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, 2002
[ ] 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 May 15, 2002, there were 26,743,000 shares of common stock
outstanding.
Transitional Small Business Disclosure Format
Yes [ ] No [ ]
TABLE OF CONTENTS
PART I ....................................................................3
ITEM 1. FINANCIAL STATEMENTS........................................3
BALANCE SHEETS......................................................4
NOTES TO FINANCIAL STATEMENTS.......................................8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION...........................................................9
RESULTS OF OPERATIONS..............................................12
LIQUIDITY AND CAPITAL RESOURCES....................................14
SEASONAL ASPECTS OF BUSINESS.......................................14
PART II ...................................................................15
ITEM 5. OTHER INFORMATION...............................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8...................16
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our financial statements are contained in pages 3 through 7 following
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ISNI.net, INC.
BALANCE SHEETS
March 31, 2002 June 30, 2001
(unaudited) (audited)
ASSETS
Cash $ 85,500 $ 6,653
Employee advances 2,148 1,457
Prepaid expenses 1,500 0
--------- ---------
Total Current Assets 89,148 8,110
Property and equipment, net 67,847 76,520
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Intangible assets, net 185,376 0
--------- ---------
Total assets $ 342,371 $ 84,630
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Lines of credit $ 76,405 $ 77,313
Accounts payable 118,950 114,671
Notes payable 161,391 0
Accrued liabilities 2,810 4,173
Deferred revenue 10,560 10,286
Due to stockholders 149,762 158,000
Due to affiliates 5,627 5,627
Current portion of capital lease obligation 10,596 13,468
--------- ---------
--------- ---------
Total current liabilities 536,101 383,538
Convertible note payable 110,000 0
Capital lease obligation, less current portion 1,622 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 March 31, 2002 2,677 2,674
and June 30, 2001, respectively
Additional paid-in capital 215,775 195,971
Accumulated deficit (523,804) (505,928)
--------- ---------
Total shareholders' equity (305,352) (307,283)
--------- ---------
Total liabilities and shareholders' equity $ 342,371 $ 84,630
========= =========
See accompanying notes to financial statements
4
ISNI.net, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended March 31
-----------------------------
2002 2001
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INCOME
Internet service fees $ 364,121 $ 389,031
Other revenue 0 1,682
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Total revenue 364,121 390,713
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OPERATING EXPENSES
Cost of revenues 86,488 119,737
Advertising 4,186 2,412
Bank and service charges 10,477 10,130
Consulting fees 32,328 50,890
Depreciation and amortization 24,478 16,858
Wages 81,643 89,220
Rent 13,243 13,896
Other occupancy and office expenses 42,203 52,691
Other expenses 75,873 74,965
------------ ------------
Total operating expenses 370,919 430,799
------------ ------------
Loss from operations (6,798) (40,086)
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OTHER DEDUCTIONS
Interest income (expense) (net) (11,078) (20,835)
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Loss before taxes (17,876) (60,921)
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INCOME TAXES (CREDIT) - -
------------ ------------
Net loss $ (17,876) $ (60,921)
============ ============
INCOME (LOSS) PER SHARE $ (0.0007) $ (0.0023)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,767,047 26,661,000
============ ============
See accompanying notes to financial statements
5
ISNI.net, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31
-----------------------------
2002 2001
------------ ------------
INCOME
Internet service fees $ 133,868 $ 140,066
Other revenue 0 793
------------ ------------
Total revenue 133,868 140,859
------------ ------------
OPERATING EXPENSES
Cost of revenues 18,183 42,419
Advertising 1,065 730
Bank and service charges 3,938 3,799
Consulting fees 13,305 15,001
Depreciation and amortization 12,826 5,900
Wages 26,942 30,340
Rent 3,979 4,632
Other occupancy and office expenses 19,709 16,743
Other expenses 32,891 15,076
------------ ------------
Total operating expenses 132,838 134,640
------------ ------------
Income (loss) from operations 1,030 6,219
------------ ------------
OTHER DEDUCTIONS
Interest income (expense) (net) (3,759) (7,808)
------------ ------------
Loss before taxes (2,729) (1,589)
------------ ------------
INCOME TAXES (CREDIT) 0 0
------------ ------------
Net loss $ (2,729) $ (1,589)
============ ============
INCOME (LOSS) PER SHARE $ (0.0001) $ (0.0001)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 26,767,047 26,661,000
============ ============
See accompanying notes to financial statements
6
ISNI.net, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended March 31
-----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (17,876) $ (60,921)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 17,478 16,858
Payments made by principal stockholder
on company's behalf - 29,479
Decrease (increase) in prepaid expenses (1,500) 18,750
Increase in employee advances (691) -
Increase in other assets - (99,469)
Increase in accounts payable
and other liabilities 3,190 70,203
--------- ---------
Total adjustments 18,477 35,821
--------- ---------
Net cash provided by (used in) operating activities 601 (25,100)
--------- ---------
Cash flows from investing activities:
Purchase of premises and equipment (8,805) (10,427)
--------- ---------
Net cash used in investing activities (8,805) (10,427)
--------- ---------
Cash flows from financing activities:
Net borrowings (payments) on short-term debt (24,893) 54,343
Net borrowings from (repayments to)
affiliates and stockholders (8,238) 23,773
Principal payments on capital lease obligations (9,625) (13,016)
Proceeds from issuance of convertible note payable 110,000 -
Payments made by principal stockholder
on company's behalf 15,378 -
Bank overdraft - (19,830)
Net proceeds from issuance of common stock 4,429 0
--------- ---------
Net cash provided by financing activities 87,051 45,270
--------- ---------
Increase in cash and cash equivalents 78,847 9,743
Cash and cash equivalents, beginning of period 6,653 0
--------- ---------
Cash and cash equivalents, end of period $ 85,500 $ 9,743
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 8,846 $ 8,317
========= =========
Capital lease obligation incurred for
the acquisition of new equipment $ - $ 4,745
========= =========
Purchase of intangible assets through issuance
of notes payable $ 192,376 $ -
========= =========
See accompanying notes to financial statements
7
INTERNET SERVICE NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 2002
NOTE A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with U.S. 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 U.S. 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 March 31, 2002, These results are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2002.
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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 March 31, 2002, we served approximately 2,201 subscribers, including
approximately 30 complementary accounts primarily held by employees and
businesses that have generated customers for us, and including 23 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
9
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 three months ended March 31, 2002 and 2001, 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
second 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 23 Web-hosting subscribers
as of March 31, 2002.
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
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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 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 added subscribers by purchasing customer bases from other Internet service
providers in the Southwest Florida area as well as web hosting subscribers in
Germany. The increase in our customer base will be seen in the upcoming quarter.
These customer bases are in the process of being integrated into our current
system.
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, 2002, we were paying a fee of approximately 1.66% 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 March 31, 2002, 2001 we had three full time employees. These
employees were in the areas of customer support
11
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.
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 March 31, 2002 Compared to Three Months Ended March
31, 2001
Income. Internet service fees for the three months ended March 31, 2002
were $133,868 as compared to $140,066 for the comparable three months in 2001.
This decrease was the result of a decrease in total subscribers from
approximately 2,160 subscribers at March 31, 2001, to approximately 2,201
subscribers at March 31, 2002. Other revenue decreased to $0 from $793 during
the three months ended March 31, 2002, as compared to the comparable period in
2001. 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 $140,859
for the three months ended March 31, 2001 to $133,868 for the three months ended
March 31, 2002.
Cost of Revenues. Cost of revenues for the three months ended March 31,
2002 was $18,183 as compared to $42,419 for the comparable three month period in
2001. This decrease of $24,236 was associated with cost cutting measures and
credits for previous billing errors.
Advertising. Advertising for the three months ended March 31, 2002 was
$1,065, as compared to $730 for the same period in 2001. This increase in
advertising was due to a change in our advertising methods.
Bank and Service Charges. Bank and service charges for the three months
ended March 31, 2002 were $ 3,938 as compared to $3,799 for the comparable
period in 2001. There was no material change in this category.
Consulting fees. Consulting fees for the three months ended March 31,
2002 were
12
$13,305. We paid $15,001 in consulting fees in the comparable period of 2001.
Some of the consulting fees paid in the most recent quarter were paid to one
Company for management services, which one of our directors is affiliated with.
Employee salaries. Employee salaries for the three months ended March
31, 2002 were $26,942. We paid $30,340 in salaries for the three months ended
March 31, 2001. This represents a decrease in employee salaries primarily
because of the termination of our Chief Financial Officer.
Rent expenses. Rent expenses for the three months ended March 31, 2002
were $3,979. We paid $4,632 in rent for the three months ended March 31, 2001.
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 March 31, 2002 were $19,709 as compared to
$16,743 for the comparable period in 2001. This increase is attributable to the
costs of corporate restructuring
Other expenses. Other expenses for the three months ended March 31,
2002 were $32,891 as compared to $15,076 for the same period in 2001. This
increase of $17,815 is due primarily to the costs of acquisitions.
Nine Months Ended March 31, 2002 Compared to Nine Months Ended March
31, 2001
Income. Internet service fees for the nine months ended March 31, 2002
were $364,121 as compared to $389,031 for the comparable nine months in 2001.
This decrease was the result of a decrease in total subscribers to approximately
2,201 subscribers at March 31, 2002. Other revenue decreased to $0 from $1,682
during the nine months ended March 31, 2002, as compared to the same period in
2001. 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 $390,713
for the nine months ended March 31, 2001 to $364,121 for the nine months ended
March 31, 2002.
Cost of Revenues. Cost of revenues for the nine months ended March 31,
2002 was $86,488 as compared to $119,737 for the comparable nine month period in
2001. This decrease of $33,249 was attributable to implementation of cost
cutting methods initiated by management.
Advertising. Advertising for the nine months ended March 31, 2002 was
$4,186 as compared to $2,412 for the same period in 2001. This increase in
advertising was due to a change in our advertising methods.
Bank and Service Charges. Bank and service charges for the nine months
ended March 31, 2002 were $ 10,477 as compared to $10,130 for the comparable
period in 2001. There was no material change in this category.
13
Consulting fees. Consulting fees for the nine months ended March 31,
2002, were $32,328. We paid $50,890 in consulting fees in the comparable period
of 2001. Consulting fees paid in the most recent quarter were paid to one
Company for management services, which oone of our directors is affiliated with.
Employee salaries. Employee salaries for the nine months ended March
31, 2002 were $81,643. We paid $ 89,220 in salaries for the nine months ended
March 31, 2001. This increase is attributable to the increase of employee
salaries.
...
Rent expenses. Rent expenses for the nine months ended March 31, 2002
were $13,243. We paid $13,896 for the comparable period in 2001. 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, 2002 were $42,203 as compared to
$52,691 for the comparable period in 2001. The decrease is attributable to
restructuring and the implementation of cost cutting measures.
Other expenses. Other expenses for the nine months ended March 31, 2002
were $75,873 as compared to $74,965 for the same period in 2001. There was no
material change in this category.
Liquidity and Capital Resources
In the quarter ended March 31, 2002, we financed our operations
primarily through subscription revenue. We currently have one line of credit in
the amounts of $50,000 from a financial institution. 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 forth quarter of 2002, 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.
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.
14
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 April 1, 2002, by written action, the Board of Directors
elected to reduce the outstanding shares of the Company at a conversion rate of
110 to 1. ISNI will effectuate the reverse split through a Board of Directors
action.
ISNI believes that it is advisable and in its best interests
to have available additional authorized but unissued shares of Common Stock in
an amount adequate to provide for the Company's future needs. The additional
shares also will be available for issuance from time to time by ISNI in the
discretion of the Board of Directors, normally without further stockholder
action (except as may be required for a particular transaction by applicable
law, requirements of regulatory agencies or by stock exchange rules), for any
proper corporate purpose including, among other things, future acquisitions of
property or securities of other corporations, stock dividends, stock splits,
stock options, convertible debt and equity financing. ISNI believes that this
step is necessary
15
ITEM 5 OTHER INFORMATION
On January 30, 2002, the Company purchased the subscribers of TNT
ONLINE, INC. ("TNT") pursuant to a Subscriber Purchase Agreement between the
Company and TNT. Consideration for the subscriber purchase is based upon the
number of subscribers and the annual revenues of TNT.
On March 31, 2002, the Company terminated the employment of Lesly
Benoit, our Chief Financial Officer.
On January 28, 2002, the Company entered into a Convertible Secured
Note Purchase Agreement with Juergen Hartwich, a director of the Company, for
the sum of $10,000.
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 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 15, 2002 ISNI.Net, Inc.
By: /s/ Ray Bolouri
---------------------------
Ray Bolouri
President
16