UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------------
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended May 31, 2001
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to
_________
Commission File Number: 033-05384
World Internetworks, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada 87-0443026
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Cochran St., Simi Valley, California 93065
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(Address of principal executive offices)
Issuer's telephone number, including area code: (805) 582-3600
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve 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 [ ]
The number of shares outstanding of Registrant's common stock as of July 19,
2001 was: 16,062,517
1
WORLD INTERNETWORKS, INC.
TABLE OF CONTENTS
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of
May 31, 2001 (unaudited) F-1
Condensed Consolidated Statements of Operations for the five
months ended May 31, 2000 and 2001 (unaudited) F-2 - F-3
Condensed Consolidated Statements of Cash Flows for the five
months ended May 31, 2000 and 2001 (unaudited) F-4 - F-5
Notes to Condensed Consolidated Financial Statements F-6 - F-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 3 - 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 6
Item 2. Changes in Securities 6
Item 3. Defaults upon Senior Securities 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Item 5. Other Information 6
Item 6. Exhibits and Reports on Form 8-K 6 - 7
Signatures 8
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
World Internetworks, Inc. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
As of May 31, 2001
Assets
Current Assets:
Cash $ 250,184
Accounts Receivable, net 883,393
Inventories 1,072,152
License Agreement 75,000
-----------
Total Current Assets 2,280,729
Property and Equipment, net 204,922
Intangible Assets, net 484,060
Other Assets 38,907
-----------
Total Assets $ 3,008,618
===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 2,323,508
Notes Payable 223,933
Notes Payable to Related Parties 568,000
Current Portion of Lease Obligations 12,189
Related Party Payables 36,705
-----------
Total Current Liabilities 3,164,335
Obligations under Capital Lease, net of current portion 1,182
-----------
Total Liabilities 3,165,517
-----------
Stockholders' Equity:
Series A Preferred Stock, $0.001 par value; 1 share authorized,
no shares issued, and outstanding --
Series B Preferred Stock, $0.001 par value; 10,000,000 share authorized,
no shares issued, and outstanding --
Common Stock, $0.001 par value; 40,000,000 shares
authorized, 16,062,517 shares issued and outstanding 16,061
Additional Paid-In Capital 1,298,740
Subscriptions Receivable (335,286)
Accumulated Deficit (1,136,414)
-----------
Total Stockholders' Equity (156,899)
-----------
Total Liabilities and Stockholders' Equity $ 3,008,618
===========
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements
F-1
World Internetworks, Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
For the Five Months Ending May 31, 2001
Net Sales $ 3,699,001
Cost of Sales 2,319,086
------------
Gross Profit 1,379,915
------------
Operating Expenses:
Employee Compensation 1,133,986
Selling, General and Administrative 555,127
------------
Total Operating Expenses 1,689,113
------------
Operating Loss (309,198)
------------
Other Income (Expense):
Interest Expense (44,538)
Other, net 10,584
------------
Total Other Income (Expense) (33,954)
Net Loss $ (343,152)
============
Basic and Diluted Loss per Common Share $ (0.02)
============
Basic and Diluted Weighted Average Common Shares Outstanding 14,752,414
============
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-2
World Internetworks, Inc. and Subsidiaries
Consolidated Statement of Operations (Unaudited)
For the Five Months Ending May 31, 2000
Net Sales $ 1,579,805
Cost of Sales 952,633
------------
Gross Profit 627,172
------------
Operating Expenses:
Employee Compensation 759,436
Selling, General and Administrative 51,395
------------
Total Operating Expenses 810,831
------------
Operating Loss (183,659)
------------
Other Income (Expense):
Interest Expense (48,377)
Other - net 10,706
------------
Total Other Income (Expense) (37,671)
Net Loss $ (221,330)
============
Basic and Diluted Loss per Common Share $ (0.02)
============
Basic and Diluted Weighted Average Common Shares Outstanding 13,020,080
============
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-3
World Internetworks, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
For the Five Months Ending May 31, 2000
Cash flows from operating activities:
Net Income $(221,330)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 102,236
Changes in operating assets and liabilities (Net of TSLi Acquisition):
Accounts Receivable, net (145,187)
Inventories (30,764)
Prepaid Expenses and Other (1,140)
Accounts Payable ans Accrued Liabilities (133,548)
---------
Net cash used in operating activities (429,733)
---------
Cash flows from investing activities:
Cash obtained in acquisition 75,666
Purchases of property and equipment (16,984)
---------
Net cash provided by investing activities 58,682
---------
Cash flows from financing activities:
Proceeds from the sale of Preferred B stock 318,500
Fees related to financing activities (51,646)
Net increase in subscriptions receivable (10,500)
Net Principal payments on notes payable 267,072
Principle payments on lease obligations (4,412)
---------
Net cash provided by financing activities 519,014
---------
Net increase in cash 147,963
Cash at beginning of period 4,839
---------
Cash at end of period $ 152,802
=========
Supplemental Disclosures of Cash Flow Information
Cash Paid during the Five Months Ended for:
Interest $ 27,042
=========
Income Taxes $ --
=========
Supplemental disclosure on non-cash investing and financing activities:
See accompanying notes to consolidated financial statements for non-cash
investing and financing activities.
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-4
World Internetworks, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
For the Five Months Ending May 31, 2001
Cash flows from operating activities:
Net Income $(343,152)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 94,670
Interest Earned on Subscriptions Receivable (9,503)
Changes in operating assets and liabilities:
Accounts Receivable, net (3,086)
Inventories (217,618)
Prepaid Expenses and Other 15,446
InterCompany Receivable - GT DATA
Accounts Payable ans Accrued Liabilities 690,637
---------
Net cash provided by operating activities 227,394
---------
Cash flows from investing activities:
Purchases of property and equipment (2,551)
---------
Net cash used in investing activities (2,551)
---------
Cash flows from financing activities:
Proceeds from the sale of Common stock 112,680
Proceeds from the sale of Preferred B stock 4,907
Net repayments under line of credit (365,180)
Principal payments on notes payable (57,481)
Principal payments on lease obligations (5,078)
Principal Borrowings from Related Parties 3,594
---------
Net cash used by financing activities (306,558)
---------
Net increase in cash (81,715)
Cash at beginning of period 331,899
---------
Cash at end of period $ 250,184
=========
Supplemental Disclosures of Cash Flow Information
Cash Paid during the Five Months Ended for:
Interest $ 24,485
=========
Income Taxes $ --
=========
Supplemental disclosure on non-cash investing and financing activities:
See accompanying notes to consolidated financial statements for non-cash
investing and financing activities.
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-5
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Principals
Basis of Presentation
The financial statements of World Internetworks, Inc. ("WINS" or the "Company")
for the five months ended May 31, 2001 are unaudited. Due to the merger with GT
Data Corporation (see Note 4) the reporting amounts of WINS are those of the
surviving corporation. The results of operations of WINS previously filed in
prior years are not included herein. Certain information and note disclosures
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have
been omitted. These financial statements should be read in conjunction with the
audited financial statements and notes thereto, which are included in WINS Form
8-K filed June 5, 2001. In the opinion of management, the financial statements
contain all adjustments, consisting of normal recurring adjustments, necessary
to present fairly the financial position of WINS for the period presented. The
interim operating results may not be indicative of operating results for the
full year or for any other interim periods. Due to the merger with GT Data (see
Note 4) and the fiscal year end of GT Data being December 31, the accompanying
consolidated financial statements present the five months period ended of GT
Data and TSLi.
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 $883,606, a stockholders'
deficit of $231,899, losses from operations through May 31, 2001 and a lack of
operational history, among others, that raise substantial doubt about its
ability to continue as a going concern. The Company hopes to increase revenues
from additional revenue services and other cost-cutting measures. In the absence
of significant revenues and profits, the Company intends to fund operations
through additional 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 February 28, 2002.
Therefore, the Company may 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 are no assurances that if achieved, the
Company will have sufficient funds to execute its intended business plan or
generate positive results.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
F-6
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.
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 uncollectable 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.
Three customers accounted for approximately 44% of total product sales for the
period ended May 31, 2001, compared to 60% for the same period in 2000.
Revenue Recognition
The Company records sales when goods are shipped to the customer or upon the
completion of the services.
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 May 31, 2001.
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.
F-7
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.
Derivative Instruments
The Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
established 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
adoption of this standard did not have a material impact on the Company's
results of operations, financial position or cash flows as it currently does not
engage in any derivative or hedging activities.
Note 2 - Principles of Consolidation
The consolidated financial statements include the accounts of the Company, GT
Data Corporation ("GT Data"), and Technical Services & Logistics, Inc. ("TSLi"),
which are both wholly owned subsidiaries of WINS. All significant intercompany
balances and transactions have been eliminated in consolidation.
Note 3 - Business Combination
Effective February 28, 2000, GT Data acquired TSLi in a business combination
accounted for as a purchase. Prior to the business combination, one of the
majority stockholders of GT Data was a stockholder of TSLi. GT Data 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, which
represents the estimated fair market value.
The purchase price was allocated to the business acquired based on the relative
fair values of the assets acquired and liabilities assumed as follows:
Assets $ 2,458,514
Goodwill 528,067
Liabilities (2,913,431)
-----------
$ 73, 150
The results of operations of TSLi are included in the accompanying consolidated
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 fiscal year.
Net Sales $ 2,739,210
Net Loss $ (152,093)
Loss per common share $ (0.01)
F-8
Note 4 - Merger with GT Data Corporation
On March 20, 2001, and pursuant to a Certificate filed with the Nevada Secretary
of State, the Company effected a 1 for 2 reverse split of all the outstanding
shares of its common stock, options and warrants. Immediately following the
reverse split the Company had 250,000,000 shares authorized and 7,104,114 shares
issued and outstanding. Outstanding options and warrants were 224,500 and
815,000 respectively, after the reverse split. On February 27, 2001, the Company
entered into an Agreement and Plan of Reorganization and Merger (the "Plan of
Merger") with GTD Acquisition, Inc. ("Newco") and GT Data Corporation. On March
22, 2001, the Plan of Merger became effective (the "Merger"). Under the Merger,
Newco merged with and into GT Data, with GT Data as the surviving subsidiary of
the Company. Pursuant to the Plan of Merger, all of the 7,688,403 outstanding
preferred and common shares of GT Data were exchanged for shares of the Company
1 for 1 on a post-split basis and 750,000 shares were issued to Fairway Capital
Partners, LLC, a finder, in connection with the transaction. All of the
outstanding shares of Newco were converted into shares of GT Data as the
surviving corporation with the Company as the sole holder of those shares. The
transaction was regarded as a "reverse merger" whereby GT Data was considered to
be the accounting acquirer as it retained control of WINS after the Merger.
Pursuant to the Plan of Merger, certain shareholders of GT Data agreed to
surrender 7,165,931 shares of common stock prior to the consummation of the
Merger. The number of shares issued in exchange for Newco and GT Data shares
under the Plan of Merger is as follows:
Newco common shareholders 100 shares of the surviving
corporation
GTD:
Common shares 6,209,403 shares of the Company
Series A Preferred 1 share of the Company
Series B Preferred 1,479,000 shares of the Company
Total shares issued 7,688,503
Since WINS' continuing operations and balance sheet are insignificant, pro forma
financial statements are not presented.
The Plan of Merger also provides for a Registration Rights Agreement for certain
shareholders of the Company's common stock that hold shares restricted under
Section 144 whereby their shares will be registered as part of any registration
filing undertaken by the Company after the effective date of the Plan of Merger.
Note 5 - Five Month Period
As a result of the company's merger with GT Data, the financial data in this
report covers five (5) months of operations for the company's two operating
subsidiaries, GT Data and TSLi. Both GT Data and TSLi use the calendar year as
their fiscal year, while World Internetworks' fiscal year is March 1 through
February 28. As a result of this inconsistency in fiscal years, the financial
data in this report represents the operating results of both GT Data and TSLi
for January 2001 through May 2001 and March 22, 2001 through May 2001 for World
Internetworks.
Note 6 - Notes Payable and Line of Credit
On May 2, 2001 TSLi paid, in full, the remaining balance of both its Asset Based
Credit line and Term Note that were payable to a financial institution in the
amount of $422,661. TSLi had been in default on the Asset Based Credit line
F-9
since January 2000 and had been operating under a Forbearance Agreement with a
financial institution that required TSLi to remit 10% of its daily cash
collections to the financial institution. TSLi is current on its Small Business
Administration (SBA) loan payable to the financial institution and is not in
default on its remaining Notes Payable.
Note 7 - Stockholders' Equity
In January 2001, GT Data sold 22,000 shares of Series B Preferred stock for
$4,907 in cash.
In connection with the reverse merger (see Note 4) the Company issued 9,333,114
(including 1,479,000 for the conversion of Series B Preferred stock on a one to
one basis). In addition, certain GT Data shareholders agreed to surrender
7,165,931 shares of common stock.
On May 21, 2001, the Company sold 520,000 shares of common stock to an unrelated
investor for $112,680 (net of commissions paid of $17,320). In addition, the
investor was granted warrants to purchase 520,000 shares of common stock at an
exercise price of $0.25 per share.
On May 18, 2001, the Company granted to a third party service provider warrants
to purchase 300,000 shares of common stock at an exercise price of $0.25 valued
at $ 75,000 (pursuant to FAS 123 based on the Black-Scholes option pricing model
and recorded the amount under License Agreement in the accompanying balance
sheet). The warrants vest on the date of grant.
Note 8 - Letter of Intent with Trace Affex, Inc.
On May 3, 2001, the Company entered into a proprietary non-binding Letter of
Intent with Trace Affex, Inc., whereby Trace Affex will be merged with or will
become a subsidiary of World Internetworks, Inc. Trace Affex is a private
company located in San Jose, California and is a leading provider of high-end
optical data storage solutions and CD-ROM duplication and printing system
solutions. World Internetworks and Trace Affex have agreed to enter into good
faith negotiations towards reaching a definitive merger agreement, subject to
the terms and conditions set forth in the non-binding Letter of Intent. The
transaction is also subject to due diligence and shareholder approval.
The non-binding Letter of Intent that was signed on May 3, 2001 expired on June
2, 2001. World Internetworks and Trace Affex entered into an agreement to extend
the non-binding Letter of Intent through July 20, 2001. World Internetworks and
Trace Affex are still in the process of negotiating the terms of the merger
transaction.
Note 9 - License Agreement
Effective May 18, 2001, the Company entered into a license agreement with a
third party. The agreement provides the Company with an exclusive worldwide
license to manufacture and sell the Starlite tape drive, an IBM 3590 compatible
tape drive, as defined. The agreement requires the Company to make an initial
payment of $300,000 on or before October 31, 2001, which the Company has not yet
made. In addition, the Company is required to make two additional payments of
$150,000 each no later than 60 and 120 days after delivery of the actual initial
payment. If the Company does not make the subsequent payments, the license will
continue on a non-exclusive basis. The Company is required to pay a royalty to
the third party for all sales ranging from $250 to $950 for each unit sold, as
defined. In connection with this agreement, the Company granted the third party
warrants to purchase 300,000 shares of common stock of an exercise price of
$0.25 per share valued at $75,000, (pursuant to SFAS 123 based on the
Black-Scholes option pricing model) which the Company has capitalized under
License Agreement in the accompanying Balance Sheet.
Note 10 - Subsequent Events
On July 3, 2001 the company sold $375,000.00 of 10% convertible, subordinated
debentures to an unrelated third party investor in a Regulation S offering. The
debentures are convertible into 1,249,875 shares of the company's common stock.
In addition to the debentures, the investor also received warrants to purchase
an additional 1,249,875 shares of the company's common stock for $0.40 per
share.
On July 10, 2001 the company loaned Trace Affex $150,000.00 (the "Loan"), the
proceeds of the Loan are to be used solely by Trace Affex for working capital
purposes. The Loan bears interest at the rate of 10% per annum, is due and
payable in full on May 31, 2002, and is secured by substantially all of the
assets of Trace Affex.
F-10
Item. 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
Except for historical information contained herein, the matters discussed in
this Form 10-QSB are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward looking statements. Such forward-looking
statements may be identified by the use of certain forward-looking terminology,
such as "may," "will," "expect," "anticipate," "intend," "estimate," "believe"
or comparable terminology that involves risks or uncertainties. Actual future
results and trends may differ materially from historical and anticipated
results, which may occur as a result of a variety of factors. Such risks and
uncertainties include, without limitation, World Internetworks' limited
operating history, the unpredictability of its future revenues, the
unpredictable and evolving nature of its key markets, competition, dependence on
key personnel, creation and licensing, the management of growth, and World
Internetworks' need for additional capital. Except as required by law, World
Internetworks undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise. Readers
should carefully review the factors set forth in other reports or documents that
World Internetworks files from time-to-time with the SEC.
Overview
World Internetworks, Inc. is a Nevada corporation that was incorporated on March
17, 1986, under the name Impressive Ventures, Ltd. The company was acquired by
Wealth International, Inc., a Utah corporation, on August 27, 1996. After the
transaction was completed, Impressive Ventures changed its name to Wealth
International, Inc. and the operating subsidiary, Wealth Utah, subsequently
changed its name to World Internet Marketplace, Inc. In January 1998, Wealth
International, Inc. changed its name to World Internetworks, Inc. to more
accurately reflect the nature of its business.
On March 22, 2001, World Internetworks acquired all of the outstanding stock of
GT Data Corporation and it's wholly owned subsidiary, Technical Services &
Logistics, Inc. (TSLi), thereby making GT Data a wholly owned subsidiary of
World Internetworks. The transaction was recorded as a reverse merger where GT
Data was considered the acquirer because it maintained control after the
transaction was completed. Additionally, as part of the GT Data merger, the
current management and directors of World Internetworks resigned, and a new
management team and board of directors was put in place to run the new
operations of the Company. Going forward, the Company will focus its efforts on
its newly acquired data storage business. Subsequent to the merger, on April 30,
2001, World Internetworks sold all of the assets of its pre-existing Internet
business.
In regard to the following discussion and analysis of the results of operations,
comparisons made to the same period last year will only apply to the operations
of GT Data and TSLi because they are the surviving operations of the Company.
As a result of the Company's merger with GT Data, the financial data in this
report covers five (5) months of operations for the Company's two operating
subsidiaries, GT Data and TSLi. Both GT Data and TSLi use the calendar year as
their fiscal year, while World Internetworks' fiscal year is March 1 through
February 28. As a result of this inconsistency in fiscal years, the financial
data in this report represents the operating results of both GT Data and TSLi
for January 2001 through May 2001 and March 22, 2001 through May 2001 for World
Internetworks.
3
Results of Operations for the Quarter Ending May 31, 2001
Overview
The significant activities in the first quarter of 2001 focus primarily on the
operations of TSLi. While GT Data is operated as a holding company, TSLi is
actively engaged in business activities that are the core of the Company's data
storage business. For the purposes of this overview, we will concentrate on
TSLi's operations.
TSLi's success in growing its partnerships is the main reason for its recent
growth. In addition to consistent business with key accounts, TSLi increased its
number of programs with two of its larger customers, and is poised for even
greater growth if proper financing can be attained. TSLi is now providing hard
drive and tape drive repair, as well as remarketing of both new and used mass
storage products. The types of programs range from consignment to purchase to a
combination of the two.
In addition to the key accounts mentioned above, TSLi's sales strategy has
focused on the high-end library and loader accounts. TSLi has signed a service
contract with one sizeable loader company, are in negotiations with a second,
and have made high-level presentations to two additional companies. While the
service options that TSLi offers to these companies are different than those
offered to several of our current customers, the deciding factor in gaining this
loader/library high-end business was in part predicated on the service mix that
we currently perform for customers. TSLi's visibility to a wide variety of
products and models opens new avenues that were previously unforeseen.
Assets and Liabilities
At May 31, 2001 total assets of the Company were $3,008,618 compared to total
assets of $2,902,194 at December 31, 2000. Cash decreased by $81,715 as the
Company continued to invest in its data storage business. Accounts receivable
increased only $3,086 despite revenue growth of 134%. Inventories increased by
$217,618 as the Company purchased seed inventory for its Vendor Managed
Inventory (VMI) programs with several large customers. License Agreement
increased by $75,000. The Company also wrote-off approximately $160,000 of
inventory deemed obsolete. Fixed assets decreased $77,449 as capital
expenditures of approximately $3,000 were offset by depreciation expenses of
$80,000.
At May 31, 2001 total liabilities were $3,165,517 compared to total liabilities
of $2,899,025 at December 31, 2000. Accounts payable and accrued liabilities
increased $690,637 as the Company delayed payment to vendors, while notes
payable decreased $442,018, primarily the result of the Company repaying in full
both its Asset Based Credit line and Term Note due to a financial institution.
Stockholders' Equity
At May 31, 2001 stockholders' equity was ($156,889), down from $3,169 at
December 31, 2000. The decrease in stockholders' equity was due primarily to the
Company's net loss of $343,152 for the period ending May 31, 2001. The net loss
offset increases to stockholders' equity from the sale of common stock and
Series B preferred stock, which netted the Company $117,587, interest accrued in
the current period in the amount of $9,503 for subscriptions receivable and
value of warrants granted at $75,000.
Revenues
The company's net revenues, all of which were generated by its wholly owned
subsidiary, TSLi, were $3,699,001, a 134% increase over the $1,579,805 that TSLi
generated in the same five month period of fiscal 2000. The increase was
primarily the result of a significant increase in volume from three large
customers and the prior year quarter only included TSLi operations from the
acquisition date of February 28, 2000. Revenues also benefited from an increase
in the scope of our Vendor Managed Inventory (VMI) program with another large
customer and the prior year quarter only including TSLi operations from the date
of acquisition of February 28, 2000.
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Gross Profits
The Company's gross profits, all of which were generated by its wholly owned
subsidiary, TSLi, were $1,379,915, or 37.3% of net revenues compared to gross
profits of $627,172 or 39.7% of net revenues for the same period last year.
Increased volume helped offset the slightly higher cost of sales. Additional
staffing, needed for the increased volume, higher material costs, and various
costs incurred to initiate the VMI program were the primary factors driving up
cost of sales. In addition, TSLi implemented a second shift to properly support
increased volume.
Operating Expenses
Operating expenses were $1,689,113 compared to operating expenses of $810,831
for the same period last year. Legal and professional fees increased $225,000
from the same period a year ago, due primarily to the company's merger with GT
Data and its fundraising activities. The addition of two full-time salespeople
and the implementation of an incentive package for senior management also
increased operating expenses.
Interest Expense
Interest for the period was $44,538, down 8% from the $48,377 incurred in the
same period last year. The reduction in interest expenses was due primarily to
the pay-down, and eventual pay-off, of both the Asset Based Credit line and Term
Note with a financial institution.
Liquidity and Capital Resources
At May 31, 2001, the Company had $3,008,618 in total assets, including $250,184
in cash, $883,393 in accounts receivable, and $1,072,152 in inventories and a
license agreement of $75,000. The accounts receivable are considered by
management to have a high probability of collection. Inventories consist
primarily of hard drives and tapes drives and are very marketable, although by
nature their value tends to decrease over time as newer, more advanced products
are brought to market. Also at May 31, 2001, total liabilities were $3,165,517,
including accounts payable and accrued liabilities of $2,323,508 and notes
payable of $805,304. The accrued liabilities include $323,308 of accrued salary
for Robert Genesi, GT Data's Chief Executive Officer. Notes payable includes
$470,000 to Robert Genesi and Anthony Giraudo, a director of the company. During
the quarter, the Company repaid in full both its Asset Based Credit line and its
Term Note, both payable to a financial institution. As of May 31, 2001, the
Company had no available credit lines for short-term financing needs.
During the period ended May 31, 2001, the Company's cash flow from operations
was $227,394, while net cash used in the quarter was $81,715. The Company's
positive cash flow from operations resulted from its ability to delay payment to
vendors, resulting in an increase to accounts payable and accrued liabilities.
The Company expects its operations to continue using net cash through at least
the third quarter of this year as it continues to invest in its data storage
business. Thus, the Company's success, including its ability to fund future
operations, depends largely on its ability to secure additional funding. There
can be no assurance that the Company will be able to consummate debt or equity
financings in a timely manner, on a basis favorable to the Company, or at all.
Effective May 18, 2001, the Company entered into a license agreement with a
third party. The agreement provides the Company with an exclusive worldwide
license to manufacture and sell the Starlite tape drive, an IBM 3590 compatible
tape drive, as defined. The agreement requires the Company to make an initial
payment of $300,000 on or before October 31, 2001, which the Company has not yet
made. In addition, the Company is required to make two additional payments of
$150,000 each no later than 60 and 120 days after delivery of the actual initial
payment. If the Company does not make the subsequent payments, the license will
continue on a non-exclusive basis. The Company is required to pay a royalty to
the third party for all sales ranging from $250 to $950 for each unit sold, as
defined. In connection with this agreement, the Company granted the third party
warrants to purchase 300,000 shares of common stock of an exercise price of
$0.25 per share valued at $75,000, (pursuant to SFAS 123 based on the
Black-Scholes option pricing model) which the Company has capitalized under
License Agreement in the accompanying Balance Sheet.
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Inflation
Management believes that inflation has not had a material effect on the
Company's results of operations.
Going Concern
The Company's independent certified public accountants have stated in their
reports included in the Company's Form 8-K dated June 5, 2001 that the Company
has negative working capital, borrowings in default, lack of operations history
and an accumulated deficit. These conditions, among others, raise substantial
doubt about the Company's ability to continue as a going concern.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not currently a party to any legal proceedings, the adverse
outcome of which, individually or in the aggregate would have a material adverse
effect on our financial position or results of operations.
Item 2. Changes in Securities.
On March 22, 2001, the Company issued 7,854,114 shares of common stock
(including 750,000 shares issued to a finder) in exchange for all the
outstanding shares of GT Data Corporation in a transaction commonly referred to
as a "reverse merger." In addition, the Company issued 1,479,000 shares of
common stock in exchange for the conversion of the GT Data preferred stock on a
one to one basis.
In May 2001, the Company issued 520,000 shares of common at a price of $0.25 per
share, or $130,000 in the aggregate, less a commission paid of $17,320. Such
funds were used for working capital purposes.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On March 14, 2001, the stockholders of WINS, through a written consent in lieu
of a meeting of the stockholders, approved the Agreement and Plan of
Reorganization and Merger between the Company, GT Data and GTD Acquisition, Inc.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Articles of Incorporation filed March 17, 1986, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on
Form SB-2, Registration No. 333-35766, as amended (Registrant's Form
SB-2).
3.2 Articles of Amendment filed September 5, 1996, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on
Form SB-2.
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3.3 Certificate Pursuant to section 78.207(4) of the Nevada Revised Statues
filed October 11, 1996, which is incorporated herein by reference to
Exhibit 3.1 to the Registrant's Statement on Form SB-2.
3.4 Certificate Pursuant to section 78.207(4) of the Nevada Revised Statues
filed October 24, 1996, which is incorporated herein by reference to
Exhibit 3.1 to the Registrant's Statement on Form SB-2.
3.5 Certificate of Amendment filed March 30, 1998, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on
Form SB-2.
3.6 Certificate of Amendment filed August 31, 1998, which is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Statement on
Form SB-2.
3.7 Certificate Pursuant to Section 78.207(4) of the Nevada Revised
Statutes filed March 16, 2001, which is incorporated herein by
reference to Exhibit 3.7 to the Registrant's Annual Report on Form
10-KSB for the year ended February 28, 2001.
3.8 Amended Bylaws of World Internetworks, Inc., which is incorporated
herein by reference to Exhibit 3.8 to the Registrant's Annual Report on
Form 10-KSB for the year ended February 28, 2001.
10.1 Agreement and Plan of Reorganization and Merger dated February 27, 2001
between World Internetworks, Inc., GTD Acquisition, Inc. and GT Data
Corporation, which is incorporated herein by reference to Exhibit 2.1
to the Registrant's Statement on Form 8-K dated March 22, 2001.
10.2 Starlite Licensing Option Agreement*.
* Filed herewith
(b) Forms 8-K filed during the fiscal quarter ended May 31, 2001 and to
date.
(i) Form 8-K Current Report dated March 22, 2001
(ii) Form 8-K Current Report dated April 9, 2001
(iii) Form 8-K Current Report dated May 24, 2001
(iv) Form 8-K/A Current Report dated June 5, 2001 amending the Form
8-K Current Report dated March 22, 2001
(v) Form 8-K Current Report dated July 2, 2001
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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.
World Internetworks, Inc.
Date: July 23, 2001 /s/ Robert Genesi
--------------------------
Robert Genesi, President
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