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): September 5, 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:
Not applicable
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(Former name, address and telephone number)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On September 5, 2000, Go Online Networks Corporation ("GONT") acquired
Digital West Marketing, Inc. ("Digital West"), a computer service firm based
in Chatsworth, California, north of Los Angeles.
GONT completed the acquisition of 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, GONT
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
GONT restricted common stock and (iii) 750,000 options to purchase shares of
GONT 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.
GONT 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 GONT. Mr. Hart will also receive stock options to purchase GONT 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.
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The consideration exchanged pursuant to the Acquisition Agreement was
negotiated between Digital West through its President, Andrew Hart, and GONT.
In evaluating Digital West as a candidate for the acquisition, GONT
used criteria such as the value of the assets of Digital West, its substantial
customer base including major retail customers, and its computer repair and
refurbishment business. GONT determined that the consideration for the merger
was reasonable.
GONT obtained the funds for the cash purchase price of Digital West from
cash on hand in its acquisition of Netstrat, Inc. and investments of
certain convertible debentures.
(b) GONT intends to continue the historical businesses and proposed
businesses of Digital West as set forth more fully immediately below.
NATURE OF BUSINESS
Digital West is a provider of repair and logistic services to the personal
computer ("PC") hardware industry. Logistic services include sourcing and
distributing spare parts, inventory management, warranty claims processing,
parts repair and related functions, including notebook repair. The foundation
of Digital West's logistic services is its ability to provide accurate,
efficient and rapid delivery of repair parts and repaired units to its
customers. Service providers purchase replacement parts for the service and
repair of PCs and peripherals. These parts may be purchased directly from the
original equipment manufacturer ("OEM") or from any of the hundreds of
independent distributors, including Digital West. Digital West's inventory of
parts include logic boards, controllers, disk drives, monitors, memory boards,
cables and related hardware. Digital West has established vendor relationships
for repair parts with leading OEMs, including Compaq, Dell, NEC/Packard Bell,
Hewlett Packard and Sony Electronics. To complement its distribution operations,
Digital West seeks to supply additional value-added services to OEMs and service
providers to allow OEMs and service providers to outsource a substantial portion
of their logistic services.
Digital West believes an important factor in an OEM's decision to outsource
logistic services functions is the extent to which such an arrangement relieves
the OEM of functions outside of the OEM's core competencies. These service and
warranty logistics areas often include repair activities. To support this
function and encourage OEMs to consider outsourcing functions to Digital West,
Digital West maintains its own repair operations. The principal business
objectives of repair services are to provide centralized rapid turnaround of
computer repair and subsystem repair capabilities to OEMs. Digital West
believes its repair capabilities are an important aspect of the full range of
value-added services it offers.
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Digital West's principal offices and mailing address are 9540 Cozycroft Avenue,
Chatsworth, CA 91311, and its telephone number is (818)718-7500. Digital West
was incorporated in California in January, 1996.
OPERATIONS
Digital West conducts its repair services and parts distribution and processing
business principally from its 24,000 square foot distribution center at its
facility located in Chatsworth, CA. Recognizing the immediate demands of its
service customers, Digital West established an automated and integrated order
processing and distribution system which allows Digital West to provide
efficient and accurate delivery of products on a next day basis. Digital West
has also established a system for receiving, recording and warehousing daily
supply shipments. All parts maintained in Digital West's inventory are bar coded
and tracked throughout the facility through Digital West's computer network.
Parts are received daily from OEMs and other suppliers, bar coded and shelved in
Digital West's warehouse for quick access based on real-time daily demand.
In addition, many PC and peripheral replacement parts are remanufactured from
returned goods in need of repair. For example, a part may no longer work because
one of its many components is defective. When a service provider purchases a
replacement for a defective part, the defective part ("core") may be returned
for credit. The core may then be repaired and resold as a remanufactured part.
Service providers often prefer remanufactured parts because they have
performance specifications equivalent to newly manufactured parts at a lower
cost. This aspect of the PC parts business requires that Digital West distribute
new or remanufactured parts to its customers, collect defective but repairable
parts and remanufacture those parts which are then offered for resale.
Therefore, unlike many distribution businesses, products flow to and from
Digital West and its customers, and to and from its suppliers. In addition to
new parts being received and shelved daily, cores are also received daily from
customers, sorted and distributed to repair services. Following the
remanufacturing of a core, it is bar coded and replaced in inventory.
Because many of Digital West's customers are familiar with and have ready access
to the Internet, Digital West has expanded its Internet customer service
functions.
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SERVICES
Digital West offers a wide range of value-added logistic services to service
providers and OEMs. These services capabilities, in combination with Digital
West's core distribution expertise, effectively allow Digital West to handle
many of the hardware related post-sales support functions for its customers.
Digital West has entered into service provider alliances with several of its
customers. Generally, these types of arrangements may be terminated by either
party at any time, but Digital West enters into service provider alliances with
the expectation that these arrangements will lead to long-term relationships or
contracts with those parties.
Digital West seeks arrangements with OEMs of PCs and peripherals to handle a
defined portion of the related parts distribution and warranty processing
functions. Under the terms of such an OEM outsourcing arrangement, the OEM
directs some or all of its customers and dealers to Digital West for some or all
of the OEM's warranty and non-warranty parts business. Digital West believes
these arrangements benefit OEMs by reducing infrastructure needs, reducing the
amount of capital committed by the OEM to the non-core segments of its business,
and improving customer service and responsiveness. Digital West believes that as
a specialist in managing the key business functions associated with parts
distribution, which includes its expertise in two-way distribution logistics,
Digital West is able to provide parts and related logistic services at lower
costs and greater reliability than the manufacturers themselves can provide such
services.
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Digital West believes that its repair capabilities are an important aspect of
the full range of value-added services it offers to OEMs in an effort to
outsource larger functions of the OEM's service and warranty logistics
functions. The offerings of repair services include rapid turnaround notebook
repair, subsystem repair and component refurbishment. Regarding the notebook
repair operations, Digital West is capable of receiving, repairing and shipping
the repaired notebook back to the customer within 24 hours of its receipt.
Subsystem repair is provided at the component-level for LCD panels, computer
boards and power supplies. Repair services has entered into notebook repair
arrangements with Dell. These arrangements may generally be terminated by either
party at any time, but Digital West enters into them with the expectation that
these arrangements will lead to long-term relationships with those parties.
Digital West also recently began to remanufacture parts that are tested and
reworked by Digital West prior to sale. Many of Digital West's customers prefer
a remanufactured part over a new part because the remanufactured part often has
the performance specifications equivalent to a new part, but costs less. This
process was developed to fill the recognized market demand for reliable,
competitively priced parts.
MANAGEMENT INFORMATION SYSTEMS
Digital West maintains sophisticated information systems to improve efficiency,
process orders, monitor operations, manage inventory risks, offer faster and
higher levels of service, and provide innovative logistic services to OEMs and
service providers. These on-line systems provide management with information
concerning sales, inventory levels, customer payments and other operations which
are essential for Digital West to operate efficiently and to enable it to offer
additional services. Digital West has invested in advanced telecommunications,
electronic mail and messaging, automated fax technology, bar-coding and
automated inventory management.
Digital West has also developed capabilities which allow pre-approved customers
to place orders via the world-wide web, reducing the order processing costs for
both Digital West and the customer. Digital West believes that this capability
will increasingly become a requirement by many customers and some suppliers and,
accordingly, Digital West will continue to invest in enhancing those
capabilities.
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SALES AND MARKETING
Digital West views logistic services as a value-added service business. As such,
sustaining the growth of Digital West is dependent upon building and maintaining
relationships and loyalties with service providers as well as OEMs. Digital
West maintains a service provider sales force. Account managers are assigned to
maintain relationships with Digital West's largest national accounts and are
assigned other accounts based on the customers' market segment. Digital West
also has a separate sales force focusing on OEM repair and outsourcing
arrangements. Digital West's sales representatives visit major OEMs and service
providers and attend various trade shows. Digital West advertises its parts and
services in recognized trade magazines, participates in trade shows, distributes
news releases, and makes direct mailings to potential customers. Customers rely
upon Digital West's advertisements, newsletters and frequent mailings as a
source of product information, including pricing. In addition, Digital West
maintains a presence on the world-wide web.
Digital West provides comprehensive training to its sales and account
representatives regarding technical characteristics of products and Digital
West's policies and procedures.
CUSTOMERS AND SUPPLIERS
Digital West sells parts to customers throughout the United States, Canada and
Latin America, as well as in other countries.
Digital West depends on numerous suppliers to provide Digital West with the
parts it sells. There are generally no long-term supply agreements governing
Digital West's relationships with its major suppliers. Digital West's primary
supply arrangements are thus subject to termination or curtailment at any time,
with little or no advance notice. Although management expects no such loss to
occur, the refusal or inability of any major manufacturer to ship to Digital
West, or an increase in prices charged to Digital West as compared to the prices
charged by such manufacturers to service providers, could have a material
adverse effect on Digital West.
COMPETITION
Digital West is a leading provider of repair and logistic services to the PC
repair and maintenance industry. These logistic services include distribution
and sourcing of spare parts, inventory management, warranty claims, parts
remanufacturing and related functions.
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The market for Digital West's products is large but fragmented. Competition in
the industry is widespread and comes from other independent distributors
(including various small independents) that are not affiliated with an OEM, as
well as from the OEMs themselves. When OEMs act as distributors, they typically
distribute only their own products. Independent distributors typically
distribute a variety of manufacturers' parts. Among Digital West's major
independent competitors is The Cerplex Group, PC Service Source., Genicom Corp.
and Service Electronics. Certain of these competitors, such as the OEMs, are
large and have substantially greater financial and other resources than Digital
West.
Digital West believes that its growth is attributable to its ability to
consistently process customer orders and supply needed parts on demand, with
rapid delivery, and at competitive prices. Management believes that these
competitive factors will continue to govern customer decisions in the
foreseeable future.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
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ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of Digital West for the fiscal years ending
December 31, 1998 and 1999 and for the six months ended June 30, 2000 will be
provided within the time periods required under Form 8-K. Pro forma financial
statements will also be provided at such time.
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
EXHIBITS
1.1. Reorganization and Stock Purchase Agreement between Digital West
Marketing, Inc. and Go Online Networks Corporation, dated as of
August 4, 2000.
1.2. Employment Agreement between Digital West Marketing, Inc. and
Andrew Hart dated as of August 31, 2000.
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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
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Chief Executive Officer, Director
Date: September 20, 2000
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