<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 2000
Commission File Number 000-29425
I-TRANSACTION.NET, INC.
(Exact name of registrant as specified in its charter)
New Jersey
(State of jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
934 The East Mall, Etobicoke Ontario M9B 6J9
(Address of principal executive offices) (Zip Code)
(416) 620-8330
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, $0.0001 Par
Value - 11,913,611 Shares as of October 31, 2000
The Exhibit Index is on Page 20
This document contains 21 pages.
<PAGE>
I-TRANSACTION.NET, INC.
AND SUBSIDIARIES
INDEX
-------------------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for September 30, 2000 ...................3
Consolidated Statement of Operations for the nine
months ended September 30, 2000 and 1999............................4
Consolidated Statement of Cash Flows for the nine
months ended September 30, 2000 and 1999............................5
Notes to Consolidated Financial Statements...........................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................20
SIGNATURES..........................................................21
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, June 30,
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 2,616 $ 584
Accounts receivable, net 17,670 8,815
Sundry assets 1,565 -
-------------------------------------------------------------------------------------------------------------------
Total current assets 21,851 9,399
Equipment, net 30,448 32,780
Goodwill 141,388 -
Due from affiliates 9,592 13,825
Other assets 3,500 3,500
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 206,779 $ 59,504
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-------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES:
Notes payable $ 134,955 $ 95,069
Accounts payable and accrued liabilities 2,397,896 2,333,697
Customer deposits 10,135 31,200
Loans payable, related party 33,056 32,033
-------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,576,042 2,491,999
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIENCY
Common stock, $.001 par value, 200,000,000 shares
authorized; 11,928,353 shares issued and outstanding 11,929 11,914
Additional paid-in-capital 2,905,669 2,804,333
Cumulative translation adjustment (5,410) (5,410)
Deficit accumulated during development stage (5,281,451) (5,243,332)
-------------------------------------------------------------------------------------------------------------------
Total stockholders' deficiency (2,369,263) (2,432,495)
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS AND STOCKHOLDERS' DEFICIENCY $ 206,779 $ 59,504
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
FEBRUARY 28, 1997
SEPTEMBER 30, SEPTEMBER 30, JUNE 30, (DATE OF INCEPTION) TO
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 37,206 $ - $ 67,239 $ 104,445
Cost of sales 5,620 - 51,516 57,136
--------------------------------------------------------------------------------------------------------------------
Gross profit 31,586 - 15,723 47,309
--------------------------------------------------------------------------------------------------------------------
General, selling, and administration expense 15,005 - 190,184 232,024
Interest 54,700 - 250,000 304,700
Research and development - - 68,000 68,000
Consulting fees - 246,500 493,615 493,615
--------------------------------------------------------------------------------------------------------------------
69,705 246,500 1,001,799 1,098,339
--------------------------------------------------------------------------------------------------------------------
Loss from continuing operations before
extraordinary item (38,119) (246,500) (986,076) (1,051,030)
EXTRAORDINARY ITEM:
Legal judgment, net of $761,247 tax benefit - - (1,176,755) (1,176,755)
--------------------------------------------------------------------------------------------------------------------
Loss before provision for income taxes (38,119) (246,500) (2,162,831) (2,227,785)
Provision for income taxes - - (761,247) (761,247)
--------------------------------------------------------------------------------------------------------------------
NET LOSS $ (38,119) $ (246,500) $ (2,924,078) $ (2,989,032)
--------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE LOSS:
Foreign currency translation, net - - (5,410) (5,410)
COMPREHENSIVE LOSS $ (38,119) $ (246,500) $ (2,929,488) $ (2,994,442)
--------------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION FOR THE PERIOD ENDED SEPTEMBER 30, 2000:
Income per share from continuing operations $ 0.001
--------------------------------------------------------------------------------------------------------------------
Income per share from extraordinary items 0.001
--------------------------------------------------------------------------------------------------------------------
Basic net income per share 0.001
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Weighted average number of
Shares 11,408,953
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
DEFICIT
ADDITIONAL ACCUMULATED
COMMON PAID-IN DURING DEVELOP-
ACTIVITY SHARES STOCK CAPITAL MENT STAGE TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 27, 1997 132,755,304 $ 1,342,086 - $ (2,292,419) $ ( 950,333)
Reverse splits (132,749,204) (1,342,080) 1,342,080 - -
Issuance of shares relating
to bankruptcy settlement 1,581 2 948,903 - 948,905
Shares issued for the
acquisition of Forum Energy 50,000 50 278,018,977 - 278,019,027
Loss due to write off of
Forum Energy - - - (278,017,599) (278,017,599)
Shares issued relating to
bankruptcy settlement with
creditors 145,930 146 18,682 - 18,828
Net loss from operations
at June 30, 1998 - - - (18,828) (18,828)
-------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998, 203,611 204 280,328,642 (280,328,846) -
AS PREVIOUSLY REPORTED
Adjustment for the write-off of
Forum Energy - - (278,017,599) 278,017,599 -
-------------------------------------------------------------------------------------------------------------------
RESTATED JUNE 30, 1998 203,611 204 2,311,043 (2,311,247) -
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Issuance of shares relating
to bankruptcy settlement 5,000 5 995 - 1,000
Shares issued for cash, net 10,000,000 10,000 65,000 - 75,000
Shares issued for services 5,000 5 3,995 - 4,000
Loss from operations for the
year ended June 30, 1999 - - - (8,007) (8,007)
-------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 10,213,611 10,214 2,381,033 (2,319,254) 71,993
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Issuance of 1,000,000 shares
for acquisition of ITNI 1,000,000 1,000 249,000 - 250,000
Issuance of 700,000 shares
for acquisition of Dynamic 700,000 700 174,300 - 175,000
Foreign currency translation - - - - (5,410)
Loss from operations for the
year ended June 30, 2000 - - - (2,924,078) (2,924,078)
-------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 2000 11,913,611 $ 11,914 $ 2,804,333 (5,243,332) $ (2,432,495)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Issuance of 14,742 shares for
acquisition of Athon 14,742 15 101,337 - 101,352
Loss from operations for the
three month period ended
September 30, 2000 - - - (38,119) (38,119)
-------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2000 11,928,353 $ 11,929 $2,905,670 $(5,281,451) $ 2,369,262)
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
THREE MONTH THREE MONTH YEAR ENDED FEBRUARY 28, 1997
PERIOD ENDED PERIOD ENDED JUNE 30, (DATE OF INCEPTION) TO
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 2000 SEPTEMBER 30, 2000
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET LOSS $ (38,119) $ (246,500) $ (2,924,078) $ (2,970,204)
Adjustment to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation expense 3,737 - 53,208 56,945
Interest expense 54,700 - 250,000 304,700
Extraordinary item - legal judgement - - 1,938,002 1,938,002
Consulting fees - 246,500 493,615 493,615
Changes in assets and liabilities:
Increase in accounts receivable (1,239) - (8,815) (10,054)
Increase in sundry asset (1,565) - - (537)
Decrease in note receivable - - 100,000 100,000
(Decrease) increase in accounts
payable and accrued liabilities (399) - (6,208) 18,393
Increase (decrease) in deposits (21,065) - - (21,065)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (3,950) - (104,276) (90,205)
-------------------------------------------------------------------------------------------------------------------
Investing activities:
Increase (decrease) in promissory note 726 - 95,069 (4,205)
Advances from (to) affiliates, net 4,233 - 15,201 19,434
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 4,959 - 110,270 15,229
-------------------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of stock - - - 80,000
Loan payable to related party 1,023 - - 3,007
-------------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 1,023 - 5,994 83,007
-------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH PRIOR TO EFFECT
OF EXCHANGE RATE ON CASH 2,032 - 5,994 8,031
EFFECT OF EXCHANGE RATE ON CASH - - (5,410) (5,410)
-------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 2,032 - 584 -
CASH AT BEGINNING OF PERIOD 584 - - -
-------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 2,616 $ - $ 584 $ 2,616
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL DISCLOSURES:
The Company had no cash equivalents at September 30, 2000 and 1999.
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
The Company acquired all the stock of i-Transaction.net, Inc. and Dynamic
Visions, Ltd. for stock as follows:
<TABLE>
<CAPTION>
Total Value of
COMPANY ACQUIRED SHARES ISSUED ACQUISITION
---------------- ------------- ------------
<S> <C> <C>
i-Transaction.net. Inc. 1,000,000 $ 250,000
Dynamic Visions. Ltd. 700,000 $ 175,000
Athon Graphics and Marketing Inc. 14,742 $ 141,388
</TABLE>
<PAGE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
On October 26, 1999 Phoenix Summus Corp. changed its name to
i-Transaction.net Inc. ("the Company"). In January of 1999, the Company was
reincorporated in the State of New Jersey and re-established itself as a
development stage company. The Company's primary business activities relate
to developing, selling, and managing web-based database solutions software.
The Company through its subsidiaries will assist in the development,
marketing, and sales of its proposed acquisition of the e-commerce software
currently owned by ePass Canada.com, Inc. (See Note 11).
GOING CONCERN
The accompanying consolidated financial statements have been presented in
accordance with generally accepted accounting principles, which assume the
continuity of the company as a going concern. However, during the year
ended June 30, 2000 and the three month period ended September 30, 2000,
the Company experienced, and continues to experience going concern and
liquidity problems. The Company has incurred a net loss of $(2,924,078) and
net income of ($38,119) for the year ended June 30, 2000 and three month
period ended September 30, 2000, respectively. The loss for the year ended
June 30, 2000 is primarily related to a judgment that was entered against
Phoenix Summas Corporation, which was the corporate name prior to the name
change that occurred October 1999 (see Note 7). The Company's consolidated
financial position also reflects a working capital deficiency of
$(2,554,191) and a stockholders' deficiency of $(2,369,263) as of September
30, 2000.
These conditions raise substantial doubt as to the ability of the Company
to continue as a going concern.
Management's plans with regard to these matters encompass the following
actions:
1. The Company has retained legal counsel to vigorously defend the
judgment entered against Phoenix Summas Corporation.
2. The Company plans to raise equity from private placements of its common
stock, and plans to sell additional shares of common stock in a
proposed public offering. From the proceeds of these anticipated
offerings the Company plans to pay outstanding liabilities, continue to
spend on research and development of its proprietary software, and
continue to explore acquiring potentially profitable technology related
companies.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries Dynamic Visions Ltd., i-Transaction.net
Inc., a Bahamian Corporation and Athon Graphics and Marketing Inc. All
inter-company balances and transactions have been eliminated on
consolidation.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Cont'd.)
REVENUE RECOGNITION
Revenue from the sale of products is recognized at the time of shipment.
Revenue from consulting services is recognized when the services are
rendered in accordance with the terms of the related agreements. Revenue
from Orion Game System Shared Revenue Contracts is recognized when earned
on an accrual basis.
EQUIPMENT
Equipment is recorded at cost and are being depreciated on the
straight-line method over their estimated useful lives which approximates
five years.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's Canadian subsidiary are translated in
accordance with Statement of Financial Accounting Standard No. 52, which
requires that foreign currency assets and liabilities be translated using
the exchange rates in effect at the balance sheet date. Results of
operations are translated using the average rates prevailing throughout the
period. The effects of unrealized exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are accumulated
as the cumulative translation adjustment in shareholders' equity.
ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reported period. Actual results could differ from these
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial statements approximates
fair value because of their short-term maturities. The Company does not
hold or issue financial instruments for trading purposes nor does it hold
or issue interest rate or leveraged derivative financial instruments.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies
the existing computational guidelines under Accounting Principles Board
("APB") Opinion No. 15, "Earnings Per Share".
The statement is effective for financial statements issued for periods
ending after December 15, 1997. Among other changes, SFAS No. 128
eliminates the presentation of primary earnings per share and replaces it
with basic earnings per share for which common stock equivalents are not
considered in the computation, it also revised the computation of diluted
earnings per share. The Company has adopted SFAS No. 128 and there is no
material impact to the Company's earnings per share, financial condition,
or results of operations. The Company's earnings per share have been
restated for all periods presented to be consistent with SFAS No. 128.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Cont'd.)
NET LOSS PER SHARE - (cont'd.)
The basic loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding for the
period. When present, common stock equivalents are excluded from the
computation if their effect would be anti-dilutive. Shares issued at
inception are considered to be outstanding for the entire period
presented.
RECENT PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for
all items that are to be recognized under accounting standards as
components of comprehensive income to be reported in the financial
statements. This statement is effective for all periods beginning after
December 15, 1997 and reclassification of financial statements for earlier
periods will be required for comparative purposes. To date, the Company has
not engaged in transactions which would result in any significant
difference between its reported net loss and comprehensive net loss as
defined in the statement.
In June 1998, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the effective date of FASB Statement No. 133",
which deferred the required date of adoption of SFAS No. 133 for one year,
to fiscal years beginning after June 15, 2000. This Standard is not
applicable for the Company's year ended June 30, 2000.
2. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment (Dynamic Acquisition) $ 21,637 $ 15,642 $ 5,995
Orion Game Systems 64,351 39,898 24,453
------------------------------------------------------------------------------------------------------
$ 85,988 $ 55,540 $ 30,448
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
3. NOTES PAYABLE
a. The operating loan is secured by a personal guarantee and a
postponement and assignment of claim from one of the shareholders
of the Company's parent.
b. This loan is currently in default. The lender has released the
personal guarantees of certain shareholders of the Company's
parent in exchange for a cash payment from the shareholders. The
shareholders have agreed not to seek repayment from the Company of
the cash payment.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
4. LOANS PAYABLE, RELATED PARTY
The loans payable related party, consisting of advances for working
capital, are non-interest bearing and contain no fixed terms of
repayment.
5. ACQUISITIONS
a. On September 29, 1999 the Company acquired 100% of the outstanding
common stock of i-Transaction.net Inc., a Bahamian Corporation, from a
related party, by issuing 1,000,000 shares of common stock which were
issued and subject to Rule 144 of Securities and Exchange Act of 1933.
The acquisition was accounted for under the purchase method of
accounting, and accordingly, the results of operations will be included
in the results of operations for the Company from the date of
acquisition.
In determining the value of the purchase of ITNI, it is appropriate to
use the quoted market price of the shares of the Company at the time of
acquisition if the shares reflected the fair value of the Company. As
the Company was a development stage Company at the time of acquisition,
the fair value of the Company was nominal and thus the market value of
the shares of the Company were discounted in determining the purchase
price. Accordingly, the shares were valued at $.25 per share and the
excess over the net assets acquired, approximating $246,500, were
charged to consulting fees, as the value of the intangible assets,
primarily consisting of a tradename, contact base, and the business
location could not be determined at this time.
b. On November 15, 1999 the Company acquired 100% of Dynamic Visions, Ltd.
("Dynamic"), an Ontario, Canada corporation for 700,000 shares of
common stock of the Company which were issued subject to Rule 144 of
the Securities and Exchange Act of 1933. The acquisition was accounted
for under the purchase method of accounting, and accordingly, the
results of operations will be included in the results of operations for
the Company from the date of acquisition.
In determining the value of the purchase of Dynamic, it is appropriate
to use the quoted market price of the shares of the Company at the time
of acquisition if the shares reflected the fair value of the Company.
As the Company was a "shell Company" at the time of acquisition, the
fair value of the Company was nominal and thus the market value of the
shares of the Company were discounted in determining the purchase
price. Accordingly, the shares were valued at $.25 per share and the
excess over the net assets acquired, approximating $247,115, were
charged to consulting fees, as the value of the intangible assets,
primarily consisting of propriety software and personnel, could not be
determined at this time.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
5. ACQUISITIONS - (Cont'd.)
c. Phoenix Summas Corporation (prior name of Company) filed for
bankruptcy protection in the Dominion of Melchizekek under Chapter 11
of the Karitane Bankruptcy Code. Karitane and the entire Dominion of
Melchizedek adopted the entirety of the United States Federal
Bankruptcy laws in 1991. As a result of the reorganization, the
Company emerged with its sole asset being 13,500,000 shares of Sky
Scientific, Inc. preferred stock, which has no value and was written
off and not reflected in the accompanying financial statements. As
part of the plan, the Company executed a 110:1 share reverse split,
with no shareholder to receive fewer than 20 shares after the split.
Creditors (other than the former transfer agents' debt, which the
Company assumed to pay in the future and satisfied) received 1,581
shares of common stock in 1997, 145,930 shares of common stock in
1998 and 5,000 shares of common stock in 1999 on a post-consolidated
basis.
d. On March 1, 1999 the Company's Board of Directors approved a 200:1 share
reverse split, with no shareholder to receive fewer than 50 shares after
the split. All share and per share data included in these financial
statements were restated to reflect the effect of the stock split.
e. On May 20, 1999 the Company issued 10,000,000 shares at $0.01 share
under a Rule 504 offering which was satisfied by the issuance of
promissory notes, totalling $100,000, by the recipients of the stock.
The notes bear interest at 5% per annum and were due May 1, 2000. These
notes have been paid in full.
On September 18, 2000, the Company acquired 100% of Athon Graphics and
Marketing Inc. for $101,351 by issuing 14,742 shares and assuming net
liabilities of $40,037. The acquisition will be accounted for under the
purchase method of accounting, and accordingly the results of operations
will be included in the operating results of the Company from the date
of acquisition. The Company expects that the entire purchase price will
be allocated to goodwill.
6. INCOME TAXES
Deferred income taxes may arise from temporary differences resulting from
income and expense items reported for financial accounting and tax purposes
in different periods. Deferred taxes are classified as current or
non-current depending on the periods in which the temporary differences are
expected to reverse. The deferred tax asset related to the operating loss
carry forward has been fully reserved, due to the inability at this time to
predict whether the company will have future income to offset against these
loss carry forwards. On September 30, 2000, the Company had approximately
$3,400,000 of net loss carry forwards which are available through the year
2015.
7. LEGAL PROCEEDINGS
During 1999, a judgment was entered against Phoenix Summas Corporation
(See Note 1) in the Fresno County Superior Court for the State of
California. Sue B. Jones, an unrelated third party, against Harold Blethen,
a former director of Phoenix Summas Corporation, brought the case. The
lawsuit stemmed from an alleged real estate transaction involving the
former director and the plaintiff. The Company has alleged that it was not
a party to this transaction. In November 1999, based on the judgment
entered against Phoenix Summas Corporation, the Company recorded a pretax
charge of $1,938,000 to reserve for this judgment and at year-end recorded
an additional $304,700 for accrued interest and other related costs. This
charge has been reflected as an extraordinary item in the accompanying
consolidated statement of operations and as a current liability in the
accompanying consolidated balance sheet for the year ended September 30,
2000.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
7. LEGAL PROCEEDINGS - (Cont'd.)
The Company has retained legal counsel and is currently vigorously
defending this judgement. Legal counsel is currently attempting to set
aside the entry of default and default judgement. The Company believes
that the judgement may be reversed, but at this time the probability
of reversal cannot be determined.
8. SEGMENT INFORMATION
The Company currently operates its business in one segment that of
producing and servicing 3-D arcade games. This segment accounts for
100% of the revenues for the year ended June 30, 2000.
9. RELATED PARTY TRANSACTIONS
a. The Company has an agreement to market and distribute products
developed or constructed by Dynamic Visions Development Corporation, a
private corporation. The shareholders (including several key employees)
of Dynamic Visions Development Corporation are also shareholders of
i-Transaction.net Inc., the parent company of Dynamic Visions Ltd.
Certain of the employees/shareholders of Dynamic Visions Development
Corporation have provided administrative and sales support services to
Dynamic Visions Ltd. without charge during the period. The cost of
these services have not been accrued in the accompanying financial
statements.
b. The Company is in the process of acquiring the E-Pass software from a
related party for $2,200,000 (See Note 11).
10. PRIOR PERIOD ADJUSTMENT
The Company acquired 100% of Forum Energy, Inc. ("Forum") from Pilares
Oil and Gas Inc. ("Pilares") on March 13, 1997 for 50,000
post-consolidated shares of common stock, (10,000,000 pre-consolidated
shares of common stock) valued at $278,028,827 and par value of
$10,000. On February 9, 1998 the Company returned the Oil and Gas
properties owned by Forum to Pilares as per terms of an agreement. In
return, the Company was to receive 45,000 post-consolidated shares of
common stock (9,000,000 pre-consolidated shares of common stock). The
Company has not received the shares and does not intend on pursuing the
matter. Paid-in-capital as of June 30, 1998 has been restated to
reflect the write-off of this investment.
<PAGE>
I-TRANSACTION.NET INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
-------------------------------------------------------------------------------
11. COMMITMENTS
On February 23, 2000 the Company acquired, subject to certain
contingencies in the acquisition agreement, 100% of the issued and
outstanding common shares of ePass Canada.com Inc. ("ePass") from a related
party for $2,200,000. The acquisition will be accounted for under the
purchase method of accounting and accordingly the results of operations
will be included in the results of the Company from the date of
acquisition. ePass owns the software product ePass which is an integrated
data and knowledge product. The purchase is not reflected in the
accompanying financial statements until such time as the contingency clause
is satisfied. The closing of this transaction and the satisfaction of the
promissory note will occur upon 1.) the valuation of ePass Canada.com,
Inc., 2.) a valuation of the ePass software, and/or 3.) completion of a
successful financing that would allow full payment for the purchase price
of the shares of the corporation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Dynamic Visions Sales
For the period ended September 30, 2000 Dynamic had sales of $37,206. These
sales consisted of revenues from three gaming systems that have been placed in
use at a Dave & Busters location in Toronto, Ontario and from several
development contracts that Dynamic has been awarded, including contracts to
develop simulation software that will be used to train Canadian military
personnel in the use of certain weapons systems.
The Company intends to continue its efforts to sell Orion Game Systems to family
entertainment centers and arcade venues. The Company is enhancing the game play
and is developing new virtual reality input devices.
The Company also will seek development contracts from private entities and the
Canadian military. The Company already develops simulation software for the
Canadian military.
ePass Canada Sales
In March 2000, the Company entered into an agreement to purchase ePass Canada
and began enhancing the ePass software that company had developed. The Company
has not completed that transaction as it is contingent upon an independent
valuation of ePass Canada and the ePass software and/or financing to satisfy the
purchase price. ePass Canada derives its revenue from licensing its software and
sharing in revenue generated by ePass enabled sites. During the quarter ended
September 30, 2000 the Company sold no ePass licenses and derived no revenue
from the ePass software.
The Company will use sales staff in both Canada and the United States to seek
licensees for the software. Licensees will be customer service oriented
companies who will purchase a license for ePass software. The Company will also
customize the software to meet customer needs.
COSTS AND EXPENSES
Costs of Sales
For the quarter ended September 30, 2000 the Company had revenues of $37,206 and
the cost of sales was $5,620. The Company did not have any sales in fiscal 1999
or in the year ago quarter. All the Company's sales were derived from its
Dynamic Visions subsidiary. Likewise, all the costs of sales are attributable to
Dynamic Visions.
Selling, General and Administrative
The company had selling, general and administrative expenses of $15,005 for
the quarter needed September 30, 2000 as compared to SG&A expenses of $8,007 in
the previous fiscal year. There were no SGA expenses in the year ago quarter.
The increase in SG&A expense is due to the acquisition of Dynamic Visions and
expansion in anticipation of the closing of the ePass acquisition.
Interest Expense
<PAGE>
The Company accrued interest in the amount of $54,700. This represents accrued
interest on the judgment against the Company in the amount of $1.93 million, and
other related costs.
Capital Expenditures and Depreciation
The Company had no capital expenditures during the quarter ended September 30,
2000.
Research and Development
The company had no research and development costs for the fiscal
period. In the prior fiscal year there were research and development costs of
$68,000. There were no funds expended for research and development in the
year-ago quarter.
Liquidity and Capital Resources
The following table presents a summary of the Registrants cash flows for the
last two fiscal years:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Quarter Ended September 30, 2000 Quarter Ended September 30, 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Cash Provided (required) by $3,950 --
operating activities
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided (used) by investing $4,959 --
activities
----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing $1,023 --
activities
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $2,032 --
----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has relied on loans from shareholders to meet its cash needs and
plans to raise additional funds through placement of the Company's common stock.
<PAGE>
PART II
Item 1. Legal Proceedings
In March 2000 the company became aware of a judgment entered
against a Phoenix Summas Corp., which would appear to be a similar name to the
former name of the company, Phoenix Summus Corp. that was filed in California in
1999. The judgment in the amount of $1,938,002 was the result of a default being
entered against the Company in the case of Sue B. Jones v. Harold Blethen, ET
AL. Case No. 5634126, Fresno County Superior Court (California). The Company was
not aware that any lawsuit had been initiated against it and disavows any claim
made by the Plaintiff in that case. The Company is vigorously defending against
this claim.
Item 2. Change in Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT INDEX
Exhibit
No. Description.
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed for the period ended September 30,
2000.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
i-transaction.net, inc.
By: /s/ DAVID BRUCE
--------------------------
David Bruce, President
In accordance with the Exchange Act, this report has been signed below by the
folowing persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ DAVID BRUCE
-----------------------------------
David Bruce, President/Director
By: /s/ THOMAS WEISNER
-------------------------
Thomas Weisner, CEO
By: /s/ STAFFORD GREENE
-------------------------
Stafford Greene, CFO
By: /s/ JOANNE BROEDERS
-----------------------------
Joanne Broeders, Director
<PAGE>
