SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-KSB/A
Annual report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year ended February 29, 2000
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) 876-9222
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.0001 par
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The issuer had no revenues for its most recent fiscal year.
The aggregate market value of voting stock held by non-affiliates of the
Registrant:
Indeterminate - No existing market
As of February 29, 2000, the Registrant had 23,351,027 shares of its Common
Stock outstanding.
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ITEM 1. BUSINESS
The following discussion should be read in conjunction with the financial
statements and related notes which are included elsewhere in this report.
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,
competition and our ability to market our product.
(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 that is not in the ordinary course of business.
(b) Business of Issuer
The Company
The Company was formed to sell international long distance telephone
services using the new technology, Voice over Internet Protocol ("VoIP").
The Company's revenues are expected 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
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 owns three IP telephony gateway centers, in
Montreal, Canada, Moscow, and St. Petersburg (Russia). The three 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 St. Petersburg center is currently undergoing testing and is expected to be
ready for commercial traffic in September 2000.
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 receives
long distance traffic in bulk at its center in Montreal to be routed and
terminated, mostly in Russia (Moscow and St. Petersburg). Additionally, through
contracts with tier one carriers, the Company has the capability to terminate
bulk traffic in other parts of the world. There is relatively little overhead
cost to the Company for this type of service, and the Company basically receives
a price differential as its fee for providing the service.
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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, primarily originating in Moscow and St. Petersburg.
Customers in Russia can be characterized into three subgroups. The
first customer subgroup is government ministry and related agencies. The second
group are large users derived from industry that are to receive preferential
rates. And finally, the third group of customers are individuals or small
corporate users that will have purchased prepaid calling cards or contracts. As
with most prepaid calling card systems, the customer places a call from any
telephone in Russia, by dialing a local access number to reach the Company's
equipment and then inputs 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.
For all 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, St. Petersburg 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
and Montreal. The lease is for one year and currently costs US$429,600 per year.
By September 2000, the Company anticipates leasing additional E-1 lines between
St. Peterburg and Montreal and St. Petersburg and Moscow. The Company expects at
that time that each international line will cost US$32,000 per month and the
Russian domestic line to cost US$6,000 per month.
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 subsidiary, Intertel XXI, established to manage the Company's center in
Moscow. In Moscow, the remaining 20% of the Russian subsidiary is owned by the
"Special Technique and Communication Services Institute", a division of the
Ministry of Interior of Russia. 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 St. Petersburg operation is
currently wholly owned, but the Company is looking for a local shareholder that
could deliver business.
The Company, through V.I. Internet, has letters of intent with
governmental and industrial entities expressing an interest to purchase
telephone service for calls 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 of long
distance traffic per month. However, there can be no assurance that such usage
and/or revenue levels, if any, will be attained.
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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, 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, 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 simply 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 an 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
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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 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.
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.
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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 is expected by many currency
traders to 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 shareholder 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.
Our Moscow shareholder 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 the Russian shareholder of our Moscow
subsidiary 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 subsidiary.
The activities of our subsidiary have been negotiated according to the
Russian Law of Joint Ventures and Law of Investments. According to the
evaluation of IMF (statement of M. Comdecu, the president of IMF on January 17
in the interview to the Russian news agency, Interfax Agency) these laws are the
most liberal laws of that kind in Europe. However, while problems may exist for
many foreign enterprises involved with Russian companies, in our case, the
Russian shareholder of our subsidiary is the Ministry of Interior which is
reputable and is much better organized than the average Russian entity. The
Russian Law of Joint Ventures of March 1995 sets the basic regulations on which
corporations involving foreign companies and Russian companies are to operate.
The law does not limit a Russian company 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.
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Intertel XXI, the name of our Russian subsidiary, 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 our
subsidiary Intertel XXI, the problem has been minimized because the members of
the Russian entity that is the local shareholder are the leading communication
team in Russia and 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.
Our Russian shareholder 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 US$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 US$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 world-wide 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 subsidiary, 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.
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ITEM 2. PROPERTIES
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 and applicable taxes. The
property is subleased by a two year lease expiring January 31, 2001. The sublet
may be terminated by the Company at the end of any year without penalty.
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.
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$3,100 per month under a three year lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
There is currently no public trading market for the Company's
securities.
As of February 29, 2000, the Registrant had 23,351,027 shares of its
Common Stock outstanding and 600,000 Class A Warrants issued and outstanding.
Each Warrant entitles the holder to purchase one share of restricted Common
Stock at an exercise price of US$1.50, subject to adjustment, until December 31,
2002. The shares underlying the Warrants have no registration rights. As of
February 29, 2000, the Company also had US$55,000 in short term loans
outstanding which are convertible, at the lender's option, into an aggregate of
170,000 shares of Common Stock.
Of the 23,351,027 shares of common stock outstanding, 21,689,728 are
currently subject to the resale restrictions and limitations of Rule 144. In
general, under Rule 144 as currently in effect, subject to the satisfaction of
certain other conditions, a person, including an affiliate, or persons whose
shares are aggregated with affiliates, who has owned restricted shares of common
stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed 1% of the total
number of outstanding shares of the same class. In the event the shares are sold
on an exchange or are reported on the automated quotation system of a registered
securities association, you could sell during any three-month period the greater
of such 1% amount or the average weekly trading volume as reported for the four
calendar weeks preceding the date on which notice of your sale is filed with the
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SEC. Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about us.
A person who has not been an affiliate for at least the three months immediately
preceding the sale and who has beneficially owned shares of common stock for at
least two years is entitled to sell such shares under Rule 144 without regard to
any of the limitations described above.
(b) Holders
On February 29, 2000, there were 132 holders of the Company's common
stock, and one holder of the Company's Class A Warrants.
(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.
ITEM 6. PLAN OF OPERATIONS
The following discussion should be read in conjunction with the
financial statements and related notes which are included elsewhere in this
report. 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,
competition and our ability to market our product.
The following selected financial data for the year ending February 29,
2000 is derived from the Company's audited financial statements included
elsewhere herein. The following data should be read in conjunction with the
financial statements of the Company. All dollar figures in this section are in
US denominations.
Statement of Operations Data
Year Ended
February 29, 2000
Net Revenues -0-
Operating Expenses $(1,395,442)
General and Administrative
Expenses (83,033)
Income Taxes -0-
Net Loss (1,451,275)
Loss Per Share $(0.07)
Balance Sheet Data
February 29, 2000
Working Deficit $ (256,699)
Total Assets 417,135
Total Liabilities 294,174
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Stockholders' Equity $ 122,961
Whereas this report is for the year ending February 29, 2000, and was
due June 1, 2000, it is first being filed on or about July 25, 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. Accordingly, this section will
primarily discuss the Company's position as of the filing date, as opposed to
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 control center
in Montreal, Canada, calls are to be 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.
The Company during the year was still a development stage company and
as yet had no revenues. Revenues, on a small scale, commenced during April 2000.
At this stage in the Company's development, IVIP is still mostly dependent on
external financing.
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 the year ending February 29, 2000, the Company incurred an
operating loss of $1,451,275, for an accumulated deficit since inception of
$1,670,285.
During the period from January, 1999 and until March 15, 2000, the
Company completed private offerings for gross proceeds of approximately
$1,200,000. The bulk of the proceeds were used to purchase and install equipment
for its facilities in Moscow and Montreal, Canada, to finance trips to develop
the Company's business in Russia, and network leasing costs.
Also during the year, the Company incurred short term loans. $55,000,
that included $10,000 from an affiliate, remained outstanding at year end.
Interest on these loans is to be paid in common shares.
The Company has completed installation of its equipment and built the
network required for the first phase of its business objectives. The Company has
begun the process of signing up long distance telephone users and revenues began
in April 2000, albeit on a small scale.
During the year, IVIP sales personnel, both Canadian and Russian,
continued to visit 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 becoming
operational.
The monthly financial requirements for the Company, not including the
cost of the leases for fibre-optic lines, and not including management and
senior consultant salaries and fees, for both the Montreal and Moscow offices
are estimated to be $5,100. The Company at June 30, 2000 had approximately
$97,000 in cash and cash equivalents.
Commencing May 1, 2000 management and senior consultant salaries and
fees will be approximately $23,000 per month. This amount does not include an
additional $6,000 per month payable to Nais Corp. once the Company has revenues
of $1 million. Also, the Company will pay Bridgepoint Enterprises $1,679 per
month as a rental fee to store its equipment in their premises. Bridgepoint no
longer provides any other services to the Company.
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Monthly payments for network lines began upon successful installation
of our equipment and operation of the initial two centers. This occurred around
December 1, 1999. From that time onward IVIP is required to pay approximately
$35,800 per month for dedicated line leases. 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.
As previously disclosed, the Company began receiving revenues in
April. Revenues are expected to increase throughout the year and the Company
believes they will provide sufficient cash flow to meet its obligations. The
Company believes that if revenues prove insufficient, the shortfall can be made
up by short term loans and/or small private financing.
The Company has expanded its operations into St. Petersburg and the
facility is expected to become fully operational in September 2000. The current
budget calls for approximately $40,000 to cover the final testing and the first
three months of operational expenses.
Beginning on March 16, 2000, the Company commenced a new private
placement of up to $1,500,000. As of June 30, 2000, $643,900 had been raised.
The bulk of the funds were used to pay down debts owed to Bridgepoint
Enterprises and Metrocom of Russia. 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.
ITEM 7. FINANCIAL STATEMENTS
The financial statements are included herein commencing on page F-1.
The Company is not required to provide supplementary financial information.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
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Name Age Position
Dr. Ilya Gerol 60 Chairman
Christian P. Richer 51 President, CEO and Director
Derek Labell 40 Vice-President, Sales
(North America)
Michael MacInnis 52 Chief Financial Officer and Director
Viatcheslav Makarov 45 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. 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 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, CEO and Director
Mr. Christian Richer is the President and CEO of the 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. 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
12
<PAGE>
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
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 and CEO of the Company and
currently its only full time senior employee.
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 Certificate of Incorporation contains
provisions relating to the indemnification of director and officers and 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.
Compensation of Directors
No Director receives any compensation for his service as a Director.
ITEM 10. EXECUTIVE COMPENSATION
(a) General
Commencing May 1, 2000, Mr. Richer's salary is US$90,000 per annum.
Commencing May 1, 2000, the Company has agreed to pay each of Dr. Gerol and
Messrs. MacInnis and Makarov an annual salary of US$48,000.
13
<PAGE>
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 US$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
US$600 a month is provided for in Mr. Richer's employment contract.
(b) Summary Compensation Table
SUMMARY COMPENSATION TABLE
<TABLE>
<S> <C> <C> <C> <C> <C>
Name and Other Long-term
Principal Position Year(1) Salary Bonus Compensation Compensation:Options
------------------ ------ ------ ----- ------------ --------------------
Dr. Ilya Gerol 2000 $12,000 0 0 0
Chairman & Chief
Executive Officer
Michael McInnis 2000 $12,000 0 0 0
Chief Financial Officer
& Director
Viatcheslav Makarov 2000 $12,000 0 0 0
VP-Sales and
Marketing (Russia)
& Director
Derek Labell 2000 $ 6,000 0 0 0
Vice-President Sales
and Marketing
(North America)
</TABLE>
(1) Covers the period from March 1, 1999 to the fiscal year end on
February 29, 2000.
(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
No Director receives any compensation for his service as a Director.
(g) Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements
14
<PAGE>
As at February 29, 2000, the Company had no employment contracts with
any of its executive officers. Subsequent to the year end Mr. Christian P.
Richer was engaged as President and CEO of the Company and an employment
contract was signed on April 28, 2000.
(h) Report on Repricings of Options/SARs
None.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater-than-ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file. During the fiscal year ending February 29, 2000, all the directors
and officers filed the requisite Forms 3, albeit late.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of June 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.
<TABLE>
<S> <C> <C>
------------------------------------------------- -------------------------------- ----------------------------------
Shares Owned Beneficially Percentage
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Ilya Gerol (1) 2,508,266 10.08%
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Christian P. Richer (1) 100,000 0.40%
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Viatscheslav Makarov (1) 2,508,266 10.08%
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Derek Labell (1) 2,808,266 11.29%
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Michael MacInnis (1) 1,144,169 4.60%
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Natalia Maloshina (1) 2,000,000 8.04%
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Nais Corp. 1,297,401 5.22%
94 Washington Ave.
Lawrence, NY 11559
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
Howard Salamon 1,767,401 7.10%
20 Margaret Ave.
Lawrence, NY 11559
------------------------------------------------- -------------------------------- ----------------------------------
------------------------------------------------- -------------------------------- ----------------------------------
All Executive Officers and Directors as a Group 9,068,967 36.96%
------------------------------------------------- -------------------------------- ----------------------------------
</TABLE>
1 Uses Company's address.
15
<PAGE>
ITEM 12. 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. will
provide financial and business public relations consulting services. Nais Corp.
claims that it is owed US$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 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.
The Company issued 437,500 shares to Howard Salamon, for business plan
preparation and financial and cash flow analyses.
Bridgepoint is owned by Artel Communications Inc., a minority
shareholder of the Company. The Company paid Bridgepoint $8,000.00 per month for
consulting services and for warehousing of equipment. This agreement was
terminated in May 2000. A new agreement was entered into in May 2000 whereby the
Company will only warehouse its equipment at Bridgepoint's location for a
monthly fee of $1,679. The Company believes these charges to be a fair price.
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a)
The financial statements appear below and are filed as part of this
annual report.
List of Exhibits
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
16
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Internet VIP, Inc.:
We have audited the accompanying consolidated balance sheets of Internet VIP,
Inc. (a Delaware corporation in the development stage) and subsidiary as of
February 29, 2000 and 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 29, 2000, for the twelve months
ended February 29, 2000 and 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide 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 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for the period from inception (November
13, 1998) to February 29, 2000, for the twelve months ended February 29, 2000
and for the period from inception (November 13, 1998) to February 28, 1999, in
conformity with accounting principles generally accepted in the United States.
As discussed in Note 1 to the consolidated 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 23, 2000
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(in U.S. dollars)
<TABLE>
<S> <C> <C>
ASSETS 2000 1999
CURRENT ASSETS:
Cash and cash equivalents $ 24,673 $ 223,624
Other current assets 12,802 801
-------------- --------------
Total current assets 37,475 224,425
PROPERTY AND EQUIPMENT 379,660 25,000
-------------- --------------
Total assets $ 417,135 $ 249,425
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 61,000 $ -
Accrued Expenses 178,174 68,258
Loans payable 55,000 -
-------------- -------------
Total current liabilities 294,174 68,258
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, $0.0001 par value; 50,000,000 shares authorized; 23,351,027
shares and 20,874,800 shares issued and outstanding as of February 29,
2000 and February 28,
1999, respectively 2,335 2,087
Additional paid-in capital 1,790,911 498,090
Deferred compensation - (100,000)
Deficit accumulated in the development stage (1,670,285) (219,010)
-------------- --------------
Total stockholders' equity 122,961 181,167
-------------- --------------
Total liabilities and stockholders' equity $ 417,135 $ 249,425
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION (NOVEMBER
13, 1998) TO FEBRUARY 29, 2000, FOR THE TWELVE MONTHS ENDED FEBRUARY 29, 2000
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 1999 (in
U.S. dollars)
<TABLE>
<S> <C> <C> <C>
Cumulative
Amounts from For the Twelve For the Period
Inception to Months ended from Inception to
February 29, 2000 February 29, 2000 February 28, 1999
OPERATING EXPENSES:
Office rent expenses $ 83,285 $ 79,235 $ 4,050
Amortization of deferred compensation 100,000 100,000 -
Management salaries and related expenses 112,207 97,540 14,667
Marketing and advertising expenses 150,830 145,600 5,230
Line rental and maintenance fees 263,921 255,921 8,000
Travel expenses 215,187 119,740 95,447
Professional fees 590,709 514,373 76,336
Other general and administrative expenses 98,313 83,033 15,280
----------------- ----------------- -----------------
Total operating expenses (1,614,452) (1,395,442) (219,010)
Interest expenses 55,833 55,833 -
----------------- ----------------- ----------------
Net loss $ (1,670,285) $ (1,451,275) $ (219,010)
=============== =============== ===============
BASIC AND DILUTED NET LOSS PER SHARE $ (0.07) $ (0.01)
============== ==============
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING:
Basic and diluted 22,289,828 20,143,332
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE TWELVE MONTHS
ENDED FEBRUARY 29, 2000 AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO
FEBRUARY 28, 1999 (in U.S. dollars)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated in
Additional the Total
Number of Paid-in Deferred Development Stockholders'
Shares Amount Capital Compensation Stage Equity
BALANCE, inception
(November 13, 1998) - $ - $ - $ - $ - $ -
Issuance of common stock to
founders 18,772,600 1,877 - - - 1,877
Issuance of common stock in
a private placement
($0.05 per share) 1,184,000 118 59,082 - - 59,200
Issuance of common stock in
a private placement
($0.50 per share), net 718,200 72 339,028 - - 339,100
Issuance of common stock
for consulting services 200,000 20 99,980 (100,000) - -
Net loss - - - - (219,010) (219,010)
----------- --------- ----------- ------------ ------------ ------------
BALANCE, February 28, 1999 20,874,800 2,087 498,090 (100,000) (219,010) 181,167
Issuance of common stock in a
private placement ($0.50
per share), net 1,672,727 167 831,195 - - 831,362
Issuance of common stock for
consulting services 743,500 75 371,632 - - 371,707
Issuance of common stock in
lieu of interest 60,000 6 59,994 - - 60,000
Issuance of warrants for
purchase of equipment - - 30,000 - - 30,000
Amortization of deferred
compensation - - - 100,000 - 100,000
Net loss - - - - (1,451,275) (1,451,275)
----------- --------- ----------- ------------ ------------ ------------
BALANCE, February 29, 2000 23,351,027 $ 2,335 $ 1,790,911 $ - $(1,670,285) $ 122,961
=========== ========= =========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (NOVEMBER
12, 1998) TO FEBRUARY 29, 2000, FOR THE TWELVE MONTHS ENDED FEBRUARY 29, 2000
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 13, 1998) TO FEBRUARY 28, 1999 (in
U.S. dollars)
<TABLE>
<S> <C> <C> <C>
Cumulative Amounts For the Twelve For the Period from
from Inception to Months Ended Inception to
February 29, 2000 February 29, 2000 February 28, 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,670,285) $ (1,451,275) $ (219,010)
Adjustments to reconcile net loss to net cash used in
operating activities-
Amortization of deferred compensation 100,000 100,000 -
Noncash consulting fees 371,707 371,707 -
Noncash interest 55,833 55,833 -
Changes in operating assets and liabilities-
Other current assets (8,635) (7,834) (801)
Accrued expenses 239,174 170,916 68,258
----------------- ----------------- -----------------
Net cash used in operating activities (912,206) (760,653) (151,553)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (349,660) (324,660) (25,000)
----------------- ----------------- -----------------
Net cash used in investing activities (349,660) (324,660) (25,000)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholders' capital contribution 1,231,539 831,362 400,177
Short-term borrowing 55,000 55,000 -
----------------- ----------------- ----------------
Net cash provided by financing activities 1,286,539 886,362 400,177
----------------- ----------------- -----------------
Net increase (decrease) in cash and cash
equivalents 24,673 (198,951) 223,624
CASH AND CASH EQUIVALENTS,
beginning of period - 223,624 -
----------------- ----------------- ----------------
CASH AND CASH EQUIVALENTS,
end of period $ 24,673 $ 24,673 $ 223,624
=============== =============== ===============
NONCASH FINANCING ACTIVITIES:
Common stock issued for noncash consideration $ 531,707 $ 431,707 $ 100,000
Warrant issued for noncash equipment purchases
------------------- 30,000
30,000 -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(in U.S. dollars)
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(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 switching center in
Montreal, Canada, calls can be routed from anywhere in North America to anywhere
in the world using the Company's Internet Protocol based network as the main
carrier. The first phase of operations will encompass calls from North America
to 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 center. Additionally,
V.I. Internet will own 80% of a Russian subsidiary, which was established to
manage the Company's center in Moscow. The remaining 20% of the Russian
subsidiary is owned by a Division of the Ministry of Interior of Russia.
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 in 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.
All of the aforementioned 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.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Internet VIP, Inc.
and its wholly owned subsidiaries. Material intercompany balances and
transactions have been eliminated in consolidation.
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.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(in U.S. dollars)
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.
Stock-Based Compensation
The Company accounts for stock options granted to consultants in accordance with
SFAS No. 123, "Stock-Based Compensation."
Per Share Data
SFAS No. 128, "Earnings per Share," establishes 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 amounts of the Company's financial instruments approximate fair
value due to their short-term nature.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives when the
property and equipment is place in service. Fixed assets contain mainly
telecomunication equipment and the estimated useful life for the equipment is
three years. As of February 29, 2000, no depreciation was recorded as the
Company's telecommunications equipment is not yet operational.
Organizational and Development Costs
Organizational and development costs are expensed as incurred.
Nonmonetary Transactions
The Company accounts for nonmonetary transactions in accordance with Accounting
Principles Board ("APB") Opinion No. 29, `Accounting for Nonmonetary
Transactions." The nonmonetary transactions are based on the fair values of the
assets (or services) involved which is the same basis as that used in monetary
transactions.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(in U.S. dollars)
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.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("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 has concluded that this SFAS will not
have a material impact on its financial statements, when adopted.
In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial
Statements." It expresses the views of the SEC staff in applying generally
accepted accounting principles to certain revenue recognition issues. The
Company has concluded that this SAB does not have a material impact on its
financial statements.
In April 2000, the FASB issued FASB interpretation NO. (FIN) 44, "Accounting for
Certain Transactions Involving Stock Compensation: an Interpretation of APB
Opinion NO. 25." The Company has concluded that this interpretation does not
have a material impact on its financial statements.
3. PROPERTY AND EQUIPMENT
----------------------
In December, 1999, the Company purchased $30,000 computer equipment from a
nonaffiliated party. The Company issued warrants to purchase up to 600,000
shares of common stock in consideration of the purchase of such equipment. The
warrants are valued at the fair market value of the equipment purchased. The
warrants are exercisable any time for the price of $1.50 per share, until
December 31, 2002.
4. ACCRUED EXPENSES
----------------
Accrued expenses consist of the following as of February 29, 2000 and February
28,1999:
2000 1999
Accrued professional fees $ 81,000 $ 47,037
Accrued equipment purchases 61,000 -
Accrued technical fees 48,035 -
Accrued line rental fees 42,960 -
Accrued expenses - others 6,179 21,221
------------- -------------
$ 239,174 $ 68,258
============= =============
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(in U.S. dollars)
5. LOANS PAYABLE
-------------
The Company received a $10,000 loan from an affiliated company (an entity owned
by a shareholder). The loan is payable on August 31, 2000 and bears 10%,
interest per annum.
On October 1, 1999, the Company entered into a $25,000 loan agreement with a
nonaffiliated party for a period of six months. Pursuant to the agreement, the
Company issued the lender 50,000 shares of common stock in lieu of interest. The
fair value of these shares of $25,000 was recorded as prepaid interest and
amortized over the term of the loan. As of February 29, 2000, $15,000 of the
loan is outstanding.
On February 1, 2000, the Company entered into a $30,000 loan agreement with a
nonaffiliated party for a period of six months. The loan bears interest of 5%
per month, payable in cash or 6,000 common shares of the Company, at the
Company's option. The loan is convertible at any time, at the lender's option,
in whole or in part, to common shares of the Company at a conversion rate of
$0.25 per share. The interest expense resulting from the beneficial conversion
feature has been charged to the statement of operations for the year ended
February 29, 2000. Substantially all of the Company's assets are pledged to
guarantee that repayment of the loan.
6. INCOME TAXES
As of February 29, 2000, the Company has net operating losses available to
offset future income for book and tax purposes of approximately $1.5 million.
Approximately $200,000 and $1,300,000 of such loss carryforwards expire in
February 2019 and 2020, respectively. The annual utilization of these loss
carryforwards will be substantially limited if there are changes in the
Company's ownership.
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.
7. COMMITMENTS AND CONTINGENCIES
-----------------------------
Lease Commitment
The Company leases office space in Montreal from an affiliated company (an
entity owned by several shareholders of the Company), and in Moscow for various
periods ending March 2003, under operating leases. Future minimum annual lease
payments are as follows:
For the fiscal year ending
2001 $ 60,400
2002 37,200
2003 37,200
2004 3,100
-------------
$ 137,900
Rent expense for the period from inception (November 13, 1998) to February 28,
1999 and for the year ended February 29, 2000 was approximately $4,000 and
$79,000, respectively.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(in U.S. dollars)
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 in
consideration for $6,000 per month. In accordance to the agreement commitment
will start when the Company reaches certain amount of revenues as defined in the
agreement. Nais Corp. claims that it is owed approximately $70,000 as of
February 29, 2000. Management, believes, based on the agreement, this claim has
no merit.
Consulting fees for the period from inception (November 13, 1998) to February
28, 1999 and for the year ended February 29, 2000 were approximately $15,000 and
$0, respectively.
In February 1999, the Company entered into a one-year consulting agreement with
Global Asset Management Group, Inc. ("Global Asset"), a shareholder. According
to the contract, Global Asset will provide the Company with financial consulting
and venture capital financing consulting services in consideration of 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 was amortized over the contract period (one
year). As at February 29, 2000, the amount is fully amortized.
Facilities Management Agreement
In February 1999, the Company entered into a five-year agreement with
Bridgepoint Enterprises ("Bridgepoint"), an affiliated company (an entity owned
by a shareholder), 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 fiscal year ending
2001 $ 96,000
2002 96,000
2003 96,000
2004 88,000
------------
$ 376,000
Maintenance fees for the period from inception (November 13, 1998) to February
28, 1999 and for the year ended February 29, 2000 were approximately $8,000 and
$96,000, respectively.
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.
Telecommunication cost for the period from inception (November 13, 1998) to
February 28, 1999 and for the year ended February 29, 2000 was approximately $0
and $160,000, respectively.
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARY
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2000
(in U.S. dollars)
8. RELATED PARTIES
---------------
The Company received consulting services from several shareholders. Fees paid
for such services in the period from inception (November 13, 1998) to February
28, 1999 and for the year ended February 29, 2000 were $14,000 and $218,750,
respectively.
9. SUBSEQUENT EVENTS
-----------------
Subsequent to February 29, 2000, the Company issued additional debt of $75,000
to various individual investors.
The Company entered into a one-year employment agreement with its CEO. The
Agreement provided for an annual salary of $90,000. In addition, the Company
issued the CEO stock options to purchase up to 100,000 shares of common stock at
an exercise price of $0.0001 per share and an additional 100,000 shares at $0.05
per share.
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. Subsequent to February 29, 2000, 643,900 shares and 321,950
warrants were issued in connection with this offering.
In May 2000, the Company issued 643,400 shares of common stock for noncash
consideration to Reichtel International Corp. of Geneva Switzerland in
consideration of consulting services provided.
Subsequent to February 29, 2000, the Company issued additional 218,250 shares of
common stocks for noncash consideration in lieu of interest repayment and
services provided by nonaffiliate parties.
Subsequent to February 29, 2000, the Company entered an equipment, software
purchase and one-year service agreement with Foreigners Telecommunication
Services Inc. ("Fortel"), a Montreal corporation, to purchase billing software
and platform in the amount of approximately $54,000. According to the agreement,
Fortel will provide technical consulting services to the Company for a monthly
charge of approximately $10,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Ilya Gerol
Dr. Ilya Gerol Chairman Date: November 10, 2000
/s/ Christian Richer
Christian Richer President, CEO and Director Date: November 10, 2000
(Chief Executive Officer)
/s/ Michael MacInnis
Michael MacInnis CFO and Director Date: November 10, 2000
(Chief Financial Officer)
/s/ Viatschlav Makarov
Viatscheslav Makarov Director, VP -Sales &
Marketing Date: November 10, 2000
