SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended March 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-24408
IJNT.net, Inc.
(Exact name of small business issuer in its charter)
DELAWARE 33-0611753
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2800 Post Oak Blvd.
Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 462-4222
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001
Indicate by check mark whether the issuer (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 such shorter period that the issuer
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $1,552,194
The aggregate market value of the voting stock held by non-affiliates
of the issuer as of July 8, 1999 was equal to $35,719,159 based on the average
bid and ask price of $3.75
The number of shares outstanding of the issuer's classes of Common
Stock as of July 8, 1999:
Common Stock, $.001 Par Value - 17,183,756 shares
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PART I
Item 1. DESCRIPTION OF BUSINESS
The Business
IJNT.net, Inc. (formerly known as IJNT.net Corporation and IJNT International,
Inc., hereinafer referred to as the "Company" or "IJNT") is engaged in the
business of providing wireless Internet access through microwave technology. The
Company also offers dial-up Internet access, web site design and web hosting
services, as well as optical fiber connectivity and related products and
services. The Company's Salt Lake City business (the "Salt Lake System")
commenced offering access in July 1997. This system now offers one-way wireless,
two-way wireless, dial-up access and web site design and hosting services. As of
March 31, 1999, the Salt Lake System serviced over 2000 subscribers. The
Company's business in Beaumont, Texas (the "Beaumont System") offers one-way
wireless Internet access, dial-up Internet access, web site design and web
hosting services. The Beaumont System served almost 1,300 users as of March 31,
1999. On January 1, 1998, the Company acquired Access Communications, Inc., a
Texas corporation ("Access"). Access was in the business of providing dial-up
Internet access and served approximately 1,800 subscribers in the Houston, Texas
area at the time of the acquisition. The Company began offering wireless
Internet service in Houston June 20, 1999. The Company has also constructed a
wireless system in Irvine, California to service Orange County. Operations in
Irvine commenced in the last quarter of 1998. The Company offers wireless
Internet service as a reseller and offers dial-up Internet access, web site
design and hosting in Concord, California, Petaluma, California and throughout
the San Francisco Bay Area. The Company intends to open additional markets to
offer wireless services. This may be accomplished by acquiring operating systems
and/or licenses, or by constructing new systems to operate in licensed and/or
unlicensed frequency bands. The Company operates its wireless and dial-up
Internet service provider division under the name of UrJet Internet. UrJet
Internet is an international dial-up ISP, with approximately 1500 local points
of presence in the United States and approximately 550 more internationally.
UrJet Internet offers on-line registration which has yielded approximately 5,000
customers since its inception.
In August of 1998, the Company acquired Man Rabbit House Multimedia, Inc., a
California corporation ("MRHM") as a wholly-owned subsidiary. MRHM specializes
in high-end web site design and development and boasts a substantial and
impressive client base ranging from dealers of performance automobiles to
lifestyle apparel.
UrJet Backbone Network ("UBN") is a wholly owned subsidiary of the Company that
was formed in the last quarter of 1998 to deploy fiber backbone connectivity and
a variety of telecommunications carrier services. Competitive Local Exchange
Carrier (CLEC) registration is currently pending in several states. Upon
approval of this registration, UBN will compete with local telephone companies
to deliver various telecommunication services to customers. UBN's fiber backbone
is now in place in such markets as Los Angeles, San Francisco and Orange County.
Los Angeles, Dallas, Houston, Salt Lake City, Phoenix, San Diego and several
other major markets should be fully connected by the end of the 1999 calendar
year. UBN also has rights to fiber routes and colocation/interconnection
facilities in 13 major cities across the U.S.
The Company has entered into several acquisition agreements with companies
involved in various aspects of the Internet industry. See "ITEM 13 - Certain
Transactions and Subsequent Events." The Company is currently in discussions
with other Companies and is pursuing additional acquisitions in order to grow
its customer base and market influence.
The corporate headquarters of the Company is located at 2800 Post Oak Blvd.,
Houston, Texas 77056, and its telephone number is (713) 462-4222.
Background
The Company was incorporated in the State of Delaware under the name Picometrix,
Inc. on June 11, 1992 and authorized 20,000,000 shares of $0.01 par value common
stock. On June 30, 1997 the Company effected a 2.3399365-for-1 share forward
stock split. The split increased the total outstanding shares from 579,600 to
1,356,377.
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On August 8, 1997 the Company issued 9,964,286 shares of post forward-split
stock to IJNT, Inc. in conjunction with the purchase of all of the outstanding
stock of IJNT, Inc. (formerly known as Interjet Net, Inc.) Immediately following
the acquisition of IJNT, Inc., the Company changed its name to IJNT.net
Corporation and conducted a private placement of 680,000 shares of its common
stock at a price of $1.95 per share. This offering was completed on August 27,
1997.
The Company has changed its name from IJNT.net Corporation to IJNT
International, Inc. and finally to IJNT.net, Inc. over the past fiscal year.
Overview
The IJNT wireless Internet systems operate over a wireless spectrum allocated by
the FCC, specifically in the microwave frequency band between 2.4 and 2.7
gigahertz (GHz). In the Salt Lake City area, IJNT, doing business as UrJet
Internet, has leased frequency for ten years from an MMDS license holder,
Hispanic Information Telecommunications Network, Inc. ("HITN"). The HITN antenna
is currently located in downtown Salt Lake City but is intended to be moved to a
new site on Farnsworth Peak, which is in the line of sight to substantially all
of the population area of Greater Salt Lake City. The antenna operates at 10
watts and the space for the antenna is licensed from a local television station.
The topography of the Salt Lake City area gives excellent line of sight
transmission to the entire population area of 1.3 million. The Salt Lake City
metropolitan area is rapidly growing, with a concentration of high technology
enterprises. The Company began testing the signal for the one-way wireless
system in June of 1997 and began selling the service in September of 1997.
During the first quarter of 1998, the Company added two-way wireless Internet
access, dial-up Internet access, web site design and web hosting to its Salt
Lake City offerings. The Company's Beaumont, Texas system also operates on
frequencies in the MMDS/ITFS bands. The Company offers this full array of
Internet services in all its markets.
The Company's operations in Salt Lake City, Orange County, Houston and the San
Francisco Bay area include the use of the microwave frequency in the 2.4 GHz
unlicensed band in addition to other frequencies that may be occasionally
utilized as special circumstances or applications may dictate.
Beyond the traditional international dial-up ISP and wireless ISP services, the
Company's business as a web site design and hosting company has grown
substantially. The Company projects that the revenues from the MRHM subsidiary
will continue to grow. The future revenues will be particularly enhanced by
certain agreements into which MRHM has entered that include a percentage of
gross revenues generated by e-commerce sites.
The UrJet Backbone Network subsidiary, launched during the last quarter of 1998,
is poised for major growth over the next fiscal year. With the investment made
in the fiber backbone structure, UBN has CLEC registration approval pending in
several states, to enable the Company to begin offering local dial tone and long
distance service as well as its other offerings in several major urban markets.
The Company has recently acquired FairAuction.com, an online auction web site
that generated in excess of one million dollars in gross revenues in the year
prior to being acquired by IJNT. The Company plans to increase upon this revenue
base through additional promotion and expanding the range of products auctioned
on the site. Currently, FairAuction.com exclusively sells computers, computer
peripherals and computer parts.
The Company also has recently acquired the assets of Micro-Lite Television of
Beaumont, LLC, a Texas limited liability company ("MLTV"). MLTV holds MMDS
frequency leases in Southeast Texas and broadcasts wireless cable television to
homes and businesses in the greater Beaumont area. The Company is currently in
the process of configuring the television service to meet the particular needs
of business subscribers with greater emphasis on news and financial information
programming.
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Industry Overview
The Internet, a network of thousands of interconnected, separately administered
public and commercial networks, has emerged as a global communications medium
enabling millions of people to share information and conduct business
electronically. During the past few years, the number of Internet users,
advertisers and content developers and businesses online has grown dramatically.
With readily-available, low-cost Internet access, consumers and businesses are
making increased use of Web browsers, electronic mail, corporate intranets,
telecommuting, online advertising and electronic commerce. According to Wireless
Broadcasting Magazine, there are over 12 million Internet users in the United
States. Other sources place the estimated number of U.S. users as high as 50
million. According to Jupiter Communications, the number of Internet households
worldwide will grow from an estimated 23.4 million in 1996 to 66.6 million by
2000. The Company believes that this growth in the number of users will drive
more substantial increases in both Internet advertising, which International
Data Corporation ("IDC") estimates will grow from $181 million in 1996 to $2.9
billion in 2000, and Internet commerce, which IDC estimates will grow from $318
million in 1995 to $95 billion in 2000.
Internet usage continues to be stimulated by a number of factors, including the
emergence of the World Wide Web, the increasing sophistication of Internet
browsers and Web-enabled software, the availability of low-cost, flat-rate
pricing for Internet access and online services, and the wealth of increasingly
useful information published on the Internet. Increased Internet usage and the
availability of powerful new tools for the development and distribution of
Internet content have led to a proliferation of Internet-based services, such as
advertising, online magazines, specialized news feeds, interactive games and
educational and entertainment applications, that are increasingly incorporating
multimedia information such as video and near-CD-quality audio clips. The
Internet has the potential to become a platform through which consumers and
businesses easily access rich multimedia information and entertainment, creating
new sources of revenue for advertisers, content providers and businesses. The
growth of Internet advertising and commerce depends, in part, on the ability of
advertisers and online merchants to deliver a compelling multimedia message to
attract viewers and potential customers.
It is estimated that approximately 40% of US households have personal computers
and that 60% of businesses already have Internet access or will have access
within one year. Almost all of the current access is provided over local
telephone company circuits, most of which are limited by current modem
technology to providing 56 kilobit-per- second (Kbps) access, and limited by law
to data transfer rates of 53Kbps by law where traditional modem access is used.
Many telephone companies also offer ISDN telephone service at 64 or 128 Kbps, or
T-1 lines, with up to 1.544 Mbps, but such lines are not available in every area
and are expensive. Currently, the average Internet user uses a modem with 28.8
Kbps capability. In early 1997, dial-up modems offering a peak data transmission
speed of 56 Kbps were introduced for use with ISP/OSPs over existing telephone
lines, although many ISP/OSPs do not yet support this transmission speed through
many of their points of presence. The lack of a universal standard has slowed
the rate of adoption of faster modems. Integrated Services Digital Network
("ISDN") technology enables a peak data transmission speed of 128 Kbps between
the user and the ISP/OSP over specially conditioned telephone lines. Although
ISDN technology has been available for several years, it has not been widely
deployed due primarily to its high costs and usage-based pricing model.
Asymmetric Digital Subscriber Line ("ADSL") is currently the most prominent
implementation of Digital Subscriber Line ("xDSL") technology, an emerging
telecommunications protocol originally developed to deliver video on demand.
ADSL enables peak data transmission speeds of 8.4 Mbps downstream from the
ISP/OSP to the user and 640 Kbps upstream from the user to the ISP/OSP; however,
typical installations realize substantially lower data transmission speeds. ADSL
access is priced significantly above other access services and is not expected
to be widely available in the near term. Cable modem technology offers data
transmission at speeds of 10 Mbps downstream and 10 Mbps upstream, with speeds
comparable to wireless available only in those metropolitan areas where hybrid
fiber-coaxial ("HFC") cable is installed at significant cost. As with xDSL
installations, real world cable modem systems typically realize data
transmission speeds which are a fraction of the advertised maximum. The
perceived advantage of cable modem access to the Internet is the availability of
current infrastructure. However, businesses, which are the heaviest users of
Internet services, are not typically wired for cable, and cable companies are
already laden with debt and existing infrastructure improvement projects and are
often burdened with a negative consumer perception.
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Most current satellite-delivery approaches such as direct broadcast satellite
("DBS") currently provide a peak data transmission speed of approximately 400
Kbps downstream and rely on dial-up modems and the telephony network for
upstream transmission ("telephone return"). These approaches have scaling
limitations due to the necessity of dividing a finite amount of satellite
bandwidth among subscribers in a broad geographic area. The Iridium satellite
solution offers two-way transmission, but is quite costly in comparison with
other technologies offering comparable speed. Other wireless offerings rely on
ground-based radios instead of satellites. Such offerings include multichannel
multipoint distribution service ("MMDS"), low power television stations in the
VHF bandwidth ("LPTV") and local multipoint distribution service ("LMDS"), which
are one-way and two-way high-bandwidth wireless digital broadcasting systems,
respectively. MMDS and LMDS are not yet widely available, require unobstructed
"line-of-sight" transmission paths and may require additional radio frequency
spectrum allocations, an entirely new distribution infrastructure and new
equipment (including specialized radio modems, antennas and down-converters).
The frequencies required for MMDS delivery infrastructure are prohibitively
expensive at present in many areas; and multiple frequencies are required for
two-way operation.
Competition
The markets for consumer and business Internet services are extremely
competitive, and the Company expects that competition will intensify in the
future. The Company's most direct competitors in these markets are ISPs,
national long distance carriers and local exchange carriers, wireless service
providers, OSPs and Internet content aggregators. Many of these competitors are
offering (or may soon offer) technologies that will attempt to compete with some
or all of the Company's high-speed data service offerings. Such technologies
include Integrated Services Digital Network ("ISDN") and Digital Subscriber Line
("xDSL"). The Company also competes with other wireless, telephone or
cable-based data services. The bases of competition include transmission speed,
reliability of service, ease of access, price/performance, ease-of-use, content
quality, quality of presentation, timeliness of content, customer support, brand
recognition and operating experience. ISPs, such as BBN Corporation ("BBN"),
Earthlink Network, Inc. ("Earthlink"), MindSpring Enterprises, Inc.
("MindSpring"), Netcom On-Line Communications Services, Inc. ("Netcom") and
PSInet Inc. ("PSInet"), provide basic Internet access to residential consumers
and businesses, generally using existing telephone network infrastructures. This
method is widely available and inexpensive to the consumer. Barriers to entry
are low, resulting in a highly competitive and fragmented market. Long distance
inter-exchange carriers, such as AT&T Corp. ("AT&T"), MCI Communications
Corporation ("MCI"), Sprint Corporation ("Sprint") and WorldCom, Inc.
("WorldCom"), have deployed large-scale Internet access networks and sell
connectivity to business and residential customers. The regional Bell operating
companies ("RBOCs") and other local exchange carriers have also entered this
field and are providing price-competitive services, and cable television
companies are also offering Internet access. Many of such carriers are offering
diversified packages of telecommunications services, including Internet access
service, to residential customers and could bundle such services together, which
could place the Company at a competitive disadvantage.
Wireless service providers, including AT&T and Hughes Network Systems, are
developing wireless Internet connectivity, such as multichannel multipoint
distribution service, local multipoint distribution service and digital
broadcast satellite. OSPs include companies such as America Online, Inc.
("America Online"), CompuServe Corporation ("CompuServe"), Microsoft's Microsoft
Network ("MSN"), Prodigy, Inc. ("Prodigy") and WebTV Networks Inc. ("WebTV")
(which has agreed to be acquired by Microsoft) that provide, over the Internet
and on proprietary online services, content and applications ranging from news
and sports to consumer video conferencing. These services are designed for broad
consumer access over telecommunications-based transmission media, which enables
the provision of data services to the large group of consumers who have personal
computers with modems. In addition, they provide basic Internet connectivity,
ease-of-use and consistency of environment. In addition to developing their own
content or supporting proprietary third-party content developers, online
services often establish relationships with traditional broadcast and print
media outlets to bundle their content into the service, such as the relationship
of Microsoft with NBC to provide multimedia news and information programming
over both cable television and MSN.
Content aggregators seek to provide a "one-stop" shop for Internet and online
users. Their success depends on capturing audience flow, providing ease-of-use
and offering a range of content that appeals to a broad audience. Their
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business models are predicated on attracting and retaining an audience for their
set of offerings. Leading companies in this area include America Online,
CompuServe, Excite, Inc. ("Excite"), Microsoft and Yahoo! Inc. ("Yahoo!"). In
this market, competition occurs in acquiring both content providers and
subscribers. The principal bases of competition in attracting content providers
include quality of demographics, audience size, cost- effectiveness of the
medium and ability to create differentiated experiences using aggregator tools.
The principal bases of competition in attracting subscribers include richness
and variety of content and ease of access to the desired content. The
proprietary online services such as America Online, CompuServe and MSN have the
advantage of a large customer base, industry experience, many content
partnerships and significant resources.
Many cable system operators have developed their own cable-based services and
market those services to unaffiliated cable system operators that are planning
to deploy data services. Several cable system operators, including Time Warner
Inc. ("Time Warner") and the Continental Cablevision subsidiary of U S WEST,
Inc. ("US West"), have deployed high-speed Internet access services over their
existing local HFC cable networks. Specifically, Time Warner, which is the
second largest cable company in the United States, has established its own
cable-based ISP with proprietary content, called Road Runner, which features a
variety of Time Warner publications and services. Time Warner plans to market
the Road Runner service through Time Warner's own cable systems as well as to
other cable system operators nationwide. Continental Cablevision has developed
another service called Highway One, which offers high-speed Internet services to
its existing customers. Others that have publicly announced limited-area trials
for their own cable-based Internet services include Adelphia, BellSouth
Corporation ("BellSouth") and Jones Intercable, Inc. ("Jones Intercable"). Some
of these companies such as Time Warner have their own substantial libraries of
multimedia content and the other competitors could establish strategic
relationships with content providers, which could provide them with a
significant competitive advantage.
Many of the Company's competitors and potential competitors have substantially
greater financial, technical and marketing resources, larger subscriber bases,
longer operating histories, greater name recognition and more established
relationships with advertisers and content and application providers than the
Company. Such competitors may be able to undertake more extensive marketing
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to developing Internet services or online content than the Company.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures faced by the
Company will not materially adversely affect the Company's business, operating
results or financial condition. Further, as a strategic response to changes in
the competitive environment, the Company may make certain pricing, service or
marketing decisions or enter into acquisitions or new ventures that could have a
material adverse effect on the Company's business, operating results or
financial condition.
Regulatory Environment
The Company's services are subject to current regulations of the Federal
Communications Commission (the "FCC") with respect to the use of its wireless
access. In addition, changes in the regulatory environment relating to the
Internet connectivity market, including regulatory changes that, directly or
indirectly, affect telecommunications costs, limit usage of subscriber-related
information or increase the likelihood or scope of competition from the RBOCs or
other telecommunications companies, could affect the prices at which the Company
may sell its services. For example, regulations recently adopted by the FCC are
intended to subsidize Internet connectivity rates for schools and libraries,
which could affect demand for the Company's services. The Company cannot predict
the impact, if any, that future regulation or regulatory changes might have on
its business.
Business Strategy
The Company is one of a few companies currently offering wireless applications
to access the Internet. The opportunity for this application over a wide area
became available only about two years ago when a wireless downstream application
for Internet access was announced. This technology is built around a headend
(Point of Presence or "POP") that is then connected to a microwave transmitter
(or multiple transmitters) operating in the 2.5- 2.7 Ghz-bandwidth range. The
Salt Lake System was one of the first systems of this kind built in the country.
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Although the one-way system works well, it is a "downstream" only transmission.
A customer is still tethered to a phone line to transmit information "upstream"
through an ISP onto the Internet backbone. The return information is then
obtained by high-speed return. Recently, however, newer technology has provided
wireless two-way applications that the Company has also installed in the Salt
Lake System and elsewhere. With wireless two-way, a customer eliminates the
phone company from the Internet access equation altogether, and is provided
high-speed to and from the Internet. The customer's computer is always on the
Internet with virtually no delays in downloading most files. The two-way system
also opens the door to telephony, video-conferencing, and a wide range of other
applications.
The Company has positioned itself as presumably the only full-service wireless
company in the country that offers all Internet-related service as well as
high-speed connectivity. From its core business of high-speed wireless Internet
access to standard ISP accounts and sophisticated Web design and hosting, the
Company is in a position to provide a full selection of products and services to
the entire community of Internet users. It is the Company's belief that it is a
model for the Internet provider of the future--a provider that can serve each
customer's full needs, with high-speed, two-way Internet access as the business
core.
In its expansion into web site design, web site hosting, fiber backbone
connectivity, international dial-up Internet service, online auction business
and competitive local exchange carrier status, the Company is poised for
diversification within the growing Internet industry.
In the Company's view:
o There is a huge and rapidly growing market demand for high-speed
Internet access that is satisfied by the Company's wireless and wired
high-speed products.
o Two-way wireless solutions provide a high growth-potential market that
is early in its evolution.
o High scalability is achievable within a year.
o The Company's wireless approach has a potentially national and global
application.
o Wireless applications can cut infrastructure cost by as much as 50%,
thus reducing equipment cost dramatically.
o Owning its own backbone network, the Company will be able to leverage
its CLEC status to provide connectivity for its services at lower
cost/higher margins.
o The Company must act as a full-service ISP, with high-speed wireless
and wired solutions as its unique niche. o The current market focus of
the Company is small to mid-size businesses and high-end residential
Internet users/early adopters.
Wireless Network Solutions
The core business of the Company is to provide high-speed wireless Internet
access to businesses and high-end individual users. Such primary targets are
Multiple Dwelling Units (apartments, condominiums), commercial buildings, and
telecommuters. The application of each of these units is better shown by example
than discussion.
A large apartment complex or condo is linked to the Company's wireless two-way
headend and ISP rather inexpensively. Then cable is run to each unit within the
building, similar to phone or cable wiring. Each of the units is now ready to
receive the Company's signal and an individual secure link to the Internet. As
the Company becomes the customer's ISP as well as their high-speed access
provider and Web host, the customer eliminates second phone line charges, ISP
fees and the necessity to purchase a traditional phone modem. For about the same
cost per month, that user can receive high-speed access with savings and
portability which the Company contends can't be matched by any other service
available today.
Another example with a current client of the Company, is the Overland
Corporation in Salt Lake City. The Company wired Overland's new 100+ unit
apartment complex. The Company anticipates that at least 50% of the unit rentals
will subscribe to the Company's service. Thus, the building should produce about
$2500 per month or almost $30,000 per year into the foreseeable future.
Construction costs, building wiring, labor and antennas totaled about $15,000.
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Commercial buildings are similar, such as the Judge Building in the Salt Lake
System. The Company has an agreement with the owners of this property (40
business tenants) to provide wireless T1 service to all the tenants. It is
anticipated that the average price per tenant for this high-end service will be
about $400 per tenant. The tenants will be able to subscribe for service from a
64Kbps to a full T-1 at far less than phone rates. Similar arrangements and
opportunities with other commercial and residential properties exist in the
Company's markets in Houston, Beaumont, Orange County and Northern California.
Another example of high-end Internet use is the growing telecommuting
industry--the home-office user that must have high-speed access.
These examples are representative of the customer base for the Company. The
initial growth and experience indicate that the Company's wireless approach is a
product that is better, cheaper, and faster than its current competition.
Internet Service Provider
High-speed wireless and wired Internet access solutions are the core of the
Company's business. The sales efforts of the Company have made it clear,
however, that most businesses want a full service provider. The Company believes
that businesses generally want an Internet provider that has the ability to
address the all Internet needs of the business in full, not partially. IJNT.net
does that with the wireless system, dial-up access and wired high-speed
solutions as well as web site services as value-added items.
The Company believes that the dial-up subscribers are important. They may
eventually want to upgrade as they become more active on the Internet and as the
price of wireless modems and other high-speed solutions fall.
Marketing
Although the Company expects that many of its new subscribers will come from
acquisitions, local sales and marketing are also a vital part of the Company's
growth plan. Local marketing will give the Company brand name recognition that
will lead to wireless system and other high-speed sales.
The Company's ISP marketing strategy is built around local activity with local
radio, TV, newspapers, and retail computer stores. The computer store program
has historically been the most productive. The Company has forged relationships
in its markets with businesses that influence the purchasing decisions of its
primary target customers for ISP services. Partnerships with computer stores
include:
o In-store demonstration of our high-speed wireless connection.
o Joint marketing and advertising.
o In-store POP displays.
o Internet Education classes at computer retail outlets.
o Special Promotions and Event Sponsorships.
o Reseller Agreements with Revenue.
The Company has such relationships with several resellers in the Company's
various markets.
Web Development, Design, and Hosting
Web sites are business tools that can dramatically improve customer perception
and service, expand marketing efforts, and reduce marketing and support costs.
The Company currently hosts over 500 commercial Web sites in its Salt Lake City,
UT, Beaumont, TX, Houston, TX and Newport Beach, CA offices. It is a relatively
low- maintenance and profitable side of the business. The Company also builds
"designer" sites tailored to the particular client and administered on a daily,
weekly, or monthly basis.
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Network Integration Solutions
The Company provides network solutions, consulting, and integration for its
high-speed clients. Computer networks are continuing to be key to the flow of
information within corporations and are mission-critical to the Company's
customers. The Company is committed to providing the latest up-to-date training
and certifications for our personnel, thus providing our subscribers with
assurances of top level expertise in the industry.
The Company's networking engineers specialize in the development of Wide Area
Networks (WAN), Metropolitan, and Local Area Networks (LAN), including network
integration of all computer systems platforms. Corporate experience includes
in-depth working knowledge of routing/switching technology, including Breezecom,
Lucent Technologies, Bay Networks, Cisco Systems, Nortel Networks, Ascend
Communications, Newbridge, Hybrid Networks, and others in dealing with the
design and layout of LAN and WAN environments. The Company has developed LAN/WAN
environments utilizing large-scale deployments of the Major LAN Network
Operating Systems.
Network Support
The Company provides ongoing day-to-day support for all products and services
offered. This support includes complete management of hardware and software,
help-desk functionality, and support of all individual components relating to
integration, Internet, telecommuting, and in-band video conferencing and
products (non-proprietary and proprietary) of the Company. Support is often
aided by the use of network analyzers and management stations, which can be
supplied by the Company or provided by the customer. The Company's support
includes software and hardware upgrades for systems and networks. Future product
evaluations are also part of the support service. Building the customers'
knowledge concerning networks is a specific goal of training, and documentation
can be included as part of the support phase of the contract. The Company has
close ties with each of the major hardware and software independent vendors and
maintains an excellent reputation as a quality service and support provider.
Telecommuting and Video Conferencing Services
The Company provides telecommuting and in-band video conferencing services to
corporate users within a corporate entity to allow for employees of customers to
work seamlessly outside the corporate location. Currently, the Company offers
such telecommuting and in-band video conferencing services as an ongoing feature
of its services. The Company continues to develop its offerings by utilizing new
technology, as it becomes available in this emerging market. It is expected that
telecommuting and in-band video conferencing will increase the revenue base of
the Company. The Company believes that it has a strategic advantage in this
emerging market by having the ability to integrate various vendor-independent
products to provide a seamless integrated package to the customer.
Product and Services
The Company provides a wide array of Internet and data services ranging from
basic single-user dial-up accounts to Web hosting and design to elaborate
corporate data transfer solutions. In basic terms, the Company provides a
connection to the Internet and various related services to help companies
promote their business on the Internet.
The Company's quality and reliable service begins with its connection to the
Internet. In each of its operating markets, a high-speed connection to a major
Internet backbone provider is part of the Company's system. The Company
currently uses UUNET, ELI, Level 3 Communications and others, as well as
elements of its own backbone network, to carry its Internet traffic. The Company
uses multiple T-1s in Houston and Beaumont and a T-3 line in Salt Lake City, as
well as OC3 fiber connections in the Bay Area, Los Angeles and Orange County, to
ensure that customer traffic gets to and from the Internet quickly and reliably.
The Point-of-Presence ("POP") is where the data is routed between the Internet
and local users. The Company's POPs use the latest in technology and equipment
from manufacturers which include Unix, Linux, Sun Solaris, Apple/AIX and Windows
NT servers, Cisco routers, digital modems by Ascend, Hybrid Networks and Lucent
Technologies, and computer hardware by Sun Microsystems, Apple, Dell Computer,
Compaq and other reputable
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manufacturers. To operate the POPs, the Company has hired a staff that is fluent
in all of these platforms. In addition to qualified network administrators, the
Company maintains support/customer service staff in-house to care for the needs
of its business and residential customers.
Dial-Up Connections
The simplest connection to the Internet is the dial-up account. This method of
service connects the user to the Internet through the use of a modem and
standard telephone line. Currently, users can connect via dial-up at speeds up
to 56 Kbps. The Company supports these users through the use of sophisticated
modem banks at the POP that send data through a router and out to the Internet.
The Company supports the higher speed 56K and ISDN connections with
state-of-the-art digital modems. With a dial-up connection, a user can gain
access to the Internet for e-mail, World Wide Web ("WWW"), FTP, news groups, and
a variety of other useful applications.
User-to-Modem Ratio
A dial-up connection requires the use of a modem on the customer side and a
modem at the POP. The customer normally owns his or her modem. The modem at the
POP side of the connection is owned and maintained by the ISP. These modems come
in a chassis, or "bank," that holds multiple modems, such as the Ascend 4000 or
Portmaster PM3. Each time a dial-up customer connects, he or she uses one of the
limited number of modems at the POP. Once all the modems are in use, subsequent
users will get busy signals. Most ISPs maintain a user-to-modem ratio of 8-to-1
to 12-to-1. ISPs using a higher ratio will most likely have users that, at
times, cannot connect to the POP or must wait for modems to become available for
use. In IJNT markets, the Company maintains a user-to-modem ratio better than
the industry average of 10-to-1, keeping users' busy signals to a minimum.
Dedicated Dial-up Connections
For the user who needs to be connected immediately to the Internet 100% of the
time, the Company offers dedicated dial-up connections. This service basically
sets aside one dial-up modem for the customer, guaranteeing that the customer
can always get a connection when needed.
Leased Line Connections
Many businesses and some individuals have a need for more bandwidth to the
Internet in order to support an entire network of users or a busy Web site. The
Company has the capacity to sell a leased line connection to users. This method
of connection gives the user a full-time high-speed (up to 1.5 mbps) connection
to the Internet through the POP. The leased line solution comes at greater
expense to the user, who must lease a specially dedicated line from its location
to the POP. These lines are leased through the telephone companies at a high
installation and monthly fee. It is the Company's preference to offer the
customer a two-way wireless connection, thus capturing telephone company revenue
and saving the customer money.
Downstream Wireless System
Currently, IJNT is operating a high-speed wireless service in Salt Lake City,
Bay Area (reseller), Orange County, Houston and Beaumont. The first system, in
Salt Lake City, was launched in November 1997 and experienced immediate success.
That system uses a land-based microwave transmitter to deliver Internet data to
businesses and homes at up to 10Kbps. Whereas the downstream data flow is
carried on a microwave frequency, the upstream data flow returns to the POP via
traditional telephone lines. The service is best suited for the business or home
user who pulls large amounts of information from the Internet. Studies show that
the download requirements of almost all users far outweigh the upload needs,
making this service very desirable for almost all Internet users, but especially
high-end and "power" Internet users.
To provide the downstream wireless service, the Company places a small microwave
receive antenna and frequency downconverter at the user site. The receive
antenna is cabled via standard RG-6 coaxial cable to a specialized,
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proprietary modem. The modem connects directly to the user's computer or network
through a normal 10BaseT Ethernet connection.
Wireless T1
The Company offers "wireless T1" service to businesses with high-bandwidth
needs. The wireless T1 is a point-to- point or point-to-multipoint microwave
connection from the POP to the user's site. The bi-directional connection can be
throttled and metered to allow the Company to measure and control bandwidth
delivered to the customer. The technology was developed in part for military
secure data transmission requirements. As such, it is extremely reliable,
robust, and secure.
Point-to-Point Data Transfers
The Company provides point-to-point data transfer without Internet connection
via its wireless technology to companies with the need to connect two or more
locations to one local area network. Through wireless networking capabilities,
the Company's point-to-point wireless services can be applied to locations up to
approximately 20 or more miles apart over various frequencies as the particular
application may dictate.
Web Hosting Services
Web hosting is in essence the rental of space on a server that has a full-time
connection to the Internet. The Company will host a customer's Web space,
allowing access to it by customers, employees, suppliers, etc. 24-hours per day,
seven days a week. As part of the service, IJNT.net applies for a virtual domain
(www.yourcompany.com) for its customers through Network Solutions, a registrar
and verifier of domain names. The application process takes 24 to 48 hours to
complete. When a domain name is registered, the Company reserves a portion of
hard disk space on one of its servers, to which the customer can upload the web
site. The site has its own Web address and can be reached by anyone on the
Internet at any time, or may be password protected for access by selected
persons. Virtual hosting also allows companies to assign e-mail addresses with
their own domain name.
The Company also provides a number of services related to Web hosting for its
customers, including Web site statistics, CGI scripting, FrontPage extensions,
SSL security, telnet/shell access, MSQL and postgre SQL databases, auto
responders, e-commerce management, credit card transaction hosting, video
conferencing, chat rooms, bulletin boards, online postcards and other services.
The Company's staff can consult on a variety of programming services in PERL,
TCL/TK, Java, JavaScript, VM script, ActiveX, C,C++, Pascal, shell, and PHP/FI
scripting.
The Market
The Internet and Internet Access. The growth of the Internet is well documented
and perhaps the greatest growth industry in the history of the World.
o Growth in the Internet is about 12% per month.
o Every two seconds the Internet has a new subscriber.
o Use of the Internet file search and retrieving tools is currently
growing at 1,000 percent annually.
o There are more than 10 million host computer systems connected to the
Internet.
o Transactional commerce on the Internet is estimated at $2 billion
today, and by the year 2002 will be at $300 billion.
o User population of the Internet is in excess of 100 million people
worldwide.
Business Integration in a World of Wireless E-Commerce. Global villages, virtual
communities, information superhighways, and gigabit networks have been used to
describe the world where teleconferencing, interactive television, traditional
on-line information services, and public telephone systems converge. The U.S.
information
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services market is huge, and its shift toward digital media is a change of
monumental proportions. Today's communication networks are not ready to meet the
demands being placed upon them. The trend towards digital delivery will require
improvements to the underlying communication infrastructure.
Telecommuting, Telephony, and Video Conferencing. Integration is not confined to
interconnecting a corporation's major locations. With the use of laptop,
palmtop, and notebook computers on the rise, there is an increasing demand to
provide access to corporate networks while employees are at home and on the
road. Demand for remote access will continue to grow and increase the demand for
modems, routers, and cellular communications software and hardware.
A conservative estimate by the Rochester Institute of Technology's Office of
Distance Learning shows that 5.5 million people are presently working from
remote offices. According to the Gartner Group, telecommuting and in-band video
conferencing is expected to expand from such base to approximately 30 million
users in the USA by the year 2000. Additionally, the U.S. Department of
Transportation estimates that fifteen percent (15%) of the USA workforce will be
utilizing telecommuting and in-band conferencing by the year 2002. Therefore,
the growth in that marketplace is expected to be dramatic as corporations
understand the benefits to management through the increase in employees' (1)
morale, (2) flexibility, (3) reduced office costs and (4) compliance with
federal standards. The Telecommunications Act, recently passed by Congress, will
clear the way for telecommuting to become commonplace. California and other
states have mandated that employers convert a substantial portion of their
workforce to telecommuting over the next several years.
The World Wide Web. The World Wide Web is the multimedia part of the Internet.
It is the primary system used on the Internet to find and transfer information.
It has, moreover, become (with the exception of e-mail) the most popular and the
most promising and active source for business use.
The Web offers incredible diversity for business, education, communication, and
entertainment. Web pages are available on the Internet in tens of thousands of
styles and subjects, with almost as many reasons for posting them on the Web.
For example, there are thousands of sites in each of these subject areas: o
Commercial, Shareware, Freeware software o Business, marketing, commerce o
Finance, stock market, corporate information o K-12 education o Online books o
Online magazines o Government sites and information o Legal information o Health
and medical information o Daily and categorized news o Travel/booking/ticketing
information and purchase o Reference books o Scientific sites covering
archeology through zoology o History o Museums and libraries o All social,
scientific, and economic disciplines, viz., philosophy, religion, languages,
etc.
Virtually all knowledge in the history of mankind may someday soon be on the
Web. For example, the Vatican has started to download images of 150,000 original
documents dating from as early as the second century A.D. on the Internet. The
Securities and Exchange Commission maintains free Internet access to its library
of corporate records.
In 1997, Web-based transactions came to nearly $20 billion and online retail to
$2.74 billion in sales. By 2003 the U.S. Department of Commerce estimates that
figure could reach $115 billion. ( See Forbes, "E-Commerce Engine", May, 1998).
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Market Strategy
IJNT.net views market share within the delivery of high-speed Internet access as
extremely fragmented. Competitive firms and industry view Internet access as a
by-product of their core business. Cable and Satellite's primary mission is, of
course, television delivery; the Regional Bell Operating Companies' (RBOCs')
mission is the delivery of long distance and local phone service.
The Company believes that it has considerable opportunities for acquisition in
the ISP area, thus providing an expanded subscriber base, local phone lines,
equipment, offices, and technicians. ISPs are available now because many were
started several years ago by technically-oriented people who had little or no
marketing or sales skills.
Furthermore, the industry is riding a wave of unprecedented growth. The growth
is faster than any economic or technical growth in the history of the world.
Consider these facts as published by the Commerce Department ("The Emerging
Digital Economy," Dept. of Commerce, April 1998):
o More than 100 million people around the world, most of whom had never heard
of the Internet four years ago, now use it to do research, send e-mail,
make requests for bids to suppliers, and shop.
o Years to acquire 50 million users: Radio: 38 years.
Television: 13 years.
PC: 16 years.
Internet: 4 years.
o In recent years information technology industries have been responsible for
more than one-quarter of real economic growth.
o In 1994, three million people, mostly in the U.S., used the Internet. In
1998, 100 million people around the world used the Internet.
o UUNET, one of the largest Internet backbone providers, estimates that
Internet traffic doubles every 100 days. o The Internet makes worldwide
electronic marketing and commerce (e-commerce) affordable to even the
smallest home-based business.
Marketing and Growth
The key elements in the Company's sales and marketing strategy include:
Acquisitions. As part of planned acquisitions, the Company anticipates acquiring
both key customers and sales and marketing personnel. Additionally, the Company
anticipates name recognition and market presence gained through acquisitions and
brand recognition in the community.
Expansion to New Locales/Cities. The Company intends to expand offices into
other targeted locales through acquisition and development of two-way wireless
infrastructure.
Pre-Marketing. The Company will perform a thorough and well-planned advertising
and trade show campaign. Each customer service will include a full offering of
the Company's services.
Increase Customer Accounts. The Company will continue to develop in each market
an aggressive sales strategy through effective hiring and training. To achieve
desirable growth forecast, the Company will use a number of marketing and sales
tools, most of which they have already implemented. These tools include:
Direct Mail. A direct mail piece is most effective when it focuses on a
business core target. Mailing to vertical markets such as design firms,
service bureaus, research firms, lawyers, CPAs, etc. has proven to be
effective.
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Partnership Mailings. This might include such companies and organizations
as the Chamber of Commerce, network administrators, computer groups and
firms, etc.
Trade Publication Advertising. Targeted advertising in markets where
Internet-related services are growing the fastest delivers the greatest
return for the Company's advertising dollars. Target advertising
opportunities include: local business-to-business magazines, chamber ads,
local computer or tech magazines, local computer user group newsletters,
tech administrators magazines, Yellow pages or discount buying magazine
services, vertical market organization newsletters, etc.
Local Web Page Partnerships and Advertising. Advertising on the Web targets
an existing Internet user. Many local Web sites have dedicated residential
or business visitors. High-speed connections will provide a value ad for
the Web sites, and visitors will see an immediate application and benefit.
Examples include radio, TV, magazines, newspapers, universities, court and
legal, etc.
Kiosk. The use of Kiosk in shopping centers and high traffic areas
connected to the wireless high-speed has created large crowds and has
produced a substantial amount of business in the Company's markets.
Trade Shows and Event Sponsorship. Computer-related trade shows attract
technology savvy decision-makers and buyers. In most markets Internet-
related services dominate the themes and attractions. At the recent Hot
Technology Expo in Salt Lake City, the Company's booth recorded more
traffic (as counted by "swipe" cards) than any other attraction.
Computer and Technology Retail and Distributor Vendor Partnerships.
Building a relationship with another technology provider allows the Company
to benefit from existing relationships. Small businesses buy computers and
office equipment from local companies. By partnering with these companies
we can reach qualified decision-makers very inexpensively. Example
companies include Computer City, Circuit City, and other local computer
outlets.
Mass Media Advertising. Mass media advertising is done primarily through
partnerships and trades, thus keeping the cash cost under control.
Diversification
Since its inception, IJNT has focused its business efforts around its wireless
Internet access. Over the past two years, the Company has rapidly expanded and
diversified into several different arenas within the Internet industry and
related to the industry. These include web site design, e-commerce site
construction, web site hosting, launching an international Internet Service
Provider under the name of UrJet Internet, commencement of the construction of a
fiber optic backbone, plans for status as a competitive local exchange carrier
or "CLEC" to compete with local phone companies in delivering a host of
telecommunication services and the acquisition and expansion of a significant
online auction site.
Through this major process of diversification, the Company is well poised for
growth in several arenas within the explosive Internet industry.
YEAR 2000 RISKS.
Currently, many computer systems, hardware and software products are coded to
accept only two digit entries in the date code field and, consequently, cannot
distinguish 21st century dates from 20th century dates. The interaction between
various software and hardware platforms relies upon time and date coding for
synchronization and other system requirements. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
function properly after the turn of the century. The Company, its customers, and
suppliers are reliant on computers and related automated systems for daily
business operations. Failure to achieve at least a minimum level of Year 2000
systems compliance could have a material adverse effect on the Company.
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The Company has begun the process of identifying computer systems that could be
affected by the Year 2000 issue as it relates to the Company's internal hardware
and software, as well as third parties that provide the Company goods or
services. Three categories or general areas have been identified for review and
analysis.
Systems providing customers services. These include hardware and
software systems that are used to provide services to the
Company's customers in the form of Internet connectivity,
e-mail servers, news servers, authentication servers, etc.
Hardware in the form of routers and switches are also included
in this area.
Third party vendors providing critical services including circuits,
hardware, long distance and related products. These include
telecommunications providers, suppliers of routers, modems and
switches.
Critical internal systems that support the Company's administrative
systems for billing and collecting, general accounting
systems, computer networks, and communication systems.
The Company is in the planning and initial study phase of Year 2000 compliance
review and testing. In regards to Item (1) listed above the Company's critical
existing systems are no more than two years old and it is anticipated that few
of these systems will have significant Year 2000 problems, if any. These systems
are in process of being inventoried and a systems testing schedule is being
developed and implemented. All newly acquired hardware systems, operating
systems, and software are required to have vendor certification for Year 2000
compliance.
In regards to Item (2) above - third party products and services - the Company's
significant vendors are large public companies such as US West Communications,
UUNet, ELI, Level 3 Communications, Cisco, Lucent Technologies, Ascend
Communications, etc., all of which are under SEC mandates to report their
compliance in all publicly filed documents. The Company initiated a compliance
review program with these vendors during the second quarter of 1999 and will
continue to track progress of all critical vendors for compliance.
Item (3) above relates to internal systems for company administrative and
communications requirements. The Company is in the process of implementing new
billing and billing presentment systems during the first half of 1999. These
system vendors are required to certify Year 2000 compliance. Additionally, the
Company will test these systems for compliance during the implementation
processes. Internal computer networks and communications systems have been
tested in the second quarter of 1999, and are still being tested for compliance.
The costs to address the Year 2000 compliance issues have not been determined at
this time. Based on growth the Company plans to implement new hardware platforms
and software systems that should be Year 2000 compliant and therefore costs
specifically allocated to Year 2000 compliance may not be significant. Systems
testing and compliance reviews with third party services providers will incur
manpower and consultant costs.
The nature of the Company's business makes it dependent on computer hardware,
software, and operating systems that are susceptible to Year 2000 issues.
Failure to attain at least minimum levels of Year 2000 compliance would have a
material adverse effect on the Company's ability to deliver services.
The Company has not developed a contingency plan for dealing with Year 2000
risks at this time, other than its existing network contingency procedures for
dealing with any hardware or software emergency situation.
Employees
The Company currently employs 90 employees in nine different offices. Of this
group, about one third are dedicated to technical solutions and engineering. For
each 400 new subscribers, a new technical person is added within the system.
Other network developments and initiatives also require the addition of
technical personnel. Each wireless market requires four to six salespeople, two
installers, at least two technicians, and two office support personnel.
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Item 2. DESCRIPTION OF PROPERTY
The Company currently leases a total of approximately 8,000 square feet of
office space in two locations in Houston, Texas. The term of these leases expire
in January 2001 as to 2,500 square feet leased at $3,500 per month and housing
the offices of Fair Auction.com, and in March, 2003 as to 5,500 square feet
leased at $10,000 per month and housing the technical, sales and administrative
offices and headquarters of IJNT.net.
The Company leases two offices in Salt Lake City. The first, which houses the
administrative and sales functions of this system is a 2,820 square foot
facility which is leased at a cost of $3,529 per month. This lease term expires
in July 2000. The second office space in Salt Lake is approximately 1,000 square
feet. It is leased at a cost of $800 per month, and the lease expires on
December 11, 2000. This facility houses the Company's equipment and technical
employees. The Company also leases a garage for equipment and installation
vehicles at a rate of $675 per month. This lease expires on September 30, 1999.
The Beaumont office is approximately 2,500 square feet and has been leased at a
cost of $2,102 per month, which lease expires on October 31, 2000.
The Company's Newport Beach office is approximately 4,000 square feet. This
lease expires in September 2003 and is for approximately $8,000 per month.
The Company's Petaluma, California office is approximately 2,500 square feet.
This lease expires in 2002 and is for approximately $4,000 per month.
The Company's Concord, California office is approximately 2,500 square feet.
This lease expires in June 2003 and is for approximately $4,000 per month.
The Company's Irvine, California office is approximately 3,000 square feet. This
lease expires in December, 2002 and is for approximately $7,500 per month.
Each additional office that is opened will require about 2,500 square feet of
office space, rooftop availability for transmitting equipment, a private
air-cooled server and equipment room as well as warehouse space for installation
equipment and truck storage.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended March 31, 1999.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock began trading on the Over-the-Counter Bulletin Board
under the symbol "IJNT" on December 7, 1997. As of March 31, 1999, the Company
had 589 holders of record. The following table sets forth, on a per share basis
for the period shown the high and low prices of the Common Stock as reported on
the OTC Bulletin Board.
Closing Price
High Low
Fiscal Year Ended March 31, 1998
From December 7 - December 31, 1997 $ 6.00 $ 3.75
From January 1 - March 31, 1998 5.50 4.00
Fiscal Year Ended March 31, 1999
Quarter Ended June 30, 1998 $ 7.00 $ 3.375
Quarter Ended September 30, 1998 12.25 3.25
Quarter Ended December 31, 1998 5.625 2.00
Quarter Ended March 31, 1999 3.625 2.00
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Results of Operations for the Year Ended March 31, 1999
Revenues
The Company's revenues for the year ending March 31, 1999 totaled $1,552,194,
which amounted to an increase of 956% from the revenues of $147,057 from the
year ending March 31, 1998. The increase in revenue was a result of the
Company's expansion of its existing markets, the launching of additional markets
and acquisitions. IJNT anticipates additional increases in revenues in the
following fiscal year.
The bulk of the Company's revenues was derived from its wireless ISP and
international ISP operations under the name of "UrJet Internet." IJNT currently
is operating five wireless systems: Salt Lake City (launched in January 1998);
Beaumont (launched in March 1998 - currently this system is only offering
dial-up services); Houston (a dial-up ISP was acquired in January of 1998 and
wireless services commenced after the end of the March 31, 1999 fiscal year);
San Francisco Bay Area (acquired in January 1999); and Irvine/Orange County,
California (wireless services commenced after the end of the March 31, 1999
fiscal year).
The Salt Lake City System accounted for approximately $535,756 in revenues for
the current fiscal year, compared with $33,500 in revenues for the year ended
March 31, 1998. This represents an increase of 1499%. Beaumont grossed
approximately $73,642 in revenues, compared with $1,100 in the prior year. This
represents an increase of 6595%. The Houston System recorded revenues of
$512,320 for the fiscal year, compared with $110,200 in the previous fiscal
year, an increase of 365%.
The Man Rabbit House Multimedia subsidiary was acquired in August of 1998. MRHM
accounted for $391,626 in gross revenues for the fiscal year ended March 31,
1999.
The UrJet Backbone Network was operational in some areas of California as of
January 1999. For the fiscal year ended March 31, 1999, UBN collected
approximately $39,000 in gross revenues.
The Company anticipates future growth in revenues from adding customers in its
existing markets as well as through acquisitions. Continued and substantial
growth in revenues is projected for the MRHM and UBN subsidiaries.
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Cost of Sales
The Company's cost of sales for the year ending March 31, 1999 equaled $543,657,
compared with $66,405 in the previous year. This increase is a result of
increased total sales.
Gross Profit
The Company's gross profit for the fiscal year was $1,008,537, compared with
$80,652 in the year ended March 31, 1998, an increase of 1154% over the year.
The current year gross profit represents a gross profit percentage of 65%,
compared with 55% from a year ago. Since much of the cost of sales figures are
fixed, such as the cost of T-1 and T-3 connections, the Company anticipates that
the gross profit percentage will continue increase as additional subscribers are
added.
Selling, General and Administrative Expenses
The Company incurred total selling, general and administrative expenses ("SG&A")
of $5,851,475 for the year ending March 31, 1999, compared with $2,044,431 for
the year ended March 31, 1998. The Company currently maintains nine offices in
eight cities. Currently 90 employees are employed to service these offices.
Staffing requirements will more than likely increase as the Company continues
its aggressive growth strategy.
Salary expense made up the greatest portion of SG&A. Total salary expense for
the current fiscal year totaled $2,154,535, compared with $713,482 for the year
ended March 31, 1998, approximately 39% and 35% of total SG&A, respectively. Of
the current fiscal year salary expense, $289,636 represents officers'
compensation, compared with $223,525 in the previous fiscal year.
Professional fees, which include accounting, legal, engineering and other
consultants, totaled $967,650 in the current year, compared with $240,376 for
the year ended March 31, 1998. This represented approximately 17% and 12% of
total SG&A, respectively. The legal costs associated with the various
acquisitions, continued financing, SEC matters and other issues are substantial.
IJNT has incurred substantial costs through the use of outside consultants. Much
of the expense in the current year represents amounts paid with the Company's
common stock, and not cash expenditures. The Company anticipates continuing to
incur legal, accounting and consulting expenses in conjunction with continued
growth, expansion and acquisitions.
Marketing efforts in selling the Company's products have increased dramatically.
The total cost of marketing, advertising and promotion for the current year
totaled $567,073, or approximately 10% of total SG&A. This is compared to
marketing expenses of $60,933 (3% of SG&A) in the year ended March 31, 1998.
With the Company leasing office space in eight cities at the end of the fiscal
year, the total rent expense for the fiscal year increased to $317,417 from
$190,944 in the previous fiscal year. These amounted to 5% and 9% of total SG&A,
respectively. The Company anticipates leasing additional space in other cities
as additional systems become operational.
Depreciation and Amortization
Depreciation and amortization for the year ended March 31, 1999 increased to
$270,173 from $82,874 in the previous fiscal year. This increase in expense is
attributable to the substantial amounts of equipment that were placed into
service in the current fiscal year. The Company expects depreciation and
amortization expense to rise in future periods as additional equipment is being
purchased and placed into service.
Interest Expense
The Company incurred interest expense of $24,240 in the year ended March 31,
1999 and $10,071 in the year ended March 31, 1998. Currently, the Company has no
interest bearing debt.
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Income Tax Benefit
The Company currently has net operating loss carryforwards equal to
approximately $7,500,000. The Company has not recognized any of this tax benefit
as an asset due to uncertainty of future income.
Net Loss
The Company incurred a loss of $5,073,387 in the year ended March 31, 1999. The
Company hopes to continue to increase revenues and gross profit in the upcoming
fiscal year while controlling the growth of SG&A expenses. The Company does not
anticipate generating net income in the near future, although a decrease in the
net loss is expected.
Liquidity and Capital Resources
The Company had working capital of $1,197,924 as of March 31, 1999. The Company
believes that it can finance future operations and plans for growth through
additional stock offerings, debt offerings and increased revenues from
operations.
Inflation
The Company's Management does not believe that inflation has had or is likely to
have any significant impact on the Company's operations. Management believes
that the Company will be able to increase subscriber rates after its wireless
systems are launched, if necessary, to keep pace with inflationary increases in
costs.
Other
The Company does not provide post-retirement or post-employment benefits
requiring charges under Statements of Financial Accounting Standards Nos. 106
and 112.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The selected financial data presented below for the years ended March 31, 1999
and March 31, 1998 were derived from the consolidated financial statements of
the Company, which were audited by Smith & Company, independent certified public
accountants, and which are included elsewhere in this Form 10-KSB. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements (including the notes thereto)
included elsewhere in this Form 10-KSB.
As the Company was not involved in operations prior to the acquisition of IJNT,
Inc., the financial data has not been presented in a comparative format.
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IJNT.net, Inc.
and Subsidiaries
Condensed Consolidated Income Statement
For the Years Ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
-------------------- ------------------
<S> <C> <C>
Sales $ 1,552,194 $ 147,057
Cost of Sales 543,657 66,405
-------------------- ------------------
GROSS PROFIT 1,008,537 80,652
General and Administrative Costs 5,851,475 2,044,431
Depreciation and Amortization 270,173 82,874
Interest and Bank Charges 24,240 10,071
-------------------- ------------------
TOTAL OPERATING EXPENSES 6,145,888 2,137,376
Net Operating Loss (5,137,351) (2,056,724)
Other Income (Expense)
Interest Income 65,474 12,947
Acquisition Costs (1,510) (351,707)
-------------------- ------------------
NET LOSS $ (5,073,387) $ (2,395,484)
==================== ==================
Earnings (Loss) per Common Share $ (.35) $ (0.21)
==================== ==================
</TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
IJNT.NET, INC. CORPORATION
AND SUBSIDIARIES
Page
Independent Auditor's Report............................................... F-1
Consolidated Balance Sheet as of March 31, 1999............................ F-2
Consolidated Statements of Operations for the years ended
March 31, 1999 and March 31, 1998..................................... F-3
Consolidated Statements of Changes in Stockholders Equity for the years
ended March 31, 1999 and March 31, 1998............................... F-4
Consolidated Statements of Cash Flows for the years ended
March 31, 1999 and March 31, 1998..................................... F-5
Notes to the Consolidated Financial Statements............................. F-6
Consolidated General and Administrative Expenses
for the two years ended March 31, 1999 and March 31, 1998............. F-9
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
20
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
The members of the Board of Directors of the Company serve until the next annual
meeting of stockholders, or until their successors have been elected. The
officers serve at the pleasure of the Board of Directors. Information as to the
directors and executive officers of the Company is as follows.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Jon H. Marple (1)(2) 59 Chairman, Chief Executive Officer, President and
Treasurer since August 8, 1997 (date of purchase of
IJNT, Inc.)
Mary E. Blake (1)(2)(3) 46 Vice President, Director and Secretary since August
8, 1997 (date of purchase of IJNT, Inc.)
Richard W. Torney 59 Director since August 8, 1997 (date of purchase of
IJNT, Inc.)
Robert Santore 38 Director since October 1998, Creative Director of
MRHM subsidiary
Jeffrey R. Matsen 59 Director since October 1998, Lead Outside Legal
Counsel for the Company since its inception
</TABLE>
(1) Marple and Blake are husband and wife.
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Jon H. Marple - Mr. Marple's background is in law and management. Upon
graduation from the University of Washington College of Law in 1966, Mr. Marple
taught Business Law and Constitution Law at a branch college of The Ohio State
University while beginning his law practice with George, Greek, King, McMahon
and McConnaughy in Columbus, Ohio. Leaving the law firm in 1969, Mr. Marple was
appointed as Sr. Trial Attorney at the United States Department of Justice in
Washington D.C., working as an assistant to the Deputy Attorney General of the
United States. Mr. Marple moved to the Federal Communications Commission, where
he served as an assistant to the General Counsel, Richard Wiley, and as a Senior
Appellate Counsel, representing the FCC before the Federal Courts. While in this
position, Mr. Marple wrote several briefs which were presented to the Supreme
Court of the United States and represented the Commission before Federal
Appellate courts in matters pertaining to telephone and broadcast issues. In
1972, Mr. Marple moved to the prestigious Washington, D.C. communications law
firm of Dow, Lohnes and Albertson, where he practiced communications law for
several years before acquiring standard broadcast facility KRKO in Everett,
Washington, in 1976. As an owner-operator of KRKO, Mr. Marple was involved in
all phases of the operation. One year after taking over the operation, KRKO's
sales had doubled. Mr. Marple also owned minority interest in several other
broadcast properties in the Northwest before selling his interest in 1983.
The next several years Mr. Marple consulted and acquired FCC allocated spectrum
starting Marrco Communications in 1991 to consolidate these functions. IJNT was
incorporated with Mary E. Blake (Mr. Marple and Ms. Blake are husband and wife),
in January of 1997.
Mary E. Blake - Upon graduation from Waltrip H.S. in Houston, where she was a
member of the National Honor Society, Ms. Blake attended Sam Houston State
University before Texas A&M as a member of the first co-ed class. After managing
a small oil and gas company, Ms. Blake entered the management training program
for Southwestern Bell where she quickly rose through the management ranks as a
Business Office Supervisor. Ultimately, she supervised 25,000 accounts for
sales, service and collection. She also worked as a supervisor for Directory
advertising and the first S.W. Bell word processing applications. She was also
trained as a lobbyist for the company. IJNT.net was co-founded by Ms. Blake
along with her husband, Jon H. Marple. She has been Vice President and Director
of the Company since the acquisition of IJNT.net on August 8, 1997.
21
<PAGE>
Richard W. Torney - Mr. Torney is President and sole owner of Imaging Systems,
Inc., an international sales and marketing organization with representation in
Europe and South America. He has been a director of IJNT.net Corporation since
the acquisition of IJNT.net on August 8, 1997. Mr. Torney is fluent in Spanish
and German, and has been involved in international business extensively for 35
years. His expertise in foreign markets, accounting and professional experience
is important as the Company builds a foundation toward international growth.
Robert B. Santore - Mr. Santore brings world-class credentials to the Company.
Educated at the Otis Art Institute of Parsons School of Design (Los Angeles),
the Parsons School of Design (New York), and the University of California,
Irvine (Computer Science), Mr. Santore is a rare blend of computer capability,
graphic artistry, and management.
As a fine artist his works are displayed in major corporations and museums
around the world, including TRW, USA Today, Security Pacific Bank,
Burlington-Northern, Santa Fe, Principal Insurance, The Newport Harbor Art
Museum, Los Angeles Contemporary Art Collection, San Jose Museum of Art, and
more. He has had exhibits in Los Angeles, New York, and Tokyo, among others.
Conflicts of Interest
Certain conflicts of interest may exist between the Company and its management,
and conflicts may develop in the future. The Company has not established
policies or procedures for the resolution of current or potential conflicts of
interests between the Company, its officers and directors or affiliated
entities. There can be no assurance that management will resolve all conflicts
of interest in favor of the Company, and failure by management to conduct the
Company's business in the Company's best interest may result in liability to the
management. The officers and directors are accountable to the Company as
fiduciaries, which means that they are required to exercise good faith and
integrity in handling the Company's affairs. Shareholders who believe that the
Company has been harmed by failure of an officer or director to appropriately
resolve any conflict of interest may, subject to applicable rules of civil
procedure, be able to bring a class action or derivative suit to enforce their
rights and the Company's rights.
The Company has no arrangement, understanding or intention to enter into any
transaction for participating in any business opportunity with any officer,
director, or principal shareholder or with any firm or business organization
with which such persons are affiliated, whether by reason of stock ownership,
position as an officer or director, or otherwise.
Item 10. EXECUTIVE COMPENSATION
Annual All Other
Name and Principal Position Compensation Compensation
- ------------------------------------ ------------------ -----------------
Jon H. Marple, President $ 177,154 none
Mary E. Blake, Vice President $ 112,482 none
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to the beneficial ownership
of Company common stock by those persons beneficially holding more than 5% of
the Company capital stock, by the Company's directors and executive officers,
and by all of the Company's directors and executive officers as a group, as of
July 8, 1999.
Percentage
Name of Number of of Outstanding
Stockholder Shares Owned Common Stock
----------- ------------ ------------
Mary E. Blake (1) 7,617,647 44.3%
Jon H. Marple (1) -- --
Richard W. Torney 5,000 *
Robert B. Santore 26,000 *
Jeffrey R. Matsen 10,000 *
All officers and directors
as a group (3 persons) 7,658,647 44.6%
22
<PAGE>
Mary E. Blake and Jon H. Marple are husband and wife. Mr. Marple disclaims
beneficial ownership of the shares owned by Ms. Blake.
* Less than 1%
Item 12. CERTAIN TRANSACTIONS AND SUBSEQUENT EVENTS
Private Placement of Preferred Stock
On December 4, 1998, the Company entered into an Agreement with Private
Investors (the "Investors") whereby the Investors purchased 2,000 shares of the
Company's Preferred Series A Stock (the "Preferred Stock") for a price of $1.8
million. The Preferred Stock has a par value of $.01 per share and has a Stated
Value of $1,000 per share. A dividend of 8% per annum accrues on the Preferred
Stock. The investors have the ability to convert the Preferred Stock into common
stock of the Company at a rate of $1,250 worth of common stock for each share of
Preferred Stock converted. The Company has the ability to put additional shares
of Preferred Stock with the Investors based on the market price and average
daily volume of shares traded of the Company's common stock. The maximum total
investment to be made by the Investors is equal to $10 million.
SUBSEQUENT EVENTS
The following represent acquisitions and significant transactions completed
after the end of the fiscal year ended March 31, 1999 and prior to the filing of
this report.
The Company has recently acquired FairAuction.com, an online auction web site
that generated in excess of one million dollars in gross revenues in the year
prior to being acquired by IJNT. The Company plans to increase upon this revenue
base through additional promotion and expanding the range of products auctioned
on the site. Currently, FairAuction.com exclusively sells computers, computer
peripherals and computer parts.
The Company also has recently acquired the assets of Micro-Lite Television of
Beaumont, LLC, a Texas limited liability company("MLTV"). MLTV holds MMDS
frequency leases in Southeast Texas and broadcasts wireless cable television to
homes and businesses in the greater Beaumont area. The Company is currently in
the process of configuring the television service to meet the particular needs
of business subscribers with greater emphasis on news and financial information
programming.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits of the Company are included
herein.
Sequential
Exhibit No. Document Description Page No.
3. Certificate of Incorporation and Bylaws
3.1. Articles of Incorporation(1)
3.2 Bylaws(1)
(1) Incorporated by reference to such exhibit as filed with the Company's
registration statement on Form 10-SB, File No. 0-24408.
(b) Reports on Form 8-K.
None filed during the fourth quarter.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized July 12, 1999.
IJNT.net, Inc.
By:
Jon H. Marple
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on July 12, 1999.
By: President, Treasurer, Chief Executive Officer,
Jon H. Marple Chief Financial Officer and Chairman
By: Vice President, Secretary and Director
Mary E. Blake
By: Director
Richard W. Torney
By: Director, Web Site Design Director
Robert B. Santore
By: Director
Jeffrey R. Matsen
24
<PAGE>
Smith
&
Company
A Professional Corporation of Certified Public Accountants
Board of Directors
IJNT.net, Inc.
Salt Lake City, Utah
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying consolidated balance sheet of IJNT.net, Inc.
and Subsidiaries as of March 31, 1999, and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for the years
ended March 31, 1999 and 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IJNT.net, Inc. and
Subsidiaries as of March 31, 1999 and the results of their operations, changes
in stockholders' equity, and cash flows for the years ended March 31, 1999 and
1998 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The information in Schedule 1 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements, and in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
July 7, 1999
10 West 100 South, Suite 700 o Salt Lake City, Utah 84101-1554
Telephone: (801) 575-8297 Facsimile: (801) 575-8306
E-mail: [email protected]
Members: American Institute of Certified Public Accountants
Utah Association of Certified Public Accountants
F-1
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1999
-----------------
ASSETS
CURRENT ASSETS
<S> <C>
Cash in bank $ 902,757
Accounts receivable - Trade 291,642
Stockholder receivable (Note 3) 79,693
Other receivables 207,980
Inventory 86,645
Prepaid expenses 300,720
-----------------
TOTAL CURRENT ASSETS 1,869,437
PROPERTY AND EQUIPMENT (Notes 1 and 4) 2,313,953
OTHER ASSETS
Deposits 65,422
Organization costs (Note 1) 6,743
Licenses and other (Note 5) 2,072,423
-----------------
TOTAL OTHER ASSETS 2,144,588
-----------------
$ 6,327,978
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 283,249
Accrued liabilities 200,266
Income taxes payable 4,811
Note payable 0
Loans from stockholders (Note 3) 156,690
Current portion of long-term debt (Note 6) 26,497
-----------------
TOTAL CURRENT LIABILITIES 671,513
LONG-TERM LIABILITIES (Note 6) 195,679
-----------------
TOTAL LIABILITIES 867,192
STOCKHOLDERS' EQUITY
Series A Preferred stock $.01 par value:
Authorized 1,000,000 shares;
Issued and outstanding 2,000 shares 20
Additional paid-in capital - preferred stock 1,799,980
Common stock, $.001 par value:
Authorized 20,000,000 shares;
Issued and outstanding 15,975,129 shares 15,975
Additional paid-in capital - common stock 11,291,396
Retained deficit (7,646,585)
-----------------
TOTAL STOCKHOLDERS' EQUITY 5,460,786
-----------------
$ 6,327,978
=================
</TABLE>
See Notes to the Consolidated Financial Statements.
F-2
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended March 31,
1999 1998
------------------ ---------------
<S> <C> <C>
Sales $ 1,552,194 $ 147,057
Cost of sales 543,657 66,405
------------------ ---------------
GROSS PROFIT 1,008,537 80,652
General and administrative expenses (Schedule 1) 5,851,475 2,044,431
Depreciation and amortization (Note 1) 270,173 82,874
Interest and bank charges 24,240 10,071
------------------ ---------------
6,145,888 2,137,376
Net operating loss (5,137,351) (2,056,724)
Other Income (Expense)
Interest income 65,474 12,947
Acquisition costs (1,510) (351,707)
------------------ ----------------
NET LOSS $ (5,073,387) $ (2,395,484)
================== ===============
EARNINGS (LOSS) PER COMMON SHARE
Net income (loss) $ (.35) $ (.21)
================== ===============
Weighted average number of common shares
used to compute net income (loss) per
weighted average share 14,372,270 11,528,021
================== ===============
</TABLE>
See Notes to the Consolidated Financial Statements.
F-3
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Series A Preferred Stock Common Stock Paid-In Retained
Shares Amount Shares Amount Capital Deficit
------------- -------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at 3/31/97 0 $ 0 10,388,886 $ 10,389 $ 1,677,259 $ (177,714)
Issue stock for note payable
7/31/97 155,000 155 1,400
Stock split 2.339936535 for 1
7/31/97 776,677 776 (776)
Sale of shares in private
placement 8/20/97 680,000 680 1,325,320
Issue shares to acquire Access
Comm. 1/1/98 211,000 211 421,789
Issue shares for services
1/27/98 15,000 15 31,485
Sale of shares in private placement
1/27/98 69,620 70 146,064
2/1/98 48,200 48 101,172
3/1/98 9,762 10 20,490
3/10/98 500,000 500 890,635
Net loss (2,395,484)
------------- -------------- ------------- ------------- -------------- -------------
Balances at 3/31/98 0 0 12,854,145 12,854 4,614,838 (2,573,198)
Issued stock to acquire WebIt
4/17/98 (net of $43,878
acquisition costs) 20,000 20 15,102
Issued stock for services:
4/17/98 20,637 21 82,527
7/2/98 11,500 11 45,988
7/8/98 30,000 30 119,970
8/7/98 2,000 2 7,998
8/18/98 38,000 38 116,962
9/14/98 22,000 22 87,978
10/9/98 10,000 10 19,990
10/23/98 89,550 90 223,785
11/20/98 20,000 20 59,980
Sale of shares in private
placement 7/7/98 100,000 100 204,860
Sale of Reg. S shares 7/15/98 700,000 700 1,829,857
Issue stock to acquire
MRHM, Inc. 8/4/98 (net of 37,163 37 107,463
$100,000 acquisition costs)
Sale of Reg. D shares 8/18/98 563,950 564 1,156,619
Issue stock for warrants 8/24/98 512,821 513 999,487
Issue stock to retire debt 8/24/98 70,000 70 69,930
Sale of Series A Preferred
shares 12/31/98 (net of $200,000
commissions) 2,000 20 1,799,980
Issue additional shares to settle
prior year acquisition of
Access Comm. 1/12/99 30,333 30 (4,518)
Issue stock for services:
2/1/99 118,334 118 266,133
2/4/99 25,091 25 49,975
3/1/99 41,886 42 88,752
Issue stock for assets:
2/17/99 200,000 200 499,800
3/31/99 207,719 208 688,170
Issue stock to acquire Global
Broadband 2/22/99 (net of 250,000 250 (60,250)
$590,000 acquisition costs)
Net loss (5,073,387)
------------- -------------- ------------- ------------- -------------- -------------
Balances at 3/31/99 2,000 $ 20 15,975,129 $ 15,975 $ 13,091,376 $ (7,646,585)
============= ============== ============= ============= ============== =============
</TABLE>
See Notes to the Consolidated Financial Statements.
F-4
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended March 31,
1999 1998
----------------- ----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (5,073,387) $ (2,395,484)
Add items not requiring the use of cash
Stock issued for services 1,170,467 31,500
Amortization and depreciation 270,173 82,874
Acquisition costs 0 351,707
Changes in assets and liabilities:
Accounts receivable 254,922 (39,912)
Inventory (41,811) (44,834)
Prepaid expenses (288,612) (12,108)
Accounts payable (106,495) 401,262
Accrued liabilities 153,874 (41,108)
Income taxes 4,011 800
----------------- ----------------
NET CASH REQUIRED BY
OPERATING ACTIVITIES (3,656,858) (1,665,303)
INVESTING ACTIVITIES
Purchase equipment (1,323,229) 0
Deposits (56,515) (8,907)
Organization costs (401) (8,978)
----------------- ----------------
NET CASH REQUIRED BY
INVESTING ACTIVITIES (1,380,145) (17,885)
FINANCING ACTIVITIES
Sale of preferred stock 1,800,000 0
Sale of common stock 4,192,700 1,690,664
Proceeds from loans 0 83,690
Principal payments on loans and leases (116,243) (27,863)
----------------- ----------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 5,876,457 1,746,491
----------------- ----------------
INCREASE IN CASH AND
CASH EQUIVALENTS 839,454 63,303
Cash and cash equivalents at beginning of period 63,303 0
----------------- ----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 902,757 $ 63,303
================= ================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 24,240 $ 10,071
</TABLE>
Noncash investing and financing activities
During the period ended March 31, 1999, the Company issued 745,215 shares
of common stock for assets valued at $1,246,512, and the Company issued
70,000 shares to satisfy debt. Equipment at a cost of $377,344 was acquired
by incurring contracts and leases payable in the same amount.
See Notes to the Consolidated Financial Statements.
F-5
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements for 1998 include the accounts
of the Company and its wholly-owned subsidiaries IJNT, Inc., which
was incorporated January 15, 1997 under the laws of the State of
Nevada, and Access Communications, Inc., a Texas corporation, which
was purchased January 1, 1998. The consolidated financial
statements for 1999 include the accounts of the Company and its
wholly-owned subsidiaries IJNT, Inc., Access Communications, Inc.,
WebIt of Utah, Inc., a Utah corporation purchased April 17, 1998;
UrJet Backbone Network, Inc., which was incorporated in December
1998 under the laws of Nevada; Man Rabbit House Multimedia, Inc., a
California corporation purchased August 14, 1998; and Global
Broadband Services, Inc., a Nevada corporation purchased February
22, 1999. All significant intercompany balances and transactions
have been eliminated in consolidation.
Business Activity
The Company was incorporated on June 11, 1992 in Delaware as
Picometrix, Inc. On August 8, 1997 the name was changed to Interjet
Net Corporation. During the year ended March 31, 1999, the name was
changed to IJNT.net Corporation, then to IJNT International, Inc.
and finally to IJNT.net, Inc. The Company acquired the bulk of its
assets July 31, 1997 with the acquisition of IJNT, Inc. The Company
and its subsidiaries are engaged in the business of providing
wireless internet access through microwave technology, dial-up
internet access, web site design, web hosting services, fiber
backbone connectivity, and a variety of telecommunications carrier
services.
Basis of Accounting
The consolidated financial statements are prepared using the
accrual basis of accounting where revenues are recognized when
earned and expenses are recognized when incurred. The Company has
addressed the ramifications of SOP 97-2 and has determined that it
is applicable to certain types of transactions contemplated by its
web-site development division Man Rabit House Multimedia, Inc. This
division develops corporate web-sites. This division's revenue is
recognized based on stages of development. Each stage of
development is authenticated by the customer in the form of an
acceptance contract. The customer does not sign the acceptance
contract until the product is installed, and deemed functional by
the customer. The aforementioned milestones typically span over a
one to three month period of development. Therefore, the majority
of the milestones are met within any given quarter.
Earnings (Loss) Per Share
Earnings (loss) per share amounts are calculated based on the
weighted average number of shares outstanding during the period.
Organization costs
Organization costs are being amortized over a five year period.
Property and Equipment
Property and equipment are depreciated over their estimated useful
lives. Depreciation and amortization are computed using
straight-line methods over an estimated life of five to seven
years.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly
liquid investments with an original maturity of three months or
less when purchased to be cash equivalents.
Income Taxes
The Company records the income tax effect of transactions in the
same year that the transactions enter into the determination of
income, regardless of when the transactions are recognized for tax
purposes. Tax credits are recorded in the year realized.
The Company utilizes the liability method of accounting for income
taxes as set forth in Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). Under the
liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. An allowance against
deferred tax assets is recorded when it is more likely than not
that such tax benefits will not be realized.
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, liabilities, revenues and expenses during the reporting
period. Estimates also affect the disclosure of contingent assets
and liabilities at the date of the financial statements. Actual
results could differ from these estimates.
F-6
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999
NOTE 2: FORMER DEVELOPMENT STAGE COMPANY
The Company was in the development stage from its inception until
December 31, 1997. Commencing January 1, 1998, the Company has
sufficient revenue through operations of its subsidiaries that
management considers it to be no longer in the development stage.
NOTE 3: RELATED PARTY TRANSACTIONS
During 1997, the Company's subsidiary, IJNT, Inc. acquired assets
valued at $699,000 from an officer in exchange for 1,000 shares of
common stock. The officer paid costs of $321,252 on behalf of IJNT,
Inc. as additional consideration for the stock. The assets were
recorded on IJNT, Inc.'s books at their historical cost to the
officer.
In March 1999, the Company acquired channel rights from a
stockholder for $450,000, which is believed to be fair market
value.
The officers and directors of the Company are involved in other
business activities and may, in the future, become involved in
other business opportunities. If a specific business opportunity
becomes available, such persons may face a conflict in selecting
between the Company and their other business interests. The Company
has not formulated a policy for the resolution of such conflicts.
At March 31, 1999, the Company owed two stockholders $156,690,
payable within the next 12 months without interest. At that date
the Company was owed $79,693 by a stockholder, payable within the
next 12 months without interest.
NOTE 4: PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Cost Depreciation Net Book Value
-------------- ---------------- ------------------
<S> <C> <C> <C>
Furniture $ 180,075 $ 40,940 $ 139,135
Equipment 620,145 118,534 501,611
Transmission Equipment 1,865,789 202,144 1,663,645
Leased Vehicle 12,749 3,187 9,562
-------------- ---------------- ------------------
$ 2,678,758 $ 364,805 $ 2,313,953
============== ================ ==================
</TABLE>
NOTE 5: LICENSES AND OTHER
The Company owns various MMDS, ITFS, and LPTV (wireless cable)
licenses to operate in various cities. The Company has also
recently purchased customer bases from two entities and signed a
non-compete agreement with an officer. The MMDS Channel rights and
ITFS rights will be amortized over their remaining useful lives
beginning April 1, 1999. A summary is as follows:
MMDS Channel rights (see Note 3) $ 450,000
LPTV rights and licenses (see Note 3) 699,000
ITFS rights 634,746
Customer bases 238,677
Non-compete agreement 50,000
-------------
$ 2,072,423
=============
NOTE 6: LONG-TERM LIABILITIES
Long-term debt at March 31, 1999 is detailed as follows:
<TABLE>
<CAPTION>
Interest Principal Balance
Rate Payment Current Long-term
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Vehicle contract 9.75 $ 1,099 $ 13,183 $ 19,097
Vehicle contract 13.30 378 4,536 8,384
Vehicle lease 9.90 531 8,778 3,604
Note payable to consultant 0 0 0 133,344
Note payable to corporation 0 0 0 31,250
-------------- ------------- ------------- --------------
$ 26,497 $ 195,679
============= ==============
</TABLE>
F-7
<PAGE>
IJNT.net, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 1999
NOTE 6: LONG-TERM LIABILITIES (continued)
Scheduled principal reductions of the debt are as follows:
2000 $ 26,497
2001 175,969
2002 19,710
--------------
$ 222,176
==============
NOTE 7: COMMITMENTS AND CONTINGENCIES
The Company conducts its operations in leased facilities under
noncancellable operating leases expiring through 2001. In addition,
the Company leases equipment under noncancellable operating leases
expiring through 2007. The minimum future rental commitments under
operating leases are as follows:
<TABLE>
<CAPTION>
Year ending
March 31, Facilities Equipment Total
---------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
2000 $ 535,002 $ 82,028 $ 617,030
2001 487,272 71,400 558,672
2002 466,272 71,400 537,672
2003 434,404 71,400 505,804
Beyond 2003 185,334 71,400 256,734
-------------- ------------- -------------
$ 2,108,284 $ 367,628 $ 2,475,912
============== ============= =============
</TABLE>
Payments under these leases (included in general and administrative
expenses) were $317,417 for the year ended March 31, 1999 and
$190,944 for the year ended March 31, 1998.
NOTE 8: INCOME TAXES
No federal income taxes were due for the years ended March 31,1999
or 1998.
At March 31, 1999, the Company has a federal net operating loss
carryover of approximately $7,500,000. The federal loss will expire
starting March 31, 2012.
At March 31, 1999, the Company has a deferred tax asset in the
amount of $0. There is a potential asset based on future reduction
of income taxes using the net operating loss carryforward. The
amount has been reserved 100% due to the Company's losses.
Management believes that the Company will realize sufficient income
in the future to utilize the net operating loss carryforward.
However, since future income can only be estimated, there is not
sufficient basis for recognition of any deferred tax asset at this
time.
NOTE 9: ACQUISITION OF SUBSIDIARIES
The Company issued 548,496 shares to acquire subsidiaries (treated
as purchase transactions) as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
January 1, 1998 Access Communications, Inc. 241,333
April 17, 1998 WebIt of Utah, Inc. 20,000
August 4, 1998 Man Rabbit House Multimedia, Inc. 37,163
February 22, 1999 Global Broadband Services, Inc. 250,000
-------------
548,496
=============
</TABLE>
F-8
<PAGE>
SCHEDULE 1
IJNT.net, Inc. AND SUBSIDIARIES
CONSOLIDATED GENERAL AND ADMINISTRATIVE EXPENSES
Years ended March 31,
1999 1998
----------------- ----------------
Accounting $ 51,375 $ 26,035
Automobile expense 42,368 35,947
Bad debts 554 0
Computer expense 116,268 85,311
Consulting 646,727 131,489
Insurance 106,034 48,280
Lease - channel 70,620 136,682
Legal 269,548 82,852
Marketing and advertising 567,073 60,933
Meals and entertainment 57,306 25,779
Office expense 360,572 72,215
Outside services 117,211 40,061
Payroll taxes and benefits 215,154 60,666
Postage 54,203 23,005
Relocation expense 7,755 5,310
Repairs and maintenance 7,294 4,039
Rent expense 317,417 190,944
Salaries 2,154,535 713,482
Taxes and licenses 13,459 9,498
Telephone 473,651 113,928
Travel 202,351 177,975
----------------- ----------------
$ 5,851,475 $ 2,044,431
================= ================
F-9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from IJNT.net, Inc. March 31, 1999 financial statements and is
qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000925739
<NAME> IJNT.net, Inc.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 902,757
<SECURITIES> 0
<RECEIVABLES> 291,642
<ALLOWANCES> 0
<INVENTORY> 86,645
<CURRENT-ASSETS> 1,869,437
<PP&E> 2,678,758
<DEPRECIATION> 364,805
<TOTAL-ASSETS> 6,327,978
<CURRENT-LIABILITIES> 671,513
<BONDS> 0
0
20
<COMMON> 15,975
<OTHER-SE> 5,444,791
<TOTAL-LIABILITY-AND-EQUITY> 6,327,978
<SALES> 1,552,194
<TOTAL-REVENUES> 1,552,194
<CGS> 543,657
<TOTAL-COSTS> 6,121,648
<OTHER-EXPENSES> 1,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,240
<INCOME-PRETAX> (5,073,387)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,073,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,073,387)
<EPS-BASIC> (.35)
<EPS-DILUTED> (.35)
</TABLE>
