<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
Commission File Number 0-29479
WORLDWIDE WEB NETWORX CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 58-2280078
(State of Incorporation) (I.R.S. Employer
Identification No.)
521 FELLOWSHIP ROAD, SUITE 130 08054
MOUNT LAUREL, NEW JERSEY (zip code)
(Address of principal executive offices)
(856) 914-3100
(Registrant's telephone number, including area code)
-----------
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 and
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
Number of shares of Common Stock outstanding as of August 14, 2000:
41,515,596 shares
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
QUARTERLY REPORT FORM 10-Q
INDEX
Part I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 - Financial Statements:
<S> <C>
Consolidated Balance Sheets.................................................................................... 3
June 30, 2000 (unaudited) and September 30, 1999
Consolidated Statements of Operations.......................................................................... 4
Three and Nine Months Ended June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Comprehensive Income................................................................ 5
Three and Nine Months Ended June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows.......................................................................... 6
Nine Months Ended June 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements..................................................................... 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operation.................. 17
Item 3 - Quantitative and Qualitative Disclosures About Market Risk............................................ 25
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings..................................................................................... 25
Item 2 - Changes in Securities and Use of Proceeds............................................................. 25
Item 3 - Defaults Upon Senior Securities....................................................................... 26
Item 4 - Submission of Matters to a Vote of Security Holders................................................... 26
Item 5 - Other Information..................................................................................... 26
Item 6 - Exhibits and Reports on Form 8-K...................................................................... 26
Signatures..................................................................................................... 27
Exhibit Index.................................................................................................. 27
</TABLE>
2
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
-------------------------------------
JUNE 30 SEPTEMBER 30
-------------------------------------
2000 1999
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $369 $7,234
Short-term investments.................................................. 11,477 29,475
Receivable from sales of short-term investments......................... 800 --
Accounts receivable, net of allowance for doubtful accounts............. 961 858
Prepaid expenses........................................................ 21 143
---------------- -----------------
Total current assets...................................................... 13,628 37,710
Property and equipment, net............................................... 510 295
Ownership interests and advances to Affiliated Companies.................. 4,630 2,744
Intangible assets, net.................................................... 5,313 4,884
Deferred financing costs, net............................................. -- 139
Other assets.............................................................. 237 49
Deferred income taxes..................................................... 2,715 1,690
---------------- -----------------
Total assets.............................................................. $27,033 $47,511
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses........................................................ $2,188 $1,157
Accounts payable........................................................ 1,189 1,530
Deferred revenue........................................................ 2,294 470
Current portion of capital lease obligation............................. 41 37
Convertible debentures ................................................. 125 990
Deferred income taxes................................................... 2,715 8,813
---------------- -----------------
Total current liabilities................................................. 8,552 12,997
Capital lease obligation, net of current portion.......................... 7 39
Stockholders' equity:
Preferred stock......................................................... -- --
Common stock............................................................ 41 39
Additional paid-in capital.............................................. 40,574 36,443
Retained earnings (deficit)............................................. (10,293) 1,393
Unearned stock compensation............................................. (2,800) (3,400)
Accumulated other comprehensive income.................................. (9,048) --
---------------- -----------------
Total stockholders' equity................................................ 18,474 34,475
---------------- -----------------
Total liabilities and stockholders' equity................................ $27,033 $47,511
================ =================
</TABLE>
See accompanying notes.
3
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARES)
(Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------------
2000 1999 2000 1999
-------------- ------------- -------------- ----------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Revenues..................................................... $1,210 $166 $2,749 $493
Operating expenses:
Cost of revenues............................................. 1,037 60 2,341 275
-------------- ------------- -------------- ----------------
Gross Profit............................................... 173 106 408 218
Selling, general and administrative........................ 3,521 1,648 9,904 2,302
Depreciation and amortization.............................. 352 319 1,116 273
Write-off of purchased research and development............ -- -- -- 3,036
-------------- ------------- -------------- ----------------
Loss from operations......................................... (3,700) (1,861) (10,612) (5,393)
Other income (expenses):
Loss on sale of short-term investments (1,723) -- (1,723) --
Impairment of advances to Affiliated Companies............. -- -- -- (81)
Interest expense........................................... (4) (99) (39) (99)
Amortization of debt issuance costs........................ -- (77) (139) (77)
Interest income............................................ 27 10 166 21
Equity loss................................................ (11) (598) (364) (933)
-------------- ------------- -------------- ----------------
Total other income (expenses).............................. (1,711) (764) (2,099) (1,169)
-------------- ------------- -------------- ----------------
Loss before income taxes..................................... (5,411) (2,625) (12,711) (6,562)
Income tax expense (benefit)................................. 225 -- (1,025) --
-------------- ------------- -------------- ----------------
Net loss..................................................... $(5,636) $(2,625) $(11,686) $(6,562)
============== ============= ============== ================
Basic and diluted net loss per share $(0.14) $(0.10) $(0.31) $(0.35)
============== ============= ============== ================
Basic and diluted weighted average shares outstanding 39,537,012 25,332,257 37,697,735 18,793,277
============== ============= ============== ================
</TABLE>
See accompanying notes.
4
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------------------------
2000 1999 2000 1999
--------------- ------------- -------------- ------------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Net loss............................................................. $(5,636) $(2,625) $(11,686) $(6,562)
Other comprehensive loss:
Unrealized holding losses in available-for-sale (42,955) -- (16,855) --
securities.................................................
Less: reclassification adjustment for losses included in 1,723 -- 1,723 --
net loss...................................................--------------- ------------- -------------- ------------
Net unrealized holding losses.................................... (41,232) -- (15,132) --
Tax benefit related to other comprehensive loss.................. 16,483 -- 6,098 --
--------------- ------------- -------------- ------------
Net unrealized depreciation in available-for- (24,749) -- (9,034) --
sale securities............................................--------------- ------------- -------------- ------------
Comprehensive loss................................................... $(30,385) $(2,625) $(20,720) $(6,562)
=============== ============= ============== ============
</TABLE>
See accompanying notes.
5
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30,
--------------------------------
2000 1999
-------------- --------------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................................... $(11,686) $(6,562)
Adjustments to reconcile net loss to net cash used in operating activities:
Purchased research and development....................................... -- 3,036
Loss on sale of short-term investments................................... 1,723 --
Stock compensation....................................................... 900 421
Depreciation............................................................. 85 33
Amortization............................................................. 1,031 240
Deferred income taxes.................................................... (1,025) --
Amortization of debt issuance costs...................................... 139 77
Equity loss.............................................................. 364 933
Impairment of advance to Affiliated Companies............................ -- 81
Changes in operating assets and liabilities net of acquisitions:
Accounts receivable................................................... (103) (259)
Accounts payable...................................................... (341) 121
Accrued expenses...................................................... 1,614 691
Prepaid expenses...................................................... 122 53
Deferred revenue...................................................... 424 --
-------------- --------------
Net cash used in operating activities...................................... (6,753) (1,135)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of ownership interests in Affiliated Companies, net of cash
acquired................................................................. -- (1,849)
Advances to Affiliated Companies........................................... -- (1,550)
Acquisition of technology.................................................. -- (750)
Proceeds from sale of short-term investments............................... 329 --
Purchase of property and equipment......................................... (300) (485)
Increase in other assets................................................... (113) (33)
-------------- --------------
Net cash used in investing activities...................................... (84) (4,667)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures........................... -- 990
Proceeds from Loan......................................................... -- 2,970
Debt issuance costs incurred............................................... -- (129)
Payment of capital lease obligation........................................ (28) --
Net proceeds from issuance of common stock................................. -- 2,615
-------------- --------------
Net cash provided by (used in) financing activities........................ (28) 6,446
-------------- --------------
Net increase (decrease) in cash and cash equivalents....................... (6,865) 644
Cash and cash equivalents at beginning of period........................... 7,234 792
-------------- --------------
Cash and cash equivalents at end of period................................. $369 $1,436
============== ==============
NONCASH TRANSACTIONS
Exchange of convertible notes and accrued interest for common stock........ $995 --
ISSUANCE OF COMMON STOCK FOR:
Acquisition of ownership interests in Affiliated Companies................. 2,250 $10,148
Acquisition of technology.................................................. -- 5,250
Services rendered.......................................................... 30 --
Satisfaction of accrued expenses........................................... 512 --
See accompanying notes.
</TABLE>
6
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BUSINESS
WorldWide Web NetworX Corporation (the "Company") is a holding company
engaged in business-to-business, or "B2B" e-commerce through a network of
companies. The Company defines e-commerce as conducting or facilitating business
transactions over the Internet. As of June 30, 2000, the Company owned interests
in nine companies, which are referred to in these financial statements as
"Affiliated Companies." The Company enters into relationships, including joint
ventures, strategic relationships and acquisitions, with off-line companies that
have established distribution channels and fulfillment capability and provides
e-commerce technology, consulting, marketing and business development services
to the Affiliated Companies. The Company's goal is to expand the markets,
services and products and to improve the efficiencies of these businesses.
2. SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements as of June 30,
2000 and for the three and nine month periods ending June 30, 2000 and 1999 have
been prepared in accordance with generally accepted accounting principles for
interim financial information pursuant to the rules and regulations of the SEC.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments, considered necessary for the fair presentation of the Company's
financial position at June 30, 2000 and its operations and cash flows for the
three and nine month periods ending June 30, 2000 and 1999 have been included.
Operating results for the nine month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
September 30, 2000 or for any other interim period. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations relating to interim financial
statements. The information included in this Form 10-Q should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Company's financial statements and notes thereto
included in the Company's Registration Statement on Form 10.
RESTATEMENT OF JUNE 30, 1999 FINANCIAL STATEMENTS
The financial statements as of June 30, 1999 and for the nine months
then ended have been restated from those previously included in our press
release dated September 27, 1999. The restated amounts have been prepared to
conform to the audited financial statements for the year ended September 30,
1999 included in the Company's Registration Statement on Form 10. The unaudited
financial statements previously issued have been restated as follows:
a) The Company's investment of $3,036,000 in the JenCom assets
was written off as purchased research and development in the
statement of operations for the nine month period ended June
30, 1999. It was a condition of the Stock Purchase Agreement
between the Company and D.H. Blair Investment Banking Corp.
that the Company execute a definitive agreement with JenCom
Digital Technologies for the acquisition of a 50% interest in
the JenCom projects. Subsequent to June 30, 1999 the Company
determined that the purchased products represented research
and development in process and were not technologically
feasible at the acquisition date. As a result, the accounting
standards require these costs to be expensed at acquisition.
b) The Company's subsidiary Entrade Inc. is consolidated in the
statement of operations for the three and nine month periods
ended June 30, 1999. Previously, the subsidiary was reflected
as an asset held for sale. The inclusion of Entrade Inc.'s
results in the Company's Consolidated Statement of Operations
resulted in an additional loss in the nine month period ended
June 30, 1999 of $815,000.
c) The Company's valuation of common stock issued in connection
with the acquisition of investments and in payment for
services rendered was adjusted to reflect its fair value on
the date of issuance. This adjustment resulted in an
additional loss in the nine month period ended June 30, 1999
of $1.1 million.
7
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
d) The Company did not include the equity loss from
unconsolidated subsidiaries accounted for using the equity
method. The inclusion of the equity loss from unconsolidated
subsidiaries in the Company's Consolidated Statement of
Operations resulted in an additional loss in the nine month
period ended June 30, 1999 of $433,000.
The effect of the restatement on the previously reported amounts is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED JUNE 30, 1999
-----------------------------------------------
AS AS PREVIOUSLY
RESTATED REPORTED
--------------------- ---------------------
<S> <C> <C>
Net loss $(6,562,000) $(871,000)
Basic and diluted net loss per share $(0.35) $(0.03)
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiary, The Intrac Group, Ltd. and its majority
owned and controlled subsidiaries, ATM Service, Ltd. and Real Quest, Inc. The
various interests that the Company acquires in its Affiliated Companies are
accounted for under three methods: consolidation, equity method and cost method.
The applicable accounting method is generally determined based on the Company's
voting interest in an Affiliated Company unless significant minority rights are
present.
CONSOLIDATION
Affiliated Companies in which the Company directly or indirectly owns
more than 50% of the outstanding voting securities are generally accounted for
under the consolidation method of accounting. Under this method, an Affiliated
Company's results of operations are reflected within the Company's statement of
operations. All significant intercompany accounts and transactions are
eliminated. Participation of other Affiliated Company shareholders in the
earnings or losses of a consolidated Affiliated Company is reflected in the
caption "Minority interest" in the Company's statement of operations. Minority
interest adjusts the Company's consolidated results of operations to reflect
only the Company's share of the earnings or losses of the consolidated
Affiliated Company.
EQUITY METHOD
Affiliated Companies whose results are not consolidated, but over whom
the Company exercises significant influence, are accounted for under the equity
method of accounting. Whether or not the Company exercises significant influence
with respect to an Affiliated Company depends on an evaluation of several
factors including, among others, representation on the Affiliated Company's
Board of Directors and ownership level, which is generally a 20% to 50% interest
in the voting securities of the Affiliated Company, including voting rights
associated with the Company's holdings in common, preferred and other
convertible instruments in the Affiliated Company. Under the equity method of
accounting, an Affiliated Company's results of operations are not included in
detail within the Company's statement of operations; however, the Company's
share of the earnings or losses of the Affiliated Company is reflected in the
caption "Equity income (loss)" in the statement of operations.
8
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amount by which the Company's carrying value exceeds its share of
the underlying net assets of Affiliated Companies accounted for under the
consolidation or equity method of accounting is recorded as goodwill and is
amortized on a straight-line basis over its estimated useful life. Goodwill
amortization adjusts the Company's share of the Affiliated Company's earnings or
losses.
COST METHOD
Affiliated Companies not accounted for under the consolidation or the
equity method of accounting are accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings or losses of
such companies is not included in the consolidated statement of operations.
However, cost-method impairment charges are recognized in the consolidated
statement of operations and deducted from the carrying value in the consolidated
balance sheet, while the new cost basis is not increased if circumstances
suggest that the value of the Affiliated Company has subsequently recovered.
The Company records its ownership interest in debt securities of
Affiliated Companies accounted for under the cost method at cost. The Company
records its ownership interest in equity securities of Affiliated Companies
accounted for under the cost method at cost, unless these securities have
readily determinable fair values based on quoted market prices, in which case
these interests would be recorded at fair value. In addition to the Company's
investments in voting and non-voting equity and debt securities, it periodically
makes advances to its Affiliated Companies in the form of promissory notes which
are accounted for in accordance with SFAS No. 114.
The Company continually evaluates the carrying value of its ownership
interests in and advances to each of its Affiliated Companies for possible
impairment based on achievement of business plan objectives and milestones, the
value of each ownership interest in the Affiliated Company relative to carrying
value, the financial condition and prospects of the Affiliated Company, and
other relevant factors. The business plan objectives and milestones the Company
considers include, among others, those related to financial performance such as
achievement of planned financial results or completion of capital raising
activities, and those that are not primarily financial in nature such as the
launching of a web site or the hiring of key employees. The fair value of the
Company's ownership interests in and advances to privately held Affiliated
Companies is generally determined based on the value at which independent third
parties have or have committed to invest in its Affiliated Companies.
TRADE CREDITS
The Company makes some purchases of goods and services in whole or in
part by issuing "trade credits" that customers can redeem to purchase goods and
services from the Company. The Company issues two types of trade credits,
"combination trade credits" and "straight trade credits." Under a combination
trade credit arrangement, the customer purchases goods and services from the
Company and pays for goods and services in both cash and the redemption of trade
credits. Straight trade credits are used for the same purposes as combination
trade credits, but differ in that the customer pays for goods and services only
through the redemption of trade credits, with no cash component.
Unredeemed combination trade credits totaled $15,937,750 at June 30,
2000 and $8,017,000 at September 30, 1999. Vendors must redeem the trade credits
within specified periods ranging from 2 to 5 years. Trade credits redeemable for
the next four years are as follows: $2,259,000 in 2000, $1,445,000 in 2001,
$1,270,000 in 2002, and $3,043,000 in 2003. Unredeemed straight trade credits of
$230,000 at September 30, 1999 and $350,000 at June 30, 2000 are included in
deferred revenue.
SHORT-TERM INVESTMENTS
The Company classifies its short-term investments as available for
sale. Such investments are recorded at fair value based on quoted market prices,
with unrealized gains and losses, which are considered to be temporary, recorded
as other comprehensive income or loss until realized. The cost of short-term
investments sold is based on the average cost method.
9
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of new software products
and enhancements to existing software products are expensed as incurred until
technological feasibility has been established. After technological feasibility
is established, any additional development costs are capitalized in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization ceases upon general release to customers. Amortization of such
capitalized costs is the greater of the amount computed using (i) the ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (ii) the straight-line
method over the remaining estimated economic life of the product, including the
period being reported on. Amortization begins when the product is available for
general release to customers. During the nine month period ending June 30, 1999,
the Company recognized research and development expenses totaling $3,036,000 for
proprietary internet software technologies, which were not technologically
feasible at the date they were purchased. These technologies were purchased from
JenCom Digital Technologies, Inc. and contributed to WWWX-Jencom, LLC. It was a
condition of the Stock Purchase Agreement between the Company and D.H. Blair
Investment Banking Corp. that the Company execute a definitive agreement with
JenCom Digital Technologies for the acquisition of a 50% interest in the JenCom
projects.
The Company performs an ongoing review of the recoverability of its
capitalized software costs. At the time a determination is made that capitalized
amounts are not recoverable based on the estimated cash flows to be generated
from the applicable software, any remaining capitalized amounts are written off.
INTANGIBLE ASSETS
Intangible assets consist of goodwill attributable to businesses
acquired. Goodwill represents the excess of the cost of businesses acquired over
the fair value of the related net assets at the date of acquisition. Intangible
assets are amortized using the straight-line method over their expected useful
lives of 3 to 5 years.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding for the
period. Diluted net income (loss) per share reflects the potential dilution of
securities by including other common stock equivalents, including stock options,
convertible debt, and warrants to purchase common stock in the weighted average
number of common shares outstanding for a period, if dilutive. Contingently
issuable shares are included in diluted net income per share, if dilutive, based
on the number of shares, if any, that would be issuable under the terms of the
arrangement if the end of the reporting period were the end of the contingency
period.
Due to their antidilutive effect, dilutive securities were excluded
from the computation of diluted net loss per share for the three and nine month
periods ended June 30, 2000 and 1999. The 750,000 and 1,500,000 contingently
issuable shares related to the acquisitions of the Real Quest, Inc. and
InterCommerce China, LLC investments, respectively, and the shares contingently
issuable to Warren Rothstein were not included in the earnings per share
calculation because the conditions related to the contingencies were not
satisfied at June 30, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES (SFAS No. 133), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS No. 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS No. 133, is effective for
fiscal years beginning after June 15, 2000. The Company has not yet determined
the impact of this pronouncement or when it will adopt it.
10
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SHORT-TERM INVESTMENTS
Short-term investments at June 30, 2000 and September 30, 1999
consisted of 1,625,000 and 1,800,000 shares of common stock of Entrade Inc.,
respectively, received as consideration for the sale of a subsidiary to Artra.
These shares have restrictions on their sale until September 23, 2000. Entrade
Inc. has granted the Company a partial waiver of the sale restrictions that
allowed the Company to sell a total of 175,000 shares in May and June 2000. In
July and August 2000, the Company sold 0 and 50,000 shares, respectively. The
shares may be pledged as collateral by the Company. The quoted market value of
the 1,575,000 Entrade Inc. (a NYSE company) shares held by the Company was
$8,125,000 at August 16, 2000, a decrease of $3,352,000 from the amount recorded
at June 30, 2000. Entrade Inc. is a public company subject to the reporting
requirements of the U.S. Securities and Exchange Commission.
The following summarizes the audited balance sheet and statement of
operations information reported by Entrade at December 31, 1999 and for the year
then ended and the unaudited balance sheet and statement of operations at June
30, 2000 and the six months then ended, respectively. (amounts in thousands,
except per share data)
<TABLE>
<CAPTION>
BALANCE SHEET JUNE 30, 2000 DECEMBER 31,
1999
-------------- -------------
<S> <C> <C>
Current assets........................................ $14,138 $15,326
Non-current assets.................................... 90,279 65,432
Current liabilities................................... 26,318 20,217
Non-current liabilities............................... 7,929 12,721
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
-------------------- ------------------
<S> <C> <C>
Net revenues................................. $7,509 $4,542
Cost of revenues, exclusive of depreciation
and amortization........................... 3,061 1,759
Net loss..................................... (12,670) (19,304)
Net Loss applicable to common shares per Share:
Basic and diluted.......................... $(1.43) $(3.65)
</TABLE>
11
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OWNERSHIP INTERESTS IN AFFILIATED COMPANIES
The following summarizes the Company's ownership interests in and
advances to Affiliated Companies accounted for under the equity method and cost
method of accounting. The ownership interests are classified according to
applicable accounting methods at June 30, 2000. Cost basis represents the
Company's original acquisition cost and advances less any impairment charges
recorded by the Company, (in thousands).
<TABLE>
<CAPTION>
TOTAL CARRYING VALUE
VALUATION COST JUNE 30, SEPTEMBER 30,
INVESTMENT ADVANCES ALLOWANCE BASIS 2000 1999
---------- -------- --------- ----- -------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Equity method:
WWWX-Jencom, LLC........... $ -- $ 900 $ (175) $ 725 $ --- $ 364
Cost Method:
VideoNet................... -- 100 -- 100 100 100
One World Direct........... 675 -- -- 675 675 675
Vision..................... -- 850 (850) -- -- --
AsseTrade.................. 1,605 -- -- 1,605 1,605 1,605
InterCommerce China........ 2,250 -- -- 2,250 2,250 --
Other...................... 81 -- (81) -- -- --
---------- -------- --------- -------- -------- --------
4,611 950 (931) 4,630 4,630 2,380
---------- -------- --------- -------- -------- --------
Total...................... $4,611 $1,850 $(1,106) $5,355 $4,630 $2,744
========== ======== ======== ======== ======== ========
</TABLE>
The Company also has an investment in Entrade Inc. which it accounts for
under the cost method and is included in short-term investments (Note 3).
12
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
assets and liabilities are measured using the enacted tax rates in effect for
the year in which the temporary differences are expected to be recovered or
settled. Significant components of the Company's net deferred income taxes
included the deferred gain on sale of a subsidiary, the loss in an
unconsolidated subsidiary, the effect of purchased research and development and
other intangibles and NOL carryforwards.
At September 30, 1999, the Company has available net operating loss
carryforwards of approximately $2,430,000 which expire in the years 2012 to 2019
for federal purposes and 2004 and 2006 for state purposes. The timing and manner
in which the Company will utilize net operating loss carryforwards in any year,
or in total, may be limited by Section 382 of the Internal Revenue Code.
6. STOCKHOLDERS' EQUITY
COMMON STOCK OPTIONS
The Company has an equity compensation plan whereby the Company may
grant either incentive or nonqualified stock options to purchase shares of the
Company's common stock or restricted shares of the Company's common stock.
Twenty-five percent of the options are exercisable on the first anniversary of
the date of the participant's hire date. The additional amounts become
exercisable at varying rates from 6.25% on the last day of each quarter
thereafter. The Company has reserved 3,860,000 shares of its common stock to be
issued under the plan.
The incentive stock options may be granted at not less than the fair
market value of the shares at the date of grant, and the nonqualified stock
options are to be granted at no less than eighty-five percent of the fair market
value of the shares at the date of grant. The fair market value of the Company's
common stock is determined by the Board of Directors based on the trading price
of the Company's stock at the date of grant. Under APB No. 25, if the exercise
price of the Company's employee stock options equals or exceeds the fair value
of the underlying stock on the date of grant, no compensation expense is
recognized.
The following table summarizes information about stock options outstanding at
June 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING
PER SHARE NUMBER OF AVERAGE CONTRACTUAL LIFE
PRICES SHARES PER SHARE PRICE (YEARS)
----------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
June 30, 2000 (Unaudited) $1.38 - $5.65 1,330,000 $3.98 9.7
----------------- ------------- ----------------- -----------------
</TABLE>
Options to purchase 153,750 shares of common stock were exercisable at
June 30, 2000.
13
<PAGE>
WORLDWIDE WEB NETWORX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK OPTION ACTIVITY
A summary of stock option activity follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, 2000
(UNAUDITED)
---------------------------------
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------------- ----------------
<S> <C> <C>
Outstanding at beginning of period 915,000 $2.69
Options granted 895,000 4.66
Options cancelled or expired (480,000) 2.79
------------- ----------------
Outstanding at end of period 1,330,000 $3.98
============= ================
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company has operating leases covering office space and office
equipment. At September 30, 1999, future minimum lease payments on these
noncancelable operating leases having initial or remaining terms of more than
one year are $198,000 for 2000, $197,000 for 2001, $140,000 for 2002, $142,000
for 2003, and $133,000 for 2004.
The Company also leases equipment under capital leases. Future minimum
lease payments on capital leases, net of imputed interest of $11,000, are
$37,000 for 2000 and $39,000 for 2001.
In August 2000, the Company's joint venture partner New America
Network, Inc. notified the Company that it believed that the Company was in
default of provisions of the Real Quest, Inc. Shareholders Agreement requiring
the Company to provide funding and technology to NAI Direct, Inc. The Company
believes that it has complied with the provisions of the agreement. Any
potential liability or outcome in this matter can not be determined at this
time.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION
SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES THERETO INCLUDED IN OUR REGISTRATION STATEMENT ON FORM 10,
REGISTRATION NO. 000-29479.
GENERAL
We have been pursuing a plan of operations that included (a) further
development of our Affiliated Companies that we consolidate in our financial
statements, ATM Service, Ltd., The Intrac Group and NAI Direct, Inc; (b)
expanding our staff to provide services to and monitor our Affiliated Companies;
and (c) seeking out new Affiliated Companies. This plan had contemplated certain
levels of funding which have not been realized.
As discussed more fully in "Liquidity and Capital Resources," we are
currently pursuing several funding alternatives, however, there can be no
assurances that we will be able to obtain funding or increase our liquidity.
If we are unable to obtain sufficient funding or increase our liquidity, we
will not be able to execute our plans or continue our current operations. As
a result, we are re-examining our plans and evaluating our strategic
alternatives. We may exit lines of business, sell assets or enter new lines
of business. Additionally, factors which may cause a change from our actual
results or actual plan of operations vary but include, without limitation,
decisions of our board of directors not to pursue the stated plan of
operations based on its reassessment of the plan, the availability of
financing to implement the plan, changes in the Internet business, the
wholesaling and asset recovery business and general economic conditions.
EFFECT OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS
The various interests that we acquire in the companies in which we own
interests are accounted for under one of three methods: consolidation, equity
method and cost method. The applicable accounting method is generally determined
based on our voting interest in a company in which we own an interest unless
significant minority rights are present.
CONSOLIDATION. Companies in which we directly or indirectly own more than 50%
of the outstanding voting securities and exercise control are generally
accounted for under the consolidation method of accounting. Under this method, a
company's results of operations are reflected within our Consolidated Statements
of Operations. Participation of other company stockholders in the earnings or
losses of a consolidated company is reflected in the caption "Minority interest"
in our Consolidated Statements of Operations. Minority interest adjusts our
consolidated results of operations to reflect only our share of the earnings or
losses of the consolidated company. ATM Service, Ltd., The Intrac Group, Ltd.,
and Real Quest, Inc. were our only consolidated companies through June 30, 2000.
ATM Service, Ltd. was recorded using the equity method from December 1998
through July 23, 1999, when we acquired a controlling interest. From that date
through June 30, 2000, we have consolidated ATM Service, Ltd. and included the
detail of its results of operations in our consolidated results of operations.
EQUITY METHOD. Companies whose results we do not consolidate, but over whom we
exercise significant influence, are accounted for under the equity method of
accounting. Whether or not we exercise significant influence with respect to a
company depends on an evaluation of several factors including, among others,
representation on the company's board of
15
<PAGE>
directors and ownership level, which is generally a 20% to 50% interest in the
voting securities of the company, including voting rights associated with our
holdings in common, preferred and other convertible instruments in the company.
Under the equity method of accounting, the detail of a company's results of
operations are not reflected within our Consolidated Statements of Operations;
however, our share of the earnings or losses of the company is reflected in the
caption "Equity income (loss)" in the Consolidated Statements of Operations.
During the fiscal year ended September 30, 1999, we accounted for two companies
under the equity method of accounting, WWWX-Jencom, LLC, and ATM Service, Ltd.,
as described in the previous paragraph. For the three and nine month periods
ended June 30, 2000, we accounted for WWWX-Jencom, LLC under the equity method
of accounting.
The net effect of a company's results of operations on our net results
of operations is generally the same under either the consolidation method of
accounting or the equity method of accounting, as under both of these methods
only our share of the earnings or losses of a company is reflected in our net
results of operations in the Consolidated Statements of Operations.
COST METHOD. Companies not accounted for under the consolidation or the equity
method of accounting are accounted for under the cost method of accounting at
cost. Under this method, our share of the earnings or losses of these companies
is not included in our Consolidated Statements of Operations. As of June 30,
2000 we accounted for five companies under the cost method of accounting.
EFFECT OF VARIOUS ACCOUNTING METHODS ON THE PRESENTATION OF OUR FINANCIAL
STATEMENTS
The presentation of our financial statements may differ from period to
period primarily due to whether or not we apply the consolidation method of
accounting, the equity method of accounting or the cost method of accounting.
RESULTS OF OPERATIONS-THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999
REVENUES
Revenues were $1.2 million for the three months ended June 30, 2000 as
compared to revenues of $166,000 for three months ended June 30, 1999. The
increase in revenue was primarily due to the acquisitions of interests in ATM
Service, Ltd. and The Intrac Group, Ltd. Revenues for the three months ended
June 30, 1999 were principally derived from consulting services provided by our
Entrade subsidiary which we sold in September 1999.
For the three month period ended June 30, 2000, 5% of our revenue was
provided by liquidation and cost recovery services, 89% of our revenue came from
the purchase and resale of media, 3% of our revenue was provided by asset
management, and 3% of our revenue came from consulting. For the three months
ended June 30, 1999, 100% of our revenue was from consulting services.
COST OF REVENUE
Cost of revenue primarily consists of media costs and goods, freight
and warehousing of inventory held for sale. Cost of revenue was $1 million and
$60,000 for the three months ended June 30, 2000 and 1999, respectively. The
increase in cost of revenue was primarily due to the increase in revenues due to
the acquisitions of ATM Service, Ltd. and The Intrac Group, Ltd. The cost of
revenue for the three months ended June 30, 1999 consisted primarily of salaries
and fees paid to programmers and consultants.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and
related costs, professional fees, consulting fees, facilities cost and marketing
expenses. General and administrative expenses were $3.5 million and $1.6 million
for the three months ended June 30, 2000 and 1999, respectively. The increase
was primarily due to an increase in the operations of our affiliated companies,
and the acquisitions or Real Quest, ATM Service, Ltd. and The Intrac Group, Ltd.
As the number of our employees grew to support our operations and those of our
subsidiary companies, our general and administrative costs increased.
16
<PAGE>
We expect selling, general, and administrative expenses to increase due
to the consolidated companies being included in our consolidated statement of
operations for the entire year and the expansion of support necessary for the
increase in our growth and the growth of our consolidated subsidiaries to
implement our plan of operations.
DEPRECIATION AND AMORTIZATION
Amortization expense consists of amortization of goodwill. Depreciation
expense consists of depreciation of furniture, fixtures, machinery and computer
equipment. Depreciation and amortization expense was $352,000 and $319,000 for
the three months ended June 30, 2000 and 1999, respectively. The depreciation
and amortization in the three months ended June 30, 2000 was primarily due to
goodwill amortization relating to The Intrac Group and Real Quest, Inc.
acquisitions. The depreciation and amortization in the three months ended June
30, 1999 was primarily due to goodwill amortization relating to the Entrade Inc.
assets.
LOSS FROM OPERATIONS
During the three months ended June 30, 2000, we incurred a loss from
operations of $3.7 million compared with $1.9 million for the three months ended
June 30, 1999. The increased loss is primarily the result of increased selling,
general and administrative expenses to support our operations.
LOSS ON SALE OF SHORT-TERM INVESTMENTS
During the three months ended June 30, 2000, we sold 175,000 shares of
Entrade Inc. common stock resulting in a loss on the sale of $1.7 million.
EQUITY LOSS
Equity loss represents our share of the earnings or losses of our
companies accounted for under the equity method. For the three months ended
June 30, 2000, and 1999, equity loss includes our share of the loss from
WWWX-Jencom of $11,000 and $48,000, respectively. Additionally, equity loss
for the three months ended June 30, 1999 includes $300,000 of stock
compensation paid for listings provided to ATM Service, Ltd. and $250,000 of
amortization expense of intangible assets of ATM Service, Ltd. which we
accounted for using the equity method through July 23, 1999 when we acquired
a controlling interest.
INCOME TAX EXPENSE
Income tax expense for the three months ended June 30, 2000 of $225,000
principally results from the income tax benefit of $2.1 million calculated at
federal statutory rates offset by an increase in our valuation allowance of $1.4
million with respect to deferred tax assets of a subsidiary not consolidated for
income tax purposes for which realization is uncertain. There was a provision of
$919,000 for income taxes offset by a $919,000 increase in the valuation
allowance for the three months ended June 30, 1999.
NET LOSSES
For the three months ended June 30, 2000, we had net losses of $5.6
million compared to net losses of $2.6 million for the three months ended June
30, 1999.
RESULTS OF OPERATIONS-NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO JUNE 30, 1999
REVENUES
Revenues were $2.7 million for the nine months ended June 30, 2000 and
$493,000 for the nine months ended June 30, 1999. The increase in revenue was
primarily due to the acquisitions of interests in ATM Service, Ltd. and The
Intrac Group, Ltd. Included in revenues for the nine months ended June 30, 1999,
were $300,000 of consulting revenue from entrade.com which we sold in September
1999.
17
<PAGE>
For the nine months ended June 30, 1999, substantially all of our
revenue was derived from consulting services predominantly provided by Entrade
which we sold to Artra in September 1999. For the nine months ended June 30,
2000, the purchase and resale of media accounted for 67% of our revenue; asset
management provided 4% of our revenue; liquidation and cost recovery provided
24% of our revenue; consulting revenues provided 1% if our revenue; and
management services provided 4% of our revenues.
COST OF REVENUE
Cost of revenue primarily consists of goods, freight and warehousing of
inventory held for sale and media costs. Cost of revenue was $2.3 million and
$275,000 for the nine months ended June 30, 2000 and 1999, respectively. The
increase in cost of revenue was primarily due to the increase in revenues due to
the acquisitions of ATM Service, Ltd. and The Intrac Group, Ltd. The cost of
revenue for the nine months ended June 30, 1999 consisted primarily of salaries
and fees paid to programmers and consultants.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of payroll and
related costs, professional fees, consulting fees, facilities cost and marketing
expenses. General and administrative expenses were $9.9 million and $2.3 million
for the nine months ended June 30, 2000 and 1999, respectively. The increase was
primarily due to an increase in the operations of our affiliated companies, and
the acquisitions of Real Quest, ATM Service, Ltd. and The Intrac Group, Ltd. As
the number of our employees grew to support our operations and those of our
subsidiary companies, our general and administrative costs increased.
We expect selling, general, and administrative expenses to increase due
to the consolidated companies being included in our consolidated statement of
operations for the entire year and the expansion of support necessary for the
increase in our growth and the growth of our consolidated subsidiaries to
implement our plan of operations.
DEPRECIATION AND AMORTIZATION
Amortization expense consists of amortization of goodwill. Depreciation
expense consists of depreciation of furniture, fixtures, machinery and computer
equipment. Depreciation and amortization expense was $1.1 million and $273,000
for the nine months ended June 30, 2000 and 1999, respectively. The increase in
depreciation and amortization was primarily due to goodwill amortization
relating to The Intrac Group and Real Quest, Inc. acquisitions.
WRITE-OFF OF PURCHASED RESEARCH AND DEVELOPMENT
In March 1999, we acquired projects in various stages of development
from JenCom Digital Technologies, Inc. The total cost of the acquisition was $3
million through the issuance of 2 million shares of our common stock. In
conjunction with the acquisition of these projects, we recorded a charge to
operations of $3 million for in-process research and development at the time of
the acquisition, representing the fair value of products under development that
had not reached technological feasibility at the time of the acquisition. We
transferred our ownership interest in these assets to our 50% owned joint
venture WWWX-Jencom, LLC.
The in-process technology acquired was four significant research and
development projects which the WWWX-Jencom continues to develop. The
technologies acquired are VuCam, a remote-control real-time streaming video
software; True Sound, a sound compression format; School Network Application, an
interactive web-based system designed to facilitate involvement in school
activities and the flow of school-related information; and Power Broker, a
communications and trading management program.
The nature of the efforts required to develop the acquired in-process
technology into commercially viable products principally relates to the
completion of all planning, designing and testing activities that are necessary
to establish that the product or service can be produced to meet its design
requirements, including functions, features and technical performance
requirements. Future developments in technology, changes in other products and
service offerings, or other developments may cause us to alter or abandon our
plans for these projects.
LOSS FROM OPERATIONS
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During the nine months ended June 30, 2000, we incurred a loss from
operations of $10.6 million compared with $5.3 million in the nine months ended
June 30, 1999. The increased loss is primarily the result of increased selling,
general and administrative expenses to support our operations offset by a
non-recurring, non-cash charge of $3 million related to the write-off of
acquired in-process research and development for the JenCom projects.
LOSS ON SALE OF SHORT-TERM INVESTMENTS
During the nine months ended June 30, 2000, we sold 175,000 shares of
Entrade Inc. common stock resulting in a loss on the sale of $1.7 million.
IMPAIRMENT OF ADVANCES TO COMPANIES
At June 30, 2000, we did not have a need to adjust our valuation
allowances for advances made to affiliated companies. During the nine months
ended June 30, 1999, we evaluated the carrying value of advances totaling
$81,000 made to a company in anticipation of acquiring an equity position in
that company. Based on our review of its business plan, we have recorded a
valuation allowance of $81,000.
EQUITY LOSS
Equity loss represents our share of the earnings or losses of our
companies accounted for under the equity method. For the nine months ended
June 30, 2000, and 1999, equity loss includes our share of the loss from
WWWX-Jencom of $364,000 and $100,000, respectively. Additionally, equity loss
for the nine months ended June 30, 1999 includes $500,000 of stock
compensation paid for listings provided to ATM Service, Ltd. and $333,000 of
amortization expense of intangible assets of ATM Service, Ltd. which we
accounted for using the equity method through July 23, 1999 when we acquired
a controlling interest.
INCOME TAX EXPENSE
Income tax benefit for the nine months ended June 30, 2000 of $1
million principally results from the income tax benefit of $4.4 million
calculated at federal statutory rates offset by an increase in our valuation
allowance of $3.4 million with respect to deferred tax assets of a subsidiary
not consolidated for income tax purposes for which realization is uncertain.
There was a provision of $2.3 million for income taxes offset by a $2.3 million
increase in the valuation allowance for the nine months ended June 30, 1999.
NET LOSS
For the nine months ended June 30, 2000, we had net losses of $11.7
million compared to net losses of $6.6 million for the nine months ended June
30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations with a combination of
cash proceeds from the sale of our common stock, convertible debentures and our
Entrade Inc. subsidiary. Since inception, we have raised approximately $12.9
million from the sale of our common stock and approximately $1.5 million from
the sale of our convertible debentures. Proceeds from the sale of Entrade Inc.
stock generated cash proceeds of approximately $2.9 million.
Cash used in operations increased to approximately $6.8 million in the
nine months ended June 30, 2000, compared to $1.1 million in the nine months
ended June 30, 1999, as a result of our increased operating expenses which were
only partially offset by increased net revenues.
Cash used in investing activities decreased to approximately $84,000 in
the nine months ended June 30, 2000, compared to $4.7 million in the nine months
ended June 30, 1999, because in the nine months ended June 30, 2000 we did not
acquire ownership interests in affiliated companies with cash, we did not
purchase technology, nor did we make advances to unconsolidated affiliated
companies, each of which we did in the nine months ended June 30, 1999.
19
<PAGE>
Consolidated working capital decreased to $5.1 million at June 30,
2000, compared to $24.7 million at September 30, 1999. The decrease resulted
primarily from the decrease in the value of our Entrade Inc. stock, partially
offset by the decrease in deferred income taxes related to the decrease in
the value of our Entrade Inc. stock and cash used in operations offset by an
increase in deferred revenue. Our ability to sell our shares of Entrade is
limited to 50,000 shares per month until September 23, 2000, after which our
ability to sell may be limited by market and regulatory considerations. We
are permitted to pledge our Entrade Inc. shares to an institutional lender or
nationally recognized brokerage house. Excluding our marketable securities
and related deferred income taxes, we would have a working capital deficit at
June 30, 2000, of $3.7 million.
Our operations are not capital intensive and we have not incurred
significant capital expenditures through June 30, 2000 and do not anticipate
significant capital expenditures in the remainder of fiscal 2000.
There were no material capital asset purchase commitments at June 30, 2000.
As of August 18, 2000, we have directly provided $2.1 million of
funding to our affiliated company, NAI Direct, Inc., to fund its operations.
We have also committed to loan or otherwise obtain $2.9 million of additional
funding for NAI Direct as required to meet its working capital requirements
before March 2001.
Holders of $865,000 in principal amount of our 6% cumulative
convertible debentures elected to convert into common stock. If the remaining
Debentures are not converted into common stock in accordance with the terms of
the Debentures, we will have to pay the remaining $125,000 principal amount plus
interest and related costs to the remaining holders.
We believe that cash and cash equivalents on hand and receivables from
the sale of short-term investments at June 30, 2000, will not be adequate to
fund our current operating needs and those of our consolidated subsidiaries at
current levels for more than 60 days. We have been funding our operations
through the sale of shares of our Entrade Inc. stock. Currently, to the extent
possible, we are delaying payments on outstanding liabilities. If we are to
continue our strategy or take advantage of alternatives available to us, we will
need additional cash from either the proceeds of loans against our Entrade Inc.
stock, the sale of a portion or all of our Entrade Inc. stock, the sale of a
portion or all of our other investments or from future equity offerings.
We are in discussions to obtain loans from an institutional lender
using our Entrade Inc. stock and other assets as collateral. There can be no
assurances that we will obtain a loan from the institutional lender. We are also
evaluating all of our funding alternatives, including the sale of a portion or
all of our Entrade Inc. stock, the sale of a portion or all of our other
investments, future equity offerings or a combination of those alternatives. We
do not anticipate that we or any of our subsidiaries will have a positive cash
flow from operations in the next 12 months.
There can be no assurances that we will be able to borrow against our
Entrade Inc. stock, sell our Entrade Inc. stock at a desirable price, sell our
other investments or be able to obtain additional equity funding. Further, if we
sell a portion of our Entrade Inc. stock or other investments we may be subject
to income taxes based on the value of the Entrade Inc. stock or other
investments at the time of the sale. The publicly-traded market for Entrade
Inc.'s shares fluctuates significantly, reducing our ability to attractively
borrow against our Entrade Inc. stock. The value of our Entrade Inc. stock has
decreased during calendar year 2000 from approximately $100 million in January
2000 to approximately $7.6 million on August 18, 2000. Our other investments are
in development-stage companies that are not publicly-traded. As a result, we may
not be able sell our other investments at favorable prices or at all. If we
cannot raise additional funding, we may be forced to curtail our operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements that
are subject to a number of risks and uncertainties, many of which are beyond our
control, which may include statements about our:
/ / plans for and ability to hire additional personnel, including
a full time Chief Executive Officer;
20
<PAGE>
/ / business strategy, including transacting business on our web
sites and developing the companies in which we own interests;
/ / expectations for future expansion both in the U.S. and
internationally;
/ / anticipated growth in revenue;
/ / uncertainty regarding our future operating results;
/ / anticipated sources of funds to fund our operations; and
/ / plans, objectives, expectations and intentions contained in
this registration statement that are not historical facts.
All statements, other than statements of historical included in this
registration statement, regarding our strategy, future operations, financial
position, estimated revenues or losses, projected costs, prospects, plans and
objectives of management are forward-looking statements. When used in this
registration statement, the words "will", "believe", anticipate", "intend",
estimate", "expect", "project" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such identifying words. All forward-looking statements speak only as of the date
of this registration statement. Although we believe that our plans, intentions
and expectations reflected in or suggested by the forward-looking statements we
make in this registration statement are reasonable, we can give no assurance
that these plans, intentions or expectations will be achieved.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are restricted from selling more than 50,000 shares of our
Entrade Inc. stock per month until September 23, 2000. We are exposed to
equity price risks on our ownership interest in the common stock of Entrade
Inc. which is a New York Stock Exchange publicly traded security denominated
in U.S. dollars. Since June 30, 2000, the value of our Entrade stock has
fluctuated from a low of $6.7 million on July 26, 2000 to a high of $11.1
million on July 3, 2000. A 20% decrease in equity prices would result in an
approximate $2.3 million decrease in the fair value of our holdings of
Entrade stock at June 30, 2000. The value of our holdings may continue to
fluctuate. We have not attempted to reduce or eliminate our market exposure
on our holdings.
We are exposed to interest rate risk on our holdings of money market
instruments. Historically, our investment income has not been material to our
financial results, and we do not expect that changes in interest rates will have
a material impact on the results of operations. A 1/2% increase in interest
rates would result in an approximate $25,000 increase in interest income.
We also have issued fixed-rate debt, which is convertible into our
common stock at a pre-determined conversion price. Convertible debt has
characteristics that give rise to both interest rate risk and market risk
because the fair value of the convertible security is affected by both the
current interest rate environment and the underlying price of our common stock.
As of June 30, 2000, $865,000 in principal amount of the debt has been converted
into common stock and $125,000 in principal amount remains outstanding.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 17, 2000, one of the Company's directors, Thomas A.
Settineri, filed a complaint in the Court of Chancery of the State of Delaware
in New Castle County seeking to establish a date for the annual meeting of
stockholders of the Corporation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes In Securities
The Company from time to time has granted options to purchase our
common stock to employees and directors. For the three months ended June 30,
2000, the Company granted the following options to purchase shares of common
stock:
On June 12, 2000, we issued options exercisable for 20,000 shares of
our common stock to Jennifer Gomme, one of our employees, at an exercise price
of $1.38 per share.
On June 12, 2000, we issued options exercisable for 50,000 shares of
our common stock to Mary McCarty, one of our employees, at an exercise price of
$1.38 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit No. Description
---------- -----------------------------------------------------
27.1 Financial Data Schedule
REPORTS ON FORM 8-K
None
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 duly authorized.
Date: August 21, 2000 WORLDWIDE WEB NETWORX CORPORATION
(Registrant)
By: //s// John T. Banigan
-----------------------------------------
John T. Banigan
Chief Financial Officer & Treasurer
(Principal Financial and Principal
Accounting Officer)
(Duly Authorized Officer)
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
27.1 Financial Data Schedule
23
