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 March 31, 2000
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
(Address of principal executive offices)
84604
(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.
X Yes __ No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of May 5, 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)
- --------------------------------------------------------------------------------
Page
---------
Condensed Consolidated Balance Sheet (unaudited) F-2
Condensed Consolidated Statement of Operations
for the Three Months Ended March 31, 2000 and
March 31, 1999 (unaudited) F-3
Condensed Consolidated Statement of Operations
for the Nine Months Ended March 31, 2000 (unaudited) F-4
Condensed Consolidated Statement of Cash Flows
for the Nine Months Ended March 31, 2000 (unaudited) F-5
Notes to Condensed Consolidated Financial Statements (unaudited) F-6
- --------------------------------------------------------------------------------
F-1
<PAGE>
<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Balance Sheet (unaudited)
March 31, 2000
- -------------------------------------------------------------------------------------------
Assets
Canada
Current assets:
<S> <C>
Cash $ 878,000
Accounts receivable 19,000
Inventory, net 174,000
Other current assets 50,000
--------------------
Total current assets 1,121,000
Equipment, net 572,000
Other assets 250,000
--------------------
Total assets $ 1,943,000
--------------------
- --------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 123,000
Accrued liabilities 445,000
Current portion of capital lease obligation 6,000
--------------------
Total current liabilities 574,000
Notes Payable 1,504,000
Capital lease obligation 5,000
--------------------
Total liabilities 2,083,000
--------------------
Stockholders' equity
Common stock 15,000
Additional paid in capital 5,809,000
Accumulated deficit (5,964,000)
--------------------
Total stockholders' equity (140,000)
--------------------
Total liabilities and stockholders' equity $ 1,943,000
--------------------
- --------------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Statement of Operations (unaudited)
For the Three Months Ended March 31, 2000 and March 31, 1999
- -------------------------------------------------------------------------------------
3/31/00 3/31/99
---------------- ----------------
<S> <C> <C>
Revenue $ 473,000 $ 111,000
Cost of sales 465,000 143,000
---------------- ----------------
Gross margin 8,000 (32,000)
Distributor incentives (268,000) (31,000)
Selling, general and administrative expenses (1,135,000) (394,000)
Interest Expense (251,000) -
Other Income 11,000 1,000
---------------- ----------------
Loss before income taxes (1,635,000) (456,000)
Income tax benefit - -
---------------- ----------------
Net Loss $ (1,635,000) $ (456,000)
---------------- ----------------
Loss per share - basic and diluted $ (0.11) $ (0.03)
---------------- ----------------
Weighted average shares - basic and diluted 15,475,000 13,572,000
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements F-3
</TABLE>
<PAGE>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Statement of Operations (unaudited)
For the Nine Months Ended March 31, 2000
- --------------------------------------------------------------------------------
Revenue $ 1,158,000
Cost of sales 989,000
-----------------
Gross margin 169,000
Distributor incentives (490,000)
Selling, general and administrative expenses (3,790,000)
Interest Expense (251,000)
Other Income 67,000
-----------------
Loss before income taxes (4,295,000)
Income tax benefit -
-----------------
Net Loss $(4,295,000)
-----------------
Loss per share - basic and diluted $ (0.28)
-----------------
Weighted average shares - basic and diluted 15,475,000
-----------------
- -----------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements F-4
<PAGE>
ONE WORLD ONLINE.COM, INC.
Condensed Consolidated Statement of Cash Flows (unaudited)
For the Nine Months Ended March 31, 2000
------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (4,295,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 168,000
Interest Expense 251,000
Change in:
Accounts receivable (19,000)
Inventory 78,000
Other current assets (33,000)
Other assets (99,000)
Accounts payable 11,000
Accrued liabilities 319,000
------------------
Net cash used in
operating activities (3,619,000)
------------------
Cash flow from investing activities:
Purchase of equipment (262,000)
------------------
Cash flow from financing activities:
Issuance of Notes 1,504,000
Principal payments on capital lease obligation (4,000)
------------------
Net cash provided by
financing activities 1,500,000
------------------
Net decrease in cash (2,381,000)
Cash, beginning of period 3,259,000
------------------
Cash, end of period $ 878,000
------------------
- ------------------------------------------------------------------------------
See accompanying notes to condensed consolidated financial statements F-5
<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 March 31, 2000 and the
results of operations for the three and nine months ended March 31, 2000 and
cash flows for the nine months ended March 31, 2000. The results of operations
and cash flows for the nine months ended March 31, 2000 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 March 31, 2000. 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
March 31, 2000 that, if exercised, would result in the issuance of an additional
4,902,000 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 nine month period ended
March 31, 1999, would be for the period from November 12, 1998 (date of
inception) to March 31, 1999. This information is not presented because the 1999
financial statements would not be comparative to the 2000 financial statements
due to the different time periods covered (139 days in 1999 and 275 days in
2000).
- --------------------------------------------------------------------------------
F-6
<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 March 31, 2000 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 nine month period ended
March 31, 1999 would be for the period from November 12, 1998 to March 31, 1999.
Comparative 1999 financial information for the nine months ended March 31, 2000
is not discussed below. In addition, the 1999 financial information for the nine
months ended March 31, 1999 is not comparative to the financial information for
the nine months ended March 31, 2000 due to the different periods covered.
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 Shopping Dollar 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 Shopping 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; 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.
<PAGE>
The Company has instituted a concept called Shopping 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 Shopping Dollars. As customers watch
their account balance grow and use their Shopping Dollars to purchase products
from the One World Online.com Community, they are expected to become more loyal
to the value offered by One World.
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 nine months ended March 31, 2000, the Company used net
cash for operating activities of $3,619,000. As of March 31, 2000, the Company's
current liabilities totaled $574,000. The Company's other liabilities were
comprised of a $5,000 capital lease obligation and $1,504,000 in notes payable.
The Company had working capital as of March 31, 2000 of $547,000.
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 May 5, 2000, the Company has committed to spend approximately $100,000 on
capital expenditures for the quarter ending June 30, 2000. As of March 31, 2000,
the Company had an estimated $187,030 in Shopping 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 April 4, 2000, the Company raised $1,519,000
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 June 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.
<PAGE>
The Company's liquidity and capital resources will also be affected by
the One World Online Charitable Foundation ("OWOCF"), a charitable organization
that was 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 nine
months ended March 31, 2000, $4,116 and $10,967, 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.
In addition to the monthly payments referenced in the prior paragraph,
the Company made discretionary payments to OWOCF in the amount of $43,334 and
$85,000 during the three and nine months ended March 31, 2000. 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. If the Company is not able to raise sufficient
additional financing these discretionary payments to OWOCF will accelerate the
date on which the Company must curtail and possibly cease operations.
The Company may experience variations on a quarterly basis in its results
of operations, in response to a) the timing of Company sponsored 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 unexpected interruptions in services due to
technological failures, 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.
<PAGE>
Forward-Looking Statements
When used in this Form 10-QSB, 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<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 was 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 has obtained a judgment for $32,500 plus interest and post
collection attorneys' fees. The judgment provides the opportunity for the
Company to submit evidence at an evidentiary hearing for purpose of obtaining
punitive and compensatory damages.
Item 2. Changes in Securities.
During the three months ending March 31, 2000, the Company granted
stock options exercisable for 1,126,000 shares of the Company's common stock at
exercise prices of between $2.00 and $5.375 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.
From January 2000 through April 4, 2000, the Company raised $1,519,000
through the sale of 10% Secured Convertible Promissory 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. The Note sales were exempt from registration under Rule 506 of
Regulation D, Sections 4(2) and 4(6) of the Securities Act of 1933. The Company
did not use an underwriter in connection with the sale of the Notes.
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
- --------------------- ----------------------------------------------------------
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)
- --------------------- ----------------------------------------------------------
10.1 Form of Master Security Agreement
- --------------------- ----------------------------------------------------------
27.1 Financial Data Schedule
- --------------------- ----------------------------------------------------------
(b) Reports on Form 8-K:
None.
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: May 9, 2000 David N. Nemelka
President, Chief Executive Officer, Director
By /s/ Paul D. Korth
Date: May 9, 2000 ---------------------------------------------
Paul D. Korth
Principal Financial and Chief Accounting Officer
EXHIBIT 10.1
(FORM OF MASTER SECURITY AGREEMENT)
<PAGE>
MASTER SECURITY AGREEMENT
This Master Security Agreement is executed this 9th day of May, 2000, by
ONE WORLD ONLINE.COM, INC., a Nevada corporation (the "Corporation" or
"Debtor"), in favor of the Holders of the Corporation's 10% Secured Convertible
Promissory Notes ("Holders") and their "Agent," as defined below, with respect
to the following.
RECITALS
A. The Corporation has issued its 10% Secured Convertible Promissory Notes
(hereinafter the "Notes") to the Holders, which Notes total an aggregate amount
of not more than Three Million Dollars (U.S.) ($3,000,000.00 USD).
B. The Corporation and the Holders desire to provide collateral for the
payment of the Notes, and to make provision for collective action by the Holders
in the event of default by the Corporation, upon the following terms and
conditions.
TERMS AND CONDITIONS
1. Grant of Security Interest. Debtor grants and conveys to Holders,
collectively and not individually, a security interest in the following
described property, whether now owned or hereafter acquired:
A. All accounts, goods, equipment, fixtures, and inventory;
B. All money, cash, instruments (including checks and promissory
notes), documents of title, chattel paper, and utility and security deposits;
C. All deposit accounts and all amounts on deposit with any banks or
other financial institutions, and all amounts owed or becoming owed on account
of credit card sales and collections, including, without limitation, all amounts
due under merchant bankcard or similar agreements; and
D. All securities, shares of stock and ownership interests in other
business entities, including any affiliates or subsidiaries of the Corporation;
and
E. All cash and non-cash proceeds and products of the foregoing;
hereinafter collectively referred to as the "Collateral;"
<PAGE>
For the purpose of securing the payment of the Notes, and the payment and
performance of all obligations and covenants contained in the Notes, in this
Master Security Agreement, or in any other instrument securing the Notes or
relating to the obligations of the Corporation thereunder (hereinafter referred
to as the "Indebtedness").
2. Debtor's Covenants.
A The Corporation will not dispose of, transfer, or conceal any of the
Collateral, excepting only transfers in the ordinary course of business.
B. The Corporation will endorse in blank and deliver to Holders' Agent
(as defined in Section 5 below), all negotiable instruments and securities, if
any, that are or become Collateral under this Agreement. The Corporation will
further execute and deliver to Holders' Agent all other documents reasonably
required to execute and carry out the intent of the parties.
C. The Corporation shall pay when due any and all taxes assessed on the
Collateral.
3. Holders Agree to be Bound. By their acceptance and receipt of the Notes,
the Holders accept and agree to be bound by the terms of this Security
Agreement, which is incorporated by reference into each Debenture. Each Holder's
execution of the Subscription Agreement relating to issuance of a Debenture
shall, upon issuance of the Debenture, constitute execution of this Security
Agreement, and agreement to the terms hereof.
4. Parity Provisions. For purposes of this Agreement, "Proportionate Share"
shall mean the fraction the numerator of which is the dollar amount of the
principal and accrued interest owed on a particular Holder's Debenture, and the
denominator of which is the dollar amount of the principal and accrued interest
on all of the Notes. The Agent may rely upon the Corporation's records in making
a determination of the Proportionate Share, unless given written notice by a
Holder of a dispute regarding such records. Each Holder agrees that its
respective right to realize upon the Collateral now or hereafter pledged under
this Security Agreement shall be its Proportionate Share.
5. Holders' Agent. The Holders shall be represented, for purposes of this
Security Agreement, by an Agent (the "Agent"), who may be a natural person or a
business entity. The Agent may be, but is not required to be, a Holder of a
Debenture. The initial Agent shall be David R. Nemelka.
A. Holders have the right, by written consent of the Holders holding a
majority in principal amount of the Notes at the time the consent is given or
vote taken (excluding any Notes theretofore converted to common stock), to
select a new person as Agent. In such event, any new person selected as Agent
shall automatically succeed to the prior Agent's status. Holders, or any new
Agent, shall promptly give written notice of selection of a new Agent to the
Corporation, and the Corporation shall be entitled to deal with the prior Agent
as such until such written notice is given.
B. The Agent shall have the following powers and duties:
(1) To provide to third parties such information as may be
requested of a secured party under the Utah Uniform Commercial Code.
(2) As nominee and agent of the Holders, to hold or take physical
possession of, any portion of the Collateral, including any stock certificates
or negotiable instruments that may be part of the Collateral.
<PAGE>
(3) To keep and maintain a list of the Holders, their respective
addresses, the amounts of the Notes issued thereto, and payments made thereon,
and the Corporation shall upon request furnish such information to the Agent.
(4) To take such other and further actions as may be reasonably
necessary to perfect or continue the perfection of the Holders' security
interests as the Agent deems appropriate, including the filing of any
continuation statements respecting or amendments to UCC-1 financing statements.
(5) To give, on behalf of the Holders, such notices of default or
other notices as may be necessary or appropriate in the judgment of the Agent,
and to receive and accept notices on behalf of the Holders.
(6) To accept and receive payments or proceeds of liquidation of
Collateral on behalf of the Holders, and to remit to Holders their Proportionate
Shares thereof (after deducting any expenses incurred by Agent).
(7) To execute, deliver and/or record termination statements with
respect to the Collateral, upon payment in full of the Notes.
(8) To execute, deliver and/or record releases or partial releases
of portions of the Collateral in order to facilitate the transfer or sale of
such Collateral by the Corporation, but only if (i) such transfer or sale is
authorized hereunder or under the Notes; or (ii) the Collateral proposed to be
transferred or sold does not constitute, in the Agent's judgment, a significant
portion of the value of the Collateral and the terms of the transfer or sale
are, in the Agent's judgment, reasonable.
(9) To take such other and further actions as may be authorized or
directed by the Holders, pursuant to Section 6 below or otherwise.
C. The Corporation agrees to reimburse the Agent's reasonable expenses
incurred in performing Agent's duties hereunder to the extent such expenses or
costs are the responsibility of the Corporation under the terms of the Notes,
and all such sums shall be secured hereby. The Agent shall be entitled to be
reimbursed by the Holders for their respective Proportionate Shares of any
reasonable expenses Agent may incur in performing its duties hereunder, to the
extent such are not reimbursed by the Corporation.
D. The Agent shall have no liability to the Holders for any acts or
omissions by it acting in its capacity as Agent under this Security Agreement,
so long as it acts in good faith, except that Agent shall be liable for its own
gross negligence or willful misconduct.
E. The Corporation may rely upon the actions or inactions of the Agent
hereunder, provided such reliance is reasonable and in good faith.
F. It is understood and agreed that neither the relationship of the
Holders to the Agent nor the relationship between the Holders, whether arising
under this Security Agreement or otherwise with respect to the Notes, is
intended to be or to create, and shall not be construed to be a partnership,
joint venture, or other joint enterprise.
<PAGE>
6. Collective Action by Holders. The Holders agree that any action to
enforce any provision of the Notes or this Security Agreement, or to otherwise
collect amounts owed, or alleged to be owed, by the Corporation on the Notes, or
any of them (whether before or after filing of a lawsuit), shall be taken
collectively by the Holders as a group as provided in this Section 6 (except to
the extent such action may be taken by the Agent on behalf of the Holders, as
provided herein). Actions by the Holders as a group shall be authorized by
written consent of a majority in principal amount of the Notes at the time the
consent is given or vote taken (excluding any Notes theretofore converted to
common stock). By such written consent, the Holders may delegate the authority
to make specified decisions or to take specified actions on behalf of the group
of Holders to the Agent, to a third person, or to a committee or subgroup of the
Holders. The Holders shall be bound by actions taken in reasonable and good
faith reliance on such delegation of authority.
7. Default. The Corporation shall be in default hereunder upon the
occurrence of any of the following events or conditions:
A If the Corporation shall fail to pay any sum when due under one or
more of the Notes, or any other event of default occurs with respect to the
Indebtedness.
B. Failure of the Corporation to comply with or perform any of the
terms, covenants, and conditions of this Security Agreement.
C. If any levy, attachment, garnishment, lien, execution or other
process is issued against or otherwise attaches to the Collateral, whether for
taxes or any other debt or claim and whether or not any such attachment or other
process is issued before or after entry of judgment.
D. If the Corporation ceases conducting business, dissolves, terminates
its existence, becomes insolvent, files a voluntary petition for bankruptcy, has
filed against it an involuntary petition in bankruptcy that is not dismissed
within sixty (60) days of the filing date, or is the subject of an assignment
for the benefit of creditors.
E. If any representation by the Corporation, them, in connection with
this Security Agreement, the Notes, or any other related instrument, whether
made before or after execution of this Security Agreement, was false in any
material respect when made.
8. Remedies. Upon default, the Holders shall have the following rights, in
addition to any other rights afforded by law:
A. The Corporation agrees that notice of any disposition of or use of
the Collateral shall be deemed commercially reasonable and to have been given to
and received by the Corporation if transmitted by certified mail, return receipt
requested, at least fourteen (14) days prior to the proposed disposition or use.
The Corporation further agrees that any public sale of the Collateral, or any
portion thereof, may be postponed by the Holders (or their agent) for a period
of not to exceed seven days, by announcement at the time and place of the sale,
without need to re-notice or advertise. Notwithstanding the foregoing, the
Holders shall not be required to dispose of the Collateral or any portion
thereof by public auction.
<PAGE>
B. Holders shall be entitled to notify any account debtor, any obligor
on an instrument, and any other person in custody or control of any of the
Collateral (including all banks and financial institutions holding funds of the
Corporation), to make payments on and/or to deliver the Collateral to Holders or
their Agent.
9. Miscellaneous.
A. The Corporation shall pay to the Holders or Agent, on demand, any
and all expenses, including attorney's fees, incurred or paid by Holders or
Agent in protecting or enforcing its rights upon or under the Notes, the
Indebtedness, or the Collateral, and such expenses are secured hereunder. If the
Corporation shall default in the performance of any of the provisions of this
Agreement, Holders or Agent may cure the default for the Corporation's account,
and any monies expended in doing so shall be paid on demand, together with
interest from the date expended at twelve percent (12%) per annum.
B. The Corporation agrees to execute and deliver such financing
statements, certificates of title or other evidence of title or ownership, and
other instruments as Holders or Agent may reasonably request in order to perfect
or protect the security interest granted hereunder. A copy of this Security
Agreement may be filed as a financing statement.
C. This Security Agreement constitutes the entire agreement between the
parties pertaining to the subject matter contained in this Security Agreement.
All prior and contemporaneous agreements, representations and understandings of
the parties, oral or written, are superseded by and merged in this Security
Agreement. No supplement, modification or amendment of this Security Agreement
shall be binding unless in writing and executed by the Corporation and the
Agent.
D. The provisions of this Security Agreement shall be binding upon the
Corporation, its legal representatives, successors or assigns, and shall be for
the benefit of the Holders, the Agent, and their respective successors and
assigns.
E. The headings of this Security Agreement are for purposes of
reference only and shall not limit or define the meaning of any provision of
this Security Agreement. This Security Agreement may be executed in any number
of counterparts, each of which shall be an original but all of which shall
constitute one and the same instrument.
F. If any action is brought by either party in respect to its rights
under this Security Agreement, or to obtain an interpretation thereof, the
prevailing party shall be entitled to reasonable attorneys' fees and court costs
as determined by the court.
G. No waiver of any of the provisions of this Security Agreement shall
constitute a waiver of any other provision, whether or not similar, nor shall
any waiver be a continuing waiver. Except as expressly provided in this Security
Agreement, no waiver shall be binding unless executed in writing by the party
making the waiver. Either party may waive any provision of this Security
Agreement intended for its benefit; provided, however, such waiver shall in no
way excuse the other party from the performance of any of its other obligations
under this Security Agreement.
<PAGE>
H. This Security Agreement shall be governed by the laws of the State
of Utah. Any legal action to enforce or obtain an interpretation of this
Security Agreement may be filed in the Fourth Judicial District Court of Utah
County, or the Third Judicial District Court of Salt Lake County, and the
parties consent to the exercise of personal over them by said courts.
10. Notices; Addresses. Any notices required or permitted hereunder shall
be in writing and shall be given by personal delivery; by deposit in the United
States mail, certified mail, return receipt requested, postage prepaid; or by
established express delivery service, freight prepaid. Notices shall be
delivered, addressed, or transmitted to the Corporation and to Agent at the
following addresses, which may be changed by a notice given to the other party
in accordance with this Section. Any notices to the Holders pertaining to the
security interest granted hereunder shall be deemed given if directed to the
Agent in accordance with this Section. The date notice is deemed to have been
given, received and become effective shall be the date on which the notice is
delivered, if notice is given by personal delivery, two (2) days following the
date of deposit in the mail, if the notice is sent through the United States
mail, or the date of actual receipt, if the notice is sent by express delivery
service.
The Corporation's address is:
One World Online.Com, Inc.
Attn. Chief Executive Officer
4778 North 300 West, Suite 200
Provo, Utah 84604
Telephone: 801-852-3540
Fax: 801-852-3553
The Agent's address, and the address from which information respecting
this security interest may be requested, is:
"DEBTOR"
ONE WORLD ONLINE.COM, INC.,
a Nevada corporation
Federal Empl. ID No. 87-0411771
By /s/ David N. Nemelka
---------------------------------
Its President
"AGENT" on behalf of the "HOLDERS"
/s/ David R. Nemelka
-------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED MARCH 31, 2000,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 878,000
<SECURITIES> 0
<RECEIVABLES> 19,000
<ALLOWANCES> 0
<INVENTORY> 174,000
<CURRENT-ASSETS> 1,121,000
<PP&E> 787,000
<DEPRECIATION> 215,000
<TOTAL-ASSETS> 1,943,000
<CURRENT-LIABILITIES> 574,000
<BONDS> 1,515,000
0
0
<COMMON> 15,000
<OTHER-SE> (155,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,943,000
<SALES> 0
<TOTAL-REVENUES> 1,225,000
<CGS> 0
<TOTAL-COSTS> 5,269,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251,000
<INCOME-PRETAX> (4,295,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,295,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,295,000)
<EPS-BASIC> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
