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 November 30, 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 December 31, 2000 the Registrant had 25,064,892 shares of its Common Stock
outstanding
Transitional Small Business Disclosure Format: YES [ ] NO [X]
<PAGE>
Index to Form 10-QSB
For the Quarter ended November 30, 2000
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheet as of November 30, 2000 3
Statement of Income from inception (November 4
13, 1998) to November 30, 2000 and for the nine months and
three months ended November 30, 2000 and 1999
Statement of Cash Flows from inception (November 5
13, 1998) to November 30, 2000 and for the nine months
ended November 30, 2000 and 1999
Notes to the Financial Statements for the nine months 6-7
Ended November 30, 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
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
BALANCE SHEET
AT NOVEMBER 30, 2000
(UNAUDITED)
Assets
Current assets
Cash and cash equivalents $ 58,595
Accounts receivable, net 324,495
Other receivables 35,738
Prepaid expenses 77,676
Other current assets 22,000
------------
Total current assets 518,504
Property and equipment, net 350,572
Other assets 43,816
------------
Total assets 912,892
=============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable 698,630
Short term borrowings (principally related parties) 211,224
Other current liabilities 140,742
Total current liabilities 1,050,596
Long Term Debt 200,100
Other Liabilities 3,802
Total Liabilites 1,254,497
Shareholders' Equity
Common Stock, $.0001 par value; authorized 50,000,000 shares; 2,507
issued and outstanding - 25,064,892
Paid in Capital 3,619,880
Deferred Compensation (41,666)
Deficit accumulated during the development stage (3,922,326)
Total Shareholder's Equity (341,606)
Total liabilities and shareholder's equity $ 912,892
=============
Read the accompanying accounting notes to financial
statements, which are an integral part of this financial statement.
3
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF INCOME
FROM INCEPTION (NOVEMBER 13, 1998) TO NOVEMBER 30, 2000
FOR THE NINE MONTHS AND THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C> <C>
Inception Nine Months Three Months
(November 13, 1998) Ended November 30, Ended November 30,
through -------------------------------------------------------
November 30, 2000 2000 1999 2000 1999
---------------------------------- ------------ ------------ -----------
Revenues $ 524,854 $ 524,854 $ - $ 497,536 $ -
Cost of Sales 1,296,350 1,078,043 46,965 494,616 42,680
-------------------- ------------ ------------ ------------ -----------
Gross Profit (771,496) (553,189) (46,965) 2,920 (42,680)
Operating expenses:
Marketing 1,458,065 692,944 105,879 8,081 12,975
Salaries and payroll related 539,602 469,320 90,540 110,784 14,500
Professional Fees 342,171 166,103 246,174 (9,385) 31,560
Travel 282,983 86,300 240,277 21,257 52,871
Amortization of deferred compensation 100,000 - 75,000 - 25,000
Rent 66,498 19,679 55,084 4,712 19,975
Selling, general and administrative expenses 101,796 60,624 8,314 12,442 1,287
-------------------- ------------ ------------ ------------ -----------
Total operating expenses 2,891,115 1,494,970 821,268 147,891 158,168
Loss before other income (expense) (3,662,611) (2,048,159) (868,233) (144,971) (200,848)
Other income (expense):
Interest expense (259,715) (203,882) - (83,115) -
-------------------- ------------ ------------ ------------ -----------
Total other income (expense) (259,715) (203,882) - (83,115) -
-------------------- ------------ ------------ ------------ -----------
Net Loss (3,922,326) (2,252,041) (868,233) (228,086) (200,848)
==================== ============ ============ ============ ===========
Basic weighted average common shares outstanding 24,579,203 22,065,499 23,920,491 22,451,788
============ ============ ============ ===========
Basic Loss per common share $ (0.0916) $ (0.0393) $ (0.0095) $ (0.0089)
============ ============ ============ ===========
</TABLE>
Read the accompanying accounting notes to financial
statements, which are an integral part of this financial statement.
4
<PAGE>
INTERNET VIP, INC. AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
FROM INCEPTION (NOVEMBER 13, 1998) THROUGH NOVEMBER 30, 2000
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<S> <C> <C> <C>
Inception Nine Months
(November 13, 1998) Ended November 30,
through --------------------------------
November 30, 2000 2000 1999
----------------------------------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (3,922,326) $(2,252,041) $ (868,233)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 116,295 116,295 -
Amortization of stock options 58,334 58,334 -
Stock issued for legal fees 100,000 - 75,000
Stock issued for compensation 100,000 100,000 -
Stock issued for marketing services 643,400 643,400 -
Stock issued for consulting services 464,082 92,375 252,500
Stock issued for interest 157,415 132,415 8,333
Warrants issued for interest 101,050 66,050 -
Changes in Operating assets and liabilities:
Receivables and other current assets (503,725) (490,923) (60,789)
Accounts payable and other current liabilities 843,174 604,000 (32,126)
----------------------- --------------- --------------
Net cash provided by/(used in) operating activities (1,842,301) (930,095) (625,315)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and equipment (436,867) (87,207) (262,160)
----------------------- --------------- --------------
Net cash provided by/(used in) investing activities (436,867) (87,207) (262,160)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Stockholder's capital contribution, net 1,891,439 659,900 747,878
Convertible debentures 200,100 200,100 -
Short-term borrowing, net 246,224 191,224 27,604
----------------------- --------------- --------------
Net cash provided by/(used in) financing activities 2,337,763 1,051,224 775,482
----------------------- --------------- --------------
Net increase (decrease) in cash and cash equivalents 58,595 33,922 (111,993)
Cash and cash equivalents, beginning of period - 24,673 223,624
----------------------- --------------- --------------
Cash and cash equivalents, end of period $ 58,595 $ 58,595 $ 111,631
======================= =============== ==============
Supplemental Schedule of noncash investing and financing activities:
Warrants issued for non-cash equipment purchase 30,000
Shares issued to extinguish short term borrowings 35,000 35,000
</TABLE>
Read the accompanying accounting notes to financial
statement, which are an integral part of this financial statement.
5
<PAGE>
INTERNET VIP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOVEMBER 30, 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 Annual Report on 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
$228,086 and $2,252,041 for the three and nine months ended November 30, 2000
and a net loss of $3,922,326 since inception. As reported on the statement of
cash flows, the Company incurred negative cash flows from operating activities
of $1,842,301 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 until 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.
6
<PAGE>
INTERNET VIP, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOVEMBER 30, 2000
NOTE 5 - 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 to August 2000, 642,900 shares and 321,450 warrants
were issued in connection with this offering.
From March to August 2000, the Company issued 120,767 share of common stock
in settlement of interest expense payments at a price of $1.00 per share.
In May 2000, the Company issued 643,400 shares of common stock in
settlement of marketing services at a price of $1.00 per share.
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 per share.
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.
On September 30, 2000 the Company settled short term loans in the amount of
$35,000 by issuing 42,000 shares of common stock at a price of $.8333 per share.
From September 1, 2000 through November 30, 2000 the Company issued 67,515
shares of common stock in settlement of interest expense payments at a price of
$1.00 per share.
NOTE 6 - CONVERTIBLE DEBENTURE
On September 30, 2000, the Company issued a convertible debenture to a union
investment fund in Canada, in the amount of CDN$300,000, 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.
7
<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 nine months ended November 30, 2000 and 1999
During the three and nine month periods ending November 30, 2000, the Company
incurred a loss of $228,086 and $2,252,041, respectively, compared to a loss of
$200,848 and 868,233 for the same periods ended November 30, 1999. The company
has an accumulated deficit since inception of $3,922,326. 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.
Revenues
During the three and nine month periods ending November 30, 2000, the Company
generated revenue from sales of products and services of $497,536 and $524,854,
respectively, compared to zero for the same periods ended November 30, 1999.
Revenue generated since inception from sales of products and services is
$524,854.
8
<PAGE>
Operating Expenses
During the three months ended November 30, 2000, the company incurred $147,891
in operating expenses as compared to $158,168 in the same period in 1999. The
decrease was due mostly to decreases in professional fees, travel and rent
offset by an increase in salaries. During the nine months ended November 30,
2000, the company incurred $1,494,970 in operating expenses as compared to
$821,268 in the same period in 1999. The increase was due to increases in
marketing and salaries offset by decreases in professional fees, travel and
deferred compensation expense.
Depreciation
During the three and nine month periods ending November 30, 2000, the Company
incurred depreciation expense in the amounts of $47,507 and $116,295,
respectively, compared to no depreciation for the same periods in 1999.
Depreciation from inception is $116,295. The increase in depreciation is due to
assets being placed in service in the three and nine month periods ending
November 30, 2000.
Interest Expense
During the three and nine month periods ending November 30, 2000, the Company
incurred interest expense of $83,115 and $203,882, respectively, compared to no
interest for the same periods in 1999. Interest expense from inception is
$259,715. 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 November 30, 2000, the Company had $58,595 in cash and cash equivalents
compared to $111,631 for the same period in 1999. The Company had a working
capital deficit of approximately $532,092 at November 30, 2000. Net cash used in
operating activities for the nine months ended November 30, 2000 was $930,095
compared to $625,315 for the same period in 1999 and $1,842,301 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 $87,207 for the nine months ended
November 30, 2000 compared to $262,160 for the nine months ended November 30,
1999. Net cash used since inception was $436,867. 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 $1,051,224 for the nine
months ended November 30, 2000 and $775,482 for the same period in 1999. Net
cash provided since inception was $2,337,763. These amounts are primarily
attributable from sale of shares through private placements 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 November 30, 2000, $659,900 had been raised.
Also, during the previous quarter, the Company borrowed from several
non-affiliated parties, bringing its total indebtedness for these types of loans
to $246,224. In lieu of cash, interest on these loans is paid in the form of
common shares.
9
<PAGE>
The monthly financial requirements for the Company, not including the cost of
the leases for dedicated fibre-optic lines, and not including management and
senior consultant salaries and fees, for both the Montreal and Moscow offices
are estimated to be $20,000. At the quarter end, the Company had $58,595 in cash
and cash equivalents.
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 ended November 30, 2000, 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 became operational in December 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 third quarter, the Company began activities in the area of prepaid
long distance service, receiving a purchase order to produce $200,000 worth of
cards per month for termination of calls worldwide. We are also in contact and
discussions with several additional "switchless operators" that have indicated a
desire to sign contracts with us to provide prepaid long distance service on
their behalf.
Also 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
10
<PAGE>
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 $1,550 per month. The Company expects to save $6,450 per
month as a result of this change.
Expansion
The Company intends to expand its operations into St. Petersburg. As the Moscow
facility is now 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 tested. Useage is expected by end of
February, 2001. 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.
11
<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 Securities Act of 1933 (the "Act").
During the quarter, the Company issued 44,675 shares of restricted
common stock to various non-related parties as interest payments on short term
loans made to the Company. These shares were valued at $1.00 per share and 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 non-related technical consultant, in lieu of monies
owed to him for consulting services rendered to the Company. These shares were
valued at $10,000 and were issued pursuant to the exemption from registration
contained in Section 4(2) of the Act.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule
12
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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
January 8, 2001
13
