties of such
party and its Subsidiaries and to discuss with such and its authorized
representatives its affairs and those of its Subsidiaries, all as the other may
from time to time reasonably request.
7.3 Exclusivity. From the date hereof until the earlier of the Closing or
the termination of this Agreement, Westlake shall not solicit or negotiate or
enter into any agreement with any other Person with respect to or in furtherance
of any proposal for a merger or business combination involving, or acquisition
of any interest in, or (except in the ordinary course of business) sale of
assets by, Westlake, except for the exchange of the GONT Shares for the Westlake
Shares from Westlake's shareholders.
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7.4 Regulatory Matters. Westlake and GONT shall (a) file with applicable
regulatory authorities any applications and related documents required to be
filed by them in order to consummate the contemplated transaction and (b)
cooperate with each other as they may reasonably request in connection with the
foregoing.
8. CONDUCT OF WESTLAKE'S BUSINESS PRIOR TO THE CLOSING.
8.1 Operation in Ordinary Course. Between the date of this Agreement and the
Closing Date, Westlake shall cause conduct its businesses in all material
respects in the ordinary course.
8.2 Business Organization. Between the date of this Agreement and the
Closing Date, Westlake shall (a) preserve substantially intact the business
organization of Westlake; and (b) preserve in all material respects the present
business relationships and good will of Westlake and each of its Subsidiaries.
8.3 Corporate Organization. Between the date of this Agreement and the
Closing Date, Westlake shall not cause or permit any amendment of its
certificate of incorporation or by-laws (or other governing instrument) and
shall not:
1. issue, sell or otherwise dispose of any of its Equity Securities, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its Equity Securities;
2. create or suffer to be created any Encumbrance thereon, or create, sell
or otherwise dispose of any options, rights, conversion rights or other
agreements or commitments of any kind relating to the sale or disposition of any
Equity Securities;
3. reclassify, split up or otherwise change any of its Equity Securities;
4. be party to any merger, consolidation or other business combination;
5. sell, lease, license or otherwise dispose of any of its properties or
assets (including, but not limited to rights with respect to patents and
registered trademarks and copyrights or other proprietary rights), in an amount
which is material to the business or financial condition of Westlake and its
Subsidiaries, taken as a whole, except in the ordinary course of business; or
6. organize any new Subsidiary or acquire any Equity Securities of any
Person or any equity or ownership interest in any business.
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8.4 Other Restrictions. Between the date of this Agreement and the Closing
Date, Westlake shall not:
1. borrow any funds or otherwise become subject to, whether directly or by
way of guarantee or otherwise, any indebtedness for borrowed money;
2. create any material Encumbrance on any of its material properties or
assets;
3. increase in any manner the compensation of any director or officer or
increase in any manner the compensation of any class of employees;
4. create or materially modify any material bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
5. make any capital expenditure or acquire any property or assets;
6. enter into any agreement that materially restricts GONT, Westlake or any
of their Subsidiaries from carrying on business;
7. pay, discharge or satisfy any material claim, liability or obligation,
absolute, accrued, contingent or otherwise, other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities or obligations
reflected in the Westlake Financial Statements or incurred in the ordinary
course of business and consistent with past practice since the date of the
Westlake Financial Statements; or
8. cancel any material debts or waive any material claims or rights.
9. DEFINITIONS.
As used in this Agreement, the following terms have the meanings specified or
referred to in this Section 9.
9.1 "Business Day" C Any day that is not a Saturday or Sunday or a day
on which banks located in the City of New York are authorized or required to be
closed.
9.2 "Code" C The Internal Revenue Code of 1986, as amended.
9.3 "Encumbrances" C Any security interest, mortgage, lien, charge, adverse
claim or restriction of any kind, including, but not limited to, any restriction
on the use, voting, transfer, receipt of income or other exercise of any
attributes of ownership, other than a restriction on transfer arising under
Federal or state securities laws.
9.4 "Equity Securities" C See Rule 3aB11B1 under the Securities Exchange Act
of 1934.
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9.5 "ERISA" C The Employee Retirement Income Security Act of 1974, as
amended.
9.6 "Governmental Body" C Any domestic or foreign national, state or
municipal or other local government or multi-national body (including, but not
limited to, the European Economic Community), any subdivision, agency,
commission or authority thereof.
9.7 "Knowledge" C Actual knowledge, after reasonable investigation.
9.8 "Person" C Any individual, corporation, partnership, joint venture,
trust, association, unincorporated organization, other entity, or Governmental
Body.
9.9 "Subsidiary" C With respect to any Person, any corporation of which
securities having the power to elect a majority of that corporation's Board of
Directors (other than securities having that power only upon the happening of a
contingency that has not occurred) are held by such Person or one or more of its
Subsidiaries.
10. TERMINATION.
10.1 Termination. This Agreement may be terminated before the Closing
occurs only as follows:
1. By written agreement of Westlake and GONT at any time.
2. By GONT, by notice to Westlake at any time, if one or more of the
conditions specified in Section 4 is not satisfied at the time at which the
Closing (as it may be deferred pursuant to Section 2.1) would otherwise occur or
if satisfaction of such a condition is or becomes impossible.
3. By Westlake, by notice to GONT at any time, if one or more of the
conditions specified in Section 3 is not satisfied at the time at which the
Closing (as it may be deferred pursuant to Section 2.1), would otherwise occur
of if satisfaction of such a condition is or becomes impossible.
4. By either Westlake or GONT, by notice to the other at any time after
January 31, 2000.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 10.1, this Agreement shall terminate without any liability or further
obligation of any party to another.
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13. NOTICES. All notices, consents, assignments and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when (a) delivered by hand, (b) sent by telex or facsimile (with receipt
confirmed), provided that a copy is mailed by registered mail, return receipt
requested, or (c) received by the delivery service (receipt requested), in each
case to the appropriate addresses, telex numbers and facsimile numbers set forth
below (or to such other addresses, telex numbers and facsimile numbers as a
party may designate as to itself by notice to the other parties).
(a) If to GONT:
5681 Beach Blvd., Suite 101/100
Buena Park, CA 90621
Facsimile No.: (714) 736-9488
Attention: Joseph M. Naughton
Copy to:
Cutler Law Group
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Facsimile No.: (949) 719-1988
Attention: M. Richard Cutler, Esq.
(b) If to Westlake:
5770 South Beech Court
Greenwood Village, CO 80121
Facsimile No.: (303) 893-2882
Attention: Timothy J. Brasel
14. MISCELLANEOUS.
14.2 Expenses. Each party shall bear its own expenses incident to the
preparation, negotiation, execution and delivery of this Agreement and the
performance of its obligations hereunder.
14.3 Captions. The captions in this Agreement are for convenience of
reference only and shall not be given any effect in the interpretation of this
agreement.
14.4 No Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
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14.5 Exclusive Agreement; Amendment. This Agreement supersedes all
prior agreements among the parties with respect to its subject matter with
respect thereto and cannot be changed or terminated orally.
14.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
14.7 Governing Law. This Agreement and (unless otherwise provided) all
amendments hereof and waivers and consents hereunder shall be governed by the
internal law of the State of California, without regard to the conflicts of law
principles thereof.
14.8 Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns,
provided that neither party may assign its rights hereunder without the consent
of the other, provided that, after the Closing, no consent of Westlake shall be
needed in connection with any merger or consolidation of GONT with or into
another entity.
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IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement
to be executed by their respective offi-cers, hereunto duly authorized, and
entered into as of the date first above written.
ATTEST: GO ONLINE NETWORKS CORPORATION
A DELAWARE CORPORATION
By: /s/ Joseph M. Naughton
Secretary Joseph M. Naughton, Chief Executive Officer
ATTEST: WESTLAKE CAPITAL CORP.
A COLORADO CORPORATION
By: /s/ JJ. Peirce
Secretary Joseph J. Peirce, President
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INDEPENDENT AUDITOR'S REPORT
To The Board of Directors of Go Online Networks Corporation
We hereby consent to the use in this Form 8-K of our report dated August 27,
1999 relating to the consolidated financial statements of Go Online Networks
Corporation (formerly Jones Naughton Entertainment, Inc.) and consolidated
subsidiaries.
__________________________________
SCHUMACHER & ASSOCIATES
/s/ Schumacher & Associates
Englewood, Colorado
January 10, 2000
