UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest reported) March 22, 2001
WORLD INTERNETWORKS, INC.
(Exact name of registrant as specified in its chapter)
Nevada 033-05844-NY 87-0575839
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification No.)
625 Cochran Street, Simi Valley, California 93065
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 582-3600
----------------------------------------------------------
(Former name or former address, if changed since last report)
1
This Form 8-K/A is being filed to include the financial statements and
pro forma financial information omitted from the current report on Form 8-K
dated March 22, 2001 and filed on March 29, 2001.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The required financial statements for the periods specified in Rule
3-05(b) of Regulation S-X are included herein.
(b) Pro forma financial information.
On March 22, 2001, World Internetworks, Inc. ("WINS") acquired all of
the outstanding common stock of GTData Corporation ("GTD") in a business
combination described as a "reverse acquisition." For accounting purposes, the
acquisition has been treated as the acquisition of WINS by GTD.
Immediately prior to the acquisition, WINS had 7,806,232 shares of
common stock outstanding. As part of WINS' reorganization with GTD, WINS issued
7,688,403 shares of its common stock to the shareholders of GTD in exchange for
all outstanding shares of GTD.
The operations of WINS had substantially ceased before the time of the
acquisition and WINS had nominal assets and liabilities. The operations of WINS
will not be continued by the surviving entity. In light of these facts and
circumstances, disclosure of prior financial information in pro forma
presentation is not deemed to be material to an understanding of future
operations and accordingly no pro forma financial information is presented here.
For an understanding of the prior financial information of GTD, please see the
separate audited financial statements attached as exhibits to this Form 8-K/A.
For an understanding of the prior financial statements of WINS, please see the
separate audited financial statements filed in the WINS' annual report on Form
10-KSB filed with the Securities and Exchange Commission.
2
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2000 and 1999
with
INDEPENDENT AUDITORS' REPORT THEREON
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
GT Data Corporation
We have audited the accompanying consolidated balance sheet of GT Data
Corporation and subsidiary (the "Company") as of December 31, 2000, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the each of the years in the two-year period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2000, and the results of their operations and their cash flows for
each of the years in the two-year period then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As disclosed in Note 1, the
Company has negative working capital of $801,385, borrowings of approximately
$650,000 in default and an accumulated deficit of $793,262 at December 31, 2000,
losses from operations through December 31, 2000 and a lack of operational
history. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are described in Note 1. The consolidated financial statements
do not include any adjustments that may result from the outcome of this
uncertainty.
By: /s/ CORBIN & WERTZ
----------------------
CORBIN & WERTZ
Irvine, California
May 16, 2001
F-1
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 2000
----------------
ASSETS
Current assets:
Cash $ 331,899
Accounts receivable, net of allowance for
doubtful accounts of $120,000 880,307
Inventories 854,534
Prepaid expenses and other current assets 23,997
----------------
Total current assets 2,090,737
Property and equipment, net 282,371
Intangible assets, net 498,730
Other assets 30,356
----------------
$ 2,902,194
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,229,026
Accrued payroll and related expenses 403,845
Line of credit 365,180
Notes payable 281,414
Notes payable to related parties 568,000
Current portion of obligations under capital lease 11,546
Related party payables 33,111
----------------
Total current liabilities 2,892,122
Obligations under capital lease, net of current portion 6,903
----------------
Total liabilities 2,899,025
----------------
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, $0.001 par value; 1 share authorized, issued
and outstanding --
Series B preferred stock, $0.001 par value; 10,000,000 shares authorized;
1,457,000 shares issued and outstanding (liquidation preference
of $728,500) 1,457
Common stock, $0.001 par value; 100,000,000 shares authorized;
13,375,334 shares issued and outstanding 13,375
Additional paid-in capital 1,107,382
Subscriptions receivable (325,783)
Accumulated deficit (793,262)
----------------
Total stockholders' equity 3,169
----------------
$ 2,902,194
================
See independent auditors' report and
accompanying notes to consolidated financial statements
F-2
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
2000 1999
---------------- ----------------
Net sales $ 7,092,579 $ --
Cost of sales 5,181,507 --
---------------- ----------------
Gross profit 1,911,072 --
---------------- ----------------
Operating expenses:
Employee compensation 1,647,816 41,613
Selling, general and administrative 794,643 63,419
---------------- ----------------
Total other expenses 2,442,459 105,032
---------------- ----------------
Operating loss (531,387) (105,032)
---------------- ----------------
Other income (expense):
Interest expense (112,525) (8,836)
Other, net (11,345) 14,356
---------------- ----------------
Total other income (expense) (123,870) 5,520
---------------- ----------------
Loss before provision for income taxes (655,257) (99,512)
Provision for income taxes 1,600 800
---------------- ----------------
Net loss $ (656,857) $ (100,312)
================ ================
Basic and diluted net loss available to common
stockholders per common share $ (0.05) $ (0.03)
================ ================
Basic and diluted weighted average common shares
outstanding 13,228,366 3,696,184
================ ================
See independent auditors' report and
accompanying notes to consolidated financial statements
F-3
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For Each of The Years In The Two-Year Period Ended December 31, 2000
(SPLIT TABLE)
Preferred A Preferred B Common Stock
Shares Amount Shares Amount Shares Amount
---------- ---- ---------- ---------- ---------- ----------
Balances, January 1, 1999 -- $- -- $ -- 1,000 $ 1
Estimated fair market value of
common stock issued for
expenses paid by an officer -- -- -- -- 4,399,000 4,399
Issuance of common stock for
a subscription receivable -- -- -- -- 8,000,000 8,000
Interest earned on subscriptions
receivable -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ---- ---------- ---------- ---------- ----------
Balances, December 31, 1999 -- -- -- -- 12,400,000 12,400
Issuance of Series A preferred
stock for cash 1 -- -- -- -- --
Issuance of Series B preferred
stock for cash, net of
commissions paid of $60,036 -- -- 1,457,000 1,457 -- --
Additional
Paid-in Subscription Accumulated
Capital Receivable Deficit Total
---------- ---------- ---------- ----------
Balances, January 1, 1999 $ 499 $ -- $ (36,093) $ (35,593)
Estimated fair market value of
common stock issued for
expenses paid by an officer 75,601 -- -- 80,000
Issuance of common stock for
a subscription receivable 292,000 (300,000) -- --
Interest earned on subscriptions
receivable -- (4,783) -- (4,783)
Net loss -- -- (100,312) (100,312)
---------- ---------- ---------- ----------
Balances, December 31, 1999 368,100 (304,783) (136,405) (60,688)
Issuance of Series A preferred
stock for cash 100 -- -- 100
Issuance of Series B preferred
stock for cash, net of
commissions paid of $60,036 667,007 -- -- 668,464
See independent auditors' report and
accompanying notes to consolidated financial statements
F-4
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - CONTINUED
For Each of The Years In The Two-Year Period Ended December 31, 2000
(SPLIT TABLE)
Preferred A Preferred B Common Stock
Shares Amount Shares Amount Shares Deficit
---------- ------------- ----------- ---------- ---------- ----------
Estimated fair market value of
common stock issued for the
purchase of TSLI -- -- -- -- 975,334 975
Interest earned on subscriptions
receivable -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------------- ----------- ---------- ---------- ----------
Balances, December 31, 2000 1 $ -- 1,457,000 $ 1,457 13,375,334 $ 13,375
========== ============= =========== ========== ========== ==========
Paid-in Subscription Accumulated
Capital Receivable Deficit Total
---------- ---------- ---------- ----------
Estimated fair market value of
common stock issued for the
purchase of TSLI 72,175 -- -- 73,150
Interest earned on subscriptions
receivable -- (21,000) -- (21,000)
Net loss -- -- (656,857) (656,857)
---------- ---------- ---------- ----------
Balances, December 31, 2000 $1,107,382 $ (325,783) $ (793,262) $ 3,169
========== ========== ========== ==========
See independent auditors' report and
accompanying notes to consolidated financial statements
F-5
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999
---------------- ----------------
Cash flows from operating activities:
Net loss $ (656,857) $ (100,312)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 197,563 --
Estimated fair market value of common stock
issued for expenses -- 80,000
Interest accrued on stock subscription
receivable (21,000) (4,783)
Changes in operating assets and liabilities, net
of TSLI acquisition:
Accounts receivable 85,051 --
Inventories (97,588) --
Prepaid expenses and other (1,104) --
Income taxes receivable 180,879 --
Accounts payable and accrued expenses 370,422 60,697
Related party payables 31,782 (36,968)
---------------- ----------------
Net cash provided by (used in) operating activities 89,148 (1,366)
---------------- ----------------
Cash flows from investing activities:
Cash obtained in acquisition 75,666 --
Purchases of property and equipment (24,181) --
---------------- ----------------
Net cash provided by investing activities 51,485 --
---------------- ----------------
Cash flows from financing activities:
Net repayments under line of credit (295,469) --
Net proceeds from issuance of preferred stock 668,564 --
Principal payments on capital lease obligation (10,248) --
Principal payments on notes payable (543,330) --
Borrowings on notes payable to related parties 470,000 --
Principal payments on notes payable to related
parties (100,000) --
---------------- ----------------
Net cash provided by financing activities 189,517 --
---------------- ----------------
Net change in cash 330,150 (1,366)
Cash at beginning of year 1,749 3,115
---------------- ----------------
Cash at end of year $ 331,899 $ 1,749
================ ================
Continued ...
See independent auditors' report and
accompanying notes to consolidated financial statements
F-6
GT DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2000 1999
---------------- ----------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 93,916 $ --
================ ================
Income taxes $ -- $ --
================ ================
See accompanying notes to the financial statements for additional information
relating to non-cash investing and financing activities during the years ended
December 31, 2000 and 1999.
See independent auditors' report and
accompanying notes to consolidated financial statements
F-7
GT DATA CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended December 31, 2000 and 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and Operations
GT Data Corporation (the "Company") was originally incorporated on April 14,
1998 according to the laws of Colorado. The Company was reincorporated according
to the laws of Delaware on February 17, 2000. The Company is engaged in the
sale, repair and support service of in-warranty and out-of-warranty peripheral
devices for a variety of large and small brand name manufacturers.
Principles of Consolidation
The consolidated financial statements include the accounts of Technical Services
and Logistics, Inc. ("TSLI"), a wholly owned subsidiary (see Note 2). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has negative working capital of $801,385, borrowings of
approximately $650,000 in default (see Notes 6 and 7) and an accumulated deficit
of $793,262 at December 31, 2000, losses from operations through December 31,
2000 and a lack of operational history, among other matters, which raise
substantial doubt about its ability to continue as a going concern. The Company
intends to fund operations through increased sales and debt and equity financing
arrangements which management believes may be insufficient to fund its capital
expenditures, working capital and other cash requirements for the fiscal year
ending December 31, 2001. The Company also intends to renegotiate its borrowing
terms with its lender or replace the lender (see Note 6). Therefore, the Company
will be required to seek additional funds to finance its long-term operations.
The successful outcome of future activities cannot be determined at this time
and there is no assurance that if achieved, the Company will have sufficient
funds to execute its intended business plan or generate position operating
results.
The financial statements do not include any adjustments related to
recoverability and classification of assets carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
F-8
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued
Risks and Uncertainties
The Company operates in a highly competitive industry that is subject to intense
competition, government regulation and rapid technological change. The Company's
operations are subject to significant risk and uncertainties including
financial, operational, technological, regulatory and other risks associated
with an emerging business, including the potential risk of business failure.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Significant estimates made by management
include, among others, provision for losses on accounts receivable, valuation
for losses on obsolete inventory and valuation on deferred taxes. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 107 ("SFAS 107"), "Disclosures About Fair Value of
Financial Instruments." SFAS 107 requires disclosure of fair value information
about financial instruments when it is practicable to estimate that value. The
carrying amount of the Company's cash, accounts receivable, accounts payable,
accrued liabilities, line of credit, capital lease obligations and notes payable
approximates their estimated fair values due to the short-term maturities of
those financial instruments. The fair value of related party notes payable and
related party accounts payable are not determinable as the transactions are with
related parties.
Concentration Risk
The Company grants credit to customers within the United States of America and
does not require collateral. The Company's ability to collect receivables is
affected by economic fluctuations in the geographic areas served by the Company.
Reserves for uncollectible amounts are provided, based on past experience and a
specific analysis of the accounts, which management believes are sufficient.
Although the Company expects to collect amounts due, actual collections may
differ from the estimated amounts.
F-9
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued
Three customers accounted for approximately 60% of total product sales for
fiscal 2000. There were no such sales concentrations for fiscal 1999. At
December 31, 2000, three customers accounted for approximately 65% of accounts
receivable.
Inventories
Inventories are stated at the lower of average cost or market. Cost is
determined on a weighted average basis which approximates the first-in,
first-out basis. Market is determined by comparison with recent purchases or net
realizable value (see Note 3).
Such net realizable value is based on management's forecast for sales of the
Company's products in the ensuing years. The industry in which the Company
operates is characterized by technological advancement and change. Should demand
for the Company's products prove to be significantly less than anticipated, the
ultimate realizable value of the Company's inventories could be substantially
less than the amount shown on the accompanying consolidated balance sheet.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from three to seven years. Equipment under capital lease obligations
is depreciated over the shorter of the estimated useful life or the term of the
lease. Repairs and maintenance are charged to expense as incurred while
improvements are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation, with any resulting gain or loss included in the consolidated
statements of operations.
Intangible Assets
Intangible assets include goodwill, representing the excess of the purchase
price over the estimated fair value of the net assets acquired (see Notes 2 and
5). Goodwill is amortized using the straight-line method over 15 years.
F-10
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued
Long-Lived Assets
During 1995, the FASB issued Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of," which requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In accordance with the
provisions of SFAS 121, the Company regularly reviews long-lived assets and
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. Based on
its analysis, the Company believes that no impairment of the carrying value on
its long-lived assets exists at December 31, 2000. There can be no assurance,
however, that market conditions will not change or demands for the Company's
services or products will continue which could result in impairment on
long-lived assets in the future.
Stock-Based Compensation
The Company accounts for non-employee stock-based compensation under Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock
Based Compensation." SFAS 123 defines a fair value based method of accounting
for stock-based compensation. However, SFAS 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Under APB
25, compensation cost, if any, is recognized over the respective vesting period
based on the difference, on the date of grant, between the fair value of the
Company's common stock and the grant price. Entities electing to remain with the
accounting method of APB 25 must make pro forma disclosures of net income and
earnings per share, as if the fair value method of accounting defined in SFAS
123 had been applied. The Company has elected to account for its stock-based
compensation to employees under APB 25 (see Note 10).
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation," an interpretation of APB 25.
FIN 44 clarifies the application of APB 25 for (a) the definition of employee
for purposes of applying APB 25 (b) the criteria for determining whether a plan
qualifies as a non-compensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain provisions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN 44 did not have a material effect on the financial
statements.
F-11
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
Revenue Recognition
The Company records sales when goods are shipped to the customer or upon the
completion of the service.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB 101"), "Revenue Recognition," which outlines the basic
criteria that must be met to recognize revenue and provides guidance for
presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the Securities and Exchange
Commission. The effective date of this pronouncement was the fourth quarter of
the fiscal year beginning after December 15, 1999. The adoption of SAB 101 did
not have a material impact on the Company's financial position and results of
operations.
Warranty
The Company provides warranties ranging from ninety days to six months on
certain products sold. Estimated future warranty obligations related to certain
products and services are provided by charges to operations in the period in
which the related revenue is recognized. The Company has a warranty reserve of
approximately $40,000 at December 31, 2000.
Advertising
The Company expenses the cost of advertising when incurred as selling expense.
Advertising expenses were approximately $30,000 and $0 for the years ended
December 31, 2000 and 1999, respectively.
F-12
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per share is
computed by dividing income available to common shareholders by the weighted
average number of shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
Because the Company has incurred net losses, basic and diluted loss per share
are the same as additional potential common shares would be anti-dilutive (see
Note 12).
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The adoption of SFAS 130 did not
have a material effect on the Company's results of operations or financial
position as the Company has no items of comprehensive income.
Segments of Business
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued to
shareholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues and its major customers. The Company currently operates in one
segment, as disclosed in the accompanying consolidated statements of operations.
F-13
NOTE 1- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, continued
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
at their fair value. This statement, as amended by SFAS 137 and 138, is
effective for financial statements for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect the adoption of this
standard to have a material impact on its results of operations, financial
position or cash flows as it currently does not engage in any derivative or
hedging activities.
NOTE 2 - BUSINESS COMBINATIONS
Effective February 28, 2000, the Company acquired TSLI in a business combination
accounted for as a purchase. Prior to the business combination, one of the
majority stockholders of the Company was a stockholder of TSLI. The Company
issued 975,334 shares of its common stock in exchange for all the outstanding
common shares of TSLI. The shares issued for TSLI were valued at $73,150 ($0.075
per share) which represents the estimated fair market value. Management of the
Company estimated the value of the Company's shares exchanged after considering
the restricted nature of the common stock, the limited operating history of the
Company, and the liquidation preference and the convertible nature of its
preferred shares sold on the same date of the acquisition.
F-14
NOTE 2 - BUSINESS COMBINATIONS, continued
The purchase price was allocated to the business acquired based on the relative
fair values of the assets acquired and liabilities assumed, as follows:
Cash $ 75,666
Accounts receivable 965,358
Inventories 756,946
Property and equipment 426,416
Goodwill 528,067
Income tax receivable 180,879
Other 53,249
Accounts payable and accrued liabilities (1,201,341)
Line of credit (660,649)
Notes payable (824,744)
Related party notes payable (198,000)
Obligations under capital leases (28,697)
-------------
$ 73,150
=============
The results of operations of TSLI are included in the accompanying financial
statements from March 1, 2000. The following pro forma summary presents
consolidated results of operations as if TSLI had been acquired as of the
beginning of the Company's 2000 fiscal year
Year Ended December 31,
2000
-------------
Net sales $ 8,251,984
=============
Net loss $ (585,620)
=============
Loss per common share $ (0.04)
=============
The above amounts are based upon certain assumptions and estimates, which the
Company believes are reasonable. The pro forma results of operations do not
purport to be indicative of the results which would have been obtained had the
business combination occurred as of January 1, 2000 or which may be obtained in
the future.
F-15
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31, 2000:
Raw materials $ 50,883
Work in progress 359,543
Finished goods 444,108
-------------
$ 854,534
=============
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 2000:
Machinery and equipment $ 163,973
Automobiles 6,777
Furniture and fixtures 121,712
Software 70,314
Leasehold improvements 87,821
-------------
450,597
Less accumulated depreciation and amortization (168,226)
-------------
$ 282,371
=============
Depreciation and amortization expense was $168,226 and $0 for the years ended
December 31, 2000 and 1999, respectively.
NOTE 5 - INTANGIBLE ASSETS
Intangible assets consisted of goodwill associated with the acquisition of TSLI
as of February 28, 2000 (see Note 2).
Goodwill $ 528,067
Accumulated amortization (29,337)
-------------
$ 498,730
=============
Total amortization expense related to goodwill was $29,337 and $0 for the years
ended December 31, 2000 and 1999, respectively.
F-16
NOTE 6 - LINE OF CREDIT
The Company has a revolving line of credit agreement (the "Line") with a
financial institution. The Line bears interest at the prime rate (9.50% at
December 31, 2000) plus 1% per annum. The Line is secured by substantially all
of the Company's assets. The terms of the agreement provide for borrowings of up
to the lesser of $750,000 or the aggregate of 80% of eligible accounts
receivable and 20% of eligible inventory, as defined, of which none was
available at December 31, 2000 due to the Company being in default. At December
31, 2000, the Company's outstanding borrowings totaled $365,180. The Line
requires the Company to maintain certain net worth and solvency ratio covenants,
with which the Company was not in compliance as of December 31, 2000. The Line
was to mature on July 1, 2001; however the Company entered into a forbearance
agreement with the financial institution which requires the Line and term notes
(see Note 7) to be paid in full on June 15, 2001. The Company is in the process
of renegotiating the terms of the forbearance agreement and has entered into
preliminary discussions with a new financial institution. Interest expense
incurred on the Line totaled $44,880 and $0 for the years ended December 31,
2000 and 1999.
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following as of December 31, 2000:
Note payable to a financial institution, secured by
substantially all assets of the Company and
guaranteed by the President and certain stockholders
and directors; payable in monthly installments of
$4,320 including interest at prime (9.50% at
December 31, 2000) plus 2.75%, maturing in June
2007. $ 229,938
Note payable to a financial institution, secured by
substantially all assets of the Company; payable in
monthly installments of $2,779, including interest
at prime (9.5% at December 31, 2000) plus 1%,
maturing April 2002. 41,667
Other 9,809
-------------
$ 281,414
=============
F-17
NOTE 7 - NOTES PAYABLE, continued
The above notes payable are included in the forbearance agreement (see Note 6)
which is due and payable on June 15, 2001. As a result, the Company classified
the note payable as a current liability in the accompanying consolidated balance
sheet at December 31, 2000.
NOTE 8 - RELATED PARTY TRANSACTIONS
Notes Payable
Notes payable to related parties consist of the following at December 31, 2000:
Working capital loans from two of the Company's
major stockholders. The borrowings accrue interest
at 8% and are due July 31, 2001. Total interest
expense incurred and accrued related to these
borrowings was $12,800 for the year ended December
31, 2000, which is included in accounts payable and
accrued liabilities in the accompanying consolidated
balance sheet at December 31, 2000. $ 470,000
Working capital loans from an employee and
stockholder. The borrowings, which are subordinated
to the Line (see Note 6) and notes payable to
financial institutions (see Note 7), accrue interest
at 7% per annum and are due on demand. Total
interest expense incurred and accrued related to
these borrowings was $9,230 and $8,836 for the years
ended December 31, 2000 and 1999, respectively.
Interest accrued related to these borrowings
included in accounts payable and accrued liabilities
in the accompanying consolidated balance sheet at
December 31, 2000 totaled approximately $33,000. 98,000
-------------
$ 568,000
=============
Related Party Payables
Related party payables represent expenses of the Company paid by an officer of
the Company. The advances bear no interest and totaled $33,111 at December 31,
2000. During the year ended December 31, 1999, the Company issued 4,399,000
shares of common stock valued at $80,000 to the related party for payment on
such advances (see Note 10).
F-18
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company is a lessee of certain property and equipment under a capital lease
agreement that expires in June 2002. Terms of the lease requires a monthly
payment of $1,194, with an imputed interest rate of 13%. The asset under capital
lease is recorded at the lower of the present value of the minimum lease
payments or the fair market value of the related assets.
In addition, the Company leases certain property and equipment under operating
lease agreements, which expire on various dates through July 2002 and provide
for monthly lease payments ranging from $277 to $27,268. The Company's lease for
its facilities expires January 31, 2002.
The future minimum annual lease payments under these agreements as of December
31, 2000 are as follows:
Capital Operating
Leases Leases Total
-------------- -------------- --------------
2001 $ 13,000 $ 375,000 $ 388,000
2002 7,000 42,000 49,000
-------------- -------------- --------------
Total minimum lease payments 20,000 $ 417,000 $ 437,000
============== ==============
Less amount representing interest (1,552)
--------------
Present value of minimum lease
payments 18,448
Less current portion (11,546)
--------------
$ 6,902
==============
Rent expense under operating leases for the fiscal years ended December 31, 2000
and 1999 was $365,644 and $0, respectively. Interest expense incurred pursuant
to the capital lease obligations was $2,680 and $0 for the years ended December
31, 2000 and 1999, respectively.
F-19
NOTE 9 - COMMITMENTS AND CONTINGENCIES, continued
The following is an analysis of the leased equipment under capital leases as of
December 31, 2000, which is included in property and equipment (see Note 4):
Furniture and fixtures $ 35,808
Accumulated depreciation (7,673)
--------------
$ 28,135
==============
Legal
The Company may be involved from time to time in various claims, lawsuits,
disputes with third parties, actions involving allegations or discrimination or
breach of contract actions incidental in the normal operations of the business.
The Company is currently not involved in any such litigation which management
believes could have a material adverse effect on its financial position or
results of operations.
NOTE 10 - STOCKHOLDERS' EQUITY
Preferred Stock
The Company's articles of incorporation authorize up to 27,000,000 shares of
$0.001 par value preferred stock. Shares of preferred stock may be issued in one
or more classes or series at such time as the Board of Directors determine. As
of December 31, 2000, the Board of Directors designated 1 share of Series A
preferred stock ("Preferred A"). Each share of Preferred A is convertible into
common stock at a rate of $0.50 per share, subject to future adjustments, as
defined. During the year ended December 31, 2000, the Company sold 1 share of
Preferred A for proceeds of $100.
As of December 31, 2000, the Board of Directors had designated 10,000,000 shares
of Series B 7% convertible preferred stock ("Preferred B"). Each Preferred B
share has a liquidation preference of $0.50 per share plus accrued dividends and
is convertible at anytime into such number of fully paid and non-assessable
shares of common stock as is determined by dividing $0.50 plus the amount of any
accrued and unpaid dividends by the conversion price of $0.50 at the time of
conversion, subject to future adjustments, as defined. The Preferred B shares
are automatically converted in the event of an effective registration statement
filing or an affirmative vote of the Preferred holders voting as a separate
class.
During fiscal year 2000, the Company sold 1,457,000 shares of Preferred B to
investors for proceeds of $668,464 (net of commissions paid of $60,036).
F-20
NOTE 10 - STOCKHOLDERS' EQUITY, continued
Stock Split
On February 17, 2000, the Company's board of directors approved a two-for-one
stock split. All references throughout these financial statements to number of
shares, per share amount, stock option and market prices of the Company's common
stock have been restated to reflect this stock split.
Common Stock
In July 1999, the Company issued 4,399,000 shares of common stock to an officer
of the Company for expenses paid by the officer on behalf of the Company (see
Note 8). Management of the Company valued the shares at $0.018 per share, or
$80,000, based on the restricted nature of the stock and management's estimate
of the value of the Company.
In October 1999, the Company sold 8,000,000 shares of common stock for a stock
subscription receivable of $300,000. These notes bear interest at a per annum
rate of 7% and remain outstanding as of December 31, 2000. The Company
recognized interest income in the amount of $21,000 and $4,783 during the years
ended December 31, 2000 and 1999, respectively. The Company has classified the
stock subscription receivable as a reduction in stockholders' equity in the
accompanying consolidated statement of stockholders' equity (deficit) at
December 31, 2000.
In February 2000, the Company issued 975,334 shares of common stock in
consideration for 100% of the issued and outstanding shares of TSLI. (see Note
2). The shares were valued at $73,150 ($0.075 per share), based on management's
estimate after considering the restricted nature of the common stock, the
limited operating history of the Company, and the liquidation preference and the
convertible nature of its preferred shares sold on the same date of acquisition.
Stock Options
In February 2000, the Company's board of directors and majority shareholders
approved and adopted the GT Data Corporation 2000 Stock Option Plan ("the 2000
plan"). As amended, a total of 10,000,000 shares of common stock are reserved
for issuance under the 2000 plan. The exercise price for each option shall be
equal to 100% to 110% of the fair market value of the common stock on the date
of grant, as defined. The plan shall terminate ten years after its adoption by
the board of directors and may be terminated by the board of directors on any
earlier date, as defined.
F-21
NOTE 10 - STOCKHOLDERS' EQUITY, continued
During the year ended December 31, 2000, the Company issued options pursuant to
the 2000 plan to purchase 5,828,000 shares of the Company's common stock at
exercise prices ranging from $0.075 per share to $0.09 per share (the estimated
fair market values at the dates of grant). The options vest over a three-year
period from the dates of grant and are exercisable through December 20, 2008.
Under the terms of the TSLI acquisition agreement and pursuant to the 2000 plan,
the Company granted options to purchase 14,500 shares of the Company's common
stock at an exercise price of $0.075 per share (the estimated fair market value
on the date of grant by the Company) to employees of TSLI for options which were
previously issued to purchase 34,800 shares of TSLI common stock. Due to the
exercise price being equal to the estimated fair market value, no additional
amount was allocated to the purchase price of the acquisition related to the
value of these options (see Note 2). The options vest over a three-year period
from the date of grant and are exercisable through December 20, 2008.
The following is a status of the stock options outstanding at December 31, 2000
and the changes during the two years then ended:
Weighted
Average
Options Exercise Price
-------------- --------------
Balance, January 1, 1999 and 2000 -- $ -
Granted 5,842,500 0.08
Expired -- 0.08
Cancelled (126,500) 0.08
-------------- --------------
Balance, December 31, 2000 5,716,000 $ 0.08
============== ==============
Exercisable, December 31, 2000 1,344,344 $ 0.08
============== ==============
Weighted average fair value of options granted $ 0.02
==============
All of the options at December 31, 2000 have exercise prices between $0.075 per
share to $0.09 per share, with a weighted average exercise price of $0.08 and a
weighted average remaining contractual life of seven and one half years.
F-22
NOTE 10 - STOCKHOLDERS' EQUITY, continued
Subsequent to December 31, 2000 and pursuant to the acquisition agreement with
WINS (see Note 14), each outstanding option to purchase three shares of GT Data
Corporation were automatically converted into an option to purchase one share of
WINS.
Had compensation costs for the Company's 2000 options granted to employees been
determined consistent to SFAS 123, the minimum value of each option would have
been estimated using the Black-Scholes option pricing model on the date of grant
using the following assumptions: (i) no dividend yield, (ii) weighted average
risk free interest rate of approximately 6.25% and (iii) average expected useful
life of five years. As a result, the Company's net loss and net loss per share
for the year ended December 31, 2000 would approximate the pro forma amount
below:
December 31, 2000
As Reported Pro Forma
-------------- --------------
Net loss $ (656,857) $ (673,744)
============== ==============
Basic and diluted loss per
common share $ (0.05) $ (0.05)
============== ==============
NOTE 11 - INCOME TAXES
The tax effects of temporary differences that give rise to deferred taxes at
December 31, 2000 are as follows:
Deferred tax asset:
Net operating loss carryforward $ 306,000
Less valuation allowance (306,000)
--------------
Net deferred tax asset $ --
==============
The valuation allowance increased by $261,017 during the year ended December 31,
2000. No current provision for income taxes for the year ended December 31, 2000
and 1999 is required, except for minimum California state taxes of $800 per
entity, since the Company incurred losses during the years.
F-23
NOTE 11 - INCOME TAXES, continued
The provision for income taxes for the years ended December 31, 2000 and 1999
differs from the amount computed by applying the U.S. Federal income tax rate of
34% to loss before income taxes as a result of the following;
2000 1999
-------------- --------------
Computed tax benefit at federal statutory rate $ (222,787) $ (33,834)
State income tax benefit, net of federal effect (38,230) (5,806)
Increase in valuation allowance 261,017 39,640
Other, net 1,600 800
-------------- --------------
$ 1,600 $ 800
============== ==============
As of December 31, 2000, the Company had net operating loss carryforwards of
approximately $790,000 and $390,000 for federal and California state income tax
reporting purposes, which expire in 2020 and 2005, respectively.
NOTE 12 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for the years ended December
31, 2000 and 1999:
Years Ended December 31,
2000 1999
-------------- --------------
Numerator for basic and diluted earnings per share:
Net loss charged to common stockholders $ (656,857) $ (100,312)
Denominator for basic and diluted earnings per share:
Weighted average shares 13,228,366 3,696,184
-------------- --------------
Basic and diluted earnings per share $ (0.05) $ (0.03)
============== ==============
F-24
NOTE 13 - EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) plan. Substantially all
employees of the Company who have attained the age of 21 and completed three
months of service are eligible participants of the plan. The Company does not
match contributions of the plan. As a result, cost related to the plan were
insignificant to the Company during fiscal 2000 and 1999.
NOTE 14 - SUBSEQUENT EVENTS
Preferred Stock
Subsequent to year end, the Company sold 22,000 shares of Preferred B to
investors for proceeds of $11,000.
Merger
Pursuant to an acquisition agreement, effective March 22, 2001, the Company
completed a transaction whereby it was merged with and into World Internetworks,
Inc. ("WINS") and the separate corporate existence of the Company ceased. The
transaction was recorded as a "reverse acquisition" (the "Merger") whereby the
Company was considered to be the accounting acquirer as it retained control of
WINS after the Merger. Simultaneously with the Merger, all the outstanding
shares of common stock and preferred stock of GTD were exchanged on a
one-for-one basis for shares of common stock of WINS.
Pursuant to the Merger, certain stockholders of the Company agreed to surrender
7,165,932 shares of common stock of the Company prior to the consummation of the
Merger.
At the time of the Merger and following a one-for-two reverse stock split, WINS
had 7,806,232 shares outstanding, inclusive of finder fee shares issued in the
merger. By virtue of the Merger, the stockholders of the Company acquired
7,688,403 shares of WINS. The total issued, outstanding and committed shares of
the combined entities subsequent to the Merger was 15,494,635 shares. Since
WINS's continuing operations and balance sheet are insignificant, a pro forma
consolidated balance sheet at December 31,2000 and consolidated statement of
operations for the year ended December 31, 2000 are not presented here.
F-25
(c) Exhibits
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLD INTERNETWORKS, INC.
Date: June 5, 2001 By: /s/ Robert Genesi
---------------------
Robert Genesi, President
3