<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
DECEMBER 4, 1999
Date of Report
(Date of earliest event reported)
INTERNATIONAL INTERNET, INC.
(Exact name of registrant as specified in its charter)
6413 CONGRESS AVENUE, SUITE 240
BOCA RATON, FL 33487
(Address of principal executive offices)
(561) 988-2334
(Registrant's telephone number)
CAPROCK CORPORATION
1504 "R" STREET N.W.
WASHINGTON, D.C. 20009
(Former name and former address)
DELAWARE 0-26415 52-2175532
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The audited financial statements of the acquired business,
International Internet, Inc. and Subsidiaries, together with the audit
report of Harmon & Company, CPA, Inc. is attached hereto as Exhibit 1.
(b) PRO FORMA FINANCIAL INFORMATION
On November 26, 1999, International Internet, Inc., a Delaware
corporation ("IINN"), acquired 100% of the issued and outstanding
stock of Caprock Corporation, a Delaware corporation ("Registrant"),
in exchange for 500,000 IINN common shares. As a result of IINN's 100%
ownership of the Registrant, the Board of Directors of IINN, on
December 1, 1999, by unanimous written consent, elected to merge the
Registrant into IINN pursuant to Section 253 of Delaware's General
Corporate Laws. As a result of the merger, IINN will be the surviving
company.
The pro forma exhibits include a combining consolidated balance sheet
as of September 30, 1999 that reflects the effect of the stock issued
in the acquisition. The acquisition has been accounted for as an
issuance of IINN common stock in exchange for the net monetary assets
of Caprock, accompanied by a recapitalization. In addition, two
combining pro forma consolidated statements of operations are included
which present income (loss) from operations for the nine months ended
September 30, 1999 and the year ended December 31, 1998.
(c) EXHIBITS
(1) Audited financial statements of International Internet, Inc. as of
December 31, 1998 and 1997 and for the periods then ended
(2) Unaudited financial statements of International Internet, Inc. as
of September 30, 1999 and for the three and nine months then ended
(3) (a) Pro forma combined consolidated balance sheet as of September
30, 1999
(b) Pro forma combined consolidated statement of operations for
the year ended December 31, 1998
(c) Pro forma combined consolidated statement of operations for
the nine months ended September 30, 1999
(4) Consent of Harmon & Company, CPA, Inc.
<PAGE> 3
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.
By: /s/ Gary Schultheis
------------------------------------
Gary Schultheis, President and
Principal Accounting Officer
Date: February 1, 2000
<PAGE> 1
================================================================================
INTERNATIONAL INTERNET
================================================================================
INC.
AND SUBSIDIARY
(FORMERLY INTERNATIONAL
INDUSTRIES, INC.)
FINANCIAL STATEMENTS
&
INDEPENDENT AUDITOR'S
REPORT
DECEMBER 31, 1997 & 1998
================================================================================
HARMON & COMPANY, CPA, INC.
DUBLIN, OHIO
<PAGE> 2
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY
(FORMERLY INTERNATIONAL INDUSTRIES, INC.)
Index
Independent Auditors' Report Page 2
Balance Sheets Page 3
Statements of Operations Page 4
Statement of Changes in Stockholders' Equity Page 5
Statements of Cash Flows Page 6
Notes to the Financial Statements Page 7
- 1 -
<PAGE> 3
Independent Auditor's Report
To The Board of Directors of
International Internet, Inc.
We have audited the accompanying Balance Sheets of International
Internet, Inc. and Subsidiary (formerly International Industries, Inc.) as of
December 31, 1997 and 1998 and the related Statements of Operations, Cash Flow,
and Changes in Stockholders' Equity for the period from May 19,1997 (the date of
inception) through December 31, 1997 and the year ended December 31, 1998. These
financial statements are the responsibility of the management of International
Internet, Inc.. Our responsibility is to express an opinion on these financial
statements based on our audit.
We have conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of International
Internet, Inc. and Subsidiary as of December 31, 1997 and 1998 and the results
of its operations and its cash flows for the period from May 19, 1997 (the date
of inception) through December 31, 1997 and for the year ended December 31, 1998
in conformity with generally accepted accounting principles.
- -------------------------------------
HARMON & COMPANY, CPA, INC.
DUBLIN, OHIO
JUNE 10, 1999
<PAGE> 4
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY
(formerly International Industries, Inc.)
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1998
<TABLE>
<CAPTION>
12/31/97 12/31/98
-------- ---------
Assets
------
<S> <C> <C>
Current Assets
- --------------
Cash and cash equivalents $60,639 $116,965
Receivable - other 0 12,000
Inventory, at lower of FIFO cost or market 15,139 14,055
-------- ---------
Total Current Assets 75,778 143,021
-------- ---------
Property, Plant and Equipment, (at cost, net of accumulated depreciation)
- --------------------------------------------------------------------------
Vending machines 55,425 98,253
Vehicles 0 20,029
Leasehold improvements 0 14,482
Furniture & fixtures 4,120 4,120
-------- ---------
59,545 136,884
Accumulated depreciation -8,509 -33,552
-------- ---------
Total Property, Plant and Equipment 51,036 103,332
-------- ---------
Other Assets
- ------------
Deposits 0 3,537
Organizational costs, net of accumulated amortization 12,321 9,583
-------- ---------
Total Other Assets 12,321 13,120
-------- ---------
Total Assets $139,135 $259,473
-------- ---------
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Accounts payable $3,375 $21,812
Accrued payroll, payroll taxes and taxes withheld from payroll 132,126 48,163
-------- ---------
Total Liabilities 135,501 69,975
-------- ---------
Minority Interest in Equity of Consolidated Subsidiary 153 0
- ------------------------------------------------------ -------- ---------
Stockholders' Equity
- --------------------
Common stock, $.00001 par value, 1,000,000,000 shares authorized,
593,598,000 and 739,701,100 shares issued and outstanding at 1997
and 1998, respectively 5,936 7,397
Paid-in capital 326,596 1,155,635
Retained earnings (deficit) -329,051 -973,534
-------- ---------
Total Stockholders' Equity 3,481 189,498
-------- ---------
Total Liabilities and Stockholders' Equity $139,135 $259,473
-------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 3 -
<PAGE> 5
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY
(formerly International Industries, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from May 19, 1997 (date of inception) through December 31, 1997
and the year ended December 31, 1998
<TABLE>
<CAPTION>
12/31/97 12/31/98
-------- --------
<S> <C> <C>
Income $1,506 $23,790
- ------ -------- --------
Cost of Goods Sold 655 26,410
- ------------------ -------- --------
Gross Profit 851 -2,620
-------- --------
Operating Expenses:
- -------------------
Officer salaries 133,345 204,500
Administrative and general 175,538 342,013
Depreciation and amortization 9,878 27,781
Legal and accounting 18,282 59,404
Research and development 6,921 2,674
-------- --------
Total Operating Expenses 343,964 636,372
-------- --------
Income (Loss) from Operations -343,113 -638,992
-------- --------
Other Income (Expense)
- ----------------------
Interest income 436 1,482
Loss on sale of securities 0 -7,027
Interest expense -800 -99
-------- --------
Total Other Income (Expense) -364 -5,644
-------- --------
Minority interest in loss of consolidated subsidiary 14,426 153
-------- --------
Net Income (Loss) -$329,051 -$644,483
-------- --------
Net Loss per Common Share -$0.00 -$0.00
-------- --------
Weighted average shares outstanding during the period 593,598,000 666,649,550
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 4 -
<PAGE> 6
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY
(formerly International Industries, Inc.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the period from May 19, 1997 (date of inception) through December 31, 1997
and the year ended December 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
------------ Paid-In Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Issuance of common shares to founders 5,850,000 $5,850 $5,850
Issuance of common shares for
organization costs 260,780 260 6,547 6,807
Issuance of common shares to directors
for services rendered 454,000 454 454
Proceeds from sale of common stock 133,600 134 333,856 334,000
Net loss for the period -343,477 -343,477
----------------------------------------------------------------------------
As previously stated 6,698,380 6,698 340,413 -343,477 3,634
Recapitalization and minority interest 586,899,620 -762 -13,817 14,426 -153
----------------------------------------------------------------------------
Balance at December 31, 1997, as
adjusted 593,598,000 5,936 326,598 -329,051 3,481
----------------------------------------------------------------------------
Issuance of common shares to acquire
International Internet, Inc. in a reverse
merger 32,340,600 323 148,327 148,650
Issuance of common shares for
services rendered 6,576,500 66 162,134 162,200
Proceeds from sale of common stock 107,186,000 1,072 518,578 519,650
Net loss for the period -644,483 -644,483
----------------------------------------------------------------------------
Balances at December 31, 1998 739,701,100 $7,397 $1,155,635 -$973,534 $189,498
============================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
- 5 -
<PAGE> 7
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY
(formerly International Industries, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the period from May 19, 1997 (date of inception) through December 31, 1997
and the year ended December 31, 1998
<TABLE>
<CAPTION>
12/31/97 12/31/98
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C>
Net Income (Loss) -$329,051 -644,483
---------- ---------
Adjustments to reconcile net loss to net cash provided (used) by
----------------------------------------------------------------
operating activities:
--------------------
Depreciation and amortization 9,878 27,749
Common stock issued for services 13,111 162,200
Minority interests -14,426 -153
Changes in operating assets and liabilities:
--------------------------------------------
(Increase) in receivable - other 0 -12,000
Decrease (increase) in inventories -15,139 1,084
Decrease (increase) in organizational costs -13,690 0
Increase (decrease) in accounts payable 3,375 18,437
Increase (decrease) in accrued expenses 132,126 -83,964
---------- ---------
Total Adjustments to Net Income (Loss) 115,235 113,354
---------- ---------
Net Cash Provided by Operating Activities: -213,816 -531,129
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of vending machines -55,425 -42,828
Purchase of vehicles 0 -20,029
Purchase of leasehold improvements 0 -14,482
Purchase of furniture and fixtures -4,120 0
---------- ---------
Cash Provided (used) by Investing Activities -59,545 -77,339
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Acquisition of additional interests in Mr. Cigar 0 145,113
Proceeds from sale of common stock 334,000 519,650
---------- ---------
Cash Provided (Used) by Financing Activities 334,000 664,763
---------- ---------
Net Increase (Decrease) in Cash $60,639 $56,294
---------- ---------
Cash, Beginning of Period $0 $60,639
---------- ---------
Cash, End of Period $60,639 $116,965
---------- ---------
Supplemental disclosure of cash flow information:
- -------------------------------------------------
Cash paid during the year for interest $800 $99
---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
- 6 -
<PAGE> 8
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY
(formerly International Industries, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting principles and practices of International
Internet, Inc., formerly International Industries, Inc., (the "Company" ) are
set forth to facilitate the understanding of data presented in the financial
statements.
BASIS OF PRESENTATION - International Internet, Inc., (formerly
International Industries, Inc.) was originally incorporated on May 3, 1993 in
Delaware as Command Entertainment, Inc. The Company changed its name from
Command Entertainment, Inc. to International Industries, Inc. on December 19,
1997 and further changed the name to International Internet, Inc. on February
23, 1999.
On January 17, 1998, the Company acquired 93.6% off the issued and
outstanding common stock of Mr. Cigar, Inc. (Cigar), a Delaware corporation
organized on May 19, 1997, in a reverse acquisition in which Cigar's majority
shareholders acquired voting control of the Company. The acquisition was
accomplished through the issuance of 6,564,780 shares of the Company's common
stock which represented approximately 94% of the voting shares of the Company
immediately after the transaction. For accounting purposes, the acquisition has
been treated as a recapitalization of Cigar with Cigar as the acquirer. The
historical financial statements prior to January 17, 1998 are those of Cigar and
retroactively reflect, as of December 31, 1997, the recapitalization resulting
from the shares issued in the transaction. The tangible net assets of the
Company have been recorded at their existing cost basis. In 1998, the Company
acquired an additional 2.2% of Cigar to bring its holdings in that Company to
95.8%.
Cigar is a manufacturer and distributor of humidified cigar vending
machines and an internet retailer of cigars with its principal operations in
Boca Raton, Florida.
The following is a summary of significant accounting policies followed
in the preparation of these financial statements. The financial statements and
notes are the representation of the Company's Management, who is responsible for
their integrity and objectivity. The policies conform to generally accepted
accounting principles and have been consistently applied.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its majority owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
Consolidation.
GOING CONCERN ACCOUNTING BASIS - The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost (determined on
a first-in, first-out basis) or market, and include the plastic canisters which
contain the cigars in the vending machines.
PROPERTY, PLANT & EQUIPMENT - Furniture and fixtures as well as vending
machines are recorded at cost. Depreciation is provided using the MACRS method
over an estimated useful life of five to seven years.
- 7 -
<PAGE> 9
<TABLE>
<S> <C>
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly International Industries, Inc.)
</TABLE>
ORGANIZATION COSTS - Organization costs are amortized using the
straight-line method over a period of sixty months and is presented net of
accumulated amortization of $1,369 and $4,509 in 1997 and 1998, respectively.
REVENUE AND COST RECOGNITION - Revenues from the sale of cigars are
recognized as product is sold and funds subsequently collected from the vending
machines and credit card sales.
INCOME (LOSS) PER SHARE CALCULATION - Net loss per common share is
computed based on the weighted average number of common and common equivalent
shares outstanding for each period. Common stock equivalents consist of common
stock options and warrants. Common equivalent shares are excluded from the
computation when their effect is anti-dilutive.
USE OF ESTIMATES - 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 disclosures 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.
NOTE 2. STOCKHOLDERS' EQUITY
International Internet, Inc., (formerly International Industries, Inc.)
was originally incorporated on May 3, 1993 in Delaware as Command Entertainment,
Inc.. The Company changed its name from Command Entertainment, Inc. to
International Industries, Inc. on December 19, 1997 and further changed the name
to International Internet, Inc. on February 23, 1999.
DESCRIPTION OF SECURITIES - In a series of Board of Directors and
Shareholder actions from December 19, 1997 through July 29, 1998 the Articles of
Incorporation of the Company (Command Entertainment, Inc.) was amended as
follows: to authorize 1,000,000,000 shares of Common Stock having a par value of
$.00001 per share; authorized a 100 to 1 forward split of common stock effective
August 3, 1998.
On January 17, 1998, International Industries, Inc. ("IINN") acquired
80% of the outstanding common stock of Cigar in a reverse acquisition in which
Cigar's majority shareholders acquired voting control of IINN. The acquisition
was accomplished through the issuance of 6,564,780 pre-split shares of IINN
common stock. For accounting purposes, the acquisition has been treated as a
recapitalization of Cigar with Cigar as the acquirer. The historical financial
statements prior to January 17, 1998 are those of Cigar and retroactively
reflect, as of December 31,1997, the recapitalization resulting from the shares
issued in the transaction. The tangible net assets of IINN have been recorded at
their existing cost basis. Cigar is a manufacturer and distributor of humidified
cigar vending machines with its principal operations in Boca Raton, Florida.
Since IINN at the time of the acquisition had no existing operations,
assets or liabilities, no pro forma financial information giving effect to the
acquisition has been presented.
Mr. Cigar issued 6,304,000 shares of common stock to the president,
vice-president and the four directors for initial capital contributions and
services rendered and costs advanced during 1997. The services rendered and
costs were valued at $6,304 based upon the par value of the stock at the time of
issuance.
NOTE 3. RELATED PARTY TRANSACTIONS
In 1997 annual wages were accrued for the president and vice-president
at $66,836 and 66,510, respectively, less wages actually paid of $10,608
collectively. Annual wages for the president and vice-
- 8 -
<PAGE> 10
<TABLE>
<S> <C>
INTERNATIONAL INTERNET, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(formerly International Industries, Inc.)
</TABLE>
president in 1998 were $102,500 and $102,500, respectively. Total wages accrued
at December 31, 1998 was $31,919.
The Company leases office space on a month-to-month basis from a
corporation held by the president and vice-president. Rent expense was $10,612
and $20,760 in 1997 and 1998, respectively.
NOTE 4. INCOME TAXES
The deferred tax asset comprised the following at December 31, 1997and
1998:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Deferred tax asset: 1997 1998
- -------------------------------------------------------------------
<S> <C> <C>
Net operating loss carryforward $201,000 $800,000
- -------------------------------------------------------------------
Valuation allowance (201,000) (800,000)
--------- ---------
- -------------------------------------------------------------------
Net deferred tax asset $ - 0 - $ - 0 -
======== =======
- -------------------------------------------------------------------
</TABLE>
NOTE 5. COMMITMENTS AND CONTINGENCIES
By letter dated December 29, 1997, the Company was informed that Cigar
Vending Corporation has a United States Patent Application pending for a cigar
vending machine that controls environmental conditions to maintain desired
temperature and humidity values. The attorney for Cigar Vending Corporation
stated that "if Cigar Vending Corp.'s patent application issues into a United
States Patent, it intends to fully enforce its patent rights against those who
infringe its Patent." The Company does not have enough information to analyze
the merit of such claim by Cigar Vending Corporation and cannot evaluate the
likelihood of a favorable or unfavorable outcome, and cannot estimate the amount
or range, if any, of potential loss, should such a claim be pursued. However,
the Company does not believe such a patent, if issued, would be valid, and
therefore, in the event of a law suit, the Company intends to vigorously defend
against such a claim of patent infringement if made by Cigar Vending
Corporation.
NOTE 6. SUBSEQUENT EVENTS
As previously indicated, the Company changed its name from International
Industries, Inc. to International Internet, Inc. in February 1999.
In 1999 the Company started a plan of acquiring and investing in various
websites and internet companies to facilitate its internet retailing business as
follows:
(1.) On February 5, 1999, the company purchased the website of
goldonline.com by issuing 1,000,000 shares of Company stock and a
cash payment of $25,000,
(2.) In April 1999 the Company purchased the website webhumidor.com of
Web Humidor.com Corp. in consideration of $3,000 and the issuance
of 30,000 shares of company stock,
(3.) International Internet, Inc. acquired Broadcast Web Network in June
1999 by issuing 300,000 shares of Company stock and cash payments
of $18,000.
On February 17, 1999 the Company invested $20,000 in Interactive Golf
Marketing, Inc. ("GMI") in return for 1,000,000 common shares which represents
approximately 5% of the outstanding stock of GMI.
- 9 -
<PAGE> 1
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENT
SEPTEMBER 30, 1999
<PAGE> 2
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
No.
<S> <C>
Consolidated Balance Sheets - 3
September 30, 1999 and December 31, 1998
Consolidated Statements of Operations - 4
Three and Nine Months Ended September 30, 1999
Consolidated Statement of Stockholders' Equity - 5
Nine Months Ended September 30, 1999
Consolidated Statements of Cash Flows - 6-7
Nine Months Ended September 30, 1999
Notes to Consolidated Financial Statements - 8-11
Nine Months Ended September 30, 1999
</TABLE>
2
<PAGE> 3
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,325,438 $ 116,966
Marketable equity securities 1,622,556 -
Trade accounts receivable 202,407 -
Other accounts receivable - 12,000
Inventory 137,056 14,055
Prepaid income taxes 23,846 -
----------- -----------
5,311,303 143,021
Property and equipment, net 151,920 103,332
Goodwill, net of amortization of $1,094 177,114 -
Other assets 13,001 13,120
----------- -----------
$ 5,653,338 $ 259,473
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 480,263 21,812
Accrued expenses 69,003 48,163
Income taxes payable 545,414 -
Deferred income taxes 584,142 -
----------- -----------
1,678,822 69,975
Deferred income taxes 6,385 -
Minority interest - -
Stockholders' equity
Common stock, $.00001 par value, 1,000,000,000 shares authorized, 7,573 7,397
757,296,187 and 739,701,100 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively
Additional paid-in capital 2,035,092 1,155,635
Retained earnings (deficit) 1,925,466 (973,534)
----------- -----------
3,968,131 189,498
----------- -----------
$ 5,653,338 $ 259,473
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1999
<S> <C> <C>
Sales and revenues $ 291,045 $ 512,405
Cost of sales 198,144 410,605
----------- -----------
Gross profit 92,901 101,800
Selling, general and administrative expense 760,937 1,101,179
----------- -----------
Loss from operations (668,036) (999,379)
Other income (expense):
Realized gain on sale of marketable equity securities 225,613 3,428,772
Unrealized gain (loss) on marketable equity securities (1,877,148) 1,552,330
Interest and other income 34,460 53,218
----------- -----------
(1,617,075) 5,034,320
----------- -----------
Net earnings (loss) before income taxes (2,285,111) 4,034,941
Income tax expense (benefit):
Current (152,597) 545,414
Deferred (706,371) 590,527
----------- -----------
(858,968) 1,135,941
----------- -----------
Net earnings (loss) $(1,426,143) $ 2,899,000
=========== ===========
Net earnings (loss) per share $ (0.002) $ 0.004
=========== ===========
Weighted average shares outstanding, in millions 752.3 746.4
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Retained
------------ Paid-in Earnings
Shares Par Value Capital (Deficit) Total
------ --------- ------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999 739,701,100 $ 7,397 $ 1,155,635 $ (973,534) $ 189,498
Common stock sold for cash 6,195,087 62 384,763 384,825
Common stock issued to acquire 300,000 3 31,237 31,240
Broadcastweb Net, Inc.
Common stock issued to acquire 1,000,000 10 33,844 33,854
marketable securities
Common stock issued to acquire 30,000 3,750 3,750
web site
Common stock issued for services 10,070,000 101 425,863 425,964
Net earnings 2,899,000 2,899,000
--------------------------------------------------------------------------------------
BALANCE, September 30, 1999 757,296,187 $ 7,573 $ 2,035,092 $ 1,925,466 $ 3,968,131
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,899,000
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 28,852
Deferred income taxes 590,527
Common stock issued for services 425,964
Changes in assets and liabilities:
Accounts receivable 6,558
Marketable equity securities (1,588,702)
Inventory (120,001)
Accounts payable and accrued expenses 20,841
Income taxes payable 545,414
--------------
Net cash provided by operating activities 2,808,453
--------------
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES
Capital expenditures (67,399)
Acquisition of ACS, net of cash acquired 100,594
Acquisition of Broadcast (18,000)
--------------
Net cash provided by investing activities 15,195
--------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from sales of common stock 384,825
--------------
Net cash provided by financing activities 384,825
--------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,208,473
CASH AND CASH EQUIVALENTS, beginning of period 116,965
--------------
CASH AND CASH EQUIVALENTS, end of period $ 3,325,438
==============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<S> <C>
Interest paid None
===============
Income taxes paid None
===============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Common stock issued as part of acquisition of Broadcast Web Network, Inc. $ 31,240
Common stock issued as part of acquisition of web site 3,750
Common stock issued to acquire marketable securities 33,854
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - International Internet, Inc. (the "Company" or "IINN"),
is a diversified holding company which 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 subsidiaries, American Computer
Systems, Inc. ("ACS") and 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 also holds minority interests in Wowstores.com, Inc.
(www.wowstores.com) and GoldOnline International, Inc.
(www.goldonline.com) and additionally is a party to a joint venture,
Stogiesauction.com (www.stogiesauction.com), with AuctionAnything.com,
Inc.
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.
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. In November 1997, ACS was awarded its first General
Services Administration schedule contract for computer systems and
peripherals. This contract was extended for five additional years.
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.
8
<PAGE> 9
Cigar sells, licenses and operates the "Mr. Cigar" automated vending
humidors, which dispenses mass market and premium cigars.
In April 1999, IINN entered into a joint venture agreement with
AuctionAnything.com, Inc. to launch a cigar auction site,
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.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments with an original maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES - Marketable securities are comprised of trading
securities held for short-term investment purposes and are stated at
fair value, with the change in fair value during the period included in
earnings.
INVENTORIES - Inventories are stated at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided using the MACRS method over an estimated useful
life of five to seven years.
GOODWILL - The Company's excess of purchase cost over the fair value of
net assets of businesses acquired (goodwill) is being amortized over its
estimated useful life of fifteen years on a straight-line basis.
INCOME TAXES - Deferred income taxes are recognized for income and
expense items that are reported for financial purposes in different
years than for income tax purposes.
NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share
is computed using the weighted average number of shares outstanding
during the period. Fully diluted net income (loss) per
9
<PAGE> 10
common share is presented if the assumed conversion of common stock
equivalents results in material dilution.
USE OF ESTIMATES - The process of preparing consolidated financial
statements in conformity with generally accepted accounting principles
requires the use of estimates and assumptions regarding certain types of
assets, liabilities, revenues and expenses. Such estimates primarily
relate to unsettled transactions and events as of the date of the
consolidated financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
FAIR VALUE DETERMINATION - Financial instruments consist of cash,
accounts receivable, accounts payable and accrued liabilities. The
carrying amounts of these financial instruments approximates fair value
due to their short-term nature or the current rates which the Company
could borrow funds with similar remaining maturities.
B. MARKETABLE SECURITIES
As of September 30, 1999, the Company has an investment in marketable
securities, which are classified as trading securities. As of September
30, 1999, the fair value of the securities exceeded the cost of $70,226
by $1,552,330.
C. ACQUISITIONS
The Company acquired 90% ownership of Broadcast in June 1999 in exchange
for 300,000 shares of its common stock and a cash payment of $18,000.
The investment, which totaled $49,240, has been recorded as goodwill and
is being amortized over fifteen years.
Effective September 30, 1999, the Company acquired all of the
outstanding common stock of ACS in exchange for $150,000. Goodwill in
the amount of $128,968 was recorded in the transaction.
The assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Accounts receivable $196,965
Inventory and prepaid expenses 26,846
Property and equipment 3,828
Goodwill 128,968
Deposits 1,250
Accounts payable (458,451)
---------
Cash received in excess of cash paid $100,594
========
</TABLE>
10
<PAGE> 11
D. INCOME TAXES
Income tax expense for the nine months ended September 30, 1999 consists
of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Federal $465,696 504,216 969,912
State 79,718 86,311 166,029
------ ------ -------
Total $545,414 590,527 1,135,941
======== ======= =========
</TABLE>
Actual income tax expense applicable to earnings before income
taxes is reconciled with the "normally expected" federal income
tax expense as follows for the nine months ended September 30,
1999:
<TABLE>
<S> <C>
"Normally expected" income tax expense $1,371,880
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income 109,579
tax effect
Change in valuation allowance (346,971)
Nondeductible meals 1,453
----------
$1,135,941
==========
</TABLE>
The deferred income tax liabilities at September 30, 1999 are comprised of the
following:
<TABLE>
<CAPTION>
CURRENT NONCURRENT
<S> <C> <C>
Marketable securities unrealized gain $584,142 -
Asset basis - 6,385
-------- ---------
Net deferred income tax liabilities $584,142 6,385
======== =========
</TABLE>
11
<PAGE> 1
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
EXHIBIT 2(a)
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA BALANCE
UNAUDITED ADJUSTMENT SHEET
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,325,438 $ 3,325,438
Marketable equity securities 1,622,556 1,622,556
Trade accounts receivable 202,407 202,407
Other accounts receivable - -
Inventory 137,056 137,056
Prepaid income taxes 23,846 23,846
----------------------------------------------------------------
5,311,303 - 5,311,303
Property and equipment, net 151,920 151,920
Goodwill, net of amortization of $1,094 177,114 177,114
Other assets 13,001 13,001
================================================================
$ 5,653,338 $ - $ 5,653,338
================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 480,263 480,263
Accrued expenses 69,003 69,003
Income taxes payable 545,414 545,414
Deferred income taxes 584,142 584,142
----------------------------------------------------------------
1,678,822 - 1,678,822
Deferred income taxes 6,385 6,385
Minority interest - -
Stockholders' equity
Common stock, $.00001 par value, 1,000,000,000 shares authorized, 7,573 5 7,578
757,296,187 shares issued and outstanding at September 30, 1999 -
Additional paid-in capital 2,035,092 (5) 2,035,087
Retained earnings (deficit) 1,925,466 1,925,466
----------------------------------------------------------------
3,968,131 - 3,968,131
----------------------------------------------------------------
$ 5,653,338 $ - $ 5,653,338
================================================================
</TABLE>
The adjustment records the issuance of 500,000 common shares of IINN to acquire
100% of Caprock Corporation. No assets were acquired.
<PAGE> 1
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
EXHIBIT 2-b
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STATEMENT OF
AUDITED ADJUSTMENT OPERATIONS
<S> <C> <C> <C>
Sales and revenues $ 23,790 $ 23,790
Cost of sales 26,410 26,410
--------------------------------------------------------
Gross profit (2,620) - (2,620)
Selling, general and administrative expense 636,372 636,372
--------------------------------------------------------
Loss from operations (638,992) - (638,992)
Other income (expense):
Realized gain (loss) on sale of marketable equity securities (7,027) (7,027)
Unrealized gain (loss) on marketable equity securities - -
Interest and other income 1,383 1,383
--------------------------------------------------------
(5,644) - (5,644)
--------------------------------------------------------
Net earnings (loss) before minority interest (644,636) - (644,636)
Minority interest 153 153
--------------------------------------------------------
Net earnings (loss) $ (644,483) $ (644,483)
========================================================
Net earnings (loss) per share $ (0.001) $ (0.001)
============== ===========
Weighted average shares outstanding, in millions 666.6 0.5 667.1
========================================================
</TABLE>
The adjustment records the effect of the acquisition and merger which resulted
in an increase in the weighted average shares outstanding.
<PAGE> 1
INTERNATIONAL INTERNET, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
EXHIBIT 2-c
NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA STATEMENT OF
UNAUDITED ADJUSTMENT OPERATIONS
<S> <C> <C> <C>
Sales and revenues $ 512,405 $ 512,405
Cost of sales 410,605 410,605
--------------------------------------------------------------
Gross profit 101,800 - 101,800
Selling, general and administrative expense 1,101,179 1,101,179
--------------------------------------------------------------
Loss from operations (999,379) - (999,379)
Other income (expense):
Realized gain on sale of marketable equity securities 3,428,772 3,428,772
Unrealized gain (loss) on marketable equity securities 1,552,330 1,552,330
Interest and other income 53,218 53,218
--------------------------------------------------------------
5,034,320 - 5,034,320
--------------------------------------------------------------
Net earnings (loss) before income taxes 4,034,941 - 4,034,941
Income tax expense (benefit):
Current 545,414 545,414
Deferred 590,527 590,527
--------------------------------------------------------------
1,135,941 - 1,135,941
--------------------------------------------------------------
Net earnings (loss) $ 2,899,000 $ 2,899,000
==============================================================
-
Net earnings (loss) per share $ 0.004 $ 0.004
==================== ======================
Weighted average shares outstanding, in millions 746.4 0.5 746.9
==================== ======================
</TABLE>
The adjustment records the effect of the acquisition and merger which resulted
in an increase in the weighted average shares outstanding.
<PAGE> 1
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Form 8-K/A of International Internet, Inc.
of the Financial Statements and Independent Auditor's Report for fiscal years
ending December 31, 1997 and December 31, 1998 of International Internet, Inc.
HARMON & COMPANY, CPA, INC.
By: Nicola R. Harmon
Title: President
Date: February 4, 2000
