SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: July 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 0-26454
OTHNET, INC.
(Exact name of small business issuer as specified in its
charter)
Delaware 98-0142664
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification
No.)
The First National Bank Building
332 Minnesota Street, Suite 100 North
St. Paul, Minnesota 55101
(Address of principal executive offices, including zip code)
Issuer's telephone number, including area code: (651) 291-2993
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:
Common, $.001 par value per share: 16,949,279 outstanding as
of September 19, 2001
OTHNET, INC.
Quarter Ended July 31, 2001
INDEX
Part I - Financial Information
Item 1. Financial Statements Page
Unaudited Consolidated Balance Sheets 3
Unaudited Consolidated Statements of Operations 4
Unaudited Consolidated Statements of Cash Flows 5
Unaudited Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and
Analysis or Plan of Operation 8
Part II - Other Information 17
OTHNET, INC.
(formerly known as PL Brands, Inc.)
(a development stage company)
UNAUDITED CONSOLIDATED BALANCE SHEETS
July 31, April, 30
2001 2001
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 96,283 $ 559,365
Prepaid expenses 39,439 875
------------ ------------
Total current assets 135,722 560,240
PROPERTY AND EQUIPMENT:
Office furniture and equipment 71,279 55,599
Less accumulated depreciation 12,076 8,132
------------ ------------
Property and equipment, net 59,203 47,467
OTHER ASSETS:
License agreement, net of amortization of $36,000 and $ 0 144,000 180,000
Proprietary information database and search engine, net of
amortization of $1,083,148 and $833,190, respectively 1,916,352 2,166,310
------------ ------------
Total other assets 2,060,352 2,346,310
------------ ------------
$ 2,255,277 $ 2,954,017
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 248,484 $ 246,086
Accrued salaries and benefits 19,212 35,462
------------ ------------
Total current liabilities 267,696 281,548
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value, 40,000,000 shares authorized,
16,899,279 issued and outstanding 16,899 16,899
Preferred stock, $.001 par value, 2,000,000 shares authorized -- --
Additional paid-in capital 11,969,280 11,969,280
Accumulated deficit (9,998,598) (9,313,710)
------------ ------------
Total shareholders' equity 1,987,581 2,672,469
$ 2,255,277 $ 2,954,017
============ ============
See Unaudited notes to the Consolidated Financial Statements
OTHNET, INC.
(formerly known as PL Brands, Inc.)
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
Period From
May 1, 2000 Three Months Ended July 31,
to July 31, ----------------------------
2001 2001 2000
------------ ------------ ------------
Net sales $ 28,251 $ 2,796 $ --
Operating Expenses:
Amortization of intellectual property 1,083,148 249,958 --
General and administrative expenses 2,396,676 440,173 589,269
Stock based compensation for nonemployees 4,404,307 --
------------ ------------ ------------
Total operating expenses 7,884,131 690,131 589,269
Loss from operations (7,855,880) (687,335) (589,269)
Other Income 76,772 2,447 5,440
------------ ------------ ------------
Net loss (7,779,108) (684,888) (583,829)
============ ============ ============
Basic and diluted net loss per share $ (0.49) $ (0.05) $ (0.05)
============ ============ ============
Weighted average shares outstanding - 15,864,013 16,899,279 11,756,114
basic and diluted ============ ============ ============
See Unaudited notes to the Consolidated Financial Statements
OTHNET, INC.
(formerly known as PL Brands, Inc.)
(a development stage company)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
Period From
May 1, 2000 Three Months Ended July 31,
to July 31, ---------------------------
2001 2001 2000
----------- ----------- -----------
Operating Activities
Net loss $(7,779,108) $ (684,888) $ (583,829)
Adjustment to reconcile net loss to net cash
used in operating activities:
Fair value of options granted to nonemployees 4,404,307 --
Stock compensation expense 499,000 -- 499,000
Depreciation and amortization 1,131,224 289,902 --
Changes in assets and liabilities affecting cash
flow (net of assets acquired):
Prepaid expenses (39,439) (38,564) (4,378)
Accounts payable 84,004 2,398 24,363
Accrued salaries and benefits 19,212 (16,250)
----------- ----------- -----------
Net cash used in operating activities (1,680,800) (447,402) (64,844)
Investing Activities
Purchase of intellectual property - Othnet (500,000) -- (500,000)
Purchase of license agreement (100,000) -- --
Purchase of office furniture and equipment (71,279) (15,680)
----------- ----------- -----------
Net cash used in investing activities (671,279) (15,680) (500,000)
Financing Activities
Net proceeds from sale of common stock
in private placement 2,443,823 -- 2,443,823
Other proceeds from issuance of common stock 1,500 1,500
----------- ----------- -----------
Net cash provided by financing activities 2,445,323 -- 2,445,323
Increase (decrease) in cash 93,244 (463,082) 1,880,479
Cash, at the beginning of the period 3,039 559,365 3,039
----------- ----------- -----------
Cash, at the end of the period $ 96,283 $ 96,283 $ 1,883,518
=========== =========== ===========
NONCASH TRANSACTIONS
Issuances of 500,000 common shares for
services provided $ 249,500 $ -- 249,500
=========== =========== ===========
Issuances of 4,500,000 common shares for purchase
of intellectual database and search engine $ 2,250,000 $ -- $ 2,250,000
=========== =========== ===========
Amount due for purchase of license agreement
(included in accounts payable) $ 80,000 $ -- $ --
=========== =========== ===========
See Unaudited notes to the Consolidated Financial Statements
OTHNET, INC.
(formerly known as PL Brands, Inc.)
(a development stage company)
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Unaudited Interim Financial Information
The accompanying interim consolidated financial
statements are unaudited, but in the opinion of the management
of the Company, contain all adjustments, consisting of only
normal recurring accruals, necessary to present fairly the
financial position at July 31, 2001, the results of operations
for the three month periods ended July 31, 2001 and 2000, and
the cash flows for the three month periods ended July 31, 2001
and 2000. The results of operations for the three month period
ended July 31, 2001 are not necessarily indicative of the
results of operations to be expected for the full fiscal year
ending April 30, 2002. These interim consolidated financial
statements should be read in conjunction with the audited
financial statements and notes thereto appearing in the
Company's Form 10-KSB for the year ended April 30, 2001.
Note 2. Description of Business and Basis or Presentation
Description of Business - PL Brands, Inc. (PL Brands)
was incorporated under the laws of the State of Delaware on May
12, 1994 concurrently with the filing of a Certificate of
Domestication by its predecessor, Malone Road Investments,
Ltd., which was incorporated in the Isle of Man on August 6,
1990. Pursuant to Delaware corporate law, PL Brands is declared
to have been incorporated in Delaware as of August 6, 1990.
PL Brands' principal business was initially in
development, production, and marketing of private label
prepared foods. Pursuant to an agreement made as of May 1, 1999
all operations of the company were discontinued, and during the
fiscal year ended April 30, 2000, PL Brands had no material
business operations.
In May 2000, PL Brands entered into an agreement to
acquire substantially all of the assets of Oth.net, Inc., a
Florida corporation, as well as the Oth.net domain name, in
exchange for 4,500,000 shares of PL Brands' common stock and
cash in the aggregate amount of $500,000. The acquisition was
effective June 30, 2000, and accordingly, the results of the
acquired company have been included from July 1, 2000. The
primary asset of Oth.net was an Internet-based search engine
for music on the worldwide web (the Intellectual Property). In
connection with this transaction, the Company also issued
500,000 shares of common stock to Eagle Ridge Partners in
exchange for services rendered and $500. The deemed value of
these shares was $250,000 based on recent sales of the
Company's common stock and has been capitalized as a cost of
the acquisition. The Intellectual Property has been valued at
$2,999,500 and will be amortized over three years. In March
2001, PL Brands changed its name to Othnet, Inc. (the Company).
Effective May 1, 2000, Othnet, Inc. became a development
stage company and intends to expand the business into a more
diverse digital entertainment business organization providing
music, video, and movie content on the Internet. The Company is
in the process of rewriting its website and is developing new
software that will be directed at the peer-to-peer environment.
Note 3. Savage Beast
The Company has agreed to issue in fiscal 2002 to Savage
Beast 50,000 shares of common stock, at an agreed valuation of
$5.00 per share, or $250,000 in the aggregate, in exchange for
100,000 shares of Savage Beast's common stock, at an agreed
valuation of $2.50 per share, or $250,000 in the aggregate.
Should the Company sell shares of its common stock at a price
below $5.00 per share (reduced price) in its next round of
financing, the number of shares of company common stock issues
to Savage Beast shall be increased such that the total number
of shares issued multiplied by the reduced price equals
$250,000.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
The following discussion of the Company's financial
condition and results of operations is based on the Company's
Consolidated Financial Statements and the related notes
thereto.
Results of Operations
The Company reported revenues of approximately $3,000
from operations for the three months ended July 31, 2001
compared to no revenues for the three months ended July 31,
2000.
Operating expenses were approximately $690,000 for the
three months ended July 31, 2001 and were comprised primarily
of compensation expense, amortization (relating to the
Company's proprietary information database, search engine and
license agreement), contract labor, consulting, and
professional fees. This compared to operating expenses of
approximately $589,000 for the three months ended July 31,
2000. The increase was primarily attributable to amortization
of intellectual property of approximately $250,000 for the
three month period ended July 31, 2001 compared to no such
amortization expense for the three month period ended July 31,
2000 offset by a decrease in general and administrative
expenses from approximately $589,000 for the three month period
ended July 31, 2000 to approximately $440,000 for the three
month period ended July 31, 2001. Such decrease in general and
administrative expenses was due primarily to the recognition of
$499,000 in connection with the issuance of 1,000,000 shares to
Richard A. Barbari and his nominees which occurred in the three
month period ended July 31, 2000, offset by an increase in
other compensation expense, contract labor, professional fees,
consulting, and other expenses incurred in the three month
period ended July 31, 2000.
The Company had interest income of approximately $2,000
for the three months ended July 31, 2001 compared to
approximately $5,000 for the three months ended July 31, 2000.
For the three months ended July 31, 2001, the Company
had a net loss of approximately $685,000 compared to a net loss
of approximately $584,000 for the three months ended July 31,
2000. The increase in net loss is primarily due to an increase
in operating expenses resulting from the acquisition of
Oth.net, Inc., partially offset by recognition of $499,000 in
expenses in connection with the issuance of 1,000,000 shares to
Richard A. Barbari and his nominees in the three month period
ended July 31, 2000.
Liquidity and Capital Resources
On July 31, 2001, the Company had cash of approximately
$96,000 and negative working capital of approximately $132,000.
The Company's primary source of liquidity has been cash
provided through equity offerings and interest income.
Cash used in operating activities was approximately
$447,000 for the three months ended July 31,2001 which was
primarily the result of a loss of approximately $685,000
partially offset by non-cash charges totaling approximately
$290,000 for depreciation and amortization. For the three
months ended July 31, 2001, the Company also
used approximately $16,000 in investing activities for
the purchase of property and equipment.
Cash used in operating activities was approximately
$65,000 for the three month period ended July 31, 2000 which
was primarily the result of a loss of approximately $584,000
partially offset by non-cash charges totaling $499,000 for
stock compensation expense and increase in accounts payable
totaling approximately $24,000.
The Company's cash position is currently impaired and
the Company's funds, together with any operating revenues that
are recognized, are inadequate to meet its current cash
requirements. Thus, substantial additional capital is needed in
order to fund operations beyond this time. The Company is
currently in the process of attempting to raise additional
capital and believes it will be able to obtain certain
short-term financing in the quarter ended October 31, 2001.
Management has also had discussions with certain parties and
investment banking firms concerning capital-raising
alternatives in addition to such short-term financing, such as
private placements of equity and/or debt securities, as well as
public offerings but as of the date hereof none of these
discussions have been finalized. In connection therewith,
meetings and presentations were scheduled in New York City for
September 13 and 14, 2001 but had to be postponed as a result
of the September 11, 2001 World Trade Center disaster which has
impacted our schedule for raising additional funds. Such
meetings have been rescheduled for early October 2001. Many
companies in the Internet industry have experienced difficulty
raising additional financing in recent months. Accordingly, no
assurance can be given that any financing can be completed on
terms acceptable to the Company or at all. If financing is not
available to us we may need to dramatically change our business
plan, sell or merge our business, or curtail its operations.
In addition, the issuance of equity or equity-related
securities will dilute the ownership interest of existing
stockholders and our issuance of debt securities could increase
the risk or perceived risk of the Company. Our inability to
secure financing would have a material adverse effect on
whether we would be able to successfully implement our proposed
business plan and our ability to continue as a going concern.
Moreover, even if the Company obtains such financing, there can
be no assurance that the ultimate proceeds will prove to be
adequate.
Other Factors Affecting our Operating Results
The following risk factors and other information
included in this Form 10-QSB should be carefully considered.
The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also
impair our business operations.
WE NEED TO OBTAIN ADDITIONAL FUNDS TO EXECUTE OUR
BUSINESS PLAN AND IF WE ARE UNABLE TO OBTAIN SUCH FUNDS, WE
WILL NOT BE ABLE TO EXPAND OUR BUSINESS AS PLANNED. The
Company's cash position is currently impaired and substantial
additional capital is needed in order to fund operations beyond
this time. Additional financing may not be available to us on
favorable terms or at all. If additional financing is not
available to us we may need to dramatically change our business
plan, sell or merge our business, or curtail its operations.
In addition, the issuance of equity or equity-related
securities will dilute the ownership interest of existing
stockholders and our issuance of debt securities could increase
the risk or perceived risk of the Company. Our inability to
secure additional financing would have a material adverse
effect on whether we would be able to successfully implement
our proposed business plan and our ability to continue as a
going concern. Moreover, even if we obtain such financing,
there can be no assurance that the ultimate proceeds will prove
to be adequate.
EVALUATING OUR BUSINESS IS DIFFICULT BECAUSE WE DO NOT
HAVE AN OPERATING HISTORY. The Company was formed in August
1990 and began operations in March 1994. We have recently
completed a restructuring and have not yet begun to implement
our new business strategy. As a result, we do not have an
operating history on which to base an evaluation of our
business and prospects. Our prospects must be considered in
light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving
markets, such as online commerce, using new and unproven
business models. To address these risks and uncertainties, we
must, among other things:
. attract leading sellers and consumers to the Othnet
service;
. maintain and enhance our brand, and expand our
product and service offerings;
. attract, integrate, retain and motivate qualified
personnel; and
. adapt to meet changes in our markets and competitive
developments.
We may not be successful in accomplishing these objectives.
The failure of any of these objectives is likely to have a
material adverse effect on our business plan.
WE ARE NOT PROFITABLE AND WILL CONTINUE TO INCUR LOSSES.
We have not achieved profitability and will continue to incur
losses. We expect to increase significantly our operating
expenses in order to increase our customer base, enhance our
brand image and support our growing infrastructure. For us to
make a profit, our revenues and gross profit margins will need
to increase sufficiently to cover these and other future costs.
Otherwise, we may not achieve profitability.
OUR BUSINESS MODEL IS RELATIVELY NEW AND UNPROVEN. The
Othnet service is based on a relatively novel and unproven
business model. We will be successful only if consumers adopt
and actively use this service. It is difficult to predict the
degree, if at all, to which consumers will use the Othnet
service over time.
Many of the factors influencing consumers' willingness
to use the Othnet service are outside our control. For example,
a breach of security on the Internet, even if we were not
involved, could make consumers unwilling to place orders online
with a credit card. Also, recent adverse publicity surrounding
the recording industry's opposition to file sharing services
may affect consumers' willingness to use our service.
Consequently, it is possible that consumers may not utilize the
Othnet service to the degree necessary for us to achieve
profitability.
IF WE LOSE OUR KEY PERSONNEL OR CANNOT RECRUIT
ADDITIONAL PERSONNEL, OUR BUSINESS MAY SUFFER. Competition for
personnel with experience in Internet commerce is intense. We
depend on the continued services and performance of our
executive officers and other key personnel. We do not have "key
person" life insurance policies. If we do not succeed in
attracting new employees or retaining and motivating current
and future employees or executive officers, our business could
suffer significantly.
INTENSE COMPETITION COULD REDUCE OUR POTENTIAL MARKET
SHARE AND HARM OUR FINANCIAL PERFORMANCE. We potentially face
competition from a number of large Internet companies and
services that have expertise in developing online commerce and
in facilitating Internet traffic, including Amazon.com, America
Online, Microsoft and Yahoo!, who could choose to compete with
us either directly or indirectly through affiliations with
other e-commerce companies. Other large companies with strong
brand recognition, technical expertise and experience in
Internet commerce could also seek to compete with us.
The bases of competition in the online entertainment
promotion and distribution industry include: quantity, quality,
price and variety of digital entertainment content; ability of
consumers to search, view and listen to product according to
their preferences; ease of downloading electronic files;
fidelity and quality of video and sound; and ability to promote
its web site, both online and through traditional marketing and
other business partnerships.
Many of our potential competitors, including Internet
directories and search engines and large traditional retailers,
have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial,
marketing, technical and other resources than we have. Some of
these competitors may be able to secure products and services
on more favorable terms than we can. In addition, many of these
competitors may be able to devote significantly greater
resources to: (1) marketing and promotional campaigns, (2)
attracting traffic to their Web sites, (3) attracting and
retaining key employees, (4) securing vendors and inventory and
(5) Web site and systems development.
Increased competition could result in reduced operating
margins and loss of market share and could damage our brand.
There can be no assurance that we will be able to compete
successfully or that competition will not have a material
adverse effect on our business, results of operations and
financial condition.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL
AND OTHER CHANGES. The markets in which we compete are
characterized by rapidly changing technology, evolving industry
standards, frequent new service and product announcements,
introductions and enhancements and changing consumer demands.
We may not be able to keep up with these rapid changes. In
addition, these market characteristics are heightened by the
emerging nature of the Internet and the apparent need of
companies from many industries to offer Internet-based products
and services. As a result, our future success will depend on
our ability to adapt to rapidly changing technologies, to adapt
our services to evolving industry standards and to continually
improve the performance, features and reliability of our
service in response to competitive service and product
offerings and the evolving demands of the marketplace. In
addition, the widespread adoption of new Internet, networking
or telecommunications technologies or other technological
changes could require us to incur substantial expenditures to
modify or adapt our services or infrastructure.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS. The
secure transmission of confidential information over the
Internet is essential in maintaining consumer and supplier
confidence in the Othnet service. Substantial or ongoing
security breaches on our system or other Internet-based systems
could significantly harm our business. As we implement the
Othnet service, we intend to require buyers to guarantee their
offers with their credit card, either online or through our
toll-free telephone service. We expect to rely on licensed
encryption and authentication technology to effect secure
transmission of confidential information, including credit card
numbers. It is possible that advances in computer
capabilities; new discoveries or other developments could
result in a compromise or breach of the technology used by us
to protect customer transaction data.
We cannot guarantee that our security measures will
prevent security breaches. A party that is able to circumvent
our security systems could steal proprietary information or
cause significant interruptions in our operations. For
instance, several major Web sites have experienced significant
interruptions as a result of improper direction of excess
traffic to those sites, and computer viruses have substantially
disrupted e-mail and other functionality in a number of
countries, including the United States. Security breaches also
could damage our reputation and expose us to a risk of loss or
litigation and possible liability. Our insurance policies carry
low coverage limits, which may not be adequate to reimburse us
for losses caused by security breaches.
We also face risks associated with security breaches
affecting third parties conducting business over the Internet.
Consumers generally are concerned with security and privacy on
the Internet and any publicized security problems could inhibit
the growth of the Internet and, therefore, the Othnet service
as a means of conducting commercial transactions.
IF OUR BRAND NAME IS NOT ACCEPTED, OUR ABILITY TO
ATTRACT CONTENT AND CUSTOMERS TO OUR WEB SITE WILL BE HARMED.
During the quarter ended April 30, 2001, we began to operate
under the name Othnet, Inc. We believe that establishing and
maintaining the Othnet brand is a critical aspect of our
efforts to attract and expand our Internet audience and acquire
new content and that the importance of brand recognition will
increase due to the growing number of Internet sites and the
relatively low barriers to entry in providing Internet content.
We intend to incur significant expenses in our brand building
efforts. If these efforts do not generate increased revenues
our operating results will suffer. If we are unable to provide
high quality content or otherwise fail to promote and maintain
our brand, our business will be harmed.
WE RELY ON A THIRD PARTY FOR THE HOSTING OF OUR WEB SITE
AND IF THIS HOSTING SERVICE BECOMES UNAVAILABLE, OUR CUSTOMERS
WILL NOT BE ABLE TO ACCESS OUR WEB SITE. We currently rely on
a third party that hosts our Web site at a single location in
Minneapolis, Minnesota. We currently do not maintain a
redundant Web site. If for any reason our current Web site
hosting services become unavailable or if our hosting service
experiences technical problems, customers will not be able to
access our Web site until these services are restored or until
we are able to make arrangements with an alternate provider.
OUR BUSINESS IS DEPENDENT ON THE CONTINUED DEVELOPMENT
AND MAINTENANCE OF THE INTERNET AND THE AVAILABILITY OF
INCREASED BANDWIDTH TO CONSUMERS. The success of our business
will depend largely on the development and maintenance of the
Internet infrastructure. This includes maintenance of a
reliable network with the necessary speed, data capacity and
security, as well as timely development of complementary
products such as high-speed modems, for providing reliable
Internet access and services. Because global commerce on the
Internet and the online exchange of information is new and
evolving, we cannot predict whether the Internet will prove to
be a viable commercial marketplace in the long term.
The success of our business will rely on the continued
improvement of the Internet as a convenient means of consumer
interaction and commerce, as well as an efficient medium for
the delivery and distribution of music. Our business will
depend on the ability of our consumers to continue to upload
and download mp3 and other music file formats, as well as to
conduct commercial transactions with us, without significant
delays or aggravation that may be associated with decreased
availability of Internet bandwidth and slower access to our Web
site. Our penetration of a broader consumer market will depend,
in part, on continued proliferation of high speed Internet
access. Even compressed in mp3 format, a typical three-minute
song file can occupy more than three megabytes of storage
space. This file could take approximately seven minutes to
download over a conventional 56 kbps modem compared to less
than one minute over an DSL or cable modem.
The Internet has experienced, and is likely to continue
to experience, significant growth in the numbers of users and
amount of traffic. As the Internet continues to experience
increased numbers of users, increased frequency of use and
increased bandwidth requirements, the Internet infrastructure
may be unable to support the demands placed on it. In addition,
increases in users or bandwidth requirements may harm the
performance of the Internet. The Internet has experienced a
variety of outages and other delays as a result of damage to
portions of its infrastructure, and it could face outages and
delays in the future. These outages and delays could reduce the
level of Internet usage as well as the level of traffic, and
could result in the Internet becoming an inconvenient or
uneconomical source of music and music-related products and
services. The infrastructure and complementary products or
services necessary to make the Internet a viable commercial
marketplace for the long term may not be developed successfully
or in a timely manner. Even if these products or services are
developed, the Internet may not become a viable commercial
marketplace for the products or services that we offer.
WE MUST MAINTAIN AND ESTABLISH STRATEGIC ALLIANCES TO
INCREASE OUR CUSTOMER BASE AND ENHANCE OUR BUSINESS. In an
attempt to increase our customer base and traffic on our Web
site, build brand recognition, attract paid advertising and
enhance content, distribution and commerce opportunities, we
intend to enter into agreements with various media and
Internet-related companies. Our failure to maintain or renew
our existing strategic alliance with Savage Beast or to
establish and capitalize on new strategic alliances could harm
our business. Our future success depends to a significant
extent upon the success of such alliances. Moreover, we are
substantially dependent on our ability to advertise on other
Internet sites and the willingness of the owners of other sites
to direct users to our Internet sites through hypertext links.
We may not achieve the strategic objectives of these alliances,
and parties to strategic alliance agreements with us may not
perform their agreed upon obligations. Such agreements also may
not be specifically enforceable by us.
OUR INTELLECTUAL PROPERTY PROTECTION MAY BE INADEQUATE,
AND ANY LOSS OR REDUCTION IN INTELLECTUAL PROPERTY PROTECTION
MAY HARM OUR BUSINESS. Our intellectual property includes our
trade-name "Othnet" and our patent pending proprietary software
and other proprietary rights. We believe that our intellectual
property is important to our success and our competitive
position, and we try to protect it. However, our efforts to
protect our intellectual property could be inadequate. Use of
the "Othnet" name by others could dilute our brand identity and
confuse the market. In addition, our ability to conduct our
business may be harmed if others claim we violate their
Intellectual property rights. If successful, these claims
could seriously harm our business by forcing us to cease using
intellectual property that we depend on to operate our
business. Even if unsuccessful, these claims could harm our
business by damaging our reputation, requiring us to incur
legal costs and diverting management's attention away from our
business.
GOVERNMENT REGULATION MAY REQUIRE US TO CHANGE THE WAY
WE DO BUSINESS. Laws and regulations directly applicable to
Internet communications, commerce and advertising are becoming
more prevalent. The United States Congress has enacted Internet
laws regarding children's privacy, copyrights and taxation.
Such legislation could dampen the growth in use of the Internet
generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. Although our
transmissions originate in Minnesota, the governments of other
states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our
activities. The European Union recently enacted its own
privacy regulations that may result in limits on the collection
and use of certain user information. The laws governing the
Internet, however, remain largely unsettled, even in areas
where there has been some legislative action. It may take
years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation
apply to the Internet and Internet advertising. In addition,
the growth and development of the market for Internet commerce
may prompt calls for more stringent consumer protection laws,
both in the United States and abroad, that may impose
additional burdens on companies conducting business over the
Internet. Furthermore, the Federal Trade Commission has
recently investigated the disclosure of personal identifying
information obtained from individuals by Internet companies.
Evolving areas of law that are relevant to our business include
privacy law, proposed encryption laws, content regulation and
sales and use tax. For example, changes in copyright law could
require us to change the manner in which we conduct business or
increase our costs of doing business. Because of this rapidly
evolving and uncertain regulatory environment, we cannot
predict how these laws and regulations might affect our
business. In addition, these uncertainties make it difficult
to ensure compliance with the laws and regulations governing
the Internet. These laws and regulations could harm us by
subjecting us to liability or forcing us to change how we do
business. In the event the Federal Trade Commission or other
governmental authorities adopt or modify laws or regulations
applicable to our business, including those relating to the
Internet and copyright matters, our business could be harmed.
WE MAY HAVE LIABILITY FOR CONTENT ON OUR WEB SITE AND
LIABILITY FOR OTHER MATERIALS WHICH WE DISTRIBUTE. We may be
liable to third parties for content on our Web site and any
other materials we distribute if:
. the music, text, graphics or other content on our Web
site violates their
copyright, trademark, or other intellectual property
rights;
. our labels violate their contractual obligations to
others by providing content on
our Web site; or
. content we distribute is deemed obscene, defamatory
or excessively violent.
We may also be subject to these types of liability for
content that is accessible from our Web site through links to
other Web sites.
Liability or alleged liability for content or other
materials could harm our business by damaging our reputation,
requiring us to incur legal costs in defense, exposing us to
significant awards of damages, fines and costs and could divert
management's attention away from our business. In particular,
in addition to civil damages, liability for violations of
copyright law currently can result in substantial penalties per
occurrence.
IMPOSITION OF SALES AND OTHER TAXES ON E-COMMERCE
TRANSACTIONS MAY IMPAIR OUR ABILITY TO DERIVE FINANCIAL
BENEFITS FROM E-COMMERCE. We do not intend to collect sales or
other taxes on sales of our products through our Web sites.
Although the Internet Tax Freedom Act precludes, for a period
of three years ending October 2001, the imposition of state and
local taxes that discriminate against or single out the
Internet, it does not currently impact existing taxes. However,
one or more states may seek to impose sales tax collection
obligations on out-of-state companies such as us, which engage
in or facilitate online commerce. A number of proposals have
been made at the state and local level that would impose
additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and could adversely
affect our opportunity to derive financial benefit from
electronic commerce. Moreover, if any state or foreign country
were to successfully assert that we should collect sales or
other taxes on the exchange of merchandise on its system, it
could affect our cost of doing business.
DEVELOPMENT OF NEW STANDARDS FOR THE ELECTRONIC DELIVERY
OF MUSIC MAY THREATEN OUR BUSINESS. We currently rely on mp3
technology as a delivery method for the digital distribution of
music. Mp3 is an open standard adopted by the Moving Picture
Experts Group for the compression of audio files. We do not own
or control mp3 technology and are dependent upon a license to
obtain rights to certain patents relating to the technology.
The onset of competing industry standards for the electronic
delivery of music could significantly affect the way we operate
our business as well as the public's perception of Othnet as a
company. For example, in December 1998, the major recording
studios announced a plan to develop a universal standard for
the electronic delivery of music, called the Secured Digital
Music Initiative (SDMI). If new standards are developed and
adopted by consumers, we may not be able to obtain a license to
such technology on favorable terms or at all and our business
could be harmed. Even if new standards are not developed,
delays with respect to proposed standards, such as those that
have occurred with respect to SDMI, can cause confusion in the
marketplace, slow the development of the market for
downloadable music and otherwise harm our business.
Certain segments of the traditional music industry have
not embraced the development of the mp3 format to deliver
music, in part because users of mp3 technology can download and
distribute unauthorized or "pirated" copies of copyrighted
recorded music over the Internet. We believe that our success
is largely dependent upon the ease with which customers can
download and play music. We may face opposition from a number
of different music industry sources including record companies
and studios, the Recording Industry Association of America and
certain artists. The adoption of competing standards may slow
the development of the market for downloadable music or result
in increased costs of doing business which could harm our
business.
Forward-Looking Statements
This Form 10-QSB contains certain forward-looking statements
and information that reflect the Company's expectations about
its future operating results, performance and opportunities
that involve substantial risks and uncertainties. When used in
this Form 10-QSB, the words "anticipate", "believe",
"estimate", "plan," "intend" and "expect" and similar
expressions, as they relate to Othnet, Inc. for its management,
are intended to identify such forward-looking statements. These
forward looking statements are based on information currently
available to the Company and are subject to a number of risks,
uncertainties, and other factors that could cause the Company's
actual results, performance, prospects, and opportunities to
differ materially from those expressed in, or implied by, these
forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to,
the Company's need for additional capital, the Company's lack
of an operating history, the fact that the Oth.net business
model is unproven, rapid technological changes in the
electronic commerce market and the other factors discussed
under "Other Factors Affecting Our Operating Results". Except
as required by the Federal Securities law, the Company does not
undertake any obligation to release publicly any revisions to
any forward-looking statements to reflect events or
circumstances after the date of this Form 10-QSB or for any
other reason.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
There are no exhibits applicable to this Form
10-QSB.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during
fiscal quarter ended July 31, 2001.
Form 8-K dated March 23, 2001 filed May 3, 2001.
Items reported: 5 and 7 (change of name from
PL Brands, Inc. to Othnet, Inc.)
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.
OTHNET, INC.
(Registrant)
Dated: September 19, 2001 By: /s/Richard A. Barbari
Richard A Barbari,
President, Chief Executive
Officer and Chairman of the
Board (Principal Executive
Officer and Principal
Accounting and
Financial Officer)