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 September 30, 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 (IRS Employer Identification No.)
Incorporation or Organization)
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 November 14, 2001 there were 26,743,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [ ]
TABLE OF CONTENTS
PART I.......................................................................2
ITEM 1. FINANCIAL STATEMENTS........................................2
BALANCE SHEETS......................................................2
NOTES TO FINANCIAL STATEMENTS.......................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION ..........................................................5
RESULTS OF OPERATIONS...............................................8
LIQUIDITY AND CAPITAL RESOURCES.....................................9
SEASONAL ASPECTS OF BUSINESS.......................................10
PART II.....................................................................10
ITEM 5. OTHER INFORMATION..........................................10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8.............................11
SIGNATURES.........................................................12
PART I
FINANCIAL INFORMATION
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ISNI.net, INC.
BALANCE SHEETS
September 30, 2001 June 30, 2001
(unaudited) (audited)
---------------- --------------
ASSETS
Cash $ 1,556 $ 6,653
Employee advances 2,091 1,457
--------- ---------
Total Current Assets 3,647 8,110
Property and equipment, net 72,231 76,520
--------- ---------
Total assets $ 75,878 $ 84,630
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Lines of credit $ 79,429 $ 77,313
Accounts payable 113,881 114,671
Accrued liabilities 4,173 4,173
Deferred revenue 11,594 10,286
Due to stockholders 149,762 158,000
Due to affiliates 5,627 5,627
Current portion of capital lease obligation 13,858 13,468
--------- ---------
Total current liabilities 378,324 383,538
Capital lease obligation, less current portion 5,221 8,375
Shareholders' equity:
Preferred stock, par value $.0001 per share,
20,000,000 shares authorized; no shares
issued and outstanding 0 0
Common stock, par value $.0001 par value, authorized
100,000,000 shares, issued and outstanding
26,770,000 and 26,743,000 as of September 30, 2001 2,677 2,674
and June 30, 2001, respectively
Additional paid-in capital 213,896 195,971
Accumulated deficit (524,240) (505,928)
--------- ---------
Total shareholders' equity (307,667) (307,283)
--------- ---------
Total liabilities and shareholders' equity $ 75,878 $ 84,630
========= =========
See accompanying notes to financial statements
2
ISNI.net, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30
-----------------------------------------------------
2001 2000
INCOME
Internet service fees $ 106,069 $ 111,395
Other revenue 0 48
------------ ------------
Total revenue 106,069 111,443
------------ ------------
OPERATING EXPENSES
Cost of revenues 39,769 37,043
Advertising 390 1,127
Bank and service charges 3,272 3,214
Consulting fees 7,375 17,250
Depreciation 5,826 5,469
Employee leasing costs 0 488
Wages 29,563 26,310
Rent 4,632 4,632
Other occupancy and office expenses 7,901 17,444
Other expenses 20,324 26,366
------------ ------------
Total operating expenses 119,052 139,343
------------ ------------
Loss from operations (12,983) (27,900)
------------ ------------
OTHER DEDUCTIONS
Interest expense (5,330) (6,140)
------------ ------------
Loss before taxes (18,313) (34,040)
------------ ------------
INCOME TAXES (CREDIT) 0 0
------------ ------------
Net loss $ (18,313) $ (34,040)
============ ============
INCOME (LOSS) PER SHARE $ (0.001) $ (0.001)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,692,274 26,661,000
============ ============
See accompanying notes to financial statements
3
ISNI.net, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended September 30
-----------------------------------
2001 2000
Cash flows from operating activities:
Net loss $(18,313) $(34,040)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 5,826 5,469
Decrease in prepaid expenses 0 3,000
Increase in employee advances (634) 0
Increase in other assets 0 (42,247)
Increase in accounts payable
and other liabilities 518 918
-------- --------
Total adjustments 5,710 (32,860)
-------- --------
Net cash used in operating activities (12,603) (66,900)
-------- --------
Cash flow from investing activities:
Purchase of premises and equipment (1,537) (6,826)
-------- --------
Net cash used in investing activities (1,537) (6,826)
-------- --------
Cash flow from financing activities:
Net borrowings on short-term debt 2,116 50,766
Net borrowings from (repayments to)
affiliates and stockholders (8,238) 16,951
Principal payments on capital lease obligations (2,764) (7,760)
Payments made by principal stockholder
on company's behalf 13,500 17,230
Net proceeds from issuance of common stock 4,429 0
-------- --------
Net cash provided by financing activities 9,043 77,187
-------- --------
Increase (decrease) in cash and cash equivalents (5,097) 3,461
Cash and cash equivalents, beginning of period 6,653 0
-------- --------
Cash and cash equivalents, end of period $ 1,556 $ 3,461
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,780 $ 2,007
======== ========
See accompanying notes to financial statements
4
INTERNET SERVICE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 2001
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 month period ended September 30, 2001 are not necessarily indicative
of the results that may be expected for the year ended June 30, 2002.
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.
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 September 30, 2001, we served approximately 1,884 subscribers, including
approximately 60 complementary accounts primarily held by employees and
businesses that have generated customers for us, and including 27 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 and Web hosting are offered in various
price and usage plans designed to meet the needs of our customers.
5
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 three months ended September 30, 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 27 Web-hosting subscribers
as of September 30, 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.
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.
6
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 cable 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
September 30, 2001, we were paying a fee of approximately 1.99% of the amount of
transactions being processed monthly through credit card services. We are
working to lower this rate.
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 September 30, 2001 we had four full time employees. 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 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.
7
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
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000
Income. Internet service fees for the three months ended September 30,
2001 were $106,069 as compared to$111,395 for the comparable three months in
2000. This decrease was the result of an decrease in total subscribers from
approximately 2,160 subscribers at September 30, 2000 to approximately 1,884
subscribers at September 30, 2001. Other revenue decreased to $0 from $48 during
the three months ended September 30, 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. In addition, total revenue decreased from $111,443
for the three months ended September 30, 2000 to $106,069 for the three months
ended September 30, 2001.
Cost of Revenues. Cost of revenues for the three months ended September
30, 2001 was $39,769 as compared to $37,043 for the comparable three month
period in 2000. This increase of $2,726 was associated with the leasing of
additional telephone lines for our increased subscriber base. This increase is
also attributable to the leasing of additional telephone lines for our increased
subscriber base.
Advertising. Advertising for the three months ended September 30, 2001
was $390, as compared to $1,127 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.
Bank and Service Charges. Bank and service charges for the three months
ended September 30, 2001 were $ 3,272 as compared to $3,214 for the comparable
period in 2000. There was no material change in this category.
Consulting fees. Consulting fees for the three months ended September
30, 2001, were $7,375. We paid $17,250 in consulting fees in the comparable
period of 2000. Consulting fees paid in the most recent quarter were paid to one
Company for management services, which our chief executive officer is affiliated
with.
Employee Leasing Costs. Employee leasing costs for the three months
ended September 30, 2001 were $0 as compared to $488 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 and thus changes in
payroll processing and accounting methods with ADP payroll services.
8
Employee salaries. Employee salaries for the three months ended
September 30, 2001 were $29,563. We paid $ 26,310 in salaries for the three
months ended September 30, 2000. This represents an increase in employee
salaries primarily because we have two additional technical support and
accounting employees.
Rent expenses. Rent expenses for the three months ended September 30,
2001 were $4,632, the same as in 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 three months ended September 30, 2001 were $7,901 as compared
to $17,444 for the comparable period in 2000. Other occupancy and office
expenses decreased 54.7 % primarily due to the elimination of employee education
and training, the reduction of automobile lease and other automobile-related
expenses, financial printer costs relating to our SEC filings, and health
insurance expenses.
Other expenses. Other expenses for the three months ended September 30,
2001 were $20,324 as compared to $26,366 for the same period in 2000. This
decrease of $6,042 is due primarily to decreased accounting and legal service
expenses relating primarily to our SEC filings and organizational matters as a
new public company.
Liquidity and Capital Resources
In the quarter ended September 30, 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
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. We are 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. Our principal stockholder is under no
obligation to fund our expenses. It is expected that our merger with World Wide
Internet, Inc. which was completed in the second quarter of 2001, will also
provide a new source of capital for the Company. 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. However, although we continue to explore opportunities to acquire the
subscriber base of other Internet service providers in the vicinity of our
current market area, we may not be able to complete any such acquisitions nor
expand our business into the wireless broadband business, without the additional
proceeds we had initially anticipated from the contemplated sale of our common
stock. Without an influx of additional capital, we will not be able to achieve
our business objectives.
9
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.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2 Changes in Securities
None
ITEM 3 Defaults upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
On August 30, 2001, by majority consent, 86% of our shareholders of record,
represented by Mr. Ebners shares, approved the Plan of Merger with World
Wide Internet, Inc. (WWI)
ITEM 5 OTHER INFORMATION
On September 18, 2001 we filed an Information Statement with the
Securities and Exchange Commission pursuant to Section 14(C) of the Securities
and Exchange Act of 1934 (the "Act") and Schedule 14C thereunder in connection
with a proposed merger with World Wide Internet, Inc. ("WWI") which contains the
following key terms:
10
> We have formed a wholly owned subsidiary corporation ISNI Acquisitions,
Inc.
> ISNI Acquisitions, Inc. will acquire from WWI's sole stockholder, Ray
Bolouri, all the outstanding shares of WWI. in exchange for 19,500,000
shares of our Company's common stock.
> Werner Ebner, the majority shareholder of our Company, will exchange his
23,008,000 common shares of the Company for 3,900,000 newly created Class B
Common Shares of the Company. The Class B Shares will be identical in all
respects to the Company's Class A common shares, except that:
o they are subject to a lock-up agreement and may not be sold for an
eight month period following the closing of the merger, and
o if at the end of eight (8) months from the closing of the merger
transaction, the market value of Werner Ebner's 3,900,000 Class B
common shares is less than 1 million dollars, then we will issue Mr.
Ebner additional shares to increase the market value of his holdings
to $1,000,000. At the end of the eight-month period, the Class B
shares will be converted into the Company's Class A common.
The following reasons were cited for the proposed merger. ISNI.net,
Inc. is an Internet Service Provider (ISP) operating in the city of Punta Gorda
and surrounding areas of Charlotte County, Florida. We have been a publicly
reporting company filing with the Securities and Exchange Commission since
filing our initial registration statement in September of 1999. The shares of
ISNI.net, Inc. are not yet publicly traded. Werner Ebner, the President and
majority shareholder of ISNI has moved to the island of Cypress to actively
manage other business ventures on the island and wishes to divest himself of his
holdings within the United States. Following the merger Mr. Ebner will no longer
actively involve himself in the Company. On August 30, 2001, by majority
consent, 86% of our shareholders of record, represented by Mr. Ebner's shares,
approved this transaction. The merger closed on October 16, 2001.
On October 16 , 2001, the following individuals were elected directors
of ISNI.NET, Inc.
Ray Bolouri
Lesly Benoit
Torsten Josupeit
Erik. S. Nelson
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
11
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: November 19, 2001
ISNI.Net, Inc.
By: /s/ Lesly Benoit, Jr.
---------------------------
Lesly Benoit, Jr.
President
12