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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: MARCH 31, 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.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-383101
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
95 PARKER STREET, NEWBURYPORT, MASSACHUSETTS 01950
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(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
As of March 31, 2000, there were outstanding 7,342,762 shares of Common
Stock, par value $.001, of the registrant.
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ACTIVEWORLDS.COM, INC.
QUARTER ENDED MARCH 31, 2000
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000
Unaudited) and December 31, 1999...................................... 4
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 (Unaudited)............................. 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 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............................ 8
PART II - OTHER INFORMATION............................................. 11
SIGNATURES.............................................................. 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACTIVEWORLDS.COM, INC.
Consolidated Financial Statements
for three months ended
March 31, 2000 (Unaudited)
3
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ACTIVEWORLDS.COM, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
Assets
Current assets
<S> <C> <C>
Cash $ 542,058 $ 481,408
Accounts receivable, trade - net of allowance for doubtful accounts of $5,000
and $20,000 2,519 22,519
Prepaid expenses 67,584 44,832
Advances to officer/stockholder/employees 12,491 12,491
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Total current assets 624,652 561,250
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Property and equipment
Leasehold improvements 27,334 27,334
Equipment and fixtures 113,491 107,284
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140,825 134,618
Less: accumulated depreciation 44,073 35,475
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Property and equipment, net 96,752 99,143
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Other assets
Deferred offering costs 299,202 238,599
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Total assets $ 1,020,606 $ 898,992
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Liabilities and Stockholders' Equity
Current liabilities
Current portion - capital lease $ 9,684 $ 9,537
Accounts payable 243,227 163,821
Accrued liabilities 12,075 32,075
Deferred revenue 318,741 273,895
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Total current liabilities 583,727 479,328
Capital lease, net of current portion 9,412 11,890
Commitments and contingencies
Total liabilities 593,139 491,218
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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, 7,342,762 shares
issued and outstanding 7,343 7,343
Additional paid-in capital 2,237,419 2,237,419
Note receivable for shares issued (6,500) (6,500)
Accumulated deficit (1,810,795) (1,830,488)
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Total stockholders' equity 427,467 407,774
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Total liabilities and stockholders' equity $ 1,020,606 $ 898,992
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</TABLE>
See notes to consolidated financial statements
4
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ACTIVEWORLDS.COM, INC.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31
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2000 1999
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(Unaudited)
<S> <C> <C>
Revenues $ 381,900 $ 95,946
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Operating expenses
Selling, general and administrative expenses 325,452 357,342
Research and development expenses 39,021 50,845
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Total operating expenses 364,473 408,187
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Income (loss) from operations 17,427 (312,241)
Interest income 2,266 4,330
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Income (loss) before (provision for) benefit from income taxes 19,693 (307,911)
(Provision for) benefit from income taxes -- --
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Net income (loss) $ 19,693 $(307,911)
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Earnings (loss) per share of common stock
Basic $ .003 $ (.045)
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Diluted $ .003
---------
</TABLE>
5
See notes to consolidated financial statements
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ACTIVEWORLDS.COM, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31
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2000 1999
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(Unaudited)
Operating activities
<S> <C> <C>
Net income (loss) $ 19,693 $ (307,911)
Adjustment to reconcile net income (loss) to net cash provided (used)
by operating activities
Depreciation and amortization 8,598 9,410
Common stock issued for goods and sbrvices -- 100,000
Change in estimate of allowance for doubtful accounts (15,000) --
Changes in operating assets and liabilities which provided (used) cash
Accounts receivable 35,000 25,458
Prepaid expenses (22,752) --
Accounts payable 79,406 14,330
Accrued liabilities (20,000) (241,616)
Deferred revenue 44,846 (4,744)
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Net cash provided (used) by operating activities 129,791 (405,073)
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Investing activities
Purchases of equipment and leasehold improvements (6,207) (38,646)
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Net cash (used) by investing activities (6,207) (38,646)
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Financing activities
Payments on capital lease obligation (2,331) --
Net proceeds from sale of stock -- 1,000,000
Payments on 8% note payable to officer/stockholder -- (54,753)
Deferred offering costs (60,603) --
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Net cash provided (used) by financing activities (62,934) 945,247
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Net increase in cash 60,650 501,528
Cash at beginning of period 481,408 86,520
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Cash at end of period $ 542,058 $ 588,048
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Supplemental disclosure information
Cash paid for interest during the period $ 318 $ 547
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Cash paid for income taxes during the period $ -- $ --
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Supplemental schedule of noncash investing activities
Shares issued for note receivable $ -- $ 6,500
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</TABLE>
See notes to consolidated financial statements
6
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12
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 three months ended March 31, 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 three months ended March 31, 2000 by $15,000 ($.002
per share).
Note 3 - Deferred revenue
Deferred revenue consists of the following:
March 31, December 31,
2000 1999
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(Unaudited)
Deferred memberships $ 92,514 $ 98,668
Advances on royalties 25,227 25,227
Advance on contract 201,000 150,000
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$ 318,741 $ 273,895
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Note 4 - Issuance of common stock
In May 2000, the Company issued 1,260,000 shares of its common
stock in a public offering and received approximately $4,819,000
of net proceeds after deducting the underwriter's discount, but
before deducting offering related expenses.
7
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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
Three Months Ended March 31, Number of Shares
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(Unaudited)
1999 6,874,692
2000 7,342,762
The diluted earnings (loss) per share of common stock for the
three months ended March 31, 2000 has been calculated using
7,421,138 weighted average number of shares. Diluted earnings
(loss) per share of common stock has not been presented for the
three months ended March 31, 1999 since the effect of including
the stock options and warrants outstanding would be antidilutive.
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.
PLAN OF OPERATION
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.
8
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Three months ended March 31, 2000 as compared with three months ended March 31,
1999
Our principal source of revenue to date has been from the license of
our uniservers and galaxervers. 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 March 31, 2000 increased
approximately 298%, to $382,000 from $96,000 in the year ended March 31, 1999.
This increase resulted primarily from an increase in licensing of our uniservers
and galaxervers.
Our selling, general and administrative expenses in the three months
ended March 31, 2000 decreased approximately 9% to $325,000 from $357,000 in
1999. This decrease resulted principally from professional fees, consisting
primarily of legal and accounting expenses which we incurred in connection with
the Circle of Fire acquisition in 1999.
Research and development expenses in the three months ended March 31,
2000 decreased 24% to $39,000 from $51,000 in 1999. This decrease reflected a
slight reduction of our research and development activities.
We have a net operating loss carry forward in the amount of
approximately $1,050,000 as of March 31, 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.
As a result of the foregoing, we sustained net income of $20,000, or
$.003 per share (basic and diluted), for the three months ended March 31, 2000,
as compared with a net loss of $308,000, or $(.045) per share (basic and
diluted), for 1999.
9
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had working capital of $59,000, which included
cash of $542,000. The working capital includes the remaining cash from the
January and June 1999 private placements, from which we received aggregate net
proceeds of approximately $1.5 million. We used the net proceeds from both
private placements for working capital, including a payment of $275,000 to
settle the litigation with the two former employee-stockholders. We have no bank
or credit facilities, and the private placements have been our sole source of
funds for operations. Our cash balances represent substantially our only current
asset. At March 31, 2000, our accounts receivable were $2,500. At March 31,
2000, our working capital was sufficient to meet only our most immediate cash
requirements.
On May 8, 2000, we completed an offering of 1,260,000 units at a
priceof $4.25 per unit. We realized proceeds, after deducting the underwriter's
discount, but before deducting offering related expenses, of $4,819,500. Each
unit consists of one share of our common stock and a warrant to purchase one
share of our common stock at a price of $4.675. We anticipate that the proceeds
raised in this offering should be sufficient to satisfy our capital requirements
for the next twelve months. However, 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 not be on terms which are acceptable 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 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.
10
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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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibits.
None
B. Reports on Form 8-K.
None
C. Financial Data Schedule
11
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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: March 15, 2000 By: /s/ J.P. McCormick
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J. P. McCormick,
Chief Financial Officer
