U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-20259
INTERNET BUSINESS'S INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Nevada 33-0845463
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2250 East Tropicana, Suite 19-309, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (775) 588-2387
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days. Yes -[-X] No [ ].
As of December 31, 2003, the Registrant had 682,273,603 shares of common
stock issued and outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ ]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . 3
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND JUNE 30, 2003. . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS AND SIX ENDED DEC. 31, 2003 AND DEC. 31, 2002 . . . . . . . . . 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED DEC. 31, 2003 AND DEC. 31, 2002 . . . . . . . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ITEM 4. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . 26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS . . . . . . . . . . . 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 27
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
CERTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2
PART I.
ITEM 1. FINANCAL STATEMENTS.
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We have reviewed the accompanying balance sheet of Internet Business's
International, Inc. as of December 31, 2003 and the related statements of
operations for the six month period ended December 31, 2003 and 2002, and the
cash flows for the six months ended December 31, 2003 and 2002 included in the
accompanying Securities and Exchange Commission Form 10-QSB for the period ended
December 31, 2003. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with U.S. generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with U.S. generally accepted accounting principles.
We have previously audited, in accordance with U.S. generally accepted auditing
standards, the balance sheet as of June 30, 2003, and the related statements of
operations, stockholders' equity and cash flows for the year then ended (not
presented herein). In our previous report, we expressed an unqualified opinion
on those financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 2003 is fairly stated in all
material respects in relation to the balance sheet from which it has been
derived.
February 23, 2004
/s/ Henry Schiffer
Henry Schiffer
3
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, JUNE 30,
2003 2003
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ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 195 $ 1,389
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
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Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 1,389
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 405,200 940,930
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99,444 554,692
Investment in unconsolidated company . . . . . . . . . . . . . . . . . . . . . . 1,224,068 1,151,332
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Total Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,728,712 2,646,954
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,728,907 $ 2,648,343
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LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 296,154 $ 403,821
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 783,370 783,370
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 214,594 115,430
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Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,294,118 1,302,621
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,291,136 976,469
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Total Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,585,254 2,279,090
Stockholders' equity:
Preferred stock, par value $100.00 per share; 1,000,000 shares authorized; 0 . . 0 0
and 0 issued and outstanding at Dec. 31, 2003 and June 30, 2003, respectively.
Common stock, par value $0.001 per share; 2,000,000,000 shares authorized;
As of December 31,2003 and June 30, 2003 shares issued and
outstanding were 682,273,603 and 178,273,603 respectively. . . . . . . . . . . 682,274 178,274
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,918,576 6,918,576
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,457,197) (6,727,597)
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Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,856,347) 369,253
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Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $ 1,728,907 $ 2,648,343
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The accompanying notes are an integral part of these financial statements
4
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
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DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003 2002
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Revenues . . . . . . . . . . . . . . . $ 0 $ 383,905 $ 0 $ 672,242
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Cost and expenses:
Cost of revenues . . . . . . . . . . 0 22,500 0 22,500
Selling, general and administration. 77,000 661,157 352,578 1,415,442
Depreciation and amortization. . . . 467,374 729,719 846,191 1,158,212
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Total costs and expenses . . . . . 544,374 1,413,376 1,198,769 2,596,154
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(Loss) income from operations. . . . . (544,374) (1,029,471) (1,198,769) (1,923,912)
Other income (expense):
Other income or (expense). . . . . . (200,000) 0 (81,595) 0
Interest income. . . . . . . . . . . 0 0 0 0
Other expenses . . . . . . . . . . . 0 (482,736) (1,449,236) (482,736)
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Total other income, net. . . . . . (200,000) (482,207) (1,530,831) (482,736)
Net (loss) income. . . . . . . . . . . $ (744,374) $ (1,512,207) $ (2,729,600) $ (2,406,648)
============== ============== ============== ==============
Net loss (income) per common . . . . . Nil ($.0311) ($.006) ($.0495)
Weighted average number of common
shares outstanding . . . . . . . . . . 497,273,603 48,561,335 497,273,603 48,561,335
The accompanying notes are an integral part of these financial statements
5
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
December 31, December 31,
2003 2002
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Cash Flows From Operating Activities:
Net (loss) income . . . . . . . . . . . . . . . . $ (744,374) $ (1,512,207)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization . . . . . . . . . . 467,374 729,719
Gain on sale of equity investment . . . . . . . . . 0 0
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . 0 (15,385)
Inventories . . . . . . . . . . . . . . . . . . . 0 (36,358)
Prepaid expenses and other. . . . . . . . . . . . 0 0
Accounts payable. . . . . . . . . . . . . . . . . 0 342,604
Accrued liabilities . . . . . . . . . . . . . . . 0 534,390
Deferred revenues . . . . . . . . . . . . . . . . 0 11,960
Other current liabilities . . . . . . . . . . . . 0 0
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Net cash (used in) provided by operating activities (277,000) 54,723
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Cash Flows From Investing Activities:
Purchases of property and equipment . . . . . . . 42,050 0
Investment in intangible assets . . . . . . . . . 0 0
Proceeds net from sale of equipment . . . . . . . 0 (64,407)
Investments notes or stocks . . . . . . . . . . . (200,000) 0
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Net cash used in investing activities . . . . . . . (157,950) (64,407)
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Cash Flows From Financing Activities:
Net repayments/borrowed from line of credits. . . 0 0
Net repayment/borrowed of long-term debt. . . . . 234,950 0
Issuance of common stock. . . . . . . . . . . . . 200,000 10,000
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Net cash (used in) provided by financing activities 434,950 10,000
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Net decrease in cash. . . . . . . . . . . . . . . . 0 316
Cash, beginning of period . . . . . . . . . . . . . 195 52,797
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Cash, end of period . . . . . . . . . . . . . . . . $ 195 $ 53,113
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The accompanying notes are an integral part of these financial statements
6
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND CHANGE IN CONTROL
Prior to December 31, 1997, Internet Business's International, Inc. (the
"Company") was in the food product manufacturing business formerly known as
"International Food and Beverage, Inc.". In November 1998, new stockholders
bought majority control from the previous Chief Executive Officer through a
private transaction. Immediately thereafter, the former CEO resigned and the
new stockholders assumed the executive management positions. In December 31,
1998, after new management was in place, a decision was made to change the
Company's principal line of business from a manufacturing business to a high
technology company. In connection with the change in business, the Company
changed its name from International Food & Beverage, Inc. to Internet Business's
International, Inc., and reincorporated the Company on December 8, 1998 in the
state of Nevada. The Company, after January 1, 1999 began plans to offer
Internet based e-commerce services. In April of 1999, the Company announce it's
first e-commerce site and was engaged in the development, operation and
marketing of a number of commercial The Company had two reporting divisions made
up of subsidiaries which were; wireless high speed Internet access in Las Vegas,
Nevada and Woodland, California, and direct Marketing until the end of June 2003
at which time all operations ceased. The Company had three division to fiscal
year end of June 2002 which were as follows: Lending on Line (which includes
real estate loans and equipment leasing), this division ceased operations in
June of 2002, Internet Service Provider (which includes a national Internet
access dial-up service, wireless high speed Internet access in Las Vegas, Nevada
and Woodland, California, and Internet web design and hosting), and Direct
Marketing.
By the end of the fiscal year ended June 30, 2003 the company ceased operations.
The Company has one office in the US and less then 5 employees.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. Significant intercompany balances and
transactions are eliminated in consolidation. Affiliated companies in which the
Company does not have a controlling interest are accounted for using the equity
method.
The Company's consolidated financials included Global GPP subsidiary that the
Company owned 80% of, during the time it operated. From March of 2000 to March
of 2001, at which time Global GPP ceased operations. The financial information
were included in the E Commerce section, of the Companies financials, until the
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sale of Ace Optics in the fourth quarter of this fiscal year ended June 30,
2002, and that information was then included in the "Other Income" along with
the Companies Other activities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Significant estimates include allowances doubtful accounts and notes receivable
and for mortgage loans receivable. Actual results could differ from those
estimates.
CHANGE IN REVENUE RECOGNITION
Prior to July 1, 2001 the revenue for the Mortgage Division was booked as
follows: the mortgage loan amount funded by the Company was booked as revenue on
the date of funding. After that date, the net proceeds received from the sale of
the mortgage loan were booked as revenue upon receipt of those funds by the
Company. This has a significant impact on the revenue for the Company, but does
not impact the net income (loss) for the Company. The financial statements were
revised for June 30, 2001, and the companion figures for June 30, 2000 to
incorporate the changes of revenue recognition for the Mortgage Division.
7
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified to
conform to the current year classification.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an original
maturity date of three months or less to be cash equivalents.
MORTGAGE LOANS HELD FOR SALE
Loans held for sale include originated mortgage loans intended for sale in the
secondary market. Loans held for sale are recorded at the lower of aggregate
cost or fair value.
Interest Accrual
Accrued interest ceases upon sale of the Mortgage Loan.
Allowance for Loan Losses
The allowance for loan losses represents management's estimate.
Balance Sheet will provide information as follows (if applicable):
Assets
Loans held for sale XXX
Allowance for loan losses XXX
SFAS 134 requires mortgage-banking enterprises to classify securities as
held-to-maturity, trading, or available-for-sale, depending on the entity's
intent and ability to hold the securities. If the mortgage banking enterprise
commits to sell a mortgage-backed security before or during the securitization
process, the entity must classify the security as trading.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful life of the assets, which is generally three to
five years for computers and computer related equipment and five to seven years
for other non-computer furniture and equipment. Leasehold improvements are
amortized using the straight-line method over the shorter of their estimated
useful lives or the term of the lease, ranging from one to ten years.
INTANGIBLE ASSETS
Intangible assets consist primarily of acquired customer bases, long-term
marketing agreements, goodwill, and other items. Customer bases acquired
directly are valued at cost, which approximates fair value at the time of
purchase. When material intangible assets, such as customer bases and goodwill
are acquired in conjunction with the purchase of a company, IBII undertakes a
study by an independent third party to determine the allocation of the total
purchase price to the various assets acquired and the liabilities assumed. The
costs assigned to intangible assets are being amortized on a straight-line basis
over the estimated useful lives of the assets, which is 36 months for
substantially all remaining intangible assets as of September 30, 2003.
Goodwill and other intangible assets are periodically reviewed for impairment to
ensure they are appropriately valued. Conditions that may indicate an
impairment issue exists include an economic downturn, changes in the churn rate
of subscribers or a change in the assessment of future operation. In the event
that a condition is identified that may indicate an impairment issues exists, an
assessment is performed using a variety of methodologies, including cash flow
analysis, estimates of sales proceeds and independent appraisals.
8
ADDITIONAL PAID IN CAPITAL
In April of 2003 the par value for the Company stock was changed from $.01 per
shares to $.001 per share at that time there were, 78,273,603 shares issued with
a par value of $.01 which equals $782,736, the par value change to $.001 valued
those shares at $78,274 the net difference of $704,462 is included in paid in
capital.
In May of 2002 a 1 share for 10 shares reverse became effective. This was the
first part of a Securities Purchase Agreement in conjunction with a stock
registration. The Company received $120,000 as a loan to be paid with the
registration of stock during the fiscal year. Due to the price drop in the stock
after the reverse occurred the registration did not occur. The Loan proceeds
booked as long-term debt. The stock reverse difference of shares issued and
outstanding is stated as additional paid in capital in the amount of $2,544,624.
By the end of March 2000, the Company issued an additional 7,000,000 shares of
the Company's common stock, in a private placement to a qualified investor,
which provided to the Company $3,382,560.
REVENUE RECOGNITION
IBII recognizes revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectibility is probable.
For ISP services, these criteria are met monthly as our service is provided on a
month-to-month basis and collection for the service is generally made within 30
days of the service being provided. Narrowband access revenues consist of
monthly fees charged to customers for dial-up Internet access. Narrowband
access revenues also include monthly service fees; any associated equipment
revenues for the Internet appliance and wireless access services provided as
part of the company's marketing initiative and equipment fees. Broadband access
revenues consist of fees charged for high-speed, high-capacity access services
including DSL, fixed wireless, and dedicated circuit services, installation,
termination fees and fees for equipment. Web hosting revenues consist of fees
earned by leasing server space and providing web services to companies and
individuals wishing to present a web or e-commerce presence. Advertising,
content and electronic commerce revenues are recorded as earned.
For lending on line, revenue principally represents closed-loan fees paid by
Lenders that closed a loan for a consumer that originated through websites.
Closed-loan fees are recognized at the time the lender reports the closed loan
to us. This subsidiary was closed down in June 2002. Additional revenue is
derived from on line leasing, and is recognized as the services are performed.
Revenue from direct marketing - Fees are earned from products and or services
are sold are only recognized as revenue upon receipt of those funds
Source: SAB 101
ADVERTISING EXPENSE
All advertising costs are expensed when incurred.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables. Monthly
Internet access fees and web hosting are generally billed to the customer's
credit card, thus reducing the credit risk. The Company routinely assesses the
financial strength of significant customers and this assessment, combined with
the large number and geographic diversity of its customers, limits the Company's
concentration of risk with respect to trade accounts receivable.
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach
where deferred income tax assets and liabilities reflect the future tax
consequences, based on enacted tax laws, of the temporary differences between
financial and tax reporting at the balance sheet date.
9
EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income (loss) by the
weighted average of common shares outstanding for the period. Diluted earnings
per share are computed by adjusting the weighted average number of shares
outstanding during the period for all potentially dilutive shares outstanding
during the period.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Investments and Hedging Activities. SFAS 133
establishes new model for accounting for derivatives and hedging activities and
supersedes several existing standards. SFAS 133, as mended by SFAS 137 and SFAS
138, is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company does not expect that the adoption of SFAS 133 will have a
material impact on its financial statements.
NOTE 2. BUSINESS COMBINATIONS
The Company's business combinations have been accounted for using the purchase
method, and, accordingly, the total purchase price of each acquired company was
allocated to the tangible assets and liabilities and identifiable intangible
assets based on their estimated fair values as of the closing date of the
acquisition. The excess purchase price over the fair values is recorded as
goodwill. Results of operations for the acquired companies are included
prospectively from the date of acquisition.
In December 2003 the Company acquired the assets of Debit Card Marketing Company
Enterprises, Inc for 60,000,000 shares of Global Debit Cash Card, Inc. a
subsidiary of the Company which included reduction of the note owed by the
Company to $515,000 and that debit transferred as an asset to Global Debit Cash
Card, Inc.
In August 2003 the Company acquired Alpha Tooling, Inc. with 190,000 shares of
DCM Enterprises, Inc stock. As per the agreement with DCM Enterprises, Inc the
Company transferred Alpha Tooling, Inc to DCM Enterprises, Inc for credit
towards the debit it has with DCM Enterprises, Inc. After October 1st 2003 the
transaction was changed by agreement to an Asset assignment. The Company
assigned certain assets of Alpha Tooling for credit of $311,639 which reduced
the debt owed to DCM Enterprises, Inc from $760,000 to $448,361. The Company
retained the Alpha Tooling Corporation which had assets of $42,050 (which were
not assigned to DCM Enterprises, Inc.), and debt of $351,306.
In June 2002 the Company announced the sale of Ace Optics to CRT Corporation for
$2,000,000 worth of CRT restricted stock (2,000,000 shares).
In June 2002 the Company announced that it plans to divest it self of the
Guarantee Capital Group subsidiary, and in anticipation of that occurrence
ceased operations of the on line mortgage lending group.
In February 2002 the Company announced that it plans to spin-off the Global
Construction Buying Group to its shareholders by the end of 2002.
In September 2001 the Company started Guarantee Capital Group, which acquired
the computer, furniture and processing equipment from the new owner of Atlas
Capital Corporation for $30,000. In November 2001 Guarantee Capital Group had
exceeded the capacity of its mortgage banking line. This prevented Guarantee
from funding the balance of its processed loans and subsequently in December
2001, 20 its 24 employees were laid off. The Company ceased the operation of
Guarantee before the end of June 2002.
In September 2001 the Company started a new marketing subsidiary 1st2 Market
Incorporation and ceased operating its predecessor Allstates Communications Inc.
The new subsidiary will only market the Company's products whereas Allstates
marketed cell phones for cellular phone companies.
In March 2001, IBII ceased to operate Global GPP Corporation and closed its
corresponding operation in Europe. The Company started a new corporation, which
is a wholly owned subsidiary, Global Construction Buying Group, whose main asset
is the equipment acquired from Global GPP Corporation.
10
In October 2000, IBII signed an acquisition agreement with Auction-Sales.Com.
The Company invested $180,000 in the Auction-Sales.Com and in December 2000
rescinded the acquisition due to undisclosed debts. The Company is currently
suing for the return of the funds and believes that if the Company prevails the
debt could be collected.
In October 2000, IBII acquired the auction web site operations of the Sonic
Auction Company for a purchase price of approximately $5,000. With this
acquisition, the Company acquired a database and a functioning web auction site.
The Company issued 500,000 shares of restricted common stock, to acquire Sonic
Auction Company. This site ceased operation in March of 2001.
During the quarter ended September 2000, the Company issued 4,113,871 of shares
of restricted common stock tock for service valued at $41,139.
In April 2000, IBII acquired the all the outstanding stock of Atlas Capital
Corporation, a mortgage-banking company, for 600,000 restricted common stock
valued at $6,000. In connection with the acquisition, the Company acquired
assets of approximately $3,183,000 and assumed liabilities of approximately
$3,179,000. The difference of $260,000 was recorded as intangible assets
related to acquisition of trade names, websites, and workforce-in-place and is
being amortized over 5 years. By end of August 2001 the company sold Atlas
Capital Corporation with its assets and liabilities.
In March 2000, the Company acquired the assets and assumed certain liabilities
of Internet 2xtreme, an Internet Service Provider based in northern California.
The total purchase price was $735,000, which consisted of cash of $17,635 and
124,589 shares of restricted common stock valued at $186,888. In connection
with the acquisition, the Company recorded intangible assets of approximately
$666,000, which consisted of approximately 4,800 customer accounts, website and
workforce-in-place, which are being amortized over 5 years.
In March 2000, the Company acquired 80% of the outstanding shares of Global GPP
for $500,000. Global GPP owns a business-to-business website, equipment and its
strategic agreements with IBM Hungary to market business-to-business services in
Eastern Europe.
In February 2000, the Company acquired the assets and assumed certain
liabilities of Direct Communications, Inc., a wireless communications company.
In addition to assuming certain liabilities, the Company paid cash of $80,000
and issued 30,000 shares of restricted company stock at valued at $300.
Intangible assets purchased totaled $265,000, consisting of customer's lists,
website and workforce-in-place and is being amortized over 5 years. These assets
and liabilities were transferred to the newly formed and wholly owned subsidiary
of the Company, Allstates Communications Inc.
In December 1999 the Company entered into a service agreement to market its
services on the Internet for 6,000,000 shares of common stock valued at $60,000.
In November 1999, the Company, acquired an E Commerce website Optical Brigade,
an on-line sunglass distribution website, for 5,050,) of restricted shares of
common stock valued at $50,500.
In August 1999, the Company acquired the website, Net 2 Loan, an on-line loan
processing website for 400,000 shares of restricted common stock valued at
$4,000.
In July 1999 the Company acquired MBM Capital Group for $72,000 and 112,667
shares of restricted common stock valued at $1,127. MBM was sold during the
fiscal year of acquisition for a $150,000 note. After the sale MBM ceased
operations and the Company considers the note valueless.
In June 1999, the Company acquired the assets of L.A. Internet, a southern
California-based Internet Service Provider, which included customer accounts,
trade name, websites, etc. for $545,000 in exchange for a reduction of the Note
Receivable from Iron Horse Holdings, Inc. (see Preferred Stock Note 8).
11
NOTE 3. CERTAIN FINANCIAL STATEMENT INFORMATION
DECEMBER 31, JUNE 30,
2003 2003
-------------- -------------
ACCOUNTS RECEIVABLE:
Accounts receivable $ 0 $ 0
Less: allowance for doubtful accounts . . . . . . . . 0 0
-------------- -------------
Accounts receivable, net $ 0 $ 0
============== =============
INVESTMENT IN UNCONSOLIDATED COMPANIES:
Stock of PMCC/GNVN $ 194,068 $ 194,068
Stock of CRT/DCM . . . . . . . . . . . . . . . . . . . 830,000 1,517,264
Stock Distribution DCM . . . . . . . . . . . . . . . . 0 (560,000)
Stock Purchase DCM . . . . . . . . . . . . . . . . . . 200,000 0
-------------- -------------
Total Long Term Investments . . . . . . . . . . . . $ 1,224,068 $ 957,264
============== =============
PROPERTY AND EQUIPMENT:
Office furniture and equipment $ 24,737 $ 47,999
Machinery and computer equipment . . . . . . . . . . . 3,014,223 3,136,393
Leasehold improvements . . . . . . . . . . . . . . . . 0 0
Less: accumulated depreciation. . . . . . . . . . . . (2,633,760) (2,243,462)
-------------- -------------
Property and equipment, net $ 405,200 $ 940,930
============== =============
INTANGIBLE ASSETS:
Capitalized software costs, including websites $ 1,270,156 $ 1,270,156
Subscriber member bases. . . . . . . . . . . . . . . . 1,148,307 1,148,307
Others, including customer lists, existing technology,
trade names 423,386 423,386
Less: accumulated amortization. . . . . . . . . . . . (2,742,405) (2,287,157)
-------------- -------------
Intangible assets, net $ 99,444 $ 554,692
============== =============
NOTE 4. REVOLVING LINES OF CREDIT
In January 2002 the Company had a credit facility with PCFS for $3,000,000
under specified conditions to fund residential mortgages to customers. The
residential loans serve as collateral, and funds are advanced up to 98% of the
unpaid principal amount of the qualified mortgage loan granted to the customer.
The credit facility bears interest at the Prime Rate plus 1.0% for loans
outstanding for 60 days or less. The interest rate increases to Prime Rate plus
4.0% for loans outstanding between 60 and 120 days, and increases to Prime Rate
plus 6.0% for amounts outstanding over 120 days. By May of 2002 this line was
not used and the agreement terminated.
On February 1, 2000, the Company entered into a Master Repurchase Agreement that
provides the Company with a warehouse facility through IMPAC Warehouse Lending
Group ("IMPAC"). The IMPAC line provides the Company with an open warehouse
credit line (as set forth by IMPAC) for the Company's mortgage originations
only. Under the terms of the agreement, the Company must repay the funded amount
within 30 days of the date the funds were disbursed with interest at the Prime
Rate plus 1.0%. If the funds are not repaid within 30 days, the interest rate
increases to Prime Rate plus 3.0% until repaid, and IMPAC reserves the right to
sell the loan and any shortfall remains the liability of the Company. The IMPAC
line is secured by the mortgage loans funded with the proceeds of such
borrowings. The IMPAC line does not have a stated expiration date but is
terminable by either party upon written notice. This agreement was terminated
in December of 2001. Amounts outstanding under the IMPAC line at June 30, 2002
and 2001 were $0 and $6,183,228 respectively.
In March 2001, the Company entered into a Master Repurchase Agreement that
provides the Company with a warehouse facility through Imperial Warehouse
Lending Group ("Imperial"). The Imperial line provides the Company with an open
warehouse credit line (as set forth by Imperial) for the Company's mortgage
12
originations only. Under the terms of the agreement, the Company must repay the
funded amount within 30 days of the date the funds were disbursed with interest
at the Prime Rate plus 1.0%. If the funds are not repaid within 30 days, the
interest rate increases to Prime Rate plus 3.0% until repaid, and Imperial
reserves the right to sell the loan and any shortfall remains the liability of
the Company. The Imperial line is secured by the mortgage loans funded with the
proceeds of such borrowings. The Imperial line does not have a stated
expiration date but is terminable by either party upon written notice. This
Line was terminated in July of 2001. Amounts outstanding under the IMPAC line at
June 30, 2002 and 2001 were $ 0 and $ 865,468 respectively.
The effective interest rate for the credit lines listed above were as follows
per quarter, the interest charge is deducted from the sale proceeds of the
funded loans and is booked as a cost of revenue;
Quarter Prime Rate Impac** Imperial* Number of Loans
Held over 30 Days
June 30, 2001. 6,75% 7.75% 7.75% 0
Sept. 30 2001. 6.00% 7.00% N/A 0
Dec. 31, 2001. 4.75% 5.75% N/A 0
March 31, 2002 4.75% N/A N/A 0
June 30, 2002. 4.75% N/A N/A 0
* Imperial line not in use after June 2001
** Impac line not in use after December 2001
In addition, the Company had a bank line of credit that provides for maximum
borrowings up to $125,000. The line of credit is personally secured by certain
officers of the Company, and currently bears interest at 11.5% at June 30, 2000
and is due on August 31, 2000. The outstanding balance against the line of
credit as of June 30, 2002 and 2001 were $ 0 and $ 0, respectively. The Company
paid off the line of credit line during the fiscal year ending June 30, 2001,
because it was no longer required.
All credit facilities and bank line of credit require the Company to maintain
certain financial ratios and adhere to specific non-financial requirements. At
June 30, 2002, the company was in compliance with the various covenants
contained in the above agreements.
NOTE 5. LONG-TERM DEBT
Long-term debt as of December 30, 2003 consists of the following:
Certain Company assets requiring monthly payments of interest secure certain of
the notes payable
and principal with various interest rates and due dates.
CURRENT PORTION DUE PAID UNPAID LONG-TERM TOTAL
-------------------- -------- -------- ---------- ----------
Previous 115,430 0 115,430 895,389 1,010,819
Interest 99,164 0 99,164 0 99,164
DCME . . 0 130,754 0 448,361 317,607
Global . 0 0 0 515,000 515,000
Alpha. . 0 2,760 0 351,306 348,546
-------------------- -------- -------- ---------- ----------
Total. . $ 214,594 $133,514 $214,594 $2,210,056 $2,291,136
==================== ======== ======== ========== ==========
The Current Portion represents the unpaid amount due which the company was
unable to pay.
The increase in the long term debt represent the debt due acquisitions made by
the Company.
13
During the fiscal year ended June 30, 2002 certain real estate loans defaulted.
The Companies subsidiary is making payment to the lender that purchased the
defaulted loans. These payments are made at the note rate for each loan. The
Company has filed claims with the Companies E&O Insurance carriers and until the
claims are either denied or paid the company lists these debts as long-term
debt. These notes total $844,933. Effective September 1, 2001 the Company sold
the subsidiary Atlas Capital and these liabilities are included in the sale.
NOTE 6. GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
company as a going concern. The Company has experienced significant losses. As
of December 31, 2003 the currently liabilities exceed current assets by
$1,293,923. As shown in the financial statements, the Company incurred a net
loss of $744,374 for the second quarter of fiscal year ended June 30, 2004.
The future success of the Company is likely dependent on its ability to attain
additional capital to develop its proposed products and ultimately, upon its
ability to attain future profitable operations. There can be no assurance that
the Company will be successful in obtaining such financing, or that it will
attain positive cash flow from operations.
NOTE 7. EXTRAORDINARY ITEM
The California Code of Civil Procedure Section 337 states; "Within 4 years
(four), an action upon any contract, obligation or liability founded upon a
written statement or written contract." The debts of company's (see Note 1)
identified were greater then 4 years old and not enforceable. Legal counsel
Edgar Scheck reviewed the debts and issued and opinion letter that the prior
company's debts were not collectable based upon this Code Section 337. The
Company then extinguished these debts and recognized amount of the debt as
extraordinary income. SFAS 125 list 2 sets of circumstance under which a
liability is not recognized (which is listed below). The second set of
circumstance states the GAAP basis for which the Company extinguished the debt
and recognized the debt amount as extraordinary income in the fiscal year ended
June 30, 1999.
Per SFAS 125, defeasance does not result in the extinguishments of a liability.
A liability is derecognized only if:
1. The creditor is paid and the debtor is relieved of the obligation.
2. The debtor is released legally either by the creditor or judicially from
being the primary obligor.
All gains and losses from extinguishments, if material in amount, receive
extraordinary item treatment.
NOTE 8. STOCKHOLDERS' EQUITY
AUTHORIZED SHARES
During April 2003 the board of directors amended the articles of incorporation
to increase the authorized to 2,000,000,000 shares of which 1,990,000,000 are
common shares and 10,000,000 are preferred.
During November 2000, the board of directors of the Company amended the articles
of incorporation to increase the number of authorized shares of common stock to
349,000,000 shares.
STOCK ISSUANCE
For the quarterly period ended December 31, 2003, the following stock was
issued:
170,000,000 shares of common stock were issued as payment to consultants in lieu
of cash for services provided pursuant to consulting agreements. The fair value
of the shares was recorded as prepaid professional services and amortized
ratably over the term of the contract. These shares were issued pursuant to a
Form S-8 registration statement
200,000,000 shares of restricted common stock were issued as per agreement to
repurchase of 200,000 shares of DCM.
The company complies with the provisions of Emerging Issues Task Force ("EITF")
Issue No. 96-18, Accounting for Equity Instruments Issued to Other Than
Employees for Acquiring, or in Conjunction with, Selling Goods or Services
14
("EITF 96-18"), with respect to stock issuances to such non-employees, whereby
the value of the services was determined as a reliable measurement of fair
value.
Stock Issuance for acquisitions see Note 3. Business Combination.
PREFERRED STOCK
On September 24, 2003, the following Preferred Stock was issued to Mercatus and
placed in escrow with stop on the Stock at the transfer agent if the Mercatus
loan funds the shares will be considered issued and outstanding and will be
included in the financial information. As of the date of this filing, the
Company has decided to request the return of the shares from the escrow, cancel
the shares and return them to the treasury.
NOTE 9. INCOME TAXES
The provision for income taxes for the years ended June 30, 2004 and 2003
consist of the following (there were no provision for income taxes on the
financials due to the net loss carry forward from the previous year's
operations):
JUNE 30, JUNE 30,
2004 2003
--------- ---------
Current income tax expense:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
--------- ---------
0 0
--------- ---------
Deferred income tax expense:
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
--------- ---------
0 0
--------- ---------
$ 0 $ 0
========= =========
Amounts for deferred income tax assets and liabilities as follows:
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . 0 0
--------- ---------
0 0
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
--------- ---------
Net tax asset or liability . . . . . . . . . . . . . . . . . . . . $ 0 $ 0
========= =========
Deferred income tax assets consist primarily of net operating loss carry
forwards. The Company has provided for a full valuation allowance on the
deferred income tax assets as the realization of such benefits are uncertain.
Such carry forwards begin to expire beginning in 2004.
For the year ended June 30, 1999, the Company excluded the forgiveness of debt
income from taxable income pursuant to Internal Revenue Code Section
108(A)(1)(B) and 108(B).
10. COMMITMENTS
The Company rents its current office in Las Vegas, Nevada, and the Company has
vacated its prior offices.
2250 E. Tropicana Ave. Suite 19-309, Las Vegas, Nevada 89119
15
NOTE 11. SEGMENT INFORMATION
In accordance with SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," management has determined that there are three reportable
segments based on the customers served by each segment: Full service internet
service provider (ISP), mortgage banking business (which ceased operation in
June 2002), and business-to-consumer ("B2C") provider (which ceased operations
during fiscal year ended June 2003). Such determination was based on the level
at which executive management reviews the results of operations in order to make
decisions regarding performance assessment and resource allocation.
Full service Internet service provider serves customers requiring Internet
access in the western United States through dial-up, and high-speed wireless;
web hosting and web design (which ceased operations as of June 30, 2003).
Mortgage banking business includes online mortgage loan origination, processing,
servicing and resales, (which ceased operations in June 2002).
Business-to-consumer provider primarily consists of cellular phone service
origination fees and sales (which ceased operation as of June 30, 2003).
Certain general expenses related to advertising and marketing, information
systems, finance and administrative groups are not allocated to the operating
segments and are included in "other" in he reconciliation of operating income
reported below. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies (see Note 2).
Information on reportable segments is as follows:
The Company has equipment at several co-location facilities that will be
relocated once the facilities are paid current.
SECOND QUARTER ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
-------------- --------------
FULL-SERVICE ISP
NET SALES $ 0 $ 550,554
OPERATING INCOME $ (551,446) $ (844,653)
MARKETING (B-TO-B/C)
NET SALES $ 0 $ 1,688
OPERATING INCOME $ 0 $ (36,105)
OTHER
NET INCOME $ 118,405 $ 120,000
UNALLOCATED EXPENSE $ (2,178,154) $ (1,525,890)
TOTAL
NET SALES $ 0 $ 672,242
OPERATING INCOME $ (2,729,600) $ (2,406,648)
At the end of fiscal year ended June 30, 2003 management decided to close down
the Marketing segment of the Company. The debts of the subsidiary were
incorporated into the parent Company and the debt owed to the parent Company of
$1,259,236 was written off this quarter.
NOTE 12. OTHER EVENTS
A. COMPANY ACQUISITION
In December 2003 the Company acquired the assets of Debit Card Marketing Company
Enterprises, Inc for 60,000,000 shares of Global Debit Cash Card, Inc. a
subsidiary of the Company which included reduction of the note owed by the
Company to $515,000 and that debit transferred as an asset to Global Debit Cash
Card, Inc.
16
In August 2003 the Company acquired Alpha Tooling, Inc. with 190,000 shares of
DCM Enterprises, Inc stock. As per the agreement with DCM Enterprises, Inc the
Company transferred Alpha Tooling, Inc to DCM Enterprises, Inc for credit
towards the debit it has with DCM Enterprises, Inc. After October 1st 2003 the
transaction was changed by agreement to an Asset assignment. The Company
assigned certain assets of Alpha Tooling for credit of $311,639 which reduced
the debt owed to DCM Enterprises, Inc from $760,000 to $448,361. The Company
retained the Alpha Tooling Corporation which had assets of $42,050 (which were
not assigned to DCM Enterprises, Inc.), and debt of $351,306.
B. MARKETING AGREEMENT
In December 2003 Global Debit Cash Card, Inc a subsidiary of the Company
acquired the assets of Debit Card Marketing Company Enterprises, Inc for
60,000,000 shares of Global Debit Cash Card, Inc. which included reduction of
the note owed by the Company to $515,000 and that debit transferred as an asset
to Global Debit Cash Card, IncGlobl Debit Cash Card, Inc. is traded over the
counter (OTC) on the Pink Sheets LLC quotation service under the symbol "GLCD".
This changed the September 2003 agreement that is listed below
In September 2003 the Company through its wholly owned subsidiary Global Debit
Cash Card, Inc, a Nevada Corporation (GLCD) agreed to purchase from DCM the
following territories of COLORADO AND UTAH for marketing the CARDS as per this
Agreement. This will allow GLCD to be the TMR in those territories specified and
to license resellers of the CARDS. The Licensed Activated Resellers (LAR) will
be licensed through GLCD the TMR.
C. STOCK REPURCHASE
In December 2003 the Company reacquired 200,000 shares of DCME for 200,000,000
restricted shares of IBII.
The stock repurchase agreement was modified allow an additional 200,000 of DCME
to be repurchased by IBII.
In September 2003 the Company agreed to reacquire the 149,283 shares previously
sold to the investor. The agreement provides for the issuance of 560,000 shares
of DCM Enterprises ("DCME") common stock in addition to 40,000,000 shares of
restricted common stock the Company. The agreement also allows the Company to
purchase from the investor 200,000 shares of the 560,0000 shares of DCME based
upon the following terms per quarter; 40,000 shares of DCME for 40,000,000
shares of restricted common stock of the Company. This agreement to purchase the
200,000 shares of DCME is only in effect until such time that DCME becomes
trading.
D. AGREEMENT BETWEEN THE COMPANY AND DCM ENTERPRISE,
In October 2003 after August 2003 acquisition of Alpha Tooling, Inc. with
190,000 shares of DCM Enterprises, Inc stock. As per the agreement with DCM
Enterprises, Inc the Company initially transferred Alpha Tooling, Inc to DCM
Enterprises, Inc, for credit of the debit it has with DCM Enterprises, Inc.
After October 1st 2003 the transaction was changed by agreement to an Asset
assignment. The Company assigned certain assets of Alpha Tooling for credit of
$311,639 which reduced the debt owed to DCM Enterprises, Inc from $760,000 to
$448,361.
In August 2003 the Company agreed to provide the Buyer of Ace Optics an
alternative company from or return the stock of the Buyer since Ace Optics
ceased operations immediately after the acquisitions of it by Buyer. In lieu of
an alternative Company the Buyer and Seller agree that the balance of the DCME
stock received by the Seller will be returned to the Buyer. Subsequently the
Company acquired and then sold to DCME Alpha Tooling.
E. DIVIDEND
On June 17 2002, the Company announced the sale of Aces Optics to CRT Corp. for
2,000,000 shares of CRT restricted stock valued at $1.00 a share, the dividend
was to be based on one share of CRT Corp. per 100 shares of post reverse shares
of the Company. On July 8 the Company announced that the record date of July
17, 2002 for the shares holders to receive the dividend. On July 18, 2002 the
Company announced the date of distributions to be August 30, 2002. By September
15, the Transfer agent was work with DTC to complete the issuance of the divided
CRT Corp. restricted to its shareholders.
17
F. RTRN
In June 2001 the Company announced that an agreement of merger and share
exchange was executed by and among Return Assured Incorporated, a Delaware
corporation ("RAI"), IBUI Acquisition Corp., a Nevada corporation (the "Merger
Subsidiary" and together with RAI, the "RAI Parties"), and Internet Business's
International, Inc., a Nevada corporation ("IBUI"). The merger was to be
completed before January of 2002. All parties to the agreement mutually canceled
failing the completions of merger the agreement within the time frame agreed to
the agreement.
G. PMCC
On August 2, 2000, the Company announced that it has entered into an agreement
whereby the Company would purchase 2,460,000 share of PMCC Financial Corp.
("PMCC"), a full-service mortgage banking company, common stock from PMCC's
former chairman of the board, Ronald Friedman, and The Ronald Friedman 1997
Grantor Retained Annuity Trust Ronald Friedman, which represents 66.36% of the
3,707,000 PMCC shares outstanding. The aggregate purchase price of $3,198,000
is to be paid in cash to the seller by the Company as follows: $700,000 at date
of closing; $306,857 for each of the seven installment payments to be paid on
the 30th, 60th, 90th, 120th, 150th, 180th and 210th days following the close;
$175,000 on each of the 240th and 270th day after the date of the closing.
Shares of PMCC, a listed AMEX company, were not trading at the time of the
agreement. In the event that three months after closing, if PMCC's shares are
not actively trading on the AMEX or NASDQ exchanges and the Company has not
merged PMCC with the Company or any of the Company's subsidiaries, the purchase
price shall be reduced by the amount of the final two $175,000 payments.
Also on July 28, 2000, in a separate transaction, the Company entered into a
stock purchase agreement with an unrelated individual whereby the Company would
sell up to 370,000 of PMCC shares that the Company either owns or will
eventually own, for total consideration of $1,387,500. Shares of PMCC stock
sold by the Company will be released to the buyer in proportion to payments
received.
The Company on March 2, 2001 filed an action against Ronald Friedman and The
Ronald Friedman 1997 Grantor Retained Annuity Trust in Federal Court, in Orange
County, California for rescission of the purchase of the PMCC stock agreement
and return of $1,006,857 paid by the Company. On August 16, 2001 Ronald
Friedman, Robert Friedman, and The Ronald Friedman 1997 Grantor Retained Annuity
Trust filed an action against the Company for the balance of the price under the
contract in the amount of $2,191,143. This action was filed in the U.S. District
Court for the Southern District of New York. In February 2002 the New York case
was transferred to California and consolidated with the case filed by the
Company in Orange County, CA. The Company feels that it will prevail in this
action.
As of December 31, 2000, the Company received payments of $559,812 and the
Company released 149,283 shares of PMCC stock that it owned. If PMCC is not
actively trading within six months of the agreement, the Company will issue to
the Buyer the equivalent number of shares of stock of the Company. PMCC has
been actively trading as of January 19, 2001, and the gain on the sale of the
PMCC stock of $410,529 has been included in revenues for the period ending
December 31,2000.
In January 2001, the PMCC was delisted from the American Stock Exchange and
began trading on the Pink Sheets under the symbol of "PMCF"; this met the
trading requirement as per the stock sale agreement the Company had entered into
with an unrelated individual during the first quarter of this fiscal year.
H. IBC
On August 11, 2000, the Company entered into an agreement to acquire all of the
outstanding shares of International Business Co., a software developer that
streamlines B2B e-commerce, in exchange for 2,000,000 shares of restricted
Company shares to be held in escrow. Between the periods from September 1, 2000
through March 1, 2001, the Company can unilaterally cancel the contract if
dissatisfied with the seller's performance. The Company canceled the purchase
during the cancellation period agreed in the escrow.
18
I. AUCTION-SALES.COM, INC.
On October 19, 2000, the Company entered into a Stock Purchase Agreement with
Auction-Sales.Com, Inc. and its majority shareholder, Zahid Rafiq (collectively,
"Seller"), for the purchase by the Registrant of 96.62% of the outstanding and
treasury shares of common stock of Auction-Sales.Com, Inc., a Delaware
corporation. In exchange for the shares, the Company was to pay, under the
terms of the agreement, 11,000,000 shares of Company's common stock to Seller
for all of Seller's Shares. After investing $180,000 for marketing the Company
discovered that Auction-Sales had undisclosed liabilities and that Auction-Sales
was not in compliance with California law regarding delivery of product paid for
but not delivered to customers.
This acquisition was rescinded in December 2000 and the necessary documents were
filed with the SEC. The site was retained until the funds invested into
Auction-Sales.Com are returned which at this time management has expectations of
occurring.
NOTE 13. OTHER AGREEMENTS
A. WASHINGTON STATE HOTEL AND MOTEL ASSOCIATION.
The agreement, entered into in the ordinary course of business, with the
Washington State Hotel and Motel Association, dated October 4, 2000, provides
the use of the GGPP reverse auction site as a platform for hotel association
members purchasing products needed for their different hotel properties. This
method of purchasing allows the suppliers of products the chance to sell
products to the buyers in competition with one another; the net effect is that
the buyers would select the supplier with the lowest per unit cost. This
reduces the cost of supplies and thereby should increase their potential of
profit. This agreement covers the modification of the GGPP website for use by
the Association, and does not involve any payment by the Company. By the end of
the fiscal year ended June 2002, this program generated no revenue and the
Company has ceased to offer this service.
B. JWC CONSTRUCTION
The agreement, entered into in the ordinary course of business, with the JWC
Construction Company of Poland, dated March 9, 2001 which will enable companies
to list their purchasing requirements on projects using the reverse auction
platform. This method of purchasing allows the suppliers of products the chance
to sell products to the buyers in competition with one another; the net effect
is that the buyers would select the supplier with the lowest per unit cost.
This reduces the cost of supplies and thereby should increase their potential of
profit. This agreement covers the modification of the Construction Buying Group
website for by the Construction industry, and does not involve any payment by
the Company. By the end of June 2002, the Company canceled this agreement due to
lack of activity of JWC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements of the Company and notes thereto contained elsewhere in this report.
CURRENT OPERATIONS
The Company currently has less the 5 employees and one office, the Company is
currently not in operations.
The Company rents its current office in Las Vegas, Nevada, and the Company has
vacated its prior offices.
2250 E. Tropicana Ave. Suite 19-309, Las Vegas, Nevada 89119
The Company has equipment at several co-location facilities that will be
relocated once the facilities are paid current.
19
RESULTS OF OPERATIONS - COMPARISON OF QUARTER ENDED DECEMBER 31, 2003 TO QUARTER
ENDED DECEMBER 31, 2002.
(A) OVERALL
There was no revenue for the three months and six months ended December 31,
2003, during prior three months and six months ended December 31, 2002 the
Company still had operating subsidiaries with revenue of $383,905 and $672,242
respectively.
Operating, sales, general and administrative expenses were reduced for the same
periods December 2003 of $77,000 and $352,578 as compared to December 2002 of
$661,157 and $1,415,442 respectively. The main reason for this decrease is due
to the closing down of the operations there by reducing the expenses.
The resulting loss for the three months and six months periods ended December
31, 2003 of ($744,374) and ($2,729,600) when compared to the losses of
($1,512,207) and ($2,406,648) reported for the three months and six months
periods ended December 31, 2002 were comparable to each other by end of the
sixth month. The losses of 2003 were primarily due to the closing down of the
Company writing off the amounts due from each segment.
(B) COMPARISON BY SEGMENT
Management determined that there were three reportable segments for the prior
quarter ended December 31, 2002. However for this quarter ended December 31,
2003 there are only two reportable segments for the Company. These are as
follows: Internet service provider (ISP); and Corporate (Other).
Information on reportable segments is as follows:
SECOND QUARTER ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
-------------- --------------
FULL-SERVICE ISP
NET SALES. . . . . . $ 0 $ 550,554
OPERATING INCOME . . $ (551,446) $ (844,653)
MARKETING (B-TO-B/C)
NET SALES. . . . . . $ 0 $ 1,688
OPERATING INCOME . . $ 0 $ (36,105)
OTHER
NET INCOME . . . . . $ 118,405 $ 120,000
UNALLOCATED EXPENSE. $ (2,178,154) $ (1,525,890)
TOTAL
NET SALES. . . . . . $ 0 $ 672,242
OPERATING INCOME . . $ (2,729,600) $ (2,406,648)
ISP: The results for the ISP segment for the second quarter ended December
31, 2003 did not recored revenue for this quarter. The ISP ceased operations
during the previous fiscal year. Until such time the ISP restarts operations and
reacquires the equipment that it has at the co-locations there will be no
comparison of this segments operations per quarter.
20
MARKETING: Marketing ceased operations during fiscal year ended June 30
2003 and since there were no plans to restart the operations there will not be
segment comparison of the quarters.
OTHER: Revenues generated represent the net from the sale of depreciated
equipment and customer lists. Since there are no expectation that furthers sales
will occur and that the revenues from previous operation are dissimilar there
will be no comparison of the quarters. Beside depreciation and amortization for
the Quarter, with the closing of the divisions represented the largest expense
for the quarters.
LIQUIDITY AND CAPITAL RESOURCES.
Net cash provided by the operations of the Company remained constant since there
were revenue from operations. Since the Company is not in operations the only
liquidity for the Company would come from the sale of its assets.
CAPITAL EXPENDITURES.
Other than as set forth below, no material capital expenditures were made during
the quarter ended on December 31, 2003.
ACQUISITIONS
The following acquisitions were made during the quarter ended December 31, 2003.
In December 2003 Global Debit Cash Card, Inc a subsidiary of the Company
acquired the assets of Debit Card Marketing Company Enterprises, Inc for
60,000,000 shares of Global Debit Cash Card, Inc. which included reduction of
the note owed by the Company to $515,000 and that debit transferred as an asset
to Global Debit Cash Card, Inc. Globl Debit Cash Card, Inc. is traded over the
counter (OTC) on the Pink Sheets LLC quotation service under the symbol "GLCD".
This changed the September 2003 agreement that is listed below
In September 2003 the Company through its wholly owned subsidiary Global Debit
Cash Card, Inc, a Nevada Corporation (GLCD) agreed to purchase from DCM the
following territories of COLORADO AND UTAH for marketing the CARDS as per this
Agreement. This will allow GLCD to be the TMR in those territories specified and
to license resellers of the CARDS. The Licensed Activated Resellers (LAR) will
be licensed through GLCD the TMR.
In August 2003 the Company acquired Alpha Tooling, Inc. with 190,000 shares of
DCM Enterprises, Inc stock. As per the agreement with DCM Enterprises, Inc the
Company transferred Alpha Tooling, Inc to DCM Entreptrises, Inc. for credit
towards the debit it has with DCM Enterprises, Inc. After October 1st 2003 the
transaction was changed by agreement to an Asset assignment. The Company
assigned certain assets of Alpha Tooling for credit of $311,639 which reduced
the debt owed to DCM Enterprises, Inc from $760,000 to $448,361. The Company
retained the Alpha Tooling Corporation which had assets of $42,050 (which were
not assigned to DCM Enterprises, Inc.), and debt of $351,306.
FORWARD LOOKING STATEMENTS
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains "forward looking statements" within the
meaning of Rule 175 under the Securities Act of 1933, as amended, and Rule 3b-6
under the Securities Act of 1934, as amended, including statements regarding,
21
among other items, the Company's business strategies, continued growth in the
Company's markets, projections, and anticipated trends in the Company's business
and the industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company's control. The Company
cautions that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the forward
looking statements, including, among others, the following: reduced or lack of
increase in demand for the Company's products, competitive pricing pressures,
changes in the market price of ingredients used in the Company's products and
the level of expenses incurred in the Company's operations. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained herein will in fact transpire or prove to be accurate.
The Company disclaims any intent or obligation to update "forward looking
statements."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section has not been updated relative to market risk because the Mortgage
Banking Division ceased operation during the previous fiscal year ended June 30,
2002. This division may become operational if additional funds are available for
the Company.
Market risk generally represents the risk of loss that may result from the
potential change in the value of a financial instrument due to fluctuations in
interest rates. Market risk is inherent to both derivative and non-derivative
financial instruments, and accordingly, the scope of the Company's market risk
management includes all market risk sensitive financial instruments.
The Company uses several tools and risk management strategies to monitor and
address interest rate risk. Such tools allow the Company to monitor and
evaluate its exposure to these risks and to manage the risk profile of its
residual interest portfolio in response to changes in the market risk.
The Company measured the sensitivity of the current value of cost of funds
(Prime Rate plus 1.5%) to changes in the mortgage interest rate (bond market
plus 1.5%) that the Company charges on funded loans, which is reflected with
changes in interest rates. The difference in the cost of funds versus the rate
at which the Company funded the mortgage loans could have benefited the company
because the cost of funds was less the mortgage interest rate. The Company could
have lost money if the cost of funds was more than the mortgage interest rate.
The following table summarizes the sensitivity analysis of change in the fair
value of our cost of funds as compared to the residual interests as of December
31, 2001 and March 31, 2002:
CHANGE IN FAIR VALUE AS OF:
DECEMBER, 31, 2001 MARCH 31, 2002
Prime Rate. . . . . . . . 4.750% 4.750%
Our Cost of Funds . . . . 1.500% 1.500%
Total. . . . . . . . . . 6.250% 6.250%
Bond Market . . . . . . . 4.900% 5.100%
Consumer Cost of Funds. . 1.500% 1.500%
Total . . . . . . . . . . 6.400% 6.600%
Net Impact Benefit (Loss) 0.150% (0.350)%
Consumer Cost of Funds. . 1.500% 1.500%
Total . . . . . . . . . . 6.400% 6.075%
Net Impact Benefit (Loss) 0.150% (1.425)%
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ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Registrant carried out an evaluation of the effectiveness of the design and
operation of its disclosure controls and procedures pursuant to Rule 13a-14
under the Securities and Exchange Act of 1934 ("Exchange Act"). This evaluation
was done under the supervision and with the participation of the Registrant's
President and Chief Financial Officer. Based upon that evaluation, they
concluded that the Registrant's disclosure controls and procedures are effective
in gathering, analyzing and disclosing information needed to satisfy the
Registrant's disclosure obligations under the Exchange Act.
(b) Changes in internal controls.
There were no significant changes in the Registrant's internal controls or in
its factors that could significantly affect those controls since the most recent
evaluation of such controls.
PART II.
ITEM 1. LEGAL PROCEEDINGS.
On January 22, 2002, Plaintiff Kathryn Kicklighter filed a complaint in Yolo
County Superior Court against the Company alleging breach of contract. The
parties entered in a settlement agreement at a settlement conference held on
July 15, 2003. On August 28, 2003, Plaintiff requested entry of court judgment
against the Company. In September 2003, a judgment was entered against the
Company in the amount of approximately $500,000.
In December 2002, Globalist Internet Technologies, Inc. filed a lawsuit against
the Company and Albert Reda personally, alleging breach of contract. The
Company defended this matter vigorously although Globalist ultimately prevailed
and a judgment in the amount of $350,000 was entered. The Company has appealed
the decision.
In March 2001, the Company sued Ronald Friedman et al. for breach of contract,
recission based on mistake and recission based on fraud. The Company had
purchase PMCC stock for $1,006,857 and sued for return of the money. At the
time of this filing the parties, were discussing a possible settlement of this
matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The Company issued 170,000,000 shares of S-8 stock for services rendered to the
Company during the quarter ended December 31, 2003.
The Company issued 200,000,000 shares of restricted stock as per stock
repurchase agreement during this quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS ON FORM 8-K.
Four reports on Form 8-K were filed during the quarter covered by this Form
10-QSB.
September 9, 2003 Item 5 Disclosure wherein Registrant disclosed an
agreement to sell shares of PMCC
September 9, 2003 Item 5 Disclosure wherein Registrant disclosed agreement
with DCM Enterprises, Inc.
October 10, 2003 Item 5 Disclosure wherein Registrant disclosed USA
Territory Marketing Agreement with Debit Card Marketing
Company, Inc.
December 11, 2003 Item 5 Disclosure wherein Registrant disclosed agreement
with Global Debit Cash Card.
EXHIBITS.
Exhibits included or incorporated by reference herein are set forth in the
Exhibit Index.
EXHIBIT INDEX
Number Description
------ ---------
2.1 Agreement and Plan of Merger between the Company and Internet Business's
International, Inc., a Delaware corporation, dated July 1, 1999
(incorporated by reference to Exhibit 2 to the Form 8-K/A filed on
November 22, 1999)
2.2 Agreement and Plan of Merger and Share Exchange among the Company,
Return Assured Incorporated, and IBUI Acquisition Corporation, dated
June 4, 2001 (see below).
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
the Form 10-Q filed on December 1, 1999).
3.2 Certificate of Amendment of Articles of Incorporation (incorporated by
reference to Exhibit 3.2 to the Form 10-Q filed on December 1, 1999).
3.3 Certificate of Amendment of Articles of Incorporation (incorporated by
reference to Exhibit 3.3 of the Form 10-Q filed on May 22, 2000).
3.4 Certificate of Amendment of Articles of Incorporation (incorporated by
reference to Exhibit 3.4 of the Form 10-Q filed on May 22, 2000).
3.5 Bylaws (incorporated by reference to Exhibit 3.3 to the Form 10-Q filed
on December 1, 1999).
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4.1 Retainer Stock Plan for Non-Employee Directors and Consultants, dated
October 1, 1999 (incorporated by reference to Exhibit 4.1 to Form S-8
filed on October 8, 1999)
4.2 Consulting Agreement between the Company and Mark Crist, dated October
5, 1999 (incorporated by reference to Exhibit 4.2 to Form S-8 filed on
October 8, 1999)
10.1 Purchase Agreement (LA Internet) between the Company and Iron Horse
Holdings, Incorporated, dated June 10, 1999 (incorporated by reference
to Exhibit 10.2 to the Form 10-Q filed on December 1, 1999).
10.2 Purchase Agreement between the Company and the Stockholders of MBM
Capital Group Inc., dated July 1, 1999 (incorporated by reference to
Exhibit 10.3 to the Form 10-Q filed on December 1, 1999).
10.3 Acquisition Agreement (Net 2 Loan) between the Company and Lifestyle
Mortgage Partners dated September 15, 1999 (incorporated by reference
to Exhibit 10.4 to the Form 10-Q filed on February 22, 2000).
10.4 Purchase Agreement (license) between the Company and Stockholders of
California Land & Home Sale, Inc., dated October 1, 1999 (incorporated
by reference to Exhibit 10.5 to the Form 10-Q filed on February 22,
2000).
10.5 Acquisition Agreement (Optical Brigade) between the Company and Wade
Whitley dated November 1, 1999 (incorporated by reference to Exhibit
10.6 to the Form 10-Q filed on February 22, 2000).
10.6 Employment Agreement between the Company and Al Reda dated January 1,
2000 (see below).
10.7 Employment Agreement between the Company and Louis Cherry dated January
1, 2000 (see below).
10.8 Agreement for Acquisition between the Company and Direct
Communications, Inc., dated February 25, 2000 (incorporated by
reference to Exhibit 10.6 of the Form 10-Q filed on May 22, 2000).
10.9 Agreement between the Company and Internet 2xtreme dated March 6, 2000
(incorporated by reference to Exhibit 10.7 of the Form 10-Q filed on
May 22, 2000).
10.10 Agreement between the Company, Roanoke Technology Corp., and Global
GPP Corp., dated March 21, 2000 (incorporated by reference to Exhibit
10.8 of the Form 10-Q filed on May 22, 2000).
10.11 Agreement between GPP Hungary Kft and Haitec Magyarorazagi Kft, dated
March 30, 2000 (incorporated by reference to Exhibit 10.9 of the Form
10-Q filed on May 22, 2000).
10.12 Stock Purchase Agreement between the Company and Atlas Capital
Corporation dated April 1, 2000 (incorporated by reference to Exhibit
10.10 to the Form 10-K filed on September 27, 2000).
10.13 Stock Purchase Agreement between the Company and Ronald Friedman,
Robert Friedman, and The Ronald Friedman 1997 Grantor Retained Annuity
Trust, dated July 28, 2000 (incorporated by reference to Exhibit 10.11
of the Form 10-Q filed on November 16, 2000).
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10.14 Stock Sales Agreement between the Company and a buyer dated July 28,
2000 (incorporated by reference to Exhibit 10.12 of the Form 10-Q
filed on November 16, 2000).
10.15 Stock Purchase Agreement between the Company, International Business
Company, Dennis B. Ginther, Clifford J. Roebuck, Jadwiga L. Ginther,
and Bogumila E. Basu , dated August 19, 2000 (incorporated by
reference to Exhibit 10.13 of the Form 10-Q filed on November 16,
2000).
10.16 Stock Purchase Agreement between the Company, Sonic Auction.com, Inc.,
and Brian Pruett, dated October 5, 2000 (incorporated by reference to
Exhibit 10.14 of the Form 10-Q filed on February 15, 2001).
10.17 Stock Purchase Agreement between the Company, Auction-Sales.Com, Inc.,
and Zahid Rafiq, dated October 19, 2000 (incorporated by reference to
Exhibit 10.15 of the Form 10-Q filed on February 15, 2001).
21 Subsidiaries of the Company (incorporated by reference to Exhibit 21 of
the Form 0-Q filed on February 15, 2001).
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith)
32 Certification Pursuant to 18 U.S. C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes Oxley Act of 2002 (filed
herewith)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INTERNET BUSINESS'S INTERNATIONAL, INC.
/s/ Albert R. Reda
---------------------
Albert R. Reda
Chief Executive Officer, Secretary
Dated: February 20, 2003
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