FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934.
For the quarter ended October 31, 1999
TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
- --- 1934
For the transition period from ___________ to ___________.
Commission file number 033-20966
Online International Corporation
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(Exact name of registrant as specified in its charter)
Nevada 033-20966 76-0251547
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(State of Incorporation) (Commission File Number) (IRS Employer No.)
150 Laser Court
Hauppauge, NY 11788
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(Address of principal executive offices)
Tel. (516) 231-7575
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(Issuer's telephone number)
909 Frostwood, Suite 261
Houston, Texas 77024
(713) 461-5910
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(Former address, if changed since last report)
Check whether the issuer (1) FILED ALL REPORTS REQUIED TO BE FILED BY
Section 13 or 15(d) of the Exchange Act during the pat 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 5,818,547 COMMON SHARES;
7,800,156 SERIES A PREFERRED SHARES.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES NO X
--- ---
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<PAGE>
Item 1. Financial Statements
ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
OCTOBER 31,1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
- ------------------------------------
<S> <C>
Cash $ 29,179
Accounts receivable, less allowance for doubtful accounts of $55,630 880,672
Inventory 730,962
Prepaid assets 82,616
Due from employees 90,646
Other current asset 38,740
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TOTAL CURRENT ASSETS 1,852,815
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PROPERTY, at cost, less accumulated depreciation 732,175
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OTHER ASSETS
Investment in foreign lottery operation 100,000
Loan Receivable 114,925
Deferred taxes 174,600
Due from former subsidiary 166,349
Deferred compensation trusts 128,083
Other Assets 187,774
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TOTAL OTHER ASSETS 871,731
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TOTAL ASSETS $ 3,456,721
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Bank line-of-credit $ 690,000
Current portion of obligations under capital leases 49,588
Accounts payable 655,465
Accrued payroll & payroll taxes 10,965
Accrued expenses 66,377
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TOTAL CURRENT LIABILITIES 1,472,395
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DEFERRED COMPENSATION 128,083
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 116,020
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TOTAL LIABILITIES 1,716,498
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STOCKHOLDERS' EQUITY
5% preferred stock, no par value ;7,800,156 shares authorized, 1,584,855
issued and outstanding
Common stock, $.001 par value; 100,000,000 shares authorized, 5,818
5,818,547 shares issued; 5,617,089 outstanding
Additional paid-in capital 1,436,559
Retained earnings (deficit) (1,287,009)
Treasury stock, 201,458 shares --
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TOTAL STOCKHOLDERS' EQUITY 1,740,223
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,456,721
===========
</TABLE>
<PAGE>
ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
3 MO.ENDED 3 MO.ENDED 9 MO.ENDED 9 MO.ENDED
10/31/1999 10/31/1998 10/31/1999 10/31/1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales - net $ 1,936,371 $ 1,876,237 $ 5,976,978 $ 6,826,182
Cost of goods sold 1,848,093 1,585,640 5,312,295 5,618,886
------------ ------------ ------------ ------------
Gross profit 88,278 290,597 664,683 1,207,296
Selling, general & administrative 180,168 433,431 717,696 1,410,176
Merger expenses 355,000 -- 355,000 --
------------ ------------ ------------ ------------
Income (loss) from operations (446,890) (142,834) (408,013) (202,880)
OTHER EXPENSE (18,216) (8,303) (48,597) (11,656)
------------ ------------ ------------ ------------
(LOSS) BEFORE INCOME TAXES (465,106) (151,137) (456,610) (214,536)
Income tax expense (benefit) -- -- -- --
------------ ------------ ------------ ------------
NET (LOSS) (465,106) (151,137) (456,610) (214,536)
============ ============ ============ ============
EARNINGS PER SHARE $ (0.03) $ (0.01) $ (0.03) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 13,369,486 13,307,400 13,328,323 13,307,400
============ ============ ============ ============
</TABLE>
<PAGE>
ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDED 3 MONTHS ENDED 9 MONTHS ENDED 9 MONTHS ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998 OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(465,106) $(151,137) $(456,610) $ (214,536)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization $ 68,478 68,469 205,433 205,433
Change in:
Accounts Receivable $ 232,082 368,479 (192,999) 129,759
Inventory $(143,379) (15,844) (120,116) 97,850
Prepaid expenses and other current assets $ (4,222) (306,223) 10,034 (670,693)
Loan Receivable $ -- -- (114,925)
Other assets $ (8,648) -- (130,012)
Accounts payable $ 199,989 (82,666) 225,614 (163,189)
Accrued expenses and other current liabilities $ (1,561) 11,190 (99,021) 42,508
--------- --------- --------- ---------
NET CASH USED IN OPERATING ACTIVITIES (122,367) (107,732) (672,602) (572,868)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Due from former subsidiary $ 14,171 7,907 40,324 56,519
Acquisitions of property and equipment $ (32,679) (9,038) (69,695) (39,326)
--------- --------- --------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (18,508) (1,131) (29,371) 17,193
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Line of Credit borrowings $ 100,000 300,000 160,000 300,000
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Payments of obligations under capital leases $ (11,614) (10,200) (33,959) (30,344)
--------- --------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 88,386 289,800 126,041 269,656
--------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH (52,489) 180,937 (575,932) (286,019)
CASH
Beginning of period $ 81,668 404,928 605,111 871,884
--------- --------- --------- ---------
End of period $ 29,179 $ 585,865 $ 29,179 $ 585,865
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 18,284 $ 7,769 $ 52,020 $ 19,994
========= ========= ========= =========
Taxes $ 7,672 $ -- $ 15,897 $ --
========= ========= ========= =========
</TABLE>
<PAGE>
ONLINE INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ -------------------------- ADDITIONAL RETAINED
Number of Par Number of Par Paid-in Earnings
Shares Value Shares Value Capital (Deficit)
---------- ----------- ---------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1997,
as previously reported 2,486,950 $ 2,487 250 $ 1,693,223 $ 1,331,522 $ 256,239
2-for-1 common stock split
effective July 14, 1998 2,486,950 -- -- -- -- --
33,334-for-1 preferred stock
split, effective July 14, 1998 -- -- 8,333,250 -- -- --
--------- ----------- --------- ----------- ----------- -----------
Balance at January 31, 1997,
as restated 4,973,900 2,487 8,333,500 1,693,223 1,331,522 256,239
Conversion of preferred stock 533,344 267 (533,344) (108,368) 108,101 --
Net Income for year ended
January 31, 1997 -- -- -- -- -- 68,027
--------- ----------- --------- ----------- ----------- -----------
Balance at January 31, 1998 5,507,244 2,754 7,800,156 1,584,855 1,439,623 324,266
Change in par value resulting
from July 14, 1998 stock split -- 2,753 -- -- (2,753) --
Net loss for year ended
January 31, 1999 -- -- -- -- -- (1,154,665)
--------- ----------- --------- ----------- ----------- -----------
Balance at January 31, 1999 5,507,244 5,507 7,800,156 1,584,855 1,436,870 (830,399)
Additional stock issued from
merger on September 9, 1999 311,303 311 -- -- (311) --
Net loss for nine months ended
October 31, 1999 -- -- -- -- -- (456,610)
--------- ----------- --------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EUITY AT
October 31, 1999 5,818,547 $ 5,818 7,800,156 $ 1,584,855 $ 1,436,559 $(1,287,009)
========= =========== ========= =========== =========== ===========
<CAPTION>
TREASURY STOCK
------------------------
Number of Par
Shares Value Total
---------- --------- -----------
<S> <C> <C> <C>
Balance at January 31, 1997,
as previously reported -- $-- $ 3,283,471
2-for-1 common stock split
effective July 14, 1998 -- -- --
33,334-for-1 preferred stock
split, effective July 14, 1998 -- -- --
-------- ----------- -----------
Balance at January 31, 1997,
as restated -- -- 3,283,471
Conversion of preferred stock -- -- --
Net Income for year ended
January 31, 1997 -- -- 68,027
-------- ----------- -----------
Balance at January 31, 1998 -- -- 3,351,498
Change in par value resulting
from July 14, 1998 stock split -- -- --
Net loss for year ended
January 31, 1999 -- -- (1,154,665)
-------- ----------- -----------
Balance at January 31, 1999 -- -- 2,196,833
Additional stock issued from
merger on September 9, 1999 201,458 -- --
Net loss for nine months ended
October 31, 1999 -- -- (456,610)
-------- ----------- -----------
TOTAL STOCKHOLDERS' EUITY AT
October 31, 1999 201,458 -- $ 1,740,223
======== =========== ===========
</TABLE>
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS:
The accompanying unaudited financial statements do not include all of the
information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows and stockholders' equity in
conformity with generally accepted accounting principles. Except as disclosed
herein, there has been no material change in the information disclosed in the
notes to the financial statement included in the Company's annual report for the
year ended January 31, 1999. In the opinion of Management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the three months ended October 31, 1999
are not necessarily indicative of the results that can be expected for the year
ending January 31, 2000.
INVENTORIES
Inventories at October 31, 1999 consist of the following:
<TABLE>
<S> <C>
Raw Materials: $427,126
Work-in-process: 75,967
Finished goods: 227,869
--------
$730,962
</TABLE>
MERGER TRANSACTION
On September 9, 1999 ("the merger date") the corporation previously known as
Online International Corporation ("old Online") merged with Condor West
Corporation ("Condor") a publicly traded Nevada corporation with no material
assets, liabilities or operations. Prior to the merger, Condor effected a
48-for-1 reverse stock split. Condor was the surviving legal entity and old
Online ceased to exist. Condor, however, changed its name to Online
International Corporation ("new Online").
Each common shareholder of old Online (5,507,244 issued and outstanding on the
merger date) received one share of new Online common for each share of old
Online common. Each holder of old Online Series A Preferred shares (7,800,156
issued and outstanding on the merger date) received one share of new Online
Series A Preferred for each share of old Online Series A Preferred. Each common
shareholder of Condor (311,303 issued and outstanding on the merger date)
received one share of new Online common for each share of Condor common. Old
Online had previously purchased 201,458 shares (included in the 311,303 issued
and outstanding) of Condor common stock for $275,000; these shares resulted in
the creation of treasury stock in new Online.
<PAGE>
Although Condor (now with the legal name of Online International Corporation) is
legally the surviving corporation, old Online is the continuing, surviving
entity for accounting purposes. The accounting for the transaction is similar to
a reverse takeover wherein old Online was merged into Condor. For financial
reporting purposes the transaction is being recorded as if old Online issued
311,303 new shares of common stock of which 201,458 were recorded as treasury
shares with no cost. The $275,000 paid for the Condor shares, along with $80,000
of professional fees incurred, has been recorded as merger expense in the
statement of operations.
The Series A Preferred shares of new Online have rights that exceed those of the
Series A Preferred shares of old Online. Each new Series A Preferred share has
the same voting rights as a share of common stock except that in the case of
certain defaults the Series A Preferred acquires additional rights. Also, the
old limitation, under which holders of Series A Preferred could only convert
enough shares to common to give them 20% of the outstanding common shares has
been eliminated.
STOCK OPTIONS
In September 1999 the Company adopted an incentive stock option plan ("ISO").
Contemporaneously with the adoption of the plan, 700,000 options were granted to
employees and directors of the Company. The options vest in one year from the
grant date. Each option gives the holder the right to buy one share of common
share of common stock for one dollar ($1.00). The options are exercisable over a
three year period from the date of grant. The Company accounted for the granting
of the options under the intrinsic value method. There would not have been a
material difference in the net loss had the Company instead determined the cost
based on the fair value of the options granted.
Item 2. MANAGEMENT'S DISCUSSIONS AND ANALYSES OR PLAN OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The consolidated financial statements reflect the combined operations of
Condor and Online International Corporation. Condor had no material assets,
liabilities or operations prior to the merger as discussed in the Notes to the
financial statements.
The Company's cash position at October 31, 1999 was $29,179 a decrease of
$575,932 from January 31, 1999. This decrease is attributable to the use of
funds to support the operations of the lottery management segment of the
Company. During the first two fiscal quarters of the year the lottery management
segment of the Company continued to support its existing contract in Cambodia as
well as pursue lottery management opportunities in Liberia and other areas.
Approximately $80,000 was used to purchase instant lottery tickets for the games
in Cambodia; $51,000 was used to pursue the Liberian contract; $67,000 was paid
to various consultants working on these projects. The Company also incurred
merger expenses of $355,000 as discussed in the notes to the financial
statements.
Inventories on hand increased approximately $120,000 because the
manufacturing segment of the Company was in the start up phase of a new contract
and built up finished goods inventories of its existing products while
maintaining raw materials for the new project. The Company anticipates that the
financial impact of the new contract will not be recognized until the first
quarter of the fiscal year ending January
<PAGE>
2001, as shipments in this fiscal year will not be significant, however costs
will be incurred during the current fiscal year to modify the equipment to meet
the specifications of the product.
The manufacturing segment of the business has obtained a three-year
contract requiring certain capital and operating expenditures. The short-term
cash flows of the Company are sufficient to fund day to day operations, however
long term borrowings of approximately $450,000 are projected within the next
fiscal quarter to purchase new equipment as well as improve existing equipment
for the newly acquired contract. The Company believes it will secure such
funding without difficulty.
The lottery management segment of the business has experienced limited
activity, however, management is in the process of preparing a business plan
that will address its strategy for the upcoming fiscal year.
Accounts receivable at October 31, 1999 were $880,672. The lottery and
parimutuel products industry is controlled by a limited number of contractors.
During the three months ended October 31, 1999, approximately 72% of the
Company's sales were to two contractors. In addition, approximately 57% of the
accounts receivable balance at October 31, 1999 are due from these contractors.
The Company has not experienced any collection difficulties.
Working capital at October 31, 1999 was $380,420 a decrease of $563,154
from the working capital of $943,574 at January 31, 1999. This decrease in
working capital is attributable to a decrease in cash offset by an increase in
inventories and accounts receivable at October 31, 1999.
<PAGE>
The Company is in the process of converting its bank line of credit to a 4
year term loan. This will be completed prior to its fiscal year end, January 31,
1999.
The ratio of current assets to current liabilities is 1.3 to 1 at October
31, 1999 compared to 1.8 to 1 at January 31, 1999. This change is mainly
attributable to the increase in accounts payable coupled with the decrease in
cash.
The Company is committed to providing high quality products and service
into the year 2000 and beyond. The Company has prepared its systems and
operations to be year 2000 compliant. Costs to the Company included capital
purchases and operating expenses. Additionally, the Company has received
confirmation from its primary vendors and customers of Y2K compliance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1998 TO THREE MONTHS ENDED OCTOBER 31, 1999
Sales in the three months ended October 31, 1999 remained consistent with
the sales in the three months ended October 31, 1998.
The gross profit percentage was 4.5% in the quarter ended October 31, 1999
compared to 15% in the quarter ended October 31, 1998. This 10.5% decrease is
attributable to the additional labor and manufacturing costs incurred in the
start up phase of the newly obtained contract. The initial production run of the
new contract resulted in unforeseen technical and mechanical difficulties. The
Company believes the costs incurred will have a positive impact on the
profitability of the contract in the long term.
The consolidated loss from operations for the three months ended October
31, 1999 was ($446,890). During the quarter ended October 31, 1999, the Company
merged as discussed in the footnotes to the financial statements at a cost of
$355,000.
The Company began ISO 9002 certification efforts during the quarter ended
October 31, 1999. ISO is an internationally recognized quality assurance
standardization program. Completion of this project is scheduled for the first
quarter of fiscal year 2001. Costs associated with this program will be
approximately $45,000.
NINE MONTHS ENDED OCTOBER 31, 1998 TO NINE MONTHS ENDED OCTOBER 31, 1999
Year to date sales at October 31, 1999 were $849,000 lower than the year to
date sales for the nine months ended October 31, 1998. This decrease is
primarily attributable to the decrease in sales to two customers. The decrease
in sales is due to competitive price reductions, coupled with an increase in
footage (ticket yield) per roll to the major customers. The Company has
maintained its market share of these customers in the nine months ended October
31, 1999.
The gross profit percentage for the nine months ended October 31, 1999 was
11% as compared to 18% for the nine months ended October 31, 1998. This decrease
is attributable to the price changes discussed above as well as the start up
costs related to the new contract.
<PAGE>
Selling, general and administrative expenses for the nine months ended
October 31, 1999 were $717,696 compared to $1,410,176 for the nine month period
ended October 31, 1998. This $692,000 decrease is attributable to the lottery
management segment reducing its consulting staff and travel expenses related to
its international business operations.
The consolidated loss for the nine months ended October 31, 1999 was
($456,610), comprised of net income before taxes of $181,988 in the
manufacturing segment of the Company and a net loss of ($638,598) in the lottery
management segment of the Company. The loss for the lottery management segment
of the business includes a $355,000 merger expense as described in the footnotes
to the financial statements. As previously mentioned, the lottery management
segment has been virtually inactive since the second quarter of the fiscal year.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
On February 7, 2000, the Registrant filed a report on Form 8-K to report a
change in the Registrant's fiscal year.
On September 23, 1999, the Registrant filed a report on Form 8-K to report a
change in control pursuant to a merger. At the time of the merger, the
Registrant was known as Condor West Corporation. The merger was between Online
International Corporation and the Registrant with the Registrant being the
surviving company. As part of the merger, the Registrant changed its name to
Online International Corporation. The Registrant reported the resignation of its
existing directors and the election of three new directors. The Registrant also
included the audited financial statements of the company that was merged into
the Registrant and to whom control of the Registrant passed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Online International Corporation
Date: February 7, 2000 /s/ Stanley James White
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Stanley James White
Chief Executive Officer, President &
Secretary
