Item 1. Business
Description of the Company's Business
Online International Corporation ("Online") is engaged in the
business of printing lottery tickets. The company is a Nevada
corporation whose shares are registered with the U.S. Securities and
Exchange Commission pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
THE LOTTERY TICKET AND PARI-MUTUEL PRINTING BUSINESS
Online, through its wholly owned subsidiary, Printing
Associates, Inc. ("Printing Associates"), which it acquired on
January 31, 1997, is engaged in the business of designing, printing,
and manufacturing lottery tickets and play slips for automated
on-line contractors and on track and off-track betting. Online
acquired Printing Associates from Galaxiworld.com. The acquisition
was a share exchange in which Online issued 250 shares of Series A
convertible preferred stock in exchange for all the issued and
outstanding shares of Printing Associates.
Subsequently, sixteen Series A preferred shares were converted into
common shares and the Series A preferred shares were split on a
33,334-for-1 basis effective July 14, 1998, such that ultimately,
7,800,156 Series A preferred shares are now outstanding.
The transaction was accounted for as a recapitalization of
Printing Associates' equity in accordance with the consensus of the
Emerging Issues Task Force No. 88-16. As a result, Printing
Associates recorded the issuance of common stock for the $1,320,000
of net monetary assets of Online on January 31, 1997. The common stock
formerly owned by Galaxiworld.com was recorded on its books as if it
were converted to preferred stock. Galaxiworld.com retained control
of Printing Associates due to the rights granted to the Series A
Preferred shares. These terms include rights to convert the
preferred shares into common shares, veto of certain board of
directors decisions such as management appointments and
compensation, fixed asset acquisitions and other rights. A detailed
description of the rights associated with the Series A Preferred
Shares is set forth below under "DESCRIPTION OF THE SECURITIES TO BE
DISTRIBUTED" at page 19.
ONLINE'S REPORTING STATUS
Prior to September 1999, Online was neither a reporting
company nor were its shares traded in any public market. On
September 22, 1999, Online merged with and into Condor West
Corporation in a share for share exchange in which Condor West was
the surviving company and Online ceased to exist. Contemporaneously
with the merger, Condor changed its name to Online International
Corporation. Condor West was a reporting company at the time of the
merger. Therefore, as a result of the merger, Online is now a fully
reporting company that files quarterly and annual reports with the
Securities and Exchange Commission ("SEC"). Shareholders may review
these filings by visiting the SEC's web site at www.sec.gov and
accessing Online's filings through the SEC's EDGAR database.
Condor West was formed in Nevada in 1987 with a view towards
combining with a business operation and had no business operations
for the three years prior to the merger. From Online's inception
until January 31, 1997, when it acquired Printing Associates, Online
was in the lottery management consulting business.
PRINTING ASSOCIATES, INC. ONLINE'S WHOLLY OWNED SUBSIDIARY
Printing Associates is a manufacturer of lottery and gaming
tickets. Established on December 6, 1983, Printing Associates
attributes its success over the last sixteen years to its state of
the art manufacturing capabilities. The lottery industry
experiences unpredictable, increasing lottery jackpots, which result
in an increased consumer demand. Printing Associates has a
competitive edge in that it has the capability to satisfy
spontaneous increases in product demand with minimal lead times.
The company has a reputation for producing a secure product
with superior quality and delivering its products in a timely
fashion. It manufactures in excess of 2.5 billion lottery tickets,
4 billion pari-mutuel (on and off-track betting) tickets and 200
million selection slips annually. The lottery and pari-mutuel
products industry is controlled by a limited number of contractors
that provide services to state lotteries and gaming concerns. These
contractors, in turn, subcontract to Printing Associates to
manufacture ticket rolls and selection slips. Printing Associates
maintains a state of the art pre-press department staffed by
technicians who work to insure that the product presented to the
manufacturing department is perfect. As of January 31, 2000,
Printing Associates had forty-five employees.
PRINTING ASSOCIATES' PRODUCT LINE
Printing Associates is a manufacturer of printed products
such as selection slips and ticket rolls. Lottery products require
precision in manufacturing. Selection slips must be accurate within
.005 of an inch tolerance in order for the lottery terminal to
correctly read the data, transmit the data to a centralized
database, and, in turn, generate a receipt, such as a lottery
ticket. If a ticket turns out to be a winning ticket, it is
considered a "financial instrument" due to the features that must be
read by an electronic device to generate the receipt and the ticket
holder's right to cash.
Printing Associates is a pioneer in diverse printing
capabilities mixing offset, flexographic and letter-press printing
technologies in a single process. This makes the company's tickets
virtually impossible to duplicate. Features vital to product
security are incorporated into Printing Associate's manufacturing
process. In addition the company is capable of individually
identifying each ticket with a unique serial number. Printing
Associates has the technology to track these serial numbers a
feature that is a component of the overall validation process
performed by a state lottery.
LOTTERY AND PARI-MUTUEL TICKETS
Thirty-six states comprise the U.S. market for lottery
tickets of which Printing Associates provides lottery tickets to
six. A state, usually through a bidding process, awards a contract
to a qualified vendor to manage or operate the lottery for a
specified period of time, usually three to five years. The vendor
then subcontracts the printing components to Printing Associates.
Many states require printing to be performed by in-state
minority enterprises. Printing Associates has been instrumental in
helping form new minority companies in which it held an interest for
a period of time. The company currently receives a 3.5% share of
the revenues of Wintex Corporation, printer for the Texas state
lottery.
The pari-mutuel industry consists of on and off-track betting
and is regulated by state regulatory authorities. Individual
racetrack owners operate privately-owned racetracks in any manner
they choose, so long as they follow state regulations. Typically,
the racetracks contract with vendors to provide the technical
expertise required to comply with such regulations. The primary
corporations that service the pari-mutuel industry subcontract the
printing of ticket stock. Printing Associates has approximately 95%
of the U.S. pari-mutuel (on track and off-track betting) market share.
Although the relevant market outside the U.S. is unknown,
Printing Associates is making strides to increase its international
market share. For example, in 1999, Printing Associates entered
into an agreement with Sisal, an Italian lottery, to print thermal
roll stock.
COMPETITION
The large capital investment necessary to compete within the
lottery ticket and pari-mutuel industries poses significant barriers
to entry for competitors. Less than ten companies in the United
States serve the major lottery suppliers. Of these, approximately
three compete on a scale with services comparable to those of
Printing Associates.
Printing Associates maintains an edge in its field by keeping
up with new technology, intelligently using financial resources and
wisely using its personnel. An additional factor in Printing
Associates' ability to maintain its competitive edge is its
capability to satisfy spontaneous increases in product demand with
minimal lead times. The company's entire converting section is
completely automated.
CUSTOMER BASE
Printing Associates performs virtually all of its work
pursuant to purchase orders or contracts. The company distributes
its products as necessary under the direction of its customers. It
markets its products primarily through public bidding, word of mouth
and reputation within the industries it serves. Promoting superior
customer service and products is its major marketing tool. Printing
Associates has maintained superb relationships with its customers
and an impeccable collection policy. In the last ten years, about
$12,000 was written off as bad debt of which the company eventually
collected approximately $9,000 in subsequent years.
Printing Associates is largely dependent on business from a
few key customers. Its sales to its three significant contractors
accounted for 80% of its sales in 2000, and 86% of its sales in
1999 and 83% in 1998. During the 2000 fiscal year it lost one of
these customers and sales dwindled by approximately 17% as a result.
However, the company has made up for the lost contract through
additional sales, mainly in the emerging international market.
Printing Associates' major customers and its percentage of each
customers' business are set forth below.
<TABLE>
<CAPTION>
CUSTOMERS PERCENTAGE
<S> <C>
AUTOMATED WAGERING INTERNATIONAL
Minnesota State Lottery 100%
Delaware State Lottery 100%
South Dakota 100%
UNITED TOTE
Race Track and Off Track Betting Facilities 85%
throughout the United States, Canada, Mexico, and
South America
AUTOTOTE LOTTERY
Connecticut State Lottery 100%
Montana State Lottery 100%
AUTOTOTE INTERNATIONAL
Race Track and Off Track Betting Facilities 100%
throughout the United States, Canada, Mexico, and
South America
AMTOTE INTERNATIONAL
Race Track and Off Track Betting Facilities 100%
throughout the United States and Canada
SISAL
Italian Lottery thermal roll stock 50%
</TABLE>
Each product has its own unique specifications that are
documented and adhered to throughout the entire manufacturing
process. The manufacturing process is broken down into the
following steps:
Pre-press: Involves processing customer approved artwork into
negatives and press plates.
Press: Includes the set up of the press to meet all product
specifications and the actual printing of the product.
Rewind/Slitting: Involves converting large printed paper mill rolls
from the press area into the appropriate size for
the customer. This is achieved by simultaneous
slitting the paper and rewinding it onto a roll core.
Packing: Involves packaging the finished product according to
the customers'specifications for shipping and
distribution.
A "Quality Control" staff oversees and verifies that the
product is within the proper specifications throughout the
manufacturing process.
Primarily, Printing Associates purchases its major
manufacturing material (paper) for the lottery products from two
vendors in order to obtain favorable pricing. However, the paper
used is considered a commodity item and could easily be obtained
from other suppliers with similar terms.
The company depends on a single supplier for paper used for
the pari-mutuel ticket stock and the paper is supplied at customers'
requests. Should this supplier be unable to supply the company with
paper products, the customer would need to select another paper
supplier to use for this particular ticket stock.
Item 2. Properties
Online International and Printing Associates both operate from
a leased facility. A 21,000 square-foot plant is the principal
location at 150 Laser Court, Hauppauge, New York. The lease is
effective through December 2000. The printing facilities are highly
secure and are inspected and approved by all Printing Associates'
customers.
Winning lottery tickets are a form of financial instrument in
that a winning ticket is payable on demand. Therefore, Printing
Associates maintains a state of the art security system to protect
its printing facility from unauthorized intrusions, theft, and fire.
The printing facility utilizes a closed circuit television
surveillance system. A Wells Fargo central station intrusion and
fire alarm system protects the site from theft and fire, and the
entire building is protected by a fire suppression system.
Access to the offices and plant is strictly controlled. Prior
to entering the facility, all visitorsmust identify themselves, wear badges
and be escorted at all times while on the premises.
Printing Associates employs a 40' x 40' locked security cage
to store finished goods. The security cage has a capacity in excess
of 250 million finished tickets. The entire exterior of the premises
is patrolled 24 hoursa day.
The facility's printing machines are capable of producing over
3,000,000 tickets per hour. The printing facility includes a
six-color, 32-inch wide, state of the art offset printing press with
an ultraviolet ink curing system complemented with a video
inspection station capable of freezing motion at one thousand feet
per minute. The press department is equipped with a six-color,
45-inch wide flexographic printing press capable of producing
continuous tickets with numbering.
The rewinding department has printing capabilities with a 52-inch
slitter rewinder complemented with a 52-inch, two-color flexographic
press. This Slitter/Press is completely automated with a roll
finishing system. Printing Associates' rewinding capabilities are
further enhanced with a fully automated single-ply slitter rewinder.
The machine rewinds tickets at over 1,800 feet per minute.
Item 3. Legal Proceedings
Neither Online nor Printing Associates is currently a party to
any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters have been submitted for a vote to security holders
during the reporting period.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Online's shares have not traded on any exchange or any other
public trading market. Approximately 700,000 shares are subject to
outstanding options to purchase common equity of Online over the
next ten years though only 1/3 of the outstanding options may be
exercised in each of the years 2000 through 2002. To the extent options that
can be exercised in a given year are not exercised in that year, the
holder may exercise those options in subsequent years without regard
to the 1/3 limit. 7,800,156 Series A Preferred shares are currently
outstanding and each share is convertible into one share of common
stock. Approximately 224,680 shares may be sold pursuant to Rule 144 under
the Securities Act, and as of the date of the Stock Dividend, approximately
8,358,280 common shares can be sold by existing shareholders. Online has
neither publicly offered nor has it proposed to publicly offer any shares
that could materially effect the market price of the company's common equity
although it may offer public shares at some future point in order to raise
money.
As of January 31, 2000, Online's common equity is held by
approximately 560 holders of record. It has not declared or paid
any cash dividends on any class of common equity in the last two
fiscal years. Online has approximately 1,207 shareholders of record.
The Articles of Merger restrict Online's ability to pay
dividends. It may not pay any dividends on common equity shares
until full cumulative dividends on all outstanding preferred stock
have been paid. Online may not pay dividends if doing so would
result in a consolidated current ratio of less than two, that is,
current assets equaling less than twice current liabilities. Common
equity may not receive dividends if paying dividends would result in
the consolidated surplus being less than two years' dividend
requirements on preferred shares. Dividends may not be paid on
common equity if doing so would result in net tangible assets being
less than 200% of the sum of an amount equal to $3.00 per share on
outstanding preferred stock and the amount received as consideration
upon the issuance of any outstanding shares ranking equally with or
prior to the preferred stock and of any outstanding preferred stocks of
subsidiaries, owned by others than Online and its subsidiaries.
Finally, Online may not pay dividends on common equity if doing so
would reduce the company's consolidated net tangible assets plus
consolidated long-term debt to less than 175% of the sum of the
consolidated long-term debt and an amount equal to $5.00
per share on outstanding preferred stock and the amount of received
as consideration upon the issuance of any outstanding shares ranking
equally with or prior to the preferred stock and of any outstanding
preferred stocks of subsidiaries, owned by others than the
Corporation and its subsidiaries. The Series A Preferred shares are not
traded in any public market.
Recent Sales Of Unregistered Securities
In the past three years, Online sold securities, as set forth
below in a transaction that was exempt from the registration
requirements of Section 5 of the Securities Act of 1933.
In December 1996, Online sold 1,236,950 common shares in an
exempt transaction at a price of $1.00 per share for a total of
$1,236,950. Online acted as its own underwriter and no commissions
were paid. These shares were later split 2-for-1 resulting in
2,486,950 shares outstanding at the time of the split. Presently, 5,617,089
common shares are outstanding.
On January 31, 1997, Online issued 250 Series A pre-split
preferred Shares to Galaxiworld.com in exchange for all of
Galaxiworld.com's shares in Printing Associates. A portion of the
Series A preferred shares were converted into common stock and the
preferred shares were eventually split on a 33,334-for-1 basis.
Presently, 7,800,156 Series A preferred shares are outstanding.
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
Description 1/31/00 1/31/99 1/31/98 1/31/97 1/31/96
Net Sales $7,733,829 $8,118,659 $10,056,262 $10,420,341 $15,863,610
Income (loss)
from continuing
operations $(278,605) $297,529 $734,311 $295,667 $175,570
Income (loss)
from continuing
operations
per share of
common stock
Basic $(0.05) $0.05 $0.14 $0.04 $0.02
Diluted $(0.05) $0.02 $0.06 $0.04 $0.02
Total assets $4,116,221 $3,660,697 $4,361,951 $5,078,841 $5,468,149
Long-term
obligations $938,042 $153,689 $199,567 $196,190 $481,519
Cash dividends
declared per share
of common stock $- $- $- $- $-
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(For the Fiscal Years Ended January 31, 1999 and 1998. The 1999
Period refers to the fiscal year ended January 31, 1999 and the 1998
Period refers to the period ended January 31, 1998)
RESULTS OF OPERATIONS
Fiscal Year Ended January 31, 1999 to Fiscal Year Ended January 31,
2000
Sales in the year ended January 31, 2000 were $7,736,546, a
$384,830 decrease from restated sales of $8,118,659 in fiscal year
1999. This 5% 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 fiscal year ended January 31, 2000.
The gross profit percentage was 9 % in fiscal year ended
January 31, 2000 compared to 15% in fiscal year ended January 31,
1999 (restated). This 6 % decrease is primarily attributable to the
additional labor and manufacturing costs incurred in the start up
phase of its newly obtained three-year contract. The initial
production run of this 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 fiscal year
ended January 31, 2000 was ($419,899) compared to income form
operations of $526,948 in fiscal year ended January 31, 1999 (restated).
This change is attributable to the change in gross profit percentage as
discussed above and increased selling general and administrative costs.
Additionally, during the year ended January 31, 2000, the Company
merged as discussed in the footnotes to the financial statements at a cost
of $355,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at January 31, 2000 was $40,956 a
decrease of $564,155 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. ON may 10, 2000 the Board of Directors
formalized its decision to discontinue the lottery management
segment of the business which had substantially ceased activity in
June 1999. The Company also incurred merger expenses of $355,000 as
discussed in the notes to the financial statements.
Inventories on hand increased approximately $169,000 because
the manufacturing segment of the Company increased raw material
inventories at the end of January 2000 to prepare for its upcoming
production of roll stock for a new contract obtained during the
year. The Company anticipates that the financial impact of the new contract
will not be recognized until the fiscal year ending January 2001, as
shipments in this fiscal year were not significant, however costs
were incurred during the year to modify its equipment to meet the
specifications of the product.
The short-term cash flows of the Company are sufficient to
fund day to day operations, however the ability to obtain capital
funding for the long-term capital needs of the Company is uncertain.
Accounts receivable at January 31, 2000 were $914,588. The
lottery and parimutuel products industry is controlled by a limited
number of contractors. During the year ended January 31, 2000,
approximately 72% of the Company's sales were to two contractors.
In addition, approximately 75% of the accounts receivable balance at
January 31, 2000 are due from these contractors. The Company has
not experienced any collection difficulties.
Working capital at January 31, 2000 was $529,544 a decrease of
$414,030 from the working capital of $943,574 at January 31, 1999.
This decrease in working capital is primarily attributable to an
increase in accounts payable, an increase in the current potion of
capital lease obligations coupled with the decrease in cash balances
at January 31, 2000.
The Company converted its bank line of credit to a term loan in
January 2000, however the note was in default under the terms of the
loan agreement at January 31, 2000. As disclosed in the notes to
the financial statements, the creditor has issued a waiver as of
January 31, 2000 and amended the terms of the loan which is now due
on May 31, 2001.
The ratio of current assets to current liabilities is 1.4 to 1
at January 31, 2000 compared to 1.8 to 1 at January 31, 1999. This
change is mainly attributable to the increase in accounts payable
and a decrease in cash balances.
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. To date, the Company has
not experienced any problems associated with the year 2000
compliance in its operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This Item is inapplicable.
Item 8. Financial Statements and Supplementary Data
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT
JANUARY 31, 2000
C O N T E N T S Page
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET 2-3
STATEMENT OF OPERATIONS 4
STATEMENT OF STOCKHOLDERS' EQUITY 5
STATEMENT OF CASH FLOWS 6
NOTES TO FINANCIAL STATEMENTS 7-18
INDEPENDENT AUDITORS' REPORT
Board of Directors
Online International Corporation
We have audited the accompanying consolidated balance sheet of
Online International Corporation and Subsidiary, as of January 31,
2000 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended
January 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these 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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Online International Corporation and Subsidiary as of
January 31, 2000, and the consolidated results of their operations
and cash flows for the years ended January 31, 2000 and 1999, in
conformity with generally accepted accounting principles.
New York, NY
March 16, 2000 (except for Note 3, as to which the date is May 10,
2000 and Note 10 as to which the date is May 30, 2000)
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
ASSETS January 31,
<C> <C>
<S> 2000 1999
CURRENT ASSETS
Cash $ 40,956 $ 605,111
Accounts receivable, less allowance
for doubtful accounts of $-0- in
2000 and $55,630 in 1999 914,588 687,673
Inventories 779,422 610,846
Note receivable - 5,000
Prepaid expenses 89,874 100,936
Prepaid income taxes 54,447 33,804
Due from employee - 33,296
Loan receivable-officer 5,200 49,000
Total Current Assets 1,884,487 2,125,666
PROPERTY AND EQUIPMENT, at cost, less 1,064,813 867,913
accumulated depreciation
OTHER ASSETS
Investment in foreign lottery
operation - 100,000
Loan receivable-officer 53,800 -
Due from former subsidiary 149,117 206,673
Deferred income taxes 823,000 174,600
Deferred compensation trusts 117,384 128,083
Note receivable, less current
portion - 30,000
Deposits 23,620 27,762
Total Other Assets 1,166,921 667,118
$ 4,116,221 $ 3,660,697
</TABLE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
January 31,
<C> <C>
<S> 2000 1999
CURRENT LIABILITIES
Bank line-of-credit $ - $ 530,000
Current maturities of long-term
debt 196,060 -
Current portion of obligations
under capital leases 109,464 45,878
Accounts payable 886,352 429,851
Accrued expenses and other current
liabilities 163,067 176,363
Total Current Liabilities 1,354,943 1,182,092
LONG-TERM DEBT, less current portion 558,672 -
OBLIGATIONS UNDER CAPITAL LEASES, 379,370 153,689
less current portion
DEFERRED COMPENSATION 117,384 128,083
Total Liabilities 2,410,369 1,463,864
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
5% preferred stock, no par value
; 20,000,000 shares authorized,
7,800,156 shares issued and
outstanding in 2000 and 7,800,156
shares authorized, issued and
outstanding in 1999($39,000,780
liquidation preference) 1,584,855 1,584,855
Common stock, $.001 par value;
100,000,000 shares authorized,
5,818,547 shares issued,
5,617,089 outstanding in 2000
and 5,507,244 issued and
outstanding in 1999 5,818 5,507
Additional paid-in capital 1,436,559 1,436,870
Accumulated deficit (1,321,380) (830,399)
Treasury stock, at cost, 201,458,
shares in 2000 - -
Total Stockholders' Equity 1,705,852 2,196,833
$ 4,116,221 $ 3,660,697
</TABLE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
Year Ended January 31,
<C> <C>
<S> 2000 1999
(Restated)
NET SALES $ 7,733,829 $ 8,118,659
COST OF GOODS SOLD 7,055,502 6,925,092
GROSS PROFIT 678,327 1,193,567
SALARIES AND RELATED COSTS (404,897) (456,837)
OTHER SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (300,069) (219,381)
MERGER EXPENSES (355,000) -
INCOME (LOSS) FROM OPERATIONS (381,639) 517,349
OTHER INCOME (EXPENSE)
Miscellaneous income 3,459 10,321
Interest expense (31,020) (23,805)
Gain (loss) on investment in
deferred compensation trusts (10,699) 23,083
Gain on sale of assets - -
Gain on sale of subsidiary - -
Total Other Income (Expense) (38,260) 9,599
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (419,899) 526,948
INCOME TAX EXPENSE (BENEFIT) (141,294) 229,419
INCOME (LOSS) FROM CONTINUING
OPERATIONS (278,605) 297,529
DISCONTINUED OPERATIONS
Loss from operations of discontinued
business segment(less applicable tax
benefits of $501,240,$356,260 and
$343,240, respectively) (212,376) (1,452,194)
NET INCOME (LOSS) $ (490,981) $ (1,154,665)
</TABLE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<C> Common <C> <C> Preferred <C>
Number Par Number Par
of Shares Value of Shares Value
<S>
Balance January
31, 1998 5,507,244 $2,754 7,800,156 $1,584,855
Change in par
value resulting
from July 14,
1998 stock split - 2,753 - -
Net Loss for Year
Ended January 31,
1999 - - - -
Balance January
31,1999 5,507,244 5,507 7,800,156 1,584,855
Additional stock
issued from merger
on September 9,
1999 311,303 311 - -
Net Loss for Year
Ended January
31, 2000 - - - -
Total Stockholder's
Equity at January
31, 2000 5,818,547 $ 5,818 7,800,156 $1,584,855
</TABLE>
<TABLE>
<C>
Additional <C> <C> Treasury Stock
Paid-in Retained Number <C> <C>
Capital Earnings of Shares Value Total
<S>
Balance January
31, 1998 $1,439,623 $324,266 - $- $3,351,498
Change in par
resulting from
July 14, 1998
stock split (2,753) - - - -
Net Loss for
Year Ended
January 31,
1999 - (1,154,665) - - (1,154,665)
Balance January
31, 1999 1,436,870 (830,399) - - 2,196,833
Additional
stock issued
from merger
on September
9, 1999 (311) - - - (490,981)
Net loss
for Year Ended
January 31, 2000
Total Stockholder's
Equity at January
31, 2000 1,436,559 (1,321,380) 201,458 - 1,705,852
</TABLE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
Year Ended January 31,
<C> <C>
<S> 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (490,981) $ (1,154,665)
Adjustments to reconcile net income
loss) to net cash provided by (used
in) operating activities:
(Gain) loss on sale/retirement of
fixed assets 3,020 -
Depreciation and amortization 293,373 272,029
Gain on sale of subsidiaries - -
Bad debts 65,000 -
Loss on investment in foreign
lottery operation 214,925 705,000
Deferred taxes (648,400) (135,800)
Change in:
Accounts receivable (226,915) 405,047
Inventories (168,576) (22,402)
Prepaid expenses and other
current assets 11,062 95,244
Prepaid income taxes (20,643) (33,804)
Deferred compensation trust 10,699 (98,333)
Accounts payable 456,501 (134,373)
Accrued expenses and other current
liabilities (13,296) 70,310
Deposits 4,142 -
Deferred compensation (10,699) 98,333
Net Cash Provided by (Used in)
Operating Activities (520,788) 66,566
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of (additions to) notes
receivable (6,704) 13,750
Investment in foreign lottery operation (114,925) (805,000)
Acquisitions of property and equipment (493,293) (70,388)
Proceeds from sale of equipment - -
Proceeds from sale of unconsolidated
subsidiary 57,556 69,408
Net Cash Provided by (Used in)
Investing Activities (557,366) (792,230)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank line-of-credit 330,000 530,000
Proceeds from capital lease obligations 348,940 -
Payments of long-term debt (105,268) -
Payments of obligations under capital leases (59,673) (41,359)
Net Cash Provided by (Used in)
Financing Activities 513,999 488,641
NET DECREASE IN CASH (564,155) (237,023)
CASH
Beginning of year 605,111 842,134
End of year $ 40,956 $ 605,111
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes $ 48,332 $ 50,827
Interest $ 86,362 $ 34,352
</TABLE>
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2000
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Description of Business
The Company's operations consist of the design and
manufacture of lottery tickets and play slips for automated on-line
contractors and parimutuels (on track and off track betting).
As discussed in Note 3, the Company discontinued its
lottery management consultation segment of the business.
Recapitalization
On January 31, 1997, Online International, Inc. (Online)
issued 250 shares of Series A convertible preferred stock in exchange for
all issued and outstanding shares of Printing Associates, Inc. (PAI). A
change in control of PAI to Online shareholders did not occur as a result of
this transaction, due to the rights retained by the former common
shareholder through its ownership of the preferred stock.
This transaction was accounted for as a recapitalization
(similar to a reverse acquisition) of the Company's equity in accordance
with the consensus of the Emerging Issues Task Force No. 88-16. The
application of the consensus under 88-16 requires that the historic basis of
PAI's assets and liabilities be used, since there was no change in control
to Online's shareholders. As a result, PAI has recorded the issuance of
Common stock for the $1,320,000 of net monetary assets of Online at January
31, 1997. The common stock owned by the former common shareholder is
recorded as if it was converted to preferred stock.
During the year ended January 31, 1999, Online common stock
split on a two for one basis and Online preferred stock split on a 33,334
for one basis. Such stock split has been reflected in the financial
statements. All per share amounts have been restated to reflect the stock
split.
Merger Transaction
On September 9, 1999 ("the merger date") the corporation
previously known as Online International Inc. ("old Online") merged with
Condor West Corporation ("Condor") an SEC registered 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. The Condor shareholders', as part
of this merger, surrendered 201,458 shares which were recorded as Online's
treasury stock.
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.
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 2000
1. DESCRIPTION OF BUSINESS AND ORGANIZATION (Continued)
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 of 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Sales are recorded on the date of shipment of the
merchandise.
Principles of Consolidation
The consolidated financial statements include the accounts
of Online International Corporation and its wholly-owned subsidiary,
Printing Associates, Inc. for the years ended January 31, 2000, 1999 and
1998 collectively referred to as "The Company". All material intercompany
transactions and balances have been eliminated in consolidation.
Unconsolidated Subsidiaries
During 1998, the Company sold two of its subsidiaries, PAP
Security Printing, Inc. (PAP), which is located in Pennsylvania, and Wintex
International, Inc., which is located in Texas, in which it owned 49% and
60%, respectively. The sale of PAP was for $268,608, all of which was
collected by the Company in 1998. The sale of Wintex International, Inc.
includes an agreement in which the former subsidiary is required to pay the
Company 3.5% of gross sales for each of the next five years, as well as
other charges such as consideration of stock, debt, and unpaid dividends.
The Company has estimated the total as $493,000. The five-year receivable
was discounted to present value to total $461,065 as the sale price of the
subsidiary. As of January 31, 2000, the Company has a receivable of
$149,117. Due to the inherent uncertainties in estimating the future gross
sales of Wintex International, Inc., it is at least reasonably possible that
the estimate of the amount to be collected, and therefore, the fair value of
the receivable, will change in the near term. The January 31, 1999 fair
values that are reasonably possible range from $100,000 to $200,000.
Inventories
Inventories are stated at the lower of cost or market with cost
determined by the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is computed by both the
straight-line and declining balance methods over the estimated useful lives
of the assets indicated in Note 7. Leasehold improvements are amortized on
a straight-line basis over the life of the lease.
Maintenance and repairs are charged to income as incurred.
Renewals and replacements of a routine nature are charged to income, while
those which significantly improve or extend the life of existing property
are capitalized.
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 2000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Upon sale or retirement of property and equipment, the
cost and related accumulated depreciation are eliminated from the respective
accounts and the related gain or loss is included in current income.
Stock Options
Stock based compensation is recognized using the intrinsic
value method under which compensation cost for stock options is measured as
the excess, if any, of market value of the Company's stock at the
measurement date over the exercise price. For disclosure purposes,
pro-forma net income is provided as if the fair value method had been applied.
Reclassifications
Certain 1999 and 1998 amounts have been reclassified to
conform with 2000 classifications.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
3. DISCONTINUED OPERATIONS
On May 10, 2000, the Company's Board of Directors formalized its
decision to discontinue operations in the lottery management segment of the
business which had substantially ceased activity in June 1999. The results
of operations of the lottery management operations have been classified as
discontinued operations for the year ended January 31, 2000 and prior
periods have been restated.
Net sales and income from discontinued operations are as follows:
<TABLE>
Years Ended January 31,
<C> <C>
<S> 2000 1999
Revenue $ 2,717 $ 257,416
Operating loss $ (653,261) $ (1,805,006)
Loss on retirement of assets (3,020) -
Interest expense (57,335) (12,779)
Miscellaneous income - 9,331
Pre-tax loss (713,616) (1,808,454)
Income tax benefit (501,240) (356,260)
Loss from discontinued
operations (212,376) (1,452,194)
</TABLE>
At January 31, 2000 there were no remaining material assets
related to the discontinued operation.
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 2000
3. DISCONTINUED OPERATIONS (Continued)
During the year ended January 31, 1999, the Company entered into
an agreement with a company that holds a license to the Cambodian Lottery
(partly owned by an entity affiliated with a former director of the
Company). The Company advanced $114,925 and $805,000 during the years ended
January 31, 2000 and 1999, respectively, to this foreign corporation in the
form of a non-interest bearing loan which is payable as cash flow is
available and prior to the payment of certain fees by the foreign
corporation. The agreement also calls for the Company to receive a
management fee for managing the lottery. This management fee is not payable
until the Company first recovers its loan. Despite the legal form of a
loan, the transaction was recorded as an equity investment as the payments
are first to be recouped out of the investee's cash flow. Of the total
investment of $919,925, $705,000 was written off during the year ended
January 31, 1999 and $214,925 was written off during the year ended January
31, 2000.
4. MAJOR CUSTOMERS
The lottery and pari-mutuel products industry is controlled by a
limited number of contractors. The Company's sales to its three significant
contractors were:
Year Ended January 31,
2000 1999
Significant contractor No. 1 53% 59%
Significant contractor No. 2 19% 16%
Significant contractor No. 3 8% 11%
80% 86%
The Company's accounts receivable from one significant
contractor amounted to approximately $406,000 and $343,000 at January 31,
2000 and 1999, respectively.
5. CASH
Included in cash at January 31, 1999 are funds on deposit at two
banks in New York totaling $625,341 (including outstanding checks of
$32,002 against such funds). Of these funds, $200,000 is insured by FDIC.
6. INVENTORIES
Inventories consist of the following:
<TABLE>
January 31,
<C> <C>
<S> 2000 1999
Raw materials $ 349,680 $ 172,111
Work-in-process 83,379 68,192
Finished goods 346,363 370,543
$ 779,422 $ 610,846
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
Estimated
Useful
January 31 Life
2000 1999 In
Years
<S> <C> <C> <C>
Machinery and equipment $ 2,937,127 $ 2,477,303 7
Furniture and office
equipment 293,626 271,307 5-7
Leasehold improvements 208,112 204,512 7-13
3,438,865 2,953,122
Less: Accumulated
depreciation and
amortization 2,374,052 2,085,209
$ 1,064,813 $ 867,913
</TABLE>
8. DEFERRED COMPENSATION
The Company has a deferred compensation plan for key employees
of the Company. Contributions to the Plan are at the discretion of the
Board of Directors. Annual contributions for each beneficiary are placed in
a trust with a third party fiduciary. At a predetermined date, the
beneficiary is entitled to receive the assets of the trust, including
investment earnings and appreciation. The Company has access to the assets
of each trust in certain limited circumstances but should still be liable to
the beneficiary for the assets removed. The investment earnings of the
trusts are recorded as income to the Company and the Company's income is
reduced by deferred compensation expense, which equals the contributions to
the trust plus the earnings of the trust. The securities held by the trust
are considered trading securities and carried at fair value. Deferred
compensation expense (benefit) amounted to $(10,699) and $98,333 for the
years ended January 31, 2000 and 1999, respectively.
Following is a summary of marketable securities held in the above
deferred compensation trusts:
<TABLE>
<C> <C>
2000 1999
<S>
Aggregate cost $ 105,000 $ 105,000
Realized and unrealized gains 12,384 23,083
Aggregate Fair Value $ 117,384 $ 128,083
</TABLE>
9. BANK LINE-OF-CREDIT
Printing Associates, Inc. had an agreement with a bank that
provided for a $750,000 line-of-credit for short-term loans, of which
$220,000 was unused as of January 31, 1999.
During the year ended January 31, 2000, the Company borrowed an
additional $120,000 and converted the line-of-credit into a note payable.
(See Note 10)
10. LONG-TERM DEBT
<TABLE>
January 31,
<S> <C> <C>
2000 1999
Note payable in 48 equal monthly
installments of $13,541.66 plus interest at a rate
of 2% above the LIBOR rate (5.885% at January 31,
2000) per annum from February 2000 to January 2004.
The note is secured by the Company's accounts
receivable. At January 31, 2000, the note was in
default under the terms of the loan agreement.
The creditor has issued a waiver as of January 31,
2000 and amended the terms of the loan which is now
due on May 31, 2001. Interest at 1.50% above the
bank's prime rate will be charged from May 30,
2000 until maturity on May 31, 2001. $ 650,000 $ -
Unsecured note payable in 36
equal monthly installments of $3,562.32 including
interest at the rate of 10.25% per annum from
December 1, 1999 to November 1, 2002 (See Note
11). 104,732 -
Sub-Total 754,732 -
Less: current portion of long-term debt 196,060 -
Long-term debt $ 558,672 $ -
</TABLE>
In connection with the note payable originally due in 2004, the
Company entered into a interest rate swap agreement with the same lender
that effectively fixed the interest rate at 9%. Payments made and received
on the swaps are netted with interest expense.
Scheduled maturities of long-term debt are as follows:
Year Ended January 31,
2001 $ 196,060
2002 524,667
2003 34,005
$ 754,732
11. RELATED PARTY TRANSACTIONS
As of January 31, 2000 and 1999, the Company has advanced
non-interest bearing loans totaling $59,000 and $49,000, respectively, to
the officer of the Company's subsidiary.
During the year ended January 31, 2000, the Company borrowed
$110,000 to purchase equipment from a partnership in which two of the
Company's officers are partners. The note carries an interest rate of
10.25% per annum and is to be repaid over 36 months (See Note 10).
12. PREFERRED STOCK
The 5% non-cumulative preferred stock is convertible into 1
share of common stock for each share of preferred. Dividends, when declared,
are payable semi-annually and commence July 31, 2000. The preferred
shareholders are entitled to a liquidation preference, upon which the 5%
non-cumulative preferred dividend is calculated, of $5 per preferred share.
At January 31, 2000, the Company is in default of its
obligations to the Series A Preferred Shareholders because of non-compliance
with various covenants outlined in the Articles of Incorporation. Due to
default, the preferred shareholders are entitled to three votes for each
share of preferred stock held. In addition, the preferred shareholders are
entitled to vote concurrently with common shareholders.
13. STOCK OPTIONS
In July 1998, the Company granted 900,000 options to certain officers and
employees. Each option gave the holder the right to purchase one share of
common stock at $1.10. The options were to expire in July 2008. 20% of the
options became exercisable on each of the first, second, third, fourth and
fifth anniversaries of the grant. Each recipient would have forfeited any
options that were unexercised when employment with the Company ceased.
On September 8, 1999, the Company adopted an incentive stock
option plan ("ISO") which granted 700,000 options 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 stock for one
dollar ($1.00). The options expire on August 30, 2009. At the same date
the 900,000 options that had been issued in 1998 were cancelled.
As described in Note 2, the Company accounted for the granting
of stock options under the intrinsic value method and accordingly, no
compensation cost has been recognized for stock options in these financial
statements. In 1999, there would not, however, have been any material
effect had the Company determined compensation cost based on fair value at
the date of the grant. This was because under the "minimum value" method of
determining fair value (which is required for privately held companies,
which was the Company's status at that time) the option would have no
material value at the date of grant. In 2000, had the Company determined
compensation cost based on the fair value at the date of grant, there would
have been no compensation cost as the estimated fair value of the cancelled
options exceeded that of the options granted.
14. NON-CASH INVESTING TRANSACTION
The Company issued 311,303 shares of common stock as part of the
merger on September 9, 1999 with a par value of $311 which was transferred
from additional paid-in capital.
15. LEASES
The Company is the lessee of certain equipment under operating
and capital leases as well as lessee of office and warehouse space in New York.
At January 31, 2000, the future minimum lease payments for all
leases are as follows:
<TABLE>
<C> <C>
Operating Obligations under
Leases Capital Leases
<S>
2001 181,500 152,519
2002 - 152,519
2003 - 136,388
2004 - 88,007
2005 - 66,014
$ 181,500 $ 595,447
Less amount representing interest 106,613
Present value of minimum lease
payments 488,834
Less current portion 109,464
Long-term portion $ 379,370
</TABLE>
Rent expense for the year ended January 31, 2000 and 1999
amounted to $227,030 and $253,082 respectively.
Equipment held under capitalized leases at January 31, 2000
consists of the following:
Machinery and equipment $ 606,583
Less: Accumulated amortization 116,870
$ 489,713
16. INCOME TAXES
The provision for income taxes consists of the following
components:
<TABLE>
Year Ended January 31,
<C> <C>
<S> 2000 1999
Current
Federal $ - $ (17,698)
State and foreign 5,866 26,657
5,866 8,959
Deferred
Relating to current net operating loss
Federal (621,000) (91,000)
State - (40,000)
(621,000) (131,000)
Relating to change in beginning of year
valuation allowance
State 85,200 -
Other
Federal (86,100) 2,200
State (26,500) (7,000)
(112,600) (4,800)
Total Deferred (648,400) (135,800)
$ (642,534) $ (126,841)
Deferred income taxes consists of the following:
Deferred tax assets $ 1,200,600 $ 233,800
Deferred tax liabilities (31,100) (59,200)
Valuation allowance (346,500) -
$ 823,000 $ 174,600
</TABLE>
The 2000 deferred tax asset balances primarily relate to a
consolidated federal net operating loss carry forwards of $2,223,000 for
Online International Corp. The deferred tax asset balance relating to the
New York State net operating loss carryover for Online International Corp.
is completely offset by a valuation allowance. These carry forwards begin
to expire in 2019.
The 1999 deferred tax asset balance primarily related to a
consolidated federal net operating loss carryover and a New York State net
operating loss carryover for Online International Corp.
The reconciliation between the actual and expected Federal
tax is as follows:
<TABLE>
Year Ended January 31,
<C> <C>
2000 1999
<S>
Income tax provision at 34% $ (142,765) $ 179,162
State and local income taxes net of
Federal income tax effect 3,872 17,132
Change in estimate of prior year Federal
income tax (5,493) 29,950
Effect of nondeductible expenses 3,092 3,175
Actual income tax provision $ (141,294) $ 229,419
</TABLE>
17. COMMITMENTS
The Company has entered into employment contracts with the
president of PAI and other key employees that expire at various dates
through October 22, 2001. Future minimum payments, excluding certain fringe
benefits, relating to these agreements are as follows:
2001 $ 240,000
2002 180,000
$ 420,000
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments ("SFAS 107") requires entities to
disclose the fair values of financial instruments except when it is not
practicable to do so. Under SFAS 107, it is not practicable to make this
disclosure when the costs of formulating the estimated values exceed the
benefit when considering how meaningful the information would be to
financial statement users.
The Company's financial instruments, and the related amounts
recorded on the balance sheet, to which SFAS 107 would be applied include
the following:
<TABLE>
Carrying Amount
Year Ended January 31,
<C> <C>
<S> 2000 1999
Assets:
Cash $ 40,956 $ 605,111
Notes receivable - 35,000
Due from employees - 33,296
Due from officer 59,000 49,000
</TABLE>
18. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
Carrying Amount
Year Ended January 31,
<C> <C>
2000 1999
<S>
Investment in foreign lottery operation - 100,000
Due from former subsidiary 149,117 206,673
Deferred compensation trusts 117,384 128,083
Liabilities:
Bank line-of-credit - 530,000
Notes payable 754,732 -
Interest rate swap agreement
(included in other current
liabilities) 8,000 -
</TABLE>
The fair values of cash, notes receivable, due from officer and
employees, deferred compensation trusts, bank line-of-credit, notes payable
and interest rate swap agreement do not differ materially from their
carrying amounts. See Notes 2 and 3, respectively, for more information
about the balance due from the former subsidiary and the investment in
foreign lottery operation.
None of the above are derivative financial instruments except
the interest rate swap agreement and none, except the deferred compensation
trusts, are held for trading purposes.
19. EARNINGS PER SHARE
<TABLE>
Years Ended January 31,
<C> <C>
2000 1999
<S>
Net income (loss) $ (490,981) $ (1,154,665)
Net Income Per
Common share-basic:
From continuing operations $ (0.05) $ 0.05
From discontinued operations (0.04) (0.26)
$ (0.09) $ (0.21)
Net Income Per
Common share-Diluted:
From continuing operations $ (0.05) $ 0.02
From discontinued operations (0.04) (0.11)
$ (0.09) $ (0.09)
</TABLE>
For the year ended January 31, 2000, diluted earnings per share
does not assume the conversion of the preferred stock and the stock options
because the conversion would have an anti-dilutive effect on income from
continuing operations.
20. YEAR-END ADJUSTMENTS
During the fourth quarter the Company determined that a
valuation allowance was not needed in relation to the deferred tax asset
created by the Company's net operating loss for the year. This resulted in
a deferred tax benefit of $642,534 for the quarter, a substantial portion of
which relates to the net operating losses created in earlier quarters of the
year.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The accounting firm of Marks Paneth,& Shron, LLP in New York, NY
serves as independent accountant to Online. On September 22, 1999, Online's
predecessor, Condor West Corporation, merged with old Online, which was a
private company. After the merger, Condor West changed its name to Online
International Corporation, which was the name of the formerly private
company. As a result of the merger, the accountants for Condor were no
longer required, and the accountants for old Online became the accountants
for new Online. Prior to the change in accountants, the former accountants
for old Online had not rendered any adverse opinion to Condor, nor had they
rendered any disclaimer of opinion, modification or qualification of
opinion. There had been no disagreements with the former accountants
regarding accounting primciples or practices, financeial statement
disclosures, or auditing scope or procedure.
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
The officers of the Online International are as
follows:
<S> <C> <C> <C>
NAME AGE POSITION(S) TERM OF OFFICE
Moses L. Garson 49 President, Secretary, 1 year (August 5, 2000)
Director
Moses J. Hassan 51 Director 1 year (August 5, 2000)
Roy A. Cannon 53 Director 1 year (August 5, 2000)
</TABLE>
In the event of a vacancy, the remaining members of the board of
directors are empowered to fill the vacancy until the next annual meeting.
Moses L. Garson has over 20 years of combined experience in accounting
and management. He is currently the Director of Gray's Managment Services.
Prior to that, Mr. Garson was the director of GLC Ltd. He is a 1980
Accountancy graduate of the Institute of Chartered Accountants of England and
Wales.
Moses J. Hassan is currently self-employed. For the last 22 years,
Mr. Hassan has the sole principal in the his own business in Gilbraltar. He
is a 1971 civil engineering graduate of Manchester University.
Roy A. Cannon is currently self-employed as a solicitor. From July
1998 to December 1999, Mr. Cannon was a Director of GLC Ltd. Prior to that,
Mr. Cannon was a principal of Cannon & Co. in which he worked as a lawyer
for approximately seven years. He is a 1969 law graduate of Liverpool
College of Law.
