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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ to __________.
Commission File Number: 333-85095
ACTIVEWORLDS.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-383101
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
95 PARKER STREET, NEWBURYPORT, MASSACHUSETTS 01950
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (978) 499-0222.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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As of September 30, 2000, there were outstanding 8,547,335 shares of
Common Stock, par value $.001, of the registrant.
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ACTIVEWORLDS.COM, INC.
Form 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2000
(Unaudited) and December 31, 1999................................................................4
Consolidated Statements of Operations for the three months and nine months
ended September 30, 2000 and 1999 (Unaudited)....................................................5
Consolidated Statements of Cash Flows for the nine months ended September 30,
2000 and 1999
(Unaudited)......................................................................................6
Notes to Consolidated Financial Statements (Unaudited).............................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OPERATIONS.......................................................9
PART II - OTHER INFORMATION.......................................................................13
SIGNATURES........................................................................................14
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACTIVEWORLDS.COM, INC.
Consolidated Financial Statements
for three months and nine months ended
September 30, 2000 (Unaudited)
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ACTIVEWORLDS.COM, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 4,101,789 $ 481,408
Accounts receivable, trade - net of allowance for doubtful accounts
of $5,000 and $20,000 203,125 22,519
Prepaid expenses and deposits 40,066 44,832
Contract advance 112,500 -
Advances to officer/stockholder/employees 13,990 12,491
------------- -------------
Total current assets 4,471,470 561,250
------------- -------------
Property and equipment
Leasehold improvements 27,334 27,334
Equipment and fixtures 262,349 107,284
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289,683 134,618
Less: accumulated depreciation 68,717 35,475
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Property and equipment, net 220,966 99,143
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Other assets
Deferred offering costs - 238,599
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- 238,599
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Total assets $ 4,692,436 $ 898,992
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Liabilities and Stockholders' Equity
Current liabilities
Current portion - capital lease $ 9,626 $ 9,537
Accounts payable 96,436 163,821
Accrued liabilities 36,339 32,075
Deferred revenue 126,551 273,895
------------- -------------
Total current liabilities 268,952 479,328
Capital lease, net of current portion 4,690 11,890
Commitments and contingencies
------------- -------------
Total liabilities 273,642 491,218
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Stockholders' equity
Preferred stock, $.001 par value, 500,000 shares authorized, no shares
issued or outstanding - -
Common stock, $.001 par value, 50,000,000 shares authorized,
8,547,335 and 7,342,762 shares issued and outstanding, respectively 8,547 7,343
Additional paid-in capital 6,279,546 2,237,419
Treasury stock (83,115) -
Note receivable for shares issued (6,500) (6,500)
Accumulated deficit (1,779,684) (1,830,488)
-------------- -------------
Total stockholders' equity 4,418,794 407,774
-------------- -------------
Total liabilities and stockholders' equity $ 4,692,436 $ 898,992
============= =============
</TABLE>
See notes to consolidated financial statements
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ACTIVEWORLDS.COM, INC.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 422,475 $ 139,681 $ 1,204,093 $ 350,501
------------- ------------- ------------- -------------
Operating expenses
Selling, general and administrative expenses 438,525 441,348 1,064,507 795,734
Research and development expenses 79,531 39,945 187,776 124,999
------------- ------------- ------------- -------------
Total operating expenses 518,056 481,293 1,252,283 920,733
------------- ------------- ------------- -------------
(Loss) from operations (95,581) (341,612) (48,190) (570,232)
Interest income 58,580 9,170 98,990 19,675
------------- ------------- ------------- -------------
Income (loss) before (provision for) benefit
from income taxes (37,001) (332,442) 50,800 (550,557)
(Provision for) benefit from income taxes - - - -
------------- ------------- ------------- -------------
Net income (loss) $ (37,001) $ (332,442) $ 50,800 $ (550,557)
============= ============= ============= =============
Earnings (loss) per share of common stock
Basic $ (.004) $ (.045) $ .006 $ (.077)
------------- ------------- ------------- -------------
Diluted $ .006
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</TABLE>
See notes to consolidated financial statements
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ACTIVEWORLDS.COM, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
June 30
-------------------------------
2000 1999
-------------- -------------
(Unaudited)
<S> <C> <C>
Operating activities
Net income (loss) $ 50,800 $ (550,557)
Adjustment to reconcile net income (loss) to net cash (used) by operating
activities
Depreciation and amortization 33,242 11,956
Common stock issued for goods and services - 140,500
Change in estimate of allowance for doubtful accounts (15,000) -
Changes in operating assets and liabilities which provided (used) cash
Accounts receivable (165,605) 15,457
Other receivables - (10,700)
Advances to officer/stockholder (1,500) -
Prepaid and other 4,766 -
Contract advance (112,500) -
Accounts payable (67,385) 25,817
Accrued liabilities 4,264 (271,666)
Deferred revenue (147,344) (16,232)
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Net cash (used) by operating activities (416,262) (655,425)
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Investing activities
Purchases of equipment and leasehold improvements (155,070) (65,342)
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Net cash (used) by investing activities (155,070) (65,342)
============= =============
Financing activities
Payments on capital lease obligation (7,111) -
Proceeds from sale of stock-net 4,281,939 1,512,977
Payments on 8% note payable to officer/stockholder - (54,753)
Purchase of Treasury stock (83,115) -
Deferred offering costs - (180,000)
------------- -------------
Net cash provided by financing activities 4,191,713 1,278,224
============= =============
Net increase in cash 3,620,381 557,457
Cash at beginning of period 481,408 86,520
------------- -------------
Cash at end of period $ 4,101,789 $ 643,977
============= =============
Supplemental disclosure information
Cash paid for interest during the period $ 695 $ 547
============= =============
Cash paid for income taxes during the period $ - $ -
============= =============
Supplemental schedule of noncash investing and financing activities
Shares issued for note receivable $ - $ 6,500
============= =============
Value of stock options issued for services relating to offering cost $ 6,250 $ -
============= =============
Deferred offering costs charged against additional paid-in capital $ 238,599 $ -
============= =============
</TABLE>
See notes to consolidated financial statements
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Note 1 - Basis of presentation
The accompanying 2000 and 1999 unaudited interim consolidated
financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). 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. However, the Company
believes that the disclosures are adequate to prevent the
information presented from being misleading. These financial
statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Form
SB-2 (including amendments 1 through 4), which contains financial
information for the years ended December 31, 1999 and 1998.
The information provided in this report reflects all adjustments
(consisting solely of normal recurring accruals) that are, in the
opinion of management, necessary to present fairly the results of
operations for this period. The results for this period are not
necessarily indicative of the results to be expected for the full
year.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary.
All share and per share information in the consolidated financial
statements reflect the two-for-three reverse stock split which
became effective on April 10, 2000.
Note 2 - Change in estimate
During the nine months ended September 30, 2000, the Company
reduced its estimate of the allowance for doubtful accounts by
$15,000 due to improved collections. The effect of this change was
to increase income for the nine months ended September 30, 2000 by
$15,000 ($.002 per share).
Note 3 - Deferred revenue
Deferred revenue consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
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(Unaudited)
<S> <C> <C>
Deferred memberships $ 75,825 $ 98,668
Deferred royalties and licenses 50,726 25,227
Advance on contract - 150,000
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$ 126,551 $ 273,895
============= =============
</TABLE>
Note 4 - Common stock
In May 2000, the Company issued 1,260,000 shares of its common
stock in a public offering and received $4,819,500 of proceeds
after deducting underwriter's discount but before deducting
offering related expenses.
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Note 5 - Earnings (loss) per share of common stock
The number of shares on which the basic earnings (loss) per share
of common stock has been calculated is as follows:
Weighted Average
Periods Number of Shares
--------------------------------- --------------------
Three Months ended September 30,
(Unaudited)
2000 8,593,725
1999 7,343,712
Nine Months ended September 30,
(Unaudited)
2000 7,608,544
1999 7,161,114
The diluted earnings per share of common stock for the nine months
ended September 30, 2000 has been calculated using 7,996,937
weighted average number of shares. Diluted earnings (loss) per
share of common stock has not been presented for the three months
ended September 30, 2000 and 1999 and nine months ended September
30, 1999 since the effect of including the stock options and
warrants outstanding would be antidilutive.
Note 6 - Treasury stock
In August, 2000 the Company announced a repurchase plan of up to
450,000 shares of common stock. Treasury stock is shown at a cost
of $83,115, which represents 55,427 shares of common stock
purchased during August and September 2000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with our Financial Statements and Notes thereto and other financial information
included elsewhere in this Form 10-QSB. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those discussed elsewhere in this
report.
OVERVIEW
Activeworlds.com, Inc. is a provider of Internet software products and
services that enable the efficient delivery of three-dimensional content over
the Internet and intranets. Our comprehensive software platform is comprised of
proprietary three-dimensional server software, browser, and authoring tools.
Using our Active Worlds technology users are able to create objects and
structures in virtual worlds which other users can see and explore in real time.
We believe that the emergence of the Internet as a global communications medium
has increased the demand for efficient delivery of rich multimedia and
three-dimensional content.
Our goals are to be the leader in three-dimensional Internet
environments and interactive communication and to position our software platform
as a standard for the delivery of three-dimensional content over the Internet.
In furtherance of these goals, we have chosen to offer our three-dimensional
browser to users free of charge to promote the use our software platform. We
currently have a worldwide user base of over 1,000,000 users.
We believe that by continually enhancing our technology, developing new
applications for the three-dimensional Internet market and implementing an
extensive marketing effort, we will be able to achieve our goals. We believe
that three-dimensional Internet applications provide enhanced richness that will
be of interest to users developing Internet-based advertising, distance
learning, training, entertainment, e-commerce, leisure time and chat
applications and other on-line activities. As three-dimensional Internet
technology becomes more accepted, we believe that a market will develop for our
technology in these areas.
7
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1999
Our principal source of revenue to date has been from the license of
our uniservers and galaxervers and from development projects for our customers.
We also generate revenue from the annual $19.95 registration fee, which is paid
by our users who become citizens, and from technical support services which we
offer to our licensees. Revenue from advertising has been nominal. We recognize
revenue from licenses when the license is granted. We recognize revenue from
membership fees ratably over the periods the memberships are in effect.
Revenue for the three months ended September 30, 2000 increased
approximately 200%, to $422,000 from $140,000 for the three months ended
September 30, 1999. Of this amount, $250,000 was related to revenue recognized
for development work pursuant to our contract with Australian-based internet
shopping mall developer, 3D Global (formerly known as Advanced Shopping Centre
Management Pty Limited). This increase also resulted from an increase in
licensing of our uniservers and galaxervers, and an increase in recurring
revenue from our citizen registration fees.
Our selling, general and administrative expenses in the three months
ended September 30, 2000 decreased slightly approximately .5% to $439,000 from
$441,000 for the same period in 1999. Between this period in 1999 and 2000, we
hired additional staff and decreased other expenses incurred in connection
with our performing development services.
Research and development expenses in the three months ended June 30,
2000 increased 100% to $80,000 from $40,000 for the same period in 1999. This
increase reflects a general increase in our research and development efforts.
As a result of the foregoing, we sustained a net loss of $37,000, or
$0.004 per share (basic and diluted), for the three months ended September 30,
2000, as compared with a net loss of $332,000, or a loss of $0.045 per share
(basic and diluted), for the same period in 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenue for the nine months ended September 30, 2000 increased
approximately 243%, to $1,204,000 from $351,000 for the nine months ended
September 30, 1999. Of this amount, $500,000 was related to revenue recognized
for development work pursuant to our contract with Australian-based internet
shopping mall developer, Advanced Shopping Centre Management Pty Limited. This
increase also resulted from an increase in licensing of our uniservers and
galaxervers, and an increase in recurring revenue from our citizen registration
fees.
Our selling, general and administrative expenses in the nine months
ended September 30, 2000 increased approximately 33.8% to $1,065,000 from
$796,000 for the same period in 1999.
8
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This increase resulted principally from hiring additional staff and an increase
in other expenses incurred in connection with our performing site development
services.
Research and development expenses in the nine months ended September
30, 2000 increased 50.4% to $188,000 from $125,000 for the same period in 1999.
This increase reflects a general increase in our research and development
efforts.
We achieved net income of $51,000, or $0.006 per share (basic and
diluted), for the nine months ended September 30, 2000, as compared with a net
loss of $551,000, or a loss of $0.077 per share (basic and diluted), for the
same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had working capital of $4,203,000, which
included cash of $4,102,000. The working capital reflected the remaining cash
from our May public offering, from which we received aggregate net proceeds of
approximately $4.8 million. We have no credit facility. Our cash balances
represent substantially our only current asset. At September 30, 2000, our
accounts receivable were $203,000. At September 30, 2000, our working capital
was sufficient to meet our near cash requirements for the next twelve months.
We have a net operating loss carry forward in the amount of
$1,406,500 as of September 30, 2000, which may be used to reduce our income
taxes in the future if we recognize a profit. We cannot assure you we will make
a profit.
To the extent that our marketing program is not successful and these
expenses exceed our expectations and we are unable to generate cash flow from
our operations, we may require additional funding during the next twelve months.
We may not be able to obtain financing when we require it, and any financing may
be offered on terms which are unacceptable to us and may result in substantial
dilution to our stockholders. If we are unable to raise needed funds, we may
have to reduce the scope or our marketing and development activities, which
would have a material adverse effect upon our business and financial condition.
We may also acquire other businesses or software, including other
companies that would help us expand our business in the area of the
three-dimensional Internet environments. However, we may acquire companies or
businesses in other industries if we are unable to develop our present business.
To the extent that we make any acquisition, we may require additional funds to
be used for the purchase price in the acquisitions, to integrate the acquired
business with our existing business and to fund the operations of the combined
businesses. In addition, we may incur expenses negotiating acquisitions which
are not consummated.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Reporting Comprehensive Income (SFAS No. 130), which establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is
9
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effective for fiscal years beginning after December 15, 1997. SFAS No. 130
offers alternatives for presentation of disclosures required by the standard.
The adoption of SFAS No. 130 had no impact on our results of operations,
financial position or cash flows, as the amount of comprehensive income (loss)
is the same as the net income (loss) for all periods presented.
In June 1997, the FASB issued Disclosures about Segments of an
Enterprise and Related Information (SFAS No. 131), which establishes standards
for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997. The adoption of SFAS No. 131
had no impact on our results of operations, financial position or cash flows.
In February 1998, the FASB issued Employers' Disclosures about Pension
and Other Post Retirement Benefits (SFAS No. 132), which revises employers'
disclosures about pension and other post-retirement benefit plans. SFAS No. 132
does not change the measurement or recognition of those plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 132 did not have an impact on our results of operations, financial
position or cash flows, since we do not have any pension or post retirement
benefit plans.
In June 1998, the FASB issued Accounting for Derivatives and Hedging
Activities (SFAS 133) which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. As we do not currently engage or plan to engage in
derivative or hedging activities, there will be no impact to our results of
operations, financial position or cash flows upon the adoption of this standard.
10
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On May 24, 2000, the board of directors of the Company approved the
adoption of the Activeworlds.com, Inc. Restated 1999 Long-Term Incentive Plan,
which increased the number of shares available for issuance pursuant to the plan
from 666,667 to 1,666,667.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
10.1.2 Activeworlds.com, Inc. Restated 1999 Long Term Incentive Plan.
B. Reports on Form 8-K.
None
C. Financial Data Schedule
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACTIVEWORLDS.COM, INC.
Date: November 13, 2000 By: /s/ J.P. McCormick
----------------------------
J. P. McCormick,
Chief Financial Officer
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