FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report September 23, 1999
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Online International Corporation
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(Exact Name of registrant as specified in its charter)
NEVADA 33-20966 NO. 760251547
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(State or other jurisdiction (Commission File No) (IRS Employer
incorporation) Identification No.)
150 LASER COURT
HAUPPAUGE, NEW YORK 11788
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(Address of Principal Executive Officers) (Zip Code)
Registrant's telephone number, including area code 516-231-7575
-----------------------------
Condor West Corporation 909 Frostwood, Suite 261 Houston, Texas 77024
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(Former name or former address, if changed since last report)
COPIES OF ALL COMMUNICATIONS TO:
Steve Larson-Jackson, Esquire
W. Kwame Anthony, Esquire
Law Firm of Larson-Jackson, P.C.
1275 K Street, NW, Suite 1101
Washington, D.C. 20005
Tel.: (202) 408-8180
Fax.: (202) 789-2216
ITEM 1: Change in Control of Registrant
The Company is a Nevada corporation formerly known as Condor West
Corporation. In December 1988, pursuant to a Form S-1 registration statement,
the Company's registration statement became effective. From 1989 to 1994 Condor
remained inactive. In May 1995 the Company began to develop a business plan for
the financing and establishment of a chain of retail brake and installation
outlets. The Company operated under the name of Super Brakes, Inc. From May 1996
to the September 1999 the Company had no material assets, liabilities or
business activities. In August 1999, the majority of shareholders of Condor
approved a plan of merger with Online International Corporation. Online
International Corporation controls the company as a result of the merger between
the two companies. Control of the company was acquired by Stanley James White,
Leslie Nochomovitz and Alex Igelman and Victoria Danseglio through Online. The
amount of the consideration was $275,000 and the source of the payment came from
Online International Corporation. The payment was made on September 9, 1999 and
no part of the consideration was a loan. The transaction is best described as a
reverse takeover pursuant to a plan of merger wherein Online was merged into
Condor. The officers and directors do not beneficially own, directly or
indirectly, any of the common stock of the corporation. The control block of
common stock consists of 201,000 shares, which are beneficially owned by the
company, Online International Corporation. The officers and directors received
rights to receive stock options. The options will not vest until the
expiration of one year or after September 9, 2000. The identity of the
persons from whom control was acquired is as follows: Carl D. Nation;
Dr. Everett Renger: Steven R. Paige; Wade D. Althen; Terrance Rasmussen; David
Christman; Berton A. Johnson; Dennis L. Swenson; and Everrett Renger, Sr.
ITEM 6: Resignations of Registrant's Directors
As a condition of the transaction, the directors tendered their
resignations and the resignations were accepted by the Chairman of the Board of
Directors on August 4, 1999. On September 9, 1999 three new directors nominated
by Online. The new directors are Stanley James White, Leslie Nochomovitz and
Alex Igelman.
ITEM 7. Exhibits and Financial Statements
INDEX TO FINANCIAL STATEMENTS REQUIRED BY ITEM 7
INDEX
A. FINANCIAL STATEMENTS
Report of independent certified public accountants
Balance sheets, January 31, 1999 and 1998
Statement of income for the periods ended
January 31, 1999 and 1998
Statement of stockholder's equity for the years
ended January 31, 1999, 1998 and 1997
Statement of cash flows for the periods ended
January 31, 1999 and 1998
Notes to consolidated statements
Exhibits
Ex. 2 PLAN OF MERGER
Ex. 10 LOCK-UP AGREEMENT
Ex. 99 STOCK OPTION PLAN
PANETH, HABER & ZIMMERMAN LLP
CERTIFIED PUBLIC ACCOUNTANTS [Letterhead]
600 Third Avenue
New York, NY 10016-1938
Telephone 212/503-8800
Facsimile 212/370-3759
INDEPENDENT AUDITORS' REPORT
Board of Directors
Online International Corporation
We have audited the accompanying consolidated balance sheet of Online
International Corporation and Subsidiaries, as of January 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity and cash
flows for the years ended January 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Online
International Corporation and Subsidiaries as of January 31, 1999 and 1998, and
the consolidated results of their operations and cash flows for the years ended
January 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
/s/ Paneth, Haber & Zimmerman LLP
-----------------------------------------
Paneth, Haber & Zimmerman LLP
New York, NY
March 18, 1999
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
January 31,
-------------------
1999 1998
---- ----
CURRENT ASSETS
Cash $ 605,111 $ 842,134
Accounts receivable, less allowance for doubtful
accounts of $55,630 in 1999 and $-0- in 1998 687,673 1,092,720
Inventories 610,846 588,444
Note receivable 5,000 18,750
Prepaid expenses and other current assets 134,740 273,456
Due from employee 82,296 5,000
Deferred income taxes -- 108,300
Total Current Assets 2,125,666 2,928,804
----------- -----------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation 867,913 1,069,554
----------- -----------
OTHER ASSETS
Investment in foreign lottery operation 100,000 --
Due from former subsidiary 206,673 276,081
Deferred income taxes 174,600 --
Deferred compensation trusts 128,083 29,750
Note receivable, less current portion 30,000 30,000
Deposits 27,762 27,762
----------- -----------
Total Other Assets 667,118 363,593
----------- -----------
$ 3,660,697 $ 4,361,951
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line-of-credit $ 530,000 $ --
Current portion of obligations under capital leases 45,878 41,359
Accounts payable 429,851 564,224
Accrued expenses and other current liabilities 176,363 106,053
Deferred income taxes -- 69,500
----------- -----------
Total Current Liabilities 1,182,092 781,136
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 153,689 199,567
DEFERRED COMPENSATION 128,083 29,750
----------- -----------
Total Liabilities 1,463,864 1,010,453
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
5% preferred stock, no par value; 7,800,156 shares issued in
1999 and 1998 ($23,400,000 liquidation preference) 1,584,855 1,584,855
Common stock, $.001 par value; 100,000,000 shares authorized,
5,507,244 shares issued in 1999 and 1998 5,507 2,754
Additional paid-in capital 1,436,870 1,439,623
Retained earnings (accumulated deficit) (830,399) 324,266
----------- -----------
Total Stockholders' Equity 2,196,833 3,351,498
----------- -----------
$ 3,660,697 $ 4,361,951
=========== ===========
See notes to consolidated financial statements.
- 2 -
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Year Ended
January 31,
------------------------------
1999 1998
-------------- -------------
NET SALES $ 8,376,075 $ 10,066,262
COST OF GOODS SOLD 6,925,092 8,452,131
------------ ------------
GROSS PROFIT 1,450,983 1,614,131
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (2,033,640) (1,886,377)
LOSS ON INVESTMENT IN FOREIGN LOTTERY OPERATION (705,000) --
------------ ------------
LOSS FROM OPERATIONS (1,287,657) (272,246)
------------ ------------
OTHER INCOME (EXPENSE)
Miscellaneous income 19,652 17,104
Gain on sale of assets -- 106,141
Interest expense (36,584) (42,365)
Gain on sale of unconsolidated subsidiaries -- 223,033
Gain on investment in deferred compensation trusts 23,083 --
------------ ------------
Total Other Income 6,151 303,913
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (1,281,506) 31,667
INCOME TAX BENEFIT (126,841) (36,360)
------------ ------------
NET (LOSS) INCOME $ (1,154,665) $ 68,027
============ ============
See notes to consolidated financial statements.
- 3 -
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Preferred Stock
------------------------- ----------------------- Additional
Number of Par Number Par Paid-in
Shares Value of Shares Value Capital
------------- ---------- ------------ -------- ----------
Balance at January 31, 1997, as previously
reported 2,486,950 $ 2,487 250 $ 1,693,223 $ 1,331,522
2-for-1 common stock split effective July 14, 1998 2,486,950 -- -- -- --
33,334-for-1 preferred stock split effective
July 14, 1998 -- -- 8,333,250 -- --
----------- ----------- ----------- ----------- -----------
Balance at January 31, 1997, as restated 4,973,900 2,487 8,333,500 1,693,223 1,331,522
Conversion of preferred stock 533,344 267 (533,344) (108,368) 108,101
Net Income for Year Ended January 31, 1998 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at January 31, 1998 5,507,244 2,754 7,800,156 1,584,855 1,439,623
Change in par value resulting from July 14, 1998
stock split -- 2,753 -- -- (2,753)
Net Loss for Year Ended January 31, 1999 -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total Stockholders' Equity at January 31, 1999 5,507,244 $ 5,507 7,800,156 $ 1,584,855 $ 1,436,870
=========== =========== =========== =========== ===========
Retained
Earnings Total
-------- -----
Balance at January 31, 1997, as previously
reported $ 256,239 $ 3,283,471
2-for-1 common stock split effective July 14, 1998 2,486,950 --
33,334-for-1 preferred stock split effective
July 14, 1998 -- --
----------- -----------
Balance at January 31, 1997, as restated 256,239 3,283,471
Conversion of preferred stock -- --
Net Income for Year Ended January 31, 1998 68,027 68,027
----------- -----------
Balance at January 31, 1998 324,266 3,351,498
Change in par value resulting from July 14, 1998
stock split -- --
Net Loss for Year Ended January 31, 1999 (1,154,665) (1,154,665)
----------- -----------
Total Stockholders' Equity at January 31, 1999 $ (830,399) $ 2,196,833
=========== ===========
See notes to consolidated financial statements.
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ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended
January 31,
-----------------------------
1999 1998
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(1,154,665) $ 68,027
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Gain on sale of property and equipment -- (106,141)
Depreciation and amortization 272,029 266,258
Gain on sale of subsidiaries -- (223,032)
Loss on investment in foreign lottery operation 705,000 --
Deferred taxes (135,800) (93,508)
Change in:
Accounts receivable 405,047 (7,467)
Inventories (22,402) 190,287
Prepaid expenses and other current assets 61,420 (222,297)
Deferred compensation trust (98,333) (29,750)
Accounts payable (134,373) (796,565)
Accrued expenses and other current liabilities 70,310 54,976
Deposits -- 14,135
Deferred compensation 98,333 29,750
----------- -----------
Net Cash Provided by (Used in) Operating Activities 66,566 (855,327)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of (additions to) notes receivable 13,750 (10,000)
Investment in foreign lottery operation (805,000) --
Acquisitions of property and equipment (70,388) (153,234)
Proceeds from sale of property and equipment -- 137,490
Proceeds from sale of unconsolidated subsidiary 69,408 453,592
----------- -----------
Net Cash (Used in) Provided by Investing Activities (792,230) 427,848
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank line-of-credit 530,000 --
Payments of long-term debt -- (22,686)
Payments of obligations under capital leases (41,359) (301,397)
----------- -----------
Net Cash Provided by (Used in) Financing Activities 488,641 (324,083)
----------- -----------
NET DECREASE IN CASH (237,023) (751,562)
CASH
Beginning of year 842,134 1,593,696
----------- -----------
End of year $ 605,111 $ 842,134
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 50,827 $ 69,773
=========== ===========
Interest $ 34,352 $ 42,365
=========== ===========
See notes to consolidated financial statements.
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ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Description of Business and Revenue Recognition
The Company's operations consist of the design and manufacture of
lottery tickets and play slips for automated on-line contractors and parimutuels
(on track and off track betting), as well as lottery management consultation and
operation.
Sales are recorded on the date of shipment of the merchandise. Revenue
from lottery management consultation and operation is recognized as services are
rendered.
Recapitalization
On January 31, 1997, Online International, Inc. (Online) issued 250
shares of Series A convertible preferred stock in exchange for all issued and
outstanding shares of Printing Associates, Inc. (PAI). A change in control of
PAI to Online shareholders did not occur as a result of this transaction, due to
the rights retained by the former common shareholder through its ownership of
the preferred stock.
This transaction was accounted for as a recapitalization (similar to a
reverse acquisition) of the Company's equity in accordance with the consensus of
the Emerging Issues Task Force No. 88-16. The application of the consensus under
88-16 requires that the historic basis of PAI's assets and liabilities be used,
since there was no change in control to Online's shareholders. As a result, PAI
is recording the issuance of Common stock for the $1,320,000 of net monetary
assets of Online at January 31, 1997. The common stock owned by the former
shareholder is recorded as if it was converted to preferred stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Online
International Corporation, its wholly- owned subsidiaries, Printing Associates,
Inc. and Printing Associates of Florida, Inc. for the years ended January 31,
1999 and 1998 collectively referred to as "The Company". All material
intercompany transactions and balances have been eliminated in consolidation.
Unconsolidated Subsidiaries
During 1998, the Company sold two of its subsidiaries, PAP Security
Printing, Inc. (PAP), which is located in Pennsylvania, and Wintex
International, Inc., which is located in Texas, in which it owned 49% and 60%,
respectively. The sale of PAP was for $268,608, all of which was collected by
the Company in 1998. The sale of Wintex International, Inc. includes an
agreement in which the former subsidiary is required to pay the Company 3.5% of
gross sales for each of the next five years, as well as other charges such as
consideration of stock, debt, and unpaid dividends. The Company has estimated
the total as $493,000. The five-year receivable was discounted to present value
to total $461,065 as the sale price of the subsidiary. As of January 31, 1999,
the Company has a receivable of $206,673. Due to the inherent uncertainties in
estimating the future gross sales of Wintex International, Inc., it is at least
reasonably possible that the estimate of the amount to be collected, and
therefore, the fair value of the receivable, will change in the near term. The
January 31, 1999 fair values that are reasonably possible range from $100,000 to
$300,000.
During the year ended January 31, 1999, Online common stock split on a
two for one basis and Online preferred stock split on a 33,334 for one basis.
Such stock split has been reflected on the financial statements.
- 6 -
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost or market with cost
determined by the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed by both the straight-line and declining
balance methods over the estimated useful lives of the assets indicated in Note
6. Leasehold improvements are amortized on a straight-line basis over the life
of the lease.
Maintenance and repairs are charged to income as incurred. Renewals and
replacements of a routine nature are charged to income, while those which
significantly improve or extend the life of existing property are capitalized.
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts and the
related gain or loss is included in current income.
Stock Options
Stock based compensation is recognized using the intrinsic value method
under which compensation cost for stock options is measured as the excess, if
any, of market value of the Company's stock at the measurement date over the
exercise price. For disclosure purposes, pro-forma net income is provided as if
the fair value method had been applied.
Reclassifications
Certain 1998 amounts have been reclassified to conform with 1999
classifications.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
3. MAJOR CUSTOMERS
The lottery and pari-mutuel products industry is controlled by a
limited number of contractors. The Company's sales to its three significant
contractors were:
Year Ended
January 31,
----------------------
1999 1998
---- ----
Significant contractor No. 1 59% 40%
Significant contractor No. 2 16% 32%
Significant contractor No. 3 11% 11%
----- -----
86% 83%
===== =====
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ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
3. MAJOR CUSTOMERS (Continued)
The Company's accounts receivable from one significant contractor
amounted to approximately $343,000 and $402,000 at January 31, 1999 and 1998,
respectively.
4. CASH
Included in cash at January 31, 1999 are funds on deposit at two banks
in New York totaling $625,341 (including outstanding checks of $32,002 against
such funds). Of these funds, $200,000 is insured by the FDIC.
Included in cash at January 31, 1998 are funds on deposit at three
banks in New York totaling $1,062,948 (including outstanding checks of $232,090
against such funds). Of these funds, $300,000 is insured by FDIC.
5. INVENTORIES
Inventories consist of the following:
January 31,
--------------------
1999 1998
--------- --------
Raw materials $172,111 $278,159
Work-in-process 68,192 99,175
Finished goods 370,543 211,110
-------- --------
$610,846 $588,444
======== ========
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
Estimated Useful
January 31 Life In Years
------------------------- ----------------
1999 1998
---- ----
Machinery and equipment $ 2,477,303 $ 2,422,902 7
Furniture and office equipment 271,307 255,320 5-7
Leasehold improvements 204,512 204,512 7-13
------------- ------------
2,953,122 2,882,734
Less: Accumulated depreciation and
amortization 2,085,209 1,813,180
------------- ------------
$ 867,913 $ 1,069,554
============= ============
- 8 -
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
7. DEFERRED COMPENSATION
The Company has a deferred compensation plan for key employees of the
Company. Contributions to the Plan are at the discretion of the Board of
Directors. Annual contributions for each beneficiary are placed in a trust with
a third party fiduciary. At a predetermined date, the beneficiary is entitled to
receive the assets of the trust, including investment earnings and appreciation.
The Company has access to the assets of each trust in certain limited
circumstances but should still be liable to the beneficiary for the assets
removed. The investment earnings of the trusts are recorded as income to the
Company and the Company's income is reduced by deferred compensation expense,
which equals the contributions to the trust plus the earnings of the trust. The
securities held by the trust are considered trading securities and carried at
fair value. Deferred compensation expense amounted to $98,333 and $29,750 for
the years ended January 31, 1999 and 1998, respectively.
Following is a summary of marketable securities held in the above
deferred compensation trusts:
1999 1998
---- ----
Aggregate cost $105,000 $ 29,750
Realized and unrealized gains 23,083 --
-------- --------
Aggregate Fair Value $128,083 $ 29,750
======== ========
8. INVESTMENT IN FOREIGN LOTTERY OPERATION
During the year ended January 31, 1999, the Company entered into an
agreement with a company that holds a license to the Cambodian Lottery (partly
owned by an entity affiliated with a director of the Company). The Company
advanced $805,000 to this foreign corporation in the form of a non-interest
bearing loan which is payable as cash flow is available and prior to the payment
of certain fees by the foreign corporation. The agreement also calls for the
Company to receive a management fee for managing the lottery. This management
fee is not payable until the Company first recovers its loan. Despite the legal
form of a loan, the transaction is being recorded as an equity investment as the
payments are first to be recouped out of the investee's cash flow. Management
now believes that the $805,000 investment will not be completely recovered. The
Company has recorded a charge to income to reduce the investment to its
estimated fair value at January 31, 1999 of $100,000. This fair value represents
management's current estimate of what it would be willing to pay for the same
rights with their current knowledge. Because of the inherent uncertainties in
making such an estimate, it is at least reasonably possible that it will change
in the near term.
9. BANK LINE-OF-CREDIT
Printing Associates, Inc. has an agreement with a bank that provides
for a $750,000 line-of-credit for short- term loans, of which $220,000 is
unused.
The above commitment bears interest at the bank's prime rate (the prime
rate was 7.75% at January 31, 1999). The agreement is secured by all existing
and future accounts receivable of Printing Associates, Inc.
- 9 -
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
10. PREFERRED STOCK
The 5% non-cumulative preferred stock is convertible into 1 share of
common stock for each share of preferred. Dividends, when declared, are payable
semi-annually and commence July 31, 1999. Upon conversion, the holder of these
shares is limited to retaining a maximum of twenty percent of the then issued
and outstanding common stock. The preferred shareholders are entitled to a
liquidation preference, upon which the 5% non-cumulative preferred dividend is
calculated, of $3 per preferred share.
11. STOCK OPTIONS
In July 1998, the Company granted 900,000 options to certain officers
and employees. Each option gives the holder the right to purchase one share of
common stock at $1.10. The options expire in July 2008. 20% of the options
granted become exercisable on each of the first, second, third, fourth and fifth
anniversaries of the grant. Each recipient will forfeit any options that are
unexercised when employment with the Company ceases.
As described in Note 2, the Company accounted for the granting of stock
options under the intrinsic value method and accordingly, no compensation cost
has been recognized for stock options in these financial statements. There would
not, however, have been any material effect had the Company determined
compensation cost, based on fair value at the date of the grant. This was
because under the "minimum value" method of determining fair value (which is
required for privately held companies) the option would have had no material
value at the date of grant.
12. NON-CASH INVESTING AND FINANCING TRANSACTIONS
A capital lease obligation was incurred for the acquisition of
equipment in the amount of $250,613 in 1998.
A stock split in the amount of $2,753 of common stock was converted
during 1998 on a two for one basis.
A note receivable of $276,081 was received on the sale of subsidiaries
during 1998.
13. LEASES
The Company is the lessee of certain equipment under operating and
capital leases as well as lessee of office and warehouse space in New York.
At January 31, 1999, the future minimum lease payments for all leases
are as follows:
Operating Obligations under
Leases Capital Leases
------ --------------
2000 $ 198,000 $ 64,512
2001 181,500 64,512
2002 -- 64,512
Remaining years -- 48,384
------------- ------------
$ 379,500 241,920
============= ============
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ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
13. LEASES (Continued)
Operating Obligations under
Leases Capital Leases
--------- -----------------
Less amount representing interest 42,353
-------------
Present value of minimum lease payments 199,567
Less current portion 45,878
-------------
Long-term portion $ 153,689
=============
Rent expense for the year ended January 31, 1999 and 1998 amounted to
$253,082 and $224,110.
Equipment held under capitalized leases at January 31, 1999 consists of
the following:
Machinery and equipment $ 257,399
Less: Accumulated amortization 55,157
-------------
$ 202,242
=============
14. INCOME TAXES
The provision for income taxes consists of the following components:
January 31,
------------------------------
1999 1998
------------ ------------
Current
Federal $ (17,698) $ 20,113
State and foreign 26,657 35,968
--------- --------
8,959 56,081
--------- --------
Deferred
Relating to current net operating loss
Federal (91,000) --
State (40,000) (91,400)
--------- --------
(131,000) (91,400)
--------- --------
Other
Federal 2,200 4,216
State (7,000) (5,257)
--------- --------
(4,800) (1,041)
--------- --------
(135,800) (92,441)
--------- --------
$ (126,841) $ (36,360)
========= ========
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ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
14. INCOME TAXES (Continued)
Year Ended
January 31,
---------------------------------
1999 1998
------------ -----------
Deferred income taxes consists of the following:
Gross deferred tax assets $ 233,800 $ 108,300
========== ===========
Gross deferred tax liabilities $ 59,200 $ 69,500
========== ===========
The 1999 deferred tax asset balances primarily relate to a consolidated
federal net operating loss carryover and a New York State net operating loss
carryover for Online International Corp.
The 1998 deferred tax asset balances primarily relate to a net
operating loss for Online International for New York State. The liabilities in
both years are primarily a result of temporary differences in the recognition of
the gain on sale of subsidiary.
The reconciliation between the actual and expected Federal tax is as
follows:
Year Ended
January 31,
-----------------------------------
1999 1998
----------- ------------
Income tax provision at 34% $ (163,652) $ 10,767
State and local income taxes net of
Federal income tax effect 17,132 (36,876)
Change in estimate of prior year Federal
income tax 16,504 (14,659)
Effect of nondeductible expenses 3,175 4,408
----------- ----------
Actual income tax provision $ (126,841) $ (36,360)
============ ===========
15. COMMITMENTS
The Company has entered into employment contracts with the president of
PAI and other key employees that expire at various dates through October 22,
2001. Future minimum payments, excluding certain fringe benefits, relating to
these agreements are as follows:
2000 $ 240,000
2001 240,000
2002 180,000
---------------
$ 660,000
===============
- 12 -
ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments ("SFAS 107") requires entities to disclose
the fair values of financial instruments except when it is not practicable to do
so. Under SFAS 107, it is not practicable to make this disclosure when the costs
of formulating the estimated values exceed the benefit when considering how
meaningful the information would be to financial statement users.
The Company's financial instruments, and the related amounts recorded
on the balance sheet, to which SFAS 107 would be applied include the following:
Carrying Amount
---------------------------------
Year Ended
January 31,
---------------------------------
1999 1998
------------ ----------
Assets:
Cash $ 605,111 $ 842,134
Notes receivable 35,000 38,750
Due from employees 82,296 5,000
Investment in foreign lottery operation 100,000 --
Due from former subsidiary 206,673 276,081
Deferred compensation trusts 128,083 29,750
Liabilities:
Bank line-of-credit 530,000 --
The fair values of cash, notes receivable, due from employees, deferred
compensation trusts and bank line-of-credit do not differ materially from their
carrying amounts. See Notes 2 and 8, respectively, for more information about
the balance due from the former subsidiary and the investment in foreign lottery
operation.
None of the above are derivative financial instruments and none, except
the deferred compensation trusts, are held for trading purposes.
17. NET ASSETS OUTSIDE THE U.S.
As of January 31, 1998 and 1999, net assets outside the U.S. were
$210,462 and $281,601, respectively. Net assets in Canada were not material at
January 31, 1998 and 1999.
18. SEGMENT INFORMATION
As described in Note 1, the Company's operations have been classified
into two segments, the design and manufacture of lottery tickets and lottery
management consultation. Summarized information by business segment for 1999 and
1998 is as follows:
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ONLINE INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
JANUARY 31, 1999
18. SEGMENT INFORMATION (Continued)
1999 1998
-------------------------------------------- --------------------------------------------
Design and Lottery Design and Lottery
Manufacture Management Total Manufacture Management Total
----------- ---------- ----- ----------- ---------- -----
Revenue $ 8,118,659 $ 257,416 $ 8,376,075 $ 10,056,262 $ 10,000 $ 10,066,262
============ ============ ============ ============ ============ ============
Operating income (loss) $ 517,349 $ (1,805,006) $ (1,287,657) $ 737,278 $ (1,009,524) $ (272,246)
Gain on sale of assets -- -- -- 106,141 -- 106,141
Gain on sale of subsidiary -- -- -- 223,033 -- 223,033
Interest expense (23,805) (12,779) (36,584) (42,365) -- (42,365)
Miscellaneous income 33,404 9,331 42,735 17,104 -- 17,104
------------ ------------ ------------ ------------ ------------ ------------
Pre-tax income (loss) 526,948 (1,808,454) (1,281,506) 1,041,191 (1,009,524) 31,667
Income tax expense
(benefit) (48,106) (78,735) (126,841) 8,040 (44,400) (36,360)
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) $ 575,054 $ (1,729,719) $ (1,154,665) $ 1,033,151 $ (965,124) $ 68,027
============ ============ ============ ============ ============ ============
Total Assets $ 3,317,796 $ 342,901 $ 3,660,697 $ 4,075,794 $ 286,157 $ 4,361,951
============ ============ ============ ============ ============ ============
Depreciation and
amortization $ 270,519 $ 1,510 $ 272,029 $ 264,748 $ 1,510 $ 266,258
============ ============ ============ ============ ============ ============
Capital expenditures $ 70,388 $ -- $ 70,388 $ 396,297 $ 7,550 $ 403,847
============ ============ ============ ============ ============ ============
19. SUBSEQUENT EVENT
As of March 18, 1999, Printing Associates, Inc. has borrowed an
additional $90,000 against the line-of-credit mentioned in Note 9.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: 9/23/99 Online International Corporation
(Registrant)
/s/ Stanley James White
---------------------------------------
Stanley James White
Chief Executive Officer, President &
Secretary