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 September 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)
600 West Hillsboro Blvd., Suite 201, Deerfield Beach, FL 33441
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(Address of principal executive offices)
(954) 428-9321
(Issuer's telephone number)
6245 N. W. 9th Avenue, Ft. Lauderdale FL 33309 (954) 776-8444
---------------------------------------------------------------
(Former Name, Address and Phone Number, if changed since last report)
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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: November 3, 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 September 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 17
Part II - Other Information
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 18
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 September 30,
2000 and the accompanying consolidated statements of operations and
comprehensive income for the six and three months ended September 30, 2000 and
1999 and the accompanying consolidated statements of cash flows for the six
months ended September 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, as restated for the disposition
of the Company's Canadian subsidiary during August 2000, 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
November 3, 2000
Use our past to assist your future sm
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
September 30, 2000 and March 31, 2000
(Unaudited) (Audited)
September 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
------
Current Assets
Cash on hand and in bank $ 1,514,801 $ 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 90,470 --
Other 8,500 7,963
Prepaid and other expenses 24,282 16,579
Current assets of discontinued operations -- 15,697
------------ ------------
Total current assets 1,839,868 8,038,591
------------ ------------
Property and equipment - at cost
Computer equipment 552,423 587,732
Office equipment, furnishings and other 131,574 176,094
------------ ------------
683,997 763,826
Accumulated depreciation (164,143) (168,526)
------------ ------------
Net property and equipment 519,854 595,300
------------ ------------
Other Assets
Note receivable 21,691 21,691
Software license -- 58,983
Investments in other entities 708,301 2,274,921
Marketing and customer lists,
net of accumulated amortization of
approximately $64,650 and $20,796, respectively 1,484,828 395,135
Deferred offering costs 18,035 18,035
Other 53,287 8,287
Other assets of discontinued operations -- 701,301
------------ ------------
Total other assets 2,286,142 3,478,353
------------ ------------
Total Assets $ 4,645,864 $ 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
September 30, 2000 and March 31, 2000
(Unaudited) (Audited)
September 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable - trade $ 25,484 $ 221,327
Other accrued liabilities 167,796 138,920
Deferred revenues 49,286 292,869
Due from former officers/shareholders -- 274,163
Current liabilities of discontinued operations -- 150,055
------------ ------------
Total current liabilities 242,566 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 2,994,849 2,971,958
Foreign currency translation adjustment -- (58,958)
Accumulated deficit (9,801,330) (3,086,959)
------------ ------------
4,403,298 11,035,810
Stock subscription receivable -- (900)
------------ ------------
Total shareholders' equity 4,403,298 11,034,910
------------ ------------
Total Liabilities and Shareholders' Equity $ 4,645,864 $ 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
Six and Three months ended September 30, 2000 and 1999
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Domestic $ 716,226 $ 3,585,613 $ 253,583 $ 1,839,819
----------- ----------- ----------- -----------
Cost of Sales, including depreciation
expenses of approximately $38,839,
$10,946, $20,180 and $5,982,
respectively 748,642 702,973 272,740 403,121
----------- ----------- ----------- -----------
Gross Profit (32,416) 2,882,640 (19,157) 1,436,698
----------- ----------- ----------- -----------
Operating Expenses
Selling expenses 677,890 1,306,869 140,630 571,130
Amortization of marketing lists 43,854 -- 26,167 --
General and administrative expenses 2,206,178 980,358 933,701 572,182
Research and development expenses -- -- -- --
Depreciation 86,846 37,658 45,019 21,504
----------- ----------- ----------- -----------
Total operating expenses 3,014,768 2,324,885 1,145,517 1,164,816
----------- ----------- ----------- -----------
Income (Loss) from operations (3,047,184) 557,755 (1,164,674) 271,882
Other income (expense)
Interest and other (11,962) -- 1,163 --
Lawsuit settlement -- (20,000) -- --
Forgiveness of accrued compensation -- 550,000 -- --
Loss on abandonment of fixed assets (119,259) -- (119,259) --
Abandonment of investments
in other entities (3,755,919) -- (2,387,824) --
----------- ----------- ----------- -----------
Income (Loss) before
provision for income taxes
and discontinued operations (6,934,324) 1,087,755 (3,670,594) 271,882
Provision for income taxes -- (219,000) -- (102,000)
----------- ----------- ----------- -----------
Income (Loss) from
continuing operations $(6,934,324) $ 868,755 $(3,670,594) $ 169,882
=========== =========== =========== ===========
</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.
6
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Statements of Operations and Comprehensive Income - Continued
Six and Three months ended September 30, 2000 and 1999
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
September 30, September 30, September 30, September 30
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (Loss) from
continuing operations $(6,934,324) $ 868,755 $(3,670,594) $ 169,882
Discontinued operations,
net of income taxes
Income (Loss) from discontinued
operations, net of income taxes
of $-0-, $-0-, $-0- and $-0-,
respectively (638,950) (275,111) -- 46,156
Income on disposition, net of
income taxes of $-0-, $-0-,
$-0- and $-0-, respectively 858,903 -- 858,903 --
----------- ----------- ----------- -----------
Income (loss) from
discontinued operations 219,953 (275,111) 858,903 46,156
----------- ----------- ----------- -----------
Net Income (Loss) (6,714,371) 593,644 (2,811,691) 216,038
Other comprehensive income -- -- -- --
----------- ----------- ----------- -----------
Comprehensive Income (Loss) $(6,714,371) $ 593,644 $(2,811,691) $ 216,038
=========== =========== =========== ===========
Earnings (Loss) per weighted-average
share of common stock outstanding
From continuing operations $ (0.71) $ 0.11 $ (0.38) $ 0.02
From discontinued operations 0.02 (0.03) 0.09 0.01
----------- ----------- ----------- -----------
Total earnings (loss) per share $ (0.69) $ 0.08 $ (0.29) $ 0.03
=========== =========== =========== ===========
Weighted-average number
of common shares outstanding 9,777,272 7,895,594 9,778,850 8,166,196
=========== =========== =========== ===========
</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.
7
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Statements of Cash Flows
Six months ended September 30, 2000 and 1999
(Unaudited)
Six months Six months
ended ended
September 30, September 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $(6,714,370) $ 593,644
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 169,539 48,604
Loss on abandonment of fixed assets 119,259 --
Unrealized foreign currency translation adjustment 58,958 (58,874)
Common stock issued for consulting fees 2,900 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 3,755,919 --
Net gain on discontinued operations (219,953) --
(Increase) Decrease in
Accounts receivable - trade and other (100,072) (29,863)
Prepaid expenses and other (52,703) (22,998)
Current assets in discontinued operations -- (3,522)
Increase (Decrease) in
Accounts payable and other accrued liabilities (166,967) 422,340
Current liabilities of discontinued operations -- 533
Income taxes payable -- (50,750)
Deferred revenues (243,583) 84,622
----------- -----------
Net cash provided by operating activities (3,391,073) 471,726
----------- -----------
Cash Flows from Investing Activities
Cash paid for marketing and customer lists (1,133,547) --
Increases in other assets of discontinued operations -- (103,877)
Cash invested in other entities (1,343,420) (1,199,548)
Purchase of property and equipment (169,498) (191,166)
----------- -----------
Net cash used in investing activities (2,646,465) (1,494,591)
----------- -----------
Cash Flows from Financing Activities
Cash advanced by (to) officers and shareholders (364,633) 213,192
Cash received on sale of common stock 20,900 1,063,000
Payments on capital lease payable -- (1,379)
----------- -----------
Net cash used in financing activities (343,733) 1,274,813
----------- -----------
Increase in Cash and Cash Equivalents (6,381,271) 251,948
Cash and cash equivalents at beginning of period 7,896,072 216,159
----------- -----------
Cash and cash equivalents at end of period $ 1,514,801 $ 468,107
=========== ===========
</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.
8
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Consolidated Statements of Cash Flows - Continued
Six months ended September 30, 2000 and 1999
(Unaudited)
Six months Six months
ended ended
September 30, September 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) $ -- $269,750
======== ========
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.
9
<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. During August 2000, the Company ceased operations
within this subsidiary and liquidated all assets and liabilities of the Canadian
subsidiary. The operations of this subsidiary are presented in the accompanying
financial statements as "discontinued operations".
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.
10
<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.
11
<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 formally modified.
12
<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 September 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 September 30, 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 September 30, 1999, the Company had no
outstanding warrants or options. As of September 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."
13
<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
September 30, 2000 and March 31, 2000. Due to the potential for impairment, the
Company suspended the accrual of interest on this note, effective April 1, 2000.
Note D - Advances to related parties
At September 30, 2000 and March 31, 2000, the Company has advanced approximately
$-0- 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. During the
second quarter of Fiscal 2001, the Company abandoned all options to acquire
these various interests in other entities and charged the advances to
operations.
14
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note E - Investments in other entities
The Company has invested in various related and unrelated entities. A summary of
these investments is as follows:
September 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. -- 601,573
Teklaunch, Inc. 466,308 267,522
ECCO-Net, Inc. 188,508 188,508
Low Cost Hosting.com, Inc. -- 140,003
Other 53,485 --
---------- ----------
$ 708,301 $2,274,921
========== ==========
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 former 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 accrued approximately $106,000 for
obligations which the Company had committed prior to electing to discontinue
support to this entity. During the second quarter of Fiscal 2001, the Company
completed the liquidation of its interest in this entity with no further
liability or commitments for additional support.
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. During the second quarter
of Fiscal 2001, the Company abandoned its interest in this entity and charged
it's investment to operations with no further liability or commitments for
additional support.
15
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note E - Investments in other entities - continued
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. During the second quarter of Fiscal 2001, the Company
abandoned its interest in this entity and charged it's investment to operations
with no further liability or commitments for additional support.
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.
16
<PAGE>
<TABLE>
<CAPTION>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note F - Software license
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.
During the second quarter of Fiscal 2001, the Company abandoned its interest in
this software and charged it's investment to operations with no further
liability or commitments for additional support.
Note G - Due to/from officers and shareholders
As of September 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 $90,470 and $(274,163).
These advances are non-interest bearing and are repayable upon demand.
Note H - Income Taxes
The components of income tax (benefit) expense for the periods ended September
30, 2000 and 1999, respectively, are as follows:
September 30, September 30,
2000 1999
-------------- -------------
Federal:
Current $ -- $219,000
Deferred -- --
-------------- -------------
-- 219,000
State:
Current -- --
Deferred -- --
-------------- -------------
-- --
-------------- -------------
Total $ -- $219,000
============== =============
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 September 30, 2000 and
1999, respectively, differed from the statutory federal rate of 34 percent as
follows:
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Statutory rate applied to earnings (loss) before income taxes $ (2,282,886) $ 276,299
Increase (decrease) in income taxes resulting from:
State income taxes -- --
Non-deductible accrued officer compensation -- (187,000)
Other, including reserves for deferred tax asset 2,282,886 129,701
-------------- --------------
Income tax expense $ - $ 219,000
============== ==============
</TABLE>
17
<PAGE>
WorldWideWeb Institute.com, Inc.
Notes to Consolidated Financial Statements - Continued
Note I - Income Taxes - Continued
The Company's deferred tax asset as of September 30, 2000 and 1999,
respectively, is as follows:
September 30, September 30,
2000 1999
----------- -----------
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 six months ended September 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 of September 30, 2000, the required Registration Statement
has not been completed or filed. The holder of the Preferred Stock has not
assessed any of the stated penalties upon the Company and may defer or suspend
the requirement to file the Registration Statement.
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.
18
<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.
19
<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.
20
<PAGE>
<TABLE>
<CAPTION>
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
September 30, 2000:
Warrants Warrants
originally outstanding at Exercise price
issued September 30, 2000 per share
---------- ------------------ --------------
<S> <C> <C> <C>
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 September 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.
</TABLE>
21
<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 September 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
September 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 September 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.
22
<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.
23
<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:
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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 was settled in September 2000 with all findings
and damages being assessed against the Company's former Chairman of the
Board. The Company incurred no financial impact as a result of the
settlement of this action.
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 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.
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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.
During the second quarter of Fiscal 2001, the Company abandoned its interest in
this software and charged it's investment to operations with no further
liability or commitments for additional support.
26
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Part I - Item 2
Management's Discussion and Analysis of Financial Condition and Results of
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" and "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 prove incorrect, actual results may vary materially 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.
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.
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 advances 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.
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 WWW Canada since its formation. Further,
various officers and directors of the Company had participated on WWW Canada's
Board of Directors. 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.
During August 2000, the Company ceased operations within this subsidiary and
liquidated all assets and liabilities of the Canadian subsidiary. The operations
of this subsidiary are presented in the accompanying financial statements as
"discontinued operations".
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The combined financial statements of the Company and its wholly-owned
subsidiaries became the historical financial statements of the Company as of the
first day of the first period presented.
(3) Results of Operations
For the six months ended June 30, 2000, the Company's revenues on a consolidated
basis were $716,226 compared to $3,585,613 for the six month period ending June
30, 1999, or a decline of approximately 80.0%. 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
expects eventually to discontinue 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 six months ended September 30, 2000 were $748,642 compared
to $702,973 for the six months ended September 30, 1999. This represented an
increase of approximately 6.50% which was primarily due to higher fixed costs of
production attributable to the need for more experienced web design and
production personnel. During the second quarter, the Company made significant
staff and overhead reductions, but the benefits of these actions are likely to
be realized in subsequent periods.
Selling, general and administrative expenses for the six months ended September
30, 2000 were $721,744 compared to $1,306,869 for the six months ended September
30, 1999, an decrease of 44.8%. The declines in these costs was directly related
to the staff reductions caused by the decision to eliminate the "free" six page
website product.
General and administrative expenses increased to $2,206,178 for the six months
ended September 30, 2000, an increase of more than 125% from the previous year
costs of $980,358. 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 and termination and severance costs
incurred as a result of streamlining operations.
The Company experienced a Net Loss of $(6,714,371) and a corresponding loss per
share for the six months ended September 30, 2000 was approximately $(0.69) per
share from operations, compared to $0.08 for the comparable period in the
previous year, and includes a $(0.38) non-recurring write down of investments in
foreign sales affiliates. This compares to a profit of $593,644 for the six
months ended September 30, 1999, which also includes a one time accounting gain
of $530,000 primarily from settlement of an employment compensation agreement.
The cumulative loss of in Fiscal 2001 is 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 $3,755,919 of its investments in its
Australian and Brazilian sales affiliates and the abandonment of investments in
other entities which management deemed to no longer be compatible with its
operating plans and the estimated levels of continued support which would be
required by the Company.
The Company's most significant priority is growth through acquisition or merger.
During the first quarter, the Company 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 resume discussions with other possible
acquisition or merger candidates which had been held in abeyance because of the
terms of the SkyBiz Letter of Intent. The Company is unable to forecast the
results of these discussions at this time.
28
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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 six months ended September 30, 2000, the Company generated negative cash
flows from operations of $(3,391,073). 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 Company also invested more than $2,476,967 which included more than
$1,133,547 in the acquisition of marketing and customer lists, and investments
in other entities of $1,343,420, which were subsequently abandoned and charged
to operations during the second quarter of Fiscal 2001. The Company purchased
approximately $169,498 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'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
None
Item 3 - Defaults on Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
29
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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.
November 13 , 2000 /s/ Shawn McNamara
-------- ------------------------------------
Shawn McNamara
Chief Operating Officer
November 13 , 2000 /s/ Marjorie Rubenstein
-------- ------------------------------------
Marjorie Rubenstein
Chief Accounting Officer
30