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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: JUNE 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
As of June 30, 2000, there were outstanding 8,602,762 shares of Common
Stock, par value $.001, of the registrant.
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ACTIVEWORLDS.COM, INC.
Form 10-QSB
INDEX
PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2000
Unaudited) and December 31, 1999 ........................................ 4
Consolidated Statements of Operations for the three months and six months
ended June 30, 2000 and 1999 (Unaudited) ................................ 5
Consolidated Statements of Cash Flows for the six months
ended June 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACTIVEWORLDS.COM, INC.
Consolidated Financial Statements
for three months and six months ended
June 30, 2000 (Unaudited)
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ACTIVEWORLDS.COM, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets
Cash $ 4,537,710 $ 481,408
Accounts receivable, trade - net of allowance for doubtful accounts
of $5,000 and $20,000 69,785 22,519
Prepaid expenses and deposits 56,135 44,832
Advances to officer/stockholder/employees 12,491 12,491
----------- -----------
Total current assets 4,676,121 561,250
----------- -----------
Property and equipment
Leasehold improvements 27,334 27,334
Equipment and fixtures 132,372 107,284
----------- -----------
159,706 134,618
Less: accumulated depreciation 52,671 35,475
----------- -----------
Property and equipment, net 107,035 99,143
----------- -----------
Other assets
Deferred offering costs -- 238,599
----------- -----------
Total assets $ 4,783,156 $ 898,992
----------- -----------
Liabilities and Stockholders' Equity
Current liabilities
Current portion - capital lease $ 9,833 $ 9,537
Accounts payable 91,132 163,821
Accrued liabilities 9,583 32,075
Deferred revenue 126,796 273,895
----------- -----------
Total current liabilities 237,344 479,328
Capital lease, net of current portion 6,897 11,890
Commitments and contingencies
Total liabilities 244,241 491,218
----------- -----------
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,
8,602,762 and 7,342,762 shares issued and outstanding, respectively 8,603 7,343
Additional paid-in capital 6,279,499 2,237,419
Note receivable for shares issued (6,500) (6,500)
Accumulated deficit (1,742,687) (1,830,488)
----------- -----------
Total stockholders' equity 4,538,915 407,774
----------- -----------
Total liabilities and stockholders' equity $ 4,783,156 $ 898,992
----------- -----------
</TABLE>
See notes to consolidated financial statements
4
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ACTIVEWORLDS.COM, INC.
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 399,718 $ 114,874 $ 781,618 $ 210,820
--------- --------- --------- ---------
Operating expenses
Selling, general and administrative
expenses 300,530 161,019 625,982 354,386
Research and development expenses 69,224 34,209 108,245 85,054
--------- --------- --------- ---------
Total operating expenses 369,754 195,228 734,227 439,440
--------- --------- --------- ---------
Income (loss) from operations 29,964 (80,354) 47,391 (228,620)
Interest income 38,144 6,175 40,410 10,505
--------- --------- --------- ---------
Income (loss) before (provision for)
benefit from income taxes 68,108 (74,179) 87,801 (218,115)
(Provision for) benefit from income taxes -- -- -- --
--------- --------- --------- ---------
Net income (loss) $ 68,108 $ (74,179) $ 87,801 $(218,115)
--------- --------- --------- ---------
Earnings (loss) per share of common stock
Basic $ .008 $ (.010) $ .011 $ (.031)
--------- --------- --------- ---------
Diluted $ .008 $ .011
--------- ---------
</TABLE>
See notes to consolidated financial statements
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ACTIVEWORLDS.COM, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------------
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
Operating activities
Net income (loss) $ 87,801 $ (218,115)
Adjustment to reconcile net income (loss) to net cash provided (used)
by operating activities
Depreciation and amortization 17,196 8,825
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 (32,266) 15,457
Other receivables -- (10,700)
Advances to officers/stockholder -- (2,500)
Prepaid and other (11,303) --
Accounts payable (72,689) 26,891
Accrued liabilities (22,492) (228,004)
Deferred revenue (147,099) (16,232)
----------- -----------
Net cash (used) by operating activities (195,852) (283,878)
----------- -----------
Investing activities
Purchases of equipment and leasehold improvements (25,088) (65,342)
----------- -----------
Net cash by investing activities (25,088) (65,342)
----------- -----------
Financing activities
Payments on capital lease obligation (4,697) --
Proceeds from sale of stock (net of issuance costs $1,073,061
and $387,023) 4,281,939 1,512,977
Payments on 8% note payable to officer/stockholder -- (54,753)
Deferred offering costs -- (65,000)
----------- -----------
Net cash provided by financing activities 4,277,242 1,393,224
----------- -----------
Net increase in cash 4,056,302 1,044,004
Cash at beginning of period 481,408 86,520
----------- -----------
Cash at end of period $ 4,537,710 $ 1,130,524
----------- -----------
Supplemental disclosure information
Cash paid for interest during the period $ 599 $ --
----------- -----------
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 cost 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 six months ended June 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 six months ended June 30, 2000 by $15,000 ($.002 per share).
Note 3 - Deferred revenue
Deferred revenue consists of the following:
June 30, December 31,
2000 1999
-------- --------
(Unaudited)
Deferred memberships $ 82,069 $ 98,668
Deferred royalties and licenses 44,727 25,227
Advance on contract -- 150,000
-------- --------
$126,796 $273,895
-------- --------
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 $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
--------------------------- ----------------
Shares
---------------------------
Three Months ended June 30,
(Unaudited)
2000 8,076,608
1999 7,265,258
Six Months ended June 30,
(Unaudited)
2000 7,711,712
1999 7,067,224
The diluted earnings (loss) per share of common stock for the three
months and six months ended June 30, 2000 has been calculated using
8,181,109 and 7,816,213 weighted average number of shares,
respectively. Diluted earnings (loss) per share of common stock has
not been presented for the three months and six months ended June 30,
1999 since the effect of including the stock options and warrants
outstanding would be antidilutive.
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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 of 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 AS COMPARED WITH THREE MONTHS ENDED JUNE 30,
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
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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 June 30, 2000 increased
approximately 248%, to $400,000 from $115,000 for the three months ended June
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, 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 June 30, 2000 increased approximately 87% to $301,000 from $161,000 for
the same period in 1999. This increase resulted principally from hiring
additional staff and an increase in other expenses incurred in connection with
our performing development services.
Research and development expenses in the three months ended June 30,
2000 increased 24% to $69,000 from $34,000 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 net income of $68,000, or
$0.008 per share (basic and diluted), for the three months ended June 30, 2000,
as compared with a net loss of $74,000, or a loss of $0.010 per share (basic and
diluted), for the same period in 1999.
SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Revenue for the six months ended June 30, 2000 increased approximately 271%, to
$782,000 from $211,000 for the three months ended June 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, 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 June 30, 2000 increased approximately 77% to $626,000 from $354,000 for
the same period in 1999. This increase resulted principally from hiring
additional staff and an increase in other expenses incurred in connection with
our performing development services.
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Research and development expenses in the six months ended June 30,
2000 increased 24% to $108,000 from $85,000 for the same period in 1999. This
increase reflects a general increase in our research and development efforts.
We sustained net income of $88,000, or $0.011 per share (basic and
diluted), for the six months ended June 30, 2000, as compared with a net loss
of $218,000, or a loss of $0.031 per share (basic and diluted), for the same
period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had working capital of $4,439,000, which included
cash of $4,538,000. 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 June 30, 2000, our accounts
receivable were $70,000. At June 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 $1,284,000
as of June 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
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,
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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.
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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
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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: August 14, 2000 By: /s/ J.P. McCormick
------------------------------------
J. P. McCormick,
Chief Financial Officer
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