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As filed with the Securities and Exchange Commission on September 8, 2000
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
ISNI.NET, INC.
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(Name of Small Business Issuer in Its Charter)
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7370 Delaware 58-2489419
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(Primary Standard Industrial (State or Other Jurisdiction (IRS Employer
Classification Code Number) of Incorporation or Organization) Identification No.)
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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)
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. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE FEE
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Common Stock,
par value $0.0001............ 7,161,000 $5.00(1) $35,805,000(1) $9,453
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(1) Estimated pursuant to Rule 457 for the purpose of calculating the
registration fee only.
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.
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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.
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PROSPECTUS Subject to Completion - September 8, 2000
ISNI.NET, INC.
[LOGO ISNI]
7,161,000 Shares of Common Stock
Offered at Market Price
We are an Internet service provider currently serving individuals and
small businesses, primarily in Charlotte County, Florida. We also provide Web
hosting services, a complement to our Internet access business and one of the
fastest growing segments of the Internet marketplace.
This prospectus relates to our sale of 500,000 shares of our common
stock (the "Company shares") and the resale of up to 6,661,000 shares of our
common stock (the "stockholder shares") by certain of our stockholders named on
pages 39 and 40 of this prospectus. The selling stockholders may sell some, all,
or none of the stockholder shares. We will not receive any of the proceeds from
the sale of the stockholder shares, although we have agreed to pay the expenses
relating to the registration of such shares.
We will determine the prices at which we will sell the Company shares
and the selling stockholders will determine the prices at which they will sell
the stockholder shares, which in either case may be at prevailing market prices
or at prices negotiated at the time of such sale. In connection with such sales,
we or the selling stockholders may use underwriters, brokers, or dealers who may
receive compensation, discounts, or commissions for such sales.
We will initially sell the Company 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 Company shares;
however, we anticipate obtaining an underwriter or broker-dealer to sell the
Company shares on a best efforts basis. We anticipate paying any such
underwriter or broker-dealer a discount or commission to be negotiated at the
time.
No public market currently exists for our common stock. We expect
trading to commence in the over-the-counter electronic bulletin board under the
symbol "ISNI" after the effective date of this prospectus.
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.
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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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.
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
USE OF PROCEEDS..................................15
DETERMINATION OF OFFERING PRICE..................16
DIVIDEND POLICY..................................16
CAPITALIZATION...................................17
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....................17
BUSINESS.........................................22
MANAGEMENT.......................................31
PRINCIPAL STOCKHOLDERS...........................35
DESCRIPTION OF SECURITIES........................36
SELLING STOCKHOLDERS.............................39
PLAN OF DISTRIBUTION.............................40
LEGAL MATTERS....................................42
EXPERTS..........................................42
WHERE YOU CAN FIND ADDITIONAL INFORMATION........42
INDEX TO FINANCIAL INFORMATION...................44
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,
- our largest stockholder may reduce or eliminate his financial support,
- 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,
- 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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PROSPECTUS SUMMARY
Because this is a summary, it may not contain all information that may
be important to you. You should read this entire prospectus, including the "Risk
Factors" section, before making an investment decision. When used in this
prospectus, the terms "we," "our" and "us" refer to ISNI.net, Inc. and not to
the selling stockholders.
THE COMPANY
We were incorporated under the laws of the state of Delaware on August
31, 1999, as Hawkeye Corporation, a development stage company created to
engage in a merger or acquisition. Hawkeye had no operations other than issuing
shares to its original stockholders. On March 23, 2000, Hawkeye acquired
Internet Services Network, Inc. in a reverse merger. Internet Services was a
closely held, private company, organized in 1997 as a Florida corporation. In
the merger, all of the outstanding shares of Internet Services were converted
into 24,000,000 shares of our voting common stock, and our name was changed to
"Internet Service Network, Inc." Subsequently, our name was changed to
"ISNI.net, Inc." We have a June 30 fiscal year end.
We are an Internet service provider (ISP) currently serving individuals
and small businesses, primarily in Charlotte County, Florida. We also provide
Web hosting services, which is a complement to our Internet access business. We
currently offer up to 56K modem access and ISDN (Integrated Digital Service
Network) connectivity and, with the proceeds from this offering, we anticipate
developing for use domestically and internationally a state-of-the-art broadband
wireless Internet access system. As of August 15, 2000, we served approximately
1,825 subscribers, including 27 Web hosting subscribers. Our services include
dial-up Internet access, Web hosting, and other value-added services such as Web
page design and Web-server co-location. Our dial-up Internet access and Web
hosting are offered in various price and usage plans designed to meet the needs
of our customers.
Our mission is to become an international ISP providing high speed and
secure Internet and data services to residential and corporate customers
utilizing state-of-the-art digital wireline and broadband wireless technologies.
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 intend to embark upon a
regional and international expansion program with the long-term goal of
extending our services to major areas of Central and South Florida, the
Caribbean, Central and South America, India, and Russia.
Our principal 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
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Common stock offered by us...................................................................500,000 shares
Common stock offered by the selling stockholders...........................................6,661,000 shares
Common stock to be outstanding after the offering........................................27,161,000 shares
Proposed OTC-BB trading symbol.........................................................................ISNI
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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. These factors are described beginning on page 5 of this prospectus.
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 years ended June 30, 2000
and 1999, and the balance sheet data for the year ended June 30, 2000, are
derived from our audited financial statements included elsewhere in this
prospectus.
STATEMENT OF OPERATIONS DATA
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FOR THE PERIOD ENDED JUNE 30,
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2000 1999
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Total income......................................... $ 395,225 $ 301,851
Income (loss) from operations........................ ($ 119,267) $ 42,222
Net income (loss).................................... ($ 126,199) $ 32,397
Net income (loss) per share.......................... $ 0.00* $ 0.00*
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* Less than $0.01.
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BALANCE SHEET DATA
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AS OF JUNE 30, 2000
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Total assets........................................................ $ 125,141
Total liabilities................................................... $ 306,707
Shareholders' deficit............................................... ($ 181,566)
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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.
WE ARE A RELATIVELY NEW COMPANY AND HAVE A HISTORY OF OPERATING LOSSES.
Our predecessor began offering Internet access in October 1997. We have
only a limited operating history upon which an evaluation of our prospects can
be made. We are subject to the substantial risks, expenses, and difficulties
encountered by new entrants into the Internet services industry. Those risks
include our ability to:
- successfully implement our business plan, including introducing
wireless Internet technology to our subscribers;
- attract and retain qualified personnel;
- expand our subscriber base and increase subscriber revenues;
- successfully compete in a highly competitive market; and
- upgrade our network and systems infrastructure.
As of June 30, 2000, we had an accumulated deficit of approximately
$184,232. A large portion of this deficit can be attributed to expenses incurred
in connection with the merger with our predecessor and the related SEC filings.
However, our deficit would have been even larger were it not for the assistance
supplied by our principal stockholder in terms of providing leased space at
reduced rates and interest-free loans during the prior fiscal periods. Adjusting
for nonrecurring merger expenses, we would have had an accumulated deficit of
approximately $40,000 as of June 30, 2000. Our ability to attain profitability
and positive cash flow without our principal stockholder's monetary support 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. As a result, we may not
be as profitable as hoped.
WE CANNOT CONTROL ALL OF THE FACTORS THAT WILL AFFECT OUR SUCCESS.
Our success 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;
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- the timing and effect of potential acquisitions;
- increased competition in current and prospective markets;
- future governmental regulation;
- our inability to obtain the needed frequency spectrum for our planned
wireless Internet operations; and
- other general economic factors.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.
There is a strong seasonal influence which is associated with our
location in Southwest Florida, a popular winter destination for retirees of
northern states. As a consequence, during the winter months (primarily during
our third fiscal quarter), subscriber numbers increase rapidly and, during
the summer months (primarily during our first fiscal quarter), they decrease
significantly. Accordingly, our operating results, cash flows, and liquidity
may fluctuate significantly from quarter to quarter.
OUR REVENUES DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN SUBSCRIBERS.
Our monthly subscribers, who account for a majority of our revenues,
currently have the option of discontinuing service at the end of any month for
any reason. Our expense levels are based, in part, on our expectations regarding
future revenues, which could be inaccurate. Our operations often require
up-front expenses with trailing revenues. In order to enhance subscriber
retention, we have instituted a new six month contract so that, rather than
canceling their contracts 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. We do not
have enough experience with this program to judge the program's success in
retaining our subscribers.
To the extent that revenues are below expectations, we may be unable to
reduce expenses proportionately, and operating results, cash flow, and liquidity
could be negatively affected. Subscribers are spending more time online, which
increases our expenses. 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.
Due to these and other factors, our operating results and/or growth rate may be
below your expectations and those of our management team. This, in turn, could
cause the price of our common stock to drop.
COMPETITION IS INTENSE AND MAY RESULT IN REDUCED REVENUES AND PROFITABILITY.
The market for providing Internet access to individuals and small
businesses is extremely competitive and highly fragmented. There are no
substantial barriers to entry, and we expect competition to intensify. We
believe that the primary competitive factors for success in this market are a
reputation for reliability and service, competitive pricing, effective customer
support, creative marketing, easy-to-use software and geographic coverage. Other
important factors include industry and general economic trends.
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We face increased competition from certain ISPs, including Juno Online
Services, Freei.Net, and NetZero, that provide free Internet access to
consumers. 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 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.
Our current competitors include Internet service providers and on-line
service providers with a significant national presence that focus on individual
and small business subscribers, such as America Online and, to a lesser extent,
EarthLink. These competitors have significantly broader market presence and
brand recognition and much greater financial, technical, and marketing
resources. They also have extensive coast-to-coast access to Internet backbones,
which provides greater scalability and the ability to provide better service
quality. We also compete with independent regional and local Internet service
providers, such as Sunline.
Sprint, a major long-distance telephone company, competes with us by
offering Internet access services. Other long-distance and local telephone
carriers are moving toward horizontal integration through acquisitions of, and
joint ventures with, ISPs. Accordingly, we expect increased competition from
traditional telecommunications carriers for customers and potential
acquisitions. These telecommunications carriers have nationwide networks and
substantially greater financial, technical, and marketing resources.
Telecommunications providers also have the ability to bundle Internet access
with basic local and long-distance telecommunications services. In addition,
some long-distance companies are promoting their services by offering consumers
free Internet access. Such bundling of services may make it difficult for us to
compete 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. In particular, we may face increased competition from companies
that provide connections to consumers' homes, including cable companies,
electric utility companies, and wireless communications companies. For example,
cable companies offer Internet access through their cable facilities at
significantly faster rates than existing modem speeds. These companies can
bundle Internet access with basic services or offer access for a nominal charge.
In addition, they could deny us access to their networks.
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.
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
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faster, more reliable Internet access for our subscribers on a more economical
basis than our competitors.
OUR GROWTH STRATEGY IS UNTESTED. IF WE FAIL TO INTEGRATE OUR ACQUISITIONS
SUCCESSFULLY, OUR RESULTS OF OPERATIONS WILL SUFFER.
Our growth strategy is untested. We may not be successful in
implementing our growth strategy, and any failure could cause our financial
condition and results of operations to suffer. Two components of our growth
strategy, the strategic acquisition of businesses and subscriber accounts and
the introduction of wireless Internet services, involve numerous risks,
including, among others, the following:
- 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
and customers.
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.
Another component of our growth strategy is to expand our wireless
services internationally to Latin America, Russia, and India. We have not yet,
however, entered those markets and have no experience in providing wireless
technology internationally. 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.
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;
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- employment of qualified personnel for such sites; and
- expansion of our managerial, operational, and financial resources.
WE MIGHT NOT BE ABLE TO ACQUIRE FROM THE FCC THE NECESSARY FREQUENCY SPECTRUM
FOR OUR WIRELESS INTERNET OPERATION.
To develop and maintain our planned wireless Internet operation we will
need to obtain and retain a frequency spectrum of 5 megahertz. The Federal
Communications Commission 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.
All these events could prevent us from setting up or continuing our
wireless Internet operation, thus having a material effect on our business,
planned expansion, and financial results.
IF WE CANNOT ATTRACT AND RETAIN 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, as 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.
Our success also depends on our ability to attract and retain
additional highly qualified management, technical, marketing, and sales
personnel as we implement our growth plan. The market for employees with the
combination of skills and attributes required to carry out our strategy is
extremely competitive. We may not be able to retain or integrate existing
personnel or identify and hire additional qualified personnel. The loss of the
services of our key personnel, or the inability to attract additional qualified
personnel, could cause the quality of our services to deteriorate. This could
adversely affect our subscriber retention, revenue, and profitability.
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WHEN WE WERE PROFITABLE, WE RELIED HEAVILY ON OUR PRINCIPAL STOCKHOLDER FOR
FINANCIAL SUPPORT; THIS SUPPORT MAY NOT BE AVAILABLE IN THE FUTURE.
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 3,208,000
shares of our common stock. Immediately after this offering and assuming that he
and his family sell all 3,208,000 shares, Mr. Ebner would continue to own
approximately 73.6% of our common stock. Prior to the reverse merger with
Internet Services, Mr. Ebner played a key role in the financing of our
predecessor's projects and the acceptance of rent at reduced rates. Mr. Ebner
is under no legal or contractual obligation to continue his financial support.
We do not expect Mr. Ebner to provide a comparable level of support to us
in the future.
NETWORK CAPACITY CONSTRAINTS, SYSTEMS FAILURES, AND/OR DEPENDENCE UPON LOCAL
TELEPHONE COMPANIES AND OTHER THIRD PARTIES COULD CAUSE US TO LOSE SUBSCRIBERS
AND/OR CAUSE INSTALLATION DELAYS FOR NEW SUBSCRIBERS.
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. We bill the majority of our subscribers by automatic charges to
subscribers' credit cards or bank accounts. Any failure of our billing and
management information systems could result in delayed collections and reduced
revenues.
We also rely on local and long distance telephone companies and other
companies to provide data communications capacity. These providers may
experience disruptions of service or have limited capacity, which could disrupt
our services. We may not be able to replace or
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supplement these services on a timely basis or at all. In addition, local phone
service is sometimes available only from a local monopoly telephone company.
Telecommunications carriers could prevent us from delivering Internet access
through their data transmission networks. 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 on their backbones; and
- we may not be able to negotiate favorable interconnectivity
agreements with other Internet service providers.
For example, the local telephone company that serves our primary market
is currently unable to support Digital Subscriber Line ("DSL") services in many
areas and, therefore, we cannot offer these services to our subscribers. 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.
OUR NETWORK IS VULNERABLE TO SECURITY RISKS, SUCH AS HACKING AND VIRUSES.
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 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.
IF WE FAIL TO ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS, WE
WILL NOT BE COMPETITIVE.
Our industry is subject to rapidly changing technology, evolving
industry standards, changes in subscriber needs, and frequent new service
introductions. Our success depends, in part, on our ability to meet changing
subscriber needs on a timely and cost-effective basis. We must improve our
existing services, develop new services, enter new markets, and continue to
develop and expand our technical expertise. We may not be successful in those
endeavors. Our ability to compete successfully is also dependent upon the
continued compatibility and
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interoperability of our services with products and architectures offered by
various vendors. Although we intend to support emerging standards in the market
for Internet services, we do not know that industry standards will be
established or, if they are established, that we will be able to conform to them
in a timely fashion and maintain a competitive position. In addition, there is a
risk that services or technologies developed by others will render our services
or technologies uncompetitive or obsolete.
We are also at risk to fundamental changes in the way Internet access
is delivered. Currently, Internet services are 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
telephones, satellite technologies, wireless telecommunications technologies,
and other consumer electronic devices. These methods may transmit data at
substantially faster speeds than the modems we currently use for dial-up
subscribers. 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 the wireless Internet access system. Adjusting to such
technological advances may require substantial time and expense, and we may not
succeed in addressing these competitive pressures or adapting our business to
alternative access methods, such as the wireless Internet access system, in a
timely and profitable manner.
WE MUST BE ABLE TO ANTICIPATE AND RESPOND TO CHANGING CONSUMER DEMANDS.
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.
Our future success will depend upon the 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. Sales of our services may be
negatively affected by weak consumer spending as a result of adverse economic
trends or uncertainties regarding the economy.
GOVERNMENT REGULATION MAY INCREASE OUR COSTS OF DOING BUSINESS.
Although we are not currently 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
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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.
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. Legislation in these areas 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.
WE NEED TO RAISE ADDITIONAL CAPITAL IN 2001 IN ORDER TO BE SUCCESSFUL.
We will likely incur substantial expenditures during 2000 and 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 anticipate 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.
YOU MAY HAVE DIFFICULTY BUYING AND SELLING OUR COMMON STOCK.
We intend to qualify our common stock for listing on the OTC Bulletin
Board. There can be no assurance that our common stock will or will continue to
be listed on the OTC Bulletin Board or that a market for our common stock will
exist in the future should our stockholders wish to sell any of their shares.
There is no assurance that, if a market exists in the future, 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. Such fluctuations and volatility have often been
related or disproportionate to the operating performance of such companies.
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IF OUR COMMON STOCK TRADES BELOW $5.00 PER SHARE, IT WILL BE DEEMED TO BE A
"PENNY STOCK" AND WILL BE SUBJECT TO THE PENNY STOCK RULES. THIS COULD AFFECT
YOUR ABILITY TO RESELL THE STOCK IN THE MARKET.
If our common stock trades at a price below $5.00 per share, it will be
subject to certain 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 certain exceptions.
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.
WE HAVE NEVER PAID A DIVIDEND AND DO NOT ANTICIPATE DOING SO IN THE FORESEEABLE
FUTURE.
We have never paid or declared a dividend on our common stock and do
not anticipate doing so in the foreseeable future. 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. We anticipate that any
earnings generated from our operations will be used to finance our business
and growth.
THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK MAY LIMIT YOUR ABILITY TO
INFLUENCE MATTERS INVOLVING THE COMPANY.
Immediately after the offering and assuming that Mr. Ebner and his
immediate family sells 3,208,000 shares of our common stock, he will continue to
beneficially own 73.6% of our outstanding shares of 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
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transactions. Such concentration of ownership may have the effect of delaying or
preventing a change in control.
USE OF PROCEEDS
The selling stockholders will receive the net proceeds from the sale of
the stockholder shares. We will not receive any proceeds from the sale of these
shares. We will, however, receive the net proceeds from the sale of the Company
shares.
Although the exact amount of net proceeds from the sale of the Company
shares cannot be determined at this time, for purposes of the table below, we
have assumed that the net proceeds from the sale of the Company shares (after
deduction of expenses) will be $2,390,000. This total is based upon a public
offering price of $5.00 per Company share and does not factor in underwriting
discounts and commissions, the amount of which, if any, is unknown at this time.
We expect to use the net proceeds from the sale of the Company shares over the
next 12 months in approximately the following amounts:
<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
------------------- ------------
<S> <C> <C>
Repayment of bank loans(1)............................................. $ 55,000 2.3%
Repayment of stockholder loans(2)...................................... 143,750 6.0
Acquisition of other ISPs(3)........................................... 95,000 4.0
Purchase and installation of wireless system(4)........................ 1,500,000 62.8
Working capital........................................................ 596,250 24.9
------------------- ------------
TOTAL...................................................... $ 2,390,000 100.0%
</TABLE>
------------
(1) As of August 28, 2000, we had an outstanding balance of approximately
$55,000 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.
(2) As of August 28, 2000, we had an outstanding balance of $143,750 on an
unsecured, interest-free advance, payable on demand, from Mr. Ebner. This
amount was used to pay for a consulting fee as well as for legal and
accounting retainers in connection with the merger and this offering.
(3) Although we have no existing agreements to acquire any ISPs, 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
will provide sufficient cash for two smaller acquisitions in the Southwest
Florida area.
(4) We are planning to purchase and install two wireless broadband systems to
serve customers in the Florida counties of Collier, Lee, Glades, Hendry,
Charlotte, Desoto, Manatee, and Sarasota, which are all located in
Southwest Florida. Each system will initially serve 300 customers, at a
cost to us of $2,200 for each subscriber, for a total cost of $1,320,000.
This figure includes site survey, propagation study, installation, and
start up. We intend to use existing towers in the area, thus avoiding the
costs of having to establish our own towers. The remaining $180,000 will be
used for anticipated engineering costs and for miscellaneous expenditures.
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If total proceeds are less than $2,390,000, 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.
Proceeds will be used for the acquisition of other ISPs as opportunities arise.
The use of proceeds described above represents our best estimate of the
allocation of the net proceeds of this offering of the Company shares based upon
the current status of our business operations, current economic conditions, and
the anticipation that all Company shares will be sold at an average price of
$5.00 per share, net of commissions and other expenses. Future events, including
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.
DETERMINATION OF OFFERING PRICE
The common stock offered by this prospectus may be offered by us or by
the selling stockholders from time to time in transactions reported in the pink
sheets or on the NASD 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. In addition, we anticipate that we will enter into an
agreement with any underwriter or broker-dealer that is hired by us and this
agreement may affect the offering price of our Company shares. Thus, the
offering price is indeterminate as of the date of this prospectus.
Additional information about the sale of these shares of common stock
is provided under the caption "Plan of Distribution."
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.
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CAPITALIZATION
Our capitalization as of June 30, 2000, and as adjusted to reflect the
issuance and sale of 500,000 shares of common stock for assumed proceeds of
$2,500,000 (net of discounts, brokerage commissions, and selling expenses)
follows.
<TABLE>
<CAPTION>
PRO FORMA AS OF
AS OF JUNE 30, 2000 JUNE 30, 2000
---------------------- ---------------------
<S> <C> <C>
Long-term indebtedness........................................... $ 17,726 $ 17,726
Stockholders' Equity:
Preferred Stock, $0.001 par value, 20,000,000
shares authorized, none issued and outstanding 0 0
Common Stock, $0.001 par value, 100,000,000
shares authorized, 26,661,000 shares issued and outstanding
prior to offering and 27,161,000 shares issued and outstanding
after the offering.......................................... 2,666 2,716
Additional paid in capital.................................... 0 2,389,950
Accumulated deficit........................................... ( 184,232) ( 184,232)
---------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY....................................... ($ 181,566) $ 2,208,434
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We are an Internet service provider currently serving individuals and
small businesses, primarily in Charlotte County, Florida. We also provide Web
hosting services, a complement to our Internet access business. We offer up to
56K modem access and ISDN connectivity. As of June 30, 2000, we served
approximately 1,800 subscribers, including approximately 75 complimentary
accounts held primarily by employees and businesses who have generated customers
for us and including 27 Web hosting subscribers. Our services include dial-up
Internet access, Web hosting, and other value-added services such as Web page
design and Web-server co-location. Our dial-up Internet access and Web hosting
are offered in various price and usage plans designed to meet the needs of our
customers.
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 years ended
June 30, 2000 and 1999, 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.
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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.
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 the Company's 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
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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 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.
During the year ended June 30, 2000, we did not pay a salary to our chief
executive officer and chief operating officer and we paid only a nominal salary
to our chief financial officer. We did, however, pay a management fee of $2,375
during the year ended June 30, 2000, to a corporation affiliated with our chief
executive officer for management services. We do not anticipate paying a salary
to our chief executive officer or a management fee to his affiliated corporation
in fiscal year 2001. Beginning in the first quarter of fiscal year 2001, we will
pay a management fee to a corporation affiliated with our chief operating
officer for management services and we will pay a full salary to our chief
financial officer.
We sublease approximately 2,400 square feet of office and classroom
space from a corporation that is wholly owned by our largest stockholder at a
below market rent. 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.
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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.
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2000, COMPARED TO YEAR ENDED JUNE 30, 1999
Income. Internet service fees for the year ended June 30, 2000, were
$390,840 as compared to $292,345 for the comparable year in 1999. This 33.69%
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 year ended June
30, 2000, as compared to the comparable year 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 year ended June 30, 2000,
was $159,840 as compared to $124,549 for the comparable year ended in 1999. This
increase of 28.34% 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 June 30, 2000, was $14,092
as compared to $20,969 for the comparable year ended in 1999. This decrease of
32.80% in advertising was due to a temporary hold on new advertising 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
year ended June 30, 2000, were $14,967 as compared to $12,312 for the comparable
year ended in 1999. This increase of 21.55% 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 June 30, 2000, were
$126,500. We did not incur any consulting fees in the previous year. 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 year ended June
30, 2000, were $75,904 as compared to $52,109 for the comparable year ended in
1999. This increase of 45.66%
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was a result of the need to hire two technical support personnel due to the
33.69% increase in our subscriber base.
Other occupancy and office expenses. Other occupancy and office
expenses for the year ended June 30, 2000, were $25,152 as compared to $18,208
for the comparable year in 1999. This 38.14% 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 June 30, 2000, were
$73,017 as compared to $11,648 for the comparable period in 1999. These
expenses, which are more fully described in NOTE I of our audited financial
statements, increased 526.87% primarily due to legal and accounting fees related
to our merger and also to travel expenses related to our merger. Other expenses
for the year ended June 30, 2000, included $2,375 in management fees paid to
Ebner Corporation. Management fees are expected to increase in future periods
because we do not anticipate that Ebner Corporation and other entities
affiliated with our executive officers will provide the same level of managerial
support without a more equitable contribution by us.
LIQUIDITY AND CAPITAL RESOURCES.
In the fiscal year ended June 30, 1999, we financed our operations
primarily through cash generated from operations. Due to the expenses incurred
in connection with the merger during the fiscal year ended June 30, 2000, we
had to finance our operations primarily through advances from our principal
stockholder and his affiliated corporations and, to a lesser extent, bank
borrowings.
During the last fiscal year, we obtained two lines of credit in the
amounts of $50,000 and $25,000 from two financial institutions. We are currently
seeking an increase in one of our bank lines of credit so that the aggregate
amount of all lines of credit would be $125,000 in order to relieve our
principal stockholder of the necessity of making further advances associated
with filings required from the SEC and the costs of issuing and subsequent
trading of our stock. We also intend to finance our operations in the next
fiscal year by selling up to 500,000 shares of common stock under this
prospectus and by increasing the number of our subscribers to take further
advantage of the economies of scale offered by a larger subscriber base.
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 the wireless broadband
system manufactured by IQ-Wireless GmbH 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.
Beginning in 2001, we will offer our customers who are part-time Southwest
Florida residents the ability to maintain their e-mail account with us and we
will forward their e-mail communications to their summer residences' accounts
during periods when they are not in residence in Southwest Florida. We will
charge a monthly fee of $5.00 for this service. We believe that this new service
will help recapture these individuals as full-paying subscribers when they
return to our service area during the winter months. The extent to which this
new service is successful may not be known until the end of the next fiscal
year.
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
businesses. As of August 15, 2000, we served over 1,800 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 Network, Inc. had acquired 800 subscribers, a number which
increased to approximately 2,000 subscribers by March 2000.
On March 23, 2000, Internet Services Network, Inc. merged into Hawkeye
Corporation (our original name), a development stage company incorporated on
August 31, 1999, to engage in a merger or acquisition. As part of this merger
all of the issued and outstanding stock of Internet Services Network, Inc. was
exchanged for and converted into 24,000,000 shares of our voting common stock.
Upon completion of the merger, our name was changed to Internet Service
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.
INDUSTRY OVERVIEW
Internet access and related value-added services represent one of the
fastest growing segments of the telecommunications services marketplace.
Industry analysts predict that prior to
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the end of the year 2000, the Internet user population in the United States will
climb to over 137,000,000 persons and that the number of Internet users
worldwide will exceed 270,000,000. Furthermore, by the end of the year 2000, it
is projected that nearly 10% of online households will have high-speed Internet
access, representing a 250% increase over that which existed in 1999. 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 ISDN or digital
subscriber lines as well as wireless broadband service for Internet use and data
transmission.
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.
In addition, development of the international Internet services market
promises similar growth 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
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<PAGE> 25
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 will receive 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, the wireless broadband system, developed and manufactured by
IQ-Wireless GmbH in Germany ("IQW"). The IQW system is a combined
solution for wireless Internet/data access and is primarily designed to
provide a state of the art wireless communications solution to
subscribers in rural and urban areas.
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.
4. DEVELOPMENT OF VALUE-ADDED REVENUES STREAMS - We intend to
develop value-added Internet access services, including dedicated
broadband connectivity, wireless Internet services, wireless local loop
systems, and satellite-aided data connection 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 in Latin
America, Russia, and India, thereby enhancing our productivity and
profitability.
The proceeds from our offering of Company shares will be used primarily
to purchase and install the IQW wireless broadband system. This system is an
Internet access platform (IAP) with a number of significant advantages over the
platforms used by most ISPs. Specifically, the IQW wireless broadband system
will provide our subscribers with faster, more reliable Internet access on a
more economical basis than our competitors. It will provide subscribers with a
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<PAGE> 26
wireless local area network (LAN). 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 the IQW wireless 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 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 IQW wireless broadband system, 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
use mostly point to point technology to achieve high speed access. These
techniques use equipment that can only serve one customer. IQW is 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 IQW wireless 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.
SERVICES
We offer Internet services tailored to meet the needs of both
individual and corporate Internet users. Our primary service offerings are
dial-up and broadband Internet access, as well as related value-added services.
For our individual and business subscribers, we offer dedicated high-speed
Internet access, Web hosting, Website design, and other similar services. Our
services are offered in several different packages to provide our subscribers
with a broad range of choices to satisfy their Internet needs. 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. Most subscribers are billed through automatic
monthly charges to their credit cards; 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. The services we presently provide our
subscribers include the following:
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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 certain
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.
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
dial-up Internet access subscriber base (both paid and complementary) at the
conclusion of each calendar quarter during the past two years has been as
follows:
<TABLE>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C>
2000...................... 2,062 1,856 -- --
1999...................... 1,294 1,622 1,551 1,858
</TABLE>
Beginning in 2001, we will offer our customers who are part-time
Southwest Florida residents the ability to maintain their e-mail account with us
and we will forward their e-mail communications to their summer residences'
accounts during periods when they are not in residence in Southwest Florida. We
will charge a monthly fee of $5.00 for this service. We believe that this new
service will help recapture these individuals as full-paying subscribers when
they return to our service area during the winter months. The extent to which
this new service is successful may not be known until the end of the next fiscal
year.
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.
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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.
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 IQ-Wireless GmbH, in
Germany, and its United States subsidiary, Wireless Internet Access Corporation,
a Florida corporation, which represents the interests of IQW and its sister
company, IQ-Vision GmbH, in the Americas. IQW is one of the leaders in
developing wireless local loop technology and in addition is involved in the
development of laser communication technology and data transfer via electrical
power lines. IQV has developed a remote controlled wireless video observation
system, which is used, for example, in Germany for the early detection of wild
fires. We believe that there are applications for this technology in the United
States. We are working with IQW and IQV to apply these technologies and all
other new technologies developed by them immediately after proof of the concepts
and successful field trials.
In addition, we are exploring a relationship with a software company in
India to serve as our own development tool for customized portals, networks, and
advanced animation in the future. This is in the very early stages of
discussion.
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<PAGE> 29
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. We expect that such 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.
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.
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.
We also face increased competition from certain Internet service
providers that provide free Internet access to customers. 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
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<PAGE> 30
to provide demographic information which is used by advertisers to deliver
targeted messages to the users' screens that cannot be closed or removed.
Internet service providers employing this business model could continue to
attract a significant number of users and exert further 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 include Internet access in the
basic bundle of services which they already provide, or offer such Internet
access for a nominal additional charge.
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.
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.
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.
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 subsections (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. Certain defenses to liability under the statute may
be available but 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.
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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 certain 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 and has yet to be decided and established.
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 (a) change their rules or
regulations, (b) deny usage of the necessary frequency spectrum, (c) withdraw
given licenses or permits, (d) 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.
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, covering issues such as content, privacy,
pricing, encryption standards, consumer protection, electronic commerce,
taxation, copyright infringement, and other intellectual property issues. We
cannot predict the impact, if any, that any future regulatory changes or
developments may have upon our business, financial condition, and results of
operations. Changes in the regulatory environment relating to the Internet
access industry, including regulatory changes that directly or indirectly effect
telecommunication costs or increase the likelihood or scope of competition from
regional telephone companies or others, could have a significant impact upon our
business, growth strategies, financial condition, and results of operations.
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.
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<PAGE> 32
PERSONNEL
As of August 15, 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 the Company is set at five members. The
directors and executive officers of the Company are as follows:
<TABLE>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Werner K. Ebner 53 President, Chief Executive Officer, and Director
Dieter Maschewsky 54 Chief Operating Officer, Vice-President, and
Director
Lesly Benoit, Jr. 29 Chief Financial Officer, Secretary, and Director
Dr. Reinhard Schiffel 56 Director
Jeremy Scott Joiner 35 Director
</TABLE>
Werner K. Ebner
Mr. Ebner is our predecessor's founder and has served as our President,
Chief Executive Officer, and a Director since the merger with our predecessor.
Prior to that time, Mr. Ebner served in those same capacities with our
predecessor since its formation in 1997. He is fluent in both German and
English.
In May 1973, Mr. Ebner co-founded Panatronic AG, an electronic
component and integrated circuit distribution company. In 1977, under Mr.
Ebner's leadership, Panatronic AG added a computer hardware division and began
distributing mainframe computers, personal computers, and PC components. By
1997, Panatronic AG had over 60 employees and revenues in excess of $50 million.
Panatronic AG was sold to a publicly traded company in 1997. In 1984, Mr. Ebner
established 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.
In 1995, Mr. Ebner founded Ebner Corporation, an import/export computer
wholesaler. In 1997, Mr. Ebner founded our predecessor, Internet Services
Network, Inc. as a local Internet service provider for Southwest Florida.
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<PAGE> 33
Dieter Maschewsky
Mr. Maschewsky has served as our Chief Operating Officer,
Vice-President, and a Director since the merger in March 2000. In 1977, 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.
In the course of his career, Mr. Maschewsky has served in engineering
and consulting capacities for multinational and national corporations and
telecommunications companies in the United Kingdom, Europe, Asia, and Africa.
From 1994 to 1995, he worked as a consultant to Christiani & Nielsen plc, in
Bangkok, Thailand, where he was responsible for certain aspects of the
formation, registration, and capitalization of a new subsidiary company,
Christiani & Nielsen AG, in Berlin. In 1995, he began to focus on the
telecommunications industry and participated in the planning and execution of
medium scale wire-line and wireless communication projects.
Mr. Maschewsky 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., 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, IQW's United States
subsidiary. IQW is the manufacturer of the IAP Wireless Broadband Internet
System which we anticipate using for our future wireless Internet services.
J. Lesly Benoit, Jr.
Mr. Benoit has served as our Chief Financial Officer, Secretary, and a
Director since the merger with our predecessor. He joined Ebner Corporation as a
manager in 1998. He was promoted in 1999 to Controller of Ebner Corporation and
also was appointed Controller of our predecessor and Computer Center Corp., all
companies wholly-owned by Mr. Ebner at that time. In February 2000, Mr. Benoit
was promoted to Director of Finance and Chief Financial Officer of our
predecessor corporation. While Mr. Benoit 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.
From January 1996 to August 1997, Mr. Benoit was an accounting
clerk/bookkeeper at PLD International, a Florida-based fragrance wholesaler, and
from September 1997 to June of 1998 was General Manager of a social club in
North Carolina.
Prof. Dr. Reinhard Schiffel
Dr. Schiffel has served as one of our Directors since the merger with
our predecessor. Since January 2000, Dr. Schiffel has served as Chief Executive
Officer of IQ-Wireless GmbH, a German corporation, which developed and
manufactures the IAP Wireless Broadband System. The Wireless Broadband System is
designed to provide a state of the art wireless
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<PAGE> 34
communications solution to rural as well as urban areas. This system is an
integral part of our international growth strategy. 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.
From 1995 to 1999, Dr. Schiffel was the Head of Research and
Development at Jenoptik Communications GmbH, a German company, which was
manufacturing wireless local loop systems and other wireless telecommunication
products.
Jeremy Scott Joiner
Mr. Joiner has served as our director since August 2000. Mr. Joiner is
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, audits, tax compliance, research and planning, and
write-up services. Mr. Joiner has been in public accounting since 1986. He was
previously with Price Waterhouse; Webb, McQueen and Co.; and Arthur Young.
Mr. Joiner received a Bachelor of Science in Accounting degree, with
honors, from Oral Roberts University and also has received a Masters degree 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.
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 fiscal years ended
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June 30, 2000, 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 $0 $0 $0
President and Chief 1999 $0 $0 $0
Executive Officer 1998 $0 $0 $0
</TABLE>
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 year ended June 30, 2000, we received interest-free advances
from our principal stockholder, Werner 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 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. Rental expense charged to operations under this lease totaled
$10,420 and $10,270 for the years ended June 30, 2000 and 1999, respectively.
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;
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<PAGE> 36
- 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 the SEC, 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 us of expenses incurred or paid by our
directors, officers, or controlling person in the successful defense of any
action, suit, or proceeding) 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, 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 of our company.
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial
ownership of our common stock as of August 15, 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.
35
<PAGE> 37
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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT
-------------------- ------------------
<S> <C> <C>
Werner K. Ebner........................................................ 23,208,000 (2) 87.05%
Lesly Benoit, Jr....................................................... 250,000 .94
Dieter Maschewsky...................................................... 250,000 .94
Reinhard Schiffel...................................................... 10,000 .04
Scott Joiner........................................................... 10,000 .04
All directors and executive officers
as a group (5 persons).............................................. 23,728,000 (2) 89.00%
</TABLE>
---------------
(1) 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.
(2) 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 certain 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 August 15, 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.
36
<PAGE> 38
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
outstanding shares of our preferred stock, if any, 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 the Company remaining after payment of liabilities,
subject to the preferences that may be applicable to the holders of outstanding
shares of our preferred stock, if any.
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, under certain circumstances, 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. In certain circumstances, this could have the effect of
decreasing the market price of the common stock.
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.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Our Bylaws 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.
37
<PAGE> 39
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 entitled to vote. This provision may make it difficult for
stockholders to take action opposed by the Board.
Our 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 Company shares
offered by this prospectus, we will have 27,161,000 shares of common stock
outstanding, of which 7,161,000 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 20,000,000 shares of common stock, all of which are owned
by Mr. Ebner, 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. 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. Since Mr.
Ebner is currently our affiliate, he may not use this exemption without regard
to 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.
TRANSFER AGENT
The transfer agent and registrar for our common stock is Jersey
Transfer & Trust Co, Verona, New Jersey.
38
<PAGE> 40
SELLING STOCKHOLDERS
The 7,161,000 shares of our common stock described in this prospectus
include 6,661,000 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. More information regarding this may be
found in the prospectus under the heading "Plan of Distribution."
Information regarding beneficial ownership of our common stock by the
selling stockholders as of August 15, 2000 follows. Except as noted in the
footnotes below, the selling stockholders have not had a material relationship
within the past three years with us. The table assumes that the selling
stockholders and the Company 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
------------------------------------------------ ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
Lesly Benoit, Jr.(1)............................ 250,000 250,000 0 0.00%
Canyon Group LLC................................ 1,000 1,000 0 0.00
Claudio Cisullo(4).............................. 100,000 100,000 0 0.00
Stephen C. Crumpton............................. 1,000 1,000 0 0.00
John Patrick Daly............................... 1,000 1,000 0 0.00
Gilbert H. Davis................................ 605,734 605,734 0 0.00
Nathan Max Degyansky............................ 1,000 1,000 0 0.00
Francie Ebner(5)................................ 100,000 100,000 0 0.00
Marc Ebner(5)................................... 50,000 50,000 0 0.00
Patrick Ebner(5)................................ 50,000 50,000 0 0.00
Werner K. Ebner(2)(5)........................... 23,208,000 3,208,000 20,000,000 73.64
ESN Financial, L.P.............................. 50,000 50,000 0 0.00
Aurora S. Estepa................................ 18,000 18,000 0 0.00
Justin M. Hoehn................................. 1,000 1,000 0 0.00
Jeremy Scott Joiner............................. 10,000 10,000 0 0.00
Gerald B. Kline................................. 86,533 86,533 0 0.00
Martin Koenig(4)................................ 5,000 5,000 0 0.00
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
Dieter Maschewsky(3)............................ 250,000 250,000 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(4)................ 5,000 5,000 0 0.00
Raymond L. Moss................................. 86,533 86,533 0 0.00
</TABLE>
39
<PAGE> 41
<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>
Erik Sterling Nelson............................ 96,000 96,000 0 0.00
Jeffrey Martin Palmer(4)........................ 40,000 40,000 0 0.00
Dianna Lynn Sandora(4).......................... 4,000 4,000 0 0.00
Reinhard Schiffel............................... 10,000 10,000 0 0.00
Jerry L. Sims................................... 86,533 86,533 0 0.00
Sterling Investment Services, Inc............... 769,334 769,334 0 0.00
Summit Venture Partners Fund I, LLC............. 865,333 865,333 0 0.00
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(4)................................... 100,000 100,000 0 0.00
Julie Zimmerman................................. 1,000 1,000 0 0.00
TOTAL........................................... 26,661,000 6,661,000 20,000,000 73.64%
</TABLE>
----------------------
(1) Mr. Benoit is our Chief Financial Officer and Secretary and one of our
Directors.
(2) Mr. Ebner is our Chief Executive Officer and President and one of our
Directors.
(3) Mr. Maschewsky is our Chief Operating Officer and Vice President and one of
our Directors.
(4) Each of these individuals is one of our non-officer employees.
(5) Under the rules of the SEC, Mr Ebner is deemed to beneficially own the
100,000 shares registered to his spouse and the 100,000 shares registered
to his minor children. the number reported in this table includes the
shares held in his own name and those held by his family.
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.
Inasmuch as the 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.
PLAN OF DISTRIBUTION
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
40
<PAGE> 42
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 make any sale of his or her stockholder 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.
We currently intend to sell the Company 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, at fixed prices which may be changed,
market prices at the time of sale, prices related to market prices, or
negotiated prices. 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 Company 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 the Company 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 (which may involve sales to and through other broker-dealers,
including transactions of the nature described above) 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. 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;
- 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
information 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 the Company shares offered will be sold. Accordingly,
investors will bear the risk that we
41
<PAGE> 43
not be able to sell all 500,000 Company shares which will result in our
inability to successfully complete our strategic plan. Funds from the offering
of Company 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.
The stockholders shares offered by this prospectus are being registered
to comply with our contractual obligations, and we have paid the expenses of the
preparation of this prospectus. We have also agreed to indemnify 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.
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 years ended
June 30, 2000 and 1999, 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.
42
<PAGE> 44
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.
43
<PAGE> 45
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Audited Financial Statements:
Independent Auditors' Report............................................................ F-1
Balance Sheet as of June 30, 2000....................................................... F-2
Statements of Operations for the years
ended June 30, 2000 and 1999................................................... F-3
Statements of Stockholder's Deficit for the years
ended June 30, 2000 and 1999................................................... F-4
Statements of Cash Flows for the years
ended June 30, 2000 and 1999................................................... F-5
Notes to Financial Statements........................................................... F-6
</TABLE>
44
<PAGE> 46
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 years ended June 30, 2000 and 1999. 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 years ended
June 30, 2000 and 1999 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
F-1
<PAGE> 47
BALANCE SHEET
-------------
ISNI.NET, INC.
June 30, 2000
<TABLE>
<CAPTION>
A S S E T S
-----------
<S> <C>
CURRENT ASSETS
Prepaid expenses $ 18,750
PREMISES AND EQUIPMENT, NET - NOTES C AND E 83,131
OTHER ASSETS
Deferred tax assets - NOTE F 23,260
---------
$ 125,141
=========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S DEFICIT
-------------------------------------
<S> <C>
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
Accumulated deficit (184,232)
---------
TOTAL STOCKHOLDER'S DEFICIT (181,566)
---------
$ 125,141
=========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE> 48
STATEMENTS OF OPERATIONS
------------------------
ISNI.NET, INC.
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
INCOME
------
Internet service fees $ 390,840 $ 292,345
Other revenue 4,385 9,506
----------- -----------
TOTAL INCOME 395,225 301,851
----------- -----------
OPERATING EXPENSES
------------------
Cost of revenues 159,840 124,549
Advertising 14,092 20,969
Bank and service charges 14,967 12,312
Consulting fees 126,500 0
Depreciation 14,600 9,564
Employee leasing costs 75,904 52,109
Rent 10,420 10,270
Other occupancy and office expenses - NOTE H 25,152 18,208
Other expenses - NOTE I 73,017 11,648
----------- -----------
TOTAL OPERATING EXPENSES 514,492 259,629
----------- -----------
INCOME (LOSS) FROM OPERATIONS (119,267) 42,222
OTHER DEDUCTION
---------------
Interest expense 4,521 1,471
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (123,788) 40,751
INCOME TAXES - NOTE F 2,411 8,354
--------------------- ----------- -----------
NET INCOME (LOSS) $ (126,199) $ 32,397
=========== ===========
INCOME (LOSS) PER SHARE $ 0 $ 0
----------------------- =========== ===========
WEIGHTED AVERAGE
----------------
SHARES OUTSTANDING 26,217,500 24,000,000
------------------ =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 49
STATEMENTS OF STOCKHOLDER'S DEFICIT
-----------------------------------
ISNI.NET, INC.
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
BALANCE (DEFICIT)
JUNE 30, 1998 $2,400 $(394) $ (86,368) $ (84,362)
COMPREHENSIVE INCOME:
NET INCOME FOR JUNE 30, 1999 0 0 32,397 32,397
---------
TOTAL COMPREHENSIVE INCOME 32,397
------ ----- --------- ---------
BALANCE (DEFICIT)
JUNE 30, 1999 2,400 (394) (53,971) (51,965)
COMMON STOCK ISSUED,
PURSUANT TO COMPANY
ORGANIZATION 266 394 0 660
ADJUSTMENTS TO CONFORM YEAR
END OF INTERNET SERVICES 0 0 (4,062) (4,062)
COMPREHENSIVE INCOME:
NET LOSS FOR JUNE 30, 2000 0 0 (126,199) (126,199)
---------
TOTAL COMPREHENSIVE INCOME (126,199)
------ ----- --------- ---------
BALANCE (DEFICIT)
JUNE 30, 2000 $2,666 $ 0 $(184,232) $(181,566)
====== ===== ========= =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 50
STATEMENTS OF CASH FLOWS
------------------------
ISNI.NET, INC.
Years ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net income (loss) $(126,199) $ 32,397
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation 14,600 9,564
Deferred income taxes 2,411 8,354
Increase in prepaid expenses (18,750) 0
Increase in other assets 0 (4,072)
Increase in deferred revenue 3,340 2,990
Increase (decrease) in accounts payable
and other liabilities 52,925 (10,194)
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (71,673) 39,039
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Purchase of premises and equipment (17,318) (12,725)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (17,318) (12,725)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Net borrowings on short-term debt 18,821 21,430
Net borrowings from (repayments to) affiliates
and stockholders 52,663 (54,222)
Principal payments on capital lease obligations (8,904) (5,260)
Bank overdraft 19,830 11,625
Net proceeds from issuance of common stock 660 0
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 83,070 (26,427)
--------- --------
NET DECREASE IN CASH (5,921) (113)
CASH
----
Beginning of year 5,921 113
--------- --------
End of year $ 0 $ 0
========= ========
SUPPLEMENTAL DISCLOSURE OF
--------------------------
CASH FLOW INFORMATION
---------------------
Cash paid during the year for:
Interest $ 4,521 $ 1,471
========= ========
Capital lease obligation incurred for
the acquisition of new equipment $ 32,924 $ 31,689
========= ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 51
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
1,700 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.
Advertising:
The Company expenses the costs of advertising as incurred. Advertising expense
for the year ended June 30, 2000 and 1999 was $14,092 and $20,969, respectively.
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.
F-6
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.NET, INC.
June 30, 2000
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
--------------------------------------------------------------------------------
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. 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.
The Company sub-leases office space from one of the affiliated corporations. 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. Rental expense charged to operations under
this lease totaled $10,420 and $10,270 for the years ended June 30, 2000 and
1999, respectively.
F-7
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.NET, INC.
June 30, 2000
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 years ended June 30, 2000 and 1999 was $14,600 and
$9,564, 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.
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>
F-8
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.NET, INC.
June 30, 2000
NOTE E - LEASES WHERE COMPANY IS LESSEE (CONTINUED)
---------------------------------------------------
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 and 1999, 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 be realized in the near term.
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
Deferred revenue 0
Other 0
-------
26,890
Deferred tax liabilities:
Depreciation on premises and equipment 3,495
Other 135
-------
3,630
Deferred tax assets, net $23,260
=======
</TABLE>
At June 30, 2000, the Company had a tax net operating loss carryforward of
approximately $89,600 beginning to expire in 2018. The provision for income
taxes at June 30, 2000 and 1999 is comprised solely of deferred income taxes.
The deferred tax asset component related to net operating loss carryforwards did
not increase in proportion to the net loss for June 30, 2000 due to
non-deductible consulting payments made as a result of the merger.
F-9
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.NET, INC.
June 30, 2000
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.
Prior to the reverse acquisition, Internet Services' year ended on December 31.
In recording the reverse acquisition, Internet Services' financial statements
for the fiscal year 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 for the fiscal years ended June 30, 1999 and 1998, respectively. An
adjustment has been made to stockholders' equity in the year ending June 30,
2000 to eliminate the effect of including Internet Services' results of
operations for the six months ended December 31, 1999 in the Company's financial
statements for the fiscal year ended June 30, 2000. There were no prior
significant intercompany transactions between the Company and Internet Services.
F-10
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-----------------------------------------
ISNI.NET, INC.
June 30, 2000
NOTE H - OTHER OCCUPANCY AND OFFICE EXPENSES
--------------------------------------------
The following amounts comprise general operating expenses for the years ended
June 30:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Equipment rental $ 469 $ 1,172
Licenses and permits 453 122
Office supplies 11,343 9,097
Postage and delivery 3,099 451
Repairs 2,843 2,169
Utilities 2,247 1,963
Printing 858 70
Insurance 3,840 3,164
------- -------
TOTALS $25,152 $18,208
======= =======
</TABLE>
NOTE I - OTHER EXPENSES
-----------------------
The following amounts comprise other expenses for the years ended June 30:
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Automobile $ 905 $ 256
Commission 4,602 5,774
Dues and subscriptions 2,279 1,786
Management fees 2,375 0
Miscellaneous 3,291 2,831
Legal & accounting fees 56,597 650
Other taxes 360 26
Travel and entertainment 2,608 325
------- -------
TOTALS $73,017 $11,648
======= =======
</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.
F-11
<PAGE> 57
[LOGO ISNI]
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> 58
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. The Company'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 the Company, and, with respect to any criminal action or
proceeding, he or she had no reasonable cause to believe his or her conduct was
unlawful. The Amended and Restated Certificate of Incorporation of the Company
entitles directors and officers of the Company to indemnification to the extent
permitted by Delaware law.
The Company's Amended and Restated Certificate of Incorporation also
permits the Company 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 the Company
would have power to indemnify him or her against such liability.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses (subject to future contingencies) 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 the Company, are itemized below. All such expenses
are to be borne by the Company. 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........................ 50,000*
Accounting Fees and Expenses................... 15,000*
Miscellaneous.................................. 5,547*
TOTAL................................. $110,000*
*estimated.
II-1
<PAGE> 59
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since its formation on August 31, 1999, the Company sold unregistered
shares of its common stock and warrants to purchase shares of its common stock
in the following transactions:
On August 31, 1999, the Company issued 2,500,000 shares of common stock
to its sole officer and director at a price of $0.0002 per share. 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. The purchaser was deemed to be sophisticated with respect to an
investment in the common stock.
On September 30, 1999, the Company issued 150,000 shares of common
stock to two investors at a price of $0.0002 per share. 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. All of the purchasers were deemed to be sophisticated with
respect to an investment in the common stock.
On March 9, 2000, the Company issued as a dividend to its then current
stockholders Class A Warrants to purchase an aggregate of 1,325,000 shares of
common stock for $3.00 per share and Class B Warrants to purchase an aggregate
of 1,325,000 shares of common stock for $5.00 per share. These warrants 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 warrants were issued with
appropriate restrictive legends. All of the warrant holders were deemed to be
sophisticated with respect to an investment in the warrants. These warrants
expired by their terms on March 10, 2003, but were subsequently terminated by
agreement, dated August 30, 2000, among the warrant holders and the Company.
On March 13, 2000, the Company issued 11,000 shares of common stock to
eleven 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. All of the
purchasers were deemed to be sophisticated with respect to an investment in the
common stock.
On March 25, 2000, in connection with the merger of Internet Services
Network, Inc., a Florida corporation ("Internet Services"), into the Company,
the Company issued 24,000,000 shares of common stock to Werner K. Ebner,
currently the President and Chief Executive Officer and a Director of the
Company, 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
II-2
<PAGE> 60
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
was deemed to be sophisticated with respect to an investment in the common
stock.
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 the Company'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
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2000, and incorporated herein by reference).
4 Instruments defining the rights of securities holders --
(see Articles FIVE, SIX, SEVEN, EIGHT, NINE, TEN, ELEVEN, TWELVE,
and THIRTEEN of the Amended and Restated Certificate of Incorporation)
5 Opinion of Porter, Wright, Morris & Arthur LLP...................
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>
-------
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
II-3
<PAGE> 61
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.
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.
II-4
<PAGE> 62
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 registration
statement to be signed on its behalf by the undersigned, in the City of Punta
Gorda, State of Florida, on September 5, 2000.
<TABLE>
<S> <C> <C>
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 registration
statement was signed by the following persons in the capacities and on the dates stated.
Name Title Date
---- ----- ----
/s/ Werner K. Ebner President, Chief Executive
--------------------------------- Officer and Director September 5, 2000
Werner K. Ebner
/s/ Dieter Maschewsky Chief Operating Officer,
--------------------------------- Vice-President and Director September 5, 2000
Dieter Maschewsky
/s/ J. Lesly Benoit, Jr. Chief Financial Officer,
--------------------------------- Secretary and Director September 5, 2000
J. Lesly Benoit, Jr.
/s/ Reinhard Schiffel Director September 5, 2000
---------------------------------
Reinhard Schiffel
/s/ Jeremy Scott Joiner Director September 5, 2000
---------------------------------
Jeremy Scott Joiner
</TABLE>
II-5
