U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2000
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: 33-43621
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 22, 2000: Common
Stock, par value $0.001 per share -- $30,026,659. As of
September 22, 2000, the Registrant had 225,115,113 shares of
common stock issued and outstanding.
TABLE OF CONTENTS
PART I PAGE
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 16
ITEM 3. LEGAL PROCEEDINGS 16
ITEM 4. SUBMISSION TO MATTERS TO VOTE OF SECURITY HOLDERS 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 17
ITEM 6. SELECTED FINANCIAL DATA 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 22
ITEM 11. EXECUTIVE COMPENSATION 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES,
AND REPORTS ON FORM 8-K 26
SIGNATURES 27
PART I.
ITEM 1. BUSINESS.
Internet Business's International, Inc. ("Registrant"), was in
the business of manufacturing of a complete line of pizzas, pizza
components, and specialty baked products; these operations ceased
as of December 31, 1997. In December 1998 after new management
was in place, a decision was made to change the company into an
Internet Registrant offering e-commerce, internet access as an
Internet Service Provider, hosting through our own server and
other enhancements and service through and for the Internet. It
was also determined to change the companies name to better
reflect the companies operation: Internet Business's
International, Inc. The management began after the first of the
year looking for ways to implement the Registrant's operations.
On July 1, 1999, an Agreement and Plan of Merger between Internet
Business's International, Inc., a Delaware corporation, and
Internet Business's International, Inc., a Nevada corporation,
was executed by an authorized signatory of each company. At a
duly called annual meeting of shareholders on July 9, 1999, the
merger of the two companies was approved by a majority of the
shareholders entitled to vote (appearing either in person or by
proxy). On July 15, 1999, Articles of Merger were filed with the
Nevada Secretary of State, which formally resulted in the
redomicile of the registrant to the State of Nevada.
Introduction.
The Registrant, after January 1, 1999, had been engaged in the
development, operation and marketing of a number of commercial
Internets web sites, through the end of the fiscal year June 30,
2000. The Registrant as of July 1, 1999, began to actively
market and expand its Internet Service Provider ("ISP") and
during this fiscal year, acquire other business, products and
services. The expansion and marketing of the ISPs dial-up
Internet access, high speed Internet access, web hosting and
design departments. The companies, products and services,
acquired range from B2B, B2C, e-commerce, lending and leasing on
line. The Registrant also upgraded its infrastructure with state
of the art hardware and started to use cutting edge technology
which it has either developed itself or for which it has acquired
licenses. The Registrant first announced its web sites in March
of 1999.
Internet Access.
LA Internet, Inc. (a wholly owned subsidiary of the Registrant),
has increased its hardware, bandwidth and the number of divisions
since July 1, 1999. It has Sun and Dell servers, Cisco routers
and BreezeCom equipment. This has become a state of the art
hardware company with co-located equipment at various facilities
throughout the United States. It has T-1's to T-3's for bandwidth
and contracts with ELI, MCI, and Next Link, among other bandwidth
providers. LA Internet Inc. owns and operates Lainternet.com
(national dial-up internet access), has POPs (Points of
Presences), or commonly known as Dial-Up access phone numbers,
through out the United States.
2xterme DSL.com (high speed internet access Digital Subscriber
Line), offers DSL service thorough most of the western United
States. BeyonDSL.com (wireless high speed internet access) has
currently initiated its service in Las Vegas, Nevada. LA
Internet Works (TV shows and concerts on line) uses state of the
art video streaming to add content to the site with its first on-
line video streamed concert featuring Pat Benatar, with many
similar concerts forth coming. LA Internet Design (Web design
and hosting) is currently doing Web Design and Hosting for
commercial businesses and government agencies.
Lending on Line.
Net2Loan (a division of the Registrant), which generates and
begins the initial processing of the loans on line. It is in the
top ten of several search engines on the Internet.
Atlas Capital Corporation (a wholly owned subsidiary of the
Registrant) is the Mortgage Banking company that process and
funds the loans generated by the Net2Loan site, and by other
marketing programs that it utilizes.
Leasing on Line.
Discount Online Leasing, (a division of the Registrant) which
generates business leasing on line; these are funded through
outside sources.
Business 2 Business.
Global Group Purchasing Plan, Corp, (an 80% majority ownership of
the Registrant) is a Business 2 Business reverse auction, where a
business (purchasing party) offers to purchase products on line
and those product suppliers offer to sell of that product it to
the purchasing party, and the lowest price wins. It has offices
in Europe and the United States and uses an IBM Server for
processing its auctions.
Site Creator, (a division of the Registrant) a business or
individual can create their own e-commerce Internet site, which
will be hosted by LA Internet.
International Business Company, (a wholly owned subsidiary of the
Registrant acquired after the end of the fiscal year) a software
development, application service provider company, is an IBM
solutions provider and an Oracle certified web-form developer.
Its software allows businesses to sell its products online
through it's applications program.
Business 2 Consumer.
Keyword Space, (a division of the Registrant), provides to
the business community market placement through it's Key Word
Program, on one of the Internets foremost portals MSN.com.
e-Commerce.
Optical Brigade, (a division of the Registrant), this division
offers to Consumers visual aids and designer sunglasses on the
Internet.
Marketing.
Allstates Communications, Inc. (a wholly owned subsidiary of the
Registrant), which provides marketing for Cellular and Digital
wireless Phones throughout most of the United States, through
telephonic communications with consumers. It also commenced
marketing Keyword Space.com services, and LA Internet services.
On Line Communities.
Fanz web site (a division of the Registrant) offers a
comprehensive, intuitive and user-friendly system to access
aggregated information content, communication services, and user
community services. The web site includes a hierarchical,
subject-based index of user-contributed messages focused on
underlying themes of the different FANZ's sites. Users can either
browse the listings by subject matter, or use a rapid keyword
search facility that scans the contents of the entire directory,
or any subcategory within the web site. The Registrant plans to
offer through sponsorship and advertising arrangements with
merchants, its user-members the opportunity to purchase goods and
services.
Auction sites.
Auction Winner, US Liquidator, Bid Farm, (divisions of the
Registrant). The Registrant believes that "User-Contributed
Content," as embodied in the Registrant's Internet offerings,
will allow a maximum of interesting, diverse, and continuously
updated, web site content at minimum cost and administrative
overhead. The marketing of these sites have been delayed until
the Registrant has developed a marketing program that fit within
the overall Registrant plans.
Market.
The following explanation will address the market for the
Registrant, as well as many of the risks associated with this
business.
The market for Internet products and services is highly
competitive. There are no substantial barriers to entry in these
markets, 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 Registrant competes with many
other providers of online navigation, information and community
services. As the Registrant expands the scope of its Internet
services, it will compete directly with a greater number of
Internet sites and other media companies across a wide range of
different online 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 Online, Inc.; Yahoo! CNET, Inc.
(Snap); Excite, Inc.; Infoseek Corporation (including Go
network); Lycos, Inc. (including HotBot and Tripod); Microsoft
Corporation (msn.com); and Netscape Communications Corporation
(Netcenter). 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
Company acquiring a significant interest in Infoseek; AOL
acquiring Time Warner, 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, Inc. NBC acquiring an interest
in Snap, a subsidiary of CNET; USA Networks and Ticketmaster
Online-Citysearch, Inc. announcing that they intend to combine
their services with Lycos, Inc.
The effect of these 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 more well 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 online
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 successful.
Strategic Alliances and Agreements.
The recent alliances of the Registrant have greatly increased the
companies and its subsidiaries' ability to market its products
and services; these alliances are as follows;
(a) MSN (Microsoft Network): The Registrant has entered into an
agreement with MSN to acquire over 240, keywords on the MSN
search engine. These words are then used to either, market the
company's own products and services or resold to other e-commerce
sites so they market their products and services.
(b) IBM (International Business Machines): The Registrant has
entered into an alliance with IBM and IBM Solution Providers to
offer the GGPP (Global Group Purchase Plan) to business
communities in countries and expand into other countries as
proposed by IBM in Europe.
Marketing Plans.
The Registrant competes with online services, other web site
operators and advertising networks, as well as traditional
offline 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 cross
promotion and bundling of services and products to increase its
client base
Principal Competitive Factors.
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.
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.
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, online auctions, web-
based information, online 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 the date of this filing, the Registrant
currently has 12 operating subsidiaries and divisions, with 7
offices in the U.S. and 2 in Europe, employs approximately 85
people in the United States and Europe (this includes
International Business Company, a company acquired after the end
of the fiscal year). 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.
Risk Factors.
In addition to the other information in this Report (including
under the captions "Principal Competitive Factors" and
"Proprietary Rights"), the following 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. Anticipation of Increased Operating Expenses.
Because of the Registrant's limited operating history and the
uncertain nature of the rapidly changing markets it serves, the
accurate prediction of future results of operations is difficult
or impossible. The Registrant currently expects that its
operating expenses will increase significantly as the sales and
marketing operations are expanded and as the Registrant continues
to develop and extend its brand. As a result, the Registrant may
experience significant losses on a quarterly and annual basis.
c. 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 in addition to banner advertising. In connection with
these arrangements, the Registrant may receive sponsorship fees
as well as a portion of transaction revenues received by the
sponsor from business originated through the Registrant
placement, in return for minimum levels of user impressions to be
provided by the Registrant. These arrangements expose the
Registrant to potentially significant financial risks, including:
the risk that the Registrant fails to deliver required minimum
levels of user impressions or "click throughs" (in which case,
these agreements typically provide for adjustments to the fees
payable thereunder or "make good" periods); the risk that
sponsors do not renew the agreements at the end of their term or
that they renew at lower rates; and the risk that the
arrangements do not generate anticipated levels of shared
transaction revenue, or that sponsors default on the payment
commitments in such agreements (as has occurred in the past).
As a result of these financial risks, the Registrant cannot
guarantee that it will achieve significant revenue from these
sponsorship arrangements. In addition, because the Registrant
has limited experience with these arrangements, management is
unable to determine what effect they will have on gross margins
and results of operations.
d. 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 Registrant's Web-based, e-commerce 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.
e. 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.
f. Reliance on Revenues.
The Registrant expects to derive a substantial portion of its
revenues from the sale of products and services from its web
sites. Most of the Companies customers have limited experience
with the Companies services and products. The Registrant's
continuing ability to generate significant revenues will depend
upon, among other things: acceptance of the web as an effective
and sustainable source for e-commerce; the development of a
large base of users of its services and products; and its ability
to continue to develop and update the Registrant's services and
products.
No standards have yet been widely accepted for the measurement of
the effectiveness of web-based e-commerce. Management cannot be
certain that such standards will develop sufficiently to support
web-based e-commerce revenues. In addition, adverse economic
conditions can significantly impact customer's ability and
willingness to spend additional amounts on web based products and
services. As a result of these factors and uncertainties, the
Registrant may not be able to sustain or increase current revenue
levels. Failure to do so may have a material adverse effect on
its business, operating results, and financial position.
g. The Registrant's Dependency on Third Parties.
The Registrant depends substantially upon third parties for
several critical elements of its business including, among
others, technology and infrastructure, distribution activities.
The failure of these parties could have a material impact on the
services the company provides, which could result in substantial
revenue loss.
h. 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.
i. Risks of Equity Investments in Other Companies.
The Registrant may, from time to time, make equity investments in
affiliated companies that are involved in complementary
businesses. Any investments in such companies may not result in
any return, nor can there be any assurance as to the timing of
any such return, or that the Registrant may lose its entire
investment. Losses resulting from such investments may have a
material adverse effect on its operating results.
j. 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.
k. 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 (See "The Registrant's Dependency
on Third Parties" above). 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.
l. Dependence on Key Personnel.
The Registrant is substantially dependent on the continued
services of its key personnel. The Registrant expects that it
will need to hire additional personnel in all areas. The
competition for such personnel in its industry is intense. The
Registrant may experience difficulties in hiring personnel with
the right training or experience, particularly in technical
areas. The Registrant does not maintain key person life insurance
for any of its personnel. If the Registrant does not succeed in
attracting new personnel, or retaining and motivating existing
personnel, its business will be adversely affected.
m. 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
FCC 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.
Also, Congress recently passed (and the President has signed into
law) 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. Congress also recently passed (and the
President has signed into law) 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, a recent
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.
n. 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.
o. 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 March 1999, the Registrant launched AuctionWinner.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 Registrant has approximately $4,826,000 in equipment and
furniture. It has at the following locations:
(a) United States Locations.
Corporate Headquarters: 4634 South Maryland Parkway, Suite 101,
Las Vegas, Nevada 89119
West Coast Headquarters: 3900 Birch Street, Suite 103, Newport
Beach, California. 92660
Allstates Communications, Inc.: 4634 South Maryland Parkway, Suite 101
Las Vegas, Nevada 89119
Atlas Capital Corp.: 18008 Sky Park Circle, Suite 205
Irvine, California 92614
Global Group Purchase Plan, Inc.:4389 Getwell Road, Memphis,
Tennessee 38118
LA Internet, Inc.: 11500 Olympic Boulevard, Suite 441
Los Angeles, California 90064
1059 Court Street, Suite 123
Woodland, California 95695
International Business Company: 17621 Irvine Boulevard, Suite 210
Tustin, California 92780
Optical-Brigade 4389 Getwell Road
Memphis, Tennessee 38118
(b) European Locations.
Global GPP (Hungary): 1117 Budapest Budafoki ut 111,
Budapest, Hungary
Global GPP (Slovenia): Kidriceva 3a, 2380 Slovenj Gradec, Slovenia
The Registrant leases certain of these office facilities and
certain equipment under the terms of noncancellable operating
leases which expire through May, 2003. Lease payments under
these agreements totaled $138,276 and $0 for the years ended June
30, 2000 and 1999. There are also a variety of other co-
locations for Internet wireless and server equipment.
ITEM 3. LEGAL PROCEEDINGS.
Neither the Registrant nor any of its subsidiaries is 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.
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 Registrant's common stock is traded on the Over the Counter
Bulletin Board under the symbol "IBUI" (prior to the symbol
change in March 1999, the Registrant traded under the symbol
"IFDB") and the range of closing bid prices shown below is as
reported by the OTC Bulletin Board. The quotations shown reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended June 30, 2000
High Low
Quarter Ended September 30, 1999 0.14 0.05
Quarter Ended December 31, 1999 0.32 0.00
Quarter Ended March 31, 2000 1.52 0.25
Quarter Ended June 30, 2000 0.64 0.22
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended June 30, 1999
High Low
Quarter Ended September 30, 1998 * - -
Quarter Ended December 31, 1998 0.08 0.00
Quarter Ended March 31, 1999 0.56 0.05
Quarter Ended June 30, 1999 0.50 0.09
* The common stock did not trade from May 21, 1998 to November
19, 1998.
(b) Holders of Common Equity.
As of September 22, 2000, there were 631 shareholders of record
of the Registrant's common stock.
(c) Dividend Information.
The Registrant has not declared or paid a cash dividend to
stockholders since it became a "C" corporation. The Board of
Directors presently intends to retain any earnings to finance
company 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.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the years ended June 30, 2000,
1999, 1998, 1997, and 1996 are derived from the audited financial
statements of the Registrant and should be read in conjunction
with the audited financial statements included herein. The
selected financial data for the years ended June 30, 1998, 1997,
and 1996 are derived from audited financial statements of the
Registrant which are not included herein.
Years Ended June 30
2000 1999 1998 1997 1996
Statements of Operations Data:
(In thousands, except per share
data)
Revenues $10,169 141 2,378 7,358 6,572
Cost of Revenues 8,849 23 2,248 5,847 5,374
Gross profit (loss) 1,320 118 30 1,511 1,198
Selling and distribution
expense 375 43 525 1,512 1,135
General and administrative
expense 2,732 157 297 407 524
Interest expense, net 87 0 69 122 54
Net operating income (loss) (2,665) (82) 1,160) (530) (515)
Other income and expense 44 2,250 0 0 0
Net income (loss) (2,596) 2,168 (1,160) (530) (515)
Net income (loss) per common
share nil 0.01 nil nil nil
Weighted average shares
outstanding 189,580 164,550 158,060 154,763 154,145
Balance Sheets Data:
(In thousands)
Current Assets 4,826 395 1 711 1,175
Fixed assets 3,459 0 0 800 905
Total assets 8,932 4,015 1,102 1,511 2,080
Current liabilities 3,602 30 1,819 1,947 1,941
Long-term debt 204 0 455 677 756
Shareholders' equity
(deficiency) 5,139 3,985 (2,273) (1,113) (617)
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.
Fiscal 2000 Compared To Fiscal 1999
Revenues for the twelve-month period ended June 30, 2000 of
$10,169,000 increased approximately 720% 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.
The gross profit margin of 12.1% for the twelve months ended June
30, 2000 is a significant decrease from the gross margin of 83.8%
reported for twelve months ended June 30, 1999. Current year
margins in the past twelve months reflect the reopening of the
business as an Internet company after November 1998, and are more
in line with industry norms.
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.
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.
The gross profit margin of 83.8% for the twelve months ended June
30, 1999 is a significant increase from the gross margin of 1.3%
reported for twelve months ended June 30, 1998. Current year
margins in the past twelve months reflect the reopening of the
business as an Internet company after 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 Registrant 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.
Fiscal 1998 Compared To Fiscal 1997
Revenues for the twelve-month period ended June 30, 1998 of
$2,378,000 decreased approximately 68% when compared with
revenues of $7,358,000 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.
The gross profit margin of 1.3% for the twelve months ended June
30, 1998 is a significant decrease from the gross margin of 20.5%
reported for twelve months ended June 30, 1997. Current year
margins in the past twelve months reflect decrease and shutdown
of operations at the end of calendar year 1997.
Selling, general and administrative expenses for the 1998 fiscal
year were almost half those of fiscal year 1997 due to the
slowdown of operations of the Registrant approaching the close of
operations as of January 1, 1998.
The resulting loss for the twelve-month period ended June 30,
1998 was $1,160,542 versus a reported loss for the year ended
June 30, 1997 of $530,000.
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 financing activities was $1,632,798 for the
twelve-month period ended June 30, 2000. This cash resulted
largely from the issuance of 7,000,000 shares of restricted stock
in exchange for $3,382,560 ($0.4838 per share).
Capital Expenditures.
There were several capital expenditures during the 2000
fiscal year, which included investments in the GGPP program and
equipment purchased for LA Internet.
Net Operating Loss Carryforwards.
For the fiscal year ended June 30, 2000, the Registrant had net
operating loss carryforwards for federal and state purposes of
approximately $2,596,444 and $1,340,297 respectively. These
carryforwards 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements as of and for the fiscal years ended June
30, 2000, 1999, and 1998 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 Registrant's Board of Directors is currently composed of two
members. The Registrant's Bylaws provide that Directors are to
serve only until the next Annual Meeting of Shareholders or until
their successors are elected and qualified. Two of these
individuals also hold all of the positions as Executive Officers
of the Registrant. The Directors and Executive Officers of the
Registrant are not a party to any material pending legal
proceedings and, to the best of their knowledge, no such action
by or against them has been threatened.
Directors and Executive Officers.
Louis Cherry.
Mr. Cherry, age 72, was appointed Chariman of the Board, and
Treasurer of the Registrant in November 1998. 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 Chariman 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 Chariman of the Board of a national bank and president of an
investment firm. Mr. Cherry has attended the University of
California at Los Angeles.
Albert R. Reda.
Mr. Reda, age 54, 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.
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 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 22, 2000 (225,115,113 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 of Amount of Percent of
Class Beneficial Owner Beneficial Class
Ownership
Common Reda Family Trust (1) 29,600,000 13.39%
Stock 3338 Punta Alta, #1E
Laguna Hills, Ca 92653
Common Iron Horse Holdings, Inc.(2) 18,006,060 8.14%
Stock 8625 W. Sahara Avenue
Las Vegas, Nevada 89117
Common Cherry Family Trust (3) 15,916,086 7.20%
Stock 29245 Pompano Way
Laguna Niguel, Ca 92677
Common Michael S. Cherry (4) 12,000,000 5.43%
Stock 5 Washburn Terrace, #1
Brookline, Mass 02446
Common Ramis Corp. (5) 10,000,000 4.52%
Stock P.O. Box 4321
Mission Viejo, Ca 92690
Common Albert Reda Corp. (6) 10,000,000 4.52%
Stock 2557 Oxford Lane
Costa Mesa, Ca 92626
Common Albert R. Reda 1,566,086 0.71%
Stock 3900 Birch Street, Suite 103
Newport Beach, Ca 92660
Common Louis Cherry, 0 0.00%
Stock 3900 Birch Street, Suite 103
Newport Beach, Ca 92660
Common Shares of all directors and 67,082,172 30.34%
Stock executive officers as a group
(2 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) Michael Cherry and Reda Family Trust are minority
shareholders of Iron Horse Holdings, Inc.
(3) Cherry Family Trust is a trust created by Louis Cherry for
shares obtained upon the change in control of the Registrant in
November 1998.
(4) Michael S. Cherry is the adult child of Louis Cherry and
Louis Cherry disclaims any beneficial ownership of these shares.
(5) Ramis Corp. is a corporation controlled by Louis Cherry,
which holds shares issued as compensation for services performed
by Mr. Cherry for the Registrant.
(6) 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.
Not Applicable.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountant 27
Consolidated Balance Sheets as of
June 30, 2000 and June 30, 1999 28
Consolidated Statements of Operations for the years
ended June 30, 2000, June 30, 1999, and June 30, 1998 29
Consolidated Statements of Shareholders' Equity (Deficiency)
for the years ended June 30, 2000, June 30, 1999, and
June 30, 1998 30
Consolidated Statements of Cash Flows for the year
Ended June 30, 2000, June 30, 1999, and June 30, 1997 31
Notes to Consolidated Financial Statements 33
(b) Reports on Form 8-K. There are no reports on Form 8-K filed
during the last quarter of the fiscal year covered by this
report.
(c) Exhibits. Exhibits included or incorporated by
reference herein are set forth in the Exhibit Index.
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 26, 2000 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, Secretary September 26, 2000
Albert R. Reda and Director
/s/ Louis Cherry Chairman of the Board, President September 26, 2000
Louis Cherry and Treasurer (Principal Financial
and Accounting Officer)
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors and Stockholders of
Internet Business's International, Inc.
I have audited the accompanying consolidated balance sheets of
Internet Business's International, Inc. and its subsidiaries (the
"Company") as of June 30, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and
cash flows for each of the three fiscal years ended June 30,
2000, 1999 and 1998. These financial statements are the
responsibility of the Company's management. My responsibility is
to express an opinion on these financial statements based on my
audits.
I conducted my audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that I plan and perform the audit 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Internet Business's International, Inc. and its subsidiaries as
of June 30, 2000 and 1999, and the results of its operations and
its cash flows for each of the three fiscal years ended June 30,
2000, 1999 and 1998 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Henry Schiffer
Henry Schiffer C.P.A., a P.C.
Beverly Hills, California
September 25, 2000
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
June 30, June 30,
2000 1999
Assets
Cash and cash equivalents $ 1,661,963 $ 82,577
Accounts receivable, net 128,389 4,576
Mortgage notes held for sale 2,907,741 0
Prepaid expenses and other 127,905 308,120
Total current assets 4,825,998 395,273
Property and equipment, net 575,061 0
Intangible assets, net 2,884,174 1,885,000
Note receivable 654,009 1,735,000
$ 8,939,242 $ 4,015,273
Liabilities and Stockholders' Equity
Accounts payable $ 317,998 $ 28,247
Accrued liabilities 48,900 0
Revolving line of credit 2,958,563 0
Current portion of long-term debt 29,165 0
Deferred revenues 247,090 0
Other current liabilities 0 1,800
Total current liabilities 3,601,716 30,047
Long-term debt 203,931 0
Minority interest in subsidiaries (5,868) 0
Stockholders' equity (deficit):
Preferred stock, par value $100.00 per share;
1,000,000 shares authorized; 23,900 issued and
outstanding at June 30, 2000 and 1999 2,390,000 2,390,000
Common stock, par value $0.01 per share
249,000,000 shares authorized; 221,115,113
shares and 177,302,997 shares issued and
outstanding at June 30, 2000 and 1999,
respectively 2,211,151 1,773,030
Additional paid-in capital 3,669,490 356,930
Accumulated deficit (3,131,178) (534,734)
Total stockholders' equity 5,139,463 3,985,226
Total liabilities and stockholders' equity $ 8,939,242 $ 4,015,273
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, 2000, 1999 AND 1998
June 30, June 30, June 30,
2000 1999 1998
Revenues $ 10,169,090 $ 140,641 $ 2,378,000
Costs and expenses:
Cost of revenues 8,848,582 22,724 2,347,839
Interest expense 86,611 0 69,000
Selling, general and administration 3,107,140 199,753 822,000
Depreciation and amortization 791,426 0 0
Total costs and expenses 12,833,759 222,477 3,238,839
Loss from operations (2,664,669) (81,836) (860,839)
Other income (expense) 44,157 0 (299,703)
Income (loss) before income taxes
and minority interest (2,620,512) (81,836) (1,160,542)
Income taxes (benefit) 8,800 0 0
Loss before extraordinary income
and minority interest (2,629,312) (81,836) (1,160,542)
Forgiveness of debt 0 2,249,644 0
(Loss) income before minority
interest (2,629,312) 2,167,808 (1,160,542)
Minority interest in loss of
Subsidiaries (32,868) 0 0
Net income (loss) (2,596,444) 2,167,808 (1,160,542)
Net loss (income) per common share nil 0.01 nil
Weighted average number of common
Shares outstanding 189,571,337 164,550,320 158,060,194
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, 2000, 1999 AND 1998
June 30, June 30, June 30,
2000 1999 1998
Preferred stock:
Balance, beginning of year $ 2,390,000 $ 0 $ 0
Preferred stock issued 0 2,390,000 0
Balance, end of year 2,390,000 2,390,000 0
Common stock:
Balance, beginning of year 1,773,030 428,000 428,000
Common stock issued 438,121 1,345,030 0
Balance, end of year 2,211,151 1,773,030 428,000
Additional paid-in capital:
Balance, beginning of year 356,930 1,000 1,000
Common stock issued 3,312,560 355,930 0
Balance, end of year 3,669,490 356,930 1,000
Retained earnings (deficit):
Balance, beginning of year (534,734) (2,702,542) (1,542,000)
Net (loss) income for the year (2,596,444) 2,167,808 (1,160,542)
Balance, end of year (3,131,178) (534,734) (2,702,542)
Total stockholders' equity 5,139,463 3,985,226 (2,273,542)
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, 2000, 1999 AND 1998
June 30, June 30, June 30,
2000 1999 1998
Cash Flows From Operating
Activities:
Net (loss) income $(2,596,444) $ 2,167,808 $(1,160,542)
Adjustment to reconcile net
(loss) income to net cash used
by operating activities:
Depreciation and amortization 830,736 0 0
Reserve for loss on accounts
and notes receivable 150,000 0 0
Reserve for loss on mortgage
loans receivable 100,000 0 0
Minority interest (32,868) 0 0
Changes in operating assets and
liabilities:
Accounts receivable (148,813) (4,576) 254,000
Inventories 0 0 423,000
Mortgage loans receivable 82,259 0 0
Prepaid expenses and other 271,900 (308,120) 6,000
Accounts payable (278,617) (1,791,397) 901,226
Accrued liabilities 48,900 0 (621,000)
Deferred revenues 247,090 0 0
Other current liabilities (1,800) 0 0
Net cash used in operating
Activities (1,327,657) 63,715 (197,316)
Cash Flows From Investing Activities:
Purchases of property and equipment (755,952) 0 800,000
Businesses acquired in purchase
transactions, net of cash paid (104,865) 0 0
Purchases of intangible assets (286,372) (1,120,000) 0
Net cash used in investing
Activities (1,147,189) (1,120,000) 800,000
Cash Flows From Financing Activities:
Net repayments under revolving line
of credits (89,437) 0 0
Repayment of short-term borrowings 0 (453,200) 0
Net repayment of long-term debt (61,887) 0 0
Repayment of notes payable (181,832) 0 (629,582)
Collection of notes receivable
Stockholder 1,080,991 0 0
Investment by minority interest 27,000 0 0
Issuance of common stock 3,279,397 1,590,960 0
Net cash provided by financing
Activities 4,054,232 1,137,760 (629,582)
Net increase (decrease) in cash 1,579,386 81,475 (26,898)
Cash, beginning of year 82,577 1,102 28,000
Cash, end of year 1,661,963 82,577 1,102
Interest paid 86,611 0 69,000
Acquisition of Businesses:
Fair value of:
Assets acquired 4,640,167
Liabilities assumed (4,064,018)
Stock issued (471,284)
Net cash paid for acquisitions 104,865
The accompanying notes are an integral part of these financial
statements
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Change in Control
Prior to December 31, 1997, Internet Business's International,
Inc. (the "Company") 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 that provides internet access, and web
hosting and web design as an Internet Service Provider and web
designer, on-line mortgage banking, Business-to-Business ("B2B")
and Business-to-Consumer ("B2C") e-commerce services. 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.
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.
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.
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
Mortgage loans held for sale, are carried at the lower of cost or
market value as determined by outstanding commitments from
investors. Mortgage loans held for sale are secured by the
borrower's mortgaged property. Revenues resulting from the sale
of mortgages are recognized as of the date the loans are sold to
investors.
Property and Equipment
Property and equipment is stated at cost and depreciated or
amortized on a straight-line basis over the estimated useful
lives of the assets or the lease term, whichever is shorter.
Estimated useful lives range from 3 to 7 years.
Capitalized Computer Software
Capitalized computer software included in intangible and other
assets, reflects costs related to purchased internet websites and
related software that are capitalized and amortized on a
straight-line basis over periods not exceeding five years. Costs
incurred to acquire or upgrade websites and other internal
software are capitalized in accordance with Statement of Position
98-1, Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use. Amortization expense for fiscal 2000
and fiscal 1999 was $324,910 and $0, respectively.
Intangible Assets
The Company has accounted for acquisitions of businesses under
the purchase method, and the excess of the purchase price over
the fair value of the net assets acquired is allocated to
subscriber member bases and customer lists, existing technology,
work force in place, trade names and residual goodwill, which are
being amortized on the straight-line basis over 5 years.
Long-Lived Assets
The Company periodically reviews the values assigned to long-
lived assets and intangible assets, such as property and
equipment, capitalized computer software, goodwill and other
intangibles assets, to determine whether any impairments are
other than temporary. Management reviews the undiscounted
projected cash flows related to such assets and compares them to
the carrying value of the assets to determine if an impairment
has occurred. If an asset is deemed to be impaired, the Company
records the difference between the projected cash flows on a
discounted basis or the fair market value (whichever is more
appropriate) and the carrying value as an asset impairment charge
in the period incurred. There were no such impairments in the
periods presented. Management believes that the long-lived
assets and intangible assets in the accompanying balance sheets
are appropriately valued.
Revenue Recognition
The Company recognizes revenues when services are provided. Fees
for monthly internet access are generally billed one month in
advance. The Company also offers prepaid internet and web-
hosting services. Advance billings including prepaid services
and collections relating to future internet access and web-
hosting services are recorded as deferred revenues and recognized
as revenue when earned. During fiscal 2000, the company recorded
deferred revenues totaling $247,090.
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 is computed by dividing net income
(loss) by the weighted average of common shares outstanding for
the period. Diluted earnings per share is computed by adjusting
the weighted average number of shares outstanding during the
period for all potentially dilutive shares outstanding during the
period.
New Accounting Pronouncement
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities
in the statement of financial position and measures these
instruments at fair value. SFAS No. 133 is effective for the
Company in the third quarter of fiscal 2002. The Company is
currently evaluating what impact, if any, SFAS No. 133 may have
on its financial statements.
3. Acquisitions
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 7).
In August 1999 and November 1999, the Company purchased Net 2
Loan, an on-line loan processing website and Optical Brigade, an
on-line sunglass distribution website from the same outside
party, respectively. The total purchase price was $5,050,000 and
400,000 shares of restricted company stock, respectively.
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. Intangible assets purchased
totaled $265,000, consisting of customers lists, website and
workforce-in-place and is being amortized over 5 years.
In March 2000, the Company acquired the assets and assumed
certain liabilities of Internet 2xtreme, and Internet Service
Provider based in northern California. The total purchase price
was $735,000, which consisted of cash of $17,635, restricted
company stock amounting to $186,884 and assumption of certain
liabilities. 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, and are being amortized over 5 years.
Also 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 and has strategic agreements with IBM Hungary
to market business-to-business services in Eastern Europe.
In April 2000, the Company acquired all of the outstanding stock
of Atlas Capital Corporation, a mortgage-banking company, for
600,000 shares of Company stock. In connection with the
acquisition, the Company acquired assets of approximately
$3,183,000 and assuming liabilities of approximately $3,179,000.
The difference of $260,000 was recorded as intangible assets
related to acquisition of trade names, websites, workforce-in-
place and is being amortized over 5 years.
Other acquisitions occurred during the year ended June 30, 2000
that were not deemed to be material transactions. All
acquisitions are accounted for under the purchase method of
accounting and accordingly, the operations and net assets have
been included in the Company's consolidated financial statements
from the date of acquisition.
The following unaudited proforma information has been prepared
assuming that material acquisitions during the year ended June
30, 2000 have taken place at the beginning of the respective
period presented. The pro forma information is not necessarily
indicative of the combined results that would have occurred had
the acquisitions taken place at the beginning of the period, nor
is it necessarily indicative of the result that may occur in the
future. The pro forma for immaterial transactions are not
included in the pro forma information.
Proforma information (unaudited) for the year ended June 30,
2000:
Revenues $37,349,000
Loss from operations $(2,651,000)
Net loss $(2,498,000)
Loss per share $ (nil)
4. Certain Financial Statement Information
June 30, June 30,
2000 1999
Accounts receivable:
Accounts receivable $ 303,924 $ 4,576
Less: allowance for doubtful accounts (175,535) 0
Accounts receivable, net 128,389 4,576
Mortgage loans held for sale:
Mortgage loans held for sale 3,013,203 0
Less: allowance for loan losses (105,462) 0
Mortgage loans held for sale, net 2,907,741 0
Property and equipment:
Office furniture and equipment 74,051 0
Machinery and computer equipment 824,234 0
Leasehold improvements 2,182 0
Less: accumulated depreciation (325,406) 0
Property and equipment, net 575,061 0
Intangible assets:
Capitalized software costs, including
Websites 1,653,872 1,360,000
Subscriber member bases 1,190,632 525,000
Others, including customer lists, existing
technology, trade names 545,000 0
Less: accumulated amortization (505,330) 0
Intangible assets, net 2,884,174 1,885,000
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, 2000 and 1999, amounts outstanding under the credit
facility were $2,579,346 and $0, respectively. Subsequent to
June 30, 2000, the credit facility was amended to reduce the
maximum available facility to $3,500,000.
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, 2000 and 1999 were $254,217 and $0, respectively.
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. At June 30, 2000, $125,000 was outstanding
against the line of credit. The Company is currently negotiating
an extension and the bank has not initiated any actions due to
the Company's violation of covenants placing them in default.
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, 2000, the company was not in
compliance with the various covenants contained in the above
agreements. The Company is currently attempting to negotiate a
waiver of the covenant violations.
6. Long-Term Debt
Long-term debt at June 30, 2000 consists of the following (there
was no long-term debt at June 30, 1999):
Current
Portion Long-term Total
Note payable to individual,
secured by certain Company assets,
requiring monthly payments of $4,676
including interest at 12.25%,
due May 5, 2006 $ 29,165 $ 203,931 $ 233,096
Scheduled principal maturities as of June 30, 2000 and for the
fiscal years ended:
Note payable to individual, secured by
June 30, 2001 $29,165
June 30, 2002 32,945
June 30, 2003 37,216
June 30, 2004 42,039
June 30, 2005 47,488
Thereafter 44,243
Total $233,096
7. Extraordinary Item
After review by legal counsel about the predecessor company's
(see Note 1) unsecured prior debts, it was determined by legal
counsel the Company was no longer liable for certain of the
predecessor company's unsecured debt and management elected to
write-off the debts during the fiscal year ended June 30, 1999
and is included as an extraordinary item as forgiveness of debt
income.
8. Stockholders' Equity
Authorized Shares
During February 2000, the board of directors of the Company
amended the articles of incorporation to increase the number of
authorized shares of common stock to 249,000,000 shares.
Stock Issuance
During March 2000, the Company issued 7,000,000 shares of common
stock through a private placement transaction, resulting in net
proceeds to the Company of $3,382,560.
The Company also issued 6,422,667 and 8,000,000 shares of Company
stock in connection with the acquisition of business's or net
assets during the fiscal years ended June 30, 2000 and 1999,
respectively. The Company also issued 30,389,449 and 11,242,790
shares of Company stock in connection with services provided or
rendered during the fiscal years ended June 30, 2000 and 1999,
respectively.
Preferred Stock
On December 15, 1998, the Company entered into an agreement with
Iron Horse Holdings, Inc. ("IHHI") , a privately held company
that 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.
9. Income Taxes
The provision for income taxes for the years ended June 30, 2000
and 1999 consist of the following:
June 30, June 30,
2000 1999
Current income tax expense:
Federal $ 5,600 $ 0
State 3,200 0
8,800 0
Deferred income tax expense:
Federal $ 0 $ 0
State 0 0
0 0
$ 8,800 $ 0
Amounts for deferred income tax assets and liabilities as
follows:
Assets $ 485,500 $ 12,500
Valuation allowance (485,500) (12,500)
0 0
Liabilities 0 0
Net deferred tax assets $ 0 $ 0
Deferred income tax assets consist primarily of net operating
loss carryforwards. The Company has provided for a full
valuation allowance on the deferred income tax assets as the
realization of such benefits are uncertain. Such carryforwards
begin to expire beginning 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 $138,276 and $0 for the years ended June 30,
2000 and 1999.
The future minimum rental commitments at June 30, 2000 under
these leases are as follows:
Year Ending June 30,
June 30, 2001 $ 176,095
June 30, 2002 133,632
June 30, 2003 80,503
$ 390,230
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,
digital subscriber lines ("DSL"), and 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
Fiscal Year Ended 2000
Full-service ISP
Net sales $ 927,637
Operating income (348,367)
Mortgage loan originations held for resale
Net sales 8,264,071
Operating income (386,682)
Business-to-business provider
Net sales 0
Operating income (164,341)
Business-to-consumer provider
Net sales 1,207,382
Operating income (180,986)
Other
Unallocated expenses (1,584,293)
Total
Net sales 10,169,090
Operating income (2,664,669)
Prior to July 1, 1999, the Company only had one reportable segment.
12. Subsequent Events
On August 2, 2000, the Company announced that it has entered into
an agreement with PMCC Financial Corp. ("PMCC"), a full-service
mortgage banking company, whereby the Company would purchase
2,460,000 share of PMCC common stock from PMCC's former chairman
of the board, 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 day after the date of the closing. Shares
of PMCC, a listed AMEX company, are currently not trading. In
the event that three months after closing, if PMCC's shares are
not actively trading on the AMEX or NASDQ exchanges and the
Company has not merged PMCC with the Company or any of the
Company's subsidiaries, the purchase price shall be reduced by
the amount of the final two $175,000 payments.
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 period from September 1, 2000
through March 1, 2001, the Company can unilaterally cancel the
contract if dissatisfied with the seller's performance.
EXHIBIT INDEX
Exhibit Description
No.
2 Agreement and Plan of Merger (incorporated by reference to
Exhibit 2 to the Form 8-K/A filed on November 22, 1999)
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 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).
10.7 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).
10.8 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).
10.9 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).
10.10 Stock Purchase Agreement between the Registrant and
Atlas Capital Corporation, dated April 1, 2000 (see below).
21 Subsidiaries of the Registrant (see below).
27 Financial Data Schedule (see below).