SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
Annual Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended
June 30, 2000
Commission file number
33-16757
ONE WORLD ONLINE.COM, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0411771
(State or other jurisdiction of incorporation) (IRS employer identification no.)
4778 North 300 West, Suite 200, Provo, Utah 84604
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (801) 852-3540
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were 2,169,000.
The aggregate market value of voting and non-voting common equity held
by non-affiliates (i.e., does not include directors, executive officers or ten
percent stockholders identified in Item 11 hereof) of the registrant computed by
reference to the price at which the common equity was sold, or the average bid
and asked price of such common equity on September 1, 2000, was approximately
$62,086,529.
Number of shares outstanding common stock as of September 1, 2000 was
15,842,334, $.001 par value per share.
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ONE WORLD ONLINE.COM, INC.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-KSB FOR PERIOD ENDED JUNE 30, 2000
PART I
Item 1. Description of Business..............................................3
Item 2. Description of Property.............................................11
Item 3. Legal Proceedings...................................................11
Item 4. Submission of Matters to a Vote of Security Holders.................11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters............12
Item 6. Management's Discussion and Analysis or Plan of Operation...........14
Item 7. Financial Statements ...............................................21
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure............................................21
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Complaince with Section 16(a) of the Exchange Act..........22
Item 10. Executive Compensation.............................................24
Item 11. Security Ownership of Certain Beneficial Owners and Management.....27
Item 12. Certain Relationships and Related Transactions.....................29
Item 13. Exhibits and Reports on Form 8-K...................................30
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PART I
Item 1. Description of Business
As used herein, the term "Company" means 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, unless
the context clearly indicates otherwise.
Company Development
The Company was originally incorporated under the laws of the State of
Utah on July 27, 1984 under the name KPC Investments and has an authorized
capital consisting of 100,000,000 shares of common stock, par value $.001 per
share.
One World acquired Medizone Canada Ltd. in 1988 as a subsidiary
corporation and changed its name from KPC Investments to Medizone Canada
Limited. One World subsequently discontinued the business of its subsidiary and
in recent years has been looking for a business acquisition. Effective August 4,
1998, One World changed its corporate domicile to the State of Nevada.
On April 26, 1999, One World effectuated a 4 for 1 forward stock split
of its outstanding shares. A stockholder contributed for cancellation shares of
common stock in connection with the stock split resulting in One World having
9,000,000 shares outstanding immediately after the stock split.
On June 29, 1999, One World acquired OWOL Marketing and OWOL
Technologies through its acquisition of all the issued and outstanding common
stock of these two companies (the "Acquisition"). As consideration for the
Acquisition, One World issued to the stockholders of OWOL Marketing and OWOL
Technologies an aggregate of 12,725,000 shares of the Company's common stock. In
connection with the Acquisition, certain stockholders contributed 6,250,000
shares of One World's common stock for cancellation, which resulted in One World
having 15,475,000 shares of common stock outstanding immediately following the
Acquisition. In connection with the Acquisition, One World also changed its name
to One World Online.com, Inc. and amended its Articles of Incorporation to
authorize up to 1,000,000 shares of blank check preferred stock.
In May 2000, One World created and issued 300,000 shares of Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock was issued
in consideration for $900,000. $300,000 of the subscription price was paid in
May 2000. The remaining $600,000 of the subscription price is due in May 22,
2003, together with interest at the rate of eight percent (8%) per annum. All of
the Series A Convertible Preferred Stock is held by the OWOL Founders Voting
Trust. The beneficiaries of the OWOL Founders Voting Trust are David N. Nemelka,
President and Chief Executive Officer of One World, Kelly M. Thayer, Chairman of
One World, and an entity with which David R. Nemelka and Ingrid F. Nemelka, the
parents of David N. Nemelka, are affiliated and control. Except as otherwise
required by applicable law, all voting rights of One World are vested in and
exercised by the holders of the common stock and Series A Convertible Preferred
Stock, voting as a single group, with each share of common stock being entitled
to one vote and each share of the Series A Convertible Preferred Stock being
entitled to 100 votes. As a result, the OWOL Founders Voting Trust effectively
has voting control of One World with respect to all matters submitted to the
vote of the stockholders.
OWOL Marketing (a Utah corporation) was organized in November of 1998.
Its operating activities since inception have related primarily to developing
its main product line of electronic commerce ("e-commerce") sites, Internet
related training, building the One World Community and related software,
building a high-performance, scaleable hardware infrastructure, marketing
Internet service provider ("ISP") services, hiring capable personnel, developing
its marketing plan and raising capital.
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OWOL Technologies (a Colorado corporation) was organized in June 1996
and began business operations in November, 1998 with the acquisition of certain
assets of Web Factory, a sole proprietorship. At that time OWOL Technologies
began developing technology and e-commerce solutions, including ISP and
e-commerce sites, as the primary technology developer for OWOL Marketing.
The Company's principal executive offices are located at 4778 North 300
West, Suite 200, Provo, Utah, 84604. Its telephone number is (801) 852-3540.
Company Organization
OWOL Marketing and OWOL Technologies are wholly owned subsidiaries of
One World. OWOL Marketing is the distribution arm for all products and services
of the Company using its relationship marketing system. OWOL Technologies
provides the world wide web ("web") development technical resources, ISP, domain
and hosting services and manages the growth and development of the One World
Online.com Community.
Executive Summary
One World has developed a business model that enables its community
members to "spend their money twice" because of the Shopping Dollars rebates
they receive for the products and services they purchase through One World. One
World combines two powerful business ideas: (1) the power of the Internet and
(2) the effectiveness of relationship marketing. One World provides its
customers and free-agent independent distributors called, Internet Marketing
Consultants (IMC's), the opportunity to participate in the power of the Internet
by seeking to build the world's most valued online community. These IMC's are
empowered to share in the revenues of the Internet with the Company's unique
relationship marketing model. As a full solution Internet services company, One
World is seeking to take the Internet and e-commerce market to the masses by
offering a one stop source for Internet solutions such as: an online based
benefits package that permits customers to earn rebates from their online
purchases, nationwide enhanced Internet Service Provider (ISP) access; a virtual
online community complete with online shopping, educational courses, Internet
radio stations, library, arcade, and much more; web site creation and hosting;
electronic commerce solutions for mid-size and small businesses; and Internet
marketing training for businesses and individuals.
The challenge of online shopping is that of creating loyalty in a cyber
world where customers move from one community to the next with a click of their
mouse. One World is seeking to redefine the world of e-commerce through the
collective power of uniting individuals with relationship marketing and
rewarding them with a new 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 many others, their personal online
shopping account is credited with Shopping Dollars. For instance, when a
customer connects to the Internet using the Company's ISP service, the Company
matches the monthly charge, dollar-for-Shopping Dollar, and credits $22.00
Shopping Dollars to the customer's personal shopping account. For the Company's
ISP customers, it's like receiving their ISP service for "virtually free" every
month. 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.
Market Analysis Summary
The Internet is a collection of connected computer systems and networks
that link millions of public and private computers. The Internet and the web
have experienced rapid growth over recent years. This growth is projected to
continue. According to Jupiter Communications, as of September 2000, there were
approximately 122 million online users in the United States. This number is
expected to grow to 194 million by 2005. Explosive growth of the Internet is
expected to significantly increase Internet purchases. Consumers in the United
States will purchase an estimated $29 billion in goods and services online
during 2000. That number is estimated to grow to a staggering $199 billion by
2005.
The Company has focused its efforts on three primary markets: (1)
individuals and businesses who are potential members of the One World Online.com
Community who will be able to take advantage of the Company's
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"Spend Your Money Twice" Shopping Dollar program and who desire a home on the
web where they can associate with others, learn, be entertained, and purchase
quality goods and services for a fair price; (2) individuals and businesses who
need ISP access; and (3) small businesses seeking a complete-solution, web
presence that includes a catalogue storefront, web education, advertising
services, and hosting services. One World believes that its relationship
marketing approach will provide the Company a significant competitive advantage
in these markets.
Relationship Marketing
In the first quarter of 1999, the Company instituted a relationship
marketing program as an approach within the ISP, virtual community, and web site
development industries to expand the Company's subscriber and member base. The
program is designed to establish and expand a network of free agent, independent
entrepreneurs called Internet Marketing Consultants ("IMCs") to sell the
Company's products and services. In general, each IMC is paid a commission for
selling the Company's products and services and is paid a residual commission on
the purchase of products by shoppers using the IMC's Retail Access Number. The
Company believes that using IMCs to sell its products and services assists the
Company in lowering its cost of customer acquisition, reducing variable
technical support costs by utilizing IMCs to aid in the set-up and maintenance
of new customers, and reduces customer turnover as the result of the customer's
loyalty to his or her IMC.
The Company's IMC opportunity is particularly well suited for
individuals who possess strong sales skills and are motivated by the prospect of
supplementing their sources of income under a flexible work schedule without the
drawbacks associated with some other network marketing programs such as the need
to purchase significant inventory and poorly defined commission credit systems
resulting in commission disputes. The amount of the commission paid to the
sponsor in connection with the sale of a product or service will vary according
to the level of the sponsor. As the program continues to develop and mature, the
total amount of commissions paid to IMCs per each sale will increase; however,
the Company believes that such total commissions nonetheless will be less than
the costs for new customer acquisitions through traditional sales and marketing
activities.
Products/Services Summary
At the present time, the Company's primary products and services are
focused in five major areas:
1. The One World Online.com Community Membership and Shopping
Dollars rebate program.
2. ePassport Benefits Package.
3. ISP and other related services.
4. E-commerce and IMC eMarketing web site creation, sales and
hosting.
5. Internet and business success training and services.
E-commerce and IMC eMarketing web site creation, sales and hosting
accounted for approximately 62% of the Company's consolidated revenues for
fiscal 2000.
Detailed Descriptions of Products and Services:
The One World Online.com Community Membership: The Company offers a
community membership that is built upon the "Spend Your Money Twice" program
where members can receive up to a 50 percent Shopping Dollar rebate of what they
spend in the One World Shopping Emporium, which includes One World Online
products and over 60 online affiliates. The affiliates include leading online
retailers such as Cooking.com, DisneyStore.com, Warner Brothers.com, Sony Music
Direct, Office Max and numerous other top quality online retailers. The current
price for a One World Online.com Community membership is $49.95 per year.
Members receive access to the full spectrum of services available in the
Community, including valuable product offers, up to 8 email accounts, a personal
web page and news. Currently, ePassport holders and One World Online Connect(TM)
ISP customers each receive their first year's membership for free as part of
their ePassport or ISP service.
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Various of the Company's products carry with them an accrual of
Shopping Dollars. These products include, but are not limited to, the ePassport,
ISP monthly service, e-commerce sites (both creation and monthly hosting), the
IMC eMarketing Site, professional programming, and the Internet marketing
training program. Shopping Dollars are redeemable in the Member Store in the One
World Online.com Community for the high margin products contained in this store.
The Company believes that its Shopping Dollars program will increase its sales
by giving customers a greater incentive to purchase products that accrue
Shopping Dollars. Because the redemption of Shopping Dollars only takes place on
the One World Online.com Community, the Company believes that the redemption
process will educate customers how to make online purchases from the One World
Online.com Community and will help customers to feel more comfortable buying
online. The Company has reserved the right to terminate this program at any
time, however, termination of the program might have a material adverse affect
on the Company and its relationship with its customers and independent
distributors. There is no guarantee that the Company's Shopping Dollar program
will be successful.
The One World Online.com Community consists of shopping, information,
education and entertainment areas. These areas are represented by a Learning
Center (that includes over 400 online courses available to be purchased in six
course groups for 250 Shopping Dollars as well as a library of books available
at no cost), news, arcade, horoscopes, weather, email, Internet Radio Channels,
a regular shopping area and a Member Store. These areas and services provide an
environment where individuals can obtain and share information and ideas, and
where they have input regarding new community features and goals.
ePassport Benefits Package: On August 2, 2000 the Company launched its
ePassport Benefits Package ("ePassport"). The Company believes that the
ePassport is an excellent vehicle to communicate the value of the One World
Online.com Community and the value of Shopping Dollars to a broad consumer
market. ePassport purchasers receive the following benefits:
o A free, one-year membership to the One World Online Community
(a $49.95 value), which includes the ability to participate in
the Company's "Spend Your Money Twice" Shopping Dollars
program where a customer can earn up to 50 percent back in
shopping dollars on online purchases;
o Able to participate in the One World Online Wireless "Earn
While you Talk" Cell Phone Plan where a customer can earn up
to 25 percent of the customer's wireless charges back in
Shopping Dollars on wireless service provided on the Sprint
PCS(R) Network;
o Able to purchase the ePassport Travel Club book which contains
over $6,000 in savings on trips, cruises, airfare, movies, and
entertainment for only 25 Shopping Dollars;
o Eligible to win a cruise for two in drawings that are held
twice per month (48 drawings per year);
o Eligible to purchase a monthly bonus buy and participate in
other online discounts and coupons totaling at least $1,500 in
savings that are available only to ePassport holders;
o ePassport holder family members are eligible to apply for a
$5,000 college scholarship;
o A paid one-year, ten issue subscription to Success Magazine;
o Able to purchase an online training course group of 50 to 120
courses for only 100 Shopping Dollars; and
o Finally, consistent with other Company offers, the ePassport
holder membership account is credited with 125 Shopping
Dollars, the full purchase price, that can be spent in the
Company's Member Store making the purchase of the ePassport
"virtually free" to the customer.
The Company sells ePassports wholesale in five-packs to its free-agent
IMCs for $500. IMCs retail individual ePassports for $125 each. An IMC can sell
ePassports either online from an IMC's personal eMarketing Site or directly
through a person-to-person sale.
One World Online Connect(TM) Internet Access Service (ISP): The Company
provides national ISP service pursuant to its relationships with PSINet and
IKANO Communications, Inc. The Company has access to over 2,300 local access
numbers that cover approximately 92% of the United States population. The
Company charges $21.95 per month for its unlimited, national, ISP service. The
customer receives a one year membership to the One World Online.com Community (a
$49.95 value). Each ISP subscriber also receives $22.00 per month in Shopping
Dollars to purchase various high margin products in the Member Store in the One
World Online.com Community. The
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Company pays a significant portion of the revenue it receives for ISP service to
its independent distributors for having brought the ISP subscriber to the
Company. These payments are in the form of one-time, bonus payments and a
monthly shared revenue payment. The Company believes that its ISP compensation
program will significantly advance the marketing efforts of its other products,
including sales of the Company's web sites, hosting, training products and
general sales in the One World Online.com Community.
E-commerce and IMC eMarketing Web Site Creation, Sales and Hosting: The
Company sells a variety of web site solutions via its free-agent IMCs. The
Company's premiere product is the e-commerce web site or "Full-Solution
E-Commerce Web Site." Full-Solution E-Commerce Web Sites are industry specific
and are the result of hundreds of hours of research and development. These web
sites are offered at a fraction of their research and development cost. The term
"full-solution" refers to the web site's capacity to accomplish all of a small
business e-commerce and information needs. In order of development, these
templates are geared for Real Estate Brokers and Companies, Small Business /
Entrepreneurs, Medical / Dentist / Orthodontist, and Mortgage Broker. The
Company receives significant additional revenues based on monthly hosting
charges.
The Company also sells an IMC eMarketing Web Site that helps the
Company's free-agent IMCs build their One World Online business. The IMC
eMarketing Web Site contains a host of marketing content (including multimedia
presentations) that is updated and improved frequently to help attract, inform,
and sell products to the customers of IMCs. Each site also contains automated
response tools to provide aftercare for customer prospects, and an event
calendar and reminder service. Each IMC eMarketing Web Site also sells retail
ePassports and the One World Online Connect ISP service. Each IMC eMarketing Web
Site comes with a domain selected by the IMC and is semi-customizable. The
Company receives additional significant revenues based on monthly hosting
charges for the IMC eMarketing Web Site.
The Company also provides other web development services. The Company
provides domain name registration services for all of its guests and members.
The Company offers additional programming services for individuals that require
more programming than what they have already received with the purchase of their
e-commerce web sites. Customers are assigned their own personal, experienced
programmer. Programming is also available for individuals that have not
purchased their sites from the Company. Finally, the Company sells One World
Online.com Retail Access Number (RAN) licenses, which are an identification and
tracking system that is used to track all retail sales that are made by a
member's customers that have entered the One World Online.com Community through
that member's web site. This tracking allows the Company to disburse all retail
commissions to the appropriate web site owners. RAN licenses are included with
the Company's web site products or can be purchased separately by individuals
that have an existing web site and have an appropriate affiliation with the
Company.
Internet and Business Success Training and Services: The Company
provides various Internet and business training programs. The Company's Internet
Marketing Training Program is a two-part training program designed to help
individuals learn how to create a home based business both on and off the
Internet. The Company also offers other personal development courses that assist
individuals in leading more productive and fulfilling lives and learning how to
be more effective marketers.
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Competition and Positioning of Products and Services
The market for Internet-based commerce, products and services is new,
intensely competitive, rapidly evolving and subject to rapid technological
change. The Company expects competition to persist, intensify and increase in
the future. Almost all of the Company's competitors and potential competitors
have longer operating histories, greater name recognition, larger installed
customer bases and significantly greater financial, technical and marketing
resources than the Company. The Company's current and potential competitors
include many large and well recognized corporations. The Company may face
intense competition from other companies directly involved in the same business
and also from many other companies offering products which can be used in lieu
of those offered by the Company. Many of these companies in related businesses
are substantially larger and have more capital and other resources than the
Company. Competition can take many forms, including convenience in obtaining
products, services and marketing and distribution channels. Such competition
could materially adversely affect the Company's business, operating results and
financial condition.
The Company is not seeking to compete head to head with the large
Internet gateways or global mass shopping malls; nor is it focused upon
advertising as the core source of revenue. The Company will seek to position its
Community and products as described above in new and largely untapped areas of
the Internet such as:
1. A Community based on affinity group marketing and high-demand
everyday use products with substantial discounts, savings and
Shopping Dollars for the Company's members.
2. Focused Community e-commerce solutions, i.e., Realtors,
Dentists/Physicians, IMC's, where the same solution can be
leveraged and replicated by any entrepreneur or specialist.
3. Distribution channels will be directed by the Company's IMC's
vs. shotgun Internet traffic driven market formulas.
4. Highly professional technical services usually costing up to
10-20 times more for large companies will be offered to
smaller business owners.
5. Ancillary services such as web hosting, domain and
professional programming will add value to each product or
service.
Sales Literature, Policies and Procedures
Copies of the Company's sales literature, advertisements, policies and
procedures are available either at the One World Online.com Community web site
located at: http://www.owol.com or upon request from the Company.
Strategic Relationships
The Company transformed itself into a national ISP in the Second
Quarter of 1999 through an agreement entered into with PSINet. The agreement
provides the Company with access to over 450 "Points of Presence" (local
telephone numbers through which subscribers can access the Internet)
encompassing large metropolitan service areas and broad segments of the U.S.
Population. The Company believes that its agreement with PSINet has provided an
effective and economical model to facilitate the Company's expansion of its
subscriber base over a nationwide coverage area. The Agreement, which is
scheduled to expire on April 26, 2001, requires the Company to remit monthly
payments to PSINet based on a fixed dollar amount for each subscriber to the
Company's national access plan on PSINet's system. The Company currently
anticipates, although there can be no assurance, that it will be able to either
renew its agreement with PSINet or will be able to replace PSINet with another
provider on terms that are not materially less advantageous to the Company.
In February, 2000, the Company expanded its ISP coverage by entering
into an agreement with an ISP aggregator, IKANO Communications, Inc. The
Company's relationship with IKANO has expanded the total number of Points of
Presence available to the Company's ISP customers to over 2,300. The Company
believes that its agreement with IKANO provides an economical means to expand
the Company's subscriber base into areas that are not covered by PSINet's
network. The Agreement, which can be terminated upon 30 days written notice,
requires the Company to remit monthly payments to IKANO based on a fixed dollar
amount for each subscriber to the Company's national access plan on IKANO's
system. The Company currently anticipates, although there can be no assurance,
that it will be able to either continue its agreement with IKANO or will be able
to replace IKANO with
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another provider on terms that are not materially less advantageous to the
Company.
In December, 1999, the Company entered into a relationship with
Netsurfer, Inc. ("Netsurfer") a leading provider of customized subscriber
acquisition and management solutions for broadband and dialup Internet access
providers. Netsurfer's dial-up software has helped other ISPs to successfully
connect millions of subscribers to the Internet. The Company believes that its
agreement with Netsurfer provides an economical means to facilitate the sign-up
and connection of new ISP customers. The Agreement, which is for one year,
requires the Company to remit quarterly minimum payments to Netsurfer based on a
fixed dollar amount for each new subscriber. The Company currently anticipates,
although there can be no assurance, that it will be able to either renew its
agreement with Netsurfer or will be able to replace Netsurfer with another
provider on terms that are not materially less advantageous to the Company.
Intellectual Property
The Company believes that its success is more dependent upon its
technical, marketing and customer service expertise and capabilities than its
intellectual property. The Company relies on a combination of copyrights,
federally filed trademarks, confidentiality arrangements and trade secret laws
to protect its intellectual property. The Company's logos are service marks for
which service mark applications are pending. Additional service mark
applications are pending for the registration of other service marks used by the
Company in its business. There can be no assurance that the steps taken by the
Company will be adequate to prevent misappropriation of its technology or other
intellectual property or that third parties, including competitors, will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies.
The Company has received authorization to use the products of each
manufacturer of software that is bundled in the Company's software for users
with PCs operating on the Windows or Macintosh platforms. While certain of the
applications included in the Company ISP CD-Rom and other start-up disks are
shareware that the Company has obtained permission to distribute or that are
otherwise in the public domain and freely distributable, certain other
applications included with these disks have been licensed where necessary. The
Company currently intends to maintain or negotiate renewals of all existing
software licenses and authorizations as necessary, although there can be no
assurance that such renewals will be available to the Company on acceptable
terms, if at all. The Company may also enter into licensing arrangements in the
future for other applications.
Research and Development
The Company, and particularly OWOL Technologies, has devoted a
substantial portion of its efforts to acquire, design and develop its ISP
installation CD, template e-commerce web sites, the One World Online.com
Community, and other software and web-related products. The Company plans to
develop and acquire additional technologies that it determines support its
business strategy. In addition, the Company plans to continue research and
development on its current products and possible new products. There is no
assurance that the Company's research and development activities will prove
effective.
Government Regulation of Direct Selling and Network Marketing Activities
Direct selling activities are regulated by various governmental
agencies. These laws and regulations are generally intended to prevent
fraudulent or deceptive schemes, often referred to as "Pyramid," "Ponzi" or
"chain sales" schemes, that promise quick rewards for little or no effort,
require high entry costs, use high pressure recruiting methods (with recruiting
being the primary focus) and/or do not involve legitimate products. Generally,
these laws are directed at ensuring that product sales ultimately are made to
customers and that advancement within such sales organizations is based on sales
of the enterprise's products, rather than recruitment in such organizations or
other non-retail sales related criteria. Where required by law, the Company
attempts to obtain approval of its network marketing system, or, where such
approval is not required or available, the favorable opinion of independent
counsel, as deemed necessary, as to regulatory compliance.
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In the United States, the FTC and state attorneys general regulate the
network marketing system of the Company. The Company occasionally receives
requests to supply information regarding its network marketing plan to certain
regulatory agencies. The Company believes that its network marketing program
presently is in compliance with the laws and regulations related to direct
selling activities. Nevertheless, the Company remains subject to the risk that,
in one or more of its present or future markets, its marketing system or the
conduct of certain of its independent distributors could be found not to be in
compliance with applicable laws and regulations. Failure by the Company or its
distributors to comply with these laws and regulations could have a material
adverse effect on the Company in a particular market or in general. Any or all
of such factors could adversely affect the way the Company does business and
could affect the Company's ability to attract potential distributors or enter
new markets.
In the United States, the FTC has been active in its enforcement
efforts against both pyramid schemes and legitimate network marketing
organizations with certain legally problematic components and the FTC has
instituted several enforcement actions resulting in signed settlement
agreements, payments of large fines, and even cease and desist orders. Although
the Company does not believe it has been the target of an FTC investigation,
there can be no assurance that the FTC will not investigate the Company in the
future. The Company cannot predict the nature of any future law, regulation,
interpretation or application, nor can it predict what effect additional
governmental legislation or regulations, judicial decisions, or administrative
orders, when and if promulgated, would have on its business in the future. Any
and all such requirements could have a material adverse effect on the Company's
business, results of operations and financial condition.
Charitable Entities
One World Online Charitable Foundation, a charitable organization
("OWOCF") established under Section 509(a)(3) of the Internal Revenue code of
1986, as amended (the "Code"), was established in May of 1999 by the founders of
the Company to act as the charitable, community service arm of the One World
Online.com 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 relationship marketing organization. These payments could be as much
as 6% 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.
Any earnings which are achieved by OWOC will be distributed to OWOCF
for distribution to charitable causes and other public and private charities
throughout the world. All decisions with respect to such contributions will be
made by the Board of Directors of OWOCF, which currently consists of David R.
Nemelka, Gregory Jackson, John Donelly, John Hewlett, Joseph M. Udall, Kelly M.
Thayer, William Davidson, and Lisa Hawthorne. The sole purpose of OWOC and OWOCF
is to support charitable causes worldwide. The Board of Trustees are not
expected to be compensated other than possibly on a nominal basis and may
receive reimbursement for expenses. Each member of the Board of Trustees could
be deemed to be the beneficial owner for SEC reporting purposes of the Company's
common stock owned by OWOCF.
OWOCF owns 1,500,000 shares of common stock of the Company pursuant to
a gift of 1,000,000 shares from DK Enterprises, LLC and a 500,000 share gift
from David R. Nemelka.
The One World Thru Youth Foundation ("OWTYF"), a charitable
organization established under Section 509(a)(3) of the Code, owns 1,525,000
shares of the common stock of the Company. David R. Nemelka gifted 1,500,000 of
these shares to OWTYF.
The One World Online University ("OWOLU"), a charitable organization
established under Section 401(c)(3) of the Code owns 500,000 shares of the
common stock of the Company pursuant to a gift of these shares by David R.
Nemelka.
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Seasonality of Business
The Company's business is generally not subject to significant seasonal
variations. However, it is known in the industry that the summer months and
December typically reflect slower sales.
Backlog
There is no material backlog of unfilled orders of the Company's
products.
Employees
As of September 1, 2000, the Company employed approximately 76
employees, all of whom worked for the Company on a full time basis. The Company
is also utilizing the services of outside contractors and consultants in
connection with marketing, software and web development. The Company expects to
add additional employees based on expected increases in product development,
marketing and sales. The Company's employees are not represented by any labor
union, and the Company believes its relations with its employees are good.
Item 2. Description of Property
The Company is currently located in leased premises at 4778 North 300
West, Suite 200, Provo, Utah 84604, that contains approximately 7,400 square
feet of office space under a three year lease commencing July 1, 1999, with an
option to renew. The rent is $10,982 per month during the initial lease term.
The physical condition of the property is adequate for the Company's current
needs. The Company is currently negotiating for approximately an additional
4,000 square feet of office space.
Item 3. Legal Proceedings.
There are no pending legal proceedings involving the Company, and the
Company is not aware of any threatened legal proceedings to which it may be a
party.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders, through the
solicitations of proxies or otherwise, during the last quarter of the fiscal
year covered by this report. The Company did, however, take the following
corporate actions on May 10, 2000 that were approved by the Company's Board of
Directors (the "Board") and by the written consent of stockholders owning
8,214,500 of the 15,475,000 outstanding shares of the Company's common stock on
that date.
(a) Approved form and content of employment agreements with
David N. Nemelka, the President, CEO and a director of the Company and
with Kelly M. Thayer, the Company's Chairman of the Board;
(b) Approved form and content of consulting agreement with
David R. Nemelka, the father of David N. Nemelka;
(c) Approved of the designation of 300,000 shares of Series A
Convertible Preferred Stock with substantially the same rights and
preferences as described in the related Certificate of Designation; and
(d) Approved of the terms of the sale of the 300,000 Shares of
Series A Convertible Preferred Stock to the purchasers thereof.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Share Price History
The Company's common stock has been quoted on the NASD Over-the-Counter
market since June 30, 1999 under the trading symbol "OWOL." Prior to such date,
no recent active trading market existed for the Company's common stock. The
following table sets forth the high and low bid information of the common stock
for the periods indicated which information was obtained from IDD Information
Services. It should be understood that such over the counter market quotations
reflect inter-dealer prices without retail markup, markdown or commission, and
the quotations may not reflect any actual market transactions in the common
stock.
Quarter Ended High Low
------------- ---- ---
1999
----
June 30 (one day only)................ $6.00 $5.94
September 30.......................... 5.50 4.88
December 31........................... 7.00 4.19
2000
----
March 31.............................. 6.06 5.00
June 30............................... 5.38 5.00
Dividend Policy
To date, the Company has not paid dividends on its common stock. The
payment of dividends, if any, in the future is within the discretion of the
Company's Board and will depend upon the Company's earnings, its capital
requirements and financial condition, and other relevant factors. See
"Management's Discussion and Analysis or Plan of Operation." The Board does not
intend to declare any dividends in the foreseeable future, but instead intends
to retain all earnings, if any, for use in the Company's operations. Holders of
Record
At September 1, 2000, there were approximately 383 holders of record of
the Company's common stock. The number of holders of record was calculated by
reference to the Company's stock transfer agent's books. Issuance of Securities
During the three months ending June 30, 2000, the Company granted stock
options exercisable for 566,681 shares of the Company's common stock at exercise
prices of between $2.00 and $5.50 per share for periods not to exceed five
years. 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.
On or about May 22, 2000, the Company sold 300,000 Shares of Series A
Convertible Preferred Stock to an entity controlled by David N. Nemelka,
President and Chief Executive Officer of the Company, an entity controlled by
Kelly M. Thayer, Chairman of the Company and an entity controlled by David R.
Nemelka and Ingrid F. Nemelka,
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the parents of David N. Nemelka. The holders of the Series A Convertible
Preferred Stock then contributed the stock to the OWOL Founders Voting Trust.
The Series A Preferred Stock was issued in consideration for nine hundred
thousand dollars ($900,000). Three hundred thousand dollars ($300,000) of the
subscription price was paid on or before May 22, 2000. The remaining six hundred
thousand dollars ($600,000) of the subscription price is due on or about May 22,
2003, together with interest at the rate of eight percent (8%) per annum. Each
share of Series A Convertible Preferred Stock is convertible, at the discretion
of the holders, into one share of the Company's common stock. The Series A
Convertible Preferred Stock 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 Series A
Convertible Preferred Stock.
From May 25, 2000 through June 30, 2000, the Company sold 288,000
shares of common stock and Series A Warrants exercisable for 288,000 shares of
common stock to certain accredited and sophisticated investors for consideration
of $1,009,000. The Series A Warrants are exercisable at an exercise price equal
to $5.50 per share for a three year period beginning on the date of grant and
are subject to adjustment and redemption upon the occurrence of certain events.
The sale of these securities was 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 Series A
Convertible Preferred Stock.
On or about May 25, 2000, the Company issued warrants exercisable for
750,000 shares of the Company's common stock that are exercisable at $3.50 per
share for a five-year term to a sophisticated and accredited investment banker
for financial advisory services. Warrants to acquire 375,000 of these shares
vested immediately and warrants to acquire the remaining shares vest upon the
occurrence of certain milestones. In addition, all unexercised warrants expire
on the six month anniversary of grant if said milestones are not achieved. The
issuance of these warrants was 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 said warrants.
On or about June 6, 2000, the Company issued warrants immediately
exercisable for 6,334 shares of the Company's common stock that are exercisable
at $3.00 per share for a five year term to a sophisticated, accredited finder in
connection with a prior private placement of the Company's securities. The
issuance of these warrants was 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 said warrants.
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Item 6. Management's Discussion and Analysis or Plan of Operation
The following discussion of the financial condition and results of
operations should be read in conjunction with the attached Financial Statements
and the related Notes included therein. This discussion contains forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth under
"Risk Factors" and elsewhere herein. The Acquisition was accounted as a
recapitalization of One World. The Company's June 30, 2000 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.
Overview
From its inception, the Company has incurred losses from operations. To
date, 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.
Financial Position
The Company had $906,000 in cash and cash equivalents as of June 30,
2000. Working capital (deficit) as of June 30, 2000 was $(483,000).
Year Ended June 30, 2000
During the year ended June 30, 2000, the Company had total operating
revenues of $2,169,000. The cost of sales was $1,045,000 and distributor
incentives was $932,000 during the same period. The Company expects that cost of
sales and distributor expenses will generally fluctuate with sales. Sales were
comprised primarily of revenues from e-commerce and IMC eMarketing web site
creation, sales and hosting. The Company will also look to One World Online.com
Community Membership and Shopping Dollars rebate program, ePassport Benefits
Package, ISP and other related services and Internet and business success
training and services for future sales revenues.
Selling, general and administrative expenses were $6,695,000 for the
year ended June 30, 2000. Selling, general and administrative expenses were
comprised primarily of approximately (i) $3,066,000 in payroll expenses, (ii)
$785,000 in estimated Shopping Dollar costs and (iii) $758,000 in marketing
expense.
Net other (loss) was $(183,000) for the year ended June 30, 2000. The
net other loss is comprised primarily of interest expense incurred in connection
with the issuance of convertible notes during fiscal 2000.
November 12, 1998 (Date of Inception) to June 30, 1999
During the period ended June 30, 1999, the Company had total operating
revenues of $460,000. The cost of sales was $245,000 and distributor incentives
was $142,000 during the same period. Sales were comprised primarily of revenues
from e-commerce web site creation, sales and hosting.
Selling, general and administrative expenses were $1,786,000 for the
period ended June 30, 1999. Selling, general and administrative expenses were
comprised primarily of (i) $677,000 in payroll expenses and (ii) $286,000 in
marketing expenses.
Net other income was $44,000 for the period ended June 30, 1999. The
net other income is comprised primarily of interest income relating to funds on
deposit.
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Liquidity and Capital Resources
Since inception, the Company has financed its operations primarily
through the private placement of its common stock and debt securities. The
Company generated $2,721,000 in net proceeds from financing activities during
the year ended June 30, 2000. The Company used net cash for operating activities
of $4,702,000 during the year ended June 30, 2000. As of June 30, 2000, the
Company's liabilities totaled $3,125,000, which included $26,000 in capital
lease obligation and $1,519,000 in convertible long term debt. The Company had
working capital (deficit) as of June 30, 2000 of $(483,000).
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 September 1, 2000, the Company had not committed to spend any material
amounts on capital expenditures. As of September 1, 2000, the Company had an
estimated $582,000 in Community Dollar obligations that comprise part of the
Company's reported accrued liabilities. The Company is also highly dependent on
its Internet Marketing Consultant's 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.
On or about May 22, 2000, the Company sold 300,000 Shares of Series A
Convertible Preferred Stock to an entity controlled by David N. Nemelka,
President and Chief Executive Officer of the Company, an entity controlled by
Kelly M. Thayer, Chairman of the Company and an entity controlled by David R.
Nemelka and Ingrid F. Nemelka, the parents of David N. Nemelka. The holders of
the Series A Convertible Preferred Stock then contributed the stock to the OWOL
Founders Voting Trust. The Series A Preferred Stock was issued in consideration
for nine hundred thousand dollars ($900,000). Three hundred thousand dollars
($300,000) of the subscription price was paid on or before May 22, 2000. The
remaining six hundred thousand dollars ($600,000) of the subscription price is
due on or about May 22, 2003, together with interest at the rate of eight
percent (8%) per annum. Each share of Series A Convertible Preferred Stock is
convertible, at the discretion of the holders, into one shares of the Company's
common stock. The Series A Convertible Preferred Stock 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 Series A Convertible Preferred Stock.
The Company believes that existing funds and anticipated revenues will
be sufficient to support the Company's operations through October 2000. The
Company will need to raise approximately $4,000,000 in 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 ePassport Benefits Packages, selling 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 firm
commitments 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 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,
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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. These
payments could be as much as 6% 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. In fiscal 2000 the
Company paid approximately $14,000 to OWOC. 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 $85,000 during
the year ended June 30, 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. The Company
does not anticipate making discretionary payments contributions to OWOCF during
fiscal 2001.
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.
Inflation
The Company does not expect the impact of inflation on operations to be
significant.
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 the risks set forth below. See "--Risk Factors." 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.
Risk Factors
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.
Limited Operating History. The Company's operations were only recently
begun and are subject to all risks inherent in the creation of a new business
and the development of new products and services, including the absence of a
history of significant operations and of proven products and services which have
been produced and sold over a
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significant period of time. From its inception, the Company has incurred losses
from operations. The Company is continuing to establish many functions which are
necessary to conduct business, including without limitation, managerial and
administrative structure, marketing activities, financial systems, computer
systems, web development and personnel recruitment. The Company has only limited
operating history and sales revenues. There can be no assurance that the Company
will be able to achieve significant levels of sales or profitability.
Need for Additional Funding. The Company believes that existing funds
and anticipated revenues will be sufficient to support the Company's operations
through October 2000. The Company will need to raise approximately $4,000,000 in
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 firm commitments 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.
Contributions to Charity. The organizational structure of the Company
contemplates that the business activities of the Company will also benefit
various charitable organizations. This may be deemed a departure from most
business organizations which attempt to achieve profits without regard to
charitable giving. See "Business--Charitable Organizations." The profitability
of the Company, if any, will be reduced as a result of such charitable
arrangements.
Voting Control of the Company. In May 2000 the Company issued 100,000
shares of Series A Convertible Preferred Stock each (300,000 shares total) to an
entity controlled by David N. Nemelka, President and Chief Executive Officer of
the Company, an entity controlled by Kelly M. Thayer, Chairman of the Company
and an entity controlled by David R. Nemelka and Ingrid F. Nemelka, the parents
of David N. Nemelka. The holders of the Series A Convertible Preferred Stock
then contributed the stock to the OWOL Founders Voting Trust. Except as
otherwise required by applicable law, all voting rights of the Company are
vested in and exercised by the holders of the common stock and Series A
Convertible Preferred Stock, voting as a single group, with each share of common
stock being entitled to one (1) vote and each of the Series A Convertible
Preferred shares being entitled to one hundred (100) votes. As of September 1,
2000, the Series A Preferred Stock holders have the ability to cast 30,000,000
of the 45,842,334 votes entitled to vote at a meeting or other action of the
stockholders. This does not take into consideration the additional shares of
common stock that are directly or beneficially owned by the Series A Preferred
Stock holders. As a result, the Series A Preferred Stock holders effectively
have voting control of the Company with respect to all matters submitted to the
vote of the stockholders. The concentration of voting control may also have the
effect of impeding a non-negotiated change in control which result may or may
not benefit stockholders. In addition, stockholders may be disadvantaged in the
event matters are put to the stockholders for approval and the interests of the
holder(s) of the Series A Preferred Stock are not similar to the interests of
the stockholders generally.
Default Risks. The Company currently has outstanding convertible notes
in the principal amount of $1,519,000. These notes are secured by the assets of
the Company. The Company's cash reserves are not sufficient to pay the principal
and interest payments due under these notes. The Company will be looking
primarily to revenue generated from its business operations to repay the
principal and interest due under these notes. The Company has only a limited
operating history and sales revenues. See "--Limited Operating History." As a
result, no assurance can be given that the Company will have the means to pay
the notes in full or at all. The failure of the Company to pay the notes will
have a material adverse effect on the Company and its operations, including the
possibility of requiring the Company to cease operations.
Regulation and Legal Uncertainties. In the United States, the business
conducted by the Company is not currently subject to direct regulation other
than federal and state regulation applicable to businesses generally and
multi-level marketing. See "Business--Government Regulation of Direct Selling
and Network Marketing Activities." However, changes in the regulatory
environment relating to the telecommunications, Internet and media industries
could have an effect on its business, which effect may be materially adverse to
the interests of the Company. Additionally, legislative proposals from
international, federal and state governmental bodies in the areas of content
regulation, intellectual property, privacy rights and tax issues, could impose
additional regulations and obligations
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upon all online service and content providers, which effect may be materially
adverse to the interests of the Company. The Company cannot predict the
likelihood that any such legislation will pass, nor the financial impact, if
any, the resulting regulation may have on it.
Moreover, the applicability to persons engaged in Internet commerce of
existing laws governing issues such as intellectual property ownership, libel
and personal privacy is uncertain. Recent events relating to the use of online
services for certain activities has increased public focus and could lead to
increased pressure on legislatures to impose regulations on online service
providers. The law relating to the liability of entities conducting business
over the Internet for information carried on, or disseminated through, their
systems is currently unsettled and has been the subject of several recent
private lawsuits. The Company intends to provide only content which meets the
highest standards in quality, creativity and ethical values. However, should
similar actions be initiated against the Company, costs incurred as a result of
such actions could have a material adverse effect on the business of the
Company.
In addition to the foregoing, the regulation of network marketing
companies is a complexity of overlapping laws which vary from jurisdiction to
jurisdiction. Network sales programs are affected by combinations of business
opportunity, franchise, securities, anti-pyramid, network distribution, and
state lottery statutes, as well as U.S. Post Office, lottery and Federal Trade
Commission fraud regulations, among others. Failure to comply with the laws of
any jurisdiction can result in the loss of the Company's ability to operate
therein for indefinite periods of time and could possibly affect its ability to
operate in other jurisdictions as well. Any limitation on the Company's ability
to operate in a jurisdiction could have a material and adverse effect on the
Company.
Reliance on Key Personnel. The success of the Company depends in part
upon the performance of its executive officers and other key employees. The loss
of the services of one or more of its key personnel could have a material
adverse effect on the Company. Competition for such personnel is intense in the
Internet industry, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company's success
will depend on its continued ability to attract and retain highly skilled and
qualified personnel.
Developing Market; New Entrants; Unproven Acceptance of the Products;
Uncertain Adoption of Internet as a Medium of Commerce and Communications. The
market for Internet programs and services has only recently begun to develop and
is rapidly evolving. The Internet is characterized by an increasing number of
market entrants who have introduced or developed products and services for
communication and commerce over the Internet and private IP networks. As is
typical in the case of a new and rapidly evolving industries, demand and market
acceptance for recently introduced products and services are subject to a high
level of uncertainty. Critical issues concerning the commercial use of the
Internet (including security, reliability, cost, ease of use and access, and
quality of service) remain unresolved and may impact the growth of Internet use.
While the Company believes that its products and services offer significant
advantages for commerce over the Internet, there can be no assurance that its
products for commerce over the Internet will become widely chosen for access on
the Internet or that, if chosen, will hold the attention of users in order to
allow it to attract users.
Because the market for the Company's proposed business, products and
services is new and evolving, it is difficult to predict the future growth rate,
if any, and size of this market. There can be no assurance that the market for
its products and services will develop, that the Company's products or services
will be adopted, or that individual personal computer users in business or at
home will use the Internet for commerce and communication. If the market fails
to develop, develops more slowly than expected, becomes saturated with
competitors, or if its products do not achieve market acceptance, its business,
operating results and financial condition will be materially adversely affected.
Competition. The market for Internet-based commerce, products and
services is new, intensely competitive, rapidly evolving and subject to rapid
technological change. The Company expects competition to persist, intensify and
increase in the future. Almost all of the Company's potential competitors have
longer operating histories, greater name recognition, larger installed customer
bases and significantly greater financial, technical and marketing resources
than the Company. Such competition could materially adversely affect the
Company's business, operating results or financial condition. The Company's
current and potential competitors include many large and well recognized
corporations. The Company may face intense competition from other companies
directly involved in the same business and also from many other companies
offering products which can be used in lieu of those offered by
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the Company. Many of these companies in related businesses are substantially
larger and have more capital and other resources than the Company. Competition
can take many forms, including convenience in obtaining products, service,
marketing and distribution channels. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures faced by the Company will not materially adversely
affect the Company's business, operating results or financial condition.
New Product Development, Rapid Technological Change and Obsolescence;
Lack of Intellectual Property Protection. Substantially all of the Company's
future revenues are expected to be derived from e-commerce and related web
revenues. Accordingly, broad acceptance of the Company's products and services
by customers is critical to the Company's future success, as is the Company's
ability to design, develop, test and support enhancements on a timely basis that
meet changing customer needs and respond to technological developments and
emerging industry standards. There can be no assurance that the Company will be
successful in developing and marketing new enhancements that meet changing
customer needs and respond to such technological changes or evolving industry
standards. The Company's current products are designed around certain standards,
including current and future sales of the Company's products and Online
services, which will be dependent, in part, on industry acceptance of such
standards.
Internet services and multimedia technology has been characterized by
rapid technological advances resulting in short product life cycles, rapid price
reductions, significant price/performance improvements and frequent product
introductions. Accordingly, there can be no assurance that one or more of the
Company's products will not be rendered uncompetitive or obsolete by
technological advances or changing customer preferences. These factors may also
limit the Company's ability to recover its investment in its product lines. The
Company will be required to continue to invest in research and development in
order to strive to maintain and enhance its existing technologies and/or
services. The Company relies on trade secret protection for its products and
considers such products proprietary and believes that any competitor would need
to invest a substantial amount of time and financial resources to offer products
similar to those offered by the Company. However, the Company does not possess
any patent or other intellectual property rights which would limit competition
against it and there are few barriers to entry into the market for the Company's
products. There can be no assurance, therefore, that any of the Company's
competitors, many of whom have far greater resources than the Company, will not
independently develop technologies that are substantially equivalent or superior
to the Company's technology. Furthermore, the Company may be involved in
litigation to determine the enforceability, scope and validity of any
proprietary rights. Any such litigation could result in substantial costs to the
Company and diversion of efforts by the Company's management and technical
personnel.
Dependence on Independent Retail Sales Representatives. The Company's
success depends in significant part upon its ability to attract, maintain, and
motivate a large base of Independent Retail Sales Representatives who are
designated as Internet Marketing Consultants ("IMCs"), and who act as
independent contractors. Any significant turnover among IMCs requires the
sponsoring of new IMCs by existing IMCs in order to maintain or increase the
overall IMC sales force. The Company's ability to attract IMCs could be
negatively affected by adverse publicity relating to the network marketing
industry, the Company products, or its operations, as well as competition with
other network marketing companies who may recruit IMCs. The Company does not pay
any commissions or fees for recruiting IMCs. It only pays commissions on product
sales. Because of the number of factors that impact the recruiting of IMCs, the
Company cannot predict when or to what extend such increases or decreases in the
level of IMC retention will occur.
Anti-Takeover Provisions. The Articles of Incorporation of the Company
contain certain provisions which could be an impediment to a non-negotiated
change in control of the Company, namely an ability, without stockholder
approval, to issue up to 1,000,000 shares of preferred stock with rights and
preferences determined by the Board. 300,000 of these shares have been
designated as Series A Convertible Preferred Stock which shares have
super-voting rights. See "--Voting Control of the Company." These provisions
could impede a non-negotiated change in control and thereby prevent stockholders
from obtaining a premium for their common stock.
Securities Eligible for Public Trading. Of the 15,842,334 shares of the
Company's issued and outstanding common stock, approximately 2,750,000 shares
are freely tradeable or eligible for resale under Rule 144 promulgated pursuant
to the Securities Act of 1933, as amended (the "Securities Act"). A substantial
number of
19
<PAGE>
15,842,334 shares will become freely tradeable or eligible for resale under Rule
144 beginning in December 2000. Sales of substantial amounts of this common
stock in the public market, could adversely affect the market price of the
common stock. This does not take into consideration additional shares that may
be issued upon exercise or conversion of outstanding stock options, warrants,
convertible notes or the Series A Convertible Preferred Stock.
No Dividends. The Company does not currently intend to pay cash
dividends on its common stock and does not anticipate paying such dividends at
any time in the foreseeable future. At present, the Company will follow a policy
of retaining all of its earnings, if any, to finance the development and
expansion of its business.
Limited Liability of Management. The Company's Articles of
Incorporation limit the liability of its Officers and Directors and provide for
indemnification by the Company of its Officers and Directors to the full extent
permitted by Nevada General Corporation. The Company's Articles of Incorporation
generally provide that its directors and officers shall have no personal
liability to the Company or its stockholders for monetary damages for breaches
of their fiduciary duties as directors to the full extent authorized by
applicable law. Such provisions substantially limit the stockholders' ability to
hold directors and officers liable for breaches of fiduciary duty.
Ability to Manage Growth. The Company intends to pursue a strategy of
rapid growth. The Company plans to significantly expand its product offerings
and to devote substantial resources to operations and support areas, including
marketing and administrative services. There can be no assurance that the
Company will obtain sufficient product offerings on favorable terms, attract
qualified personnel or successfully manage such expanded operations. The failure
of the Company to obtain sufficient product offerings or to properly manage
growth could have a material adverse effect on the Company.
Potential Issuance of Additional Common and Preferred Stock. The
Company is authorized to issue up to 100,000,000 shares of common stock. To the
extent of such authorization, the Board of the Company will have the ability,
without seeking stockholder approval, to issue additional shares of common stock
in the future for such consideration as the Board may consider sufficient. The
issuance of additional common stock in the future will reduce the proportionate
ownership and voting power of the common stock offered hereby. The Company is
also authorized to issue up to 1,000,000 shares of preferred stock, the rights
and preferences of which may be designated in series by the Board. The Company
has designated and issued 300,000 of these shares as Series A Convertible
Preferred Stock which shares have super-voting rights See "--Voting Control of
the Company." To the extent of any additional authorizations, such designations
may be made without stockholder approval. The designation and issuance of a
series of preferred stock in the future would create additional securities which
may have voting, dividend, liquidation preferences or other rights that are
superior to those of the common stock, which could effectively deter any
takeover attempt of the Company.
No Assurance of a Liquid Public Market for Securities. The Company's
shares of common stock are eligible for quotation on the OTC Bulletin Board, but
a market in the Company's stock has only recently developed. There can be no
assurance that a regular and established market will be developed and maintained
for the securities. There can also be no assurance as to the depth or liquidity
of any market for the common stock or the prices at which holders may be able to
sell the shares.
No Control Over Market Making. Market making involves the buying and
selling of securities for others or for one's own account to facilitate and
attempt to profit from market activity in a particular security. Market making
does not in and of itself support or restrict the price of the security. No
person or broker-dealer is under any obligation to make a market in the
Company's common stock and any person or broker-dealer making a market in the
common stock may discontinue market making activities at any time without
notice. There can be no assurance that an active trading market for the common
stock will exist at any time in the future.
Volatility of Stock Prices. Market prices for the Company's common
stock will be influenced by many factors and will be subject to significant
fluctuations in response to variations in operating results of the Company and
other factors such as investor perceptions of the Company, supply and demand,
interest rates, general economic conditions and those specific to the industry,
developments with regard to the Company's activities, future financial condition
and management. There can be no assurance regarding the future prices at which
the Company's common stock will trade, if any.
20
<PAGE>
Applicability of Low Priced Stock Risk Disclosure Requirements. The
common stock of the Company may be considered a low priced security under rules
promulgated under the Securities Exchange Act of 1934. Under these rules,
broker-dealers participating in transactions in low priced securities must first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker-dealer's duties, the customer's rights and remedies, and
certain market and other information, and make a suitability determination
approving the customer for low priced stock transactions based on the customer's
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing to the customer, obtain specific
written consent of the customer, and provide monthly account statements to the
customer. With all these restrictions, the likely effect of designation as a low
priced stock will be to decrease the willingness of broker-dealers to make a
market for the stock, to decrease the liquidity of the stock and to increase the
transaction cost of sales and purchases of such stock compared to other
securities.
Item 7. Financial Statements
See attached financial statements.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Set forth below is certain information concerning each of the directors
and executive officers of the Company as of September 1, 2000.
With the
Name Age Position Company Since
---- --- -------- -------------
One World
----------
Kelly M. Thayer 43 Chairman of the Board 1999
David N. Nemelka (1) 36 Director, President and CEO 1999
Paul D. Korth 36 Secretary/Treasurer/Controller 1999
David Bradford (1) 49 Director 2000
Craig Case (1) 46 Director 2000
OWOL Marketing
--------------
Wayne Holbrook 46 Director, President 1998
B. Ray Zoll 53 Executive Vice President and 1999
Corporate Counsel
David N. Nemelka 36 Director, Secretary and Treasurer 1999
OWOL Technologies
-----------------
David N. Nemelka 36 Director and President 1996
Joseph M. Udall 34 Director, Vice President, Secretary, 1999
and Treasurer
Craig Davis 42 Chief Operating Officer 1999
Robert Wright 41 Chief Technical Officer 1998
---------------
(1) Member of Audit Committee.
Kelly M. Thayer. Mr. Thayer has been with One World since 1999. He is
the Chairman of the Board and co-founder of One World. He has eighteen years
experience in managing, marketing and consulting work involving public and
privately-held businesses. He was founder and CEO of Clear Image, Inc.
(1980-1997) a marketing company with over 100 employees in offices in both Los
Angeles and Utah. In his eighteen years with Clear Image he worked with over 200
companies and produced over 700 films and videos for companies such as Matol,
Delta Airlines, Herbalife International and Tupperware. In 1995 he began a
partnership with the company Net Profit as one of the first companies to market
and develop web sites on the Internet. Mr. Thayer holds no other directorships
in reporting companies.
David N. Nemelka. Mr. Nemelka has been with One World since 1999. He is
the CEO, Director and co-founder of One World, a Director of OWOL Technologies
and a Director, Secretary and Treasurer of OWOL Marketing. He brings six years
of marketing and finance experience with both private and public companies. He
was founder and President of McKinley Capital, a successful financial consulting
company from 1994 to the present. He worked in Brand Management for Proctor and
Gamble (1993-1994) where he developed the marketing plan for a budgeted $20
million new product launch. Other than his service as a director of Capital
Growth, a company with no operations, Mr. Nemelka holds no other directorships
in reporting companies. Mr. Nemelka received his B.S. in
22
<PAGE>
business finance from Brigham Young University and his MBA from the Wharton
Business School at the University of Pennsylvania.
Paul D. Korth. Mr. Korth has been with One World since 1999. He is the
Secretary/Treasurer and Controller of One World. He is a CPA and has significant
public and private accounting experience. From March, 1998 until May, 1999 he
worked as an assistant controller at Komatsu Equipment Company where he was
responsible for all areas of financial reporting. Prior to working at Komatsu,
he worked in public accounting with a variety of companies, both public and
private. From January 1997 until March 1998 he was a Senior Accountant at
Deloitte & Touche, LLP and managed all phases of audits. From September 1994
until December 1996 he worked at Price Waterhouse LLP. Mr. Korth holds no other
directorships in reporting companies. Mr. Korth received his MBA, with an
accounting emphasis, from Arizona State University in May of 1994 where he was
on the Dean's list, and his BS, Business Management - Finance degree from
Brigham Young University in August of 1989.
Craig Davis. Mr. Davis has been with the Company since 1999. He is the
Chief Operating Officer for OWOL Technologies. He has over 12 years of executive
management experience in the communications and Internet industries. He worked
as Director of Support Services at Big Planet, Inc. from 1998 until joining the
Company, from 1996 until 1998 he acted as Vice President of Operations at Global
Communications and from 1995 to 1996 he acted as Director of Business Consultant
and System Integration Groups at 2021 Software. He has also worked independently
as an operations and management consultant. As a consultant, he worked with
several companies on enterprise system software implementations projects in
thirteen countries. He has also been a leader implementing communications
systems, and methods to improve customer service. Mr. Davis holds no
directorships in reporting companies.
David Bradford. Mr. Bradford has been with One World since 2000. He is
a director of the Company. He has over 20 years of operational and legal
experience. Mr. Bradford's principal occupation for the past 15 years was as
Senior Vice-President and General Counsel of Novell, Inc. Mr. Bradford sits on
the boards of directors of I-Link, Pervasive Software, Found, Inc., and Altius.
Additionally, he is on the advisory boards of 2Thanku.com, MyComputer.com and
the Board of Trustees for Utah Valley State College. Mr. Bradford holds no other
directorships in reporting companies. Mr. Bradford has a Juris Doctor Degree
from Brigham Young University and an MBA from Pepperdine University.
Craig Case. Mr. Case has been with One World since 2000. He is a
director of the Company. He has over 20 years of technical and marketing
experience. Mr. Case is currently the Senior Vice President of BizStrata. From
1999-2000 Mr. Case was the Senior Vice President of Marketing and Strategic
Development at Cornerstone Nutritional Labs, in 1998 he was the Senior Vice
President of Sales of New Vision International and from 1988 to 1998 he acted as
Vice President of Network Marketing at Franklin Quest (now FranklinCovey). Mr.
Case holds no directorships in reporting companies. Mr. Case has a Bachelors of
Science in Educational Psychology and Organizational Communications from the
University of Utah.
Wayne Holbrook. Mr. Holbrook has been with the Company since 1998. He
is a Director and President of OWOL Marketing and has ten years experience in
marketing both in the field and as an executive in a public company. From 1996
to 1998 he served as executive vice president of Global Connections where he
managed the information systems, customer service, marketing and fulfillment.
While at Global Connections he helped launch the Golf Connections concept and he
was instrumental in the development of the corporate Internet strategy. From
1993-1995 he was a distributor for Quorum International where he became the top
producer in Europe with a sales organization of 47,000 distributors. From 1988
to 1993 he was a distributor at National Safety Associates where he built a
35,000 person organization and reached the highest level in the compensation
structure within seven months. Mr. Holbrook holds no directorships in reporting
companies.
B. Ray Zoll. Mr. Zoll has been with the Company since 1999. He is an
Executive Vice President and Corporate Counsel of OWOL Marketing. He has been a
practicing attorney for the past twenty years focusing on litigation, real
estate and business law. In 1997 he co-founded and served as Chairman of World
Connections a successful web development and e-commerce company which was sold
in 1999. He has also been involved in network marketing since 1989 and has built
a highly profitable network of over 15,000 distributors for NuSkin
International. Mr. Zoll holds no directorships in reporting companies.
23
<PAGE>
Joseph M. Udall. Mr. Udall has been with the Company since 1999 as
Director, Secretary/Treasurer, and Vice President of Product Development of OWOL
Technologies. He brings significant experience working with technology
companies. As a practicing attorney for over six years he focused on corporate
and software licensing law. From May 1998 to May 1999 he worked with Udall,
Zachreson & Smith, P.L.C. specializing in general business law and software
licensing. From March 1995 to April 1998 he worked at Osborn Maledon, P.A. where
he was a partner representing various technology companies in the software and
Internet business. Prior to Osborn Maledon he was an associate at Meyer,
Hendricks, Victor, Osborn & Maledon, P.A. from September 1993 to April 1995. Mr.
Udall holds no directorships in reporting companies. Mr. Udall graduated
Valedictorian, summa cum laude, from the Arizona State University College of Law
in 1992 and B.A. magna cum laude in Economics from Brigham Young University in
1989.
Robert Wright. Mr. Wright has been with the Company since 1998. He is
the Chief Technical Officer for OWOL Technologies and has been involved with the
Internet since its inception. His background in electronic publishing and
e-commerce include projects for companies such as Novell, Corel, Word Perfect,
Meckler Media and other Fortune 500 companies. He was the founding Director of
New Media Development for Word Perfect's publishing division and has been a
featured speaker at Internet World. He also worked at Novell on the creation and
development of dynamic database publishing tools. He is the inventor of the IVY
Binder, an electronic publishing and content management tool. Mr. Wright worked
as a consultant in his own web site and CD-Rom development company, Wright
Electronic Publishing, from December 1996 to October 1998. He was the director
of New Media Development at WordPerfect/Novel/Corel/Ivy International from March
1993 to December 1996. Mr. Wright holds no directorships in reporting companies.
All directors are elected annually at the stockholders meeting.
Family Relationships
David N. Nemelka, the CEO, Director and co-founder of One World, a
Director and President of OWOL Technologies and a Director, Secretary and
Treasurer of OWOL Marketing is the brother-in-law of Joseph M. Udall, the
Director, Secretary/Treasurer, and Vice President of Product Development of OWOL
Technologies.
Involvement in Certain Legal Proceedings
The executive officers and directors of the Company have not been
involved in any material legal proceedings which occurred within the last five
years of any type as described in Regulation S-K.
Item 10. Executive Compensation
The tables below set forth certain information concerning compensation
paid by the Company to its Chief Executive Officer and all other executive
officers with annual compensation in excess of $100,000 (determined for the
period ended June 30, 2000) (the "Named Executive Officers"). The tables include
information related to stock options granted to the Named Executive Officers.
Summary Compensation Table. The following table provides certain
information regarding compensation paid by the Company to the Named Executive
Officers.
24
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Securities
Restricted Underlying All Other
Name and Fiscal Other Annual Stock Options/ LTIP Compensation
Principal Position Year(1) Salary ($) Bonus ($) Compensation($) Awards ($) SARs (#) Payouts($) ($)
------------------ ------- ---------- --------- --------------- ---------- -------- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David N. Nemelka (2) 1999 -- -- -- -- -- -- --
President, CEO & director 2000 15,483 144,000 -- -- -- -- --
Kelly M. Thayer 1999 -- -- -- -- -- -- --
Chairman of the Board 2000 144,000 -- -- -- -- -- --
Wayne Holbrook 1999 65,000(3) -- -- -- 600,000 -- --
President & director of 2000 121,000 1,000 -- -- -- -- --
OWOL Marketing
B. Ray Zoll 1999 45,000(3) -- -- -- 550,000 -- --
Executive Vice-president 2000 109,000 -- -- -- -- -- --
& counsel of OWOL
Marketing
---------------
</TABLE>
(1) The Company's fiscal year ends on June 30. The information reported for
1999 is for the period beginning on November 12, 1998 (date of inception).
(2) The Company has accrued, but has not paid, Mr. Nemelka these salary and
bonus amounts.
(3) Mr. Holbrook joined the Company in December 1998 and Mr. Zoll joined the
Company in February 1999 as a consultant and later became an employee.
Compensation of Directors
No cash fees or other consideration were paid to employee directors of
the Company by the Company for service on the Board during the year ended June
30, 2000 and no such compensation is anticipated to be paid in the current
fiscal year. The Company did not have any non-executive directors during fiscal
2000. The Company has granted each non-executive Company director stock options
to acquire 20,000 shares of the Company's common stock at exercise prices in
excess of $5 per share that are exercisable for a five year period as
compensation for services during fiscal 2001. The Company has made no other
agreements regarding compensation of non-employee directors. All directors are
entitled to reimbursement for reasonable expenses incurred in the performance of
their duties as Board members.
Employment Agreements
Executive officers of the Company are elected by the Board on an annual
basis and serve at the discretion of the Board. On or about May 22, 2000, the
Company entered into employment agreements with Mr. David N. Nemelka, the
Company's President and CEO, and Mr. Kelly M. Thayer, the Company's Chairman,
(collectively, the "Senior Executives"). In general terms these agreements
provide that (i) the Senior Executives are employed on an "at will" basis; (ii)
the Senior Executives each receive a salary of $144,000 per year; (iii) Mr.
Nemelka is to receive a $144,000 signing bonus in cash or stock at his
discretion; (iv) the Senior Executives are each entitled to a quarterly bonus
equal to (a) One and One-Half percent (1.5%) of Shared Revenue as that term is
defined in the Company's IMC Compensation Plan, plus (b) Two Percent (2%) of all
funds received by the Company as payment for community account membership
renewal fees which bonuses, if any, shall be (y) reduced by the amount of the
base salary to which the Senior Executive was entitled during the quarterly
period in question and (z) payable only to the extent that during the quarterly
period in question the Company has positive cash flow from operating activities
both before and after the payment of the bonus; (v) the Senior Executives shall
be included to the extent eligible thereunder in any and all plans pursuant to
which the Company may provide general benefits for the Company's employees; (vi)
the Senior Executives will be reimbursed for all reasonable and necessary
out-of-pocket expenses incurred by the Senior Executive in the performance of
his Company duties; (vii) the Senior Executives receive severance pay in the
event of termination that is not "for cause," as set forth in the employment
agreements
25
<PAGE>
(including payments for life in the event of termination as a result of a
disability); and (viii) that the Senior Executives are subject to various
provisions restricting use of confidential information, vesting, ownership
rights to certain proprietary information in the Company, and restricting
competition with the Company or solicitation of Company customers or employees.
The Company has entered into a Consulting Agreement with David R.
Nemelka that is substantially similar to the employment arrangements with the
Senior Executives, except that he did not receive a signing bonus on execution
of the consulting agreement. Mr. David R. Nemelka has represented to the Company
that it is his intention to assign the economic benefits of the consulting
agreement to one or more charitable organizations.
The Company has also entered into employment agreements with Wayne
Holbrook, the president of OWOL Marketing, B. Ray Zoll, the Executive Vice
President and Corporate Counsel to OWOL Marketing and Joseph M. Udall, a Vice
President of OWOL Technologies (collectively, the "Executives"). In general
terms these agreements provide that (i) the Executives are employed on an "at
will" basis; (ii) Messrs. Holbrook, Zoll and Udall receive annual base salaries
of $132,000, $120,000 and $102,000, respectively; (iii) Mr. Holbrook is entitled
to a profitability bonus; (iv) the Executives will be reimbursed for all
reasonable and necessary out-of-pocket expenses incurred by the Executive in the
performance of his Company duties; (v) the Executives receive fifty-two weeks of
severance pay in the event of termination that is not "for cause;" (vi) at his
election, in lieu of his stock options, Mr. Holbrook is entitled to a
Multi-Level Marketing Position in the event of resignation or involuntary
termination; (vii) Messrs. Holbrook, Zoll and Udall received stock options to
acquire up to 600,000, 550,000 and 250,000 shares of the Company's common stock,
respectively, pursuant to a three year vesting schedule; and (viii) the
Executives are subject to various provisions restricting use of confidential
information, vesting, ownership rights to certain proprietary information in the
Company, and restricting competition with the Company or solicitation of Company
customers or employees.
Indemnification for Securities Act Liabilities
The General Corporation Law of Nevada limits the liability of officers
and directors for breach of fiduciary duty except in certain specified
circumstances, and also empowers the Company to indemnify officers, directors,
employees and others from liability in certain circumstances such as where the
person successfully defended himself on the merits or acted in good faith in a
manner reasonably believed to be in the best interests of the corporation.
The Company's Articles of Incorporation limit the liability of its
Officers and Directors and provide for indemnification by the Company of its
Officers and Directors to the full extent permitted by Nevada General
Corporation. The Company's Articles of Incorporation generally provide that its
directors and officers shall have no personal liability to the Company or its
stockholders for monetary damages for breaches of their fiduciary duties as
directors to the full extent authorized by applicable law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Stock Options
In June 1999, the Company adopted its Stock Option Plan (the "Plan").
The Plan allows for the Board to grant options to purchase up to 4,000,000
shares of common stock to the Company's key employees, officers, directors,
consultants, and other agents and advisors. Awards under the Plan will consist
of stock options (both non-qualified options and options intended to qualify as
"Incentive Stock Options" under Section 422 of the Internal Revenue Code of
1986, as amended). As of June 30, 2000, the Company had granted stock options
under the Plan to acquire 3,173,650 shares of the Company's common stock at
exercise prices of between $1 and $5.38 per share.
The Plan is administered by the Board which will determine the persons
to whom awards will be granted, the number of awards to be granted and the
specific terms of each grant, including the vesting thereof, subject to the
provisions of the Plan.
26
<PAGE>
In connection with qualified stock options, the exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant (or 110% of the fair market value in the case of a grantee
holding more than 10% of the outstanding stock of the Company). The aggregate
fair market value of shares for which qualified stock options are exercisable
for the first time by such employee (10% stockholder) during any calendar year
may not exceed $100,000. Non-qualified stock options granted under the Plan may
be granted at a price determined by the Board, not to be less than the fair
market value of the common stock on the date of grant.
The Plan may also contain certain change in control provisions which
could cause options and other awards to become immediately exercisable and
restrictions and deferral limitations applicable to other awards to lapse in the
event any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d), but excluding certain stockholders of the Company, that become the
beneficial owners of more than 25% of the Company's outstanding shares of common
stock.
In addition to the options that may be granted under the Plan, the
Board has authorized the grant of stock options to acquire 2,000,000 shares of
the Company's common stock by key employees, officers, directors, consultants
and other agents and advisors. As of June 30, 2000, the Company had granted
non-Plan options to acquire 1,825,181 shares of Company's common stock at
exercise prices of between $1 and $5.50 per shares.
Compensation Committee Interlocks and Insider Participation
The Company does not have a Compensation Committee. Decision regarding
compensation are made by the Company's Board of Directors. David N. Nemelka, the
Company's President and CEO and Kelly M. Thayer, the Company's Chairman who also
acts as an employee of the Company, are members of the Board of Directors who,
as Board members, made compensation and compensation related decisions. No
executive officers of the Company serve on the Compensation Committee (or in a
like capacity) any other entity.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Common Stock
The following table sets forth certain information with respect to the
beneficial ownership of the common stock of the Company as of September 1, 2000,
for: (i) each person who is known by the Company to beneficially own more than
five percent of the Company's common stock, (ii) each of the Company's
directors, (iii) each of the Company's Named Executive Officers (defined below),
and (iv) all directors and executive officers as a group. As of September 1,
2000, the Company had 15,842,334 shares of common stock outstanding. Ownership
of the Series A Preferred Stock, which shares are held of record by a single
stockholder who has voting control of the Company, is discussed separately
below.
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Percentage
of Beneficial Owner(1) Owned(2) of Total(2) Position
---------------------- -------- ----------- --------
<S> <C> <C> <C>
Kelly M. Thayer (3) 1,830,667 11.5% Chairman of the Board
David N. Nemelka (4) 2,056,333 13.0% President, Director and CEO
Wayne Holbrook (5) 205,000 1.3% President & director of
OWOL Marketing
B. Ray Zoll (6) 165,000 1.0% Executive Vice-president &
counsel of OWOL Marketing
David Bradford (7) 20,000 * Director
Craig Case (8) 20,000 * Director
Directors and Executive 4,297,000 26.8%
Officers as a group (6
persons)
27
<PAGE>
Bateman Dynasty, LC (9) 840,068 5.3%
55 West 200 North
Provo, Utah 84601
OWOLCF (10) 1,500,000 9.5%
4692 N. 300 W., Suite 114
Provo, UT 84604
OWTYF (11) 1,525,000 9.6%
4692 N. 300 W., Suite 114
Provo, UT 84604
</TABLE>
* Less than 1%.
---------------
(1) Except where otherwise indicated, the address of the beneficial owner is
deemed to be the same address as the Company.
(2) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the total number of shares beneficially owned
by the designated person, but are not deemed outstanding for computing the
percentage for any other person.
(3) Includes 750,000 shares. Also includes 214,000 shares that are owned by Mr.
Thayer's wife, 16,667 shares of common stock owned by an affiliate of Mr.
Thayer that are issuable upon conversion of an outstanding promissory note
and 750,000 of the 1,500,000 shares that are owned by D.K. Enterprises,
LLC, a Utah limited liability company ("DKE") which is owned one-half by
Mr. Thayer and one-half by David N. Nemelka. The DKE shares are subject to
an agreement whereby 750,000 shares shall be distributed to Mr. Thayer and
750,000 shares shall be distributed to David N. Nemelka on June 1, 2001,
subject to them remaining as either an officer or director of the Company.
Also, includes 100,000 shares owned by CNBCR L.L.C. The children of Mr.
Thayer are the benficiaries of the L.L.C. Mr. Thayer is the sole manager of
the LLC and is deemed to have sole voting and dispositive powers with
respect to these shares. Does not include any shares for which Mr. Thayer
disclaims beneficial ownership that are held by OWOC, an entity that Mr.
Thayer acts as a director. See note 10 below. Does not include any Series A
Preferred Stock held by the OWOL Voting Trust of which Mr. Thayer is a
beneficiary.
(4) Includes 786,000 shares. Also includes 500,000 shares that are owned by Mr.
Nemelka's wife, 2,000 shares that are held by an affiliate of Mr. Nemelka,
18,333 shares of common stock owned by Mr. Nemelka and an affiliate of Mr.
Nemelka that are issuable upon conversion of an outstanding promissory note
and 750,000 shares that are owned by DKE, as described in note 3 above.
Does not include any shares for which Mr. Nemelka disclaims beneficial
ownership that are held by Bateman Dynasty, LC, as described in note 9
below. Does not include any Series A Preferred Stock held by OWOL Voting
Trust of which Mr. Nemelka is a beneficiary.
(5) Includes 25,000 shares and stock options exercisable for 180,000 shares of
common stock. Does not include stock options to acquire 420,000 shares of
common stock that first become exercisable between March 2001 through
September 2002.
(6) Includes stock options exercisable for 165,000 shares of common stock. Does
not include stock options to acquire385,000 shares of common stock that
first become exercisable between March 2001 through September 2002.
(7) Includes stock options exercisable for 20,000 shares of common stock.
(8) Includes stock options exercisable for 20,000 shares of common stock.
(9) These shares are owned by Bateman Dynasty, LC, a private limited liability
company owned by the Bateman Dynasty Trust, of which Brenda M. Hall is the
trustee. Lynn Bateman, the father-in-law of David N. Nemelka, is the sole
manager of the LLC which is deemed to have sole voting and dispositive
powers with respect to these shares. The children of David N. Nemelka are
the beneficiaries of the Trust. This total also includes 35,000 shares
owned by Lynn Bateman and 24,412 shares owned by Brenda M. Hall.
(10) Includes 1,500,000 shares. The Board of Directors of OWOC is comprised of
David R. Nemelka, Gregory Jackson, John Donelly, John Hewlett, Joseph M.
Udall, Kelly M. Thayer, William Davidson and Lisa Hawthorne.
(11) Includes 1,525,000 shares. The Board of Directors of OWTYF is comprised of
David R. Nemelka, Ingrid F. Nemelka, John Hewlett, Wade Mitchell and Laura
Lee Sorensen.
28
<PAGE>
Series A Preferred Stock
In May 2000 the Company issued 100,000 shares of Series A Convertible
Preferred Stock each (300,000 shares total) to an entity controlled by David N.
Nemelka, President and Chief Executive Officer of the Company, an entity
controlled by Kelly M. Thayer, Chairman of the Company and an entity controlled
by David R. Nemelka and Ingrid F. Nemelka, the parents of David N. Nemelka. The
holders of the Series A Convertible Preferred Stock then contributed the stock
to the OWOL Founders Voting Trust which holds all outstanding Series A Preferred
Stock. David R. Nemelka, Kelly M. Thayer and David N. Nemalka are the
beneficiaries of the OWOL Founders Voting Trust. Except as otherwise required by
applicable law, all voting rights of the Company are vested in and exercised by
the holders of the common stock and Series A Convertible Preferred Stock, voting
as a single group, with each share of common stock being entitled to one (1)
vote and each of the Series A Convertible Preferred shares being entitled to one
hundred (100) votes. As of September 1, 2000, the Series A Preferred Stock
holders have the ability to cast 30,000,000 of the 45,842,334 votes entitled to
vote at a meeting or other action of the stockholders. This does not take into
consideration the additional shares of common stock that are directly or
beneficially owned by the Series A Preferred Stock holders.
The Company is not aware of any arrangements, the operation of which
may, at a subsequent date, result in a change in control of the Company.
Item 12. Certain Relationships and Related Transactions
On June 10, 1998, the Board effectuated a reverse split on a basis of 1
for 243, while retaining the authorized shares at 100,000,000 and the par value
at $0.001. Additionally, on June 10, 1998, the Company issued 1,000,000
post-split shares of its "unregistered" and "restricted" common stock to the
appointed Director and President, Brenda M. Hall, in consideration of the sum of
$20,000 cash, effectively passing control (87%) to the new officer.
During the end of August, 1998, the Company issued 1,000,000 shares of
common stock at $.025 per share in a private offering to five individuals for
proceeds of $25,000. Four of the individuals were unrelated to the Company. The
fifth individual, Brenda M. Hall, the Company's sole director and officer bought
250,000 shares of the private offering.
On October 1, 1998, the Company issued 100,000 common shares to an
attorney pursuant to a Consultant Compensation Agreement No. 1. The shares were
registered on Form S-8 with the Securities and Exchange Commission on October 2,
1998.
David N. Nemelka was the person primarily responsible for locating the
Company as a vehicle to be used in a merger or acquisition transaction and was
instrumental in negotiating a change of control of the Company in June 1998, and
causing Brenda M. Hall to become the sole officer, director and principal
stockholder of the Company.
Mr. Nemelka was the person primarily responsible for negotiating the
terms of the Acquisition. Brenda M. Hall, the Company's sole officer and
director and a principal stockholder immediately prior to the acquisition, did
not have an active role in locating OWOL Marketing or OWOL Technologies or in
negotiating the terms and conditions of the Acquisition but has relied on the
efforts of David N. Nemelka. In addition, prior to the Acquisition Ms. Hall had
also worked full-time for approximately three years as an independent contractor
for David N. Nemelka, providing accounting, financial, clerical and related
services through a company controlled by her, Dassity, Inc. These terms could be
deemed to have been negotiated on behalf of the Company without arms-length
bargaining and with conflicts of interest because of Mr. Nemelka's role with the
Company and as an officer, director and stockholder of OWOL Marketing and OWOL
Technologies.
In May 2000, the Company filed a Certificate of Designation with the
Nevada Secretary of State creating Series A Convertible Preferred Stock and
designating 300,000 shares as Series A Preferred Stock. On or about May 22,
2000, the Company issued a total of 100,000 shares of Series A Convertible
Preferred Stock each (300,000 shares total) to an entity controlled by David N.
Nemelka, President and Chief Executive Officer of the Company, an entity
controlled by Kelly M. Thayer, Chairman of the Company and an entity controlled
by David R. Nemelka and Ingrid F. Nemelka, the parents of David N. Nemelka. The
Series A Preferred Stock was issued in consideration for nine hundred thousand
dollars ($900,000). Three hundred thousand dollars ($300,000) of the
subscription price was
29
<PAGE>
paid on or before May 22, 2000. The remaining six hundred thousand dollars
($600,000) of the subscription price is due on or about May 22, 2003, together
with interest at the rate of eight percent (8%) per annum.
All of the Series A Preferred Stock has been or will be contributed to
the OWOL Founders Voting Trust. The beneficiaries of the OWOL Founders Voting
Trust are David N. Nemelka, Kelly M. Thayer and an entity with which David R.
Nemelka is affiliated and controls. Except as otherwise required by applicable
law, all voting rights of the Company are vested in and exercised by the holders
of the common stock and Series A Preferred Stock, voting as a single group, with
each share of common stock being entitled to one (1) vote and each of the Series
A Preferred shares being entitled to one hundred (100) votes. As a result, the
OWOL Founders Voting Trust effectively has voting control of the Company with
respect to all matters submitted to the vote of the stockholders.
In August 2000, Mr. David N. Nemelka, President and Chief Executive
Officer of the Company, acquired 36,000 shares of the Company's common stock and
Series A Warrants to acquire 36,000 shares of common stock for consideration of
$126,000 pursuant to the terms of a private placement offering by the Company.
Item 13. Exhibits and Reports on Form 8-K
Reports on Form 8-K
A report on Current Report on Form 8-K, filed May 31, 2000,
reporting a change in control of the Company and the execution
of certain employment and a consulting agreement. This Current
Report was amended through the filing of a Form 8-K/A on June
14, 2000.
Exhibits
Listed on page 32 hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ONE WORLD ONLINE.COM, INC.
(Registrant)
Date: September 25, 2000 By /s/ David N. Nemelka
-----------------------
David N. Nemelka
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ David N. Nemelka President, Chief Executive September 25, 2000
---------------------- Officer and Director (Principal
David N. Nemelka Executive Officer)
/s/ Kelly M. Thayer Chairman of the Board September 25, 2000
----------------------
Kelly M. Thayer
/s/ Paul D. Korth Comptroller (Principal Financial September 25, 2000
---------------------- and Accounting Officer)
Paul D. Korth
/s/ Craig Case Director September 25, 2000
----------------------
Craig Case
31
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
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 Certificate of Designation of Series A Convertible Preferred
Stock (Incorporated by referenced to Exhibit 3(i) of the
Company's Current Report on Form 8-K dated May 19, 2000)
3(i).4 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).5 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).6 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)
4.1 Form of convertible Promissory Note
10.1 Form of Master Security Agreement (Incorporated by referenced to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-QSB
dated September 30,2000)
10.2 Form of Subscription Agreement Used in Connection with Series A
Convertible Preferred Stock Sales (Incorporated by referenced to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated
May 19, 2000)
10.3 Co-Founder Executive Employment Agreement with David N. Nemelka
(Incorporated by referenced to Exhibit 10.2 of the Company's
Current Report on Form 8-K dated May 19, 2000)
10.4 Co-Founder Executive Employment Agreement with Kelly M. Thayer
(Incorporated by referenced to Exhibit 10.3 of the Company's
Current Report on Form 8-K dated May 19, 2000)
10.5 Co-Founder Consulting Agreement with David R. Nemelka
(Incorporated by referenced to Exhibit 10.4 of the Company's
Current Report on Form 8-K/A dated May 19, 2000)
10.6 One World Online.com, Inc. Stock Option Plan
10.7 Form of Master Security Agreement relating to convertible
promissory notes
21.1 Schedule of Subsidiaries (Incorporated by referenced to Exhibit
21.1 of the Company's Annual Report on Form 10-KSB dated June
30, 1999)
27.1 Financial Data Schedule
32
<PAGE>
ONE WORLD ONLINE.COM, INC.
Consolidated Financial Statements
June 30, 2000 and 1999
33
<PAGE>
ONE WORLD ONLINE.COM, INC.
Index to Consolidated Financial Statements
--------------------------------------------------------------------------------
Page
Independent Auditors' Report F-2
Consolidated balance sheet F-3
Consolidated statement of operations F-4
Consolidated statement of stockholders' (deficit) equity F-5
Consolidated statement of cash flows F-6
Notes to consolidated financial statements F-7
--------------------------------------------------------------------------------
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
One World Online.com, Inc.
We have audited the accompanying consolidated balance sheet of One World
Online.com, Inc., as of June 30, 2000 and the related consolidated statements of
operations, stockholders' (deficit) equity and cash flows for the year ended
June 30, 2000 and the period from November 12, 1998 (date of inception) to June
30, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of One World
Online.com, Inc. as of June 30, 2000 and the results of their operations and
their cash flows for the year ended June 30, 2000 and the period from November
12, 1998 (date of inception) to June 30, 1999, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has incurred losses since
inception. This condition raises substantial doubt about its ability to continue
as a going concern. Management's plans regarding those matters also are
described in Note 3. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
TANNER + CO.
Salt Lake City, Utah
September 5, 2000
F-2
<PAGE>
ONE WORLD ONLINE.COM, INC.
Consolidated Balance Sheet
June 30, 2000
--------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 906,000
Inventories 136,000
Prepaid expenses 55,000
----------------
Total current assets 1,097,000
Property and equipment, net 653,000
Other assets 190,000
----------------
Total assets $ 1,940,000
================
--------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 267,000
Accrued liabilities 1,298,000
Current portion of long-term debt 15,000
----------------
Total current liabilities 1,580,000
----------------
Long-term debt 1,545,000
----------------
Commitments -
Stockholders' deficit:
Preferred stock, $.001 par value, 1,000,000 shares
authorized, 300,000 shares issued and outstanding -
Common stock, $.001 par value, 100,000,000 shares
authorized, 15,764,000 shares issued and outstanding 16,000
Additional paid-in capital 7,904,000
Stock subscription receivable (600,000)
Accumulated deficit (8,505,000)
----------------
Total stockholders' deficit (1,185,000)
----------------
Total liabilities and stockholders' deficit $ 1,940,000
================
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3
<PAGE>
<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Consolidated Statement of Operations
-----------------------------------------------------------------------------------------------------------
November 12,
1998
Year Ended (Date of
June 30, Inception) to
2000 June 30, 1999
------------------------------------
<S> <C> <C>
Sales $ 2,169,000 $ 460,000
------------------------------------
Costs and expenses:
Cost of sales 1,045,000 245,000
Selling, general and administrative expenses 6,695,000 1,786,000
Distributor incentives 932,000 142,000
------------------------------------
8,672,000 2,173,000
------------------------------------
Loss from operations (6,503,000) (1,713,000)
------------------------------------
Other income (expense):
Interest income 60,000 36,000
Interest expense (299,000) -
Other 56,000 8,000
------------------------------------
(183,000) 44,000
------------------------------------
Loss before income taxes (6,686,000) (1,669,000)
Income tax benefit - -
------------------------------------
Net loss $ (6,686,000) $ (1,669,000)
====================================
Loss per common share - basic and diluted $ (.43) $ (.26)
====================================
Weighted average common shares - basic and diluted 15,523,000 6,400,000
====================================
-----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Consolidated Statement of Stockholders' (Deficit) Equity
-------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional Stock
------------------------------------------ Paid-In Subscription Accumulated
Shares Amount Shares Amount Capital Receivable Deficit Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at November 12, 1998
(date of inception) - $ - - $ - $ - $ - $ - $ -
Issuance of common stock for:
Cash - - 12,700,000 12,000 5,549,000 - - 5,561,000
Property and equipment - - 25,000 - - - - -
Issuance of common stock options - - - - 12,000 - - 12,000
Acquisition of Medizone (see note 1) - - 2,750,000 3,000 (3,000) - - -
Net loss - - - - - - (1,669,000) (1,669,000)
-----------------------------------------------------------------------------------------------
Balance at June 30, 1999 - - 15,475,000 15,000 5,558,000 - (1,669,000) 3,904,000
Issuance of preferred stock for:
Cash 100,000 - - - 300,000 - - 300,000
Stock subscription receivable 200,000 - - - 600,000 (600,000) - -
Issuance of common stock for:
Cash - - 288,000 1,000 1,008,000 - - 1,009,000
Services - - 1,000 - 7,000 - - 7,000
Common stock offering costs - - - - (101,000) - - (101,000)
Issuance of common stock options - - - - 131,000 - - 131,000
Beneficial conversion feature on:
Preferred stock - - - - 150,000 - (150,000) -
Convertible debt - - - - 251,000 - - 251,000
Net loss - - - - - - (6,686,000) (6,686,000)
-----------------------------------------------------------------------------------------------
Balance at June 30, 2000 300,000 $ - 15,764,000 $ 16,000 $7,904,000 $(600,000) $(8,505,000) $(1,185,000)
===============================================================================================
See accompanying notes to consolidated financial statements. F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ONE WORLD ONLINE.COM, INC.
Consolidated Statement of Cash Flows
----------------------------------------------------------------------------------------------------------
November 12,
1998 (Date of
Year Ended Inception) to
June 30, 2000 June 30, 1999
-----------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (6,686,000) $ (1,669,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 229,000 48,000
Common stock and common stock option
compensation expense 138,000 12,000
Interest expense on convertible debt 251,000 -
(Increase) decrease in:
Inventories 116,000 (252,000)
Prepaid expenses (38,000) (17,000)
Other assets (39,000) (151,000)
Increase in:
Accounts payable 155,000 112,000
Accrued liabilities 1,172,000 126,000
-----------------------------------
Net cash used in
operating activities (4,702,000) (1,791,000)
-----------------------------------
Cash flows from investing activities -
purchase of property and equipment (372,000) (446,000)
-----------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 1,519,000 -
Principal payments on long-term debt (6,000) (65,000)
Issuance of preferred stock 300,000 -
Issuance of common stock 908,000 5,561,000
-----------------------------------
Net cash provided by
financing activities 2,721,000 5,496,000
-----------------------------------
Net (decrease) increase in cash (2,353,000) 3,259,000
Cash, beginning of period 3,259,000 -
-----------------------------------
Cash, end of period $ 906,000 $ 3,259,000
===================================
----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-6
</TABLE>
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
June 30, 2000
--------------------------------------------------------------------------------
1. Presentation On June 29, 1999, One World Online.com, Inc. (formerly
and Medizone Canada Limited) (OWO.com) purchased One World
Organization Online Incorporated (OWO) and I Ventures, Inc. (IVI) (the
Acquirees) (collectively the Company). The terms of the
agreement provided that the Aquirees will be wholly-owned
subsidiaries of OWO.com, and the stockholders of the
Acquirees received 12,725,000 shares of OWO.com common
stock.
The consolidated financial statements at June 30, 1999
assumes the acquisition of OWO.com by the Acquirees
occurred November 12, 1998 (date of inception). Because
the shares issued in the acquisition of the Acquirees
represent control of the total shares of OWO.com's common
stock issued and outstanding immediately following the
acquisition, the Acquirees are deemed for financial
reporting purposes to have acquired OWO.com in a reverse
acquisition. The business combination has been accounted
for as a recapitalization of OWO.com giving effect to the
acquisition of 100% of the outstanding common shares of
the Acquirees. The surviving entity reflects the assets
and liabilities of OWO.com and the Acquirees at their
historical book value. The issued common stock is that of
OWO.com and the accumulated deficit and the statement of
operations is that of the Acquirees from November 12,
1998 (date of inception) through June 30, 1999 and that
of OWO.com from January 1, 1999 through June 30, 1999.
Separate operations for OWO.com have not been presented
as the amounts not related to the Acquirees are
immaterial.
One World Online.com, Inc. and its subsidiaries are
nationwide providers of consumer Internet access, Web
site creation and hosting, electronic commerce solutions
for businesses, and Internet training for businesses and
individuals. In addition, the Company maintains a
shopping community on the Internet that offers a broad
range of retail products, educational information,
24-hour broadcasts, news, and entertainment.
2. Summary of Principles of Consolidation
Significant The consolidated financial statements include the
Accounting accounts of the Company, and its consolidated
Policies subsidiaries. All significant intercompany balances and
transactions have been eliminated.
--------------------------------------------------------------------------------
F-7
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Summary of Concentration of Credit Risk
Significant The Company maintains its cash in bank deposit accounts
Accounting which, at times, may exceed federally insured limits. The
Policies Company has not experienced any losses in such accounts
Continued and believes it is not exposed to any significant credit
risk on cash and cash equivalents.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash
includes all cash and investments with original
maturities to the Company of three months or less.
Inventories
Inventories consists of finished goods and is recorded at
the lower of cost or market, cost being determined on a
weighted average method.
Property and Equipment
Property and equipment is recorded at cost, less
accumulated depreciation and amortization. Depreciation
and amortization on capital leases and property and
equipment are determined using the straight- line method
over the estimated useful lives of the assets or terms of
the lease. Expenditures for maintenance and repairs are
expensed when incurred and betterments are capitalized.
Gains and losses on sale of property and equipment are
reflected in operations.
Revenue Recognition
Revenue is recognized upon shipment of product or
performance of services.
Income Taxes
Deferred income taxes are provided in amounts sufficient
to give effect to temporary differences between financial
and tax reporting.
--------------------------------------------------------------------------------
F-8
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
2. Summary of Loss Per Share
Significant The computation of basic loss per common share is based
Accounting on the weighted average number of shares outstanding
Policies during the period.
Continued
The computation of diluted loss per common share is based
on the weighted average number of shares outstanding
during the period plus the common stock equivalents which
would arise from the exercise of stock options and
warrants outstanding using the treasury stock method and
the average market price per share during the period.
Common stock equivalents are not included in the diluted
loss per share calculation when their effect is
antidilutive.
Use of Estimates in the Preparation of Financial
Statements The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements.
Actual results could differ from those estimates.
3. Going The accompanying consolidated financial statements of the
Concern Company have been prepared on a going-concern basis,
which contemplates profitable operations and the
satisfaction of liabilities in the normal course of
business. As shown in the statement of operations, the
Company has reported recurring losses since inception.
This uncertainty raises substantial doubt about the
ability of the Company to continue as a going concern.
The Company's continuation as a going concern is
dependent upon its ability to generate profitable
operations or secure adequate new financing. Management
anticipates that the Company will be able to obtain
additional financing sufficient to fund operations during
the next fiscal year, however, there can be no assurance
they will be successful. The financial statements do not
include any adjustments that might result from the
outcome of this uncertainty.
--------------------------------------------------------------------------------
F-9
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
4. Property and Property and equipment consists of the following:
Equipment
Computer equipment $ 642,000
Office furniture and fixtures 189,000
Computer software 92,000
Leasehold Improvements 7,000
-----------------
930,000
Less accumulated depreciation and
amortization (277,000)
-----------------
$ 653,000
=================
5. Long-term Long-term debt consists of the following:
Debt
Notes payable to individuals and entities with interest
at 10%, secured by all assets of the Company and due
February 2002.
The notes are convertible into
common stock anytime at $3 per
share $ 1,519,000
Capital lease obligations
(see note 6) 41,000
-----------------
1,560,000
Less current portion (15,000)
-----------------
$ 1,545,000
=================
Year Ending June 30: Amount
-----------------
2001 $ 15,000
2002 1,533,000
2003 12,000
-----------------
$ 1,560,000
=================
--------------------------------------------------------------------------------
F-10
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
6. Capital The Company leases certain computers and equipment under
Lease noncancellable capital leases. The terms of the leases
Obligations include options to purchase the equipment at the end of
the leases and the leases have an imputed interest rate
of 16%. The computers and equipment held under the
capital leases have a cost of $10,000 and accumulated
amortization of $9,613 at June 30, 2000.
Amortization expense for the year ended June 30, 2000 and
the period November 12, 1998 (date of inception) to June
30, 1999 was $7,000 and $3,000, respectively.
Future minimum lease payments as of June 30, 2000 are as
follows:
Year Ending June 30: Amount
------------------
2001 $ 21,000
2002 17,000
2003 12,000
------------------
50,000
Less amount representing interest (9,000)
------------------
Present value of future minimum
lease payments $ 41,000
==================
7. Income The benefit for income taxes is different from amounts
Taxes which would be provided by applying the statutory federal
income tax rate to loss before benefit for income taxes
for the following reasons:
Federal income tax benefit at
statutory rate $ 2,273,000
Change in valuation allowance (2,273,000)
-----------------
$ -
=================
--------------------------------------------------------------------------------
F-11
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
7. Income Deferred tax assets (liabilities) consist of the
Taxes following:
Continued
Net operating loss carryforward $ 2,840,000
Valuation allowance (2,840,000)
-----------------
$ -
=================
At June 30, 2000, the Company has net operating loss
carryforwards available to offset future taxable income
of approximately $8,353,000, which will begin to expire
in 2019. The utilization of the net operating loss
carryforwards are dependent upon the tax laws in effect
at the time the net operating loss carryforwards can be
utilized. The Tax Reform Act of 1986 significantly limits
the annual amount that can be utilized for certain of
these carryforward amounts as a result of certain changes
in ownership.
8. Operating The Company leases certain property under non-cancelable
Leases operating leases. Lease expense relating to the operating
leases was for the year ended June 30, 2000 and period
from November 12, 1998 (date of inception) to June 30,
1999 was $130,000 and $25,000, respectivley.
Future minimum lease payments at June 30, 2000 are as
follows:
Year Ending June 30: Amount
------------------
2001 $ 135,000
2002 135,000
2003 5,000
------------------
$ 275,000
==================
9. Supplemental During the period ended June 30, 2000, the Company
Cash Flow acquired property and equipment in exchange for long-term
Disclosure debt of $32,000.
--------------------------------------------------------------------------------
F-12
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
9. Supplemental Amounts paid for interest and income taxes are as
Cash Flow follows:
Disclosure November 12,
Continued 1998 (date of
Year Ended inception) to
June 30, 2000 June 30, 1999
------------------------------
Interest $ 48,000 $ -
==============================
Income taxes $ - $ -
==============================
10. Related Party The Company has an agreement with One World Online
Transactions Charities, LLC (OWOC), which establishes OWOC as the
first distributor frontline to the Company in the
Company's relationship marketing organization. The
agreement requires monthly payments, from the Company,
based on the sales of the Company's independent
distributors. Amounts paid under this agreement during
the year ended June 30, 2000 and the period November 12,
1998 (date of inception) to June 30, 1999 were $14,000
and $6,000, respectively. In addition, the Company made
discretionary payments to the entity during the year
ended June 30, 2000 of $85,000.
11. Stock Options Information regarding stock options and warrants is
and Warrants summarized below:
Number of Option Price
Options Warrants Per Share
----------------------------------
Outstanding at
November 12, 1998
(date of inception) - - $ -
Granted 3,879,500 - 1.00-2.00
----------------------------------
Outstanding at
June 30, 1999 3,879,500 - 1.00-2.00
Granted 1,970,181 1,044,334 2.00-5.50
Forfeited (850,850) - 1.00-2.00
----------------------------------
Outstanding at
June 30, 2000 4,998,831 1,044,334 $1.00-5.50
==================================
--------------------------------------------------------------------------------
F-13
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
12. Stock-Based The Company has adopted the disclosure only provisions of
Compensation Statement of Financial Accounting Standards No. 123 (SFAS
123), Accounting for Stock-Based Compensation.
Accordingly, no compensation cost has been recognized in
the financial statements for employees. Had compensation
cost for the Company's stock options been determined
based on the fair value at the grant date consistent with
the provisions of SFAS 123 the Company's loss and loss
per share would have been reduced to the pro form amounts
indicated below:
November 12,
1998 (Date of
Year Ended Inception) to
June 30, 2000 June 30, 1999
----------------------------
Net loss - as reported $(6,686,000) $(1,669,000)
Net loss - pro forma $(6,849,000) $(1,758,000)
Loss per share - as reported $ (.43) $ (.26)
Loss per share - pro forma $ (.44) $ (.27)
===========================
The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing
model with the following assumptions:
November 12,
1998 (Date of
Year Ended Inception) to
June 30, 2000 June 30, 1999
----------------------------
Expected dividend yield $ - $ -
Expected stock price
volatility 42% -
Risk-free interest rate 5% 5%
Expected life of options 7 years 5 to 7 years
===========================
The weighted average fair value of options granted during
the year ended June 30, 2000 and the period from November
12, 1998 (date of inception) to June 30, 1999 was $2.27
and $.29, respectively.
--------------------------------------------------------------------------------
F-14
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12. Stock-Based The following table summarizes information about stock
Compensation options and warrants outstanding at June 30, 2000:
Continued
Outstanding Exercisable
------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 - 2.00 3,834,431 4.3 $ 1.2 1,072,450 $1.02
3.00 - 5.50 2,208,734 4.1 4.61 765,634 4.45
=======
--------------------------------------------------------------------------------
$1.00 - 5.50 6,043,165 4.2 $ 2.4 1,838,084 $2.45
--------------------------------------------------------------------------------
</TABLE>
13. Preferred The Company has established a series of preferred stock.
Stock The Series A convertible preferred stock authorized
1,000,000 shares with a $.001 par value. The Series A
preferred stock has the following rights and privileges:
o Each share is entitled to 100 votes per share.
o No dividends will be paid on the preferred stock,
unless declared by the Board of Directors.
o The Series A preferred stock ranks in parity with the
common stock and with all future series of preferred
stock.
o The shares are convertible into shares of common stock
at the option of the holder in whole or in part at any
time at the rate of conversion of one share of
preferred stock for one share of common stock, subject
to adjustments by the Board of Directors.
--------------------------------------------------------------------------------
F-15
<PAGE>
ONE WORLD ONLINE.COM, INC.
Notes to Consolidated Financial Statements
Continued
--------------------------------------------------------------------------------
14. Fair Value of The Company's financial instruments consist of cash,
Financial payables, and notes payable. The carrying amount of cash
Instruments and payables approximates fair value because of the
short-term nature of these items. The aggregate carrying
amount of the notes payable approximates fair value as
the individual borrowings bear interest at market
interest rates.
15. Commitments In addition, the Company has consulting agreements with
certain individuals which, call for payments to be made
based on revenues generated by those individuals.
--------------------------------------------------------------------------------
F-16
