UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
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.
2
<PAGE>
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.
3
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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.
4
<PAGE>
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.
5
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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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<PAGE>
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 year ending
December 31, 1999 and for the six months ended June 30, 2000 are attached
hereto
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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*Previously filed
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
DIGITAL WEST MARKETING, INC.
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<TABLE>
<CAPTION>
<S> <C>
Page
Report of Independent Certified Public Accountants F - 2
Financial Statements:
Balance Sheets . . . . . . . . . . . . . . . . . F - 3
Statements of Operations . . . . . . . . . . . . F - 4
Statements of Shareholders' Equity . . . . . . . F - 5
Statements of Cash Flows . . . . . . . . . . . . F - 6
Notes to Financial Statements. . . . . . . . . . F - 7 to F - 10
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
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To the Board of Directors
Digital West Marketing, Inc.
We have audited the accompanying balance sheet of Digital West Marketing, Inc.,
as of December 31, 1999, and the related statements of operations, changes in
stockholders' (deficit), and cash flows for the two years ended December 31,
1999. 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 audits.
We conducted our audits 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 audits provide 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 Digital West Marketing, Inc. as
of December 31, 1999, and the results of its operations, its changes in
stockholders' (deficit) and its cash flows for the year 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 discussed in Note 2 to the
accompanying financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency. These conditions raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Miller and McCollom
Certified Public Accountants
7400 West 14th Avenue, Suite 10
Lakewood, CO 80215
July 19, 2000
F-2
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DIGITAL WEST MARKETING, INC.
Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
June 30,
December 2000
31, 1999 (Unaudited)
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Current Assets
Cash and cash items. . . . . . . . . . . . . . . . . . . . . . . $ 224,990 $ 3,760
Accounts receivable, net of allowances for doubtful accounts of
$65,500 at December 31, 1999 and $283,000 at June 30, 2000 -
Note 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514,400 167,379
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . 309,869 212,662
Prepaid expenses and other current items . . . . . . . . . . . . 101,054 15,435
Total current assets. . . . . . . . . . . . . . . . . . 1,150,313 399,236
------------ ------------
Property and equipment, net of accumulated depreciation of
$148,960 at December 31, 1999 and $168,938 at June 30, 2000. . . . 307,025 284,545
Other assets - Deposits . . . . . . . . . . . . . . . . . . . . . . 36,943 39,454
Total assets . . . . . . . . . . . . . . . . . . . $ 1,494,281 $ 723,235
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 237,418 $ 147,261
Notes payable, related parties - Note 4. . . . . . . . . . . . . . 2,018,071 2,188,924
Note payable to bank - Note 5. . . . . . . . . . . . . . . . . . . 880,000 602,207
Accrued salaries and wages . . . . . . . . . . . . . . . . . . . . 135,844 104,278
Accrued lease obligations. . . . . . . . . . . . . . . . . . . . . 58,632 48,841
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . 93,503 66,511
Total current liabilities. . . . . . . . . . . . . . . . . . . . 3,423,468 3,158,022
------------ ------------
Commitments and contingencies - Note 9
Stockholders' Equity (deficit)
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . (1,934,187) (2,439,787)
Total stockholders' equity (deficit) . . . . . . . . . . . . (1,929,187) (2,434,787)
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Total liabilities and stockholders' equity (deficit). . . . $ 1,494,281 $ 723,235
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
DIGITAL WEST MARKETING, INC.
Statements of Operations
For the years ended December 31, 1999 and 1998 and
six months ended June 30, 2000 and June 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the year For the year For the six For the six
ended ended nths ended months ended
December 31, December 31, June 30, 2000 June 30, 1999
1999 1998 (Unaudited) (Unaudited)
----------- ------------ --------------- ---------------
Sales and other revenues . . $ 6,868,775 $ 11,636,178 $ 1,867,357 $ 3,932,186
Less: cost of goods sold . 5,351,607 8,597,653 1,377,451 2,716,717
-------------- -------------- --------------- ---------------
Gross profit . . . . . . . 1,517,168 3,038,525 489,906 1,215,469
Expenses:
Selling, general and
administrative. . . . . . 2,016,291 2,701,625 475,152 1,006,533
Rent . . . . . . . . . . . 268,671 178,680 99,991 114,004
Provision for doubtful
accounts. . . . . . . . . 50,000 15,500 217,500 4,199
Depreciation and
amortization. . . . . . . 36,928 49,512 21,514 17,460
-------------- -------------- --------------- ---------------
Total expenses . . . . . . 2,371,890 2,945,317 814,157 1,142,196
Net profit (loss) from
operations. . . . . . . . . (854,722) 93,208 (324,251) 73,273
Other income and expense:
Interest income. . . . . . 578 - 578 14
Interest expense - related
parties - Note 4. . . . . (225,885) (35,389) (74,275) (101,898)
Interest expense - other . (92,990) (64,350) (52,872) (42,974)
-------------- -------------- --------------- ---------------
Total other income
and expense . . . . . . . . (318,297) (99,739) (126,569) (144,858)
============== ============== =============== ===============
Net loss . . . . . . . . . . $ (1,173,019) $ (6,531) $ (450,820) $ (71,585)
============== ============== =============== ===============
Net loss per share . . . . . $ (11.73) $ ( .07) $ ( 4.51) $ ( .72)
============== ============== =============== ===============
Weighted number of shares
outstanding . . . . . . . . 100,000 100,000 100,000 100,000
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
DIGITAL WEST MARKETING, INC.
Statements of Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common Shares Accumulated Shareholders
Equity Equity (Deficit)
Shares Amount (Deficit)
Balance - December 31, 1998 . . . . . . 100,000 $ 5000 $ ( 604,516) $ (599,516)
Net loss for the year ended December
31, 1999 - - 1,173,019 1,173,019
Distribution. . . . . . . . . . . . . . - - 156,652 156,652
Balance - December 31, 1999 . . . . . . 100,000 5,000 (1,934,187) (1,929,187)
---------------------- ----------------- -------------- -----------
Net loss for the six months ended June
30, 2000 (unaudited) . . . . . . . . . - - 450,820 450,820
Distribution (unaudited). . . . . . . . - - 54,780 54,780
Balance - June 30, 2000 (unaudited) . . 100,000 $ 5,000 $ (2,439,787) $(2,434,787)
====================== ================= ============== ============
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
DIGITAL WEST MARKETING, INC.
Statements of Cash Flows
For the years ended December 31, 1999 and December 31, 1998,
and for the six months period ended June 30, 2000, and June 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the year For the year For the six For the six
ended ended months ended months ended
December December June 30, 2000 June 30, 1999
31, 1999 31, 1998 (Unaudited (Unaudited)
-------------- -------------- --------------- ---------------
Cash flow from Operating activity:
Net loss. . . . . . . . . . . . . . . $ (1,173,019) $ (6,531) $ (450,820) $ (71,585)
Adjustments to reconcile net
loss to net cash provided by
operating activities -
Depreciation. . . . . . . . . . . . . . 36,928 49,726 21,514 17,460
(Increase) decrease in prepaid
expenses and deposits . . . . . . . 9,400 (115,935) 83,108 3,723
(Increase) decrease in accounts
receivable. . . . . . . . . . . . . 607,059 (320,020) 347,021 (86,975)
(Increase) decrease in inventories. . 448,118 (466,120) 97,207 610,333
(Decrease) Increase in accounts
payable and accrued liabilities . . (464,950) 344,870 (158,506) (367,245)
Loss on disposition of property
and equipment . . . . . . . . . . . - 22,175 - -
Other . . . . . . . . . . . . . . . . 44,650 (70,108) 3,468 32,640
Net cash provided (used) by
operating activities. . . . . . . . (491,814) (561,943) (57,008) 138,351
-------------- -------------- --------------- ---------------
Investing activities:
Purchase of property and equipment. . . (209,162) (147,842) 46,082 (106,180)
Proceeds from disposal of
property and equipment. . . . . . . . . 51,576 6,250 (48,584) 24,718
Net cash (used in) investing
activities. . . . . . . . . . . . . (157,586) (141,592) (2,502) (81,462)
-------------- -------------- --------------- ---------------
Financing activities:
Net bank short term borrowing
(repayment) . . . . . . . . . . . . . . 1,000 1,188,229 (277,793) (103,229)
Proceeds from note payable - related
party . . . . . . . . . . . . . . . . . 1,022,231 - 170,853 189,000
Distributions . . . . . . . . . . . . . . (156,652) (464,947) (54,780) (139,731)
Repayment of loans. . . . . . . . . . . . - (12,241) - -
Net cash provided by financing
activities. . . . . . . . . . . . . 866,579 711,041 (161,720) (53,960)
-------------- -------------- --------------- ---------------
Increase (decrease) in cash. . . . . . . . 217,179 7,506 (221,230) 2,929
-------------- -------------- --------------- ---------------
Cash at beginning of period. . . . . . . . 7,811 305 224,990 7,811
Cash at end of period. . . . . . . . . . . $ 224,990 $ 7,811 $ 3,760 $ 10,740
============== ============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
DIGITAL WEST MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
(REFERENCES TO JUNE 30, 2000 ARE UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Digital West Marketing, Inc., (the Company) was organized and incorporated in
January 1996, as a California corporation. The Company is engaged in selling
and repairing computers and computer parts. The Company grants credit to
customers substantially all of whom are members of, or parties to, the computer
industry throughout the United States.
REVENUE RECOGNITION
The Company recognizes sales and the related costs of sales upon shipment of
goods.
DEPRECIATION AND AMORTIZATION
Property and equipment are reflected at cost.
Property and equipment are being depreciated over estimated useful lives ranging
from five to ten years, using the straight line method. Depreciation and
amortization expense for property and equipment for the years ending December
31, 1999 and 1998, respectively, were $36,998 and $49,512.
(LOSS) PER SHARE
(Loss) per share is computed on the basis of the weighted-average number of
common shares outstanding during the periods. The weighted-average number of
shares of common stock does not include common equivalent shares for the assumed
exercise of the common stock options and warrants, as the effect would be
antidilutive.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, trading accounts receivable, accounts payable,
accrued liabilities and amounts due related parties reflected in the financial
statement approximates fair value due to the short-term maturity of the
instruments.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVENTORY
Inventory is valued at the lower of cost or market, with cost determined by the
first in, first out (FIFO) method.
LONG-LIVED ASSETS
In accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, the carrying
value of intangible assets and other long-lived assets will be reviewed on a
regular basis for the existence of facts or circumstances, both internally and
externally, that may suggest impairment. To date, no such impairment has been
indicated. Should there be an impairment in the future, the Company will
measure the amount of the impairment based on undiscounted expected future cash
flows from the impaired assets. The cash flow estimates that will be used will
contain management's best estimates, using appropriate the customary assumptions
and projections at the time.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("FAS") No. 130,
"Reporting Comprehensive Income". FAS No. 130 requires that the components and
total amounts of comprehensive income be displayed in the financial statements
beginning in 1998. Comprehensive income includes net income and all changes in
equity during a period that arise from non-owner sources, such as foreign
currency items and unrealized gains and losses on certain investments in equity
securities. The Company does not have any components of comprehensive income
other than net income.
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 operation, financial position, or cash flows as the Company
currently does not engage in any derivative or hedging activities.
NOTE 2 - OPERATING RESULTS AND MANAGEMENT'S PLANS
The Company has had recurring operating losses of $1,173,019 in 1999 and $ 6,531
in 1998. Additionally, the Company has a loss of $450,820 for the six months
ended, June 30, 2000. The Company has been in default on certain debt
agreements and has had deficiencies in working capital of
$2,273,155 as of December 31, 1999 and $2,758,786 as of June 30, 2000, which
raises doubt about the Company's ability to continue as a going concern
NOTE 2 - OPERATING RESULTS AND MANAGEMENT'S PLANS, CONTINUED
The Company has attempted to raise capital and has entered into a tentative
agreement for raising capital and for the payment of certain of its debts.
NOTE 3 - SEGMENT INFORMATION
On December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 "Disclosure about Segments of an Enterprise and Related
Information ("SFAS 131"). The new rules revise established standards for public
companies relating to the reporting of financial and descriptive information
about their business segments and their enterprise-wide operations. The Company
operates in one segment and one geographic area.
NOTE 4 - NOTES PAYABLE RELATED PARTIES
The Company had demand notes payable to related parties of $ 2,018,071 at
December 31, 1999, and
$ 2,188,924 at June 30, 2000. Notes payable of $ 881,000 and $ 1,356,000 at
December 31, 1999 and June 30, 2000 respectively, were payable to the Company's
president's father-in-law, with an average interest rate of approximately 10.5%.
The balance of the related party notes payable were owed to the Company's
president with varying interest rates.
NOTE 5 - NOTES PAYABLE TO BANK
The Company had a note payable to a bank of $80,000 at December 31, 1999, and
$602,207 at June 30, 2000, with a 10% interest rate. The Company was in default
on its bank loan and agreed to a stipulation for entry of judgment, which was
filed December 8, 1999. The stipulation included, among other requirements, a
payment schedule with a final payment due August 15, 2000. The stipulation
further required a sale to liquidate excess inventory, which was completed
during January,2000. The ultimate outcome of the judgment cannot currently be
determined
NOTE 6 - INCOME TAX
The Company filed its' Federal Income Tax Returns as an S-Corporation, and
consequently, no loss carry forwards are available to the Company. Therefore,
the Company does not have any deferred income tax assets. The amounts shown as
allowances for doubtful accounts have not been deducted in the computation of
the S-Corporation's returns. The net losses shown on the S-Corporation tax
returns vary from those shown in the accompanying statements resulting from
inventory and sales adjustments.
NOTE 7 - RENT OBLIGATIONS
The Company incurred rental costs of $268,761 for the year ended December 31,
1999, $178,680 for the year ended December 31, 1998, and $99,991 for the six
months ended June 30, 2000. The Company's principle operating headquarters
facility's lease expired during September 2000, with options for renewal. The
Company did not have any extended material capital leases.
NOTE 8 - SIGNIFICANT CUSTOMERS
During 1998 the Company had one customer providing $2,349,081, or approximately
19% of its' sales. Three customers comprise approximately 30% of its' sales
totaling $1,840,730 during 1999.
NOTE 9 - TENTATIVE DISPOSITION
During June 2000, the Company entered into a tentative agreement, which, if
consummated, will provide for the disposition of the Company. The acquiring
company, under the tentative agreement would provide for the payment of the bank
indebtedness and certain of its other liabilities. The completion of the
disposition of the Company, if finalized, is expected within sixty to ninety
days following June 30, 2000.
F-8
<PAGE>
INDEX TO PRO FORMA FINANCIAL STATEMENTS
GO ONLINE NETWORKS CORPORATION (GONT)
DIGITAL WEST MARKETING, INC. (DWMI)
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Financial Statements:
Balance Sheet P-2
Statements of Operations P-3 & P-4
Notes to Pro Forma Financial Statements P-5
P-1
<PAGE>
GO ONLINE NETWORKS CORPORATION (GONT)
DIGITAL WEST MARKETING, INC. (DWMI)
PRO FORMA BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GONT DWMI
Pro Forma Pro Forma
June 30, 2000 June 30, 2000 Adjustments Combined
--------------- --------------- ------------- ------------
ASSETS
Current Assets:
Cash . . . . . . . . . . . . . . . . . . . . . $ 94,942 $ 3,760 $(3) 825,000 $
(3) (825,000) 98,702
Inventory. . . . . . . . . . . . . . . . . . . - 212,662 (1) (212,662) -
Accounts receivable. . . . . . . . . . . . . . - 167,379 (1) (167,379) -
Other. . . . . . . . . . . . . . . . . . . . . 64,749 15,435 - 80,184
--------------- --------------- ------------- ------------
Total Current Assets . . . . . . . . . . . . 159,691 399,236 (380,041) 178,886
Property and equipment, net of accumulated
depreciation. . . . . . . . . . . . . . . . . 814,888 284,545 (1) (10,000) 1,089,433
Goodwill . . . . . . . . . . . . . . . . . . . - - (2)1,250,000
(2) (197,303) 1,052,697
Other. . . . . . . . . . . . . . . . . . . . . 17,782 39,454 - 57,236
--------------- --------------- ------------- ------------
Total Assets . . . . . . . . . . . . . . . . . . $ 992,361 $ 723,235 $ 662,656 $ 2,378,252
=============== =============== ============= ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses. . . . . $ 418,453 $ 366,891 $(1) (231,000) $ 554,344
Notes payable. . . . . . . . . . . . . . . . . 175,655 2,791,131 (1)(2,791,131) 175,655
Advances from and accrued expenses to officer. 319,202 - - 319,202
Convertible notes payable, current . . . . . . 500,000 - (3) 825,000 1,325,000
Other. . . . . . . . . . . . . . . . . . . . . 8,750 - - 8,750
--------------- --------------- ------------- ------------
Total Current Liabilities. . . . . . . . . . 1,422,060 3,158,022 (2,197,131) 2,382,951
Convertible note payable . . . . . . . . . . . . 500,000 - - 500,000
--------------- --------------- ------------- ------------
Total Liabilities. . . . . . . . . . . . . . 1,922,060 3,158,022 (2,197,131) 2,882,951
--------------- --------------- ------------- ------------
Stockholders' (Deficit)
Convertible preferred stock-A. . . . . . . . . 173,783 - - 173,783
Convertible preferred stock-B. . . . . . . . . - - (3) 200,000 200,000
Common stock . . . . . . . . . . . . . . . . . 9,020,774 5,000 (3) 195,000
(3) 30,000
(2) (5,000) 9,245,774
Accumulated (deficit). . . . . . . . . . . . . (10,124,256) (2,439,787) (1)2,632,090
(2)2,439,787
(2)(2,632,090) (10,124,256)
--------------- --------------- ------------- ------------
Total Stockholders' (Deficit). . . . . . . . (929,699) (2,434,787) 2,859,787 (504,699)
--------------- --------------- ------------- ------------
Total Liabilities and Stockholders' (Deficit). . $ 992,361 $ 723,235 $ 662,656 $ 2,378,252
=============== =============== ============= ============
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
P-2
<PAGE>
GO ONLINE NETWORKS CORPORATION (GONT)
DIGITAL WEST MARKETING, INC. (DWMI)
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GONT DWMI
Six Months Six Months
Ended June 30, Ended June 30, Pro Forma Pro Forma
2000 2000 Adjustments Combined
---------------- ---------------- ------------------ ------------
Revenue:
Sales . . . . . . . . . . . . . . . . . . . $ 256,481 $ 1,867,357 $ - $ 2,123,838
Cost of Goods . . . . . . . . . . . . . . . 11,110 1,377,451 - 1,388,561
---------------- ---------------- ------------------ ------------
Gross Profit. . . . . . . . . . . . . . . . . 245,371 489,906 - 735,277
---------------- ---------------- ------------------ ------------
Operating Expenses. . . . . . . . . . . . . . 1,053,956 814,157 - 1,868,113
Amortization of Goodwill. . . . . . . . . . . - - (4) 105,000 105,000
---------------- ---------------- ------------------ ------------
1,053,936 814,157 105,000 1,973,113
---------------- ---------------- ------------------ ------------
Operating (Loss). . . . . . . . . . . . . . . (808,585) (324,251) (105,000) (1,237,836)
Other Income (Expenses), Net. . . . . . . . . (504,448) (126,569) - (631,017)
---------------- ---------------- ------------------ ------------
Net (Loss). . . . . . . . . . . . . . . . . . $ (1,313,033) $ (450,820) $ (105,000) $(1,868,853)
================ ================ ================== ============
Net (Loss) per Common Share . . . . . . . . . $ (.02)
================
Weighted Number of Common Shares Outstanding. 82,078,551
================
</TABLE>
The accompanying notes are an integral part of the proforma financial
statements.
P-3
<PAGE>
GO ONLINE NETWORKS CORPORATION (GONT)
DIGITAL WEST MARKETING, INC. (DWMI)
PRO FORMA STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GONT DWMI
Year Ended Year Ended
December December Pro Forma Pro Forma
31, 1999 31, 1999 Adjustments Combined
------------ ------------- ------------- ------------
REVENUE:
Sales . . . . . . . . . . . . . . . . . . . $ 89,749 $ 6,868,775 $ - $ 6,958,524
Cost of Goods . . . . . . . . . . . . . . . - 5,351,607 - 5,351,607
------------ ------------- ------------- ------------
Gross Profit. . . . . . . . . . . . . . . . . 89,749 1,517,168 - 1,606,917
------------ ------------- ------------- ------------
Operating Expenses. . . . . . . . . . . . . . 1,779,086 2,371,890 - 4,150,976
Amortization of Goodwill. . . . . . . . . . . - - (4) 210,000 210,000
------------ ------------- ------------- ------------
1,779,086 2,371,890 210,000 4,360,976
------------ ------------- ------------- ------------
Operating (Loss). . . . . . . . . . . . . . . (1,689,337) (854,722) (210,000) (2,754,059)
Other Income (Expenses), Net. . . . . . . . . (753,971) (318,297) - (1,072,268)
------------ ------------- ------------- ------------
Net (Loss). . . . . . . . . . . . . . . . . . $(2,443,308) $ (1,173,019) $ (210,000) $(3,826,327)
============ ============= ============= ============
Net (Loss) per Common Share . . . . . . . . . $ (.05)
============
Weighted Number of Common Shares Outstanding. 71,252,913
============
</TABLE>
The accompanying notes are an integral part of the pro forma financial
statements.
P-4
<PAGE>
GO ONLINE NETWORKS CORPORATION (GONT)
DIGITAL WEST MARKETING, INC. (DWMI)
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Unaudited)
(1) General
-------
On August 31, 2000, GONT and DWMI completed their business combination, whereby
100% of the outstanding shares of DWMI were acquired by GONT. This business
combination was accounted for as a purchase of DWMI by GONT.
(2) Pro Forma Information
-----------------------
The pro forma financial statements give effect to the acquisition by GONT as if
the acquisition happened at the beginning of the respective periods presented.
(2) Pro Forma Adjustments
-----------------------
(1) This entry gives effect to certain assets and liabilities of DWMI being
contributed or assumed by a wholly-owned subsidiary of DWMI and then the
subsidiary being distributed to former shareholders of DWMI.
(2) This entry gives effect to elimination of equity accounts of DWMI
in the consolidation.
(3) This entry gives effect to the issuance of preferred-B and common
stock and warrants and payment of cash for the acquisition of DWMI, and the
issuance of convertible debentures to finance the acquisition.
(4) This entry gives effect to amortization of goodwill over a five
year period.
P-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to the report on Form 8-K 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: November 6, 2000
<PAGE>
