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GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS UNDER THE 1934 ACT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
A1 Internet.com, Inc.
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(Name of Small Business Issuer in its charter)
Nevada 03-7392107
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7900 Glades Road, Suite 435, Boca Raton, Florida 33434
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (561) 218-2223
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Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
Common and Preferred Stock $0.001 par value
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(Title of class)
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PART I
ITEM ONE. DESCRIPTION OF THE BUSINESS
Business Development
A1 Internet.com, Inc.(SM) (the "Company" or the "Registrant") is a Nevada
Corporation. The Company's principal business address is 7900 Glades Road, Suite
435, Boca Raton, Florida 33434 and its telephone number is (561) 218-2223.
The Company was incorporated under the laws of the State of Nevada on October
13, 1997 as "Halo Holdings of Nevada, Inc." In November 1997, the Company
acquired Halo Holdings, Inc., a Delaware corporation. Shortly thereafter, the
Company acquired Gravity Pilot Air, Inc., a Delaware corporation through a stock
purchase. These two companies were acquired to pursue various business
opportunities in the fragmented and growing area of extreme sports, skydiving,
and aviation and extreme sports entertainment industries. On March 30, 1999, the
Company sold the skydiving division of the business. The Company's remaining
activity in the aviation industry is the leasing of its two aircraft.
Additionally, the Company maintains a Website related to the extreme sports
entertainment industry. The Company has now refocused its attention on the
Internet industry with a change in management and a series of strategic
acquisitions.
Recent Acquisitions
The Company has acquired three companies since the beginning of 1999. The
Company acquired Virtual Information Express, Inc., a Maryland corporation, in
February 1999, Computer Ease, LLC, a Maryland limited liability company, in
March 1999, and NetWorld Ohio, Inc., an Ohio corporation, in April 1999. All of
these companies provide integrated Internet access services and professional
consulting services.
On July 9, 1999, the Company changed its name from Halo Holdings of Nevada, Inc.
to A1 Internet.com, Inc.(SM) to reflect its focus on the Internet industry.
The Company has never been a party to any bankruptcy, receivership or similar
proceeding.
General
The Company, through its wholly owned operating subsidiaries, provides Tier I
(services purchased directly from AT&T, its network backbone provider) Internet
access services to corporations, ISPs and consumers via nationwide Internet
backbone network providers with which it contracts. This multiple third-party
network consists of over 1,200 points of presence ("POPs") in the United States
and shortly fifty-two countries throughout the world. POP location is an
important consideration for Internet users because where an ISP has a local POP,
calls are charged at the same rate as a local telephone call. However, where the
nearest POP is in another city, long-distance telephone charges will normally
apply. The Company also provides access and technical and administrative support
services to ISPs. As of the date hereof, the
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Company provides Internet access services to approximately 16,000 subscribers
(9,000 subscribers of the Company and 7,000 subscribers of 19 contracted Virtual
Internet Service Providers ("VISPs")).
Products and Services
The Company's basic service product is the dial up Internet access account. End
users and customers of the Company and the reseller are given a phone number to
use with the modem attached to their computer and access log-on information,
allowing them access to the Internet. A local or regional Internet service
provider can provide the same service after purchasing network access equipment
and contracting with local telecommunications providers for PSTN line charges
and Internet bandwidth. However, the range of service is limited to the local
calling area of the ISP's Point of Presence ("POP"). In comparison, the
Company's dial up access service provides the reseller and its end user with
approximately 1,200 POPs to dial up on a "local call" basis. The Company's
Internet dial up access service accounts use standard industry browsers, i.e.
Windows-based Microsoft Internet Explorer and all Netscape browsers. Their core
function is to allow the end user to search, interact with and print web site
information from the World Wide Web.
In addition to basic dial up Internet access, the Company offers its resellers
and end users integrated services including electronic mail, news groups,
commercial dedicated access, web site hosting, web site development, electronic
commerce, and high bandwidth applications. In commercial applications, the
Company also provides the professional consulting services required to design,
develop and implement complex projects needing a combination of computer
platforms with telecommunications and Internet content applications.
The Company also provides registration and technical support services to agents
and resellers to assist them with the process of getting new customers and end
users to use their new Internet dial up accounts immediately. These services can
also be provided on a "branded" basis where the ISP's business name is used when
the phone call is answered or when the invoices are generated.
Based on these products and services, the Company's business model for current
and planned service products includes three sources of recurring revenues:
1. Monthly access fees from Internet dial up access accounts and end user
elected ancillary services, i.e. electronic mail, news groups, etc., and
specialized professional service products, i.e. Fax to Email, Executive
Pages, paging, etc.
2. Monthly access fees from commercial Internet bandwidth and access using
dedicated telecommunications connections through local telephone companys.
3. Monthly service fees from the registration and technical support services,
billing services and from billing inquiry services provided by the Company
on behalf of the agent, affiliate, ISP or value added reseller.
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New Products and Products in Development
In addition to basic access services, the Company has recently expanded its
product line to include enhanced, value-added services that generally produce
higher margins than basic dial up access services. In the future, the Company
expects to offer paging services, voice services, video and high bandwidth
services and wireless services. The Company also expects to be offering enhanced
billing and management reporting that higher volume users can generally only
obtain from the major providers. The Company believes that its value-added
billing capabilities and other customer support services enable its customers to
manage their Internet costs more effectively. The Company has a contract with
Ingram Micro pursuant to which Ingram Micro will be branding over 130,000 items
for the Company's on-line computer commerce store. This store will be re-branded
for the Company's VISP customer base.
Marketing and Sales
The Company markets its services nationwide through three distinct channels: on
a wholesale basis to smaller resellers, to independent distributors, and its two
salespeople. The Company targets local and regional ISPs with requirements to
provide national or international access and requirements to improve or expand
their infrastructure. The Company believes that the large, national ISPs have
chosen not to concentrate their direct selling efforts on this segment of the
market, which the Company believes represents a meaningful portion of the
Internet dial-up access market. The Company's target ISPs typically do not
qualify for the major providers' volume discounts or for the level of support
services made available to higher volume users.
The Company offers Internet access services on a wholesale basis to small, local
and regional Internet Service Providers, which is expected to account for 45% of
the revenues in 1999 and 50% of the revenues in 2000. Sales through this channel
enable the Company to enter markets with minimal cost or risk where small
resellers have already built strong direct relationships with their customers.
Reseller customers also provide opportunities for growth as candidates for
acquisitions.
The Company supplements its wholesale efforts by marketing through independent
retail distributors, which are typically distributors of computer equipment,
office equipment and other retail opportunities marketing primarily to
corporations and business customers. Such firms generally enter into agreements
providing for commissions on business generated for the Company. The Company
typically grants nonexclusive marketing rights and requires the resellers with
whom it contracts to maintain a minimum quota. Although there are higher costs
associated with the sales to smaller ISPs and end users, sales to such customers
generally have higher margins.
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Customer Service
The Company strives to provide superior customer services and believes that
pro-active contact with the potential and existing end user is a significant
factor in customer acquisition and retention. The Company emphasizes frequent
communication with prospects and customers, both by its resellers and
distributors as well as its retail sales personnel.
New customer accounts are processed at the Company's contracted call center,
NetHelp International, where trained staff members provide new customers with a
smooth transition to the Company's services. The Company typically obtains
account information from the new customers, which it processes and forwards to
the applicable network provider.
Organization
The Company presently comprises one corporation with five subsidiaries: A1
Internet Services, Inc.; NetWorld Ohio, Inc.; Computer Ease, LLC; Virtual
Information Express, Inc.; and Gravity Pilot Air, Inc. Computer Ease, LLC is in
the process of merging with A1 Internet Services, Inc. A1 Internet Services,
Inc. will be the surviving entity.
Raw Materials
The use of raw materials is not now a material factor in the Company's
operations.
Competition
The Internet industry is highly competitive and is subject to constantly
changing customer demands and preferences. Substantially larger companies that
have extensive research and development, marketing, financial and human
resources capable of maintaining a high level of competitiveness dominate the
industry. There are several companies with which the Company will compete in the
Internet services industry, all of whom have significantly greater assets and
longer operating histories. Some of these companies are extremely aggressive.
They dominate the marketplace by using costly and protective pricing. If the
Company became a target of focused pricing and counter marketing, it might not
be able to afford to devote the resources, time, funding, or management
necessary to maintain profitability. In addition, there are other smaller
companies which provide Internet services, which companies may have
substantially more resources (financial, human, or equipment) than the Company.
Some competitors have developed name loyalty, and a following that is
international in scope. There is no assurance that the Company can penetrate
this apparent market place dominance.
The Company's business strategy depends largely on its ability to expand into
new markets by acquiring additional Internet service providers that meet its
financial, geographic and other acquisition criteria. The Company believes that
competition from other companies, which seek to acquire and consolidate Internet
service companies, is significant and that acquisition prices will rise with the
growth in demand for these companies in the future. The Company may not have
sufficient financial resources to afford these higher prices. The potential
increase in
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acquisition prices could increase the amount of goodwill and other intangibles
allocated from the purchase price for these companies which could adversely
affect the Company's financial condition and operating results.
Reliance on Key Customers
The Company's dedicated customer base continues to grow steadily through the
acquisition of ISPs and the continuous growth of its e-commerce business. The
Virtual Internet Service Provider ("VISP") market provides the strongest growth
potential for the Company with the least amount of risk to do a large
conglomerate of association and origination.
CyberRealm, Inc. and Stockmaker, Inc. have accounted for 18.3% and 19.1%,
respectively, of sales for the six months ended June 30, 1999. Both of these
entities are owned exclusively by Bruce Bertman, the Company's Chief Executive
Officer.
Backlog
There are no current backlogs.
Proprietary Information, Trademarks and Patents
The Company is in the process of researching the availability of certain
trademarks and Internet domain names for its corporate identity and its
services. The Company recently filed an application to register a trademark for
A1 Internet.com, Inc.(SM) Management believes that the approval and protection
of these trademarks and domain names are important to the development of the
Company.
Regulatory Matters
In recent years there have been a number of U.S. and foreign legislative and
other initiatives seeking to control or affect the content of information
provided over the Internet. Some of these initiatives would impose criminal
liability upon persons sending or displaying, in a manner available to minors,
indecent material or material harmful to minors. Liability would also be imposed
on an entity knowingly permitting facilities under its control to be used for
such activities. These initiatives may decrease demand for Internet access,
chill the development of Internet content, or have other adverse effects on
Internet access providers, including the Company.
Federal, state and local regulation affect both the provision of Internet access
service and the provision of underlying telecommunications services. The Federal
Communications Commission (the "FCC") exercises jurisdiction over all facilities
of, and services offered by, telecommunications carriers to the extent that they
involve the provision, origination or termination of jurisdictionally interstate
or international communications. The state regulatory commissions retain
jurisdiction over the same facilities and services to the extent they involve
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origination or termination of jurisdictionally intrastate communications. In
addition, as a result of the passage of the Telecommunications Act of 1996 (the
"1996 Act"), state and federal regulators share responsibility for implementing
and enforcing the domestic pro-competitive policies of the 1996 Act. In
particular, state regulatory commissions have substantial oversight over the
provision of interconnection and non-discriminatory network access by ILECs.
Municipal authorities generally have some jurisdiction over access to rights of
way, franchises, zoning and other matters of local concern.
Our Internet operations are not currently subject to direct regulation by the
FCC or any other U.S. governmental agency, other than regulations applicable to
businesses generally. However, the FCC continues to review its regulatory
position on the usage of the basic network and communications facilities by
ISPs. Although in an April 1998 Report, the FCC determined that ISPs should not
be treated as telecommunications carriers and therefore not regulated, it is
expected that future ISP regulatory status will continue to be uncertain.
Indeed, in that report, the FCC concluded that certain services offered over the
Internet, such as phone-to-phone IP telephony, may be functionally
indistinguishable from traditional telecommunications service offerings, and
their non-regulated status may have to be re-examined.
Changes in the regulatory structure and environment affecting the Internet
access market, including regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of competition from regional
bell operating companies ("RBOCs") or other telecommunications companies could
have an adverse effect on our business. Although the FCC has decided not to
allow local telephone companies to impose per-minute access charges on ISPs, and
that decision has been upheld by the reviewing court, further regulatory and
legislative consideration of this issue is likely. In addition, some telephone
companies are seeking relief through state regulatory agencies. Such rules, if
adopted, are likely to have a greater impact on consumer-oriented Internet
access providers than on business-oriented ISPs, such as us. Nonetheless, the
imposition of access charges would affect our costs of serving dial-up customers
and could have a material adverse effect on our business, financial condition
and results of operations.
Research and Development
The Company has not spent any money in the past on research and development,
however it plans to conduct research in seeking new and improved ways of
developing websites and virtual markets. The Company plans on setting aside
$80,000 towards research and development.
Environmental Compliance
There are no material environmental compliance issues or costs facing the
company.
Employees
The Company currently has twenty-three employees, including its two executive
officers, seven
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technical personnel, seven design developers, two salespersons, and five
administrative personnel. The Company currently satisfies its requirements for
technicians and consultants by using independent contractors. As the Company's
business expands, many of the contractors are expected to accept full time
positions with the Company. The Company's outside sales staffing is and will be
provided by staff employed by the Company's agents and dealers. The agent and
dealer relationships provide for remuneration on a commission only basis. The
remainder of the Company's non-executive personnel are salaried employees.
Year 2000 Compliance
As the Year 2000 approaches, industry experts expect issues to arise related to
the programming code in many existing computer systems. The "Year 2000 problem"
is regarded by many as an omnipresent problem, as most if not all computer
operations will be impacted to some extent by the rollover of the two-digit year
value to 00. Systems that do not properly recognize such information could
generate erroneous data or cause a system to fail. We have evaluated our current
systems, and believe that our current hardware and software is Year 2000
compliant. However, any Year 2000 compliance problem of our systems or those of
our network backbone service providers, resellers, customers or advertisers
could have a material adverse effect on our business, results of operations, and
financial condition.
Risk Factors
You should be aware that there are various risks associated with the Company and
its business, including the ones discussed below. You should carefully consider
these risk factors, as well as the other information contained in this Form
10-SB, in evaluating the Company.
Limited Operating History. The Company was incorporated on October 13, 1997 and
has had a very limited operating history. However, Bruce Bertman, the Company's
Chief Executive Officer, Treasurer and Chairman of the Board, has many years of
experience in managing Internet-related businesses, through his positions with
CyberRealm and Computer Ease, LLC. Despite this fact, the Company must be
considered to be subject to all the risks inherent in any newly formed business
including the absence of a significant operating history, lack of market
recognition and limited banking and financial relationships. In addition, the
Company's business plan and operating strategy involves expansion into
businesses and markets which are highly competitive and typified by well
established and better financed companies with a long established and highly
recognized market presence.
Additional Financing Required; Lack of Traditional Financing Sources. In order
to maintain our competitive position and continue to meet the increasing demands
for service quality, availability and competitive pricing, we expect to make
significant capital expenditures. We historically have been unable to generate
sufficient cash flow from operations to meet our operating needs and have relied
on equity and debt financing to fund our operations. The Company may seek such
financing from sources such as bank financing or through the sale of additional
debt or equity securities (or a combination thereof) in future public or private
offerings. However, there can be
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no assurance that any such financing will in fact be available to the Company
when needed or upon terms acceptable to the Company. Consequently, should the
Company be unable to secure needed additional financing in the future on a
reasonable basis, the Company will not be able to realize the full benefit of
its proposed business plan or, possibly, be able to sustain viable commercial
operations.
Dependence on Key Existing and Future Personnel. The Company's success will
depend to a large degree upon the efforts and abilities of its officers and key
management employees. The loss of the services of one or more of its key
employees could have a material adverse effect on the Company's business
prospects and potential earning capacity. As the Company's business plan is
implemented, it will need to recruit and retain additional management and key
employees in virtually all phases of its operations. There can be no assurances
that the Company will be able to recruit or retain such new employees on terms
suitable to the Company.
Availability of Suitable Acquisition Candidates. The Company intends to achieve
revenue growth, in part, by acquiring Internet service providers in the United
States and abroad. While the Company believes that many suitable acquisition
targets exist that will be receptive to the acquisition terms and conditions
offered by the Company, there can be no assurance that the Company will
successfully identify or complete transactions with such acquisition targets or
successfully integrate such businesses. If the Company is unable to successfully
acquire and integrate other Internet service providers into its operations, the
Company may not achieve significant revenue or subscriber growth. There is no
guarantee that the Company can secure the necessary financing for the expansion
of its business through mergers, acquisitions or new business development.
Competing Bids for Internet Service Providers. The Company's business strategy
depends largely on its ability to expand into new markets by acquiring
additional Internet service providers that meet its financial, geographic and
other acquisition criteria. The Company believes that competition from other
companies which seek to acquire and consolidate Internet service companies is
significant and that acquisition prices will rise with the growth in demand for
these companies in the future. The Company may not have sufficient financial
resources to afford these higher prices. The potential increase in acquisition
prices could increase the amount of goodwill and other intangibles allocated
from the purchase price for these companies which could adversely affect the
Company's financial condition and operating results.
Significant Competition. The Internet industry is highly competitive and is
subject to constantly changing customer demands and preferences. The industry is
dominated by substantially larger companies that have extensive research and
development, marketing, financial and human resources capable of maintaining a
high level of competitiveness. There are several companies with which the
Company will compete in the Internet services industry, all of whom have
significantly greater assets and longer operating histories. Some of these
companies are extremely aggressive. They dominate the market place by using
costly and protective pricing. If the Company became a target of focused pricing
and counter marketing, it might not be able to afford to devote the resources,
time, funding, or management necessary to maintain profitability.
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In addition, there are other smaller companies which provide Internet services,
which companies may have substantially more resources (financial, human, or
equipment) than the Company. Some competitors have developed name loyalty, and a
following that is international in scope. There is no assurance that the Company
can penetrate this apparent market place dominance.
Dependence on Retail Distributors. The Company depends on only a few retail
distributors such as Computer Ease, LLC, Virtual Information Express, Inc. and
NetWorld of Ohio, Inc. to resell the Company's services to VISPs. As the Company
and other Internet service providers grow, the Company's distributors may face
significant demand for their products; some of these distributors may have
limited resources and production capacity. If our distributors fail to adjust to
meet increasing demand, they may be unable to supply components and products in
the quantities, at the quality levels and at the times required by us, or at
all. In addition, prices for these products and services may increase
significantly. If our distributors fail to provide services and we are unable to
develop alternative sources of distribution, we will experience delays and
increased costs in expanding our network.
Dependence on Sole Technical Support Service Provider. The Company relies
exclusively on NetHelp International to provide it with technical support
services. Should this provider fail to meet the Company's increasing demand for
services or if the Company is unable to contract with additional technical
support service providers, the quality of support provided to the Company's
customers may suffer which could have a negative impact on our future financial
results. The company is in the process of building its own Level II support
center.
Dependence on Virtual Internet Service Providers. The Company sells its products
and services to VISPs. Should the VISPs fail to purchase the Company's products
and services and the Company is unable to contract with other VISPs, the
Company's financial condition and operating results could be adversely impacted.
Dependence on Continued Growth in Use of Internet. The Internet has experienced,
and is expected to continue to experience, significant growth in the number of
users and amount of traffic. There can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it by
this continued growth. In addition, the Internet could lose its viability due to
delays in the development or adoption of new standards and protocols to handle
increased levels of Internet activity or due to increased government regulation.
Moreover, critical issues concerning the commercial use of the Internet
(including security, reliability, cost, ease of use, accessibility and quality
of service) remain unresolved and may negatively affect the growth of Internet,
use or the attractiveness of commerce and communication on the Internet. If use
of the Internet does not continue to grow or grows more slowly than expected, or
if the Internet structure does not effectively support the growth that may
occur, the Company's business, results of operations and financial condition
could be materially adversely affected.
Risk of Technological Change. The Internet and software industries are
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging character of these
products and services and their rapid evolution will require the
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Company to effectively use leading technologies, continue to develop its
technological expertise, enhance its current services and continue to improve
the performance, features and reliability of its products. In addition, the
widespread adoption of new Internet technologies or standards could require
substantial expenditures by the Company to modify or adapt its services. A
failure by the Company to rapidly respond to technological developments could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Year 2000 Compliance Risks. Many existing computer systems and software products
are coded and accept only two-digit entries to identify a year in the date code
field. As a result, on January 1, 2000, many of these systems could malfunction,
as they may not be able to differentiate between the years of 1900 and 2000.
Consequently, the Company's customers, potential customers and strategic
partners may have to upgrade their computer systems and software products to
comply with the applicable "Year 2000" requirements. As the Company and its
customers, potential customers and strategic partners are, to a very substantial
degree, dependent upon the functioning of their computer systems, a failure of
these computer systems to correctly recognize dates after December 31, 1999,
could materially disrupt the Company's operations.
Government Regulation; Internet. Due to the increasing popularity of the
Internet, it is possible that laws and regulations may be enacted with respect
to the Internet, covering issues such as user privacy, pricing, content and
quality of products and services. The Telecommunications Act of 1996 prohibits
the transmission over the Internet of certain types of information and content.
Although certain of these prohibitions have been held unconstitutional, the
increased attention focused upon these liability issues as a result of the
Telecommunications Act could adversely affect the growth of the Internet and
private network use. In addition, the adoption of other laws and regulations may
reduce the rate of growth of the Internet, which could in turn decrease the
demand for the Company's services or could otherwise have a material adverse
effect on the Company's business, financial condition and operating results.
Trademarks. Although, the Company has filed for trademark protection of the name
"A1 Internet.com" and "A1 Internet Services", there can be no guarantee that the
Company will secure a name or logo for itself or that its services can be
trademarked. Name and Logo modifications are an ongoing process. If the Company
cannot protect its products and services from duplication, the Company may be
subject to increased competition from other companies selling the same or
similar products and services.
Limited Trading Market. Approximately 2,175,000 shares of the Company's Common
Stock are currently free trading. Additionally, approximately 900,000 shares of
the Company's Common Stock, which were issued in November 1997, are currently
eligible, subject to volume and manner of sale limitations, for the exemption
from registration set forth in Rule 144 under the Securities Act and
approximately 1,025,000 shares of the Company's Common Stock, which were issued
in November 1997, may be eligible for the exemption from registration set forth
in Rule 144, without limitation as to volume or manner of sale, pursuant to the
exemption from such requirements set forth in Rule 144(k). The Company's Common
Stock currently trades on the Over-the-Counter Bulletin Board ("OTC/BB"). The
Company intends to apply for listing of
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its Common Stock on The NASDAQ Smallcap Market. However, the Company cannot
assure that its listing will be approved. Such listings, if approved, does not
imply that there will be a meaningful, sustained market for the Company's Common
Stock. The Company cannot assure that an active trading market for its stock
will develop or continue. In the absence of any readily available secondary
market for the Company's securities, holders thereof may experience great
difficulty in selling their Securities at or near the price originally paid by
them. Unless the Company's Common Stock is listed on NASDAQ or selling at or
above $5.00 per Share, the Company's Common stock would fall within the
definition of a "penny stock" and would be subject to Section 15(g) of the
Securities Exchange Act of 1934 and the relevant rules thereunder which, among
other things, require that broker dealers: (i) satisfy special sales practice
requirements, including making individualized written suitability determinations
and receiving any purchaser's written consent prior to any transaction; and (ii)
provide additional disclosure in connection with trades in the Company's
securities, including the delivery of a disclosure schedule explaining the
nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Company's securities and the ability of shareholders
to sell their securities in the secondary market.
Absence of Dividends. The Company has not paid any cash dividends to date, and
there are no plans for paying cash dividends on its Common Stock or its
Preferred Stock in the foreseeable future. Initial earnings that the Company may
realize, if any, will be retained to finance the growth of the Company. Any
future dividends, of which there can be no assurance, will be directly dependent
upon earnings of the Company, its financial requirements and other factors. The
Company has no obligation to pay dividends on its Series A Preferred Stock.
ITEM TWO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
You should read the following discussion in conjunction with our financial
statements and notes thereto included in Part III of this Form 10-SB. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains forward-looking
statements based on current expectations, which involve risks and uncertainties.
Actual results and the timing of events could differ materially from the
forward-looking statements as a result of a number of factors. For a discussion
of the risk factors that could cause actual results to differ materially from
the forward-looking statements, you should read "Risk Factors" section of this
Form 10-SB.
General
The company was incorporated on October 13, 1997 in the state of Nevada. In
November 1997, the Company acquired Halo Holdings, Inc., a Delaware corporation.
Shortly thereafter, the Company acquired Gravity Pilot Air, Inc., a Delaware
corporation, through a stock purchase. These two companies were acquired to
pursue various business opportunities in the fragmented and growing area of
extreme sports, skydiving, and aviation and extreme sports entertainment
industries. On March 30, 1999, the Company sold the skydiving division of the
business.
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The company still has interest in the aviation industry, as well as in the
extreme sports entertainment industry. Gravity Pilot Air is currently bidding to
secure the Fixed Base Operations of an airport in Pahokee, Florida. If the
Company secures the bid, the contract would provide the Company with recurring
revenues through yearly contracts of hanger space for private aircraft as well
as the maintenance service and fuel supply for the airplanes.
We currently house our own aircraft at this airport. At this time, we have a
one-year contract to lease our planes to a skydiving company that is based at
the airport. Through a joint venture we have been collecting an extensive
library of extreme sport footage in the skydiving industry that can be edited to
create sellable content for cable and video broadcasting.
The Company recently changed its name from Halo Holdings of Nevada, Inc. to A1
Internet.com, Inc.(SM) to reflect its focus on the Internet industry with a
change in management and a series of strategic acquisitions.
The Company has acquired three companies since the beginning of 1999. The
Company acquired Virtual Information Express, Inc., a Maryland Corporation, in
February 1999, Computer Ease, LLC, a Maryland Limited Liability Company, in
March 1999, and NetWorld Ohio, Inc., an Ohio Corporation, in April 1999. All of
these companies provide integrated Internet access services and professional
consulting services in turn. Computer Ease, LLC is in the process of merging
with A1Internet Services, Inc. to become the flagship of the company.
We now provide Internet access services and related products to businesses. We
derive the majority of our revenues from providing dedicated and dial-up
Internet access services to business customers and other ISPs in the largest
metropolitan statistical areas in the United States through a strategic
relationship with a tier-1 backbone service provider. Business customers are
typically signed to contracts that range from one to three years. Revenues
generated from business customers typically comprise recurring monthly fees,
installation and start-up charges and sales of related equipment and services.
Revenues from ISPs are generated pursuant to network access agreements, which
typically require a minimum number of subscribers, and obligate the ISPs to pay
specified monthly fees for each subscriber using the A1 Internet Services
network.
We also offer, in addition to Internet connectivity services, products and
services to businesses that enable them to maximize utilization of the Internet
in their day-to-day operations in and outside of their workplaces. Some of these
value-added services include corporate intranets, web hosting services and
Virtual Internet Service Providers ("VISPs") that permit customers to market
themselves on the Internet without having to invest significantly in technology
infrastructure and operations staff, electronic commerce services, security
services, and other advanced IP-based applications such as voice-over-Internet
(as opposed to standard telephone services) and Internet fax. Revenues from
value-added services are typically in the form of monthly fees and are often
bundled with Internet access services. The Company is seeking to achieve
significant subscriber revenue growth through acquisitions of local and regional
ISPs
12
<PAGE>
through new business development and strategic relationships in the United
States and international markets, and through internal growth.
Since the commencement of our operations, we have undertaken a program of
developing and expanding our data communications network. We have made
significant investments in telecommunications circuits and equipment to produce
a geographic bandwidth, which is pointed to the Network Access Points ("NAP"),
as well as the Metropolitan Area Exchange-East ("MAE-East"). There are redundant
systems in place that are equal to 800 T1s. All of our network equipment is in a
secured facility that has 2 diesel powered backup generators in case of a power
outage.
Results of Operations
Revenues were $8.2 million in 1998 and $8.3 million in 1997.The Company has
generated revenue primarily from the sale of Internet access by e-commerce and
related services and through the acquisitions that occurred during the first
quarter of 1999.
The Company is currently offering in a private placement of its securities
pursuant Regulation D, Rule 506 promulgated under the Securities Act of 1933, as
amended: a minimum of 666,668 shares ($3,000,006) and a maximum of 1,555,556
shares ($7,000,002) of the Company's Series A Preferred Stock at a price of
$4.50 per share. Assuming that either the minimum or maximum number of shares
are sold, the net proceeds to be received by the Company from the sale of the
shares are estimated to be $2,557,506 or $6,037,502 respectively, after
deducting the selling commissions and other expenses of the offering. The net
proceeds will be utilized by the Company for accounts payable, rental deposits,
capital expenditures, acquisitions, and for general working capital.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel, advertising,
distribution and related occupancy costs. Sales and marketing expenses were
$132,000 (2% of revenue) for 1998, an increase of $48,000 from $84,000 (1% of
revenue) for 1997. The increase is principally attributable to costs related to
a branding and advertising campaign resulting in additional advertising expense
from costs associated with the growth of our sales force in conjunction with our
growth and acquisitions.
General and Administrative
General and administrative expenses consist primarily of salaries and occupancy
costs for executive, financial, legal and administrative personnel. General and
administrative expenses were $955,000 (12% of revenue) for 1998, an increase of
$374,000 from $581,000 (7% of revenue) for 1997. The increase resulted from the
addition of management staff and related operating expenses across the
organization, including increases in conjunction with our growth.
13
<PAGE>
Risks Associated With Year 2000
The commonly referred to Year 2000 ("Y2K") problem results from the fact that
many existing computer programs and systems use 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 processing involving the Year 2000
or a later date. We have identified two main areas of Y2K risk:
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, international suppliers of telecommunications services and
others could be disrupted or fail, causing an interruption or decrease
in our ability to continue our operations.
We have developed plans for implementing, testing and completing any necessary
modifications to our key computer systems and equipment with embedded chips to
ensure that they are Y2K compliant. We have engaged a third party consultant to
perform an assessment of our internal systems (e.g., accounting, billing,
customer support and network operations) to determine the status of their Y2K
compliance. The assessment of these systems has been completed and, while some
minor changes are necessary, we believe that no material changes or
modifications to our internal systems are required to achieve Y2K compliance. We
anticipate that our internal systems will be Y2K ready by October 30, 1999. To
help ensure that our network operations and services to our customers are not
interrupted due to the Y2K problem, we have established a network operations
team that meets weekly to examine our network. This team of operational staff
has conducted inventories of our network equipment (software and hardware) and
has found no material Y2K compliance issues. We believe that all equipment
currently being purchased for use in the A1 Internet Services network is Y2K
compliant. Any existing equipment that is not Y2K compliant is planned to be
made Y2K compliant through minor changes to the software or hardware or, in
limited instances, replacement of the equipment. We anticipate that our network
will be Y2K compliant by the end of the third quarter of 1999. In addition to
administering the implementation of necessary upgrades for Y2K compliance, our
network team is developing a contingency plan to address any potential problems
that may occur with our network as we enter the year 2000. We believe that, as a
result of our detailed assessment and completed modifications, the Y2K issue
will not pose significant operational problems for us. However, if the requisite
modifications and conversions are not made, or not completed in a timely
fashion, it is possible that the Y2K problem could have a material impact on our
operations.
In addition, we have identified, and are communicating with our suppliers,
vendors, customers, and other material third parties to determine their Y2K
status and any probable impact on us. To date, we have not revealed any
significant Y2K noncompliance issue affecting our material third
14
<PAGE>
parties. If any of our material third parties are not Y2K ready and their
non-compliance causes a material disruption to any of their respective
businesses, our business could be materially adversely affected. Disruptions
could include, among other things:
o the failure of a material third party's business;
o a financial institution's inability to take and transfer funds;
o an interruption in delivery of supplies from vendors;
o a loss of voice and data connections; a loss of power to our
facilities; and
o other interruptions in the normal course of our operations, the
nature and extent of which we cannot foresee.
Our cost of addressing Y2K issues has been minor to date, our estimated total
costs related to Y2K issues for 1999 is not expected to exceed three hundred
thousand dollars ($300,000). These costs include equipment, consulting fees,
software and hardware upgrades, testing, remediation and, in limited instances,
replacement of equipment.
While we believe that we are adequately addressing the Y2K issue, we can not
assure that our Y2K compliance effort will prevent every potential interruption
or that the cost and liabilities associated with the Y2K issue will not
materially adversely impact our business, prospects, revenues or financial
position. We are uncertain as to our most reasonably likely worst case Y2K
scenario and have not yet completed a contingency plan to handle a worst case
scenario.
ITEM THREE. DESCRIPTION OF PROPERTIES
The Company's executive offices consist of 1150 square feet located at 7900
Glades Road, Suite 435, Boca Raton, Florida 33434. On April 15, 1999 the Company
signed a sublease for these premises which will expire on September 29, 2001.
The annual rent is $27,600. The Company maintains three other offices: at 15825
Shady Grove Road, Suite 50, Rockville, Maryland 20850; at 1243 Napolean Street,
Fremont, Ohio 1604; and at E. Perkins Avenue, Suite 102, Sandusky, Ohio 44870.
The Maryland office consists of 4,527 square feet and is being leased for a
five-year term, which commenced on March 6, 1996. The annual rent for 1999 is
$71,380. The Fremont, Ohio office is being rented for a one-year term, which
commenced on August 1, 1999. The annual rent is $16,800 and the premises consist
of approximately 2,800 square feet. The term of the Sandusky, Ohio lease
commenced on July 15,1999 and ends on July 31, 2000. The annual rent is $3,750
and the premises consist of approximately 450 square feet.
ITEM FOUR. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth the number of shares of the Company's $.001 par value
Common Stock beneficially owned by (i) each person who, as of the date hereof,
was known by the Company to
15
<PAGE>
own beneficially more than five percent (5%) of its Common Stock; (ii) each of
the Named Executive Officers; (iii) the individual Directors of the Company; and
(iv) the Officers and Directors of the Company as a group. As of the date of
this registration statement, 12,020,167 Shares of Common Stock were issued,
9,799,500 are outstanding, and 2,220,667 were retired by the Company.
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Amount of Beneficial Percent of Class (1)
Owner Ownership
- -------------- ------------------------------ -------------------- --------------------
<S> <C> <C> <C>
Common
Bruce Bertman (officer, director) 3,582,000 36.55%
(2) - 15825 Shady Grove Road,
Suite 50, Rockville, MD 20850
Larry Kerschenbaum (director)- 900,000 9.18%
7900 Glades Road, Suite 435, Boca
Raton, FL 33434
Leonard Tambasco (officer, 500,000 5.10%
director) (3) - 7900 Glades Road,
Suite 435, Boca Raton, FL 33434
Martin Sumichrast (director)- 100,000 1.02%
15245 Shady Grove Road, Suite
340, Rockville, MD 20878
Noved Holdings Inc.-932 Burke 665,000 6.79%
St., Winston-Salem, NC 27101
Officers and Directors as a 5,247,000 51.85%
group (4)
</TABLE>
(1) All percentages are rounded to the nearest one hundredth.
(2) 800,000 of Mr. Bertman's shares are currently held in a family trust or
by members of his immediate family. 200,000 of Mr. Bertman's Shares are
held by Cyberrealm, Inc. and 100,000 Shares are held by Stock Maker,
Inc., both of which are exclusively owned by Mr. Bertman.
(3) 200,000 of Mr. Tambasco's shares are currently held beneficially by his
children. The remaining 300,000 shares are held by a family trust over
which Mr. Tambasco does not exercise control.
(4) Does not include shares held by Noved Holdings, Inc.
16
<PAGE>
ITEM FIVE. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
The following table sets forth the names and ages of the members of the
Company's Board of Directors, executive officers, and the position with the
Company held by each:
Name Age Position
- ---- --- --------
Bruce Bertman 41 Chief Executive Officer, Treasurer, and
Chairman of the Board
Leonard Tambasco 41 President, Secretary, and Director
Martin A. Sumichrast 32 Director
Larry Kerschenbaum 40 Director
BRUCE BERTMAN is the Chairman of the Board, Chief Executive Officer, and
Treasurer of the Company. He has over 12 years experience in the high technology
industry. From 1988 until 1991 he was part of the executive management team of
Inacomp Computer Centers, presently part of Inacom. Mr. Bertman also held the
post of Vice President at Microware Distributors, a national computer product
distribution organization, where he directed national sales efforts, designing
very successful government reseller programs from 1991 to 1993.
In 1993 Mr. Bertman founded Computer Ease, a wholly owned subsidiary of the
Company, and has grown it into a successful Internet Service Provider in the
United States. The company has such blue chip clients as 5th Avenue Shopping
Channel, AOPA, AAMSE, Bausch & Lomb, Burger King, and Medic Alert. Along with
providing state of the art connectivity, Computer Ease also provides design,
programming and e-commerce solutions creating truly unique company
representations. In 1998, Mr. Bertman founded Stockmaker.com, which provides
Investor Relations services for under served public companies.
Mr. Bertman actively participates as a member of the Board of Directors of
several companies such as EBOnline.com Inc., Cyber Realm Inc., and Computer Kids
Network, Inc. He is also actively involved in several high technology
organizations and local groups focused on primary education. Mr. Bertman
attended Northeastern University in Boston, Massachusetts from 1980-1981.
LEONARD TAMBASCO is the President, Secretary and Director of the Company. From
1998 until April 1999, he served as CEO and Chairman of the Board of Computer
Access International. Mr. Tambasco's responsibilities included the raising of
funds and the restructuring of corporate debt, as well as playing an
instrumental part in the negotiations of all acquisitions. 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
for, and became
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<PAGE>
president of, his family-owned construction company, Trevus Construction
Corporation, a road and sewer contractor in New York City. The years prior to
becoming an officer, Mr. Tambasco held numerous jobs that broadened his
knowledge of the construction business.
MARTIN A. SUMICHRAST, a Director of the Company, has served as Chairman of the
Board, Chief Executive Officer and President of Eastbrokers International
Incorporated since December 1998, Vice Chairman since March 1997, and Secretary
and a Director since its inception in 1993. Eastbrokers International
Incorporated is the parent company of EBI Securities Corporation, one of the
Placement Agents in this Offering. Mr. Sumichrast is a founder of Eastbrokers
International Incorporated and was formerly Executive Vice President and Chief
Financial Officer. Mr. Sumichrast is also Chairman of Eastbrokers North America,
Inc. which is a subsidiary of Eastbrokers International Incorporated. From 1987
until 1992, Mr. Sumichrast served as the President of Sumichrast Publications,
Inc., a real estate publication located in Rockville, Maryland. Mr. Sumichrast
also serves as President of Sumichrast Enterprises, Inc., a holding company
located in Rockville, Maryland. Mr. Sumichrast received a Bachelor of Science
Degree from the University of Maryland in 1990.
LARRY W. KERSCHENBAUM, a Director of the Company, founded the Company and
previously served as its Chief Executive Officer. Since 1988, Mr. Kerschenbaum
has been self-employed as a corporate consultant. Mr. Kerschenbaum began his
career in investment banking in 1985 with a regional brokerage firm, eventually
being named co-manager of the firm's Ft. Lauderdale branch. From 1982 to 1985,
Mr. Kerschenbaum was employed by Merit Oil as a Regional Manager for that
company's Southeast District. From 1980 to 1982, Mr. Kerschenbaum was involved
in the creation and management of real estate limited partnerships. Mr.
Kerschenbaum attended Queens College and received a Bachelor of Science degree
from Pechnion University in Israel in 1981.
ITEM SIX. EXECUTIVE COMPENSATION
A. DIRECTORS' COMPENSATION
Each member of the Board of Directors receives out-of-pocket expenses for board
meetings. In addition, according to the Company's by-laws, the Company's
directors are permitted to receive fixed fees and other compensation for their
services as directors, as determined by the Board of Directors. As of the date
of this Memorandum, no amounts have been paid to directors of the Company in
such capacity.
B. COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the current salaries for the named Executive
Officers of the Company:
18
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
- ----------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name Annual Restricted Under- Other
And Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leonard Tambasco 3/5/99-3/5/00 $96,000 250,000 None None None None None
shares (1)
President
Bruce Bertman 3/5/99-3/5/00 $96,000 None None None None None None
CEO
</TABLE>
(1) In March 1999, Leonard Tambasco was issued 250,000 shares of the
Company's common stock, at $.80 per share, as a signing bonus for
becoming President of the Company.
Both Executive Officers have signed employment agreements with the Company which
were effective as of March 5, 1999. The agreements are for a period of two years
from the commencement date and shall be automatically renewed for successive
one-year terms unless either party provides written notice of non-renewal. The
Company shall pay Mr. Bertman and Mr. Tambasco a base salary of $96,000 which
base salary shall be increased by 6% beginning on the anniversary date of each
successive one-year term. In addition to the base salary, the Company shall bear
the cost of 80% of the Family Health Insurance of Mr. Bertman and Mr. Tambasco,
and shall reimburse them for all normal business expenses. Mr. Bertman and Mr.
Tambasco shall be entitled to a $650 per month auto allowance and two weeks
vacation per year, with additional vacation to be accrued at the rate of 1 week
for every year of employment.
ITEM SEVEN. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's former CEO, Larry Kerschenbaum, received a severance package from
the Company, which became effective on March 5, 1999. Mr. Kerschenbaum is
entitled to receive $5,000 per month over a two-year period.
On February 1, 1999, the Company entered into an exchange agreement with Bruce
Bertman, the Company's Chief Executive Officer, Treasurer and Chairman of the
Board, to purchase 100% of
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<PAGE>
the outstanding common shares of Virtual Information Express, Inc. which Mr.
Bertman exclusively owned. The consideration for the acquisition of the
outstanding shares of Virtual Information Express Inc. was $600,000, payable
with shares of the Company's Common Stock at a rate equal to $2 per share.
On March 24, 1999, the Company entered into an exchange agreement with the
members of Computer Ease, LLC, to purchase 100% of the outstanding capital stock
of Computer Ease, LLC. Bruce Bertman, the Company's Chief Executive Officer,
Treasurer and Chairman of the Board was the majority owner of Computer Ease, LLC
prior to this transaction. The consideration for the acquisition of the
outstanding shares of Computer Ease, LLC was $8,000,000, payable with shares of
the Company's Common Stock at a rate equal to $2 per share. Furthermore, the
Company agreed to provide Computer Ease, LLC with $500,000 to be utilized as
working capital to service Computer Ease's obligations. Computer Ease, LLC is in
the process of merging with the Company's wholly-owned subsidiary, A1 Internet
Services, Inc.(SM) A1 Internet Services, Inc.(SM) will be the surviving entity.
On March 30, 1999, Skydive USA, a wholly owned subsidiary of the Company, was
sold to Larry Kerschenbaum, a founding shareholder and director of the Company,
and Tom Keese, a founding shareholder and former officer and director of the
Company. Messrs. Kerschenbaum and Keese tendered a total of 400,000 shares of
the Company's Common Stock to the Company as consideration for the sale.
During the first quarter of 1999, Tom Keese and Larry Kerschenbaum forgave
$43,871 owed to them by the Company in consideration for personal expenses paid
on their behalf by the Company. Additionally, Larry Kerschenbaum forgave
$133,460 owed solely to him by the Company in consideration for personal
expenses paid on his behalf by the Company.
On March 31, 1999 Gravity Pilot Air, Inc., a wholly owned subsidiary of the
Company, agreed to lease its two airplanes for the term of twelve months to
Skydive USA. For the use of the aircraft, its accessories and equipment, Skydive
USA agreed to pay to Gravity Pilot Air, Inc. rent in the amount of $21,176 per
month during the term of the lease, including any renewal, payable on the first
day of each month. Furthermore, additional rent of $35 shall be paid for each
hour of flight of the leased aircraft. The airplanes will not be for the
personal use of the Company's officers or directors.
In March 1999, Leonard Tambasco, the Company's President, was issued 250,000
shares of the Company's Common Stock as a signing bonus for becoming President
of the Company.
On April 20, 1999, Bruce Bertman, the Company's Chief Executive Officer, and the
Company agreed to convert $322,692 worth of personal loans to Computer Ease, LLC
into 120,000 shares of the Company's Common Stock.
On April 20, 1999, Bruce Bertman agreed to forgive a $50,000 note owed to him by
Virtual Information Express, Inc.
20
<PAGE>
As of June 30, 1999, Bruce Bertman was owed $132,692 by Computer Ease, LLC,
comprised of a $70,000 short-term, zero interest, demand note and $62,692 worth
of business expenses.
Approximately $593,490 of the Company's accounts receivable are due from
CyberRealm, Inc. and Stockmaker, Inc., entities which are owned exclusively by
Bruce Bertman.
Accounts payable to related parties total $89,980 including $29,650 to
Stockmaker, Inc. and $60,330 to Eurobridge D.C., Inc. Stockmaker, Inc is owned
exclusively by Bruce Bertman. Jeff Lieberman, a shareholder of the Company, is a
5% shareholder of Eurobridge DC, Inc.
Martin Sumichrast, a director of the Company, is Chairman of the Board, Chief
Executive Officer and President of Eastbrokers International Incorporated, the
parent company of EBI Securities Corporation, one of the Placement Agents for
the Company's current private placement of securities.
Martin Sumichrast has subscribed to purchase 100,000 shares of the Company's
common stock at a price of $2 per share. As consideration for such purchase, Mr.
Sumichrast has tendered a non-negotiable term note for $200,000 to the Company.
The note bears interest at 4% and is repayable in cash or in Common Stock of the
Company on December 31, 2004.
On February 2, 1999, EBI Securities Corporation, one of the Placement Agents for
the Company's current private placement of securities, was issued a warrant to
purchase 500,000 shares of the Company's Common Stock at $.10 per share as
payment for professional services performed in the first quarter of 1999.
The Company is a 21% shareholder of Ebonlineinc.com, a subsidiary of Eastbrokers
International Incorporated, which is the parent company of EBI Securities
Corporation, one of the Placement Agents for the Company's current private
placement of securities. Martin Sumichrast, Ebonlineinc.com's Chairman, is also
a director of the Company.
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 EIGHT. DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue 20,000,000 Shares of Common Stock, par value
$.001 per Share. As of the date of this registration statement, 12,020,167
Shares of Common Stock were issued, 9,799,500 are outstanding, and 2,220,667
were retired by the Company. The holders of Common Stock have one vote per Share
on all matters (including election of directors) without provision for
cumulative voting. Thus, holders of more than 50% of the shares voting for the
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<PAGE>
election of directors can elect all of the directors, if they so choose. 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. The Common
Stock currently outstanding is validly issued, fully paid and nonassessable. 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 future.
Preferred Stock
The Company is authorized to issue 5,000,000 Shares of Preferred Stock, par
value $.001 per Share. As of the date hereof, no Shares of Preferred Stock were
issued and outstanding. The Company has designated 2,000,000 Shares as Series A
Convertible Preferred Stock (the "Series A Preferred Stock"). The Company is
currently offering a minimum of 666,668 shares and a maximum of 1,555,556 shares
of its Series A Preferred Stock in a private placement pursuant to Rule 506 of
Regulation D at a price of $4.50 per share.
The Series A Preferred Stock has voting rights equal to the Company's Common
Stock. The Series A Preferred Stock is convertible at any time upon the written
request of any holder or automatically upon the effectiveness of a registration
statement filed by the Company under the Securities Act (other than a
registration relating solely to a transaction under Rule 145 under the
Securities Act (or any successor thereto), a registration made pursuant to Form
S-4, Form S-8 or pursuant to an employee benefit plan of the Company).
Additionally, the Series A Preferred Stock carries one-time demand registration
rights (with respect to the underlying Common Stock), effective upon the written
request by the holders of at least fifty-one (51%) percent of the outstanding
Series A Preferred Stock, and unlimited piggy-back registration rights (with
respect to the underlying Common Stock) for registration statements filed
pursuant to the Securities Act (other than registrations relating solely to
transactions under Rule 145 under the Securities Act (or any successor thereto),
or registrations made pursuant to Form S-4, Form S-8 or pursuant to an employee
benefit plan of the Company). In addition, 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, the holders of the Series A Preferred
Stock of the Company shall be entitled to be paid the face value of $4.50 per
share of Series A Preferred Stock before any assets of the Company shall be
distributed among or paid over to the holders of the common stock.
22
<PAGE>
PART II
ITEM ONE. MARKET FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS
A. PRINCIPAL MARKET OR MARKETS
NASDAQ Bulletin Board
The Company's securities began trading on the NASDAQ OTC Bulletin Board under
the symbol "HALO" on October 10, 1998. The Company changed its symbol to "AWON"
and began trading under this new symbol on May 24, 1999. During the prior two
fiscal years the low and high bid prices as reflected by interdealer quotations
were:
- ------------------------------------------------------------------------------
QUARTER Low Bid High Bid
- ------------------------------------------------------------------------------
4th Quarter `98 3 3/4 5
1st Quarter `99 4 5 5/8
2nd Quarter `99 5 1/4 8
3rd Quarter to date 5 7 3/4
- ------------------------------------------------------------------------------
B. APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
As of the date of this registration statement, 12,020,167 Shares of Common Stock
were issued, 9,799,500 are outstanding, and 2,220,667 were retired by the
Company. Of the outstanding shares, 2,175,000 shares are free trading and
7,624,500 are investment shares.
The number of holders of record of the Company's common stock is approximately
two hundred and sixty-seven (267).
C. DIVIDENDS
Holders of common stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common Stock
were paid by the Company during the periods reported herein nor does the Company
anticipate paying dividends in the foreseeable future.
ITEM TWO. LEGAL PROCEEDINGS
At this time the Company is not involved in any litigation and is not aware of
any pending litigation or the possibility of future litigation which could
adversely affect the Company or its Shareholders.
23
<PAGE>
ITEM THREE. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company recently changed its accounting firm from Cohen & Kameny CPA's PLLC
to Spicer, Jeffries & Co. The change was not due to any disagreement regarding
accounting and financial disclosures. The Company did not have any disagreements
on accounting and financial disclosures with either its current accounting firm
or Cohen & Kameny during the reporting period.
ITEM FOUR. RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued the following unregistered common stock in the three-year
period preceding the date of this Registration Statement:
On October 15, 1997, the Company issued 3,000,000 shares of common stock at
$.001 per share to the founders of the Company.
On November 17, 1997, the Company issued 300,000 shares of preferred stock at
$.001 per share to the shareholders of Gravity Pilot Air in reliance upon
Section 4(2)/Rule 506 of the Securities Act of 1933, pursuant to a stock
purchase. These shares were returned to the Company on December 21, 1998 and
converted into common shares which were issued to the shareholders of Gravity
Pilot Air the same day.
On January 15, 1998, the Company initiated a Regulation D 504 Offering of
1,000,000 shares of common stock at $1.00 per share. The offering was fully
subscribed and closed.
On January 27, 1999, the Company issued 7,500 and 25,000 shares at $1.00 per
share to Eduardo Lautieri and Brian Campbell, respectively in reliance upon
Section 4(2) of the Securities Act of 1933 in a private sale. Also on January
27, 1999, the Company issued 27,500 shares at $.40 per share to Clifford Morgan
in reliance upon Section 4(2) of the Securities Act of 1933 as consideration for
consulting services rendered to the Company. The foregoing 60,000 shares were
initially mistakenly issued by the Company in reliance on Rule 504 of Regulation
D but were subsequently rescinded and reissued as restricted shares in reliance
upon Section 4(2) of the Securities Act of 1933.
On January 29, 1999, the Company initiated a Regulation D, Rule 504 Offering of
500,000 shares of common stock at $2.00 per share. The offering was fully
subscribed and closed.
On February 2, 1999, the Company issued a warrant to purchase 500,000 shares of
common stock at $.10 per share to EBI Securities in reliance upon Section 4(2)
of the Securities Act of 1933 in consideration for professional services
performed in the first quarter of 1999.
On March 5, 1999, the Company issued 250,000 and 50,000 shares of common stock
at $.80 per share to Eduardo Lautieri and Moe Cohen respectively in reliance
upon Section 4(2) of the Securities Act of 1933 for consulting services rendered
to the Company.
24
<PAGE>
On March 5, 1999, Leonard Tambasco was issued 250,000 shares at $.80 per share
of common stock as a signing bonus for becoming President of the Company in
reliance upon Section 4(2)/Rule 701 of the Securities Act of 1933.
On March 30, 1999, the Company issued 4,000,000 shares of common stock at $2.00
per share to the members of Computer Ease, LLC in reliance upon Section 4(2) of
the Securities Act of 1933 as consideration for the acquisition of all of the
outstanding capital stock of Computer Ease, LLC Mr. Bertman was the majority
owner of Computer Ease, LLC prior to this transaction.
On March 30, 1999, the Company issued 300,000 shares of common stock at $2.00
per share to Bruce Bertman in reliance upon Section 4(2) of the Securities Act
of 1933 as consideration for the acquisition of the outstanding shares of
Virtual Information Express, Inc. which Mr. Bertman was the sole shareholder of.
On April 13, 1999, the Company issued 37,000 shares of common stock at $2.00 per
share in reliance upon Section 4(2) of the Securities Act of 1933 as
consideration for the purchase of all of the issued and outstanding stock of
Networld Ohio, Inc.
On April 20, 1999, the Company issued 120,000 shares of common stock at $2.70
per share to Bruce Bertman in reliance upon Section 4(2) of the Securities Act
of 1933 in consideration for Mr. Bertman's forgiveness of $322,692 worth of
personal loans to Computer Ease, LLC.
On July 12, 1999, the Company issued 100,000 shares of common stock at $2.00 per
share to Martin Sumichrast in reliance upon Section 4(2) of the Securities Act
of 1933.
On August 19, 1999, the Company issued 190,000 shares of common stock at $7.00
per share in reliance upon Section 4(2) of the Securities Act of 1933 as
consideration for the purchase of certain assets of NetAmerica, Inc.
On August 30, 1999, the Company issued 32,500 shares to Eduardo Lautieri and
Brian Campbell in consideration for consulting services rendered to the Company.
In addition, the Company issued 10,000 shares to Michael Straus and Quanta, Ltd.
for investor relations services performed on behalf of the Company. The
foregoing shares were issued in reliance upon Section 4(2) of the Securities Act
of 1933.
ITEM FIVE. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company intends to maintain insurance against any 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
25
<PAGE>
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. Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
26
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
A1 INTERNET.COM, INC.
Date: September 3, 1999
By: /s/ Bruce Bertman
----------------------------------
Bruce Bertman, Chief Executive Officer
27
<PAGE>
PART III
FINANCIAL INFORMATION
28
<PAGE>
HALO HOLDINGS OF NEVADA, INC.
CONSOLDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(See Independent Auditors' Report)
CONTENTS
Page(s)
-------
Independent Auditors' Report 1
Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Income (Loss) and Retained
Earnings (Deficit) 3
Consolidated Statement of Cash Flows 4
Report on Supplemental Information 5
Consolidated Statements of Supplemental Information 6
Notes to Financial Statements 7-9
<PAGE>
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
- -----------------
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, 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 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.
---------------------------------
COHEN & KAMENY CPA'S PLLC
<PAGE>
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>
<PAGE>
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)
1998 1997
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)
<PAGE>
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) (7,340)
Increase in accounts payable and accured expenses 37,313
NET CASH (USED) BY OPERATING ACTIVITIES (324,117) (361,012)
CASH FLOWS FROM INVESTING ACTIVITIES:
Goodwill -- (309,845)
Net investment in aircraft and equipment (948,592)
NET CASH (USED BY INVESTING ACTIVITIES (1,258,437)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in note payable (98,147) 739,598
Increase in loan payable-bank 18,059 --
(Decrease) Increase in loans payable-shareholders (87,409) 196,670
Increase in loans payable -- 80,000
Increase from common stock issued 800 3,500
Increase in additional paid in capital 574,200 526,500
(Decrease) increase in preferred stock (75,000) 75,000
NET CASH PROVIDED BY FINANCING ACTIVITIES 332,503 1,621,268
NET INCREASE IN CASH 8,386 1,819
Cash at beginning of year 1,819 --
CASH AT END OF YEAR $ 10,205 1,819
</TABLE>
<PAGE>
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
Accountants' Report on Supplementary Information
To The Board of Directors
Halo Holdings of Nevada, Inc.
We have audited the consolidated financial statements of Halo Holdings of
Nevada, Inc. for the years ended December 31, 1998 and 1997. Our audit report
thereon appears on page 1. Our audit expresses an opinion on the consolidated
financial statements take as a whole. The information on page 6 is presented
only for supplementary analysis purposes. Such information has not been
subjected to the inquiry and analytical procedures applied in the audit of the
basic financial statements, but was complied from information that is the
representation of management, without audit or review. Accordingly, we do not
express an opinion or any other form of assurance on the supplementary
information.
COHEN & KAMNEY CPA'S PLLC
Riverdale, New York
March 23, 1999
<PAGE>
HALO HOLDINGS OF NEVADA, INC.
CONSOLIDATED STATEMENTS OF SUPPLEMENTAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1991 AND 1997
(See Accountants' Report on Supplementary Information)
SCHEDULE 1:
1998 1997
---- ----
OPERATING EXPENSES
Insurance $ 36,043 $ 18,771
Consulting 185,588 298,373
Pilot fees 3,726 2,400
Repairs and maintenance 9,769 8,849
Telephone 1,272 160
Office expenses 2,015 607
Postage 392 173
Advertising and promotion 137 1,324
Professional fees 82,692 23,000
Licenses, permits, and fees 1,905 101
Engineering fees 5,500 1,000
Bank charges 1,796 569
Travel 903 1,729
Depreciation 101,005 826
Amortization 30,984 --
$463,727 $357,882
<PAGE>
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.
<PAGE>
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 share 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 share 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
share 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.
<PAGE>
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 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 operations 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.
<PAGE>
COMPUTER EASE, LLC
CONTENTS
--------
Page
Independent Auditors' Report 3
Balance Sheets 4
Statements of Operations 5
Statements of Changes in Members' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8-9
<PAGE>
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.
SPICER, JEFFRIES & CO.
Denver, Colorado
July 23, 1999
<PAGE>
COMPUTEREASE, LLC
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
--------------- ---------------
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
=============== ===============
The accompanying notes are an integral part of these statements.
<PAGE>
COMPUTEREASE, LLC
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
--------------- ---------------
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)
=============== ===============
The accompanying notes are an integral part of these statements.
<PAGE>
COMPUTEREASE, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
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)
===================
The accompanying notes are an integral part of these statements.
<PAGE>
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.
<PAGE>
COMPUTER EASE, 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.
<PAGE>
COMPUTER EASE, LLC
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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:
% of Sales
-------------------------
Customer 1998 1997
--------------------- ------------------- -----------
A 20.3 -
B 31.1 -
C - 13.1
D - 13.4
E - 21.1
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.
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
TABLE OF CONTENTS
-----------------
Page
Accountants' Review Report 3
Consolidated Balance Sheet 4 - 5
Consolidated Statement of Operations 6
Consolidated Statement of Changes in Shareholders' Equity 7
Consolidated Statement of Cash Flows 8 - 9
Notes to Consolidated Financial Statements 10 - 15
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
A1 Internet.com, Inc.
(formerly Halo Holdings of Nevada, Inc.)
We have reviewed the accompanying consolidated balance sheet of A1 Internet.com,
Inc. (formerly Halo Holdings of Nevada, Inc.) and its subsidiaries (the
"Company") as of June 30, 1999, and the related statements of operations,
changes in shareholders' equity, and cash flows for the six months then ended,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of the Company.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
SPICER, JEFFRIES & CO.
Denver, Colorado
August 3, 1999
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
-------------
ASSETS
------
CURRENT ASSETS:
Cash $ 132 424
Receivables:
Trade, net (Note 1) 244 694
Note receivable (Note 2) 85 876
Related parties 593 490
Other 200 590
Inventory (Note 1) 13 346
Other current assets 6 331
--------------
Total current assets 1 276 751
--------------
PROPERTY AND EQUIPMENT, at cost (Note 1)
Aircraft 1 008 256
Computers and equipment 951 988
Less: accumulated depreciation (499 170)
--------------
Net property and equipment 1 461 074
--------------
OTHER ASSETS:
Goodwill, net (Note 1) 562 975
Prepaid expenses 138 730
Other 57 250
--------------
Total other assets 758 955
--------------
$ 3 496 780
==============
See Accountants' Review Report.
The accompanying notes are an integral part of this statement. -4-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
=============
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable (Note 8) $ 540 003
Accrued expenses payable 171 099
Loans payable, shareholders (Note 3) 228 694
Notes payable (Note 4) 1 466 276
-------------
Total current liabilities 2 406 072
-------------
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY (Notes 5 and 6):
Common stock, $.001 par value, 20,000,000 shares
authorized, 9,467,000 issued and outstanding 9 202
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding -
Additional paid-in capital 4 094 108
Notes receivable - common stock (240 000)
Deficit (2 772 602)
-------------
Total shareholders' equity 1 090 708
-------------
$ 3 496 780
==============
See Accountants' Review Report.
The accompanying notes are an integral part of this statement. -5-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
GROSS REVENUE $ 1 593 946
COST OF SALES 342 513
---------------
Gross profit 1 251 433
---------------
OPERATING EXPENSES:
Salaries, wages and payroll taxes 605 982
General and administrative expenses 473 917
Professional fees 319 840
---------------
Total operating expenses 1 399 739
---------------
OTHER INCOME (EXPENSE):
Consulting fees (Notes 6 and 8) (1 168 979)
Forgiveness of debt 90 000
Interest expense (52 138)
Other (67 634)
Total other expense (1 198 751)
---------------
NET LOSS $ (1 347 057)
===============
BASIC AND DILUTED NET LOSS PER COMMON SHARE (Note 1) $ (.15)
===============
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1) 9 033 338
===============
See Accountants' Review Report.
The accompanying notes are an integral part of this statement. -6-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
==============================
<TABLE>
<CAPTION>
Common Stock Preferred Stock Paid-in Notes
Shares Amount Shares Amount Capital Receivable (Deficit)
----------- ---------- ------- --------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1998,
as previously reported 4 300 000 $ 4 300 - $ - $ 1 100 700 $ - $ (832 869)
Adjustment for poolings of interests:
Virtual Information Express 300 000 35 - - 65 - (1 098)
Computer Ease, L. L. C. 4 000 000 4 000 - - 121 385 - (591 578)
----------- ---------- ------- --------- -------------- ----------- ------------
BALANCES, January 1, 1999, as restated 8 600 000 8 335 - - 1 222 150 - (1 425 545)
Issuance of common stock for cash
and notes receivable, less offering
costs of $50,000 500 000 500 - - 949 500 (240 000) -
Issuance of warrants for services - - - - 767 979 - -
Acquisition of Networld Ohio, Inc. 37 000 37 - - 292 593 - -
Shares issued for services 577 500 578 - - 450 422 - -
Shares issued in private sale 32 500 32 - - 32 468 - -
Reacquired shares through disposition
of Skydive USA (400 000) (400) - - (1 999 600) - -
Gain on disposition of Skydive USA to
shareholder - - - - 1 714 383 - -
Conversion of shareholder loan 120 000 120 - - 322 572 - -
Conversion of loan payable - - - - 227 331 - -
Issuance of warrants in connection
with notes payable - - - - 114 310 - -
Net loss - - - - - - (1 347 057)
----------- --------- ------- ---------- ------------- ----------- -------------
BALANCES, June 30, 1999 9 467 000 $ 9 202 $ - $ - $ 4 094 108 $ (240 000) $ (2 772 602)
=========== ========= ======= ========== ============= =========== =============
</TABLE>
See Accountants' Review Report.
The accompanying notes are an integral part of this statement. -7-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1 347 057)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 71 071
Amortization 11 816
Forgiveness of debt (90 000)
Issuance of warrants for services 717 979
Issuance of common stock for services 451 000
Increase in receivables (866 381)
Decrease in inventory 10 298
Increase in prepaid expenses (116 342)
Increase in other current assets (3 336)
Increase in accounts payable 34 350
Increase in accrued expenses payable 91 553
Net cash used in operating activities
(1 035 049)
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in note receivable (100 000)
Purchase of computers and equipment
Payment on deposits (330 335)
Acquisition of Networld Ohio, Inc.,
net of cash acquired (8 250)
Net cash used in investing activities
(89 138)
CASH FLOWS FROM FINANCING ACTIVITIES: (527 723)
Proceeds from stock issuances
Proceeds from notes payable 792 500
Proceeds from shareholder loans 1 080 000
Payments on notes payable 313 354
Net cash provided by financing activities (500 865)
1 684 989
NET INCREASE IN CASH
122 217
CASH, beginning of period
10 207
CASH, end of period
$ 132 424
============
See Accountants' Review Report.
The accompanying notes are an integral part of this statement. -8-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
==============================
(Continued)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 52 138
Cash paid for income taxes $ 1 900
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of loans payable to capital $ 550 023
============
Issuance of common stock for notes receivable $ 240 000
============
Retirement of common stock from disposition of
subsidiary $ 2 000 000
============
See Accountants' Review Report.
The accompanying notes are an integral part of this statement. -9-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Operations
- ---------------------------
Halo Holdings of Nevada, Inc. (the "Company") was incorporated in the state of
Nevada on October 13, 1997. On July 9, 1999, the Company changed its name to A1
Internet.com, Inc. The Company is engaged in the business of providing internet
access and web design.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements include the historical
accounts of A1 Internet.com, Inc. and its 100%- owned subsidiaries, A1 Internet
Services, Inc., Computer Ease, LLC, Virtual Information Express, Inc., NetWorld
of Ohio Inc., (since April, 1999) and Gravity Pilot Air, Inc. Computer Ease, LLC
is in the process of merging with A1 Internet Services, Inc. A1 Internet
Services, Inc. will be the surviving entity.
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.
Accounts Receivable
- -------------------
The Company performs on-going credit evaluations of its customers. An allowance
for doubtful accounts in the amount of $17,796 has been established at June 30,
1999.
Inventory
- ---------
Inventory consists of computer equipment and is stated at the lower of cost or
market. Cost is determined on a specific identification basis.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Aircraft are depreciated over the
estimated useful life of ten years using the straight line method. Depreciation
of computers and equipment is computed using accelerated methods over estimated
useful lives of five or seven years.
Long-Lived Assets
- -----------------
The Company reviews its long-lived assets for impairment to determine if the
carrying amount of the assets are recoverable.
Goodwill
- --------
Goodwill, which resulted from the acquisition of Networld Ohio, Inc., is being
amortized over a period of 120 months.
-10-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
(Continued)
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES (continued)
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 contracted amounts which approximate fair value.
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.
NOTE 2 - NOTE RECEIVABLE
Note receivable at June 30, 1999 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Note receivable bearing interest at 6%, due April 1, 2002,
payable in monthly installments of $3,042 $ 85,876
</TABLE>
NOTE 3 - LOANS PAYABLE SHAREHOLDERS
Various shareholders of the Company have 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. One loan in the amount of $96,000 bears interest
at 15% and is due on demand after April 1, 2000. The other loans are payable
upon demand and bear no interest.
-11-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
(Continued)
NOTE 4- NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
<S> <C>
14% note payable, due November 4, 1999, payable in
monthly installments of $16,296, secured by aircraft $ 556 686
* 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
* 8% note payable, (face amount $250,000) principal and interest due
August 13, 1999, convertible into preferred stock at $4.50 per share 219 897
* 8% note payable, (face amount $200,000) principal and interest due
September 2, 1999, convertible into preferred stock at $4.50 per share 175 918
Non-interest bearing note payable, due December 15, 1999,
payable in monthly installments of $20,000 123 900
-----------------
$ 1 466 276
=================
</TABLE>
* In connection with the issuance of these notes payable, $114,310 has been
allocated to the detachable stock warrants (see Note 7). The fair value of
these warrants was estimated using the Black-Scholes option pricing model.
NOTE 5 - 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.
-12-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
(Continued)
NOTE 5 - SHAREHOLDERS' EQUITY (continued)
Stock Warrants
- --------------
Common stock warrants have been issued in connection with certain private
offerings, pooling expenses and notes payable. At June 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 June 30, 1999 Exercise Price
--------------- ----------------------- ----------------------
<S> <C> <C>
June 1, 2004 500 000 $ .10
June 1, 2004 38 000 5.50
----------------------
538 000
======================
</TABLE>
NOTE 6 - ACQUISITIONS AND DISPOSITIONS
In February, 1999 the Company acquired Virtual Information Express, Inc. for
300,000 shares of its common stock in exchange for all of the outstanding shares
of Virtual Information Express, Inc. on a one to one basis. This transaction was
accounted for using the pooling of interests method of accounting. Virtual
Information Express, Inc. had no operations for the one month period ended
January 31, 1999.
In March, 1999 the Company acquired Computer Ease LLC. The Company issued
4,000,000 shares of its common stock in exchange for all the outstanding shares
of Computer Ease LLC., on a one to one basis. This transaction was also
accounted for using the pooling of interests method of accounting. Net sales and
net income of Computer Ease LLC for the two month period ended February 28, 1999
were $650,046 and $428,846, respectively. Costs of the pooling, which consisted
mainly of investment banking fees of 467,447 warrants to purchase common stock,
are included as consulting fees of $717,979 in the accompanying statement of
operations. The fair value of these warrants was estimated using the
Black Scholes option pricing model.
The Company acquired Networld Ohio, Inc., an Ohio based internet service
provider in April 1999. The acquisition consisted of a cash payment of $90,000,
37,000 shares of common stock 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. The excess of the cost of the
acquisition over the fair value of the assets acquired was recorded as goodwill.
-13-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Continued)
NOTE 6 - ACQUISITIONS AND DISPOSITIONS (continued)
The following summarized, proforma results of operations of the Company assumes
that the Company acquired Networld Ohio, Inc. as of January 1, 1999.
Six months ended
June 30, 1999
---------------------
Gross revenue $ 1 824 682
Net loss (1 329 919)
Net loss per common share (.15)
On March 30, 1999, Skydive USA, a wholly owned subsidiary of the Company, was
sold to a director of the Company and a former officer and director of the
Company. These individuals tendered a total of 400,000 shares valued at $5.00
per share of the Company's common stock to the Company as consideration for the
sale.
NOTE 7 - COMMITMENTS
The Company leases office space from unrelated entities under various operating
leases. Future minimum lease payments under noncancellable leases as of June 30,
1999 are as follows:
Year ending
December 31, Amount
---------------- -------------
1999 $ 108 000
2000 114 000
2001 33 000
-------------
$ 255 000
=============
Total rent expense was approximately $59,000 for the six months ended June 30,
1999.
NOTE 8 - RELATED PARTIES
During the six months ended June 30, 1999 various current and former officers
and shareholders forgave indebtedness totaling $227,331. Officers and/or
shareholders were issued 577,500 shares of common stock for services valued at
$451,000 and is included as consulting fees in the accompanying statement of
operations.
In addition, 32,500 shares of common stock were sold at $1.00 per share in a
private sale to current shareholders and 120,000 shares of common stock were
issued to an officer and stockholder as repayment of a $322,692 debt.
As of June 30, 1999, accounts payable included $89,980 payable to related
parties.
-14-
<PAGE>
A1 INTERNET.COM, INC. AND SUBSIDIARIES
(formerly Halo Holdings of Nevada, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Concluded)
NOTE 9 - INCOME TAXES
The Company has an unused net operating loss carryforward of approximately
$611,000 for income tax purposes, of which approximately $354,000 expires in
2012 and the remainder in 2018. This net operating loss carryforward may result
in future income tax benefits of approximately $208,000; however, because
realization is uncertain at this time, a valuation reserve in the same amount
has been established.
NOTE 10 - MAJOR CUSTOMERS
The following customers each accounted for more than 10% of sales for the six
months ended June 30, 1999:
Customer % of Sales
-------- ----------
A 18.3
B 19.1
NOTE 11 - SUBSEQUENT EVENT
In July 1999, the Company commenced a private placement offering of a minimum of
666,668 and a maximum of 1,555,556 shares of its preferred stock at $ 4.50 per
share.
-15-
<PAGE>
PART IV
INDEX TO EXHIBITS
2. A. Articles of Incorporation .....................................
B. Certificate of Amendment of Articles of Incorporation .........
C. Certificate of Designation ....................................
D. By-laws .......................................................
3. Instruments Defining Rights of Security Holders .................. n/a
5. Voting Trust Agreements .......................................... n/a
6. Material Contracts ............................................... n/a
7. Material Foreign Patents ......................................... n/a
29
<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
CERTIFICATE OF DESIGNATION
Pursuant to N.R.S. 78.1955, Halo Holdings of Nevada, Inc. (the "Company")
hereby amends and restates its Articles of Incorporation as follows:
I. Article IV of the Company's Articles of Incorporation shall be amended by
adding the following after the existing provisions of such articles:
1. Designation, Amount, Par Value, and Rank. A series of Preferred
Stock shall be designated as Series A Convertible Preferred Stock (the "Series
A Preferred Stock"), and the number of shares so designated shall be
2,000,000. Each share of Series A Preferred Stock shall have a par value of
$.001 per share.
2. Voting Rights. The holder of each share of the Series A Preferred
Stock shall be entitled to the number of votes equal to the number of shares
of Common Stock into which such share of Series A Preferred Stock could be
converted and shall have voting rights and powers equal to the voting rights
and powers of the Common Stock (except as otherwise expressly provided herein
or as required by law, voting together with the Common Stock as a single
class) and shall be entitled to notice of any shareholders' meeting in
accordance with the Bylaws of the Company. Fractional votes shall not,
however, be permitted and any fractional voting rights resulting from the
above formula (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to
the nearest whole number (with one-half being rounded upward).
3. Preference as to Earnings, Assets and Liquidation. The Series A
Preferred Stock shall be preferred as to both earnings and assets, and in the
event of liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, the holders of the Series A Preferred Stock of the
Company shall be entitled, before any assets of the Company shall be
distributed among or paid over to the holders of the Common Stock, to be paid
in full the face value of $4.50 per share of Series A Preferred Stock. After
payment in full of the above preferential rights of the holders of the Series
A Preferred Stock, the holders of the Series A Preferred Stock and Common
Stock shall participate equally in the division of the remaining assets of the
Company, so that from the remaining assets the amount per share of Series A
Preferred Stock distributed to the holders of the Series A Preferred Stock
shall equal the amount per share of Common Stock distributed to the holders of
the Common Stock.
4. Conversion. (a) Each share of Series A Preferred Stock shall be
converted into one (1) share of Common Stock (i) automatically upon the
effectiveness of a registration statement filed by the Company under the
Securities Act of 1933, as amended, which relates, in whole or in part, to the
registration of the Common Stock underlying the Series A Preferred Stock or
(ii) voluntarily upon the written request of a holder of such shares of Series
A Preferred Stock pursuant to Section 4(b).
<PAGE>
(b) Before any holder of Series A Preferred Stock shall be entitled
to convert the same into shares of Common Stock, he or she shall surrender the
certificate or certificates thereof, duly endorsed, at the office of the
Company or of any transfer agent for such stock, and shall give written notice
to the Company at such office that he or she elects to convert the same and
shall state therein the name or names in which he or she wishes the
certificate or certificates for shares of Common Stock to be issued. The
Company shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he or she shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such date.
(c) If the issued and outstanding shares of Series A Preferred Stock
are converted automatically upon the effectiveness of a registration statement
as set forth in Section 4(a)(i), such conversion shall be deemed to have been
made immediately prior to the close of business on the date of effectiveness
of such registration statement, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
5. Registration Rights. (a) The holders of the Series A
Preferred Stock shall have a one time right to demand that the Company
register the shares of Common Stock underlying the Series A Preferred Stock in
order that those shares may be freely tradable under the federal securities
laws. Upon written request by the holders of at least fifty-one (51%) percent
of the Series A Preferred Stock then outstanding, the Company shall be
required to use its best efforts to immediately register (all or a portion) of
the underlying shares of Common Sock pursuant to Form SB-2 or such other
applicable form as the Company, in its sole discretion, shall determine is
most appropriate.
(b) Additionally, the holders of the Series A Preferred Stock shall
be entitled to "piggy-back" registration rights on registrations of the
Company made pursuant to the Securities Act of 1933, as amended (other than a
registration relating solely to a transaction under Rule 145 under such Act
(or any successor thereto), a registration made pursuant to Form S-4, Form S-8
or pursuant to an employee benefit plan of the Company) subject to the right,
however, of the Company and its underwriters, in the case of an underwritten
public offering, to reduce the number of shares proposed to be registered pro
rata in view of market conditions.
(c) The Company shall bear the registration expenses (exclusive of
underwriting discounts and commissions) of all demand and piggy-back
registrations.
(d) The registration rights described herein shall be expressly
conditioned upon acceptance by any participating shareholder of such other
provisions in any purchase or underwriting agreement, if any, relating to such
registration as are reasonable and customary,
<PAGE>
including, but not limited to, cross-indemnification, the period of time in
which the Registration Statement shall be kept effective, underwriting
arrangements, and the like.
(e) All registration rights granted in this Section 5 shall
immediately expire and be deemed null and void upon the voluntary conversion
by the holder of any shares of Series A Preferred Stock into shares of Common
Stock not made in connection with either the demand or piggy-back registration
rights granted in this Section 5.
6. Adjustments for Combinations, Subdivisions Reclassifications and
Reorganizations. (a) In the event that this Company at any time or from time
to time after the date hereof shall declare or pay any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock split, reclassification or
otherwise than by payment of a dividend in Common Stock or in any right to
acquire Common Stock), or in the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, then the conversion ratio in effect
immediately prior to such event shall, concurrently with the effectiveness of
such event, be proportionately decreased or increased, as appropriate. In the
event that this Company shall declare or pay, without consideration, any
dividend on the Common Stock payable in any right to acquire Common Stock for
no consideration then the Company shall be deemed to have made a dividend
payable in Common Stock in an amount of shares equal to the maximum number of
shares issuable upon exercises of such rights to acquire Common Stock.
(b) If the Common Stock issuable upon conversion of the Series A
Preferred Stock shall be changed into the same or a different number of shares
of any other class or class of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for in Section 6(a) above), the conversion ratio then in
effect shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A Preferred
Stock shall be convertible into, in lieu of the number of shares of Common
Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by
the holders upon conversion of the Series A Preferred Stock immediately before
that change.
7. Miscellaneous Provisions.
(a) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all the provisions of
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series A
Preferred Stock against impairment.
<PAGE>
(b) The Company shall pay any and all issue and other taxes that may
be payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series A Preferred Stock pursuant hereto; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any
such conversion.
(c) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Series A Preferred
Stock; and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to this Certificate.
(d) No fractional share shall be issued upon the conversion of any
share or shares of Series A Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Series A Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
Company shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market
value of such fraction on the date of conversion (as determined in good faith
by the Board of Directors of the Company).
(e) Any notice required by the provisions of this Designation to be
given to the holders of shares of Series A Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed
to each holder of record at his address appearing on the books of the Company.
8. Amendment. Any term relating to the Series A Preferred Stock may
be amended and the observance of any term relating to the Series A Preferred
Stock may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the vote or written consent of
holders of at least fifty-one (51%) percent of all Series A Preferred Stock
then outstanding and the Company. Any amendment or waiver so effected shall be
binding upon the Company and all holders of Series A Preferred Stock.
9. Restrictions and Limitations . So long as any shares of Series A
Preferred Stock remain outstanding, the Company shall not, without the vote or
written consent by the holders of at least fifty-one (51%) percent of the then
outstanding shares of Series A Preferred Stock:
(a) Effect any reclassification, recapitalization or other change
with respect to any
<PAGE>
outstanding shares of stock which results in the issuance of shares of stock
having any preference or priority as to dividend or redemption rights,
liquidation preferences, conversion rights or otherwise, superior to, or on a
parity with, any such preference or priority of the Series A Preferred Stock,
or
(b) Authorize or issue, or obligate itself to issue, any other equity
security senior to or on a parity with the Series A Preferred Stock as to
dividend or redemption rights, liquidation preferences, conversion rights or
otherwise, or create any obligation or security convertible into or
exchangeable for, or having any option rights to purchase, any such equity
security which is senior to or on a parity with the Series A Preferred Stock,
or
(c) Amend, alter or repeal the preferences, special rights or other
powers of the Series A Preferred Stock, or otherwise amend the Company's
Certificate of Incorporation, so as to affect adversely the Series A Preferred
Stock.
9. No Reissuance of Series A Preferred Stock. No share or shares of
Series A Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue.
<PAGE>
The foregoing Articles of Amendment were adopted by all of the
Directors of the Company on April 26, 1999.
IN WITNESS WHEREOF, the undersigned, being the Chief Executive
Officer, President and the Secretary of the Company, have executed these
Articles this 1st day of June, 1999.
- --------------------------
Bruce Bertman,
Chief Executive Officer
- --------------------------
Leonard Tambasco,
President
- --------------------------
Leonard Tambasco,
Secretary
<PAGE>
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>
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>
-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>
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>
-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>
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>
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.
