[DESCRIPTION] FORM 10KSB FOR YEAR ENDED FEBRUARY 28, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended February 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 033-05844-NY
WORLD INTERNETWORKS, INC.
(Name of small business issuer in its charter)
Nevada 87-0443026
(State of incorporation) (I.R.S. Employer
Identification No.)
5152 North Edgewood Drive, Suite 250, Provo, Utah 84604
(Address of principal executive offices) (Zip Code)
Issuer's telephone number ( 801 ) 426-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.001 par value None
Securities registered pursuant to Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
(1) Yes [X] No [ ] (2) Yes [ X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $ 7,762,125
Aggregate market value of the voting stock of the issuer held by
non-affiliates on April 6, 1998, based upon a closing sale price of $1.00 per
share, was approximately $3,837,156. Shares of the issuer's common stock held
by officers and directors, and other persons that may be deemed affiliates of
the issuer, have been excluded from calculation of such aggregate market
value.
The number of shares outstanding of the issuer's common stock as of
April 6, 1998 was 13,822,776 shares.
Transitional Small Business Disclosure Format (Check One): Yes [ ]
No [X]
<PAGE>
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS FORM 10-KSB ANNUAL REPORT
CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, AND THE COMPANY DESIRES TO FALL
WITHIN THE "SAFE HARBOR" PROVISIONS THEREOF. THIS STATEMENT IS INCLUDED
HEREIN FOR THE EXPRESS PURPOSE OF AVAILING THE COMPANY OF THE PROTECTIONS OF
SUCH SAFE HARBOR WITH RESPECT TO ALL OF THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN. SUCH FORWARD-LOOKING STATEMENTS REFLECT THE CURRENT VIEWS
OF THE COMPANY AND ITS MANAGEMENT WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE, AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, WHICH COULD
CAUSE ACTUAL RESULTS TO DIFFER SUBSTANTIALLY FROM HISTORICAL RESULTS OR
ANTICIPATED RESULTS. IN THIS ANNUAL REPORT, THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FUTURE," "PROJECTED" AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. READERS ARE CAUTIONED TO
CONSIDER SPECIFIC RISK FACTORS DESCRIBED HEREIN (SEE ITEM 6 "MANAGEMENT'S PLAN
OF OPERATIONS," UNDER THE SUBHEADING "FACTORS THAT COULD AFFECT THE COMPANY'S
ABILITY TO ACHIEVE ITS OBJECTIVES") AND NOT TO PLACE UNDUE DISCUSSION AND
ANALYSIS, OR RELIANCE, ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN,
WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION
TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES THAT MAY ARISE AFTER THE DATE HEREOF.
<PAGE>
PART I
Item 1. Description of Business.
GENERAL INFORMATION
-------------------
World InterNetWorks, Inc., a Nevada corporation (the "Company"
or "WI"), through its wholly-owned subsidiary, World Internet
Marketplace, Inc., a Utah corporation ("WI Marketplace"), is engaged
in the direct distribution of products and services relating to
commerce on the Internet. Such products and services are sold and
distributed through an extensive and growing network of independent
distributors. Unless otherwise noted herein or implied in context,
reference to "WI" or the "Company" means World InterNetWorks, Inc., a
Nevada corporation, including its subsidiary, World Internet
Marketplace, Inc.
Substantially all of the Company's revenues are derived from
two general categories of products and services provided by WI
Marketplace. First, WI Marketplace provides products and services
directly relating to the Internet and the World Wide Web, including
personal and commercial web site development and maintenance and
Internet training. Second, WI Marketplace operates a "virtual mall"
(the "WI Mall") on an Internet site on the World Wide Web, at the
domain name address "www.wimall.com". The WI Mall functions as an
online department store, offering a selection of thousands of
products grouped into numerous categories, such as electronics,
computers, sporting goods, apparel, jewelry and others.
At present, the Company intends to expand its offering of
Internet-related products to include state-of-the-art software and
other materials designed to train Internet users on effective
utilization of the Internet for online commerce, and other
educational uses.
BUSINESS ON THE INTERNET
------------------------
The number of people who access the Internet is steadily
increasing. Current statistics provided by a recent Commerce
Net/Nielsen Media survey shows that 23% of the total population of
the United States and Canada (or approximately 50.6 million people)
are regularly using the Internet. Other groups, such as Jupiter
Communications, have estimated that at least 20 million people access
the Internet at least once every week. Various surveys have
indicated that this number is increasing exponentially.
The huge number of world-wide users, and the relative ease of
use, has made the Internet an attractive and increasingly popular
medium for a variety of online businesses. International Data
Corporation has estimated that the volume of Internet commerce will
grow from approximately $318 million in 1995 to nearly $100 billion
annually by the year 2000. Advertising, marketing, training,
research and direct sales are all examples of business applications
for the Internet. Mass marketing over the Internet has already begun
to eliminate the need for costly print advertising. Likewise,
"middleman" distributors are diminishing in significance as
manufacturers begin to sell their products directly to consumers over
the Internet. Unlike traditional retailers, Internet retailers do
not incur cumbersome costs of managing and maintaining a significant
tangible infrastructure, such as a store or chain of stores, or the
costs of advertising and mailing. These costs savings, and the rapid
communication capabilities of the Internet, allow for potential
access to a large, global customer base at a relatively low economic
cost.
Challenges to Successful Online Commerce
----------------------------------------
One challenge to selling products or services on the Internet
is advertising or web site popularization. The number of web sites
on the Internet is innumerable, and is increasing daily. Many online
businesses may fail due to a lack of "traffic" to their web site.
Online businesses can advertise their web site through traditional
means. For example, a company might advertise its web site in its
television commercials by showing a subtitle of its domain name
address. The web sites of other online businesses are popularized
through "links" from other sites, or by receiving recognition for
superior graphics or layout from an online rating service, "browser"
or "search engine."
Another challenge for Internet commerce derives from the
constantly changing demographics of Internet users. The September
1997 issue of Information Strategy Online states that half of the
Internet users were professionals and managers only a year ago. At
present, that proportion has dropped closer to 39%, and continues to
fall. Women are the fastest growing segment of the Internet
population, now accounting for more than 40% of all users. Shifting
demographics present a challenge to Internet commerce to deal
effectively with a wide variety of users, all at varying levels of
technological sophistication.
Still another challenge is presented by the rapid technological
changes confronting Internet commerce. To remain competitive, an
online business must stay abreast of newly emerging industry
standards and new technologies. However, for smaller businesses or
individuals, it is often cost-prohibitive to make every new
enhancement or improvement to the responsiveness, functionality and
appearance of an Internet site. The inability to adapt in the face
of rapid technological changes in Internet technologies, however, can
render an Internet site obsolete.
BUSINESS DEVELOPMENT
--------------------
Corporate Organizational History
--------------------------------
The Company was incorporated on March 17, 1986, with authorized
common stock of 500,000,000 shares at $0.001 par value.
On August 27, 1996, the Company effected a reverse stock split
on a 250 for 1 basis, and acquired all of the stock of Wealth
International, Inc., a Utah corporation ( Wealth Utah ), in exchange
for 4,200,000 shares of the Company's common stock (the Exchange ).
The Exchange was deemed a reverse acquisition, and the shareholders
of Wealth Utah became the controlling shareholders of the Company.
As a result of this transaction, Wealth Utah became a wholly-owned
subsidiary of the Company. On October 25, 1996, the Company's common
stock was forward split on a 1 for 4 basis.
Prior to August 27, 1996, the Company was essentially a dormant
corporation, with no material assets or liabilities. The Company's
only material transaction in the three fiscal years prior to August
27, 1996, involved the acquisition on June 7, 1994 of Louis Siegal
Associates, Inc., a California corporation ( LSA ), in exchange for
400,000 shares of the Company's common stock. LSA operated several
retail floor covering outlets. In connection with the acquisition of
LSA, an additional 5,000,000 shares of the Company's common stock was
issued on October 24, 1994, for $300,000. On August 14, 1995, the
LSA acquisition was mutually rescinded by the parties to the
transaction for failure of consideration, and 4,950,000 shares of the
Company's common stock were returned to the Company and canceled on
August 17, 1995.
On April 1, 1997, the Board of Directors of Wealth Utah
approved an amendment to its Articles of Incorporation to change its
name to World Internet Marketplace, Inc., which name change was
effective July 3, 1997. On January 26, 1998, the Board of Directors
of Wealth Nevada approved an amendment to its Articles of
Incorporation to change its name to World InterNetWorks, Inc., which
name change was effective March 30, 1998. Such corporate name change
was made in order to better conform the name of the corporation to
its principal business. For further information regarding the
formation of the Company see the fiscal year 1997 Form 10-KSB Annual
Report previously filed by the Company with the Securities and
Exchange Commission.
A Network of Independent Internet Storefront Owners
---------------------------------------------------
WI Marketplace has developed a personalized method of Internet
commerce designed to meet such challenges on behalf of smaller
business and individuals. WI Marketplace popularizes the WI Mall web
site through a direct distribution organization of Independent
Storefront Owners ("ISOs"). Such ISOs market and sell the products
and services offered in the WI Mall, as well as other Internet-
related products and services, such as personal web site design,
development and maintenance. Each ISO owns a "storefront" to the WI
Mall, through which they can access the WI Mall, as well as provide
similar access to their customers. See Description of Business WI
Marketplace Products and Services.
The philosophy of network marketing or direct distribution is
based on the idea that a strong, personal recommendation from someone
who has had a favorable experience with the WI Marketplace products
and services is more persuasive advertising than an impersonal
recommendation from a total stranger. Under the WI Marketplace
compensation plan, substantially all of the products and services
provided by WI Marketplace are exclusively sold to and distributed by
the ISOs. The ISOs are not agents or employees of the Company or WI
Marketplace, but rather contract with WI Marketplace to become
authorized independent distributors who can purchase products and
services directly from WI Marketplace for resale or personal
consumption.
According to surveys of the industry, more than $75 billion of
products and services were sold annually in recent years by direct
distribution methods. This industry has been growing rapidly, a
significant cause of which has been the increasing worldwide use of
the Internet. The resulting capabilities of rapid communication,
combined with the consequential decreasing significance of
geographical borders, makes direct distribution an attractive
replacement for traditional localized retail stores. The Company
believes that the WI Marketplace network marketing approach to
selling its products and services is superior to traditional
retailing in a number of ways: (1) a consumer can be introduced to a
product by a friend or family member, which can be a much more
convenient and reliable source of information than a print
advertisement or the like; (2) a consumer can receive personalized
information from an ISO, who has personal experience with the
products and services provided by WI Marketplace; and (3) an ISO is
much more likely to follow-up with a consumer, who is a friend or
family member, to offer assistance and product updates.
The Company's success, and the success of its subsidiary, is
contingent upon the success of its ISOs. See Management s
Discussion and Analysis or Plan of Operation Certain Factors Expected
to Impact Operating Results Reliance on Network of ISOs. As a
result, WI Marketplace has developed an ISO Service Center to provide
customer service to its ISOs. In this regard, WI Marketplace
produces pamphlets, video and audio tapes, and seminar programs to
educate ISOs and their customers. See Description of Business WI
Marketplace Products and Services. These training materials are
produced both internally and in conjunction with leaders in the
direct distribution training industry. From time to time, WI
Marketplace engages the services of outside experts in the direct
distribution consultation and training field to provide additional
support to the ISOs.
WI MARKETPLACE PRODUCTS AND SERVICES
------------------------------------
The products and services offered by WI Marketplace generally
consist of personal and commercial Internet sites, various
merchandise catalogued and displayed on the WI Mall, and educational,
training and sales aids products.
Personal and Commercial Internet Sites
--------------------------------------
WI Marketplace employs a staff of in-house computer programmers
and Internet site developers, offering customized design services to
individuals, as well as businesses and organizations. At present,
the majority of new Internet site design services performed by WI
Marketplace are directed at personal sites for new ISOs.
Upon approval of a properly completed application form, a new
ISO may purchase a personalized Internet web page that, among other
things, links directly to the WI Mall. Software applications
developed by WI Marketplace, and available to its customers, allow
any ISO Internet site owner to easily customize and update its
individual web page online, at no additional charge. Because of
economies resulting from its substantial experience in creating ISO
Internet web pages, WI Marketplace is able to offer ISO Internet web
page design services at a price it believes is affordable to new
participants in the WI Marketplace program.
The WI Mall and Merchandise
---------------------------
The WI Mall, located at http://www.wimall.com, is a
diversified, online department store. In the WI Mall, WI Marketplace
uses state-of-the-art technology to deliver a visually appealing and
user-friendly Internet shopping site. The WI Mall offers a daily
Deal of the Day, which highlights particular bargains, as well as
periodic drawings for various free items. Point-and-click
technology allows customers of the WI Mall to browse through a
variety of product categories, or stores, in the WI Mall gallery,
placing items into, or removing items from, a virtual shopping
basket. To make a purchase, customers are guided through a payment
process, including online submission of shipping details and credit
card information.
Customers of the WI Mall obtain access through the ISOs
Internet web pages, called storefronts, which link directly into
the WI Mall. ISOs promote and advertise their storefront in a
manner similar to a store owner in a traditional, real estate based
mall or department store, as well as through methods of modern,
electronic communication. ISOs market the products catalogued in the
WI Mall and offer training in Internet use and online commerce to
their customers. The WI Mall may be viewed by visitors at the WI
Mall domain name address set forth above; with such purchases of
merchandise offered in the WI Mall, visitors assigned to a storefront
owned and operated by an ISO for visitors and potential customers who
access the WI Mall through other means are invited to browse, and, if
they want to make a purchase, are offered simple instructions on how
to proceed.
A proprietary software tracking system, called WI Link,
enables WI Marketplace to track and record each sale of merchandise
that occurs through a particular storefront. The ISO who owns such
storefront is automatically credited with sales commissions, in
accordance with the WI Marketplace compensation program.
WI Marketplace stocks the WI Mall with a broad spectrum of
products, including well-known, brand name products in various
categories. Categories currently offered in the WI Mall include
clothing, electronics, computers and peripherals, sporting goods,
books, music, toys and travel. The products actually offered and
catalogued in the WI Mall are changed and updated from time to time,
adding new product categories and eliminating old ones.
WI Marketplace employs a staff of buyers who identify and
negotiate vendor and supplier arrangements with manufacturers and
distributors. In general, products purchased in the WI Mall are
shipped to the purchaser directly from the manufacturer, which
eliminates excessive warehousing costs. As of February, 1998, WI
Mall is receiving more than 6,500,000 hits per month. Based on
this volume of traffic, WI Marketplace anticipates that the pricing
terms can be obtained from manufacturers for WI Mall products will
improve.
Sales Aids
----------
WI Marketplace produces and sells various informational and
educational materials to assist its direct distributors in building
their own businesses, and in marketing and distributing the products
and services offered by WI Marketplace. Among such materials are
(i)advertising brochures, pamphlets, and signage; (ii) Internet-
related educational and training materials;
(iii) product brochures describing the WI Marketplace products and
services; (iv) audio tapes describing WI Marketplace, explaining
methods of direct distribution, and offering training and support;
and (v) business forms and lists designed to assist individual
direct distributors in operating an effective business.
WI Marketplace prepares the sales aids through a variety of
means, including in-house design and preparation. In addition, WI
Marketplace contracts with outside producers with experience or
expertise in Internet commerce, business development training, and
direct distribution methods. Sales aids are generally produced,
printed or recorded by third parties specializing in such industries.
GOVERNMENT REGULATION
---------------------
The Company's business activities are subject to certain laws
and regulations. In particular, the Federal Trade Commission ("FTC")
has implemented regulations designed to prevent the use of deceptive
or fraudulent business practices associated with illegal schemes or
"scams" that are sometimes broadly associated with the network
marketing or direct distribution industry. Specifically, the FTC has
prohibited certain business practices characterizing "pyramid
schemes" or "chain sales," such as unusually high sign-up fees,
pressurized recruiting tactics, claims of huge and easy financial
rewards for minimal efforts, and mandatory sponsorship of new
distributors.
The Company has retained outside legal counsel to advise on
maintaining compliance with applicable laws and governmental
regulations. However, there can be no assurance that future
regulatory action or new legislation, perhaps concerning the
Internet, will not have an adverse effect on the Company and its
business operations.
COMPETITION
-----------
Internet Commerce. The Internet commerce market is rapidly
expanding and is intensely competitive. The Company competes
directly with other companies that offer web-based shopping and
personal Internet training and web site development. In so
competing, the Company emphasizes the low cost of the products and
services offered on the WI Mall, and the high-quality Internet
services provided by the Company. In addition, the Company competes
by facilitating a network distribution system that is relatively
unique in the Internet commerce industry. However, many of the
Company's competitors have substantially greater name recognition and
financial resources than the Company. Another competitive obstacle
is the purchasing preference of many consumers, which tends toward
the traditional retail marketing channels. As a result, there can be
no assurance that the Company's business and results of operations
will not be affected materially by market conditions and competition
in the future.
Direct Distribution. The Company also competes in a general
sense with other direct distribution and network marketing companies,
some of which have a longer operating history, greater name
recognition, and superior funding. Some of the leading network
marketing companies are Amway Corporation and its affiliates, Nu Skin
International, Inc. and its affiliates, and Rexall Showcase
International, among others. The Company competes for new ISOs based
on its compensation plan and its unique Internet-related and high-
quality WI Mall products and services. Management envisions that the
number of companies involved in direct distribution marketing will
increase over the next several years as such a selling method becomes
more common. The Company is aware of numerous Internet-related
companies that could launch direct distribution businesses in direct
competition with the Company. There can be no assurance that the
Company will be able to succeed in such an expanding and competitive
market.
PROPRIETARY RIGHTS
------------------
The Company is in the process of registering trademarks in
certain corporate and product names. The WI Mall domain name address
is registered to the Company for its exclusive use by Network
Solutions, Inc., the domain name registry of InterNIC. The Company
believes that acquisition and protection of proprietary rights will
be important in enabling the Company to compete in the Internet and
direct distribution markets.
The Company also relies on trade secrets that it protects, in
part, through confidentiality and non-competition agreements with
relevant employees and other parties. There can be no assurance that
these confidentiality and non-competition agreements will not be
breached, that the Company would have adequate remedies in case of
such a breach, or that the Company's trade secrets will not otherwise
be independently discovered by its competitors. The Company may
become involved in litigation to determine the enforceability and
validity of its proprietary rights. Any such litigation could result
in substantial cost to the Company and divert the efforts of its
management and technical personnel.
STATUS OF ANY PUBLICLY ANNOUCED NEW PRODUCT OR SERVICE
------------------------------------------------------
Not Applicable.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF
PRINCIPAL SUPPLIERS
-------------------
Not Applicable.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
-------------------------------------------------------
Not Applicable.
OTHER INFORMATION
-----------------
Dependence on Major Customers
-----------------------------
WI Marketplace sells its products through a network of ISOs.
As of February 28, 1998, a significant portion of the total products
and services sold by WI Marketplace are sold by or through the
business network of the Home Business Group ( HBG ), a WI Marketplace
ISO. For its performance as a WI Marketplace ISO, HBG is compensated
under the WI Marketplace compensation program. In addition, HBG
performs certain training and marketing services for WI Marketplace,
for which HBG receives separate compensation. In its capacities as
an ISO and as an independent outside consultant, HBG is not an
employee or agent of WI Marketplace, but is an independent agent. In
this regard, WI Marketplace does not control, direct or supervise the
activities of HBG. The Company's operating results and financial
condition could be adversely affected by a decrease in the
productivity of HBG.
Research and Development
------------------------
Expenses characterized as research and development costs
incurred by the Company were not significant during the past two
fiscal years. Other costs incurred by the Company in developing and
programming software applications relating to the Company's business
operations, including the WI Mall and its underlying software, were
capitalized in accordance with generally accepted accounting
principles.
Employees
---------
As of February 28, 1998, the Company employed 61 persons. Of
such employees, 38 were full-time employees.
Item 2. Description of Properties.
In March 1997, the Company moved from its previous office space
to 5152 North Edgewood Drive, Suite 250, Provo, Utah 84604 (the
"Edgewood Site"), which is now the location of the Company's
headquarters and principal place of business. The Company initially
leased 3663 square feet of space at the Edgewood Site, which
continues to be used for general office purposes. In June 1997, the
Company arranged to lease an additional 2446 square feet of space at
the Edgewood Site to provide adequate space for the Company's growing
numbers of customer support and mall programming.
The lease term on the Edgewood Site expires in January 2002,
and the monthly rent for such space is $6,950. Including monthly
common area and maintenance fees, the total monthly expense for the
Edgewood Site is $11,135. The Company maintains general
commercial/casualty insurance on its leased properties, in amounts
which it deems adequate for its present needs.
The Company believes that its current space at the Edgewood
Site will be adequate for the current fiscal year if anticipated
growth proves realistic. The Company has made inquiries with the
building owner regarding the availability of additional space in the
building housing the Edgewood Site and in other buildings in the same
development, and intends to lease additional space as necessary to
provide for anticipated growth.
Item 3. Legal Proceedings.
The Knight Adjustment Bureau ( Knight ) filed a lawsuit on July
31, 1997 against Richard Smith, dba Wealth International, in the
Fourth District Court for Utah County, alleging that Knight was
assigned a claim by Touchfon International, and further alleging that
Richard Smith, dba Wealth International, owes approximately $5,500
for certain telephone services under a contract with Touchfon
International. The complaint was settled subsequent to February 28,
1998 for less than the amount claimed.
In February 1998, World Internet Marketplace, Inc. filed a
complaint in the Fourth District Court for Utah County, alleging of
fiduciary duty, conversion, tortious interference with economic
relations, and violation of the Utah Uniform Trade Secrets Act
against three former employees of the Company. The claims resulted
from certain commission practices and discussions with competitors
engaged in by the former employees. Defendants filed an answer in
March of 1998 in which no counterclaim was asserted. The matter is
still pending.
In March 1998, Paulette Arnold, a private citizen, filed a
complaint against World Internet Marketplace, Inc. in Knoxville
County, Tennessee, alleging an undetailed claim of breach of contract
by World Internet Marketplace, Inc. in the amount of $ 5,940. The
matter is still pending.
Other than as described herein, the Company is not a party to
any other litigation or other legal proceeding or investigation that
is expected to have a material adverse effect on its financial
condition or results of operations, nor are any such proceedings
known or contemplated.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the Company's
security holders during the fourth quarter, either through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
------------------
The Company's common stock trades on the over-the-counter market
(symbol: "WINW") and is quoted on the National Association of
Securities Dealers Electronic Bulletin Board. To the knowledge of the
Company, there was minimal trading activity in the Company's common stock
during the Company's fiscal year ended February 28, 1996. As quoted on
the Electronic Bulletin Board, the high and low bids during such fiscal
year were $0.03 and $0.01, respectively. High and low bid information for
the Company's common stock as quoted on the Electronic Bulletin Board
for the Company's fiscal years ending February 28, 1997, and February 28,
1998, respectively, is set forth in the table below. The quotations
reflect inter-dealer bid prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions.
<TABLE>
Stock Quotations*
<CAPTION>
Period High Bid Low Bid
------ -------- -------
<S> <C> <C.
March 1 to May 31, 1996 $0.03 $0.01
June 1 to August 31, 1996 $0.03 $0.01
September 1 to November 30, 1996 $0.03 $0.01
December 1, 1996 to February 28, 1997 3 3/8 1 3/8
March 1 to May 31, 1997 3 3/8 2 1/4
June 1 to August 31, 1997 3 1/2 1 1/2
September 1 to November 30, 1998 2 5/8 1 1/2
December 1 to February 28, 1998 1 7/8 3/8
</TABLE>
*The future sale of presently outstanding unregistered and restricted
common stock by members of management by members of management
and holders of 5% or more of the Company's outstanding securities may have
an adverse effect on any market that may develop for the Company's
common stock.
Shareholders
------------
The approximate number of holders of record of the Company's common
stock, par value $0.001, as of February 28, 1997, was 179, and as of
February 28, 1998 was 446. This total does not include the number of
beneficial owners of common stock held in "nominee" or "street" name,
as to which number the Company cannot speculate.
Dividends
---------
The Company has not paid cash dividends on its common stock in the
last fiscal year. At the present time, the Company's anticipated
capital requirements are such that it intends to follow a policy of
retaining any earnings in order to fund future growth and development of
the Company's business operations. The Company does not anticipate paying
any dividends in the near future. Other than any applicable statutory
requirements, there are no material restrictions that limit the Company's
ability to pay dividends on its common equity or that are likely to do so
in the future.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
---------------------
Comparison of Fiscal Year Ended February 28, 1998 (FY1998) to Fiscal
Year Ended February 28, 1997 (FY1997)
-------------------------------------
Net revenues for FY1998 were $7,762,125 representing an increase of
$5,815,183 or approximately 299% over net sales for FY1997. The increase
in the Company's sales for the period is attributable, at least in part,
to the growth in the number of members of the Company's network of
independent direct distributors. In addition, the increase in sales can
be attributed to an increasing popularity in Internet commerce, as well as
the successful progression of the Company's marketing plan and expansion
of the Company's offering of products and services.
Net loss for FY1998 was $680,930 compared with a net loss during
FY1997 of $492,207 or approximately 28% over net loss for FY1997.
The net loss incurred by the Company increased in FY1998 due to the costs
associated with building and maintaining the Company's Internet-
based infrastructure and computer network, development activities
associated with the Company's Internet site on the World Wide Web, and
product expansion for the WI Mall, among other things.
Cost of sales as a percentage of net sales decreased to 13% of net
sales in FY1998, compared to 44% of net sales in FY1997. This
decrease in cost of sales as a percentage of net sales was primarily
attributable to economies of scale, resulting from the growth of the
Company in the production of Internet-related products and performance of
Internet-related services. In addition, the increase in total volume of
products purchased on the WI Mall has led to improved terms offered by
manufacturers, vendors and suppliers of the products sold on the WI Mall.
Commissions paid to the Company's network of independent direct
distributors amounted to $4,456,907 in FY1998 (57% of net sales),
representing an increase of 459% over the $796,763 (41% of net sales) paid
in FY1997. The increase in commissions is substantially a direct result
of increased sales and growth in the number of members in the Company's
direct distribution network. The Company's direct distributors are
paid commissions based on independent sales generated by themselves and
their independently-owned direct distribution network, in accordance
with the Company's compensation plan.
Selling, general and administrative expenses for FY1998 were
$2,986,536 (39% of net sales), which is an increase of 274% over $785,433
for FY1997. The increase reflects the necessary growth and maturation of
the Company's internal support structure, as well as office space
expansion to accommodate new personnel, which changes were necessary to
accommodate growth in the Company's network of direct distributors.
Management expects that general and administrative expenses will increase
in future periods as the Company incurs additional costs related to
being a public company. In addition, facilitation of long-term growth
will require an increase in administrative staff and facilities, with
consequent cost and expense.
Net loss per common share- basic during FY1998 was $(0.05). Net loss
per common share- basic was comparable to FY1997, primarily
as a result of the Company's election not to record a deferred tax benefit
in FY1997. Such a deferred tax benefit will be applied against future
earnings.
Liquidity and Capital Resources
-------------------------------
Since inception, the Company's subsidiary, WI, has primarily been
funded with revenues generated from operations. Except for
capital received by the Company during FY1998 arising from the exercise of
certain stock options, the Company has not engaged in any significant
outside financing.
Net cash provided in the Company's operating activities in amounts of
$182,556 in FY1998 compared with net cash used by the
Company's operating activities of $76,861 in FY1997. Net cash used in the
Company's operating activities in FY1997 is primarily attributable to net
losses in such period. . Net cash provided in the Company's operating
activities in FY1998 is primarily attributable to an increase in certain
operating liabilities of the Company. Net cash used in investing
activities in FY1998 is primarily attributable to the use of working
capital to build out new, primary office space, including the purchase of
related furniture and fixtures.
As of February 28, 1998, the Company's current ratio was .29 to 1, as
compared with a current ratio of .14 to 1 as of February 28,
1997. The increase in current ratio is due in large part to an increase
in inventories and sales receivables relating to products and services
sold through the WI Mall. Higher current liabilities are the result of
increased vendor payables and deferred revenue arising from product
purchase credits acquired by some of the Company's independent
distributors.
As of February 28, 1998, the Company's primary source of liquidity was
revenues generated from continuing operations. Management
believes that sufficient liquidity will be maintained through (i)
continued exercise of stock options by consultants to the Company; (ii)
new revenues generated through additional Internet related services
introduced to market subsequent to year end; and (iii) streamlined
operations since the end of fiscal year 1998, resulting in increased
economic efficiencies. However, any projections of future cash needs and
cash flow are subject to substantial uncertainty. The exercise of
consultant stock options would result in additional dilution to the
Company's existing shareholders. There can be no assurance that financing
will be available to the Company in amounts or on terms that will be
acceptable to the Company.
Recently Issued Accounting Pronouncements adopted by the Company
----------------------------------------------------------------
The following are descriptions of recently issued accounting
pronouncements issued by the Financial Accounting Standards Board
( FASB ) and adopted by the Company.
Earnings Per Share. In February 1997, the Financial Accounting
Standards Board ( FASB ) issued Statement of Financial Accounting
Standards No. 128 ( SFAS 128 ), Earnings Per Share. SFAS 128 eliminates
the presentation of primary earnings per share ( EPS ) and requires
the presentation of basic EPS, which includes no common stock equivalents
and thus no dilution. The statement also eliminates the modified
treasury stock method of computing potential common shares. This
statement is effective for financial statements issued for periods ending
after December 15, 1997. This statement was adopted during FY1998 and has
no effect on the financial statements.
Recently Issued Accounting Pronouncements not adopted by the Company
--------------------------------------------------------------------
The following are descriptions of recently issued accounting
pronouncements issued by the Financial Accounting Standards Board
( FASB ) which have not been adopted by the Company. The Company does not
believe that the adoption of SFAS 130 and SFAS 131, defined below,
will have a material effect on the Company's consolidated financial
statements.
Comprehensive Income. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130 ( SFAS 130 ), Reporting
Comprehensive Income. SFAS 130 requires entities presenting a complete
set of financial statements to include details of comprehensive income
that arise in the reporting period. Comprehensive income consists of net
income or loss for the current period and other comprehensive income,
which consists of revenue, expenses, gains and losses that bypass the
income statement and are reported directly in a separate component of
equity. Other comprehensive income includes, for example, foreign
currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain investment securities. SFAS 130 requires that
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial statements.
This statement is effective for fiscal years beginning after December 15,
1997 and requires restatement of prior period financial statements
presented for comparative purposes.
Disclosure of Segments. In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 131 ( SFAS 131 ),
Disclosures about Segments of an Enterprise and Related Information.
SFAS 131 applies only to publicly held business entities, and requires
such entities to report financial and descriptive information about their
reportable operating segments. An operating segment is a component of
an entity for which financial information is developed and evaluated by
the entity's chief operating decision-maker to assess performance and to
make decisions about resource allocation. Entities are required to report
segment profit or loss, certain specific revenue and expense items and
segment assets based on financial information used internally for
evaluating performance and allocating resources.
Certain Factors Expected to Impact Operating Results
----------------------------------------------------
Many factors outside the Company's control may significantly affect
the Company's operating results in any future fiscal quarter.
For example, the Company's operating results may be affected by changes in
the use of the Internet, seasonal trends in Internet use and online
shopping, the continuing interest and activity of the Company's
independent direct distributors, the amount and timing of capital
expenditures and other costs associated with development and expansion of
the Company's Internet site and related products and services, the
introduction and success of competitive Internet sites, price competition
in the industry, technical difficulties associated with the Company's
computer network, and general economic conditions and economic conditions
specific to Internet commerce. Due to these and other factors, it is
probable that the Company's operating results will fall below expectations
of the Company, its shareholders or market analysts in some future fiscal
quarter. Important risk factors and uncertainties that the Company expects
will impact its operating results include the following:
Limited Operating History. The Company's subsidiary, World Internet
Marketplace, Inc. was established in November 1995,
incorporated in July, 1996, and was acquired by the Company in August,
1996, and accordingly, has only a limited operating history upon which an
evaluation of the Company and its prospects may be based. The Company's
prospects for continued growth and success must be considered in
light of the risks, expenses and obstacles typically encountered by
companies in the early stage of development, particularly in rapidly
evolving and expanding markets. To address these risks, the Company must,
among other things, respond to competitive developments, continue to
attract and retain motivated and qualified employees, and continue to
upgrade and develop its technological capabilities. There can be no
assurance that the Company will be successful in addressing such risks.
Reliance Upon Network of ISOs. The Company's products and services
are marketed exclusively through an extensive network
marketing system of ISOs. These ISOs are independent contractors who
purchase products directly from the Company for their own use or for
resale. ISOs typically work at distributing the Company's products on a
part-time basis. The Company's continued growth and success
substantially depends on its ability to retain and motivate its existing
ISOs and to attract new ISOs through marketing programs and by offering
superior products and services at reasonable prices.
ISOs' agreements with the Company may be voluntarily terminated by an
ISO, and there can be a substantial turnover among ISOs
from year to year. Because the Company's revenues are substantially
dependent on the work of its ISOs and their productivity, turnover among
the ISOs, voluntary reductions in an ISO's commitment to distributing the
Company's products and services, decreases in the number of ISOs,
decreases in overall purchase volume, and costs and other expenses
associated with training ISOs may combine to reduce the revenues and
profitability of the Company.
ISOs' Actions. The Company requires all ISOs to sign an agreement
with the Company that, among other things, obligates ISOs to
comply with the Company's Polices and Procedures. These Policies and
Procedures include restrictions on the claims that may be made by ISOs
with respect to the nature of the products and services offered by the
Company, as well as the compensation program and related income potential
for ISOs. In certain instances, ISOs may from time to time prepare
advertising materials or make representations to customers and prospective
ISOs that do not accurately describe the Company, its products or
services, or its marketing and compensation programs. Such statements by
ISOs, including statements concerning potential income obtainable by ISOs,
are not in accordance with the Company's Policies and Procedures and
may violate certain applicable laws and regulations. Although no claims
or charges against the Company have been brought by any regulatory or
other enforcement authorities, potential legal actions against individual
ISOs may lead to greater scrutiny of the Company itself by such
authorities. The Company attempts to minimize this risk and ensure
compliance with its Policies and Procedures by carefully monitoring the
activities of its ISOs and any claims or statements made by them about the
Company and its programs. However, there can be no assurance that
the Company can successfully monitor the ISOs. In addition, ISOs may make
statements about the Company and its operations, or other
unauthorized remarks, of which the Company may not be aware and which it
cannot control. Negative publicity from such activities and
statements by ISOs may adversely affect the Company's ability to attract
and retain new ISOs, and to successfully expand its business operations.
Government Scrutiny of Direct Distribution and Network Marketing
Industry. Direct distribution and network marketing programs
are frequently subject to scrutiny by the Federal Trade Commission and
other governmental authorities under laws and regulations that are
designed to ensure that product sales within network marketing programs
are made to actual consumers, and that compensation programs and
advancement in the network organization are based on the sale of products
rather than mere "investment" in a sponsoring company or
recruitment of new distributors. The Company has retained outside legal
counsel to assist in maintaining compliance with all such laws and
regulations; however, there is the risk that the Company's network
marketing system could be found not to be in compliance with the
applicable laws and regulations of a particular jurisdiction. Failure by
the Company to comply with all such laws and regulations could result in a
material adverse impact on the Company or its ISOs in a particular market
or in general.
Government Regulation of the Internet. At present, the Company is not
aware of any laws or regulations specifically restricting the
commercial use of the Internet. However, related laws and regulations,
including those pertaining to trademark, copyright, patent, licensing,
obscenity, and security matters, can affect the use of the Internet for
online commerce. Management believes that the Company is currently in
compliance with all laws pertaining to the Internet, whether directly or
tangentially. Nevertheless, there can be no assurance that there will not
be legislation enacted and implemented in the future that could restrict
use of the Internet as a commercial medium. If such new legislation were
implemented, it could have a material adverse impact on the Company and
its business operations.
Uncertain Future of the Internet. Critical issues concerning the
viable commercial use of the Internet remain unresolved and may
impact the growth of Internet use. Such issues include security,
reliability, cost, ease of use and access, and quality of service.
Although the Company believes that its products and services may be
economically and commercially marketed using the Internet, and furthermore
that the number of users of the Internet will continue to grow, there can
be no assurance that commerce and communication over the Internet will
become widespread, or that the Company's products or services will become
widely recognized or used.
Marketing and distribution of the Company's products and services will
depend in large part on a robust Internet industry and
adequate infrastructure for providing Internet access and carrying growing
Internet traffic. The Internet may not prove to be a viable
commercial marketplace because of inadequate development of necessary
infrastructure, such as a reliable network backbone or timely
development of related products, such as high-speed modems or other
quickening devices. Because global commerce and online networks are still
relatively new and evolving, it is not possible to predict with any
assurance whether the Internet will prove to be a viable commercial
market. If it does not, the Company's business operations and financial
condition could be materially adversely affected.
Risk of Capacity Constraints; Reliance on Internal Information Systems
Controls. The Company's business operations depend, in
large part, on a high volume of traffic on its Internet site.
Accordingly, the performance, reliability and availability of the
Company's Internet site, computer network infrastructure and Internet
commerce processing systems are critical to the Company's ability to
attract and retain new customers. Any systems interruptions that result
in the unavailability of the Company's Internet site or its computer
system could reduce the volume of traffic to the Company's Internet site
and consequently, the volume of goods sold by the Company. The Company
has experienced periodic computer system interruptions in the past, and
anticipates that such interruptions will occur from time to time in the
future. Continued growth of the Company's network of independent direct
distributors or other customers will require the Company to expand and
upgrade its Internet technology, including its computer network and
Internet commerce processing systems. There can be no assurance that the
Company will accurately predict the need for such expansion or upgrade, or
that it will be able to make such necessary expansion or upgrade in a
timely manner.
Risk of System Failure. The Company's ability to successfully receive
and process orders for the Company's products and services
depends, in large part, on efficient, uninterrupted operation of the its
computer and communications equipment. Substantially all of the
Company's computer and communications equipment is located at the
Company's headquarters, in a leased facility in Provo, Utah. The
Company's computer and communications equipment is vulnerable to flood,
earthquake, power loss, telecommunications failure, and other similar
events. The Company does not presently have redundant systems or a
contingent disaster recovery plan and does not carry adequate business
interruption insurance to cover potential losses that may occur from such
an event. The Company's computer equipment is also vulnerable to computer
viruses, break-ins, and similar events that could lead to interruptions,
loss of data, or dysfunction. The occurrence of any such event could have
a material adverse effect on the Company's business, financial condition
and results of operation.
Security Risks of Online Commerce. A challenge to the success of
online commerce is the secure transmission of confidential
information. The Company relies on encryption devices supplied by third
parties to provide the security, authentication and secure transmission
of confidential information. There can be no assurance that computer
capabilities, new discoveries in encryption technology, or other
circumstances will not result in a breach of the security devices that the
Company employs to protect confidential data, including customer
information such as credit card numbers. If such a breach were to occur,
it could have a material adverse effect on the Company's reputation,
business operations and financial condition. Moreover, such a breach
could result in the misappropriation of proprietary or confidential
information. These concerns may require the Company to spend resources to
protect against the possibility of such breaches, and may inhibit the
use of the Internet for commerce.
Risks Associated With Growth. Since affecting a reverse acquisition
of Wealth Utah in August 1996, the Company has experienced
significant growth. The result of this growth has created significant
management challenges, including growth in the number of Company
employees and ISOs, expansion of office facilities, acquisition of capital
equipment, computers and information systems, and expansion into new
markets. To effectively manage these and other consequences of rapid
growth, the Company may be required to hire additional management
personnel, and to improve its operational, financial and information
technology systems. If the Company is unable to effectively and
efficiently manage growth or to hire and retain qualified personnel, the
Company's business operations and its revenues may be adversely affected.
Moreover, the costs and expenses associated with equipment acquisitions
and expansion, as well as the hiring of new personnel, may adversely
affect the Company's results of operations.
Limited Market for Shares. There is currently only a limited market
for the Company's common stock. There can be no assurance that
a larger market for the Company's common stock will ever be developed or
maintained. Factors such as the success or lack thereof of the
Company's efforts to market its products and services through its ISOs,
competition, governmental regulations, and fluctuations in operating
results may all have an effect on the market for the Company's common
stock, which market may be volatile. The stock markets generally have
experienced, and will likely experience in the future, extreme price and
volume fluctuations which have affected the market price of the shares of
many small capital companies, and which have often been unrelated to the
operating results of such companies. Such broad market fluctuations,
as well as general economic and political conditions, may adversely affect
the market price of the Company's common stock in any market that
develops.
Dilution. Dilution usually results from the substantially lower price
paid by insiders and other related parties for their securities in
a company when compared with the price being paid by other investors. The
Company has engaged in certain transactions in the past fiscal year
that have had a dilutive effect: (i) on March 25, 1997 certificates of
stock representing 73,000 shares were issued to individuals who subscribed
for such shares during fiscal year 1997; (ii) on March 25, 1997
certificates of stock representing 50,000 shares were also issued to
individuals who were granted options during fiscal year 1997 for services
provided in promoting the Company; (iii) on March 25, 1997 a certificate
for 10,000 shares was issued to an employee of the Company as severance
upon termination of employment; (iv) on March 25, 1997 a certificate for
5,000 shares was issued to a consultant who had contributed services
toward completion of the Company's virtual mall; (v) on June 10, 1997 the
Company entered into Consulting Agreements with 21 business consultants
specializing in the direct distribution marketing industry, pursuant to
which options were granted to each consultant to purchase, upon the
satisfactory performance of certain services for the Company, 15,000
"unregistered" and "restricted" shares of the Company's common stock at an
exercise price of $2.50 per share; and (vi) in January, 1998, options
for an additional 1,250,000 shares of the Company's common stock were
issued pursuant to the 1996 Stock Option Plan; at an exercise price of
$0.38 per share. The foregoing issuances of securities to consultants and
employees and the exercise of the options granted pursuant to the 1996
Stock Option Plan, have and will substantially dilute the interest of
other stockholders in the Company.
Voting Control. By virtue of their collective ownership, as of
February 28, 1998, of approximately 66% of the Company's outstanding
voting securities, Ronald A. Nilsson and Richard T. Smith have the ability
to elect all of the Company's directors, who in turn elect all executive
officers, without regard to the votes of other shareholders. Collectively,
these persons may be deemed to have absolute control over the
management and affairs of the Company.
Reliance on Key Personnel; New Management Team. The Company's
performance is substantially dependent on the performance of its
executive officers and key employees, Given the Company's early stage of
development, the Company is dependent on its ability to retain and
motivate highly-qualified personnel, especially in management and
technical positions. The Company does not have a "key person" life
insurance policy on any of its employees. The loss of the services of any
of its executive officers or other key employees could have a material
adverse effect on the business, operating results or financial condition
of the Company. The Company's future growth and success also depends on
its ability to identify, hire train and retain other qualified management
and technical personnel in the future. The inability to hire and retain
necessary personnel could have a material adverse effect on the Company's
business operations and financial condition.
During fiscal year 1998, the Company expanded from approximately 10
employees to approximately 50 employees. The majority of the
Company's senior management has joined the Company within the past year,
and some of the Company's officers have no prior senior management
experience with public companies. The Company's new employees include
several key managerial, technical and operations personnel who have
not yet been integrated into the Company, and additional personnel may be
required in the near future. There can be no assurance that the
Company's current or potential personnel, systems or controls will be
capable of adequately managing the Company's growth and potential market
opportunities.
Penny Stock. The Company's securities are deemed "penny stock" as
defined in Rule 3a51-1 of the Securities and Exchange
Commission. Such a designation could have a material adverse effect on
the development of the public market for shares of the Company's common
stock or, if such a market develops, its continuation, since
broker-dealers are required to personally determine whether an investment
in such securities is suitable for customers prior to any solicitation of
any offer to purchase these securities. Compliance with procedures
relating to sale by broker-dealers of "penny stocks" may make it more
difficult for purchasers of the Company's common stock to resell their
shares to third parties or to otherwise dispose of such shares.
Volatility of Stock Price. Any market price for shares of common
stock of the Company is likely to be very volatile, and numerous
factors beyond the control of the Company may have a significant effect.
In addition, the stock markets generally have experienced, and continue
to experience, extreme price and volume fluctuations which have affected
the market price of many small capital companies and which have often
been unrelated to the operating performance of these companies. These
broad market fluctuations, as well as general economic and political
conditions, may adversely affect the market price of the Company's common
stock in any market that may develop.
Item 7. Financial Statements.
Financial statements, with the reports of the Company's certifying
auditors, follow as part of this Form 10-KSB Annual Report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company and its current auditors have not disagreed on any items
of accounting treatment or financial disclosure.
PART III
Item 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Directors, Executive Officers, Promoters, and Control Persons
-------------------------------------------------------------
The following table sets forth certain information regarding the
directors and executive officers of the Company as of June 6, 1998:
<TABLE>
Name Age Position
---- --- --------
<S> <C> <C>
Ronald A. Nilsson 30 President, Chief Executive
Officer and Director of WI,
Director of WI Marketplace
Duane R. Barney 42 Chairman of WI Marketplace
Leadership Committee
Daniel G. Lloyd 34 Secretary, Treasurer and
Chief Financial Officer of
WI and WI Marketplace
Robert H. Schneck 34 Director of WI, President
and Director of WI
Marketplace
Richard T. Smith 30 Director of WI and WI
Marketplace
</TABLE>
All directors of the Company hold office until the next annual meeting
of the shareholders of the Company and until their successors
have been duly elected and qualified. The executive officers of the
Company are elected annually and serve at the pleasure of the Board of
Directors.
Ronald A. Nilsson. Mr. Nilsson co-founded Wealth Utah in November,
1995, and has been the President and a Director of the Company
since August, 1996. Prior to the organization of Wealth Utah, Mr. Nilsson
served from 1992 to 1995 as Executive Import Director at Lu-Shing
Enterprises, Taiwan's largest importer and wholesale distributor of water
purification components, with responsibility for U.S. vendor relations
and import coordination. In 1994, he founded Rantech Enterprises, Inc. (
Rantech ), a Utah-based import company that operates several small
manufacturing facilities in Hsintien, Taiwan. Rantech also imports and
distributes a variety of electronic products throughout the United States.
He attended Brigham Young University from 1989 to 1992, focusing his
studies in Mandarin Chinese and International Relations.
Duane R. Barney Mr. Barney has more than 20 years of business
leadership experience in commercial real estate development, sales,
management, and related fields. Duane has led several divisions of
Equitec Financial Group, Inc. As director of real estate management,
director of mortgage acquisitions, and vice president of Equitec
Properties Company, a wholly owned subsidiary. Mr. Barney was
instrumental in the successful initial public offering of Equitec
Financial Group Inc. He was also Director on several other outside boards
of directors. Mr. Barney entered into a partnership with Peerless
Services Incorporated, where as Executive Vice President, he orchestrated
the development acquisition, management, and disposition of real estate
portfolios.
Daniel G. Lloyd. Mr. Lloyd joined the Company as the Chief Financial
Officer in August 1997. A Certified Public Accountant, Mr. Lloyd
began his career in 1987 with KPMG Peat Marwick, in Washington, D.C.,
providing audit, tax, and management consulting services to the financial
services industry. A member of the Utah, Virginia and District of
Columbia Bar Associations, he also practiced law in the corporate and tax
departments of law firms in Washington, D.C. and Salt Lake City, Utah. He
received a B.A. from the University of Utah, a J.D. from the University
of Virginia, and served a judicial clerkship with the United States Tax
Court.
Robert H. Schneck. Mr. Schneck joined WI Marketplace as Vice
President of Marketing in November 1995. Prior to joining the
Company, Mr. Schneck established and managed a regional chain of real
estate and mortgage brokerage offices. In 1987, he participated in the
establishment of LPI, Inc., a food service corporation, where he was
responsible for marketing, advertising and general management matters.
Mr. Schneck attended Brigham Young University.
Richard T. Smith. Mr. Smith co-founded Wealth Utah in November, 1995,
and presently serves as a Director of the Company, which
position he has held since August, 1996. He studied marketing and finance
at Utah State University in 1987 and 1988. In 1989, Mr. Smith founded
Graphic Systems, Inc., an innovative leader in thermalchromatic textile
and paper manufacturing. From 1989 to 1994, he served as President of
Graphic Systems, where he developed the color-change T-shirt, and had
responsibilities covering financing, market analysis and strategic
planning, distribution and home-based business development. From 1995 to
the present, Mr. Smith has served as founder and President of ONYD,
an entrepreneurial marketing and product development firm, which markets
creative inventions through mass media and distribution channels.
Material Employment Contracts
-----------------------------
Only one executive officer of the Company, Daniel G. Lloyd, has an
employment agreement with the Company. The agreement has an
initial term of 1 year, and includes non-competition and confidentiality
provisions.
Termination of Employment and Change in Control Arrangements
------------------------------------------------------------
Not applicable.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires
officers, directors and persons who beneficially own more than ten
percent of a fully reporting company's common stock to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. The Company is not a fully reporting company, and,
accordingly, not subject to such reporting requirements.
Item 10. Executive Compensation.
Executive Compensation Summary Information
------------------------------------------
The compensation information set forth on the following table
summarizes the compensation received by Ronald A. Nilsson, Duane
Barney, Daniel G. Lloyd, and Robert H. Schneck for the past fiscal year,
derived from their operation of the Company.
<TABLE>
Name and Principal Salary Bonus Other Securities All Other
Position ($) ($)1 Annual Underlying Compensation
Comp- Option/SARs ($)
ensation (#)
------------------ ------ ----- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Ronald A. Nilsson 86,144 10,503 None None 0
Duane R. Barney 49,274 0 None 500,000 0
Daniel G. Lloyd 49,407 0 None 750,000 0
Robert H. Schneck 69,572 10,950 None None 0
Richard T. Smith 109,108 14,192 None None 0
</TABLE>
1 The Company provides bonus compensation to certain executive officers
in accordance with an incentive bonus program. Under the
bonus program, the Company's Board of Directors considers the
relative contribution of each included executive officer to the
overall profitability of the Company on a periodic basis, based on
sales, revenues, and overall Company performance, and allocates bonus
compensation accordingly.
With respect to long-term compensation, other than grants of options
listed in the above table, the Company made no restricted stock
awards or Long-Term Incentive Plan payouts during the fiscal year ended
February 28, 1998.
Stock Option and Stock Appreciation Rights Grants in the Fiscal Year
Ending February 28, 1998
------------------------
No Stock Appreciation Rights ("SARs") were granted by the Company
during the fiscal year ended February 28, 1998. The Company
has granted the following stock options to certain officers of the
Company, pursuant to the Company's 1996 Stock Option Plan (described
below):
<TABLE>
Individual Grants1 Present Value of
the Grant at the
Date of Grant
Name Number of Percent of Exercise Expiriation Grant Date
Securities Total Options Price Date Present Value
Underlying Granted To ($/share) ($)
Options Employees in
Granted (#) Fiscal Year
(%)
---- ---------- ------------ -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Ronald A. Nillson None N/A N/A N/A N/A
Daniel G. Lloyd 750,000 60% 0.38 Jan. 18, 2003 285,000
Duane R. Barney 500,000 40% 0.38 Jan. 18, 2003 252,500
Richard T. Smith None N/A N/A N/A N/A
Robert Schneck None N/A N/A N/A N/A
</TABLE>
1996 Stock Option Plan
----------------------
The Company's 1996 Stock Option Plan (the "Plan") provides for the
award of incentive stock options to key employees and the award
of nonqualified stock options, as well as awards of stock and rights to
purchase stock, to employees and certain non-employees who have
important relationships with the Company. 16,000,000 shares of the
Company's common stock are available for issuance pursuant to awards
granted under the Plan.
Stock Option Grants. The Plan Committee may grant Incentive Stock
Options and Non-Qualified Stock Options under the Plan. With
respect to each option grant, the Plan Committee will determine the number
of shares subject to the option, the option price, the period of the
option, the time or times at which the option may be exercised (including
whether the option will be subject to any vesting requirements and
whether there will be any conditions precedent to exercise of the option),
and the other terms and conditions of the option.
Restricted Stock. The Plan Committee may issue shares of the
Company's common stock under the Plan subject to the terms,
conditions, and restrictions determined thereby. Upon the issuance of
restricted stock, the number of shares reserved for issuance under the
Plan will be reduced by the number of shares issued. No awards of
restricted shares have been granted under the Plan.
Changes in Capital Structure. The Plan provides that if the
outstanding common stock of the Company is increased or decreased or
changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation by reason of any
recapitalization, stock split or certain other transaction, appropriate
adjustment will be made by the Plan Committee in the number and kind of
shares available for grants under the Plan. In addition, the Plan
Committee will make appropriate adjustments in the number and kind of
shares as to which outstanding options will be exercisable.
During the fiscal year ended February 28, 1998, the Company granted
options to employees under the Plan for the purchase of a total
of 1,250,000 shares of the Company's common stock. As of February 28,
1998, there were options outstanding under the Plan for the purchase of
an aggregate of 2,545,000 shares of stock, which were exercisable as to
shares in the current fiscal year.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
--------------------------
There were no exercises of options by the Company's directors or
executive officers during the past fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of February 28, 1998, the number of
shares of the Company's common stock, held by all persons
known to the Company to be beneficial owners of more than five percent of
the Company's common stock (the Company's only class of voting
securities) and by executive officers and directors of the Company
individually and as a group. Except as otherwise indicated in the
footnotes below, each of the persons listed exercises sole voting and
investment power over the shares of the Company's common stock listed for
such person in the table.
<TABLE>
Name/Address of 5% Beneficial Owner,
Director, Officer1 Number of Shares Percent of Class
----------------------------------- ---------------- ----------------
<S> <C> <C>
Ronald A. Nilsson2,3
243 East 100 North, Spanish Fork, Utah 5,038,890 37.88%
Richard T. Smith3
295 E. Center Street, Springville, Utah 4,023,890 30.25%
Daniel G. Lloyd
4958 Naniloa Drive, Salt Lake City, Utah 100,000 0.75%
Robert H. Schneck
1121 S. 3400 E. Springville, Utah 300,000 2.25%
Officers and Directors as a Group (6 persons) 9,462,780 71.14%
</TABLE>
As of February 28, 1998, Cede & Co. held of record 990,435 shares of
the Company's common stock (approximately 7.45% of the total
number of shares of common stock outstanding). It is the Company's
understanding that Cede & Co. held such shares as a nominee for broker-
dealer members of The Depository Trust Company, which conducts clearing
and settlement operations for securities transactions involving its
members.
Ronald A. Nilsson disclaims beneficial ownership of 4,000 shares of
the Company's common stock held by the Nilsson Family Trust.
Ronald A. Nilsson and Richard T. Smith have an oral agreement pursuant
to which they consult with each other concerning the election to the
Company's Board of Directors of mutually acceptable members.
Certain Relationships and Related Party Transactions
----------------------------------------------------
Ron Nilsson is the owner of an import company, Rantech Enterprises.
Rantech was affiliated with the Company in the initial phases of
development of the Company's vender relationships. The Company's
relationship with Rantech has been approved by resolution of the Board of
Directors of the Company. The Company anticipates that its relationship
with Rantech will decrease in significance as the Company continues to
consolidate internally within the Company the acquisition, warehousing (if
necessary), and distribution of all products offered for sale on the WI
Mall.
In January 1998, WI Marketplace received a loan in the amount of
$40,000 from Courtney and Nancy Smith, parents of Richard Smith, a
director of the Company, to cover expenses related to the establishment of
WI Marketplace. The term of the loan was 6 months, and interest
accrued during that time at a rate of 10.5%. As of February 28, 1998, the
Company was current on all payments under the loan, with an
outstanding principal balance of $33,168.
Item 13. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) Regulation S-B Exhibits incorporated by reference:
See fiscal year 1997 Form10-KSB Annual Report previously filed with
the Securities & Exchange Commission for the following documents:
(2)(i) Agreement and Plan of Exchange, incorporated by
reference from the Company's Form 8-K Current
Report, filed with the Securities and Exchange
Commission on October 24, 1996;
(2)(ii) First Amendment to the Agreement and Plan of Exchange,
incorporated by reference from the Company's Form 8-K
Current Report, filed with the Securities
and Exchange Commission on October 24, 1996;
(3)(i) Articles of Incorporation of the Company, as
amended, which are incorporated by reference from the
Company's Information Statement, filed with the
Securities and Exchange Commission on June
30, 1996, and the Company's Form 8-K Current Report,
filed with the Securities and Exchange Commission on
October 24, 1996;
(3)(ii) Bylaws of the Company, as amended, which are
incorporated by reference from the Company's
Information Statement filed with the
Securities and Exchange Commission on June 30, 1996;
(4) Description of the Company's common stock
incorporated by reference from the Company's
Information Registration filed with the
Securities and Exchange Commission on June 30, 1996;
(10)(i) Form of Consulting Agreements entered October
16, 1996, between the Company and 15 consultants.
(10)(ii) The Company's 1996 Stock Option Plan.
(13) The Company's Quarterly Reports on Form 10-QSB
during the preceding fiscal year, which are hereby
incorporated by this reference;
(16) Letter from Andersen Andersen & Strong, L.C. on
change in accountants, incorporated by reference from
the Company's Form 8-K Current Report filed with the
Securities and Exchange Commission on September 17,
1997.
List of the Company's subsidiaries, the states of incorporation of
those subsidiaries and the names under which the subsidiaries do business;
Consent of Grant Thornton LLP, the Company's certifying accountants.
Financial Data Schedule.
(b) Forms 8-K filed during the fiscal year ended February 28, 1997.
(i) Form 8-K Current Report, filed with the Securities and
Exchange Commission on October 24, 1996.
(ii) Form 8-K/A Current Report, filed with the Securities and
Exchange Commission on November 26, 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLD INTERNETWORKS, INC.
Date: 6/15/98 /s/Ronald A. Nilsson
------------- ----------------------------
Ronald A. Nilsson, President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
Date: 6/15/98 /s/Ronald A. Nilsson
------------ --------------------------------
Ronald A. Nilsson, President and
Director
Date: 6/15/98 /s/Richard T. Smith
------------ --------------------------------
Richard T. Smith, Director
Date: 6/15/98 /s/Daniel G. Lloyd
------------ ---------------------------------
Daniel G. Lloyd, Chief Financial Officer
<PAGE>
WORLD INTERNETWORKS, INC. AND SUBSIDIARY
(FORMERLY WEALTH INTERNATIONAL, INC.)
CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FEBRUARY 28, 1998 AND 1997
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS 3
STATEMENTS OF OPERATIONS 4
STATEMENTS OF STOCKHOLDERS DEFICIT 5
STATEMENTS OF CASH FLOWS 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
World InterNetWorks, Inc.
We have audited the accompanying consolidated balance sheets of World
InterNetWorks, Inc., (formerly Wealth International, Inc.) and Subsidiary as
of February 28, 1998 and 1997, and the related consolidated statements of
operations, stockholders deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of World
InterNetWorks, Inc., and Subsidiary as of February 28, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $680,930 and $492,207 during
the years ended February 28, 1998, and 1997, respectively. As of February 28,
1998, the Company's current liabilities exceeded its current assets by
$1,122,359 and its total liabilities exceeded its total assets by $510,030.
These factors, among others, as discussed in Note B to the financial
statements, raise substantial doubt about the Company's ability to continue as
a going concern. Management s plans in regard to these matters are also
described in Note B. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/S/GRANT THORNTON LLP
Provo, Utah
May 8, 1998
<PAGE>
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
World InterNetWorks, Inc., and Subsidiary
(formerly Wealth International, Inc.)
CONSOLIDATED BALANCE SHEETS
February 28,
ASSETS
<CAPTION>
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 126,029 $ 78,959
Accounts receivable 223,853 -
Inventories (Note C) 103,955 11,988
Total current assets 453,837 90,947
PROPERTY AND EQUIPMENT, at cost,
net (Notes D and G) 519,704 151,050
OTHER ASSETS (Note E) 103,811 22,370
$1,077,352 $ 264,367
LIABILITIES AND STOCKHOLDERS DEFICIT
CURRENT LIABILITIES
Accounts payable $ 402,832 $61,614
Related party note payable (Note E) 33,128 61,617
Current maturities of capital lease
obligations (Note G) 5,134 -
Accrued liabilities (Note F) 404,525 155,576
Deferred revenue 730,577 353,307
Total current liabilities 1,576,196 632,114
CAPITAL LEASE OBLIGATIONS, less current
Maturities (Note G) 11,186 -
COMMITMENTS AND CONTINGENCIES (Notes J and L) - -
STOCKHOLDERS DEFICIT (Note I)
Common stock, $0.001 par value
Authorized - 500,000,000 shares
Issued 13,300,956 shares in 1998
And 11,934,956 shares in 1997 13,301 11,935
Additional paid-in capital 1,088,318 468,954
Employee notes receivable (Note E) (78,897) -
Treasury stock, at cost (1,020 shares) (3,186) -
Accumulated deficit (1,529,566) (848,646)
(510,030) (367,747)
$ 1,077,352 $ 264,367
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
World InterNetWorks, Inc., and Subsidiary
(formerly Wealth International, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended February 28,
<CAPTION>
1998 1997
<S> <C> <C>
Net revenues (Note K) $ 7,762,125 $1,946,942
Cost of products sold 999,612 856,953
Gross profit 6,762,513 1,089,989
Operating expenses
Commissions 4,456,907 796,763
Selling, general and administrative (Note L) 2,986,536 785,433
7,443,443 1,582,196
Loss before income taxes (680,930) (492,207)
Income taxes (Note H) - -
NET LOSS $ (680,930) $ (492,207)
Net loss per common share - basic (Note M) $ (0.05) $ (0.04)
Weighted average shares outstanding 13,078,256 11,580,956
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
World InterNetWorks, Inc., and Subsidiary
(formerly, Wealth International, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
Years ended February 28, 1998 and 1997
<CAPTION>
Treasury Capital in Employee Accumu-
Common stock stock excess of notes lated
Shares Amount amount par value receivable deficit Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of
March 1, 1996 182,000 $ 182 $ - $239,965 $ - $(356,429) $(116,282)
Issuance of
common stock
from minimum
share resolution
from stock split 19,976 20 - (20) - - -
Net issuance of
common stock
from reverse
acquisition (Note
A2) 11,008,980 11,009 - (11,009) - - -
Issuance of
common stock
for consulting
services
at $0.02 per share
(Note I) 300,000 300 - 5,700 - - 6,000
Issuance of
common stock
from the exercise
of options 424,000 424 - 234,318 - - 234,742
Net loss for 1997 - - - - - (492,207) (492,207)
Balances as of
February 28,
1997 11,934,956 11,935 - 468,954 - (848,636) (367,747)
Issuance of
common stock
from the exercise
of options
(Note E) 1,366,000 1,366 - 563,364 (37,500) - 527,230
Issuance of
notes receivable
to employees
(Note E) - - - - (41,397) - (41,397)
Award of
common stock to
an officer (Note I) - - - 56,000 - - 56,000
Purchase of
treasury stock - - (3,186) - - - (3,186)
Net loss for 1998 - - - - - (680,930) (680,930)
Balances as of
February 28,
1998 13,300,956 $13,301$(3,186)$1,088,318$(78,897)$(1,529,566)$(510,030)
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
World InterNetWorks, Inc., and Subsidiary
(formerly Wealth International Inc.)
STATEMENT OF CASH FLOWS
Year ended February 28,
<CAPTION>
1998 1997
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities $ (624,930) $(492,207)
Net loss
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities 181,310 26,409
Depreciation and amortization 56,000 -
Stock award compensation expense
Changes in assets and liabilities
Accounts receivable (223,853) -
Inventories (91,967) (11,988)
Accounts payable 341,218 39,813
Accrued liabilities 248,949 134,356
Deferred revenue 377,270 242,301
Other assets (81,441) (15,545)
Total adjustments 807,486 415,346
Net cash provided by (used in)
operating activities 182,556 (76,861)
Cash flows from investing activities
Purchase of property and equipment (541,561) (155,709)
Proceeds from disposal of property 13,049 -
Net cash used in investing activities (528,512) (155,709)
Cash flows from financing activities
Proceeds from issuance of common stock 471,230 240,742
Purchase of treasury stock (3,186) -
Increase in employee notes receivable (41,397) -
Proceeds from related party note payable 40,000 11,617
Principal payments on related party note payable (68,489) -
Principal payments on capital leases (5,132) -
Net cash provided by financing
activities 393,026 252,359
Net Increase in cash and cash equivalents 47,070 19,789
Cash and cash equivalents at beginning of year 78,959 59,170
Cash and cash equivalents at end of year $126,029 $78,959
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 5,715 $ 4,849
</TABLE>
Other noncash financing activities
The Company has entered into capital lease obligations for acquisition of
equipment in the amount of $21,452 in 1998. Also during 1998, the Company
issued common stock in exchange for a $37,500 employee note receivable.
The accompanying notes are an integral part of these statements.
World InterNetWorks Inc., and Subsidiary
(formerly Wealth International, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28,1998 and 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.
1. Nature Of operations
World InterNetWorks, Inc., a Nevada corporation, through its wholly-owned.
subsidiary, World Internet Marketplace, Inc., a Utah corporation
(collectively, the Company), Is engaged in the marketing and distribution of
products and services relating to commerce on the Internet. The Company sells
its products or services to a sales force of independent distributors who use
the products or services themselves or resell them, to consumers- Prior to
1998, World InterNetWorks, Inc. was known as Wealth International, Inc.
The Company`s revenues are substantially derived from two categories of
products or services. First, the Company provides personal and commercial web
site development and Maintenance and Internet training. Second, the Company
operates a "virtual mall" on an Internet web site. The "virtual mall"
functions as an online department store. Most orders are shipped directly from
the manufacturer or wholesaler to the customer.
2. Organization
On August 27, 1996, the stockholders of Impressive Ventures LTD (the public
shell), a non-operating developmental stage company, approved an agreement
wherein the of the Company obtained control of the public shell. This
transaction has been treated as an acquisition of the public shall by the
Company, and as a recapitalization of the subsidiary. The agreement required
the of the company to exchange all of their common shares far 11,008,980
common shares of the public shell, after the effects of a reverse stock split
of 250 for 1 and later a stock split of 1 to 4. The public shell had no
operations or significant assets. The Company was established in November of
1995 and operated as a partnership until its incorporation in July 1996.
After the transaction was complete, the public shell's name was changed to
World InterNetWorks, Inc. and the operating subsidiariey's name was changed to
World Internet Marketplace, Inc. (WI)- The consolidated financial statements
include the accounts of World InterNetWorks, Inc. and its wholly-owned
subsidiary. All material intercompany accounts and transactions have been
eliminated.
3. Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less when purchased to be cash equivalents.
4. Inventories
Inventories are stated at the lower of coat or market using the first-in,
first-out method. Most product sales are shipped directly to the customer from
the manufacturer and are not carried by the Company as inventories.
5. Depreciation and amortization
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives.
Leasehold improvements are amortized over the lesser of their economic lives
or the life of the respective lease. For financial reporting purposes, the
straight-line method of depreciation is followed. Accelerated methods of
depreciation are used for tax purposes.
Maintenance and repairs, which neither materially add to the value of the
asset nor appreciably prolong its life are charged to expense as incurred.
Gains or losses on dispositions of property and equipment are included in
earnings.
6. Software development Costs
Software development costs for internally used software are capitalized
beginning when adequate funds am committed and technological feasibility for
the project is established up to the time the product is ready for internal
use. Research and development costs related to software development are
expensed as incurred. Research and development expenses approximated $102,000
and $24,000 in 1998 and 1997, respectively.
7. Deferred revenue
Independent sales representatives maintain their affiliation with the Company
through purchasing a specified amount of either goods or points on a monthly
basis. Points can be redeemed at one US dollar per point at a later date and
expire one year from the date of purchase. Revenues received for point
purchases are deferred and recorded in income during the period in which the
related points are redeemed for Product.
8. Revenue recognition
The Company generally receives the sales price of its web pages and products
in cash at the time orders are made. Sales are generally recorded at the time
the Web page is activated or the product is shipped.
9. Income taxes
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not that such tax
benefits will not be realized.
10. Common stock split and reverse split
During 1997, the Company effected a reverse stock split of 250 for 1 and,
subsequently, a stock split of 1 for 4. The accompanying financial statement
have been restated to reflect these stock splits for all periods presented.
11. Product return
The Company's refund program generally provides that an independent sales
representative may cancel a web page or return defective merchandise for the
amount of the purchase price up to three days from the date of purchase. After
three days, customers, receive points for the amount of the purchase price,
less restocking fee. The Company has established a provision for sales returns
which is included in accrued liabilities.
12. Net loss per common share-basis
Net loss per common share - basic is based on the weighted average number of
common shares outstanding during each period (Note M).
13. Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the 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 estimates.
14. Recently issued accounting pronouncements not yet adopted
Comprehensive income
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No 130 (SFAS 130), "Reporting Comprehensive
Income." SFAS 130 requires entities presenting a complete set of financial
statements to include details, of comprehensive income that arise in the
reporting period. Comprehensive income consists of not income or loss for the
current period and other comprehensive income, which consists of revenue,
expenses, gains, and losses that bypass the income statement and are reported
directly in a separate component of equity. Other comprehensive income
included, for example, foreign currency items, minimum pension liability
adjustments, and unrealized gains and losses on certain investment securities-
SFAS 130 requires that components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997 and requires restatement of prior period financial
statements promoted for comparative purposes.
Disclosure of segments
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and Related
Information." This statement requires an entity to report financial and
descriptive information about their reportable operating segments. An
operating segment in a component of an entity for which financial information
is developed and evaluated by the entity's chief operating decision maker to
assess performance and to make decisions about resource allocation. Entities
are required to report segment profit or loss, certain specific revenue and
expense items and segment assets based on financial information used
internally for evaluating performance and allocating resources.
The Company does not believe that the adaption of SFAS 130 and SPAS 131 will
have a material effect on the Company's consolidated financial statements.
NOTE B - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern. However, the Company has sustained
substantial 1osses from operations in recent years The recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheets is dependent upon the Company's ability to meet its financing
requirements on a continuing basis and to succeed in its future operations.
The financial statements do not include, any adjustments relating to the
recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company
be unable to continue in existence.
Management believes that revenues generated from operations will be sufficient
to meet the Company's anticipated cash needs for working capital and capital
expenditures through the end of the fiscal year 1999. This belief is
substantially based on three factors: (i) the Company has experienced growth
in the number of its independent distributors; (ii) the Company has
streamlined its operations, resulting in increased economic efficiencies; and
(iii) the Company has developed a substantial number of new internet based
commerce products, which have the potential of significantly increasing future
sales.
NOTE C - INVENTORIES
Inventories, at cost, consist of the following:
<TABLE>
<S> <C> <C>
1998 1997
Product $24,440 $11,988
Sales aids 79,515 -
$103,955 $11,988
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment at cost, and estimated useful lives are as follows:
<S> <C> <C> <C>
1998 1997
years
Furniture and equipment $369,390 $ 56,116 7
Leasehold improvements 54,108 50,000 5
Computer Software 243,697 72,652 3-5
667,195 178,768
Less accumulated depreciation and
amortization (147,491) (27,718)
$519,704 $151,050
</TABLE>
Assets under capital leases of $21,452 (net of $5,133 of accumulated
amortization) are included in property and equipment at February 28, 1998.
There were no assets under capital leases as of February 28, 1997.
NOTE E - RELATED PARTY AND EMPLOYEE TRANSACTIONS
The Company holds notes receivable from two employees. The notes are due on
demand, accrue interest at 6-0% and are collateralized by common stock of the
Company.
The Company also holds a note receivable from an employee, due upon the sale
of collateral, but no later than May 2003. The note accrues interest at 6.0%
and is collateralized by common stock of the Company.
The Company has a note payable to family members of a stockholder with an
interest rate of 10.5%. The note is due in full during fiscal 1999 and is not
collateralized.
During 1998, the Company advanced $80,000 to a former employee as a deposit
for the purchase of a building.
During 1997, the Company purchased $19,540 of equipment from an entity owned
by a stockholder of the Company.
During 1998, the Company made payments of approximately $78,000 to a
stockholder for consulting services.
NOTE F - ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consist of the following:
<S> <C> <C>
1998 1997
Sales taxes $ 60,148 $ 45,087
Wages and vacation 114,377 35,489
Allowance for product returns 195,000 75,000
Other 35,000 -
$404,525 $155,576
</TABLE>
NOTE G - CAPITAL LEASE OBLIGATIONS
The Company holds equipment under capital lease obligations. The obligations
are collateralized by equipment. The following is a schedule by years of
future minimum lease payments under, capital leases together with the present
value of the net lease payments:
<TABLE>
<S> <C>
Year ending February 28,
1999 $ 5,938
2000 5,938
2001 3,595
2002 3,595
Thereafter -
Total minimum lease payments 19,066
Less amount representing interest (2,746)
Present value of net minimum lease
payments 16,320
Less current maturities (5,134)
11,186
</TABLE>
NOTE H - INCOME TAXES
As of February 28, 1998, the Company had federal and state net operating loss
carryforwards of approximately $3,238,000. The net operating losses will
expire at various dates beginning in years 2012 through 2013, if not utilized.
The Company operated, for tax purposes, as a partnership under provisions of
the Internal Revenue Code from November 1, 1995 through July 10, 1996. During
this period, losses of the Company flowed through the partnership.
Accordingly, the Company was not subject to federal income taxes on Company
operating results for the period in which the partnership was in existence,
and no provision or current liability or asset for federal, or state income
taxes for those periods has been reflected.
Deferred income taxes reflect the net tax effects of temporary differences
between, the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets for federal and state income
taxes as of February 25, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 1997
Long-term deferred tax assets (liabilities)
Net Operating loss Carryforward $1,207,633 $145,600
Allowance for product returns 72,735 28,349
Deferred compensation 12,976 -
1,293,344 173,949
Software developed for internal use (38,896) (14,512)
1,254,448 159,437
Less Valuation allowance (1,254,448) (159,437)
$ - $ -
</TABLE>
There were no deferred tax assets or income tax benefit recorded in the
financial statements for net deductible temporary differences or the not
operating loss carryforward due to the fact that the likelihood of realization
of the related tax benefits cannot be established. The net valuation allowance
increased by $1,095,011, during the year ended February 28, 1998.
As of February 23, 1998, approximately $866,756 of the valuation allowance for
deferred tax assets relates to benefits of stock option deductions which, when
recognized, will be credited directly to additional paid-in capital.
Reconciliation of income taxes computed at the federal statutory rate of 34%
and the recorded income taxes for 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 1997
Tax benefit at statutory rate $(212,476) $(167,350)
Partnership loss not included in tax benefit - 23,597
State taxes, net of federal benefit (20,623) (16,243)
All other 4,844 559
Adjustment of Valuation allowance for
deferred tax assets $ 228,255 $159,437
$ - $ -
</TABLE>
NOTE I - STOCK OPTIONS AND STOCK AWARDS
Effective October 13, 1996, the Company adopted a stock option plan which
provides for the granting of stock options and awards to employees, officers
and non-employees to purchase up to 4,000,000 shares of stock, subject to
adjustment under certain circumstances. On October 22, 1996, a 4 for 1 stock
split increased the number of shares available for stock options and awards to
16,000,000. These shares may be issued, as incentive stock options,
non-qualified stock options or awards.
Incentive stock options
Under the plan, incentive stock options, may be granted to employees and
officers. During 1998, 1,565,000 incentive stock options were granted under
the plan. Incentive stock options vest at graded rates over the vesting
periods. The exercise price for incentive stock options may not be less than
the fair market value per share of common stock on the grant date. In the case
of incentive stock options granted to an employee possessing more than 10% of
the total combined voting power of all classes of stock of the Company, the
exercise price may not be less than 110% of the fair market price per share of
common stock on the grant date. An employee may not be granted incentive
stock options that would entitle the employee to purchase more than $100,000
in fair market value of common stock in the year in which the options are
exercisable for the first time.
Non qualified options
Employees, officers, directors and consultants may be granted non-qualified
options. Directors, officers, employees and consultants are also eligible for
awards of stock and opportunities to make direct purchases of stock in the
Company. During 1998 there were no non-qualified options granted under the
plan. Non-qualified options vest at graded rates over the vesting periods.
Non-qualified options also include options which are performanced based.
These options vest 20% each time the grantee sells a designated number of
storefronts for the Company. The exercise price for non-qualified stock
options may not be less than the lessor of (i) the book value per share
of common stock as of the end of the fiscal year of the Company immediately
preceding the grant date, or (ii) 50% of the fair market value per share of
common stock on the grant date.
Fair market value of options granted
The Company has adopted only the disclosure provisions of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" (SPAS 123). Therefore, the Company accounts for stock based
compensation under Accounting Principles Board Option No. 25, under which no
significant compensation cost has been recognized. Had the compensation cost
for the stock based compensation been determined based upon the fair value of
the awards at the grant date consistent with the methodology prescribed by
SFAS 123, the Company's net loss and loss per share would have been increased
to the following pro forma amounts:
<TABLE>
<S> <C> <C> <C>
1998 1997
Net loss As reported $(624,930) $(492,207)
Pro forma (637,814) (495,901)
Loss per as reported (0.05) (0.04)
common share
- basic Pro forma (0.05) (0.04)
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes American option-pricing model with the following weighted
average assumptions for 1998 and 1997: expected volatility of 88% and 150% for
1998 and 1997, respectively, risk-free interest; rate of 6.10% and expected
life of 4 years for both 1998 and 1997. The weighted average fair value of
options granted in $0.35 and $0.005 per share in 1998 and 1997, respectively.
Option pricing models require the input of highly sensitive assumptions
including the expected stock price volatility. Also the Company's stock
options have characteristics significantly, different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate. Management believes the best input assumptions
available were used to value the options and the resulting option values are
reasonable.
Information with respect to the Company's stock option plan at February 28,
1998 is as fol1ows:
<TABLE>
<S> <C> <C> <C>
Stock Exercise Weighted avg.
Options Price Exercise price
Outstanding at March 1, 1996 -
Granted 4,935,000 $0.25-2.50 $0.34
Exercised (424,000) 0.25-0.50 0.40
Outstanding at February 28, 1997 4,511,000 0.25-2.50 0.33
Granted 1,565,000 0.38-2.50 0.76
Exercised (1,366,000) 0.25-0.50 0.46
canceled (592,000) 0.25-2.50 0.36
Outstanding at February 28, 1998 4,118,000 0.25-2.50 0.48
Exercisable at February 28, 1998 1,778,000 O.25-0.50 0.34
</TABLE>
Additional information, about stock option outstanding and exercisable at
February 28,1998 is as follows:
<TABLE>
Options outstanding:
<S> <C> <C> <C> <C>
Exercise Number Weighted - Avg Remaining
Option Type prices Outstanding Exercise Price Contractual Life
Non-qualified $0.25 787,000 4 years
0.50 329,000
2.50 315,000
1,431,000 $0.80
Incentive 0.25 1,437,000 3 Years
0.38 1,250,000
2,687,000 $0.32
</TABLE>
<TABLE>
Options Exercisable:
<S> <C> <C> <C>
Number Weighted-Average
Option Type Exercise Prices Exercisable Exercise Price
Non-qualified $0.25 208,000
0.50 389,000
597,000 $0.41
Incentive $0.25 681,000
0.38 500,000
1,181,000 0.31
</TABLE>
Stock awards
During 1998, a stockholder gave 100,000 shares of the Company's restricted
common stock to an officer of the Company. The firm market value of the stock
on the date of gift was estimated to be $56,000 and has been recorded as
compensation expense.
During 1997, the Company issued. 300,000 shares of common stock to a
consultant who assisted with the reverse merger. Also during 1997, certain
stockholders gave 300,000 shares of common stock to a consultant for services
rendered. The fair market value of the stock on the dates of both was $0.02
per share or $12,000.
NOTE J - COMMITMENT AND CONTINGENCIES
1. Litigation and claims
The Company is engaged in various litigation and claims both as defendant and
plaintiff arising through the normal course of business. In the opinion of
management, based on the advise of legal counsel, these lawsuits do not
represent a material obligation to the Company as of February 28, 1998.
2. Leases
The following is a schedule of future minimum annual rental payments for real
property required under an operating lease having a remaining non cancelable
lease term in excess of one year:
Year Ending February 28
1999 $ 100,386
2000 86,070
2001 88,495
2002 75,430
Thereafter -
$ 350,381
Rent expense -totaled $139,516 for the year ended February 28, 1998 ($18,211
in 1997).
NOTE K - CONCENTRATION
Of the Company's, total net revenues for 1998, approximately 69% were
generated from a single independent distributor(49% in 1997).
NOTE L - COMMERCIAL USE OF THE INTERNET
Critical issues concerning the viable commercial use of the Internet remain
unresolved and may impact the growth of Internet use. Such issues include
security, reliability, cost, ease of use and access, and quality of service.
The Company believes that its products and services may be economically and
commercially marketed using the Internet and furthermore that the number of
users of the Internet will continue to grow. Marketing and distribution of the
Company's products and services will depend in large part on a robust Internet
industry, and adequate infrastructure for providing Internet access and
carrying growing Internet traffic.
NOTE M - NET LOSS PER COMMON SHARE - BASIC
During February of 1997, the FASB issued Statement of Financial Accounting
Standard No. 128, "Earnings per Share". This statement changed the method in
which earnings (loss) per share are, determined. The new standard requires
the computation of basic earnings (loss) per share and earnings (loss) per
share assuming dilution. Adoption of this statement has been applied
retroactively and the 1997 net loss per common share amounts have been
recomputed applying the new standard and has not had an impact on net loss per
common share. Options to purchase 4,318,000 and 4,511,000 shares of common
stock at $0.25 to $2.50 per share were outstanding during the years ended
February 28, 1998 and 1997, respectively. They were not included in the
computation of net loss per common share because they would have had an
anti-dilutive effect on the net loss per common share for the years ended
February 28, 1998 and 1997. Net loss per common share basic and assuming
dilution were the same for the years ended February 23, 1998 and 1997,
respectively.
EXHIBIT 10(i)
Form of Consulting Agreements entered June 10, 1997
between the Company and 21 consultants
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and entered into
effective as of the 10th day of June, 1997, by and between Wealth
International, Inc., a Nevada corporation ("Parent"), Wealth International,
Inc., a Utah corporation and a wholly-owned subsidiary of Parent (the
"Company"), and ____________________________________ (the "Consultant").
Recitals
The Company wishes to utilize the services of the Consultant on a
regular basis to provide certain services for the Company. The Consultant
possesses the requisite skills and experience, including experience and
expertise in the network marketing industry, to deliver certain services
required by the Company. Consultant wishes to provide the services
contemplated herein, on the terms and conditions set forth below. The Parent
desires that Consultant provide the agreed upon services to the Company, and
as an inducement and condition thereto is willing to issue shares of the
Parent's Common Stock to the Consultant on the terms and conditions set
forth below.
Agreement
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Consultant
hereby agree as follows:
1. Consulting Services. The Company hereby engages the Consultant
as an independent contractor to provide marketing and other services as
described on Exhibit A attached hereto, and such other services as may be
mutually agreed upon by the parties hereto. The Consultant hereby accepts
such engagement, subject to the terms and conditions set forth herein.
Consultant may enter into other consulting agreements and perform services for
other clients, insofar as in doing so it does not breach any of its covenants
contained in this Agreement.
2. Term and Termination of Agreement.
(a) Term. Subject to earlier termination or extension of the
term hereof as set forth below, the term of this Agreement shall commence
on the date first set forth above (the "Effective Date"), and shall end on the
date that is two years after the Effective Date (the "Consulting Term").
Unless this Agreement is terminated as provided herein, or unless either party
provides written notice to the other party of its desire to terminate this
Agreement at the end of the Consulting Term, or any renewal thereof, at least
thirty (30) days prior to the end of the Consulting Term (or any renewal
thereof), the Consulting Term will automatically renew for additional one-year
periods. If the Consulting Term is renewed, the term "Consulting Term" will
be interpreted herein to include such renewal term.
(b) Termination by Consultant. This Agreement may be
terminated at any time by Consultant upon thirty (30) days prior written
notice to the Company.
(c) Termination by Company. This Agreement shall be terminated
upon thirty (30) days prior written notice by the Company to the
Consultant: (i) for "cause", as defined below, or (ii) in the event that
Consultant is unable to provide the services required under this Agreement by
reason of the death or permanent disability of the Representative and the
inability of Consultant to provide a Substitute satisfactory to the Company.
For purposes of this Agreement, "cause" shall mean: (i)
fraudulent or criminal activities; (ii) any dishonest or unethical activity;
or (iii) breach of fiduciary duty, deliberate breach of Company rules
resulting in loss or damage to the Company, or unauthorized disclosure of
Company trade secrets or confidential information.
(d) Effect of Termination.
(i) Termination of Relationship; Status of Payment
Obligations. Upon the termination of this Agreement for any reason
whatsoever, this Agreement shall thereupon be and become void and of no
further force and effect, all benefits thereafter arising hereunder shall
cease, and the consulting relationship hereunder shall be terminated, except
that termination of this Agreement shall not relieve the Company of its
obligation to pay any consideration payable hereunder with respect to services
rendered hereunder prior to such termination, and the Parent shall be
obligated to deliver to Consultant any shares that, pursuant to the provisions
of paragraph 3(a) below, are eligible for purchase by the Consultant pursuant
to the Option (defined below) prior to the date of termination, upon the
exercise of such Option by the Consultant. In the event of any termination or
expiration of this Agreement, Consultant will retain his/her network marketing
rights in his/her distributor network under the Company's network structure,
as may be reasonably adjusted by the Company to account for any termination or
discontinuation of related "upline" distributors. On any termination of this
Agreement, the Parent shall be relieved of any obligation to issue and deliver
to Consultant any shares of the Company's common stock pursuant to the
Consultant's attempt to exercise the Option if, pursuant to paragraph 3(a)
below, the Option has not vested or become exercisable with respect to such
shares prior to the date of such termination.
(ii) Continuation of Certain Other Obligations.
Termination of this Agreement shall not relieve the Consultant of its
obligation of confidentiality as set forth below. The provisions of this
Agreement which by their terms survive the termination or expiration hereof
shall not be terminated by reason of any termination or expiration of the
Agreement.
3. Compensation.
(a) Stock Options. As compensation for the services to be
performed by Consultant hereunder, the Parent agrees to grant and issue
to Consultant or its designee an option to purchase 15,000 shares of the
Common Stock of the Company (the "Option") at the purchase price of $2.50 per
share. The Option will vest and become exercisable incrementally and
cumulatively, as follows, provided that this Agreement shall not have been
terminated prior to the Consultant's achievement of the milestone resulting in
the vesting and exercisability of the Option:
<TABLE>
Incremental # of the Total # of the Incremental % of Total % of Option
Company's Internet Company's Internet Option Vested and Vested and
Storefronts Purchased Storefronts Exercisable Exercisable
and Distributed Purchased and
by Consultant Distributed by
Consultant
- -------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
200 200 20% 20%
200 400 20% 40%
200 600 20% 60%
200 800 20% 80%
200 1000 20% 100%
</TABLE>
For purposes of fulfilling his/her obligations under this paragraph, the
Consultant will be deemed to have purchased and distributed one of the
Company's Internet storefronts if: (1) the Consultant personally purchases and
distributes such Internet storefront; or (2) such Internet storefront is
purchased for personal use by an individual who has been introduced to the
Company and its products and services directly by the Consultant.
(b) Multi-Level Marketing Benefits. In addition to the other
compensation provided for herein, Consultant shall be entitled to all
marketing awards, commissions and compensation payable under the Company's
compensation plan with respect to services rendered by Consultant hereunder,
including without limitation those referenced in Exhibit A attached hereto or
otherwise agreed between the Company and Consultant.
(c) Support Facilities. As additional consideration for the
services to be rendered hereunder, the Company will provide
Consultant with such support facilities at the Company's principal office as
may be required in the Company's judgment to enable Consultant to properly
perform the services to be rendered hereunder.
4. Relationship of Parties. The Consultant's relationship with the
Company shall be that of an independent contractor but not that of an
employee. The Consultant will not be eligible for any employee benefits, nor
will the Company make deductions from any of the stock options, whether or not
exercised, or other compensation payable hereunder for taxes (or otherwise),
which shall be the sole responsibility of the Consultant. Consultant will use
its own discretion in performing the tasks assigned, within the scope of work
specified by the Company.
5. Confidentiality. Consultant agrees for itself and each of its
employees assigned to perform services for the Company that neither
Consultant nor any of its employees will use, except for consulting with the
Company, publish, or otherwise disclose in any way to any person, firm, or
corporation any trade secrets or confidential information of the Company,
which has not become a part of the public domain through no fault of
Consultant or any of its employees.
6. Notices. Any notice required or permitted hereunder to be given
by either party shall be in writing and shall be delivered personally or
sent by certified registered mail, postage prepaid, or by private courier, or
by facsimile, to the other party to the address set forth below, or to such
other address as either party may designate from time to time according to the
terms of this Agreement.
(a) If to Consultant:
Name: _______________________________________
Address: _____________________________________
_____________________________________________
_____________________________________________
Facsimile: (_______) ____________________
(b) If to Company:
Wealth International, Inc.
Address: 5152 North Edgewood Drive, Suite 250
Provo, Utah 84604
Facsimile: (801) 762-0031
A notice delivered personally shall be effective upon receipt.
A notice sent by facsimile shall be effective 24 hours after the dispatch
thereof. A notice delivered by private courier shall be effective on the day
delivered, or if delivered by mail, the third day after the day of mailing.
7. Severability; Interpretation. In the event that any term or
provision, including any part of a Section or subsection, of this Agreement is
invalid or unenforceable for any reason, such invalid or unenforceable term or
provision shall be severed herefrom, and the remaining terms and provisions of
this Agreement, including the remaining Sections and subsections, shall remain
in full force and effect. The parties to this Agreement agree that the court
making a determination that any term or provision of this Agreement is invalid
or unenforceable shall modify the time, duration, geographic scope or areas
and/or application of the term or provision so that the term or provision is
enforceable to the maximum extend permitted by applicable law.
Notwithstanding any rule or maximum of construction to the contrary, any
ambiguity or uncertainty in this Agreement shall not be construed against
either of the parties hereto based on authorship of any of the terms or
provisions hereof.
8. Entire Agreement; Amendment. This Agreement, together with the
Exhibit attached hereto, embodies the entire agreement and
understanding of the parties with respect to the subject matter hereof. No
modification, amendment, or addition to this Agreement, nor waiver of any of
its provisions, shall be valid or enforceable unless in writing and signed by
all the parties.
9 . Binding on Successors and Assigns. The Consultant may designate
one or more parties to receive any of the stock, options or other
consideration payable by the Company or the Parent hereunder. Otherwise, the
rights and obligations of each party hereunder may not be assigned without the
prior written consent of the other party. This Agreement shall be binding on
the parties, and on their permitted distributees, legal representatives,
successors, and assigns.
10. Governing Law; Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Utah, without giving effect to any applicable conflicts of laws provisions.
In the event of claim or dispute arising hereunder, the parties consent to
the exclusive jurisdiction and venue of the federal and state courts residing
in Salt Lake City, Utah and no action involving this Agreement may be brought
except in the Third District Court of Utah or the Federal District Court for
the District of Utah.
11. Attorneys' Fees. In the event of any legal action to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees and all court costs and related expenses
incurred in connection therewith, in addition to any other relief to which
such party may be entitled.
12. Representation and Warranties of Consultant. The Consultant
represents and warrants to, and covenants with, the Company as follows:
(a) Acceptance. The Consultant has hereby agreed to perform,
and has performed, certain services requested by management of
the Company to the Company's satisfaction during the term hereof. The
services performed by the Consultant has been personally rendered by the
Consultant, and no one acting for or on behalf of the Consultant.
(b) Sophisticated Investors. The Consultants represents and
warrants that by reason of income, net assets, education background
and business acumen, he/she has the experience and knowledge to evaluate the
risks and merits attendant to an investment in shares of common stock of the
Company, either singly or through the aid and assistance of a competent
professional, and is fully capable of bearing the economic risk of loss of
his/her total investment in the Company.
(c) Limitation on Services. None of the services rendered or
to be rendered by the Consultant and paid for by the issuance of
shares of the Company's common stock or the Option shall be services related
to any "capital raising" transaction.
(d) Valid Obligation; No Conflicts. Execution of this
Agreement and performance of services hereunder by the Consultant
constitutes valid and binding obligations of such Consultant and his/her
performance hereunder will not violate any other agreement to which such
Consultant is a party.
IN WITNESS WHEREOF, the parties hereto have executed this Consulting
Agreement effective as the date first set forth above.
WEALTH INTERNATIONAL, INC., a Utah corporation
(Company)
By:______________________________________
Ron Nilsson, President
WEALTH INTERNATIONAL, INC., a Nevada corporation (Parent)
By:_______________________________________
Ron Nilsson, President
_________________________________________________
(Consultant)
<PAGE>
Exhibit A
STATEMENT OF SERVICES TO BE PERFORMED BY CONSULTANT
Consultant will provide such marketing, sales and distribution
assistance as may be agreed upon from time to time with the Company. The
Consultant will work to provide contacts with potential distributors for the
Company, market the Company's Internet storefronts, and provide general
consultation and business advice to the Company regarding marketing and public
relations matters.
No specified time requirements are imposed on the Consultant with
respect to any particular services to be rendered hereunder; provided,
however, that the Consultant will act in good faith to perform the services to
be rendered by it hereunder.
<PAGE>
EXHIBIT 21
List of the Company's Subsidiaries
The Company has only one subsidiary, World Internet Marketplace,
Inc., a Utah corporation ( WI Marketplace ). The principal place of business
of WI Marketplace is the same as the Company's headquarters, located at 5152
North Edgewood Drive, Suite 250, Provo, Utah 84604.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 126029
<SECURITIES> 0
<RECEIVABLES> 223853
<ALLOWANCES> 0
<INVENTORY> 103955
<CURRENT-ASSETS> 453837
<PP&E> 667195
<DEPRECIATION> 147491
<TOTAL-ASSETS> 1077352
<CURRENT-LIABILITIES> 1576196
<BONDS> 0
0
0
<COMMON> 13301
<OTHER-SE> (523331)
<TOTAL-LIABILITY-AND-EQUITY> 1077352
<SALES> 0
<TOTAL-REVENUES> 7762125
<CGS> 999612
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7443443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (680930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (680930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (680930)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
