<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NUMBER
A1 INTERNET.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 03-7392107
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
15825 SHADY GROVE ROAD, ROCKVILLE, MARYLAND 20850
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(301) 947-0100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
--------------------------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING
12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE
SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST
90 DAYS.
YES [X] NO []
AS OF MAY 13, 2000, THERE WERE ISSUED AND OUTSTANDING 9,382,000 SHARES
OF COMMON STOCK OF THE REGISTRANT.
<PAGE> 2
A1 INTERNET.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB/A
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
PART II
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
A1 INTERNET.COM, INC., AND SUBSIDIARIES
(FORMALLY HALO HOLDINGS OF NEVADA, INC.,)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
31, MARCH 2000 31, DECEMBER 1999
UNAUDITED AUDITED
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 352,783.00 $ 619,391.00
Receivables:
Trade, net $ 642,210.00 $ 320,718.00
Notes Receivable, current portion $ 33,333.00
Related Parties (see note 3) $ 91,136.00 $ 97,750.00
Other $ 57,826.00 $ 57,826.00
Prepaid Expenses $ 235,700.00 $ 232,432.00
Net Assets of discontinued operations (Note 8) $ 103,581.00 $ 253,918.00
Other current assets $ 26,825.00 $ 23,136.00
----------------- -----------------
$ 1,510,061.00 $ 1,638,504.00
----------------- -----------------
PROPERTY AND EQUIPMENT, AT COST:
Aircraft - -
Computers & Equipment $ 2,501,039.00 $ 2,468,809.00
Less: accumulated depreciation $ (672,662.00) $ (601,231.00)
----------------- -----------------
$ 1,828,377.00 $ 1,867,578.00
----------------- -----------------
OTHER ASSETS:
Investments $ 1,852,567.00 $ 1,899,330.00
Goodwill, net of amortization(Note 2) $ 7,776,004.00 $ 8,262,490.00
Contracts, net of amortization $ 1,143,999.00 $ 1,248,000.00
Note receivable - $ 46,987.00
Other $ 117,992.00 $ 160,073.00
----------------- -----------------
$ 10,890,562.00 $ 11,616,880.00
----------------- -----------------
TOTAL ASSETS $ 14,229,000.00 $ 15,122,962.00
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and accrued expenses $ 864,121.00 $ 686,418.00
Loans Payable: Shareholders (Note 4) $ 286,146.00 $ 361,674.00
Notes Payable - -
Other $ 87,758.00 $ 96,034.00
----------------- -----------------
$ 1,238,025.00 $ 1,144,126.00
----------------- -----------------
SHAREHOLDERS' EQUITY (NOTE 5)
Common Stock, $.001 par value,
20,000,000 shares authorized,
9,382,000 shares issued and outstanding $ 9,382.00 $ 9,422.00
Preferred Stock, $.001 par value,
5,000,000 shares authorized
1,115,000 shares issued and outstanding $ 1,115.00 $ 1,115.00
Additional paid-in capital $ 18,886,599.00 $ 18,966,558.00
Notes receivable-common stock $ (860,000.00) $ (940,000.00)
Accumulated other comprehensive income $ 1,746,735.00 $ 1,793,497.00
Retained earnings (deficit) $ (6,792,856.00) $ (5,851,756.00)
----------------- -----------------
$ 12,990,975.00 $ 13,978,836.00
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 14,229,000.00 $ 15,122,962.00
----------------- -----------------
</TABLE>
<PAGE> 4
A1 INTERNET.COM, INC., AND SUBSIDIARIES
(FORMALLY HALO HOLDINGS OF NEVADA, INC.,)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
MARCH 31,
2000 1999
<S> <C> <C>
NET SALES $ 3,856,562.00 $ -
COST OF SALES $ (3,329,614.00) $ -
----------------- -----------------
GROSS PROFIT $ 526,948.00 -
----------------- -----------------
OPERATING EXPENSES:
Salaries and related expenses $ 355,860.00 $ 19,346.00
Travel & Entertainment $ 35,678.00 $ 4,753.00
Bad Debt Expense $ 1,358.00 $ -
Legal & Professional $ 70,539.00 $ 31,628.00
Occupancy Costs $ 82,277.00 $ 604.00
General and administrative $ 112,003.00 $ 23,134.00
Consulting $ 118,748.00 $ 145,828.00
Depreciation and amortization $ 661,918.00 $ 10,017.00
----------------- -----------------
TOTAL OPERATING EXPENSE $ 1,438,381.00 $ 235,310.00
----------------- -----------------
OTHER INCOME (EXPENSE): -
Consulting fees $ - $ (600,000.00)
Other Income $ 2,799.00 $ -
Interest expense $ (3,805.00) $ (204.00)
----------------- -----------------
TOTAL OTHER EXPENSE $ (1,006.00) $ (600,204.00)
----------------- -----------------
NET LOSS FROM CONTINUING OPERATIONS $ (912,439.00) $ (835,514.00)
DISCOUNTED OPERATIONS (NOTE 8)
Loss from operations of discontinued subsidiary $ (32,672.00) $ (63,422.00)
Gain on Disposal or Subsidiary $ 4,011.00 $ -
----------------- -----------------
TOTAL LOSS FROM DISCONTINUED OPERATIONS $ (28,661.00)
-----------------
NET LOSS $ (941,100.00) $ (898,936.00)
----------------- -----------------
BASIC AND UNDILUTED NET LOSS PER COMMON SHARE BEFORE
DISCOUNTED OPERATIONS $ (0.10) $ (0.15)
----------------- -----------------
BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.10) $ (0.15)
----------------- -----------------
WEIGHTED AVERAGE SHARES OUTSTANDING 9,402,000.00 5,636,750.00
----------------- -----------------
</TABLE>
<PAGE> 5
A1 INTERNET.COM, INC., AND SUBSIDIARIES
(FORMALLY HALO HOLDINGS OF NEVADA, INC.,)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (941,100.00) $ (898,936.00)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization $ 664,624.00 $ 35,223.00
Bad debt expense $ 1,358.00 -
Forgiveness of debt - -
Issuance of common stock for services - $ 600,000.00
Increase in trade receivables $ (322,850.00) -
Increase in Inventory $ (3,689.00) -
Decrease (increase) in other receivables and other assets $ 129,017.00 $ (131,500.00)
Decrease (Increase) in prepaid expenses $ (3,268.00) $ (9,742.00)
Increase in accounts payable and accrued expenses $ 120,191.00 $ 26,328.00
Gain on disposal of subsidiary $ (4,011.00) -
-------------- --------------
NET CASH USED IN OPERATING ACTIVITIES $ (359,728.00) $ (378,627.00)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note receivable - -
Payments on note and other receivables - -
Acquisition of contracts - -
Acquisition of Virtual Information Express, Inc.,
net of cash acquired - $ 2.00
Acquisition of Computer Ease LLC,
net of cash acquired - $ (24,221.00)
Acquisition of NetWorld Ohio, Inc.,
net of cash acquired - -
Purchases of property and equipment $ (32,230.00) -
Proceeds from sale of capital assets $ 710,366.00 -
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES $ 678,136.00 $ (24,219.00)
-------------- --------------
CASHFLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) related party loans, net - -
Proceeds from (payments on) shareholder loans, net $ (26,292.00) $ (11,930.00)
Proceeds from notes payable - -
Payments on notes payable $ (558,724.00) $ (35,874.00)
Issuance of common stock,net $ 742,500.00
Issuance of preferred stock, net - -
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ (585,016.00) $ 694,696.00
-------------- --------------
NET INCREASE (DECREASE IN CASH) $ (266,608.00) $ 291,850.00
CASH, BEGINNING OF PERIOD $ 619,391.00 $ 10,205.00
-------------- --------------
CASH, END OF PERIOD $ 352,783.00 $ 302,055.00
-------------- --------------
</TABLE>
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIALS
NOTE 1 - ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The consolidated financial statements include A1 Internet.com, Inc. (formerly
Halo Holdings of Nevada, Inc.) and its wholly owned subsidiaries, A1 Internet
Services, Inc. (formerly Computer Ease, LLC), Gravity Pilot Air, Inc., Networld
Ohio, Inc., Virtual Information Express, Inc., and World Link Online.com, Inc.,
The results of operations of businesses acquired that have been accounted for
under the purchase method of accounting are included in operations from the date
of acquisition. All significant inter-company balances and transactions have
been eliminated in consolidation. Gravity Pilot Air, Inc., is presented as a
discontinued subsidiary in the accompanying financial statements.
The Company, through its subsidiaries, provides Internet connectivity through
two networks throughout the United States and Canada and related products and
services, including Web design. The Company's ability to offer end-user access
to an Internet network is dependent upon the Company's contractual relationships
with both providers. Should these contracts be terminated or terms amended, the
Company might be required to enter into other arrangements with others on less
favorable terms. In addition, the Company relies on outside parties to market
their products and services to end users.
The March 31, 2000 and 1999 amounts included herein are unaudited. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly, the financial position, results of
operations, cash flows and changes in shareholders' equity have been made.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
<PAGE> 7
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash, receivables and other current assets, are
carried at amounts that approximate fair value. Accounts payable, loans and
notes payable and other liabilities are carried at amounts that approximate fair
value.
ACCOUNTS RECEIVABLE
The Company performs on-going credit evaluations of its customers. The Company
has established an allowance for doubtful accounts at March 31, 2000 of $
216,114.
PROPERTY AND EQUIPMENT
The Company provides for depreciation of equipment using accelerated and
straight-line methods based on estimated useful lives of three to seven years.
Depreciation of aircraft is computed using the straight-line method based on an
estimated useful life of ten years.
INVESTMENTs
The Company has classified its equity securities as available-for-sale.
Available-for-sale securities are carried at fair market value, with unrealized
gains and losses reported as a separate component of shareholders' equity. These
available-for-sale securities subject the Company's financial position to market
risk. The Company may experience losses if the market values of these securities
decline subsequent to March 31, 2000. At March 31, 2000, the Company had
available-for-sale equity investments in public companies with a fair market
value of $ 1,852,567 and a cost basis of $ 105,832, resulting in a net
unrealized gain of $ 1,746,735.
CONTRACTS
Internet service contracts net of amortization in the amount of $1,143,999
shown on the accompanying balance sheet are being amortized over the life of the
contracts, which is two years.
GOODWILL
Goodwill is amortized on a straight-line basis over a period of five years.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows estimated
to be generated by the asset.
<PAGE> 8
REVENUE RECOGNITION
The Company recognizes revenue from connectivity, and web hosting over the
period that the service is provided. Revenue from technical support is
recognized when the work is completed. Electronic commerce revenue is recognized
at the time of the sale. Web design revenue is recognized as such revenues
accrue under the terms of the related contract. Revenue from installation and
start-up charges are recognized over the expected benefit period.
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- BUSINESS COMBINATIONS
Computer Ease, LLC ("CE") was organized on May 17, 1993 as a limited liability
company. CE's activities include the buying and selling of computer equipment,
web design and providing Internet access. In March 1999, the Company issued
4,000,000 shares of its common stock at $2.00 per share in exchange for all of
the outstanding units of membership of CE. This transaction was accounted for
using the purchase method of accounting. At the time of the purchase, assets and
liabilities of CE were $836,981 and $876,583, respectively. The excess of the
purchase price (including acquisition costs of $717,979, see Note 6) over the
fair value of the net assets acquired was recorded as goodwill of $8,757,581. In
May 1999, CE was then merged with A1 Internet Services, Inc., a wholly owned
subsidiary of A1 Internet.com, Inc. A1 Internet Services, Inc. is the surviving
entity.
Virtual Information Express, Inc. ("VI") was incorporated on June 10, 1998. The
<PAGE> 9
Company is engaged in the business of electronic commerce. In February 1999, the
Company acquired VI for 300,000 shares of its common stock at $2.00 per share in
exchange for all of the outstanding shares of VI. This transaction was accounted
for using the purchase method of accounting. At the time of the purchase, assets
and liabilities of VI were $49,002 and $50,000, respectively. The excess of the
purchase price over the fair value of the net assets acquired was recorded as
goodwill of $600,998.
Networld Ohio, Inc. ("Networld") was incorporated on June 15, 1995 and is
engaged in the business of providing Internet service. The Company acquired
Networld in April 1999. The acquisition consisted of a cash payment of $105,000,
37,000 shares of common stock at $2.00 per share, and a short-term non-interest
bearing promissory note of $180,000 maturing December 15, 1999. This transaction
was accounted for using the purchase method of accounting. At the time of the
purchase, assets and liabilities of Networld were $235,007 and $247,142,
respectively. The excess of the cost of the acquisition over the fair value of
the net assets acquired was recorded as goodwill of $371,135.
On March 30, 1999, Skydive USA, a wholly owned subsidiary of the Company, was
sold to major shareholders of the Company. These two individuals tendered a
total of 400,000 shares valued at $2.00 per share of the Company's common stock
to the Company as consideration for the sale. The difference between the value
of the common stock ($800,000) returned and the net assets relating to Skydive
USA of $285,617, resulted in a net gain of $514,383. However, because the
transaction was among significant related parties and was determined to not be
at arms length, the gain was recorded as an increase to additional paid-in
capital. As a result, the net effect of the transaction was a net charge to
shareholders' equity of $285,617.
NOTE 3- NOTES RECEIVABLE-SHAREHOLDERS
In March 2000, a former officer and shareholder signed a 6-month balloon note
with no interest secured on company stock. This note is due in full on September
18, 2000.
NOTE 4- LOANS PAYABLE-SHAREHOLDERS AND NOTE PAYABLE-SHAREHOLDER
The loans payable to shareholders shown on the accompanying balance sheet
includes a $100,000 loan bearing interest at 15% and due on demand after
November 1, 2000. The remaining amounts are advances that are non-interest
bearing and have no due date.
<PAGE> 10
NOTE 5- SHAREHOLDERS' EQUITY
COMMON STOCK
On January 15, 1998, the Company authorized the issuance of its common shares
pursuant to a private placement of 500,000 common shares at $1.00 per share.
This resulted in the issuance of 500,000 shares with proceeds to the Company of
$500,000.
In November 1998, 300,000 shares of the Company's preferred stock were converted
to common stock on a 1 for 1 basis.
During 1999, the Company authorized common shares in connection with business
acquisitions and disposals as described in Note 2.
On January 29, 1999 the Company authorized the issuance of its common shares
pursuant to a private placement of 500,000 common shares at $2.00 per share.
This 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. In March 2000, 40,000 of these shares were redeemed by the Company as
payment in full of $ 80,000 of this debt.
During the period ended December 31, 1999, the Company issued 342,500 common
shares for services, of which 282,500 of these shares were issued to related
parties. In addition, 32,500 shares of common stock were sold for $1.00 per
share in a private sale to current shareholders. Also, 120,000 shares of common
stock were issued to an officer and stockholder as repayment of a $372,692 debt.
Another shareholder forgave debt totaling $177,331, which was credited to
paid-in capital.
In July 1999 the Company issued 100,000 shares of common stock at $2.00 per
share to a director of the Company for a note receivable. In December 1999, the
Company also issued 250,000 shares of common stock at $2.00 per share to a
shareholder for a note receivable.
The Company acquired certain contracts from an unrelated entity to provide
internet service for cash of $168,000 and 190,000 shares of common stock valued
at $7.00 per share.
PREFERRED STOCK
In July 1999, the Company commenced a private placement of its Series A
preferred stock at $4.50 per share. This resulted in the issuance of 970,331
shares with proceeds to the Company of $3,602,560, net of offering costs.
In addition, notes payable in the amount of $525,680, net of warrants, were
converted to 145,222 shares of Series A preferred stock pursuant to the note
payable agreements.
<PAGE> 11
Subject to certain adjustments, each share of Series A preferred stock is
convertible into one share of common stock. The Series A preferred stock is
convertible upon written request of the holder. The Series A preferred stock is
preferred as to both earnings and assets, and in the event of liquidation,
dissolution or winding up of the Company, holders of the Series A preferred
stock shall be entitled to be paid $4.50 per share before any assets of the
Company are distributed among or paid over to the holders of the common stock.
STOCK WARRANTS
Common stock warrants have been issued in connection with certain private
offerings, business acquisitions and notes payable. At March 31, 2000, warrants
to purchase common stock at various prices were outstanding, which expire as
follows:
<TABLE>
<CAPTION>
Number Outstanding
And Exercisable at
Expiration Date March 31, 2000 Exercise Price
-------------------------------------------------------------------------
<S> <C> <C>
June 1, 2004 500,000 $ .10
June, 1 2004 42,500 5.50
November, 2004 386,650 5.50
-------
929,150
-------
</TABLE>
The 500,000 warrants shown above were issued in connection with the January 29,
1999 private placement and the acquisition of Computer Ease, LLC (see Note 2).
These warrants were valued at $767,979, of which $50,000 was for offering costs
and $717,979 was for costs incurred in connection with the acquisition.
The 42,500 warrants shown above are detachable stock warrants issued in
connection with various notes payable agreements. These warrants were valued at
$127,820.
In connection with the July, 1999 preferred stock offering, the 386,650 warrants
shown above were issued to the placement agents. We are also obligated to issue
warrants to the investors and the placement agents if gross sales of $13,000,000
are not achieved as of February 28, 2000 or August 31, 2000. For every $500,000
less of gross sales from $13,000,000, the investors will receive 50,000
warrants. These warrants will have an exercise price of $2.75 and a term of five
years from the date issuance.
The fair value of all of the above described warrants was estimated using the
Black-Scholes option pricing model, with the following assumptions: dividend
yield of 0%; expected volatility of 48%; risk free rate of 4.5%; and expected
life of five years.
<PAGE> 12
NOTE 6- INCOME TAXES
At December 31, 1999, A1 Internet.com, Inc. had an unused net operating loss
carryforward of approximately $5,025,000 for income tax purposes, of which
approximately $449,000 expires in 2012, $490,000 expires in 2018, and the
remainder in 2019. However, the ability to utilize such losses to offset future
taxable income is subject to various limitations imposed by the rules and
regulations of the Internal Revenue Service. A portion of the net operating
losses are limited each year to offset future taxable income, if any, due to the
change of ownership in A1 Internet.com, Inc.'s outstanding shares of common
stock. This net operating loss carryforward may result in future income tax
benefits of approximately $1,708,500; however, because realization is uncertain
at this time, a valuation reserve in the same amount has been established.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of A1 Internet.com, Inc.'s deferred tax liabilities and
assets as of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
$ - $ -
=============== ==============
Deferred tax liabilities
Deferred tax assets: $ 1 708 500 $ 119 000
Net operating loss carryforwards 320 000 -
--------------- --------------
Temporary differences 2 028 500 119 000
Total deferred tax assets (2 028 500) (119 000)
--------------- --------------
Valuation allowance for deferred tax assets $ - $ -
============== =============
</TABLE>
The valuation allowance for deferred tax assets was increased by $1,909,500
and $119,000 during 1999 and 1998, respectively.
NOTE 7- BUSINESS SEGMENTS
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". The following table presents information by
geographic area as of and for the periods ended March 31, 2000 and, 1999:
<PAGE> 13
<TABLE>
<CAPTION>
Revenues Long-Lived Assets
-------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
United States $ 3,856,562 $ 17,102 $ 11,271,167 $ 10,969,255
----------- ---------- ------------ -------------
Total $ 3,856,562 $ 17,102 $ 11,271,167 $ 10,969,255
=========== ========== ============ =============
</TABLE>
The following table presents information about the Company's segment revenues
and expenses for the three months ended March 31, 2000:
<TABLE>
<CAPTION>
E-Commerce Internet Web Design Total
---------- -------- ---------- -----
<S> <C> <C> <C> <C>
Net Sales $ 2,994,821 $ 461,759 $ 399,982 $ 3,856,562
Cost of Sales (2,975,392) (252,689) (101,488) (3,329,569)
----------- ------------ ------------ -----------
Gross Profit $ 19,429 $ 209,070 $ 298,494 $ 526,993
----------- ------------ ------------ -----------
</TABLE>
For the period ending March 31, 1999, the Company's only activity outside of
their normal operations was in the leasing of their aircraft and skydiving. The
results of operations of this segment have been presented as discontinued
operations (see Note 8).
The following customers each accounted for more than 10% of sales for the three
months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
% of Sales % of Receivables
---------- ----------------
Three Months Ended March 31, Three Months Ended March 31,
---------------------------- ----------------------------
Customer 2000 1999 2000 1999
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
A-United States 76.5 -- -- --
</TABLE>
NOTE 8- DISCONTINUED OPERATIONS
In December 1999, the Company adopted a plan to discontinue operations of
Gravity Pilot Air, Inc., ("GP Air"). The Company plans to sell the airplanes and
dissolve the subsidiary. Accordingly, the operating results of the GP Air
operations have been segregated from continuing operations and reported as a
separate line item on the statement of operations. As of March 31, 2000 the
Company recorded an additional gain of $ 4,011 to adjust the gains previously
recorded on its December 31, 1999 statements.
<PAGE> 14
Operating results of GP Air for the three months ending March 31, 2000 and 1999
are as follows:
<TABLE>
<CAPTION>
2000 1999
-----------------------------
<S> <C> <C>
Gross Revenue $ 0 $ 17,102
Net Loss (32,672) (63,422)
</TABLE>
The assets net of liabilities of GP Air on March 31, 2000 have been reflected as
a net current asset of $ 103,581
NOTE 9- RELATED PARTY TRANSACTIONS
The former President of the Company returned 40,000 shares of Common stock to
the Company to satisfy an $ 80,000 note owed to the Company for the
aforementioned stock.
NOTE 10- COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment from a non-related party under
operating leases. Future minimum lease payments under the non-cancelable lease
as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
2001. $ 188,902
2002 93,290
-----------
$ 282,192
-----------
</TABLE>
Total rental expense for the periods ended March 31, 2000 and 1999 was $83,713
and $604, respectively.
The Company has deposits in banks in excess of the FDIC insured amount of
$100,000. The amounts in excess of $100,000 are subject to loss should the bank
cease business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is based on our unaudited Consolidated
Financial Statements for the three months ended March 31, 2000 and 1999. The
reader should bear in mind that during the periods covered by these financial
statements we were engaged in different businesses. Our business now focuses on
providing Internet access and related products. We entered this business
<PAGE> 15
by acquiring Virtual Information Express, Computer Ease, and NetWorld Ohio in
the first and second quarters of 1999. Before making those acquisitions, we were
engaged in the skydiving business. We sold the skydiving business as of the end
of the first quarter of 1999. During 1999 we received rental income from leasing
our airplanes to the purchasers. This activity was terminated in December 1999
and the results from this operation are presented as discontinued operations in
the accompanying Financials Statements.
Our principal business focus is to build sales of Internet connectivity
and value added Internet services. Although the majority of our revenues in the
three months ended March 31, 2000 were generated by the e-commerce sale of
computer hardware and accessories, we anticipate that as the number of end-users
of our services increases, a larger percentage of our revenues will be derived
from recurring charges for connectivity, e-commerce and other value added
services and Web site design and technical services. Revenues from sales of
computer hardware and accessories are included in the category of electronic
commerce or e-commerce in various tables which follow. We presently serve
customers in all 50 states through more than 1300 Points of Presence (POPs). We
offer distance based education solutions in the United Kingdom and United States
and plan to expand to other localities and languages. We have not yet had
sufficient experience in our current Internet related business to define trends
or to determine whether our expectations are accurate.
During the next eighteen months we intend to focus on increasing the
number of end-users of our services by intensifying our sales efforts to
Internet Service Providers, businesses, associations and other wholesale
customers who resell our products and services. This enables our wholesale
customers to offer to end-users internet access and high levels of customer
service which are sold under the wholesale customers' brand name. During the
first quarter of 2000 we increased the number of Internet Service Providers
using our backbone to 28 and we are presently negotiating contracts with 17
others. We are adding 3 to 5 test accounts per week. Test accounts are new
customer projects that, subject to testing for bugs, will become fully
operational in the near future. We will also continue to review acquisition
opportunities, particularly acquisitions of ISPs located in smaller metropolitan
markets and rural communities. We believe that our current organization and
infrastructure enable us to rapidly assimilate such acquisitions and realize
savings on personnel and equipment in smaller markets that have traditionally
been under-served by national and local on-line service providers.
Currently the majority of our e-commerce revenues are derived from sales
of computer hardware and accessories over the Internet, and the revenues from
such sales are included in the category of electronic commerce or e-commerce in
various tables which follow. We are attempting to increase the portion of our
e-commerce revenues that we derive from the sale of e-
<PAGE> 16
commerce solutions to others. We are attempting to do so by creating a series of
online e-commerce infrastructure turnkey solutions that allow organizations to
enter the e-economy with a minimum of effort. These solutions offer the site
owner complete control over layout and functionality of their e-commerce
offering, and gives them the ability to create their own branded affiliate
program. To achieve this, we have expanded our staff of network engineers and
programmers, customer care and technical support specialists.
The following table sets forth certain information about the source of
our revenues:
PERCENTAGE OF TOTAL REVENUES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Three Months Ended
------------------
March 31,
---------
SOURCE OF REVENUES 2000 1999
-------------------------------------------------------------------------------------------
<S> <C> <C>
Connectivity & Hosting 12 -
Non Recurring Revenue - -
Design Fees 10 -
E-Commerce 78 -
Sky Diving - 100
------------- -----------
TOTAL 100% 100%
-------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth certain information about our cost of sales:
<PAGE> 17
PERCENTAGE OF TOTAL COST OF SALES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Three Months Ended
------------------
March 31,
---------
COST OF SALES 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
CONNECTIVITY 7 -
COMPUTER EQUIPMENT 89 -
LABOR 3 -
OTHER COST 1 -
SKY DIVE COSTS - 100
PURCHASE DISCOUNTS - -
--------- -----------
TOTAL 100% 100%
------------------------------------------------------------------------------------------------
</TABLE>
Results of Operations - Three Months Ended March 31, 2000 Compared to Three
Months Ended March 31, 1999.
REVENUES
Total revenues increased from $ 17,102 to $3,856,562 in the three months
ending March 31, 2000. In the three months ended March 31, 1999 all of our
revenues were derived from the skydiving business. In the three months ended
March 31, 2000, all of our revenues were derived from Internet connectivity,
hosting, design and e-commerce (including the sale of computer hardware and
accessories through electronic commerce).
The principal components of our Internet related revenues were:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
---------------------------------
<S> <C> <C>
Connectivity $ 452,584 12%
Design Fees $ 399,982 10%
Electronic Commerce $ 2,994,821 78%
Non Recurring Internet $ 9,175 0%
</TABLE>
COST OF SALES
Cost of sales increased from $ 8,804 in the three months ended March 31, 1999 to
$3,329,614 in the three months ended March 31, 2000. In the three months ended
March 31, 1999, our cost of sales related wholly to the skydiving business and
consisted of pilot fees. In the three months ended March 31, 2000 our cost of
sales consisted primarily of Internet related costs as follows:
<TABLE>
<CAPTION>
Three months ended March 31, 2000
---------------------------------
<S> <C> <C>
Connectivity $ 244,104 7%
Design Fees $ 101,488 3%
Electronic Commerce $ 2,975,392 89%
Technical Services $ 8,585 1%
</TABLE>
<PAGE> 18
OPERATING EXPENSES
The following table sets forth certain information regarding our
operating expenses:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
FOR CONTINUING OPERATIONS
--------------------------------------------------------
2000 1999
<S> <C> <C> <C> <C>
OPERATING EXPENSES
Salaries and related expenses 355,860 24.8% 19,346 8.2%
Travel and entertainment 35,678 2.5% 4,753 2.0%
Bad debt expense 1,358 0.0% 0 0.0%
Legal and professional 70,539 4.9% 31,628 13.4%
Occupancy costs 82,277 5.7% 604 0.3%
General and administrative 112,003 7.8% 23,134 9.8%
Consulting 118,748 8.3% 145,828 62.0%
Depreciation and amortization 661,918 46.0% 10,017 4.3%
---------------- ------------ ------------- ------------
TOTAL OPERATING EXPENSES 1,438,381 100.0% 235,310 100.0%
---------------- ------------ ------------- ------------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
FOR DISCONTINUED OPERATIONS
-----------------------------------------------------
2000 1999
<S> <C> <C> <C> <C>
OPERATING EXPENSES
Salaries and related expenses 0 0% 0 0%
Travel and entertainment 0 0% 0 0%
Bad debt expense 0 0% 0 0%
Legal and professional 5,918 13.5% 0 0%
Occupancy costs 1,436 5.2% 0 0%
General and administrative 5,699 7.1% 0 0%
Consulting 0 0% 0 0%
Depreciation and amortization 2,706 24.9% 25,206 100%
------------- ------------ ------------- ------------
TOTAL OPERATING EXPENSES 15,759 100.0% 25,206 100.0%
------------- ------------ ------------- ------------
</TABLE>
OTHER EXPENSES
In the three months ended March 31, 1999 our former Board of Directors
authorized, and we issued, 50,000 shares of our common stock valued at $100,000
as advance payments for consulting services to be provided by certain
individuals who had experience in the sky-diving business. The issuance of these
50,000 shares was authorized by our former Board of Directors at a time that we
were about to dispose of our skydiving business and become a provider of
Internet-related services. The Board also issued 250,000 shares to our former
President and director as executive compensation upon his becoming President. We
have been unable to determine the value of the services, if any, received in
exchange for the 50,000 shares. We have determined to seek recovery of these
shares issued as advance payments for consulting services.
LIQUIDITY AND CAPITAL RESERVES
Since our inception we have financed our operations primarily from the
private sales of equity securities. Total net proceeds from the sale of equity
securities in the period between our formation and March 31, 2000 amounted to
approximately $4,845,000
<PAGE> 19
CASH FLOW
Operating activities used cash of $ 359,728 and $ 378,627 in the three
months ended March 31, 2000 and 1999. Discontinued activities used cash of $
25,958 in the three months ended March 31, 2000.
Investing activities provided and (used) cash of $678,136 and ($ 24,219)
in the three months ended March 31, 2000 and 1999. Discontinued activities
provided cash of $ 710,366 in the three months ended March 31, 2000, resulting
from proceeds from the sale of one of the Company's two airplanes.
Net Cash (used) and provided by financing activities was ($ 585,016) and
$ 694,696 in the three month ended March 31, 2000 and 1999. Discontinued
activities used cash of $ 558,724 in the three months ended March 31, 2000 to
pay off the outstanding notes payable on the aircraft.
WORKING CAPITAL
Our working capital, defined as the excess of our current assets over
our current liabilities, was $ 272,034 at March 31, 2000 compared to $ 494,379
at December 31, 1999.
As of March 31, 2000 we had no borrowing facility established with a
financial institution. We anticipate that our working capital together with the
proceeds from the sale of our investments will fund our operating cash flow
shortfall through December 31, 2000. We do not anticipate any need for
significant investment in our infrastructure for the next nine months. We
anticipate that during the third and fourth quarters of 2000 we will be in a
positive cash flow position for our operating needs and by the first quarter of
2001 we will have sufficient operating cash flow to fund our investment cash
flow requirements.
PART II
ITEM 1. LEGAL PROCEEDINGS
None
<PAGE> 20
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On May 4, 2000, the Company announced that it had entered into a letter
of intent to purchase all of the outstanding stock of Commonwealth
Telecommunications of North America, Inc., (CTNA). The proposed transaction
contemplates the Company's issuance of 1.2 million shares of common stock for
all of the outstanding shares of CTNA. CTNA provides long distance pre and post
paid telephone services on a global scale to groups, unions and associations.
Closing of the transaction is subject to the approval of both Boards of
Directors, completion of due diligence, and execution of definitive
documentation.
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
2.1 Acquisition Agreement dated October 17, 1997, between
Halo Holdings of Nevada, Inc., Tom Keesee and Larry
Kerschenbaum, regarding the acquisition of Gravity
Pilot Air, Inc. (filed as Exhibit 2.1 to A1 Internet's
Second Amendment to Form 10-SB12G filed as of December 13,
1999, No. 000-27243, and incorporated herein by reference).
2.2 Stock Purchase Agreement dated February 1, 1999,
between Halo Holdings of Nevada, Inc. and Bruce
Bertman, regarding the acquisition of Virtual
Information Express, Inc. (filed as Exhibit 2.2 to A1
Internet's Second Amendment to Form 10-SB12G filed as of
December 13, 1999, No. 000-27243, and incorporated herein
by reference).
2.3 Stock Purchase Agreement dated February 1, 1999,
between Halo Holdings of Nevada, Inc. and Bruce
Bertman, regarding the acquisition of ComputerEase,
LLC (filed as Exhibit 2.3 to A1 Internet's
Second Amendment to Form 10-SB12G filed as of December 13,
1999, No. 000-27243, and incorporated herein by reference).
2.4 Stock Purchase Agreement dated March 31, 1999,
between Larry W. Kerschenbaum and Halo Holdings of
Nevada, Inc., regarding the sale of Skydive USA (filed as
Exhibit 2.4 to A1 Internet's Second Amendment to Form
10-SB12G filed as of December 13, 1999, No. 000-27243, and
incorporated herein by reference).
2.5 Stock Purchase Agreement dated April 19, 1999,
between Halo Holdings of Nevada, Inc. and the
Shareholders of Networld of Ohio, Inc., regarding the
acquisition of Networld of Ohio, Inc. (The following
attachments are not included but are incorporated
herein by reference and will be provided to the SEC
upon request: Schedule 2(d) Leased Property; Schedule
5.14 Disclosed Liabilities; Schedule 5.15 Material
Terms; Schedule 5.16(a) Tangible Property; Schedule
5.16(b) Real Property; Schedule 5.16(c) Other Assets;
Schedule 5.19 Affiliated Transactions; Schedule 5.20
Bank Accounts; Schedule 5.21 Environmental Compliance;
Schedule A Common Stock).
2.6 Purchase and Sale Agreement dated August 19, 1999,
between A1 Internet Services, Inc., NetAmerica, Inc.,
William Fritts and Bruce Bertman, regarding A1
Internet's acquisition of contracts from NetAmerica
(The following attachments are not included but are
incorporated herein by reference and will be provided
to the SEC upon request: Exhibit A List of Intangible
Assets; Exhibit B Bill of Sale; Exhibit C Promissory
Note and Security Agreement; and Exhibit D Stock
Pledge).
3.1 Articles of Incorporation of A1 Internet.com, Inc.
(filed as Exhibit 3.I.A to A1 Internet's First
Amendment to Form 10-SB12G filed as of November 17,
1999, No. 000-27243, and incorporated herein by
reference).
3.2 Certificate of Amendment of Articles of Incorporation
(filed as Exhibit 3.B to A1 Internet's First
Amendment to Form 10-SB12G filed as of November 17,
1999, No. 000-27243, and incorporated herein by
reference).
3.3 Bylaws of Halo Holdings of Nevada, Inc. (filed as
Exhibit 3.II to A1 Internet's First Amendment to Form
10-SB filed as of November 17, 1999, No. 000-27243,
and incorporated herein by reference).
4.1 Certificate of Designation for A1 Internet's Series A
Convertible Preferred Stock (filed as Exhibit 2.C to
A1 Internet's Form 10-SB12G filed as of September 3,
1999, No. 000-27243, and incorporated herein by
reference).
4.2 Agreement to Lock Up dated May 19, 1999, between
Jerry Lee Poole, EBI Securities and the J.B. Sutton
Group, Inc., regarding the transfer restrictions on
certain A1 Internet common stock owned by Mr. Poole
(filed as Exhibit 4.2 to A1 Internet's Second Amendment
to Form 10-SB12G filed as of December 13, 1999, No.
000-27243, and incorporated herein by reference).
4.3 Agreement to Lock Up dated May 19, 1999, between
Bruce Bertman, EBI Securities and the J.B. Sutton
Group, Inc., regarding the transfer restrictions on
certain A1 Internet common stock owned by Bruce
Bertman (filed as Exhibit 4.3 to A1 Internet's
Second Amendment to Form 10-SB12G filed as of
December 13, 1999, No. 000-27243, and incorporated
herein by reference).
4.4 Agreement to Lock Up dated May 19, 1999, between
Noved Holdings, EBI Securities and the J.B. Sutton
Group, Inc., regarding the transfer restrictions on
certain A1 Internet common stock owned by Noved
Holdings (filed as Exhibit 4.4 to A1 Internet's
Second Amendment to Form 10-SB12G filed as of
December 13, 1999, No. 000-27243, and incorporated
herein by reference).
4.5 Agreement to Lock Up dated May 19, 1999, between
Leonard Tambasco, EBI Securities and the J.B. Sutton
Group, Inc., regarding the transfer restrictions on
certain A1 Internet common stock owned by Leonard
Tambasco (filed as Exhibit 4.5 to A1 Internet's
Second Amendment to Form 10-SB12G filed as of
December 13, 1999, No. 000-27243, and incorporated
herein by reference).
4.6 Agreement to Lock Up dated May 19, 1999, between
Larry Kerschenbaum, EBI Securities and the J.B.
Sutton Group, Inc., regarding the transfer
restrictions on certain A1 Internet common stock
owned by Larry Kerschenbaum (filed as Exhibit 4.6
to A1 Internet's Second Amendment to Form 10-SB12G
filed as of December 13, 1999, No. 000-27243, and
incorporated herein by reference).
10.D.1 Aircraft Lease dated March 31, 1999, between Gravity
Pilot Air, Inc. and Skydive USA, regarding the lease
of aircraft to Skydive USA (filed as Exhibit 10.D.1
to A1 Internet's Second Amendment to Form 10-SB12G
filed as of December 13, 1999, No. 000-27243, and
incorporated herein by reference).
16.1 Letter on Change in Certifying Accountant from Cohen
Kameny CPA's PLLC, dated November 12, 1999 (filed as
Exhibit 16 to A1 Internet's First Amendment to Form
10-SB filed as of November 17, 1999, No. 000-27243,
and incorporated herein by reference).
21.1 List of all Subsidiaries of A1 Internet and the State
or other jurisdiction of incorporation or
organization of each (filed as Exhibit 21.1 to A1
Internet's Fourth Amendment to Form 10-SB12G filed as
of January 20, 2000, No. 000-27243, and incorporated
herein by reference).
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K
None
<PAGE> 21
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
A1 Internet.com, Inc.
Dated May 15, 2000 by: /s/ Bruce Bertman
------------------------
Bruce Bertman
President, Treasurer and
Chairman of the Board of
Directors
