FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 000-26011
INTERNET CABLE CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA
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(State or other jurisdiction of incorporation or organization)
87-0540291
------------------------------------
(I.R.S. Employer Identification No.)
Second Floor, 263 King Street, Charleston, South Carolina 29401
- --------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(843) 722-8007
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
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PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's classes of common
stock, as of September 30, 1999, was 7,703861 shares, all of one class (common
stock), no par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
--- ---
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
ASSETS
1999
----
Current assets
<S> <C>
Cash $ 68,420
Notes receivable 45,000
Accounts receivable 4,776
Inventory 10,634
Prepaid expenses and other current assets 1,958
-----------
Total current assets 130,788
Property and equipment - at cost, less accumulated
depreciation 56,913
Other assets 102,000
-----------
$ 289,701
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Note payable, stockholder $ 70,000
Accounts payable and accrued expenses 227,086
Loans payable, stockholder 14,559
-----------
Total current liabilities 311,645
-----------
Notes payable, net 184,000
-----------
Stockholders' deficiency
Preferred stock, $.001 par value; 5,000,000 shares
authorized, none issued --
Class A common stock, $.001 par value; 5,000,000
shares authorized, none issued --
Common stock, $.001 par value, 50,000,000 shares
authorized, 7,703,861 shares issued
and outstanding 7,703
Additional paid-in capital 4,164,514
deficit accumulated during the development stage (4,378,161)
-----------
Total stockholders' deficiency (205,944)
-----------
$ 289,701
===========
</TABLE>
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INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Cumulative
February 15, 1995
(Date of Inception)
1999 1998 to Sept. 30, 1999
------------ ------------ -------------------
Revenues
<S> <C> <C> <C>
Sales and services $ 11,192 $ 1,250 $ 85,618
------------ ------------ ------------
Costs and expenses
Cost of revenues 15,650 -- 122,610
General and administrative 487,629 108,446 3,655,836
------------ ------------ ------------
503,279 108,446 3,778,446
------------ ------------ ------------
Loss from operations (492,087) (107,196) (3,692,828)
Other expenses 93,925 15,333 685,333
------------ ------------ ------------
Net loss (586,012) (122,529) (4,378,161)
Accumulated deficit, beginning of period (3,792,149) (2,134,687) --
------------ ------------ ------------
Accumulated deficit, end of period $ (4,378,161) $ (2,257,216) $ (4,378,161)
============ ============ ============
Weighted average common shares
Outstanding 7,703,861 6,989,891 10,113,393
------------ ------------ ------------
Basic and diluted loss per share $ (.08) $ (.02) $ (.43)
============ ============ ============
</TABLE>
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INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
Cumulative
February 15, 1995
(Date of Inception)
1999 1998 to Sept. 30, 1999
----------- ----------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities $ (333,028) $ (90,618) $(1,470,716)
Cash flows from investing activities (75,000) (2,135) (565,556)
Cash flows from financing activities 425,000 92,568 2,104,692
----------- ----------- -----------
Net increase (decrease) in cash 16,972 (185) 68,420
Cash, beginning of period 51,448 1,330 --
----------- ----------- -----------
Cash, end of period $ 68,420 $ 1,145 $ 68,420
=========== =========== ===========
</TABLE>
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INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
Internet Cable Corporation (the "Company") is a development stage
company which conducts business from its headquarters in Charleston, South
Carolina. The Company was organized under the laws of the State of Nevada on
February 15, 1995. Internet Cable Corporation is in the process of entering the
market for providing high-speed cable access to the Internet, to businesses and
to individuals. The Company has concentrated its activities in the State of
South Carolina, and substantially all of its sales and activities have been with
one customer.
2 - BASIS OF PRESENTATION
The Condensed Financial Statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-KSB for the year ended June 30, 1999.
The Condensed Financial Statements included herein reflect, in the opinion
of management, all adjustments (consisting primarily only of normal recurring
adjustments) necessary to present fairly the results for the interim periods.
The results of operations for the three months ended September 30, 1999 are no
necessarily indicative of results to be expected for the entire year ending June
30, 2000.
3 - GOING CONCERN
The Company's financial statements have been presented assuming that
the Company will continue as a going concern. As shown in the accompanying
financial statements, the Company has incurred development stage losses of
$4,378,161 through September 30, 1999, and at September 30, 1999, the Company
had a working capital deficiency of $180,857 and stockholders' deficiency of
$205,944. These conditions indicate that the Company may be unable to continue
as a going concern. Its ability to do so is dependent on its ability to achieve
profitable operations, and its ability to obtain any necessary financing. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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INTERNET CABLE CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company is a developmental stage company and accordingly, has no
significant operations and revenues. The Company expects to bill Internet access
monthly in advance, and recognize revenues the following month when services are
provided.
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during the year.
Stock warrants have been excluded from diluted loss per share and has not been
presented because their effect would have been antidilutive.
5 - NOTES RECEIVABLE
The non-interest bearing notes receivable of $45,000 from an unrelated
party are due on December 15, 1999.
6 - PROPERTY AND EQUIPMENT
Property and equipment consist of furniture and equipment of $79,144
less accumulated depreciation of $22,231 at September 30, 1999.
Depreciation expense was $3,920 and $2,749 for the periods ended
September 30, 1999 and 1998, respectively.
7 - NOTES PAYABLE
The Company engaged an outside agent to sell up to $700,000 of 10%
two-year promissory notes. The notes are prepayable if the Company undertakes a
public or private financing resulting in gross proceeds of $5,000,000, or if the
Company merges with another company with at least $5,000,000 in cash. Investors
in the promissory notes will also receive an aggregate of 350,000 warrants,
entitling them to purchase an aggregate of 350,000 shares of common stock for a
period of five years.
In July and September 1999, the Company issued notes totaling
$400,000 to four unrelated parties. In connection therewith, the Company issued
the investors warrants to purchase 200,000 shares of the Company's common stock
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at an exercise price of $3.00 per share. The warrants are redeemable upon
issuance and expire in 2004. No warrants were redeemed for the first quarter
ended September 30, 1999. The Company has valued the warrants at $300,000, which
was recorded as a debt discount to be amortized over the life of the notes.
Amortization expense was approximately $42,000 for the first quarter ended
September 30, 1999. At September 30, 1999, the Company has notes payable
totaling $600,000 and an unamortized debt discount of approximately $416,000.
8 - RELATED PARTY TRANSACTIONS
A $14,559 loan payable to an officer/stockholder of the Company is
payable on demand and bears interest at 7% a year.
A $70,000 note payable to a stockholder bears interest 10% a year and
is due on December 15, 1999.
9 - OTHER MATTERS
On July 8, 1999, the Company signed a "Shares Purchase Agreement"
with a Canadian company, to acquire all of the Canadian company's outstanding
shares for $3,900,000 and 75,000 stock options exercisable at $2.50 per option
within two years from the closing date. The Company expects to close in December
1999.
The Board of Directors approved and adopted a 1999 stock option plan
on August 10, 1999. Options granted under this Plan ("Options") may be
"incentive stock options" ("ISO's") intended to satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Code"), or "non-qualified options" ("NQO's").
During the first quarter ended September 30, 1999, the Company granted 700,000
warrants including 200,000 warrants in connection with the notes payable (see
Note 7). In addition, the Company authorized 890,000 options in connection with
the 1999 Stock Option plan as discussed above.
ITEM 2. MANAGEMENT' DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FISCAL FIRST QUARTER ENDED SEPTEMBER 30, 1999
("FISCAL Q1 2000") AND THE FIRST QUARTER ENDED 1998 ("FISCAL Q1 1999" )
SALES. Sales for the Fiscal Q1 2000 were $11,192 as compared to sales
for Fiscal Q1 1999 of $1,250. The increase in sales of $9,842 or 787% was a
result of recurring revenue from the U.S. Cable contract relating to the Wild
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Dunes cable plant, and sale of excess bandwidth at the two POP (Point of
Presence) location, operated by the Company, in Charleston and Columbia South
Carolina.
COST OF SALES. Cost of sales for the Fiscal Q1 2000 were $15,650 as
compared to $0 for Fiscal Q1 1999. The increase in cost of sales of $15,650 was
a result of the installation of multiple T1s, both point to point and point to
multi point. Approximately 50% of such costs relate to the one time installation
charges. Additional capacity is available for future sale at both the Charleston
and Columbia locations.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for Fiscal Q1 2000 were $487,629 as compared to $108,446 for Fiscal Q1
1999. The increase in general and administrative, and consulting expenses of
$379,183 or 350% was a result of increased legal, accounting fees incurred in
connection with the pending acquisitions of Cable Systems Technical Services Inc
and CAD Consultants, Inc.
INTEREST EXPENSE. Interest expense for Fiscal Q1 2000 was approximately
$60,000 as compared to $0 for Fiscal Q1 1999. The increase in interest expense
was a result of the increased debt due to the bridge financing the Company began
on May 21, 1999.
NET LOSS. The net loss for the Q1 2000 was $586,012 compared to the net
loss of $122,929 for Fiscal Q1 1999. The increase in net loss was due to the
issuance of stock-based compensation, the amortization of the debt discount and
the costs incurred as a result of the pending acquisitions.
GOING CONCERN OPINION. The Company has received an opinion from its
auditors reflected in the Company's Form 10KSB, which states that the Company
may be unable to continue as a going concern. As a result of the Company's
current financial condition, the Company's ability to continue as a going
concern is dependent on achieving a profit, and obtaining necessary financing.
The Management is actively seeking additional funding for the Company to
complete its acquisitions and provide working capital for ongoing operations.
There is no assurance that the Company will be able to obtain such financing on
terms acceptable to the Company, or if at all.
LIQUIDITY AND CAPITAL RESOURCES. Since inception, the Company has
financed its operations primarily through a combination of private sales of
equity securities and non-interest bearing loans from the Company's executive
officers and interest bearing loans from private investors. At September 30,
1999, the Company's cash and cash equivalents were $68,428 as compared to $1,145
at September 30, 1998. The increase was primarily a result of the additional
financing received by the Company.
The Company incurred development stage losses of $4,378,161 since inception
through September 30, 1999. Current liabilities exceed current assets by
$180,857. The Company is currently operating at a cost of approximately $500,000
annually. The Company completed a Rule 504 Offering in December of 1998, raising
approximately $847,000 in gross proceeds through the sale of the Company's
common stock, at $2.00 per share. In May 1999, the
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Company began raising capital under a private placement in the form of a bridge
loan, whereby the Company engaged an outside agent to sell up to $500,000 of 10%
promissory notes. These notes are two-year notes, pre-payable out of any public
or private financing resulting in gross proceeds of $5,000,000, or if the
Company merges with another company with at least $5,000,000 in cash. Investors
in the promissory notes will also receive an aggregate of 250,000 warrants,
entitling the holder to purchase an aggregate of 250,000 shares of common stock
for a period of five years. The Company expects to repay the bridge loan from a
private offering currently being offered pursuant to private placement in which
the Company seeks to raise a minimum of $6,000,000 to a maximum of $10,000,000.
As of September 30, 1999, the Company had raised a total of $600,000 in gross
proceeds of such bridge loan. On May 21, 1999, the Company increased the maximum
amount to the bridge loan to $700,000 and increased the aggregate number of
warrants to 350,000, entitling the holder to purchase an aggregate of 350,000
shares of common stock for a period of five years. Investors in the private
placement shall receive stock at a 10% discount to the market price at the time
of the investment, subject to a floor price of $4.50 and a ceiling of $7.00.
There can be no assurance that the Company will complete such financing on the
said terms.
The Company's capital requirements primarily relate to acquisitions of
Cable Systems and CAD, working capital and investments in the network computer
and cable equipment. In addition, the Company is seeking capital to help
facilitate strategic alliances. For acquisition purposes and for supplemental
strategies, the Company foresees its cash requirements for operations for the
next twelve months to be approximately $6,000,000 to $10,000,000. The Company
expects to satisfy this need through proceeds of a private placement, as
described above and additional placements, if necessary within the next six
months. The Company plans to finance its capital equipment expenditures from a
variety of sources, including direct vendor leasing programs, third party
commercial leasing arrangements and bank financing. The Company is meeting with
various sources of capital to satisfy its equity requirements for its plans for
its growth strategy.
However, there is no assurance that the Company will be able to obtain
such financing on terms acceptable to the Company, if at all. The Company
believes if it is able to obtain at least $6,000,000 in financing, it will have
the financial resources necessary to meet its presently anticipated business
requirements for the next twelve months. Nonetheless, depending on the market
conditions, the Company may seek to sell additional equity or debt securities or
obtain alternative credit facilities. The sale of additional equity or debt
securities may result in significant dilution to the existing shareholders.
There is no assurance that the Company will be able to raise such capital on
terms acceptable to the Company, if at all.
YEAR 2000. Year 2000 computer issues create certain risks for the
Company, although the Company believes that such risks are less significant than
those faced by many companies due to the fact the Company commenced operations
in 1997. If the Company's internal and network information systems do correctly
recognize and process date information beyond the year 1999, there should be no
adverse impact on the Company's operations, except as the Company may experience
as a result of failure of other servers connected to the internet which are
beyond the Company's control. The Company initiated a comprehensive program (the
"Program") to address Year 2000 readiness in its systems and with its customers'
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and suppliers' systems. The Program was been designed to gather information
regarding the Year 2000 compliance of products and services that are required by
the Company to deploy its residential and commercial Internet services. Under
the Program, assessment and remediation proceeded in tandem and has been
completed by the Company as of June 30, 1999. These activities are intended to
encompass all major categories of systems in use by the Company. The costs
incurred to date related to the Program have not been material. The total cost
estimate does not include potential costs related to any customer or other
claims or the costs of internal software or hardware replaced in the normal
course of business. The total cost estimate is based on the current assessment
of the Company's Year 2000 readiness needs and is subject to change. The Company
also is communicating with its significant suppliers to determine the extent to
which the Company is vulnerable to such suppliers' failure to remedy their own
Year 2000 issue. The Company has already received assurances of Year 2000
compliance from a number of those suppliers. Most of the suppliers have no
contractual obligations under existing contracts with the Company to provide
such information to the Company. The Company is taking steps with respect to new
supplier agreements to ensure that the suppliers' products and internal systems
are Year 2000 compliant. While the Company currently expects that the Year 2000
issue will not pose significant operational problems, delays in the
implementation of new information systems or a failure to fully identify all
Year 2000 dependencies in the Company's existing system and in the systems of
its suppliers could have material adverse consequences. Therefore, the Company
is developing contingency plans for continuing operations in the event such
problems arise.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
During the three-month period ended September 30, 1999, there was no
modification of any instruments defining the rights of holders of the Company's
common stock and no limitation or qualification of the rights evidenced by the
Company's common stock as a result of the issuance of any other class of
securities or the modification thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the three month period ended September 30, 1999, the Company was
not in default on any senior securities, including long term debt instruments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In August 1999 the Company's 1999 Stock Option Plan was approved by a
majority of the Company's stockholders by written consent in lieu of a meeting.
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ITEM 5. OTHER INFORMATION
The Company does not have any other material information to report with
respect to the three month period ended September 30, 1999.
ITEM 6. Exhibits and Reports on Form 8-K
3.1 Articles of Incorporation, as amended*
3.2 Bylaws*
10.1 Sale and Purchase Agreement Cable Systems, TSI**
10.2 Agreements with US Cable Costal-Texas, L.P.*
10.3 Cable System Installation Agreement with Intermark Associates V,
LLC**
10.4 Agreement with Intermark Management, Inc.**
10.5 Agreement with Shangri-La Vacation & Exchange**
16.1 Letter re: change in certifying accountant**
27. Financial data schedule***
* Incorporated by reference to the Company's Form 10G, filed with the
commission on June 8, 1999.
** Incorporated by reference to the Company's current report on Form 8K as
amended filed with the SEC on August 4, 1999.
*** Filed herwith.
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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 on its behalf by the
undersigned thereunto duly authorized.
Internet Cable Corporation
(Registrant)
Date: November 23, 1999
/s/ Timothy R. Karnes
- --- -----------------
Timothy R. Karnes, President and Chief Operating Officer
Date: November 23, 1999
/s/ David Appell
- --- ------------
David Appell, Acting Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Internet
Cable Corporation
</LEGEND>
<CIK> 0001075202
<NAME> Internet Cable Corporation
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 68,420
<SECURITIES> 0
<RECEIVABLES> 4,776
<ALLOWANCES> 0
<INVENTORY> 10,634
<CURRENT-ASSETS> 130,788
<PP&E> 56,913
<DEPRECIATION> 3,920
<TOTAL-ASSETS> 289,701
<CURRENT-LIABILITIES> 311,645
<BONDS> 0
0
0
<COMMON> 7,703
<OTHER-SE> 4,004,768
<TOTAL-LIABILITY-AND-EQUITY> 289,701
<SALES> 0
<TOTAL-REVENUES> 11,192
<CGS> 15,650
<TOTAL-COSTS> 343,533
<OTHER-EXPENSES> 93,925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,280
<INCOME-PRETAX> (426,266)
<INCOME-TAX> 0
<INCOME-CONTINUING> (426,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (426,266)
<EPS-BASIC> (.06)
<EPS-DILUTED> 0
</TABLE>
