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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
A1 INTERNET.COM, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 03-7392107
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
15825 Shady Grove Road, Rockville, Maryland 20850 20850
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(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 947-0100
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.001 Par Value OTC Bulletin Board
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(TITLE OF CLASS)
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(TITLE OF CLASS)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
Information Regarding Forward Looking Statements: The statements contained in
this Form 10-SB that are not historical fact are "forward-looking statements".
These statements can often be identified by the use of forward-looking
terminology such as "estimates," "projects," "believes," "expects," "may,"
"will," "should," "intends," or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. We wish to caution the reader that these
forward-looking statements, such as the timing, costs and scope of acquisition
of, or investments in, existing businesses, the revenue and profitability levels
of such businesses, and other matters contained above and herein in this Form
10-SB regarding matters that are not historical facts, are only predictions. No
assurance can be given that the future results indicated, whether expressed or
implied, will be achieved. While sometimes presented with numerical specificity,
these projections and other forward-looking statements are based upon a variety
of assumptions relating to our business which, although we consider reasonable,
may not be realized. Because of the number and range of the assumptions
underlying our projections and forward-looking statements, many of which are
subject to significant uncertainties and contingencies that are beyond our
reasonable control, some of the assumptions inevitably will not materialize and
unanticipated events and circumstances may occur subsequent to the date of this
Form 10-SB. These forward-looking statements are based on our current
expectations, and we assume no obligation to update this information. Therefore,
our actual experience and results achieved during the period covered by any
particular projections or forward-looking statements may differ substantially
from those projected. Consequently, the inclusion of projections and other
forward-looking statements should not be regarded as a representation by us or
any other person that these estimates and projections will be realized, and
actual results may vary materially. There can be no assurance that any of these
expectations will be realized or that any of the forward-looking statements
contained herein will prove to be accurate.
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
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A1 Internet.com, Inc. was incorporated under the laws of Nevada on
October 13, 1997, and was originally named Halo Holdings of Nevada, Inc. On July
9, 1999, we amended our articles of incorporation to adopt our current name,
which we believe more accurately reflects the business in which we are now
engaged.
From the date of our incorporation in 1997 until early 1999 our company
was engaged in skydiving and related business ventures. Between February and
April 1999 we sold our skydiving business and acquired three companies which are
providers of Internet connectivity and related products and services.
Specifically, in February 1999 we acquired Virtual Information Express, Inc. a
Maryland corporation which provides outsourced internet services such as
e-commerce applications and collaborative technologies. In March 1999, we
acquired Computer Ease LLC, a Maryland limited liability company which provides
Web design and development services to corporate clients and associations.
Computer Ease has since been merged into our subsidiary A1 Internet Services,
Inc., a Delaware corporation. In April 1999 we acquired Networld Ohio, Inc., an
Ohio corporation, which is an Internet service provider ("ISP") based in
Freemont, Ohio. On March 30, 1999, we sold Skydive USA, our subsidiary engaged
in the skydiving business and leased the two aircraft used in that business to
that former subsidiary. In addition, in October 1999, we formed Worldlink
On-Line, Inc., a Delaware corporation that is an ISP based in Boston,
Massachusetts of which we own 80%. During 1999 we also acquired certain
contracts to service ISPs and a 14% interest in EBonline.com, Inc. As a result
of these transactions, our principal business now focuses on providing Internet
access and related products and services.
We are filing this Form 10-SB voluntarily in order to register our
common stock under the Securities Exchange Act of 1934. This will permit our
common stock to be quoted on the OTC Bulletin Board.
Our principal offices are located at 15825 Shady Grove Road, Rockville,
MD 20850 (telephone number 301-947-0100).
Overview
Through our subsidiaries we provide revenue enhancement opportunities to
associations and businesses by supplying cost effective Internet technology
solutions and services that the associations and businesses can reoffer under
their own names and brands. Our products and services enable associations and
businesses to offer their members, customers and others a variety of revenue
producing solutions and services without making large investments in technology,
infrastructure or staff. The principal products and services which we offer are
Web site creation and design, Web site hosting, co-location, local
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telephone call access to the AT&T and Megapop Internet networks through the AT&T
network's approximately 1200 points of presence ("POPs") and the Megapop
network's approximately 775 POPs located across the United States and in Canada;
complete electronic commerce services; e-mail and related services such as
conference and bulletin board facilities and mailing list management; and
Webcentric applications such as calendar services, document management and
encryption. Through arrangements with content providers we also offer content
for distance based learning programs. In addition, we own one regional ISP
located in Canton, Ohio which had a total of 4,350 subscribers as of October,
1999. Recently we have also begun a second ISP in Boston, Massachusetts. Gravity
Pilot Air, Inc., one of our wholly-owned subsidiaries, owns two airplanes which
are leased to a skydiving company and from which we receive rental revenues. We
also own 14% of Ebonlineinc.com inc, a Nevada corporation which maintains a
mergers and acquisition Website.
Industry Background
The Internet is a global network of multiple private and public networks
that use standardized communication protocols to communicate with each other.
The Internet was started in 1969 by the U.S. Department of Defense, Advanced
Research Projects Agency (ARPANET) to enable scientists at universities to share
information and to develop a secure network. Use of the Internet has grown
rapidly since its initial commercialization in the early 1990s. International
Data Corporation ("IDC"), a market research organization, has estimated that the
number of Internet users worldwide will grow from approximately 68.7 million in
1997 to approximately 319.8 million by the end of 2002, a compound annual growth
rate of 36.0%. Consumers and companies in the United States have spearheaded
adoption of the Internet as a communication and commerce medium. While other
regions of the world have been slower to accept the Internet, its use is
becoming a standard communications and business tool worldwide.
The Internet has become an important communication and commercial medium
and presents a significant opportunity for associations and businesses to
interact in new and different ways with a larger number of members, customers,
employees, suppliers and partners. As use of the Internet grows, associations
and businesses are increasing the breadth and depth of their Internet product
and service offerings. Pioneering Internet-based organizations have developed
Internet products and services in areas such as finance, insurance, media,
tourism, retail and advertising. Other organizations have begun to use the
Internet for an expanding variety of applications, ranging from corporate or
association publicity and advertising, to sales, distribution, customer service,
employee training and communication with partners. Increasingly, Internet
operations are becoming mission-critical for many of these enterprises. To
ensure
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the reliability of their Internet operations, enterprises are requiring that
these operations have high performance standards, scalability and expert
management 24 hours a day, 7 days a week.
Enterprises generally utilize two types of Internet services:
connectivity and valued-added services. Connectivity services provide access to
the Internet, while value-added services consist of products such as Web design
and hosting, electronic commerce services, and communication services that
improve the internal and external operations of an enterprise. Internet
connectivity and value-added services represent two of the fastest growing
segments of the telecommunications services market. The availability of Internet
access, the advancements in technologies required to navigate the Internet and
the proliferation of content and applications available over the Internet have
attracted a rapidly growing number of Internet users.
The following table provides information about Internet usage in the
United States.
<TABLE>
<CAPTION>
1995 1996 1997 2002E
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<S> <C> <C> <C> <C>
Internet users (millions) 9.7 23.2 38.7 135.9
Population (millions) 263.0 265.4 267.9 279.5
Internet users as a percent of population 3.7% 8.7% 14.4% 48.6%
PCs with internet access 11.5% 23.8% 36.3% 84.3%
</TABLE>
Source: IDC Corporation: population and Internet users as a percent of
population are based upon population figures provided by the U.S.
Bureau of the Census
The Internet service provider market is segmented into large national
or multinational providers with large high speed networks and regional or local
ISPs who enlist subscribers under their own names but typically rely upon the
larger providers for Internet access. The largest providers, like AT&T, have
what are referred to as "tier one" networks, which exchange Internet traffic
cost-free, at multiple public peering points, as well as through private peering
arrangements. As the number of ISPs has grown, the requirements to become a tier
one network have increased, resulting in a higher barrier to achieving tier one
provider status. Regional and local ISPs typically purchase access to the
Internet, and invest in equipment and personnel necessary to provide products
and services and customized hands-on support, and bear the cost of marketing.
Since regional and local ISPs often have limited financial resources, the range
of products and services which they offer is often limited.
Our Business Strategy
Our business strategy is to combine the global scale of tier one
providers with the local presence of regional and local ISPs. We provide
affordable connectivity on a global scale by contracting with
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AT&T and Megapop, leading tier one providers, for access to their Internet
networks at a fixed monthly fee per end-user. We enable associations, membership
sales organizations and other affinity groups to create non-dues revenue and
sales programs by offering their members high quality Internet products and
services without the investment in technology, equipment and personnel that
would ordinarily be required to establish an ISP. We enable existing regional
and local ISPs to reduce and control their costs, focus their energies on sales
and enhance their marketing by providing, at affordable rates, a variety of
products and services and high quality support services which those ISPs resell
to their customers. In effect, we enable associations, membership sales
organizations and ISPs to become virtual ISPs who market under their own name
products and services which they purchase from us.
Markets
We focus on three market segments: associations; membership marketing
companies which have an existing customer base; and, regional and local ISPs.
Associations. There are more than 25,000 non-profit associations
(Source: American Society of Association Executives) and a number of other
affinity groups in the United States. These organizations regularly communicate
with established memberships composed of persons with common interests. We offer
these organizations a lower cost means to communicate with their members and to
provide membership services. In addition, our connectivity services generate
subscription income and our electronic commerce products provide organizations
that are dependent upon membership dues for their revenues with opportunities to
realize non-dues revenue without large capital investments.
Membership Marketing Companies. There are many large
membership-marketing businesses in the United States which have an established
customer base. To these businesses we offer sales programs with opportunities
for recurring profits, low barriers to entry and opportunities to build brand
equity.
Regional and Local ISPs. There are more than 7,900 ISPs in the United
States, according to Thelist.com. We believe that most are regional or local
operations that have difficulty achieving profitability and who do not have the
resources to offer a wide variety of products and services. We offer these ISPs
the opportunity to control their costs by purchasing connectivity and other
products and services at a fixed price for each end-user and reselling those
products and services under their own names or brands. This allows the ISPs to
focus on marketing and provides them with a broader range of products and
services than they might otherwise be able to offer.
Sales
Our direct sales force consists of two persons dedicated to association
and membership sales and three persons dedicated to the sale of Web site design,
Web site hosting, electronic mail services and
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other value added products. In addition, we utilize indirect sales channels,
principally the AT&T Internet network sales force, trade associations and other
affinity groups to supplement our direct sales force.
Products and Services
We offer a variety of Internet services including connectivity,
electronic mail services, electronic commerce services, Web hosting and Web site
design. We intend to develop a broader range of value added solutions and
services independently, through acquisitions and through strategic relationships
with providers.
Connectivity
We offer both analog and ISDN dial-up Internet access at speeds up to
128 Kilobytes per second ("Kbps"). We provide this access at local telephone
rates by means of approximately 1200 POPs in the AT&T Network and an additional
775 POPs through the Megapop Network, which networks are located throughout the
United States and part of Canada. We also offer frame relay dedicated
connectivity at speeds up to 56 Kbps. Our Flex T-1(TM) Frame Relay Account
offers access to T-1 lines on an as needed basis and at bandwidths ranging from
256 Kbps to in excess of 1024 Kbps. We also offer a Digital Subscriber Line
(DSL) service that permits access to the Internet at up to 1.5 Megabytes per
second ("Mbps"). These services accommodate connectivity requirements of
Internet users ranging from the single user with a computer in his or her home
to work groups and businesses with multiple users.
Custom Site Design
We create clear, concise and attractive Web sites that convey our
customers' marketing messages. We provide Domain Name registration, place Web
site information in search engines, issue electronic press releases and track
the detailed use of each site. We also offer co-linking of non-competing Web
sites, banner advertisements on Web sites and links to cyber malls, associations
and groups.
Web Site Hosting
Our services permit hosting of multiple Web sites on a single server. We
offer a series of shared server hosting plans that allow our customers to
establish a sophisticated presence on the Internet, utilizing our equipment and
expertise to deploy an effective Web site. Our Web hosting products include
shared UNIX and NT offerings as well as dedicated services. Our UNIX
architecture consists of Multi-Processor SUN Sparc servers with Apache and
Netscape Web server software. Our NT architecture consists of Intel based
Pentium II and Pentium III 450 MHz and higher servers and Microsoft Internet
Information Servers. Both UNIX and NT features include File Transfer Protocol
(FTP) access, anonymous FTP, SSL/Secure Server, Web statistics, ODBC Access to
Microsoft or SQL databases,
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access to raw log files and local CG1 directory. Our NT features also include
Active Server Pages and MS Front Page. We offer totally secure solutions
deploying Verisign ditigal ID technology and credit card clearing through
Paymentech.
We offer three basic Web site hosting plans, the largest of which
provides up to 5,000 megabytes of data transfer per month and up to 50 megabytes
of disk storage on servers located at dedicated space in the Frontier Global
network operations center ("NOC") which is maintained and serviced by on-sight
technical personnel 7 days a week, 24 hours a day.
We also offer co-location to customers who have the resources to manage
their own servers and Websites and who prefer not to share a server with others.
Co-location customers receive the benefits of having their servers housed in the
NOC, uninterrupted power supply, daily tape back-up and the availability of a
catastrophic recovery process.
Electronic Commerce
Electronic commerce is the execution of commercial transactions on the
Internet. We create links to our customer's Web sites that bring purchasers into
our customers' on-line stores. Our e-commerce service displays products, takes
purchase orders for specified quantities of each product ordered, collects
billing addresses, credit card information and shipping information, chooses a
shipping method, forwards this data to the seller for completion of each order,
and prepares a confirmation of each order for the purchaser. Our servers deploy
the latest encryption software and digital signature solutions. Each secure Web
Site has its own Verisign Digital ID and dedicated payment system. We work
directly with each customer's bank to ensure secure, complete technology
transfer while maintaining totally secure data protection schemes. All customer
information is housed on dedicated machines behind our Sun Firewall. Our system
is flexible and permits sellers to add, delete or modify products, add pricing
variations, change product descriptions, update prices, and offer different
pricing levels or volume discounts. Our platform also enables clients to conduct
electronic auctions and to merchandise products in various other ways.
We have also begun to utilize our electronic commerce platform to sell
products ourselves. We are currently offering a series of distance based
learning programs, that includes up to 300 courses and a range of high digital
imaging equipment and are negotiating arrangements to obtain other products for
sale.
Collaboration Services
We offer a variety of collaboration services, which enable communication
over the Internet. These include virtual hosting of electronic mail. This allows
users to maintain their own domains while
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housing their e-mail on our secure servers. We also offer the filtering of
unsolicited e-mail. Our ListServe Management product enables the broadcast of
e-mail to an established user group. Our E-Share product provides centralized
controlled communication among a specified group of people and is used to
conduct training sessions electronically, thereby eliminating the travel and
related costs associated with live sessions. Our Web board product is used to
post messages to members of a closed group and allows recipients of messages to
respond.
Customers
At September 30, 1999, we provided value added services to Associations
with more than 5 million members. Our association customers include the National
Franchise Association of Burger King, the American Association and Society of
Medical Executives, the Medical State Society of New York, Meeting Planners
International, the Aircraft Owner and Pilot's Association, the Association of
American Railroads, and the National Association of Enrolled Agents.
At September 30, 1999 we had approximately 16,000 users of our
connectivity services. Approximately 7,000 of these were customers of our
subsidiaries and the remainder were customers of Association or other ISPs who
resell our services.
We have recently signed contracts with a number of additional
organizations to provide virtual ISP services. These include Kabbalah, Catholic
On-Line, FreedomISP, Wave 3 Communications, ICON Sports, Jungle Jungle, Mundo
Nuevo, Transnet Connect, and USA Webnet.
Competition
The business of providing Internet connectivity services and solutions
is highly competitive and there are no substantial barriers to entry. We believe
that competition will intensify in the future and our ability to successfully
compete depends on a number of factors, including: the capacity, reliability and
security of the network with which we interconnect; the pricing structure of our
services; expansion of the variety of products and services which we offer; our
ability to adapt our products and services to new technological developments;
our ability to build and maintain a larger sales force which is knowledgeable
and effective; our ability to implement broad and effective distribution
channels; and, principal market and economic trends. Current and prospective
competitors include: national, regional and local ISPs; long distance and local
telecommunications providers; cable television companies; Web site hosting
providers and providers of other value added solutions and services.
Many of our competitors have significantly greater market presence,
established brand recognition, financial, technical and personnel resources.
Major long distance companies currently offer Internet access services and major
cable companies and companies using wireless terrestrial and satellite-
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based technologies are expected to offer Internet connectivity and related
services in the near future. Such competitors have the ability to bundle
Internet connectivity with other services such as local and long distance
telecommunications. This bundling could adversely affect our ability to compete
and could result in a downward pressure on our prices that could adversely
affect our business, financial condition and results of operations.
Research and Development
We have arrangements with Microsoft, Allaire, Netscape, and Oracle,
pursuant to which we receive their newly released products soon after they
become available. Our technical and product development personnel, in
consultation with our sales and marketing personnel, develop industry specific
solutions using these products.
Employees
As of September 30, 1999 we had 41 full time and 1 part time employees
as follows: 7 full time employees in sales and marketing; 8 full time technical
personnel; 9 full time and 1 part time employees in product development; and 17
full time in administration. There are no collective bargaining agreements in
effect. We believe the relations with our employees are good.
Intellectual Property
We rely on a combination of copyright, service and trade secret laws and
contractual restrictions to establish and protect proprietary rights in our
products and services. We have no patented technology that would preclude or
inhibit competitors from entering our market. We have applied for registration
of the trademark A1 Internet.com, Inc. (SM). We have entered into
confidentiality and invention assignment agreements with our employees to limit
access to and disclosure of our proprietary information. We intend to apply for
copyrights as we develop new products and solutions. There can be no assurance
that these measures will prove sufficient to prevent misappropriation of our
intellectual property or to deter independent third-party development of similar
products.
Regulation
Our operations are not currently subject to direct regulation by
governmental agencies other than regulations applicable to businesses generally.
As use of the Internet continues to grow, jurisdictions in which we operate may
adopt regulations relating to prices charged users, content, privacy,
intellectual property protection, libel or other matters. If adopted, such
regulations could significantly affect our results of operations
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Risk Factors
You should consider carefully the risks described below and other
information in this Form 10-SB. The risks and uncertainties described below are
not the only ones facing us. Additional risks and uncertainties not presently
known to us or that we may currently deem immaterial may also impair our
business operations.
If any of the events identified in the following risk factors actually
occur, they could materially adversely affect our business, financial condition
and results of operations.
This Form 10-SB also contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a variety of
factors, including the risks identified below and elsewhere in this Form 10-SB.
See "Information Regarding Forward-Looking Statements."
We Have a History of Losses and Cannot Be Certain We will Achieve Positive Cash
Flow
For the years ended December 31, 1997 and 1998, we had net losses and
negative cash flows. For the nine months ended September 30, 1999, we had a net
loss before extraordinary items of $2,453,622. In addition, we had an
accumulated deficit of $3,196,491 as of September 30, 1999. We are likely to
continue to incur significant additional losses in the intermediate term.
Even thereafter, we cannot be certain that we will achieve or sustain
positive cash flow or profitabilitiy from our operations. Our net losses and
negative cash flow from operating activities are likely to continue even longer
than we currently anticipate if:
- we do not estabish and maintain a customer base that generates
sufficient revenue;
- prices for our products or services decline faster than we have
anticipated;
- we do not remain competitive in the innovation and quality of
our products;
- we do not attract and retain qualified personnel;
Our ability to achieve our objectives is subject to financial,
competitive, regulatory, legal, technical and other factors, many of which are
beyond our control.
Our Limited Operating History Makes it Difficult to Assess Our Past Performance
and Future Prospects
You have limited historical operating and financial information on which
to base your evaluation of our performance and our prospects. We have acquired
four companies since the beginning of 1999 and disposed of substantially, all of
the businesses in which we were engaged in prior years. This limits the
comparability of our operating and financial information from period to period.
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You should consider our prospects in light of the substantial risks,
expenses, uncertainties and difficulties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. Such
risks include the possibility that:
- we will be unable to increase and sustain levels of interest in
our products and services by associations, membership marketing
companies and ISPs;
- we will fail to sell our products successfully through our
direct sales force;
- our competitors will develop services or products similar or
superior to our own;
- market prices for our products and services will fall as a
result of competition or other factors;
- we will be unable to identify, attract, motivate and retain
qualified personnel; and
- we will fail to fully integrate with our existing operations the
technology and operations of any of the businesses that we
acquire.
We cannot be sure that we will be successful in addressing such risks,
and the failure to do so could have a material adverse impact on our business,
financial condition and results of operation.
We are Dependent on AT&T and Megapop for Access to the Internet Network
Our ability to offer end-user access to a tier one Internet network on
an affordable basis is dependent upon our contractual relationship with AT&T and
Megapop which charge us a fixed monthly fee for each end-user. This enables us
to offer connectivity to tier one networks for which we pay only when end-users
subscribe for our services. If these contracts were to be terminated, or if the
terms were to be substantially amended, we might be required to enter into
arrangements for bandwidth with others on less favorable terms. There is no
assurance that we would be able to purchase connectivity on comparable terms and
there is no assurance that we would be able to pass on additional costs to our
customers. Our inability to obtain bandwidth on comparable terms could
materially and adversely affect our business, financial condition and results of
operations.
We Rely on Others to Market our Products and Services to End-Users
We believe that we will derive the majority of our recurring revenues
from subscription fees and fees for value added services paid by end-users of
our products and services. The amount of those revenues is dependent upon the
level of success achieved by associations, membership marketing companies and
ISPs in marketing our products and services to their members and customers. Most
of our contractual relationships with associations were formed recently and have
not yet generated substantial sales to end-users. Thus, we are not yet in a
position to assess whether our products and services will gain acceptance among
the members of these associations or whether these associations will invest the
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resources necessary to market our products and services successfully. If sales
to end-users do not meet our expectations, our business would be adversely
affected and we would be required to develop alternate marketing and sales
strategies.
We Are Subject to Risks As We Make Acquisitions and Engage in Strategic
Alliances
As part of our business strategy, we may acquire, make investments in,
or enter into strategic alliances with companies in complementary businesses, so
as to optimize our market presence in the regions we presently serve and expand
into other regions. In particular, we intend to acquire local and regional ISPs
and e-commerce companies. Any such future acquisitions, investments or strategic
alliances would involve risks, such as
- incorrect assessment of the value, strengths and weaknesses of
acquisition and investment opportunities;
- underestimating the difficulty of integrating the operations and
personnel of newly acquired companies;
- the potential disruption of our ongoing business, including
possible diversions of resources and management time;
- the potential inabilitiy to maintain uniform standards,
control,procedures and policies; and
- the threat of impairing relationships with employees and
customers as a result of changes in management or ownership.
We cannot assure you that we will be successful in overcoming these
risks. Moreover, we cannot be certain that any desired acquisition, investment
or strategic alliance could be made in a timely maner or on terms and conditions
acceptable to us. Neither can we assure you that we will be successful in
identifying attractive acquisition candidates. We expect that competition for
such acquisitions may be significant. Competition for Internet companies is
based on a number of factors including price, terms and conditions, size, access
to capital, and ability to offer cash, stock or other forms of consideration. We
may compete with others who have similar acquisition strategies, many of whom
may be larger and have greater financial and other resources than we have.
An additional risk associated with acquisitions is that many attractive
acquisition candidates do not have audited financial statements and have varying
degrees of internal controls. Although we may believe that the available
financial information for a particular business is reliable, we annot guarantee
that a subsequent audit would not reveal matters of significance, including with
respect to liabilities, contingent or otherwise. We expect that, from time to
time in the future, we will enter into acquisition agreements, the pro forma
effect of which is not known and cannot be predicted.
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We May Have Difficulty Managing Our Rapid Growth
Our growth strategy has placed and will continue to place a significant
strain on our customer support, sales and marketing, administrative resources,
our network and operations and our management and billing systems. Such a strain
on our administrative and operational capabilities could adversely affect the
quality of our services and our ability to collect revenues. To manage our
growth effectively, we will have to enhance the efficiency of our operational
support, other back office systems and financial systems and controls. We cannot
assure you that we will be able to maintain adequate internal operating,
administrative and financial systems, and procedures and controls.
Managing our growth will become even more challenging as we expand our
target markets and our product and service offerings. Promotion and enhancement
of our products and services will depend largely on our success in continuing to
provide high quality Internet communications services, solution and product
support. We cannot guarantee that we will be able to maintain those levels of
quality. If we are unable to do so or otherwise fail to promote and maintain our
products or services, or if we incur excessive expenses in an attempt to improve
our services or promote and maintain our products, then our business, results of
operations and financial condition could be materially and adversely affected.
In addition, as we continue to grow we will have to expand and train our
employee base to handle the increased volume and complexities of our business.
We cannot assure you that we will be able to attract, train and manage
sufficient personnel to keep pace with our growth.
Sales of Shares by Our Shareholders Could Depress Our Stock Price
The market price of our common stock could drop as a result of sales of
a large number of our shares in the public market. The perception that such
sales may occur could have the same effect. As of September 30, 1999, our
executive officers and directors owned, directly or indirectly, approximately
33% of our common stock.
We Are Subject to Security and Fraud Risks
Despite our efforts to implement network security measures, such as
limiting physical and network access to our computers, our Internet
infrastructure is vulnerable to computer viruses, break-ins and similar
disruptive problems caused by customers, employees or other Internet users.
Computer viruses, break-ins or other disruptive or security problems could lead
to interruptions, delays or cessation in service to our Internet customers.
Further, such inappropriate or unauthorized use of the Inernet could also
potentially jeopardize the security of confidential information stored in the
computer systems of our customers and other parties connected to the Internet,
which may deter potential customers and give rise to liability to users whose
security or privacy has been violated. The security and privacy concerns of
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existing and potential customers may inhibit the growth of the Internet service
industry in general and our customer base and revenues in particular. A
significant security breach could result in a loss of customers, damage to our
reputation, direct damages, costs of repair and detection and other expenses. In
addition, our revenues for any given period may be adversely affected by fraud
or debt collection problems that we experience. The occurrence of any of the
foregoing events could have a material adverse effect our our business, results
of operations and financial condition.
We May Be Hurt By System Failures
Our success is largely dependent upon our ability to deliver high speed,
uninterrupted access to the Internet. Any system failure that causes
interruptions in our operations could have a material adverse effect on us. We
currently rely upon the AT&T and Megapops Internet Networks. Failures in these
or any other telecommunications network on which we rely would result in
customers' receiving no or diminished access to the Internet.
We Could Be Held Liable For Information Disseminated Over Our Network
The law relating to liability of ISPs for information and materials
carried on or disseminated through their networks is not completely settled. The
possibility that courts could impose liability for information or material
carried on or disseminated through our network could require us to take measures
to reduce our exposure to such liability. Such measures may require us to spend
substantial resources or to discontinue certain product or service offerings.
Any of these actions could have a material adverse effect on our business,
operating results and financial condition.
Due to the increasing use of the Internet, it is possible that
additional laws and regulations may be adopted with respect to the Internet
covering issues such as user privacy, pricing, taxes, defamation, obscenity,
intellectual property protection, consumer protection, technology export and
other controls. Changes in the regulatory environment relating to the Internet
services industry could have a material adverse effect on our business, results
of operation and financial condition.
We Are Subject to Intellectual Property Risks
Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in Internet-related industries are
uncertain and still evolving, and we cannot be certain as to the future
viability or value of any of our intellectual property rights or those of other
companies within the IT industry. We cannot assure you that the steps we have
taken to protect our intellectual prperty rights will be adequate or that third
parties will not infringe or misappropriate our proprietary rights. Any such
infringement or misappropriation, should it occur, could have a material adverse
effect on our
15
<PAGE> 16
business, results of operations and financial condition. Furthermore, we cannot
be certain that our business activities will not infringe the properietary
rights of others or that such other parties will not assert infringement claims
against us. We anticipate that we may be subject to claims in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties due to the
dissemination of our content or the provision of access by our online services
to content made available by third parties. Such claims and any resultant
litigation, should it occur, could subject us to significant liability for
damages and could result in invalidation of our property rights and, even if not
meritorious, could be time-consuming and expensive to defend, and could result
in the diversion of management time and attention, any of which could have a
material adverse effect on our business, results of operations and financial
condition.
We regard substantial elements of our products and services as
proprietary and we attempt to protect them by relying on trademark, service
mark, trade dress, copyright and trade secret laws and restrictions on
disclosure and transfer of title. We also enter into confidentiality agreements
with our employees, suppliers, distributors, consultants, vendors and customer
and license agreements with third parties and generally seek to control access
to and distribution of our technology, documentation and other proprietary
information. We are pursuing the registration of our service marks but we
currently have no patents or applications for patents pending for our products
or services. Effective service mark, copyright and trade secret protection may
not be available. We have received a demand that we cease and desist from using
the name A1 Internet.com. We believe that demand to be without merit.
We Are Subject to Certain Risks Associated with the Year 2000
The Year 2000 problem results from the fact that many existing computer
programs and systems have used only two digits to identify the year in the date
field. These programs were designed and developed without considering the impact
of a change in the century designation. If not corrected, computer applications
that use a two-digit format could fail or create erroneous results in any
computer calculation or other process involving the Year 2000 or a later date.
We have identified two main areas of Year 2000 risk for our IT systems:
- Our internal computer systems or embedded chips could be
disrupted or fail; causing an interruption or decrease in
productivity in our operations; and
- Computer systems or embedded chips of third parties including
(without limitation) financial institutions, suppliers, vendors,
landlords, customers, suppliers of communications services and
others could be disrupted or fail, causing an interruption or
decrease in our ability to continue our operations.
We Are Subject to the Risks Associated with Rapid Industry Changes
16
<PAGE> 17
The Internet services industry in which we operate is characterized by
rapidly changing technology, evolving industry standards, emerging competition
and frequent new service, software and other product innovations. We cannot
guarantee that we will be able to identify new service opportunities
successfully and develop and bring new products and services to market in a
timely and cost-effective manner, or that products, software and services or
technologies developed by others will not render our products and services
non-competitive or obsolete. In addition, we cannot provide any assurance that
our product or service developments or enhancements will achieve or sustain
market acceptance or be able to address effectively the compatibilitiy and
interoperability issues raised by technological changes or new industry
standards.
We Do Not Expect to Pay Dividends
The Company does not anticipate paying cash dividends in the foreseeable
future. See "Price Range of Common Stock."
ITEM 2. MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based on our audited Consolidated Financial
Statements for the years ended December 31, 1997 and 1998 and our unaudited
Consolidated Financial Statements for the nine months ended September 30, 1998
and 1999. The reader should bear in mind that during the periods covered by
these financial statements we were engaged in different businesses. Our business
now focuses on providing Internet access and related products. We entered this
business by acquiring Virtual Information Express, Computer Ease, and NetWorld
Ohio in the first and second quarters of 1999. Before making those acquisitions,
we were engaged in the skydiving business. We sold the skydiving business as of
the end of the first quarter of 1999. We now receive rental income from leasing
our airplanes to the purchasers. As a result of these changes, period to period
comparisons of our financial statements are extremely difficult and are of
limited value.
Much of our Internet related business is in an early stage of
development. For example, Computer Ease (now A1 Services.com) and Virtual
Information Express, which are providers of connectivity and value added
services, have only been generating revenues from that business since the second
quarter of 1998. Before that, their principal business was e-commerce sales of
computer hardware and accessories, a business on which we are now refocusing. We
anticipate
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<PAGE> 18
that as the number of end-users of our services increases, a larger percentage
of our revenues will be derived from recurring charges for connectivity,
e-commerce and other value added services and a smaller percentage of our
revenues will be derived from Web site design and technical services. However,
we have not yet had sufficient experience in our current Internet related
business to define trends or to determine whether our expectations are accurate.
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<PAGE> 19
The following table sets forth certain information about the source of
our revenues:
<TABLE>
<CAPTION>
SOURCE OF REVENUES PERCENTAGE OF TOTAL REVENUES
- -------------------------------------------------------------------------------
YEAR ENDING NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1997 1998 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONNECTIVITY - - - 38
HOSTING - - - 3
TECHNICAL SERVICE - - - 7
DESIGN FEES - - - 24
E-COMMERCE - - - 18
OTHER RECURRING - - - 0
INTERNET MARKET - - - 1
SKY DIVING 100 100 100 1
AIRPLANE LEASE - - - 8
OTHER INCOME - - - 0.6
DISCOUNTS - - - 0
TOTAL 100% 100% 100% 100%
- -------------------------------------------------------------------------------
</TABLE>
The following table sets forth certain information about our cost of sales:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL COST OF SALES
- --------------------------------------------------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1997 1998 1998 1999
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COST OF SALES
CONNECTIVITY - - - 45
COMPUTER EQUIPMENT - - - 34
LABOR - - - 20
OTHER COST - - - 1
SKY DIVE COSTS 100 100 100 1
TOTAL 100% 100% 100% 100%
- --------------------------------------------------------------------------------
</TABLE>
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<PAGE> 20
Results of Operations - Nine Months Ended September 30, 1999 Compared to Nine
Months Ended September 30, 1998
Revenues
Total revenues increased from $76,203 to $1,867,789. In the nine months
ended September 30, 1998, all of our revenues were derived from the skydiving
business. In the nine months ended September 30, 1999, our revenues were derived
from the following sources:
<TABLE>
<S> <C>
Internet related business (primarily in the
second and third quarters) $ 1,702,270
Lease of our airplanes to the purchasers
of our skydiving business $ 143,156
Skydiving business (in the first quarter) $ 22,363
</TABLE>
The principal components of our Internet related revenues were:
<TABLE>
<S> <C> <C>
Connectivity $700,937 41.1%
Design Fees $455,250 26.7%
Electronic Commerce $339,071 19.9%
Technical Services $135,533 7.9%
</TABLE>
Cost of Sales
Cost of sales increased from $8,626 in the nine months ended September
30, 1998 to $773,857 in the nine months ended September 30, 1999. In the nine
months ended September 30, 1998, our cost of sales related wholly to the
skydiving business and consisted of pilot fees. In the nine months ended
September 30, 1999 our cost of sales consisted primarily of Internet related
costs as follows:
<TABLE>
<CAPTION>
Cost of Sales
-------------
<S> <C> <C>
Connectivity $334,308 45%
Design Fees 118,163 15%
Electronic Commerce 259,896 34%
Technical Services 35,097 5%
</TABLE>
20
<PAGE> 21
Other Expenses
In the nine months ended September 30, 1999 our former Board of
Directors authorized, and we issued, 550,000 shares of our common stock valued
at $1,100,000 in payment for consulting services and certain executive
compensation. We have been unable to verify the value of the services received
in exchange for these shares and are attempting to determine whether we have a
claim for recovery of some or all of the shares.
Results of Operations - Year Ended December 31, 1997 As Compared to Year Ended
December 31, 1998
Revenues
Total revenues in the year ended December 31, 1998 were $84,560 as
compared to $3,384 in the period from October 15, 1997 when we were formed, to
December 31, 1997. All of our 1997 and 1998 revenues were derived from the
skydiving business which we sold at the end of the first quarter of 1999.
Costs
Total cost increased from $357,882 in the year ended December 31, 1997
to $463,727 in the year ended December 31, 1998. The largest components of these
costs were consulting fees of $298,373 in 1997 and $185,588 in 1998 paid to our
former corporate executives and others; professional fees of $23,000 in 1997 and
$82,692 in 1998; insurance of $18,771 in 1997 and $36,043 in 1998; and, repair
and maintenance of our airplanes of $8,849 in 1997 and $9,769 in 1998.
Liquidity and Capital Reserves
Since our inception we have financed our operations primarily from the
private sales of debt securities. Total net proceeds from the sale of equity
securities in the period between our formation and September 30, 1999 amounted
to approximately $4,585,000.
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<PAGE> 22
Cash Flow
Operating activities used cash of $361,012 and $324,117 in the two
years ended December 31, 1997 and 1998 and $228,416 and $1,102,897 in the nine
months ended September 30, 1998 and 1999.
Investing activities used cash of $1,258,437 and $0 in the years ended
December 31, 1997 and 1998 and $0 and $1,376,985 in the nine months ended
September 30, 1998 and 1999. These funds were used to purchase computer hardware
($981,634), contracts to service ISPs from Net America ($168,000), to acquire
Networld Ohio, Inc. ($89,138), and to paydown certain Notes Receivable
($138,215).
Net Cash provided by financing activities was $1,621,268 and $332,503
in the years ended December 31, 1997 and 1998 and $242,489 and $4,547,490 in the
nine months ended September 30, 1998 and 1999.
Working Capital
Our working capital, defined as the excess of our current assets over
our current liabilities, was $1,116,527 at September 30, 1999 compared to
($795,879) at December 31, 1998 and ($390,404) at December 31, 1997.
As of September 30, 1999 we had no borrowing facility established with a
financial institution. We anticipate that our working capital together with the
net proceeds of a private offering of equity securities which we completed on
November 10, 1999, in the amount of $857,785, will be sufficient to fund our
cash flow deficit through March 31, 2000 when we expect to be in a positive cash
flow position.
Year 2000
The Year 2000 problem results from the fact that many existing computer
programs and systems have used only two digits to identify the year in the date
field. These programs were designed and developed without considering the impact
of a change in the century designation. If not corrected, computer applications
that use a two-digit format could fail or create erroneous results in any
computer calculation or other process involving the Year 2000 or a later date.
We have identified two main areas of risk related to the Year 2000
problem for our IT systems:
- Our internal computer systems or embedded chips could be
disrupted or fail, causing an interruption or decrease in
productivity in our operations; and
22
<PAGE> 23
- Computer systems or embedded chips of third parties including
(without limitation) financial institutions, suppliers, vendors,
landlords, customers, suppliers of communications services and
others could be disrupted or fail, causing an interruption or
decrease in our ability to continue our operations.
We have evaluated our state of readiness for the Year 2000 issue. With
regard to our internal IT systems, we have concluded that substantially all of
those systems are Year 2000 compliant. Our personnel have tested and analyzed
our systems in the course of regular quality control and research and
development. We did not spend significant capital on this evaluation. To date,
the only costs in connection with our Year 2000 evaluation have been limited to
internal staff costs, which have been expensed as incurred. The financial
information contained in this Form 10-SB includes such costs, which are not
material. Based on our experience to date, we do not anticipate that we will be
required to incur significant additional operating expenses or to invest
material amounts to obtain Year 2000 compliance.
We have been assured by all major suppliers, vendors and customers that
the existing IT and other systems, upon which we rely for products and services
and for internal operations, are Year 2000 compliant. Based on those assurances,
we believe that the IT systems utilized in our principal network, backbone and
internal operations will meet Year 2000 requirements. We do not anticipate
significant interruptions of billings or service to customers or disruptions of
internal operations attributable to the Year 2000 problem.
ITEM 3. DESCRIPTION OF PROPERTIES
Our headquarters is located at 15825 Shady Grove Road, Suite 50,
Rockville, Maryland 20850, where we lease approximately 4527 square feet of
office space. The five-year term of the lease commenced on March 6,1996. The
current annual rent is $71,380.
We also lease approximately 450 square feet of office space in Sandusky,
Ohio at an annual rental of $3,750, and approximately 2800 square feet in
Fremont, Ohio at an annual rental of $16,800. The properties are subject to
one-year leases expiring on July 31, 2000.
In Sharon, Massachusetts we lease 2785 square feet of office space at an
annual rent of $37,597.50. The lease is due to expire on August 1, 2000.
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<PAGE> 24
Our former executive offices were located in approximately 1150 square
feet of office space in Boca Raton, Florida. We are obligated for rental
payments on this property through September 29, 2001. The current annual rental
is $27,900.
We lease approximately 400 square feet at Frontier's Global Center for
use as our data warehousing facility. The lease has a one-year renewable term
and we pay rent at the rate of $60,000 per year. The facility has more than one
gigabyte of Internet bandwidth available to us therefore allowing us to provide
T-1 hosting services on a pay as you go basis.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of A1
Internet's common stock as of September 30, 1999 and Series A preferred stock as
of October 10, 1999, by each shareholder known by us to be the beneficial owner
of more than 5% of A1 Internet's common stock or Series A preferred stock, each
director and all executive officers and directors as a group. Unless otherwise
indicated by footnote, each of the shareholders named in the table has sole
voting and investment power with respect to the shares of common stock
beneficially owned.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS Number of Shares(1) % OF CLASS
-------------- ---------------- Owned ----------
<S> <C> <C> <C>
Common Bruce Bertman 3,068,000 31.50
19200 Autumn Maple Lane
Gaithersburg, MD 20879
Common Larry Kerschenbaum 800,000 8.21
255 Wychmer Terr.
Wellington, FL 33414
Common Noved Holdings Inc. 565,000 5.80
932 Burke Street
Winston Salem, NC 27101
Common Leonard Tambasco 571,000 5.86
22355 Collington Dr.
Boca Raton, FL 33428
Common Martin Sumichrast 100,000 1.02
6000 Fairview Rd.
Suite 1410
Charlotte, NC 28210
Common Donald Dea 40,000 0.41
12 Saint Ebbas Drive
Penfield, NY 14526
Preferred Richard Greene 70,000 6.27
15 Melville Lane
Great Neck, NY 11023
</TABLE>
- ----------
(1) Represents the number of shares of common stock owned of record and
beneficially by each named person or group, expressed as a percentage of
9,739,500 shares of A1 Internet's common stock outstanding as of September 30,
1999 or 1,115,553 shares of A1 Internet's Series A preferred stock, outstanding
as of October 10, 1999.
24
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Preferred James Kotsopoulos 100,000 8.96
5662 Jerez Ct.
Fort Myers, FL 23914
Preferred Steven Etra 130,000(2) 11.65
Heather Hill Road
Brookville, NY 11545
Preferred Jay Raubvogel 222,222 19.92
5 Brook Lane
Brookville, NY 11545
Common All Executive officers and directors 3,779,000 38.80
as a group(3)
</TABLE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
(a) Our current directors will serve until the next annual meeting of
shareholders, or until their successors are elected or appointed and
qualified. Our current Directors and Officers are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
<S> <C> <C>
Bruce Bertman 42 Director, President, Treasurer, and
Chairman of the Board of Directors
Martin A. Sumichrast 32 Director
Donald Dea 45 Director
Leonard J. Tambasco, Jr. 41 Secretary
</TABLE>
Bruce Bertman - Mr. Bertman has served as a Director since March 5, 1999 and
serves as our Chairman of the Board, Chief Executive Officer, President, and
Treasurer. Mr. Bertman has more than 12 years of experience in the high
technology industry. From 1988 to 1991, he served as Regional Manager and
Operating Officer of Inacomp Computer Centers, a predecessor of Inacom. From
1991 to 1993, Mr. Bertman was Vice President of Microware Distributors, a
computer product distribution organization, in charge of government reseller
programs on a national basis. In 1993, Mr. Bertman founded Computer Ease, LLC,
where he served as its President until we acquired that company in 1999. In
1998, Mr. Bertman founded Stockmaker.com, Inc. and serves as President and
Chairman of that company. Mr. Bertman also currently serves as a director of
several internet-related companies, including EBOnline.com Inc., Cyber Realm
Inc., and Computer Kids Network, Inc.
Martin A. Sumichrast - Mr. Sumichrast has been a Director since May 21, 1999.
Mr. Sumichrast has also served as a Director of Eastbrokers International
Incorporated since its inception in January 1993, and has served that company as
its Chairman of the Board, Chief Executive Officer and President since December
1998, Vice Chairman from March 1997 through December 1998, Chief Financial
Officer from January, 1993 to August, 1996, and Secretary from 1993 to the
present. Mr. Sumichrast also serves as Chairman of Eastbrokers North America,
Inc., a subsidiary of Eastbrokers International Incorporated.
- ----------
(2) Includes 65,000 shares owned by SRK Associates, LLC, of which Mr. Etra is
President.
(3)Includes: Bruce Bertman, Chief Executive Officer, President, Treasurer and
Director; Leonard Tambasco, Secretary; Martin Sumichrast, Director; and Donald
Dea, Director.
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<PAGE> 26
Donald Dea - Mr. Dea has been a Director since October, 1999. Mr. Dea is a
co-founder of Fusion Productions, a meeting planning company. From 1984 to 1988,
he worked for Xerox Corporation, servings as: General Manager of U.S. Customer
Operations, in charge of developing strategic partnerships; General Manager of
OEM/VAR Channel Operations; Manager of Marketing and Quality.
Leonard Tambasco Jr.- Mr. Tabasco serves as our Secretary on a part-time basis.
From March 5, 1999 until September 30, 1999, Mr. Tambasco served as our
President and a director. From 1998 until April 1999, Mr. Tambasco served as CEO
and Chairman of the Board of Computer Access International. From 1996 to 1998,
Mr. Tambasco was the Director of Purchasing and Contract for Computer Access
International. Between 1993 and 1996, Mr. Tambasco ran his own consulting firm,
Callaway International Corporation. Between 1976 and 1993, Mr. Tambasco worked
as an employee and later as the President of Trevus Construction Corporation, a
family-owned road and sewer contractor in New York City.
(b) There are no other officers or significant employees.
(c) No family relationships exist between the directors and the officers.
(d) No legal proceedings have been instituted in the previous five years
against any of our directors or officers. We have no knowledge of any legal
proceedings against any predecessor director, officer, or promoter.
ITEM 6. EXECUTIVE COMPENSATION
(a) GENERAL. No salary or regular compensation is paid to our directors.
Pursuant to our By-laws, directors are eligible to be reimbursed for their
actual out of pocket expenses incurred in attending Board of Directors meetings
and other director functions, as well as fixed fees and other compensation to be
determined by the Board of Directors. No such compensation or expense
reimbursements have been requested by the directors or paid to date. No formal
bonus, stock option plan, stock appreciation rights, stock incentive plan, or
other compensation or perquisites have been implemented. Salary amounts paid to
our executive officers are detailed in subsection (b) below.
(b) SUMMARY COMPENSATION TABLE. The following table sets forth certain
summary information concerning the compensation paid to the Chief Executive
Officer and certain executive officers for the fiscal year ended December 31,
1998.
SUMMARY COMPENSATION TABLE
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION FISCAL SALARY BONUS OTHER COMPENSATION
YEAR PAID
<S> <C> <C> <C> <C>
Larry Kerschenbaum - Former CEO, Chairman 1998 75,000 0 0
of the Board*
Thomas H. Keese - Former President** 1998 75,000 0 0
</TABLE>
26
<PAGE> 27
*Mr. Kerschenbaum resigned as CEO and Chairman of the Board on March 5,
1999. Bruce Bertman was appointed CEO, President, and Treasurer in his place and
continues to serve in such offices.
**Mr. Keese resigned as our President on March 5, 1999.
(c) OPTION/SAR GRANTS. We have not granted any options or stock
appreciation rights during the last fiscal year.
(d) AGGREGATE OPTION/SAR EXERCISES. No stock options or stock appreciation
rights have been exercised in the last fiscal year.
(e) LONG TERM INCENTIVE PLAN AWARDS. No long term incentive plans have been
awarded.
(f) COMPENSATION OF DIRECTORS. No salary or regular compensation is paid to
our directors. Our directors are entitled to reimbursement of out of pocket
expenses incurred in connection with their duties as directors. To date, no such
expenses have been requested or paid.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT. On March 5, 1999,
we entered into identical Employment Agreements with Bruce Bertman and Leonard
J. Tambasco, Jr. (collectively, the "Employment Agreements"). These Employment
Agreements were for a term of two years, commencing March 5, 1999. Unless we or
the employees provide notice of intent to terminate, the term of the Employment
Agreements is to automatically renew for additional one year periods. The
Employment Agreements provide for Mr. Bertman and Mr. Tambasco to receive a base
salary of $96,000 per year each, which amounts are to increase by 6% per year
beginning on the first anniversary of the term. In addition to the base salary,
the Employment Agreements call for the reimbursement of all ordinary business
expenses, as well as the payment of 80% of the cost of Family Health Insurance.
The Employment Agreements provide Mr. Bertman and Mr. Tambasco with a $650 per
month automobile allowance, and two weeks vacation per year, with additional
vacation to accrue at a rate of 1 week for each additional year of employment.
(h) REPORT ON REPRICING OF OPTIONS/SARs. No options or stock appreciation
rights have been granted.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) The following transactions have been undertaken within the last two
years with related parties.
In connection with the resignation of Larry Kerschenbaum, we paid him a
total of $35,000 as severance pay. This amount was paid in seven monthly
payments of $5,000 each.
27
<PAGE> 28
On February 1, 1999, we entered into an Exchange Agreement with Bruce
Bertman, our present Chief Executive Officer, President, Treasurer and Chairman
of the Board, pursuant to the which we purchased 100% of the outstanding common
stock of Virtual Information Express from Mr. Bertman in exchange for 300,000
shares of our restricted common stock, valued at $2 per share.
On March 24, 1999, we entered into an Exchange Agreement with the
members of Computer Ease, pursuant to which we purchased 100% of the membership
units of Computer Ease, in exchange for 4,000,000 shares of our restricted
common stock and our agreement to provide Computer Ease with $500,000 in working
capital. At the time of the transaction, Mr. Bertman was the majority owner of
Computer Ease. Computer Ease has since merged with our wholly-owned subsidiary,
Al Internet Services, Inc.(SM).
On March 30, 1999, our wholly-owned subsidiary, Skydive USA, was sold to
Larry Kerschenbaum and Thomas Keese, two of our founding shareholders, officers
and directors. In consideration for Skydive USA, Messrs. Kerschenbaum and Keese
returned to us a total of 400,000 shares of our outstanding common stock.
On March 31, 1999, our wholly-owned subsidiary, Gravity Pilot Air, Inc.,
agreed to lease its two airplanes to Skydive USA, a former subsidiary, for a
term of twelve months. Gravity Pilot Air, Inc. receives base rent of $21,176 per
month for the use of the airplanes, and an additional $35 for each hour of
flight of the leased aircraft.
On March 9 1999, we issued 250,000 shares of our common stock to Leonard
J. Tambasco, Jr. in exchange for his agreement to serve as our President.
On April 20, 1999, we issued 120,000 shares of our common stock to Bruce
Bertman in full payment for the $372,692 owed to Mr. Bertman by Computer Ease
and Virtual Information Express.
During the first six months of 1999, our former President, Larry
Kerschenbaum, and our former CEO, Thomas Keese, forgave various items of
indebtedness carried on our books totaling $177,331.
During 1997 and 1998, Computer Ease borrowed various amounts from Bruce
Bertman and Mr. Bertman incurred $62,292 in reimbursable business expenses on
behalf of that company. Some of these amounts were repaid. Upon our acquisition
of Computer Ease, we became responsible for the balance owed to Mr. Bertman. As
of September 30, 1999, the outstanding balance was $370,649.
At the time of our acquisition of Computer Ease, it had accounts
receivable from two companies owned by Bruce Bertman, CyberRealm, Inc. and
Stockmaker.com, Inc. These accounts receivable represented amounts owed to
Computer Ease for goods and services purchased by CyberRealm, Inc. and
Stockmaker.com, Inc. at regular prices and services. Computer Ease, LLC also had
accounts payable to Stockmaker.com, Inc. as commissions for referrals provided
by Stockmaker.com, Inc.
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<PAGE> 29
When we acquired Computer Ease, we assumed the rights and obligations of
Computer Ease with regard to the accounts receivable and accounts payable.
On September 30, 1999, we purchased from Bruce Bertman computer hardware
and equipment valued at $558,020. In consideration for Mr. Bertman's
contribution of this hardware and equipment, we paid the purchase price by
offsetting accounts receivable Stockmaker.com, Inc. and Cyber Realm Inc., in
the amounts of $304,875 and $248,623, respectively. We also offset accounts
payable from Stockmaker, Inc. in the amount of $29,650. The balance of $34,172
was paid to Mr. Bertman in cash.
Before we acquired Computer Ease, it sold to, and purchased from
Eurobridge D.C., Inc., computer products and equipment, a company whose
management is affiliated with us. When we acquired Computer Ease, it had a net
payable to Eurobridge totaling $67,393, which amount we subsequently paid in
full.
On July 1, 1999, we entered into a Placement Agreement with EBI
Securities Corporation, a subsidiary of Eastbrokers International Incorporated,
pursuant to which EBI Securities Corporation agreed to act as Placement Agent
for up to $10 million of our preferred stock. Our director, Martin Sumichrast,
serves as Chairman of the Board, Chief Executive Officer and President of
Eastbrokers International Incorporated. We own approximately 14% of
EBOnlineinc.com, a company of which Mr. Bertman owns approximately 7% and
Eastbrokers International Incorporated owns approximately 45%.
On November 5, 1999, Martin Sumichrast purchased 100,000 shares of our
restricted common stock at a price of $2 per share. Mr. Sumichrast executed a
non-negotiable term note for the principal balance of $200,000, due on December
31, 2004. The note from Mr. Sumichrast is payable in either cash or our common
stock.
On February 2, 1999, we issued to EBI Securities Corporation a warrant
to purchase 500,000 shares of our common stock with an exercise price of $.10
per share as payment for professional services performed in the first quarter of
1999.
There have been no other related party transactions, or any other
transactions or relationships required to be disclosed pursuant to Item 404 of
Regulation S-B.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock,
par value $.001 per Share. As of September 30, 1999, 9,739,500 shares were
outstanding. The holders of Common Stock have one vote per share on all matters
(including election of directors) without provision for cumulative voting. The
Common Stock is not redeemable and has no conversion or preemptive rights. There
are no sinking fund provisions for any of the Company's securities.
29
<PAGE> 30
In the event of liquidation of the Company, the holders of Common Stock will
share equally in any balance of the Company's assets available for distribution
to them after satisfaction of creditors and preferred shareholders. The Company
may pay dividends, in cash or in securities or other property, when and as
declared by the Board of Directors from funds legally available therefore, but
has paid no cash dividends on its Common Stock to date and does not anticipate
paying dividends in the foreseeable future. Preferred Stock
The Company is authorized to issue 5,000,000 Shares of Preferred Stock,
par value $.001 per Share. The Company has designated 2,000,000 Shares as Series
A Convertible Preferred Stock (the "Series A Preferred Stock") and has issued
848,889 of such shares as of September 30, 1999. Each share of Series A
Preferred Stock is entitled one vote per share of Common Stock into which it is
convertible and votes with the Common Stock as a single class, except in certain
limited circumstances.
Subject to certain adjustments, each share of Series A Preferred Stock
is convertible into one share of Common Stock. The Series A Preferred Stock is
convertible upon the written request of a holder and is automatically converted
upon the effectiveness of a registration statement filed by us under the
Securities Act of 1933 which relates in whole or in part to registration of the
Common Stock into which the Series A Preferred Stock is convertible.
Holders of at least fifty-one percent (51%) of the Series A Preferred
Stock have this right to demand that we register the Common Stock into which the
Series A Preferred Stock is convertible under the Securities Act. In addition,
holders have the right to include the Common Stock into which their Series A
Preferred Stock is convertible in certain registration statements filed by us.
The Series A Preferred Stock is preferred as to both earnings and
assets, and in the event of liquidation, dissolution, or winding up of the
Company, holders of the Series A Preferred Stock shall be entitled to be paid
$4.50 per share before any assets of the Company are distributed among or paid
over to the holders of the Common Stock.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock is traded on the OTC Bulletin Board under the symbol
"AWON." In the period between October 10, 1998, when trading on the OTC Bulletin
Board began, and May 24, 1999, our common stock traded under the symbol "HALO".
As of October 29, 1999 we had 283 registered
30
<PAGE> 31
stockholders of record. The closing price of our common stock on the OTC
Bulletin Board was 6-3/16 on October 29, 1999.
The following table sets forth for the periods indicated the high and
low bid prices for our common stock as reported each quarterly period in 1997,
1998 and 1999. The prices are inter-dealer prices, do not include retail mark
ups, mark downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1998
----
Fourth Quarter (beginning October 10, 1998) 5 3-3/4
1999
----
First Quarter 7-1/2 1
Second Quarter 8 5.13
Third Quarter 7-3/4 5
Fourth Quarter (through October 29, 1999) 6-3/4 6
</TABLE>
ITEM 2. LEGAL PROCEEDINGS
We are not party to any legal proceeding which could have a material
effect upon our business, financial condition or results of operations.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
For the fiscal year ended December 31, 1999, we have retained Spicer,
Jeffries & Co. as our principal independent accountant to replace Cohen & Kameny
CPA's PLCC, our principal accountant for the fiscal years ended December 31,
1997 and 1998. Cohen & Kameny's report on our financial statements for the past
two fiscal years did not contain an adverse opinion or disclaimer of opinion and
was not modified as to uncertainty, audit scope, or accounting principals. The
decision to change accountants was approved by our Board of Directors. There
were no disagreements with our former accountant, whether or not resolved, on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which if not resolved would have caused our
former accountant to make reference to the subject matter of the disagreement(s)
in connection with its report.
31
<PAGE> 32
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) A1 Internet has made the following sales of unregistered common stock
since its organization on October 17, 1997. All denominations are in
U.S. Dollars unless otherwise noted.
<TABLE>
<CAPTION>
DATE
OF ISSUE TITLE PURCHASER SHARES SOLD CONSIDERATION EXEMPTION
------------ ----------- ---------------------- ------------ ------------------------------ ------------
<S> <C> <C> <C> <C> <C>
10/15/97 Common Larry W. Kerschenbaum 1,500,000 Founder Services of $1,500 Section 4(2)
10/15/97 Common Thomas H. Keesee 1,500,000 Founder Services of $1,500 Section 4(2)
1/15/98 Common E&L Investments, Inc. 250,000 $250,000 Regulation D
1/15/98 Common Sarah Kerschenbaum 25,000 $25,000 Regulation D
1/15/98 Common Dave Mazess 100,000 $100,000 Regulation D
1/15/98 Common Brian Campbell 45,000 $45,000 Regulation D
1/15/98 Common Estate of James Darby 55,000 $55,000 Regulation D
1/15/98 Common Elliott Broidy 250,000 $250,000 Regulation D
1/15/98 Common Cored Capital Corporation 250,000 $250,000 Regulation D
1/15/98 Common Atlantic Aero, Inc. 25,000 $25,000 Regulation D
12/21/98 Common Gravity Pilot Air, Inc. 300,000 Merger (exchange all Section 4(2)
outstanding stock)
1/27/99 Common Brian Campbell 25,000 $25,000 Receivable Regulation D
1/27/99 Common Clifford Morgan 27,500 Consulting services Section 4(2)
1/27/99 Common Eduardo Lautieri 7,500 $7,500 Receivable Regulation D
3/5/99 Common Lenny Tambasco 250,000 Executive compensation Section 4(2)
3/5/99 Common Eduardo Lautieri 250,000 Consulting services Section 4(2)
3/5/99 Common Moe Cohen 50,000 Consulting services Section 4(2)
3/25/99 Common South Florida Glazing 25,000 $50,000 Regulation D
3/25/99 Common Ben Beckes 53,000 $106,000 Regulation D
3/25/99 Common Larry Littlefield 5,000 $10,000 Regulation D
3/25/99 Common Bobby Nelson Bodiford 12,500 $25,000 Regulation D
3/25/99 Common Phyllis Lott 5,000 $10,000 Regulation D
3/25/99 Common Amerigo Investor Group 40,000 $80,000 Note Regulation D
3/25/99 Common Eduardo Lautieri 14,000 $28,000 Regulation D
3/25/99 Common Yucatan Holding Company 1,000 $2,000 Regulation D
3/25/99 Common Dorothy Littlefield 3,500 $7,000 Regulation D
3/25/99 Common Blue Sky Unlimited 80,000 $160,000 Note Regulation D
3/30/99 Common Bruce Bertman 3,400,000 Exchange for Computer Ease Section 4(2)
LLC
3/30/99 Common Mark Bertman 200,000 Exchange for Computer Ease Section 4(2)
LLC
3/30/00 Common Jeffrey Lieberman 200,000 Exchange for Computer Ease Section 4(2)
LLC
3/30/99 Common Dustin Cobb 200,000 Exchange for Computer Ease Section 4(2)
LLC
3/30/99 Common Bruce Bertman 35,000 Exchange for Virtual Section 4(2)
Information Express Inc.
3/30/99 Common Net World Ohio Inc. 37,000 Merger (exchange all Section 4(2)
outstanding stock)
4/6/99 Common Cimarron Capital Corporation 23,000 $46,000 Regulation D
4/6/99 Common Market Edge Inc. 15,000 $30,000 Regulation D
4/6/99 Common Arlan Akerlind 5,000 $10,000 Regulation D
4/6/99 Common George and Diane Morgan 10,000 $20,000 Regulation D
4/6/99 Common Keith Krupka 40,000 $80,000 Regulation D
4/6/99 Common Morton and Joyce Sosin 10,000 $20,000 Regulation D
4/6/99 Common Therese Esposito 5,000 $10,000 Regulation D
4/6/99 Common Elliot Broidy 118,000 $236,000 Regulation D
4/6/99 Common Deborah Ann Ingraham 5,000 $10,000 Regulation D
4/6/99 Common John L. House 10,000 $20,000 Regulation D
4/6/99 Common Mark Bertman 10,000 $20,000 Regulation D
4/13/99 Common Bruce Bertman 120,000 Exchange for debt Section 4(2)
7/12/99 Common Bruce Bertman 265,000 Exchange for Virtual Section 4(2)
Information Express Inc.
7/12/99 Common Martin Sumichrast 100,000 $200,000 Note Section 4(2)
8/19/99 Common NetAmerica 190,000 $1,330,000 in assets Section 4(2)
8/30/99 Common Quanta Corporation 5,000 Consulting services Section 4(2)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C> <C>
8/30/99 Common Mike Strauss 5,000 Consulting services Section 4(2)
9/22/99 Preferred* Frank Huang 11,111 $50,000 Regulation D
9/23/99 Preferred* Matt Goud 10,000 $45,000 Regulation D
8/24/99 Preferred* Steven and Irene DeCosta 20,000 $90,000 Regulation D
8/30/99 Preferred* Michael Cohen 44,444 $200,000 Regulation D
8/24/99 Preferred* Roderick O'Shea 10,000 $45,000 Regulation D
8/16/99 Preferred* Northridge Development Corp. 40,000 $180,000 Regulation D
8/11/99 Preferred* David Tevet 15,000 $67,500 Regulation D
8/16/99 Preferred* Richard Carter 15,000 $67,500 Regulation D
8/05/99 Preferred* Jesse Goldstein 5,000 $22,500 Regulation D
9/30/99 Preferred* HBC Investment Group, Inc. 50,000 $225,000 Regulation D
9/12/99 Preferred* Galt Asset Management, LLC 20,000 $90,000 Regulation D
8/30/99 Preferred* Kandel & Son Profit Sharing Plan 6,000 $27,000 Regulation D
8/30/99 Preferred* Richard Kandel 16,000 $72,000 Regulation D
8/30/99 Preferred* Richard Greene 70,000 $315,000 Regulation D
9/15/99 Preferred* Dr. Steven Kobren 22,222 $100,000 Regulation D
8/27/99 Preferred* Steven Etra 65,000 $292,500 Regulation D
9/21/99 Preferred* Jay Raubvogel 222,222 $1,000,000 Regulation D
8/27/99 Preferred* Blanche Etra 22,000 $99,000 Regulation D
9/10/99 Preferred* SRK Associates, LLC 65,000 $292,500 Regulation D
9/07/99 Preferred* Jean Etra 18,000 $81,000 Regulation D
9/30/99 Preferred Ferro Pasquale 23,000 Exchange for Debt Section 4(2)
9/30/99 Preferred Alan Lisenby 55,555 Exchange for Debt Section 4(2)
9/30/99 Preferred Outerbanks Limited 44,444 $200,000 Section 4(2)
10/10/99 Preferred* Lenord and Rosemarie Imperio 10,000 $45,000 Regulation D
10/04/99 Preferred* Matt Bencriscutto 20,000 $90,000 Regulation D
10/10/99 Preferred* Jerry Poole 33,333 $150,000 Regulation D
10/10/99 Preferred* Galt IT 30,000 $135,000 Regulation D
10/10/99 Preferred* James Kotsopoulos 100,000 $450,000 Regulation D
10/10/99 Preferred* Polymer Applications 30,000 $135,000 Regulation D
10/15/99 Preferred Calvin Caldwell 22,222 Exchange for Debt Section 4(2)
</TABLE>
*The principal underwriters for this transaction were EBI Securities Corporation
and J.B. Sutton Group, LLC. Both EBI and JB Sutton received a warrant to
purchase 500,000 shares of common stock exercisable at $5.50 per share and which
expires 5 years from the date of issuance. In addition, each of EBI and JB
Sutton were given the right to receive warrants to purchase 50,000 shares of
common stock at an exercise price of $2.75 per share for each $500,000 increment
that A1 Internet's gross sales falls below $13,000,000 on each of February 28,
2000 and August 31, 2000.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company intends to maintain insurance against all liability incurred
by its officers and directors in defense of any actions to which they may be
made parties by reason of their positions as officers and directors and is in
the process of obtaining this insurance.
Nevada law authorizes a Nevada corporation to indemnify its officers and
directors against claims or liabilities arising out of such person's conduct as
officers or directors if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
Company. The Articles of Incorporation provide for indemnification of the
directors and officers of the Company. In addition, the Bylaws of the Company
provide for indemnification of the directors, officers, employees, or agents of
the Company. In general, these provisions provide for indemnification in
instances when such persons acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the Company.
33
<PAGE> 34
PART III
ITEM 1. INDEX TO EXHIBITS
FINANCIAL STATEMENTS AND EXHIBITS
The following documents are attached hereto and incorporated herein by
reference.
A. FINANCIAL STATEMENTS
F-1 Audited Financial Statements as of December 31,
1998 and 1997 for Halo Holdings of Nevada, Inc.,
including audited balance sheet, and audited
statements of income, cash flows, and changes in
stockholders' equity.
F-2 Audited Financial Statements as of December 31,
1998 and 1997 for Computer Ease LLC, including
audited balance sheet, and audited statements
of income, cash flows, and changes in
stockholders' equity.
F-3 Unaudited Financial Statements as of September
30, 1999 and 1998, including unaudited balance
sheet, and related statements of income and
cash flows.
F-4 Pro-Forma Combined Consolidated Financial
Statements as of December 31, 1998.
B. EXHIBIT
3(i)(a) Articles of Incorporation.
(b) Amendment to Certificate of
Incorporation
Dated July 9, 1999
3(ii) Bylaws of the Company.
16 Letter on change in certifying
accountant
27 Financial Disclosure
Schedule
34
<PAGE> 35
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
A1 INTERNET.COM, INC.,
A Nevada Corporation
Date , 1999 By : /s/
---------------------------- ---------------------------
Bruce Bertman,
President
35
<PAGE> 36
F-1
HALO HOLDINGS OF NEVADA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<PAGE> 37
[COHEN & KAMENY LETTERHEAD]
Independent Auditors' Report
To The Board of Directors
Halo Holdings of Nevada, Inc.
We have audited the accompanying consolidated balance sheets of Halo Holdings of
Nevada, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of income and retained earnings, cash flows, and changes in
Shareholders equity for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Halo Holdings of
Nevada, Inc. as of December 31, 1998 and 1997, and the results of operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ COHEN & KAMENY
--------------------------
COHEN & KAMENY CPA'S PLLC
Riverdale, New York
March 23, 1999
<PAGE> 38
HALO HOLDINGS OF NEVADA, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(See Independent Auditors' Report)
ASSETS
------
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 10,205. $ 1,819.
FIXED ASSETS: (Notes 2a and 5)
Aircraft 1,008,256. 1,008,256.
Equipment 9,159. 9,159.
Less: accumulated depreciation 170,654. 69,649.
------------ -------------
NET FIXED ASSETS 846,761. 947,766.
------------ -------------
OTHER ASSETS:
Prepaid expenses (Notes 6) 22,388. 7,340.
Goodwill-net of amortization (Note 2c) 278,861. 309,845.
------------ -------------
TOTAL OTHER ASSETS 301,249. 317,185.
------------ -------------
TOTAL ASSETS $ 1,158,215. $ 1,266,770.
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses 37,313. -- .
Loan payable-bank 18,059. -- .
Loans payable - shareholders (Note 4) 109,261. 196,670.
Note payable - current portion (Note 5) 641,451. 195,553.
------------ -------------
TOTAL CURRENT LIABILITIES: 806,084. 392,223.
------------ -------------
LONG TERM LIABILITIES:
Note payable (Note 5) -- . 544,045.
Loan payable 80,000. 80,000.
------------ -------------
TOTAL LONG TERM LIABILITIES: 80,000. 624,045.
------------ -------------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 20,000,000 shares authorized, 4,300. 3,500.
4,300,000 and 3,500,000 issued and outstanding
for 1998 and 1997 respectivly (Note 3)
Preferred stock 300,000 shares $.25 par value issued and -- . 75,000.
outstanding for 1997 (Note 3)
Additional paid in capital 1,100,700. 526,500.
Retained earnings (Notes 1 and 3) (832,869). (354,498).
------------ -------------
TOTAL STOCKHOLDERS' EQUITY: 272,131. 250,502.
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,158,215. $ 1,266,770.
============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
COHEN AND KAMENY CPA'S PLLC
Page 2.
<PAGE> 39
HALO HOLDINGS OF NEVADA, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
(DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(See Independents Auditors' Report)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
NET SALES $ 84,560. $ 3,384.
OPERATING EXPENSES (Schedule 1) 463,727. 357,882.
------------ ------------
NET (LOSS) FROM OPERATIONS (379,167). (354,498).
OTHER INCOME (EXPENSE):
Interest Expense (99,204). -- .
------------ ------------
NET LOSS (478,371). (354,498).
RETAINED EARNINGS (DEFICIT)-BEGINNING OF YEAR (354,498). -- .
------------ ------------
RETAINED EARNINGS (DEFICIT)-END OF YEAR $(832,869). $(354,498).
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
COHEN AND KAMENY CPA'S PLLC
Page 3.
<PAGE> 40
HALO HOLDINGS OF NEVADA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(See Independent Auditors' Report)
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
CASH FLOWS USED FROM OPERATING ACTIVITIES:
Net (loss) $ (478,371). $ (354,498).
Depreciation and amortization 131,989. 826.
(Increase) in prepaid expenses (15,048). -
Increase in accounts payable and accrued expenses 37,313. -
------------- --------------
NET CASH (USED) BY OPERATING ACTIVITIES (324,117). (353,672).
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Goodwill - -
Net investment equipment - (8,259).
------------- --------------
NET CASH (USED BY INVESTING ACTIVITIES - (8,259).
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in note payable (98,147). -
Increase in loan payable-bank 18,059. -
(Decrease) Increase in loans payable-shareholders (87,409). 180,118.
Increase in loans payable - -
Increase from common stock issued 800. 3,500.
Increase in additional paid in capital 574,200. 526,500.
(Decrease) in loan payable - (346,368).
(Decrease) increase in preferred stock (75,000). -
------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 332,503. 363,750.
------------- --------------
NET INCREASE IN CASH 8,386. 1,819.
Cash at beginning of year 1,819. -
CASH - AT END OF YEAR $ 10,205. 1,819.
============= ==============
SUPPLEMENTAL DISCLOUSRES
Schedule on Noncash Investing and Financing Transactions
The company acquired the assets of Gravity Pilot Air, Inc.
for convertible preferred stock. In connection with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired 1,125,597.
Preferred stock issued (75,000).
--------------
Liabilities assumed 1,050,597.
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
COHEN AND KAMENY CPA'S PLLC
Page 4.
<PAGE> 41
HALO HOLDINGS OF NEVADA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(See Independents Auditors' Report)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
Opening Balances - $ - - $ - $ - $ -
Acquisition of- 3,500,000 3,500 - - 526,500 -
Halo Holdings, Inc.
Acquisition of- - - 300,000 75,000 - -
Gravity Pilot Air, Inc.
Net loss - year ended December 31, 1997 - - - - - (354,498)
------------- ----------- ------------ ----------- ------------- --------------
Balances at December 31, 1997 3,500,000 3,500 300,000 75,000 526,500 (354,498)
Conversion of preferred stock 300,000 300 (300,000) (75,000) 74,700 -
Shares issued in private sale 500,000 500 - - 499,500 -
Net loss - year ended December 31, 1998 - - - - - (478,371)
------------- ----------- ------------ ----------- ------------- --------------
Balances at December 31, 1998 4,300,000 $ 4,300 $ - $ - $1,100,700 $ (832,869)
============= =========== ============ =========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
COHEN AND KAMENY CPA'S PLLC
Page 5
<PAGE> 42
HALO HOLDINGS OF NEVADA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF THE COMPANY'S BUSINESS:
HALO Holdings of Nevada, Inc. (the Company) was incorporated in
October 1997 in the state of Nevada. Subsequent to it's
incorporation the Company acquired HALO Holdings, Inc. (a
Delaware Corporation) in November 1997 in a transaction, which
was treated as pooling of interests. The combined entity was
formed to pursue various business opportunities in the fragmented
and growing area of extreme sports, skydiving, and aviation and
extreme sports entertainment industries. In furtherance of its
goals, the Company acquired Gravity Pilot Air, Inc. (a Delaware
Corporation) which had been engaged in various business
operations related to skydiving and extreme sports. The
acquisition of Gravity Pilot Air, Inc. was treated as a purchase
and is presented in these financial statements on a consolidated
basis.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies considered particularly significant.
(a) DEPRECIATION:
Fixed assets are reflected at cost. Depreciation is provided
using the straight-line method as follows:
Machinery & equipment 5 years
Aircraft 10 years
(b) STATEMENT OF CASH FLOWS:
For purposes of the statement of cash flows, the company
considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
(c) GOODWILL:
Goodwill is amortized over the lesser of the useful life of the
related assets or 10 years.
COHEN AND KAMENY CPA'S PLLC
Page 8
<PAGE> 43
HALO HOLDINGS OF NEVADA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998
NOTE 3 - CAPITAL STOCK
Pursuant to the incorporation of the Company it has authorized
20,000,000 shares of it's common stock at a par value of $.001.
Upon the completion of the acquisition of HALO Holdings, Inc. the
Company issued 3,500,000 shares of its common stock in exchange
for all of the outstanding shares of HALO Holdings, Inc. on a 1
to 1 basis. This transaction was accounted for as a pooling of
interests.
On October 17, 1997 the Company authorized the acquisition of
Gravity Pilot Air, Inc. in exchange for 300,000 of it's newly
authorized convertible preferred stock with a par value of $.25
per share. The conversion feature stipulated that the preferred
shares could be converted to the Company's common shares on a 1
for 1 basis if the price of the common shares reached $5.00 per
share bid price on a public market. These shares were
subsequently converted in November 1998 when the bid price for
the common shares reached $5.00 per share.
On January 15, 1998 the Company authorized the issuance of its
common shares pursuant to a private placement offering of 500,000
common shares at $1.00 per share. This offering resulted in the
issuance of 500,000 shares with proceeds to the Company of
$500,000.
NOTE 4 - LOANS PAYABLE SHAREHOLDERS:
During the years ended December 31, 1998 and 1997 various
shareholders of the Company made loans to the Company or made
payments on behalf of the Company to third parties in settlement
of certain debts the Company had incurred. These loans are
payable upon demand and bear no interest.
NOTE 5 - NOTE PAYABLE:
In connection with the acquisition of it's aircraft, the Company
financed this transaction through a note payable in which the
note holder has a secured interest in the aircraft to the extent
of the outstanding balance on the note. This note bears interest
at a rate of 14% per annum and is payable in monthly installments
consisting of principal and interest. The terms of the note
stipulate that a final payment of the outstanding balance is due
on November 4, 1999.
COHEN AND KAMENY CPA'S PLLC
Page 9
<PAGE> 44
HALO HOLDINGS OF NEVADA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 6 - PREPAID EXPENSES:
As part of the note payable agreement (Note 5) the Company also
agreed to maintain a separate reserve account with the note
holder corresponding to the engine utilization of the aircraft.
The amount required to be reserved is based upon the number of
hours the aircraft has been in flight. The amounts reserved
are intended to defray maintenance costs associated with the
aircraft.
As of December 31, 1998 and 1997 the balance in this account was
$22,388 and $7,340 respectively.
NOTE 7 - PROVISIONS FOR INCOME TAXES:
Due to net operating losses, which can be carried forward, the
Company has not had to make any provision for income taxes.
NOTE 8 - SUBSEQUENT EVENTS
On January 29, 1999 in a continuing effort to raise capital for
it's continued growth, the Company made a private offering of
500,000 shares of it's common stock at a price of $2.00 per
share.
Since the date of these financial statements the Company has
signed letters of intent with three companies with the express
intent of acquiring these companies. As intended, the acquisition
of these companies will consist of an exchange of 100% of the
common stock of the companies to be acquired for newly issued
common stock of the Company. Two of the companies mentioned above
are in the business of providing internet services and access.
The third company to be acquired is an extreme sports adventure
internet web site.
COHEN AND KAMENY CPA'S PLLC
Page 10
<PAGE> 45
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ComputerEase, LLC
We have audited the accompanying balance sheets of ComputerEase, LLC as of
December 31, 1998 and 1997, and the related statements of operations, changes in
members' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ComputerEase, LLC as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 5 to the financial statements, in March 1999 the Company
was acquired by A1 Internet.com, Inc.
Denver, Colorado
July 23, 1999
<PAGE> 46
COMPUTEREASE, LLC
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
------------------------------
<TABLE>
<CAPTION>
ASSETS
------
1998 1997
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Receivables
Trade $ 136 570 $ 121 002
Other - 2 885
Inventory, at cost 11 244 9 094
--------------- ---------------
TOTAL CURRENT ASSETS 147 814 132 981
--------------- ---------------
PROPERTY AND EQUIPMENT,
AT COST (NOTES 1 AND 3) 414 995 401 958
Less accumulated depreciation (250 215) (145 585)
--------------- ---------------
164 780 256 373
--------------- ---------------
$ 312 594 $ 389 354
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank overdraft $ 10 180 $ 49 585
Accounts payable 193 357 148 480
Due to members (Note 2) 306 102 183 809
Due to related parties (Note 2) 107 661 280 004
Other 61 487 859
--------------- ---------------
TOTAL CURRENT LIABILITIES 678 787 662 737
NOTE PAYABLE-RELATED PARTY (NOTE 2) 100 000 100 000
--------------- ---------------
TOTAL LIABILITIES 778 787 762 737
COMMITMENTS (NOTE 4)
MEMBERS' EQUITY (466 193) (373 383)
--------------- ---------------
$ 312 594 $ 389 354
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements. 4
<PAGE> 47
COMPUTEREASE, LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
NET SALES $ 8 257 678 $ 8 382 314
COST OF SALES (6 809 861) (7 480 671)
--------------- ---------------
GROSS PROFIT 1 447 817 901 643
--------------- ---------------
OPERATING EXPENSES:
Salaries and related expenses 650 808 477 434
Travel and entertainment 139 387 40 993
Marketing, advertising and promotion 132 675 84 439
Bad debt expense 236 691 49 021
General and administrative 165 242 63 179
Occupancy costs 157 616 181 371
Communications 58 208 120 743
--------------- ---------------
TOTAL OPERATING EXPENSES 1 540 627 1 017 180
--------------- ---------------
NET LOSS $ (92 810) $ (115 537)
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements. 5
<PAGE> 48
COMPUTEREASE, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------
<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1996 $ (257 846)
Net loss (115 537)
-------------------
BALANCE, DECEMBER 31, 1997 (373 383)
Net loss (92 810)
-------------------
BALANCE, DECEMBER 31, 1998 $ (466 193)
===================
</TABLE>
The accompanying notes are an integral part of these statements. 6
<PAGE> 49
COMPUTEREASE, LLC
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (92 810) $ (115 537)
Adjustments to reconcile net loss to cash flows provided
by (used in) operating activities:
Depreciation 104 630 105 189
Bad debt expense 236 691 49 021
Increase in trade receivables (252 259) (107 826)
Increase (decrease) in other receivables 2 885 (2 685)
Increase in inventory (2 150) (7 595)
Decrease in other assets - 23 880
(Decrease) increase in bank overdraft (39 405) 49 585
Increase (decrease) in accounts payable 44 877 (90 899)
Increase (decrease) in other liabilities 60 628 (67 005)
--------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 63 087 (163 872)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (13 037) (212 831)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to related parties - 100 000
Proceeds from (payments on) member loans 122 293 (7 451)
Proceeds from (payments on) related party loans (172 343) 280 004
--------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (50 050) 372 553
--------------- ---------------
NET DECREASE IN CASH - (4 150)
CASH, BEGINNING OF YEAR - 4 150
--------------- ---------------
CASH, END OF YEAR $ - $ -
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 12 717 $ 14 950
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements. 7
<PAGE> 50
COMPUTEREASE, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Computer Ease, LLC (the Company) was organized under the laws of the State of
Maryland on May 17, 1993. The limited liability company will continue until
January 1, 2000, unless terminated sooner as provided for in the Operating
Agreement (see Note 5). The Company's activites include the buying and selling
of computer equipment, web design and providing internet access. The Company has
both domestic and international customers.
The Company consists of four members. The Company has only one class of units of
membership interest. The operating agreement provides that each member share in
net income based on their respective proportion of units of interest, and net
losses based on their respective capital contributions. The agreement also
provides that no member will be personally liable for any debt, obligation or
liability of the Company.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
The Company considers investments with an original maturity of three months or
less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and receivables, are carried
at amounts which approximate fair value. Payables and other liabilities are
carried at amounts which approximate fair value.
INVENTORY
Inventory consists of computer equipment and is carried at the lower of cost or
market. Cost is determined on a specific identification basis.
PROPERTY AND EQUIPMENT
The Company provides for depreciation of property and equipment using
accelerated methods based on estimated useful lives of five years.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
For purposes of evaluating the recoverability of long-lived assets, the
recoverability test is performed using undiscounted net cash flows estimated to
be generated by the asset.
8
<PAGE> 51
COMPUTEREASE, LLC
NOTES TO FINANCIAL STATEMENTS
---------------------------------------
(CONTINUED)
NOTE 1- ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES (continued)
INCOME TAXES
As a limited liability company, the Company is not a tax paying entity for
federal income tax purposes. Accordingly, no income tax provision (benefit) is
reported in these financial statements. The distributive share of net income or
loss is reportable by the members in their respective tax returns.
NOTE 2- NOTE PAYABLE - RELATED PARTY, DUE TO RELATED PARTIES AND DUE TO MEMBERS
Note payable-related party consists of a $100,000 note payable to the father of
a member, at 15% interest. The note requires monthly interest payments and
matures on November 1, 2000. Interest expense on the note payable amounted to
$12,500 and $14,950 in 1998 and 1997, respectively.
The due to related parties and members shown on the accompanying balance sheet
are advances that are non-interest bearing and have no due date.
NOTE 3- MAJOR CUSTOMERS
The following customers each accounted for more than 10% of sales in 1998 and
1997:
<TABLE>
<CAPTION>
% of Sales
-------------------------
Customer 1998 1997
--------------------- ------------------- -----------
<S> <C> <C>
A - Netherlands 20.3 -
B - France 31.1 -
C - United Kingdom - 13.1
D - United States - 13.4
E - United States - 21.1
</TABLE>
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". The following table presents information
by geographic area as of and for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Revenues Long-Lived Assets
-------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States $ 2,473,921 $ 5,100,978 $ 164,780 $ 256,373
Belgium 751,745 -- -- --
Denmark -- 688,000 -- --
France 4,246,818 240,500 -- --
Netherlands 511,800 535,075 -- --
Luxembourg 253,000 -- -- --
United Kingdom -- 1,772,322 -- --
Other Foreign Countries 20,394 45,439 -- --
------------- ------------ ------------ -----------
$ 8,257,678 $ 8,382,314 $ 164,780 $ 256,373
============= ============ ============ ===========
</TABLE>
NOTE 4- COMMITMENTS
The Company leases office space from a non-related party under an operating
lease. Future minimum lease payments under the non-cancellable lease as of
December 31, 1998 are 1999-$71,000, 2000-$73,500 and 2001-$12,000.
Total rental expense amounted to $76,183 and $64,303 in 1998 and 1997,
respectively.
NOTE 5- SUBSEQUENT EVENTS
In March 1999, A1 Internet.com, Inc., issued 4,000,000 shares of its common
stock in exchange for all of the outstanding units of membership of the Company.
A1 Internet.com, Inc. is an internet service provider. In May 1999, the Company
was then merged with A1 Internet Services, Inc., a wholly-owned subsidiary of A1
Internet.com, Inc.
9
<PAGE> 52
F-3
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
Consolidated Balance Sheet
September 30, 1999
==================
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 2,077,813
Receivables:
Trade, net (Note 1) 813,383
Note receivable, current portion (Note 3) 33,333
Related parties 49,100
Other 28,300
Prepaid expenses 167,184
Other current assets 27,664
------------
3,196,777
------------
PROPERTY AND EQUIPMENT, AT COST (NOTE 1):
Aircraft 1,008,256
Computers and equipment 1,819,371
Less: accumulated depreciation (533,704)
------------
2,293,923
------------
OTHER ASSETS:
Goodwill, net of amortization (Note 2) 9,472,696
Contracts (Notes 1 and 6) 1,498,000
Note receivable (Note 3) 46,987
Other 54,222
------------
11,071,905
------------
$16,562,605
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 606,769
Loans payable-shareholders (Note 4) 422,749
Notes payable (Note 5) 992,108
Other 58,624
------------
2,080,250
------------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY (NOTE 6):
Common stock, $.001 par value, 20,000,000 shares authorized,
9,739,500 shares issued and outstanding 9,739
Preferred stock, $.001 par value, 5,000,000 shares authorized,
848,889 shares issued and outstanding 849
Additional paid-in capital 18,108,258
Notes receivable-common stock (440,000)
Retained earnings (deficit) (3,196,491)
------------
14,482,355
------------
$16,562,605
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 53
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
Consolidated Statements of Operations
Nine Months Ended September 30, 1999 and 1998
=============================================
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
NET SALES $ 1,867,789 $ 76,203
COST OF SALES (773,857) (8,626)
------------ -----------
GROSS PROFIT 1,093,932 67,577
------------ -----------
OPERATING EXPENSES:
Salaries and related expenses 825,868 112,500
Travel and entertainment 92,374 -
Bad debt expense 40,318 -
Legal and professional 199,192 41,000
Occupancy costs 112,769 10,218
General and administrative 318,823 23,146
Consulting 244,155 34,505
Depreciation and amortization 556,947 98,210
------------ -----------
TOTAL OPERATING EXPENSES 2,390,446 319,579
------------ -----------
OTHER INCOME (EXPENSE):
Consulting fees (1,100,000) -
Interest income 19,106 -
Interest expense (76,214) (76,203)
------------ -----------
TOTAL OTHER EXPENSE (1,157,108) (76,203)
------------ -----------
NET LOSS BEFORE EXTRAORDINARY ITEM (2,453,622) (328,205)
EXTRAORDINARY ITEM-FORGIVENESS OF DEBT 90,000 -
------------ -----------
NET LOSS $(2,363,622) $ (328,205)
============ ===========
BASIC AND DILUTED NET LOSS PER COMMON
SHARE BEFORE EXTRAORDINARY ITEM (NOTE 1) $ (0.31) $ (0.08)
============ ===========
BASIC AND DILUTED NET LOSS PER COMMON SHARE (NOTE 1) (0.30) (0.08)
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (NOTE 1) 7,910,739 3,974,359
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 54
A1 Internet.Com and Subsidiaries
(Formerly Halo Holdings of Nevada, Inc.)
Consolidated Statement of Shareholders' Equity
Nine Months Ending September 30, 1999
=====================================
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Paid in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1998 4,300,000 $ 4,300 - $ - $ 1,100,700
Issuance of common stock for cash
and notes receivable, less offering
costs of $50,000 500,000 500 - - 949,500
Issuance of warrants for offering costs of
$50,000 and acquisition costs of $717,979 - - - - 767,979
Business acquisitions:
Virtual Information Express, Inc. 300,000 300 - - 599,700
Computer Ease LLC 4,000,000 4,000 - - 7,996,000
NetWorld Ohio, Inc. 37,000 37 - - 292,593
Shares issued for services 560,000 560 - - 1,169,440
Shares issued in private sale 32,500 32 - - 32,468
Reacquired shares through disposition
of Skydive USA (400,000) (400) - - (799,600)
Gain on sale of Skydive USA to shareholder - - - - 514,383
Conversion of shareholder loan 120,000 120 - - 322,572
Conversion of shareholder loan - - - - 227,331
Issuance of warrants in connection with notes payable - - - - 122,952
Conversion of notes payable to stock, net of warrants - - 123,000 124 490,551
Issuance of preferred stock, net of offering
costs of $473,795 - - 725,889 725 2,791,979
Shares issued in private sale 100,000 100 - - 199,900
Shares issued in connection with acquisition
of contracts 190,000 190 - - 1,329,810
Net loss - - - - -
----------- -------- --------- ------ ------------
BALANCES, SEPTEMBER 30, 1999 9,739,500 $ 9,739 848,889 $ 849 $18,108,258
=========== ======== ========= ====== ============
<CAPTION>
Notes
Receivable (Deficit)
---------- ---------
<S> <C> <C>
BALANCES, DECEMBER 31, 1998 $ - $ (832,869)
Issuance of common stock for cash
and notes receivable, less offering
costs of $50,000 (240,000) -
Issuance of warrants for offering costs of
$50,000 and acquisition costs of $717,979 - -
Business acquisitions:
Virtual Information Express, Inc. - -
Computer Ease LLC - -
NetWorld Ohio, Inc. - -
Shares issued for services - -
Shares issued in private sale - -
Reacquired shares through disposition
of Skydive USA - -
Gain on sale of Skydive USA to shareholder - -
Conversion of shareholder loan - -
Conversion of shareholder loan - -
Issuance of warrants in connection with notes payable - -
Conversion of notes payable to stock net of warrants - -
Issuance of preferred stock, net of offering
costs of $473,795 - -
Shares issued in private sale (200,000) -
Shares issued in connection with acquisition
of contracts - -
Net loss - (2,363,622)
----------- -------------
BALANCES, SEPTEMBER 30, 1999 $(440,000) $(3,196,491)
=========== =============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 55
A1 Internet.Com, Inc.
(Formerly Halo Holdings of Nevada, Inc.)
Supplemental Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
---------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,363,622) $ (328,204)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 556,947 98,210
Bad debt expense 40,318 -
Forgiveness of debt (90,000) -
Issuance of common stock for services 1,170,000 -
Increase in trade receivables (352,424) -
Increase in other assets (28,795) -
Increase in prepaid expenses (144,796) (6,769)
Increase in accounts payable and accrued expenses 109,475 8,347
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,102,897) (228,416)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note receivable 100,000 -
Payments on note and other receivables (238,215) -
Acquisition of contracts (168,000) -
Acquisition of Virtual Information Express, Inc., net of cash acquired 2 -
Acquisition of Computer Ease, LLC, net of cash acquired - -
Acquisition of NetWorld Ohio, Inc., net of cash acquired (89,138) -
Purchases of property and equipment (981,634) -
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,376,985) -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) related party loans, net - (167,215)
Proceeds from (payments on) shareholder loans, net 266,125 (90,296)
Proceeds from notes payable 1,003,500 -
Payments on notes payable (307,339) -
Issuance of common stock, net 792,500 500,000
Issuance of preferred stock, net 2,792,704 -
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,547,490 242,489
------------ ------------
NET INCREASE IN CASH 2,067,608 14,073
CASH, BEGINNING OF PERIOD 10,205 1,819
------------ ------------
CASH, END OF PERIOD $ 2,077,813 $ 15,892
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 76,214 $ 76,203
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Conversion of loans payable to capital $ 550,023 $ -
============ ============
Issuance of common stock for notes receivable $ 440,000 $ -
============ ============
Retirement of common stock from disposition of subsidiary $ 800,000 $ -
============ ============
Issuance of warrants in connection with notes payable $ 122,952 $ -
============ ============
Conversion of notes payable to preferred stock $ 490,675 $ -
============ ============
Issuance of common stock for contracts $ 1,330,000 $ -
============ ============
The Company purchased all of the capital stock of Virtual Information
Express, Inc., Computer Ease, LLC and Networld Ohio, Inc. for cash, notes
payable and common stock. In connection with the acquisitions, liabilities
were assumed as follows:
Fair value of assets acquired $ 11,075,800
Cash paid (89,136)
Notes payable issued (180,000)
Common stock issued (8,892,630)
Common stock warrants issued (717,979)
------------
Liabilities assumed $ 1,196,055
============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 56
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include A1 Internet.com, Inc. (formerly
Halo Holdings of Nevada, Inc.) and its wholly owned subsidiaries, A1 Internet
Services, Inc. (formerly Computer Ease, LLC), Gravity Pilot Air, Inc., Networld
Ohio, Inc., and Virtual Information Express, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company, through its subsidiaries, provides internet connectivity through
two networks throughout the United States and Canada and related products and
services, including Web design. The Company's ability to offer end-user access
to an internet network is dependent upon the Company's contractual relationships
with both providers. Should these contracts be terminated or terms amended, the
Company might be required to enter into other arrangements with others on less
favorable terms. In addition, the Company relies on outside parties to market
their products and services to end users.
The September 30, 1999 and 1998 amounts included herein are unaudited. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly, the financial position, results of
operations, cash flows and changes in shareholders' equity have been made.
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash, receivables and other current assets, are
carried at amounts which approximate fair value. Accounts payable, loans and
notes payable and other liabilities are carried at amounts which approximate
fair value.
ACCOUNTS RECEIVABLE
The Company performs on-going credit evaluations of its customers. The Company
has established an allowance for doubtful accounts at September 30, 1999 of
$40,318.
<PAGE> 57
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
The Company provides for depreciation of equipment using accelerated and
straight-line methods based on estimated useful lives of five years.
Depreciation of aircraft is computed using the straight-line method based on an
estimated useful life of ten years.
CONTRACTS
Internet service contracts in the amount of $1,498,000 shown on the accompanying
balance sheet are being amortized over the life of the contracts, which is three
years.
GOODWILL
Goodwill is amortized over a period of ten years.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset.
REVENUE RECOGNITION
The Company recognizes revenue from connectivity, hosting and leasing of
airplanes over the period that the service is provided. Revenue from technical
support is recognized when the work is completed. Electronic commerce revenue is
recognized at the time of the sale. Web design revenue is recognized as such
revenues accrue under the terms of the related contract.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes, as prescribed by Statement of Financial Accounting Standards No. 109
(SFAS 109). Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply in the years in which these temporary
differences are expected to be recovered or settled. Changes in tax rates are
recognized in income in the period that includes the enactment date.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is based on the weighted average number of
shares of common stock outstanding. Common stock equivalents are not included in
the weighted average calculation since their effect would be anti-dilutive.
<PAGE> 58
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2- BUSINESS COMBINATIONS
Computer Ease, LLC ("CE") was organized on May 17, 1993 as a limited liability
company. CE's activities include the buying and selling of computer equipment,
web design and providing internet access. In March 1999, the Company issued
4,000,000 shares of its common stock at $2.00 per share in exchange for all of
the outstanding units of membership of CE. This transaction was accounted for
using the purchase method of accounting. At the time of the purchase, assets and
liabilities of CE were $836,981 and $876,583, respectively. The excess of the
purchase price (including acquisition costs of $717,979, see Note 6) over the
fair value of the net assets acquired was recorded as goodwill of $8,757,581. In
May 1999, CE was then merged with A1 Internet Services, Inc., a wholly-owned
subsidiary of A1 Internet.com, Inc. A1 Internet Services, Inc. is the surviving
entity.
Virtual Information Express, Inc. ("VI") was incorporated on June 10, 1998. The
Company is engaged in the business of electronic commerce. In February 1999, the
Company acquired VI for 300,000 shares of its common stock at $2.00 per share in
exchange for all of the outstanding shares of VI. This transaction was accounted
for using the purchase method of accounting. At the time of the purchase, assets
and liabilities of VI were $49,002 and $50,000, respectively. The excess of the
purchase price over the fair value of the net assets acquired was recorded as
goodwill of $600,998.
Networld Ohio, Inc. ("Networld") was incorporated on June 15, 1995 and is
engaged in the business of providing internet service. The Company acquired
Networld in April 1999. The acquisition consisted of a cash payment of $90,000,
37,000 shares of common stock at $7.91 per share, and a short term non-interest
bearing promissory note of $180,000 maturing December 15, 1999. This transaction
was accounted for using the purchase method of accounting. At the time of the
purchase, assets and liabilities of Networld were $235,007 and $247,142,
respectively. The excess of the cost of the acquisition over the fair value of
the net assets acquired was recorded as goodwill of $574,765.
The following summarized, proforma results of operations of the Company assumes
that the Company acquired VI, CE and Networld as of January 1, 1998:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Gross revenue $ 2,918,202 $ 8,388,575
Net loss before extraordinary item (2,010,676) (310,251)
Net loss (1,920,676) (310,251)
Net loss per common share
before extraordinary item (.16) (.04)
Net loss per common share (.16) (.04)
</TABLE>
The weighted average calculation used above includes the shares issued in
connection with the acquisitions as if they had been issued for all periods
presented.
<PAGE> 59
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 30, 1999, Skydive USA, a wholly owned subsidiary of the Company, was
sold to major shareholders of the Company. These two individuals tendered a
total of 400,000 shares valued at $2.00 per share of the Company's common stock
to the Company as consideration for the sale. The difference between the value
of the common stock ($800,000) returned and the net assets relating to Skydive
USA of $285,617, resulted in a net gain of $514,383. However, because the
transaction was among significant related parties and was determined to not be
at arms length, the gain was recorded as an increase to additional paid-in
capital. As a result, the net effect of the transaction was a net charge to
shareholders' equity of $285,617.
NOTE 3- NOTES RECEIVABLE
Notes receivable at September 30, 1999 consists of the following:
<TABLE>
<CAPTION>
Note receivable bearing interest at 6%, due April 1, 2002,
payable in monthly installments of $3,042:
<S> <C>
Current portion $33,333
Long term portion
$46,987
-------
$80,320
=======
</TABLE>
NOTE 4- LOANS PAYABLE-SHAREHOLDERS AND NOTE PAYABLE-SHAREHOLDER
The loans payable to shareholders shown on the accompanying balance sheet
includes a $96,000 loan bearing interest at 15% and due on demand after April 1,
2000. The remaining amounts are advances that are non-interest bearing and have
no due date.
NOTE 5- NOTES PAYABLE
Notes payable at September 30, 1999 consists of the following:
<TABLE>
<S> <C>
14% note payable, due November 30, 1999, payable in
monthly installments of $16,296, secured by aircraft $558,333
* 8% note payable, (face amount $200,000) principal and interest due
October 10, 1999, convertible into preferred stock at $4.50 per share 169,978
* 8% note payable, (face amount $250,000) principal and interest due
September 2, 1999, convertible into preferred stock at $4.50 per share 219,897
Non-interest bearing note payable, due December 15, 1999,
payable in monthly installments of $20,000 43,900
--------
$992,108
========
</TABLE>
<PAGE> 60
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
* In connection with the issuance of these notes payable, $60,125 has been
allocated to the detachable stock warrants (see Note 6).
NOTE 6- SHAREHOLDERS' EQUITY
COMMON STOCK
On January 29, 1999 the Company authorized the issuance of its common shares
pursuant to a private placement offering of 500,000 common shares at $2.00 per
share. This offering resulted in the issuance of 500,000 shares with proceeds to
the Company of $710,000 and notes receivable from shareholders of $240,000, net
of offering costs.
During the period ended September 30, 1999, the Company issued 560,000 common
shares for services, of which 500,000 of these shares were issued to related
parties. In addition, 32,500 shares of common stock were sold for $1.00 per
share in a private sale to current shareholders. Also, 120,000 shares of common
stock were issued to an officer and stockholder as repayment of a $372,692 debt.
Another shareholder forgave debt totaling $177,331, which was credited to
paid-in capital.
The Company issued 100,000 shares of common stock at $2.00 per share to a
director of the Company for a note receivable.
The Company acquired certain contracts from an unrelated entity to provide
internet service for cash of $168,000 and 190,000 shares of common stock valued
at $7.00 per share.
PREFERRED STOCK
In July 1999, the Company commenced a private placement offering of its Series A
preferred stock at $4.50 per share. As of September 30, 1999, this offering has
resulted in the issuance of 725,889 shares with proceeds to the Company of
$2,792,704, net of offering costs. In connection with this offering, warrants to
purchase 500,000 shares of the Company's common stock at $5.50 per share, will
be issued to the underwriter at the closing of the offering. These warrants will
expire 5 years from the date of issuance.
In addition, notes payable in the amount of $490,675 were converted to 123,000
shares of Series A preferred stock pursuant to the note payable agreements.
Subject to certain adjustments, each share of Series A preferred stock is
convertible into one share of common stock. The Series A preferred stock is
convertible upon written request of the holder. The Series A preferred stock is
preferred as to both earnings and assets, and in the event of liquidation,
dissolution or winding up of the Company, holders of the Series A preferred
stock shall be entitled to be paid $4.50 per share before any assets of the
Company are distributed among or paid over to the holders of the common stock.
<PAGE> 61
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK WARRANTS
Common stock warrants have been issued in connection with certain private
offerings, business acquisitions and notes payable. At September 30, 1999,
warrants to purchase common stock at various prices were outstanding, which
expire as follows:
<TABLE>
<CAPTION>
Number Outstanding
And Exercisable at
Expiration Date September 30, 1999 Exercise Price
--------------- ------------------ --------------
<S> <C> <C>
June 1, 2004 500,000 $ .10
June 1, 2004 42,500 5.50
---------
542,500
=========
</TABLE>
The 500,000 warrants shown above were issued in connection with the January 29,
1999 private placement and the acquisition of Computer Ease, LLC (see Note 2).
These warrants were valued at $767,979, of which $50,000 was for offering costs
and $717,979 was for costs incurred in connection with the acquisition.
The 42,500 warrants shown above are detachable stock warrants issued in
connection with various notes payable agreements. These warrants were valued at
$122,952. 22,500 of these warrants, valued at $62,827, were issued in connection
with notes payable that were converted to preferred stock.
The fair value of all of the above described warrants was estimated using the
Black-Scholes option pricing model, with the following assumptions: dividend
yield of 0%; expected volatility of 48%; risk free rate of 4.5%; and expected
life of five years.
NOTE 7- INCOME TAXES
A1 Internet.com, Inc. has an unused net operating loss carryforward of
approximately $830,000 for income tax purposes, of which approximately $350,000
expires in 2012 and the remainder in 2018. However, the ability to utilize such
losses to offset future taxable income is subject to various limitations imposed
by the rules and regulations of the Internal Revenue Service. A portion of the
net operating losses are limited each year to offset future taxable income, if
any, due to the change of ownership in A1 Internet.com, Inc.'s outstanding
shares of common stock. This net operating loss carryforward may result in
future income tax benefits of approximately $282,200; however, because
realization is uncertain at this time, a valuation reserve in the same amount
has been established. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
<PAGE> 62
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of A1 Internet.com, Inc.'s deferred tax liabilities and
assets as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax liabilities $ --- $ ---
========== =========
Deferred tax assets:
Net operating loss carryforwards 282 200 119 000
---------- ---------
Total deferred tax assets 282 200 119 000
Valuation allowance for deferred tax assets (282 200) (119 000)
---------- ---------
$ --- $ ---
========== =========
</TABLE>
The valuation allowance for deferred tax assets was increased by $119,000 and
$173,200 during 1998 and 1997, respectively.
NOTE 8- BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". The following table presents information by
geographic area as of and for the periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Revenues Long-Lived Assets
-------- -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States $ 1 378 789 $ 76,203 $13,264,619 $ 1,159,401
Netherlands 489 000 -- -- --
----------- ----------- ----------- -----------
$ 1,867,789 $ 76,203 $13,264,619 $ 1,159,401
=========== =========== =========== ===========
</TABLE>
For the period ending September 30, 1999, the Company's only activity outside of
their normal operations was in the leasing of their aircraft and skydiving. This
segment accounted for $165,519 in revenue, $8,774 in cost of sales, a net loss
of $51,806 and assets of $761,983. The Company's sole business for the period
ending September 30, 1998 was skydiving, therefore all items presented in the
accompanying financial statements for that period relate to that business.
The following customers each accounted for more than 10% of sales for the nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
% of Sales % of Receivables
Nine Months Ended September 30, Nine Months Ended September 30,
Customer 1999 1998 1999 1998
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
A-Netherlands 26.2 -- 49.5 --
B-United States 12.2 -- 27.7 --
</TABLE>
<PAGE> 63
A1 INTERNET.COM, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9- RELATED PARTY TRANSACTIONS
In connection with the resignation of the former Chief Executive Officer of the
Company, the former Chief Executive Officer was paid $35,000 in severance pay.
NOTE 10- COMMITMENTS AND CONTINGENCIES
The Company leases office space from a non-related party under an operating
lease. Future minimum lease payments under the non-cancelable lease as of
December 31, 1998 are 1999-$205,000, 2000-$136,000 and 2001-$33,000.
Total rental expense for the periods ended September 30, 1999 and 1998 was
$107,128 and $449, respectively.
The Company has deposits in banks in excess of the FDIC insured amount of
$100,000. The amounts in excess of $100,000 are subject to loss should the bank
cease business.
<PAGE> 64
A1 INTERNET.COM, INC. AND SUBSIDIARIES
INTRODUCTION TO PRO FORMA COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet reflects the
acquisitions of Computer Ease, LLC, Virtual Information Express, Inc. and
Networld Ohio, Inc. by A1 Internet.com, Inc. as if they had occurred on December
31, 1998.
The following unaudited pro forma combined statements of operations reflect the
acquisitions of Computer Ease, LLC, Virtual Information Express, Inc. and
Networld Ohio, Inc. by A1 Internet.com, Inc. as if they had occurred on January
1, 1998.
The acquisition of Computer Ease, LLC consisted of the issuance of 4,000,000
shares of common stock at $2.00 per share.
The acquisition of Virtual Information Express, Inc. consisted of the issuance
of 300,000 shares of common stock at $2.00 per share.
The acquisition of Networld Ohio, Inc. consisted of a cash payment of $90,000,
37,000 shares of common stock at $7.91 per share and a short-term promissory
note of $180,000.
The acquisitions were accounted for using the purchase method of accounting.
Under the purchase method of accounting, assets acquired and liabilities assumed
are recorded at their fair values. No adjustments have been made in the pro
forma balance sheet to the carrying values of the assets acquired and
liabilities assumed since management believes that their carrying values
approximate fair value.
<PAGE> 65
F-4
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(FORMERLY HALO HOLDINGS OF NEVADA, INC.)
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
-----------------
<TABLE>
<CAPTION>
ASSETS VIRTUAL
------ COMPUTER INFORMATION NETWORLD
A1 INTERNET.COM, INC. EASE, LLC EXPRESS, INC. OHIO, INC.
--------------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ 10,205 $ - $ - $ 8,515
Receivables: - - -
Trade - 136,570 - 15,937
Other - - - 125
Inventory, at cost - 11,244 - 7,793
Other - - - 8,924
----------- ----------- ------------ ------------
10,205 147,814 - 41,294
----------- ----------- ------------ ------------
PROPERTY AND EQUIPMENT, AT COST:
Aircraft 1,008,256 - - -
Equipment 9,159 414,995 - 221,775
Less: accumulated depreciation (170,654) (250,215) - (61,373)
----------- ----------- ------------ ------------
846,761 164,780 - 160,402
----------- ----------- ------------ ------------
OTHER ASSETS:
Prepaid expenses 22,388 - - -
Goodwill, net of amortization 278,861 - - -
Other - - 49,000 -
----------- ----------- ------------ ------------
301,249 - 49,000 -
----------- ----------- ------------ ------------
$1,158,215 $ 312,594 $ 49,000 $ 201,696
=========== =========== ============ ============
LIABILITIES AND SHAREHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES:
Bank overdraft $ - $ 10,180 $ - $ -
Accounts payable and accrued expenses 37,313 193,357 - 163,437
Loan payable-bank 18,059 - - -
Loans payable-shareholders 109,261 306,102 50,000 -
Due to related parties - 107,661 - -
Note payable-current portion 641,451 - - -
Other - 61,487 - 68,103
----------- ----------- ------------ ------------
806,084 678,787 50,000 231,540
----------- ----------- ------------ ------------
LONG TERM LIABILITIES:
Note payable-related party - 100,000 - -
Loan payable 80,000 - - -
----------- ----------- ------------ ------------
80,000 100,000 - -
----------- ----------- ------------ ------------
SHAREHOLDERS' EQUITY:
Members' equity - (466,193) - -
Common stock 4,300 - 35 500
Additional paid-in capital 1,100,700 - 65 -
Deficit (832,869) - (1,100) (30,344)
----------- ----------- ------------ ------------
272,131 (466,193) (1,000) (29,844)
----------- ----------- ------------ ------------
$ 1,158,215 $ 312,594 $ 49,000 $ 201,696
=========== =========== ============ ============
<CAPTION>
PRO FORMA
AFTER
ASSETS ACQUISITION OF
------ PRO FORMA NETWORLD
ADJUSTMENTS OHIO, INC.
----------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 18,720
Receivables:
Trade - 152,507
Other - 125
Inventory, at cost - 19,037
Other - 8,924
------------ ------------
- 199,313
------------ ------------
PROPERTY AND EQUIPMENT, AT COST:
Aircraft - 1,008,256
Equipment - 645,929
Less: accumulated depreciation - (482,242)
------------ ------------
- 1,171,943
------------ ------------
OTHER ASSETS:
Prepaid expenses - 22,388
Goodwill, net of amortization 9,339,881 (a) 9,618,742
Other - 49,000
------------ ------------
9,339,881 9,690,130
------------ ------------
$ 9,339,881 $11,061,386
============ ============
LIABILITIES AND SHAREHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES:
Bank overdraft $ - $ 10,180
Accounts payable and accrued expenses - 394,107
Loan payable-bank - 18,059
Loans payable-shareholders - 465,363
Due to related parties - 107,661
Note payable-current portion (180,000)(a) 821,451
Other (90,000)(a) 219,590
---------- ------------
(270,000) 2,036,411
---------- ------------
LONG TERM LIABILITIES:
Note payable-related party - 100,000
Loan payable - 80,000
---------- ------------
- 180,000
---------- ------------
SHAREHOLDERS' EQUITY:
Members' equity (466,193)(a) -
Common stock (3,802)(a) 8,637
Additional paid-in capital (9,606,207)(a) 10,706,972
Deficit 1,006,321 (a) (1,870,634)
---------- ------------
(9,069,881) 8,844,975
---------- ------------
$ (9,339,881) $11,061,386
========== ============
</TABLE>
See Notes to Pro Forma Combined Consolidated Balance Sheet.
<PAGE> 66
A1 INTERNET.COM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
(a) Adjustment to record the issuance of 37,000 shares of common stock of A1
Internet.com, Inc. in exchange for all of the outstanding common stock of
Networld Ohio, Inc., the cash payment of $90,000 which would be a payable
at December 31, 1998, the $180,000 note payable, the goodwill generated by
the transaction, the removal of Networld Ohio, Inc.'s accumulated deficit
and the effect of the purchase on paid-in capital.
Also includes adjustment to record the issuance of 4,000,000 shares of
common stock of A1 Internet.com, Inc. at $2.00 per share in exchange for
all of the outstanding common stock of Computer Ease, LLC, the goodwill
generated by the transaction, the removal of Computer Ease, LLC members'
equity and the effect of the purchase on paid-in capital. Costs associated
with the acquisition amounted to $717,979 through the issuance of warrants
to purchase common stock valued using the Black-Scholes option pricing
model.
Also includes adjustment to record the issuance of 300,000 shares of common
stock of A1 Internet.com, Inc. at $2.00 per share in exchange for all of
the outstanding common stock of Virtual Information Express, Inc., the
goodwill generated by the transaction, the removal of Virtual Information
Express, Inc.'s accumulated deficit and the effect of the purchase on
paid-in capital.
Also includes adjustment to record amortization of goodwill of $10,377,646
over 120 months.
<PAGE> 67
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(FORMERLY HALO HOLDINGS OF NEVAD, INC.)
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
----------------------------
<TABLE>
<CAPTION>
VIRTUAL
COMPUTER INFORMATION NETWORLD
A1 INTERNET.COM, INC. EASE, LLC EXPRESS, INC. OHIO, INC.
---------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
NET SALES $ 84,560 $ 8,257,678 $ - $ 598,106
COST OF SALES - (6,809,861) - (216,202)
------------------- -------------- ---------------- ---------------
GROSS PROFIT 84,560 1,447,817 - 381,904
------------------- -------------- ---------------- ---------------
OPERATING EXPENSES:
Salaries and related expenses - 650,808 - 148,144
Bad debt expense - 236,691 - -
General and administrative 331,738 535,779 1,100 39,596
Depreciation 101,005 104,632 - 46,408
Amortization 30,984 - - -
------------------- -------------- ---------------- ---------------
TOTAL OPERATING EXPENSES 463,727 1,527,910 1,100 234,148
------------------- -------------- ---------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (99,204) (12,717) - (11,587)
------------------- -------------- ---------------- ---------------
NET LOSS $ (478,371) $ (92,810) $ (1,100) $ 136,169
=================== ============== ================ ===============
NET LOSS PER SHARE OF
COMMON STOCK (0.12)
===================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,030,959
===================
<CAPTION>
PRO FORMA
AFTER
ACQUISITION OF
PRO FORMA NETWORLD
ADJUSTMENTS OHIO, INC.
--------------- -------------------
<S> <C> <C>
NET SALES $ - $ 8,940,344
COST OF SALES - $ (7,026,063)
-------------- ------------------
GROSS PROFIT - 1,914,281
-------------- ------------------
OPERATING EXPENSES:
Salaries and related expenses - 798,952
Bad debt expense - 236,691
General and administrative - 908,213
Depreciation - 252,045
Amortization 1,037,765 (a) 1,068,749
-------------- ------------------
TOTAL OPERATING EXPENSES 1,037,765 3,264,650
-------------- ------------------
OTHER INCOME (EXPENSE):
Interest expense - (123,508)
-------------- ------------------
NET LOSS $ (1,037,765) $ (1,473,877)
============== ==================
NET LOSS PER SHARE OF
COMMON STOCK (0.18)
==================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 8,367,959 (b)
==================
</TABLE>
See Notes to Combined Consolidated Statement of Operations
<PAGE> 68
A1 INTERNET.COM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(a) Adjustment to record the amortization of goodwill of $10,377,646 over 120
months.
(b) The weighted average shares outstanding after the acquisition represents
the issuance of 37,000 shares of common stock of A1 Internet.com, Inc. to
the shareholders of Networld Ohio, Inc, the issuance of 4,000,000 shares of
common stock of A1 Internet.com, Inc. to the members of Computer Ease, LLC
and the issuance of 300,000 shares of common stock of A1 Internet.com, Inc.
to the shareholder of Virtual Information Express, Inc. The weighted
average shares outstanding was computed as if the shares issued in
connection with these acquisitions had been outstanding for the entire
period.
<PAGE> 1
EXHIBIT 3(i)(a)
ARTICLES OF INCORPORATION
OF
Halo Holdings of Nevada, Inc.
1. Name of Company:
Halo Holdings of Nevada, Inc.
2. Resident Agent:
The resident of the Company is: Nevada Internet Corporation
Enterprises
3110 S. Valley View, Suite 201
Las Vegas, Nevada 89102
3. Board of Directors:
The Company shall initially have two directors (2) who are Thomas
H. Keese and Larry W. Kerschenbaum whose address is 1730 West Camino Real, Boca
Raton, Florida 33432. These individuals shall serve as directors until their
successor have been elected and qualified. The number of directors may be
increased or decreased by a duly adopted amendment to the By-Laws of the
Corporation.
4. Authorized Shares:
The aggregate number of shares which the corporation shall have
authority to issue shall consist of 20,000,000 shares of Common Stock having a
$.001 par value and 5,000,000 share of Preferred Stock having a $.001 par value.
The Common Stock may be issued form time to time without prior approval by the
stockholders. The Common Stock may be issued for such consideration as may be
fixed from time to time by the Board of Directors. The Board of Directors may
issue such share of Common Stock in one or more series, with such voting powers,
designations, preferences and rights or qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions.
The Preferred Stock authorized may be issued form time to time in
one or more series. The Board of Directors is authorized to determine or alter
any or all rights or preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and to fix, alter or
reduce (but not below the number outstanding) the number of shares comprising
any such series and the designation thereof, or any of them, and to provide for
the rights and terms of redemption or conversion of the shares of any series.
5. Preemptive Rights and Assessment of Shares:
<PAGE> 2
Holders of Common Stock or Preferred Stock of the corporation
shall have any preference, preemptive right of subscription to acquire share of
the corporation authorized, issued, or sold, or to be authorized, issued or
sold, or to any obligations or shares authorized or issued or to be authorized
or issued, and convertible into shares of the corporation, nor to any right of
subscription thereto, other than to the extent, if any, the Board of Directors
in its sole discretion, may determine from time to time.
The Common Stock or Preferred Stock of the Corporation, after the
amount of the subscription price has been fully paid in, in money, property or
services, as the directors shall determine, shall not be subject to assessment
to pays the debts of the corporation, nor for any other purpose, and no Common
Stock or Preferred Stock issued as fully paid shall ever be assessable or
assessed, and the Articles of Incorporation shall not be amended to provide for
such assessment.
6. Directors' and Officers' Liability
A director or officer of the corporation shall not be personally
liable to this corporation or its stockholders for damages for breach of
fiduciary duty as a director or officer, but this Article shall not eliminate or
limit the liability of a director or officers for (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of the law or (ii)
the unlawful payment of dividends. Any repeal or modification of this Article by
stockholders of the corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the corporation for acts or omissions prior to such repeal or
modification.
7. Indemnity
Every person who was or is a party to, or is threatened to be
made a party to, or is involved in any such action, suit or proceeding, whether
civil, criminal, administrative or investigative, by the reason of the fact that
he or she, or a person with whom he or she is a legal representative, is or was
a director of the corporation, or who is serving at the request of the
corporation as a director or officer of another corporation, or is a
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the laws of the State of Nevada from time to time against all expenses,
liability and loss (including attorneys' fees, judgments, fines, and amounts
paid or to be paid in a settlement) reasonably incurred or suffered by him or
her in connection therewith. Such right of indemnification shall be a contract
right which may be enforced in any manner desired by such person. The expenses
of officers and directors incurred in defending a civil suit or proceeding must
be paid by the corporation as incurred and in advance of the final disposition
of the action, suit, or proceeding, under receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he or she is not entitled
to be indemnified by the corporation. Such right of indemnification shall not be
exclusive of any other right of such directors, officers or representatives may
have or hereafter acquire, and, without limiting the generality of such
statement, they shall be entitled to their respective rights of
<PAGE> 3
indemnification under any bylaw, agreement, vote of stockholders, provisions of
law, or otherwise, as well as their rights under this article.
Without limiting the application of the foregoing, the Board of
Directors may adopt By-Laws from time to time withour respect to
indemnififaction, to procide at all time the fullest indemnification permitted
by the laws of the State of Nevada, and may cause the corporation to purchase or
maintain insurance on behalf of any person who is or was a director or officer.
8. Amendments
Subject at all times to the express provisions of Section 5 on
the Assessment of Shares, this corporation reserves the right to amend, alter,
change, or repeal any provision contained in these Articles of Incorporation or
its By-Laws, in the manner now or hereafter prescribed by statute or the Article
of Incorporation or said By-Laws, and all rights conferred upon shareholders are
granted subject to this reservation.
9. Power of Directors
In furtherance, and not in limitation of those powers conferred
by statute, the Board of Directors is expressly authorized:
(a) Subject to the By-Laws, if any, adopted by the shareholders,
to make, alter or repeal the By-Laws of the corporation;
(b) To authorize and cause to be executed mortgage and liens,
with or without limitations as to amount, upon the real and personal property of
the corporation;
(c) To authorize the guaranty by the corporation of the
securities, evidences of indebtedness and obligations of other persons,
corporation or business entities;
(d) To set apart out of any funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve;
(e) By resolution adopted by the majority of the whole board, to
designate one or more committees to consist of one or more directors of the of
the corporation, which, to the extent provided on the resolution or in the
By-Laws of the corporation, shall have and may exercise the powers of the Board
of Directors in the management of the affairs of the corporation, and may
authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have name and names as may be
stated in the By-laws of the corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
All the corporate powers of the corporation shall be exercised by
the Board of Directors except as otherwise herein or in the By-Laws or by law.
<PAGE> 4
IN WITNESS WHEREOF, I hereunder set my hand this 11th day of,
October, 1997, hereby declaring and certifying that the facts stated hereinabove
are true.
Signature of Incorporator
Name: Ted D. Campell
Address: 3110 S. Valley View, Suite 201
Las Vegas, Nevada 89102
Signature: /s/
-------------------------
This instrument was acknowledged before me on
October 11, 1997, by Ted D. Campbell II.
/s/
- - -----------------------------
Notary Public Signature
Certificate of Acceptance of Appointment as Resident Agent I, TED D. CAMPBELL
II, as a principal of Nevada Internet Corporation Enterprise ("NICE"), hereby
accept appointment of NICE as the resident agent for the above referenced
company.
Signature: /s/
----------------------------
<PAGE> 1
EXHIBIT 3(b)
Certificate of Amendment of
Articles of Incorporation
Pursuant to the provisions of Nevada Revised Statues, Title
7,Chapter 78, it is hereby certified that:
FIRST: The name of the corporation (the "corporation") is
HALO Holdings of Nevada, Inc.
SECOND: The Board of Directors of the corporation duly
adopted the following resolution on April 26, 1999:
RESOLVED, that it is advisable in the judgment of the Board
of Directors of the Corporation that the name of the
Corporation be changed, and that, in order to accomplish the
same, Article 1 of the Articles of Incorporation be amended
to read as follows:
"1. Company Name: A1 Internet.com, Inc."
FURTHER RESOLVED, that a special meeting of stockholders
having voting power be and it is hereby called and that
notice be given in the matter prescribed by the Bylaws of
the Corporation and by Nevada Revise Statutes, Title 7,
Chapter 78, unless the said stockholders shall waive the
notice of meeting in writing or unless all of said
stockholders shall dispense with the holding of a meeting
and shall take action upon the proposed amendments by a
consent in writing signed by them; and
FURTHER RESOLVED, that, in the event that the said
stockholders shall adopt the aforesaid proposed amendments
by a vote in favor thereof by at least a majority of the
voting power or by a written consent in favor thereof signed
by all of them without a meeting, the Corporation is hereby
authorized to make by the hands of its President or a Vice
President and by its Secretary or an Assistant Secretary a
certificate setting forth the said amendment and to cause
the same to be filed pursuant to the provisions of Nevada
Revised Statutes, Title 7, Chapter 78.
<PAGE> 2
THIRD: The total number of outstanding shares having voting power of
the corporation is 9,897,667, and the total number of votes entitled to be
cast by the holders of all of said outstanding shares is 9,897,667,
FOURTH: At a meeting of stockholders held on April 26, 1999, notice
of which was duly given, the amendment herein certified were adopted by the
holders of 7,362,000 shares, which represent 7,362,000 votes, and which
constitute at least a majority of all of the voting power of the holders of
shares having voting power.
Signed on April 26, 1999.
---------------------------
Bruce Bertman,
Chief Executive Officer
---------------------------
Leonard Tambasco,
President
---------------------------
Leonard Tambasco,
Secretary
<PAGE> 3
STATE OF )
) SS.:
COUNTY OF )
On July 7, 1999, personally appeared before me, Notary Public, for the State
and County aforesaid, Leonard Tambasco, as President of HALO Holdings of
Nevada, Inc., who acknowledged that he executed the above instrument.
---------------------------
Notary Public
[Notarial Seal]
<PAGE> 4
STATE OF NEVADA
OFFICE OF THE SECRETARY OF STATE
OFFICER'S STATEMENT
(Please submit with original certificate of filing
issued by the state of origin)
1. Name of Corporation: ____HALO Holdings of Nevada, Inc.___________
(currently on file in Nevada)
2. State of Incorporation: _________________Nevada__________________
3. Change(s) Reflected by Filing of Document:
(check appropriate box(es) and describe below)
______ Amended/Restated Articles
__X___ Name Change
______ Modified Corporate Powers/Purpose (s)
______ Reclassification/Change of Authorized Stock
______ Other
-----------------------------------------------------------------------
-----------------------------------------------------------------------
4. Signature of Corporation Officer:
____Leonard Tambasco___________________ _________July 7, 1999___
(Name and title of officer making statement) (Date)
5. Acknowledgment:
State of _____________________
County of ___________________
This instrument was acknowledged before me on _______July 7, 1999___________ by
(date)
______________________Leonard Tambasco____ as ____President_____________________
(name of person) (type of authority, e. g. president, etc.)
of ___________________HALO Holdings of Nevada, Inc.______________________
(name of party on behalf of whom instrument was executed)
-------------------------------
(Notary Stamp) (Signature of natorial officer)
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
OF
HALO HOLDINGS OF NEVADA, INC.,
(A Nevada corporation)
--------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of, the corporation by the Chairman or Vice-Chairman of the Board of
Directors, if any, or by the President or a Vice-President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary
of the corporation or by agents designated by the Board of Directors,
certifying the number of shares owned by him in the corporation and setting
forth any additional statements that my be required by the General Corporation
Law of the State of Nevada (General Corporation Law). If any such certificate
is countersigned or otherwise authenticated by a transfer agent or transfer
clerk, and by a registrar, a facsimile of the signature of the officers, the
transfer agent or the transfer clerk or the registrar of the corporation may
be printed or lithographed upon the certificate in lieu of the actual
signatures. If any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on any certificate or
certificates shall cease to be such officer or officers of the corporation
before such certificates or certificates shall have been delivered by the
corporation, the certificate or certificates may nevertheless be adopted by
the corporation and be issued and delivered as through the person or person
who signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon, had not ceased to but such officer or
officers of the corporation.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, the
certificates representing stock of any such class or series shall set forth
thereon the statements prescribed by the General Corporation Law. Any
restrictions on the transfer or registration of transfer of any shares of
stock of any class or series shall be noted conspicuously on the certificate
representing such shares.
The corporation may issue a new certificate of stock in
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Board of Directors may require the owner of any
lost, stolen, or destroyed certificate, or his legal representative, to give
the corporation a bond sufficient to indemnify the corporation against any
claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new
certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation is not
obliged to but may execute and deliver a certificate for or including a
fraction of a share. In lieu of executing and delivering a certificate for a
fraction of a share, the corporation may proceed in the manner prescribed by
the provisions of Section 78.205 of the General Corporation Law.
<PAGE> 2
3. STOCK TRANSFERS. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if
any, transfers or registration of transfers of shares of stock of the
corporation shall be made only on the stock ledger of the corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with e Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate of
certificates for such shares of stock properly endorsed and the payment of all
taxes, of any, due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of
determining the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock
or for the purpose of any other lawful action, the directors may fix, in
advance, a record date, which shall not be more than sixty days nor less than
ten days before the date of such meeting, nor more than sixty days prior to
any other action. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held; the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors Is
necessary, shall be the day on which the first written consent is expressed;
and the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto. A determination of stockholders of records
entitled to notice of or to vote at any meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used in these Bylaws in
respect of the right to notice of a meeting of stockholders or a waiver
thereof or to participate or vote thereat or t consent of dissent in writing
in lieu of a meeting, as the case may be, the term "share" or "shares" of
stock and to a holder or holders of record of outstanding shares of stock when
the corporation is authorized to issue only one class of shares of stock, and
said reference is also intended t include any outstanding share or shares of
stock and any holder or holders of record or outstanding s hares of stock of
any class upon which or upon whom the Articles of Incorporation confers such
rights where there are two or more classes or series of shares of stock or
upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the articles of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder, provided, however, that no such right shall
vest In the event of an increase or a decrease n the authorized number of s
hares of stock of any class or series which is otherwise denied voting rights
under the provisions of the Articles of Incorporation.
6. STOCKHOLDER MEETINGS.
-TIME. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the directors, provided, that the first
annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be held on the date and the time fixed by the
directors.
-PLACE. Annual meetings and special meetings shall be held
at such place, within or without the State of Nevada, as the directors may,
from time to time, fix.
<PAGE> 3
-CALL. Annual meetings and special meetings may be called by
the directors or by any officer instructed by the directors to call the
meeting.
-NOTICE OR WAIVER OF NOTICE. Notice of all meetings shall be
in writing and signed by the President or a Vice-President, or the Secretary,
or an Assistant Secretary or by such other person or person as the directors
must designate. The notice must state the purpose or purposes for which the
meeting is called and the time when, and the place, where it is to be held. A
copy of the notice must be either delivered personally or mailed postage
prepaid to each stockholder not less than ten nor more than sixty days before
the meeting. If mailed, it must be directed to the stockholder at his address
as it appears upon the records of the corporation. Any stockholder may waiver
notice of any meeting by a writing signed by him, or his duly authorized
attorney, either before or after the meeting; and whenever notice of any kind
is required to be given under the provisions of the General Corporation Law, a
waiver thereof in writing and duly signed whether before or after the time
stated therein, shall be deemed equivalent thereto.
-CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one f the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of
the Board, if any, the President, a Vice-President, or, if none f the
foregoing is in office and present and acting, by a chairman to be chosen by
the stockholders. The Secretary of the corporation, or in his absence, an
Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the Chairman of the
meeting shall appoint a secretary of the meeting.
-PROXY REPRESENTATION. At any meting of stockholders, any
stockholder may designate another person or persons to act for him by proxy in
any manner described in, or otherwise authorized by, the provisions of Section
78.355 of the General Corporation Law.
-INSPECTORS. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors of election to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at
the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the person presiding at the meeting, the inspector
or inspectors, if any, shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of any
fact found by him or them.
-QUORUM. Stockholders holding at least a majority of the
voting power are necessary to constitute a quorum at a meeting of stockholders
for the transaction of business unless the actin to be taken at the meeting
shall require a greater proportion. The stockholders present may adjourn the
meting despite the absence of a quorum.
-VOTING. Each share of stock shall entitle the holder
thereof to one vote. In the election of directors, a plurality of the votes
cast shall elect. Any other action is approved if the number of votes cast in
favor of the action exceeds the number of votes cast in opposition to the
action, except where the General Corporation Law, the Articles of
Incorporation, or these Bylaws prescribe a different
<PAGE> 4
percentage of votes and/or a different exercise of voting power. In the
election of directors, voting need not be by ballot; and, except as otherwise
may be provided by the General Corporation Law, voting by ballot shall not be
required for any other action.
Stockholders may participate in a meeting of stockholders by
means of a conference telephone or similar method of communication by which
all persons participating in the meeting can hear each other.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Except as may
otherwise be provided by the General Corporation Law, any action required or
permitted to be taken at a meeting of the stockholders may be taken without a
meeting if a written consent thereto is signed by stockholders holding at
least a majority of the voting power; provided that if a different proportion
of voting power is required for such an action at a meeting, then that
proportion of written consents is required. In no instance where action is
authorized by written consent need a meeting of stockholders be called or
noticed.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by the Board of Directors of the corporation. The
Board of Directors shall have authority to fixe the compensation of the
members thereof for services in any capacity. The use of the phrase "whole
Board" herein refers to the total number of directors, which the corporation
would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director must be at least
18 years of age. A director need not be a stockholder or a resident of the
State of Nevada. The initial Board of Directors shall consist of 3 persons.
Thereafter the number of directors constituting the whole board shall be at
least one. Subject to the foregoing limitation and except for the first Board
of Directors, such number may be fixed from time to time by action of the
stockholders or of the directors, or, if the number is not fixed, the number
shall be . The number of directors may be increased or decreased by action of
the stockholders or of the directors.
3. ELECTION AND TERM. Directors may be elected in the manner
prescribed by the provisions of Sections 78.320 through 78.335 of the General
Corporation Law of Nevada. The first Board of Directors shall hold office
until the first election of directors by stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal. Any director may resign at any time upon written notice to the
corporation. Thereafter, directors who are elected at an election of directors
by stockholders, and directors who are elected in the interim to fill
vacancies and newly created directorships, shall hold office until the next
election of directors by stockholders and until their successors are elected
and qualified or until their earlier resignation or removal. In the interim
between elections of directors by stockholders, newly created directorships
and any vacancies in the Board of Directors, including any vacancies resulting
from the removal of directors for cause or without cause by the stockholders
and not filled by said stockholders, may be filled by the vote of a majority
of the remaining directors then in office, although less than a quorum, or by
the sole remaining director.
4. MEETINGS.
-TIME. Meetings shall be held at such time as the Board
shall fix, except that the first meeting of a newly elected board shall be
held as soon after its election as the directors may conveniently assemble.
<PAGE> 5
-PLACE. Meetings shall be held at such place within or
without the State of Nevada as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, of the President, or of a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be
given for special meetings in sufficient time for the convenient assembly of
the directors thereat. Notice if any need not be given to a director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the time stated therein.
-QUORUM AND ACTION. A majority of the directors then in
office, at a meeting duly assembled, shall constitute a quorum. A majority of
the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as the Articles of Incorporation or
these Bylaws may otherwise provide, and except as otherwise provided by the
General Corporation Law, the act of the directors holding a majority of the
voting power of the directors, present at a meeting at which a quorum is
present, is the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the
General Corporation Law and these Bylaws which govern a meeting of directors
held to fill vacancies and newly created directorships in the Board or action
of disinterested directors.
Members of the Board or of any committee which may be
designated by the Board may participate in a meeting of the Board or of any
such committee, as the case may be, by means of a telephone conference or
similar method of communication by which all person participating in the
meeting hear each other. Participation in a meeting by said means constitutes
presence in person at the meeting.
-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any
and if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by the Board,
shall preside.
5. REMOVAL OF DIRECTORS. Any or all of the directors may be
removed for cause or without cause in accordance with the provisions of the
General Corporation Law.
6. COMMITTEES. Whenever its number consists of two or more,
the Board of Directors may designate on e or more committees which have such
powers and duties as the Board shall determine. Any such committee, to the
extent provided in the resolution or resolutions of the Board, shall have and
may exercise the powers and authority of the Board of Directors in t he
management of the business and affairs of the corporation and may authorize
the seal or stamp of the corporation to be affixed to all papers on which the
corporation desires to place a seal or stamp. Each committee must include at
least one director. The Board of Directors may appoint natural persons who are
not directors to serve on committees.
7. WRITTEN ACTION. Any action required or permitted to be
taken at a meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if, before or after the action, a written consent
thereto is signed by all the members of the Board or of the committee, as the
case may be.
<PAGE> 6
ARTICLE III
OFFICERS
1. The corporation must have a President, a Secretary, and a
Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers and
agents with such titles as the resolutions choosing them shall designate. Each
of any such officers must be natural person and must be chosen by the Board of
Directors or chosen in the manner determined by the Board of Directors.
2. QUALIFICATIONS. Except as may otherwise be provided in
the resolution choosing him, no officer other than the Chairman of the Board,
if any, and Vice-Chairman of the Board, if any, need be a director.
Any person my hold two or more offices, as the directors may
determine.
3. TERM OF OFFICE. Unless otherwise provided in the
resolution choosing him, each officer shall be chosen for a term which shall
continue until the meeting of the Board of Directors following the next annual
meeting of stockholders and until his successor shall have been chosen or
until his resignation or removal before the expiration of his term.
Any officer may be removed, with or without case, by the
Board of Directors or in the manner determined by the Board
Any vacancy in any office may be filled by the Board of
Directors or in the manner determined by the Board.
4. DUTIES AND AUTHORITY. All officers of the corporation
shall have such authority and perform such duties in the management and
operation of the corporation as shall be prescribed in the resolution
designating and choosing such officers and prescribing their authority and
duties, and shall have such additional authority and duties as are incident to
their office except to the extent that such resolutions or instruments may be
inconsistent therewith.
ARTICLE IV
REGISTERED OFFICE
The location of the initial registered office of the
corporation in the State of Nevada is the address of the initial resident
agent of the corporation, as set forth in the original Articles of
Incorporation.
The corporation shall maintain at said registered office a
copy, certified by the Secretary of State of the State of Nevada, of its
Articles of Incorporation, and all amendments thereto, and a copy, certified
by the Secretary of the corporation, of these Bylaws, and all amendments
thereto. The corporation shall also keep at said registered office a stock
ledger or a duplicate stock ledger, revised annually, containing the name,
alphabetically arranged, of all person who are stockholders of the
corporation, showing their places of residence, if known, and the number of
shares held by them respectively or a statement setting out the name of the
custodian of the stock ledger or duplicate stock ledger, and the present and
complete post office address, including street and number, if any, where such
ledger or duplicate stock ledger is kept.
<PAGE> 7
ARTICLE V
CORPORATE SEAL OR STAMP
The corporate seal or stamp shall be in such form as the
Board of Directors may prescribe.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall
be subject to change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BYLAWS
The power to amend, alter, and repeal these Bylaws and to
make new Bylaws shall be vested in the Board of Directors subject to the
Bylaws, if any, adopted by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and
correct copy of the Bylaws of HALO Holdings of Nevada, Inc., a Nevada
corporation, as in effect on the date hereof.
WITNESS my hand and the seal or stamp of the corporation.
Dated: October 15, 1997
-----------------------------
Secretary of
Halo Holdings of Nevada, Inc.
<PAGE> 1
EXHIBIT 16
COHEN & KAMENY CPA'S PLLC
3530 HENRY HUDSON PARKWAY, SUITE B
RIVERDALE, NY 10463
(718) 548-7200 FAX (718) 796-0184
Eli Cohen, CPA
David Kameny, CPA
- ------------------
We have reviewed the statements made by A1 Internet.com, Inc., (the
"Company") in Part II, Item 3 (Changes and Disagreements with Accountants on
Accounting and Financing Disclosures) of the Company's Form 10-SB/A Amendment
No. 1 filed on or about November 12, 1999, and agree with the statements
contained in said Item 3.
Riverdale, New York
November 12, 1999 COHEN & KAMENY CPA'S PLLC
/s/ COHEN & KAMENY
--------------------------
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,077,813
<SECURITIES> 0
<RECEIVABLES> 964,434
<ALLOWANCES> 40,318
<INVENTORY> 0
<CURRENT-ASSETS> 3,196,777
<PP&E> 2,827,627
<DEPRECIATION> 533,704
<TOTAL-ASSETS> 16,562,605
<CURRENT-LIABILITIES> 2,080,250
<BONDS> 0
0
849
<COMMON> 9,739
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 16,562,605
<SALES> 1,867,789
<TOTAL-REVENUES> 1,886,895
<CGS> 773,857
<TOTAL-COSTS> 2,390,446
<OTHER-EXPENSES> 1,100,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,214
<INCOME-PRETAX> (2,453,622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,453,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 90,000
<CHANGES> 0
<NET-INCOME> (2,363,622)
<EPS-BASIC> (0.30)
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