UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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(Mark one)
XX QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
--------- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
--------- OF 1934
For the transition period from ____________ to ___________
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Commission File Number: 33-40848-A
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WorldWideWeb Institute.com, Inc.
(Exact name of small business issuer as specified in its charter)
Florida 65-0260247
----------------------------- ------------------------
(State of incorporation) (IRS Employer ID Number)
6245 N. W. 9th Avenue, Ft. Lauderdale FL 33309
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(Address of principal executive offices)
(954) 776-8444
--------------
(Issuer's telephone number)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: August 14, 2000: 9,778,850
--------------------------
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
<PAGE>
WorldWideWeb Institute.com, Inc.
Form 10-Q for the Quarter ended June 30, 2000
Table of Contents
Page
----
Part I - Financial Information
Item 1 Financial Statements 3
Item 2 Management's Discussion and Analysis or Plan of Operation 26
Part II - Other Information
Item 1 Legal Proceedings 28
Item 2 Changes in Securities 28
Item 3 Defaults Upon Senior Securities 29
Item 4 Submission of Matters to a Vote of Security Holders 29
Item 5 Other Information 29
Item 6 Exhibits and Reports on Form 8-K 29
Signatures 29
2
<PAGE>
S. W. HATFIELD, CPA
certified public accountants
Member: American Institute of Certified Public Accountants
SEC Practice Section
Information Technology Section
Texas Society of Certified Public Accountants
Item 1 - Part 1 - Financial Statements
Accountant's Review Report
--------------------------
Board of Directors and Shareholders
WorldWideWeb Institute.com, Inc.
We have reviewed the accompanying consolidated balance sheets of WorldWideWeb
Institute.com, Inc. (a Florida corporation) and Subsidiaries as of June 30, 2000
and the accompanying consolidated statements of operations and comprehensive
income and consolidated statements of cash flows for the three months ended June
30, 2000. These consolidated financial statements are prepared in accordance
with the instructions for Form 10-Q, as issued by the U. S. Securities and
Exchange Commission, and are the sole responsibility of the Company's
management.
The accompanying balance sheet information as of March 31, 2000 was extracted
from the Company's Annual Report on Form 10-K and was accompanied by our Report
of Independent Certified Public Accountants dated June 26, 2000. We have
performed no further audit procedures since that date.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression on an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
S. W. HATFIELD, CPA
Dallas, Texas
August 14, 2000 (except for Note A
as to which the date is August 18, 2000)
P. O. Box 820395 9002 Green Oaks Circle, 2nd Floor
Dallas, Texas 75382-0395 Dallas, Texas 75243-7212
214-342-9635 (voice) (fax) 214-342-9601
800-244-0639 [email protected]
3
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Balance Sheets
June 30, 2000 and March 31, 2000
(Unaudited) (Audited)
June 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
------
Current Assets
Cash on hand and in bank $ 3,782,413 $ 7,896,072
Accounts receivable, net of allowance for
doubtful accounts of $-0-, respectively
Trade 99,535 --
Refundable income taxes 102,280 102,280
Officers and shareholders 80,531 --
Other 21,114 23,660
Prepaid and other expenses 30,807 16,579
------------ ------------
Total current assets 4,116,680 8,038,591
------------ ------------
Property and equipment - at cost
Computer equipment 832,397 706,560
Office equipment, furnishings and other 227,338 210,576
------------ ------------
1,059,735 917,136
Accumulated depreciation (272,112) (199,998)
------------ ------------
Net property and equipment 787,623 717,138
------------ ------------
Other Assets
Due from related parties 170,882 579,463
Note receivable 21,691 21,691
Software license 162,523 58,983
Investments in other entities 1,377,313 2,274,921
Marketing and customer lists,
net of accumulated amortization of
approximately $38,483 and $20,796, respectively 1,266,936 395,135
Deferred offering costs 18,035 18,035
Other 8,287 8,287
------------ ------------
Total other assets 3,025,667 3,356,515
------------ ------------
Total Assets $ 7,929,970 $ 12,112,244
============ ============
</TABLE>
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Balance Sheets - Continued
June 30, 2000 and March 31, 2000
(Unaudited) (Audited)
June 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable - trade $ 105,837 $ 292,728
Other accrued liabilities 274,842 163,054
Income taxes payable -- --
Deferred revenues 419,117 347,389
Due to officer/shareholder -- 274,163
------------ ------------
Total current liabilities 799,796 1,077,334
------------ ------------
Commitments and Contingencies
Shareholders' Equity
Preferred stock - $0.001 par value
2,000,000 shares authorized
Series A - $1,000 stated value
11,200 shares allocated, issued and outstanding 11,200,000 11,200,000
Common stock - $0.001 par value 50,000,000
shares authorized. 9,778,850 and 9,769,450
issued and outstanding, respectively 9,779 9,769
Additional paid-in capital 2,992,849 2,971,958
Foreign currency translation adjustment (81,915) (58,958)
Accumulated deficit (6,989,639) (3,086,959)
------------ ------------
7,131,074 11,035,810
Stock subscription receivable (900) (900)
------------ ------------
Total shareholders' equity 7,130,174 11,034,910
------------ ------------
Total Liabilities and Shareholders' Equity $ 7,929,970 $ 12,112,244
============ ============
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Statements of Operations and Comprehensive Income
Three months ended June 30, 2000 and 1999
(Unaudited)
Three months Three months
ended ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Revenues
Domestic $ 462,643 $ 1,745,794
Foreign 263,358 336,759
----------- -----------
Total revenues 726,001 2,082,553
Cost of Sales, including depreciation
expenses of approximately $18,659
and 4,944, respectively 511,224 435,696
----------- -----------
Gross Profit 214,777 1,646,857
----------- -----------
Operating Expenses
Selling expenses 684,419 865,439
Amortization of marketing lists 17,687 --
General and administrative expenses 1,590,832 743,422
Research and development expenses -- 67,980
Depreciation 43,146 23,410
----------- -----------
Total operating expenses 2,336,084 1,700,251
----------- -----------
Income (Loss) from operations (2,121,307) (53,394)
Other income (expense)
Interest and other (13,125) --
Lawsuit settlement -- (20,000)
Forgiveness of accrued compensation -- 550,000
Abandonment of investments in other entities (1,768,248) --
----------- -----------
Income (Loss) before provision for income taxes (3,902,680) 476,606
Provision for income taxes -- (117,000)
----------- -----------
Net Income (Loss) (3,902,680) 359,606
Other comprehensive income (expense)
Change in foreign currency translation adjustment -- --
----------- -----------
Comprehensive Income (Loss) $(3,902,680) $ 359,606
=========== ===========
Income (Loss) per share of common stock outstanding,
computed on net loss - basic and fully diluted $ (0.40) $ 0.05
=========== ===========
Weighted-average number of shares outstanding 9,775,676 7,641,250
=========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
6
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Statements of Cash Flows
Three months ended June 30, 2000 and 1999
(Unaudited)
Three months Three months
ended ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $(3,902,680) $ 359,606
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 79,492 28,354
Unrealized foreign currency translation adjustment (12,648) (58,362)
Common stock issued for consulting fees -- 18,000
Lawsuit settlement paid with transfer of assets -- 20,000
Forgiveness of accrued compensation on employment contract -- (550,000)
Abandonment of investments in other entities 1,768,248 --
(Increase) Decrease in
Accounts receivable - trade and other (96,989) (97,891)
Prepaid expenses and other (14,228) 58,010
Increase (Decrease) in
Accounts payable (186,980) 36,261
Other accrued liabilities 111,788 72,080
Due to former officer/shareholder -- --
Income taxes payable -- 117,000
Deferred revenues 71,728 52,644
----------- -----------
Net cash provided by operating activities (2,182,179) 55,702
----------- -----------
Cash Flows from Investing Activities
Cash paid for marketing and customer lists (889,488) --
Cash invested in other entities (565,599) (185,599)
Purchase of property and equipment (142,599) (143,147)
----------- -----------
Net cash used in investing activities (1,597,686) (328,746)
----------- -----------
Cash Flows from Financing Activities
Cash acquired in acquisition of Canadian subsidiary -- 131,529
Cash proceeds from note payable -- 100,000
Cash advanced by (to) officers and shareholders (354,694) --
Cash received on sale of common stock 20,900 --
Payments on capital lease payable -- (1,379)
----------- -----------
Net cash used in financing activities (333,794) 230,150
----------- -----------
Increase in Cash and Cash Equivalents (4,113,659) (42,634)
Cash and cash equivalents at beginning of period 7,896,072 216,159
----------- -----------
Cash and cash equivalents at end of period $ 3,782,413 $ 173,525
=========== ===========
</TABLE>
- Continued -
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
7
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Statements of Cash Flows - Continued
Three months ended June 30, 2000 and 1999
(Unaudited)
Three months Three months
ended ended
June 30, June 30,
2000 1999
----------- -----------
<S> <C> <C>
Supplemental Disclosures of Interest and Income Taxes Paid
Interest paid during the period $ 13,125 $ --
=========== ===========
Income taxes paid (refunded) $ -- $ --
=========== ===========
Supplemental Disclosure of Non-Cash
Investing and Financing Activities
Settlement of lawsuit with transfer of a patent $ -- $ 20,000
=========== ===========
</TABLE>
The financial information presented herein has been prepared by management
without audit by independent certified public accountants. See Accountant's
Review Report. The accompanying notes are an integral part of these financial
statements.
8
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements
Note A - Basis of Presentation
WorldWideWeb Institute.com, Inc. (Company) was incorporated on May 29, 1990 as
Interamerican Pharmaceutical Corporation under the laws of the State of Florida.
The Company changed its name to Spectrum Pharmaceutical Corporation in April
1991. The Company was originally formed to engage in the development and
marketing of certain products utilizing the chemical compound procaine
hydrochloride for the treatment of tinnitus, certain symptoms of Alzheimer's
Disease and cocaine addiction. The Company was assigned a patent covering its
products for the specifically named conditions and diseases. These operations
were not successful and abandoned in prior years.
On June 29, 1999, as filed on July 30, 1999, the Company amended its Articles of
Incorporation to issue up to 50,000,000 shares of $0.00001 par value Common
Stock and to effect a one (1) for ten (10) reverse stock split, with no
fractional shares being issued. The Company also changed its corporate name to
WorldWideWeb Institute.com, Inc.
On March 28, 2000, as filed in April 2000, the Company amended its Articles of
Incorporation to authorize the issuance of up to 2,000,000 shares of $0.001 par
value Preferred stock and to change the par value of its Common Stock from
$0.00001 to $0.001 per share. Concurrent with this Amendment, the Company filed
a Certificate of Designations, Preferences and Rights to designate a Series A
Convertible Preferred Stock consisting of 11,200 shares with a stated value of
$1,000 per share.
All issued and outstanding share amounts in the accompanying consolidated
financial statements have been restated to reflect the effect of the reverse
stock split and accompanying changes in the par value of Common Stock as of the
first day of the first period presented.
On July 2, 1999, the Company issued approximately 5,025,000 shares of
post-reverse split stock to acquire 100% of the issued and outstanding stock of
WorldWideWeb Institute, Inc. (a privately owned Florida corporation).
WorldWideWeb Institute, Inc. then became a wholly-owned operating subsidiary of
the Company.
A change in control of the Company and the simultaneous July 2, 1999 acquisition
of WorldWideWeb Institute, Inc. shared common ownership and management.
Accordingly, the acquisition was accounted for pursuant to Interpretation #39 of
Accounting Principles Board Opinion # 16, "Business Combinations", whereby the
combination of entities under common control are accounted for on an
"as-if-pooled" basis. The combined financial statements of the Company and its
wholly-owned subsidiary became the historical financial statements of the
Company as of the first day of the first period presented.
In the first quarter of Calendar 2000, the Company acquired 100.0% of the issued
and outstanding common stock of WorldWideWeb Institute.com, Ltd., a Canadian
corporation. The Company and/or it's Florida subsidiary had provided
significantly all of the necessary working capital for the Canadian operation
and the Florida subsidiary had owned approximately 20.0% of this operation since
its 1999 inception. Accordingly, the acquisition of this entity was accounted
for on an "as-if-pooled" basis due to the common control of this operation and
the related domestic entities.
Both subsidiaries, WorldWideWeb Institute.com, Inc. and WorldWideWeb
Institute.com, Ltd., are in the business of developing, maintaining and hosting
internet web sites for unrelated third party consumers. Additionally, the
Company is in the business of developing, licensing and/or leasing marketing
lists, based on either facsimile machine telephone numbers and/or e-mail
addresses, to other unrelated third party customers.
9
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note A - Basis of Presentation - Continued
On July 11, 2000, the Company signed a letter of intent to merge with SkyBiz
International, Ltd., a privately- owned Hamilton Bermuda corporation with
operations in Tulsa Oklahoma. SkyBiz International Ltd is in the business of
worldwide sales of web sites to first time users, home-based businesses and many
other customers in more than 180 countries. On August 18, 2000, the Company
discontinued merger discussions with SkyBiz International, Ltd.
During interim periods, the Company follows the accounting policies set forth in
its Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934 on Form 10-KSB filed with the U. S. Securities and Exchange Commission.
The information presented herein may not include all disclosures required by
generally accepted accounting principles and the users of financial information
provided for interim periods should refer to the annual financial information
and footnotes contained in its Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 on Form 10-KSB when reviewing the interim
financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the instructions for Form 10-QSB, are unaudited and
contain all material adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial condition, results of
operations and cash flows of the Company for the respective interim periods
presented. The current period results of operations are not necessarily
indicative of results which ultimately will be reported for the full fiscal year
ending March 31, 2001.
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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
During the years ended March 31, 2000 and 1999, and subsequent periods thereto,
respectively, the Company has a concentration of revenues related to the
production, maintenance and hosting of internet web sites for unrelated third
parties. In the event of technological changes, hosting mediums and
international network connections; the Company may be at risk for a loss of
revenues in future periods, which could have a detrimental effect on the
Company's operations. Management is cognizant of the rapid changes in technology
for the Internet and is instituting operational changes to offset, if any,
negative impact to its revenues as a result of technology, hosting or access
technologies.
Note B - Summary of Significant Accounting Policies
1. Cash and cash equivalents and Currency translations
---------------------------------------------------
The Company and its operating subsidiaries maintain funds in United States
and/or Canadian financial institutions in either US dollar (US$) and
Canadian dollar (CN$) transaction accounts. All transactions of foreign
subsidiaries reflected in the accompanying financial statements have been
converted into US dollar equivalents, as of the end of each respective
quarter at the Wall Street Journal published exchange rate on the last day
of the fiscal quarter, for CN$ accounts and at historical amounts for US$
accounts.
10
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note B - Summary of Significant Accounting Policies - Continued
1. Cash and cash equivalents and Currency translations - continued
---------------------------------------------------
The Company considers all cash on hand and in banks, including accounts in
book overdraft positions, certificates of deposit and other highly-liquid
investments with maturities of three months or less, when purchased, to be
cash and cash equivalents.
Cash overdraft positions may occur from time to time due to the timing of
making bank deposits and releasing checks, in accordance with the Company's
cash management policies.
2. Accounts Receivable and Revenue Recognition
-------------------------------------------
In the normal course of business, the Company accepts checks or national
bankcards as payment for its internet web site development and hosting
services. Bankcard charges are normally paid by the clearing institution
within three to fourteen days from the date of presentation by the Company.
Because of the credit risk involved, if any, management has provided an
allowance for doubtful accounts which reflects its opinion of amounts which
will eventually become uncollectible. In the event of complete
non-performance, the maximum exposure to the Company is the recorded amount
of trade accounts receivable shown on the balance sheet at the date of
non-performance.
Revenues are recognized at the time that the various components of the
customer's web site development process are completed. Based on historical
statistics, all fees are earned and non-refundable within 15 working days
after work commences on a new site. All fees and charges for subsequent
changes and enhancements are recognized as revenues at the time the work is
completed by Company personnel, generally 5-10 working days from
commencement of the modifications to a customer's site.
3. Property and Equipment
----------------------
Property and equipment is recorded at cost and is depreciated on a
straight-line basis, over the estimated useful lives (generally 2.5 to 10
years) of the respective asset. Major additions and betterments are
capitalized and depreciated over the estimated useful lives of the related
assets. Maintenance, repairs, and minor improvements are charged to expense
as incurred.
4. Marketing and customer lists
----------------------------
Marketing and customer lists which are acquired for both internal Company
use and for rental and/or licensing to other unrelated entities are
capitalized and amortized over a 10 year period using the straight-line
method.
5. Deferred offering costs
-----------------------
The Company completed the process of "going public" through a "reverse
acquisition" transaction with a publicly held "shell" company. Deferred
public offering costs represent accounting, legal and underwriting costs
incurred by the Company pertaining to an anticipated registration statement
to be filed with the U. S. Securities and Exchange Commission as required
in a transaction selling $11,200,000 in Class A Convertible Preferred Stock
on March 31, 2000. These costs will be charged against additional paid-in
capital upon successful completion of the registration statement, or
charged to expense if the terms and conditions of the Preferred Stock sale
are modified.
11
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note B - Summary of Significant Accounting Policies - Continued
6. Income taxes
------------
The Company and it's wholly-owned Florida subsidiary filed separate
corporate federal income tax returns through March 31, 1999. It is
anticipated that these two entities will file a consolidated federal income
tax return in future periods. Due to the changes in control occurring in
1999, the Company has no net operating loss carryforwards from periods
prior to the change in control available to offset financial statement or
tax return taxable income in future periods.
The Company's Canadian subsidiary will, as necessary, file separate income
tax returns and corporate reports with the appropriate Canadian
authorities.
The Company uses the asset and liability method of accounting for income
taxes. At June 30, 2000 and 1999, respectively, the deferred tax asset and
deferred tax liability accounts, as recorded when material to the financial
statements, are entirely the result of temporary differences. Temporary
differences represent differences in the recognition of assets and
liabilities for tax and financial reporting purposes, primarily non-
deductible accrued compensation amounts payable to an officer in periods
prior to March 31, 1999 and accumulated depreciation and amortization,
accrued vacation pay accruals, allowances for bad debts and other similar
items with statutory tax treatments per The Internal Revenue Code of 1976,
as amended. As of March 31, 2000 and 1999, the deferred tax asset was fully
reserved.
7. Income (Loss) per share
-----------------------
Basic earnings (loss) per share is computed by dividing the net income
(loss) by the weighted-average number of shares of common stock and common
stock equivalents (primarily outstanding options and warrants). Common
stock equivalents represent the dilutive effect of the assumed exercise of
the outstanding stock options and warrants, using the treasury stock
method. The calculation of fully diluted earnings (loss) per share assumes
the dilutive effect of the exercise of outstanding options and warrants at
either the beginning of the respective period presented or the date of
issuance, whichever is later. As of June 30, 1999, the Company had no
outstanding warrants or options. As of June 30, 2000, the Company's
outstanding warrants and options were anti-dilutive due to the Company's
net operating loss position.
8. Research and development costs
------------------------------
The Company follows the requirements of Statement of Financial Accounting
Standards No. 2, as amended by No. 86, "Accounting for Computer Software to
be Sold, Leased or Otherwise Marketed" whereby "Costs incurred internally
in creating a computer software product shall be charged to expense when
incurred as research and development until technological feasibility has
been established for the product. Technological feasibility is established
upon the completion of a detail program design or, in its absence,
completion of a working model. Thereafter, all software production costs
shall be capitalized and subsequently reported at the lower of unamortized
cost or net realizable value. Capitalized costs are amortized based on
current and future revenue for each product with an annual minimum equal to
the straight-line amortization over the remaining estimated economic life
of the product."
12
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note B - Summary of Significant Accounting Policies - Continued
8. Research and development costs
------------------------------
Payments made on prospective licensing agreements for software to be
developed by others are capitalized until such time that the product is
placed in service or abandoned. In the case of a product being placed in
service, the capitalized costs will be amortized over the estimated useful
life of the product, without regard to technological modifications, and the
related estimated revenue stream of the product. In the event that a
product is abandoned, the unamortized capitalized costs will be charged to
operations at the date of abandonment.
9. Deferred income
---------------
Revenues, and related direct costs, related to the preparation and
maintenance of web sites are deferred until such time that the site is
operational (generally 15 working days from inception).
10. Reclassifications
-----------------
Certain Fiscal 1999 amounts have been reclassified to conform to the Fiscal
2000 financial statement presentations.
Note C - Note receivable
The Company has executed a $19,050 note receivable with a related entity. The
note, dated March 30, 2000, bears interest at 4.0% and is due on or before July
20, 2002. The note has an outstanding balance of approximately $21,691 at June
30, 2000 and March 31, 2000.
Note D - Advances to related parties
At June 30, 2000 and March 31, 2000, the Company has advanced approximately
$170,882 and $579,463 to related entities. These advances are non-interest
bearing and are repayable upon demand. The Company holds options to acquire
various interests in all of the entities to which advances have been made.
Note E - Investments in other entities
The Company has invested in various related and unrelated entities. A summary of
these investments is as follows:
June 30, March 31,
2000 2000
---------- ----------
World Wide Web Institute of Australia Pty Ltd $ - $ 459,440
World Wide Web Institute do Brazil Ltda. - 617,875
Internet Sales Products, Inc. 617,237 601,573
Teklaunch, Inc. 416,185 267,522
ECCO-Net, Inc. 188,508 188,508
Low Cost Hosting.com, Inc. 140,003 140,003
Other 15,381 -
---------- ----------
$1,377,313 $2,274,921
========== ==========
13
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note E - Investments in other entities - Continued
World Wide Web Institute of Australia Pty Ltd is an Australian corporation
engaged in the development, maintenance and hosting of internet web sites for
unrelated third party consumers in Australia and the Pacific Rim. This entity is
owned 20.0% by the Company and 80.0% by members of the Company's Chairman of the
Board's family. This entity conducts business identical to that of the Company.
The Company has an option to acquire up to an additional 55.0% of this entity
for additional consideration of $200,000. In July 2000, the Company's Board of
Directors elected to discontinue all further financial support for this entity
and discontinue any effort to acquire this entity as a wholly-owned subsidiary
of the Company.
World Wide Institute do Brazil Ltda is a Brazilian corporation engaged in the
development, maintenance and hosting of internet web sites for unrelated third
party consumers in South America. This entity is owned 20.0% by the Company and
80.0% by other unrelated parties. This entity conducts business identical to
that of the Company. The Company has an option to transfer its holdings in this
entity to the controlling shareholders or to obtain up to a total of 80.0% of
this entity, as defined in the corresponding letter agreements. In July 2000,
the Company began negotiations to transfer its ownership in this entity to an
unrelated third party, who would then assume all responsibility for all existing
and future operations. The Company has accrued approximately $106,000 for
obligations which the Company had committed prior to electing to discontinue
support to this entity.
Internet Sales Products, Inc. is a Florida corporation in the business of
network marketing. This entity provides marketing, an administrative
organization and product line using the Company's products that will provide
customers, on a worldwide basis, the ability to acquire a basic internet web
site, hosting and other bundled product services. This entity is owned 20.0% by
the Company and 80.0% by a current shareholder and former officer of the
Company. The Company has the option to convert any and all advances to and
investments in this entity to additional shares of this entity up to a total
ownership percentage of 90.0%. The conversion price related to any additional
shares is to be determined by an outside third party.
Teklaunch, Inc. is a Florida corporation in the internet solutions business,
including web site design and hosting, e-commerce and internet business
consulting. This entity is owned 20.0% by the Company and 80.0% by other
unrelated persons. In April 2000, the Company and Teklaunch, Inc. executed a
Stock Purchase Agreement whereby the Company was to acquire an additional 16.0%
(for a total ownership of approximately 36.0%) in this entity for the payment of
approximately $500,000 in cash or in-kind expenditures by the Company on
Teklaunch's behalf and to acquire an additional 48.0% (for a total ownership of
approximately 84.0%) in this entity for an additional payment of approximately
$100,000 in cash or in-kind expenditures on this entity's behalf.
ECCO-Net, Inc. is a Texas corporation in the business of providing electronic
information services to the music industry. This entity and the Company are
engaged in the development, maintenance and support of an interactive
internet/intranet software package for the entertainment industry. This entity
is owned 10.0% by the Company and 90.0% by other unrelated persons.
Low Cost Hosting.com, Inc. is a Florida corporation in the business of providing
unrelated consumers with low cost virtual web site hosting, online site building
services, e-commerce capabilities with secured server transaction capability,
database integration and related technical support. This entity is owned 25.0%
by the Company and 75.0% by an unrelated person. Upon the investment by the
Company of approximately $250,000 in either cash or in-kind expenditures on this
entity's behalf, the Company will have a 10-year option to acquire the 75.0% of
the outstanding shares of this entity that the Company does not own at the sole
option of the Company.
14
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note F - Software license
The Company has a Software Development Agreement with an individual who is also
an employee of the Company to acquire an automated macro-driven web site
building tool (Tool) from a Florida corporation owned by the individual, who has
assigned the rights to the Tool to his corporation, for the exclusive use of the
Company. The Company, upon completion, will own all rights, patents, title and
interests in the Tool.
The costs capitalized in the accompanying consolidated financial statements
represent direct costs incurred by the Company on behalf of the employee to
develop the Tool, which will be amortized against operations, commencing on the
first day that the Tool is fully operational.
In addition to the allocated costs of development incurred by the Company on the
employee's behalf, the Company will pay the employee the following as further
compensation for development of the Tool: 1) $100,000 cash payable in
installments as set forth in the Software Development Agreement; 2) 50,000
shares of the Company's restricted, unregistered common stock; 3) a "put" option
on the 50,000 shares in 2) which may be exercised after November 30, 2001 at a
price of $10.00 per shares if the shares cannot be sold in the open market or if
the open market price is less than $10.00 per share; 4) 2.5% of the issued and
outstanding stock of Internet Sales Products, Inc. which is owned by the
Company; 5) 20.0% of any license fees received by the Company for the licensing
of the Tool to other web site development entities; 6) a royalty equal to 3.0%
of the total cost charged to a Company client for all Company developed web
sites generated using the Tool in excess of 100,000 web sites until such time
that a total of $5,000,000 has been paid to the employee. The Company and/or the
employee has the right to assign this Tool into a to-be-formed corporation,
tentatively known as Cross Country Logistics, Inc. and the employee has the sole
right and option to convert the right to receive any royalties from the use of
the Tool into a 10.0% ownership in the subsidiary operation.
In the event that the employee transfers the Tool into Cross Country Logistics,
Inc., the Company is obligated to acquire 100.0% of the issued and outstanding
stock of Cross Country Logistics, Inc. for a purchase price of approximately
$600,000 under similar terms, conditions and performance benchmarks as required
in the preceding Software Development Agreement.
Note G - Due to/from officers and shareholders
As of June 30, 2000 and March 31, 2000, respectively, the Company has a net
receivable (payable) from its Chairman of the Board and other former officers,
who are also Company shareholders, of approximately $80,531 and $(274,163).
These advances are non-interest bearing and are repayable upon demand.
15
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note H - Income Taxes
The components of income tax (benefit) expense for the periods ended June 30,
2000 and 1999, respectively, are as follows:
June 30, June 30,
2000 1999
----------- ----------
<S> <C> <C>
Federal:
Current $ - $ 117,000
Deferred - -
----------- ----------
- 117,000
State:
Current - -
Deferred - -
----------- -----------
- -
----------- -----------
Total $ - $ -
=========== ===========
As of March 31, 2000, the Company has a net operating loss carryforward of
approximately $1,700,000 to offset future taxable income. If not fully utilized,
this carryforward will begin to expire in 2020.
The Company's income tax expense for the periods ended June 30, 2000 and 1999,
respectively, differed from the statutory federal rate of 34 percent as follows:
June 30, June 30,
2000 1999
----------- -----------
Statutory rate applied to earnings (loss) before income taxes $(1,326,911) $ 122,266
Increase (decrease) in income taxes resulting from:
State income taxes - -
Non-deductible accrued officer compensation - (187,000)
Other, including reserves for deferred tax asset 1,326,911 181,734
----------- -----------
Income tax expense $ - $ 117,000
=========== ===========
</TABLE>
16
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note I - Income Taxes - Continued
The Company's deferred tax asset as of June 30, 2000 and 1999, respectively, is
as follows:
June 30, March 31,
2000 2000
---------- ----------
Net operating loss carryforwards $1,327,000 $ 578,000
Valuation allowance (1,327,000) (578,000)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
The valuation allowance estimate increased (decreased) by approximately $749,000
for the three months ended June 30, 2000 and approximately $578,000 for the year
ended March 31, 2000, respectively. Management is of the opinion that it's
valuation estimate is reasonably possible of changing in future periods.
Note J - Convertible preferred stock
On March 28, 2000, as filed in April 2000, the Company amended its Articles of
Incorporation to authorize the issuance of up to 2,000,000 shares of $0.001 par
value Preferred stock and to change the par value of its Common Stock from
$0.00001 to $0.001 per share. Concurrent with this Amendment, the Company filed
a Certificate of Designations, Preferences and Rights to designate a Series A
Convertible Preferred Stock consisting of 11,200 shares with a stated value of
$1,000 per share.
On February 28, 2000, the Company sold 11,200 shares of Series A Convertible
Preferred Stock for total gross proceeds of $11,200,000. The transaction closed
on March 31, 2000. The Preferred Stock is convertible into shares of the
Company's common stock at a conversion rate of $4.50 per common share.
The underlying common shares are subject to a Registration Rights Agreement
whereby the Company is obligated to file a Form S-3 or other such Registration
Statement as available with the U. S. Securities and Exchange Commission on or
before 45 days after the closing date to register at least 3,500,000 shares of
the Company's common stock. In the event the Registration Statement is not
effective on or before 210 days after March 31, 2000, the Company shall pay
$15,000 per $1,000,000 in Preferred Stock outstanding per month, or part of a
month, that the effective date of the Registration Statement is later than the
210th day after March 31, 2000. The payment is to be made in cash or, at the
sole option of the holding Investor, common stock at the conversion rate of
$4.50 per share.
As a condition of the sale of the Series A Convertible Preferred Stock, the
Company agreed to a "lock up period" of 240 days from March 31, 2000 whereby the
Company cannot contract with any other party to obtain additional financing in
which any equity or equity-linked securities are issued without the express
written consent of the entity initiating the sale of the Preferred Stock.
At any time from March 31, 2000 until eighteen (18) months thereafter, the
Purchasers of the Preferred Stock have the right to purchase up to an additional
2,222,222 shares of common stock at a price of $7.50 per share.
The Company is obligated to designate and reserve an adequate number of common
shares to facilitate the conversion of the Preferred Stock at all times during
the period that the Preferred Stock is issued and outstanding.
17
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note K - Common stock transactions
On June 29, 1999, as filed on July 30, 1999, the Company amended its Articles of
Incorporation to issue up to 50,000,000 shares of $0.00001 par value Common
Stock and to effect a one (1) for ten (10) reverse stock split.
On March 28, 2000, as filed in April 2000, the Company amended its Articles of
Incorporation to authorize the issuance of up to 2,000,000 shares of $0.001 par
value Preferred stock and to change the par value of its Common Stock from
$0.00001 to $0.001 per share. Concurrent with this Amendment, the Company filed
a Certificate of Designations, Preferences and Rights to designate a Series A
Convertible Preferred Stock consisting of 11,200 shares with a stated value of
$1,000 per share.
All issued and outstanding share amounts in the accompanying consolidated
financial statements have been restated to reflect the effect of the reverse
stock split and accompanying changes in the par value of Common Stock as of the
first day of the first period presented.
On April 1, 1999, the Company issued 18,000,000 pre-reverse split shares
(1,800,000 post-reverse split shares) of unregistered, restricted common stock
to its former President in settlement of a consulting contract for providing
various services to the Company in preserving the corporate entity during
preceding years. This transaction was valued at approximately $18,000, which
approximates the "fair value" of the common stock issued and the agreed- upon
value of the services rendered.
On April 15, 1999, the Company issued 125,000 post-reverse split shares of
restricted, unregistered common stock in settlement of a consulting agreement,
valued at approximately $6,000, which approximates the value of the services
rendered and the "fair value" of the shares on the issue date, as compensation
for various services rendered to the Company for the purpose of identifying a
suitable merger candidate for the Company and for paying certain reactivation
expenses on behalf of the Company.
On July 2, 1999, the Company issued approximately 5,025,000 shares of
post-reverse split stock to acquire 100% of the issued and outstanding stock of
WorldWideWeb Institute, Inc. (a privately owned Florida corporation).
WorldWideWeb Institute, Inc. then became a wholly-owned operating subsidiary of
the Company.
On August 10, 1999, the Company sold an aggregate of 1,000,000 Units, consisting
of one (1) share of restricted, unregistered common stock and one (1) Warrant to
purchase an additional share of restricted, unregistered common stock at a price
of $2.25 per share through December 31, 2001, at a price of $1.00 per Unit under
a Stock Subscription Agreement for total proceeds of $1,000,000 to the Company
for working capital purposes.
In August 1999, the Company issued a Private Offering Memorandum selling up to
250,000 Units at a price of $2.00 per Unit. Each Unit consists of one (1) share
of restricted, unregistered common stock and one (1) Warrant entitling the
holder to purchase one (1) share of restricted, unregistered common stock at a
price of $2.25 per share through December 31, 2001. These Warrants are
designated to be registered in the Company's first Registration Statement under
The Securities Act of 1933 after the closing of this Private Offering
Memorandum. The Company sold 250,000 Units in this offering generating gross
proceeds of approximately $500,000.
18
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note K - Common stock transactions - Continued
On August 31, 1999, the Company issued a Private Placement Memorandum to sell
500,000 Units, with the provision for an additional 200,000 Units to allow for
oversubscriptions, at a price of $2.00 per Unit. Each Unit consists of one (1)
shares of restricted, unregistered common stock and one (1) Warrant entitling
the holder to purchase one (1) share of restricted, unregistered common stock at
a price of $2.25 per share through December 31, 2001. The common stock sold
under this Memorandum are subject to a "lock-up" agreement whereby the
purchasers are subject to the requirements of Rule 144 and a contractual
24-month holding period as agreed to between the purchaser and the Company. The
Warrants have no registration rights. The Company sold 597,000 Units in this
offering generating gross proceeds of approximately $1,194,000.
In December 1999, the Company modified the terms of the stock warrants sold in
the 250,000 Unit and 500,000 Unit offerings, respectively, whereby all holders
were offered an incentive to exercise the outstanding warrants. The Company, to
generate additional working capital, offered the holders of the $2.25 Warrants
the availability to receive a Replacement Warrant entitling the holder, upon
exercise of the initial Warrant, to purchase a share of restricted, unregistered
common stock at $8.00 per share for a two-year period from the exercise of the
initial Warrant. This offer was open for a 30-day period during January 2000.
Approximately 281,200 Warrants were exercised during this period generating
gross proceeds of approximately $632,700 to the Company and the Company issued
281,200 Replacement Warrants, which will expire at various dates during January
2002.
In April 2000, the Compamy issued an aggregate 9,400 shares of restricted,
unregistered common stock for gross proceeds of approximately $20,900 upon the
exercise of 8,400 options to purchase stock at $2.25 per share and the deferred
acceptance of a subscription of 1,000 at $2.00 per share.
Note L - Stock Warrants
In connection with the March 31, 2000 sale of 11,200 shares of Series A
Convertible Preferred Stock, the Company issued a Stock Warrant to Zanett
Securities Corporation to purchase up to 250,000 shares of the Company's common
stock at the market price of the Company's common stock on the Preferred Stock
closing date of March 31, 2000 (approximately $11.82 per share). These shares
are to be registered in the S-4 Registration Statement or such other
Registration Statement as may be available to the Company as discussed
previously. This warrant expires on its third anniversary date, if not
exercised.
In connection with the March 31, 2000 sale of 11,200 shares of Series A
Convertible Preferred Stock, the Company issued a Stock Warrant to Hobbs
Melville Securities Corp. to purchase up to 100,000 shares of restricted,
unregistered common stock at a price of $4.00 per share in settlement of
cancellation of a Letter of Engagement by and between the Company and Hobbs
Melville Securities Corp.
On August 10, 1999, in connection with the sale of 1,000,000 shares of
restricted, unregistered common stock under a Stock Subscription Agreement, the
Company issued corresponding Warrants to purchase one (1) share of restricted,
unregistered common stock at a price of $2.25 per share through December 31,
2001.
In August, 1999, the Company issued a Private Offering Memorandum selling up to
250,000 Units at a price of $2.00 per Unit. Each Unit consists of one (1) share
of restricted, unregistered common stock and one (1) Warrant entitling the
holder to purchase one (1) share of restricted, unregistered common stock at a
price of $2.25 per share through December 31, 2001. These Warrants are
designated to be registered in the Company's first Registration Statement under
The Securities Act of 1933 after the closing of this Private Offering
Memorandum.
19
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note L - Stock Warrants - Continued
On August 31, 1999, the Company issued a Private Placement Memorandum to sell
500,000 Units, with the provision for an additional 200,000 Units to allow for
oversubscriptions, at a price of $2.00 per Unit. Each Unit consists of one (1)
shares of restricted, unregistered common stock and one (1) Warrant entitling
the holder to purchase one (1) share of restricted, unregistered common stock at
a price of $2.25 per share through December 31, 2001. The common stock sold
under this Memorandum are subject to a "lock-up" agreement whereby the
purchasers are subject to the requirements of Rule 144 and a contractual
24-month holding period as agreed to between the purchaser and the Company.
These Warrants have no registration rights.
In December 1999, the Company modified the terms of the outstanding stock
warrants sold in the preceding paragraphs whereby all holders were offered an
incentive to exercise the outstanding warrants. The Company, to generate
additional working capital, offered the holders of the $2.25 Warrants the
availability to receive a Replacement Warrant entitling the holder to purchase
an additional share of restricted, unregistered common stock at $8.00 per share
for a two-year period from the exercise of the initial Warrant. This offer was
open for a 30-day period during January 2000. Approximately 281,200 Warrants
were exercised during this period generating gross proceeds of approximately
$632,700 to the Company and the Company issued 281,200 Replacement Warrants,
which will expire at various dates during January 2002.
On April 28, 2000, the Company issued a Warrant to purchase 20,000 shares of the
Company's common stock to a member of the Board of Directors. The Warrant has an
exercise price of $8.00 per share and expires on April 30, 2003.
The following table summarizes the status of outstanding warrants as of June 30,
2000:
Warrants Warrants
originally outstanding at Exercise price
issued June 30, 2000 per share
---------- -------------- --------------
August 1999 Warrants 1,000,000 1,000,000 $2.25
December 1999 Warrants 847,000 557,400 $2.25
January 2000 Replacement Warrants 281,200 281,200 $8.00
Preferred Stock Warrants 350,000 350,000 $4.00 - $11.82
Director Warrants 20,000 20,000 $8.00
--------- ---------
Totals at June 30, 2000 2,498,200 2,208,600
========= =========
Note M - Stock Options
In July 1999, the Company granted options to purchase 450,000 shares of the
Company's stock to its Chairman and controlling shareholder at an exercise price
of $5.00 per share, which approximated the closing price of the Company's stock
on the date of issuance, as amended by the Company's Board of Directors in
October 1999. The options vest pro-rata over a four-year period and are
exercisable at the anniversary date of the original July 1999 grant.
In October 1999, the Company granted options to purchase 75,000 shares each to
two separate Company officers and shareholders at an exercise price of $5.00 per
share, which approximated the closing price of the Company's stock on the date
of issuance. The options vest as follows: October 2000 - 37,500 shares; October
2001 - 37, 500 shares and also require each officer to be employed by the
Company through December 31, 2000. One of the officers left the Company prior to
March 31, 2000 and the granted options were terminated.
20
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note M - Stock Options - Continued
There were no exercise of any options during the year ended March 31, 2000 and
any subsequent interim period thereto. The following table summarizes all vested
options granted from July 1999 through June 30, 2000:
Options Options Options Options Exercise price
granted exercised terminated outstanding per share
--------- --------- ---------- ----------- --------------
Chairman options 400,000 - - 400,000 $5.00
Officer options 75,000 - 37,500 37,500 $5.00
--------- --------- --------- ---------
Totals 1,200,339 - 37,500 437,500
========= ========= ========= =========
The weighted average exercise price of all issued and outstanding options at
June 30, 2000 was $5.00.
Had compensation cost for options granted been determined based on the fair
values at the grant dates, as prescribed by SFAS 123, the Company's net loss and
net loss per share would not have changed due to the fact that the exercise
price of the options was substantially equal to the market price at the grant
date.
The calculations to estimate the fair value of the options were made using the
Black-Scholes pricing model which required making significant assumptions. These
assumptions include the expected life of the options, which was determined to be
one year, the expected volatility, which was based on fluctuations of the stock
price over a 12 month period, the expected dividends, determined to be zero
based on past performance, and the risk free interest rate, which was estimated
using the bond equivalent yield of 6.0% at June 30, 2000, respectively.
Note N - Contingencies
Employment Agreement
--------------------
On June 1, 1992, the Company entered into an Employment Contract (Contract) with
an individual to serve as the Company's President. The Contract required a
annual base salary, as specified to use the Contract's anniversary dates, as
follows:
June 1, 1992 to May 31, 1993 $ 85,000
June 1, 1993 to May 31, 1994 105,000
June 1, 1994 to May 31, 1995 115,000
June 1, 1995 to May 31, 1996 125,000
June 1, 1996 to May 31, 1997 135,000
June 1, 1997 to May 31, 1998 145,000
June 1, 1998 to May 31, 1999 155,000
Additionally, the Contract provided for discretionary bonuses, paid vacation and
sick leave time, use of a Company automobile or reimbursement for the use of a
personal automobile and various normal insurance coverage for life and health
coverages.
21
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note N - Contingencies - Continued
Employment Agreement - continued
--------------------
Effective April 1, 1999, this individual and the Company executed an Agreement
whereby all accrued compensation under this Agreement were forgiven by the
individual with no further liability to the Company. Accordingly, the reversal
of these accruals resulted in a one-time income item of $550,000. Pursuant to
the Internal Revenue Code, none of these accrued amounts were eligible for
deduction for income tax purposes in the initial year of accrual and no income
tax effect is realized as a result of this forgiveness.
On June 10, 1999, effective June 1, 1999, the Company entered into an Employment
Agreement (Agreement) with an individual to serve as the Company's Chief
Executive Officer and President (CEO). The Agreement is for a term of five (5)
years and provides the CEO with an annual base salary of $250,000. The CEO may
also be paid a bonus equal to 25.0% of base salary for the period beginning with
the execution of the Agreement through March 31, 2004. The CEO is guaranteed a
minimum bonus of $50,000 for term of the Agreement and is subject to mutually
agreed-upon performance criteria. Further, the CEO is authorized to execute life
insurance policies on his own life in the amount of $1,600,000 and the Company
is responsible for the payment of premiums of said policies with these payments
being additional compensation to the CEO. This Agreement terminates
automatically upon either the death of the CEO or the CEO's voluntary separation
from the Company. In the event that the Company dismisses the CEO, the Company
is obligated to pay a lump sum severance equal to one year's base salary to the
CEO for full and complete settlement of the Agreement.
Effective April 4, 1999, the Company entered into a Letter Agreement with an
individual to serve as the Company's Chief Financial Officer (CFO). The Letter
Agreement requires a base salary of $10,000 per month and may be terminated by
the Company upon 60 days written notice. In the event that the Company's CFO is
terminated, the Company is obligated to pay the CFO a severance equal to the
base salary at the rate of one (1) week for each month served between April 1999
and the month of termination to a maximum of 16 weeks. Said payment is due upon
the first (1st) day of the month subsequent to the termination. Additionally,
the Company, upon notice of termination, is obligated to issue the CFO a Stock
Purchase Warrant to purchase up to 40,000 restricted, unregistered common stock
at a price equal to the average of the closing bid price of the Company's common
stock over the previous 10 trading days. Such Warrant shall contain a cash-less
exercise provision, no vesting conditions and piggyback registration rights.
Further, the Company has agreed, in the event of termination, to
contemporaneously execute, upon termination, a consulting contract with the CFO
whereby the CFO will be retained as a consultant and Director to the Company for
the succeeding 12 month period at a minimum rate of $5,000 per month, beginning
on the date that his severance compensation ceases.
22
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note N - Contingencies - Continued
Employment Agreement - continued
--------------------
Effective March 6, 2000, the Company entered into an Employment Agreement with
an individual to serve as the Company's Chief Operating Officer and Executive
Vice President (COO). On April 19, 2000, the parties modified this agreement to
provide for a base salary of $150,000 per year and an annual performance bonus
of up to 50.0% of the base salary with a guaranteed bonus of $45,000 payable in
January 2001. The COO was granted the option to purchase up to 10,000 shares of
the Company's common stock from the Company's Chairman at a price of $1.50 per
share. This option expires on March 4, 2003 and 50.0% vests in June 2000 and the
remainder vests on the first anniversary date of this agreement. Further, the
COO was granted options to purchase up to 90,000 shares of the Company's common
stock at a price of $8.00 per share (as repriced on April 28, 2000). These
options expire on the seventh (7th) anniversary date of this agreement and vest
over a three year period, commencing on March 15, 2001. In the event that the
average price of the Company's common stock, as quoted, drop below $8.00 (as
repriced on April 28, 2000) for a period of more than six months, these options
will be canceled and replaced with identical options with an exercise price
equal to the then prevailing market price.
Litigation
----------
The Company and its then President were defendants in a case initiated in August
1992 in Circuit Court for the 15th Judicial Circuit for Palm Beach County,
Florida seeking damages related to the termination of a partnership which was
the predecessor to the Company. In February 1999, this litigation was authorized
to be settled by the Company's Board of Directors through the transference of
the patent assigned to the Company to the plaintiff. In May 1999, this lawsuit
was settled through the physical transfer of the patent assigned to the Company.
Currently, the Company is not subject to any direct governmental regulation
other than the Securities Laws and Regulations applicable to all publicly owned
companies, and laws and regulations applicable to businesses generally. Few laws
or regulations are directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is likely
that a number of laws and regulations may be adopted at the local, state,
national or international levels with respect to the Internet. Any new
legislation could inhibit the growth in use of the Internet and decrease the
acceptance of the Internet as a communications and commercial medium, which
could in turn decrease the demand for its services or otherwise have a material
adverse effect on the Company's future operating performance.
The Company is the defendant in litigation styled Robert H. Braver v. Worldwide
Web Institute, Inc. et al. in the District Court of Cleveland County, Oklahoma
(Case No. CJ-99-1303-L) alleging that the Company unlawfully faxed information
to the plaintiff. Per the Company's legal counsel, "There is a statute under
which persons aggrieved by unwanted faxes and telephone calls may recover or may
be found guilty of a misdemeanor, punishable by a fine of not less than $500.00
nor more than $1,000.00 for each separate violation. There is also the Federal
Consumer Privacy Act which protects subscriber privacy rights." The Company is
vigorously defending itself in this action and anticipates no material impact to
either its operations, the results of operations, its financial condition or
liquidity based on the uncertainty of outcome, if any, of this litigation at
this time.
The Company is a plaintiff in two cases in Broward County Court alleging former
Company employee violations of non-compete, confidentiality and
non-circumvention agreements:
23
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note N - Contingencies - Continued
Litigation - continued
----------
First, in WorldWideWeb Institute, Inc. v. USAWEB Technology, Inc., the
Company seeks the recovery of damages and injunctive relief in connection
with USAWEB's solicitation of employees to resign from the Company and
accept positions at USAWEB which the Company believes is in violation of
their non-compete and non-disclosure agreements with the Company. USAWEB
has filed a counterclaim through which it seeks the recovery of damages for
the Company's alleged tortious interference with its relationships with
employees and third parties.
Second, in WorldWideWeb Institute, Inc. et al., v. Carol Fletcher Hudson,
the Company is seeking damages and injunctive relief in connection with Ms.
Hudson's breach of a non-compete agreement and non-disclosure agreement.
WorldWideWeb Institute, Inc., a Canadian corporation, ("WorldWideWeb
Canada"), is seeking a declaration that Ms. Hudson is not entitled to stock
in WorldWideWeb Canada because she has failed to perform any duties on
behalf of the Company. Defendant has filed a counterclaim alleging that she
is entitled to an equity interest in the Company and WorldWideWeb Canada.
Ms. Hudson has also raised in her counterclaim a claim for intentional
infliction of emotional distress based upon the conduct of an officer of
the Company. This action is scheduled for trial in October, 2000. As
discovery has not been completed, the Company cannot predict the
probability of any outcome in the lawsuit.
The Company is involved in two other actions:
In WorldWideWeb Institute, Inc. v. Scott Christenson, the plaintiff seeks
the recovery of monies in connection with the Company's alleged failure to
perform its contractual obligations. The amount in controversy is less than
$5,000.00. The trial in this action is scheduled for August 11, 2000. The
Company cannot predict the probability of any outcome in the lawsuit.
The Company also is a plaintiff in a multi-part complaint for declaratory
relief and damages with its former Chief Technology Officer and Director,
Dana Williams. The case WorldWideWeb Institute.com, Inc. vs. Dana Williams,
alleges that Ms. Williams while an officer and director of the Company set
up and implemented plans to run a competing company. It also alleges breach
of fiduciary duty including solicitation of current and former employees
and misappropriation of trade secrets and other proprietary information,
and unjust enrichment. The suit demands monetary damages and assignment
back to the Company or cancellation of all shares.
Consulting Agreement
--------------------
On April 1, 1999, the Company executed a consulting agreement with an
individual, who became an officer of the Company on May 20, 1999. This contract
was settled on April 15, 1999 with the issuance of 125,000 post- reverse split
shares of unregistered, restricted common stock, valued at approximately $6,000,
which approximates the value of the services rendered and the "fair value" of
the shares on the issue date, as compensation for various services rendered to
the Company for the purpose of identifying a suitable merger candidate for the
Company and for paying certain reactivation expenses on behalf of the Company.
24
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note N - Contingencies - Continued
Placement Agent Agreement
-------------------------
In connection with the sale of 11,200 shares of Series A Convertible Preferred
Stock, the Company executed a Placement Agent Agreement. This Placement Agent
Agreement required a fee of 10.0% of the gross proceeds of the Preferred Stock
issue; a $50,000 non-accountable expense allowance and a stock purchase warrant
for 250,000 shares of common stock at the market price of the Company's common
stock on the closing date. This Agreement also limits the Company's ability to
negotiate with other investors, agents or other interested parties without the
permission and/or assistance of the Placement Agent. Further, the Placement
Agent shall approve all subsequent mergers, sales, consolidations, or financings
involving the company and which are, in the aggregate, in excess of $250,000.
Acquisitions
------------
On March 28, 2000, the Company entered into a Stock Purchase Agreement to
acquire 100.0% of the issued and outstanding stock of Cross Country Logistics,
Inc. from its sole shareholder, who is also an employee of the Company. The sole
asset of Cross Country Logistics, Inc. is the assignment of ownership of an
automated macro- driven web site building tool (Tool) with a pending patent
application. The Company has incurred certain direct costs on the employee's
behalf related to the development of the Tool. In addition to the allocated
costs of development incurred by the Company on the employee's and/or Cross
Country Logistics, Inc.'s behalf, the Company will pay an aggregate purchase
price of $600,000 as follows: 1) $100,000 cash payable in installments as set
forth in the Stock Purchase Agreement and 2) 50,000 shares of the Company's
restricted, unregistered common stock to be issued as set forth in the Stock
Purchase Agreement. This transaction closed subsequent to March 31, 2000.
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Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Operations
(1) Caution Regarding Forward-Looking Information
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words,
"anticipate", "believe", "estimate", "expect", "intend" and similar expressions,
as they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company regarding future events and are subject to certain risks, uncertainties
and assumptions including the risks and uncertainties noted. Should one or more
of these risks or uncertainties materialize or should underlying assumptions
materially prove incorrect, actual results may vary from those described herein
as anticipated, believed, estimated, expected or intended.. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
(2) General
On May 20, 1999, the Company's then majority shareholder, Dr. Howard I.
Wertheim, executed a stock purchase agreement where he sold 22,472,634 of the
24,911,165 pre-reverse split shares (2,247,263 of the 2,491,250 post-reverse
split shares) of common stock then issued and outstanding to Halter Capital
Corporation in a cash transaction. Halter Capital Corporation then became the
Company's controlling shareholder.
On July 2, 1999, Halter Capital Corp. executed a Stock Purchase Agreement
whereby they sold 1,815,000 of the 2,491,250 post-reverse shares of common stock
then issued and outstanding to Smiley Sansoni, Randall Denton, James Brett
Hudson, Dana Williams, Mira DeLane, Corporate Builders Inc. and Prosperity Power
Inc. (collectively New Shareholders). The New Shareholders then became the
Company's controlling shareholders. These individuals were also collectively the
controlling shareholders of WorldWideWeb Institute, Inc.
On July 2, 1999, concurrent with the above transaction, the Company issued
approximately 5,025,000 shares of post reverse split stock to acquire 100% of
the issued and outstanding stock of WorldWideWeb Institute, Inc. (a privately
owned Florida corporation). WorldWideWeb Institute, Inc. then became a
wholly-owned operating subsidiary of the Company.
On October 1, 1999, the Company exercised its right to purchase 100% of an
independent sales marketing affiliate in Toronto, Canada, World Wide Web
Institute, Inc. (hereafter referred to as WWW Canada) The Company agreed to
convert loans made to WWW Canada in the amount of $844,000, and issued two year
options to purchase additional 35,000 common shares to its major shareholder,
Max Haroon.
Accordingly the acquisition of WorldWideWeb Institute, Inc. in July 1999, was
accounted for pursuant to the requirements of Interpretation #39 of Accounting
Principles Board Opinion #16, "Business Combinations", whereby the combination
of entities under common control is accounted for on an "as if pooled" basis.
The combined financial statements of the Company and its wholly-owned subsidiary
became the historical financial statements of the Company as of the first day of
the first period presented. The Company will retain its March 31 year end for
all future periods.
This interpretation has been applied to WWW Canada even though the Company did
not have controlling interest in the Company. Officers of the Company
participated on WWW Canada's Board of Directors, and operations were
substantially funded by advances from the Company. Accordingly the Company's
historical financial statements have been restated to be included in the
consolidated financial statements from the Company's inception in November 1998.
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(3) Results of Operations, Liquidity and Capital Resources
For the three months ended June 30, 2000, the Company's revenues on a
consolidated basis were $726,001 compared to $2,082,553 for the three month
period ending June 30, 1999, or a decline of approximately 65%. This reflects
the Company's emphasis on eliminating unprofitable product lines, including the
"free" six page website package, that required participants to pay for hosting.
The Company has discontinued the sale and production of its six page website
package in the US primarily because of declining prices for web site production
and hosting, and the increased number of alternatives available to its primary
target customers - small to medium sized business. The Company expects in future
months to derive substantially all of its revenues from other sources, but is
likely to experience a significantly lower volume of revenue.
Cost of sales for the three months ended June 30, 2000 were $511.224 compared to
$435,696 for the three months ended June 30, 1999. This represented an increase
of approximately 17% which was primarily due to higher fixed costs of production
attributable to the need for more experienced web design and production
personnel. During the quarter, the Company began to make significant staff and
overhead reductions, but the benefits of these actions are likely to be felt in
subsequent quarters.
Selling, general and administrative expenses for the three months ended June 30,
2000 were $2,336,084 compared to $1,700,251 for the three months ended June 30,
1999, an increase of 37%. General and administrative expenses increased to
$1,590,832 for the three months ended June 30, 2000, an increase of more than
113% from the previous year costs of $743,422. The increase was primarily
attributable to the following factors: (1) higher management and administrative
costs including hiring a new Chief Operating Officer and General manager (2)
one-time termination and severance costs incurred as a result of streamlining
operations and (3) substantially increased marketing and advertising costs
including print media and radio advertising in both the U.S. and Canada.
The loss per share for the three months ended June 30, 2000 was approximately
$0.40 per share from operations, compared to $.01 for the previous year, and
includes a $0.19 non-recurring write down of investments in foreign sales
affiliates. This compares to a profit of $359,606 for the quarter ended June 30,
1999, which also includes a one time accounting gain of $530,000 primarily from
settlement of an employment compensation agreement. Such an increase was
primarily attributable to the previously mentioned lower levels of revenue, and
increases in selling costs and general and administrative expenses.
The Company wrote down approximately $1,768,248 of its investments in its
Brazilian sales affiliate and its Australian sales affiliate which the Company
expects will be liquidated. The Company discontinued its participation with its
Brazilian and Australian subsidiaries because of what management believed were a
need for substantially more investment in these affiliates, management issues,
and their incompatible with the Company's future direction.
The Company is required under the terms of its March 31, 2000 sale of $11.2
million of Series A convertible preferred stock to file a Form S-3 or other such
Registration Statement with the U.S. Securities and Exchange Commission on or
before May 16, 2000. The financing terms requires the Company to register at
least 3,500,000 shares of the Company's common stock.
In the event the Registration Statement is not effective on or before 210 days
after March 31, 2000, the Company shall pay $15,000 per $1,000,000 in Preferred
Stock outstanding per month or part of a month that the Registration Statement
has not become effective. The payment is to be made in or cash or at the sole
option of the holding Investor, common stock at the rate of $4.50 per share. The
Company to date has not made such a filing which was mandated to be 45 days
after closing or May 16, 2000, since audited numbers had not yet been available,
and subsequently, it entered into a letter of intent to merge with SkyBiz
International, Ltd.
It is possible that acquisition and merger agreements may delay the effective
date of the filings by requiring additional amendments and audited figures from
potential acquisition candidates. The Company may thus have some exposure to
potentially severe penalties, and intends to discuss the possible relief under
these circumstances. Management is unable to forecast what the results of these
discussions will be.
The Company's most significant priority is growth through acquisition or merger.
The Company during this past quarter began discussions with SkyBiz International
Ltd. a privately-held marketer of web sites which subsequent to the end of the
quarter has resulted in an agreement in principle to merge with the Company,. On
August 18, 2000, the Company discontinued merger discussions. Accordingly, the
Company plans to enter into discussions with other possible acquisition or
merger candidates. The Company is unable to forecast the results of these
discussions at this time.
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Internally, the Company intends to focus on Internet marketing services and
products, including the sale and management of permission based e-mail and e-fax
lists, sale of advertising, and other services which intended to drive traffic
to customer web sites. The Company presently owns a data base of more than 20
million fax and e-mail names, which it has acquired and is continuing to
develop. Revenue from these sources at the present time is small, but management
believes it has the potential to grow substantially.
Management is unable to forecast the revenue levels from these other relatively
new sources for the rest of the year, and believes that start up costs may
ultimately be higher than originally anticipated. As a result, the Company's
revenue levels will be significantly reduced for this current fiscal year, and
it will continue to experience substantial losses as commensurate overhead
reductions and reallocations are expected to take time.
(4) Liquidity and Capital Resources
For the three months ended June 30, 2000, the Company generated negative cash
flows from operations of $2,182,179. This was due to its reduced level of sales
while maintaining a significant infrastructure necessary to support its existing
customer base with customer service, production and technical support. The
majority of this was the write down of $1,768,248 of investments in previously
described foreign affiliates.
The Company also invested more than $1,597,686 which included more than $889,488
in the acquisition of marketing and customer lists, and investments in other
entities of $565,599 which included Tek Launch.com, Inc. a maker of high end
website production facility, and ISPUSA, a provider of software, and website
products to the network marketing industry. The Company purchased approximately
$142,599 which primarily included high end servers, communications systems and
software. The Company does not anticipate increased further capital expenditures
for computer and network facilities in future periods. However, at this time,
the exact amount, if any to be expended on these facilities can not be
predicted.
The company expects that its current day to day operational financial needs will
be provided by on-going operations and equity capital. The Company anticipates
that the shift in its business model towards Internet marketing services and
products will only require modest investment. The Company anticipates that a
substantial portion of its present working capital will be expended as
additional personnel shifts are made and that there may be additional write
downs of its investments in ISPUSA and related entities.
The Company's goal is to achieve profitability through acquisition or merger,
and to reduce its operating losses associated with the transition to Internet
marketing services and products. If the Company is unsuccessful with these
objectives, or if they take significantly longer, the Company may need to do
additional financing. It is anticipated that some of these needs would be met
through private financing or strategic partnering, although there is no
assurance that it will be able do so on a timely or advantageous basis.
Part II - Other Information
Item 1 - Legal Proceedings
See Notes to Consolidated Financial Statements
Item 2 - Changes in Securities
In April 2000, the Compamy issued an aggregate 9,400 shares of restricted,
unregistered common stock for gross proceeds of approximately $20,900 upon
the exercise of 8,400 options to purchase stock at $2.25 per share and the
deferred acceptance of a subscription of 1,000 at $2.00 per share.
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Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WorldWideWeb Institute.com, Inc.
August 18 , 2000 /s/ Smiley J. Sansoni
-------- ------------------------------------
Smiley J. Sansoni
Chairman and Director
August 18 , 2000 /s/ Ernest D. Chu
-------- ------------------------------------
Ernest D. Chu
Chief Financial Officer and Director
29
