FORM 10-SB
Amendment No. 4
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
INTERNET VIP, INC.
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(Name of Small Business Issuer in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer
Identification No.)
1155 University St., Suite 602, Montreal, Canada H3B 3A7
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(Address of principal executive offices) (Zip Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
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PART I.
Item 1. Description of Business.
(a) Business Development
Internet VIP, Inc. (the "Company"), a Delaware corporation, was organized on
November 13, 1998. The Company has not been involved with any bankruptcy,
receivership or similar proceedings. The Company has not had any material
reclassification, merger, consolidation, or purchase or sale of a significant
amount of assets not in the ordinary course of business.
(b) Business of Issuer
The Company
The Company was formed to sell long distance international telephone services
using the new technology, Voice over Internet Protocol ("VoIP").
The Company's revenues are to be derived from two distinct, yet complementary
markets:
1. (Wholesale) Providing carrier and termination services,
worldwide, for other telecom companies, at competitive rates; and
2. (Retail) Providing telephone calling origination and termination, at
attractive prices, servicing areas of the world that currently have
very expensive and/or poor quality long distance service. Competitive
rates are to be achieved by using low-cost Internet Protocol gateways
and taking advantage of the efficacy of VoIP technology.
Currently the Company operates two IP telephony gateway centers, one in
Montreal, Canada, and the second in Moscow, Russia. The two centers serve as the
core switches that allow calls to be routed from anywhere in North America or
from Russia to over 240 countries and territories at very low cost.
The Company will initially be servicing two different groups of customers, and
both groups will access the Company's technological platform in a different
manner.
For the first customer group, wholesale customers, the Company will receive long
distance traffic in bulk at its center in Montreal to be routed and terminated,
initially in Russia, and subsequently to other destinations as the Company adds
centers. There is very little overhead cost to the Company for this type of
customer and the Company will simply be earning a price differential as its fee
for providing this service.
The second group of customers will be retail. In the first phase of operations
to address this marketplace the Company has established business operations in
Russia, and is focusing on outbound long distance traffic from Russia.
Customers in Russia consist of two subgroups. The first customer subgroup will
be from the Russian Ministry of Interior. The Ministry presently has its own
telephone system. When a member of the Ministry calls the world through the
Company's network, he will dial a code to access the Company's equipment that is
located in the Ministry. He will then get a second dial tone and will be able to
dial directly to the world. The Company's equipment takes this call and sends it
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over a dedicated line to the Company's switching center in Montreal using VoIP
technology. In Montreal, the Company's mirror image equipment receives the call,
re-packages it for normal phone transmission and then directs it through regular
local phone lines to the intended parties anywhere in the world.
The second customer subgroup will be individuals or corporations that will have
purchased prepaid calling cards or contracts. For one of these customers to
place a call from any telephone in Russia, he will dial a local access number to
reach the Company's equipment and then input his card number and personal
identification number ("PIN"). The Company's equipment will validate the card
number and PIN and then give the caller a second dial tone allowing him to make
the long distance call. The call is then processed in the same manner as
described above.
For both types of customers, the Company's technology and equipment will process
these steps in milliseconds and the customer will be unable to detect the
difference between a traditional long distance call between Moscow and the world
and a call utilizing the Company's system. The process for a call to Moscow
originating in North America over the Company's system operates the same way
with the customer calling an "800" number to access the Company's North American
platform in the same manner as if he were using a conventional calling card.
All of the Company's technology is state of the art, but the Company is not
dependent on any one vendor in particular. For the hardware in the switching
centers in Montreal and Moscow, the Company is using a configuration and
equipment designed by Ericsson Inc. For the trans-Atlantic fiber optic E-1
lines, the Company has signed a lease with Metrocom (of Russia) to provide the
requisite dedicated fibre-optic circuits between these two cities. The lease is
for one year and costs US$429,600 per year.
The Company operates through a wholly owned Canadian subsidiary corporation,
V.I. Internet Telecommunications Inc. ("V.I. Internet"). V.I. Internet owns and
operates the Canadian switching center, and owns 80% of a Russian joint-venture
entity, Intertel XXI, established to manage the Company's center in Moscow. In
Moscow, the remaining 20% of the Russian joint-venture company is owned by the
"Special Technique and Communication Services Institute" , an agency of the
Russian Ministry of Interior. The strategy of teaming with a prominent Russian
government agency in Moscow should give V.I. Internet access to as many local
lines as becomes necessary in Russia, and their assistance in obtaining
contracts for outbound traffic from most, if not all, government and related
agencies within the Russian Federation.
The Company, through, V.I. Internet, has letters of intent with governmental and
industrial entities expressing an interest to purchase telephone service from
Russia to the world. The network has been installed and tested and is now fully
functional. The Company has begun the process of converting the letters of
intent to firm contracts. If the Company is successful in converting these
letters to firm contracts, the Company anticipates that by the end of the first
year of long distance service between Russia and the world the Company will be
providing 1,500,000 minutes per month. However, there can be no assurance that
such usage and/or revenue levels, if any, will be attained.
The Company plans to expand its operations within Russia by opening a facility
in St. Petersburg. The Company anticipates the commencement of installation of
an IP switch center in St. Petersburg during July, 2000 and expects to initiate
service from this center by the end of August, 2000.
Our Technology
Conventional telephone service (PSTN) is a circuit-switched technology. When a
call is placed, the system switches open a direct connection between the sender,
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and then over a series of switching facilities, to the receiving party. The
connection remains open during the duration of the telephone call. Since no one
else can use the circuit while a call is in progress, more circuits are
required, which leads to inefficiency and expense. This, together with high
tariffs in many jurisdictions, are the basic reasons why telephone companies,
and the intermediate switching companies, charge high prices for their services.
Internet Protocol (IP) telephony is a packet-switched technology, which is the
basis of all Internet communication. IP breaks network data up into small chunks
or packets, which is then sent out on the Net. These packets are routed using
the most expedient path available at the time, until they reach their
destination. The data can consist of e-mail, video, and for our purposes--voice.
Additionally, IP compression techniques allow five to ten times the number of
voice calls over the same bandwidth as compared to traditional circuit-switched
voice traffic, substantially reducing the cost of carrying this traffic.
Thus, a caller does not have to place a conventional long-distance telephone
call to reach a party anywhere in the world, since with IP telephony, every call
is just a "voice" e-mail away. The caller initiates a local call to a
specialized switching center or gateway connected to an IP provider. The call
travels over the Internet to the receiver's geographic area and a switching
center in that area completes the call over that local's telephone lines. A
growing number of individuals, governments, and corporations are using this
technology every day to send data, voice conversations, and even money.
To avoid the congestion problems on the Net, the Company's telephone traffic
does not in fact use the Net. The Company provides its calling services through
dedicated secured international private lines, expandable as necessary, assuring
a controlled circuit, and giving a high quality of service (QOS) both in clarity
and reliability of transmission. Unlike the Internet, the routing of calls
through the Company's network travel over minimal routes to arrive at the final
destination and is not hindered by volume of traffic over the Net.
Competition
To date, large companies have not become involved with Internet Telephony in
Russia. However, there are several small companies (Global M, Maxima,
Mos-Teleinternet) which serve several localities within Downtown Moscow. The
Company believes that all of these small companies work on a "call back"
principle which is illegal under Russian law. The main problem these companies
face is the necessity to get special licenses from the Ministry of
Communications. They do not currently have these licenses and we believe they
are unlikely to receive them in the near future as no law has been introduced in
that regard. Accordingly, competitors will not be able to legally operate
without great difficulty in the Russian market prior to approximately at least
the year 2002 when the market may first start to become officially deregulated.
Meanwhile, we have the agreement with the Ministry of Interior, which has its
own telephone system independent of the Ministry of Communications.
Background on the Industry in Russia.
Ninety (90%) percent of Russian telecommunication systems is concentrated in the
hands of the Ministry of Communication of Russia. The current Minister is Mr. M.
Reyman. The previous minister, Mr. Bulgak, introduced the bulk of the current
rules and regulations regulating the telecommunication industry. Mr. Bulgak also
was the former deputy Prime Minister. All telecommunication activity in Russia
is based on licensing. "Rostelecom", a state company with some private capital
participation, has the major license. This license allows "Rostelecom", through
its municipal affiliates, to concentrate telephone communication on in-country
land line networks and on the use of satellites in cooperation with the major
transnational networks. Internet-telephony, specifically Voice over Internet
Protocol based communications, however, had not been subjected to licensing
until year 1999. In his meeting with Dr. Ilya Gerol on February 21, 1998, Mr.
Bulgak repeated his previous stated positions that voice-over-internet-protocol
did not require licensing because the policy was aimed at encouraging the
development of this advanced type of telecommunications. However, in 1999, Mr.
Reyman, the new Minister of Communications, changed this policy and
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internet-telephony companies operating in the Russian market are to be licensed.
At that time, he signed the first and, to date, the only such license with
Intertel XXI, our Russian subsidiary.
Mr. Reyman's letter also announced that the licensing is the first step to the
deregulation of the internet-telephony activities scheduled to take place in the
year 2002. When asked by Dr. Gerol, Mr. Reyman explained that deregulation was
necessary to bring about a more competitive market. However, the position of the
Minister is that initially the license should be issued on an exclusive basis to
permit this technology (internet-telephony) to prove itself in the marketplace.
This second meeting took place on October 21, 1999 in Moscow.
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The Ministry of Interior operates its own telephone system independently of the
Ministry of Communication due to the specific nature of the activities of the
Ministry. The Ministry's primary functions are focused on law and order issues
and on that basis, historically, in the USSR and now in Russia, the Ministry had
been authorized to run its own communication system independent of the general
public network, subject to different industrial and political terms. The
Ministry of Interior has also been authorized, and continues to be, to run the
network directly serving the government and presidential office. For that
purposes the Ministry had purchased the Israel made system Tediran. By virtue of
having access to this self-contained network, any agreements made by the Company
with the Ministry of Interior and its wholly owned enterprise "Special Technique
and Communication Services Institute" can be approved directly by the government
and need not require specific permission from the Ministry of Communication.
However, it was decided that since "foreign" entities are part owners of
Intertel XXI, obtaining specific approval from the Ministry of Communications
would be judicious. Thus, with the active support of our partners, the Ministry
of Interior, Intertel XXI did in fact, obtain from the Ministry of
Communications the first and only license for the specific internet-telephony
activities provided by the Company.
As a result, any agreements made by the Company with the Ministry of Interior
and its wholly owned enterprise "Special Technique and Communication Services
Institute" have been immediately approved by the government and did not require
specific permission from the Ministry of Communication. In fact, the license for
internet-telephony activities provided by the Company was signed by the Ministry
of Communications upon our first requesting support from our partners, the
Ministry of Interior.
Russian Market Today
Three segments of the market are targeted by our project: governmental,
commercial (foreign and joint venture enterprises, Russian companies and Russian
branches of non-Russian companies) and private individuals who will buy pre-paid
calling cards. Estimates of the volume of Russian international communications
market is placed at 900 million minutes for the year 1997, (Source:
Telegeography). Over the next 2 1/2 years we hope to capture 10-15% of our
targeted markets in Moscow.
Terms of Payment and Currency
Russian currency today is the ruble. The current conversion rate is
approximately 28.5 rubles a dollar. Despite such a rate the ruble is more stable
than it was after the August 17, 1998 crisis and the Company believes that it
will continue to exchange between 25 and 32 rubles a dollar for the foreseeable
future. During most of 1999, the conversion rate was between 23-28.5 rubles a
dollar.
The ruble is a convertible currency and can be freely exchanged into any hard
currency. Money may be transferred to foreign countries as part of joint
ventures without any obstacles.
All payments for our services will be based on the pre-payment principle as
exists today throughout the Soviet Federation. Payments will be automatically
transferred from the Central Bank in Moscow on a daily basis, as per
instructions.
Our Moscow partner is the Special Technical and Communication Services Institute
of the Ministry of Interior of Russia. The Russian Ministry of the Interior is
the strongest and most stable organization within the Russian structure with its
own telephone lines and communication services that include governmental,
presidential and other segments.
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Our Moscow partner contributes the following:
*The premises where the equipment is housed with complete
security;
*Proper distribution system through already existing channels
within the Ministry's telephone network covering the
governmental segment;
*Unlimited fiber optic access to the Moscow telephone network:
and
*A level of credibility that is very important for commercial
success.
The leading executives of our Moscow JV partner are Major-General V. Khimitchev,
V. Martinov and R. Mananov, all of whom hold PhD degrees and have done post
graduate studies in the US and are specialists in Russia in the field of
communications. Messrs. Khimitchev, Martynov and Mannanov are the senior
executives of the Russian state enterprise "Technique and Communications" within
the structure of the Ministry of Interior. Mr. Khimitchev is the Director
General of this enterprise as well as being the Senior Communication Executive
of the Ministry of Interior. Messrs. Martynov and Mannanov are his deputies.
This enterprise is the owner of 20% of Intertel XXI, the Company's Russian JV
operating entity.
The activities of our joint ventures have been negotiated according to the
Russian Law of Joint Ventures and Law of Investments. The Company believes these
laws are among the most liberal laws of that kind in Europe. However, while
problems may exist for many enterprises involved with joint ventures. In our
case, the joint venture is with the Ministry of Interior which is reputable and
is much better organized than the average Russian partner in a joint venture.
The Russian Law of Joint Ventures of March 1995 sets the basic regulations on
which joint ventures between foreign companies and Russian companies are to
operate. The law does not limit a joint venture with regard to the presence of
Russian or foreign capital. The law also does not limit the foreigners'
participation on Executive Boards or other executive functions. The law states,
however, that the economic and financial activities of joint ventures are
generally based on Russian law, by-laws and regulations, provided that they do
not contradict the basic principals of international law. The law also prohibits
the nationalization, expropriation or sequestering of properties or capital of
international joint ventures. Accordingly, it appears from the literal words of
the statute that joint ventures like the Company's are protected by Russian law,
and that profits may be removed unhindered from Russia to North America.
Intertel XXI, the name of the actual joint venture entity, has 80% of
North-American capital and 20% of the Russian participation and, consequently,
is run by the Executive Board consisting of North-American members. This entity
does not violate the Russian laws of joint ventures.
The law of foreign investments provides, in theory, a proper protection for
investments and investors similar to the investment laws of European countries
such as France, Italy or Poland. In practice, however, the problems in the
implementation of the law could at times be complicated by the huge and often
corrupt bureaucratic apparatus of Russia. However, in the case of Intertel XXI,
the problem has been minimized because our partners are the leading
communication team in Russia that contain members that are senior officers in
the Ministry of Interior of the Russian Federation, whose primary responsibility
is to fight corruption. The above notwithstanding, no assurance can be given
that the Company will actually benefit from this body of law.
At present, a marketing plan for the Company's Russian operations is being
developed in Moscow by Iskra Service, a prominent advertising and marketing
company in Moscow. The plan is to capture Industrial usage of long distance
needs; and commence the introduction of an economical pre-paid telephone card to
the general public.
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Our joint venture partners will assist in promoting and selling the pre-paid
card to all government agencies, through billboards, television media and print
media.
An extremely important feature of the Company's anticipated revenue stream is
that, after an initial introductory period, all sales will be prepaid by the
customers on a monthly basis and customers will be required to sign Usage
Commitment Contracts.
The Company is in the process of analyzing the long distance traffic between
Russia and Europe. However, there can be no assurance that any business will
develop in this market.
On the North American side, the Company has entered into a Maintenance and
Operating Agreement with Bridgepoint Enterprises Inc., a Montreal, Quebec
corporation. Pursuant to the Agreement, after the Company purchases the
necessary equipment to establish a switching center, Bridgeport will build and
install the Company's center in its facility and will continue to operate and
maintain the center for a monthly fee of $8,000. In April 1999, Bridgeport
completed the installation of the Company's equipment and the center became
operational.
In June 1999, the Company entered into a one year renewable contract with
Metrocom, a closed joint stock company, to provide a Trans-Atlantic Fiber Optic
E-1 Line for dedicated circuits at an annual cost of $429,600. The contract
provides for the fee to be reduced if international tariffs for Trans-Atlantic
Lines decline. The Company currently anticipates that rates will decline by the
spring of 2000 due to worldwide market conditions. If this occurs, it should
lower the Company's expenses and ease the burden of its cash flow requirements.
The founders and principals of the Company believe that they have put together a
team having the experience and the extensive network of contacts to build and
operate a premier long distance service between the former Soviet Union
countries, North America and Europe. Their proven entrepreneurial record and
motivated energy will hopefully establish the Company as a prominent
telecommunications company, especially in the former Soviet Union countries,
resulting in a commercially successful enterprise.
The Company, including its Russian subsiiary, currently has three full time
employees and eight part time employees. The Company anticipates hiring ten
additional employees over the next six months. The Company does not expect to
incur any material costs in complying with environmental laws.
Item 2. Plan of Operation.
Management's Discussion and Analysis
As noted in Item 1 above, the Company has installed its equipment and built the
network required for the first phase of its business objectives, its network
centers. The Company has begun the process of signing up users and anticipates
revenues to begin in May 2000.
In order to become operational, the Company, as disclosed above, had to arrange
that lines ocnnecting its facilities be available for commercial traffic.
Accordingly, in June 1999 the Company signed an agreement with Metrocom to
provide to trans-Atlantic lines and circuits in anticipation of revenues
commencing in November 1999. Thus, even though operations were delayed until
Spring 2000, the Company was contractually obligated to pay the line rental and
maintenance fees. As there is approximately three month lead time required to
obtain the lines and since management believed that the onset of the Company's
revenue stream was imminent, it determined to continue paying the fees prior to
the receipt of revenues.
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 our facilities in Moscow and Montreal, Canada, to finance
trips to develop the Company's business in Russia, and network leasing costs.
The Company does not expect to conduct any product research and development and
we have purchased all the equipment we need to install in our current
facilities. The Company intends to retain marketing and public relations
consultants as necessary, and to hire additional staff if warranted by its sales
volume on an as needed basis.
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As discussed above, the Company intends to expand its operations into St.
Petersburg once the Moscow facility is operational using cash flows generated by
the Moscow facility and additional financing. We have issued a purchase order
for the necessary equipment and anticipate installation to commence in the
summer of 2000. 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. Beginning on March 16, 2000,the
Company commenced a new private placement of up to $1,500,000. As of May 31,
2000, $654,900 had been raised. Total costs for each new facility including
equipment, installation, marketing and office personnel is currently estimated
at $300,000. The balance of this 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., 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.
Year 2000 Disclosure
The Company only has a limited number of computers that it uses for mostly word
processing, bookkeeping and general administrative purposes. We do not believe
that we will be significantly effected by the "Year 2000 problem." In any event,
we have the ability to save all of our internal data on discs which will
preserve the data in the event problems occur with our system.
The Company has not experienced any Y2K problems during the first four months of
2000 and does not, therefore, anticipate encountering any problems.
Item 3. Description of Property.
The Company maintains its corporate offices at 1155 University Street, Suite
602, Montreal, Canada where we have approximately 1,550 square feet at an annual
rental of US $24,000, including all utilities. The property is subleased from an
entity controlled by one of our directors by a two year lease expiring January
31, 2004. The sublet may be terminated by the Company at the end of any year
without penalty. Our Moscow facility is comprised of approximately 160 square
meters (approximately 1,750 sq.ft.) and is located at 19-7 Starovagankovski
Perealok, Moscow, Russia where we pay US$4,354 per month under a three year
lease. The Montreal property is leased from an entity controlled by Dr. Gerol
and Mr. Makarov, directors of the Company, at a rate the Company believes is the
going rate for similar space.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information as of April 30, 2000 regarding the
beneficial ownership of the Company's Common Stock, $.0001 par value, as of the
date hereof and after the Offering by (i) each person known by the Company to
own beneficially more than five percent of the Company's outstanding shares of
Common Stock, (ii) each director and executive officer of the Company who owns
shares and (iii) all directors and executive officers of the Company as a group.
Unless otherwise indicated, all shares of Common Stock are owned by the
individual named as sole record and beneficial owner with exclusive power to
vote and dispose of such shares. None of the people listed below owns any other
securities of the Company. There are no arrangements which may result in a
change in control of the Company.
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<TABLE>
<S> <C> <C>
-------------------------------------- --------------------------------- ---------------------------------
Shares Owned Beneficially Percentage
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
Ilya Gerol (1) 2,508,266 10.53%
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
Viatscheslav Makarov (1) 2,508,266 10.53%
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
Derek Labell (1) 2,808,266 11.79%
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
Michael MacInnis (1) 1,144,169 4.80%
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-------------------------------------- --------------------------------- ---------------------------------
Natalia Maloshina (1) 2,000,000 8.40%
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
Nais Corp. 1,297,401 5.45%
94 Washington Ave.
Lawrence, NY 11559
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
Howard Salamon 1,767,401 7.42%
20 Margaret Ave.
Lawrence, NY 11559
-------------------------------------- --------------------------------- ---------------------------------
-------------------------------------- --------------------------------- ---------------------------------
All Executive Officers and Directors 8,968,967 37.65%
as a Group
-------------------------------------- --------------------------------- ---------------------------------
</TABLE>
1 Uses Company's address.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
(a) Directors and Executive Officers.
Name Age Position
Dr. Ilya Gerol 59 Chairman
Christian P. Richer 50 President and Director
Derek Labell 39 Vice-President,
Director of Sales and Marketing (North America)
Michael MacInnis 51 Chief Financial Officer and Director
Viatcheslav Makarov 44 VP-Sales and Marketing
(Russia) and Director
Dr. Ilya Gerol: Chairman
Dr. Ilya Gerol is an expert in communications with over 28 years of experience.
A Canadian of Russian descent, Dr. Gerol is Chairman of the Board of Directors.
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He has consulted to the Economic Council of Canada, and has researched and
analyzed international information and economic trends, specializing in energy,
communications, and the world economy. From 1965 through 1973, Dr. Gerol was an
Editor, a Senior Editor, and then Editor-in-Chief of Radio Broadcasting
Atlantica International in Riga, Latvia (former Soviet Union). From 1973 to 1979
he was an Editor of SM Newspaper in Riga. From 1980 through 1981, he was an
associate teaching assistant at the University of British Columbia. From 1981
through 1984 he was a syndicated columnist at The Province Vancouver and an
associate Editor at the International Business Magazine. From 1984 through 1990
he was a Foreign Editor and Syndicated Columnist on international affairs and
international business at the Ottawa Citizen. From 1988 through 1991 he was a
visiting professor of Political Science at the State University of Winnipeg.
From 1991 to 1994 he was a consultant on Eastern Europe and Commonwealth of
Independent States to Economic Counsel of Canada for Amberoute International
Group. From 1994 to 1997 Dr. Gerol was vice president international, newsletter
D.A. & G. Information and Analysis and Editor-in-Chief. Dr. Gerol has been on
staff and/or visiting professor for over 14 universities throughout the world
including State University of Winnipeg, University of British Columbia, Moscow
State University, Hebrew University, and others.
Christian P. Richer, President and Director
Mr. Christian Richer is the President of fthe Company, and is an authority in
the field of telecommunications, and a marketing expert directed towards the
international marketplace. Mr. Richer has 25 years of experience with Bell
Canada and several of its many subsidiaries, working mostly in sales and
marketing. Recently he formed his own company, C2 Marketing International,
selling specialty telecommunications products. Mr. Richer brings to the Company
extensive international contacts. Mr. Richer has a D.E.C. diploma from the
University of Quebec.
Derek Labell: Vice-President and Director of Sales and Marketing (North America)
Mr. Derek Labell is Vice-President and Director of Sales and
Marketing (North America) and comes to the Company with over 20 years experience
in sales, marketing and management. Mr. Labell has an in-depth knowledge of the
North American telecommunications long distance telephone card market, including
card marketing, applications, production, distribution, franchising and card
application platforms. In 1994, Mr. Labell participated in the initial
groundwork to bring prepaid phone cards to Canada by conducting a comprehensive
study on behalf of a company which eventually became Canada's number one prepaid
phone card company. From 1986 to 1990 Mr. Labell was Director-Property
Management of The Marine Group's real estate division, Montreal, Quebec,
managing the real estate portfolio in Montreal, Windsor, Ontario and Fort
Lauderdale, Florida. From 1991 to 1993 he established a Limited Partnership,
operating foreign currency exchange offices in Montreal, Quebec for which he
negotiated the North American rights to sell and distribute the leading European
automated foreign currency exchange vending machine. During the same period he
was instrumental in concluding the acquisition of AVF, a carriage trade asset
management firm in Frankfurt, Germany. During 1994 he represented Pascals
Realties Ltd. leasing and managing their corporate office property in Old
Montreal. From 1995 to 1997 Mr. Labell provided consulting services to Monit
International Inc. (a privately held Montreal Real Estate company owning and
managing more than sixty properties throughout Eastern Canada and United States)
on leasing and tenant improvement construction issues. From 1997 to present he
has been director of leasing for Tidan, a privately held Montreal Real Estate
company owning and managing more than fifty properties throughout Eastern Canada
and in the United States.
Michael MacInnis: Chief Financial Officer
Mr. Michael MacInnis is the Chief Financial Officer. Mr.
MacInnis received his Chartered Accountant designation in 1972 and started his
own firm in 1974 where he specialized in corporate finance, income taxation and
reorganizations. In addition, he has operated and consulted to many corporations
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throughout Canada and has successfully raised funding in excess of an aggregate
of $200 million for various commercial projects. Also, he specializes in Public
Corporations listed on the NASD Bulletin Board. During the last five years Mr.
MacInnis has focused his efforts on developing a franchised consulting concept
and providing consulting services to various companies seeking financing.
Viatcheslav Makarov: Vice President - Sales and Marketing (Russia)
Mr. Viatcheslav is Vice-President and Director of Sales and
Marketing (Russia). Mr. Makarov was trained as an engineer and his initial
career was as an avionics scientist in the former Soviet Union. From 1989
through 1995 he became the chief representative of Volvo (automotive) in Russian
and, as well, worked as a member of Renault bureau in Moscow. Since 1996, Mr.
Makarov moved to Canada where he established and currently operates, the
Interservice Group, a group of companies that consult to U.S., Canadian and
European business circles on financial and industrial development within Eastern
European and C.I.S. countries utilizing the many contacts and connections that
he has cultivated in the last ten years in both the Russian government and
industry.
(b) Significant Employees
Mr. Christian P. Richer is the President of the Company and currently its only
full time employee.
(c) Family Relationships
There are no family relationships among directors or executive officers of the
Company.
(d) Involvement in Certain Legal Proceedings.
None.
Item 6. Executive Compensation.
(a) General
Commencing May 1, 2000, Mr. Richer's salary is $90,000 per annum. Commencing
January 1, 1999, the Company has agreed to pay Dr. Gerol and Messrs. MacInnis
and Makarov an annual salary of $24,000. Mr. Labell receives the same salary
commencing May 1, 1999. Except for Mr. Richer, none of the Company's other
executive officers provide services on a full-time basis. No executive officer
or employee of the Company is paid more than $100,000 per year in salary and
benefits. Except for Mr. Richer, the Company does not currently provide any
benefits to its executive officers. A car and cellular telephone allowance
amounting to approximately $600 a month is expected to be provided for in Mr.
Richer's formal employment contract.
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
Name and
Principal Position Year(1) Salary Bonus Other Long-term
Compensation Compensation:Options
Dr. Ilya Gerol 1999 $4,000 0 0 0
Chairman & Chief
Executive Officer
Michael McInnis 1999 $4,000 0 0 0
Chief Financial Officer
& Director
Viatcheslav Makarov 1999 $4,000 0 0 0
VP-Sales and
Marketing (Russia)
& Director
Derek Labell 1999 0 0 0 0
Vice-President Sales
and Marketing
(North America)
</TABLE>
PAGE 12
<PAGE>
(1) Covers the period from inception (November 13, 1998) to the fiscal year end
on February 28, 1999.
(c) Options/SAR Grants Table
None.
(d) Aggregated Option/SAR Exercises and Fiscal Year End Option/SAR Value Table
None
(e) Long Term Incentive Plan ("LTIP") Awards Table
None
(f) Compensation of Directors
None
(g) Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements
The Company has no written employment contracts with any of its executive
officers. However, the Company anticipates concluding a formal employment
agreement with Mr. Richer during June 2000. The contract is expected to be for
one year and provide for an annual salary of $90,000, as well as stock awards
and options. There are no provisions for compensation to be paid to any
executive officer or director of the Company upon the termination of their
services by either party or by the actions of a third party.
(h) Report on Repricings of Options/SARs
None.
Item 7. Certain Relationships and Related Transactions.
The Company rents space in Montreal from Interservice Group which is owned by
two of the Company's directors, Dr. Gerol and Mr. Makarov. The lease is for two
(2) years at an annual rental of US$ 24,000. The Company believes the rate is at
fair market value.
In December 1998, the Company entered into a four year consulting agreement with
Nais Corp., a shareholder, pursuant to which Nais Corp. provides financial and
business public relations consulting services, including introductions to
auditors, market makers and institutions and reviewing the Company's business
plan and public filings for a monthly fee of $6,000. Nais Corp. claims that it
is owed $96,000 as of June 30, 2000 pursuant to this agreement. While the
Company acknowledges the validity of the agreement, the Company disputes that
any funds are currently due under this agreement. Both parties agree that that
the Company is not obligated to make any cash payments to Nais Corp. until it
has revenues of $1 million. The dispute centers on whether payments accrue until
the revenue milestone is met.
PAGE 13
<PAGE>
Item 8. Description of Securities.
(a) Common or Preferred Stock
The Company is authorized to issue 50,000,000 shares of Common Stock, $0.0001
par value, of which 24,899,402 shares were issued and outstanding as of May
31, 2000. Each outstanding share of Common Stock is entitled to one (1) vote,
either in person or by proxy, on all matters that may be voted upon the owners
thereof at meetings of the stockholders.
The holders of Common Stock (i) have equal ratable rights to dividends from
funds legally available therefore, when and if declared by the Board of
Directors of the Company; (ii) are entitled to share ratably in all of the
assets of the Company available for distribution to holders of Common Stock upon
liquidation, dissolution or winding up of the affairs of the Company; (iii) do
not have preemptive, subscription or conversion rights, or redemption or sinking
fund provisions applicable thereto; and (iv) are entitled to one non-cumulative
vote per share on all matters on which stockholders may vote at all meetings of
stockholders.
Holders of Shares of Common Stock of the Company do not have cumulative voting
rights, which means that the individuals holding Common Stock with voting rights
to more than 50% of eligible votes, voting for the election of directors, can
elect all directors of the Company if they so choose and, in such event, the
holders of the remaining shares will not be able to elect any of the Company's
directors.
(b) Debt Securities.
The Company has not issued any debt securities to date. The Company has short
term loans of $115,000 of which, $105,000 are convertible, at the option of the
lender, into Common Stock.
(c) Other securities to be Registered
None.
PART II
Item 1. Market Price for Common Equity and Related Stockholder Matters.
(a) Market Information
There is no public trading market for the Company's securities. The Company has
$105,000 in short term loans that are convertible into its Common Stock. The
Company also has 600,000 warrants outstanding which are exercisable until
December 31, 2002 into Common Stock at a price of $1.00 per share and 212,950
warrants exercisable at $1.50 per share. No stockholder has any registration
rights.
Of the 24,899,402 shares of common stock outstanding, 23,238,102 are currently
subject to the resale restrictions and limitations of Rule 144.
(b) Holders
PAGE 14
<PAGE>
There are 144 holders of the Company's common stock.
(c) Dividends
The Company has had no earnings to date, nor has the Company declared any
dividends to date. The payment by the Company of dividends, if any, in the
future, rests within the discretion of its Board of Directors and will depend,
among other things, upon the Company's earnings, its capital requirements and
its financial condition, as well as other relevant factors. The Company has not
declared any cash dividends since inception, and has no present intention of
paying any cash dividends on its Common Stock in the foreseeable future, as it
intends to use earnings, if any, to generate growth.
Item 2. Legal Proceedings
None
Item 3. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
Item 4. Recent Sales of Unregistered Securities.
In November 1998, the Company sold 1,184,000 shares of common stock at a price
of $0.05 per share. All of such shares were sold to Canadian residents pursuant
to the exemption contained in Regulation S.
During the first part of 1999, the Company sold an aggregate of 1,672,727 shares
of common stock to 56 investors at a price of $0.50 per share. All of such
shares were sold to personal friends and relatives of the Company's founders and
management pursuant to the exemption contained in Regulation D, Rule 504.
In February 1999, the Company issued 200,000 shares of restricted common stock
to Global Asset Management Fund as payment for financial consulting services
valued at $100,000. These shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Act.
From June to September 1999, the Company issued 475,000 shares of restricted
common stock to 2745-2515 QUEBEC INC., as payment for public relations services
valued at $237,500. These shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Act.
In November 1999, the Company issued an aggregate of 268,500 shares of
restricted common stock as payment for preparation of business plans and other
related work valued at $134,250 to Howard Salamon (a 5% owner), Canadian
American Holdings and Yehuda Kops (non-affiliates). These shares were issued
pursuant to the exemption from registration contained in Section 4(2) of the
Act.
In November 1999, the Company issued 50,000 shares of restricted common stokc to
a non-affiliate Delaware corporation, Avic Technologies Inc., as interest
payment for a loan to the Company valued at $25,000. These shares were issued
pursuant to the exemption from registration contained in Section 4(2) of the
Act.
During the period commencing August 1, 1999 until March 15, 2000, the Company
sold 752,200 shares of restricted common stock at $0.50 per share in reliance on
exemption from registration under Regulation S and Regulation D, Rule 506.
In December 1999 the Company issued 600,000 warrants to purchase common shares
to 9002-6493 Quebec Inc in lieu of payment for equipment purchased by the
Company. The exercise of the warrants are $1.50 per share until December 31,
2002.
PAGE 15
<PAGE>
During the period commencing March 16, 2000 until August 31, 2000, the Company
sold 321,950 units at $2.00, each unit consisted of 2 shares of restricted
common stock and 1 warrant to purchase one share of common stock at $1.50 per
share. The units were sold exclusively to non-U.S. residents in reliance on
exemption from registration under Regulation S.
Between March and August 2000, the Company issued an aggregate of 74,750 shares
of restricted common stock valued at $74,750 to five non-affiliates as payment
for interest on short term loans. These shares were issued pursuant to the
exemption from registration contained in Section 4(2) of the Act.
In May 2000, the Company issued 643,400 shares of restricted common stock to
Reichtel International Corp. of Geneva Switzerland for consulting services
related to marketing the Company's business to new customers valued at $643,400.
These shares were issued in reliance upon the exemption from registration
contained in Regulation S.
In May 2000, the Company issued 100,000 shares valued at $100,000 to its new CEO
at par value as part of his compensation package. These shares were issued
pursuant to the exemption from registration contained in Section 4(2) of the
Act.
Between March and May 2000, the Company issued 33,850 shares at $0.50 and 65,450
shares at $1.00 to Howard Salamon and Bufus Participation Inc. for public
relations services. These shares were issued pursuant to the exemption from
registration contained in Section 4(2) of the Act.
In August 2000, the company issued 10,000 shares valued at $10,000 to Daniel
Richer for consulting services. Mr. Richer, the CEO's brother, is a licensed
engineer and is responsible for setting up and maintaining the Company's lines
and to address technical problems. These shares were issued pursuant to the
exemption from registration contained in Section 4(2) of the Act.
No commissions or discounts were paid or given to any person or entity in any of
the Company's sales of securities. There were no underwriters or securities
brokers or securities dealers involved in the offering in any way; the shares
were sold by management on a best efforts basis.
Item 5. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended, authorizes the
Company to Indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorney's fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which a person is a party by reason of being
a director or officer of the Company if it is determined that such person acted
in accordance with the applicable standard of conduct set forth in such
statutory provisions. The Company's By-Laws extends such indemnities to the full
extent permitted by Delaware law.
The Company may also purchase and maintain insurance for the benefit of any
director or officer which may cover claims for which the Company could not
indemnify such persons.
PART F/S
The financial statements are included at the end of this Registration Statement,
prior to the signature page.
PAGE 16
<PAGE>
PART III
Item 1. Index to Exhibits.
EXHIBIT
PAGE
2.1 Certificate of Incorporation
2.2 By-Laws
6.1 Lease for Montreal space
6.2 Lease for Moscow space
6.3 Joint Venture Agreement between V.I. Internet Telecommunications Inc.
and Specialized Technic and Communications of The Ministry of
Interior of Russian Federation
6.3.1 Amendment dated February 10, 2000 to Joint Venture Agreement between
V.I. Internet Telecommunications Inc.
and Specialized Technic and Communications of The Ministry of
Interior of Russian Federation
6.4 Facilities Management Agreement with BridgePoint Enterprises
6.5 Metrocom Agreement
27 Financial Data Schedule*
-------------------
* Filed herewith
Item 2. Description of Exhibits.
2.1 Certificate of Incorporation
2.2 By-Laws
6.1 Lease for Montreal space
6.2 Lease for Moscow space
6.3 Joint Venture Agreement between V.I. Internet Telecommunications Inc.
and Specialized Technic and Communications of The Ministry of
Interior of Russian Federation
6.3.1 Amendment dated February 10, 2000 to Joint Venture Agreement between
V.I. Internet Telecommunications Inc.
and Specialized Technic and Communications of The Ministry of
Interior of Russian Federation
6.4 Facilities Management Agreement with BridgePoint Enterprises
6.5 Metrocom Agreement
27 Financial Data Schedule
PAGE 17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Internet VIP, Inc.:
We have audited the accompanying consolidated balance sheet of Internet VIP,
Inc. (a Delaware corporation) and subsidiary as of February 28, 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the period from inception (November 13, 1998) to February 28,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Internet VIP, Inc. and
subsidiary as of February 28, 1999, and the results of their operations and
their cash flows for the period from inception (November 13, 1998) to February
28, 1999, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company is in the
development stage and its continued existence is dependent on obtaining
additional financing for its operations. The Company's plans in regards to these
matters are also described in Note 1. In addition, the Company faces risks as a
development stage company. The success of the Company's operations is influenced
by these risks as more fully described in Note 1. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying 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.
/s/Arthur Anderson, LLP
New York, New York
June 1, 1999
F-1
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1999
(in U.S. dollars)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 223,624
Other current assets 801
--------------
Total current assets 224,425
DEPOSIT ON ACCOUNT OF PROPERTY AND EQUIPMENT 25,000
--------------
Total assets $ 249,425
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses $ 68,258
--------------
Total current liabilities 68,258
--------------
STOCKHOLDERS' EQUITY:
Common Stocks, $0.0001 par value; 50,000,000 shares
authorized; 20,874,800 shares issued
and outstanding 2,087
Additional paid-in capital 498,090
Deferred compensation (100,000)
Accumulated deficit (219,010)
--------------
Total stockholders' equity 181,167
--------------
Total liabilities and stockholders' equity $ 249,425
==============
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION
(NOVEMBER 13, 1998) TO FEBRUARY 28, 1999
(in U.S. dollars)
OPERATING EXPENSES:
Travels $ 95,447
Professional fees 84,337
Salaries and related expenses 14,667
Other 24,559
--------------
Total operating expenses 219,010
--------------
Net loss $ (219,010)
==============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.01)
==============
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING - BASIC AND DILUTED 20,143,332
==============
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION
(NOVEMBER 13, 1998) TO FEBRUARY 28, 1999
(in U.S. dollars)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Common Stock Additional Total
Number of Paid-in Deferred Accumulated Stockholders'
Shares Amount Capital Compensation Deficit Equity
BALANCE, November 13, 1998 - $ - $ - $ - $ - $ -
Issuance of common stocks to
founders 18,772,600 1,877 - - - 1,877
Issuance of common stocks in a
private placement ($0.05 per
share) 1,184,000 118 59,082 - - 59,200
Issuance of common stocks for
consulting services 200,000 20 99,980 (100,000) - -
Issuance of common stocks in
a private placement ($0.5
per share), net of
issuance costs of $20,000 718,200 72 339,028 - - 339,100
Net loss - - - - (219,010) (219,010)
------------ --------- ----------- ------------ ------------ -------------
BALANCE, February 28, 1999 20,874,800 $ 2,087 $ 498,090 $ (100,000) $ (219,010) $ 181,167
============ ========= =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION
(NOVEMBER 13, 1998) TO FEBRUARY 28, 1999
(in U.S. dollars)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (219,010)
Adjustments to reconcile net loss to net cash used in operating activities
Changes in operating assets and liabilities-
Other current assets (801)
Accrued expenses 68,258
--------------
Net cash used in operating activities (151,553)
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit on account of property and equipment (25,000)
--------------
Net cash used in investing activities (25,000)
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholders' capital contribution, net 400,177
--------------
Net cash provided by financing activities 400,177
--------------
Net increase in cash and cash equivalents 223,624
CASH AND CASH EQUIVALENTS, beginning of period -
-------------
CASH AND CASH EQUIVALENTS, end of period $ 223,624
==============
NONCASH FINANCING ACTIVITIES:
Common stock issued for consulting services $ 100,000
==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(in U.S. dollars)
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(in U.S. dollars)
1. ORGANIZATION
Internet VIP, Inc. was incorporated in the state of Delaware on
November 13, 1998. Internet VIP, Inc. and its wholly owned subsidiary, V.I.
Internet Telecommunications, Inc., a Canadian corporation (together, the
"Company") were formed to sell long distance international telephone services
using the new technology, VIP-Voice over Internet Protocol. From its
strategically located switching center in Montreal, Canada, calls can be routed
from anywhere in North America to anywhere in the world using the Internet as
the main carrier. The first phase of operations will encompass calls from
Montreal to St. Petersburg and Moscow, and vice versa.
Initially Internet VIP Inc. will operate through its wholly owned
Canadian subsidiary corporation, V.I. Internet Telecommunications Inc. ("V.I.
Internet"). V.I. Internet will own and operate the Canadian switching centers.
Additionally, V.I. Internet will own 80% of a Russian joint-venture entity,
which was established to manage the Company's center in Moscow. The remaining
20% of the Russian joint-venture companies are owned by the Division of the
Russian Ministry of Interior.
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. The Company completed, subsequent to February 28,
1999, a private placement. Subsequent net proceeds from the issuance of the
equity were approximately $450,000. Management expects these proceeds together
with its estimated revenues for the year ending February 28, 2000 to be
sufficient to finance the Company's operations through February 28, 2000.
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, sales and distribution risk,
competition, risk of errors, and quality and price of its products compared to
alternative products and service. Additionally, other factors such as loss of
key personnel could impact the future results of operations or financial
condition of the Company.
All of the aforementioned matters raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Internet VIP, Inc.
and its wholly owned subsidiary, V.I. Internet and its Russian joint-ventures.
Material intercompany balances and transactions have been eliminated in
consolidation.
F-6
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Foreign Currency
The Company accounts for foreign currency in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation,"
for operating subsidiaries. The functional currency of the Company's wholly
owned subsidiary is the U.S. dollar.
Per Share Data
SFAS No. 128, "Earnings per Share," establishes new standards for computing and
presenting earnings per share (EPS). The standard requires the presentation of
basic EPS and diluted EPS. Basic EPS is calculated by dividing income available
to common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing income
available to common shareholders by the weighted average number of common shares
outstanding adjusted to reflect potentially dilutive securities.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents approximates fair value.
Organizational and Development Costs
Organizational and development costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement and tax
bases of assets and liabilities. Deferred tax assets and liabilities are
measured using tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
SFAS No. 109, the effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period in which the tax rate change
takes place.
F-7
<PAGE>
Recently Issued Accounting Standards
Additionally, in June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." This statement establishes standards for the way the public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 15, 1997, and need not be applied to interim periods in
the initial year of application. Comparative information for earlier years
presented is to be restated. The Company currently believes that it operates in
one segment and that the adoption of this statement will not have an impact on
the Company's financial statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The Company
currently does not use derivatives and, therefore, this new pronouncement is not
applicable.
3. PRIVATE PLACEMENT
In January 1999, the Company offered to sell, in a private placement, up to
1,900,000 shares of its Common Stock, $0.0001 par value, at a price of $.50 per
share, of which 718,200 shares were sold by February 28, 1999. Proceeds from the
offering are held in an unrestricted escrow account and transferable to the
Company upon demand. At February 28, 1999, $115,000 held in escrow are included
in cash and cash equivalents. Subsequent to February 28, 1999, the Company
issued an additional 943,100 shares in connection with this offering.
4. INCOME TAXES
At February 28, 1999, the Company has net operating losses available to offset
future income for book and tax purposes of approximately $200,000.
The loss carryforwards expire in February 2019. The annual utilization of these
loss carryforwards will be substantially limited if there are changes in the
Company's ownership.
The Company has provided a valuation allowance for the full amount of the tax
benefit associated with the loss carryforwards due to the uncertainty
surrounding their realization.
5. COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company leases office space from an affiliated company (an entity owned by
the Company's shareholders), for the period ending January 2001, under an
operating lease. Future minimum annual lease payments are as follows:
For the year ending February 28:
2000 $ 48,600
2001 44,550
----------
$ 93,150
Rent expense for the period from inception (November 13, 1998) to February 28,
1999 was $4,050.
Consulting Agreements
In December 1998, the Company entered into a four-year consulting agreement with
Nais Corp., a shareholder, according to which Nais Corp. will provide the
Company with financial and business public relations consulting services. Future
minimum annual fees are as follows:
For the year ending February 28:
2000 $ 72,000
2001 72,000
2002 72,000
2003 60,000
-----------
$ 276,000
In February 1999, the Company entered into a one-year consulting agreement with
Global Asset Management Group, Inc. ("Global Asset"), a Florida corporation.
According to the contract, Global Asset will provide the Company with financial
consulting services in consideration to 200,000 shares of the Company's common
stock, the fair market value of which was $100,000 at the date of the contract.
The Company recorded the consulting fees as deferred compensation, which will be
amortized over the contract period (one year).
Equipment Purchase Agreement
The Company purchased revenue generating equipment in the amount of $280,000, of
which $25,000 was paid in advance by February 28, 1999. The equipment was
received and installed by the Company subsequent to February 28, 1999.
F-8
<PAGE>
Facilities Management Agreement
In February 1999, the Company entered into a five-year agreement with
Bridgepoint Enterprises ("Bridgepoint"), according to which Bridgepoint will
provide the Company with facilities for its equipment as well as maintenance and
technical support for such equipment for variable monthly consideration. Future
estimated minimum annual fees are as follows:
For the year ending February 28:
2000 $ 88,000
2001 96,000
2002 96,000
2003 96,000
2004 96,000
Thereafter 8,000
------------
$ 480,000
Telecommunication Service Agreement
In June 1999, the Company entered into a one-year service agreement with
Metrocom, a Russian company, according to which Metrocom will provide
telecommunication services to the Company for a monthly charge of approximately
$40,000.
6. RELATED PARTIES
---------------
The Company received consulting services from a shareholder. Fees paid for such
services were approximately $14,000 in the period from inception (November 13,
1998) to February 28, 1999.
F-9
<PAGE>
BALANCE SHEET
INTERNET VIP, INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED BALANCE SHEET
AS OF MAY 31, 1999
(Unaudited)
(U.S. $)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 227,452
Other current assets 9,444
--------------
Total current assets 236,896
PROPERTY AND EQUIPMENT 223,542
------------
TOTAL ASSETS $ 460,438
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 15,000
------------
Total current liabilities 15,000
STOCKHOLDERS' EQUITY
Common Stocks, $0.0001 par value; 50,000,000 shares
authorized; 21,922,895 shares issued and outstanding 2,192
Additional paid-in capital 1,022,032
Deferred compensation (75,000)
Accumulated deficit (503,786)
-------------
Total Stockholders' equity 445,438
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,438
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE BALANCE SHEET
F-10
<PAGE>
STATEMENT OF OPERATION
INTERNET VIP, INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 1999
AND FOR THE PERIOD
FROM INCEPTION (NOVEMBER 13, 1998) TO MAY 31, 1999
(Unaudited)
(U.S. $)
<TABLE>
<S> <C> <C>
For the
For the Three Period from
Months ended Inception to
May 31, 1999 May 31,1999
Operating Expenses
Management salaries and fee related expenses $ 36,040 $ 50,707
Marketing and advertising expenses 35,900 41,130
Travel 28,328 123,775
Professional fees 124,989 209,325
Amortization of deferred compensation 25,000 25,000
Other 34,519 53,849
---------------- -----------
TOTAL 284,776 503,786
---------------- ----------
Net loss for the period $ (284,776) $ (503,786)
========= =========
BASIC AND DILUTED NET LOSS PER SHARE (0.01)
======
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING
- Basic and diluted 21,500,981
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT
F-11
<PAGE>
CASH FLOWS
INTERNET VIP, INC. AND SUBSIDIARIES
(A development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31, 1999
AND FOR THE PERIOD
FROM INCEPTION (NOVEMBER 13, 1998) TO MAY 31, 1999
(Unaudited)
(U.S. $)
<TABLE>
<S> <C> <C>
For the
For the Three Period from
Months ended Inception to
May 31, 1999 May 31,1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (284,776) $ (503,786)
Adjustments to reconcile net loss to net cash
used in operating activities
Amortization of deferred compensation 25,000 25,000
Noncash consulting fees 100,000 100,000
Changes in operating assets and liabilities
Other current assets (8,643) (9,444)
Accrued expenses (53,258) 15,000
-------- ----------
Net cash used in operating activities (221,677) (373,230)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (198,542) (223,542)
----------- -------------
Net cash used in investing activities (198,542) (223,542)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Stockholders' capital contribution, net 424,047 824,224
------------
Net cash provided by financing activities 424,047 824,224
---------- -----------
Net increase in cash and cash equivalents 3,828 227,452
CASH AND CASH EQUIVALENTS, beginning of period 223,624 0
--------- -------
CASH AND CASH EQUIVALENTS, end of period $ 227,452 $ 227,452
======= =======
NONCASH FINANCING ACTIVITIES:
Common stock issued for consulting services $ 100,000 $ 200,000
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
F-12
<PAGE>
NOTES
INTERNET VIP, INC. and SUBSIDIARIES
(a development stage company)
NOTES TO CONSLIDATED FINANCIAL STATEMENTS
AS OF MAY 31, 1999
(unaudited)
(U.S. $)
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, 1999 and the
results of its operations and cash flows for the three-month period ended May
31, 1999. All such adjustments are of a normal recurring nature. Interim
financial statements are prepared on a basis consistent with the Company' annual
financial statements. Results of operations for the three-month period ended May
31, 1999 are not necessarily indicative of the operating results that may be
expected for the year ending February 29, 2000.
For further information, refer to the consolidated financial statements
for the fiscal year ended February 28, 1999 and notes thereto included in the
Company's Form 10-SB file 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 those estimates.
F-13
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/
Dr. Ilya Gerol Chairman Date: November 1, 2000
CFO and Director Date:
Michael MacInnis (Chief Financial Officer)
/s/ President and Director
Christian Richer (Chief Executive Officer) Date: November 1, 2000
/s/ VP -Sales & Marketing
Viatscheslav Makarov and Director Date: November 1, 2000
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