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 May 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange Act
Commission file number 0-20277
INTERNET VIP, INC.
(exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-3500919
(IRS Employer Identification No.)
1155 University St., Suite 602, Montreal, Canada H3B 3A7
(Address of principal executive offices)
(514) 448-4847
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of August 31, 2000 the Registrant had 24,965,152 shares of its Common Stock
outstanding
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNET VIP, INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 2000
(Unaudited)
(U.S. $)
ASSETS
CURRENT ASSETS
Cash and equivalents $188,862
Other current assets 37,956
------
Total current assets 226,818
PROPERTY AND EQUIPMENT-NET 370,506
-------
TOTAL ASSETS $597,324
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses $182,520
Loans Payable 107,604
-------
Total current liabilities 290,124
-------
Common Stocks, $0.0001 par value; 50,000,000 shares authorized,
24,899,402 shares issued and outstanding 2,489
Additional paid-in capital 3,449,206
Deferred compensation (91,666)
Accumulated deficit (3,052,829)
-----------
Total Stockholders' equity 307,200
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $597,324
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS CONSOLIDATED BALANCE SHEET
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO MAY 31, 2000,
FOR THE THREE MONTHS ENDED MAY 31, 2000
AND FOR THE THREE MONTHS ENDED MAY 31, 1999
(Unaudited)
(US $)
<TABLE>
<S> <C> <C> <C>
For the
Period from For the Three For the Three
Inception to Months ended Months ended
May 31, 2000 May 31, 2000 May 31, 1999
Operating Expenses
Marketing and advertising expenses $839,708 $688,878 $35,900
Professional fees 719,908 129,199 124,989
Line rental and maintenance fees 446,714 182,793 0
Management salaries and related expenses 286,309 174,102 36,040
Travel 260,408 45,221 28,328
Amortizxation of deferred compensation 100,000 0 25,000
Office rent expense 89,952 6,667 16,959
Depreciation 33,682 33,682 0
Other operating expenses 156,270 57,957 17,560
------- ------ ------
Total Operating Expenses 2,932,951 1,318,499 284,776
--------- --------- -------
Operating loss for the period (2,932,951) (1,318,499) (284,776)
----------- ----------- ---------
Interest expenses (139,025) (83,192) 0
Other income 19,147 19,147 0
------ ------ -
Net loss for the period ($3,052,829) ($1,382,544) ($284,776)
------------ ------------ ----------
BASIC AND DILUTED NET LOSS PER SHARE ($0.06) ($0.01)
------- -------
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
Basic and diluted 23,843,523 21,500,981
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD
FROM INCEPTION (NOVEMBER 13, 1998) TO MAY 31, 2000.
FOR THE THREE MONTHS ENDED MAY 31, 2000
AND FOR THE THREE MONTHS ENDED MAY 31, 1999
(Unaudited)
(US$)
<TABLE>
<S> <C> <C> <C>
For the For the Three For the Three
Period from Months ended Months ended
Inception to May 31, 2000 May 31, 1999
May 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($3,052,829) ($1,382,544) ($284,776)
Adjustments to reconcile net loss to net cash used in operating activities-
Amortization of deferred copmensation 100,000 0 25,000
Depreciation 33,682 33,682 0
Non-cash compensation 108,334 108,334 0
Non-cash consulting fees 1,097,482 725,775 100,000
Non-cash interest 137,774 81,941 0
Changes in operating assets and liabilities
Other current assets (37,956) (29,321) (8,643)
Current Liabilities 182,520 (56,654) (53,258)
------- -------- ---------
Net cash used in operating activities (1,430,993) (518,787) (221,677)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (374,188) (24,528) (198,542)
--------- -------- ---------
Net cash used in investing activities (374,188) (24,528) (198,542)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholders' capital contribution, net 1,886,439 654,900 424,047
Short-term borrowing 130,104 75,104 0
Repayment of short-term borrowing (22,500) (22,500) 0
--------- -------- --
Net cash provided by financing activities 1,994,043 707,504 424,047
--------- ------- --------
Net increase in cash and cash equivalents 188,862 164,189 3,828
CASH AND EQUIVALENTS, beginning of period 0 24,673 223,624
--------- ------ -------
CASH AND CASH EQUIVALENTS, end of period $188,862 $188,862 $227,452
--------- --------- --------
NONCASH FINANCING ACTIVITIES:
Common stock issued for non-cash considerations $1,535,256 $1,003,549 $100,000
Warrants issued for non-cash equipment purchase 30,000 0 0
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARIES
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2000
(unaudited)
(in U.S. dollars)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
financial statements furnished herein include all adjustments necessary for a
fair representation of the Company's financial position at May 31, 2000 and the
results of its operations and its cash flows for the period from inception
(November 13, 1998) to May 31, 2000 and for the three month periods ended May
31, 2000 and 1999. All such adjustments are of a normal recurring nature.
Interim financial statements are prepared on a basis consistent with the
Company's annual financial statements. Results of operations for the three month
period ended May 31, 2000 are not necessarily indicative of the operating
results that may be expected for the year ending February 28, 2001.
For further information, refer to the consolidated financial statements for the
fiscal year ended February 29, 2000 and notes thereto included in the Company's
Form 10-KSB filed with the Securities and Exchange Commission.
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 disclosures of contingent assets and
liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from these estimates.
The Company is in the development stage. It is not currently generating any
revenues from operations and is therefore dependent on external sources for
financing its operations. Management expects the proceeds from private
placements and debt issuance together with its estimated revenues for the year
ended February 28, 2001 to be sufficient to finance the Company's operations
through February 28, 2001. However, there can be no assurance that the Company
will succeed in executing its plan and obtaining the financing necessary for its
operations.
The Company faces risks as a development stage company. These risks include,
among others, uncertainty of product acceptance, competition, risk of errors,
and quality and price of its services compared to alternative service.
Additionally, other factors such as loss of key personnel could impact the
future results of operations or financial condition of the Company.
<PAGE>
All of the aforementioned matters raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying unaudited financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.
2. PROPERTY AND EQUIPMENT-NET
--------------------------
Property and equipment are stated at cost. Property and equipment contain mainly
telecommunications equipment. Depreciation is computed by the straight line
method over the estimated useful life of three years.
3. STOCK BASED COMPENSATION
------------------------
In October 1995, the Financial Accounting Standard Board (the "FASB") issued
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows companies which have stock-based
compensation arrangements with employees to adopt a new fair-value basis of
accounting for stock options and other equity instruments, or to continue the
existing accounting required by Accounting Principle Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). The company has elected
to account for its stock-based compensation arrangements for employees under APB
25 and related interpretations. Under APB 25, compensation is recorded on the
date of grant to the extent the fair value of the underlying stock exceeds the
exercise price.
4. LOANS PAYABLE
During this quarter, the Company entered into loan agreements with nonaffiliated
parties as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Original Outstanding Shares issued
Loan Amount amount at Interest in consideration of
Date of loan Term May 31, 2000 Rate/Month interest/month
------------------------------------------------------------------------------------------------------
March 3/00 $ 10,000. 6 Months $ 7,500. N/A 2,000
March 15/00 25,000. 3 Months 25,000. 1.25% 5,000
March 15/00 35,000. 3 Months 35,000. 5% 2,100
</TABLE>
The $35,000. loan includes the granting of 35,000 warrants for the purchase of a
like number of shares, prior to February 28, 2001 at a price equal to the lesser
of $1. per share or 75% of market price. The fair value assigned to these
warrants at the date of grant of $1,050. was calculated using the Black-Scholes
option-pricing model and was recorded as interest expense.
The above loans are convertible into common stock at the lower of a conversion
rate fixed at the commitment date or a fixed discount to the market price of the
common stock at the date of conversion.
<PAGE>
The Company accounts for the conversion of loans and related interests into
common shares in accordance with the Statement of Position 98-05, "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios" ("SOP 98-05").
The interest expense resulting from the beneficial conversion feature charged
for the period ended May 31, 2000 was approximately $64,000.
5. PRIVATE PLACEMENT
-----------------
In March 2000, the Company offered to sell, in a private placement, up to
750,000 units at a price of $2.00 per unit. Each unit consists of two shares of
common stock and one warrant to purchase common stock. Each warrant entitles the
holder to purchase one share of common stock at a price of $1.50 per share until
March 31, 2003. 637,900 shares and 318,950 warrants were issued in connection
with this offering.
6. EMPLOYMENT AGREEMENT
--------------------
The Company entered into a one-year employment agreement on April 28, 2000 with
its CEO, The Agreement provides for an annual salary of $90,000. In addition,
the Company granted the CEO a bonus of 100,000 shares of common stock at an
exercise price of $0.0001 per share at the commencement of the agreement. The
fair value of such bonus at the date of grant of $100,000. was charged as
compensation expense.
The Company granted the CEO options to purchase up to an additional 100,000
shares at $0.05 per share, exercisable after one year from commencement of
agreement. If the employment agreement is terminated for any reason, all
unvested options expire as of the termination date.
The intrinsic value of these options at the date of grant of $95,000.was
recorded as deferred compensation expense and is amortized over the term of the
employment contract.
7. CONSULTING AGREEMENT
--------------------
In May 2000, the Company issued 643,400 shares of common stock to Reichtel
International Corp. of Geneva, Switzerland in consideration of consulting
services provided. The fair market value of the shares issued was $643,400. at
the date that the services were provided. This amount was charged as marketing
expenses.
<PAGE>
Item 2. Plan of Operations
The following discussion should be read in conjunction with the
financial statements and related notes that are included under Item 1.
Statements made below which are not historical facts are forward-looking
statements. Forward-looking statements involve a number of risks and
uncertainties including, but not limited to, general economic conditions, our
ability to complete development and then market our services, competitive
factors and other risk factors as stated in other of our public filings with the
Securities and Exchange Commission.
Overview
Whereas this report is for the three month period ended May 31, 2000
and was due July 15, 2000, it is first being filed on or about September 18,
2000. You are directed to the Company's filing on May 26, 2000 of Amendment No.
3 to Form 10-SB for more information about the Company. Although filed late,
this section will primarily discuss the Company's position as of the due date.
Internet VIP, Inc. (hereafter, the "Company" or "IVIP") was formed in
November, 1998, to sell long distance international telephone services using the
new technology, Voice over Internet Protocol ("VoIP"). From its controlling
Switching Center in Montreal, Canada, calls are routed from anywhere in North
America to anywhere in the world using VoIP technology. The first phase of
operations plans to encompass calls, primarily, from North America to St.
Petersburg and/or Moscow, and vice versa.
IVIP established its business presence in Montreal, with the opening of
an office at 1155 University Avenue, Suite 602 in February, 1999. The Montreal
office has become the Company's worldwide headquarters and the hub of its
telecommunications network.
During 1999 the Company completed private offerings in which it netted
approximately $1,200,000. The bulk of the proceeds were used to purchase and
install equipment for its facilities in Moscow and Montreal, to finance trips to
develop the Company's business in Russia, and network leasing costs.
Activities
Beginning on March 16, 2000, the Company commenced a new private
placement of up to $1,500,000. As of August 31, 2000, $642,400 had been raised.
Also, during this quarter the Company borrowed approximately $75,000
for six months, from several non-affiliated parties. In lieu of cash, interest
on these loans is paid in the form of approximately 12,000 common shares per
month.
During the three month period ending May 31, 2000, the Company incurred
a loss of $1,382,544, for an accumulated deficit since inception of $3,052,829.
The expenditures in this quarter of $1,382,544 were primarily for travel to
further business development in Russia, to oversee the installation of switching
equipment in St. Petersburg, and consulting services related to future financing
activities.
<PAGE>
Our net loss increased by $1,097,768 to $1,382,544 for the three months
ended May 31, 2000, from $284,776 for the three months ended May 31, 1999. This
increase was primarily driven by an increase in expenses incurred to bring the
Company fully operational, which is expected to occur during the third quarter
of this fiscal year.
In May, Mr. Christian P. Richer joined the Company as President and
CEO. Mr. Richer brings to the Company over 25 years of experience in the
telecommunications industry, mostly working at Canada`s largest telecom company,
Bell Canada.
In the quarter, the Company completed testing its network required for
the first phase of its business objectives. The Company also began the process
of signing up users and obtaining firm commitments for usage.
IVIP sales personnel, both Canadian and Russian, continued visiting
with potential customers in Russia, primarily in the government and industrial
sectors, in ongoing efforts to obtain letters of interest or letters of intent
in anticipation of the network carrying revenue producing traffic. During the
quarter, the Company added St. Petersburg (Russia) to its target market.
During the quarter the Company obtained VoIP licenses in Moldova, thus
ensuring access to Ukraine and Romania and is currently in discussions with a
Canadian company to supply VoIP access to Cuba.
The Company also took what it believes is a large forward step by
acting to meet potential customer demands for a direct link into New York.
Accordingly, during the quarter, the Company purchased and installed a switch in
New York. Expenses related to the New York switch were approximately $41,000.
The New York switch became operational in September 2000. Based upon comments
from potential customers, the Company believes that with the New York switch
operational we can now approach large users and obtain significant contracts. No
assurances can be given that these plans will actually result in increased
revenues.
Expansion
The Company intends to expand its operations into St. Petersburg. Once
the Moscow facility is operational, cash flows generated by the Moscow facility
and additional financing will be used to pay for this addition. In the quarter,
a purchase order for the necessary equipment was issued and we anticipate
installation to be concluded by mid September. While the Company will not have
to pay for the equipment for six months and believes it will be able to pay for
the equipment out of then existing cash flows, the Company anticipates requiring
approximately $125,000 to finance startup costs for the new facility.
In general, total costs for each new facility including equipment,
installation, marketing and office personnel is currently estimated at $300,000.
The balance of any funding, if successful will be utilized for advertising and
marketing to address the retail prepaid phone card market. To date, the Company
has not spent any funds on any additional facilities.
The Company's business plan currently calls for expansion into other
markets, such as Mexico, Cuba, India and Vietnam, if and when opportunities
present themselves and as funding permits. During the next twelve months, the
Company intends to use the same formula for financing any expansions, i.e.,
<PAGE>
external funding for startup costs and internal financing for operations. Other
than as described, the Company does not currently anticipate funding its growth
with additional public financings, except in the event an unexpected and unusual
opportunity is presented.
Liquidity
Net cash used in operating activities was $518,787 for the three months
ended May 31, 2000 as compared to $221,677 for the three months ended May 31,
1999. Cash used in operating activities for both periods resulted from net
losses and increases in Other Current Assets and decreases in Current
Liabilities.
Net cash from vesting activities was $24,528 for the three months ended
May 31, 2000 compared to $198,542 for the three months ended May 31, 1999, and
was used for the purchase of Fixed Assets required for operations and
development.
Net cash from financing activities was a net of $707,504 for the three
months ended May 31, 2000 and $424,047 for the three months ended May 31, 1999.
These amounts are primarily attributable to private placements for both periods
with short term borrowing and repayments for the three month period ended May
31, 2000.
The monthly financial requirements for the Company, not including the
cost of the leases for dedicated fibre-optic lines, and not including management
and senior consultant salaries and fees, for both the Montreal and Moscow
offices are estimated to be $12,000. At the quarter end, the Company had
$188,862 in cash and cash equivalents.
Management and senior consultant salaries and fees are currently
approximately $32,000 per month. However, effective October 1, 1999, and until
May 1, 2000, management had agreed to postpone receiving their salaries. To
further reduce overhead costs, management succeeded in reducing rent and related
expenses for the office in Montreal.
Monthly payment for network lines began upon successful installation of
our equipment and operating of the two centers. This occurred around December 1,
1999. From that time onward IVIP began monthly line lease payments, which are
currently approximately $40,000 per month. The commencement of utilization of
leased lines will require additional capital, which the Company will seek to
obtain through private placements. There is no assurance that IVIP will obtain
any of this financing.
IVIP has no plans to conduct any research and development nor to expend
any additional funds on plant and equipment in the near term, except as
indicated above. The Company does not anticipate realizing any income from the
sale of any plant or significant equipment.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
<PAGE>
Item 2. Changes in Securities
During the quarter, the Company sold 34,000 shares of restricted common
stock priced at $0.50 per share and 318,950 units, each unit consisting of two
common shares and one warrant. Each warrant is exercisable into one common share
at $1.50 per share until March 31, 2003. The units were sold at $2.00 per unit.
These units were issued pursuant to the exemption from registration contained in
Regulation S and Regulation D, Rule 506, of the Act.
During the quarter, the Company issued 100,000 shares of restricted
common stock to Mr. Christian Richer, as part of his employment contract with
the Company. These shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Act.
During the quarter, the Company issued 36,325 shares of restricted
common stock to various non-related parties as interest payment on short term
loans made to the Company. These shares were issued pursuant to the exemption
from registration contained in Section 4(2) of the Act.
During the quarter, the Company issued 643,400 shares of restricted
common stock to a non-related company to undertake telecommunications business
development in the Caribbean region on behalf of the Company. These shares were
issued pursuant to the exemption from registration contained in Section 4(2) of
the Act.
During the quarter, the Company agreed to issue 46,750 shares of
restricted common stock to various individuals, in lieu of monies owed to them
for consulting services rendered to the Company. These shares were issued
pursuant to the exemption from registration contained in Section 4(2) of the
Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 10 - Employment Agreement with Christian P. Richer
Exhibit 27 - Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the 1934 Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
INTERNET VIP, INC.
By: /s/Ilya Gerol
Ilya Gerol, Chairman of the Board
September 21, 2000
