<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: JUNE 30, 2000
Commission File Number: 0-26415
INTERNATIONAL INTERNET, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 13-3876100
(State of Incorporation) (IRS Employer ID No)
6413 CONGRESS AVENUE, SUITE 240, BOCA RATON, FL 33487
(Address of principal executive office)
(561) 988-0819
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
----- -----
The number of shares outstanding of registrant's common stock, par value $.00001
per share, as of June 30, 2000 was 778,446,187.
Transitional Small Business Disclosure Format (Check one): Yes No X .
---- ---
<PAGE> 2
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
Page
No.
------
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated:
Balance Sheet - June 30, 2000 and December 31, 1999 3
Statement of Operations- 4
Three and Six Months Ended June 30, 2000 and 1999
Statement of Stockholders' Equity - 5
Six Months Ended June 30, 2000
Statements of Cash Flows - 6-7
Six Months Ended June 30, 2000 and 1999
Notes to Financial Statements - 8-13
Six Months Ended June 30, 2000 and 1999
Item 2. Managements Discussion and Analysis of Financial Condition 14-16
and Results of Operations
Part II. Other Information 17
</TABLE>
2
<PAGE> 3
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,021,311 $ 2,737,537
Restricted cash 2,919,873 -
Accounts receivable 112,143 34,098
Marketable equity securities 11,393,714 836,294
Inventory 310,786 97,934
Notes receivable 17,080 26,350
Prepaid income taxes 69,182 -
Prepaid expenses 94,682 4,136
Assets of discontinued operation - 447,665
------------------- ------------------
Total current assets 19,938,771 4,184,014
Property and equipment, net 177,249 97,209
Marketable equity securities 15,900,160 -
Investments in partially-owned equity affiliates 62,425 -
Goodwill, less accumulated amortization of $3,562 and $1,917 45,678 47,323
Other assets 15,721 10,882
------------------- ------------------
$ 36,140,004 $ 4,339,428
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,600,567 $ -
Accounts payable 273,853 131,754
Accrued expenses 3,442 5,244
Liabilities of discontinued operation - 590,110
Stockholder loans 16,748 18,000
Income taxes payable - 30,318
Deferred income taxes 3,949,708 284,508
------------------- ------------------
Total current liabilities 6,844,318 1,059,934
------------------- ------------------
Deferred income taxes 5,974,950 6,650
------------------- ------------------
STOCKHOLDERS' EQUITY
Common stock, $.00001 par value. Authorized 1,000,000,000 shares; issued and 7,784 7,674
outstanding 778,446,187 shares and 767,446,187 shares, respectively
Paid-in capital 6,659,881 2,658,741
Retained earnings 779,091 606,429
Accumulated other comprehensive income 15,873,980 -
------------------- ------------------
Total stockholders' equity 23,320,736 3,272,844
------------------- ------------------
$ 36,140,004 $ 4,339,428
=================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
SALES AND REVENUES $ 621,860 $ 170,055 $ 1,121,085 $ 221,359
COST OF SALES
483,156 136,586 878,217 178,299
------------ ------------ ------------- -------------
GROSS PROFIT 138,704 33,469 242,868 43,060
------------ ------------ ------------- -------------
OTHER INCOME (EXPENSE):
Selling, general and administrative expense (522,138) (201,997) (866,862) (339,404)
Interest expense (59,722) - (86,518) -
Sale of marketable equity securities 49,189 3,203,159 647,776 3,203,159
Interest and other income 128,620 18,672 158,013 18,759
Equity in net loss of affiliated company (13,866) - (13,866) -
Unrealized gain (loss) on marketable
securities (329,898) (2,544,542) 151,158 3,429,478
------------ ------------ ------------- -------------
Total other income (expense) (747,815) 475,292 (10,299) 6,311,992
------------ ------------ ------------- -------------
EARNINGS (LOSS) BEFORE INCOME TAXES (609,111) 508,761 232,569 6,355,052
INCOME TAX EXPENSE (BENEFIT) (229,100) 184,818 89,000 1,994,909
------------ ------------ ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS (380,011) 323,943 143,569 4,360,143
INCOME FROM DISCONTINUED OPERATIONS - - 29,093 -
------------ ------------ ------------- -------------
NET EARNINGS (LOSS) $ (380,011) $ 323,943 $ 172,662 $ 4,360,143
============ ============ ============= =============
NET EARNINGS PER SHARE
BASIC AND DILUTED $ (0.000) $ 0.000 $ 0.000 $ 0.006
============ ============ ============= =============
DISCONTINUED OPERATIONS $ - $ - $ 0.000 $ -
============ ============ ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC AND DILUTED 778,083,550 745,003,055 772,764,868 743,011,751
============ ============ ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Paid-in Retained Other Compre-
Shares Par Value Capital Earnings hensive Income Total
------ --------- -------- --------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ 767,446,187 $ 7,674 $ 2,658,741 $ 606,429 $ 3,272,844
Sale of common stock for cash 11,000,000 110 4,001,140 4,001,250
Comprehensive income:
Net income 172,662 172,662
Other comprehensive income,
net of tax:
Unrealized gain on available-
for-sale securities 15,873,980 15,873,980
-------------- --------- ----------- --------- ------------ -------------
BALANCE, June 30, 2000 $ 778,446,187 $ 7,784 $ 6,659,881 $ 779,091 $ 15,873,980 $ 23,320,736
============== ========= =========== ========= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 172,662 $ 4,360,144
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization 24,437 18,141
Gain from discontinued operations (29,093) -
Equity in loss of affiliated company 13,866 -
Gain on marketable investment securities (647,776) (3,203,159)
Unrealized gain on marketable investment securities (151,158) (3,429,478)
Proceeds from sale of marketable investment securities 678,566 3,210,644
Purchase of marketable investment securities (23,333) (20,000)
Deferred income taxes 56,100 1,296,898
Common stock issued for services - 9,297
Change in assets and liabilities:
Accounts receivable (78,044) 12,000
Inventory (212,852) (103,000)
Other assets (74,526) -
Notes receivable 9,270 -
Accounts payable (50,132) -
Accrued expenses (1,803) (1,148)
Income taxes payable (30,318) 698,011
--------- -----------
Net cash provided by (used in) operating activities (344,134) 2,848,350
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (101,463) (57,703)
Purchase of marketable investment securities (862,500) (25,000)
Acquisition of subsidiary - (18,000)
Proceeds from sale of 80% of ACS 500,000 -
Net advances to discontinued operation (497,412) -
--------- -----------
Net cash used in investing activities (961,375) (100,703)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock for cash 4,001,250 384,825
Loan proceeds 2,539,020 -
Loan repayment (29,863) -
Due to shareholders (1,252) 18,000
--------- -----------
Net cash provided by financing activities 6,509,155 402,825
--------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,203,646 3,150,472
CASH AND CASH EQUIVALENTS, beginning of period 2,737,538 116,965
--------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 7,941,184 $ 3,267,437
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements. Continued
6
<PAGE> 7
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED OF CASH FLOWS STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 86,518 $ -
Income taxes $ 150,000 $ -
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Insurance financing $ 94,410 $ -
Common stock issued for subsidiary $ - $ 31,240
Common stock issued assets $ - $ 3,750
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
A ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
International Internet, Inc. (the "Company" or "IINN"), is a diversified
holding company that develops and operates Internet and direct retail
marketing companies and computer service providers on the Internet. The
consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, StogiesOnline.com, Inc. ("Stogies")
(www.stogiesonline.com), and its majority owned subsidiaries,
TheBroadcastWeb.com, Inc. ("Broadcast") (www.thebroadcastweb.com) and Mr.
Cigar, Inc. ("Cigar").
IINN, through its Venture group, owns an equity interest in several
Internet companies, some of which are classified as trading securities
and some of which are classified as available-for-sale securities.
Stogies became an online distributor and retailer of brand name premium
cigars within the United States on November 18, 1998. Stogies' products
consist of premium cigars, factory brand name seconds and mass market
cigars, which are distributed online to retail and wholesale customers.
Broadcast is an aggregator and broadcaster of streaming media programming
on the Web with the network infrastructure to deliver or "stream" live
and on-demand audio programs over the Internet. Broadcast and its
representative sites (BluesBoyMusic.com, SoulManMusic.com and
JazzManMusic.com) rely primarily on providers of streaming media products
to license encoders to it in order to broadcast its content and to
distribute player software in order to create a broad base of users.
American Computer Systems, Inc. ("ACS") was acquired effective September
30, 1999 and is a full service provider of computer systems and services
to the federal government. ACS focuses on all phases of hardware
implementation, including system engineering, product design, software
integration and networking communications. IINN completed the sale of 80%
of their interest in ACS for $500,000 as of March 31, 2000.
In April 1999, IINN entered into a joint venture agreement with
AuctionAnything.com, Inc. to launch a cigar auction site,
StogiesAuction.com (www.stogiesauction.com), which offers its members the
ability to bid on popular cigars, rare cigars and other hard to find
cigar related items. The site offers a company-to-person trading platform
as well as a public, person-to-person trading platform, offering sellers
a vehicle for listing their own items for sale. Buyers are able to browse
for items arranged by topic and bid through an online service.
StogiesAuction.com is in direct competition with other Internet
companies, such as eBay, Inc., Excite Auction, Yahoo Auction and Amazon
Auction.
The financial statements included in this report have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission for interim reporting and include all adjustments
(consisting only of normal recurring adjustments) that are, in the
opinion of management, necessary for a fair presentation. These financial
statements have not been audited.
8
<PAGE> 9
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations for interim reporting. The Company believes that
the disclosures contained herein are adequate to make the information
presented not misleading. However, these financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report for the year ended December 31,
1999, which is included in the Company's Form 10-KSB for the year ended
December 31, 1999. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the
complete year. Certain reclassifications of the amounts presented for the
comparative period have been made to conform to the current presentation.
B. MARKETABLE INVESTMENT SECURITIES
FAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," requires that all applicable investments be classified as
trading securities, available-for-sale securities or held-to-maturity
securities. The Company has classified certain of its investments as
trading securities, which are reported at fair value, which is defined to
be the last closing price for the listed securities. The unrealized gains
and losses, which the Company recognizes from its trading securities, are
included in earnings. The Company also has investments classified as
available-for-sale, which are also required to be reported at fair value,
with unrealized gains and losses excluded from earnings and reported as a
separate component of shareholders' equity (net of the effect of income
taxes). Fair value is also defined to be the last closing price for the
listed security. Due to the size of certain of the Company's investments
and their limited trading volume, there can be no assurance that the
Company will realize the value which is required to be used by FAS No.
115.
The following summarize the Company's investments:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
<S> <C> <C>
TRADING SECURITIES
Cost $ 13,915 $ 21,373
Unrealized gain 907,225 756,067
---------- ----------
921,140 777,440
---------- ----------
AVAILABLE-FOR-SALE SECURITIES
Cost 921,354 58,854
Unrealized gain 25,451,380 -
---------- ----------
26,372,734 58,854
---------- ----------
Total FAS No. 115 value $ 27,293,874 $ 836,294
========== ==========
</TABLE>
Gains from trading securities that were included in earnings for the six
months ended June 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
2000
1999
<S> <C> <C>
Realized $ 647,776 $ 3,203,159
Unrealized $ 151,158 $ 3,429,478
</TABLE>
9
<PAGE> 10
Unrealized gains from available-for-sale securities included as a
component of equity for the six months ended June 30, 2000 and 1999 were
as follows:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Unrealized gain $ 25,451,380 $ -
Deferred income taxes (9,577,400) -
------------ -------------
$ 15,873,980 $ -
========== =============
</TABLE>
The Company's investment in available-for-sale securities includes
10,200,000 shares (10,000,000 shares not registered) of Goldonline
International, Inc. ("GDOL") with a cost of $158,854 and a closing value
on June 30, 2000 of $25,340,880 ($2.4844 per share). The Company's
investment represents 10.7% of the outstanding stock of GDOL and
accordingly the Company is subject to certain restrictions on the number
of shares it can sell. There can be no assurance that the Company will
realize the calculated carrying value for the securities.
C. NOTES PAYABLE AND COMPENSATING BALANCES
The Company has a credit facility with Merrill Lynch for $3,400,000 that
bears interest at the 30-day Dealer Commercial Paper Rate plus 2.3%. At
June 30, 2000, $2,539,020 had been drawn against this line. This facility
is subject to normal banking terms and conditions and requires
compensating balances not less than 115% of the line of credit drawn.
Restricted cash in the amount of $2,919,873 has been recorded in the
financial statements as a result of the compensating balance requirements
of the credit facility.
The Company financed certain insurance premiums in the amount of $91,410
during the six months ended June 30, 2000 and made payments aggregating
$29,863, leaving a balance at June 30, 2000 of $61,547.
D. INCOME TAXES
Income tax expense for continuing operations for the six months ended
June 30, 2000 and 1999 consists of:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Current tax expense:
Federal $ 28,100 $ 595,990
State 4,800 102,021
------- ---------
32,900 698,011
Deferred tax expense 56,100 1,296,898
------ ---------
Total income tax expense $ 89,000 $ 1,994,909
====== =========
</TABLE>
10
<PAGE> 11
Actual income tax expense applicable to earnings, from continuing
operations, before income taxes is reconciled with the "normally
expected" federal income tax expense as follows for the six months ended
June 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
"Normally expected" income tax expense $ 79,073 $ 2,160,718
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income 8,442 230,688
tax benefit
Change in valuation allowance - (396,797)
Nondeductible meals and other 1,485 300
------- -----------
$ 89,000 $ 1,994,909
====== =========
</TABLE>
The deferred income tax liabilities at June 30, 2000 are comprised of the
following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
<S> <C> <C>
Unrealized gain on trading securities $ 341,408 $ -
Unrealized gain on available-for-sale securities 3,608,300 5,969,100
Equity in net loss of affiliated company - (5,200)
Asset basis - 11,050
---------------- ----------
Net deferred income tax liabilities $ 3,949,708 $ 5,974,950
=========== ===========
</TABLE>
E. COMMON STOCK
On March 15, 2000, the Company entered into an agreement with Avenel
Financial Group ("AFG") to structure and fund an investment in the
Company in an amount of up to $11,250,000. The Company plans to issue and
sell to investors restricted shares of the Company's common stock at a
purchase price of $.375 per share. For each five shares of common stock
purchased, the investor will also receive a warrant which shall entitle
the owner to purchase one share of common stock at an exercise price of
$1.50 per share. AFG will be paid a fee of 3% of the gross amount funded
to the Company.
On April 3, 2000, the Company issued, in a private sale, 11,000,000
shares of its unregistered common stock and 2,200,000 of its warrants,
with an exercise price of $1.50 per share for net proceeds of $4,001,250.
F. STOCK OPTIONS AND WARRANTS
On September 30, 1999, as part of an employment agreement, the Company
granted an option to purchase 2,000,000 shares of its common stock at an
exercise price of $.10 per share. The option was scheduled to vest and
become exercisable on September 30, 2000 and expire on September 30,
2004. The stock option expired in April 2000, when the employee resigned.
The Company has 2,200,000 warrants to purchase its common stock, with an
exercise price of $1.50 per share, outstanding at June 30, 2000.
11
<PAGE> 12
G. DIVESTITURES
In December 1999, the Company decided to sell its wholly owned subsidiary
ACS. In March 2000, the Company completed the agreement for sale of 80%
of its interest in ACS to an ACS officer for $500,000. The Company
received the full payment on April 5, 2000.
The ACS segment is accounted for as a discontinued operation, and
accordingly, amounts in the financial statements and related notes since
the acquisition of ACS effective September 30, 1999, have been shown as
discontinued operations. The assets of discontinued operations at March
31, 2000 consist of:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 106,481
Accounts receivable 86,864
Property and equipment, net 26,825
Other assets 162,287
----------
Total assets 382,457
Liabilities 729,957
----------
Net assets of discontinued operations $ (347,500)
----------
</TABLE>
Operating results of the discontinued segment during the three months
ended March 31, 2000, including expenses associated with the divestiture,
are as follows:
<TABLE>
<S> <C>
Net sales $ 43,830
----------
Loss from operations before income taxes $ (148,141)
Income tax benefit 55,800
----------
Net loss from discontinued operations (92,341)
----------
Gain on sale 194,834
Income taxes (73,400)
----------
Net gain on sale 121,434
----------
Net earnings from discontinued operations $ 29,093
==========
Net earnings per common share:
Basic $ 0.00
==========
Diluted $ 0.00
==========
</TABLE>
12
<PAGE> 13
H. SEGMENT INFORMATION
The Company operates in the following segments, none of which have
intersegment revenues:
<TABLE>
<CAPTION>
Ventures Stogies Broadcast Corporate Consolidated
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 1,120,667 $ 418$ - $ 1,121,085
Operating loss (136,686) (149,929) (98,592) (238,787) (623,994)
Other income 785,068 - (11) 71,506 856,563
Income from
continuing
operations 495,782 (139,429) (62,104) (150,680) 143,569
Discontinued
Operations 29,093
----------
Net earnings $ 172,662
=========
Assets $ 27,356,300 $ 539,269 $ 116,793 $ 8,127,642 $ 36,140,004
========== ======= ======= ========= ==========
</TABLE>
The Venture segment owns an equity interest in several companies, mainly
with Internet operations, and derives its revenues from the net gains and
losses recognized when the investments are sold. In addition, the Venture
segment recognizes income or loss from the unrealized gains or losses
associated with their trading securities.
The Stogies segment is an online distributor and retailer of brand name
premium cigars within the United States, from which it derives all of its
revenues.
The Broadcast segment is an aggregator and broadcaster of streaming media
programming on the Web with the network infrastructure to deliver or
"stream" live and on-demand audio programs over the Internet. Broadcast
will derive its revenues from advertising sales.
Corporate assets consist of the majority of the cash and certain notes
receivable. Interest expense will be allocated to the other segments to
the extent it exceeds interest income.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From time to time, the Company may publish forward-looking statements
relative to such matters as anticipated financial performance, business
prospects, technological developments and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. All statements other than statements of
historical fact included in this section or elsewhere in this report are,
or may be deemed to be, forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange
Act of 1934. Important factors that could cause actual results to differ
materially from those discussed in such forward-looking statements
include: 1. General economic factors including, but not limited to,
changes in interest rates, trends in disposable income; 2. Information
and technological advances; 3. Cost of products sold; 4. Competition; and
5. Success of marketing, advertising and promotional campaigns.
The Company's continuing operations consist of two Internet based
businesses. Stogies is an online distributor and retailer of brand name
premium cigars within the United States and Canada. Broadcast is an
aggregator and broadcaster of streaming media programming on the Web with
the network infrastructure to deliver or "stream" live and on-demand
audio programs over the Internet and Intranets.
Stogies became operational in November 1998 and it accounts for
substantially all of the sales revenue. Broadcast is still completing
development of their infrastructure and expanding their base of
listeners, and does not expect to commence advertising revenues, other
than nominal amounts, until the end of the year 2000.
A. LIQUIDITY AND CAPITAL RESOURCES
The Company increased its working capital from $3,124,080 at December 31,
1999 to $13,094,453 at June 30, 2000. The major components of the
increase in the amount of $9,970,373 includes increases in cash in the
amount of $5,203,647, increases in marketable equity securities in the
amount of $10,557,420 and less an increase in notes payable in the amount
of $2,600,567 and an increase in deferred taxes payable in the amount of
$3,605,400.
The Company had $334,134 in cash flow used in operations during the six
months ended June 30, 2000 as compared to $2,848,350 in cash provided by
operations in the year earlier period. The year earlier period included
proceeds from the sale of marketable securities in the amount of
$3,210,644 as compared to the current period amount of $678,566.
On March 15, 2000, the Company entered into an agreement with Avenel
Financial Group ("AFG") to structure and fund an investment in the
Company in an amount of up to $11,250,000. The Company will issue and
sell to investors restricted shares of the Company's common stock at a
purchase price of $.375 per share. For each five shares of common stock
purchased, the investor will also receive a warrant which shall entitle
the owner to purchase one share of common stock at an exercise price of
$1.50 per share. AFG will be paid a fee of 3% of the gross amount funded
to the Company.
On April 3, 2000, the Company issued, in a private sale, 11,000,000
shares of its unregistered common stock and 2,200,000 of its warrants,
with an exercise price of $1.50 per share for net proceeds of $4,001,250.
14
<PAGE> 15
The Company has budgeted capital expenditures in the amount of $150,000,
primarily for Broadcast, for the year 2000 and will utilize cash reserves
to meet its requirements. As of June 30, 2000 the Company had completed
acquisition of $101,463 in capital expenditures for cash.
The Company has a line of credit agreement with Merrill Lynch in the
maximum amount of $3,400,000. The agreement requires annual renewal,
expires initially on January 31, 2001 and includes variable interest at a
per annum rate equal to the sum of 2.3% plus the 30-day Dealer Commercial
Paper Rate. The annual fee is $34,000 and the collateral consists of a
first security interest upon the Company's Merrill Lynch securities
account containing securities having an aggregate value of not less than
115% of the maximum line of credit. At June 30, 2000, the Company had
received advances from the line of credit in the amount of $2,539,020 and
has restricted $2,919,873 in cash to meet the compensating balance
requirements.
B. RESULTS OF OPERATIONS
SALES AND COST OF SALES - During the three and six months ended June 30,
2000, sales increased to $621,860 and $1,121,085 from the year earlier
amount of $170,055 and $221,359, respectively. The 1999 quarters were the
first full quarters for the operations of Stogies, the Company's online
distributor and retailer of brand name premium cigars. Sales increased
266% during the three month period ended June 30, 2000 and 406% during
the six month period ended June 30, 2000, as compared to the year earlier
periods. Sales during the three months ended June 30, 2000 increased 25%
from the three months ended March 31, 2000 and the Company expects
Stogies' sales to continue to increase at this level.
Broadcast entered into an advertising agency agreement with Music Vision
of New York in April 2000, to sell advertising on its network of music
sites and expects revenues to commence during the next quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - Selling, general and
administrative expenses increased $527,458 (155%) to $866,862 in the six
month period ended June 30, 2000 as compared to the same year earlier
period. Components of the increase include payroll in the amount of
$154,218, legal and professional - $96,069, advertising - $47,657,
freight - $27,900, insurance - $30,838, credit card processing fees -
$23,932, other costs - $47,834 and Broadcast's costs in the amount of
$99,010. The increase is consistent with the higher operational level of
Stogies and the new costs associated with Broadcast.
INTEREST EXPENSE - The Company incurred interest expense in the amount of
$86,518, primarily on their credit facility with Merrill Lynch during the
six-month period ended June 30, 2000. The Company did not have any debt
during the prior year period.
MARKETABLE INVESTMENT SECURITIES - The Company sold trading equity
securities during the six months ended June 30, 2000 and realized profits
in the amount of $647,776 as compared to profits of $3,203,159 during the
prior year period.
The Company recognized unrealized gains in the amount of $151,158 and
$3,429,478 during the six-month periods ended June 30, 2000 and 1999,
respectively.
OTHER INCOME - The Company had income of $158,013 and $18,759 from
interest and dividends in the six-month periods ended June 30, 2000 and
1999, respectively. The higher year 2000 income is primarily the result
of the higher cash balances available during the period.
INCOME TAXES - The Company's effective tax rate during the six months
ended June 30, 2000 was approximately 38% as compared to 31% in the year
earlier period. During the 1999
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period, the Company recognized the tax benefit of net operating losses
and other carryforwards that had previously been reserved.
DISCONTINUED OPERATIONS - The Company sold 80% of their investment in ACS
as of the end of March 2000. The net earnings from discontinued operation
consisted of a loss of $92,341 from operations (net of tax benefit in the
amount of $55,800) and a gain on the sale in the amount of $121,434 (net
of taxes in the amount of $73,400).
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - None during the current quarter.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL INTERNET, INC.
Date: August 9, 2000 By: /s/ Gary Schultheis
-------------------------------
Gary Schultheis, President and
Principal Accounting Officer
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