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 November 30, 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
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WORLD INTERNETWORKS, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0443026
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(State of incorporation) (I.R.S. Employer Identification No.)
9710 South 700 East, Suite 205
Sandy, Utah 84070
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(Address of principal executive offices and zip code)
(801) 501-7500
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(Registrant's telephone number, including area code)
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(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 January 18, 2001 was: 14,112,463 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-Q.B. are unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form 10-Q.B. 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
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<TABLE>
<CAPTION>
World Internetworks, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
November 30, 2000 and February 28, 2000 (Fiscal Year End)
ASSETS
------
November 30, February 28,
2000 2000
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 12,211 $ 88,571
Merchant account, compensating cash balance 10,029 --
Accounts receivable 23,828 9,929
Note receivable, related party (Note 10) 10,350 --
Prepaid expenses 9,501 12,200
------------- -------------
Total current assets 65,919 110,700
Property and equipment, at cost (Note 1)
Computer equipment 25,413 16,283
Office furniture and equipment 6,124 2,140
Accumulated depreciation (14,046) (10,403)
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Net property and equipment 17,491 8,020
Other assets -deposits 1,000 --
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$ 84,410 $ 118,720
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 92,323 $ 29,206
Accrued expenses 22,074 15,486
Note payable, related party 25,000 30,000
Reserve for discontinued operations (Notes 4 and 11) -- 2,459,205
------------- -------------
Total current liabilities 139,397 2,533,897
Deferred revenue (Note 2) 702 --
Commitments and contingencies (Note 9)
Shareholders' equity (deficit):
Common stock, $.001 par value; 500,000,000
shares authorized; 9,047,463
and 8,056,607 shares issued at November 30, 2000
and Feb 28, 2000, respectively 9,047 8,057
Capital in excess of par value 2,741,536 3,686,994
Treasury stock, at cost -- (3,186)
Stock subscription receivable -- (80,000)
Deferred offering costs -- (1,366,482)
Deficit accumulated prior to development stage (3,979,694) (3,979,694)
Retained earnings (deficit) accumulated
from the inception of the development
stage on October 22, 1998 1,173,422 (680,866)
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Total shareholders' equity (deficit) (55,689) (2,415,177)
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$ 84,410 $ 118,720
============= =============
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
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<PAGE>
<TABLE>
<CAPTION>
World Internetworks, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For the Three Months and Nine Months Ended November 30, 2000 and 1999
From Inception
Three months ended Nine months ended of Development
November 30, November 30, Stage - October 22,
-------------------------- ---------------------------- 1998 thru Nov. 30,
2000 1999 2000 1999 2000
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales and revenues: $ 106,141 $ 20,793 $ 281,998 $ 50,940 $ 364,673
Cost of products sold 45,287 14,369 90,760 30,901 135,376
------------ ------------ ------------ ------------ ------------
Gross profit 60,854 6,424 191,238 20,039 229,297
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses 261,712 111,354 799,732 775,460 1,684,865
Depreciation and amortization 1,766 494 3,643 1,326 5,501
------------ ------------ ------------ ------------ ------------
Total operating expenses 263,478 111,848 803,375 776,786 1,690,366
------------ ------------ ------------ ------------ ------------
Loss from operations before other income
and extraordianry gain (202,624) (105,424) (612,137) (756,747) (1,461,069)
Other income
Interest income 851 -- 7,220 -- 7,220
Extraordinary item
Gain on extinguishment of debt (Notes 4 and 11) -- 171,130 2,459,205 171,130 2,459,205
------------ ------------ ------------ ------------ ------------
Income (loss) before income tax benefit (201,773) 65,706 1,854,288 (585,617) 998,136
Income tax benefit -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (201,773) $ 65,706 $ 1,854,288 $ (585,617) $ 998,136
============ ============ ============ ============ ============
Weighted average common shares outstanding 11,075,968 5,129,774 10,036,677 3,647,774 --
Income (loss) per common share $ (0.02) $ 0.01 $ 0.18 $ (0.16) --
============ ============ ============ ============ ============
(Loss) per common share before extraordinary item $ (0.02) $ (0.02) $ (0.06) $ (0.21) --
============ ============ ============ ============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
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<PAGE>
<TABLE>
<CAPTION>
World Internetworks, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended November 30, 2000 and 1999
From Inception
Nine months ended of Development
November 30, Stage - October 22,
----------------------------- 1998 thru Nov. 30,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,854,288 $ (585,617) $ 1,173,422
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 3,643 1,326 5,501
Common stock issued for services 36,500 372,000 452,500
Common stock options issued for services 47,800 -- 47,800
Options and warrants issued below market price -- -- 57,000
Gain on extinguishment of debt (2,459,205) (171,130) (2,627,271)
Deferred revenue 702 -- 702
Changes in current assets and liabilities
Compensating balances (10,029) -- (10,029)
Accounts receivable (13,899) -- (23,828)
Prepaid expenses 2,699 -- (9,501)
Due from shareholder -- (15,000) (15,000)
Accounts payable 63,117 61,738 119,723
Accrued expenses 6,588 1,147 22,074
----------- ----------- -----------
Net cash provided by (used in) operating activities (467,796) (335,536) (806,907)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (13,114) (2,678) (19,932)
Cash flows from financing activities:
Proceeds from sale of common stock, net of offering cost 339,900 342,500 729,400
Stock subscription received 80,000 -- 80,000
Proceeds from related party note payable 25,000 -- 25,000
Payment of related party note payable (30,000) -- --
Advanced for related party note receivable (10,350) -- (10,350)
----------- ----------- -----------
Net cash provided by financing activities 404,550 342,500 824,050
Net increase (decrease) in cash (76,360) 4,286 (2,789)
Cash at beginning of period 88,571 -- --
----------- ----------- -----------
Cash at end of period $ 12,211 $ 4,286 $ (2,789)
=========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an
integral part of these statements.
F-3
<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.
WIM was engaged in marketing and distributing products and services relating to
Internet commerce. GWE provided wholesale goods to consumers via Internet and
fax notification. 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. The Company
resumed operations in March 1999 with a completely new management team and a new
business plan.
b. Nature of Operations
The Company's primary business plan is to provide a complete "Suite" of Internet
related products and services including: web hosting, the sale and registration
of domain names, web site design and engineering, merchant account access and
the process of accepting credit cards online as well as training in the tools
needed for a business customer to direct traffic to their web site and
effectively market their own products or services through the World Wide Web to
potential prospects. The Company's marketing and services are directed primarily
to the small business market. Of the 25 Million small business' operating in the
U.S. more than 70% do not presently have a web site or any type of Internet
exposure. The Company has focused its marketing efforts to reach this large
market sector and provide for them all of the necessary tools to establish
themselves on the World Wide Web with a cost-effective and dynamic presence.
The Company's design and engineering resources now account for more than 50% of
gross revenues. Revenues generated in the nine month periods ended November 30,
2000 and 1999, under the Company's new business plan totaled $175,857, and
$30,147, respectively, primarily from site design and engineering fees and web
site hosting fees.
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<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.
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.
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<PAGE>
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 November 30, 2000, there were outstanding common stock equivalents (options
and warrants) to purchase 2,094,000 shares of common stock that were included in
the computation of net income or (loss) per common share for the three months
and nine months ended November 30, 2000. At November 30, 1999, there were
outstanding common stock equivalents (options and warrants) to purchase
2,660,000 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 nine
months ended November 30, 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 recover ability 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 recover ability 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 issuance of additional capital stock and 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. 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 nine months ended November 30, 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.
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 - NOTE PAYABLE
On November 27, 2000, the Company obtained $25,000 from Fairway Capital
Partners, LTD under a promissory note payable on February 27, 2001, with
F-6
<PAGE>
interest at the rate of 10 percent per annum. The note is secured by a pledge to
issue 50,000 shares of the Company's common stock in the event of default.
Subsequent to November 30, 2000, the Company issued 4,500,000 shares of it's
common stock to Fairway in exchange for cash, payment of accrued management
fees, a commitment to provide cash to pay certain legal and consulting fees and
the payment of this note payable (See note 12).
NOTE 6 - INCOME TAXES
As of November 30, 2000, the Company had federal and state net operating loss
carry forwards of approximately $2,409,000. The net operating losses will expire
at various dates beginning in years 2012 through 2015, if not utilized.
NOTE 7 - 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 offering was closed in February 2000. The Company filed an SB-2 registration
statement in April 2000 to register the common stock issued for resale under the
offering. The registration statement became effective June 22, 2000 and was
withdrawn October 2, 2000. The Company received a total of $652,000 under the
offering and issued 1,630,000 shares of common stock and warrants to purchase an
additional 1,630,000 shares of common stock. 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.
F-7
<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 was 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.
NOTE 8 - STOCK OPTIONS, STOCK AWARDS AND STOCK WARRANTS
Common Stock Options
--------------------
In October and November of 2000, the Company granted 65,000 options to purchase
the Company's common stock to two unrelated consultants at exercise prices of
$0.50 per share for 50,000 options and $0.40 for 15,000 options. All the options
granted vested immediately and expire 3 years from date of grant. The weighted
average fair value of the options granted was $0.20 and $0.12 per share
respectively using the Black Scholes pricing model. The Company recorded
consulting fees related to the options issued totaling $11,800 in the three and
nine month periods ended November 30, 2000.
In October and November of 2000, the Company granted 30,000 options to purchase
the Company's common stock to two employees at an exercise price of $0.40 per
share. All the options granted vested immediately and expire 5 years from date
of grant.
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 nine month period
ended November 30, 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 employees during the
three months ended November 30, 2000, was $0.20 per share using the Black
Scholes pricing model. 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 $702,487 or $0.07 per share for the nine months ending November
30, 2000. There were no options exercised in the nine months ending November 30,
2000 and 1999, respectively, however, the 15,000 options granted a consultant in
May 2000, were not accepted and therefore not issued. As of November 30, 2000,
the Company had a total of 454,000 non-qualified options outstanding.
Common Stock Warrants
---------------------
The Company granted warrants to purchase 900,000 and 285,000 shares in the nine
months ended November 30, 2000 and 1999, respectively, in connection with the
issuance of the same number of shares of common stock in each nine month period
under the Company's private placement offering (see Note 7).
F-8
<PAGE>
As of November 30, 2000, the Company had a total of 1,640,000 warrants
outstanding.
NOTE 9 - 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,
cash-less warrants to purchase 25,000 shares of the Company's common stock were
to be issued as a finders fee to Mr. Ray in the event the Company benefitted
from certain business opportunities introduced to the Company by Mr. Ray. As of
November 30, 2000 the Company had not realized any benefit and the commitment to
issue cash-less warrants was withdrawn. 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 $3,193
and $7,956 during the three and nine month periods ended November 30, 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
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<PAGE>
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
exercised the option for the four months from February through June 2000, and
were issued 20,126 shares in lieu of $37,500 in 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.
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 operating lease are as follows:
Years ending February 28,
-------------------------
2001 $ 3,000
2002 20,000
2003 24,000
2004 14,000
-------
Total $ 61,000
=======
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. 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 nine months ended November 30, 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 November 30, 2000.
NOTE 10 - 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. In October 2000, the Board extended the
F-10
<PAGE>
due date of this loan to February 23, 2001. At November 30, 2000 the $10,000
loan plus accrued interest of $350 is outstanding.
NOTE 11 - 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
nine month periods ended November 30, 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.
NOTE 12 - SUBSEQUENT EVENTS
In December 2000, the Company issued 4,500,000 shares of common stock restricted
under Rule 144 to Fairway Capital Partners, LTD in consideration for the
following items:
Payment of management fees due through December 2000 $ 55,000
Payment of a promissory note payable to Fairway 25,000
Cash received in January 2001 45,000
Provide cash for certain designated legal and consulting
fees not yet incurred 75,000
-------
Total consideration to be received $ 195,000
=======
Additionally, Fairway agreed to reduce the monthly management fee described in
Note 9 to $5,000 effective January 1, 2001, for the remaining term of the
contract. Further, payments under the contract are to be deferred April 30,
2001.
In December 2000, the Company issued 500,000 shares of common stock restricted
under Rule 144 in payment for management and consulting services to be provided
to the Company by an unrelated consultant. Additionally, the Company issued
65,000 shares of common stock restricted under Rule 144 to another unrelated
consultant in payment for professional services provided from October through
December 2000.
The Company will record expenses for consulting and professional fees totaling
$84,985 relating to the shares issued.
F-11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q.B. 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 nine months ended November
30, 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 resumed operations in March 1999 with a completely new management
team and a new business plan.
Management's Plan of Operation
------------------------------
The Company's primary business plan is to provide a complete "Suite" of Internet
related products and services including: web hosting, the sale and registration
3
<PAGE>
of domain names, web site design and engineering, merchant account access and
the process of accepting credit cards online as well as training in the tools
needed for a business customer to direct traffic to their web site and
effectively market their own products or services through the World Wide Web to
potential prospects. The Company's marketing and services are directed primarily
to the small business market. Of the 25 Million small business' operating in the
U.S. more than 70% do not presently have a web site or any type of Internet
exposure. The Company has focused its marketing efforts to reach this large
market sector and provide for them all of the necessary tools to establish
themselves on the World Wide Web with a cost-effective and dynamic presence.
The Company has undertaken a number of marketing initiatives designed to reach
this very large business sector including direct mail, email, a direct selling
effort and a recent campaign directed towards non-profit organizations and there
members. The initial marketing thrust to non-profit organizations has been with
associations in Utah, primarily Chambers of Commerce. The Company expects to
expand this marketing strategy regionally and nationally as we evaluate the
results of developing these local organizations as customers. The Company
currently utilizes an hourly billing rate of $75.00 for web site design
contracts and an hourly rate of $100.00 plus for custom programming and site
engineering. Both of these rates are well below the industry average yet still
provide the Company with an attractive profit margin. The Company's design and
engineering resources now account for more than 50% of gross revenues. Revenues
generated in the nine month periods ended November 30, 2000 and 1999, under the
Company's new business plan totaled $175,857, and $30,147, respectively,
primarily from site design and engineering fees and web site hosting fees.
Management continues to evaluate additional methods of providing increased
shareholder value including strategic alliances, mergers, acquisitions, reseller
agreements and joint venture partners. Opportunities in each of these areas are
evaluated on a case-by-case basis by Company management. Any significant
agreements entered into by the Company to enhance shareholder value will be
announced through the appropriate channels including the necessary regulatory
filings on Form 8-K with the Securities and Exchange Commission.
Management expects to obtain additional equity financing through the exercise of
outstanding common stock warrants and options or other equity offerings in order
to meet its cash flow needs through fiscal year 2001 and into the fiscal year
2002. The Company anticipates that with increased revenues and close management
of operating costs it will be able to expand operations and increase potential
revenue opportunities.
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 November 30, 2000 compared with three months ended November
30, 1999
During the three months ended November 30, 2000 the Company recorded revenues of
$106,141, an increase of $85,348 over the same period in the prior year. The
4
<PAGE>
design fees generated from the implementation of management's new business plan.
Gross profits on services sold increased $54,430 over the same three month
period in the prior year to $60,854.
Selling, general and administrative expenses were $261,712 for the three month
period ended November 30, 2000, compared to $111,354 for the same period in the
prior year. Depreciation and amortization totaled $1,766 for the same period
compared to $464 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 $202,624 and $105,424 for the
three months ended November 30, 2000 and 1999, respectively. The increase in
loss from operations is due primarily to an increase in salaries and consulting
fees related to expanded sales and product development efforts offset in part by
an increase in revenues over the same period in the prior year. 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 totaled $851 and consisted of interest earned on a note receivable
and on funds raised in the Company's private placement offering and invested in
interest bearing bank accounts and for the three months ended November 30, 2000.
There was no interest earned in the same period of the prior year.
The Company reported a net loss of $201,773 for the three months ended November
30, 2000 compared to net income of $65,706 for the three months ended November
30, 1999. In the 1999 period the Company recorded one time extraordinary income
from a gain on the extinguishment of debt in the amount of $171,130.
Nine months ended November 30, 2000 compared with nine months ended November 30,
1999
During the nine months ended November 30, 2000 the Company recorded revenues of
$281,998, an increase of $231,058 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 $171,199 over the same nine month
period in the prior year to $191,238 . Selling, general and administrative
expenses were $799,732 for the nine month period ended November 30, 2000,
compared to $775,460 for the same period in the previous year. Depreciation and
amortization totaled $3,643 for the same period compared to $1,326 in the prior
year. Management and consulting fees, salaries, investor relations and other
professional fees included in selling, general and administrative expenses
increased over the same period in 1999 and relate to the development and
implementation of the Company's new business plan.
The Company incurred losses from operations of $612,137 and $756,747 for the
nine months ended November 30, 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 in part by a slight 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.
5
<PAGE>
Other income totaled $7,220 and consisted of interest earned on a note
receivable and on funds raised in the Company's private placement offering and
invested in interest bearing bank accounts and for the nine months ended
November 30, 2000. There was no interest earned in the same period of the prior
year.
The Company reported a net income of $1,854,288 for the nine months ended
November 30, 2000 compared to a net loss of $585,617 for the nine months ended
November 30, 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 $2,459,205.
Liquidity
The Company had negative working capital of $73,478 at November 30, 2000
compared to negative working capital of $2,423,197 at February 28, 2000. The
Company's cash decreased from $88,571 at the fiscal year end of February 28,
2000, to $12,211 at November 30, 2000. Total current assets decreased by $44,781
to $65,919 from the fiscal year end of February 28, 2000, to November 30, 2000.
Current liabilities decreased from $2,533,897 to $139,397 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 $2,459,205. The Company recorded an extraordinary gain in
the form of a "gain on the extinguishment of debt" in the amount of $2,459,205,
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.
In December 2000, the Company issued 4,500,000 shares of common stock restricted
under Rule 144 to Fairway Capital Partners, LTD ("Fairway") in consideration for
the following items:
Payment of management fees due through December 2000 $ 55,000
Payment of a promissory note payable to Fairway 25,000
Cash received in January 2001 45,000
Provide cash for certain designated legal and consulting
fees not yet incurred 75,000
----------
Total consideration to be received $ 195,000
===========
Additionally, Fairway agreed to reduce the monthly management fee described in
Note 9 to $5,000 effective January 1, 2001, for the remaining term of the
contract. Further, payments under the contract are to be deferred April 30,
2001.
In December 2000, the Company issued 500,000 shares of common stock restricted
under Rule 144 in payment for management and consulting services to be provided
to the Company by an unrelated consultant. Additionally, the Company issued
65,000 shares of common stock restricted under Rule 144 to another unrelated
consultant in payment for professional services provided from October through
December 2000.
The Company will record expenses for consulting and professional fees totaling
$84,985 relating to the shares issued.
On November 27, 2000, the Company obtained $25,000 from Fairway under a
promissory note payable on February 27, 2001, with interest at the rate of 10
percent per annum. The note is secured by a pledge to issue 50,000 shares of the
Company's common stock in the event of default. Subsequent to November 30, 2000,
the Company issued 4,500,000 shares of it's common stock to Fairway in exchange
6
<PAGE>
Other income totaled $7,220 and consisted of interest earned on a note
receivable and on funds raised in the Other income totaled $7,220 and consisted
of interest earned on a note receivable and on funds raised in the accrued
management fees, a commitment to pay certain legal and consulting fees and the
payment of this note payable.
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.
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 operating lease are as follows:
Years ending February 28,
-------------------------
2001 $ 3,000
2002 20,000
2003 24,000
2004 14,000
--------
Total $ 61,000
--------
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 $3,193
and $7,956 during the three and nine month periods ended November 30, 2000,
respectively.
In March 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.
In August 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.
In February 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
exercised the option for the four months from February through June 2000, and
were issued 20,126 shares in lieu of $37,500 in cash payments otherwise due.
7
<PAGE>
Additionally, in December 2000, Fairway agreed to reduce the monthly management
fee to $5,000 effective January 1, 2001, for the remaining term of the agreement
and to defer payments under the contract to April 30, 2001.
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.
During the nine months ended November 30, 2000, the Company issued 991,876
shares of its common stock as follows:
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 offering was closed in February 2000. The Company filed an SB-2 registration
statement in April 2000 to register the common stock issued for resale under the
offering. The registration statement became effective June 22, 2000 and was
withdrawn October 2, 2000. The Company received a total of $652,000 under the
offering and issued 1,630,000 shares of common stock and warrants to purchase an
additional 1,630,000 shares of common stock. 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.
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 was 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.
8
Common Stock Options
--------------------
In October and November of 2000, the Company granted 65,000 options to purchase
the Company's common stock to two unrelated consultants at exercise prices of
$0.50 per share for 50,000 options and $0.40 for 15,000 options. All the options
granted vested immediately and expire 3 years from date of grant. The weighted
average fair value of the options granted was $0.20 and $0.12 per share
respectively using the Black Scholes pricing model. The Company recorded
consulting fees related to the options issued totaling $11,800 in the three and
nine month periods ended November 30, 2000.
In October and November of 2000, the Company granted 30,000 options to purchase
the Company's common stock to two employees at an exercise price of $0.40 per
share. All the options granted vested immediately and expire 5 years from date
of grant.
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 nine month period
ended November 30, 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 employees during the
three months ended November 30, 2000, was $0.20 per share using the Black
Scholes pricing model. 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 $702,487 or $0.07 per share for the nine months ending November
30, 2000. There were no options exercised in the nine months ending November 30,
2000 and 1999, respectively, however, the 15,000 options granted a consultant in
May 2000, were not accepted and therefore not issued. As of November 30, 2000,
the Company had a total of 454,000 non-qualified options outstanding.
Common Stock Warrants
---------------------
The Company granted warrants to purchase 900,000 and 285,000 shares in the nine
months ended November 30, 2000 and 1999, respectively, in connection with the
issuance of the same number of shares of common stock in each nine month period
under the Company's private placement offering (see Note 7).
As of November 30, 2000, the Company had a total of 1,640,000 warrants
outstanding.
The Company will require substantial additional cash and working capital in
order to continue the development and implementation of its business plan.
9
<PAGE>
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
nine month period ended November 30, 2000.
Item 5. Other Information.
None; not applicable.
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.
10
<PAGE>
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: 1/18/01 /s/Steven K. Hansen
------------------- --------------------------------------------
Steven K. Hansen, Chief Executive Officer
and Director
Date: 1/18/01 /s/Gary S. Winterton
------------------- -----------------------------
Date: 1/18/01 /s/Randal L. Roberts
---------------- ------------------------------
Randal L. Roberts, Director
11
