<PAGE> 1
As filed with the Securities and Exchange Commission on December 22, 2000
Registration No. 333-45452
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
ISNI.NET, INC.
--------------
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
7370 Delaware 58-2489419
---- -------- ----------
(Primary Standard Industrial (State or Other Jurisdiction (IRS Employer
Classification Code Number) of Incorporation or Organization) Identification No.)
</TABLE>
204 East McKenzie Street, Unit D
Punta Gorda, Florida 33950
941-575-7878
------------
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Lesly Benoit, Jr.
Chief Financial Officer
204 East McKenzie Street, Unit D
Punta Gorda, Florida 33950
941-575-7878
------------
(Name, Address and Telephone Number of Agent For Service)
Copies to:
Mary Beth M. Clary
Porter, Wright, Morris & Arthur LLP
5801 Pelican Bay Blvd., Suite 300
Naples, Florida 34108
Approximate Date of Commencement of Proposed Sale to the Public: For shares
to be sold by the Company, as soon as practicable after this Registration
Statement becomes effective and, for shares to be sold by the Selling
Stockholders, from time to time at their discretion.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ] _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
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The information in this prospectus is not complete and may be changed. Neither
we nor the selling stockholders may sell these shares until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these shares and it is not soliciting an
offer to buy these shares in any state where the offer or sale is not permitted.
--------------------------------------------------------------------------------
PROSPECTUS Subject to Completion - December 22, 2000
ISNI.NET, INC.
1,200,000 shares of common stock
offered for sale by ISNI at $5.00 per share
[ISNI LOGO] 745,000 shares of Common Stock offered for
resale by our affiliates at $5.00 per share
451,000 shares of common stock
offered for resale by nonaffiliated
selling stockholders at prevailing
market prices
The affiliated and nonaffiliated selling stockholders named on pages 45 and
46 of this prospectus may sell some, all, or none of their shares. We will not
receive any of the proceeds from the sale of the stockholders' shares, although
we have agreed to pay the expenses relating to the registration of such shares.
We will initially sell our 1,200,000 common shares through our executive
officers who will not receive commissions. We currently do not have an
underwriter, broker, or dealer involved with the sale of our shares.
No public market currently exists for our common stock.
A PURCHASE OF OUR SHARES INVOLVES A HIGH DEGREE OF RISK. WE URGE YOU TO
CAREFULLY REVIEW AND CONSIDER THE RISK FACTORS BEGINNING ON PAGE 5 OF THIS
PROSPECTUS BEFORE PURCHASING ANY OF OUR SHARES.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public offering price for shares sold by ISNI............................... $5.00 $6,000,000.00
Underwriting discounts and commissions...................................... 0.00 0.00
Proceeds to ISNI, before expenses........................................... $5.00 $6,000,000.00
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
_____________ __, 2000
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The following table of contents has been designed to help you find
important information contained in this prospectus. We encourage you to read the
entire prospectus.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.................................3
RISK FACTORS.......................................5
FORWARD-LOOKING STATEMENTS.........................9
USE OF PROCEEDS...................................10
DETERMINATION OF OFFERING PRICE...................12
DIVIDEND POLICY...................................13
CAPITALIZATION....................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................................14
BUSINESS..........................................21
MANAGEMENT........................................35
PRINCIPAL STOCKHOLDERS............................40
DESCRIPTION OF SECURITIES.........................41
SELLING STOCKHOLDERS..............................44
PLAN OF DISTRIBUTION..............................47
LEGAL MATTERS.....................................49
EXPERTS...........................................49
WHERE YOU CAN FIND ADDITIONAL INFORMATION.........49
INDEX TO FINANCIAL INFORMATION....................50
2
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PROSPECTUS SUMMARY
When used in this prospectus, the terms "we," "our," and "us" refer to
ISNI.net, Inc. and not to the selling stockholders.
OUR BUSINESS
We are an Internet service provider, commonly known as an ISP, currently
serving individuals and small businesses, primarily in Charlotte County,
Florida. Our services include dial-up Internet access, web hosting, and other
value-added services such as web page design and web-server co-location. As of
November 30, 2000, we served approximately 2,375 subscribers, including 28 web
hosting subscribers.
Under our growth plan, we anticipate having the ability to provide high
speed and secure Internet and data services to residential and corporate
customers utilizing state-of-the-art digital wireline and broadband wireless
technologies before the end of 2001. We are in the process of licensing
technology which will provide faster, more reliable Internet access for our
subscribers on a more economical basis than our competitors. With the proceeds
from this offering, we anticipate implementing domestically and internationally
a state-of-the-art broadband wireless Internet access system. We also intend to
embark upon a regional and international expansion program with the goal of
extending our services during 2001 to areas of Central and South Florida,
Russia, and Central America.
Our executive offices are located at 204 East McKenzie Street, Unit D,
Punta Gorda, Florida 33950. Our web site address is http://www.ISNI.net. The
information contained in our web site is not part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us..........................................1,200,000 shares
Common stock offered by our affiliates................................745,000 shares
Common stock offered by nonaffiliated selling stockholders............451,000 shares
Common stock to be outstanding after the offering..................27,861,000 shares
Proposed OTC-BB trading symbol..................................................ISNI
</TABLE>
The offering is being conducted in three stages. In the first stage, we
will sell 200,000 shares of our common stock at $5.00 per share. Neither our
affiliates nor the nonaffiliated selling stockholders will be permitted to sell
their shares under this offering during the first stage. The second stage will
begin immediately after we have sold 200,000 shares. In the second stage, we
will sell the remaining 1,000,000 shares and our affiliates will sell their
745,000 shares at $5.00 per share. The nonaffiliated selling stockholders will
not be permitted to sell their shares during the second stage. The third stage
will begin immediately after the second stage has concluded. In the third stage,
the nonaffiliated selling stockholders will sell their shares.
We will terminate this offering on December 31, 2001, or earlier at such
time as all 1,200,000 shares have been sold.
3
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RISK FACTORS
An investment in our shares is highly speculative, involves a high degree
of risk, and results in immediate and substantial dilution. Various risk factors
could materially and adversely affect our operating and financial performance.
Factors that are specific to this offering are described beginning on page 5 of
this prospectus. The more detailed discussion of our business and our stock also
describes risk factors that may apply generally to our industry or are otherwise
not specific to this offering.
SUMMARY FINANCIAL DATA
The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and notes included elsewhere in this
prospectus. The statement of operations data for the six months ended June 30,
2000, and the years ended December 31, 1999 and 1998, and the balance sheet data
as of June 30, 2000, are derived from our audited financial statements included
elsewhere in this prospectus. The statement of operations data for the three
months ended September 30, 2000, and the balance sheet data as of September 30,
2000, are derived from our unaudited financial statements included elsewhere in
this prospectus and reflect all adjustments, consisting only of normal recurring
adjustments, that, in our opinion, are necessary for a fair and consistent
presentation of such data. Operating results for the three months ended
September 30, 2000, are not necessarily indicative of results expected for the
entire year.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
UNAUDITED
FOR THE THREE FOR THE YEAR ENDED
MONTHS ENDED FOR THE SIX DECEMBER 31,
SEPTEMBER 30, MONTH ENDED -------------------------------------
2000 JUNE 30, 2000 1999 1998
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Total income..............................$ 111,443 $ 225,888 $ 301,851 $ 88,470
Income (loss) from operations.............( 27,900) ( 174,448) 7,441 ( 109,616)
Net income (loss).........................( 34,040) ( 182,271) ( 549) ( 116,382)
Net income (loss) per share............... 0.00* 0.00* 0.00* 0.00*
-----------
*Less than $0.01.
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
UNAUDITED
AS OF SEPTEMBER
30, 2000 AS OF JUNE 30, 2000
-------------------- --------------------
<S> <C> <C>
Total assets.............................................$ 145,946 $ 101,881
Total liabilities........................................ 367,582 306,707
Shareholders' deficit....................................( 221,636) ( 204,826)
</TABLE>
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RISK FACTORS
In addition to the other information contained in this prospectus, you
should consider the following factors carefully in evaluating an investment in
our shares.
MANY OF OUR SUBSCRIBERS ARE PART-TIME RESIDENTS IN OUR MARKET. IF WE ARE UNABLE
TO RETAIN THESE SUBSCRIBERS OR ATTRACT NEW SUBSCRIBERS TO REPLACE THOSE WHO
LEAVE AND DO NOT RETURN TO US FOR THEIR INTERNET ACCESS, WE WILL NOT BE ABLE TO
ACHIEVE SUSTAINABLE PROFITABILITY.
Our monthly subscribers, who account for a substantial majority of our
revenues, currently have the option of discontinuing service at the end of any
month for any reason. We are particularly sensitive to this risk since many of
our subscribers are only part-time residents in our market area. Our expense
levels are based, in part, on our expectations regarding future revenues from
new and existing subscribers. Our operations often require up-front expenses
with trailing revenues. To the extent that subscribers and, therefore, revenues
are below expectations, we may be unable to reduce expenses proportionately, and
operating results, cash flow, and profitability could be negatively affected.
IF WE FAIL TO SUCCESSFULLY INTEGRATE OUR ACQUISITIONS AND ENTER THE WIRELESS
INTERNET SERVICES MARKET, WE WILL NOT BE ABLE TO ACHIEVE THE ECONOMIES OF SCALE
NECESSARY TO PRODUCE SUSTAINABLE PROFITS.
Our growth strategy is untested. Two components of our growth strategy are
the strategic acquisition of businesses and subscriber accounts and the
introduction of wireless Internet services. If we fail to successfully integrate
our acquisitions and enter into the wireless Internet services market, our
growth strategy will not succeed even though we would have expended significant
funds to implement the strategy. Success of our growth strategy involves the
following risks:
- the difficulty of locating and integrating acquired operations and
personnel;
- the potential disruption of our ongoing business;
- the potential inability of management to successfully incorporate
acquired technology and rights into our service offerings and to
maintain uniform standards, controls, procedures, and policies;
- the risks of entering markets in which we have little or no direct
prior experience; and
- the potential loss of, or impairment of relationships with, employees,
customers, and suppliers.
If we are unable to successfully complete the anticipated acquisitions or
expand into the wireless Internet market, we may not be able to achieve the
economies of scale necessary to produce sustainable profitability at acceptable
levels.
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WE DO NOT HAVE ANY EXPERIENCE IN PROVIDING WIRELESS INTERNET SERVICES
INTERNATIONALLY AND WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR OPERATIONS
INTERNATIONALLY.
Another component of our growth strategy is to expand our wireless services
internationally to Latin America, the Caribbean, Egypt, and Russia. We have not
yet, however, entered those markets and have no experience in providing wireless
technology internationally. We have no experience in complying with the
regulatory requirements in the foreign countries that we have targeted. We will
need to hire consultants in each of these countries to assist us in meeting such
regulatory requirements. In addition, we are not aware of other ISPs of our size
that have successfully expanded into these markets. Our success in this area
also involves substantial risks including, among others, the following:
- our ability to hire, train, and retain qualified personnel to manage
our international operations;
- the stability of the government and governmental regulation and the
success of the economy of the markets we intend to enter which could
significant affect our subscriber base and our ability to operate in
our targeted markets; and
- market acceptance of our services in our targeted markets.
In many cases, these factors are outside of our control. Our inability to
expand internationally will have a material adverse affect on our planned
expansion and anticipated financial results.
IF WE DO NOT ACQUIRE FROM THE FCC THE NECESSARY FREQUENCY SPECTRUM FOR OUR
WIRELESS INTERNET OPERATION, WE CANNOT PURSUE A MAJOR COMPONENT OF OUR GROWTH
STRATEGY.
To develop and maintain our planned wireless Internet operation in the
United States, we will need to obtain and retain two separate licensed frequency
spectrum bands of 5 megahertz each or, if we utilize certain advanced
technologies, one frequency spectrum of 5 megahertz. This kind of spectrum is
being sold or auctioned on a continuous basis by the Federal Communications
Commission. Obtaining a licensed frequency spectrum could be very expensive.
There is a possibility that we might not be able to acquire the spectrum of 5
megahertz which is necessary to operate our wireless system in the chosen area
or that the spectrum might already be sold or auctioned to another company.
There is also the possibility that the frequency spectrum purchased by us might
be reallocated to a different use or that the transmission limits might be
introduced. All these events could prevent us from setting up or continuing our
wireless Internet operation, thus having a material adverse effect on our
planned expansion and anticipated financial results.
IF OUR FOCUS ON THE WIRELESS INTERNET ACCESS SYSTEM FAILS FOR ANY REASON, WE
WILL HAVE EXPENDED SUBSTANTIAL SUMS WITHOUT TANGIBLE BENEFIT AND MAY NO LONGER
BE COMPETITIVE.
Our industry is subject to rapidly changing technology, evolving industry
standards, changes in subscriber needs, and frequent new service introductions.
Currently, the Internet is accessed primarily by computers connected by
telephone lines. Many alternative methods to access the Internet are available
or under development, including cable modems, screen based
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telephones, satellite technologies, wireless telecommunications technologies,
and other consumer electronic devices. As these alternative methods gain greater
use, or as subscriber requirements change the way Internet access is provided,
we will have to develop or use new technology to remain competitive. For this
reason, we are actively and aggressively pursuing a wireless Internet access
system. If our strategy of pursuing a wireless Internet access system fails, we
will have expended substantial sums without any tangible benefit and will be
behind our competitors in improving our service. Adjusting to future
technological advances or changing our strategy away from a wireless system may
require substantial time and expense. In the meantime, we may not succeed in
addressing competitive pressures or adapting our business to alternative access
methods in a timely and profitable manner.
WERNER K. EBNER WILL CONTINUE TO OWN 81.00% OUR COMMON STOCK IF ALL OF THE
SHARES OFFERED BY THIS PROSPECTUS ARE SOLD AND THAT WILL LIMIT YOUR ABILITY TO
INFLUENCE CORPORATE MATTERS THAT REQUIRE A VOTE OF THE STOCKHOLDERS.
Our largest stockholder, Werner K. Ebner, beneficially owns 87.05% of our
common stock. He and his family wish to sell in this offering approximately
641,000 shares of common stock. Immediately after this offering and assuming
that he and his family sell all 641,000 shares and we sell all 1,200,000 shares,
Mr. Ebner would continue to own approximately 81.00% of our common stock. As a
result, he will continue to be able to exercise significant influence over
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
also may have the effect of delaying or preventing a change in control.
WE HAVE AN ACCUMULATED DEFICIT. IF WE ARE UNABLE TO INCREASE REVENUES WHILE
REDUCING COSTS PER SUBSCRIBER, WE WILL NOT BE ABLE TO ACHIEVE PROFITABILITY AND
WILL NOT BE ABLE TO MAINTAIN A POSITIVE CASH FLOW.
As of September 30, 2000, we had an accumulated deficit of approximately
$364,112. A large portion of this deficit can be attributed to expenses incurred
in connection with our merger with Internet Services Network, Inc. and costs
associated with the related SEC filings. Adjusting for nonrecurring merger
expenses, we would have had an accumulated deficit of approximately $219,000 as
of September 30, 2000. Our ability to attain profitability and positive cash
flow is dependent upon a number of factors, including our ability to increase
revenues while reducing costs per subscriber. We may not be successful in
increasing or maintaining revenues or achieving positive cash flow.
WE HAVE NO EMPLOYMENT AGREEMENTS WITH OUR KEY PERSONNEL; IF WE DO NOT RETAIN OUR
KEY PERSONNEL, OUR BUSINESS WILL SUFFER.
Our success depends upon the continued efforts of our senior management
team and our technical, marketing, and sales personnel. These employees may
terminate their employment at any time and we have no employment agreements. It
is possible for our competitors to hire our employees to compete against us by
offering them more compensation and greater incentives. The loss of the services
of our key personnel, or the inability to attract additional qualified personnel
to replace them or when needed as we grow, could cause the quality of our
services to
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deteriorate. This could cause us to lose subscribers, which will negatively
impact revenues and profitability.
WE DEPEND UPON SPRINT, INC., A LOCAL TELEPHONE MONOPOLY, AND CABLE & WIRELESS
INC. TO PROVIDE DIAL-UP SERVICE AND INTERNET ACCESS. LOSS OF THESE SUPPLIERS
COULD CAUSE AN INTERRUPTION IN OUR ABILITY TO DO BUSINESS CAUSING A LOSS OF
SUBSCRIBERS AND, THUS, REVENUE AND PROFIT.
We rely on Sprint and Cable & Wireless to provide data communications
capacity. We may not be able to replace or supplement these services on a timely
basis. Sprint is a local monopoly telephone company whose local service provides
our subscribers with the ability to dial-in to our servers. Cable & Wireless
provides access to the Internet backbone. Cable & Wireless could prevent us from
delivering Internet access through their data transmission networks. Because we
rely on these third-party telecommunications companies for dial-in service and
backbone connections to the Internet, we face limitations on our ability to
serve our subscribers. At some point in the future, our telecommunications
providers may become our direct competitors.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN 2001 IN ORDER TO PURSUE OUR GROWTH
STRATEGY, BUT THERE IS NO ASSURANCE THAT SUCH CAPITAL WILL BE AVAILABLE. IF WE
ARE UNABLE TO OBTAIN SUCH CAPITAL, WE WILL HAVE TO SUBSTANTIALLY CURTAIL OUR
GROWTH PLANS WHICH WILL REDUCE PLANNED REVENUES.
We will likely incur substantial expenditures during 2001 to further our
growth strategy. In most cases, we will attempt to finance our acquisitions with
our common stock; however, due to the competitive nature of acquisitions in this
industry, we may be forced or choose to use cash to complete these acquisitions.
We also may have funding needs to respond to technological developments or
competitive pressures. We do not currently have adequate funds to accomplish our
objectives and even if we sell all 1,200,000 shares in this offering, there is a
possibility that we may need to raise additional capital in 2001. There is no
assurance that equity or debt financing will be available on terms acceptable to
us or at all. Further, any such equity or debt financing may be on terms that
are dilutive or potentially dilutive to our stockholders. If alternative
financing is required but is insufficient or unavailable, we will have to
curtail our growth and operating plans. As a result, our business may not
produce the level of growth or profitability we hope to achieve.
WE ARE NOT LISTED ON THE OTC BULLETIN BOARD OR ANY STOCK EXCHANGE, NOR HAVE WE
ESTABLISHED A RELATIONSHIP WITH A MARKET MAKER WHO CAN ASSIST US IN GETTING
LISTED ON THE OTC BULLETIN BOARD. THUS, YOU MAY HAVE DIFFICULTY BUYING AND
SELLING OUR COMMON STOCK.
We intend to qualify our common stock for listing on the OTC Bulletin
Board. We need to establish a relationship with one or more market markers in
order to get our shares listed on the OTC Bulletin Board. Although we are in
discussions with a number of market makers, there can be no assurance that we
will be able to establish a relationship with a market marker or that our common
stock will or will continue to be listed on the OTC Bulletin Board. There is
also no assurance that a market for our common stock will exist in the future
should our stockholders
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wish to sell any of their shares. Even if a market exists in the future, there
is no assurance that it will be an active, liquid, or continuous trading market.
The stock market in general has experienced extreme price and volume
fluctuations and volatility that has particularly affected the market prices of
many technology, emerging growth, and developmental companies similar to us.
Such fluctuations and volatility have often been related or disproportionate to
the operating performance of such companies.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the federal securities laws with respect to our operations, industry, financial
condition, and liquidity. These statements typically include words or phrases
such as "believe," "will likely result," "expect," "will continue,"
"anticipate," "estimate," "intend," "plan," "project," or similar expressions.
We have based our forward-looking statements on current plans,
expectations, goals, and projections, including those associated with the
wireless Internet services we plan to provide, that are subject to numerous
assumptions, risks, and uncertainties. Actual results could differ materially
from those contained in or implied by our statements due to a variety of factors
including:
- we may fail to be competitive with existing and new competitors,
- we may not retain or grow our subscriber base,
- we may not or may not be able to adequately respond to technological
developments impacting the Internet,
- financing may not be available to us when needed,
- a significant adverse change in the growth rate of the overall U.S.
economy may occur, such that consumer and corporate spending are
materially impacted and the number of subscribers who return to our
service area during the winter season may decrease thereby decreasing
our potential subscriber base,
- we may not obtain the desired frequency spectrum from the FCC which is
necessary for the success of our planned wireless Internet service in
the United States,
- a significant reversal in the trend toward increased usage of the
Internet may occur.
Thus, forward-looking statements should be viewed as strategic objectives rather
than absolute targets of future performance.
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USE OF PROCEEDS
The net proceeds from our sale of 200,000 shares at $5.00 per share during
the first stage of this offering are estimated to be approximately $975,000. The
net proceeds from our sale of 1,000,000 shares at $5.00 per share during the
second stage of this offering are estimated to be approximately $4,875,000. We
expect to use the net proceeds from the sale of our shares over the next 12
months in approximately the following amounts:
First Stage:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------------- ------------
<S> <C> <C>
Repayment of bank loans................................................ $ 78,000 8.0%
Repayment of stockholder and affiliate loans........................... 177,000 18.1
Purchase and installation of wireless system or VoIP terminals
in Florida.......................................................... 560,000 57.4
Acquisition of other ISPs.............................................. 95,000 9.8
Working capital........................................................ 65,000 6.7
------------------- ------------
TOTAL...................................................... $ 975,000 100.0%
</TABLE>
As indicated above, a portion of the proceeds from the first stage of this
offering will be used by to repay bank and stockholder loans. As of November 30,
2000, we had an outstanding balance of approximately $78,000 on two unsecured
demand notes with interest rates of 12% per annum issued under our lines of
credit with two banks. These loans have been personally guaranteed by Mr. Ebner,
a director and our principal stockholder. These funds were used to pay a portion
of the accounting and legal fees associated with this offering and for other
working capital purposes. In addition, as of November 30, 2000, we had an
outstanding balance of approximately $153,000 on an unsecured, interest-free
advance, payable on demand, from Mr. Ebner and approximately $24,000 on an
unsecured, interest-free loan, payable on demand from Ebner Corporation and
Computer Center Corp., both of which are wholly owned by Mr. Ebner. These
amounts were used to pay for a consulting fee as well as for legal and
accounting retainers in connection with the merger and this offering.
Using proceeds from the first stage of this offering, we are planning to
purchase and install a wireless broadband system to serve customers in the
Florida counties of Charlotte, Desoto, and Lee, which are all located in
Southwest Florida. This wireless broadband system will initially serve 200
customers, at a cost to us of $2,200 for each subscriber, for a total cost of
$440,000. The balance of the proceeds allocated for this use in the first stage
will be used for a site survey, propagation study, and start up costs, including
the cost of the required frequency spectrum to be purchased from the FCC. We
intend to use existing towers in the applicable service area, thus avoiding the
additional cost of having to establish our own towers. The remaining funds
allocated for this purpose above will be used for anticipated engineering costs
and for miscellaneous expenditures, particularly in establishing operations
internationally. Eventually, as we build our subscriber base, we can expand the
system to serve 800 customers.
We are also exploring the viability of using VoIP terminals either in
conjunction with or in lieu of wireless broadband system. VoIP, which stands for
Voice Over Internet Protocol, is an
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emerging technology which permits sending voice information in digital form in
discrete packets rather than in the traditional circuit-committed protocols of
the public switched telephone network. A major advantage of VoIP is that it
avoids the tolls charged by ordinary telephone service. If our studies indicate
that this technology will better serve our customers in a cost effective manner,
we may determine that it is in our best interest to use some of the funds
initially earmarked for the wireless broadband system to purchase and install
VoIP terminals.
Although we have no existing agreements to acquire any ISPs, we evaluate
opportunities as they arise. We anticipate that any such acquisition will
involve a combination of our common stock and cash. We believe that the amount
allocated to the acquisition of ISPs indicated in the table above for the first
stage will provide sufficient cash for two smaller acquisitions in the Southwest
Florida area.
If total proceeds are less than $975,000 in the first stage, we anticipate
that proceeds will be used to first repay any outstanding indebtedness and then
toward the purchase and installation of the broadband wireless system in
Southwest Florida.
Second Stage:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------------- ------------
<S> <C> <C>
Purchase and installation of wireless system or VoIP terminals in Florida $ 2,125,000 43.6%
Purchase and installation of wireless system or VoIP terminals in Central
America............................................................ 1,116,000 22.9
Additional investment into international wireless
system or VoIP terminals........................................... 750,000 15.4
Acquisition of other ISPs.............................................. 232,000 4.7
Working capital........................................................ 652,000 13.4
------------------- ------------
TOTAL...................................................... $ 4,875,000 100.0%
</TABLE>
Proceeds from the second stage of the offering will be used to purchase and
install additional wireless broadband systems to serve customers in Southwest
and Central Florida, both in our initial counties of Charlotte, Desoto, and Lee,
as well as in Collier, Glades, Hendry, Manatee and surrounding areas. We
anticipate installing such a system in Central America as our first entry into
the international arena. The success of these endeavors will determine the
extent and timing of additional endeavors in Russia, the Caribbean, and Egypt.
As with the proceeds from the first stage, a portion of the funds allocated to
this use may be used to purchase and install VoIP terminals.
Proceeds from the second stage of the offering will be used for the
acquisition of other ISPs as opportunities arise. We believe funds allocated for
this purpose in the second stage will provide sufficient cash for four to five
acquisitions in Southwest and Central Florida.
The use of proceeds described above represents our best estimate of the
allocation of the net proceeds of this offering of our shares based upon the
current status of our business operations, current economic conditions, and the
anticipation that we will sell all 1,200,000 common shares offered by this
prospectus at a price of $5.00 per share. Future events, including
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problems, delays, unanticipated expenses, and other complications frequently
encountered by early stage companies, as well as changes in regulatory and
competitive conditions affecting our business and negotiations with any
underwriter, broker, or dealer with respect to the sale of our shares may make
shifts in the allocation of funds necessary or desirable. In addition, any
opportunity to acquire one or more ISPs may be on terms significantly different
from those anticipated by us at this time which could also shift the allocation
of funds from that described above. Our management reserves the right to
reallocate the proceeds from this offering if the occurrence of any such event
makes such reallocation necessary or advisable.
After the repayment of indebtedness, the net proceeds will be invested in
short-term, interest-bearing, investment grade securities or money market funds
until they are expended as described above.
The selling stockholders will receive the net proceeds from the resale of
their shares. We will not receive any proceeds from the sale of those shares.
DETERMINATION OF OFFERING PRICE
We arbitrarily determined the purchase price of the shares being offered by
us and by the affiliated selling stockholders. This price of $5.00 per share
bears no relationship to our assets, book value, or net worth.
If you purchase our stock in this offering at $5.00 per share, you will
experience immediate and substantial dilution of $4.80 per share in pro forma
net tangible book value. This is based upon our book value as of September 30,
2000, and assumes that we sell all 1,200,000 shares in this offering. Net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. Dilution per share represents the difference between the offering
price per share of common stock and the pro forma tangible book value per share
of common stock immediately after the offering.
The common stock offered by the nonaffiliated selling stockholders may be
offered at fixed prices which may be changed, market prices at the time of sale,
prices related to market prices, or negotiated prices. Thus, the offering price
for the shares being sold by the nonaffiliated selling stockholders is
indeterminate as of the date of this prospectus.
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DIVIDEND POLICY
We have not paid a cash dividend on our common stock and do not anticipate
paying any dividends in the foreseeable future. We may never pay cash dividends
or distributions on our common stock. Whether we pay cash dividends in the
future will be at the discretion of our board of directors and will be dependent
upon our financial condition, revenues, profitability, capital requirements, and
any other factors that the board of directors decides is relevant.
We have accumulated substantial losses since our inception and there can be
no assurance that our operations will result in sufficient revenues to enable us
to operate at profitable levels or to generate positive cash flow in order to
pay dividends. At this time, we anticipate that any earnings generated from our
operations will be used to finance our business and growth.
CAPITALIZATION
Our capitalization as of September 30, 2000, and as adjusted to reflect the
issuance and sale of 1,200,000 shares of common stock for assumed proceeds of
$5,850,000, net of expenses, follows.
<TABLE>
<CAPTION>
AS OF PRO FORMA AS OF
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
--------------------- ---------------------
<S> <C> <C>
Long-term indebtedness........................................... $ 14,231 $ 14,231
Stockholders' Equity:
Preferred Stock, $0.0001 par value, 20,000,000
shares authorized, none issued and outstanding 0 0
Common Stock, $0.0001 par value, 100,000,000
shares authorized, 26,661,000 shares issued and
outstanding prior to offering and 27,861,000 shares
issued and outstanding after the offering................... 2,666 2,786
Additional paid in capital.................................... 139,810 5,989,690
Accumulated deficit........................................... ( 364,112) ( 364,112)
--------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY....................................... ($ 221,636) $ 5,628,364
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We merged with Internet Services Network, Inc. in March 2000. The merger
was accounted for as a reverse acquisition. This means that, for accounting
purposes, Internet Services was treated as the acquiring entity and we were
treated as the acquired entity because:
- Internet Services' shareholder owned the majority of our stock as of
the merger date, and
- prior to the merger, we were only a shell corporation having
materially no assets or operations.
The merger was also accounted for as a purchase based upon its fair market
value at the transaction date. Our historical financial statements prior to the
merger were retroactively restated to be those of Internet Services. Information
concerning stockholders' equity and per share data was restated on an equivalent
share basis giving effect to the difference in par value of our stock with an
offset to paid in capital. The accumulated deficit of Internet Services was
carried forward after the merger. Operations prior to the merger and earnings
per share for periods prior to the merger are those of Internet Services.
Prior to the reverse acquisition, Internet Services' year ended on December
31. In recording the reverse acquisition, Internet Services' financial
statements for the six months ended June 30, 2000, became our financial
statements for the same period. Internet Services' financial statements for the
years ended December 31, 1999 and 1998 are included as our financial statements.
We now have adopted a June 30 fiscal year end. There were no prior significant
intercompany transactions between Internet Services and us.
We have also provided financial information in this prospectus on our first
quarter ended September 30, 2000.
STATEMENT OF OPERATIONS
We derive revenue primarily from monthly subscriptions from individuals for
dial-up access to the Internet. Subscription fees vary by billing plan. Under
our current pricing plans, subscribers have a choice of "monthly" billing if
they pay by credit card or "quarterly" billing if they pay by cash or check.
Either plan gives them "unlimited access" to the Internet. For the six month
period ended June 30, 2000, and the years ended December 31, 1999 and 1998, the
average monthly recurring revenue per dial-up subscriber was approximately $20.
There are no "start-up" fees for new subscribers although new customers are
required to pay in advance either one month or three months depending on the
billing plan.
Beginning in October 1999, we instituted a prepayment plan available to all
dial-up subscribers. Under the plan, subscribers may prepay their access fees
for either one or two years at a discounted rate. Subscribers prepaying for one
year receive a discount equivalent to two months of service and subscribers
prepaying for two years receive a discount equivalent to three months. In the
first year of this program, we have less then 0.1% of our customers prepaying
for two years and less then 1% prepaying for one year.
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<PAGE> 16
In addition, we earn revenue by providing web hosting, domain registration,
web page design services, web-server co-location, and full-time dedicated access
connections to the Internet. These services have been classified as "Other
revenue" in our Statements Of Operations.
Our web hosting services allow a business or individual to post information
on the World Wide Web so that the information is available to anyone who has
access to the Internet. We currently offer two pricing plans for web hosting
subscribers: $15.95 per month for "Silver," which offers the customer a storage
space of 15 megabytes on their web page, and $19.95 per month for "Gold," which
offers up to 50 megabytes of storage space. We also charge a one-time set-up fee
of $19.95 on both plans. We had 27 web hosting subscribers as of June 30, 2000.
Domain registration involves the reservation on behalf of a customer of a
web address with an organization such as Network Solutions. This service is
typically, but not always, coupled with our web page design service. We have
offered our web page design services for $100 per page, including graphics, but
also from time to time package this service with other Internet-related services
at a discount. Other services available to our customers include:
- web-server co-location, where the customer uses our Internet T-1
access and facilities to store the customer's computer and web page,
and
- full-time dedicated access connections to the Internet for customers
who need uninterrupted Internet connection.
These additional services do not currently contribute significantly to our total
revenues.
Operating expenses generally consist of:
- costs of revenue and cost of subscriber start-up that are primarily
related to the number of subscribers;
- overhead expenses that are associated more generally with operations;
and
- depreciation, which is related to our network equipment costs.
Costs of revenue are recurring telecommunication costs that are primarily
related to the number of subscribers and are necessary to provide service to
those subscribers. Telecommunication costs include the costs associated with
local telephone lines into our facilities, leased lines connecting our dial-in
locations, and T-1 lines connecting our main switch to the Internet backbone.
Start-up expenses for each subscriber include costs associated with our
software, diskettes, and other product media, manuals, and packaging, as well as
mailing costs associated with the materials provided to new subscribers. We do
not defer any such subscriber start-up expenses.
Other operating expenses are incurred in the areas of advertising, banking
and credit card service fees, consulting fees, employee leasing costs, rent,
other occupancy and office expenses, and other expenses. Operating expenses will
increase over time as our scope of operations
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increases. However, we expect that such costs will be offset by anticipated
increases in revenue attributable to overall subscriber growth.
We advertise using paid newspaper, radio, and television advertisements as
well as flyers and postcards mailed to potential subscribers in our service
area. We have experienced some customer defection to providers of free Internet
access services; however, a portion of these customers return to us in order to
obtain the high level of service provided by us. Higher levels of advertising
and marketing may be necessary in order for us to enter new markets or increase
our subscriber base in our existing market to a size large enough to generate
sufficient revenue to offset such marketing expenses. We may determine to
significantly increase the level of marketing activity in order to increase the
rate of subscription growth and retention of existing customers. Any such
increase would have a short-term negative impact on earnings. We do not defer
any start-up expenses related to entering new markets. We are planning to add
subscribers by purchasing customer bases from other Internet service providers,
initially in the Southwest Florida area.
We have incurred significant bank and credit card service charges due to
the billing method of payment offered to our customers. During our fiscal year
ended June 30, 2000, we paid a fee of approximately 1.69% of the amount of
transactions being processed monthly through credit card services.
We have used the services of an outside payroll and employee leasing
company in order to keep our costs of staffing to a minimum. At the year ended
June 30, 2000, we had five full time employees. These employees were in the
areas of customer support and maintenance, accounting, and administration. We
have recorded on our books as consulting fees the fair value of services
provided by our chief executive officer and chief operating officer.
We sublease approximately 2,400 square feet of office and classroom space
from a corporation that is wholly owned by our largest stockholder. We
anticipate entering into a long-term lease with the building owner which is
expected to result in a rent increase. Other occupancy and office expense
consists of the cost of utilities and general office supplies.
Other expenses include costs of insurance, accounting services, dues and
subscriptions, travel related to the merger, and reimbursed employee expenses.
We expect to continue to focus on increasing our subscriber base, which
will cause our operating expenses and capital expenditures to increase in
addition to our revenues. There can be no assurance, however, that growth in our
revenue or subscriber base will continue or that we will be able to achieve
profitability or positive cash flows.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
Income. Internet service fees for the three months ended September 30,
2000, were $111,395 as compared to $77,954 for the comparable period in 1999.
This 42.90% increase in fees was the result of an increase in total subscribers
from approximately 1,500 subscribers at September 30, 1999, to approximately
1,900 subscribers at September 30, 2000. We attribute this increase in
subscribers primarily to effective use of print advertising directed toward
potential dial-up customers. Other revenue decreased significantly during the
three months ended September 30, 2000, as compared to the comparable period
because we curtailed our advertising for our ancillary services, such as web
page hosting and design. We intend to grow revenue in this area by directing
additional advertising to potential customers of these services commencing in
January 2001.
Cost of revenues. Cost of revenues for the three months ended September 30,
2000, was $37,043 as compared to $26,552 for the comparable period ended in
1999. This increase of 39.51% was primarily due to the acquisition of additional
telephone lines and leasing of new equipment connected with the increase in
total subscribers. However, the cost per subscriber continues to decrease as
economies of scale are realized.
Advertising. Advertising for the three months ended September 30, 2000, was
$1,127 as compared to $6,901 for the comparable period ended in 1999. This
decrease of 83.67% in advertising was due to a temporary hold on new advertising
during the summer months, traditionally a slow period due to the fact that many
of our subscribers reside out of state during this period. As a result of the
decreased advertising, Other revenues such as Web hosting and designing also had
decreased significantly.
Bank and service charges. Bank and credit card service charges for the
three months ended September 30, 2000, were $3,214 as compared to $2,617 for the
comparable period ended in 1999. This increase of 22.81% was a result of the
increase in total subscribers and their use of the monthly billing system which
is generally paid by credit card.
Consulting fees. Consulting fees for the three months ended September 30,
2000, were $17,250 as compared to $6,500 for the comparable period ended in
1999. This increase of 165.38% was a result of the increase in fees paid to our
CEO and the addition of our COO during the 2000 calendar year.
Employee leasing costs. Employee leasing costs for the three months ended
September 30, 2000, were $488 as compared to $13,606 for the comparable period
ended in 1999. This decrease was a result of the Company no longer using the
services of a staff leasing company.
Wages. Wages for the three months ended September 30, 2000 were $26,310.
This represents a significant increase from the cost of leasing our employees as
we had in the past
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primarily because we have two additional technical support and accounting
employees from the year ago period.
Rent. Rent expenses for the three months ended September 30, 2000, were
$2,647, as compared to $2,546 for the comparable quarter in 1999. We lease
approximately 2,500 square feet of office and classroom space, which increases
4% every year.
Other occupancy and office expenses. Other occupancy and office expenses
for the three months ended September 30, 2000, were $17,444 as compared to
$4,959 for the comparable period in 1999. Other occupancy and office expenses
increased 72% primarily due to employee education and training, automobile lease
and other automobile-related expenses, financial printer costs relating to our
SEC filings, and health insurance expenses.
Other expenses. Other expenses for the three months ended September 30,
2000, were $26,366 as compared to $8,335 for the comparable period in 1999.
These expenses increased 216.33% primarily due to legal and accounting fees
related to the merger and SEC filing requirements of a public company. We did
not have accounting and legal services cost in the previous year when we were a
private company.
SIX MONTHS ENDED JUNE 30, 2000, COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Income. Internet service fees for the six months ended June 30, 2000, were
$225,548 as compared to $128,284 for the comparable period in 1999. This 75.82%
increase in fees was the result of an increase in total subscribers from
approximately 1,200 subscribers at June 30, 1999, to approximately 1,800
subscribers at June 30, 2000. We attribute this increase in subscribers
primarily to effective use of print advertising directed toward potential dial
up customers. Other revenue decreased significantly during the six months ended
June 30, 2000, as compared to the comparable period because we curtailed our
advertising for our ancillary services, such as web page hosting and design. We
intend to grow revenue in this area by directing additional advertising to
potential customers of these services.
Cost of revenues. Cost of revenues for the six months ended June 30, 2000,
was $82,326 as compared to $46,607 for the comparable period ended in 1999. This
increase of 76.64% was primarily due to the acquisition of additional telephone
lines and leasing of new equipment connected with the increase in total
subscribers. However, the cost per subscriber has actually decreased as
economies of scale are realized.
Advertising. Advertising for the six months ended June 30, 2000, was $4,720
as compared to $12,067 for the comparable period ended in 1999. This decrease of
60.89% in advertising was due to a temporary hold on new advertising prior to
the merger with Internet Services while our management explored different
opportunities for our future which ultimately resulted in the merger with
Internet Services. As a result of the decrease in advertising, other revenues,
such as web hosting and designing, decreased significantly.
Bank and service charges. Bank and credit card service charges for the six
months ended June 30, 2000, were $9,342 as compared to $6,739 for the comparable
six months ended in 1999.
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This increase of 38.63% was a result of the increase in total subscribers and
their use of the monthly billing system which is generally paid by credit card.
Consulting fees. Consulting fees for the six months ended June 30, 2000,
were $154,000 as compared to $13,000 for the comparable six months ended in
1999. The majority of these fees were paid to consultants in connection with our
merger with Internet Services which occurred in March 2000.
Employee leasing costs. Employee leasing costs for the six months ended
June 30, 2000, were $47,743 as compared to $23,949 for the comparable period
ended in 1999. This increase of 99.35% was a result of the need to hire
additional technical support personnel due to the increase in our subscriber
base.
Other occupancy and office expenses. Other occupancy and office expenses
for the six months ended June 30, 2000, were $18,991 as compared to $11,210 for
the comparable period in 1999. This 69.41% increase was primarily due to
increases in utility costs which are associated with having more computer
equipment needed to service our increased subscriber base.
Other expenses. Other expenses for the six months ended June 30, 2000, were
$64,741 as compared to $4,626 for the comparable period in 1999. These expenses
increased primarily due to legal and accounting fees related to our merger and
also to travel expenses related to our merger.
YEAR ENDED DECEMBER 31, 1999, COMPARED TO YEAR ENDED DECEMBER 31, 1998
Income. Internet service fees for the year ended December 31, 1999, were
$292,345 as compared to $85,069 for the comparable year in 1998. This 243.66%
increase in fees was the result of a substantial increase in total subscribers
year over year. We attribute this increase in subscribers primarily to effective
use of print advertising directed toward potential dial-up customers. Other
revenue increased significantly during the year ended December 31, 1999, as
compared to the prior year because we were advertising for our ancillary
services, such as web page hosting and design.
Cost of revenues. Cost of revenues for the year ended December 31, 1999,
was $124,549 as compared to $58,057 for the comparable year ended in 1998. This
increase of 114.52% was primarily due to the acquisition of additional telephone
lines and leasing of new equipment connected with the increase in total
subscribers. However, the cost per subscriber has actually decreased as
economies of scale are realized.
Advertising. Advertising for the year ended December 31, 1999, was $20,969
as compared to $13,061 for the comparable year ended in 1998. This increase of
60.55% in advertising was due to a new directed advertising campaign.
Bank and service charges. Bank and credit card service charges for the year
ended December 31, 1999, were $12,365 as compared to $3,327 for the comparable
year ended in
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1998. This increase of 271.66% was a result of the increase in total subscribers
and their use of the monthly billing system which is generally paid by credit
card.
Consulting fees. Consulting fees for the year ended December 31, 1999, were
$26,000 as compared to $29,400 for the comparable year ended in 1998. The fees
were for compensation to our CEO during the calendar years.
Employee leasing costs. Employee leasing costs for the year ended December
31, 1999, were $52,109 as compared to $49,740 for the comparable year ended in
1998.
Other occupancy and office expenses. Other occupancy and office expenses
for the year ended December 31, 1999, were $18,428 as compared to $16,958 for
the comparable year in 1999. This 8.67% increase was primarily due to increases
in utility costs which are associated with having more computer equipment needed
to service our increased subscriber base.
Other expenses. Other expenses for the year ended December 31, 1999, were
$11,897 as compared to $6,646 for the comparable period in 1998. This 79.00%
increase was primarily due to commissions paid for web site development
agreements entered into by Internet Services.
LIQUIDITY AND CAPITAL RESOURCES
In the year ended December 31, 1999, we financed our operations primarily
through cash generated from operations and payments made by our principal
stockholder on our behalf which were treated as paid-in capital. Due to the
expenses incurred in connection with the merger during the six months ended June
30, 2000, we had to finance our operations primarily through advances from our
principal stockholder and his affiliated corporations, and payments made by our
principal stockholder on our behalf which were treated as paid-in capital and,
to a lesser extent, bank borrowings.
During the year ended December 31, 1999 and the six months ended June 30,
2000, we obtained two lines of credit in the amounts of $50,000 and $25,000 from
two financial institutions. We had been looking for an increase of those lines
of credit so that the aggregate amount of all lines of credit would be $125,000.
Since we were not able to obtain this increase from either financial
institution, nor were we able to obtain a third line from another institution,
we have ceased to pursue the increase. As of now, our principal stockholder is
our only way of financing the costs associated with filings required from the
SEC and the costs of issuing and subsequent trading of our stock.
We anticipate that the cash provided by operations, supplemented by our
financing activities, if necessary, will be sufficient to fund our existing
operations during the next fiscal year; however, we do not believe that we will
be able to make the necessary financial investment in a wireless broadband
system or be in a position to expand internationally unless we successfully
complete the contemplated sale of our common stock. Although we continue to
explore opportunities to acquire the subscriber base of other Internet service
providers in the vicinity of our current market area, we may not be able to
complete any such acquisitions without the proceeds from the contemplated sale
of our common stock or an additional advance from our principal stockholder if
he is willing to make such an advance at that time.
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SEASONAL ASPECTS OF BUSINESS
There is a strong seasonal influence which is associated with our location
in Southwest Florida, a popular winter residence for retirees from northern
states. As a consequence, during the winter months, subscriber numbers increase
rapidly and, during the summer months, they decrease significantly. Accordingly,
our operating results, cash flows, and liquidity may fluctuate significantly
from quarter to quarter.
BUSINESS
GENERAL
We are an Internet service provider based in Charlotte County, Florida, and
presently provide a wide array of Internet services to individuals and small
businesses primarily in Charlotte County, Florida. As of November 30, 2000, we
served 2,375 customers. Our business model is to supply high-speed and secure
Internet and data services, including voice and video services, to residential,
corporate, and institutional subscribers in an expanding scope of geographic
areas utilizing state-of-the-art wireless broadband technologies.
CORPORATE HISTORY
Our predecessor was formed under the laws of the State of Florida under the
name Internet Services Network, Inc. on October 9, 1997. Our predecessor engaged
in the business of providing Internet access services. By late 1998, Internet
Services had acquired 800 subscribers, a number which increased to approximately
2,000 subscribers by March 2000.
Hawkeye Corporation, which was our original name, was incorporated in
Delaware by Gilbert H. Davis on August 31, 1999. Hawkeye was a development stage
company formed to engage in a merger with or acquisition of an operating company
who was interested in obtaining the perceived benefits of being a reporting
company with a class of publicly-traded securities, including the use of
registered securities in connection with acquisition activities and the ability
to obtain additional capital on more favorable terms. Thus, Hawkeye initially
had no operations other than issuing shares to its original stockholders.
Immediately prior to the merger with Internet Services, Hawkeye had 18
stockholders owning 2,661,000 shares. Mr. Davis, Hawkeye's sole officer and
director, held approximately 94% of those shares and Erik S. Nelson, one of
Hawkeye's promoters, held approximately 4% of those shares.
On March 23, 2000, Hawkeye acquired Internet Services in a reverse merger.
As part of the merger, the issued and outstanding shares of Internet Services,
all of which were held by Mr. Ebner, were exchanged for and converted into
24,000,000 shares of our voting common stock. The number of shares issued to Mr.
Ebner was determined by Messrs. Davis and Nelson based upon their analysis of
similar transactions.
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As a result of the merger, Mr. Davis held less than 10% of our common
stock. He resigned as an officer and director at that time. In addition, as a
result of the merger, our name was changed to "Internet Services Network, Inc."
Although not our official name at the time, we were doing business under the
name ISNI.net. Our stockholders voted in May 2000 to amend our certificate of
incorporation so that our official name became ISNI.net, Inc. We have a June 30
fiscal year end.
INDUSTRY OVERVIEW
The number of Internet users around the world is constantly growing. The
Computer Industry Almanac has reported that by the year 2002, 490 million people
around the world are expected to have Internet access. According to the Computer
Industry Almanac, that means that almost 8% of the world's population will have
Internet access by 2002 and that percentage is expected to increase to almost
12% by 2005. Declining prices of personal computers, continuing improvements in
Internet connectivity, advancements in Internet navigation technology, and the
proliferation of services, applications, information, and other content on the
Internet are expected to continue to attract a rapidly growing number of
individual and commercial users.
As a result, numerous companies have moved into the Internet services
market, including:
- telecommunications services providers;
- online commercial information service providers;
- computer hardware and software providers;
- cable television operators; and
- other national, regional, and local companies engaged primarily in the
business of providing Internet services.
These companies pursue a wide variety of business strategies. For example,
cable television operators, who are not required to grant third party Internet
service providers access to their local networks, are deploying high-speed cable
modems among their cable television subscribers. Local telecommunication
exchange carriers, which generally provide third party Internet service
providers with access to local networks, are deploying high-speed data
transmission technologies to support the provision of Internet services. Other
companies are pursuing the provision of DSL or ISDN as well as wireless
broadband service for Internet use and data transmission.
DSL, the industry's short-hand for digital subscriber lines, enables high
speed data transmissions over traditional copper telephone lines, providing an
economical and easy-to-implement Internet access service. ISDN, the industry's
short-hand for Integrated Services Digital Network, enables the telephone
network to carry information digitally at higher speeds and without the errors
of the traditional analog system. A wireless local loop is a system that
connects subscribers to the public switched telephone network using radio
signals as a substitute for copper telephone lines for all or part of the
connection between the subscriber and the switch. Examples of wireless local
loops include cordless access systems and cellular systems.
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Of the numerous Internet service providers in the United States, many have
chosen to focus on the acquisition of business subscribers, while others have
directed their efforts to obtain individual subscribers. Most large Internet
service providers have also made a major investment in network infrastructure in
anticipation of future high subscriber growth. As a result, the average national
Internet service provider often experiences an extended period of losses as it
works to build a profitable base of subscribers in each of the many markets it
serves. In addition to these losses, national Internet service providers are
exposed to a high level of technological obsolescence risk as Internet access
technology continues to evolve at a very rapid pace.
The development of the international Internet services market promises
similar growth - but with similar risks - as the demand for high-speed Internet
services among individuals, businesses, governments, and educational
institutions continues to increase in Europe, Asia, and Latin America.
STRATEGY
Our business model is to create high user density in each geographic area
we serve, which will allow us to realize substantial marketing and operating
efficiencies. Our growth strategy focuses on continuing to add high-speed
Internet and data services customers in existing markets and to quickly build a
critical mass of subscribers in selected international markets. Each of our
subscribers receives an Internet services package which provides the subscribers
with a pre-specified quantity of data at a high quality of service while
simultaneously offering our subscribers additional Internet related services at
pre-specified rates.
Elements of our business strategy include:
1. ATTRACT AND RETAIN NEW DOMESTIC SUBSCRIBERS - We will continue to
pursue small and medium size businesses, "e-commerce" companies, and
individual customers to enhance particular features of their wireless and
Internet service needs. The services we provide to businesses will include
specifically tailored Internet service packages which permit fast and
reliable Internet access, multiple e-mail accounts, and posting and
updating of the subscriber's Internet listings for a competitive fixed
monthly fee.
2. DEVELOPMENT OF SUBSCRIBERS THROUGH UTILIZATION OF WIRELESS
BROADBAND SYSTEM - To provide our customers with wireless Internet access,
we intend to employ one of the most advanced wireless systems available. We
are currently negotiating with Wireless Internet Access Corporation to
acquire the rights to use and market their wireless broadband system known
as the WIAC 2000. This system was developed and manufactured by IQ-Wireless
GmbH in Germany, a company affiliated with Wireless Internet Access
Corporation.
3. AGGRESSIVE USE OF ADVERTISING TO BUILD OUR SUBSCRIBER BASE - We
will use newspaper, radio, television, and direct mail advertisements to
acquire individual and corporate subscribers quickly. In addition, we
intend to add subscribers by aggressively marketing to current customers of
other commercial Internet service providers.
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4. DEVELOPMENT OF VALUE-ADDED REVENUES STREAMS - We intend to develop
value-added Internet access services, including:
- newly developed DSL technologies;
- dedicated broadband connectivity where customers can order
bandwidth on demand or pay per data consumed;
- wireless Internet services; and
- satellite-aided data connection services, where we purchase video
and other bandwidth-demanding services through a high speed
satellite connection and we deliver internet access to our
customers via high speed wireline or wireless services.
We believe that the development of these new and emerging technologies will
provide an excellent platform for the introduction of new value-added
services to enhance the quality of services which we can offer our existing
and future subscribers.
5. DEVELOPMENT OF SELECTED INTERNATIONAL MARKETS - Utilizing our
knowledge and international contacts, we intend to pursue and expand our
growing subscriber base of corporate, educational, and institutional
subscribers in several international markets, thereby enhancing our
productivity and profitability. We intent to focus on Central America and
Russia in 2001 and expand into other areas of Latin America as well as
Egypt and the Caribbean commencing in 2002.
The proceeds from our offering of common shares will be used primarily to
purchase and install a wireless broadband system, such as the WIAC 2000. The
WIAC 2000 broadband system will provide our subscribers with faster, more
reliable Internet access on a more economical basis than our competitors. It
also will provide subscribers with a wireless local area network or, as it is
known in the industry, a wireless LAN.
A LAN is a group of computers and computer-related devises that share a
common communications line and, typically, a single processor or server within a
small geographic area. LANs permit computers to network so that multiple
computer users can, for example, share a printer or have Internet access.
Wired LANs force users to hard wire their computers. Hard wiring can be
costly, unsightly, time consuming, and slow. With a wireless LAN, such as that
provided by the WIAC 2000 broadband system, the need for hardwiring is
eliminated. Individual subscribers can read and send e-mail even though they are
not hooked up to a telephone line. Business subscribers may operate as
freestanding or movable wireless networks or may extend existing wired networks
without the delay and expense of wired installation. Using this system,
companies can quickly and seamlessly connect their employees, expand existing
networks, support new offices or temporary workgroups, and deliver instant
network access to mobile workers.
Of particular importance, most users connect to each other or the Internet
via (1) a modem at a speed of 56 kilobytes per second, (2) a single ISDN line at
64 kilobytes per second, or (3) a dual ISDN line at 128 kilobytes per second.
With the WIAC 2000 broadband system,
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the connection speed is approximately 30 times faster than our current
performance leader, the dual ISDN line.
The current wireless technologies used by ISPs for Internet services
involve mostly point to point technology to achieve high speed access. These
techniques use equipment that can only serve one customer. WIAC 2000 is produced
by one of only a few manufacturers, and we will be one of only a few ISPs, who
are using the point to multi-point technology.
Technically speaking, the WIAC 2000 broadband system provides Internet
subscribers with a full duplex speed of 4 megabytes per second, operating as a
wireless LAN. It can operate in a wide frequency spectrum, anywhere between 400
megahertz and 4000 megahertz, using a single band of only 5 megahertz. Within
these 5 megahertz, the system allows 1,080 simultaneous calls and therefore up
to 10,000 subscribers per single base station. Furthermore, depending on the
frequency used, the system allows a cell diameter of up to 70 miles, meaning
that the system can serve subscribers as far away as 35 miles from the main
tower.
We are negotiating an agreement with Wireless Internet Access Corporation
which provided us with a license to distribute the WIAC 2000 broadband system
throughout the United States and Latin America. Our relationship with Wireless
Internet Access Corporation originated through Dieter Maschewsky, our Chief
Operating Officer. In early 1990, Mr. Maschewsky assisted a group of engineers
in Germany to develop and produce the first wireless local loop system, a narrow
band system which would permit the wireless transmission over the Internet of
more applications simultaneously and more rapidly. This narrow band system was
sold in 1999 and the group of engineers formed IQ-Wireless GmbH to focus on a
broadband system. IQ-Wireless contacted Mr. Maschewsky in 1999 to assist in the
further development and marketing of the IQ-Wireless broadband system.
IQ-Wireless's United States affiliate, Wireless Internet Access Corporation, has
the exclusive rights to an Internet only version of the IQ-Wireless system known
as the WIAC 2000. Mr. Maschewsky, who had previously joined us as an officer,
has been instrumental in the negotiations for the distribution rights of this
system for us throughout the United States and Latin America.
The success of our growth strategy depends on a number of factors, many of
which are beyond our control. These factors include:
- the rate of new subscriber acquisition and related costs, subscriber
retention, capital expenditures, and other costs relating to the
expansion of operations;
- changes in our pricing policies and those of our competitors,
including those providing free access;
- personnel changes;
- market acceptance of new or enhanced versions of our services;
- changes in operating expenses;
- changes in strategy;
- the introduction of alternative technologies;
- the timing and effect of potential acquisitions;
- increased competition in current and prospective markets;
- future governmental regulation;
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- our inability to obtain the needed frequency spectrum for our planned
wireless Internet operations; and
- other general economic factors.
We must plan and manage effectively during periods of rapid growth. Our
growth will place a significant strain on our managerial, operational, and
financial resources. To manage growth effectively, we must improve our
operational, financial, and management information systems and attract,
integrate, and retain qualified personnel. The successful integration of
acquired businesses and the expansion of our subscriber base will require:
- close monitoring of the quality of our service;
- identification and acquisition of physical sites;
- acquisition and installation of equipment and facilities;
- increased marketing in new and existing markets;
- employment of qualified personnel for such sites; and
- expansion of our managerial, operational, and financial resources.
In addition, acquisitions could negatively affect our operating results due
to dilutive issuances of equity securities, incurrence of additional debt or
amortization of goodwill, and other intangible assets.
SERVICES
We offer Internet services tailored to meet the needs of both individual
and corporate Internet users. For our individual and business subscribers, we
offer the following services:
1. INTERNET ACCESS. The most popular service we presently have is a
dial-up Internet access package which includes basic Internet access and
related Internet applications, such as World Wide Web, and e-mail.
2. WEB HOSTING. We offer web hosting for businesses and other
organizations who wish to create their own World Wide Web sites without
maintaining their own web servers and high-speed Internet connections. This
web hosting service features state-of-the-art servers for high-speed and
reliability, high quality connections to the Internet, and specialized
customer support services.
3. DOMAIN REGISTRATION. We offer web domain registration services to
our business and institutional subscribers which we provide through our
relationship with third party web domain registration services.
4. WEB PAGE DESIGN. We provide web page design and related services at
a fixed pre-pay rate to our business subscribers in a manner which permits
us to market and offer our other Internet access services to the
subscriber. Our services are offered in several different packages to
provide our subscribers with a broad range of choices to satisfy their
Internet needs.
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The majority of our subscribers have monthly or quarterly subscriptions
which are renewed each month or each quarter, as applicable. In addition, our
services may be purchased in one year and two year blocks. In order to enhance
subscriber retention, we have instituted a new six month program so that, rather
than canceling their accounts at the end of the winter season, our subscribers
can suspend service and the related monthly payments for those periods when they
are not in our market area, specifically, during the summer months.
Most subscribers are billed through automatic monthly charges to their
credit cards or automatic debits from their checking accounts; however, payment
by cash or check is also permitted. In addition, we offer discounts on most of
our services for subscribers who prepay for such services.
Our business depends on the capacity, reliability, and security of our
network infrastructure. Delays or failures in connectivity could cause us to
lose subscribers. We must expand and adapt our network infrastructure as the
number of subscribers increases and the amount of information transferred
expands. The expansion and adaptation of network infrastructure will require
substantial financial, operational, and management resources. We may not be able
to timely expand or adapt our network infrastructure to meet additional demand
or changing subscriber requirements at a reasonable cost or at all.
Capacity constraints may occur in system-wide services, such as e-mail. We
could experience delayed delivery from suppliers of new telephone lines, modems,
terminal servers, and other equipment. If these delays are severe, incoming
modem lines may become full during peak times. Further, if we do not maintain
sufficient bandwidth capacity in our network connections, subscribers will
experience a slowdown of Internet services. Similar problems can occur if we are
unable to expand the capacity of our servers for e-mail and the World Wide Web
fast enough to keep up with increasing demand. New broadband technologies will
cause increasing congestion on the Internet backbone. If the capacity of our
servers is exceeded, subscribers will experience delays.
Damage to our equipment from fire, power loss, telecommunications failures,
and similar events could cause service interruptions. Despite precautions,
natural disasters or other unanticipated problems at our headquarters could
cause service interruptions. We do not currently maintain fully redundant
Internet services, backbone facilities, or telecommunications networks. System
failures could result in a loss of subscribers. Our billing and management
information systems are subject to potential damage, malfunction, or other loss.
Any failure of our billing and management information systems could result in
delayed collections and reduced revenues.
Despite security measures, our network infrastructure may be vulnerable to
computer viruses, hacking, or similar problems caused by subscribers or other
persons. Computer viruses or problems could lead to interruptions, delays, or
cessation in service, causing subscribers to seek Internet access from other
providers. Inappropriate use of the Internet by third parties could jeopardize
the security of confidential information stored in our computer systems or our
subscribers' computer systems. In addition, we expect that our subscribers will
increasingly use the Internet for commercial transactions. Any network
malfunction, overload, or security breach
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could cause these transactions to be delayed, not completed at all, or completed
with compromised security, which may result in claims against us. Further, the
security and privacy concerns of existing and potential Internet users may
inhibit the growth of the Internet, and our subscriber base and revenues.
Our future success will depend upon our ability to anticipate and respond
to changing consumer preferences in a timely manner. Failure to adequately
anticipate or respond to such changes could have a material adverse effect on
our business, revenue, and profitability.
SUPPLIERS
Local phone service is available only from Sprint Inc., a local monopoly
telephone company. We rely on Sprint Inc. to supply our dial-in lines which are
used by our customers to dial-in to our servers. Sprint Inc. is currently unable
to support Digital Subscriber Line services in many areas and, therefore, we
cannot offer these services to our subscribers. The DSL technology is rapidly
developing and there are DSL techniques that have either been recently
introduced or will be introduced in the near future. Thus, it is possible that
Sprint will be able to support DSL services in the future. If it becomes
apparent that Sprint will not be able to support DSL services in the foreseeable
future, we intend to expand our ISDN services.
We also rely on Cable & Wireless Inc. to supply us connectivity from our
servers to the Internet backbone, currently through two T1 lines.
These providers may experience disruptions of service or have limited
capacity, which could disrupt our services. In the event of an extended
disruption, we may not be able to replace or supplement these services on a
timely basis or at all.
Because we rely on third-party telecommunications companies for our
backbone connections to the Internet, we face limitations on our ability to
serve our subscribers, including the following:
- we do not control decisions regarding availability of service at any
particular time;
- we may not be able to deploy new technologies because our
telecommunications providers may not be able to support that
technology; and
- we may not be able to negotiate favorable interconnectivity agreements
with other Internet service providers.
At some point in the future, our telecommunications providers may become
our direct competitors.
We also are dependent on third-party suppliers of hardware components.
Increasing demand for these components places a significant strain on suppliers.
There could be delays and increased costs in expanding our network
infrastructure if alternative sources of supply are unavailable.
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SEASONALITY
There is a strong seasonal influence which is associated with our location
in Southwest Florida, a popular winter residence for retirees from northern
States. As a consequence, during the winter months, subscriber numbers increase
rapidly and, during the summer months, they decrease significantly. Our paid and
complementary dial-up Internet access subscriber base at the conclusion of each
calendar quarter during the past two years has been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
2000...................... 2,062 1,856 1,950 --
1999...................... 1,294 1,622 1,551 1,858
</TABLE>
As of November 30, 2000, our subscriber base increased to 2,375, of which
36 were complimentary accounts and 28 were web hosting accounts. We are
investigating ways to provide our subscribers with some level of service when
they are at their summer residences so that we may recapture them as subscribers
when they return to our service area during the winter months.
CUSTOMER CARE
Our goal of 100% subscriber satisfaction begins with providing superior
systems and network performance. We focus on scalability, reliability, and speed
in the technical design and maintenance of our systems. In addition to the
provision of superior systems and network performance, we emphasize high quality
customer care and technical support. We strive to retain our subscribers by
providing prompt responses to their problems, inquiries, and needs.
Individuals and businesses accessing the Internet have many different
computer hardware configurations and widely varying levels of computer
sophistication. Consequently, we must be able to efficiently and effectively
address, among other things:
- problems affecting a wide variety of hardware systems;
- start-up or other basic problems of new subscribers and new Internet
users; and
- highly technical issues that sophisticated subscribers may encounter.
In addition to diagnosing and resolving subscribers' technical problems, we
answer questions concerning account status, respond to software requests, and
provide configuration information. Our subscribers can access all of our
customer support services via telephone or by e-mail. We maintain on our web
site a description of our customer care services and provide technical
assistance.
MARKETING
Our marketing strategy focuses on penetration of selected markets in order
to acquire and attain a critical mass of individual, commercial, and
institutional subscribers to support profitable operations. We use a variety of
sources to communicate our marketing message, including newspaper, radio,
television, and online advertising, as well as targeted direct mail marketing.
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TECHNOLOGY AND DEVELOPMENT
Although we do not focus a significant amount of our resources on
creating new technologies, we constantly evaluate new technologies and
applications for possible introduction or incorporation into our services. Where
appropriate, we intend to partner with other corporations to bring new
technologies to our current and future customers. We believe that we are well
positioned to efficiently market and deploy such new and emerging technologies
as they become available and to incorporate such technologies into the
value-added services we offer.
Currently, we are focusing on our cooperation with Wireless Internet
Access Corporation, a Florida corporation which is affiliated with IQ-Wireless
GmbH, in Germany. We are negotiating an agreement with Wireless Internet Access
Corporation to grant us a license to distribute the WIAC 2000 system throughout
the United States and Latin America. A demonstration unit of the WIAC 2000
system will be delivered by Wireless Internet Access Corporation midyear in
2001. We plan to field test the unit for three months with approximately 20
subscribers prior to offering the system generally to our subscribers. Assuming
a successful field test of the system, we anticipate being able to offer the
system to our general subscribers in Florida no later than early 2002.
Before we can begin our field test, however, we must obtain an
experimental license from the Federal Communications Commission. On October 6,
2000, we applied to the FCC for an experimental license to provide wireless
Internet services to selected customers. We received a letter from the FCC,
dated October 26, 2000, acknowledging our application and informing us to allow
90 days for the FCC to process our application.
If the field testing of the WIAC 2000 system are unsuccessful or do not
meet our expectations, we intent to test other wireless systems on the market
suitable to provide wireless Internet services to our subscribers.
We anticipate that these types of relationships will give us the
opportunity to stay ahead in communications and software technology.
COMPETITION
The market for the provision of Internet access services to
individuals, corporations, and institutions is extremely competitive and highly
fragmented. There are no substantial barriers to entry, and we expect that
competition will continue to intensify. We believe that several of the primary
competitive factors in determining our success are:
- reputation for reliability and service;
- pricing;
- effective customer support;
- access speed;
- access to capital;
- creative marketing;
- easy-to-use software; and
- graphic coverage.
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We believe that new competitors will continue to enter the Internet
services market. In addition, as public awareness and use of the Internet grows,
existing competitors are likely to further increase their emphasis on Internet
access services, resulting in even greater competition. The ability of our
competitors to enter into business combinations, strategic alliances, or joint
ventures, or to bundle other services and products with Internet access could
effect our business, financial condition, and operations.
Our current and prospective competitors include many companies which
have varying degrees of market presence, financial resources, and technical
expertise. We currently compete or expect to compete with the following types of
Internet service providers:
- commercial on-line service providers, such as America OnLine;
- other local, national, and regional Internet service providers,
including Sunline and EarthLink;
- computer hardware and software companies, such as IBM, Microsoft,
Dell, and Gateway;
- regional and national telecommunication providers, including AT&T,
MCI WorldCom, and Sprint;
- cable television operators, such as Comcast, Time Warner, Inc.,
and AT&T;
- wireless communications companies;
- satellite companies; and
- nonprofit and educational Internet access providers.
Many of these competitors have significantly broader market presence
and brand recognition and much greater financial, technical, and marketing
resources. Some of these competitors also have extensive coast-to-coast access
to Internet backbones, which provides greater scalability and the ability to
provide better service quality.
We face increased competition from ISPs that provide free Internet
access to consumers, including Juno Online Services, Freei.Net, and NetZero.
Under this "free access" business model, revenues are derived primarily from
companies that place advertisements in small banners or windows on users'
computer screens while they are online. Subscribers to these free services are
generally required to provide demographic information which is used by
advertisers to deliver targeted messages to the users' screens that cannot be
closed or removed. ISPs employing this business model could continue to attract
a sizable number of users and exert pressure on prices.
We also expect to face competition in the future from companies that
provide direct Internet connections to consumers' homes and businesses,
including national and regional telecommunication providers, cable companies,
electric utility companies, and terrestrial and satellite wireless
communications companies. For example, cable television operators offer Internet
access through their cable facilities at significantly faster rates than
existing analog modem speeds. Such companies and other telecommunications
carriers include Internet access in the basic bundle of services which they
already provide, or offer such Internet access for a nominal additional charge.
Such bundling of services may make it difficult for us to compete
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with telecommunications providers and may force us to lower prices, resulting in
reduced revenues.
New competitors, including large computer hardware and software, media,
and telecommunications companies, as well as wireless communications companies,
satellite companies, and nonprofit or educational Internet access providers may
continue to enter our Internet services market, resulting in greater
competition.
Competition could also result in increased selling and marketing
expenses, related customer acquisition costs, and customer attrition, all of
which could adversely affect our operations and financial condition. We may not
be able to offset the effects of such increased costs which could result in
deteriorating profit margins or losses.
Our entry into new markets will involve substantial expenditures on
advertising, customer care, and other operating needs. To remain competitive, we
may not be able to increase subscription fees to match these increasing expenses
and could experience deteriorating profit margins or losses.
We intend to compete in this highly competitive market by introducing
domestically and internationally a state-of-the-art broadband wireless Internet
access system which will provide faster, more reliable Internet access for our
subscribers on a more economical basis than our competitors.
GOVERNMENT REGULATION
We currently provide Internet access through transmissions over public
telephone lines. These transmissions are governed by state and federal
regulatory policies establishing charges and terms for communications. Although
currently we are not directly regulated by the Federal Communications Commission
or any other federal or state agency, changes in the regulatory environment
relating to the Internet access market could affect the prices at which we sell
our services. These changes may include regulatory changes which directly or
indirectly affect telecommunications costs or increase the likelihood or scope
of competition from local or regional telephone operating companies or other
telecommunications companies. For example, the imposition of interstate access
charges on local telephone companies or the elimination of reciprocal
compensation on local telephone companies may increase our costs of serving
dial-up subscribers.
Furthermore, the FCC may, in the future, reconsider its past ruling
that Internet access providers should be classified as unregulated "information
service providers" rather than regulated "telecommunications providers." In that
event, Internet service providers would be required to pay a percentage of their
gross revenues to the universal service fund, which subsidizes phone service for
rural and low income consumers and supports Internet access among schools and
libraries. If the FCC were to require universal service contributions from
providers of Internet access or Internet backbone services, our costs of doing
business could increase substantially, and we may not be able to recover these
costs from our subscribers.
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Currently, our services are not subject to Florida state sales tax.
Accordingly, we are not responsible for collecting or remitting sales taxes to
the State of Florida. Our liability for collecting such sales taxes may vary in
other states and jurisdictions in which we provide services to our subscribers.
Based on our planned introduction of wireless Internet services, we
will be subject to the Federal Communications Commission's rules and
regulations. The FCC may choose at any time to:
- change their rules or regulations,
- deny usage of the necessary frequency spectrum,
- withdraw given licenses or permits, or
- convert a previously granted frequency spectrum to a different use or
introduce regulatory rules for Internet or wireless Internet providers.
There can be no assurance that our operations will not be effected by regulatory
changes at the FCC and a likelihood therefore exists, that our business, growth
strategies, financial condition, and results of operations could be
significantly affected.
To develop and maintain our planned wireless Internet operation we will
need to obtain and retain two separate licensed frequency spectrum bands of 5
megahertz each or, if we utilize certain advanced technologies, one frequency
spectrum of 5 megahertz. The FCC regulates frequency spectrum. Frequency
spectrum are divided into licensed spectrum, which are exclusive to the license
holder, and unlicensed spectrum, which can have multiple users. We do not plan
on using an unlicensed spectrum as this could cause problems for our future
operations. Transmitting on an unlicensed frequency into a building, for
example, could cause other or future users of the same frequency inside such
building to report interference to the FCC. This could result in the disruption
of our service to our customers in that particular locality.
We therefore only plan to use licensed spectrum for our operation. This
kind of spectrum, however, is being sold or auctioned on a continuous basis by
the FCC. Obtaining a licensed frequency spectrum could be very expensive. There
is a possibility that we might not be able to acquire the spectrum of 5
megahertz which is necessary to operate our wireless system in the chosen area
or that the spectrum might already be sold or auctioned to another company.
There is also the possibility that the frequency spectrum purchased by us might
be reallocated to a different use or that the transmission limits might be
introduced.
We have limited control over our subscribers' online practices and the
information passed through or stored on our computer systems. We may be liable
for information disseminated through our network. During the last several years
several lawsuits have been brought against Internet service providers which have
sought to impose liability for defamatory speech and infringement of copyrighted
materials. The possible imposition of liability upon Internet service providers
for materials disseminated through their computer systems could require us to
implement measures to reduce our exposure. These measures, as well as existing
and proposed federal and state regulations and laws may require the expenditure
of substantial resources or the discontinuation of some product or service
offerings.
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In addition, the Communications Decency Act of 1996 imposes fines on
any entity that by means of: (a) a telecommunications devise, knowingly sends
indecent or obscene material to a minor; (b) by means of interactive computer
service, sends or displays indecent material to a minor; or (c) permits any
telecommunications facility under such entity's control to be used for the
purposes set forth in (a) and (b) above. The specific standard set forth for
determining whether an Internet service provider has acted knowingly concerning
alleged violations of the Communications Decency Act of 1996 have not yet been
firmly established. There are defenses to liability under the statute, but such
defenses may not be applicable. Although we do not actively monitor the content
of our subscribers' Internet transmissions, a court may determine that we have
knowledge of such content. Although no such claims or lawsuits have been
asserted against us to date, there can be no assurance that, if we were
prosecuted, any defenses to liability would be applicable.
The Digital Millennium Copyright Act of 1998 provides limited
protection for us and other Internet service providers from copyright
infringement liability, provided that we comply with the Act's requirements,
including the requirements that we, as an Internet service provider: (a) adopt
and reasonably implement a policy of terminating, in appropriate circumstances,
the accounts of our subscribers who repeatedly violate and infringe upon
copyright laws; and (b) remove materials from our users' websites that appear to
constitute copyright infringement. While the Digital Millennium Copyright Act
limits copyright infringement liability for simply transmitting information over
the Internet, much of the specific case law which interprets the Digital
Millennium Copyright Act has yet to be decided and established.
Due to the increasing popularity and use of the Internet, it is
possible that additional federal, state, or other laws and regulations may be
adopted with respect to the Internet. These laws and regulations may address
issues such as content, privacy, pricing, encryption standards, consumer
protection, fraud, electronic commerce, taxation, copyright infringement, and
other intellectual property issues. We cannot predict the impact that any future
regulatory changes or developments may have upon our business, financial
condition, and results of operations; however, future legislation could slow the
growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications medium and could expose us to significant
liability.
Governing federal tax statutes are subject to continual evolution by
judicial decisions and administrative interpretations, and may be amended,
revoked, or replaced at any time, either prospectively or retroactively, by new
legislation. Additional regulations relating to the Internet access industry,
including those that increase taxation on our services or otherwise affect
telecommunication costs or increase competition from regional telephone
companies or others, could have a material adverse effect on our business,
revenue, and profitability.
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PROPERTIES
Our corporate headquarters are located in Charlotte County, Florida, at
204 E. McKenzie Street, Unit D, Punta Gorda, Florida 33950, where all of our
executive functions exist and are performed. Our corporate headquarters and
facilities, consisting of approximately 2,400 square feet, are currently
subleased on a month-to-month basis from a company affiliated with our President
and principal stockholder. There is currently no written lease for this space
and we believe that our monthly rent is below market for this area. We do not
own or lease any other real estate. We believe that our facilities are
adequately maintained and suitable for their present use.
PERSONNEL
As of November 30, 2000, we had five full-time employees. We anticipate
that the development of our business will require that we hire additional
employees in the near future. None of our employees are represented by a labor
organization or union.
LEGAL PROCEEDINGS
We are not involved in any material pending legal proceedings.
MANAGEMENT
The board of directors of ISNI is set at five members. The directors
and executive officers of ISNI are as follows:
NAME AGE POSITION
---- --- --------
Werner K. Ebner 53 President, Chief Executive Officer, and director
Dieter Maschewsky 54 Chief Operating Officer, Vice-President, and
director
J. Lesly Benoit, Jr. 29 Chief Financial Officer, Secretary, and director
Dr. Reinhard Schiffel 57 director
Jeremy Scott Joiner 36 director
Werner K. Ebner
Mr. Ebner has served as our President, Chief Executive Officer, and a
director since the merger with our predecessor, Internet Services Network, Inc.,
in March 2000. From October 1997 to March 2000, Mr. Ebner served in those same
capacities with Internet Services, which he founded. From April 1995 until the
present, Mr. Ebner also has served as the President and a director of Ebner
Corporation, an import/export computer wholesaler which he founded. He is fluent
in both German and English.
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From May 1973 until October 1997, Mr. Ebner served as President of
Panatronic AG, a distributor of electronic components, integrated circuits,
mainframe computers, personal computers, and PC components. By November 1997,
when it was sold to a publicly traded company, Panatronic AG had over 60
employees and revenues in excess of $50 million. From May 1984 until October
1996, Mr. Ebner was President of Panatronic Far-East, a computer manufacturing
facility in Taiwan that supplied personal computers to Panatronic AG and other
vendors for distribution in Europe and Asia.
Dieter Maschewsky
Mr. Maschewsky has served as our Chief Operating Officer,
Vice-President, and a director since the merger in March 2000. He currently is a
director of 3D Communications Ltd., a company engaged in wireline and wireless
communications in Cairo, Egypt. He also is a director of Telecell Inc. and
Telecell International Inc., both of which are engaged in telecommunication
consulting services and wireless local loop systems design and engineering. He
is a consultant to IQ-Wireless GmbH in Berlin, Germany, a company developing
state-of-the-art wireless communication systems, and a director in Wireless
Internet Access Corporation, a company affiliated with IQ-Wireless. None of
these companies are required to file reports with the SEC.
From July 1993 until March 2000, Mr. Maschewsky was President of
Telecell Inc. From July 1994 to April 1995, he also worked as a consultant to
Christiani & Nielsen plc, in Bangkok, Thailand, where he was responsible for the
formation, registration, and capitalization of a new subsidiary company,
Christiani & Nielsen AG, in Berlin.
Mr. Maschewsky earned his Masters Degree in Science at the University
of Clausthal-Zellerfeld in Germany. He is fluent in German and English, and
speaks Italian and Russian.
J. Lesly Benoit, Jr.
Mr. Benoit has served as our Chief Financial Officer, Secretary, and a
director since the merger with our predecessor in March 2000. From February 2000
to March 2000, Mr. Benoit served as Director of Finance and Chief Financial
Officer of our predecessor corporation, Internet Services. From January 1999
until his promotion in February 2000, he served as Controller of Internet
Services, Ebner Corporation, and Computer Center Corp., all companies
wholly-owned by Mr. Ebner at that time. From October 1998 until January 1999, he
was a manager for Ebner Corporation. From September 1997 to June 1998, Mr.
Benoit was general manager of Club Benjamenz, a social club in North Carolina,
responsible for general management, promotion, marketing, and accounting. From
January 1996 to August 1997, he was an accounting clerk/bookkeeper at PLD
International Corporation, a Florida-based fragrance wholesaler.
While Mr. Benoit currently devotes the majority of his time to our
business, he also provides administrative services to Ebner Corporation and
Computer Center Corp. He is fluent in English, French, and Spanish.
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Prof. Dr. Reinhard Schiffel
Dr. Schiffel has served as one of our directors since the merger with
Internet Services in March 2000. From January 2000 until the present, Dr.
Schiffel has served as Chief Executive Officer of IQ-Wireless GmbH, a German
corporation, which developed and manufactures the IAP Wireless Broadband System.
From January 1995 to December 1999, Dr. Schiffel was the Head of Research and
Development at Jenoptik Communications GmbH, a German company, which
manufactured wireless local loop systems and other wireless telecommunication
products.
Dr. Schiffel graduated from the Technical University of Dresden,
Germany, with a Dr.sc.techn. Dr. Schiffel is fluent in German and Russian and
speaks English.
Jeremy Scott Joiner
Mr. Joiner has served as one of our directors since the merger with
Internet Services in March 2000. From August 1997 to the present, Mr. Joiner has
been a certified public accountant and shareholder of the accounting firm of
Loricco, Williams, Crosland and Joiner, CPA, P.A. Mr. Joiner's current
accounting practice involves consulting, financial statements, audits, tax
compliance, research and planning, and write-up services. From October 1990 to
August 1997, Mr. Joiner was a certified public accountant with Webb, McQueen &
Co.
Mr. Joiner received a Bachelor of Science in Accounting degree, with
honors, from Oral Roberts University and also has received a Masters degree,
with honors, in Accounting from the University of Florida.
OTHER MANAGEMENT INFORMATION
Our board of directors met once from the time of our incorporation in
1999. As of the date of this prospectus, we do not have any committees of the
board of directors. Our board of directors intends to authorize the formation of
an Audit Committee and a Compensation Committee after our next annual meeting of
stockholders.
At the present time, directors receive no regular compensation for
their services on the Board. In 2000, however, Mr. Ebner gifted 250,000 shares
of common stock to each of Messrs. Benoit and Maschewsky and 10,000 shares of
common stock to each of Messrs. Schiffel and Joiner. Although we intend to
compensate our directors in the future, we do not currently have a plan to do
so. It is contemplated that any such compensation will involve stock and may
have a cash component. We also intend to reimburse directors for out-of-pocket
expenses for attending Board meetings.
Each director serves until the next annual meeting of our stockholders
and until his or her successor has been elected or until his or her prior death,
resignation, or removal. Each executive officer holds office until his successor
has been appointed or until his prior death, resignation, or removal. There are
no family relationships among our directors and executive officers.
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<PAGE> 39
SUMMARY COMPENSATION TABLE
The table below gives information regarding all annual, long-term, and
other compensation paid by us or our predecessor to our Chief Executive Officer
for the six months ended June 30, 2000, and the fiscal years ended December 31,
1999, and 1998. There are no executive officers whose total annual salary and
bonus exceeded $100,000 for services rendered during any of the years indicated
below. The individual listed below in this table is referred to elsewhere in
this prospectus as the "named executive officer."
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)
-------------------------------------- -------- ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Werner K. Ebner, 2000 * $17,500 $0 $0
President and Chief 1999 $26,000 $0 $0
Executive Officer 1998 $13,000 $0 $0
</TABLE>
--------
*six months
We do not have employment agreements with any of our officers or
employees. No stock options were granted during the fiscal year ended June 30,
2000, to the named executive officer or any other officer or employee.
RELATED PARTY TRANSACTIONS
During the fiscal year ended June 30, 2000, we received advances from
our principal stockholder, Werner K. Ebner, as well as from Computer Center
Corp. and Ebner Corporation, both of which are wholly owned by Mr. Ebner. As of
June 30, 2000, we owed $16,498 to Ebner Corporation for management services and
advances for operating expenses, and $143,750 to Mr. Ebner for consulting fees
related to our merger and for a portion of the accounting and attorney fees
related to registering our shares of common stock. We have recorded interest
expense using market rates for similar "arms-length" transactions. Interest
expense charged to operations including interest on lines of credit totaled
$7,823, $7,990, and $6,766 for the six months ended June 30, 2000, and the years
ended December 31, 1999 and 1998, respectively. We also owe $5,921 to Ebner
Corporation for a capital lease obligation as of June 30, 2000. This lease is
for a piece of equipment which contains the modems necessary for our customers
to dial-in to the Internet. We also paid a management fee of $2,375 during the
year ended June 30, 2000, to Ebner Corporation for management services.
We also sub-lease office space from Ebner Corporation. Our
month-to-month agreement provides for monthly rent of $882, as well as a pro
rata share of all real estate taxes, utilities, insurance, and maintenance of
the property. Fair market value rental expense charged to operations under this
lease totaled $9,264, $18,529 and $18,527 for the six months ended June 30,
2000, and the years ended December 31, 1999 and 1998, respectively.
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<PAGE> 40
We are currently negotiating an agreement for rights to use and market
the WIAC 2000 with Wireless Internet Access Corporation. Mr. Maschewsky is a
director of Wireless Internet Access Corporation and a consultant to its parent
company, IQ-Wireless GmbH. In addition, Dr. Schiffel is the Chief Executive
Officer of IQ-Wireless GmbH. The terms of this agreement have not been
finalized.
Gilbert H. Davis is our founder and served as our President, Secretary,
and sole director from the time of our formation in August 1999 until the merger
with Internet Services in March 2000. Mr. Davis did not receive compensation for
his services as our initial officer and director; however, we issued 2,500,000
shares to Mr. Davis for $0.0002 per share in August 1999.
On September 5, 1999, we entered into an agreement with Coral Capital
Partners, Inc. to provide us with financial advisory services regarding the
development and implementation of our business plan and to supervise the search
for potential candidates for a business combination. Coral Capital is owned by
Erik S. Nelson. In September 1999, we issued 100,000 shares of common stock to
Mr. Nelson for $0.0002 per share. In addition, Internet Services paid $25,000 to
Coral Capital on March 22, 2000, the date on which we entered into the merger
agreement with Internet Services. On March 23, 2000, the date the merger became
effective, Internet Services paid an additional $100,000 to Coral Capital,
representing all sums which remained due and owing under the agreement with
Coral Capital.
Each of Messrs. Ebner, Maschewsky, Davis, and Nelson and Dr. Schiffel
is a selling stockholder and is offering for resale shares of our common stock.
INDEMNIFICATION
Our directors and officers are entitled to statutory rights to be
indemnified by us against litigation-related liabilities and expenses if the
director or officer is either successful in the defense of litigation or,
whether or not he is successful, is found not to have engaged in willful
misconduct, knowingly violated the law, failed to deal fairly with us or our
stockholders, or derived an improper personal benefit in the performance of his
duties to us. These rights are incorporated in our amended and restated
certificate of incorporation and bylaws.
In addition, our amended and restated certificate of incorporation
provides that our directors are not liable for monetary damages for breach of
their fiduciary duty as directors except for:
- any breach of the director's duty of loyalty to us or our stockholders;
- any act or omission by the director not in good faith or which involved
intentional misconduct or a knowing violation of law;
- any unlawful payment of dividends or unlawful stock purchases or
redemptions in violation of Delaware law; or
- any transaction from which the director derived an improper personal
benefit.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons, we
have been advised that, in the opinion of
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<PAGE> 41
the SEC, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. Other than the payment by us of
expenses incurred or paid by our directors, officers, or controlling person in
the successful defense of any action, suit, or proceeding, in the event that a
claim for indemnification against such liabilities is asserted by such director,
officer, or controlling person in connection with any shares being registered
with the SEC, we will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers, directors, and persons who are beneficial owners of more than 10% of
our common stock to file reports of ownership and changes in ownership with the
SEC. These reporting persons are required by SEC regulations to furnish us with
copies of all Section 16(a) reports filed by them. Based on our review of the
Section 16(a) reports received by us, we believe that, during the fiscal year
ended June 30, 2000:
- None of our officers or directors prior to the merger, namely
Gilbert H. Davis and Erik S. Nelson, filed any Section 16(a)
reports;
- Messrs. Ebner, Benoit, Maschewsky, and Schiffel filed their
Form 3s three months late; however, at the time the filings were
due, only Mr. Ebner owned any of our stock;
- Messrs. Ebner, Benoit, and Maschewsky filed their Form 4s two
months late to report the gift by Mr. Ebner of 250,000 shares to
each of Messrs. Benoit and Maschewsky as well as the gift of
additional shares of stock to other employees.
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial
ownership of our common stock as of November 30, 2000 by:
- each stockholder known by us to be the beneficial owner of more than
5% of our common stock;
- each director;
- the named executive officer; and
- all directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of
the Securities and Exchange Commission. Unless otherwise indicated, the persons
included in the table have sole voting and investment power with respect to all
shares beneficially owned.
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<PAGE> 42
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED
------------------------------------------
NUMBER PERCENT
-------------------- --------------------
<S> <C> <C>
Werner K. Ebner........................................................ 23,208,000 87.05%
J. Lesly Benoit, Jr.................................................... 250,000 .94
Dieter Maschewsky...................................................... 250,000 .94
Reinhard Schiffel...................................................... 10,000 .04
Jermey Scott Joiner.................................................... 10,000 .04
All five directors and
executive officers as a group....................................... 23,728,000 89.00%
</TABLE>
The address for each of the persons named above is c/o ISNI.net, Inc.,
204 East McKenzie Street, Unit D, Punta Gorda, Florida 33950. The number of
shares owned by Mr. Ebner and by all directors and executive officers as a group
includes 100,000 shares of common stock owned by Mr. Ebner's spouse and 100,000
shares of common stock held by Mr. Ebner's minor children.
DESCRIPTION OF SECURITIES
The following brief description of the provisions of our amended and
restated certificate of incorporation and bylaws does not purport to be complete
and is subject in all respects to the provisions of the certificate and bylaws.
Copies of our certificate and bylaws have been filed as exhibits to the
registration statement, of which this prospectus forms a part. More information
about our registration statement can be found in this prospectus under the
heading "Where Can I Find More Information."
Our authorized capital stock consists of 100,000,000 shares of common
stock, and 20,000,000 shares of preferred stock, each having a par value of
$.0001 per share. As of November 30, 2000, there were 26,661,000 shares of
common stock, and no shares of Preferred Stock, outstanding. Our common stock
was held by 38 stockholders. All outstanding shares of common stock are fully
paid and non-assessable. At our fiscal year end, we had warrants to purchase
2,650,000 shares of our common stock outstanding; however, on August 30, 2000,
we entered into an agreement with the holders of our warrants to cancel all of
these warrants. As of the date of this prospectus, we did not have any warrants
that remained outstanding.
COMMON STOCK
All holders of record of validly issued and outstanding shares of our
common stock are entitled to one vote per share on any matter to be voted upon
by our stockholders. A majority of the shares entitled to vote, present in
person or by proxy, will constitute a quorum of our stockholders. A majority
vote of a quorum of our stockholders is sufficient to approve any action which
requires the vote or concurrence of our stockholders, unless otherwise required
or permitted by law or our bylaws. Our common stock does not have cumulative
voting rights. As a result, holders of more than 50% of our common stock can
generally elect all of our directors.
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<PAGE> 43
Holders of our common stock do not have preemptive or other rights to subscribe
for additional shares nor any other rights to convert their common stock into
any other securities.
Subject to the preferences that may be applicable to the holders of any
outstanding shares of our preferred stock, holders of our common stock are
entitled to receive ratably such dividends on our common stock as may be
declared by our board of directors out of funds legally available for the
payment of dividends. The payment by us of dividends rests within the discretion
of our board of directors and will depend upon our operating results, financial
condition, and capital expenditure plans, as well as other factors considered
relevant by our board of directors. In the event of our liquidation,
dissolution, or winding up, holders of our common stock are entitled to share
ratably in all assets of ISNI remaining after payment of liabilities, subject to
the preferences that may be applicable to the holders of any outstanding shares
of our preferred stock.
PREFERRED STOCK
Our Board is authorized to issue up to 20,000,000 shares of preferred
stock in one or more series and to establish the number of shares of each series
and the powers, preferences, rights, qualifications, limitations, and
restrictions of such series.
The issuance of preferred stock by our board of directors could be used
as a method of delaying or preventing a change in control involving us and could
permit our board of directors, without any action by holders of common stock, to
issue preferred stock which could have a detrimental effect on the rights of
holders of common stock, including loss of voting control. This could have the
effect of decreasing the market price of the common stock to the extent that the
market price of our stock is based, at least in part, upon an anticipated change
in control.
We have no current plans to issue any shares of preferred stock of any
series. The issuance of any series of preferred stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, our
future capital needs, the then-existing market conditions, and other factors
that, in the judgment of our board of directors, might warrant the issuance of
preferred stock.
IMPORTANT PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Our bylaws, consistent with Delaware law, provide that any action that
may be taken at a meeting of our stockholders may be taken without a meeting,
prior notice, or vote, if (1) such action is authorized by the written consent,
setting forth the action so taken, signed by the holders of outstanding voting
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote were present and voted and (2) such written consent is delivered to us at
our principal executive offices. Prompt notice of any action taken without a
meeting by written consent must be given to those stockholders who did not
consent in writing. Generally, this provision would permit Mr. Ebner to take
action by written consent so long as he owns 50% or more of our common stock.
Although not required by Delaware law, federal securities laws may require us
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<PAGE> 44
to file with the SEC and provide to our stockholders an information statement
prior to the effectiveness of the action taken containing the same type of
information as would be required in a proxy statement if proxies had been
solicited.
Our bylaws provide that special meetings of our stockholders may be
called by our president or by the secretary at the written request of a majority
of the board of directors or of the holders of 25% of all stock outstanding and
entitled to vote. This provision may make it difficult for stockholders to take
action opposed by the Board.
Our amended and restated certificate of incorporation provides that our
bylaws may be amended or repealed by the board of directors, subject to repeal
or change by action of the stockholders. So long as Mr. Ebner owns 50% or more
of our common stock, he will be in a position to control the provisions
contained in our bylaws.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of common stock after the date
of this prospectus could impair our ability to raise additional capital through
the future sale of equity securities. After the issuance of the shares offered
by us under this prospectus, we will have 27,861,000 shares of common stock
outstanding, of which 2,396,000 shares will be freely tradable without
restriction under the federal securities laws, unless those shares are held by
our affiliates. The term "affiliates" includes Mr. Ebner, our principal
stockholder, and our other executive officers and directors.
The remaining 25,465,000 shares of common stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act. These
shares may only be resold in compliance with an exemption from registration,
such as the exemption provided by Rule 144. Shares held by our stockholders
prior to the merger with Internet Services Network, Inc. are not eligible for
resale under Rule 144. In general, under Rule 144 as currently in effect, a
person who has beneficially owned restricted shares for at least one year is
entitled to sell in a brokerage transaction or through a market maker, within
any three-month period, the number of shares that does not exceed the greater of
(a) 1% of our then outstanding shares or (b) the average weekly trading volume
of our then outstanding shares during the four calendar weeks preceding such
sale. In addition, a person who has owned our shares for at least two years is
entitled to sell such shares under Rule 144 without regard to the manner of sale
and volume limitations described above unless that person is deemed to be our
affiliate. Our affiliates may only use this exemption if they comply with the
manner of sale and volume limitations. There has been no public market for our
common stock and any sale of a substantial number of shares in the open market
may adversely affect the market price of our common stock.
Prior to the merger, we issued warrants to purchase additional shares
of our common stock. All of the warrant holders also held shares of our common
stock and had the contractual right to have their shares registered by us. We
decided, and the warrant holders agreed, that it would be in our mutual best
interest to cancel the warrants prior to the effective date of this prospectus.
Thus, we no longer have outstanding warrants or any other option or rights to
purchase shares of our common stock.
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<PAGE> 45
PENNY STOCK RULES
If our common stock trades at a price below $5.00 per share, it will be
subject to the rules promulgated under the Securities Exchange Act of 1934
requiring additional disclosures by broker-dealers. These rules generally apply
to "penny stocks" which are any non-NASDAQ equity securities that have a market
price of less than $5.00 per share, subject to exceptions that are specified in
the rules.
The penny stock rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
associated risks. These rules also impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. An accredited investor is generally defined as an
investor with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 individually or $300,000 together with a spouse. For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to the sale. The broker-dealer also must disclose the
commissions payable to the broker-dealer, current bid and offer quotations for
the penny stock and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market.
Such information must be provided to the customer orally or in writing
before or with the written confirmation of trade sent to the customer. Monthly
statements must be sent disclosing recent price information for the penny stock
held in the account and information on the limited market in penny stocks. The
additional burdens imposed upon broker-dealers by such requirements could
discourage broker-dealers from effecting transactions in our common stock which
could severely limit the market liquidity of our common stock and our
stockholders' ability to sell them.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Jersey
Transfer & Trust Co, Verona, New Jersey.
SELLING STOCKHOLDERS
The 2,396,000 shares of our common stock described in this prospectus
include 1,196,000 stockholders shares currently held by the selling
stockholders. The shares of common stock are being registered to permit public
secondary trading of the shares and the selling stockholders may offer the
shares for resale from time to time.
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<PAGE> 46
Information regarding beneficial ownership of our common stock by the
selling stockholders as of November 30, 2000 follows. Under the rules of the
SEC, Mr. Ebner is deemed to beneficially own the 100,000 shares registered to
Francie Ebner, his wife, and the 100,000 shares registered to Marc and Patrick
Ebner, his minor children. The number reported in the table below includes the
shares held in his own name and those held by his family. The table assumes that
the selling stockholders and ISNI sell all shares offered under this prospectus.
We can make no assurance as to how many of the shares offered that the selling
stockholders will in fact sell or at what price or prices.
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY OWNED
BENEFICIALLY AFTER OFFERING
OWNED BEFORE SHARES BEING ---------------------------------
NAME OF SELLING STOCKHOLDER OFFERING OFFERED NUMBER PERCENTAGE
----------------------------------------------------------------- ---------------- ---------------------------------
AFFILIATED SELLING STOCKHOLDERS:
<S> <C> <C> <C> <C>
J. Lesly Benoit, Jr.......................... 250,000 50,000 200,000 0.72%
Francie Ebner................................ 100,000 20,000 80,000 0.29
Marc Ebner................................... 50,000 10,000 40,000 0.14
Patrick Ebner................................ 50,000 10,000 40,000 0.14
Werner K. Ebner.............................. 23,208,000 641,000 22,567,000 81.00
Jeremy Scott Joiner.......................... 10,000 2,000 8,000 0.03
Dieter Maschewsky............................ 250,000 50,000 200,000 0.72
Reinhard Schiffel............................ 10,000 2,000 8,000 0.03
Total Affiliated Selling Stockholders: 23,728,000 745,000 23,983,000 82.49%
NONAFFILIATED SELLING STOCKHOLDERS:
Canyon Group LLC............................. 1,000 1,000 0 0.00%
Claudio Cisullo.............................. 100,000 20,000 80,000 0.29
Stephen C. Crumpton.......................... 1,000 1,000 0 0.00
John Patrick Daly............................ 1,000 1,000 0 0.00
Gilbert H. Davis............................. 605,734 121,000 484,734 1.64
Nathan Max Degyansky......................... 1,000 1,000 0 0.00
ESN Financial, L.P........................... 506,666 50,000 456,666 1.71
Aurora S. Estepa............................. 18,000 18,000 0 0.00
Justin M. Hoehn.............................. 1,000 1,000 0 0.00
Gerald B. Kline.............................. 86,533 17,000 69,533 0.25
Martin Koenig................................ 5,000 1,000 4,000 0.01
David R. Lesch............................... 1,000 1,000 0 0.00
Jeffrey J. Love.............................. 1,000 1,000 0 0.00
Gary Luckemby and Joanne Majerus............. 1,000 1,000 0 0.00
Richard G. Manzardo.......................... 1,000 1,000 0 0.00
Adam Edward McPherson........................ 1,000 1,000 0 0.00
Glenn Russell Miller......................... 1,000 1,000 0 0.00
Donald Clinton Mohlmaster III................ 5,000 1,000 4,000 0.01
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
SHARES SHARES BENEFICIALLY OWNED
BENEFICIALLY AFTER OFFERING
OWNED BEFORE SHARES BEING ---------------------------------
NAME OF SELLING STOCKHOLDER OFFERING OFFERED NUMBER PERCENTAGE
----------------------------------------------------------------- ---------------- ---------------------------------
<S> <C> <C> <C> <C>
Raymond L. Moss.............................. 86,533 17,000 69,533 0.25
Erik Sterling Nelson......................... 96,000 10,000 86,000 0.31
Jeffrey Martin Palmer........................ 40,000 1,000 39,000 0.14
Dianna Lynn Sandora.......................... 4,000 1,000 3,000 0.01
Jerry L. Sims................................ 86,533 17,000 69,533 0.25
Sterling Investment Services, Inc............ 769,334 122,000 647,334 2.32
Summit Venture Partners Fund I, LLC.......... 408,667 20,000 388,667 1.40
L. B. Vaughan................................ 1,000 1,000 0 0.00
John Robert Wallace.......................... 1,000 1,000 0 0.00
Mark A. Wisor................................ 1,000 1,000 0 0.00
Fing S. Yu................................... 100,000 20,000 80,000 0.29
Julie Zimmerman.............................. 1,000 1,000 0 0.00
Total Nonaffiliated Selling Shareholders: 2,933,000 451,000 2,482,000 9.31
TOTAL........................................... 26,661,000 1,196,000 25,465,000 91.40%
</TABLE>
Some of the individuals listed above are employed by us. Mr. Benoit is
our Chief Financial Officer and Secretary and one of our directors. Mr. Ebner is
our Chief Executive Officer and President and one of our directors. Mr.
Maschewsky is our Chief Operating Officer and Vice President and one of our
directors. Messrs. Mohlmaster, Palmer, and Mr. Yu and Ms. Sandora are
non-officer employees. In addition, Mr. Davis was an officer, and Messrs. Davis
and Nelson were our promoters, prior to the merger with Internet Services. Mr.
Nelson is the sole stockholder, officer, and director of Sterling Investment
Services, Inc. Except as noted above, the selling stockholders have not had a
material relationship with us within the past three years.
Regulation M promulgated under the Securities Exchange Act of 1934
prohibits us, any selling stockholder, or any other person connected with a
distribution of our common stock from directly or indirectly bidding for, or
purchasing for any account for which he or she has a beneficial interest, any of
our common stock or any right to purchase our common stock, for a period of five
business days before the offering until such person is no longer a participant
in the distribution. During the time a selling stockholder participates in this
distribution of our common stock, Regulation M prohibits that selling
stockholder from engaging in any stabilizing bid. In addition, no distribution
participant may effect any stabilizing transaction to facilitate any offering at
the market.
Since the nonaffiliated selling stockholders will be reoffering and
reselling our common stock at the market, Regulation M prohibits them from
effecting any stabilizing transaction in contravention of Regulation M with
respect to our common stock. While we have no reason to believe that any of our
selling stockholders would violate these rules, we have no control over our
selling stockholders' actions in connection with this distribution.
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<PAGE> 48
PLAN OF DISTRIBUTION
This offering is being conducted in three stages. In the first stage,
we will sell 200,000 shares of our common stock at $5.00 per share. Neither our
affiliates nor the nonaffiliated selling stockholders will be permitted to sell
their shares under this offering during the first stage. The net proceeds from
the sale of shares in the first stage will be sufficient to accomplish our
immediate goals and begin the investment in the wireless broadband system. The
second stage will begin immediately after we have sold 200,000 shares. In the
second stage, we will sell the remaining 1,000,000 shares and our affiliates
will sell their 745,000 shares at $5.00 per share. The nonaffiliated selling
stockholders will not be permitted to sell their shares during the second stage.
The third stage will begin immediately after the second stage has concluded. In
the third stage, the nonaffiliated selling stockholders will sell their shares.
We will terminate this offering on December 31, 2001, or earlier at
such time as all 1,200,000 shares have been sold.
We currently intend to sell our shares through our executive officers
from time to time in over-the-counter transactions reported in the pink sheets
or on the OTC Bulletin Board, in negotiated transactions, or otherwise, or by a
combination of these methods. Our executive officers will not receive
commissions on such sales. Although we do not have an underwriter or
broker-dealer involved with the sale of our common shares at this time, we
anticipate retaining the services of an underwriter or broker-dealers on a best
efforts basis.
Broker-dealers who act in connection with the sale of the shares may be
underwriters. Profits on any resale of the shares as a principal by such
broker-dealers and any commissions received by such broker-dealers may be
underwriting discounts and commissions under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions in the form of discounts, concessions, or commissions from a selling
stockholder or from us and, if they act as agent for the purchaser of the
shares, from the purchaser. The compensation to a particular broker-dealer may
be in excess of customary commissions. Underwriters or broker-dealers may agree
with a selling stockholder or ISNI to sell a specified number of shares at a
stipulated price per share and, to the extent that an underwriter or
broker-dealer is unable to do so acting as agent for us or the selling
stockholder, to purchase as principal any unsold shares at a price required to
fulfill the commitment to us or the selling stockholder. Broker-dealers who
acquire shares as a principal may resell the shares from time to time in
transactions in the over-the-counter market, in negotiated transactions, or
otherwise at market prices prevailing at the time of sale or at negotiated
prices, and may pay to, or receive from the purchasers of the shares,
commissions. Some of these transactions may involve sales to and through other
broker-dealers, including transactions of the nature described above. To the
extent required under the Securities Act, a supplemental prospectus will be
filed, disclosing:
- the name of the underwriter or broker-dealers;
- the number of shares involved;
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<PAGE> 49
- the price at which the shares are to be sold;
- the commissions paid or discounts or concessions allowed to the
underwriter or broker-dealer, where applicable;
- that broker-dealers did not conduct any investigation to verify the
formation in this prospectus, as supplemented; and
- other facts material to the transaction.
There is no minimum number of shares that must be sold. There can be no
assurance that all of our shares offered will be sold. Accordingly, investors
will bear the risk that we not be able to sell all 1,200,000 common shares which
will result in our inability to successfully complete our strategic plan. Funds
from the offering of our shares will be available to us for use as the funds are
received.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the shares may not simultaneously engage in
market making activities with the common stock for a period beginning when the
person becomes a distribution participant and ending upon the person's
completion of participation in a distribution, including stabilization
activities in the common stock to effect covering transactions, to impose
penalty bids, or to effect passive market making bids. In addition, we and the
selling stockholders will be subject to applicable provisions of the Exchange
Act, including Rule 10b-5 and, to the extent we and the selling stockholders are
distribution participants, Regulation M. These rules and regulations may affect
the marketability of the shares.
Although we have not been advised of any selling stockholders' plans to
do so, the selling stockholders may sell the shares from time to time in
over-the-counter transactions reported in the pink sheets or on the OTC Bulletin
Board, in negotiated transactions, or otherwise, or by a combination of these
methods, at fixed prices which may be changed, market prices at the time of
sale, prices related to market prices, or negotiated prices. Each selling
stockholder has the sole and absolute discretion not to accept any purchase
offer or resell any of his or her shares if he or she deems the purchase price
to be unsatisfactory at any particular time. One or more of the selling
stockholders may effect these transactions by selling the shares to or through
broker-dealers.
The stockholders shares offered by this prospectus are being registered
to comply with our contractual obligations which are contained in our merger
agreement with Internet Services. As required by that agreement, we have paid
the expenses of the preparation of this prospectus and have indemnified the
selling stockholders against liabilities, including liabilities under the
Securities Act, or, if the indemnity is unavailable, to contribute toward
amounts required to be paid the liabilities.
48
<PAGE> 50
LEGAL MATTERS
The validity of the shares offered by this prospectus has been passed
upon for us by Porter, Wright, Morris & Arthur LLP, 5801 Pelican Bay Blvd.,
Suite 300, Naples, Florida 34119.
EXPERTS
Our financial statements as of June 30, 2000, and for the six months
ended June 30, 2000, and the years ended December 31, 1999 and 1998, included in
this prospectus have been audited by Hill, Barth & King LLC, independent
certified public accountants. Such financial statements have been included in
this prospectus and in the registration statement in reliance upon the report of
Hill, Barth & King LLC, appearing elsewhere in this prospectus and upon the
authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly, and current reports, proxy statements, and
other information with the Securities and Exchange Commission. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You can also read and copy any document we file with the SEC
at the SEC's public reference rooms. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. You can also obtain copies of
our SEC filings at prescribed rates by writing to the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.
We have filed a registration statement on Form SB-2 with the SEC with
respect to the common stock offered in this prospectus. This prospectus, which
is filed as part of a registration statement, does not contain all of the
information set forth in the registration statement, some portions of which have
been omitted in accordance with the SEC's rules and regulations. Statements made
in this prospectus as to the contents of any contract, agreement, or other
document referred to in this prospectus are not necessarily complete and are
qualified in their entirety by reference to each such contract, agreement, or
other document which is filed as an exhibit to the registration statement. The
registration statement may be inspected without charge at the public reference
facilities maintained by the SEC, and copies of such materials can be obtained
from the Public Reference Section of the SEC at prescribed rates.
------------------
You should rely only on the information contained or incorporated by
reference in this prospectus to make your investment decision. We have not
authorized anyone to provide you with different information. Neither we nor the
selling stockholders are offering these shares in any state where the offer is
not permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front page of this
prospectus.
49
<PAGE> 51
INDEX TO FINANCIAL INFORMATION
PAGE
Audited Financial Statements:
Independent Auditors' Report..................................... F-1
Balance Sheet as of June 30, 2000................................ F-2
Statements of Operations for the six months ended
June 30, 2000 and 1999 and the years ended
December 31, 1999 and 1998.............................. F-3
Statements of Stockholder's Deficit for the six months
ended June 30, 2000 and the years ended
December 31, 1999 and 1998.............................. F-4
Statements of Cash Flows for the six months ended
June 30, 2000 and 1999 and the years ended
December 31, 1999 and 1998.............................. F-5
Notes to Financial Statements.................................... F-6
Unaudited Interim Financial Statements:
Balance Sheet (unaudited) as of September 30, 2000.............. F-13
Statements of Operations (unaudited) for the three months
ended September 30, 2000 and 1999....................... F-14
Statements of Stockholders' Deficit (unaudited) for the
three months ended September 30, 2000................... F-15
Statements of Cash Flows (unaudited) for the quarters ended
September 30, 2000 and 1999............................. F-16
50
<PAGE> 52
Board of Directors and Stockholders
ISNI.net, Inc.
Punta Gorda, Florida
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheet of ISNI.net, Inc. as of June 30,
2000 and the related statements of operations, stockholder's deficit and cash
flows for the six months ended June 30, 2000 and years ended December 31, 1999
and 1998. 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 ISNI.net, Inc. as of June 30,
2000 and the results of its operations and its cash flows for the six months
ended June 30, 2000 and years ended December 31, 1999 and 1998 in conformity
with generally accepted accounting principles.
/s/ HILL, BARTH & KING LLC
Certified Public Accountants
Naples, Florida
July 28, 2000, except for Note J as
to which the date is August 30, 2000,
and except for Note D as to which the
date is November 30, 2000.
F-1
<PAGE> 53
BALANCE SHEET
-------------
ISNI.NET, INC.
June 30, 2000
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 0
Prepaid expenses 18,750
Deferred offering costs 0
---------
TOTAL CURRENT ASSETS 18,750
---------
PREMISES AND EQUIPMENT, NET - NOTES C AND E 83,131
---------
$ 101,881
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
CURRENT LIABILITIES
Lines of credit - NOTE D $ 18,821
Bank overdraft 19,830
Accounts payable 64,043
Accrued liabilities 1,840
Deferred revenue 8,997
Due to stockholder 143,750
Due to affiliates 15,842
Current portion of long-term debt 15,858
---------
TOTAL CURRENT LIABILITIES 288,981
---------
LONG-TERM DEBT, LESS CURRENT PORTION 17,726
STOCKHOLDER'S DEFICIT - NOTE B
Preferred stock, $.0001 par value, authorized
20,000,000 shares, no shares
issued and outstanding 0
Common stock, $.0001 par value, authorized
100,000,000 shares, issued and
outstanding 26,661,000 shares 2,666
Additional paid-in capital 122,580
Accumulated deficit (330,072)
---------
TOTAL STOCKHOLDER'S DEFICIT (204,826)
---------
$ 101,881
=========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 54
<TABLE>
STATEMENTS OF OPERATIONS
------------------------
ISNI.NET, INC.
Six months ended June 30, 2000 and 1999 and years ended December 31, 1999 and 1998
<CAPTION>
SIX MONTHS Six months Year ended Year ended
ENDED JUNE 30, ended June 30, December 31, December 31,
2000 1999 (unaudited) 1999 1998
-------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
INCOME
------
Internet service fees $ 225,548 $ 128,284 $ 292,345 $ 85,069
Other revenue 340 5,451 9,506 3,401
----------- ----------- ----------- -----------
TOTAL INCOME 225,888 133,735 301,851 88,470
----------- ----------- ----------- -----------
OPERATING EXPENSES
------------------
Cost of revenues 82,326 46,607 124,549 58,057
Advertising 4,720 12,067 20,969 13,061
Bank and service charges 9,342 6,739 12,365 3,327
Consulting fees 154,000 13,000 26,000 29,400
Depreciation 9,209 4,782 9,564 2,370
Employee leasing costs 47,743 23,949 52,109 49,740
Wages 0 0 0 0
Rent 9,264 9,265 18,529 18,527
Other occupancy and office expenses - NOTE H 18,991 11,210 18,428 16,958
Other expenses - NOTE I 64,741 4,626 11,897 6,646
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 400,336 132,245 294,410 198,086
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (174,448) 1,490 7,441 (109,616)
OTHER DEDUCTION
---------------
Interest expense 7,823 4,867 7,990 6,766
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (182,271) (3,377) (549) (116,382)
INCOME TAXES (CREDIT) - NOTE F 0 0 0 0
------------------------------ ----------- ----------- ----------- -----------
NET LOSS $ (182,271) $ (3,377) $ (549) $ (116,382)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE $ 0 $ 0 $ 0 $ 0
----------------------- =========== =========== =========== ===========
WEIGHTED AVERAGE
----------------
SHARES OUTSTANDING 26,217,500 24,000,000 24,873,425 24,000,000
------------------ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 55
<TABLE>
STATEMENTS OF STOCKHOLDER'S DEFICIT
-----------------------------------
ISNI.NET, INC.
Six months ended June 30, 2000 and 1999 and years ended December 31, 1999 and 1998
<CAPTION>
COMMON
STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES (000's) AMOUNT CAPITAL DEFICIT TOTAL
-------------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance (deficit)
January 1, 1998 24,000 $2,400 $ 7,923 $ (30,870) $ (20,547)
Payments made by principal shareholder
on company's behalf 36,111 36,111
Comprehensive loss:
Net loss for December 31, 1998 0 0 (116,382) (116,382)
---------
Total comprehensive loss (116,382)
------ ------ -------- --------- ---------
Balance (deficit)
December 31, 1998 24,000 2,400 44,034 (147,252) (100,818)
Common stock issued,
pursuant to company
organization 2,500 250 270 520
Proceeds from issuance
of common stock 161 16 124 140
Payments made by principal shareholder
on company's behalf 0 40,778 40,778
Comprehensive loss:
Net loss for December 31, 1999 0 0 (549) (549)
---------
Total comprehensive loss (549)
------ ------ -------- --------- ---------
Balance (deficit)
December 31, 1999 26,661 2,666 85,206 (147,801) (59,929)
Payments made by principal shareholder
on company's behalf 0 37,374 37,374
Comprehensive loss:
Net loss for June 30, 2000 0 0 (182,271) (182,271)
---------
Total comprehensive loss (182,271)
------ ------ -------- --------- ---------
Balance (deficit)
June 30, 2000 26,661 $2,666 $122,580 $(330,072) $(204,826)
====== ====== ======== ========= =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 56
<TABLE>
STATEMENTS OF CASH FLOWS
------------------------
ISNI.NET, INC.
Six months ended June 30, 2000 and 1999 and years ended December 31, 1999 and 1998
<CAPTION>
SIX MONTHS Six months Year ended Year ended
ENDED JUNE 30, ended June 30, December 31, December 31,
2000 1999 (unaudited) 1999 1998
-------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net loss $(182,271) $ (3,377) $ (549) $(116,382)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation 9,209 4,782 9,564 2,370
Increase in prepaid expenses (14,207) 0 0 0
Decrease (increase) in other assets 0 471 (4,072) (471)
Increase (decrease) in accounts payable
and other liabilities 66,013 2,543 (61,426) 105,748
--------- -------- -------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (121,256) 4,419 (56,483) (8,735)
--------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchase of premises and equipment (9,740) (16,078) (12,725) (27,633)
--------- -------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES (9,740) (16,078) (12,725) (27,633)
--------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Net borrowings on (payments of) short-term debt (2,609) 9,565 21,430 0
Net borrowings from (repayments to) affiliates
and stockholders 92,899 (14,085) 0 0
Principal payments on capital lease obligations (5,011) 0 (5,260) 0
Bank overdraft 8,205 0 11,625 0
Payments made by principal stockholder
on company's behalf 37,374 21,987 40,778 36,111
Net proceeds from issuance of common stock 0 0 660 0
--------- -------- -------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 130,858 17,467 69,233 36,111
--------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH (138) 5,808 25 (257)
CASH
----
Beginning of period 138 113 113 370
--------- -------- -------- ---------
End of period $ 0 $ 5,921 $ 138 $ 113
========= ======== ======== =========
SUPPLEMENTAL DISCLOSURE OF
--------------------------
CASH FLOW INFORMATION
---------------------
Cash paid during the year for:
Interest $ 1,918 $ 0 $ 1,471 $ 0
========= ======== ======== =========
Capital lease obligation incurred for
the acquisition of new equipment $ 12,166 $ 0 $ 31,689 $ 0
========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS
-----------------------------
ISNI.net, INC.
June 30, 2000
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------
Nature of Business:
ISNI.net, Inc. ("ISNI" or the "Company"), formerly known as Hawkeye Corporation,
was incorporated as a Delaware corporation on August 31, 1999 to serve as a
vehicle to effect a merger, exchange of capital stock, asset acquisition or
other business combination with a domestic or foreign private business. During
March 2000, the Company consummated a merger with Internet Services Network,
Inc. ("Internet Services") (See Note G - Merger). The remaining combined
corporation acts as an internet service provider serving individuals and small
businesses primarily in Charlotte County, Florida. ISNI is also a provider of
web hosting services, a complement to its internet access business.
The Company offers up to 56K modem access and IDSN (Integrated Digital Service
Network) connectivity. As of June 30, 2000, the Company served approximately
1,800 subscribers, including 27 web hosting subscribers. The Company's services
include dial-up Internet access, web hosting, and other value-added services
such as web page design and web-server co-location. The Company's dial-up
internet access and web hosting are offered in various price and usage plans
designed to meet the needs of its customers.
Premises and Equipment:
Premises and equipment are recorded at historical cost. Depreciation of premises
and equipment is computed using the straight-line method over the estimated
useful lives of the assets.
Revenue Recognition:
The Company recognizes revenue when services are provided. Deferred revenue
represents amounts relating to the prepayment of internet service fees. These
amounts will be recognized as services are provided, typically during the
following two month period. The company has recently instituted a six month
service program in which the customer can suspend service while out of the
geographic area. Recognition of revenue under these contracts will occur similar
to the shorter contracts entered into by the company; as services are provided.
Deferred revenue levels may increase due to the customers ability to suspend
service as a result of this program.
Advertising:
The Company expenses the costs of advertising as incurred. Advertising expense
for the six months ended June 30, 2000 and the years ended December 31, 1999 and
1998 was $4,720, $20,969 and $13,061, respectively.
F-6
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.net, INC.
June 30, 2000
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings Per Share of Common Stock:
Earnings per share are based on the weighted average number of shares
outstanding during the year plus, where applicable, common stock equivalents
attributable to stock options and warrants.
NOTE B - CONTROLLING INTEREST AND RELATED PARTY TRANSACTIONS
------------------------------------------------------------
Controlling Interest:
One stockholder (the "principal stockholder") owns directly and indirectly
approximately 87% of the Company's outstanding stock.
Related Party Transactions:
During the year ended June 30, 2000, the Company received advances from the
principal stockholder and two corporations affiliated with the principal
stockholder. As of June 30, 2000, the Company owed $15,842 to the affiliated
corporations and $143,750 to the principal stockholder. The advances from the
principal stockholder and the affiliated corporations are unsecured, interest
free and are payable on demand. However, in accordance with SEC Staff Accounting
Bulletin 1:B.1. interest expense has been recorded on the above advances using
market rates of interest for similar "arm's length" loans at local financial
institutions. Interest expense charged to operations under these advances, with
an offsetting credit to paid in capital, and the company's lines of credit (Note
D) totaled $7,823, $7,990 and $6,766 for the six months ended June 30, 2000 and
the years ended December 31, 1999 and 1998, respectively.
Both affiliated corporations are 100% owned by the principal stockholder of
ISNI. The Company also owes $5,921 to an affiliated corporation for a capital
lease obligation as of June 30, 2000.
F-7
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.net, INC.
June 30, 2000
NOTE B - CONTROLLING INTEREST AND RELATED PARTY TRANSACTIONS (CONTINUED)
------------------------------------------------------------------------
The Company sub-leases office space from one of the affiliated corporations for
an amount, which would be considered below market rent. The agreement provides
for monthly rent to be paid as well as portions of all real estate taxes,
utilities, insurance and maintenance of the property. The office space leased
from the affiliate corporation is under a month-to-month operating lease calling
for payments of $882. Additionally, in accordance with SEC Staff Accounting
Bulletin 1:B.1. rent expense has been increased to reflect fair market value
rent on the space occupied by ISNI based on similar "arm's length" third party
agreements. Rental expense charged to operations under this lease totaled
$9,264, $18,529 and $18,527 for the six months ended June 30, 2000 and the years
ended December 31, 1999 and 1998, respectively.
From inception of Internet Services (Note G), the President/CEO provided his
services for no compensation. Additionally, from March 2000 the COO of ISNI was
compensated by the President/CEO individually. In accordance with SEC Staff
Bulletin 1:B.1. the company has recorded as consulting fees the fair value of
the services provided by the President/CEO and the COO. Consulting fees charged
to operations totaled $27,500, $26,000 and $29,400 for the six months ended June
30, 2000 and the years ended December 31, 1999 and 1998, respectively.
NOTE C - PREMISES AND EQUIPMENT
-------------------------------
Premises and equipment consists of the following as of June 30, 2000:
<TABLE>
<S> <C>
Leasehold improvements $ 11,396
Furniture and office equipment 3,593
Computer equipment and software 44,587
Equipment under capital lease 43,855
Sign 942
--------
104,373
Less accumulated depreciation 21,242
--------
$ 83,131
========
</TABLE>
Depreciation expense for the six months ended June 30, 2000 and years ended
December 31, 1999 and 1998 was $9,209, $9,564 and $2,370, respectively.
NOTE D - BANK LINES OF CREDIT
-----------------------------
The corporation has available $80,000 in three unsecured lines of credit payable
to various banks. As of June 30, 2000, the Company had borrowed $18,821 on a
demand note under one of these agreements with an interest rate of 12%. One of
the notes, for $50,000, is personally guaranteed by the principal stockholder of
the corporation.
As of November 30, 2000 the Company had borrowed $77,974 on demand notes under
these agreements.
F-8
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.net, INC.
June 30, 2000
NOTE E - LEASES WHERE COMPANY IS LESSEE
---------------------------------------
The Company leases certain equipment under capital lease obligations. The
monthly payments total $1,586 including interest. The equipment under capital
lease obligations is depreciated over its estimated useful life and consists of
the following at June 30, 2000:
<TABLE>
<S> <C>
Computer equipment and software $43,855
Less accumulated depreciation 6,697
-------
$37,158
=======
</TABLE>
Following is a summary of future minimum lease payments under capital leases,
together with the present value of net minimum lease payments as of June 30,
2000:
<TABLE>
<S> <C>
Year Ending -
June 30, 2001 $19,437
June 30, 2002 14,016
June 30, 2003 5,732
-------
TOTAL MINIMUM LEASE PAYMENTS 39,185
Less amount representing interest 5,601
-------
PRESENT VALUE OF NET
MINIMUM LEASE PAYMENTS $33,584
=======
</TABLE>
NOTE F - INCOME TAXES
---------------------
At June 30, 2000, December 31, 1999 and 1998, the Company assessed its earnings
history and trend over the past year, its estimate of future earnings, and the
expiration date of the net operating loss carryforward and determined that it is
more likely than not that the deferred tax assets will not be realized in the
near term. Accordingly, a valuation allowance is recorded at June 30, 2000.
F-9
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.net, INC.
June 30, 2000
NOTE F - INCOME TAXES (CONTINUED)
---------------------------------
The components of deferred tax assets and deferred tax liabilities at June 30,
are as follows:
<TABLE>
<CAPTION>
2000
--------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 26,890
--------
26,890
--------
Deferred tax liabilities:
Depreciation on premises and equipment 3,495
Other 135
--------
3,630
--------
23,620
Valuation allowance (23,620)
--------
Deferred tax assets, net $ 0
========
</TABLE>
At June 30, 2000, the Company had a tax net operating loss carryforward of
approximately $89,600 to expire in 2018 through 2020.
NOTE G - MERGER
---------------
On March 22, 2000, the Company consummated an Agreement and Plan of Merger with
Internet Services. The merger was accounted for as a reverse acquisition whereby
Internet Services was treated as the acquirer and the Company as the acquiree,
because Internet Services shareholder owned the majority of the Company as of
the merger date and prior to the merger the Company was only a shell corporation
having materially no assets or operations. Purchase accounting was performed on
the Company based upon its fair market value at the transaction date.
The stock-for-stock transaction caused Internet Services, which was formed in
1997, to be legally merged with and into the Company, with the Company
continuing as the surviving corporation in the merger. As a result of the
merger, the separate existence of Internet Services ceased. Internet Services'
operations through the date of merger consisted primarily of acting as an
internet service provider. Under the agreement, each outstanding share of
Internet Services' common stock was converted into and exchanged for 24,000
shares of the Company's common stock. The historical financial statements of the
Company, prior to the merger, were retroactively restated to be those of
Internet Services. Information concerning stockholders' equity and per share
data has been restated on an equivalent share basis giving effect to the
difference in par value of the Company's stock with an offset to paid in
capital. The accumulated deficit of Internet Services has been carried forward
after the acquisition. Operations prior to the merger and earnings per share for
periods prior to the merger are those of Internet Services.
F-10
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.net, INC.
June 30, 2000
NOTE G - MERGER (CONTINUED)
---------------------------
Prior to the reverse acquisition, Internet Services' year ended on December 31.
In recording the reverse acquisition, Internet Services' financial statements
for the six months ended June 30, 2000 became the Company's financial statements
for the same period. Internet Services' financial statements for the years ended
December 31, 1999 and 1998 are included as the Company's financial statements.
Internet Services has adopted a June 30 fiscal year end. There were no prior
significant intercompany transactions between the Company and Internet Services.
As part of the merger, Internet Services paid $125,000 in consulting fees during
the six months ended June 30, 2000 for services related to entering into and
closing of the merger agreement between Hawkeye and Internet Services.
NOTE H - OTHER OCCUPANCY AND OFFICE EXPENSES
--------------------------------------------
The following amounts comprise general operating expenses for the six months
ended June 30, 2000 and the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 2000 1999 1998
------------- ------- -------
<S> <C> <C> <C>
Equipment rental $ 1,289 $ 1,172 $ 267
Licenses and permits 0 122 120
Office supplies 8,349 9,317 11,046
Postage and delivery 2,780 451 969
Repairs 2,454 2,169 2,608
Telephone 0 216 1,319
Utilities 1,292 1,747 629
Printing 788 70 0
Insurance 2,039 3,164 0
------- ------- -------
TOTALS $18,991 $18,428 $16,958
======= ======= =======
</TABLE>
F-11
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.net, INC.
June 30, 2000
NOTE I - OTHER EXPENSES
-----------------------
The following amounts comprise other expenses for the six months ended June 30,
2000 and the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 2000 1999 1998
------------- ------- ------
<S> <C> <C> <C>
Automobile $ 650 $ 256 $ 0
Commission 405 5,774 732
Dues and subscriptions 1,849 1,786 870
Management fees 2,375 0 0
Miscellaneous 1,772 3,080 3,020
Legal & accounting fees 55,598 650 1,416
Other taxes 360 26 608
Travel and entertainment 1,732 325 0
------- ------- ------
TOTALS $64,741 $11,897 $6,646
======= ======= ======
</TABLE>
NOTE J - STOCK WARRANTS
-----------------------
The Board of Directors of the Company granted Stock Purchase Warrants. The
Company issued Class A Warrants and Class B Warrants to purchase 1,325,000
shares of common stock, respectively. The warrants vested on the date of grant.
Warrants may be exercised in whole or in part for $3.00 per share and $5.00 per
share for A and B warrants respectively, beginning on the date of grant and
expiring 3 years after the grant date. The warrant agreement further provides
for redemption of the warrants by the Company at $0.01 per warrant if the price
of the common stock closes above $4.50 in regard to the Class A Warrants and
$7.50 in regard to the Class B Warrants for 20 consecutive trading days and
providing for registration rights with respect to the warrants and underlying
shares.
As of August 30, 2000 the Company entered into an agreement with the holders of
the above warrants to cancel all of the warrants previously granted by the
Company. No new warrants were issued to replace the ones which were cancelled.
NOTE K - COMMITMENTS AND CONTINGENCIES
--------------------------------------
As of the balance sheet date the Company had entered into an agreement with a
local telecommunications company to provide the companies backbone
communications to the Internet and to the company's customers. The agreement
calls for monthly payments of $6,138 for a period of 60 months, expiring May
2005.
F-12
<PAGE> 64
<TABLE>
BALANCE SHEET
-------------
ISNI.NET, INC.
September 30, 2000
<CAPTION>
SEPTEMBER 30,
2000
(UNAUDITED)
------------
<S> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 3,461
Prepaid expenses 15,750
Deferred offering costs 42,247
---------
TOTAL CURRENT ASSETS 61,458
---------
PREMISES AND EQUIPMENT, NET - NOTES C AND E 84,488
---------
$ 145,946
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
CURRENT LIABILITIES
Lines of credit - NOTE D $ 69,587
Accounts payable 79,810
Accrued liabilities 2,785
Deferred revenue 13,033
Due to stockholder 153,200
Due to affiliates 23,343
Current portion of long-term debt 11,593
---------
TOTAL CURRENT LIABILITIES 353,351
---------
LONG-TERM DEBT, LESS CURRENT PORTION 14,231
STOCKHOLDER'S DEFICIT - NOTE B
Preferred stock, $.0001 par value, authorized
20,000,000 shares, no shares
issued and outstanding 0
Common stock, $.0001 par value, authorized
100,000,000 shares, issued and
outstanding 26,661,000 shares 2,666
Additional paid-in capital 139,810
Accumulated deficit (364,112)
---------
TOTAL STOCKHOLDER'S DEFICIT (221,636)
---------
$ 145,946
=========
</TABLE>
F-13
<PAGE> 65
<TABLE>
STATEMENTS OF OPERATIONS
------------------------
ISNI.NET, INC.
Three months ended September 30, 2000 and 1999
<CAPTION>
THREE MONTHS ENDED Three months ended
SEPTEMBER 30, September 30,
2000 1999
(UNAUDITED) (unaudited)
------------------ ------------------
<S> <C> <C>
INCOME
------
Internet service fees $ 111,395 $ 77,954
Other revenue 48 4,045
----------- -----------
TOTAL INCOME 111,443 81,999
----------- -----------
OPERATING EXPENSES
------------------
Cost of revenues 37,043 26,552
Advertising 1,127 6,901
Bank and service charges 3,214 2,671
Consulting fees 17,250 6,500
Depreciation 5,469 5,000
Employee leasing costs 488 13,606
Wages 26,310 0
Rent 4,632 4,531
Other occupancy and office expenses - NOTE H 17,444 4,959
Other expenses - NOTE I 26,366 8,335
----------- -----------
TOTAL OPERATING EXPENSES 139,343 79,055
----------- -----------
INCOME (LOSS) FROM OPERATIONS (27,900) 2,944
OTHER DEDUCTION
---------------
Interest expense 6,140 713
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (34,040) 2,231
INCOME TAXES (CREDIT) - NOTE F 0 0
------------------------------ ----------- -----------
NET INCOME (LOSS) $ (34,040) $ 2,231
=========== ===========
INCOME (LOSS) PER SHARE $ 0 $ 0
----------------------- =========== ===========
WEIGHTED AVERAGE
----------------
SHARES OUTSTANDING 26,661,000 24,844,022
------------------ =========== ===========
</TABLE>
F-14
<PAGE> 66
<TABLE>
STATEMENTS OF STOCKHOLDER'S DEFICIT
-----------------------------------
ISNI.NET, INC.
Three months ended September 30, 2000
UNAUDITED
<CAPTION>
COMMON
STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES (000's) AMOUNT CAPITAL DEFICIT TOTAL
-------------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balance (deficit)
June 30, 2000 26,661 $2,666 $122,580 $(330,072) $(204,826)
Payments made by principal shareholder
on company's behalf 0 17,230 17,230
Comprehensive loss:
Net loss for September 30, 2000 0 0 (34,040) (34,040)
---------
Total comprehensive loss (34,040)
------ ------ -------- --------- ---------
Balance (deficit)
September 30, 2000 26,661 $2,666 $139,810 $(364,112) $(221,636)
====== ====== ======== ========= =========
</TABLE>
F-15
<PAGE> 67
<TABLE>
STATEMENTS OF CASH FLOWS
------------------------
ISNI.NET, INC.
Three months ended September 30, 2000 and 1999
<CAPTION>
THREE MONTHS ENDED Three months ended
SEPTEMBER 30, September 30,
2000 1999
(UNAUDITED) (unaudited)
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net income (loss) $(34,040) $ 2,231
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 5,469 5,000
Decrease in prepaid expenses 3,000 0
Increase in other assets (42,247) 0
Increase (decrease) in accounts payable
and other liabilities 918 (3,821)
-------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (66,900) 3,410
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchase of premises and equipment (6,826) 0
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (6,826) 0
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Net borrowings on short-term debt 50,766 0
Net borrowings from (repayments to) affiliates
and stockholders 16,951 (18,424)
Principal payments on capital lease obligations (7,760) 0
Payments made by principal stockholder
on company's behalf 17,230 9,198
Net proceeds from issuance of common stock 0 660
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 77,187 (8,566)
-------- --------
NET INCREASE (DECREASE) IN CASH 3,461 (5,156)
CASH
----
Beginning of period 0 5,922
-------- --------
End of period $ 3,461 $ 766
======== ========
SUPPLEMENTAL DISCLOSURE OF
--------------------------
CASH FLOW INFORMATION
---------------------
Cash paid during the year for:
Interest $ 2,007 $ 0
======== ========
Capital lease obligation incurred for
the acquisition of new equipment $ 0 $ 10,931
======== ========
</TABLE>
F-16
<PAGE> 68
[ISNI LOGO]
Dealer Prospectus Delivery Obligation
Until ______, all selling stockholders and dealers that effect
transactions in these shares, whether or not a participant in this offering, may
be required to deliver a prospectus.
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law provides that
a corporation, in its certificate of incorporation, may eliminate or limit
personal liability of members of its board of directors for monetary damages for
breach of a director's fiduciary duty of care. The elimination or limitation
does not apply where there has been: a breach of the duty of loyalty; failure to
act in good faith; intentional misconduct or knowing violation of a law; payment
of a dividend or approval of a stock repurchase which was deemed illegal; or an
improperly obtained personal benefit. ISNI's amended and restated certificate of
incorporation provides for the elimination of the liability of directors to the
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law permits a
corporation organized under Delaware law to indemnify directors and officers
with respect to matters in which the director or officer acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of ISNI, and, with respect to any criminal action or proceeding, he or
she had no reasonable cause to believe his or her conduct was unlawful. ISNI's
amended and restated certificate of incorporation entitles its directors and
officers to indemnification to the extent permitted by Delaware law.
ISNI's amended and restated certificate of incorporation also permits
it to purchase and maintain insurance on behalf of any director and/or officer
against any liability incurred by any director and/or officer acting as such or
arising out of the status as such, whether or not ISNI would have power to
indemnify him or her against such liability.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Subject to future contingencies, all expenses incurred or expected to
be incurred in connection with the issuance and distribution of the common stock
that is the subject of this Registration Statement, other than underwriting
discounts and commissions payable to the brokers and dealers who will sell
shares of stock on behalf of ISNI, are itemized below. All such expenses are to
be borne by ISNI. All the amounts shown, except the SEC registration fee, are
estimates.
SEC Registration Fee ....................................... $ 9,453
Blue Sky Filing Fees and Expenses .......................... 15,000*
Transfer Agent Fees ........................................ 5,000*
Printing Costs ............................................. 10,000*
Legal Fees and Expenses .................................... 80,000*
Accounting Fees and Expenses ............................... 25,000*
Miscellaneous .............................................. 5,547*
--------
TOTAL ............................................. $150,000*
*estimated.
<PAGE> 70
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since its formation on August 31, 1999, ISNI sold unregistered shares
of its common stock and warrants to purchase shares of its common stock in the
following transactions:
On August 31, 1999, ISNI issued 2,500,000 shares of common stock to
Gilbert H. Davis, then its sole officer and director, at a price of $0.0002 per
share, $500.00 in the aggregate. These shares were issued in reliance on Section
4(2) of the Securities Act of 1933 Act. There was no underwriter involved in
this issuance and the share certificates were issued with appropriate
restrictive legends. Similar legends were affixed to any certificates issued in
connection with subsequent gifts of stock derived from this issuance. Mr. Davis
executed a subscription agreement in which he acknowledged that he has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the investment in the common stock; he had
such risks explained to him and had determined that such investment was suitable
for him in view of his financial circumstances and available investment
opportunities; he had sufficient net worth and income to bear the economic risk
of the investment; he had no need for liquidity of the investment and no reason
to anticipate any change in his financial circumstances which may cause or
require any sale, transfer, or other distribution of the common stock; and ISNI
had provided him with access to all ISNI company records and had answered all of
his inquiries. In addition, Mr. Davis was the incorporator and, at the time of
his investment, the sole officer and director of ISNI.
On September 30, 1999, ISNI issued 150,000 shares of common stock to
Erik S. Nelson and ESN Financial, L.P. at a price of $0.0002 per share, $30.00
in the aggregate. The general partner of ESN Financial, L.P. is a corporation
wholly owned by Mr. Nelson. These shares were issued in reliance on Section 4(2)
of the Securities Act of 1933 Act. There was no underwriter involved in these
issuances and the share certificates were issued with appropriate restrictive
legends. Similar legends were affixed to any certificates issued in connection
with subsequent gifts of stock derived from these issuances. Both Mr. Nelson and
ESN Financial, L.P. executed subscription agreements in which each acknowledged
that he/it has such knowledge and experience in financial and business matters
that he/it is capable of evaluating the merits and risks of the investment in
the common stock; he/it had such risks explained to him/it and had determined
that such investment was suitable for him/it in view of his/its financial
circumstances and available investment opportunities; he/it had sufficient net
worth and income to bear the economic risk of the investment; he/it had no need
for liquidity of the investment and no reason to anticipate any change in
his/its financial circumstances which may cause or require any sale, transfer,
or other distribution of the common stock; and ISNI had provided him/it with
access to all ISNI company records and had answered all of his/its inquiries. In
addition, Mr. Nelson was a promotor of ISNI.
On March 13, 2000, ISNI issued 11,000 shares of common stock to eleven
sophisticated investors at a price of $0.01 per share, $110.00 in the aggregate.
These shares were issued in reliance on Section 4(2) of the Securities Act of
1933 Act. There was no underwriter involved in these issuances and the share
certificates were issued with appropriate restrictive legends. Each
<PAGE> 71
investor executed a subscription agreement in which he acknowledged that he has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the investment in the common
stock; he had such risks explained to him and had determined that such
investment was suitable for him in view of his financial circumstances and
available investment opportunities; he had sufficient net worth and income to
bear the economic risk of the investment; he had no need for liquidity of the
investment and no reason to anticipate any change in his financial circumstances
which may cause or require any sale, transfer, or other distribution of the
common stock; and ISNI had provided him with access to all ISNI company records
and had answered all of his inquiries. In addition, each such investor had
access to all of ISNI's securities filings with the SEC.
On March 25, 2000, in connection with the merger of Internet Services
Network, Inc., a Florida corporation, into ISNI, ISNI issued 24,000,000 shares
of common stock to Werner K. Ebner, currently President and Chief Executive
Officer and a director of ISNI, in exchange for all of Mr. Ebner's shares of
Internet Services. These shares were issued in reliance on Section 4(2) of the
Securities Act of 1933 Act. There was no underwriter involved in connection with
the merger; however, Internet Services paid a $25,000 consulting fee to Coral
Capital Partners at the time the merger agreement was entered into, and an
additional $100,000 to Coral Capital Partners at the closing of the merger. The
share certificates were issued with appropriate restrictive legends. Similar
legends were affixed to any certificates issued in connection with subsequent
gifts of stock derived from this issuance. Mr. Ebner, sole stockholder of
Internet Services Network, Inc., represented in the merger agreement that, among
other things, he had the opportunity to ask questions and receive additional
information from ISNI, to the extent that ISNI possessed such information,
necessary to evaluate the merits and risks of any investment in ISNI, and that
he had been given all material books, records, and financial statements of ISNI,
all material contracts and documents relating to the proposed transaction, an
opportunity to question the appropriate executive officer of ISNI, and copies of
all reports filed with the SEC. Mr. Ebner also represented that he had adequate
means of providing for his current needs and personal contingencies; had no need
to sell the ISNI shares in the foreseeable future; has sufficient knowledge and
experience in financial matters to evaluate the merits and risks of the
investment; and is capable of reading and interpreting financial statements.
ITEM 27. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
<S> <C> <C>
3(i) Amended and Restated Certificate of Incorporation (previously filed as Exhibit 3(i) of
ISNI's Annual Report on Form 10-KSB for the fiscal year ended June 30, 2000, and
incorporated herein by reference) --
3(ii) Amended and Restated Bylaws (previously filed as Exhibit 3(i) of
ISNI's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2000, and incorporated herein by reference). --
4(a) Instruments defining the rights of securities holders
(see Articles FIVE, SIX, SEVEN, EIGHT, NINE, TEN, ELEVEN,
</TABLE>
<PAGE> 72
<TABLE>
<S> <C> <C>
TWELVE, and THIRTEEN of the Amended and Restated Certificate
of Incorporation) --
4(b) Specimen stock certificate............................................................
5 Opinion of Porter, Wright, Morris & Arthur LLP *
10 Merger Agreement, dated March 22, 2000, between Hawkeye
Corporation and Internet Services Network, Inc (previously filed
as Exhibit 2.1 of ISNI's Current Report on Form 8-K, dated March
22, 2000). --
23(a) Consent of Hill, Barth & King LLC.....................................................
23(b) Consent of Porter, Wright, Morris & Arthur LLP (included in its opinion filed as
Exhibit 5) --
24 Power of Attorney *
27 Financial Data Schedule *
</TABLE>
-------
* Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned hereby undertakes:
1. to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
in the effective Registration Statement; and
(iii) include any additional or changed material information on the
plan of distribution.
<PAGE> 73
2. to treat, for the purpose of determining liability under the
Securities Act of 1933, each post-effective amendment as a new
registration statement of the securities offered and the offering of
such securities at that time to be the initial bona fide offering.
3. to file a post-effective amendment to remove from registration any of
the securities which remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the undersigned registrant's directors,
officers, and controlling persons pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a directors, officers,
or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
<PAGE> 74
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this amendment to its
registration statement to be signed on its behalf by the undersigned, in the
City of Punta Gorda, State of Florida, on December 22, 2000.
ISNI.NET, INC.
By: /S/ Werner K. Ebner
--------------------------------------
Werner K. Ebner
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/S/ Werner K. Ebner President, Chief Executive
--------------------------------- Officer and Director December 22, 2000
Werner K. Ebner
/S/ Dieter Maschewsky Chief Operating Officer,
--------------------------------- Vice-President and Director December 22, 2000
Dieter Maschewsky
/S/ J. Lesly Benoit, Jr. Chief Financial Officer,
--------------------------------- Secretary and Director December 22, 2000
J. Lesly Benoit, Jr.
/S/ Reinhard Schiffel Director December 22, 2000
---------------------------------
Reinhard Schiffel
/S/ Jeremy Scott Joiner Director December 22, 2000
---------------------------------
Jeremy Scott Joiner
</TABLE>
