U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number 0-26886
INTERNET HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Utah 13-3758042
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
16 Curzon Street, Mayfair, London
United Kingdom
W1Y 7FF
(Address of principal executive offices)
011 44 171 409 1600
(Issuer's telephone number, including area code)
Check whether the issuer (1) 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) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
As of August 14, 2000, the issuer has 18,737,444 shares of its common stock
outstanding.
Transitional Small Business Disclosure Format (check one)
Yes [ ] No [X]
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and
December 31, 1999........................................ 3
b) Consolidated Statements of Operations
for the six months ended June 30, 2000
(unaudited) and for the three months ended
June 30, 2000 (unaudited)................................ 4
c) Consolidated Statements of Cash Flows
for the six months ended June 30, 2000
(unaudited) ............................................. 5
d) Notes to Financial Statements (unaudited)................ 6 to 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 8 to 10
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................. 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................... 11
a) EXHIBITS............................................... 11
b) REPORTS ON FORM 8-K.................................... 11
2
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash investments $ 1,838,797 $ 506,149
Other receivables 16,088 --
Accounts receivable 419,730 1,474
Prepaid expenses 103,553 194,445
Work in progress 56,082 --
------------ ------------
Total current assets 2,434,250 702,068
FIXED ASSETS, at cost, net of accumulated
depreciation of $24,049 1,012,564 --
INVESTMENTS, at cost 2,923,283 666,406
GOODWILL 8,566,718 --
SECURITY DEPOSITS 222,384 --
------------ ------------
$ 15,159,199 $ 1,368,474
============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses 553,011 $ 85,591
------------ ------------
Total current liabilities 553,011 85,591
CONVERTIBLE NOTE -- 50,000
------------ ------------
Total liabilities 553,011 135,591
------------ ------------
MINORITY INTEREST 77,355 --
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 50,000,000 shares authorized,
18,737,444 and 11,359,470 shares issued and outstanding, respectively 18,737 11,359
Additional paid-in capital 16,642,134 1,217,362
Stock subscription receivable (1,000,000) --
Translation adjustments (158,610) --
Retained earnings (accumulated deficit) (973,428) 4,162
------------ ------------
Total stockholders' equity 14,528,833 1,232,883
------------ ------------
$ 15,159,199 $ 1,368,474
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
INTERNET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
June 30, 2000 June 30, 2000
------------ ------------
<S> <C> <C>
REVENUES $ 203,878 $ 203,878
COSTS AND EXPENSES:
Selling, general and administrative charges 1,045,439 689,194
Amortization of goodwill and intangible assets 295,404 295,404
------------ ------------
1,340,843 984,598
Operating loss (1,136,965) (780,720)
OTHER INCOME:
Interest and other income 76,935 73,570
Exchange gains 89,619 86,913
------------ ------------
166,554.11 160,483.11
MINORITY INTEREST 7,179 7,179
------------ ------------
Net loss $ (977,590) $ (627,416)
============ ============
PER SHARE DATA:
Basic and diluted loss per share $ (0.06) $ (0.04)
============ ============
Weighted average number of common
shares outstanding 16,427,445 16,427,445
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
INTERNET HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months
Ended
June 30, 2000
------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (977,590)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation $ 24,049
Amortization of goodwill and intangible assets 295,404
Translation adjustment (158,610)
Increase in other receivables (14,614)
Decrease in prepaid expenses 90,892
Increase in purchase deposit --
Increase in accounts receivable (419,730)
Increase in work in progress (56,082)
Increase in security deposits (222,384)
Increase in accounts payable and accrued expenses 467,420
------------
Net cash used by operating activities (971,244)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,012,564)
Purchase of investments (2,256,877)
------------
Net cash used by investing activities (3,269,441)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares issued for cash 15,432,150
Conversion of convertible note (50,000)
------------
Net cash used by financing activities 15,382,150
------------
NET INCREASE IN CASH $ 11,141,464
============
CASH, BEGINNING OF PERIOD 506,149
------------
CASH, END OF PERIOD $ 11,647,613
============
NON CASH FINANCING ACTIVITIES
Issuance of shares for investment
Common stock subscription receivable 1,000,000
Difference $ 9,808,816
The accompanying notes to consolidated financial statements are an
integral part of these statements.
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<PAGE>
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared pursuant to the rules of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Form 10-K. In the opinion of management, the
accompanying unaudited consolidated financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results for the periods presented. All significant
intercompany transactions have been eliminated in consolidation.
The results of operations presented for the three and six month periods June 30
2000, are not necessarily indicative of the results to be expected for any other
interim period or any future fiscal year.
(2) Acquisition agreements
On March 3, 2000, the Company offered to acquire Radical Technology Plc
("RadTech"). In connection therewith, it is expected that the Company will issue
1,281,714 shares of common stock, then constituting approximately 7.7% of the
Company's outstanding shares, to the stockholders of RadTech in order to acquire
100% of the issued capital stock of RadTech. On April 21, 2000 (the "first
closing"), the Company began to issue shares to acquire RadTech. RadTech's
financials are consolidated from the first closing date. As of June 30, 2000,
the Company acquired 92% of the outstanding shares of RadTech for 1,177,974
shares of the Company's stock at an estimated average price per share of $8.20,
thus allocating a purchase price for Radical Technology Plc of $9,659,387. The
Company will have an independent appraisal of the transaction to calculate the
final purchase price per share. On consolidation the acquisition of RadTech
resulted in goodwill of $8,230,048, which will be amortized over five years.
On March 24, 2000, the Company entered into an agreement to acquire Core
Ventures Limited. Core Ventures Limited, a British Virgin Island Venture Capital
company, is a subsidiary of Troy Limited, a Grand Cayman Corporation. The terms
of the agreement include the issuance of 1,800,000 common shares of Internet
Holdings, Inc. for all of the outstanding shares of Core Ventures Limited. The
vendors have guaranteed that on December 15, 2000 the value of Core Ventures
Limited will not be less than $25 million. The acquisition is conditional on the
completion of the due diligence process. Management believe that this deal is
probable.
On May 3, 2000, the Company entered into an agreement to acquire Ferman AG, a
Swiss venture capital company. The terms of the agreement are expected to
include the issuance of 3,360,000 common shares of Internet Holdings, Inc. for
51% of the outstanding shares of Ferman AG. The existing shareholders of Ferman
AG have guaranteed that this investment will not be less than $42 million. The
acquisition is conditional on the completion of the due diligence process.
Management believe that this deal is probable but uncertain as to the final
structure.
On April 13, 2000 the Company purchased a 10% holding in Eurindia Plc, an equity
management company which seeks to invest in small to medium sized Indian
Information Technology services companies, for (pound)400,000, approximately
$636,800. On April 17, 2000 the Company purchased a 5% holding in Compaer AG, a
supplier of online insurance for both business-to-business and
business-to-consumer markets in Germany, for DM2.5million, approximately
$1,211,246.
(3) Stockholders' equity
On January 24, 2000 Palamon (Gestion) S.A exercised its loan note for $50,000
for 200,000 shares. The purpose of the loan note was to enable the Company to
file all outstanding reports required by the Securities Exchange Act, and to
search for suitable acquisition candidates in the Internet related fields.
On January 28, 2000, the Company sold 5,000,000 shares of common stock at a
price of $1.00 per share pursuant to Regulation S. The Company has agreed to
register 25% of the shares under the Securities Act of 1933, as amended. In
consideration for underwriting the issue in full, the underwriter received
warrants to purchase up to 1,000,000 shares of common stock of the Company at a
price of $1.00 per share. On May 12, 2000, the underwriters exercised all the
warrants for $1,000,000 under a stock subscription arrangement.
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(4) Comprehensive Income
As of June 30, 2000 and for the six months then ended comprehensive income is
comprised of a net loss from operations and the net effect of foreign currency
translation adjustments.
(5) Inventory and Fixed Assets
Inventory is comprised of raw materials, work in progress and finished goods and
is stated at either lower of cost (first-in, first-out method) or market value.
Fixed assets are stated at cost and are generally depreciated over two to seven
years.
(6) Employee Stock Options
On May 3, 2000, the Board of Directors approved a combined incentive and
nonqualified stock option plan and has reserved 2,500,000 shares of its common
stock for issuance upon exercise of options granted under this plan. As of June
30, 2000, the Company has issued 1,268,000 options for certain employees and
directors of the Company.
(7) Subsequent Events
On July 24, 2000, the Company completed its acquisition of Radical Technology
Plc by placing the dissenting shareholders, comprising 53,543 Internet shares,
in a trust to be monitored by Radical Technology's transfer agent. The issuance
of this stock will result in a purchase price of approximately $439,000, which
will be amortized over five years.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Plan of Operation
Internet Holdings, Inc. ("HTTP" or "the Company") builds and markets its
own software and network enabling products. In addition, it has a venture
capital division. The objective of HTTP is to create strong repeat revenues from
its products and to forge alliances and joint-ventures with other organizations.
HTTP's operating strategy includes integrating its three division platform and
the companies contained therein into a collaborative network, which leverages
its collective knowledge and resources, with a clear emphasis on capital growth,
balance sheet strength and the use of its operating subsidiaries to create cash
flow. HTTP will provide operational assistance, capital support, industry
expertise, and a strategic network of business relationships to maximize the
long-term market potential for its partner companies and its own operating
subsidiaries. To fulfill this operating strategy, HTTP has created three
decentralized divisions.
HTTP IT Limited invests in and/or acquires IT and software development
companies. Radical Technology PLC ("RadTech") now a wholly owned subsidiary, of
the Company, was acquired earlier this year. RadTech has an advanced systems
integration business with existing blue-chip clients, while at the same time it
also develops its own software products. RadTech's core products include:
RADNeT: a software framework with multi-level security for building,
integrating, and presenting Internet, Extranet, and Intranet solutions. PLANNeT:
a Web-based multi-project tool. With this knowledge management system, key
information about critical projects can be seen at a glance. This product has
been nominated for a Digital Britain Award. DOCUNeT: an easy Internet deployment
tool than enables any organization to gain the benefits of improved
communication that an Internet can offer; and gives control to the people who
use the Internet.
YOURCALLS.NeT: a newly developed Web-based call analysis system for mobile
telephony airtime providers. The system is currently in test with a
world-leading service provider.
Current RadTech clients include: British Telecom; Schroders; Ericsson; Texaco;
Eidos Interactive; Computer Cab; and other leading brands.
HTTP Communications Limited is involved in a diverse range of telecommunications
activities with an initial focus on EU and Central and Eastern Europe. Projects
include supplying satellite access for Internet and Internet-related companies
on a global scale, developing terrestrial (PSTN) and wireless connectivity to
supply customers with voice and data services, and a number of Internet content
projects. To date, the Company has signed a strategic alliance and is creating a
joint venture with RedCube AG, the largest voice-over IP company in Europe and
one of the largest in the world, to supply satellite access to nine countries on
a revenue-sharing basis.
HTTP CAPITAL LIMITED is a venture capital company that has agreed to acquire two
other technology companies which hold investments in companies which the vendors
have guaranteed the net assets to be worth no less than $67 million. The merging
of the Company's former Equity, Industrial, and Ventures divisions into HTTP
Capital Limited brings together an extensive network of specialists and
investments. HTTP Capital Limited focuses on investment opportunities in the
Internet and Information Technology industry sectors and plans to focus its
investments specifically in the following areas:
Infrastructure Service Providers - which includes strategic consulting and
systems integration; Internet applications; and software providers.
Communications - which includes enhanced IP services; wireless application
protocol technologies; broadband technologies; and satellite communications
services.
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Digital Infrastructure - which includes bandwidth provisioning, embedded
systems, and networking technologies.
B2B E-Commerce - which includes B2B exchanges; market aggregations; supply chain
dis-intermediaries; enabling technologies; media and content; content management
and syndication; and content localization and globalization.
To date, the Company has raised $5 million to implement its business strategy.
The Company is in the process of raising up to $30 million in a Regulation S
offering under the Securities Act of 1933, as amended. Further funding will be
necessary for the Company to continue its plan of operations in the future.
Results of Operations Three months ended June 30, 2000
The Company experienced a loss for the quarter ended June 30, 2000 of
approximately $616,000. Revenue for the period was approximately $204,000
derived primarily from customized computer software consulting associated with
RadTech.
General and administrative expenses for the quarter ended June 30, 2000
were approximately $689,000. The major components of these expenses were
professional fees of approximately $221,000 and Directors' remuneration of
approximately $122,000. The professional fees are primarily related to legal
costs associated with the Company's acquisitions and SEC filings. The Company
incurred amortization of goodwill and intangible assets of approximately
$284,000, which resulted from the Company's acquisition of RadTech.
Results of Operations Six months ended June 30, 2000
The Company's loss for the six months ended June 30, 2000 was approximately
$966,000. Operating revenue for the six months ended June 30, 2000 was
approximately $204,000.
General and administrative expenses for the six months ended June 30, 2000
were approximately $1,046,000. Such expenses were primarily comprised of
approximately $352,000 for professional fees, Directors' remuneration of
approximately $135,000 and public relations and marketing of approximately
$100,000.
Liquidity and Capital Resources
At June 30, 2000 and December 31, 1999 Internet Holdings had current assets
of approximately $2,434,000and $702,000 respectively. At June 30, 2000 and
December 31, 1999 Internet Holdings had cash and cash investments of
approximately $1,839,000 and $506,000 respectively.
As of June 30, 2000, Internet Holdings had investments of $2,923,283. The
largest investment was in Compaer AG for $1,211,246, one of the largest on-line
insurance brokers in Germany.
As of June 30, 2000, Internet Holdings had goodwill of approximately
$8,567,000. The goodwill was associated with the acquisition of RadTech and is
based on a purchase price of $8.20 per share. The purchase price is an estimate
and the Company plans to obtain an appraiser's opinion as to the value of this
investment. The Company's policy is to amortize goodwill over five years.
As of June 30, 2000, the Company had fixed assets of approximately
$1,013,000, which comprised $728,000 of developed software costs.
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As of June 30, 2000, the Company had outstanding obligations of $553,011.
On January 24, 2000 Palamon (Gestion) S.A exercised its loan note for
$50,000 for 200,000 shares. The purpose of the loan note was to enable the
Company to file all outstanding reports required by the Securities Exchange Act,
and to search for suitable acquisition candidates in the Internet related
fields.
On January 6, 2000, the Company entered into an underwriting agreement with
Panther Capital Ltd. ("Panther") to sell shares of common stock and warrants of
the Company pursuant to an exemption from registration under Regulation S
promulgated under the Securities Act. Under the Underwriting Agreement, the
Company sold 5,000,000 shares of its common stock, at a price of $1.00 per
share, for whom Panther acted as lead underwriter. In consideration for such
underwriting agreement, Panther received warrants to purchase up to 1,000,000
shares of common stock of the Company (the "Warrants"). On May 12, 2000, Panther
exercised all the Warrants for $1,000,000 under a stock subscription
arrangement.
On March 3, 2000 the Company offered to acquire all of the issued and
outstanding shares of Radical Technology Plc in a stock-for-stock transaction.
The offer was announced as having become unconditional on April 21, 2000 when
the Company obtained acceptances from 76.73% of the outstanding shares of
Radical Technology Plc. As of June 30, 2000, the Company acquired 91.91% of the
outstanding capital stock.
On March 24, 2000 the Company entered into an agreement to acquire Core
Venture Limited. Core Ventures Limited, a British Virgin Island venture capital
company, is a subsidiary of Troy Limited, a Grand Cayman corporation. The terms
of the agreement is the issuance of 1,800,000 common shares of Internet
Holdings, Inc. for 100% of the outstanding shares of Core Ventures Limited. Troy
Limited has guaranteed the value of Core Ventures Limited, to be determined by
the Company on December 15, 2000, to be not less than $25 million. In the event
the net assets are lower than $25 million, Troy Limited will pay the difference
in cash or marketable securities. Management believe that this deal is probable.
On April 13, 2000 the Company purchased a 11% holding in Eurindia Plc, an
equity management company which seeks to invest in small to medium sized Indian
Information Technology services companies, for (pound)400,000 (four hundred
thousand pounds sterling), approximately $637,000.
On April 17, 2000 the Company purchased a 5% holding in Compaer AG, a
supplier of online insurance for both business-to-business and
business-to-consumer markets in Germany for DM2.5 million, approximately
$1,211,000.
On May 3, 2000 the Company entered into an agreement to acquire Ferman AG,
a Swiss Venture Capital company. The terms of the agreement is the issuance of
3,360,000 common share of Internet Holdings, Inc. for 51% of the outstanding
shares of Ferman AG. The principal shareholders of Ferman AG have guaranteed the
value of this holding to be not less than $42 million at completion date.
Management believe that this deal is probable but uncertain as to the final
structure.
On May 25, 2000 the Company issued a private placement memorandum to raise
up to $30 million through the sale of shares of common stock at a price of
$12.50 per share pursuant to an exemption from registration under Regulation S
promulgated under the Securities Act.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) - (c)
On January 6, 2000, the Registrant entered into an underwriting agreement
with anther Capital Ltd. to sell shares of common stock and warrants of the
Registrant pursuant to an exemption from registration under Regulation S of the
Securities Act of 1933, as amended. For a detailed description of this offering,
reference is made to the Registrant's reports on Form 8-K filed January 31, 2000
and February 7, 2000, and such documents are hereby incorporated herein by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
c) Exhibit 27 - Financial Data Schedule
d) Reports on Form 8-K
The Registrant has filed reports on Form 8-K for events which occurred
during the three months ended June 30, 2000:
(i) The Registrant filed a report on Form 8-K on April 16, 2000. Such
report discloses that on March 31, 2000, the Registrant appointed
Jason E. Forsyth as Finance Director and Giorgio L. Laurenti as a
Director.
(ii) The Registrant filed a report on Form 8-K on May 23, 2000. Such
report discloses that on March 3, 2000, the Registrant offered to
acquire all of the issued and outstanding shares of Radical Technology
Plc in a stock-for-stock transaction. Such report also discloses that
on May 3, 2000, the Registrant entered into a Heads of Terms contract
to acquire 51% of the equity of Ferman AG, an investment company
domiciled in Switzerland. Such report also discloses that on January
8, 2000, the Registrant entered into an underwriting agreement with
Panther Capital Ltd. to sell shares of common stock and warrants of
the Registrant pursuant to an exemption from registration under
Regulation S of the Securities Act, as amended. Such report also
discloses that on May 12, 2000, the Registrant appointed Martin
Lechner, Rajeev Misra, Dr. Alexander Nill and Dr. Stefan Fleissner as
Directors.
(iii) The Registrant filed a report on Form 8-K on June 15, 2000. Such
report discloses that on June 14, 2000, the Registrant accepted the
resignation of Rajeev Misra.
(iv) The Registrant filed a report on Form 8-K on June 30, 2000. Such
report discloses that on June 26, 2000, the Registrant and its
independent auditors mutually agreed to terminate their relationship
as such. Such report further discloses that on June 26, 2000, the
Registrant engaged Arthur Andersen LLP as its independent auditors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
INTERNET HOLDINGS, INC.
August 14, 2000 By:
--------------------------------------
Stefan Allesch-Taylor,
President
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