1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 2001
[ ] Transaction report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ______________
Commission file number 0-28065
ISNI.NET, INC.
-----------------------
Full Name of Registrant
DELAWARE 56-2489419
------------------------------ -------------------
(State or Other Jurisdiction of Incorporation or Organization) (IRS Employer Identification No.)
204 EAST MCKENZIE STREET, UNIT D PUNTA GORDA, FLORIDA 33950
-----------------------------------------------------------
Address of Principal Executive Offices
(941) 575-7878
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 17, 2001 there were 26,661,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [ ]
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TABLE OF CONTENTS
PART I .................................................................. 3
ITEM 1. FINANCIAL STATEMENTS...................................... 3
BALANCE SHEETS.................................................... 4
NOTES TO FINANCIAL STATEMENTS..................................... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION......................................................... 10
RESULTS OF OPERATIONS............................................. 13
LIQUIDITY AND CAPITAL RESOURCES................................... 15
SEASONAL ASPECTS OF BUSINESS...................................... 15
PART II .................................................................. 16
ITEM 5. OTHER INFORMATION......................................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8............................ 16
3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ISNI.net, INC.
BALANCE SHEETS
March 31, 2001 June 30, 2000
(unaudited) (audited)
-------------- --------------
ASSETS
Cash $ 9,743 --
Prepaid expenses 481 18,750
Deferred offering costs 98,988 --
--------- ---------
Total Current Assets 109,212 18,750
Premises and equipment, net 81,445 83,131
--------- ---------
Total assets $ 190,657 $ 101,881
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Lines of credit $ 73,164 $ 18,821
Bank overdraft -- 19,830
Accounts payable 127,723 64,043
Accrued liabilities 2,785 1,840
Deferred revenue 14,575 8,997
Due to stockholder 159,200 143,750
Due to affiliates 24,165 15,842
Current portion of long-term debt 13,326 15,858
--------- ---------
Total current liabilities 414,938 288,981
Long-term debt less current portion
due within one year 11,987 17,726
Shareholders' equity:
Preferred stock, par value $.0001 per share,
20,000,000 shares authorized; no shares
issued and outstanding -- --
Common stock, par value $.0001 per share,
100,000,000 shares authorized; 26,661,000 shares
issued and outstanding 2,666 2,666
Additional paid-in capital 152,059 122,580
Accumulated deficit (390,993) (330,072)
--------- ---------
Total shareholders' equity (236,268) (204,826)
--------- ---------
Total liabilities and shareholders' equity $ 190,657 $ 101,881
========= =========
See accompanying notes to financial statements
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ISNI.net, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 3
---------------------------------
2001 2000
------------ ------------
INCOME
Internet service fees $ 140,066 $ 109,250
Other revenue 793 340
------------ ------------
Total revenue 140,859 109,590
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OPERATING EXPENSES
Cost of revenues 42,419 41,223
Cost of subscriber start-up -- 80
Advertising 730 3,234
Bank and service charges 3,799 3,756
Consulting fees 15,001 125,000
Depreciation 5,900 2,400
Employee leasing costs 0 19,329
Wages 30,340 0
Rent 4,632 2,647
Other occupancy and office expenses 16,743 4,253
Other expenses 15,076 3,820
------------ ------------
Total operating expenses 134,640 205,742
------------ ------------
Income (loss) from operations 6,219 (96,152)
------------ ------------
OTHER DEDUCTIONS
Interest expense (7,808) (1,074)
------------ ------------
Income (loss) before taxes (1,589) (97,226)
------------ ------------
INCOME TAXES (CREDIT) 0 0
------------ ------------
Net income (loss) $ (1,589) $ (97,226)
============ ============
INCOME (LOSS) PER SHARE $ -- $ --
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,661,000 26,654,297
============ ============
See accompanying notes to financial statements
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ISNI.net, INC.
STATEMENTS OF OPERATION
(Unaudited)
Nine months ended March 31
---------------------------------
2001 2000
------------ ------------
INCOME
Internet service fees $ 389,031 275,747
Other revenue 1,682 4,385
------------ ------------
Total revenue 390,713 280,132
------------ ------------
OPERATING EXPENSES
Cost of revenues 119,737 99,956
Cost of subscriber start-up -- 19,280
Advertising 2,412 12,606
Bank and service charges 10,130 9,381
Consulting fees 50,890 125,000
Depreciation 16,858 7,182
Employee leasing costs 47,490
Wages 89,220 --
Rent 13,896 7,773
Other occupancy and office expenses 52,691 12,504
Other expenses 74,965 11,922
------------ ------------
Total operating expenses 430,799 353,094
------------ ------------
Loss from operations (40,086) (72,962)
------------ ------------
OTHER DEDUCTIONS
Interest expense (20,835) (2,545)
------------ ------------
Loss before taxes (60,921) (75,507)
------------ ------------
INCOME TAXES (CREDIT) -- --
------------ ------------
Net loss $ (60,921) $ (75,507)
============ ============
INCOME (LOSS) PER SHARE $ -- $ --
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,661,000 26,046,578
============ ============
See accompanying notes to financial statements
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ISNI.net, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended March 31,
-----------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (60,921) $ (75,507)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 16,858 7,182
Payments made by principal stockholder
on company's behalf 29,479 --
Decrease in prepaid expenses 18,750 --
Increase in other assets (99,469) (443)
Increase in accounts payable
and other liabilities 70,203 71,395
--------- ---------
Total adjustments 35,821 78,134
--------- ---------
Net cash provided by (used in) operating activities (25,100) 2,627
--------- ---------
Cash flow from investing activities:
Purchase of premises and equipment (10,427) (13,046)
--------- ---------
Net cash used in investing activities (10,427) (13,046)
--------- ---------
Cash flow from financing activities:
Net borrowings on short-term debt 54,343 9,979
Net borrowings from affiliates
and stockholders 23,773 --
Principal payments on capital lease obligations (13,016) (6,004)
Payment of bank overdraft (19,830) --
Net proceeds from issuance of common stock 0 660
--------- ---------
Net cash provided by financing activities 45,270 4,635
--------- ---------
Decrease in cash and cash equivalents 9,743 (5,784)
Cash and cash equivalents, beginning of period 0 5,922
--------- ---------
Cash and cash equivalents, end of period $ 9,743 $ 138
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,317 2,480
========= =========
Capital lease obligation incurred for
the acquisition of new equipment $ 4,745 $ 30,923
========= =========
See accompanying notes to financial statements
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INTERNET SERVICE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED DECEMBER 31, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with instructions to Form 10Q-SB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary have been made for the fair presentation of the Company's results for
the three and nine month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the year ended June 30, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following Management Discussion and Analysis of Financial Condition
is qualified by reference to and should be read in conjunction with our
Financial Statements and the Notes thereto as set forth in this document. We
include the following cautionary statement in this Form 10Q-SB for any
forward-looking cautionary statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, expectations, future events or performances and underlying
assumptions and other statements which are other than statements of historical
facts. Certain statements contained herein are forward-looking statements and,
accordingly, involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in the forward-looking
statements. The Company's expectations, beliefs and projections are expressed in
good faith and are believed by the Company to have a reasonable basis, including
without limitations, management's examination of historical operating trends,
data contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations, beliefs
or projections will result or be achieved or accomplished.
OUR BUSINESS
We are an internet service provider currently serving individuals and
small businesses primarily in Charlotte County, Florida. We also provide Web
hosting services, a complement to our Internet access business. We offer up to
56K modem access and ISDN (Integrated Digital Service Network) connectivity. As
of March 31, 2001, we served approximately 2,160 subscribers, including
approximately 30 complementary accounts primarily held by employees and
businesses that have generated customers for us and including 36 Web hosting
subscribers. In addition to dial-up Internet access and Web hosting, we provide
other value-added services such as Web page design and Web-server co-location.
The Company's dial-up Internet access
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and Web hosting are offered in various price and usage plans designed to meet
the needs of our customers.
STATEMENT OF OPERATIONS
We derive revenue primarily from monthly subscriptions from individuals
for dial-up access to the Internet. Subscription fees vary by monthly billing
plan. Under our current pricing plans, subscribers have a choice of "monthly"
billing if they pay by credit card or "quarterly" billing if they pay by cash or
check. Either plan gives them "unlimited access" to the internet.
For the nine and three months ended March 31, 2001 and 2000, the
average monthly recurring revenue per dial-up subscriber was approximately
$19.95 There are no "start-up" fees for new subscribers although new customers
are required to pay in advance either one month or three months depending on
their billing plan.
Beginning in October 1999, we instituted a prepayment plan available to
all dial-up subscribers. Under the plan, subscribers may prepay their access
fees for either one or two years at a discounted rate. Subscribers prepaying for
one year receive a discount equivalent to two months of service and subscribers
prepaying for two years receive a discount equivalent to three months. In the
first year of this program, we had less than 0.1% of our customers prepaying for
two years and less than 1% prepaying for one year.
In addition, we earn a small portion of our revenue by providing Web
hosting, domain registration, Web Page design services, Web-server co-location
and full-time dedicated access connections to the Internet. These services have
been classified as "Other revenue" on our Statements of Operations.
Our Web-hosting services allow a business or individual to post
information on the World Wide Web so that the information is available to anyone
who has access to the Internet. We currently offer two pricing plans for
Web-hosting subscribers: $15.95 per month for "Silver," which offers the
customer a storage space of 15 megabytes on their Web page, and $19.95 per month
for "Gold," which offers up to 50 megabytes of storage space. We also charge a
one-time set-up fee of $19.95 for both plans. We had 36 Web-hosting subscribers
as of March 31, 2001.
Domain registration involves the reservation on behalf of a customer of
a Web address with an organization such as Network Solutions. This service is
typically, but not always, coupled with our Web page design service. We have
offered our Web page design services for $100 per page, including graphics, but
also from time to time package this service with other Internet-related services
at a discount. Other services available to our customers include (a) Web-server
co-location, where the customer uses our Internet T-1 access and facilities to
store the customer's computer and Web page, and (b) full-time dedicated access
connections to the Internet for customers who need uninterrupted Internet
connection. These additional services do not currently contribute significantly
to our total revenues.
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Operating Expenses generally consists of (a) costs of revenue and cost
of subscriber start-up that are primarily related to the number of subscribers;
(b) overhead expenses that are associated more generally with operations; and
(c) depreciation, which is related to our network equipment costs.
Costs of revenue are recurring telecommunication costs that are
primarily related to the number of subscribers and are necessary to provide
service to those subscribers. Telecommunication costs include the costs
associated with local telephone lines into our facilities, leased lines
connecting our dial-in locations, and T-1 lines connecting our main switch to
the Internet backbone. Start-up expenses for each subscriber include our
software, cost of diskettes and other product media, manuals and packaging, as
well as mailing costs associated with the materials provided to new subscribers.
We do not defer any such subscriber start-up expenses.
Other operating expenses are incurred in the areas of advertising
banking and credit card service fees, consulting fees, employee leasing costs,
employee salaries, rent, other occupancy and office expenses and other expenses.
Operating expenses will increase over time as our scope of operations increases.
However, we expect that such costs will be offset by anticipated increases in
revenue attributable to overall subscriber growth.
We advertise using paid newspaper advertisements as well as flyers. We
have experienced some customer defection to providers of free Internet services;
however, a portion of these customers return to us in order to obtain the high
level of service provided by us. Higher levels of advertising and marketing may
be necessary in order for us to enter new markets or increase our subscriber
base in our existing market to a size large enough to generate sufficient
revenue to offset such marketing expenses. We may determine to significantly
increase the level of marketing activity in order to increase the rate of
subscription growth and retention of existing customers. Any such increase would
have a short-term negative impact on earnings. We do not defer any start-up
expenses related to entering new markets.
We are planning to add subscribers by purchasing customer bases from
other Internet service providers initially in the Southwest Florida area.
We have incurred significant credit card service charges due to the
billing method of payment offered to our customers. At the quarter ended March
31, 2001, we were paying a fee of approximately 1.89% of the amount of
transactions being processed monthly through credit card services.
We have used the services of an outside payroll company in the past in
order to keep our costs of staffing to a minimum and we continue to do so. At
the quarter ended March 31, 2001 we had four full time employees and one
part-time employee. These employees were in the areas of customer support and
maintenance, accounting and administration.
We lease approximately 2,500 square feet of office and classroom space
from a corporation that is wholly owned by our largest shareholder at a below
market rent. We
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anticipate entering into a long-term lease with the building owner which is
expected to result in a rent increase. Other occupancy and office expenses
consist of the cost of utilities and general office supplies.
Other expenses include costs of insurance, accounting services, dues
and subscriptions, travel related to the education and training of employees and
reimbursed employee expenses.
We expect to continue to focus on increasing our subscriber base, which
will cause our operating expenses and capital expenditures to increase in
addition to our revenues. There can be no assurance, however, that growth in our
revenue or subscriber base will continue or that we will be able to achieve
profitability or positive cash flows.
RESULTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO NINE
MONTHS AND THREE MONTHS ENDED MARCH 31, 2000
Income. Internet service fees for the nine months ended March 31, 2001
were $389,031 as compared to 275,747 for the comparable nine months in 2000.
This increase was the result of an increase in total subscribers from
approximately 2,000 subscribers at March 31, 2000 to approximately 2,160
subscribers at March 31, 2001. This increase in subscribers is due primarily to
print advertising directed toward potential dial up customers. Other revenue
decreased to $1,682 from $4,385 during the nine months ended March 31, 2001, as
compared to the comparable period in 2000. We intend to grow revenue in the area
of ancillary services such as Web page hosting and design by directing
additional advertising to potential customers of these services. Internet
service fee revenue for the three months ended March 31, 2001 was $140,066 as
compared to $109,250 for the comparable quarter of 2000. In addition, total
revenue increased from $109,590 to $140,859 for the three months ended March 31,
2001. This increase in total revenue is attributable to increased subscriptions.
Cost of Revenues. Cost of revenues for the nine months ended March 31,
2001 was $119,737 as compared to $99,956 for the comparable nine month period in
2000. This increase of $19,781 was associated with the leasing of additional
telephone lines for our increased subscriber base. Cost of revenues for the
three months ended March 31, 2001 was $42,419 as compared to $41,223 for the
comparable quarter ending March 31, 2000. This increase is also attributable to
the leasing of additional telephone lines for our increased subscriber base.
Advertising. Advertising for the nine months ended March 31, 2001 was
$2,412, as compared to $12,606 for the same period in 2000. This decrease in
advertising was due to a change in our advertising methods. As a result of the
decreased advertising, other revenues such as Web hosting and designing also
decreased significantly. For the three months ended March 31, 2001 advertising
costs were $730 as compared to $3,234 for the comparable quarter of 2000.
Bank and Service Charges. Bank and service charges for the nine months
ended March 31, 2001 were $10,130 as compared to $9,381 for the comparable
period in 2000. This increase
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of $749 was a result of the increase in our total subscribers, most of whom pay
us monthly using credit cards. For the three months ended March 31, 2001, bank
and service charges were $3,799 as compared to $3,756 for the comparable quarter
of 2000.
Consulting fees. Consulting fees for the nine months ended March 31,
2001, were $50,890. We paid $125,000 in consulting fees in the comparable period
of 2000. Consulting fees paid in the most recent quarter were paid to two
Companies for management services, one of which our chief executive officer is
affiliated with, the other of which our chief operating officer is affiliated
with. In the three months ended March 31, 2001, we paid $15,001 in consulting
fees as compared to $125,000 for the comparable quarter of 2000.
Employee leasing costs. Employee leasing costs for the nine months
ended March 31, 2001 were $0 as compared to $47,490 for the comparable period of
2000. This significant decrease was a result of the employment of our employees
directly rather than through a leasing company. Similar costs for the quarter
ended March 31, 2001 were $-0- as opposed to $19,329 for the quarter ended March
31, 2000.
Employee salaries. Employee salaries for the nine months ended March
31, 2001 were $89,220. This represents an increase in employee salaries
primarily because we have two additional technical support and accounting
employees. For the three months ended March 31, 2001, employee salaries were
$30,340 as compared to $-0- for the three months ended March 31, 2000.
Rent expenses. Rent expenses for the nine months ended March 31, 2001
were $13,896 which represents an increase of $7,773 from the comparable period
in 2000. We lease approximately 2,500 square feet of office and classroom space,
the rent for which increases 4% every year.
Other occupancy and office expenses. Other occupancy and office
expenses for the nine months ended March 31, 2001 were $52,691 as compared to
$12,504 for the comparable period in 2000. Other occupancy and office expenses
increased 23.732 % primarily due to employee education and training, automobile
lease and other automobile-related expenses, financial printer costs relating to
our SEC filings, and health insurance expenses. For the three months ended March
31, 2001, other occupancy and office expenses were $4,632 as compared to $2,647
for the comparable quarter of 2000.
Other expenses. Other expenses for the nine months ended March 31, 2001
were $74,965 as compared to $11,922 for the same period in 2000. This increase
of $63,043 is due primarily to increased accounting and legal services expenses
relating primarily to our SEC filings and organizational matters as a new public
company. We did not have accounting and legal services costs in the previous
fiscal year as we were a private company.
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LIQUIDITY AND CAPITAL RESOURCES
In the quarter ended March 31, 2001, we financed our operations
primarily through subscription revenue.
We currently have two lines of credit in the amounts of $50,000 and
$25,000 from two financial institutions. We are currently seeking an increase in
one of our lines of credit so that the aggregate amount of all lines of credit
would be $250,000 in order to relieve our principal stockholder of the necessity
of making further advances associated with our SEC filings. We also intend to
finance our operations in the next fiscal year by increasing the number of our
subscribers to take further advantage of the economies of scale offered by a
larger subscriber base and by selling up to 500,000 shares of common stock to
the public.
We anticipate that the cash provided by operations, supplemented by our
financing activities, if necessary, will be sufficient to fund our existing
operations during our current fiscal year.
From time to time, we engage in discussions involving potential
acquisitions of other Internet service providers in or around the Southwest
Florida area. If we are able to successfully negotiate agreements to acquire one
or more Internet service providers, we may need to raise additional debt or
equity capital to finance such acquisitions. There is no assurance that we will
be able to successfully complete any such acquisition transaction. Any
significant acquisition could materially affect our operating and financial
expectations and results, liquidity and capital resources.
SEASONAL ASPECTS OF BUSINESS
There is a strong seasonal influence which is associated with our
location in Southwest Florida, a popular winter holiday destination for retirees
of northern States. As a consequence, during the winter months, subscriber
numbers increase rapidly and, during the summer months, they decrease
significantly. We offer our customers who are part-time Southwest Florida
residents the ability to maintain their e-mail account with us and forward their
e-mails to their summer residences' accounts during periods when they are not in
residence in Southwest Florida. We charge a monthly fee of $5.00 for this
service. We believe that this new service will help to recapture these
individuals as full-paying subscribers when they return to our service area
during the winter months.
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PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are incorporated by reference from Registrant's
Form 10-SB filed with the Securities and Exchange Commission (the "Commission"),
File No.000-28065, on November 12, 1999:
3(i) Articles of Incorporation
3(ii) Bylaws
The following documents are incorporated by reference from
Registrant's Form SB-2A filed with the Securities and Exchange Commission (the
"Commission") File No. 000-28065, on December 22, 2000.
2. Merger Agreement
The following document is incorporated by reference from Registrant's
Form 10Q-SB filed with the Securities and Exchange Commission (the
"Commission"), File No.000-28065, on February 20, 2001:
10 Contract between the Company and CISP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: May 18, 2001 ISNI.Net, Inc.
By: /s/ Lesly A. Benoit, Jr.
---------------------------
Lesly A. Benoit, Jr.
Chief Financial Officer