U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________ TO ______________
COMMISSION FILE NUMBER: 0-20259
INTERNET BUSINESS'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 33-0845463
(State or jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4634 South Maryland Parkway, Suite 101, Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (702) 968-0008
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) been subject to such filing requirements for the past 90 days.
Yes X No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K [ ].
Not Applicable.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of September 13, 2001: Common Stock,
par value $0.001 per share -- $2,827,360. As of September 13, 2001,
the registrant had 282,736,029 shares of common stock issued and
outstanding.
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 19
ITEM 3. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION TO MATTERS TO VOTE OF SECURITY HOLDERS 20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 20
ITEM 6. SELECTED FINANCIAL DATA 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 28
ITEM 11. EXECUTIVE COMPENSATION 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 31
PART IV
ITEM 14. EXHIBITS, REPORTS ON FORM 8-K, AND INDEX TO
FINANCIAL STATEMENTS 33
SIGNATURES 34
PART I.
ITEM 1. BUSINESS.
Introduction.
Internet Business's International, Inc. ("Registrant") is a broad
based Internet company that provides goods and services over the
Internet to businesses and consumers though four operating divisions:
(1) ISP (Internet Service Provider); (2) On-line Lending; (3) Direct
Marketing; and (4) eCommerce.
Our corporate mission is one of unification and synergy. We
accomplish this mission by empowering our operating divisions with the
benefits of top-notch administration and management, and enabling
economies of scale by aggregating many business functions. The
Registrant's vision is to build a word-class on-line enterprise that
is many times the sum of its parts.
History of the Business.
International Food and Beverage was listed for exchange on the
Over The Counter Bulletin Board in June 1988. This company operated
in the food services industry until late 1997, at which time it ceased
operations. This firm remained dormant until December of 1998. At
that time new management was put in place, and a decision was made to
move the Registrant's focus to the Internet and change the
Registrant's name to Internet Business's International, Inc.
On January 1, 1999 the newly named company began to offer goods
and services over the Internet, starting with the development of an
on-line B2C (business to consumer) e-retail site, AuctionWinner.com,
The site was launched in April 1999. In July 1999, the Registrant
expanded their service offerings by acquiring an ISP (Internet Service
Provider) by the name of LA Internet. The Registrant changed its
domicile from Delaware to Nevada in same year.
Current Operations.
The Registrant currently operates four reporting divisions:
(1) ISP (which includes a national dial-up ISP; a wireless high speed
ISP in Las Vegas, NV, Moreno Valley, CA and Woodland, CA; and Internet
web design and hosting businesses.)
(2) On-line Lending (which includes real estate loans and equipment
leasing.)
(3) Direct Marketing (which includes the direct marketing of long
distance phone services, computers with Internet access, wireless high
speed Internet access and bandwidth.)
(4) eCommerce (which includes auction sites, B2C and B2B eCommerce,
and reverse auction sites for Europe and the United States),
The Registrant has 7 offices in the US and 1 in Europe and more than
60 employees.
Operating Divisions
(a) ISP.
The ISP division operates four businesses that serve three distinct
customer groups (dial-up ISP, wireless ISP, web site design / hosting)
(1) LA Internet (www.lainternet.com)
Los Angeles, California
LA Internet, Inc. (a wholly owned subsidiary of the Registrant)
is a full service dial-up ISP and web site hosting business. LA
Internet provides nationwide dial-up access for consumers and
businesses. This company also provides hosting and co-location (server
farm) services to individuals and businesses. LA Internet employs
state of the art equipment from Sun, Dell, Cisco, and BreezeCom. T1
and T3 level bandwidth providers include major national backbones such
as ELI and MCI.
Revenue is generated though monthly fess charged for dial-up
Internet access and web site hosting. LA Internet currently has 10
employees.
(2) LA Internet Design (www.lainternetdesign.com)
Los Angeles, California; Sofia, Bulgaria
LA Internet Design (an operating division of LA Internet) is full
service web site design and development agency. This company offers a
full portfolio of offerings: strategic planning, creative design,
programming, and on-line marketing plans for individuals, businesses,
and government agencies.
In addition to offering professional services, LA Internet Design
retails a product called Site Creator - in strategic partnership with
Network Solutions. Site Creator allows individuals or businesses to
create their own web sites. These sites are then hosted by LA Internet.
Revenue is generated though hourly or fixed price fees for
professional services, and though the retail sale of Site Creator. LA
Internet Design currently has 5 employees.
(3) BeyonDSL (www.beyondsl.com)
Las Vegas, Nevada
BeyonDSL (an operating division of LA Internet) operates a RF
(Radio Frequency) type wireless ISP in several major west coast
geographies: Las Vegas, Nevada; Moreno Valley, California; and
Woodland, California. BeyonDSL provides Internet access to
individuals and businesses at speeds up to 3 MB (megabits) per second.
Revenue is generated though monthly fees charged for wireless
Internet access. BeyonDSL currently has 10 employees.
(4) Internet 2xtreme (www.2xtreme.net)
Woodland, California
Internet 2xetreme (an operating division of LA Internet) is a
full service dial-up ISP and web site hosting business operating in
Woodland, California. Internet 2xtreme re-sells LA Internet's dial-up
services and BeyonDSL's wireless ISP services to consumers and
business in the Woodland area. This company also provides hosting and
co-location (server farm) services to individuals and businesses.
Internet 2xtreme maintains its own hosting and co-location facilities
in Woodland, California.
Revenue is generated though monthly fess charged for dial-up and
wireless Internet access and web site hosting. Internet 2xtreme
currently has 9 employees.
(b) On-line Lending Division
(1) Guarantee Capital Group (www.net2loan.net)
Irvine, California
Guarantee Capital Group* (a wholly owned subsidiary of the
Registrant) is a mortgage banking company that processes and funds
loans for homes. Guarantee's customers are primarily consumers that
are applying for a first mortgage on a qualifying home. Guarantee
generates qualified applicants though on-line marketing campaigns and
through their web site (www.net2loan.net).
Guarantee approves and funds loans according to Freddie Mac and
Fannie Mae conforming and non-conforming underwriting criteria.
Institutions such as RFC, Sun Trust and Interfirst, may purchase
"bulk" loans from Guarantee.
Revenue is generated through loan fees, processing fees, and
yields based upon interest earned over the life of the loan and the
cost of the funds. Guarantee Capital Group currently has 23 employees.
* In the first quarter of the current fiscal year ending June 30,
2002, management decided to expand the mortgage banking operation into
states other than California. Management decided at that time to
increase the company's funding line as well. These two decisions
precipitated the sale of the former mortgage group - Atlas Capital and
the creation of Guarantee Capital Group.
(2) Discount On-line Leasing (www.discountonlineleasing.com)
Laguna Hills, California
Discount On-line Leasing (an operating division of the
Registrant) markets equipment-leasing solutions to small businesses.
This company markets solutions for a wide range of equipment assets,
including agricultural, computing, communications, office, machine
tool, and manufacturing equipment. Discount On-line Leasing provides
equipment leases to businesses the United States and Canada. The
leases are funded though a number of finance companies that specialize
in capital equipment funding.
Revenue is generated though commissions paid on the successful
acceptance of leases. Discount On-line Leasing currently has 1 employee.
(c) Direct Marketing Division
1st2 Market, Inc. (www.1st2mart.com)
Las Vegas, Nevada
1st2 Market* (a wholly owned subsidiary of the Registrant) direct
markets goods and services to individuals and businesses. Types of
offers that 1st2 Market represents are computers bundled with Internet
access, long distance offers, and cellular telephone hardware and
calling plans. 1st2 Market markets its offers though print and on-
line channels with a heavy emphasis on leveraging other Internet
Business' International web sites.
Revenue is generated by commissions paid on orders processed.
1st2 Market currently has 3 employees.
* During the first quarter of the current fiscal year ending June 30,
2002, it was decided that the current corporation Allstates
Communications, Inc. did not fit the Registrant's current marketing
plans; therefore it was decided to close Allstates Communications and
begin the new corporation 1st2 Market. The new corporation started
operations in September 1, 2001. The new corporation will not market
cellular phones; it will only market the Registrant's products and services.
(d) eCommerce Division
The Registrant operates a several e-retail or ecommerce web sites
serving several different markets:
(1) Iauction (www.iauction.com)
Hornlake, Mississippi
Iauction.com (an operating division of the Registrant) is an on-
line auction site. The site is a marketplace that allows consumers
and business to place their goods or services up for sale by auction.
The registration and interface is very much like other popular
Internet auction sites such as ebay.com.
The site and the programming are proprietary to iauction.com.
The site features an integrated accounting program that allows
iauction.com to view updated information about revenues generated by
the site from outside users in real-time. Iauction.com has also
implemented programs that allow the site to be continuously updated
with minimum cost and administrative overhead. This company markets
the auction site throughout the Internet and leverages other
Registrant sites.
Revenue is generated from transaction and listing fees charged to
buyers and sellers of products and services.
(2) Global Construction Buying Group (www.globalbuyinggroup.com)
Hornlake, Mississippi
Global Construction Buying Group (a wholly owned subsidiary of
the Registrant) is a B2B (business to business) reverse auction web
site. The web site uses a proprietary reverse auction platform,
developed by Global Construction Buying Group. The site allows a
business (purchasing party) the opportunity to place RFPs (request for
pricing) on-line. Interested vendors or suppliers can bid on the RFP.
The purchasing party has the opportunity to select the lowest bid from
all vendors. Global Construction Buying Group has offices in Europe
and the United States. The company has an agreement with IBM in Europe
to market the reverse auction program.
Revenue is generated from transaction and listing fees charged to
buyers and sellers of products and services.
(3) BC Lenders (www.bclenders.net)
Hornlake, Mississippi
BC Lenders (short for "bruised credit") is a reference and
referral site for consumers and business that have difficulty being
accepted by conventional financing groups because of a poor credit
history. The borrowers fill out an application and select a lender
from the list to submit the application to.
Revenue is generated though commissions paid by lenders for
referring accepted applicants to their businesses.
(4) Ace Optics (www.aceoptics.com)
Hornlake, Mississippi
Ace Optics (an operating division of the Registrant) markets and
retails popular brands of visual aids and designer sunglasses over the
Internet. AceOptics sells to consumers over it's web site
www.aceoptics.com.
Revenue is generated by retail sales of products.
(5) Sport Stores (www.sport-stores.com)
Hornlake, Mississippi
Sport Stores (an operating division of the Registrant), markets
and retails popular brands of sports gear and sports ware over the
Internet. Sport Stores sells to consumers over it's web site
www.sport-stores.com. Revenue is generated by retail sales of product.
The entire eCommerce division shares 3 employees, the also rely on
technical services from LA Internet and LA Internet Design.
Corporate
Newport Beach, CA
The Registrant maintains an administration and support group in
Newport Beach, California. The group supports the operating divisions
and administrates the public filings and financial statements. This
office has 5 employees.
Market and Competition.
The market for Internet products and services is highly
competitive. Taking into consideration the advances Internet
technology and the ubiquity simple web site provide, there are no
substantial barriers to entry in this market, and management expects
that competition will continue to intensify. Negative competitive
developments could have a material adverse effect on the Registrant's
business and on the trading price of its stock.
The majority of our revenues come from on-line loans. The
Registrant competes with many Internet, and many non-Internet
companies that provide mortgages or equipment leasing. The Registrant
also competes with many other companies that offer the same type of
Internet-only services we offer - such as ISP services. The
Registrant competes with many eCommerce on-line vendors of products
that sell similar products that are offered by its eCommerce division.
The Registrant competes with its direct marketing division with many
other similar direct marketing companies. As the Registrant expands
the scope of its Internet services, it will compete directly with a
greater number of Internet sites and other similar type of companies
across a wide range of different on-line and off-line services.
The Registrant also competes in vertical markets where
competitors may have advantages in expertise, brand recognition, and
other factors. Many companies offer directly competitive products or
services information and community services, including, among others:
America On-line; Yahoo; CNET; Excite; InfoSeek Corporation; Lycos;
Microsoft Corporation (msn.com); and Netscape Communications
Corporation (netcenter.com). In the past several months, there have
been a number of significant acquisitions and strategic plans
announced among and between these companies. These include: The Walt
Disney Registrant acquiring a significant interest in InfoSeek; AOL
acquiring Time Warner and Netscape; @Home Networks, Inc., a provider
of high speed internet access serving the cable television
infrastructure and the largest shareholder of which is AT&T, acquiring
Media One and Excite. There has also been a contraction in the market
place due to recent failures of many dot com companies. These
failures also reduced the availability of expansion capital for many
Internet companies
The effect of completed and pending acquisitions on the
Registrant cannot be predicted with certainty, but all of these
competitors are aligned with companies that are significantly larger
or better established than the Registrant. As a result, each of them
will have access to significantly greater financial, marketing and, in
certain cases, technical resources than the Registrant.
These and other competitors are expected to continue to make
substantial marketing expenditures to promote their on-line
properties. The Registrant may be required to increase its sales and
marketing expenditures significantly in response to these efforts,
which may materially impair its operating results and may not be success.
Management believes that the principal competitive factors in its
markets are: brand recognition; ease of use; comprehensiveness;
personalization; independence; quality and responsiveness of search
results and other services; the availability of high-quality, targeted
content and focused value-added products and services; access to end
users; and with respect to advertisers and sponsors, the number of
users, duration and frequency of visits, and user demographics.
Competition among current and future suppliers of Internet
information, communication, community and commerce services, high-
traffic web sites and ISPs, as well as competition with other media
for advertising placements, could result in reductions revenues. (See
chart below)
The following divisions have direct competition as follows;
Sector Subsidiary Competition
ISP
Dialup LA Internet ixpres.com
earthlink.com
Wireless BeyonDSL landwaves.net
Web design LA Internet Design ixpres.com
On-line Lending
Mortgages Guarantee Capital homeloan.com
dietech.com
Leasing Discount On-line leaseforce.com
Leasing
Direct Marketing 1st2 Market directoneusa.com
eCommerce
Auctions iauction.com bidbay.com, ubid.com,
ebay.com
Reverse Auction Global Construction sorcity.com
Sunglasses aceoptics.com sun sunglasshut.com
The Registrant also faces competition with respect to the acquisition
of strategic businesses and technologies. Many of its existing
competitors, as well as a number of potential new competitors, have
significantly greater financial, technical, marketing and distribution
resources than the Registrant does. In addition, providers of
Internet tools and services may be acquired by, receive investments
from, or enter into other commercial relationships with larger, well-
established and well-financed companies, such as Microsoft and AOL. In
addition, well-established traditional media companies may acquire,
invest or otherwise establish commercial relationships with its
competitors. These larger companies may use their substantial media
resources to promote and enhance their own services. Greater
competition resulting from such relationships could have a materially
adverse effect on the Registrant's business.
Strategic Alliances and Agreements.
The recent alliances of the Registrant have increased the
companies and its subsidiaries' ability to market its products and
services; these alliances are as follows;
(a) Network Solutions.
The Registrant has entered into an agreement with Network
Solutions to co-market "Site Creator", Network Solutions' web based
Internet site development program to new clients that are obtained by
the Registrant. The Registrant will receive a commission on each sale
of Site Creator as well as the opportunity to host Site Creator
clients with LA Internet.
(b) IBM.
The Registrant has entered into an alliance with IBM and IBM
Solution Providers in Europe to offer the industry specific reverse
auction program of the Global Construction Buying Group, Inc.
Marketing Plans.
The Registrant competes with other on-line services, web site
operators and advertising networks, as well as traditional off-line
media such as television, radio and print to convey to the consumer
the services and products that are offered by the Registrant. The
Registrant has used Print, Radio, and Television to inform the public
and consumer of these products and services. Accordingly, the
Registrant may face increased pricing pressure for the purchase of
advertisement space. The Registrant therefore has also developed
alternative marketing plans that uses direct marketing, cross
promotion and bundling of services and products to increase its client
base
Proprietary Rights.
The Registrant regards its copyrights, trademarks, trade dress,
trade secrets, and similar intellectual property as critical to its
success. The Registrant relies upon trademark and copyright law,
trade secret protection and confidentiality or license agreements with
its employees, customers, partners and others to protect its
proprietary rights. Effective trademark, copyright, and trade secret
protection may not be available in every country in which its products
and media properties are distributed or made available through the
Internet. The distinctive elements of the Registrant's web sites may
not be protected under copyright law. Management cannot guarantee
that the steps the Registrant has taken to protect its proprietary
rights will be adequate. Many parties are actively developing
communication, community, e-commerce, and other web-related
technologies. Management believes that such parties will continue to
take steps to protect these technologies, including seeking patent
protection. As a result, management believes that disputes regarding
the ownership of such technologies are likely to arise in the future.
For example, management is aware that a number of patents have been
issued in the areas of electronic commerce, on-line auctions, web-
based information, on-line direct marketing, fantasy sports, common
web graphics formats and mapping technologies. Management anticipates
that additional third-party patents will be issued in the future.
From time to time these parties may assert patent infringement claims
against the Registrant. Management cannot guarantee that it would be
able to license such patents on reasonable terms. The Registrant may
incur expenses in defending against third-party patent claims
regardless of the merit of such claims. In the event that there is a
determination that the Registrant has infringed such third-party
patent rights, the Registrant could incur monetary liability and be
prevented from using the rights in the future.
Employees.
As of the date of this filing, the Registrant had over 60
employees. This is a reduction from the same time last year when the
company had 85 employees. The reduction of the employees was due to
the changes made September 1, 2001 with the mortgage lending division
and the direct marketing division. The Registrant's future success is
substantially dependent on the performance of its senior management
and key technical personnel, and its continuing ability to attract and
retain highly qualified technical and managerial personnel.
Merger Transaction.
On June 4, 2001, Return Assured Incorporated, IBUI Acquisition
Corporation, a wholly owned subsidiary of Return Assured, and the
Registrant entered into an Agreement and Plan of Merger and Share
Exchange ("Merger Agreement"). The Merger Agreement provides, among
other things, for IBUI Acquisition Corporation to be merged with and
into the Registrant ("Merger") and for a share exchange between the
shareholders of the Registrant and the Return Assured. Under the
Merger Agreement, each of the outstanding shares of the Registrant
will be converted into the right to receive 0.14 shares of the Return
Assured's common stock (Return Assured will adjust the exchange ratio
to reflect any reclassification, stock split, stock dividend,
reorganization or other similar change with respect to Return Assured
common stock or the Registrant common stock occurring before the
effective time of the Merger).
In connection with the Merger transaction, Return Assured will
conduct a 1:6 reverse split of its common stock. Upon the completion
of the transactions contemplated in the Merger Agreement, the
Registrant will become a wholly-owned subsidiary of Return Assured and
the current shareholders of the Registrant will own approximately 90%
of Return Assured. The Merger, a purchase transaction, will be
accounted for as a reverse merger with the Registrant as the
accounting acquirer.
No fractional merged Return Assured common stock will be issued.
Each of the Registrant's shareholder entitled to receive a fractional
share of 0.5 or greater shall receive a whole merged company share and
each of the Registrant shareholder's who would otherwise be entitled
to receive a fractional share of less than 0.5 shall not receive an
additional whole share.
Following the adoption of the Merger Agreement and approval of
the Merger by the Registrant's stockholders and the satisfaction or
waiver of the other conditions to the Merger, IBUI Acquisition Corp.
will merge into the Registrant. The Registrant will survive the
Merger as a wholly owned subsidiary of Return Assured; the separate
existence of IBUI Acquisition Corporation will cease.
If all conditions to the Merger are satisfied or waived, the
Merger will become effective at the time of the filing by the
surviving corporation of a duly executed certificate of merger with
the Secretary of State of the State of Delaware.
After the effective time of the Merger, Return Assured's transfer
agent will mail to each record holder of the Registrant's common stock
a letter of transmittal and instructions for surrendering their
certificates. Only those holders who properly surrender their
certificates in accordance with the instructions will receive
certificates representing Return Assured common stock, cash in lieu of
any fractional Return Assured common stock and any dividends or
distributions to which they are entitled. The surrendered
certificates representing shares of the Registrant's common stock will
be cancelled. After the effective time of the Merger, each
certificate representing shares of the Registrant common stock that
has not been surrendered will only represent the right to receive
common stock of Return Assured. Following the effective time of the
Merger, the Registrant will not register any transfers of the
Registrant common stock on its stock transfer books.
If any the Registrant's common stock certificate is lost, stolen
or destroyed, an the Registrant stockholder must provide an
appropriate affidavit of that fact. Return Assured may require an the
Registrant's stockholders to deliver a bond as indemnity against any
claim that may be made against Return Assured with respect to any
lost, stolen or destroyed certificate.
Risk Factors.
In addition to the other information in this Report, the
following particular risk factors may be encountered in the operation
of the Registrant under its current plan of business:
(a) Limited Operating History.
The Registrant has only begun operations as an Internet company
since January 1, 1999. Therefore, the Registrant has a limited
operating history, and its prospects are subject to the risks,
expenses and uncertainties frequently encountered by young companies
that operate exclusively in the new and rapidly evolving markets for
Internet products and services. Successfully achieving its growth
plan depends on, among other things, the Registrant's: ability to
continue to develop and extend its brand; ability to develop new web
site properties; ability to maintain and increase the levels of
traffic on its internet properties; development or acquisition of
services or products equal or superior to those of the Registrant's
competitors; ability to effectively generate revenues through
sponsored services and placements on the Registrant's internet web
site properties; ability to effectively integrate the technology and
operations of businesses or technologies which the company may
acquire; ability to successfully develop and offer new personalized
web-based services, such as e-mail services, to consumers without
errors or interruptions in service; and ability to identify, attract,
retain and motivate qualified personnel. Furthermore, the success of
the Registrant's growth plan depends on factors outside its control
including, among other things: the adoption by the market of the web
as an E-Commerce medium; the successful sale of web-based services by
the Registrant's sales agents; and the relative price stability for
web-based services and products, despite competition and other factors
that could reduce market prices. The Registrant may not be successful
in implementing its growth plan or continuing to operate its business
as anticipated.
(b) Operating Results May Fluctuate.
The Registrant expects to derive the majority of its revenues
from a variety of revenue sources, which are difficult to forecast
accurately. As noted above, the Registrant expects its operating
expenses to increase significantly over the near term. To the extent
its expenses increase but its revenues do not, its business, operating
results, and financial condition will be materially and adversely
affected. Operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside its
control. These factors include: the level of usage of the Registrant's
Internet sites, and the demand for the products and services that the
Registrant offers over the Internet, the amount and timing of capital
expenditures and other costs relating to the expansion of its
operations; the introduction of new products or services by the
Registrant or its competitors; pricing changes for internet-based
services, the timing of initial set-up, engineering or development
fees that may be paid in connection with larger area distribution
arrangements; technical difficulties with respect to the online web
site properties that the Registrant may develop; costs incurred with
respect to acquisitions; negative general economic conditions and
resulting effects on economic conditions specific to the internet and
online media.
A key element of the Registrant's strategy is to generate
revenues through services and products from its online media
properties and its direct marketing operations. In connection with
these, the Registrant will receive fees as well as a portion of
transaction revenues received by business that is originated through
the Registrant sites. This type of revenue generation exposes the
Registrant to potentially significant financial risks, including: the
risk that the Registrant fails to obtain the minimum level of revenue
required to maintain the operational expenses of the Registrant.
(c) Dependence on Continued Growth in Use of the Internet;
Technological Change.
The Registrant's future success is dependent upon continued
growth in the use of the Internet and the web in order to support the
sale of its products and services and its online web site properties.
The Companies Internet businesses are relatively new, and it is
difficult to predict the extent of further growth, if any, in from
these sites. The Internet may not prove to be a viable commercial
marketplace for a number of reasons, including lack of acceptable
security technologies, potentially inadequate development of the
necessary infrastructure, or timely development and commercialization
of performance improvements. To the extent that the Internet
continues to experience significant growth in the number of users and
level of use, the Internet infrastructure may not be able to support
the demands placed upon it by such growth and the performance or
reliability of the web may be adversely affected.
The market for Internet products and services is characterized by
rapid technological developments, evolving industry standards and
customer demands, and frequent new product introductions and
enhancements. To the extent that higher bandwidth internet access
becomes more widely available through cable modems or other
technologies, the Registrant may be required to make significant
changes to the design and content of its online properties in order to
compete effectively. Failure to effectively adapt to these or any
other technological developments may adversely affect its business,
operating results, and financial condition.
The markets for the Registrant's products and services have only
recently begun to develop, are rapidly evolving, and are increasingly
competitive. Demand and market acceptance for recently introduced
products and services are subject to a high level of uncertainty and
risk. It is difficult for management to predict whether, or how fast,
these markets will grow. The Registrant cannot guarantee either that
the market for its products and services will continue to develop or
that demand for its products and services will be sustainable. If the
market develops more slowly than expected or becomes saturated with
competitors, or if its products and services do not sustain market
acceptance, its business, operating results, and financial condition
may be materially and adversely affected.
(d) Risks Associated with Brand Development.
The Registrant believes that establishing and maintaining its
brand is a critical aspect of its efforts to attract and expand its
user base. Management also believes that the importance of brand
recognition will increase due to the growing number of Internet sites
and the relatively low barriers to entry. Promotion and enhancement
of the Registrant's brand will depend largely on its success in
providing high-quality products and services. In order to attract and
retain Internet users and to promote and maintain its brand, the
Registrant may find it necessary to increase expenditures devoted to
creating and maintaining brand loyalty. In the event of any breach or
alleged breach of security or privacy involving its services, or if
any third party undertakes illegal or harmful actions utilizing its
community, communications or commerce services, the Registrant could
suffer substantial adverse publicity and impairment of its brand and
reputation. If the Registrant is unable to provide high-quality
products and services or otherwise fails to promote and maintain its
brand, or if it incurs excessive expenses in an attempt to improve its
products and services or promote and maintain its brand, its business,
operating results, and financial condition may be materially and
adversely affected.
(e) Possible Inability to Successfully Enhance or Develop Properties.
To remain competitive, the Registrant must continue to enhance
and improve the functionality, features, and content of its web site
properties. The Registrant may not be able to successfully maintain
competitive user response times or implement new features and
functions, which will involve the development of increasingly complex
technologies. Personalized information services, such as its web-
based email messaging services, message boards, and other community
features, require significant expense. The Registrant cannot
guarantee that additional revenues from these services will offset
this additional expense.
A key element of its business strategy is the development and
introduction of new particular demographic characteristics, and
geographic areas. The Registrant may not be successful in developing,
introducing, and marketing such web site properties and such
properties may not achieve market acceptance, enhance its brand name
recognition, or increase user traffic. Furthermore, enhancements of
or improvements to the Registrant's new properties may contain
undetected errors that require significant design modifications,
resulting in a loss of customer confidence and user support and a
decrease in the value of its brand name. Its ability to successfully
develop additional targeted media properties depends on use of the
Registrant to promote such properties. If use of the Registrant's web
site properties does not continue to grow, its ability to establish
other targeted properties would be adversely affected. If the
Registrant fails to effectively develop and introduce such new
properties, or such properties fail to achieve market acceptance, its
business, results of operations, and financial condition may be
adversely affected.
(f) Management of Potential Growth and Integration of Acquisitions.
The Registrant's growth may place substantial strains on its
financial systems and its systems to train and manage its employee
base. The process of managing large, high traffic web sites is an
increasingly important and complex task. This relies on both internal
and licensed third-party management and analysis systems. To the
extent that the Registrant does not have the appropriate inventory or
any extended failure of its management system results "make good"
obligations with its customers, which, could defer revenues. Failure
of its management systems to effectively scale to higher levels of use
or to effectively track and provide accurate and timely E-Commerce
reports and also could negatively affect its relationships with its
customers. The Registrant's systems, procedures, or controls may not
be adequate to support its operations, particularly with regard to
support and service. Its management may not be able to achieve the
rapid execution necessary to fully exploit its market opportunity.
Any inability to effectively manage growth may have a materially
adverse effect on its business, operating results, and financial condition.
As part of its business strategy, the Registrant may, from time
to time, make acquisitions or enter into other forms of business
combinations. These transactions are accompanied by a number of risks,
including: the difficulty of assimilating the operations and personnel
of the acquired companies; the potential disruption of its ongoing
business and distraction of management; the difficulty of
incorporating acquired technology or content and rights into its
products and media properties; the correct assessment of the relative
percentages of in-process research and development expense which can
be immediately written off as compared to the amount which must be
amortized over the appropriate life of the asset; the failure to
successfully develop an acquired in-process technology could result in
the impairment of amounts currently capitalized as intangible assets;
unanticipated expenses related to technology integration; the
maintenance of uniform standards, controls, procedures and policies;
the impairment of relationships with employees and customers as a
result of any integration of new management personnel; and the
potential unknown liabilities associated with acquired businesses.
The Registrant may not be successful in addressing these risks or any
other problems encountered in connection with such acquisitions.
(g) Risk of Capacity Constraints and Systems Failures.
The Registrant is dependent on its ability to effectively
withstand a high volume of use of its online web site properties.
Accordingly, the performance of its online web site properties is
critical to its reputation, its ability to attract advertisers to its
web sites, and to achieve market acceptance of its products and web
site properties. Any system failure that causes an interruption or an
increase in response time of its products and media properties could
result in less traffic to its web sites and, if sustained or repeated,
could reduce the attractiveness of its products and media properties
to advertisers and licensees. An increase in the volume of queries
conducted through its products and media properties could strain the
capacity of the software or hardware the Registrant has deployed,
which could lead to slower response time or system failures. In
addition, as the number of web pages and users increase, its products
and media properties and infrastructure may not be able to scale
accordingly. Personalized information services, such as web-based
email-type messaging services and other community and communication
facilities, and the posting of photographs on its auction properties,
involve increasingly complex technical and operational challenges that
may strain its development and operational resources. The Registrant
may not be able to successfully implement and scale such services to
the extent required by any growth in the number of users of such
services. Failure to do so may affect the goodwill of users of these
services, or negatively affect its brand and reputation.
The Registrant is dependent on third parties for much of its
technology and infrastructure. The Registrant's operations are
susceptible to outages due to fire, floods, power loss,
telecommunications failures, break-ins, and similar events. The
Registrant does have multiple site capacity, which would reduce the
impact in the event of any such occurrence. Despite its
implementation of network security measures, its servers are
vulnerable to computer viruses, break-ins, and similar disruptions
from unauthorized tampering with its computer systems. The Registrant
does not carry business interruption insurance to compensate for
losses that may occur as a result of any of these events. Such events
may have a materially adverse effect on its business, operating
results, and financial condition.
(h) Government Regulation and Legal Uncertainties.
There are currently few laws or regulations directly applicable
to Internet access or to commerce on the net. Due to the increasing
popularity and use of the internet, it is possible that laws and
regulations may be adopted, covering issues such as user privacy,
defamation, pricing, taxation, content regulation, quality of products
and services, and intellectual property ownership and infringement.
Such legislation could expose the Registrant to substantial liability.
Such legislation could also dampen the growth in use of the web,
decrease the acceptance of the web as a communications and commercial
medium, or require the Registrant to incur significant expense in
complying with any new regulations. In addition, several
telecommunications carriers, including America's Carriers'
Telecommunications Association, are seeking to have telecommunications
over the web regulated by the Federal Communications Commission in the
same manner as other telecommunications services.
Because the growing popularity and use of the web has burdened
the existing telecommunications infrastructure and many areas with
high web use have begun to experience interruptions in phone service,
local telephone carriers, such as Pacific Bell, have petitioned the
FCC to regulate ISPs and Sops and to impose access fees. Increased
regulation or the imposition of access fees could substantially
increase the costs of communicating on the web, potentially decreasing
the demand for its products and media properties. A number of
proposals have been made at the federal, state and local level that
would impose additional taxes on the sale of goods and services
through the Internet. Such proposals, if adopted, could substantially
impair the growth of electronic commerce, and could adversely affect
the Registrant's opportunity to derive financial benefit from such
activities.
The Digital Millennium Copyright Act, which is intended to reduce
the liability of online service providers for listing or linking to
third-party web sites that include materials that infringe copyrights.
Also the Children's Online Protection Act and the Children's Online
Privacy Act, which will restrict the distribution of certain materials
deemed harmful to children and impose additional restrictions on the
ability of online services to collect user information from minors.
Further, Congress recently passed (and the President has signed into
law) the Protection of Children from Sexual Predators Act, which
mandates that electronic communication service providers report facts
or circumstances from which a violation of child pornography laws is
apparent. The Registrant is currently reviewing these pieces of
legislation, and cannot currently predict the effect, if any, that
such legislation will have on its business. There can be no assurance
that such legislation will not impose significant additional costs on
its business or subject the Registrant to additional liabilities.
In addition, a number of other countries have announced or are
considering additional regulation. For example, the European
Commission privacy directive restricts the use of personal information
without the consent of both the individual and that individual's
government. Such restrictions could jeopardize the future of e-
commerce in and with the European Union. In addition, the European
Commission is expected in the near future to propose a directive
concerning the liability of online service providers for activities
that take place using their services. Such laws and regulations could
fundamentally impair the Registrant's ability to provide Internet
services, or substantially increase the cost of doing so. Moreover,
the applicability to the Internet of existing laws governing issues
such as property ownership, copyright, defamation, obscenity, and
personal privacy is uncertain. The Registrant may be subject to
claims that its services violate such laws. Any such new legislation
or regulation in the United States or abroad or the application of
existing laws and regulations to the Internet could have a material
adverse effect on its business, operating results, and financial
condition. Due to the global nature of the web, it is possible that
the governments of other states and foreign countries might attempt to
regulate its transmissions or prosecute the Registrant for violations
of their laws. The Registrant might unintentionally violate such
laws. Such laws may be modified, or new laws enacted, in the future.
Any such developments may have a materially adverse effect on its
business, results of operations, and financial condition.
(i) Liability for the Registrant's Services.
The Registrant hosts a wide variety of information, community,
communications and commerce services that enable individuals to
exchange information, generate content, conduct business and engage in
various online activities. The laws relating to the liability of
providers of these online services for activities of their users are
currently unsettled. Claims could be made against the Registrant for
defamation, negligence, copyright or trademark infringement, personal
injury or other theories based on the nature and content of
information that may be posted online by its users. Such claims have
been brought, and sometimes successfully pressed, against online
service providers in the past. In addition, the Registrant could be
exposed to liability through content and materials that may be posted
by users in auctions, message boards, clubs, chat rooms, or other
interactive community-building services. Such claims might include,
among others, that by providing hypertext links to web sites operated
by third parties, the Registrant is liable for copyright or trademark
infringement or other wrongful actions by such third parties through
such web sites, or that the Registrant is responsible for legal injury
caused by statements made to, actions taken by or content generated
by, participants in its message board services, clubs, or other
community building services. It is also possible that if any
information that may, in the future, be provided through its services,
such as stock quotes, analyst estimates or other trading information
contains errors, third parties could make claims against the
Registrant for losses incurred in detrimental reliance on such
information. The Registrant offers web-based e-mail type messaging
services, which expose it to potential risks, such as liabilities or
claims resulting from lost or misdirected messages, illegal or
fraudulent use of messages, or interruptions or delays in messaging
services. Investigating and defending such claims are expensive, even
to the extent such claims do not result in liability.
The Registrant may also, from time to time, enter into
arrangements to offer third-party products and services under the
Registrant's brand or via distribution on its properties. While its
agreements with these parties would provide that the Registrant would
be indemnified against liabilities, such indemnification may not be
adequate. The Registrant may be subject to claims concerning such
services or content by virtue of its involvement in marketing,
branding or providing access to such services. Any such claims may
have a materially adverse effect on its business, results of
operations, and financial condition.
(j) Potential Commerce-Related Liabilities and Expenses.
As part of its business, the Registrant enters into agreements
with businesses, sponsors, content providers, service providers, and
merchants under which the Registrant is entitled to receive a share of
revenue from the purchase of goods and services by users of its web
site properties. Such arrangements may expose the Registrant to
additional legal risks and uncertainties, including potential
liabilities to consumers of such products and services. These
activities expose the Registrant to a number of additional risks and
uncertainties, including: potential liabilities for illegal activities
that may be conducted by participating merchants; products liability
or other tort claims relating to goods or services sold through hosted
commerce sites; consumer fraud and false or deceptive advertising or
sales practices; breach of contract claims relating to merchant
transactions; claims that materials included in merchant sites or sold
by merchants through these sites infringe third-party patents,
copyrights, trademarks or other intellectual property rights, or are
libelous, defamatory or in breach of third-party confidentiality or
privacy rights; claims relating to any failure of merchants to
appropriately collect and remit sales or other taxes arising from e-
commerce transactions; and claims that may be brought by merchants as
a result of their exclusion from its commerce services or losses
resulting from any downtime or other performance failures in its
hosting services.
In January of 2001, the Registrant launched IAuction.com, a
service that hosts online auctions for a wide variety of goods and
services. Auction services expose the Registrant to a number of
significant additional risks. For example, the Registrant does not
pre-screen the types of goods offered on its auctions, it is aware
that certain goods, such as alcohol, tobacco, firearms, adult material
and other goods that may be subject to regulation by local, state or
federal authorities may be traded on the auction web site. The
Registrant might not be able to prevent the unlawful exchange of goods
on its service, and may be subject to civil or criminal liability for
unlawful activities carried out by users through its service. In
addition, while the Registrant takes no responsibility for delivery of
payment or goods to any user of its auctions, the Registrant
anticipates that users who did not receive the purchase price or the
goods that were to have been exchanged may register complaints with
the Registrant or seek to hold the Registrant liable. The Registrant
also anticipates that it will receive complaints from buyers as to the
quality of the goods purchased through its auctions, as well as
complaints alleging that comments posted by participants of the
service concerning other participants are unfair or defamatory. Any
claims or litigation arising from the Registrant's auction activities
could be costly. Any negative publicity generated as a result of
fraudulent or deceptive conduct by users of these auctions could
damage its reputation and diminish the value of its brand name. In
addition, the Registrant anticipates that it will receive in the
future, communications alleging that certain items sold through its
auctions, or text and images posted by users in auction listings,
infringe third-party copyrights, trademarks or other intellectual
property rights. While its user policies prohibit the sale of goods
and posting of materials, which may infringe third-party intellectual
property rights, an allegation of infringement may result in costly
litigation.
ITEM 2. PROPERTIES.
The consolidated Registrant has over $1,800,000 in equipment and
furniture at a variety of co-locations for Internet wireless, and
server equipment plus the following office locations;
Internet Business's International, Inc.
Corporate Headquarters 4634 S. Maryland Pky, Suite 107, Las
Vegas, Nev. 89119
West Coast Headquarters 900 Birch Street, Suite 103, Newport
Beach, Ca. 92660
International Headquarters 3 Boicho Voivoda str., 1024 Sofia,
Bulgaria
Subsidiaries of Internet Business's International, Inc. (current as of
September 10, 2001)
1 st 2 Market, Inc. 4634 S. Maryland Pky, Suite107, Las Vegas,
Nev. 89119
Guarantee Capital Group, a Corp. 18004 SkyPark Ci. Suite 170,
Irvine, Ca. 92614
Global Construction
Buying Group, Inc. 1077 Goodman Rd., Hornlake, Mississippi 38654
LA Internet, Inc. 11500 Olympic Blvd, Suite 441, LA. Ca. 90064
1059 Court St. Suite 123, Woodland, Ca. 95695
4634 S. Maryland Pky, Suite 107, Las Vegas,
Nev. 89119
Iauction.com Inc. 1077 Goodman Rd., Hornlake, Mississippi 38637
ITEM 3. LEGAL PROCEEDINGS.
Other than as set forth below, the Registrant is not a party to
any material pending legal proceedings other than ordinary routine
litigation incidental to the business and, to the best of its
knowledge, no such action by or against the Registrant has been threatened.
The Registrant on March 2, 2001 filed an action in the United
States District Court, Central District of California against Ronald
Friedman, and The Ronald Friedman 1997 Grantor Retained Annuity Trust
(Case Number SA CV 01-268 DOC (Eex)) for rescission of the purchase of
the PMCC stock and return of the $1,006,857. On August 16, 2001
Ronald Friedman, Robert Friedman, and The Ronald Friedman 1997 Grantor
Retained Annuity Trust filed an action in the United States District
Court, Southern District of New York against the company (Case Number
CV 01-7637), for the balance of the contract in the amount of
$2,191,143. Each side has filed an answer to the complaints. The
Registrant intends to contest this matter vigorously. Management
cannot take any position at this time as to the likely outcome of the
matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Registrant's
stockholders during the fourth quarter of the fiscal year covered by
this report.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Market Information.
The common stock of the Registrant is traded on the Over the
Counter Bulletin Board under the symbol "IBUI" and the range of
closing bid prices shown below is as reported by the this market
place. The quotations shown reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
For the Fiscal Year Ended June 30, Per Share Common Stock Bid Prices by Quarter
2000 2001
High Low High Low
1st Quarter 9-30 0.16 0.04 0.3125 0.1562
2nd Quarter 12-31 0.35 0.017 0.125 0.0625
3rd Quarter 3-31 2.00 0.0275 0.0781 0.0469
4th Quarter 6-30 0.74 0.20 0.05 0.03
Holders of Common Equity
As of September 10, 2001 there were 631 shareholders of record of
the Registrant's Common Stock.
Dividends
The Registrant has not declared or paid a cash dividend to
stockholders since it was organized. The Board of Directors presently
intends to retain any earnings to finance Registrant operations and
does not expect to authorize cash dividends in the foreseeable future.
Any payment of cash dividends in the future will depend upon the
Registrant's earnings, capital requirements and other factors.
Equity Securities Sold Without Registration.
The Registrant made the following sales of unregistered
securities during the fiscal year ended December 31, 2000:
(a) During the quarter ended December 31, 2000, the Registrant issued
the following shares fo common stock: (a) 500,000 shares of
restricted 144 stock for the acquisition of Sonic Auction.Com; and (2)
7,140,406 common stock were issued pursuant to the agreement with the
conversion rights of the preferred stock issued December 15, 1998,
upon the 10 day average of the closing bid price prior to the to the
conversion date.
(b) During the quarter ended March 31, 2001, the Registrant issued
the following shares of common stock: 18,981,080 on conversion of
additional preferred stock that was originally issued December 15,
1998 (as discussed in subparagraph (a) above).
(c) During the quarter ended June 30, 2001, the Registrant issued the
following shares of common stock: 19,499,430 on conversion of
additional preferred stock that was originally issued December 15,
1998 (as discussed in subparagraph (a) above).
No commissions or fees were paid in connection with these sales.
All of the above sales were undertaken pursuant to the limited
offering exemption from registration under the Securities Act of 1933
as provided under Rule 506 of Regulation D by the fact that:
- the sales were made to sophisticated investors as defined in Rule
502;
- the information specified in paragraph (b)2(ii)(B) and paragraph
(b)(2)(ii)(C) of this section was provided to each investor;
- the Registrant gave each purchaser the opportunity to ask
questions and receive answers concerning the terms and conditions
of the offering and to obtain any additional information which
the Registrant possessed or could acquire without unreasonable
effort or expense that is necessary to verify the accuracy of
information furnished;
- at a reasonable time prior to the sale of securities, the
Registrant advised the purchasers of the limitations on resale in
the manner contained in paragraph Rule 502(d)2 of this section;
- neither the Registrant nor any person acting on its behalf sold
the securities by any form of general solicitation or general
advertising; and
- the company exercised reasonable care to assure that the
purchasers of the securities are not underwriters within the
meaning of section 2(11) of the Securities Act of 1933 in
compliance with Rule 502(d).
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the years ended June 30, 2001,
2000, 1999, 1998, and 1997, are derived from the audited financial
statements of the Registrant and should be read in conjunction with
the audited financial statements included herein. These are restated
based upon the change in reveune recognition. See Note 2 of the
footnotes to the financial statements titled "Change in Revenue
Recognition". The change only impacted the stated "Reveunes" and not
the "Net income".
Statement of Operations Data:
(in thousands)
Year End June 30
2001 2000 1999 1998 1997
Revenues $ 7,206 $ 2,332 $ 141 $ 2,378 $7,358
Cost of revenues 307 1,098 23 2,248 5,847
Sales General & admin exp 5,921 3,107 43 525 1,512
Depreciation & Amont. exp 870 791 157 366 529
Net operating income (loss) 107 (2,665) (82) (1,160) (530)
Net other income and expense 687 44 2,250 0 0
Net income (loss) 794 (2,596) 2,168 (1,160) (530)
Per common share net nil nil 0.01 nil nil
Weighted average 250,907 189,580 164,550 158,060 154,763
shares outstanding
Balance Sheet Data:
In thousands) Year End June 30
2001 2000 1999 1998 1997
Current assets 7,661 4,826 395 1 711
Fixed assets 4,413 3,459 0 0 800
Total assets 12,074 8,932 4,015 1,102 1,511
Current liabilities 6,902 3,602 30 1,819 1,947
Long-term debt 1,168 204 0 455 677
Shareholders' equity
(deficiency) 4,004 5,139 3,985 (2,273) (1,113)
The Registrant has not paid dividends in any of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
financial statements of the Registrant and notes thereto contained
elsewhere in this report.
Results of Operations.
(a) Comparison by Segment
The Registrant is a broadly based Internet company that supports
many operating divisions. Taking into consideration the growth of many
of our business in the last fiscal year, management has begun to
segment the company's businesses into four operating divisions. These
are as follows: (1) ISP, (2) On-line Lending, (3) Direct Marketing,
(4) eCommerce. The four operating divisions are the level at which
executive management reviews the results of operations in order to
make decisions regarding performance assessments and resource
allocations. Certain general expenses related to advertising and
marketing; information systems; and finance and administrative groups
are not allocated to the operating segments and are included in the
"Other" section of the reconciliation of operating income reported below.
Information on reportable segments is as follows:
Twelve Months Ended
June 30 June 30
2001 2000
Full-service ISP
Net sales $ 4,912,285 $1,577,971
Operating income 2,037,932 (348,367)
Mortgage loan originations
Net sales 1,072,147 427,829
Operating income (83,571) (386,682)
E-Commerce (B2BC)
Net sales 278,668 47,002
Operating income (156,187) (164,341)
Marketing (B2BC)
Net sales 495,251 160,380
Operating income (825,858) (180,986)
Other income
Net income 447,316 119,666
Operating income (178,799) (1,584,293)
Total
Net sales 7,206,667 2,332,848
Operating income 793,517 (2,596,000)
(b) Comparison of Year to Year.
(1) Fiscal 2001 Compared to Fiscal 2000
Revenues for the twelve-month period ended June 30, 2001 of
$7,206,667 increased approximately 308.7% when compared with revenues
of $2,332,848 in the prior year. This revenue increase is due to the
Company's ISP and mortgage loan originations increase in revenue. The
ISP wireless division demand for services and the increase in
webhosting and design, along with low interest rates for mortgage
loans. The mortgage interest rates since March 2001 have remained in
the range of 6% to 7% though the beginning of September 2001 and it is
expected that rates will remain in this range throughout the end of
200. It must be noted that prime interest rates are beyond the
Company's control. It is widely acknowledged that low rates encourage
consumers to take out mortgages for the purchase of homes and this
condition has impacted our business favorably. Aside from lower
interest rates, several other factors contributed to the increase in
mortgage loans:
(A) The on-line lending division increased their amount of Internet
marketing over last year. This change contributed to a lower cost of
sales and increased the total audience that viewed their ads.
(B) The online lending division incorporated new Loan Application
Management software to automate loan applications. The result was
higher productivity per customer sales representative and faster loan
approval / decline times.
(C) The online lending division employed a Direct Underwriting System.
The division enjoyed quicker approval times due to this system.
Other factors that contributed to the increase in revenue include:
(A) The Company's subsidiary ISP division began operations of BeyonDSL
(its wireless Internet service provider) in April 2000. We began to
reach a critical mass of customers in this fiscal year's reporting period.
(B) LA Internet integrated an automated billing system into their
operations. This allowed us more timely and comprehensive statements.
(C) Our eCommerce division added a number of high-ticket products and
sales were better than expected.
(D) Our Direct Marketing division began marketing an additional offer
our long distance savings product.
Selling, general and administrative expenses for the 2001 fiscal
year of $ 5.92 million were an increase 222% over the $3.1 million
for the previous fiscal year 2000. The Registrant invested in a number
of infrastructure and systems upgrades in order to automate key
business functions. The upgrades came at substantial costs but were
off set by the increase in revenues.
The resulting profit for the twelve-month period ended June 30, 2001
of $106,908 was a significant increase when compared to the loss of
($2,596,444) reported for the year ended June 30, 2000. An additional
$686,608 profit generate form the sale of a company investment in
stock is outside the norm of revenue sources for the Company and is
not representative of on going source of revenue for the Company.
(2) Fiscal 2000 Compared to Fiscal 1999
Revenues for the twelve-month period ended June 30, 2000 of
$2,332,848 increased approximately 1,658.7% when compared with
revenues of $140,641 in the prior year. This revenue increase is due
to the acquisitions made by the Registrant since the end of its last
fiscal year.
General and administrative expenses for the 2000 fiscal year were
approximately 378% greater then those of fiscal year 1999 due to the
increase of operations of the Registrant.
The resulting net loss after taxes for the twelve-month period
ended June 30, 2000 was $2,596,444 versus a reported loss for the year
ended June 30, 1999 of $81,836. This loss primarily resulted from the
acquisitions and investments made in the fourth quarter of this fiscal year.
(3) Fiscal 1999 Compared To Fiscal 1998
Revenues for the twelve-month period ended June 30, 1999 of
$140,641 decreased approximately 94% when compared with revenues of
$2,378,000 in the prior year. This revenue decrease in due to the
shut down of Registrant operations and closing of the business on
January 18, 1998, and the reopening of the business after the
acquisition of the Registrant by the current control group in November 1998.
Selling, general and administrative expenses for the 1999 fiscal
year were approximately 25% those of fiscal year 1998 due to the
slowdown of operations of the Registrant approaching the close of
operations as of January 1, 1998 and the subsequent reopening of the
company in another industry.
The resulting loss for the twelve-month period ended June 30,
1999 was $81,836 versus a reported loss for the year ended June 30,
1998 of $1,160,542. The Company had extraordinary income resulting
from the Company extinguishing debt and recognized it as extraordinary
income (see Note 7. Extraordinary Item of the footnotes to the
attached financials).
Inflation.
The moderate rate of inflation over the past few years has had an
insignificant impact on the Registrant's sales and results of
operations during the period.
Liquidity and Capital Resources.
Net cash provided by operation of $258,019 for twelve-month
period ended June 30, 2001 was a significant reduction in cash when
compared to the cash balance of $1,661,693 for the twelve-month
period ended June 30, 2000. The company is currently cash flow
positive and is investing currently over $40,000 a week with expanding
its wireless Internet interstructure adding additional clients. If
the U.S. economy slows down significantly the plans for the expansion
of the wireless Internet will impacted and possibly stopped.
Capital Expenditures.
There were several capital expenditures during the 2001 fiscal
year, which includes purchase of additional servers and wireless
Internet equipment purchased for LA Internet.
Net Operating Loss Carry forwards.
For the fiscal year ended June 30, 2000, the Registrant had net
operating loss carry forwards for federal and state purposes of
approximately $2,596,444 and $1,340,297 respectively. These carry
forwards begin to expire in 2012 and 2002, respectively.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains "forward looking
statements" within the meaning of Rule 175 under the Securities Act of
1933, as amended, and Rule 3b-6 under the Securities Act of 1934, as
amended, including statements regarding, among other items, the
Registrant's business strategies, continued growth in the Registrant's
markets, projections, and anticipated trends in the Registrant's
business and the industry in which it operates. The words "believe,"
"expect," "anticipate," "intends," "forecast," "project," and similar
expressions identify forward-looking statements. These forward-
looking statements are based largely on the Registrant's expectations
and are subject to a number of risks and uncertainties, certain of
which are beyond the Registrant's control. The Registrant cautions
that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the
forward looking statements, including, among others, the following:
reduced or lack of increase in demand for the Registrant's products,
competitive pricing pressures, changes in the market price of
ingredients used in the Registrant's products and the level of
expenses incurred in the Registrant's operations. In light of these
risks and uncertainties, there can be no assurance that the forward-
looking information contained herein will in fact transpire or prove
to be accurate. The Registrant disclaims any intent or obligation to
update "forward looking statements."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk of loss that may result
from the potential change in the value of a financial instrument due
to fluctuations in interest rates. Market risk is inherent to both
derivative and non-derivative financial instruments, and accordingly,
the scope of the Registrant's market risk management includes all
market risk sensitive financial instruments.
The Registrant uses several tools and risk management strategies
to monitor and address interest rate risk. Such tools allow the
Registrant to monitor and evaluate its exposure to these risks and to
manage the risk profile of its residual interest portfolio in response
to changes in the market risk.
The Registrant measured the sensitivity of the current value of
cost of funds (Prime Rate plus 1.5%) to changes in the mortgage
interest rate (bond market plus 1.5%) that the Registrant charges on
funded loans, which is reflected with changes in interest rates. The
difference in the cost of funds versus the rate the Registrant funded
the mortgage loans could have benefited the company because the cost
of funds was less the mortgage interest rate, or the Registrant could
loss money if the cost of funds was more than the mortgage interest rate.
The following table summarizes the sensitivity analysis of change in
the fair value of our cost of funds as compared to the residual
interests as of March 31, 2001 and June 30, 2001:
Change In Fair Value As of
March 31 June 30
2001 2001
Prime Rate 8.000% 6.750%
Our Cost of Funds 1.500% 1.500%
Total 8.500% 8.250%
Bond Market 5.500% 5.331%
Consumer Cost of Funds 1.500% 1.500%
Total 7.000% 6.831%
Net Impact Benefit (Loss) (1.500%) (1.419)%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements as of and for the fiscal years ended June
30, 2001, 2000, and 1999 (restated) are presented in a separate
section of this report following Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages, and respective positions of the directors and
executive officers of the Registrant are set forth below. The
Directors named below will serve until the next annual meeting of the
Registrant's stockholders or until their successors are duly elected
and have qualified. Directors are elected for a one-year term at the
annual stockholders' meeting. Officers will hold their positions at
the will of the board of directors, absent any employment agreement,
of which none currently exist or are contemplated. There are no
arrangements, agreements or understandings between non-management
shareholders and management under which non-management shareholders
may directly or indirectly participate in or influence the management
of the Registrant's affairs. There are no legal proceedings involving
the officers and directors of the Registrant.
Directors and Executive Officers.
(a) Louis Cherry, President/Chairman of the Board.
Mr. Cherry, age 74, was appointed Chairman of the Board, and
President of the Registrant in October of 1999. From 1995 to 1998, he
was self-employed as a consultant and food broker. For the period of
1993 to 1994, Mr. Cherry served as Chairman of the Board for two
automobile dealerships, University Oldsmobile & Pontiac of Costa Mesa,
California, and San Clemente Chrysler, Jeep & Eagle of San Clemente,
California. Previously, Mr. Cherry was Chairiman of the Board of a
national bank and president of an investment firm. Mr. Cherry has
attended the University of California at Los Angeles.
(b) Albert R. Reda, Chief Executive Officer/Secretary/Director.
Mr. Reda, age 55, was appointed a Director, Chief Executive
Officer, and Secretary of the Registrant in November 1998. From 1996
to 1998, he was employed with CRT Corporation as Vice President in
charge of production for manufacturing frozen food products. For the
period of 1994 to 1995, Mr. Reda was self-employed in the financial
lending area, buying and selling loans between individuals and
institutions. Mr. Reda received his Bachelor of Science Degree from
California State University, Long Beach, with a major in engineering.
(c) Wade H. Whitely, Director.
Mr. Whitely, age 39, has been self-employed for the past five
years as a marketing and design consultant for several mortgage
companies, including Marina Mortgage Corp., Ocwen Mortgage Inc.,
Community Mortgage Corp. and Western Thrift & Loan. For approximately
2 and one-half years prior to that, he was employed as an acting
manager of Northwest Mortgage Corp. Mr. Whitely has also recently
designed and implemented e-commerce for Sunglass Central, Optical
Brigade, Net2 Loan, and Site- Creator. Mr. Whitely earned his Bachelor
of Science degree in finance from Memphis State University.
Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 does not
apply to the Registrant since it is a reporting company under Section
15(d) under that Act.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
Annual compensation Long-term Compensation
Awards Payouts
Name and Other Restricted Securities
principal Fiscal annual stock underlying LTIP All other
position Year Salary Bonus compensation award(s) options/SARs payouts compensation
(1)
($) ($) ($) ($) (#) ($) ($)
Louis Cherry, 2001 $240,000 0 $ 9,600 0 0 0 0
President/ 2000 $160,000 0 $1,260,000 0 0 0 0
Treasurer 1999 0 0 0 0 0 0 0
Albert Reda, 2001 $240,000 0 $ 9,600 0 0 0 0
Chief Executive 2000 $160,000 0 $1,260,000 0 0 0 0
Officer/ 1999 0 0 0 0 0 0 0
Wade Whitely, 2001 $ 96,000 0 0 0 0 0 0
Executive 2000 0 0 0 0 0 0 0
Vice 1999 0 0 0 0 0 0 0
President
(1) On April 4, 2000, the Registrant issued 10,000,000 shares of
restricted common stock of the Registrant each to Mr. Cherry and Mr.
Reda. These shares are intended to compensate these Directors for
their services to the Registrant for the period of November 1998
through October 1999, during which period neither person received any
compensation from the Registrant. Pursuant to Item 402(b)(2)(iii) of
Regulation S-K, these shares are valued at the fair market value at
the end of each calendar month during that period when such
compensation was earned.
Effective July 2000, Mr. Cherry and Mr. Reda receive car allowances of
$800.00 per month. On August 15, 2001, the Registrant issued
7,750,000 shares of restricted common stock of the Registrant each to
Mr. Cherry and Mr. Reda (these issuances are not shown in the chart
above since they occurred after the end of the 2001 fiscal year).
These shares are issued as part of their employment contracts. These
shares were valued at $131,750. Pursuant to Item 402(b)(2)(iii) of
Regulation SK, these shares were valued at the fair market value at
the time they were issued.
There are no annuity, pension or retirement benefits proposed to
be paid to officers, directors, or employees of the Registrant in the
event of retirement at normal retirement date, as there is no existing
plan provided for or contributed to by the Registrant.
No remuneration is proposed to be paid in the future directly or
indirectly by the Registrant to any officer or director since there is
no existing plan that provides for such payment, including a stock
option plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of the Registrant's common stock as of
September 13, 2001, 282,736,029 shares were issued and outstanding, of
which 126,027,324 are restricted by (i) all stockholders known to the
Registrant to be beneficial owners of more than 5% of the outstanding
Common Stock; (ii) each director; and (iii) all directors and
executive officers of the Registrant individually and as a group (each
person has sole voting power and sole dispositive power as to all of
the shares shown as beneficially owned by them):
Title of Name and Address Amount of Percent of
Class of Beneficial Owner Beneficial Class
Ownership
Common Stock Reda Family Trust (1) 29,600,000 10.47%
3338 Punta Alta, #1E
Laguna Hills, California 92653
Common Stock Cherry Family Trust (2) 15,916,086 5.63%
29245 Pompano Way Laguna Niguel,
California 92677
Common Stock Romis Corp. (3), 17,750,000 6.27%
P.O. Box 4321,
Mission Viejo, California 92690
Common Stock Albert Reda Corp. (4) 17,750,000 6.27%
3900 Birch Street, Suite 103,
Newport Beach, California 92660
Common Stock Wade Whitely, 2,000,000 0.71%
3900 Birch Street, Suite 103,
Newport Beach, California 92660
Common Stock Albert R. Reda, 1,566,086 0.55%
3900 Birch Street, Suite 103,
Newport Beach, California 92660
Common Stock Louis Cherry, 0 0.00%
3900 Birch Street, Suite 103,
Newport Beach, California 92660
Common Stock Shares of all directors and 84,582,172 33.45%
executive officers as a group (3
persons)
(1) Reda Family Trust is a trust created by Albert Reda for shares
obtained upon the change in control of the Registrant in November
1998.
(2) Cherry Family Trust is a trust created by Louis Cherry for shares
obtained upon the change in control of the Registrant in November 1998.
(3) Romis Corp. is a corporation controlled by Louis Cherry, which
holds shares issued as compensation for services performed by Mr.
Cherry for the Registrant.
(4) Albert Reda Corp. is a corporation controlled by Albert Reda,
which holds shares issued as compensation for services performed by
Mr. Reda for the Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other than as set forth below, during the past two years, there
have not been any transaction that have occurred between the
Registrant and its officers, directors, and five percent or greater
shareholders.
(a) On January 1, 2000, Mr. Reda entered into an employment agreement
with the Registrant for the position of Chief Executive Officer. The
following are the material terms of this agreement:
(1) A salary of $180,000.00, payable in semi-monthly installments
in accordance with the Registrant's practices, less normal payroll
deductions. On the anniversary date of each year through the fourth
year, the salary each be increased by $1,000 per month.
(2) In addition to this compensation, the Registrant will
periodically review Mr. Reda's performance and services rendered with a
view to paying discretionary bonuses based upon above-average or
outstanding performance for a prior period. Any such bonuses approved
by the Registrant will be paid to Mr. Reda within 30 days of the grant
thereof. The following performance milestones shall justify the
particular restricted stock bonuses, to be issued by the company, as
set forth below:
(A) At $2 million in sales, 500,000 shares of common stock.
(B) At $3 million in sales, 800,000 shares of common stock.
(C) At $5 million in sales, 1,000,000 shares of common stock.
(D) At $8 million in sales, 2,000,000 shares of common stock.
(E) At $10 million in sales, 2,500,000 shares of common stock.
(F) At $12 million in sales, 3,000,000 shares of restricted
common stock.
To date, the Registrant has paid a total of 7,750,000 shares of common
stock as a bonus under this agreement.
(3) In addition to the Salary and bonuses stated above, Mr. Reda
will be eligible to participate in a health insurance plan, including
dependent coverage, supplied by the Registrant. Mr. Reda will also be
entitled to participate in any and all group life, workers'
compensation, health plan or accidental insurance plans which are
adopted by the Registrant for the benefit of executive officers or
employees. Mr. Reda will also be entitled to such sick leave and paid
holidays and to such other perquisites of employment, as customarily
are extended by the Registrant to executive officers or employees. In
addition, Reda will also be entitled to vacation benefits.
(b) On January 1, 2000, Mr. Cherry entered into an employment
agreement with the Registrant for the position of President. The
following are the material terms of this agreement:
(1) A salary of $180,000.00, payable in semi-monthly installments
in accordance with the Registrant's practices, less normal payroll
deductions. On the first anniversary date of the agreement, the salary
will increase to $20,000 per month, and $25,000 per month on the second
anniversary date and thereafter.
(2) In addition to this compensation, the Registrant will
periodically review Mr. Cherry's performance and services rendered with
a view to paying discretionary bonuses based upon above-average or
outstanding performance for a prior period in the same manner as Mr.
Reda. To date, the Registrant has paid a total of 7,750,000 shares of
common stock as a bonus under this agreement.
(3) In addition to the Salary and bonuses stated above, Mr.
Cherry will be eligible to participate in other benefits as outlined
above for Mr. Reda.
PART IV.
ITEM 14. EXHIBITS, REPORTS ON FORM 8-K, AND INDEX TO FINANCIAL STATEMENTS.
Exhibits.
Exhibits included or incorporated by reference in this document
are set forth in the Exhibit Index.
Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
fiscal year covered by this report.
Index to Financial Statements Page
Report of Independent Accountant 35
Consolidated Balance Sheets as of
June 30, 2001 and June 30, 2000 36
Consolidated Statements of Operations for the years ended
June 30, 2001, June 30, 2000, and June 30, 1999 37
Consolidated Statement of Stockholders' Equity
for the years ended June 30, 2001, June 30, 2000, and June
30, 1999 38
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, June 30, 2000, and June 30, 1999 39
Notes to Consolidated Financial Statements 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Internet Business's International, Inc.
Dated: September 27, 2001 By: /s/ Albert R. Reda
Albert R. Reda
Chief Executive Officer, Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ Albert R. Reda Chief Executive Officer, September 27, 2001
Albert R. Reda Secretary, and Director
/s/ Louis Cherry Chairman of the Board, September 27, 2001
Louis Cherry President, and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Wade Whitely Director September 27, 2001
Wade Whitely
REPORT OF INDEPENDENT ACCOUNTANT
To the Board of Directors and Stockholders of
Internet Business's International, Inc.
We have audited the accompanying consolidated balance sheets of
Internet Business's International, Inc. and Subsidiaries as of June
30, 2001 and 2000 (restated), and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the
three fiscal years ended June 30, 2001, 2000 and 1999 (restated).
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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Internet Business's International, Inc. and Subsidiaries as of
June 30, 2001 and 2000 (restated) and the results of their operations
and their cash flows for each of the three fiscal years ended June 30,
2001, 2000 and 1999 (restated) in conformity with generally accepted
accounting principles.
/s/ Henry Schiffer C.P.A., a P.C.
Henry Schiffer C.P.A., a P.C.
Beverly Hills, California
May 14, 2002
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 AND 2000
(Restated)
June 30 June 30
2001 2000
Assets
Cash and cash equivalents $ 258,019 $ 1,661,963
Accounts receivable, net 200,968 128,389
Inventories 166,307 0
Mortgage notes held for sale 6,929,724 2,907,741
Prepaid expenses and other 106,092 127,905
Total current assets 7,661,110 4,825,998
Property and equipment, net 1,869,781 575,061
Intangible assets, net 2,543,697 2,884,174
Note receivable 0 654,009
$12,074,588 $ 8,939,242
Liabilities and Stockholders' Equity
Accounts payable 559,292 317,998
Accrued liabilities 40,963 48,900
Revolving line of credit 6,230,678 2,958,563
Current portion of long-term debt 14,048 29,165
Deferred revenues 56,966 247,090
Other current liabilities 0 0
Total current liabilities 6,901,947 3,601,716
Long-term debt 1,168,453 203,931
Minority interest in subsidiaries 0 (5,868)
Stockholders' equity (deficit):
Preferred stock, par value $100.00 per share;
1,000,000 shares authorized; 0 and 23,900 issued
and outstanding at June 30, 2001 and 2000,
respectively 0 2,390,000
Common stock, par value $0.01 per share;
349,000,000 shares authorized;267,236,029 and
221,115,113 shares shares issued and outstanding
at June 30, 2001 and 2000, respectively 2,672,360 2,211,151
Additional paid-in capital 3,669,490 3,669,490
Accumulated deficit (2,337,662) (3,131,178)
Total stockholders' equity 4,004,188 5,139,463
Total liabilities and stockholders' equity $12,074,588 $8,939,242
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(Restated)
June 30 June 30 June 30
2001 2000 1999
Revenues $7,206,667 $ 2,332,848 $ 140,641
Costs and expenses:
Cost of revenues 165,325 1,012,340 22,724
Interest expense 142,406 86,611 0
Selling, general and administration 5,921,184 3,107,140 199,753
Depreciation and amortization 870,844 791,426 0
Total costs and expenses 7,099,759 4,995,517 222,477
Loss from operations 106,908 (2,664,669) (81,836)
Other income (expense) 686,608 44,157 0
Income (loss) before income taxes and
minority interest 793,517 (2,620,512) (81,836)
Income taxes (benefit) 0 8,800 0
Income (loss) before extraordinary
income and minority interest 0 (2,629,312) (81,836)
Forgiveness of debt 0 0 2,249,644
(Loss) income before minority interest 793,517 (2,629,312) 2,167,808
Minority interest in loss of
Subsidiaries 0 (32,868) 0
Net income (loss) 793,517 (2,596,444) 2,167,808
Net loss (income) per common share nil nil 0.01
Weighted average number of common shares
Outstanding 250,907,333 189,571,337 164,550,320
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(Restated)
June 30 June 30 June 30
2001 2000 1999
Preferred stock:
Balance, beginning of year $ 0 $ 2,390,000 $ 0
Preferred stock issued 0 0 2,390,000
Balance, end of year 0 2,390,000 2,390,000
Common stock:
Balance, beginning of year 2,211,151 1,773,030 428,000
Common stock issued 461,209 438,121 1,345,030
Balance, end of year 2,672,360 2,211,151 1,773,030
Additional paid-in capital:
Balance, beginning of year 3,669,490 356,930 1,000
Common stock issued 0 3,312,560 355,930
Balance, end of year 3,669,490 3,669,490 356,930
Retained earnings (deficit):
Balance, beginning of year (3,131,178) (534,734) (2,702,542)
Net (loss) income for the year 793,516 (2,596,444) 2,167,808
Balance, end of year (2,337,662) (3,131,178) (534,734)
Total stockholders' equity 4,004,188 5,139,463 3,985,226
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
(Restated)
June 30 June 30 June 30
2001 2000 1999
Cash Flows From Operating Activities:
Net (loss) income $ 793,516 $(2,596,444) $ 2,167,808
Adjustment to reconcile net (loss)
income to net cash used by operating
activities:
Depreciation and amortization 870,844 830,736 0
Reserve for loss on accounts and notes
Receivable 119,372 150,000 0
Reserve for loss on mortgage loans
Receivable 100,000 100,000 0
Minority interest 0 (32,868) 0
Changes in operating assets and liabilities:
Accounts receivable (200,986) (148,813) (4,576)
Inventories (166,307) 0 0
Mortgage loans receivable net (699,046) 82,259 0
Prepaid expenses and other 106,092 271,900 (308,120)
Accounts payable 559,292 (278,617) (1,791,397)
Accrued liabilities 40,963 48,900 0
Deferred revenues 56,966 247,090 0
Other current liabilities (14,048) (1,800) 0
Net cash used in operating activities 1,566,658 (1,327,657) 63,715
Cash Flows From Investing Activities:
Purchases of property and equipment (1,713,601) (755,952) 0
Businesses acquired in purchase
transactions, net of cash paid (26,250) (104,865) 0
Purchases of intangible assets (85,506) (286,372) (1,120,000)
Net cash used in investing activities (1,825,357) (1,147,189) (1,120,000)
Cash Flows From Financing Activities:
Net repayments under revolving line of
Credits (125,116) (89,437) 0
Repayment of short-term borrowings 0 0 (453,200)
Net issuance of long-term debt 964,522 (61,887) 0
Repayment of notes payable (709,869) (181,832) 0
Collection of notes receivable 654,009 1,080,991 0
Investment by minority interest 0 27,000 0
Preferred Stock (2,390,000)
Issuance of common stock 461,209 3,279,397 0
Net cash provided by financing
Activities (1,145,245) 4,054,232 1,137,760
Net increase (decrease) in cash (1,403,944) 1,579,386 81,475
Cash, beginning of year 1,661,693 82,577 1,102
Cash, end of year 258,019 1,661,963 82,577
Interest paid 142,406 86,611 0
Acquisition of Businesses:
Fair value of:
Assets acquired 31,250 4,640,167
Liabilities assumed 0 (4,064,018)
Stock issued (5,000) (471,284)
Net cash paid for acquisitions 26,250 104,865
The accompanying notes are an integral part of these financial statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Restated)
1. Description of Business and Change in Control
Prior to December 31, 1997, Internet Business's International, Inc.
(the "Company or IBUI") was in the food product manufacturing business
formerly known as "International Food and Beverage, Inc.". In
November 1998, new stockholders bought majority control from the
previous Chief Executive Officer through a private transaction.
Immediately thereafter, the former CEO resigned and the new
stockholders assumed the executive management positions. In December
31, 1998, after new management was in place, a decision was made to
change the Company's principal line of business from a manufacturing
business to a high technology company. In connection with the change
in business, the Company changed its name from International Food &
Beverage, Inc. to Internet Business's International, Inc., and
reincorporated the Company on December 8, 1998 in the state of Nevada.
The Company, after January 1, 1999 began plans to offer Internet based
e-commerce services. In April of 1999, the Company announce its first
e-commerce site and was engaged in the development, operation and
marketing of a number of commercial activities. The Company currently
operates four reporting divisions made up of subsidiaries and or
divisions of the Company. The four divisions are as follows: Lending
on Line (which includes real estate loans and equipment leasing),
Internet Service Provider (which includes a national Internet access
dial-up service, wireless high speed Internet access in Las Vegas,
Nevada and Woodland, California, and Internet web design and hosting),
E-commerce (which includes auction sites, B2C and B2B Internet
transaction, and reverse auction sites for Europe and the United
States), Direct Marketing (which includes the direct marketing of long
distance phone services, computers with Internet access, wireless high
speed Internet access and bandwidth), and Internet web design
hosting). The Company has 6 offices in the US and 1 in Europe and more
than 60 employees.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Significant intercompany
balances and transactions are eliminated in consolidation. Affiliated
companies in which the Company does not have a controlling interest
are accounted for using the equity method.
The Company's consolidated financials included Global GPP subsidiary
that the Company owned 80% of, during the time it operated. From March
of 2000 to March of 2001, at which time Global GPP ceased operations.
The financial information was included in the E Commerce section of
the Company's financials statements, along with the Company's other E
Commerce activities.
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 disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates include allowances doubtful accounts and notes receivable
and for mortgage loans receivable. Actual results could differ from
those estimates.
Change in Revenue Recognition
Prior to July 1, 2001 the revenue for the Mortgage Division was booked
as follows: the mortgage loan amount funded by the Company was booked
as revenue on the date of funding. After that date, the net proceeds
received from the sale of the mortgage loan was booked as revenue upon
receipt of those funds by the Company. This has a significant impact
of the revenue for the Company, but does not impact the net income
(loss) for the Company. This revised financial statement for June 30,
2001, and the companion figures for June 30, 2000 incorporates the
changes of revenue recognition for the Mortgage Division.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year classification.
Cash and Cash Equivalents
The Company considers all short-term, highly liquid investments with
an original maturity date of three months or less to be cash
equivalents.
Mortgage Loans Held for Sale
Loans held for sale include originated mortgage loans intended for
sale in the secondary market. Loans held for sale are recorded at the
lower of aggregate cost or fair value.
Interest Accrual
Accrued interest ceases upon sale of the Mortgage Loan.
Allowance for Loan Losses
The allowance for loan losses represents management's estimate.
SFAS 134 requires mortgage banking enterprises to classify securities
as held-to-maturity, trading, or available-for-sale, depending on the
entity's intent and ability to hold the securities. If the mortgage
banking enterprise commits to sell a mortgage-backed security before
or during the securitization process, the entity must classify the
security as trading.
Property and Equipment
Property and equipment is stated at cost and depreciated using the
straight-line method over the estimated useful life of the assets,
which is generally three to five years for computers and computer
related equipment and five to seven years for other non-computer
furniture and equipment. Leasehold improvements are amortized using
the straight-line method over the shorter of their estimated useful
lives or the term of the lease, ranging from one to ten years.
Intangible Assets
Intangible assets consist primarily of acquired customer bases, long-
term marketing agreements, goodwill, and other items. Customer bases
acquired directly are valued at cost, which approximates fair value at
the time of purchase. When material intangible assets, such as
customer bases and goodwill are acquired in conjunction with the
purchase of a company, IBUI undertakes a study by an independent third
party to determine the allocation of the total purchase price to the
various assets acquired and the liabilities assumed. The costs
assigned to intangible assets are being amortized on a straight-line
basis over the estimated useful lives of the assets, which is 36
months for substantially all remaining intangible assets as of June
30, 2001. Goodwill and other intangible assets are periodically
reviewed for impairment to ensure they are appropriately valued.
Conditions that may indicate an impairment issue exists include an
economic downturn, changes in the churn rate of subscribers or a
change in the assessment of future operation. In the event that a
condition is identified that may indicate an impairment issues exists,
an assessment is performed using a variety of methodologies, including
cash flow analysis, estimates of sales proceeds and independent
appraisals.
Additional Paid In Capital
By the end of March 2000, the Registrant issued an additional
7,000,000 shares of the Registrant's common stock, in a private
placement to a qualified investor which provided to the Registrant
$3,382,560.
There was no additional paid in capital during this fiscal year ending
June 30, 2001.
Revenue Recognition
IBUI recognizes revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the sales price is fixed or
determinable and collectibility is probable.
For ISP services, these criteria are met monthly as our service is
provided on a month-to-month basis and collection for the service is
generally made within 30 days of the service being provided.
Narrowband access revenues consist of monthly fees charged to
customers for dial-up Internet access. Narrowband access revenues
also include monthly service fees; any associated equipment revenues
for the Internet appliance and wireless access services provided as
part of the company's marketing initiative and equipment fees.
Broadband access revenues consist of fees charged for high-speed,
high-capacity access services including DSL, fixed wireless, and
dedicated circuit services, installation, termination fees and fees
for equipment. Web hosting revenues consist of fees earned by leasing
server space and providing web services to companies and individuals
wishing to present a web or e-commerce presence. Advertising, content
and electronic commerce revenues are recorded as earned.
For lending on line, revenue principally represents closed-loan fees
paid by Lenders that closed a loan for a consumer that originated
through our Websites, for example, net2loan.net. Closed-loan fees are
recognized at the time the lender reports the closed loan to us.
Additional revenue is derived from on line leasing, and is recognized
as the services are performed.
Revenue from direct marketing - Fees earned from products and or
services sold are only recognized as revenue upon receipt of those funds.
Advertising Expense
All advertising costs are expensed when incurred.
Concentration of Credit Risk
The Company is subject to credit risk through trade receivables.
Monthly Internet access fees and web hosting are generally billed to
the customer's credit card, thus reducing the credit risk. The
Company routinely assesses the financial strength of significant
customers and this assessment, combined with the large number and
geographic diversity of its customers, limits the Company's
concentration of risk with respect to trade accounts receivable.
Income Taxes
The Company accounts for income taxes under the asset and liability
approach where deferred income tax assets and liabilities reflect the
future tax consequences, based on enacted tax laws, of the temporary
differences between financial and tax reporting at the balance sheet date.
Earnings per Share
Basic earnings per share are computed by dividing net income (loss) by
the weighted average of common shares outstanding for the period.
Diluted earnings per share are computed by adjusting the weighted
average number of shares outstanding during the period for all
potentially dilutive shares outstanding during the period.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS
133, Accounting for Derivative Investments and Hedging Activities.
SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes several existing standards. SFAS
133, as amended by SFAS 137 and SFAS 138, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS 133 will have a material
impact on its financial statements.
3. Business Combinations
The Company's business combinations have been accounted for using the
purchase method, and, accordingly, the total purchase price of each
acquired company was allocated to the tangible assets and liabilities
and identifiable intangible assets based on their estimated fair
values as of the closing date of the acquisition. The excess purchase
price over the fair values is recorded as goodwill. Results of
operations for the acquired companies are included prospectively from
the date of acquisition.
In February 2002 the Company announced that it plans to spin-off the
Global Construction Buying Group to its shareholders by the end of 2002.
In January 2002 the Company decided to sell its E Commerce division
and its Mortgage Banking subsidiary, and as of May 20002, has not
finalized these sales.
In September 2001 the Company started Guarantee Capital Group. which
acquired the computer, furniture and processing equipment from the new
owner of Atlas Capital Corporation for $30,000. In November 2001
Guarantee Capital Group had exceeded the capacity of its mortgage
banking line. This prevented Guarantee from funding the balance of its
processed loans and subsequently in December 2001, 20 its 24 employees
were laid off. Guarantee has a new credit facility and is in the
process of rebuilding its staff, which should take place before the
end of June 2002.
In September 2001 the Company started a new marketing subsidiary 1st2
Market Incorporation and ceased operating its predecessor Allstates
Communications Inc. The new subsidiary will only market the Company's
products whereas Allstates marketed cell phones for cellular phone companies.
In March 2001, IBUI ceased to operate Global GPP Corporation and
closed its corresponding operation in Europe. The Company started a
new corporation, which is a wholly owned subsidiary, Global
Construction Buying Group, whose main asset is the equipment acquired
from Global GPP Corporation.
In October 2000, IBUI signed an acquisition agreement with Auction-
Sales.Com. The Company invested $180,000 in the Auction-Sales.Com and
in December 2000 rescinded the acquisition due to undisclosed debts.
The Company is currently suing for the return of the funds and
believes that if the Company prevails the debt could be collected.
In October 2000, IBUI acquired the auction web site operations of the
Sonic Auction Company for a purchase price of approximately $5,000.
With this acquisition, the Company acquired a database and a
functioning web auction site. The Company issued 500,000 shares of
restricted common stock, to acquire Sonic Auction Company. This site
ceased operation in March of 2001.
During the quarter ended September 2000, the Company issued 4,113,871
of shares of restricted common stock for services valued at $41,139.
In April 2000, IBUI acquired the all the outstanding stock of Atlas
Capital Corporation, a mortgage-banking company, for 600,000
restricted common stock valued at $6,000. In connection with the
acquisition, the Company acquired assets of approximately $3,183,000
and assumed liabilities of approximately $3,179,000. The difference
of $4,000 was recorded as intangible assets related to acquisition of
trade names, websites, workforce-in-place and is being amortized over
5 years. By end of August 2001 the company sold Atlas Capital
Corporation with its assets and liabilities.
In March 2000, the Company acquired the assets and assumed certain
liabilities of Internet 2xtreme, an Internet Service Provider based in
northern California. The total purchase price was $735,000, which
consisted of cash of $17,635 and 124,589 shares of restricted common
stock valued at $186,888. In connection with the acquisition, the
Company recorded intangible assets of approximately $666,000, which
consisted of approximately 4,800 customer accounts, website and
workforce-in-place, which are being amortized over 5 years.
In March 2000, the Company acquired 80% of the outstanding shares of
Global GPP for $500,000. Global GPP owns a business-to-business
website, equipment and its strategic agreements with IBM Hungary to
market business-to-business services in Eastern Europe.
In February 2000, the Company acquired the assets and assumed certain
liabilities of Direct Communications, Inc., a wireless communications
company. In addition to assuming certain liabilities, the Company
paid cash of $80,000 and issued 30,000 shares of restricted company
stock at valued at $300. Intangible assets purchased totaled
$265,000, consisting of customer lists, website and workforce-in-place
and is being amortized over 5 years. These assets and liabilities were
transferred to the newly formed and wholly owned subsidiary of the
Company, Allstates Communications Inc.
In December 1999 the Company entered into a service agreement to
market its services on the Internet for 6,000,000 shares of common
stock valued at $60,000.
In November 1999, the Company, acquired an E Commerce website Optical
Brigade, an on-line sunglass distribution website, for 5,050,000) of
restricted shares of common stock valued at $50,500.
In August 1999, the Company acquired the website, Net 2 Loan, an on-
line loan processing website for 400,000 shares of restricted common
stock valued at $4,000.
In July 1999 the Company acquired MBM Capital Group for $72,000 and
112,667 shares of restricted common stock valued at $1,127. MBM was
sold during the fiscal year of acquisition for a $150,000 note. After
the sale MBM ceased operations and the Company considers the note
valueless.
In June 1999, the Company acquired the assets of L.A. Internet, a
southern California-based Internet Service Provider, which included
customer accounts, trade name, websites, etc. for $545,000 in exchange
for a reduction of the Note Receivable from Iron Horse Holdings, Inc.
(see Preferred Stock Note 8).
4. Certain Financial Statement Information
June 30 June 30
2001 2000
Accounts receivable:
Accounts receivable $ 396,977 $ 303,924
Less: allowance for doubtful accounts (196,009) (175,535)
Accounts receivable, net $ 200,968 $ 128,389
Mortgage loans held for sale:
Mortgage loans held for sale $7,049,096 $3,013,203
Less: allowance for loan losses (119,372) (105,462)
Mortgage loans held for sale, net $6,929,724 $2,907,741
Property and equipment:
Office furniture and equipment $ 47,155 $ 74,051
Machinery and computer equipment 2,239,781 824,234
Leasehold improvements 1,726 2,182
Less: accumulated depreciation (418,881) (325,406)
Property and equipment, net $1,869,781 $ 575,061
Intangible assets:
Capitalized software costs, including websites $1,270,156 $1,653,872
Subscriber member bases 1,302,118 1,190,632
Others, including customer lists, existing
technology, trade names 423,386 545,000
Less: accumulated amortization (451,963) (505,330)
Intangible assets, net $2,543,697 $2,884,174
5. Revolving Lines of Credit
The Company has a master mortgage loan warehousing agreement (credit
facility) with a lender that provides a maximum of $5,000,000 under
specified conditions to fund residential mortgages to customers. The
residential loans serve as collateral, and funds are advanced up to
98% of the unpaid principal amount of the qualified mortgage loan
granted to the customer. The credit facility bears interest at the
Prime Rate (9.5% at June 30, 2000) plus 1.0% for loans outstanding for
60 days or less. The interest rate increases to Prime Rate plus 4.0%
for loans outstanding between 60 and 120 days, and increases to Prime
Rate plus 6.0% for amounts outstanding over 120 days. At June 30,
2001 and 2000, amounts outstanding under the credit facility were $0
and $2,579,346, respectively. Subsequent to June 30, 2000, the credit
facility was amended to reduce the maximum available facility to
$3,500,000, and the Company did not renew the line when it came up for
renewal during the fiscal year ending June 30, 2001.
On February 1, 2000, the Company entered into a Master Repurchase
Agreement that provides the Company with a warehouse facility through
IMPAC Warehouse Lending Group ("IMPAC"). The IMPAC line provides the
Company with an open warehouse credit line (as set forth by IMPAC) for
the Company's mortgage originations only. Under the terms of the
agreement, the Company must repay the funded amount within 30 days of
the date the funds were disbursed with interest at the Prime Rate plus
1.0%. If the funds are not repaid within 30 days, the interest rate
increases to Prime Rate plus 3.0% until repaid, and IMPAC reserves the
right to sell the loan and any shortfall remains the liability of the
Company. The IMPAC line is secured by the mortgage loans funded with
the proceeds of such borrowings. The IMPAC line does not have a
stated expiration date but is terminable by either party upon written
notice. Amounts outstanding under the IMPAC line at June 30, 2001 and
2000 were $ 6183,228 and $ 254,217, respectively.
On March of 2001, the Company entered into a Master Repurchase
Agreement that provides the Company with a warehouse facility through
Imperial Warehouse Lending Group ("Imperial"). The Imperial line
provides the Company with an open warehouse credit line (as set forth
by Imperial) for the Company's mortgage originations only. Under the
terms of the agreement, the Company must repay the funded amount
within 30 days of the date the funds were disbursed with interest at
the Prime Rate plus 1.0%. If the funds are not repaid within 30 days,
the interest rate increases to Prime Rate plus 3.0% until repaid, and
Imperial reserves the right to sell the loan and any shortfall remains
the liability of the Company. The Imperial line is secured by the
mortgage loans funded with the proceeds of such borrowings. The
Imperial line does not have a stated expiration date but is terminable
by either party upon written notice. Amounts outstanding under the
IMPAC line at June 30, 2001 and 2000 were $ 865,468 and $ 0,
respectively.
The effective interest rate for the credit lines listed above were as
follows per quarter, the interest charge is deducted from the sale
proceeds of the funded loans and is booked as a cost of revenue;
Quarter Prime Rate Impac Imperial* Number of Loans
Held over 30 Days
Sept. 30 2000 9.50% 10.5% N/A 0
Dec. 31, 2000 9.50% 10.5% N/A 0
March 31, 2001 8.0% 9.0% 9.0% 0
June 30, 2001 6.75% 7.75% 7.75% 0
* Imperial line not in use prior to March 2001
In addition, the Company has a bank line of credit that provides for
maximum borrowings up to $125,000. The line of credit is personally
secured by certain officers of the Company, and currently bears
interest at 11.5% at June 30, 2000 and is due on August 31, 2000. The
outstanding balance against the line of credit as of June 30, 2001 and
2000 were $ 0 and $125,000, respectively. The Company paid off the
line of credit line during the fiscal year ending June 30, 2001,
because it was no longer required.
All credit facilities and bank line of credit require the Company to
maintain certain financial ratios and adhere to specific non-financial
requirements. At June 30, 2001, the company was in compliance with
the various covenants contained in the above agreements.
6. Long-Term Debt
Long-term debt at June 30, 2001 consists of the following:
Current Long-term Total
Portion
Note payable secured by certain Company
assets, requiring monthly payments of $6,494,
including interest at 12.25%, due May 5, 2007 $ 40,506 $ 283,014 $323,520
During the fiscal year certain real estate loans defaulted. The
Company's subsidiary is making payment to the lender that purchased
the defaulted loans. These payments are made at the note rate for each
loan. The Company has filed claims with the Company's E&O Insurance
carriers. and until the claims are either denied or paid the company
lists these debts as long-term debt. These notes total $844,933.
Effective September 1, 2001 the Company sold the subsidiary Atlas
Capital and these liabilities are included in the sale.
7. Extraordinary Item
The California Code of Civil Procedure Section 337 states; "Within 4
years (four), an action [must be brought] upon any contract,
obligation or liability founded upon a written statement or written
contract." The debts of the Company's predecessor (see Note 1)
identified were greater then 4 years old and not enforceable. Legal
counsel Edgar Scheck reviewed the debts and issued an opinion letter
that the prior company's debts were not collectable based upon this
Code Section 337. The Company then extinguished these debts and
recognized the amount of the debt as extraordinary income. SFAS 125
list 2 sets of circumstance under which a liability is not recognized
(which is listed below). The second set of circumstance states the
GAAP basis for which the Company extinguished the debt and recognized
the debt amount as extraordinary income in the fiscal year ended June
30, 1999.
Per SFAS 125, defeasance does not result in the extinguishments of a
liability. A liability is derecognized only if:
1. The creditor is paid and the debtor is relieved of the obligation.
2. The debtor is released legally either by the creditor or
judicially from being the primary obligor.
All gains and losses from extinguishments, if material in amount,
receive extraordinary item treatment.
8. Stockholders' Equity
Authorized Shares
During November 2000, the Company amended the articles of
incorporation to increase the number of authorized shares of common
stock to 349,000,000 shares.
Stock Issuance
After the end of the fiscal year an additional 15,500,000 shares were
issued as per employment contract, bring the total number to
282,736,029 common snares issued and outstanding of which 134,495,037
are restricted.
Stock Issuance for services;
During Fiscal Year ended June 30, 2001 IBUI did not issue stock for
services.
During fiscal year ended June 30, 2000, IBUI agreed to issue
approximately 30.4 million shares of restricted common stock for
development and advertising services over a period of twelve months.
Under the agreement, the shares were issued as certain milestones were
met, and the fair value of the shares was recorded as prepaid
advertising and amortized ratably over the term on the contract.
During fiscal year ended June 30, 1999, IBUI issued in December of
1998, approximately 9.1million shares of restricted common stock to a
consultant in lieu of cash for services provided pursuant to a
consulting agreement. The fair value of the shares was recorded as
prepaid professional services and amortized ratably over the term of
the contract. Under this agreement, IBUI issued additional 2.1
million shares of restricted common stock in January 1999.
The company complies with the provisions of Emerging Issues Task Force
("EITF") Issue No. 96-18, Accounting for Equity Instruments Issued to
Other Than Employees for Acquiring, or in Conjunction with, Selling
Goods or Services ("EITF 96-18"), with respect to stock issuances to
such non-employees, whereby the value of the services was determined
as a reliable measurement of fair value.
Stock Issuance for acquisitions see Note 3. Business Combinations.
Preferred Stock
On December 15, 1998, the Company entered into an agreement with Iron
Horse Holdings, Inc. ("IHHI"), a privately held company in which
officers or family members of the officers of the Company have
minority stock ownership, for IHHI to purchase 23,900 shares of the
Company's preferred stock with a par value of $100.00 per share, in
exchange for a promissory note receivable from IHHI in the amount of
$2,500,000. The difference between the par value of the shares and
the purchase price is treated as additional paid-in-capital. Shares
purchased under the agreement are to be issued to IHHI or its
designee. The promissory note receivable bears interest at 9% per
annum, and is secured by a blanket security agreement executed by IHHI
and perfected by filings as specified by law. Until such note is paid
in full, IHHI shall pay the 3% coupon on such shares as are issued
under the agreement directly to the shareholder(s) of record at the
time such payment is due. During the fiscal year ending June 30, 2001,
the company received payment in full on the note executed by IHHI and
also during this fiscal year IHHI converted the preferred into common
stock. There are no preferred shares issued and or outstanding as of
this date.
The Company acquired 100% of LA Internet, Inc. in June of 1999 for
$525,000 from IHHI, which was credited towards the note that is owed
by IHHI to the Registrant.
During Fiscal June 30, 2000 the Company received the following
payments on the note executed by IHHI,
Date Balance Payment Interest Paid Form of payment
June 15, 1999 $240,000 Credit
June 15, 1999 $525,000 Credit - LA Internet
Total $765,000
June 30, 1999 $1,735,000
Sept. 30, 1999 $1,464,754 $270,246 $39,037 Cash
Dec. 31, 2000 $1,194,508 $270,246 $32,957 Cash
March 31, 2000 $ 924,262 $270,246 $26,876 Cash
June 30, 2000 $ 654,009 $270,253 $20,796 Cash
Total $ 654,009 $1,080,991 $119,666
During Fiscal June 30, 2001 the Company received the following
payments on the note executed by IHHI,
Date Balance Payment Interest Paid Form of payment
June 30, 2000 $ 654,009
Sept. 30, 2000 $ 490,509 $163,500 $14,715 Cash
Dec. 31, 2000 $ 327,009 $163,500 $11,036 Cash
March 31, 2001 $ 163,509 $163,500 $ 7,357 Cash
June 30, 2001 $ 0 $163,509 $ 3,679 Cash
Total $ 0 $654,009 $36,787
9. Income Taxes
The provision for income taxes for the years ended June 30, 2001 and
2000 consists of the following (there were no provision for income
taxes on the financials due to the net loss carry forward from the
previous years operations):
June 30 2001 June 30 2000
Current income tax expense:
Federal $ 269,795 $ 5,600
State 0 3,200
269,795 8,800
Deferred income tax expense:
Federal 0 0
State 0 0
0 0
0 8,800
Amounts for deferred income tax assets and liabilities as follows:
Assets 269,795 485,500
Valuation allowance (269,795) (485,500)
0 0
Liabilities 0 0
Net tax asset or liability 0 0
Deferred income tax assets consist primarily of net operating loss
carry forwards. The Company has provided for a full valuation
allowance on the deferred income tax assets as the realization of such
benefits are uncertain. Such carry forwards begin to expire in 2004.
For the year ended June 30, 1999, the Company excluded the forgiveness
of debt income from taxable income pursuant to Internal Revenue Code
Section 108(A)(1)(B) and 108(B).
10. Commitments
The Company leases certain of its office facilities and certain
equipment under the terms of noncancellable operating leases, which
expire through May 2003. Lease payments under these agreements
totaled $ 176,095 and $138,276 for the years ended June 30, 2001 and 2000.
The future minimum rental commitments at June 30, 2001 under these
leases are as follows:
Year Ending June 30
June 30, 2002 133,632
June 30, 2003 80,503
$214,135
11. Segment Information
In accordance with SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," management has determined that
there are four reportable segments based on the customers served by
each segment: Full service internet service provider (ISP), mortgage
banking business, and business-to-business ("B2B") provider and
business-to-consumer ("B2C") provider. Such determination was based on
the level at which executive management reviews the results of
operations in order to make decisions regarding performance assessment
and resource allocation.
Full service Internet service provider serves customers requiring
Internet access in the western United States through dial-up, and
high-speed wireless; web hosting and web design. Mortgage banking
business includes online mortgage loan origination, processing,
servicing and resales. Business-to-business provider primarily
provides reverse auction services to foreign companies wishing to
purchase materials and supplies in the United States. Business-to-
consumer provider primarily consists of cellular phone service
origination fees and sales.
Certain general expenses related to advertising and marketing,
information systems, finance and administrative groups are not
allocated to the operating segments and are included in "other" in the
reconciliation of operating income reported below. The accounting
policies of the segments are the same as those described in the
summary of significant accounting policies (see Note 2). Information
on reportable segments is as follows:
June 30 June 30
Fiscal Year Ended 2001 2000
Full-service ISP
Net sales $ 4,912,285 $ 1,577,971
Operating income 2,037,932 $ (348,367)
Mortgage loan originations held for resale
Net sales $ 1,073,147 $ 8,264,071
Operating income $ (83,571) $ (386,682)
E Commerce (B-to-b/c)
Net sales $ 278,668 $ 47,002
Operating income (156,187) $ (164,341)
Marketing (B-to-b/c)
Net sales $ 495,251 $ 160,380
Operating income $ (825,858) $ (180,986)
Other
Net income $ 447,316 $ 119,666
Unallocated expense $ (178,799) $(1,584,293)
Total
Net sales $ 7,206,667 $10,169,090
Operating income $ 793,517 $(2,664,669)
12. Other Events
a. PMCC
On August 2, 2000, the Company announced that it had entered into an
agreement whereby the Company would purchase 2,460,000 shares of
common stock of PMCC Financial Corp. ("PMCC"), a full-service mortgage
banking company from PMCC's former chairman of the board, Ronald
Friedman, and The Ronald Friedman 1997 Grantor Retained Annuity Trust
Ronald Friedman, which represents 66.36% of the 3,707,000 PMCC shares
outstanding. The aggregate purchase price of $3,198,000 is to be paid
in cash to the seller by the Company as follows: $700,000 at date of
closing; $306,857 for each of the seven installment payments to be
paid on the 30th, 60th, 90th, 120th, 150th, 180th and 210th days following
the close; $175,000 on each of the 240th and 270th days after the date
of the closing. Shares of PMCC, a listed AMEX company, were not
trading at the time of the agreement. In the event that three months
after closing, if PMCC's shares were not actively trading on the AMEX
or NASDQ exchanges and the Company had not merged PMCC with the
Company or any of the Company's subsidiaries, the purchase price was
to be reduced by the amount of the final two $175,000 payments.
Also on July 28, 2000, in a separate transaction, the Company entered
into a stock purchase agreement with an unrelated individual whereby
the Company would sell up to 370,000 shares of PMCC that the Company
either owned or will eventually own, for total consideration of
$1,387,500. Shares of PMCC stock sold by the Company were to be
released to the buyer in proportion to payments received.
As of December 31, 2000, the Company received payments of $559,812 and
the Company released 149,283 shares of PMCC stock that it owned. If
PMCC is not actively trading within six months of the agreement, the
Company will issue to the Buyer the equivalent number of shares of
stock of the Company. PMCC has been actively trading as of January
19, 2001, and the gain on the sale of the PMCC stock of $410,529 has
been included in revenues for the period ending December 31,2000.
In January 2001, the PMCC was delisted from the American Stock
Exchange and began trading on the Pink Sheets under the symbol of
"PMCF"; this met the trading requirement as per the stock sale
agreement the Company had entered into with an unrelated individual
during the first quarter of this fiscal year.
The Company on March 2, 2001 filed an action against Ronald Friedman,
and The Ronald Friedman 1997 Grantor Retained Annuity Trust (Case
Number SA CV 01-268 DOC (Eex)) for rececission of the purchase of the
PMCC stock and return of $1,006,857 paid by the Company. On August 16,
2001 Ronald Friedman, Robert Friedman, and The Ronald Friedman 1997
Grantor Retained Annuity Trust filed an action against the Company
(Case Number 01CV 7637), for the balance of the price under the
contract in the amount of $2,191,143. The Company action was filed in
Orange County; CA. and Mr. Friedman's complaint was filed in
Southern District, New York. The company feels that it will prevail in
both actions.
b. IBC
On August 11, 2000, the Company entered into an agreement to acquire
all of the outstanding shares of International Business Co., a
software developer that streamlines B2B e-commerce, in exchange for
2,000,000 shares of restricted Company shares to be held in escrow.
Between the periods from September 1, 2000 through March 1, 2001, the
Company can unilaterally cancel the contract if dissatisfied with the
seller's performance. The Company canceled the purchase during the
cancellation period agreed in the escrow.
c. Auction-Sales.Com, Inc.
On October 19, 2000, the Company entered into a Stock Purchase
Agreement with Auction-Sales.Com, Inc. and its majority shareholder,
Zahid Rafiq (collectively, "Seller"), for the purchase by the
Registrant of 96.62% of the outstanding and treasury shares of common
stock of Auction-Sales.Com, Inc., a Delaware corporation (see Exhibit
10.15 of this Form 10-Q). In exchange for the shares, the Registrant
will pay, under the terms of this agreement, the following:
(a) 11,000,000 shares of Registrant's restricted common stock to
Seller for all of Seller's Shares, as follows:
(i) 5,500,000 restricted shares will be issued to current
shareholders, identified on the list attached to the
Agreement.
(ii) 2,500,000 restricted shares will be paid to certain
creditors of the Registrant identified in an attachment to
the Agreement. Seller represents that all of these
creditors are unsecured. Seller shall procure signed
consents from each creditor confirming the agreement to
accept restricted shares in proportion to their claims
within 60 days of closing of the transaction. Failure to
procure signed consents will justify rescission of this
Agreement at the option of the Registrant, such that each
party shall restore to the other the consideration which
each placed into the Agreement.
(iii) 3,000,000 restricted shares of the purchase
price will be paid to outside consultants for work performed
for facilitating the transaction.
(b) Earn out for the "Seller": The Seller shall be paid up to an
additional $3,000,000 based upon earnings over the next 3 years
through additional restricted stock. The earn out will be based on a
10% growth per year over the previous years revenue. The $3,000,000
will be distributed equally over the subsequent 3 year i.e. $1,000,000
per year, and can be cumulative. This earn out is further defined as
follows:
(i) The initial base Year ends on September 30, 2000. The
subsequent year base will be the previous revenue.
(ii) The stock will be issued per quarter upon reaching the
Goal per quarter for that portion of the annualized growth
of 10% over the previous year.
(c) The Company may invest up to $2,000,000 in Auction-
Sales.Com, Inc., at a rate not to exceed $500,000 per quarter, based
on performance on Auction-Sales.Com as a function of gross revenues
and based on a budget, which is pre-approved by the Registrant.
Auction-Sales.Com is an e-commerce pricing application service
provider. Auction-Sales.Com has developed a proprietary state of the
art hybrid auction platform that address the combined needs of the
B2C, B2B and C2C markets. This is accomplished by providing a single
integrated marketplace and portal technology that empowers all
parties, including manufacturers, distributors, resellers and
consumers. The Auction-Sales.Com platform provides supply chain
integration and economies of scale in connection with dynamic pricing
application targeting businesses and /or consumers.
This acquisition was rescinded in December 2000 and the necessary
documents were filed with the SEC. The site was retained until the
funds invested into Auction-Sales.Com are returned which at this time
management has very low expectations of occurring.
13. Other Agreements
a. Washington State Hotel and Motel Association.
The agreement, entered into in the ordinary course of business,
with the Washington State Hotel and Motel Association, dated October
4, 2000, provides the use of the GGPP reverse auction site as a
platform for hotel association members purchasing products needed for
their different hotel properties. This method of purchasing allows
the suppliers of products the chance to sell products to the buyers in
competition with one another; the net effect is that the buyers would
select the supplier with the lowest per unit cost. This reduces the
cost of supplies and thereby should increase their potential of
profit. This agreement covers the modification of the GGPP website
for use by the Association, and does not involve any payment by the
Registrant.
b. JWC Construction
The agreement, entered into in the ordinary course of business,
with the JWC Construction Company of Poland, dated March 9, 2001 which
will enable companies to list their purchasing requirements on
projects using the reverse auction platform. This method of purchasing
allows the suppliers of products the chance to sell products to the
buyers in competition with one another; the net effect is that the
buyers would select the supplier with the lowest per unit cost. This
reduces the cost of supplies and thereby should increase their
potential of profit. This agreement covers the modification of the
Construction Buying Group website for use by the Construction
industry, and does not involve any payment by the Registrant.
EXHIBIT INDEX
Number Description
2.1 Agreement and Plan of Merger between the Registrant and
Internet Business's International, Inc., a Delaware
corporation, dated July 1, 1999 (incorporated by reference
to Exhibit 2 to the Form 8-K/A filed on November 22, 1999)
2.2 Agreement and Plan of Merger and Share Exchange among the
Registrant, Return Assured Incorporated, and IBUI
Acquisition Corporation, dated June 4, 2001 (see below).
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Form 10-Q filed on December 1, 1999).
3.2 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.2 to the Form 10-Q
filed on December 1, 1999).
3.3 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.3 of the Form 10-Q
filed on May 22, 2000).
3.4 Certificate of Amendment of Articles of Incorporation
(incorporated by reference to Exhibit 3.4 of the Form 10-Q
filed on May 22, 2000).
3.5 Bylaws (incorporated by reference to Exhibit 3.3 to the Form
10-Q filed on December 1, 1999).
4.1 Retainer Stock Plan for Non-Employee Directors and
Consultants, dated October 1, 1999 (incorporated by
reference to Exhibit 4.1 to Form S-8 filed on October 8, 1999)
4.2 Consulting Agreement between the Registrant and Mark Crist,
dated October 5, 1999 (incorporated by reference to Exhibit
4.2 to Form S-8 filed on October 8, 1999)
10.1 Purchase Agreement (LA Internet) between the Registrant and
Iron Horse Holdings, Incorporated, dated June 10, 1999
(incorporated by reference to Exhibit 10.2 to the Form 10-Q
filed on December 1, 1999).
10.2 Purchase Agreement between the Registrant and the
Stockholders of MBM Capital Group Inc., dated July 1, 1999
(incorporated by reference to Exhibit 10.3 to the Form 10-Q
filed on December 1, 1999).
10.3 Acquisition Agreement (Net 2 Loan) between the Registrant
and Lifestyle Mortgage Partners, dated September 15, 1999
(incorporated by reference to Exhibit 10.4 to the Form 10-Q
filed on February 22, 2000).
10.4 Purchase Agreement (license) between the Registrant and
Stockholders of California Land & Home Sale, Inc., dated
October 1, 1999 (incorporated by reference to Exhibit 10.5
to the Form 10-Q filed on February 22, 2000).
10.5 Acquisition Agreement (Optical Brigade) between the
Registrant and Wade Whitley, dated November 1, 1999
(incorporated by reference to Exhibit 10.6 to the Form 10-Q
filed on February 22, 2000).
10.6 Employment Agreement between the Registrant and Al Reda,
dated January 1, 2000 (see below).
10.7 Employment Agreement between the Registrant and Louis
Cherry, dated January 1, 2000 (see below).
10.8 Agreement for Acquisition between the Registrant and Direct
Communications, Inc., dated February 25, 2000 (incorporated
by reference to Exhibit 10.6 of the Form 10-Q filed on May
22, 2000).
10.9 Agreement between the Registrant and Internet 2xtreme, dated
March 6, 2000 (incorporated by reference to Exhibit 10.7 of
the Form 10-Q filed on May 22, 2000).
10.10 Agreement between the Registrant, Roanoke Technology Corp.,
and Global GPP Corp., dated March 21, 2000 (incorporated by
reference to Exhibit 10.8 of the Form 10-Q filed on May 22, 2000).
10.11 Agreement between GPP Hungary Kft and Haitec Magyarorazagi
Kft, dated March 30, 2000 (incorporated by reference to
Exhibit 10.9 of the Form 10-Q filed on May 22, 2000).
10.12 Stock Purchase Agreement between the Registrant and Atlas
Capital Corporation, dated April 1, 2000 (incorporated by
reference to Exhibit 10.10 to the Form 10-K filed on
September 27, 2000).
10.13 Stock Purchase Agreement between the Registrant and Ronald
Friedman, Robert Friedman, and The Ronald Friedman 1997
Grantor Retained Annuity Trust, dated July 28, 2000
(incorporated by reference to Exhibit 10.11 of the Form 10-Q
filed on November 16, 2000).
10.14 Stock Sales Agreement between the Registrant and a buyer,
dated July 28, 2000 (incorporated by reference to Exhibit
10.12 of the Form 10-Q filed on November 16, 2000).
10.15 Stock Purchase Agreement between the Registrant,
International Business Company, Dennis B. Ginther, Clifford
J. Roebuck, Jadwiga L. Ginther, and Bogumila E. Basu , dated
August 19, 2000 (incorporated by reference to Exhibit 10.13
of the Form 10-Q filed on November 16, 2000).
10.16 Stock Purchase Agreement between the Registrant, Sonic
Auction.com, Inc., and Brian Pruett, dated October 5, 2000
(incorporated by reference to Exhibit 10.14 of the Form 10-Q
filed on February 15, 2001).
10.17 Stock Purchase Agreement between the Registrant, Auction-
Sales.Com, Inc., and Zahid Rafiq, dated October 19, 2000
(incorporated by reference to Exhibit 10.15 of the Form 10-Q
filed on February 15, 2001).
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 of the Form 10-Q filed on February 15, 2001).