SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended August 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange Act
Commission file number 0-26949
INTERNET VIP, INC.
(exact name of small business issuer as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
11-3500919
(IRS Employer Identification No.)
1155 University St., Suite 602, Montreal, Canada H3B 3A7
(Address of principal executive offices)
(514) 448-4847
(Registrant's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of August 31, 2000 the Registrant had 24,955,377 shares of its Common Stock
outstanding
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
Index to Form 10-QSB
For the Quarter ended August 31, 2000
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of August 31, 2000 3
Statement of Income from inception (November 4
13, 1998) to August 31, 2000 and for the six months and
three months ended August 31, 2000 and 1999
Statement of Cash Flows from inception (November 5
13, 1998) to August 31, 2000 and for the six months
ended August 31, 2000 and 1999
Notes to the Financial Statements for the six months 6-7
Ended August 31, 2000
Item 2. Management's Discussion and Analysis 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AT AUGUST 31, 2000
(AUDITED)
Assets
Current Assets
Cash and cash equivalents $ 3,301
Receivables, net 31,422
Other current assets 64,048
Total current assets 98,771
Property and equipment, net 352,489
Total assets 451,260
==================
Liabilities and Shareholder's Equity
Current Liabilities
Accounts payable 420,992
Short term borrowings (principally
related parties) 202,188
Other current liabilities 84,715
Total current liabilities 707,895
Shareholder's Equity
Common Stock, $.0001 par value;
authorized 50,000,000 shares; 2,496
issued and outstanding - 24,955,377
Paid in Capital 3,501,776
Deferred Compensation (66,667)
Deficit accumulated during the development stage (3,694,240)
Total Shareholder's Equity (256,635)
Total liabilities and shareholder's equity $ 451,260
==================
Read the accompanying accounting notes to financial
statements, which are an integral part of this financial statement.
<PAGE>
<TABLE>
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF INCOME
FROM INCEPTION (NOVEMBER 13, 1998) TO AUGUST 31, 2000
FOR THE SIX MONTHS AND THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Inception
(November 13, 1998) Six Months Three Months
through Ended August 31, Ended August 31,
-----------------------------------------------------
August 31, 2000 2000 1999 2000 1999
-------------------- ----------- ------------ ------------ -----------
Operating expenses: $ 1,449,984 $ 684,863 $ 92,904 $ (4,015) $ 56,736
Marketing 732,946 514,639 75,350 331,846 56,350
Network Operations 428,818 358,536 58,040 184,434 22,000
Salaries and payroll related 351,556 175,488 270,214 46,289 121,025
Professional Fees 261,726 65,043 78,741 19,822 74,613
Travel 100,000 - 50,000 - 25,000
Amortization of deferred expenses 68,788 68,788 - 35,106 -
Depreciation 61,786 14,967 35,109 8,300 22,200
Rent 89,354 48,182 7,026 (9,775) 4,684
Selling, general and administrative expenses --------- ----------- ------------ ----------- -----------
Total operating expenses 3,544,958 1,930,506 667,384 612,007 382,608
Loss before other income (expense) (3,544,958) (1,930,506) (667,384) (612,007) (382,608)
Other income (expense): (176,600) (120,767) - (37,575) -
Interest expense 27,318 27,318 - 8,171 -
Other income ---------- ----------- ------------ ------------ -----------
Total other income (expense) (149,282) (93,449) - (29,404) -
----------- ------------ ------------ ----------- -----------
Net Loss (3,694,240) (2,023,955) (667,384) (641,411) (382,608)
=========== ============ ============ =========== ===========
Basic weighted average common shares outstanding 24,377,794 21,872,355 23,856,186 22,193,728
============ ============ =========== ===========
Basic Loss per common share $ (0.0830) $ (0.0305) $ (0.0269) $ (0.0172)
============ ============ =========== ===========
</TABLE>
Read the accompanying accounting notes to financial
statements, which are an integral part of this financial statement.
<PAGE>
<TABLE>
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FROM INCEPTION (NOVEMBER 13, 1998) THROUGH AUGUST 31, 2000
FOR THE SIX MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
<S> <C> <C> <C>
Inception
(November 13, 1998) Six Months
through Ended August 31,
----------------------------------
August 31, 2000 2000 1999
------------------------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (3,694,240) $(2,023,955) $ (667,384)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 68,788 68,788 -
Stock issued for legal fees 100,000 - 50,000
Stock issued for compensation 133,333 133,333 -
Stock issued for marketing services 643,400 643,400 -
Stock issued for consulting services 458,666 86,959 137,500
Stock issued for interest 176,600 120,767 -
Changes in Operating assets and liabilities:
Receivables and other current assets (95,470) (82,668) (10,469)
Accounts payable and other current liabilities 505,707 266,533 (53,258)
------------------------- ---------------- --------------
Net cash provided by/(used in) operating activities (1,703,216) (786,843) (543,611)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment (391,277) (41,617) (171,644)
------------------------- ---------------- --------------
Net cash provided by/(used in) investing activities (391,277) (41,617) (171,644)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Stockholder's capital contribution, net 1,895,606 659,900 522,409
Short-term borrowing, net 202,188 147,188 -
------------------------- ---------------- --------------
Net cash provided by/(used in) financing activities 2,097,794 807,088 522,409
------------------------- ---------------- --------------
Net increase (decrease) in cash and cash equivalents 3,301 (21,372) (192,846)
Cash and cash equivalents, beginning of period - 24,673 223,624
------------------------- ---------------- --------------
Cash and cash equivalents, end of period $ 3,301 $ 3,301 $ 30,778
========================= ================ ==============
Supplemental Schedule of noncash investing and financing activities:
Warrants issued for non-cash equipment purchase 30,000
</TABLE>
Read the accompanying accounting notes to financial
statement, which are an integral part of this financial statement.
<PAGE>
INTERNET VIP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
AUGUST 31, 2000
NOTE 1 -BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Internet VIP,
Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Article 10 of Regulation S-X. The financial statements reflect all
adjustments consisting of normal recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the results for the periods
shown. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
These financial statements should be read in conjunction with the audited
financial statements and footnotes thereto for the fiscal year ended February
29, 2000 included in Internet VIP, Inc.'s Form 10-KSB filed with the Securities
and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and that effect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provide guidance for disclosures
related to revenue recognition policies. Management believes that Internet VIP,
Inc.'s revenue recognition practices are in conformity with the guidelines of
SAB 101.
NOTE 3 - NET LOSS PER SHARE
Basic earnings (loss) per share is computed using the weighted-average
number of common shares outstanding during the period. Options and warrants are
not considered since considering such items would have an antidilutive effect.
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The company reported a net loss of
$641,411 and $2,023,955 for the three and six months ended August 31, 2000 and a
net loss of $3,694,240 since inception. As reported on the statement of cash
flows, the Company incurred negative cash flows from operating activities of
$1,699,049 from inception. To date, this has been financed principally through
the sale of common stock ($1,891,439). Management believes the company will have
sufficient funds available from proceeds of private placements, debt issuance
and estimated revenues for the year ended February 28, 2001 to finance the
Company's operations through February 2001. Management has continued to develop
a strategic plan to develop a management team, maintain reporting compliance
and seek new expansive areas in Voice over Internet Protocol.
<PAGE>
NOTE 6 - STOCKHOLDER'S EQUITY
In March 2000, the Company sold 34,000 shares in a private placement at a
price of $0.50 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. From March through August 2000, 642,900 shares and 321,450
warrants were issued in connection with this offering.
From March through August 2000, the Company issued 120,767 share of common
stock in settlement of interest expense payments at a price of $1.00.
In May 2000, the Company issued 643,400 shares of common stock in
settlement of marketing services at a price of $1.00.
In May 2000, the Company issued 99,300 shares of common stock in settlement
of consulting services at a price ranging from $0.50 to $1.00.
In May 2000, the Company issued 100,000 shares of common stock to Christian
Richer, the President in accordance with the terms set forth in his employment
contract. The shares were valued at a price of $1.00 per share.
In August 2000, the Company issued 10,000 shares of common stock in
settlement of consulting services at a price of $1.00 per share.
NOTE 7 - SUBSEQUENT EVENTS
On September 30, 2000, the Company issued a convertible debenture to a union
investment fund in Canada, in the amount of CDN$300,000 (approximately
US$200,000), bearing interest at 10% a year and maturing September 30, 2002.
From the date of the second anniversary of the issuance of the debenture, the
Company may, at its discretion, repay the debenture in 36 equal monthly and
consecutive installments of capital and interest, on the first day of each
month. Regardless of the Company exercising its right to repay the debenture,
the debenture is convertible into common stock of the Company at a price of US
$1.00 per share, at any time.
<PAGE>
Item 2. Plan of Operations
The following discussion should be read in conjunction with the financial
statements and related notes that are included under Item 1. Statements made
below which are not historical facts are forward-looking statements.
Forward-looking statements involve a number of risks and uncertainties
including, but not limited to, general economic conditions, our ability to
complete development and then market our services, competitive factors and other
risk factors as stated in other of our public filings with the Securities and
Exchange Commission.
Overview
Internet VIP, Inc. (hereafter, the "Company" or "IVIP") was formed in November,
1998, to sell long distance international telephone services using the new
technology, Voice over Internet Protocol ("VoIP"). From its controlling
Switching Center in Montreal, Canada, calls are routed from anywhere in North
America to anywhere in the world using VoIP technology. The first phase of
operations plans to encompass calls, primarily, from North America to St.
Petersburg and/or Moscow, and vice versa.
IVIP established its business presence in Montreal, with the opening of an
office at 1155 University St., Suite 602 in February, 1999. The Montreal office
has become the Company's worldwide headquarters and the hub of its
telecommunications network.
During 1999 the Company completed private offerings in which it netted
approximately $1,200,000. The bulk of the proceeds were used to purchase and
install equipment for its facilities in Moscow and Montreal, to finance trips to
develop the Company's business in Russia, and network leasing costs.
Results of Operations
Three months and six months ended August 31, 2000 and 1999
During the three and six month period ending August 31, 2000, the Company
incurred a loss of $641,411 and $2,023,955 respectively compared to a loss of
$382,608 and 667,384 for the same periods ended August 31, 1999. The company has
an accumulated deficit since inception of $3,694,240. This increase was
primarily driven by an increase in expenses incurred to bring the Company
operational, and business development in Europe and the Caribbean region. Our
network is expected to become fully operational during the third quarter of this
fiscal year.
Revenues
No revenues have been generated from sales of products or services from
inception to August 31, 2000.
<PAGE>
Operating Expenses
During the three months ended August 31, 2000, the company incurred $612,007 in
operating expenses as compared to $382,608 in the same period in 1999. The
increase was due mostly to increases in network operations costs as well as
salaries. During the six months ended August 31, 2000, the company incurred
$1,930,506 in operating expenses as compared to $667,384 in the same period in
1999. The increase was due to increases in marketing, network operations cost
and salaries.
Depreciation
During the three and six month period ending August 31, 2000, the Company
incurred depreciation expense in the amounts of $35,106 and $68,788 compared to
no depreciation for the same periods in 1999. Depreciation from inception is
$68,788. The increase in depreciation is due to assets being placed in service
in the three and six month period ending August 31, 2000.
Interest Expense
During the three and six month period ending August 31, 2000, the Company
incurred interest expense of $37,575 and $120,767 respectively compared to no
interest for the same periods in 1999. Interest expense from inception is
$176,600. The increase in interest expense is due to the company borrowing funds
to continue to fund the operations in the development stage.
Material changes in financial condition, liquidity and capital resources
At August 31, 2000, the Company had $3,301 in cash and cash equivalents compared
to $30,778 for the same period in 1999. The Company had a working capital
deficit of approximately $609,124 at August 31, 2000. Net cash used in operating
activities for the six months ended August 31, 2000 was $786,843 compared to
$543,611 for the same period in 1999 and $1,703,216 since inception. Cash used
was mainly attributable to the net cash loss from operations as well as changes
in net operating assets and liabilities.
Net cash used in investing activities was $41,617 for the six months ended
August 31, 2000 compared to $171,644 for the six months ended August 31, 1999.
Net cash used since inception was $391,277. The net cash used was for the
purchase of equipment required for operations and development.
Net cash provided by financing activities was a net of $807,088 for the six
months ended August 31, 2000 and $522,409 for the same period in 1999. Net cash
provided since inception was $2,097,794. These amounts are primarily
attributable from sale of shares through private placements for both periods as
well as the net effect of short term borrowings.
Beginning on March 16, 2000, the Company commenced a new private placement of up
to $1,500,000. As of August 31, 2000, $659,900 had been raised.
Also, during this quarter the Company borrowed an additional approximately
$147,000 for six months, from several non-affiliated parties, bringing its total
indebtedness for these types of loans to $202,188. In lieu of cash, interest on
these loans is paid in the form of common shares.
The monthly financial requirements for the Company, not including the cost of
the leases for dedicated fibre-optic lines, and not including management and
senior consultant salaries and fees, for both the Montreal and Moscow offices
<PAGE>
are estimated to be $20,000. At the quarter end, the Company had $3,301 in cash
and cash equivalents. However, subsequent to the quarter end, the Company
received a $200,000 convertible loan from Fonds D'Action, a labor sponsored
investment fund, headquartered in Quebec, Canada.
Management and senior consultant salaries and fees are currently approximately
$50,000 per month. However, several of the management staff had agreed to accrue
their salaries indefinitely.
Monthly payment for network lines began upon successful installation of our
equipment and operating of the two centers. This occurred around December 1,
1999. From that time onward IVIP began monthly line lease payments, which are
currently approximately $60,000 per month. The commencement of utilization of
leased lines will require additional capital, which the Company will seek to
obtain through private placements. There is no assurance that IVIP will obtain
any of this financing.
IVIP has no plans to conduct any research and development nor to expend any
additional funds on plant and equipment in the near term, except as indicated
above. The Company does not anticipate realizing any income from the sale of any
plant or significant equipment.
General Operations
In the quarter, the Company completed testing additional nodes in its network
required for the first phase of its business objectives. The Company also
continued the process of signing up users and obtaining firm commitments for
usage.
IVIP sales personnel, both Canadian and Russian, continued visiting with
potential customers in Russia, primarily in the government and industrial
sectors, in ongoing efforts to obtain letters of interest or letters of intent
in anticipation of the network carrying revenue producing traffic. During the
quarter, the Company added St. Petersburg (Russia) to its target market.
The Company also took what it believes is a large forward step by acting to meet
potential customer demands for a direct link into New York and Toronto.
Accordingly, during the quarter, the Company completed installation begun in the
previous quarter and finalized testing of a link from New York to our
operational hub in Montreal. Expenses related to the New York switch were
approximately $41,000. The New York switch is expected to become operational in
November 2000. Based upon comments from potential customers, the Company
believes that with the New York switch operational we can now approach large
users and obtain significant contracts. No assurances can be given that these
plans will actually result in increased revenues.
Additionally, the Company added Toronto, as a node to our network, making us
more accessible to potential large customers in Canada for our wholesale traffic
market. Approximately $10,000 was spent to establish this link in Toronto, which
became operational in October, 2000.
During the quarter the Company terminated its technical support contract with
Bridgepoint Enterprises and decided to build up its own technical support group.
Currently, we have three telecom consultants on call. The estimated costs to the
Company is approximately $19,000 per month. Bridgepoint is still under contract
to only provide co-location services for our Montreal gateway, at a
re-negotiated cost of $1550 per month.
<PAGE>
Expansion
The Company intends to expand its operations into St. Petersburg. Once the
Moscow facility is operational, cash flows generated by the Moscow facility and
additional financing will be used to pay for this addition. In the quarter, the
gateway was successfully installed and testing is expected to be completed by
mid-October, 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.
In general, total costs for each new facility including equipment, installation,
marketing and office personnel is currently estimated at $300,000. The balance
of any funding, if successful will be utilized for advertising and marketing to
address the retail prepaid phone card market. To date, the Company has not spent
any funds on any additional facilities.
The Company's business plan currently calls for expansion into other markets,
such as Mexico and the Caribbean region, 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.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
During the quarter, the Company sold 2,500 units consisting of two
common shares and one warrant. Each warrant is exercisable into one common share
at $1.50 per share until March 31, 2003. The units were sold at $2.00 per unit.
These units were issued pursuant to the exemption from registration contained in
Regulation S, of the Act.
During the quarter, the Company issued 44,675 shares of restricted
common stock to various non-related parties as interest payment on short term
loans made to the Company. These shares were issued pursuant to the exemption
from registration contained in Section 4(2) of the Act.
During the quarter, the Company agreed to issue 10,000 shares of
restricted common stock to a technical consultant, in lieu of monies owed to him
for consulting services rendered to the Company. These shares were issued
pursuant to the exemption from registration contained in Section 4(2) of the
Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
Following the close of the quarter, the Company terminated its
relationship with its auditor, Arthur Andersen, LLP. Accordingly, this report
was not reviewed by Arthur Andersen. The Company intends to file a Current
Report on Form 8-K, as required.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the 1934 Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
INTERNET VIP, INC.
By: /s/Ilya Gerol
Ilya Gerol, Chairman of the Board
October 16, 2000
