FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 1999
Commission File Number 33-16757
ONE WORLD ONLINE.COM, INC.
(Exact name of small business issuer as identified in its charter)
Nevada 87-0411771
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4778 North 300 West, Suite 200, Provo, Utah 84604
(Address of principal executive offices)
(Zip Code)
(801) 852-3540
(Registrant's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No __
State the number of shares outstanding of each of the issuer's classes of
common equity, as of February 15, 2000: 15,475,000.
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
ONE WORLD ONLINE.COM, INC.
Index to Condensed Consolidated Financial Statements (unaudited)
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Page
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Condensed Consolidated Balance Sheet (unaudited) 3
Condensed Consolidated Statement of Operations
for the Three Months Ended December 31, 1999 (unaudited) 4
Condensed Consolidated Statement of Operations for
the Six Months Ended December 31, 1999 (unaudited) 5
Condensed Consolidated Statement of Cash Flows for
the Six Months Ended December 31, 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements
(unaudited) 7
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2
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<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Balance Sheet (unaudited)
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------
Assets
<S> <C>
Current assets:
Cash $ 519,000
Accounts receivable 11,000
Inventory 220,000
Other current assets 12,000
-----------
Total current assets 762,000
-----------
Equipment, net 603,000
Other assets 242,000
-----------
Total assets $ 1,607,000
-----------
- ----------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 118,000
Accrued liabilities 232,000
Current portion of capital lease obligation 6,000
-----------
Total current liabilities 356,000
-----------
Capital lease obligation 7,000
-----------
Stockholders' equity
Common stock 15,000
Additional paid in capital 5,558,000
Accumulated deficit (4,329,000)
-----------
Total stockholders' equity 1,244,000
-----------
Total liabilities and stockholders' equity $ 1,607,000
-----------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
3
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<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Statement of Operations (unaudited)
For the Three Months Ended December 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Revenue $ 367,000
Cost of sales 234,000
--------------
Gross margin 133,000
Distributor incentives (105,000)
Selling, general and administrative expenses (1,384,000)
Other Income 14,000
--------------
Loss before income taxes (1,342,000)
Income tax benefit -
--------------
Net Loss $ (1,342,000)
--------------
Loss per share - basic and diluted $ (0.09)
--------------
Weighted average shares - basic and diluted 15,475,000
--------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
4
</TABLE>
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<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Statement of Operations (unaudited)
For the Six Months Ended December 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Revenue $ 685,000
Cost of sales 524,000
--------------
Gross margin 161,000
Distributor incentives (222,000)
Selling, general and administrative expenses (2,655,000)
Other Income 56,000
--------------
Loss before income taxes (2,660,000)
Income tax benefit -
--------------
Net Loss $ (2,660,000)
--------------
Loss per share - basic and diluted $ (0.17)
--------------
Weighted average shares - basic and diluted 15,475,000
--------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
5
</TABLE>
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<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Statement of Cash Flows (unaudited)
For the Six Months Ended December 31, 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (2,660,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 110,000
Change in:
Accounts receivable (11,000)
Inventory 32,000
Other current assets 5,000
Other assets (91,000)
Accounts payable 6,000
Accrued liabilities 106,000
--------------
Net cash used in
operating activities (2,503,000)
--------------
Cash flow from investing activities:
Purchase of equipment (235,000)
--------------
Cash flow from financing activities:
Principal payments on capital lease obligation (2,000)
--------------
Net decrease in cash (2,740,000)
Cash, beginning of period 3,259,000
--------------
Cash, end of period $ 519,000
--------------
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements
6
</TABLE>
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
- --------------------------------------------------------------------------------
(1) Interim Condensed Consolidated Financial Statements
The unaudited condensed consolidated financial statements include the accounts
of One World Online.com, Inc. and subsidiaries and include all adjustments
(consisting of normal recurring items) which are, in the opinion of management,
necessary to present fairly the financial position as of December 31, 1999 and
the results of operations for the three and six months ended December 31, 1999
and cash flows for the six months ended December 31, 1999. The results of
operations and cash flows for the six months ended December 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. These unaudited condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's June 30, 1999
Annual report on Form 10-KSB. The accounting policies followed by the Company
are set forth in Note 2 to the Company's consolidated financial statements in
its June 30, 1999 Annual report on Form 10-KSB.
(2) Basic and Diluted Net Loss Per Common Share
Net loss per share is based on the weighted average number of shares outstanding
at December 31, 1999. Stock options are not included in the calculation of net
loss per common share because their inclusion would be antidilutive, thereby
reducing the net loss per common share. Therefore, there is no difference
between basic and diluted net loss per common share for the periods presented in
which the Company incurred a net loss. The Company has common stock options
outstanding at December 31, 1999 that, if exercised, would result in the
issuance of an additional 4,177,500 shares of common stock.
(3) Comparative Financial Information
The Company began operations on November 12, 1998 (date of inception),
therefore, comparative financial information for the three and six month periods
ended December 31, 1998, would be for the period from November 12, 1998 (date of
inception) to December 31, 1998. This information is not presented due to the
immaterial amounts in the 1998 financial statements. In addition the 1998
financial statements would not be comparative to the 1999 financial statements
due to the different time periods covered (92 days in 1999 and 49 days in 1998).
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7
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the condensed consolidated
financial statements and accompanying notes and Management's Discussion and
Analysis or Plan of Operation for the year ended June 30, 1999. Wherever in this
discussion the term "Company" is used, it should be understood to refer to One
World Online.com, Inc. ("One World") and its wholly owned subsidiaries, One
World Online Incorporated dba One World Online Marketing ("OWOL Marketing") and
I Ventures, Inc. dba One World Online Technologies ("OWOL Technologies"), on a
consolidated basis, except where the context clearly indicates otherwise. The
Company's December 31, 1999 unaudited condensed consolidated financial
statements assumes the acquisition of One World by OWOL Marketing and OWOL
Technologies on November 12, 1998. Assets and liabilities of One World, OWOL
Marketing and OWOL Technologies are reported at their historical book value. See
Note 1 to the Company's Notes to Consolidated Financial Statements in the
Company's June 30, 1999 Annual Report on Form 10-KSB.
The Company began operations on November 12, 1998 (date of inception),
therefore, comparative financial information for the three and six month periods
ended December 31, 1998 would be for the period from November 12, 1998 to
December 31, 1998. Comparative 1998 financial information is not discussed below
due to the immaterial amounts in the 1998 financial statements. In addition, the
1998 financial information is not comparative to the 1999 financial information
due to the different periods covered (92 days in 1999 and 49 days in 1998).
Overview
Since inception, the Company, has focused primarily on developing its
main product line of e-commerce sites, building the One World Community and
related software, building a high-performance, scaleable hardware
infrastructure, hiring capable personnel, developing its marketing plan,
developing technology and e-commerce solutions and raising capital.
Plan of Operation
The Company proposes to be a nationwide enhanced online portal
pioneering a new Internet service model that rewards its customers with what the
Company believes is a first of its kind Community Dollar Internet currency
program, as described below. The Company is seeking to capture a piece of the
projected $5 trillion e-commerce market by taking its full-solution Internet
products and services that are currently in development to the masses by
offering a one-stop source for Internet Solutions and building loyalty with its
Community Dollar program. The Company's Internet Solutions are in the initial
stages of implementation and include nationwide enhanced ISP service; a virtual
online shopping community at www.oneworldonline.com that provides over 225,000
products; an Internet radio station, library, arcade, and more; a Web site
creation and hosting service; a provider of e-commerce solutions for small and
mid-sized businesses; and an Internet marketing and training resource for
businesses and individuals. The Company utilizes the high performance global
network of fiber, satellite and switching facilities of PSINet, Inc., the first
and largest independent facilities based commercial Internet Super Carrier to
provide internet connectivity services to its customers.
The Company has instituted a concept called Community Dollars. When a
customer purchases One World's web-related products and services, such as ISP
service, web sites, hosting, Internet training, and others, their personal
online shopping account is credited with Community Dollars. As customers watch
their account balance grow and use their Community Dollars to purchase products
from the One World Online.com Preferred Community, they are expected to become
more loyal to the value offered by One World.
8
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily
through the private placement of its common stock and sale of convertible
promissory notes. For the six months ended December 31, 1999, the Company used
net cash for operating activities of $2,503,000. As of December 31, 1999, the
Company's current liabilities totaled $356,000. The Company's other liabilities
were comprised of a $7,000 capital lease obligation. The Company had working
capital as of December 31, 1999 of $406,000.
The Company's capital requirements depend on numerous factors,
including market acceptance of the Company's web site, technical services,
online community, training programs and ISP service. Capital requirements also
depend on the amount of resources needed for its product development programs.
As of February 15, 2000, the Company had not committed to spend any material
amounts on capital expenditures. As of December 31, 1999, the Company had an
estimated $30,562 in Community Dollar obligations that comprise part of the
Company's reported accrued liabilities. The Company is also highly dependent on
its Internet Marketing Consultants ability to market its products and services.
The Company expects to experience an increase in its capital expenditures and
operating expenses consistent with the growth of its operations and staffing,
and anticipates that this will continue for the foreseeable future. There can be
no assurance, however, that the Company will continue to grow or that its
products and services will be accepted by the market place.
From January 2000 through February 15, 2000, the Company raised
$719,000 through the sale of 10% Secured Convertible Promissory Notes (the
"Notes"). The Notes are convertible into the Company's common stock at the
conversion rate of $3.00 per share. The Notes are secured by substantially all
of the assets of One World. Principal and accrued interest is due and payable in
a single balloon payment on February 1, 2002. Any inability to pay off the Notes
when they become due will have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations and possibly resulting in the foreclosure by Note holders of
substantially all of One World's assets.
The Company believes that existing funds and anticipated revenues will
be sufficient to support the Company's operations through March 2000. The
Company will need to raise significant additional funding to support its
operations during the next twelve months. Such additional funding will be
required to fully execute its business plan which includes continuing its focus
as a seller of ISP access and services, building the virtual One World
Online.com Community and developing and selling web sites and related products
and services. The Company has no material current contractual arrangements with
respect to additional financing and there can be no assurance that additional
financing will be available on commercially reasonable terms or at all. Any
inability to obtain additional financing will have a material adverse effect on
the Company, including possibly requiring the Company to significantly curtail
or cease its operations.
The Company's liquidity and capital resources will also be affected by
the One World Online Charitable Foundation, a charitable organization ("OWOCF")
that established under Section 509(a)(3) of the Internal Revenue code of 1986,
as amended (the "Code"). OWOCF was established in May 1999 by the founders of
the Company to act as the charitable, community service arm of the One World
Online.com, Inc. community. OWOCF owns all of the equity ownership of One World
Online Charities, LLC ("OWOC"), a Utah limited liability company, and is the
sole manager of OWOC. The Company has grand-fathered OWOC as the first
distributor frontline to the Company in the Company's relationship marketing
organization of independent distributors. This means that OWOC will receive a
monthly payment from the Company based on the sales of the distributors below
OWOC in the Company's network marketing organization. In the three and six
months ended December 31, 1999, $4,218 and $6,851, respectively, was contributed
by the Company to OWOC. These payments could be as much as 22% of the shared
revenue paid out to the independent distributors of the Company, however, the
actual percentage paid to OWOC will likely be significantly less in any given
month. The Company has a perpetual right to purchase all of the membership
interest owned by OWOCF in OWOC for the fair market value of this membership
interest at the time the Company elects to purchase this interest. The fair
market value will be determined by mutual agreement, or if agreement cannot be
reached, by a panel of three arbitrators.
9
<PAGE>
In addition to the monthly payments referenced in the prior paragraph,
the Company made discretionary payments to OWOCF in the amount of $41,666 during
the three and six months ended December 31, 1999. These discretionary payments
were used by OWOCF to fund its operations and to make donations to other
charities that are not affiliated with the Company or its founders, officers or
directors. During the first quarter of 2000 the Company expects to make
discretionary contributions to OWOCF of at least $43,000.
The Company may experience variations on a quarterly basis in its
results of operations, in response to a) the timing of Company sponsored
distributor events, b) new product introductions, c) the adverse effect of
Internet Marketing Consultants or the Company's failure, or allegations of their
failure, to comply with applicable government regulations, d) the negative
impact of changes in or interpretations of regulations that may limit or
restrict the sale of certain Company products, e) the operation of the network
marketing system, f) the recruiting and retention of Internet Marketing
Consultants, and g) consumer perceptions of the Company's products and
operations.
The Company does not expect any significant changes in the number of its
employees during the next twelve months.
Year 2000
The Company had developed plans to address the possible exposures
related to the impact on its computer systems of the Year 2000. Since entering
the year 2000, the Company has not experienced any major disruptions to its
business nor is it aware of any significant Year 2000-related disruptions
impacting its customers and suppliers. Furthermore, the Company did not
experience any material impact on business at calendar year end. The Company
will continue to monitor its critical systems over the next several months but
does not anticipate any significant impacts due to Year 2000 exposures from its
internal systems as well as from the activities of its suppliers and customers.
Forward-Looking Statements
When used in this Form 10-KSB, in other filings by the Company with the
SEC, in the Company's press releases or other public or stockholder
communications, or in oral statements made with the approval of an authorized
executive officer of the Company, the words or phrases "would be," "will allow,"
"intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.
The Company cautions readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made, are based on
certain assumptions and expectations which may or may not be valid or actually
occur, and which involve various risks and uncertainties, including but not
limited to regulation and legal uncertainties, reliance on key personnel,
uncertainties regarding Company's ability to develop a market, possible lack of
acceptance of the Company's products, uncertainties in connection with the use
of the Internet as a medium of commerce and communications, the highly
competitive nature of the Company's industry, rapid technological changes, the
need for significant additional capital and dependence on retail sales
representatives. Please refer to the "Management's Discussion and Analysis or
Plan of Operation" and specifically the discussion under "Risk Factors" that is
found in the Company's Annual Report on Form 10-KSB for the year ended June 30,
1999, for more details. In addition, sales and other revenues may not commence
and/or continue as anticipated due to delays or otherwise. As a result, the
Company's actual results for future periods could differ materially from those
anticipated or projected.
Unless otherwise required by applicable law, the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
10
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
On January 28, 2000, the Company filed suit against Doug Burdick
("Burdick"), a former Company consultant, in the Forth Judicial District Court
in Utah County, Utah. The Company alleges, among other things, that Burdick has
wrongfully attempted to use intellectual property and ideas that are owned by
the Company for Burdick's own personal benefit and gain. The Company is seeking
$500,000 in damages relating to Burdick's alleged breach of contract, breach of
duties of good faith and fair dealing, extortion, slander, disparagement,
tortuous interference of contract and economic relations and injunctive relief.
The Company was granted a temporary restraining order that expires on February
27, 2000 prohibiting Burdick from, among other things, contacting investors or
certain consultants of the Company or making negative statements about the
Company. An evidentiary hearing relating to the temporary restraining order has
been scheduled for February 25, 2000.
The lawsuit is subject to all of the risks and uncertainties of
litigation and the outcome cannot presently be predicted. Specifically, there is
no assurance that the Company will be successful in this lawsuit or that the
lawsuit will be resolved on acceptable terms, and the Company may incur
significant costs in asserting its claims. The Company is not engaged in any
other legal proceedings.
Item 2. Changes in Securities.
During the three months ending December 31, 1999, the Company granted
stock options exercisable for 342,500 shares of the Company's common stock at
exercise prices of between $5.00 and $5.75 per share. The stock option grants
were exempt from registration under Rule 506 of Regulation D, Sections 4(2) and
4(6) of the Securities Act of 1933 and/or because the stock option grants did
not constitute sales under Section 5 of the Securities Act of 1933. The Company
did not use an underwriter in connection with its grant of stock options.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Securityholders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Index To Exhibits
11
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
2.1 Agreement and Plan of Reorganization Between the Company
and OWOL Marketing (Schedules are omitted) (Incorporated
by referenced to Exhibit 2.1 of the Company's Current
Report on Form 8-K, dated June 29, 1999)
2.2 Agreement and Plan of Reorganization Between the Company
and OWOL Technologies (Schedules are omitted)
(Incorporated by referenced to Exhibit 2.2 of the
Company's Current Report on Form 8-K, dated June 29,
1999)
3(i).1 Articles of Incorporation of One World (Incorporated by
referenced to Exhibit 3(i).1 of the Company's Annual
Report on Form 10-KSB dated June 30, 1999)
3(i).2 Articles of Amendment to Articles of Incorporation of
One World (Incorporated by referenced to Exhibit 3(i).1
of the Company's Current Report on Form 8-K, dated June
29, 1999)
3(i).3 Articles of Incorporation of OWOL Marketing
(Incorporated by referenced to Exhibit 3(i).3 of the
Company's Annual Report on Form 10-KSB dated June 30,
1999)
3(i).4 Articles of Incorporation of OWOL Technologies
(Incorporated by referenced to Exhibit 3(i).4 of the
Company's Annual Report on Form 10-KSB dated June 30,
1999)
3(i).5 Articles of Amendment to the Articles of Incorporation
of OWOL Technologies (Incorporated by referenced to
Exhibit 3(i).5 of the Company's Annual Report on Form
10-KSB dated June 30, 1999)
3(ii).1 Bylaws of One World (Incorporated by referenced to
Exhibit 3(ii).1 of the Company's Annual Report on Form
10-KSB dated June 30, 1999)
3(ii).2 Bylaws of OWOL Marketing (Incorporated by referenced to
Exhibit 3(ii).2 of the Company's Annual Report on Form
10-KSB dated June 30, 1999)
3(ii).3 Bylaws of OWOL Technologies (Incorporated by referenced
to Exhibit 3(ii).3 of the Company's Annual Report on
Form 10-KSB dated June 30, 1999)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ONE WORLD ONLINE.COM, INC.
By /s/ David N. Nemelka
---------------------------
Date: February 18, 2000 David N. Nemelka
President, Chief Executive Officer, Director
By /s/ Paul D. Korth
Date: February 18, 2000 ---------------------------
Paul D. Korth
Principal Financial and Chief Accounting
Officer
13
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 519,000
<SECURITIES> 0
<RECEIVABLES> 11,000
<ALLOWANCES> 0
<INVENTORY> 220,000
<CURRENT-ASSETS> 762,000
<PP&E> 760,000
<DEPRECIATION> 157,000
<TOTAL-ASSETS> 1,607,000
<CURRENT-LIABILITIES> 356,000
<BONDS> 7,000
0
0
<COMMON> 15,000
<OTHER-SE> 1,229,000
<TOTAL-LIABILITY-AND-EQUITY> 1,607,000
<SALES> 0
<TOTAL-REVENUES> 741,000
<CGS> 0
<TOTAL-COSTS> 3,401,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,660,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,660,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,660,000)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
