UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended August 31, 2000
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________
to_________ .
Commission file number 033-05844-NY
WORLD INTERNETWORKS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Nevada 87-0443026
------ ----------
(State of incorporation) (I.R.S. Employer Identification No.)
9710 South 700 East, Suite 205
Sandy, Utah 84070
-----------------
(Address of principal executive offices and zip code)
(801) 501-7500
---------------
(Registrant's telephone number, including area code)
418 South Commerce Road, Suite 422, Orem, Utah 84058
----------------------------------------------------
(Former address of principal executive offices and zip code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] or No [ ]
The number of outstanding shares of the Registrant's common stock as of October
16, 2000 was: 9,047,463 shares.
Transitional Small Business Format (Check One) : Yes [X] No [ ]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Interim condensed consolidated financial statements presented in this Form
10-QSB are unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form 10-QSB. Therefore, such financial statements do not include
all of the information and footnotes required for complete audited financial
statements. The unaudited financial statements presented herein should be read
in conjunction with the audited financial statements and related footnotes
contained in the Company's Annual Report on Form 10-KSB for the year ended
February 28, 2000.
2
<PAGE>
<TABLE>
<CAPTION>
World Internetworks, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
August 31, 2000 and February 28, 2000 (Fiscal Year End)
ASSETS
August 31, February 28,
2000 2000
------------- -------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 95,460 $ 88,571
Merchant account, compensating cash balance 7,428 --
Accounts receivable 8,154 9,929
Note receivable, related party (Note 9) 10,000 --
Prepaid expenses 69,001 12,200
------------- -------------
Total current assets 190,043 110,700
Property and equipment, at cost (Note 1)
Computer equipment 18,141 16,283
Office furniture and equipment 2,140 2,140
Accumulated depreciation (12,279) (10,403)
------------- -------------
Net property and equipment 8,002 8,020
Other assets -deposits 1,000 --
------------- -------------
$ 199,045 $ 118,720
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 48,830 $ 29,206
Accrued expenses 10,239 15,486
Note payable, related party -- 30,000
Reserve for discontinued operations (Notes 4 and 10) -- 2,459,205
------------- -------------
Total current liabilities 59,069 2,533,897
Deferred revenue (Note 2) 5,693 --
Commitments and contingencies (Note 8)
Shareholders' equity (deficit):
Common stock, $.001 par value; 500,000,000
shares authorized; 9,047,463
and 8,056,607 shares issued at August 31, 2000
and Feb 28, 2000, respectively 9,047 8,057
Capital in excess of par value 2,729,734 3,686,994
Treasury stock, at cost -- (3,186)
Stock subscription receivable -- (80,000)
Deferred offering costs -- (1,366,482)
Deficit accumulated prior to development stage (3,979,694) (3,979,694)
Retained earnings (deficit) accumulated
from the inception of the development
stage on October 22, 1998 1,375,196 (680,866)
------------- -------------
Total shareholders' equity (deficit) 134,283 (2,415,177)
------------- -------------
$ 199,045 $ 118,720
============= =============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
World Internetworks, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For the Three Months and Six Months Ended August 31, 2000 and 1999
From Inception
of Development
Stage -
October 22,
Three months ended Six months ended 1998 thru
August 31, August 31, August 31,
-------------------------- -------------------------------------------------
2000 1999 2000 1999 2000
============ ============ ============ ============ ============
<S> <C> <C> <C> <C> <C>
Net sales and revenues: $ 92,542 $ 25,890 $ 175,857 $ 30,147 $ 258,532
Cost of products sold 19,588 13,157 45,473 16,532 90,089
------------ ------------ ------------ ------------ ------------
Gross profit 72,954 12,733 130,384 13,615 168,443
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses 221,902 154,710 538,021 546,606 1,423,154
Depreciation and amortization 939 460 1,877 832 3,735
------------ ------------ ------------ ------------ ------------
Total operating expenses 222,841 155,170 539,898 547,438 1,426,889
------------ ------------ ------------ ------------ ------------
Loss from operations before other income
and extraordianry gain (149,887) (142,437) (409,514) (533,823) (1,258,446)
Other income
Interest income 2,199 -- 6,369 -- 6,369
Extraordinary item
Gain on extinguishment of debt (Notes 4 and 10) 2,459,206 -- 2,459,206 -- 2,459,206
------------ ------------ ------------ ------------ ------------
Income (loss) before income tax benefit 2,311,518 (142,437) 2,056,061 (533,823) 1,200,760
Income tax benefit -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 2,311,518 $ (142,437) $ 2,056,061 $ (533,823) $ 1,200,760
============ ============ ============ ============ ============
Weighted average common shares outstanding 11,017,231 3,198,107 9,748,535 2,906,774 --
Income (loss) per common share $ 0.21 $ (0.04) $ 0.21 $ (0.18) --
============ ============ ============ ============ ============
(Loss) per common share before extraordinary item $ (0.01) $ (0.04) $ (0.04) $ (0.18) --
============ ============ ============ ============ ============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
World Internetworks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended August 31, 2000 and 1999
From Inception
of Development
Stage -
October 22,
Six months ended 1998 thru
August 31, August 31,
---------------------------------------
2000 1999 2000
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ 2,056,061 $ (533,823) $ 1,375,195
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 1,877 832 3,735
Common stock issued for services 36,500 -- 452,500
Common stock options issued for services 36,000 -- 36,000
Options and warrants issued below market price -- -- 57,000
Gain on extinguishment of debt (2,459,205) -- (2,627,271)
Deferred revenue 5,692 -- 5,692
Changes in current assets and liabilities
Compensating balances (7,428) -- (7,428)
Accounts receivable 1,774 -- (8,155)
Prepaid expenses (56,801) -- (69,001)
Accounts payable 19,624 139,897 76,230
Accrued expenses (5,247) 14,692 10,239
Advance payable to shareholder -- 10,000 --
----------- ----------- -----------
Net cash provided by (used in) operating activities (371,153) (368,402) (695,264)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,858) (1,303) (8,676)
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering cost 339,900 372,000 729,400
Stock subscription received 80,000 -- 80,000
Payment of related party note payable (30,000) -- --
Disbursed for related party note receivable (10,000) -- (10,000)
----------- ----------- -----------
Net cash provided by financing activities 379,900 372,000 799,400
Net increase in cash 6,889 2,295 95,460
Cash at beginning of period 88,571 -- --
----------- ----------- -----------
Cash at end of period $ 95,460 $ 2,295 $ 95,460
=========== =========== ===========
</TABLE>
5
<PAGE>
NOTE 1 - ORGANIZATION, HISTORY AND NATURE OF OPERATIONS
a. Organization and History
World Internetworks, Inc., was incorporated on March 17, 1986, under the name
Impressive Ventures, Ltd. ("Impressive Ventures") as a Nevada corporation.
Impressive Ventures did not conduct any business operations until August 27,
1996, when it's stockholders approved an agreement under which the stockholders
of Wealth International, Inc., a Utah corporation ("Wealth Utah"), obtained a
controlling interest in Impressive Ventures. This transaction was treated as an
acquisition of Impressive Ventures by Wealth Utah and as a recapitalization of
Wealth Utah. Wealth Utah was established in November 1995 as a partnership and
was incorporated in Utah in July 1996. Under the agreement, the stockholders of
Wealth Utah exchanged all of their shares in Wealth Utah for 2,752,245 common
shares of Impressive Ventures, after the effects of a 1-for- 250 reverse stock
split, a 4-for-1 forward stock split and a 1-for-4 reverse stock split.
After the transaction was completed, Impressive Ventures changed its name to
Wealth International, Inc. ("Wealth Nevada"), a Nevada corporation, and the
operating subsidiary, Wealth Utah, subsequently changed its name to World
Internet Marketplace, Inc. ("WIM"). Wealth Nevada changed its name to World
InterNetWorks, Inc., (the "Company") in January 1998 to more accurately reflect
the nature of the Company's business. The Company formed Global Wholesale
Exchange, Inc. ("GWE") and Global Media Group, Inc. ("GMG"), both Utah
corporations, in June 1996 as additional operating subsidiaries.
Until October 1998, the Company operated three wholly-owned subsidiaries: (i)
WIM was engaged in marketing and distributing products and services relating to
Internet commerce; (ii) GWE provided wholesale goods to consumers via Internet
and fax notification; (iii) GMG, doing business as the "Institute for Financial
Independence" organized and sponsored sales seminars that sold WIM and GWE
products.
Business operations were not successful and in October 1998 the operations of
all three of the Company's subsidiaries were discontinued. In October 1999, each
subsidiary filed a Chapter 7 bankruptcy petition in the United States Bankruptcy
Court for the District of Utah (the "Court"). On July 28, 2000 the Court ordered
all three cases closed and discharged the bankruptcy trustee. Additionally, in
1999, the Utah Department of Commerce dissolved each of these subsidiaries. (See
Note 4.) Consequently, the Company re-entered the development stage.
b. Nature of Operations
In February 1999 the Company began to restructure it's business and operating
plan toward the following: (i) providing web site design services and building
software that will allow small business and home-based entrepreneurs to
establish an Internet presence at a lower price than our competitors can
provide; (ii) establish an Internet training and technical support program that
will help our members understand the Internet and learn how to profit from it;
(iii) create strategic alliances with companies such as Dell Computer, Office
Max, Digital River and Walt Disney, through which our members will be able to
offer these companies' products on member web sites and receive a commission
ranging from approximately 4% to 10% on each sale, depending on the terms and
conditions for each company; (iv) provide our members with access to our "Main
Street Plaza" online shopping mall, which will allow them to sell their own
products over the Internet; (v) provide our members with unlimited Internet
access through our relationship with Alta Vista, one of the top search engines
in the country. The Company expects it will generate revenues under this
business plan from monthly web site hosting fees, web site design and
engineering fees, resale of domain names, merchant account set up and monthly
gateway fees, web site and search site marketing fees and commissions on retail
products sold through the Company's Main Street Plaza.
Revenues generated in the six month periods ended August 31, 2000 and 1999,
under the Company's new business plan, totaled $175,857 and $30,147,
respectively, primarily from web site hosting and web site design fees.
6
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a February 28 fiscal year end.
b. 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.
c. Depreciation and Amortization
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives of between 5
and 7 years. 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.
d. Revenue Recognition
The Company generally receives the sales price of its web hosting fees and
services in cash at the beginning of the month of service or at the time orders
are made. Sales are generally recognized at the time the web site hosting is
provided or when the service is completed or the product is shipped. Billings or
collections for services not completed are recorded as deferred revenue until
such services are completed.
e. 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 basis 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.
f. 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.
g. Principles of Consolidation
The consolidated financial statements include the accounts of World
InterNetWorks, Inc., World Internet Marketplace, Inc., Global Wholesale
Exchange, Inc., and Global Media Group, Inc. All significant intercompany
accounts have been eliminated.
7
<PAGE>
h. Development costs
The costs of developing the Company's new business plan, including new web-site
design, engineering and marketing research and analysis are charged to general
and administrative expense as incurred.
i. Basic and Fully Diluted Loss Per Common Share
Basic and diluted net income or (loss) per common share are calculated by
dividing net income or (loss) attributable to common stockholders by the
weighted average number of shares of common stock outstanding during the period.
At August 31, 2000, there were outstanding common stock equivalents (options and
warrants) to purchase 1,999,000 shares of common stock that were included in the
computation of net income or (loss) per common share for the three months and
six months ended August 31, 2000. At August 31, 1999, there were outstanding
common stock equivalents (options and warrants) to purchase 3,850,000 shares of
common stock, that were not included in the computation of net (loss) per common
share for the three months and six months ended August 31, 1999, as their effect
would have been anti-dilutive, thereby decreasing the net loss per common share.
Therefore, basic net loss per common share and fully diluted net loss per common
share were the same for the three months and six months ended August 31, 1999,
respectively.
NOTE 3 - GOING CONCERN
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
losses from operations from it's inception and the recoverability of a major
portion of the asset amounts shown in the accompanying balance sheet is
dependent upon the Company's ability to raise sufficient working capital to meet
its operating costs and debt obligations on a continuing basis in its future
operations. The financial statements do not include, any adjustments relating to
the recoverability and classification of recorded assets and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
The Company resumed operations in March 1999 with a new management team and
numerous strategic alliances in place for the purpose of providing
state-of-the-art web site design, technical support, online training and
interactive e-commerce web sites to individuals and small businesses (see Note
1). Management believes this new business plan will provide the revenues and
margins necessary to result in significant recurring revenue and profitable
growth through hosting, design and engineering fees as well as commissions on
product sales. Management also expects to obtain additional equity financing
through the exercise of outstanding common stock warrants in order to meet its
cash flow needs through the balance of fiscal year 2001. See Note 4 for
additional steps undertaken by management to improve the company's liquidity.
NOTE 4 - BANKRUPTCY PETITION
On October 26, 1999, the Company's three subsidiaries, WIM, GWE, and GMG, each
filed petitions under Chapter 7 of the United States Bankruptcy Code for
protection from creditors. The petitions required creditors to halt any
collection efforts of amounts owed them by the Company's subsidiaries until a
meeting of creditors and a hearing was conducted by the Court. The Company's
three subsidiaries had no assets with which to pay their obligations to
creditors. A hearing before the Court was held on January 19, 2000. On July 28,
2000 the Court ordered all three cases closed and discharged the bankruptcy
trustee. As a result of the court's decision the company recorded an
extraordinary gain from forgiveness of debt in the amount of $2,459,205 for the
three and six months ended August 31, 2000, and the amounts classified as
"reserve for discontinued operations" in the accompanying consolidated balance
sheet as of February 28, 2000 were removed from the Company's liabilities.
8
<PAGE>
As described in Note 1 the operations of all three subsidiaries were
discontinued in October 1998 and their Corporate charter's were dissolved by the
Utah Department of Commerce in 1999.
NOTE 5 - INCOME TAXES
As of August 31, 2000, the Company had federal and state net operating loss
carry forwards of approximately $2,218,000. The net operating losses will expire
at various dates beginning in years 2012 through 2015, if not utilized.
The Company operated 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 to individual shareholders.
Accordingly, the Company was not subject to federal income taxes on it's
operations while a partnership and no provision or liability or asset for
federal, or state income taxes for those periods has been reflected.
NOTE 6 - COMMON STOCK ISSUED OR RETIRED
a. TREASURY SHARES RETIRED
In July 2000, the Board of Directors of the Company authorized the retirement
and return to the Company's pool of authorized but unissued shares 1,020 shares
held in it's treasury. The cost of the treasury shares was $3,186 and has been
charged to capital.
b. SHARES ISSUED FOR CASH
In March 1999, the Company began a private placement offering of 1,250,000 units
("Units") consisting of one share of "restricted" common stock of the Company
(restricted under Rule 144) and one "unregistered" and "restricted" common stock
purchase warrant (the "Warrant"), granting the warrant holder the right to
purchase an additional share of the Company's common stock at a price of $2.00
per share. The Warrants expire two years from the completion of the offering and
are callable at a price of $0.01 per share at any time after ninety days from
the effective date of any registration statement, upon 30 days written notice.
The Company filed an SB-2 registration statement in April 2000 to register the
common stock issued and issuable under the private placement offering. The
registration statement became effective June 22, 2000 and was withdrawn October
2, 2000. Shares issued and amounts received under this private placement
offering through August 31, 2000 are summarized in the following table:
(Table is on next page)
9
<PAGE>
<TABLE>
<CAPTION>
Common
Shares Warrants Consideration
Date Issued Issued Received
----------------------- --------------- -------------- --------------------
<S> <C> <C> <C>
March 1999 100,000 100,000 $ 40,000
July 1999 50,000 50,000 20,000
October 1999 100,000 100,000 40,000
November 1999 25,000 25,000 10,000
January 2000 80,000 80,000 32,000
February 2000 375,000 375,000 150,000
--------------- -------------- --------------------
Total through
February 28, 2000 730,000 730,000 292,000
March 2000 900,000 900,000 360,000
--------------- -------------- --------------------
Total through
August 31, 2000 1,630,000 1,630,000 $ 652,000
=============== ============== ====================
</TABLE>
The Company has now closed the offering.
Shares issued under the offering and not sold by any investor prior to October
2, 2000, when the registration statement was withdrawn, are now restricted under
Rule 144 of the Securities and Exchange Commission.
c. SHARES ISSUED FOR SERVICES
In July 2000, the Company issued 5,172 shares of common stock restricted under
Rule 144 in payment for management and consulting services provided to the
Company by a shareholder and the Company recorded an expense for consulting fees
totaling $7,500 relating to the shares issued.
In May 2000, the Company issued 14,954 shares of common stock restricted under
Rule 144 in payment for management and consulting services provided to the
Company by a shareholder and the Company recorded an expense for consulting fees
totaling $30,000 relating to the shares issued.
Additionally, in May 2000, the Company issued 71,750 shares of common stock
restricted under Rule 144 to an unrelated party in exchange for services
provided relating to the private placement of it's securities described in more
detail in the following paragraphs. The Company recorded a charge to capital
totaling $28,700 relating to the 71,750 shares issued.
In March 1999, the Company issued 1,148,000 shares of common stock restricted
under Rule 144 to several individuals in exchange for services provided to the
Company. Included in the total were 975,000 shares issued to Steven K. Hansen,
President, CEO and Chairman of the Board of Directors of the Company.
Additionally, 50,000 shares of the above total were issued to Leonard W.
Burningham, Esq., who is Counsel to the Company for securities matters. The
remaining 123,000 shares were issued to unrelated parties. The Company recorded
management, legal and professional fees totaling $287,000 relating to the shares
issued.
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NOTE 7 - STOCK OPTIONS, STOCK AWARDS AND STOCK WARRANTS
Common Stock Options
--------------------
In July of 2000, the Company granted 50,000 options to purchase the Company's
common stock to an unrelated consultant at an exercise price of $1.25 per share.
All the options granted vested immediately and expire 5 years from date of
grant. The weighted average fair value of the options granted was $0.72 per
share using the Black Scholes pricing model. The Company recorded professional
fees related to the options issued totaling $36,000 in the three and six month
periods ended August 31, 2000.
In May of 2000, the Company granted 89,000 options to purchase the Company's
common stock to employees and directors and 15,000 stock options to an unrelated
consultant at an exercise price of $1.38 per share. All the options granted
expire 5 years from date of grant. 34,000 of the stock options were granted to
Officers and Directors of the Company and were vested immediately upon grant.
The employee and consultant options vest over a period of two years with 25%
becoming vested after each six months from the date of grant. The weighted
average fair value of the options granted to Directors and employees during the
three months ended May 31, 2000, was $1.03 per share using the Black Scholes
pricing model. Had compensation expense of these options been recorded in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net loss before extraordinary item would have been $494,815 or $0.05
per share for the six months ending August 31, 2000. There were no options
exercised in the six months ending August 31, 2000 and 1999, respectively,
however, the 15,000 options granted a consultant in May 2000, were not accepted
and therefore not issued. As of August 31, 2000, the Company had a total of
359,000 non-qualified options outstanding.
Common Stock Warrants
---------------------
The Company granted warrants to purchase 900,000 and 150,000 shares in the six
months ended March 2000 and 1999, respectively, in connection with the issuance
of the same number of shares of common stock in each six month period under the
Company's private placement offering (see Note 6).
As of August 31, 2000, the Company had a total of 1,640,000 warrants
outstanding.
NOTE 8 - COMMITMENT AND CONTINGENCIES
Employment Contracts
--------------------
Effective beginning in March 1999, the Company entered into an employment
contract with Steven K. Hansen, President and CEO of the Company the terms of
which provide a monthly salary of $8,000 together with medical insurance
benefits. In addition Mr. Hansen was issued 975,000 shares of the Company's
common stock restricted under rule 144 and 75,000 shares of the Company's common
stock under an S-8 Registration Statement for management services provided in
the months ending May 31, 1999. The term of the employment contract is three
years.
Effective March 4, 1999 the Company entered into an employment contract with
Phillip M. Ray, Secretary/Treasurer of the Company, the terms of which provided
a monthly salary of $3,000 per month. Mr. Ray's salary was terminated June 1,
1999. In lieu of salary after June 1, 1999 Mr. Ray was granted warrants to
purchase up to 60,000 "unregistered" and "restricted" shares of common stock at
a price of $0.40 per share. Ten thousand of these warrants are deemed to be
"cashless," in which Mr. Ray may surrender options in exchange for shares,
rather than paying cash. In addition Mr. Ray was granted 20,000 shares of the
Company's restricted common stock issued to his designee, Automotive Direct, in
consideration for payment of a $40,000 debt of the Company. Additionally, Mr.
11
<PAGE>
Ray will be granted options to acquire 50,000 shares of the Company's common
stock when certain business opportunities have been successfully completed for
the Company. The designated business opportunities were not completed and the
second 50,000 share grant was rescinded. In addition cash-less warrants to
purchase 25,000 shares of the Company's common stock will be issued as a finders
fee to Mr. Ray in the event the Company benefits from certain business
opportunities introduced to the Company by Mr. Ray. As of October 13, 2000 the
Company has not realized a benefit and the cash-less warrants have not been
issued. Mr. Ray's active employment ceased at the end of September 1999 and he
subsequently resigned as the Company's Secretary/Treasurer.
Officers and Directors Compensation Commitments
-----------------------------------------------
On May 9, 2000, the Board of Directors approved a "site" bonus plan payable to
Steve Hansen, Director, President and CEO of the Company. The site bonus plan
calls for Mr. Hansen to receive a bonus of $1.00 per web-site hosting customer
brought into the Company. The site bonus is not to exceed $15,000 in any one
month. The Board of Directors is to review the bonus for renewal or modification
in March 2001. Payments due Mr. Hansen under the site bonus plan totaled $2,906
and $4,763 during the three and six month periods ended August 31, 2000,
respectively.
Effective March 4, 1999 Randall L. Roberts and Gary S. Winterton were appointed
to the Board of Directors of the Company. As Directors compensation they were
each granted options to acquire 10,000 shares of the Company's restricted common
stock at a price of $0.40 per share. In addition, on July 23, 1999 Mr. Winterton
was granted an option to acquire 100,000 shares of the Company's restricted
common stock at a price of $0.40 per share and a third option to acquire 50,000
shares at a price of $0.75 per share. The directors options expire five years
from date granted. Shares underlying the options granted Mr. Winterton will be
included in a registration statement upon the demand of the holder. To date no
such demand has been received by the Company.
Fairway Capital Consulting Agreement
------------------------------------
On August 16, 1999, the Company entered into a consulting agreement with Fairway
Capital Partners, LLC. ("Fairway"), to provide non-exclusive management,
consulting and financial services, including advise on corporate acquisitions
and related matters. Terms of the agreement require the Company to pay Fairway
$5,000 per month for the first three months of the agreement, $10,000 per month
for the next three months, and $15,000 for each month after that. All such
payments were paid in full as of February 28, 2000. The agreement expires on
August 1, 2002. Subsequent to entering into the consulting agreement Fairway
became a related party through the acquisition of 4,200,000 shares of the
Company's common stock.
On February 4, 2000, the Company and Fairway agreed to modify the agreement for
payments due after March 1, 2000. Under the modified agreement Fairway is
granted the option to reduce the monthly cash payment due them to $7,500 and to
receive an additional $7,500 worth of the Company's "unregistered" and
"restricted" common stock priced at the average closing market price per share
over the last five trading days of the previous month. The option is effective
for each month individually for the remaining term of the agreement. Fairway
capital exercised the option for the four months from February through May 2000,
and were issued 17,197 shares in lieu of $30,000 cash payments otherwise due.
Operating Lease Agreement
-------------------------
In August 2000, the Company entered into an agreement to lease 1,620 square feet
of office space in Sandy, Utah for all administrative, engineering and sales
personnel. The lease is for three years at a monthly rate of $1,000 for the
first six months, $1,500 for the next six months and $2,000 for the remaining
two years of the lease. The lease became effective October 1, 2000.
12
<PAGE>
Previously the Company rented office facilities in Orem, Utah on a month to
month basis. Monthly rental for that office facility was $800.00 through
September 2000.
Future aggregate minimum obligations under the Sandy operating lease are as
follows:
Years ending February 28,
-------------------------
2001 $ 5,000
2002 20,000
2003 24,000
2004 14,000
-------
Total $ 63,000
========
Litigation and Claims
---------------------
On October 26, 1999, our wholly-owned subsidiaries, World Internet Marketplace,
Inc.; Global Media Group, Inc.; and Global Wholesale Exchange, Inc., filed for
Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the
District of Utah. The cases were designated Case Nos. 99-31576; 99-31577; and
99-31578, respectively. The first meeting of creditors was held January 19,
2000. On July 28, 2000 the Court ordered all three cases closed and discharged
the bankruptcy trustee. As a result of the court's decision the Company recorded
an extraordinary gain from forgiveness of debt in the amount of $2,459,205 for
the three and six months ended August 31, 2000, and the amounts classified as
"reserve for discontinued operations" in the accompanying consolidated balance
sheet as of February 28, 2000 were removed from the Company's liabilities.
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 advise of legal counsel, these lawsuits do not represent a
material obligation of the Company as of August 31, 2000.
NOTE 9 - RELATED PARTY TRANSACTIONS
On June 23, 2000, the Company's Board of Directors authorized a loan of $10,000
to an executive officer and shareholder of the Company. The loan is in the form
of a promissory note, bears interest at the rate of 8% per annum and is payable
within 120 days of the date of the note. At August 31, 2000 the $10,000 loan is
outstanding.
NOTE 10 - EXTRAORDINARY GAIN/LOSS FROM DISCONTINUED OPERATIONS
On October 22, 1998, the Board of Directors of the Company discontinued the
marketing and distribution of products and services relating to commerce on the
Internet due to a lack of funding and increased losses. There were no losses
attributable to the discontinued operations in the three months and six months
ended August 31, 2000 and 1999, respectively. The Company recorded an
extraordinary gain in the form of a "gain on the extinguishment of debt" in the
amount of $2,459,206, related to the discontinued operations, in the three and
six month periods ended August 31, 2000, arising from the discharge of debt
under bankruptcy proceedings more fully discussed in Note 4.
At February 28, 2000 the Company had liabilities of $2,459,205, which were
associated with the discontinued operations.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT PLAN FOR OR ANTICIPATE THE FUTURE.
IN SOME CASES YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS
"MAY", "SHOULD", COULD", "EXPECTS", "PLANS", "INTENDS", "ANTICIPATES",
"BELIEVES", "ESTIMATES", "PREDICTS", "POTENTIAL", OR "CONTINUE" OR THE NEGATIVE
OF SUCH TERMS AND OTHER COMPARABLE TERMINOLOGY. "
THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS REPORT AND INCLUDE
STATEMENTS REGARDING OUR INTENT, BELIEF OR CURRENT EXPECTATIONS AND THOSE OF OUR
OFFICERS OR DIRECTORS WITH RESPECT TO AMONG OTHER THINGS; (i) TRENDS AFFECTING
OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS, (ii) OUR BUSINESS AND GROWTH
STRATEGIES, (iii) THE INTERNET AND INTERNET COMMERCE AND (iv) OUR FINANCING
PLANS.
FORWARD-LOOKING STATEMENTS INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. ALTHOUGH
WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE
REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE
OR ACHIEVEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS ANTICIPATED BY THE COMPANY AND DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES ARE
DISCUSSED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
FEBRUARY 28, 2000.
Overview
--------
Until October 1998, the Company operated three wholly-owned subsidiaries: (i)
World Internet Marketplace, Inc. ("WIM"), was engaged in marketing and
distributing products and services relating to internet commerce; (ii) Global
Wholesale Exchange, Inc. ("GWE"), provided wholesale goods to consumers via
internet and fax notification; (iii) Global Media Group, Inc. ("GMG"), doing
business as the "Institute for Financial Independence" organized and sponsored
sales seminars that sold WIM and GWE products.
Business operations were not successful and in October 1998 the operations of
all three of the Company's subsidiaries were discontinued. In October 1999, each
subsidiary filed a Chapter 7 bankruptcy petition in the United States Bankruptcy
Court for the District of Utah (the "Court"). On July 28, 2000 the Court ordered
all three cases closed and discharged the bankruptcy trustee. As a result of the
court's decision the company recorded an extraordinary gain from forgiveness of
debt in the amount of $2,459,205 for the three and six months ended August 31,
2000 and the amounts classified as "reserve for discontinued operations" in the
Company's consolidated balance sheet as of February 28, 2000 was removed from
the Company's liabilities. Additionally, in 1999, the Utah Department of
Commerce dissolved each of these subsidiaries. Subsequently, the Company
re-entered the development stage.
The Company's revenues prior to discontinuing the operations of the three
subsidiaries and entering into the development stage were derived substantially
from two categories of products and services: (i) personal and commercial web
site development and maintenance, and related internet training; and (ii)
merchandise sales from the Company's internet-based virtual "mall" or
"department store". Orders for merchandise on the Company's virtual "mall" were
generally fulfilled by shipment direct from the manufacturer or wholesaler to
the customer.
14
<PAGE>
In February 1999 the Company began to restructure its business and operating
plans toward the following: (i) providing web site design services and building
software that will allow small business and home-based entrepreneurs to
establish an internet presence at a lower price than competitors can provide;
(ii) establish an internet training and technical support program that will help
our members and customers understand the internet and learn how to profit from
it; (iii) create strategic alliances with companies such as Dell Computer,
Office Max, Digital River and Walt Disney, through which our members will be
able to offer these companies' products on member web sites and receive a
commission ranging from approximately 4% to 10% on each sale, depending on the
terms and conditions for each company; (iv) provide our members with access to
our "Main Street Plaza" online shopping mall, which will allow them to sell
their own products over the internet; (v) provide our members with unlimited
internet access through our relationship with Alta Vista, one of the top search
engines in the country. The Company expects it will generate revenues under this
business plan from monthly web site hosting fees, web site design and
engineering fees, resale of domain names, merchant account set up and monthly
gateway fees, web site and search site marketing fees and commissions on retail
products sold through the Company's Main Street Plaza.
The Company resumed operations in March 1999 with a new management team and
numerous strategic alliances in place for the purpose of providing
state-of-the-art web site design, technical support, online training and
interactive e-commerce web sites to individuals and small businesses. Revenues
generated in the six month periods ended August 31, 2000 and 1999, under the
Company's new business plan totaled $175,857, and $30,147, respectively,
primarily from web site hosting and design fees.
Management believes this new business plan will provide the revenues and margins
necessary to result in significant recurring revenue and profitable growth
through hosting, design and engineering fees as well as commissions on product
sales. Management also expects to obtain additional equity financing through the
exercise of outstanding common stock warrants in order to meet its cash flow
needs through fiscal year 2001.
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects, new
products and various other matters. Such forward- looking statements reflect the
current views of management relating to future events and financial performance.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for such forward- looking statements. In order that any of the Company's
forward-looking statements fall within such safe harbor, the Company notes that
certain risks and uncertainties could cause actual results to differ
substantially from anticipated results. Such risks and uncertainties include,
without limitation, the performance of the Company's independent distributors,
the uncertain future of the Internet and E-Commerce, capacity constraints on the
Company's computer network and related risks of system failure, and existing and
potential governmental regulation affecting the Internet and the network
marketing industry.
Results of Operations
---------------------
Three months ended August 31, 2000 compared with three months ended August 31,
1999
During the three months ended August 31, 2000 the Company recorded revenues of
$92,542, an increase of $66,652 over the same period in the previous year. The
increase in revenues is attributed primarily to web- site hosting and web-site
design fees generated from the implementation of management's new business plan.
Gross profits on services sold increased $60,221 over the same three month
period in the previous year to $72,954.
Selling, general and administrative expenses were $221,902 for the three month
period ended August 31, 2000, compared to $154,710 for the same period in the
previous year. Depreciation and amortization totaled $939 for the same period
compared to $460 in the prior year. Management and consulting fees, salaries,
investor relations and other professional fees included in selling, general and
administrative expenses relate to the development and implementation of the
Company's new business plan and increased over the same period in 1999.
15
<PAGE>
The Company incurred losses from operations of $149,887 and $142,437 for the
three months ended August 31, 2000 and 1999, respectively. The decrease in loss
from operations is due primarily to the significant increase in revenues over
the same period in the prior year offset by an increase in management and
consulting fees, investor relations and other expenses relating to the
development and implementation of the Company's new business plan. The Company
anticipates that its investment in the implementation of its ongoing business
plan and other operating costs will continue at present or increased levels for
the remainder of the fiscal year ending February 28, 2001, assuming the
availability of working capital.
Other income consisted of interest earned on funds raised in the Company's
private placement offering and invested in interest bearing bank accounts and
totaled $2,199 for the three months ended August 31, 2000. There was no interest
earned in the same period of the prior year.
The Company reported a net income of $2,311,518 for the three months ended
August 31, 2000 compared to a net loss of $142,437 for the three months ended
August 31, 1999. In the 2000 period the Company recorded one time extraordinary
income from a gain on the extinguishment of debt represented by liabilities of
the Company's subsidiaries discharged by the Bankruptcy Court on July 28, 2000
in the amount of $2,459,206.
Six months ended August 31, 2000 compared with six months ended August 31, 1999
During the six months ended August 31, 2000 the Company recorded revenues of
$175,857, an increase of $145,710 over the same period in the previous year. The
increase in revenues is attributed primarily to web- site hosting and web-site
design fees generated from the implementation of management's new business plan.
Gross profits on services sold increased $116,769 over the same six month period
in the previous year to $130,384.
Selling, general and administrative expenses were $538,021 for the six month
period ended August 31, 2000, compared to $426,606 for the same period in the
previous year. Depreciation and amortization totaled $1,877 for the same period
compared to $832 in the prior year. Management and consulting fees, salaries,
investor relations and other professional fees included in selling, general and
administrative expenses relate to the development and implementation of the
Company's new business plan and increased over the same period in 1999.
The Company incurred losses from operations of $409,514 and $533,823 for the six
months ended August 31, 2000 and 1999, respectively. The decrease in loss from
operations is due primarily to the significant increase in revenues over the
same period in the prior year coupled with a slight decrease in management and
consulting fees, investor relations and other expenses relating to the
development and implementation of the Company's new business plan. The Company
anticipates that its investment in the implementation of its ongoing business
plan and other operating costs will continue at present or increased levels for
the remainder of the fiscal year ending February 28, 2001, assuming the
availability of working capital.
Other income consisted of interest earned on funds raised in the Company's
private placement offering and invested in interest bearing bank accounts and
totaled $6,369 for the six months ended August 31, 2000. There was no interest
earned in the same period of the prior year.
The Company reported a net income of $2,056,061 for the six months ended August
31, 2000 compared to a net loss of $533,823 for the six months ended August 31,
1999. In the 2000 period the Company recorded one time extraordinary income from
a gain on the extinguishment of debt represented by liabilities of the Company's
subsidiaries discharged by the Bankruptcy Court on July 28, 2000 in the amount
of $2,459,206.
16
<PAGE>
Liquidity
The Company had working capital of $130,974 at August 31, 2000 compared to
negative working capital of $2,423,197 at February 28, 2000. The Company's cash
increased from $88,571 at the fiscal year end of February 28, 2000, to $95,460
at August 31, 2000. Total current assets increased by $79,343 to $190,043 from
the fiscal year end of February 28, 2000, to August 31, 2000. Current
liabilities decreased from $2,533,897 to $59,069 in the same period. The
decrease in current liabilities and increase in working capital is attributable
primarily to the extinguishment of debt represented by liabilities of the
Company's subsidiaries discharged by the Bankruptcy Court on July 28, 2000 in
the amount of $2,459,206. The Company recorded an extraordinary gain in the form
of a "gain on the extinguishment of debt" in the amount of $2,459,206, related
to the discharge of debt under the bankruptcy proceedings.
At February 28, 2000 the Company had liabilities of $2,459,205, which were
associated with discontinued operations and the bankruptcy proceedings.
On May 9, 2000, the Board of Directors approved a "site" bonus plan payable to
Steve Hansen, Director, President and CEO of the Company. The site bonus plan
calls for Mr. Hansen to receive a bonus of $1.00 per web-site hosting customer
brought into the Company. The site bonus is not to exceed $15,000 in any one
month. The Board of Directors is to review the bonus for renewal or modification
in March 2001. Payments due Mr. Hansen under the site bonus plan totaled $2,906
and $4,763 during the three and six month periods ended August 31, 2000,
respectively.
On August 16, 1999, the Company entered into a consulting agreement with Fairway
Capital Partners, LLC. ("Fairway"), to provide non-exclusive management,
consulting and financial services, including advise on corporate acquisitions
and related matters. Terms of the agreement require the Company to pay Fairway
$5,000 per month for the first three months of the agreement, $10,000 per month
for the next three months, and $15,000 for each month after that. All such
payments were paid in full as of February 28, 2000. The agreement expires on
August 1, 2002. Subsequent to entering into the consulting agreement Fairway
became a related party through the acquisition of 4,200,000 shares of the
Company's common stock.
On February 4, 2000, the Company and Fairway agreed to modify the agreement for
payments due after March 1, 2000. Under the modified agreement Fairway is
granted the option to reduce the monthly cash payment due them to $7,500 and to
receive an additional $7,500 worth of the Company's "unregistered" and
"restricted" common stock priced at the average closing market price per share
over the last five trading days of the previous month. The option is effective
for each month individually for the remaining term of the agreement. Fairway
capital has exercised the option for the five months from March through June
2000, and were issued 17,197 shares in lieu of $30,000 cash payments otherwise
due.
In August 2000, the Company entered into an agreement to lease 1,620 square feet
of office space in Sandy, Utah for all administrative, engineering and sales
personnel. The lease is for three years at a monthly rate of $1,000 for the
first six months, $1,500 for the next six months and $2,000 for the remaining
two years of the lease. The lease became effective October 1, 1999.
During the six months ended August 31, 2000, the Company issued 991,876 shares
of its common stock as follows:
FOR CASH- In March 1999, the Company began a private placement offering of
1,250,000 units ("Units") consisting of one share of "restricted" common stock
of the Company (restricted under Rule 144) and one "unregistered" and
"restricted" common stock purchase warrant (the "Warrant"), granting the warrant
17
<PAGE>
holder the right to purchase an additional share of the Company's common stock
at a price of $2.00 per share. The Warrants expire two years from the completion
of the offering and are callable at a price of $0.01 per share at any time after
ninety days from the effective date of any registration statement, upon 30 days
written notice. The Company filed an SB-2 registration statement in April 2000
to register the common stock issued and issuable under the private placement
offering. The registration statement became effective June 22, 2000 and was
withdrawn October 2, 2000. Shares issued and amounts received under this private
placement offering through August 31, 2000 are summarized in the following
table:
<TABLE>
<CAPTION>
Common
Shares Warrants Consideration
Date Issued Issued Received
----------------------- --------------- -------------- --------------------
<S> <C> <C> <C>
March 1999 100,000 100,000 $ 40,000
July 1999 50,000 50,000 20,000
October 1999 100,000 100,000 40,000
November 1999 25,000 25,000 10,000
January 2000 80,000 80,000 32,000
February 2000 375,000 375,000 150,000
--------------- -------------- --------------------
Total through
February 28, 2000 730,000 730,000 292,000
March 2000 900,000 900,000 360,000
--------------- -------------- --------------------
Total through
August 31, 2000 1,630,000 1,630,000 $ 652,000
=============== ============== ====================
</TABLE>
The Company has now closed the offering.
Shares issued under the offering and not sold by any investor prior to October
2, 2000, when the registration statement was withdrawn, are now restricted under
Rule 144 of the Securities and Exchange Commission.
FOR SERVICES- In July 2000, the Company issued 5,172 shares of common stock
restricted under Rule 144 in payment for management and consulting services
provided to the Company by a shareholder and the Company recorded an expense for
consulting fees totaling $7,500 relating to the shares issued.
In May 2000, the Company issued 14,954 shares of common stock restricted under
Rule 144 in payment for management and consulting services provided to the
Company by a shareholder and the Company recorded an expense for consulting fees
totaling $30,000 relating to the shares issued.
Additionally, in May 2000, the Company issued 71,750 shares of common stock
restricted under Rule 144 to an unrelated party in exchange for services
provided relating to the private placement of it's securities described in more
detail in the following paragraphs. The Company recorded a charge to capital
totaling $28,700 relating to the 71,750 shares issued.
18
<PAGE>
In March 1999, the Company issued 1,148,000 shares of common stock restricted
under Rule 144 to several individuals in exchange for services provided to the
Company. Included in the total were 975,000 shares issued to Steven K. Hansen,
President, CEO and Chairman of the Board of Directors of the Company.
Additionally, 50,000 shares of the above total were issued to Leonard W.
Burningham, Esq., who is Counsel to the Company for securities matters. The
remaining 123,000 shares were issued to unrelated parties. The Company recorded
management, legal and professional fees totaling $287,000 relating to the shares
issued.
The Company will require substantial additional cash and working capital in
order to continue the development and implementation of its business plan.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On October 26, 1999, our wholly-owned subsidiaries, World Internet Marketplace,
Inc.; Global Media Group, Inc.; and Global Wholesale Exchange, Inc., filed for
Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the
District of Utah. The cases were designated Case Nos. 99-31576; 99-31577; and
99-31578, respectively. The first meeting of creditors was held January 19,
2000. On July 28, 2000 the Court ordered all three cases closed and discharged
the bankruptcy trustee. As a result of the court's decision the Company recorded
an extraordinary gain from forgiveness of debt in the amount of $2,459,205 for
the three and six months ended August 31, 2000, and the amounts classified as
"reserve for discontinued operations" in the accompanying consolidated balance
sheet as of February 28, 2000 were removed from the Company's liabilities.
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 advise of legal counsel, these lawsuits do not represent a
material obligation of the Company as of August 31, 2000.
Item 2. Changes in Securities.
None, not applicable.
Item 3. Defaults Upon Senior Securities.
There were no defaults in payments of this type during the reporting period.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders during the
six month period ended August 31, 2000.
Item 5. Other Information.
None; not applicable.
19
<PAGE>
Item 6. Exhibits and Other Reports on Form 8-K.
(A) On August 9, 2000, the Company filed an 8-K Current Report dated July
29, 2000, with respect to the closure of it's subsidiaries bankruptcy
cases.
On April 3, 2000, the Company filed an 8-K Current Report dated March
22, 2000, with respect to its private offering of 1,250,000 Units.
On April 25, 2000, the Company filed an amended 8-K Current Report
dated February 19, 1999, with respect to its corporate restructuring.
SIGNATURE
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: 10/13/00 /s/ Steven K. Hansen
-------------- --------------------
Steven K. Hansen
Chief Executive Officer and Director
Date: 10/13/00 /s/ Gary S. Winterton
-------------- ---------------------
Gary S. Winterton
Date: 10/13/00 /s/ Randal L. Roberts
-------------- ---------------------
Randal L. Roberts
Director
20
