SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
COMMISSION FILE NUMBER 1-23845
GO ONLINE NETWORKS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0873993
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5681 BEACH BOULEVARD, SUITE 101/100
BUENA PARK, CALIFORNIA 90621
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (714) 736-0988
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 2000
----- ---------------------------------
Common stock, no par value 86,060,343
Transitional Small Business Disclosure Format. Yes _____ No __X__.
1
<PAGE>
GO ONLINE NETWORKS CORPORATION
INDEX
PAGE NO.
PART I Financial Information
------- ----------------------
Review Report of Independent Certified Public Accountants 3
Consolidated Balance Sheets as of September 30, 2000
(Unaudited) 4
Consolidated Statements of Operations, Three Months Ended
September 30, 2000, and September 30, 1999 (Unaudited) 5
Consolidated Statements of Operations, Nine Months Ended
September 30, 2000, and September 30, 1999 (Unaudited) 6
Consolidated Statements of Cash Flows, Nine Months Ended
September 30, 2000, and September 30, 1999 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Conditions
and Results of Operations 11
PART II Other Information
-------- ------------------
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL INFORMATION
Review Report of Independent Certified Public Accountants
Board of Directors
Go Online Networks Corporation
We have reviewed the accompanying balance sheet of Go Online Networks
Corporation, as of September 30, 2000, and the related statements of operations
for the three and nine month periods then ended and statement of cash flow for
the nine month period ended September 30, 2000 in accordance with Statements of
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of Go Online Networks Corporation.
A review of interim financial statements consists principally of inquiries of
Company personnel responsible for financial matters and analytical procedures
applied to financial data. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Miller and McCollom
Miller and McCollom, CPAs
Lakewood, Colorado
November 3, 2000
F-3
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Balance Sheet
September 30, 2000
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash and cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220,596
Accounts receivable, net of allowances for doubtful . . . . . . . . . . . . . 173,827
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,333
Prepaid expenses and other current items. . . . . . . . . . . . . . . . . . . 19,743
-------------
Total current assets 538,499
Designs and trademarks - net of accumulated amortization of $41,677. . . . . . . 8,333
Property and equipment, net of accumulated depreciation of $447,834. . . . . . . 1,015,826
Other assets - Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,775
Goodwill - net of $15,298 Note 9. . . . . . . . . . . . . . . . . . . . . . . 902,635
-------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,504,068
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . $ 557,409
Notes payable and accrued interest. . . . . . . . . . . . . . . . . . . . . . 141,848
Advances from and accrued expense to officer. . . . . . . . . . . . . . . . . 98,144
Accrued lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 41,967
Current portion of Series A Convertible Debentures. . . . . . . . . . . . . . 500,000
Advances Payable - Note 8 . . . . . . . . . . . . . . . . . . . . . . . . . . 950,000
-------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,289,368
Convertible debentures - Notes 6 and 10. . . . . . . . . . . . . . . . . . . . . 1,025,000
-------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,314,368
-------------
Commitments and Contingencies - Notes 8 and 9
Stockholders' Equity (deficit): Notes 4, 5 and 9
Series A Convertible Preferred Stock, no par value, 100,000,000 Shares
authorized, 802,333 shares issued. . . . . . . . . . . . . . . . . . . . . . 323,783
Series B. Convertible Preferred Stock, $100 par value, 2,000 shares authorized:
2,000 shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 200,000
Common stock: 100,000,000 shares authorized. 86,060,343 shares issued . . . . 9,579,694
Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . . (10,913,777)
-------------
Total stockholders' equity (deficit). . . . . . . . . . . . . . . . . . . (810,300)
-------------
Total liabilities and stockholders' equity (deficit) . . . . . . . . . . $ 2,504,068
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
September 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Three Months
ended ended
September 30, September 30,
2000 1999
--------------- ----------------
Sales and other revenues . . . . . . . . . . . . $ 436,358 $ 12,643
Less: cost of goods sold . . . . . . . . . . . 209,300 -
--------------- ----------------
Gross profit . . . . . . . . . . . . . . . . . 227,058 12,643
Expenses:
Amortization and depreciation. . . . . . . . 75,023 22,917
Rent . . . . . . . . . . . . . . . . . . . . . 23,752 27,114
Legal and professional fees. . . . . . . . . . 94,655 267,688
Contract services, salaries and payroll taxes. 562,922 83,205
Website development. . . . . . . . . . . . . . - 180,000
Compensation, officer. . . . . . . . . . . . . 24,000 24,000
Kiosk operating expense. . . . . . . . . . . . 70,490 -
Other. . . . . . . . . . . . . . . . . . . . . 145,371 290,673
--------------- ----------------
Total expenses . . . . . . . . . . . . . . . 996,213 855,597
--------------- ----------------
Net profit (loss) from operations. . . . . . . (769,155) (842,954)
Other income and expense:
Interest income. . . . . . . . . . . . . . . . 4 -
Interest expense . . . . . . . . . . . . . . . (30,354) (1,794)
Optional buyback . . . . . . . . . . . . . . . - (281,250)
Discount on convertible notes. . . . . . . . . - (188,462)
--------------- ----------------
Acquisition expense for public reporting . . . -
-
Net (loss) . . . . . . . . . . . . . . . . . . . (789,505) (1,351,381)
=============== ================
Net (loss) per common share. . . . . . . . . . . $ .01 $ .02
=============== ================
Weighted number of shares outstanding. . . . . 82,644,447 65,823,983
=============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Operations
September 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
--------------- ---------------
Sales and other revenues . . . . . . . . . . . . $ 692,839 $ 13,017
Less: cost of goods sold . . . . . . . . . . . 220,410 -
--------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . 472,429 13,017
Expenses:
Amortization and depreciation. . . . . . . . 178,975 45,455
Rent . . . . . . . . . . . . . . . . . . . . . 37,521 36,135
Legal and professional fees. . . . . . . . . . 335,063 306,612
Website development. . . . . . . . . . . . . . 839,954 180,000
Contract services, salaries and payroll taxes. - 117,055
Compensation to officer. . . . . . . . . . . . 72,000 72,000
Kiosk operating expense. . . . . . . . . . . . 371,297 -
Other. . . . . . . . . . . . . . . . . . . . . 215,359 376,308
--------------- ---------------
Total expenses . . . . . . . . . . . . . . . . 2,050,169 1,133,565
--------------- ---------------
Net profit (loss) from operations. . . . . . . (1,577,740) (1,120,548)
Other income and expense:
Interest income. . . . . . . . . . . . . . . . 4 -
Gain from sale of Actionomics. . . . . . . . . 139,280 -
Interest expense - other . . . . . . . . . . . (59,547) (38,715)
Optional buy back. . . . . . . . . . . . . . . - (625,000)
Discount on convertible notes. . . . . . . . . - (188,462)
Acquisition expense for public reporting . . . (450,000) -
Consulting services for Corporate Acquisition. (120,000) -
Loan costs, net of discounts . . . . . . . . . (11,538) -
Settlement of lawsuit. . . . . . . . . . . . . (23,000) -
--------------- ---------------
Net (loss) . . . . . . . . . . . . . . . . . . . $ (2,102,541) $ (1,972,725)
=============== ===============
Net (loss) per common share. . . . . . . . . . . $ .03 $ (.03)
Weighted number of shares outstanding. . . . . . 82,644,447 65,823,983
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
September 30, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
Nine
Months Nine Months
Ended Ended
September September
30, 2000 30, 1999
(Unaudited) (Unaudited)
----------- -----------
Operating Activities:
Net (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,102,541) $ (1,972,725)
Adjustments to reconcile net (loss) to net cash (used in) operating
activities
Amortization and depreciation. . . . . . . . . . . . . . . . . . . . 178,975 45,455
(Decrease) in accounts payable and accrued expenses. . . . . . . . 52,008 67,623
Increase (decrease) in unearned revenue. . . . . . . . . . . . . . (120,000) 145,000
Discount on debenture. . . . . . . . . . . . . . . . . . . . . . . 38,462 188,462
(Increase) in accounts receivable. . . . . . . . . . . . . . . . . 155,324
Common stock issued for expenses charged . . . . . . . . . . . . 1,038,920
Preferred stock issued for expenses charged. . . . . . . . . . . 173000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,569) 342,453
------------ -------------
Net Cash (Used in) Operating Activities . . . . . . . . . . . . . . . . (606,371) (1,183,732)
Investing Activities:
Investments in equipment . . . . . . . . . . . . . . . . . . . . . . . (151,694) (418,658)
(Increase) in escrow account . . . . . . . . . . . . . . . . . . . . . - (265,767)
Decrease in escrow account . . . . . . . . . . . . . . . . . . . . . . - 265,767
Investment in goodwill and other assets. . . . . . . . . . . . . . . . (1,250,000) -
------------ -------------
Net cash (Used in) Investing Activities . . . . . . . . . . . . . . . . (1,401,694) (418,658)
Financing Activities:
Proceeds from loan . . . . . . . . . . . . . . . . . . . . . . . . . . 955,382 (102,000)
Repayment of convertible debentures and loans. . . . . . . . . . . . . (538,462) 452,000
Preferred stock converted. . . . . . . . . . . . . . . . . . . . . . . 5,600
Common stock issued. . . . . . . . . . . . . . . . . . . . . . . . . . 255,600 1,439,736
Proceeds from convertible debentures . . . . . . . . . . . . . . . . . 1,525,000 -
------------ -------------
2,203,120
Net cash provided by Financing Activities . . . . . . . . . . . . . . . 1,789,736
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . 195,005 187,346
Cash, beginning of period . . . . . . . . . . . . . . . . . . . . . . . 25,591 2,271
------------ -------------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $ 220,596 $ 189,617
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
NOTE 1 - FINANCIAL STATEMENTS
The financial statements included herein have been prepared by Go Online
Networks Corporation (Company) without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted as allowed by such rules and regulations, and Go Online Networks
Corporation believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the December 31, 1999 audited financial statements and
the accompanying notes thereto. While management believes the procedures
followed in preparing these financial statements are reasonable, the accuracy of
the amounts are in some respects dependent upon the facts that will exist and
procedures that will be accomplished by Go Online Networks Corporation later in
the year. The results of operations for the interim periods are not necessarily
indicative of the results of operations for the full year.
NOTE 2 - BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION
The Company currently operates in three divisions: high technology, e-commerce
business, and computer refurbishing business divisions. The internet kiosk
division installs internet kiosks in the mid-priced hotel market providing
internet access to the hotel guests. The Shop Go Online.com division provides
an internet website offering a variety of products and services. The
refurbishing division refurbishes computers under contract and warranties.
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 operation is to continue to attempt to raise additional debt or
equity capital until such time the Company is able to generate sufficient
operating revenue.
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.
NOTE 3 - CORPORATE ACQUISITION
On January 10, 2000, the Company entered into an agreement with Westlake Capital
Corporation (Westlake) pursuant to which 3,000,000 shares of newly issued shares
were given to acquire Westlake.
F-8
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
NOTE 4 - STOCK ISSUED FOR SERVICES
On September 25, 2000, the Company issued 1,350,000 shares of its common stock
to various persons for legal and consulting services.
NOTE 5 - ACQUISITION OF DIGITAL WEST MARKETING, INC.
On August 31, 2000, the Company acquired all of the outstanding stock of Digital
West Marketing, Inc. The acquisition, for accounting purposes, was treated as a
purchase. In consideration for acquiring the stock, the Company paid $825,000
and these monies were utilized to pay back indebtedness, accounts payable, and
accrued expenses. In addition, the Company issued 750,000 restricted shares of
its common stock, a warrant to purchase an aggregate of 750,000 shares of the
Company's common stock for a period of two years at $.022 per share. The
restricted common stock issued was recorded at 90% of the Company's direct
market value as of the date of issuance. The Company also issued 2,000 shares
of its newly authorized Series B $100 Principal Amount Preferred Stock which is
convertible to common stock at a conversion price for each share of Common Stock
of the Company equal to the original principal amount of the preferred stock
divided by 100% of the average closing price of the common stock for the twenty
trading days preceding the date of the receipt of the shares to be converted.
Preferred Series B shareholders are entitled to receive dividends on the same
per share basis, at the same time, and to the same extent as the holders of
common stock. The Series B Shareholders are entitled to one vote for each share
of common stock into which the Preferred stock is convertible. The right to
convert common stock, the right to dividends and the right to vote become
effective after the Company shows a positive net income for one calendar
quarter. Under the same conditions, the preferred stock shall have liquidation
rights the same as common stock.
NOTE 6 - ISSUANCE OF SERIES 2000BA NOTES PAYABLE
Effective January 10, 2000, the Company entered into a Securities Purchase
Agreement whereby the buyer agreed to buy from the Company $1,000,000 of its
Series 2000-A Eight Percent (8%) convertible notes, maturing March 31, 2002, and
payable in quarterly installments in arrears on March 31, June 30, September 30
and December 31 of each year during the term of the note, with the first such
payment to be made August 31, 2000. Accrual of interest may be payable either
in cash or common stock at the holder's option. If interest is paid in common
stock, the number of shares to be delivered in payment will be determined by
taking the dollar amount of interest being paid divided by the average. The
payment that was due on August 1, 2000, was not paid and is currently under
discussion to determine its disposition.
F-9
<PAGE>
GO ONLINE NETWORKS CORPORATION
AND CONSOLIDATED SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 (Unaudited)
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
In June of 1998, the FASB issued Statement of Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet at their value.
This statement, as amended by SFAS 137, is effective for financial statements
for all fiscal quarters to all fiscal years beginning after June 15, 2000. The
Company does not expect the adoption of this standard to have a material impact
on its results of operations, financial position or cash flows, as the Company
currently does not engage in any derivative or hedging activities.
NOTE 8 - PROPOSED MERGER
Subject to certain terms and conditions to be performed at closing, including a
registration with the Securities and Exchange Commission, the Company's
wholly-owned subsidiary, Westlake, will merge with two companies, whereby
4,166,666 shares and 1,388,888 of the Company's common stock, respectively, will
be issued for all of the common stock of the two companies. The combined
companies have advanced $950,000 in cash to the Company as of September 30,
2000.
NOTE 9 - GOODWILL
In connection with the acquisition of Digital West Marketing, Inc., the Company
recorded $917,933 of Goodwill, which is being amortized over fifteen years.
NOTE 10 - CONVERTIBLE NOTES PAYABLE
In July and September, the Company sold an aggregate of $525,000 of convertible
notes payable, with interest at 10%. The notes are convertible into common
stock of the Company at the lower of 60% of the average market closing price for
the ten days prior to conversion or $.18 per share.
NOTE 11 - PREFERRED STOCK ISSUED FOR SERVICES
The Company issued an aggregate of 150,000 shares of its Series A Convertible
Preferred Stock to various persons for performing certain consulting activities.
F-10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
CAUTIONARY STATEMENTS:
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company intends that such
forward-looking statements be subject to the safe harbors created by such
statutes. The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties. Accordingly, to
the extent that this Quarterly Report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by the Company in forward-looking statements. The
differences may be caused by a variety of factors, including but not limited to
adverse economic conditions, intense competition, including intensification of
price competition and entry of new competitors and products, adverse federal,
state and local government regulation, inadequate capital, unexpected costs and
operating deficits, increases in general and administrative costs, lower sales
and revenues than forecast, loss of customers, customer returns of products sold
to them by the Company, termination of contracts, loss of supplies,
technological obsolescence of the Company's products, technical problems with
the Company's products, price increases for supplies and components, inability
to raise prices, failure to obtain new customers, litigation and administrative
proceedings involving the Company, the possible acquisition of new businesses
that result in operating losses or that do not perform as anticipated, resulting
in unanticipated losses, the possible fluctuation and volatility of the
Company's operating results, financial condition and stock price, inability of
the Company to continue as a going concern, losses incurred in litigating and
settling cases, adverse publicity and news coverage, inability to carry out
marketing and sales plans, loss or retirement of key executives, changes in
interest rates, inflationary factors and other specific risks that may be
alluded to in this Quarterly Report or in other reports issued by the Company.
In addition, the business and operations of the Company are subject to
substantial risks that increase the uncertainty inherent in the forward-looking
statements. The inclusion of forward looking statements in this Quarterly
Report should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved.
GENERAL OVERVIEW
Go Online Networks Corporation operates in the high technology and
e-commerce business utilizing a three-tiered revenue model. In initiating our
strategy, we acquired and currently operate three distinct divisions, each
described below:
10
<PAGE>
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, 415 hotels have signed contracts and 254 kiosks have been
installed in 237 locations in 40 states and one Canadian province as of
September 30, 2000. We have 18 units presently in transit. 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.
Digital West Marking, Inc.
--------------------------
Digital West is a computer service firm based in Chatsworth, California, north
of Los Angeles. Revenues for 1999 were approximately $6.8 million. The company
operates out of a 24,000 square foot facility currently employing in excess of
45 people. The core of Digital West's business is to contract with major retail
entities and computer hardware manufacturers to refurbish computer products
returned to retail establishments by customers. The products are re-engineered
or refurbished to factory specifications by Digital West's factory trained A+
certified technicians. The computer products including hard drives, CD ROMs,
monitors, printers, circuit boards, CD writers, DAT drives are then resold into
the secondary market and service channels. Digital West is a state-of-the-art,
multi-vendor multi-product facility that provides value-added services,
logistics services, depot repair, and spare parts distribution for virtually all
major PC brands and system components including peripherals. Digital West deals
with more than forty manufacturers to ensure an ability to handle any and all
customer's requests for programs such as repair, part sales, advance exchanges,
cross-ships, emergency parts and other asset management programs. Digital West's
web site is www.DigitalWest.com.
RESULTS OF OPERATIONS OF THE COMPANY
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1999
Our net loss during the three months ended September 30, 2000 was ($789,505),
compared to ($1,331,381) for the same period in 1999. The reduction in this loss
is attributable to an increase in sales of both the kiosk and ShopGoOnline
divisions offset by increased expenses (primarily in our kiosk division).
Sales were $436,358 for the three months ended September 30, 2000, compared
to $12,643 for the three months ended September 30, 1999. Approximately twenty
percent of the sales was generated by our ShopGoOnline.com division, and the
other eighty percent by our Internet kiosk business.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
Our net loss during the nine months ended September 30, 2000 was ($2,102,541),
compared to ($1,972,725) for the same period in 1999. The increase in this loss
is attributable to acquisition expenses in connection with the Company's
acquisition of Westlake Capital Corporation and consulting services in
connection with that transaction, increased expenses (primarily in our kiosk
division), increased legal and professional fees, increased salaries, offset by
an increase in sales of both the kiosk and ShopGoOnline divisions and a
non-recurring gain from the sale of Auctionomics.
Sales were $692,834 for the nine months ended September 30, 2000, compared
to $13,017 for the nine months ended September 30, 1999. Approximately twenty
percent of the sales was generated by our ShopGoOnline.com division, and the
other eighty percent by our Internet kiosk business.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, we had assets of $2,504,068, compared to $829,351
as of December 31, 1999. This increase was attributable to an increase in cash
from financing activities, and equipment, primarily additional kiosks.
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Our current liabilities increased from $1,254,553 as of December 31, 1999
to $2,289,368 as of September 30, 2000, due primarily to an increase in the
current portion of the Series A, 8% convertible note issued in January 2000 and
advances payable. Total liabilities also increased, from $1,793,015 as of
December 31, 1999 to $3,314,368 as of September 30, 2000, again due primarily to
the issuance of the Series A, 8% convertible note issued in January and
advances payable, offset by the cancellation of $538,462 in convertible
debentures.
As of September 30, 2000, our accumulated deficit was $10,913,777, while our
stockholders deficit was $810,300, as compared to $8,811,236 and $963,664,
respectively, as of December 31, 1999. The accumulated deficit and stockholders
deficit increases are attributable to our continuing operating losses, as set
forth above.
Effective January 10, 2000, the Company entered into a Securities Purchase
Agreement whereby the buyer agreed to buy from the Company $1,000,000 of its
Series 2000-A Eight Percent (8%) convertible notes, maturing March 31, 2002, and
payable in quarterly installments in arrears on March 31, June 30, September 30,
and December 31, of each year during the term of the note, with the first such
payment to be made June 30, 2000. Accrual of interest may be payable either in
cash or common stock at the holder's option. If interest is paid in common
stock, the number of shares to be delivered in payment will be determined by
taking the dollar amount of interest being paid divided by the average of the
closing bid prices for the common stock for the ten trading days prior to the
due date of such interest. The notes are convertible into common stock, upon
certain registration, and for prices determined at various dates as defined in
the agreement. The purchase price was $500,000 in cash and cancellation of the
$538,462 of the convertible debentures outstanding as of December 31, 1999. The
notes were issued in two parts, one of which was issued during March 2000, and
payment dates were deferred based upon date of issuance.
The Company made no material capital expenditures during the quarter ended
September 30, 2000.
On September 5, 2000, the Company acquired Digital West Marketing, Inc.
("Digital West"), a computer service firm based in Chatsworth, California,
north of Los Angeles.
The Company acquired Digital West in accordance with the terms of an Amended
and Restated Reorganization and Stock Purchase Agreement (the "Acquisition
Agreement"). In accordance with the Acquisition Agreement, the Company acquired
100% of the stock of Digital West from Andrew Hart, its sole shareholder in
consideration for (i) $825,000 in cash, (ii) 750,000 shares of Company
restricted common stock and (iii) 750,000 options to purchase shares of Company
restricted common stock at an exercise price of $0.22 per share for a period of
two years. The cash purchase price was held in escrow and used to pay off 100%
of Digital West's obligation to Pacific Century Bank as well as to repay certain
outstanding accounts payable and accrued expense obligations of Digital West.
The Company also entered into an employment agreement with Andrew Hart,
President of Digital West, who remains as President of Digital West. Mr. Hart's
employment agreement provides for a term of three years with an annual salary
equal to 2% of Digital West's gross income up to $15,000,000 and 1.25% of
Digital Wests annual sales in excess of $15,000,000. For the first six months,
Mr. Hart will receive a guaranteed monthly salary against those percentages of
$15,000 per month, with $12,000 guaranteed subsequent to such six month period.
Mr. Hart will also receive a cash bonus equal to 15% of the total cumulative
EBITDA of Digital West less $825,000 and any and all funds advanced to Digital
West by the Company. Mr. Hart will also receive stock options to purchase
common stock as follows: At the end of year one, Mr. Hart will become eligible
to purchase 250,000 shares of stock at $0.22 per share; at the end of year two
Mr. Hart will become eligible to purchase an additional 200,000 shares of stock
at $0.40 per share; and at the end of year three Mr. Hart will become eligible
to purchase an additional 200,000 shares of stock at $0.80 per share. All
options granted are exercisable for two years from the date of grant.
The Company obtained the funds for the cash purchase price of Digital West
from cash on hand from advances from Netstrat, Inc. and Amer Software, Inc.
and investments of certain convertible debentures.
Subject to certain terms and conditions to be performed at closing,
including a registration with the Securities and Exchange Commission, the
Company's wholly-owned subsidiary, Westlake Capital Corp., will merge with
Netstrat, Inc. and Amer Software, Inc., whereby 4,166,666 shares and 1,388,888
of the Company's common stock, respectively, will be issued for all of the
common stock of the two companies. The combined companies have advanced
$950,000 in cash to the Company as of September 30, 2000.
We believe that proceeds from our previous financings, together with our
other resources and expected revenues, will be sufficient to cover working
capital requirements for at least six months. Should revenue levels expected by
us not be achieved, we would nevertheless require additional financing during
such period to support our operations, continued expansion of our business and
acquisition of products or technologies. Such sources of financing could
include capital infusions from some of our strategic alliance partners,
additional equity financings or debt offerings. Other than the proposed sale of
securities in this registration statement, we have made no arrangements or
commitments for such financing.
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PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On December 3, 1998, 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. Neverthless, in April
2000, we entered into a settlement agreement with the plaintiff and agreed to
pay him the sum of $12,500 in cash and 30,000 shares of Series A Preferred
Stock.
ITEM 2 CHANGES IN SECURITIES
In July 2000, the Company sold an aggregate of $525,000 in aggregate
principal amount of 10% Convertible Notes due July 2002. These convertible
notes were sold to two accredited investors. The convertible notes are
convertible into common stock at the lower of (i) 60% of the average closing
price for the ten days prior to conversion or (ii) $0.18 per share. This sale
by the Company was completed in accordance with Section 4(2) of the Securities
Exchange Act of 1934, as amended.
In September 2000, the Company issued 150,000 shares of Series A Preferred
Stock to various persons for consulting activities. This sale by the Company
was completed in accordance with Section 4(2) of the Securities Exchange Act of
1934, as amended.
Effective September 5, 2000 in connection with the acquisition of Digital
West Marketing, Inc., the Company issued (ii) 750,000 shares of Company
restricted common stock and (iii) 750,000 options to purchase shares of Company
restricted common stock at an exercise price of $0.22 per share for a period of
two years. This sale by the Company was completed in accordance with Section
4(2) of the Securities Exchange Act of 1934, as amended.
On September 25, 2000, the Company issued 1,350,000 shares of its common
stock to various persons for legal and consulting services. This sale by the
Company was completed in accordance with Section 4(2) of the Securities Exchange
Act of 1934, as amended.
ITEM 3 DEFAULTS UNDER SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has scheduled its Annual Meeting of Shareholders for November
17, 2000. There were no matters submitted to shareholders during the quarter
ended September 30, 2000.
ITEM 5 OTHER INFORMATION
None.
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ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On September 20, 2000, the Company filed a Form 8-K reporting the acquisition
of Digital West Marketing, Inc. by the Company.
On November 6, 2000, the Company filed a Form 8-K/A with respect to the
acquisition of Digital West Marketing, Inc. by the Company which included
financial statements of Digital West and pro forma financial information.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
Dated: NOVEMBER 14, 2000 Go Online Networks Corporation
/s/ Joseph M. Naughton
Joseph M. Naughton,
Chief Executive Officer
and Director
