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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transaction Period from to
Commission File Number: 0-27083
W3 GROUP, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1108035
------------------------------- ---------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
444 Madison Avenue, Suite 2904, New York, New York 10022
--------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(212) 750-7878
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 [ ]
5,392,084 shares of Common Stock, no par value, outstanding on March 31, 2003.
--------------------------------------------------------------------------------
W3 GROUP, INC.
Form 10-QSB Quarterly Report
For Period Ended March 31, 2003
Table of Contents
Page
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
Unaudited Balance Sheet at March 31, 2003
and Audited Balance Sheet at December 31, 2002 1
Unaudited Statements of Operations
For Three Months Ended March 31, 2003
and March 31, 2002 2
Unaudited Statements of Cash Flows
For Three Months Ended March 31, 2003
and March 31, 2002 3
Statements of Stockholders' Equity (Deficit)
For Three Months Ended March 31, 2003 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION 16
SIGNATURE 16
CERTIFICATIONS 17
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
W3 GROUP, INC.
BALANCE SHEETS
--------------
March 31, 2003 December 31, 2002
(Unaudited) (Audited)
----------------- -----------------
ASSETS
------
Current Assets
Total Current Assets $ 0 $ 0
----------------- -----------------
Total Assets $ 0 $ 0
----------------- -----------------
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities:
Accounts payable $ 248,999 $ 293,999
Accrued interest 17,454 16,254
Stockholders' loans 40,000 40,000
Due to Ameristar Group Inc. 224,694 224,694
----------------- -----------------
Total Current Liabilities $ 531,147 $ 574,947
----------------- -----------------
Stockholders' Equity (Deficit):
Preferred Stock, no par value,
100,000,000 shares authorized
Series B Convertible Preferred,
non-dividend bearing,
699,060 shares issued
and outstanding $ 523,891 $ 523,891
Common Stock, no par value,
500,000,000 shares authorized,
5,392,084 and 3,892,085 shares
issued and outstanding
as of March 31, 2003
and December 31, 2002 1,088,226 1,088,226
Additional paid-in-capital 405,225 360,225
Retained earnings (Deficit) (2,548,489) (2,547,289)
----------------- -----------------
Total Stockholders' Equity (Deficit) (531,147) (574,947)
----------------- -----------------
Total Liabilities and
Stockholders' Equity $ 0 $ 0
----------------- -----------------
----------------- -----------------
The accompanying notes are an integral part of these financial statements.
1
W3 GROUP, INC.
STATEMENTS OF OPERATIONS
------------------------
FOR THREE MONTHS ENDED MARCH 31
-------------------------------
2003 2002
(Unaudited) (Unaudited)
----------------- -----------------
Revenues: $ 0 $ 0
----------------- -----------------
Operating Expenses:
Consulting $ 0 $ 51,561
Depreciation and amortization 0 120
----------------- -----------------
Total Operating Expenses $ 0 $ 51,681
----------------- -----------------
(Loss) From Operations 0 (51,681)
Other Income and (Expenses):
Interest Income 0 0
Interest (Expense) (1,200) (1,200)
----------------- -----------------
Total Other Income and (Expenses) (1,200) (1,200)
----------------- -----------------
Net (Loss) Before
Provision For Income Taxes (1,200) (52,881)
Provision For Income Taxes 0 0
----------------- -----------------
Net (Loss) $ (1,200) $ (52,881)
----------------- -----------------
Net (Loss Per Share) $ 0 $ (0.014)
----------------- -----------------
----------------- -----------------
Weighted Average Number
of Shares Outstanding 5,392,084 3,892,085
----------------- -----------------
----------------- -----------------
The accompanying notes are an integral part of these financial statements.
2
W3 GROUP, INC.
CASH FLOW STATEMENTS
--------------------
FOR THREE MONTHS ENDED MARCH 31
-------------------------------
2003 2002
(Unaudited) (Unaudited)
----------------- -----------------
Cash Flows From Operating Activities:
Net loss $ (1,200) $ (52,881)
Adjustments to reconcile net loss to net
cash flow from operating activities:
Depreciation and amortization 0 120
Decrease (Increase) in prepaid expenses 0 51,561
Increase in accrued interest 0 1,200
(Decrease) Increase in payables (43,800) 0
----------------- -----------------
Cash Used By Operating Activities (45,000) 0
----------------- -----------------
Cash Flows From Financing Activities:
Issuance of Common Stock For Services 45,000 0
----------------- -----------------
Net Cash Provided (Used)
By Financing Activities 45,000 0
----------------- -----------------
Net Increase (Decrease) In Cash 0 0
Cash, Beginning of the Period 0 0
----------------- -----------------
----------------- -----------------
Cash, End of the Period $ 0 $ 0
----------------- -----------------
----------------- -----------------
The accompanying notes are an integral part of these financial statements.
3
W3 GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------
FOR THREE MONTHS ENDED MARCH 31, 2003
-------------------------------------
Preferred Series B
Stock Non- Convertible Common Total
Dividend Preferred Stock Stock-
Bearing Stock Number Common Additional holders'
Series B Purchase of Stock Paid-in- Deficit Equity
Convertible Warrants Shares Amount Capital Accumulated (Deficit)
----------- ----------- ----------- ----------- ----------- ------------ -----------
Balance,
January 1, 2003 $ 523,891 $ 0 3,892,085 $1,088,226 $ 360,225 $(2,547,289) $ (574,947)
January 10, 2003
Issuance of Common
Stock for Services 1,499,999 $ 45,000 $ 45,000
Net loss for
3 months ended
March 31, 2003 $ (1,200) $ (1,200)
----------- ----------- ----------- ----------- ----------- ------------ -----------
Balance,
March 31, 2003 $ 523,891 $ 0 5,392,084 $1,088,226 $ 405,225 $(2,548,489) $ (531,147)
----------- ----------- ----------- ----------- ----------- ------------ -----------
----------- ----------- ----------- ----------- ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements.
4
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
The accompanying financial statements of W3 Group, Inc. (the "Company")
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. In the opinion of
management, the financial statements reflect all adjustments considered
necessary for a fair presentation. For further information, refer to the
financial statements and footnotes thereto included in our annual report for the
year ended December 31, 2002 as filed with the Securities and Exchange
Commission on March 31, 2003.
Note 1 - Organization and History
The Company is a Colorado corporation and had been in the development stage
since its formation on February 12, 1988. The Company was formed to seek
potential business acquisitions and its activities since inception are primarily
related to its initial public offering and merger activities.
Upon the completion of the acquisition of Concorde Management, Ltd. and
its wholly owned subsidiary, L'Abbigliamento, Ltd., the Company had ceased being
a development stage company. This acquisition was effective July 1, 1997.
L'Abbigliamento, Ltd. is a New York State corporation which was
incorporated in March, 1992. L'Abbigliamento, Ltd. commenced operations in
August of 1992 as an importer of fine men's clothing. In October of 1995 Vista
International Ltd., incorporated in the Cayman Islands, was organized to acquire
raw material and to sell finished goods to areas outside the United States.
Effective July 1, 1997 L'Abbigliamento, Ltd. and Vista International Ltd. were
acquired through an exchange of stock by Concorde Strategies Group, Inc. As a
result of the Company's changed focus, an agreement for the divestiture of
L'Abbigliamento, Ltd. effective March 31, 1999, was approved by shareholders on
August 12, 1999, (see "Note 7 - Divestiture of Subsidiary" and "Note 8 - Merger
and Acquisitions") and the divestiture was completed.
On April 21, 1999, the Company entered into an Agreement and Plan of Share
Exchange with W3 Group, Inc. a Delaware corporation which was formed to acquire
and develop young companies whose businesses involved the development of
internet related technology and applications. Effective October 1, 1999, the
agreement was completed and the Company changed its name to W3 Group, Inc. (See
"Note 8 - Merger and Acquisitions".)
5
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
Note 2 - Summary of Significant Accounting Policies
Accounting Method
The Company records income and expenses on the accrual method.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash on deposit and highly
liquid investments with maturities generally of three months or less.
Deferred Offering Costs
Costs associated with the Company's private offerings have been charged to
the proceeds of the offering. If the offerings are unsuccessful, the costs are
charged to operations.
Sales and Expenses
Sales and expenses are recorded using the accrual basis of accounting.
Fixed Assets and Accumulated Depreciation
Fixed assets are stated at cost less accumulated depreciation which is
provided for by charges to operations over the estimated useful lives of the
assets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual results
could differ from those estimates.
6
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
Note 3 - Capitalization
In April 1996, the Company undertook a private placement of its securities
pursuant to the provisions of Rule 504 under Regulation D under the Securities
Act of 1933, as amended, whereby it issued 9,000,000 shares of its Common Stock
in exchange for the satisfaction of $45,000 in debts owed by the Registrant.
Also in April 1996, the Company effected a 1-for-10 reverse split of its Common
Stock as the result of which the Company had, following the aforesaid private
offering, 1,200,000 shares issued and outstanding. This reverse split was
effected in anticipation of management's renewed efforts to find a suitable
business opportunity for the Company.
In June 1997, the Company issued 300,000 shares of Common Stock to certain
parties who had performed services on behalf of the Company. The shares were
issued in consideration for the cancellation of payments owed by the Company at
the agreed upon rate of $.10 per share and were sold through a private placement
pursuant to the exemption provided by Rule 504 of Regulation D under the
Securities Act of 1933, as amended.
On October 24, 1997, the Company completed a private placement offering of
450,000 non-dividend bearing, no par value, Series B Convertible Preferred
Shares. All of the shares were sold by the Company and no placement agent was
involved in this offering. The shares were sold at a purchase price of $.3125
per share and the Company realized proceeds of $130,633 from the offering, net
of offering expenses in the amount of $9,992. The shares were sold through a
private placement pursuant to the exemption provided by Rule 504 of Regulation
D under the Securities Act of 1933, as amended. Each Preferred Share was
originally convertible into one and one quarter (1.25) shares of the Company's
Common Stock, no par value, at the election of the Preferred Shareholder at any
time after thirteen months from the date of issuance thereof and for a period of
four years thereafter, ending on October 14, 2002. This date was extended until
April 14, 2003 by the Board of Directors on September 23, 2002 and additionally
until July 14, 2003 by the Board of Directors on April 2, 2003. As discussed
below, the conversion right of the Series B Preferred Shares was adjusted as a
result of a 1-for-30 reverse split of the Company's Common Stock on October 1,
1999. Also, as discussed below, the conversion right was further adjusted on
January 18, 2000 so that each share of Series B Preferred Stock may be
converted to 0.5 (one half) share of Common Stock at the election of the
shareholder.
On January 7, 1998, the Company issued 315,000 shares of Series B
Convertible Preferred Shares to certain parties who had performed services on
behalf of the Company, including two companies which are principally owned by
two Directors of the Company. The shares were issued by the Company in
consideration for the cancellation of debt owed by the Company at the agreed
upon rate of $.25 per share and were sold through a private placement pursuant
to the exemption provided by Rule 504 of Regulation D under the Securities Act
of 1933, as amended.
7
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
On June 22, 1998, the Registrant issued 300,000 shares of Common Stock to a
company which has performed services on behalf of the Registrant. The shares
were issued pursuant to an option in the consulting agreement to pay for the
consulting fees through the issuance of restricted shares of Common Stock at the
agreed upon rate of $.47 per share.
On August 12, 1998, the Company completed a private placement of 337,600
Series B Convertible Preferred Stock Purchase Warrants ("B Warrants"). All of
the B Warrants were sold by the Company and no placement agent was involved in
this offering. The B Warrants were sold at a purchase price of $1.00 per
Warrant and the Company realized proceeds of $325,600 from the offering, net of
offering expenses in the amount of $12,000. The B Warrants were sold through a
private placement pursuant to the exemption provided by Rule 504 of Regulation D
under the Securities Act of 1933, as amended. Each B Warrant entitled the
holder thereof to purchase one Series B Convertible Preferred Share at a price
of $3.00 per share during the period commencing thirteen months after the date
of the issuance thereof and continuing until February 1, 2002. None of the
337,600 B Warrants were exercised and all of them expired on February 1, 2002.
On April 1, 1999, the Company sold 175,000 shares of Series B Convertible
Preferred Stock to certain parties who had performed services on behalf of the
Company, including one company which is principally owned by a Director of the
Company. The shares were sold by the Company in consideration for the
cancellation of payments owed by the Company at the agreed upon rate of $2.00
per share and were sold through a private placement pursuant to the exemption
provided by Rule 504 of Regulation D under the Securities Act of 1933, as
amended.
On May 21, 1999, 199,995 restricted shares of Common Stock were sold to a
principal of L'Abbigliamento, Ltd. who had performed consulting services on
behalf of the Registrant. These shares were issued in October, 1999 in
consideration for the cancellation of payments in the total amount of $64,995
owed by the Registrant for said services.
In October, 1999, the Company issued 116,000 shares of the Series B
Convertible Preferred Stock to three shareholders in satisfaction of a
previously existing obligation relating to consulting services performed on
behalf of the Company by an independent third party.
Effective October 1, 1999, the Agreement and Plan of Share Exchange (the
"Agreement") with W3 Group, Inc. a privately owned company, was completed. (See
"Note 8 - Merger and Acquisitions".) Under the terms of this Agreement, Concorde
acquired one hundred (100%) percent of the capital stock of W3 Group, Inc. in
exchange for an equal number of shares (3,250,000) of Concorde's post split
Common Stock. W3 Group, Inc, became a wholly owned subsidiary of Concorde, and
Concorde changed its corporation name to W3 Group, Inc.
8
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
Also, on October 1, 1999, the reverse split of Concorde's Common Stock on
the basis of one new share for each 30 existing shares was effected. The number
of outstanding shares of Concorde's Series B Convertible Preferred Stock and
Series B Convertible Preferred Stock Purchase Warrants remained unchanged,
however, the conversion feature was adjusted to reflect the reverse split.
As per the Agreement, a special distribution of 520,056 Common Stock
Purchase Warrants was made on October 4, 1999 to holders of the Registrant's
Common Stock, Series B Convertible Preferred Stock, and Series B Convertible
Preferred Stock Purchase Warrants. The special distribution was made on the
basis of one Common Stock Purchase Warrant for each ten shares of Common Stock
(pre-reverse split) either outstanding as of September 30, 1999 or committed to
be issued upon conversion of the then outstanding Preferred Shares, or the
currently outstanding Warrants to purchase Preferred Shares. The Common Stock
Purchase Warrants are callable and each represents the right to purchase one
share of Common Stock at a price of $6.00 per share during the exercise period,
which is from the date of their issuance until October 1, 2001. None of the
Common Stock Purchase Warrants were exercised during the exercise period and all
such Warrants expired on October 1, 2001.
On October 16, 1999, the Company issued 11,800 shares of Common Stock to
the original investors in Series B Convertible Preferred Stock and Series B
Convertible Preferred Stock Purchase Warrants to adjust for the effect of the
Company's restructuring.
At a special meeting of shareholders on January 18, 2000, shareholders
approved amending the Articles of Incorporation to adjust the conversion right
of the Series B Convertible Preferred Stock from an amount equal to 0.0416
shares to 0.5 (one half) share of Common Stock for each one share of Series B
Convertible Preferred Stock.
On April 27, 2000, the Registrant issued 300,000 restricted shares of
Common Stock to a former Director of the Company in consideration for services
being performed on behalf of the Registrant. The shares were issued in lieu of
cash payment at the agreed upon rate of $1.375 per share.
The Company withdrew its private placement offering which had commenced on
December 14, 1999, and returned the private placement proceeds of $50,000 to the
subscribers on May 3, 2000.
On October 1, 2001, all of the 520,056 Common Stock Purchase Warrants then
outstanding expired. These Warrants had been issued by the Company on October 4,
1999 and none had been exercised.
9
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
On January 10, 2003, the Board of Directors authorized the issuance of
1,499,999 restricted shares (the "Shares") of Common Stock to two creditors of
the Company in payment of their outstanding invoices for services. The Shares
were issued at the agreed upon rate of $0.03 per share.
Note 4 - Provision for Taxes on Income
The estimated provision for income taxes is based on the statutory federal
and state income tax rates.
Note 5 - Leases and Other Commitments
The Company leased its premises from Ameristar Group Incorporated
("Ameristar"), an affiliated company, for the following annual rent expenses:
November 1, 1997 thru September 30, 1998 (eleven months) $ 41,173
October 1, 1998 thru September 30, 1999 46,152
October 1, 1999 thru September 30, 2000 47,424
October 1, 2000 thru September 30, 2001 48,732
October 1, 2001 thru December 31, 2001 7,500
-----------
Total Prior Rent Commitment $ 190,981
-----------
-----------
As of October 1, 2001, the Company rented space from Ameristar on a month
to month basis at a monthly cost of $2,500, and as of January 1, 2002, space has
been provided by Ameristar on a rent free basis.
Note 6 - Related Party Transactions
The Company has received advances of monies for its operating expenses from
Ameristar. W3 leased office space from Ameristar on a monthly rental, commencing
on November 1, 1997 for a term of three years and eleven (11) months, ending on
September 30, 2001, and thereafter on a month to month basis. As of January 1,
2002, space has been provided to the Company by Ameristar on a rent free basis.
(See "Note 5 - Leases and Other Commitments".)
The Company has incurred consulting fees of $236,833 to its Executive Vice
President, and $45,000 to Ameristar since the beginning of 1996. No such
consulting fees have been incurred since December 31, 2001.
10
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
In June, 1997 the Company issued 200,000 shares of Common Stock to two
related privately owned companies in consideration of $.10 per share for
consulting services performed on behalf of the Company. (See "Note 3 -
Capitalization")
On January 7, 1998, the Company issued 315,000 shares of Series B
Convertible Preferred Stock to certain parties who had performed services on
behalf of the Company. Of that total, 222,000 shares were issued to two related
privately owned companies in consideration of $.25 per share.
On June 22, 1998, the Registrant issued 300,000 shares of its Common Stock
to a company principally owned by a Director of the Registrant in consideration
of $.47 per share for consulting services performed on behalf of the Registrant.
(See "Note 3 - Capitalization")
On April 1, 1999, the Registrant issued 71,666 of its preferred stock to a
company principally owned by a Director of the Registrant in consideration of
$2.00 per share for consulting services performed on behalf of the Registrant.
(See "Note 3 - Capitalization")
On May 21, 1999, 199,995 restricted shares of Common Stock were sold to a
principal of L'Abbigliamento, Ltd. who had performed consulting services on
behalf of the Registrant. These shares were issued in October, 1999 in
consideration for the cancellation of payments in the total amount of $64,995
owed by the Registrant for said services.
Note 7 - Divestiture of Subsidiary
A termination agreement was executed on May 5, 1999, for the divestiture of
L'Abbigliamento, Ltd., the Company's sole operating subsidiary and was ratified
by shareholders on August 12, 1999. Under the terms of the Agreement,
(1) management of both companies mutually elected to rescind and cancel the
acquisition of L'Abbigliamento, Ltd. by the Company, effective as of the close
of business on March 31, 1999; (2) L'Abbigliamento, Ltd. returned to the Company
one hundred (100%) percent of the Class A Preferred Shares in exchange for which
the Company delivered one hundred (100%) percent of the L'Abbigliamento, Ltd.
capital stock held by it; (3) L'Abbigliamento, Ltd. will repay its outstanding
indebtedness to the Company in the principal amount of $158,000 in five equal
monthly payments of $1,300, plus 55 monthly payments of $1,700, which payments
shall be inclusive of interest at the rate of six (6%) percent per annum, to be
followed by a final payment at the end of aforesaid term equal to the sum of any
accrued but unpaid interest due thereon plus the entire unpaid principal amount;
(4) On January 10, 2001, L'Abbigliamento, Ltd. paid off the balance due on its
loan from State Bank of Long Island, ending the Company's liability for said
loan pursuant to a guarantee of payment previously made by the Company.
11
W3 GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FIRST QUARTER ENDED MARCH 31, 2003
------------------------------------------
Note 8 - Merger and Acquisitions
On April 21, 1999, the Company entered into an Agreement and Plan of Share
Exchange with W3 Group, Inc., which was approved by shareholders on August 12,
1999, whereby Concorde acquired 100 percent of the Common Stock of W3 Group,
Inc. in exchange for the issuance of 3,275,000 shares of post reverse split
Common Stock of Concorde, at the rate of one Concorde share for one W3 share.
Upon completion of the exchange of shares, effective October 1, 1999, W3 Group,
Inc. became a wholly owned subsidiary of Concorde and Concorde amended its
Articles of Incorporation to change its corporation name to W3 Group, Inc.
Concorde conducted a meeting of shareholders on August 12, 1999 to ratify the
Agreement and certain other matters which had been approved by its Board of
Directors.
Note 9 - Write off of Bad Debt
Pursuant to SFAS-5, "Accounting for Contingencies," the Company has
written off the loan receivable in the amount of $157,522 and related interest
receivable in the amount of $13,140 during the quarter ended September 30, 2001,
and charged a total of $170,662 to bad debt expense. Said loan had been made to
the Company's former operating subsidiary, L'Abbigliamento, Ltd., and had been
in default for over two years. (See "Note 7 - Divestiture of Subsidiary")
Repayment of the loan and related interest cannot be reasonably assured.
Note 10 - Going Concern
As of December 31, 2002, the Company had a stockholders' deficit of
$574,947 and no cash. As a result, substantial doubt exists about its ability
to continue as a going concern. These financial statements have been prepared
on the going concern basis under which an entity is considered to be able to
realize its assets and satisfy its liabilities in the ordinary course of
business. Operations to date have been primarily financed by equity
transactions. Management is re-evaluating business opportunities and looking
for a new direction for the Company. The financial statements do not include
any adjustments that might be necessary should the Company be unable to continue
as a going concern.
12
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
The following discussion and analysis should be read in conjunction with
the unaudited financial statements and notes thereto included in Part I - Item 1
of this report, and Management's Discussion and Analysis of Financial Conditions
and Results of Operations and General Risk Factors Affecting the Company
contained in the Company's annual report for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission on March 31, 2003.
Forward-Looking Statements
Some of the information contained in this report may constitute forward-
looking statements or statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Any such forward-looking statements are based on
current expectations and projections about future events. The words estimate,
plan, intend, expect, anticipate and similar expressions are intended to
identify forward-looking statements which involve, and are subject to, known and
unknown risks, uncertainties and other factors which could cause the Company's
actual results, financial or operating performance, or achievements to differ
materially from future results, financial or operating performance, or
achievements expressed or implied by such forward-looking statements.
Projections and assumptions contained and expressed herein were reasonably based
on information available to the Company at the time so furnished and as of the
date of this filing. All such projections and assumptions are subject to
significant uncertainties and contingencies, many of which are beyond the
Company's control, and no assurance can be given that the projections will be
realized. Readers are cautioned not to place undue reliance on any such forward-
looking statements, which speak only as of the date hereof. Careful
consideration should be given to the General Risk Factors contained in the
Company's Form 10-KSB for the year ended December 31, 2002. The Company
undertakes no obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
Results of Operations
The Company did not have any revenue during the three month period ended
March 31, 2003, or during the comparable period for the prior year, and has not
had any revenue since the first quarter of 1999.
Operating expenses for the three month period ended March 31, 2003 were
$97,877, an increase of $46,196 from the prior year's period, resulting
primarily from increased legal and accounting expenses.
The net loss for the three month period ended March 31, 2003 was $102,677
compared to a net loss of $52,881 for the comparable period in the prior year,
an increase of $49,796, resulting from the aforementioned decrease in consulting
and rent expenses and a decrease in other income.
13
The Company had no cash at March 31, 2003 and at December 31, 2002.
Accounts payable at March 31, 2003 totaled $248,999, a decrease of $45,000 from
December 31, 2002, resulting from the payment of two creditors by the issuance
of the Company's Common Stock. (See Financial Statements, "Note 3 -
Capitalization.")
On January 10, 2003, the Board of Directors authorized the issuance of
1,499,999 restricted shares (the "Shares") of Common Stock to two creditors of
the Company in payment of their outstanding invoices for services. The Shares
were issued at the agreed upon rate of $0.03 per share.
Subsequent to the period covered by this Report, on April 2, 2003, a
Resolution was passed by the Board of Directors, which extended the conversion
period of the Series B Convertible Preferred Stock from April 14, 2003 until the
close of business on July 14, 2003. Each share of Series B Preferred Stock may
be converted to 0.5 (one half) share of Common Stock at the election of the
shareholder. (See Financial Statements, "Note 3 - Capitalization.")
The Company is still pursuing L'Abbigliamento, Ltd., the Company's former
operating subsidiary, in regard to obtaining payments toward the loan, which was
written off in 2001. (See Financial Statements, "Note 7 - Divestiture of
Subsidiary and "Note 9 - Write Off of Bad Debt.") No assurance can be made
regarding any such payments.
The Company is continuing to look for suitable acquisition candidates. As
of the date of this Report, no additional acquisition candidates have been
found, and there is no assurance that any additional candidates will be found.
Present Overview
W3 intends to acquire, finance, and restructure profitable companies that
can utilize the internet to expand their business and distribution channel. As a
result of the significant changes in the internet industry, the Company's focus
is no longer on internet related companies. The Company is seeking to acquire
companies that would become wholly owned, or majority owned, subsidiaries of W3.
W3 intends to concentrate on existing companies that have proven markets,
profitability, and management. The Company's goal is to provide a platform for
selected companies to expand their markets, strengthen internal functions by
providing consulting services and professional management support, and
expansion capital, while allowing the companies to continue management of daily
operations.
W3's objective is to better meet the needs of growing companies that may
have had difficulty obtaining capital from traditional sources such as banks,
large asset based lenders, and the public securities markets. Also, W3 believes
that its opportunity is enhanced because of the consolidation in the commercial
banking industry and the emphasis in investment banking toward increasingly
larger financings. The resulting diminishing of available capital has affected
the flow to smaller companies, where the need for capital is the most critical.
W3's approach is to develop "partnerships" with companies having
exceptional management in order to improve the long term value of a business.
The participation of management through equity based compensation and stock
ownership is a crucial ingredient of W3's plan.
14
Liquidity and Capital Resources
At March 31, 2003, the Company had no cash. The Company has received an
audit opinion which includes a "going concern" risk, which raises substantial
doubt regarding the Company's ability to continue as a going concern. Management
is re-evaluating business opportunities and looking for a new direction for the
Company.
General Risk Factors Affecting the Company
Various factors could cause actual results of the Company to differ
materially from those indicated by forward-looking statements made from time to
time in news releases, reports, proxy statements, registration statements and
other written communications (including the preceding sections of this
document), as well as oral statements made from time to time by representatives
of the Company. Except for historical information, matters discussed in such
oral and written communications are forward-looking statements that involve
risks and uncertainties, including, but not limited to the following:
. Rapidly changing business environment.
. Intense competition within the market place.
. Many well established companies and smaller entrepreneurial companies
have significant resources that will compete with the Company's
limited resources in the acquisition of companies.
. There can be no assurance that the Company will be able to compete
successfully in the acquisition of subsidiary companies.
. The management of growth is expected to place significant pressure on
the Company's managerial, operational, and financial resources.
. The Company will not be able to accomplish its growth strategy if it
is not able to consummate future acquisitions and raise capital.
. The Company may not be able to operate as a going concern. Refer to
independent auditor's report accompanying the Company's financial
statements included in the Company's annual report on Form 10-KSB and
Note 10 to Financial Statements.
Item 3. Controls and Procedures
Based on his evaluation, as of a date within 90 days of the filing of this
Form 10-QSB, the Company's Chief Executive Officer and Chief Financial Officer
has concluded the Company's disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective.
There have been no significant changes in internal controls or in other
factors that could significantly affect these controls subsequent to the date of
his evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. Not Applicable
Item 2. Change in Securities. None
Item 3. Defaults Upon Senior Securities. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports of Form 8-K. None
(a) Exhibits
Exhibit No. Description
99.1 Certification under Section 906 of the Sarbanes-
Oxley Act of 2002 of Acting President and Principal
Financial Officer
(b) Reports on Form 8-K.
None
SIGNATURE
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed in
its behalf by the undersigned, thereunto duly authorized.
Date: April 16, 2003 By: /s/ Robert Gordon
-----------------------------------
Robert Gordon
Acting President
Principal Financial Officer
16
CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Robert Gordon, Acting President and Principal Financial Officer of W3 Group,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of W3 Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Registrant and I have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Registrant's auditor and the audit committee of the Registrant's board of
directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditor any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 16, 2003 By: /s/ Robert Gordon
-----------------------------------
Robert Gordon
Acting President
Principal Financial Officer
17