1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: OCTOBER 31, 2000 Commission File Number: 0-29671 GOLDONLINE INTERNATIONAL, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 13-3986493 (State of Incorporation) (IRS Employer ID No) 111 RHODES STREET, CONROE, TX 77301 (Address of principal executive office) 409-756-6888 (Issuer's telephone number) 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 . --- --- The number of shares outstanding of registrant's common stock, par value $.0001 per share, as of October 31, 2000 was 96,084,408. Transitional Small Business Disclosure Format (Check one): Yes No X . --- --- 2 GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Item 1. Condensed Consolidated Balance Sheets - 3 October 31, 2000 and July 31, 2000 Condensed Consolidated Statements of Operations - 4 Three Months Ended October 31, 2000 and 1999 Condensed Consolidated Statement of Stockholders' Equity - 5 Three Months Ended October 31, 2000 Condensed Consolidated Statements of Cash Flows - 6-7 Three Months Ended October 31, 2000 and 1999 Notes to Condensed Consolidated Financial Statements - 8-13 Three Months Ended October 31, 2000 and 1999 Item 2. Managements Discussion and Analysis of Financial Condition 14-15 and Results of Operations Part II. Other Information 16 2 3 GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS OCTOBER 31, JULY 31, 2000 2000 ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,550,534 $ 5,969,201 Trade accounts receivable 2,247,076 86,568 Marketable equity securities 840,000 -- Inventory 6,860,788 925,338 Prepaid expenses and other assets 241,336 89,450 Deferred income taxes -- 2,000 ----------- ----------- 13,739,734 7,072,557 Property and equipment, net 353,694 157,024 Goodwill, net of amortization of $30,137 and $7,784, respectively 3,819,528 92,336 Deferred income taxes -- 46,100 Other assets 28,438 6,441 ----------- ----------- $17,941,394 $ 7,374,458 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current installments of long-term debt and notes payable $ 5,087,414 $ 211,913 Accounts payable 2,269,745 186,006 Accrued expenses 72,050 14,202 Deferred income taxes payable 140,400 -- Due to shareholder 4,262 2,457 ----------- ----------- 7,573,871 414,578 Deferred income taxes 5,800 -- Long-term debt less current installments 1,359,668 58,930 Stockholders' equity Common stock, $.0001 par value, 200,000,000 shares authorized, 9,608 9,498 96,084,408 and 94,984,408 shares issued and outstanding, respectively Additional paid-in capital 8,581,336 7,013,946 Retained earnings (deficit) 411,111 (122,494) ----------- ----------- 9,002,055 6,900,950 ----------- ----------- $17,941,394 $ 7,374,458 =========== =========== See accompanying notes to consolidated financial statements 3 4 GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999 (UNAUDITED) THREE MONTHS ENDED OCTOBER 31, 2000 1999 Sales and revenues $ 2,056,293 $ 409,478 Cost of sales 1,337,705 212,335 ----------- ----------- Gross profit 718,588 197,143 Selling, general and administrative expense 623,791 208,807 ----------- ----------- Loss from operations 94,797 (11,664) Other income (expense): Unrealized gain on marketable securities 540,000 -- Interest expense (39,838) (4,631) Interest and other income 132,946 1 ----------- ----------- 633,108 (4,630) ----------- ----------- Net earnings (loss) before income taxes 727,905 (16,294) Income tax expense (benefit) 194,300 (5,540) ----------- ----------- Net earnings (loss) $ 533,605 $ (10,754) =========== =========== Net earnings (loss) per share $ 0.006 $ (0.000) =========== =========== Weighted average shares outstanding, in thousands 95,151.8 87,008.9 =========== =========== See accompanying notes to consolidated financial statements. 4 5 GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY THREE MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) COMMON STOCK PAID-IN RETAINED SHARES PAR VALUE CAPITAL EARNINGS TOTAL ------ --------- ------- -------- ----- BALANCE, August 1, 2000 94,984,408 $ 9,498 $ 7,013,946 $ (122,494) $ 6,900,950 Sale of common stock for cash 1,100,000 110 1,567,390 1,567,500 Net earnings (loss) 533,605 533,605 ----------- ----------- ----------- ----------- ----------- BALANCE, October 31, 2000 96,084,408 $ 9,608 $ 8,581,336 $ 411,111 $ 9,002,055 =========== =========== =========== =========== =========== See accompanying notes to consolidated financial statements. 5 6 GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999 (UNAUDITED) 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ 533,605 $ (10,754) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 36,352 10,398 Deferred income taxes 194,300 (5,540) Purchase of marketable equity securities (300,000) -- Unrealized gain on marketable equity securities (540,000) -- Changes in assets and liabilities: Accounts receivable (749,391) (54,761) Inventory (1,476,954) (30,941) Other assets (138,586) -- Accounts payable and accrued expenses 908,969 86,161 ----------- ----------- Net cash provided by operating activities (1,531,705) (5,437) ----------- ----------- CASH FLOWS PROVIDED BY INVESTING ACTIVITIES Capital expenditures (7,855) (6,225) Acquisition of HMS, net of cash acquired (2,817,872) -- Acquisition of assets at wholesale location (105,000) -- ----------- ----------- Net cash provided by investing activities (2,930,727) (6,225) ----------- ----------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Proceeds from sales of common stock 1,567,500 1,700 Loan proceeds 478,898 -- Repayment of notes payable and long-term debt (4,439) (4,012) Increase (decrease) in amount due stockholder 1,806 (1,785) ----------- ----------- Net cash provided by financing activities 2,043,765 (4,097) ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS (2,418,667) (15,759) CASH AND CASH EQUIVALENTS, beginning of period 5,969,201 34,426 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 3,550,534 $ 18,667 =========== =========== See accompanying notes to consolidated financial statements. Continued 6 7 GOLDONLINE INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999 (UNAUDITED) (CONTINUED) 2000 1999 Supplemental Disclosures of Cash Flow Information Interest paid $ 39,838 $ 4,631 ========== ======= Income taxes paid $ -- $ -- ========== ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Convertible promissory notes issued in acquisition of HMS $2,500,000 $ -- See accompanying notes to consolidated financial statements. 7 8 GOLDONLINE INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Goldonline International, Inc. (formerly Transun International Airways, Inc.) ("GDOL") and its wholly owned subsidiaries HMS Jewelry Company, Inc. ("HMS"), Con-Tex Silver Imports, Inc. ("Silver") and Gold Online.com, Inc. ("GO.com") (collectively referred to as the "Company"). All material intercompany accounts and transactions have been eliminated. (b) ORGANIZATION GDOL was incorporated May 22, 1996 in Delaware and until June 1999 was a development stage company with plans to establish itself as an air transport company providing non-scheduled air service (charter flights) for tour operators, charter brokers, cruise line casinos, theme parks and theme attractions. Silver was incorporated September 12, 1994 in Texas. GO.com was incorporated on February 3, 1999 in Delaware. HMS was incorporated on October 12, 2000 in Texas. On June 10, 1999, GDOL acquired all of the issued and outstanding common stock of Silver and GO.com. For accounting purposes, the acquisitions have been treated as the acquisition of Silver and GO.com by GDOL with Silver as the acquiror (reverse acquisition). The historical financial statements prior to June 10, 1999 are those of Silver. Effective October 1, 2000, the Company acquired HMS in a transaction treated as a purchase for accounting purposes. The results of operations of HMS will be included in the consolidated financial statements commencing October 1, 2000. (c) NATURE OF BUSINESS GDOL is now a holding company principally engaged in acquiring and developing jewelry related businesses. Silver is a company involved in both the wholesale and retail jewelry business, principally silver, with retail locations in the Houston area. The wholesale operation of Silver consists of both sales directly from its headquarters in Conroe, Texas a satellite location in Dallas, Texas and from jewelry shows at locations throughout the south central United States. GO.com is establishing an Internet jewelry business, and commencing in the late fall of 1999, the Company began selling through e-commerce sites, located at http://www.GoldOnline.com and http://yahoo.com/goldonline on Yahoo! and offers a wide selection of discounted gold and silver jewelry as well as diamonds and watches. HMS is a national jewelry wholesaler, specializing in 18K, 14K and 10K gold and platinum jewelry, with headquarters in Dallas, Texas. HMS markets its products to a network of over 30,000 retail jewelers, through a catalog and telephone ordering system and through its B2B online catalog http://www.HMSgold.com. (d) GENERAL The financial statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting and include all adjustments (consisting only of normal recurring adjustments) that are, in the 8 9 opinion of management, necessary for a fair presentation. These financial statements have not been audited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations for interim reporting. The Company believes that the disclosures contained herein are adequate to make the information presented not misleading. However, these financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report for the period ended July 31, 1999, which is included in the Company's Form 8-K dated April 26, 2000 and filed April 28, 2000. The financial data for the interim periods presented may not necessarily reflect the results to be anticipated for the complete year. Certain reclassifications of the amounts presented for the comparative period have been made to conform to the current presentation. 2. ACQUISITION OF HMS JEWELRY COMPANY, INC. Effective October 1, 2000, the Company acquired, pursuant to an Agreement and Plan of Merger the operations and business of HMS, in exchange for $4,500,000 in cash and convertible promissory notes in the amount of $2,500,000. The purchase also included $47,500 in legal and professional costs. The transaction resulted in the merger of the business and operations of HMS Jewelry Co., Ltd., a Texas limited partnership and HMS Operating Company, a Texas corporation into a newly formed subsidiary of the Company, HMS Jewelry Company, Inc. HMS is a national jewelry wholesaler, specializing in 18K, 14K and 10K gold and platinum jewelry, with headquarters in Dallas, Texas. HMS markets its products to a network of over 30,000 retail jewelers, through a catalog and telephone ordering system and through its B2B online catalog http://www.HMSgold.com. The acquisition was accounted for by the purchase method of accounting and, accordingly, the statements of consolidated income include the results of HMS beginning October 1, 2000. The assets acquired and the liabilities assumed were recorded at estimated fair values as determined by the Company's management based on information currently available and on current assumptions as to future operations. A summary of the assets acquired and liabilities assumed in the acquisition follows: Estimated fair values: Assets acquired $ 7,758,635 Liabilities assumed (4,428,077) Goodwill (amortized by the straight-line method over fifteen years) 3,716,942 ----------- Purchase price 7,047,500 Less cash acquired (1,729,628) Less convertible promissory notes (2,500,000) ----------- Net cash paid $ 2,817,872 =========== 9 10 Unaudited pro forma results of operations for the three months ended October 31, 2000 and 1999, as if the Company and HMS had been combined as of the beginning of the periods, follow. The pro forma results include estimates and assumptions which management believes are reasonable. However, pro forma results are not necessarily indicative of the results which would have occurred if the business combination had been in effect on the dates indicated, or which may result in the future. Pro forma Three months ended October 31, (Thousands except for per share data) 2000 1999 Net sales $4,028 $4,059 Net income $ 560 $ 341 Net income per common share Assuming dilution $ .006 $ .004 Basic $ .006 $ .004 3. RELATED PARTY TRANSACTIONS Silver leases its corporate headquarters from the principal shareholder of the Company at the rate of $2,200 per month. This amounted to $6,600 during each of the three-month periods ended October 31, 2000 and 1999. The Company had received loans from its principal shareholder. The balance owed was $4,262 at October 31, 2000 and $2,457 at July 31, 2000. HMS leases its facility from HMS Leasing Company, LLC, at the rate of $8,075 per month pursuant to a lease agreement that expires on October 31, 2010. This amounted to $8,075 during the three-month period ended October 31, 2000. HMS Leasing Company, LLC is owned by the president of HMS. 4. MARKETABLE EQUITY SECURITIES FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities," requires that all applicable investments be classified as trading securities, available-for-sale securities or held-to-maturity securities. The Company has classified its investment in marketable equity securities as trading securities, which are reported at fair value. Fair value is defined to be the last closing price for the listed securities. The unrealized gains and losses, which the Company recognizes from its trading securities, are included in earnings. As of October 31, 2000, all of the Company's investment in marketable equity securities was in stock of one company. Due to the size of the investment and its limited trading volume, there can be no assurance that the Company will realize the value which is required to be used by FAS No. 115. 10 11 The following summarizes the Company's investments at October 31, 2000 (the Company did not have an investment in marketable equity securities at July 31, 2000): Trading securities: Cost $300,000 Unrealized gain 540,000 -------- FAS No. 115 value $840,000 ======== The Company recognized an unrealized gain from trading securities during the three months ended October 31, 2000 in the amount of $540,000. 5. PROPERTY AND EQUIPMENT Property and equipment consist of the following at October 31, 2000 and July 31, 2000: OCTOBER 31, JULY 31, 2000 2000 Equipment and store furnishings $ 288,836 $ 55,725 Transportation equipment 156,125 156,125 Furniture and fixtures 133,056 -- Computer software 62,975 -- Web site 37,225 37,225 Leasehold improvements 1,035 1,035 --------- --------- 679,252 250,110 Less accumulated depreciation (325,558) (93,086) --------- --------- $ 353,694 $ 157,024 ========= ========= 11 12 6. LONG-TERM DEBT AND NOTES PAYABLE Long-term debt and notes payable at April 30, 2000 consist of the following: Note payable to bank with interest at 10% payable on demand or January 1, 2001 if no demand is made; accrued interest payable monthly; collateralized by all assets of Silver and guaranteed by the principal shareholder of the Company $ 128,736 Line of credit and gold consignment facility with accrued interest payable monthly; collateralized by all assets of HMS 3,456,635 Note payable to the mother of the president of HMS; payable $105,000 on February 15, 2001 and $55,153 on February 15, 2002 160,153 Note payable to the president of HMS, due on demand 61,555 Notes payable to the president of HMS Jewelry Company, Inc., due $1,250,000 on October 15,2001 and $1,250,000 on October 15, 2002, with interest payable monthly at 8%, collateralized by the stock of HMS Jewelry Company, Inc. 2,500,000 Note payable to the brother of the principal shareholder of the Company due on demand with interest at 8%, unsecured, convertible into common stock of the Company at $.01 per share 50,000 Notes payable to companies in monthly installments aggregating $2,534, including interest at 9.8% to 11.6%; collateralized by transportation equipment 90,003 ---------- 6,447,082 Current installments of long-term debt and notes payable 5,087,414 ---------- Long-term debt less current installments $1,359,668 ========== 12 13 7. INCOME TAXES Federal income tax expense (benefit) for the three months ended October 31, 2000 and 1999 consists of: 2000 1999 Federal income taxes $ -- $ -- Deferred income tax expense (benefit) 194,300 (5,540) --------- --------- $ 194,300 $ (5,540) ========= ========= For the three months ended October 31, 2000 and 1999, actual income tax expense (benefit) applicable to earnings (loss) before income taxes is reconciled with the "normally expected" federal income tax expense (benefit) as follows: 2000 1999 "Normally expected" income tax expense (benefit) $ 247,500 $ (5,540) Change in valuation allowance (54,000) -- Other 800 -- --------- --------- $ 194,300 $ (5,540) ========= ========= The deferred income tax assets and liabilities at October 31, 2000 are comprised of the following: CURRENT NONCURRENT Net operating loss carryforwards $ 39,200 -- Allowance for bad debts 4,000 -- Asset basis -- (5,800) Unrealized gain on trading securities (183,600) -- --------- --------- Net deferred income tax assets (liabilities) ($140,400) ($ 5,800) ========= ========= 13 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS From time to time, the Company may publish forward-looking statements relative to such matters as anticipated financial performance, business prospects, technological developments and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. All statements other than statements of historical fact included in this section or elsewhere in this report are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include: 1. General economic factors including, but not limited to, changes in interest rates, trends in disposable income; 2. Information and technological advances; 3. Cost of products sold; 4. Competition; and 5. Success of marketing, advertising and promotional campaigns. The Company has historically sold jewelry, principally silver, in its own retail outlets and wholesale to other jewelry stores. Commencing in the late fall of 1999, the Company began selling through e-commerce sites, located at http://www.GoldOnline.com and http://yahoo.com/goldonline on Yahoo! and offers a wide selection of discounted gold and silver jewelry as well as diamonds and watches. Effective October 1, 2000, the Company acquired, pursuant to an Agreement and Plan of Merger the operations and business of HMS, in exchange for $4,547,500 in cash (including $47,500 in legal and professional costs) and convertible promissory notes in the amount of $2,500,000. The transaction resulted in the merger of the business and operations of HMS Jewelry Co., Ltd., a Texas limited partnership and HMS Operating Company, a Texas corporation into a newly formed subsidiary of the Company, HMS Jewelry Company, Inc. HMS is a national jewelry wholesaler, specializing in 18K, 14K and 10K gold and platinum jewelry, with headquarters in Dallas, Texas. HMS markets its products to a network of over 30,000 retail jewelers, through a catalog and telephone ordering system and through its B2B online catalog http://www.HMSgold.com. A. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital decreased from $6,657,979 at July 31, 2000 to $6,165,863 at October 31, 2000. The decline in working capital is primarily the result of the purchase of HMS during the quarter. HMS provided $3,256,884 in working capital at October 31, 2000, whereas the Company used $5,797,500 ($4,547,500 in cash and $1,250,000 in current notes payable) in working capital to complete the acquisition. The Company also received net proceeds from the sale of common stock in the amount of $1,567,500 and recognized an unrealized gain from marketable equity securities in the amount of $540,000. B. RESULTS OF OPERATIONS SALES AND COST OF SALES - During the three months ended October 31, 2000 sales increased $1,646,815 from $409,478 to $2,056,293 from the same year earlier period. The sales increase includes $1,406,366 from HMS during the month of October 2000 and $240,449 from the operations of Silver and GO.com. Silver had retail sales increases of $66,947 (71%) and increases of $174,216 from wholesale sales together with a decline of $714 in GO.com's sales. Sales increases are primarily the result of increased marketing efforts and an expanded inventory of products SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - During the three months ended October 31, 2000, selling, general and administrative expense increased $414,984 (199%) from the same year earlier period. The increase includes the selling, general and administrative expense 14 15 of HMS for the month of October 2000 in the amount of $244,272, which was not included in the year earlier period, and an increase of $170,712 from other operations, principally Silver. The major components of the increase in Silver's costs include payroll of $26,816, advertising of $23,093, rent of $23,026, professional fees of $13,067, commissions of $20,153, supplies of $12,344, travel costs of $14,083 and other costs of $38,130. INTEREST EXPENSE - Interest expense increased $35,207 (760%) during the three-month periods ended October 31, 2000, as compared to the same year earlier period. The increase includes $30,026 from HMS and $5,181 from Silver, which relates to new debt incurred for transportation equipment after the first quarter of last year. INTEREST AND OTHER INCOME - Interest and other income of the Company increased during the three-month periods ended October 31, 2000 from the same year earlier period to $132,946 from $1. The increase is attributed to the higher cash balances during the quarter ended October 31, 2000, which were due to the sale of common stock through exercise of stock options and warrants. UNREALIZED GAIN ON MARKETABLE SECURITIES - The Company recognized an unrealized gain in the amount of $540,000 during the three months ended October 31, 2000, from its investment in marketable equity securities that have been classified as trading securities. The Company did not have an investment in marketable equity securities until the quarter ended October 31, 2000. INCOME TAXES - The Company recorded income tax expense in the amount of $194,300 during the three month period ended October 31, 2000, and recorded a benefit of $5,540 during the year earlier period. The current year expense was $54,000 less than the expected tax would have been as a result of the Company reversing the valuation allowance which it had previously recorded. 15 16 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Not applicable (b) Reports on Form 8-K - Form 8-K dated October 26, 2000 which reported the completion of the acquisition of 100% of the issued and outstanding common stock of HMS Operating Company, a Texas corporation, and 100% of the partnership interests of HMS Jewelry Co., Ltd., a Texas limited partnership. Both entities were merged into HMS Jewelry Company, Inc., a Texas corporation and a wholly owned subsidiary of the Company. Exhibits to the Form 8-K included the Agreement and Plan of Merger, the Articles of Merger, the audited financial statements of HMS Jewelry Co., Ltd. as of December 31, 1999 and 1998 and for the years then ended, the pro forma combined consolidated balance sheet as of July 31, 2000 and the pro forma combined consolidated statement of operations for the year ended July 31, 2000. SIGNATURE 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. GOLDONLINE INTERNATIONAL, INC. Date: December 15, 2000 By: /s/ James G. Gordon ------------------------------------ James G. Gordon, President and Principal Accounting Officer 16