U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
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.
(Exact name of small business issuer as specified in its charter)
NEVADA 33-0845463
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
10120 S. EASTER AVENUE, #200
HENDERSON, NEVADA 89052
(Address of Principal Executive Offices)
(775) 588-2387
(Issuer's telephone number)
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) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: 1,018,664,410 shares of common
stock, $0.001 par value, as of March 31, 2004.
INTERNET BUSINESS'S INTERNATIONAL, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2004
TABLE OF CONTENTS
PART I. CONDENSED CONSOLIDATED FINANCIAL INFORMATION
PAGE
----
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2004 and June 30, 2003 3
Condensed Consolidated Statements of Operations
Nine months ended March 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows
Nine months ended March 31, 2004 and 2003 5
Notes to Condensed Consolidated Financial Statements 6-19
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 20-23
Item 3 Controls and Procedures 23
PART II OTHER INFORMATION *
Item 1 Legal Proceedings 24
Item 2 Changes in securities 24
Item 3 Defaults Upon Senior Securities 24
Item 4 Submission of Matters to a Vote of Security Holders 24
Item 5 Other Information 24
Item 6 Exhibits and reports of Form 8-K 25
Signatures 25
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Internet Business's International, Inc.
and subsidiaries (collectively, the "Company"), included herein were prepared,
without audit, pursuant to rules and regulations of the Securities and Exchange
Commission. Because certain information and notes normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America were condensed or omitted pursuant to
such rules and regulations, these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
audited financial statements of the Company as included in the Company's Form
10-KSB for the year ended June 30, 2003.
2
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2004 2003
------------ -----------
(unaudited)
ASSETS
Current Assets
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,233 $ 1,389
------------ -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . . 2,233 1,389
Property and equipment, net (Note 3) . . . . . . . . . . . . . . . . . 51,477 940,930
Intangible assets, net (Note 3). . . . . . . . . . . . . . . . . . . . 85,198 554,692
Investment in unconsolidated company (Note 3). . . . . . . . . . . . . 1,078,243 1,151,332
------------ -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . $ 1,217,151 $2,648,343
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 542,557 $ 403,821
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 783,370 783,370
Current portion of long-term debt . . . . . . . . . . . . . . . . 214,594 115,430
------------ -----------
Total Current Liabilities. . . . . . . . . . . . . . . . . . 1,540,521 1,302,621
Long term debt, less current maturities. . . . . . . . . . . . . . . . 2,031,687 976,469
Commitments and contingencies
Stockholders' Equity (Deficit)
Preferred stock 10,000,000 shares authorized at $0.001 par value;
1,029,231 and 0 issued and outstanding at March 31, 2004 and June
30, 2003, respectively. *. . . . . . . . . . . . . . . . . . . . . 1,029 -
Common stock, 2,000,000,000 shares authorized at $0.001
par value; issued and outstanding 1,018,664,410 at March
31, 2004 and 178,273,603 at June 30, 2003. . . . . . . . . . . . . 1,018,665 178,274
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 6,918,576 6,918,576
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (10,293,327) (6,727,597)
------------ -----------
Stockholders' Equity (Deficit) . . . . . . . . . . . . . . . (2,355,057) 369,253
------------ -----------
Total Liabilities and Stockholders' Equity . . . . . . . . . $ 1,217,151 $2,648,343
============ ===========
* As of the date of this filing, 1,029,231 shares of preferred stock
remain in escrow pursuant to the Collateral Loan Agreement entered into between
the Issuer and Mercatus Partners Limited, on or about March 31, 2003.
SEE NOTES TO FINANCIAL STATEMENTS
3
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Sales revenues . . . . . . . . . . . . . . . $ - $ 106,632 $ - $ 778,874
Cost of sales. . . . . . . . . . . . . . . . - 22,500 - 45,000
------------ ------------ ------------ ------------
Gross profit . . . . . . . . . . . . . . . . - 84,132 - 733,874
Selling, general and administrative expenses 283,649 867,205 632,227 2,282,647
Depreciation and amortization. . . . . . . . 320,752 382,764 1,166,943 1,540,976
------------ ------------ ------------ ------------
604,401 1,249,969 1,799,170 3,823,623
Loss from operations . . . . . . . . . . (604,401) (1,165,837) (1,799,170) (3,089,749)
Other income and expenses
Other income . . . . . . . . . . . . . . 653,506 - 571,911 -
Other expenses . . . . . . . . . . . . . (887,157) - (2,336,393) (482,736)
------------ ------------ ------------ ------------
Net loss . . . . . . . . . . . . . . . . . . $ (838,052) $(1,165,837) $(3,563,652) $(3,572,485)
============ ============ ============ ============
Net loss per common share. . . . . . . . . . $ (0.0010) $ (0.0171) $ (0.0042) $ (0.0523)
============ ============ ============ ============
Weighted average shares outstanding. . . . . 850,469,006 68,272,603 850,469,006 68,273,603
============ ============ ============ ============
SEE NOTES TO FINANCIAL STATEMENTS
4
INTERNET BUSINESS'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
March 31,
2004 2003
----------- -----------
(unaudited) (unaudited)
Operating Activities
----------------------
Net loss from continuing operations . . . . . . . . . . . . . $ (838,052) $(1,165,837)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 320,752 382,764
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable. . . . . . . . . . - (10,986)
(Increase) decrease in inventory. . . . . . . . . . . . . . . - (44,287)
Increase (decrease) in accounts payable and accrued expenses. - 767,206
Increase (decrease) in accrued liabilities. . . . . . . . . . 325,909
Increase (decrease) in deferred revenues. . . . . . . . . . . - (41,427)
----------- ------------
Net cash provided (used) by operating activities. . . . . . . (517,300) 213,342
Investing Activities
----------------------
Purchases of property and equipment . . . . . . . . . . . . . 3,800 -
Investments in unconsolidated company-notes or stocks . . . . 178,607 -
----------- ------------
Net cash provided by investing activities . . . . . . . . . . 182,407 -
Financing Activities
----------------------
Net repayment of long-term debt . . . . . . . . . . . . . . . - (200,000)
Issuance of common stock. . . . . . . . . . . . . . . . . . . 336,931 (65,139)
----------- ------------
Net cash provided (used) by financing activities. . . . . . . 336,931 (265,139)
----------- ------------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . 2,038 (51,797)
Cash at beginning of period . . . . . . . . . . . . . . . . . 195 53,113
----------- ------------
Cash at end of period . . . . . . . . . . . . . . . . . . . . $ 2,233 $ 1,316
=========== ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during year for:
Interest $ $
=========== ============
Income taxes (benefits) $ $
=========== ============
SEE NOTES TO FINANCIAL STATEMENTS
5
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
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" and "IBII") 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,
1998, after new management was in place, a decision was made to change
the Company's principal line of business from manufacturing to high
technology. 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.
During 1999, the Company announced the opening of it's first
e-commerce site and engaged in the development, operation and
marketing of a number of commercial activities. The Company's
subsidiaries Lending on Line ( wireless high speed Internet access and
Internet web design and hosting), E-commerce (providing auction sites,
B2C and B2B Internet transactions, and reverse auction sites for
Europe and the United States) and Direct Marketing (providing direct
marketing of long distance phone services, computers with Internet
access, wireless high speed Internet access and bandwidth, and
Internet web design hosting). The Company ceased operations during
fiscal year ended June 30, 2003.
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.
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. Actual results
could differ from those estimates.
6
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 five years for computers and computer related
equipment and seven years for furniture and other 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 March
31, 2004. 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 as methodologies, including cash flow analysis,
estimates of sales proceeds and independent appraisals.
ADDITIONAL PAID IN CAPITAL
In April of 2003 the par value of the Company's stock was changed from
$.01 per share to $.001 per share. The net difference of $704,462 was
included in paid-in capital.
7
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In May of 2002 a one for ten reverse stock split 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, the
registration did not occur. The Loan proceeds were booked as long-term
debt. The difference of shares issued and outstanding in the amount of
$2,544,624 was included in additional paid-in capital. In 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 $3,382,560 to the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 revenue and expenses during the accounting period. Actual
results could differ from those estimates.
REVENUE RECOGINTION AND FINANCIAL STATEMENTS
Sales are recognized at the time of service to customers.
In December 1999, the Securities and Exchange Commissions (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." Which provides guidance related to revenue
recognition. The Company has adopted SAB 101 and it has not had a
material impact on the Company's consolidated financial position or
results of operations, nor did it result in the Company reporting a
change in accounting principles from its application.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred.
CONCENTRATION OF CREDIT RISK
The Company is subject to credit risk through trade receivables.
Monthly Internet access fees and web hosting are 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.
8
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is based on the weighted effect of all
common shares issued and outstanding, and is calculated by dividing
net income by the weighted average shares outstanding during the
period. Diluted earnings (loss) per share is calculated by dividing
net income by the weighted average number of common shares used in the
basic earnings per share calculation plus the number of common shares
that would be issued assuming conversion of all potentially dilutive
common shares outstanding. Dilutive earnings (loss) per share is not
presented since diluted securities have an anti-dilutive effect.
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 fair value is recorded as goodwill. Results of operations
for the acquired companies are included prospectively from the date of
acquisition.
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 7).
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 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 November 1999, the Company acquired an e-commerce website Optical
Brigade, an on-line sunglass distribution website, for 50,500 shares
of restricted common stock valued at $50,500.
9
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 2- BUSINESS COMBINATIONS (CONTINUED)
In December 1999, the Company entered into a service agreement with an
auction company to market its services on the Internet for 6,000,000
shares of its common stock valued at $60,000.
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
$80,000 cash and issued 30,000 shares of restricted company stock
valued at $300. Intangible assets purchased totaled $265,000, which
consisted of customer 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 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 has strategic agreements with IBM Hungary to
market business-to-business services in Eastern Europe.
In March 2000, the Company acquired the assets and assumed certain
liabilities of Internet 2xtreme, an Internet Service Provider ("ISP")
based in northern California. The total purchase price was $735,000,
which consisted of$17,635 cash 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 April 2000, IBII acquired all of the outstanding stock of Atlas
Capital Corporation, a mortgage-banking company, for 600,000 shares of
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. In August 2001 the Company sold Atlas Capital
Corporation with its assets and liabilities.
In October 2000, IBII acquired the auction website 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 operations in March of 2001.
10
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 2- BUSINESS COMBINATIONS (CONTINUED)
In October 2000, IBII signed an acquisition agreement with
Auction-Sales.Com. The Company invested $180,000 in Auction-Sales.Com
and in December 2000 rescinded the acquisition due to undisclosed
debts. The Company sued for the return of the funds and the case was
remanded to arbitration. The Company lost the arbitration and wrote
off the $180,000 investment.
In March 2001, IBII ceased to operate Global GPP Corporation and
closed its corresponding operation in Europe. The Company started a
new corporation, a wholly owned subsidiary, Global Construction Buying
Group, whose main asset was the equipment acquired from Global GPP
Corporation.
In September 2001 the Company started a new marketing subsidiary 1st 2
Market Incorporated and ceased operating its predecessor, Allstates
Communications Inc. The new subsidiary only marketed the Company's
products whereas Allstates marketed cell phones for cellular phone
companies.
In September 2001 the Company started Guarantee Capital Group ("GCG"),
which acquired the computer, furniture and processing equipment from
the new owner of Atlas Capital Corporation for $30,000. In November
2001 GCG had exceeded the capacity of its mortgage banking line. This
prevented the funding of the balance of its processed loans and
resulted in most of the employees being laid off.
In February 2002 the Company announced that it planned to spin-off the
Global Construction Buying Group to its shareholders by the end of
2002. This transaction was never completed.
In June 2002 the Company announced that it planned to divest it self
of the GCG subsidiary, and in anticipation of that occurrence ceased
operations of the on-line mortgage lending group.
In June 2002 the Company announced the sale of Ace Optics, a
subsidiary of GCG, to CRT Corporation for $2,000,000 worth of CRT
restricted stock (2,000,000 shares).
In August 2003 the Company acquired Alpha Tooling, Inc. with 190,000
shares of DCM Enterprises, Inc. stock, as per an agreement with DCM
Enterprises, Inc. The Company then transferred Alpha Tooling, Inc. to
DCM Enterprises, Inc. for credit towards the debit it had with DCM
Enterprises, Inc. After October 1, 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. (See
Note 4 Long Term Note for current balance owed.)
11
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 2- BUSINESS COMBINATIONS (CONTINUED)
In December 2003 the Company acquired the assets of Debit Card
Marketing Company Enterprises, Inc. ("DCME") 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 which
was transferred as an asset to Global Debit Cash Card, Inc.
NOTE 3- CERTAIN FINANCIAL STATEMENT INFORMATION
March 31, June 30,
2004 2003
------------ -----------
Investment in Unconsolidated Companies:
Stock of PMCC/GNVN . . . . . . . . . . . . . . . . . . $ 194,068 $ 194,068
Stock of CRT/DCM . . . . . . . . . . . . . . . . . . . 515,000 1,517,264
Stock Distribution DCM . . . . . . . . . . . . . . . . - (560,000)
Purchase of TMR. . . . . . . . . . . . . . . . . . . . 369,175 -
------------ ------------
Total Long Term Investments. . . . . . . . . . . . . . . . $ 1,078,243 $ 1,151,332
============ ============
Property and Equipment:
Office furniture and equipment . . . . . . . . . . . . 24,737 47,999
Machinery and computer equipment . . . . . . . . . . . 3,014,223 3,136,393
Less: Accumulated depreciation . . . . . . . . . . . . $(2,987,483) $(2,243,462)
------------ -----------
Property and Equipment, net. . . . . . . . . . . . . . . . $ 51,477 $ 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 . . . . . . . . . . . . $(2,756,651) $(2,287,157)
------------ ------------
Intangible Assets, net . . . . . . . . . . . . . . . . . . $ 85,198 $ 554,692
============ ============
12
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 4- LONG-TERM DEBT
Long-term debt as of March 31, 2004 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* $ 214,594 $ - $214,594 $ 895,389 $1,109,983
Interest. 99,164 - 99,164 - 99,164
DCME**. . - 135,000 - 768,060 633,060
Global*** - 369,175 - 369,175 -
Alpha**** - 159,066 - 348,546 189,480
----------- -------- -------- ---------- ----------
Total . . $ 313,758 $663,241 $313,758 $2,381,170 $2,031,687
=========== ======== ======== ========== ==========
* The Current Portion represents the unpaid amount due which the Company was
unable to pay.
** The increase in DCME long term debt is due to a revised agreement between
IBII and DCME.
*** The Global debit was reduced as per agreement and paid in full.
**** The Alpha debt was per agreement with DCME and part of the Alpha
acquisitions made by the Company.
NOTE 5- 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 March 31, 2004 the current
liabilities exceed current assets by $1,538,288. As shown in the
financial statements, the Company incurred a net loss of $838,052 for
the third quarter of fiscal year ended June 30, 2004.
The future success of the Company is 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.
13
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 6- EXTRAORDINARY ITEM
The California Code of Civil Procedure Section 337 states; "Within 4
(four) years, an action upon any contract, obligation or liability
founded upon a written statement or written contract." The debts of
companies (see Note 1) identified were greater than 4 years old and
not enforceable. Legal counsel Edgar Scheck reviewed the debts and
issued an 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 the amount of the debt as
extraordinary income. SFAS 125 lists two sets of circumstances under
which a liability is not recognized (see below). The second set of
circumstances 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 7- STOCKHOLDERS' EQUITY
AUTHORIZED SHARES
During April 2003 the board of directors amended the Articles of
Incorporation to increase the authorized shares to 2,000,000,000 of
which 1,990,000,000 are common 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.
STOCK ISSUANCE
For the quarterly period ended March 31, 2004, the following stock was
issued:
180,000,000 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.
14
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 7- STOCKHOLDERS' EQUITY (CONTINUED)
156,390,807 shares of restricted common stock were issued to Global
Debit Cash Card pursuant to the Territory Marketing Agreement, as
amended on March 15, 2004, in exchange for the limited exclusive
marketing rights to sell the debit cards in the states of Colorado and
Utah for a period of ten (10) years.
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" ("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.
See Note 2, Business Combination, for Stock Issuance For Acquisitions.
PREFERRED STOCK
As of the date of this filing, 1,029,231 shares of preferred stock
remain in escrow pursuant to a Collateral Loan Agreement entered into
between the Issuer and Mercatus Partners Limited, on or about March
31, 2003.
NOTE 8- COMMITMENTS AND CONTINGENCIES
The Company rents its current office space, on a month to month basis,
in Las Vegas, Nevada, and has vacated its prior offices located at
10120 S. Eastern Ave., Suite 200, Henderson Las Vegas, Nevada 89052.
The Company has equipment at several facilities that will be relocated
once payment for the past due rent is made.
During the current fiscal year, Globalist International won a
judgement against the Company in the amount of $350,000. The court's
decision and the judgement were appealed, and, based upon errors made
during the initial trial, the Company believes that this judgement
will be reversed, a new trial will be granted and the Company will
prevail. This judgement is not reflected on the Company's financials.
In the event that the Company loses the appeal, it will have a
material adverse affect on the Company's financial position.
The Internal Revenue Service has tax liens and assessments against the
Company and one of its subsidiaries for payroll taxes of approximately
$800,000 that are reflected as liabilities on the Company's financial
statements.
15
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 9- 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.
ISP 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). B2C
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 the
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 (Note 1).
Third Quarter Ended March 31,
2004 2003
------------ ------------
FULL-SERVICE ISP
NET SALES. . . . . . $ - $ 106,632
OPERATING INCOME . . $ (322,642) $ (799,687)
MARKETING (B-TO-B/C)
NET SALES. . . . . . $ - $ -
OPERATING INCOME . . $ - $ (17,615)
OTHER
NET INCOME . . . . . $ 633,896 $ -
UNALLOCATED EXPENSE. $(1,149,306) $ (348,535)
TOTAL
NET SALES. . . . . . $ - $ 106,632
OPERATING INCOME . . $ (838,052) $(1,165,837)
In June 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.
16
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 10- OTHER EVENTS
COMPANY ACQUISITION
In December 2003 the Company acquired the assets of Debit Card
Marketing Company Enterprises, Inc. ("DCME") 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. 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 had with DCM
Enterprises, Inc. After October 1, 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. (See
Note 4 Long Term Note for current balance owed.)
MARKETING AGREEMENT
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 Colorado and Utah territories for marketing the
CARDS as per the USA Territory Marketing Representative Agreement.
Pursuant to the terms of the agreement GLCD will operate as the
Territory Marketing Representative ("TMR") in Colorado and Utah and
license resellers of the CARDS. The Licensed Activated Resellers
("LAR") will be licensed through GLCD, the TMR.
In December 2003 GLCD acquired the assets of DCM for 60,000,000 shares
of GLCD which included reduction of the note owed by the Company to
$515,000, which was transferred as an asset to GLCD. GLCD is traded
over the counter (OTC) on the Pink Sheets LLC quotation service under
the symbol "GLCD".
The USA Territory Marketing Representative Agreement previously
entered into between the Company and GLCD was amended on March 15,
2004, to reflect the receipt of 156,390,807 shares of stock as payment
in full in exchange for the limited exclusive right to market and sell
debit cards in Colorado and Utah for a period of 10 years.
17
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 10- OTHER EVENTS (CONTINUED)
STOCK REPURCHASE
In December 2003 the Company reacquired 200,000 shares of DCM for
200,000,000 restricted shares of IBII. The stock repurchase agreement
was modified to allow an additional 200,000 shares of DCM to be
repurchased by IBII.
In September 2003 Company agreed to reacquire the 149,283 shares
previously sold to the investor. The agreement provided for the
issuance of 560,000 shares of DCM common stock in addition to
40,000,000 shares of restricted common stock of the Company. The
agreement also allows the Company to purchase from the investor
200,000 shares of the 560,000 shares of DCM based upon the following
terms per quarter: 40,000 shares of DCM for 40,000,000 shares of
restricted common stock of the Company. This agreement to purchase the
200,000 shares of DCM is only in effect until DCM begins trading.
AGREEMENT BETWEEN THE COMPANY AND DCM ENTERPRISES, INC.
In DCM's March 18, 2004 8-K Filing, the original agreement between the
Company and DCM was amended as follows:
" On June 17th of 2002, DCM Enterprises, Inc. (the "Company" or "DCM")
entered into an asset purchase agreement with IBII, a Nevada
Corporation for the purchase of assets consisting of equipment,
inventory, and proprietary information used in the sale of sunglasses
(hereinafter referred to as "Ace Optics"). The purchase price
consisted of 2,000,000 restricted shares of DCM common stock. However,
due to a disagreement with a former officer and director of DCM, the
Company was unable to take control of Ace Optics. Therefore, the
transaction has been rescinded. On August 22nd, 2003, DCM and IBII
entered into an agreement to compensate DCM. A copy of this Agreement
(hereinafter referred to as the "Compensation Agreement") is hereby
attached to this 8K/A as Exhibit 2.1. Pursuant to the Compensation
Agreement, IBII has agreed to compensate DCM in the amount of $760,000
in either cash, DCM stock, or in other assets mutually agreed upon.
The amount owed under this agreement carries a 5% annual interest
rate.
Compensation Agreement as follows; a total of $130,852 in cash has
been paid, a total of 150,000 shares of DCM shares have been returned,
and tools valued at $126,846 were transferred to the Company. As of
March 19, 2004, the total amount owed under the Agreement was
approximately $427,000. DCM's Board of Directors approved the
Compensation Agreement. Albert Reda, DCM's CEO and Director, also
serves as IBII's CEO, Secretary, and Director. Matt Sebal, the
Company's other Director, has no affiliation with IBII.
18
INTERNET BUSINESS'S INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
NOTE 10- OTHER EVENTS (CONTINUED)
In October 2003, as per the agreement with DCM, the Company
transferred Alpha Tooling, Inc. to DCM in payment of its debit with
DCM. On October 1, 2003 the transaction was changed by agreement to an
asset assignment. The Company assigned certain assets of Alpha
Tooling, Inc. to DCM as payment of $311,639 worth of debt, thereby
reducing the debt owed DCM to $448,361.
In August 2003 the Company agreed to either provide CRT with an
alternative company or return the stock received since Ace Optics
ceased operations immediately after its acquistion. In lieu of an
alternative company, CRT and the Company agreed that the balance of
the DCME stock received would be returned to CRT. Subsequently the
Company acquired and then sold Alpha Tooling to DCM.
AUCTION-SALES.COM, INC.
On October 19, 2000, the Company entered into a Stock Purchase
Agreement with Auction-Sales.Com, Inc. ("ASCI") and its majority
shareholder, Zahid Rafiq (collectively, "Seller"), for the purchase of
96.62% of the outstanding and treasury shares of common stock of
Auction-Sales.Com, Inc., a Delaware corporation. Under the terms of
the Agreement, the Company was to exchange 11,000,000 shares of the
Company's common stock for the Auction-Sales.Com, Inc. shares. The
Company spent $180,000 for marketing and subsequently discovered that
ASCI had undisclosed liabilities and was not in compliance with
California law regarding delivery of paid product.
This acquistion was rescinded in December 2000 and the necessary
documents were filed with the SEC. The site was retained pending the
outcome of a lawsuit instituted by the Company. The lawsuit was
subsequently remanded to arbitration and the Company lost.
19
INTERNET BUSINESS'S INTERNATIONAL, INC.
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.
(A) PLAN OF OPERATION
The Company is currently not in operation.
The Company currently has less then 5 employees and leases office
space in Henderson, Nevada.
The Company has equipment at several co-location facilities that will
be relocated once payment for the facilities is made.
(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
There was no revenue for the three month and nine month periods ended
March 31, 2004. During the prior three month and nine month periods ended March
31, 2003, the Company still had operating subsidiaries with gross revenues of
$106,632 and $778,874 respectively.
Selling, general and administrative expenses were reduced for the
three and nine months periods ended March 31, 2004 to $283,649 and $632,227
respectively, from $1,867,205 and $2,282,647 respectively for the same periods
ended March 31, 2003. The main reason for this decrease is the ceasing of
operations.
The resulting loss for the three month and nine month periods ended
March 31,2004 of ($838,053) and ($3,567,652), respectively, when compared to
the losses of ($1,165,837) and ($3,572,485) reported for the three month and
nine month periods ended March 31, 2003 were comparable to each other by end of
the ninth month. The losses at March 31, 2004 were primarily due to the closing
of the Company, and the writeoff of the amounts due from each segment.
20
INTERNET BUSINESS'S INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(I) COMPARISON BY SEGMENT
Management determined that there were three reportable segments for
the quarter ended December 31, 2002. However, for the quarter ended March 31,
2004 there are only two reportable segments for the Company. They are the
Internet service provider (ISP) and Corporate (Other).
Information on reportable segments is as follows:
Third Quarter Ended March 31,
2004 2003
------------ ------------
FULL-SERVICE ISP
NET SALES. . . . . . $ - $ 106,632
OPERATING INCOME . . $ (322,642) $ (799,687)
MARKETING (B-TO-B/C)
NET SALES. . . . . . $ - $ -
OPERATING INCOME . . $ - $ (17,615)
OTHER
NET INCOME . . . . . $ 633,896 $ -
UNALLOCATED EXPENSE. $(1,149,306) $ (348,535)
TOTAL
NET SALES. . . . . . $ - $ 106,632
OPERATING INCOME . . $ (838,052) $(1,165,837)
ISP
For the third quarter ended March 31, 2004 the ISP segment recorded no
revenue. The ISP ceased operations during the previous fiscal year. Until such
time as the ISP restarts operations and reacquires its equipment, there will be
no comparison of this segment's operations per quarter.
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.
21
INTERNET BUSINESS'S INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
OTHER
Revenues generated represent either extraordinary income from payment
in full on debt for a reduced amount (with the difference represented as income)
and from the sale of fully or partially depreciated equipment where the income
from the sale is greater than the amount depreciated. Since there are no
expectations that furthers sales will occur and that the revenues from previous
operations are dissimilar there will be no comparison of the quarters.
Amortization and Depreciation of assets of closed divisions represents the
largest expense for the quarter.
(II) LIQUIDITY AND CAPITAL RESOURCES
Since the Company is not operating the Company's liquidity would come
from the sale of its assets.
(III) CAPITAL EXPENDITURES
Other than as set forth below, no material capital expenditures were
made during the quarter ended March 31, 2004.
(IV) ACQUISITIONS
In August 2003 the Company acquired Alpha Tooling, Inc. with 190,000
shares of DCM Enterprises, Inc. stock, as per an agreement with DCM Enterprises,
Inc. The Company then transferred Alpha Tooling, Inc. to DCM Enterprises, Inc.
for credit towards the debit it had with DCM Enterprises, Inc. After October 1,
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 September 2003 the Company, through its wholly owned subsidiary
Global Debit Cash Card, Inc., a Nevada Corporation ("GLCD") agreed to purchase
from DCM the Colorado and Utah territories for marketing the CARDS as per the
USA Territory Marketing Representative Agreement. Pursuant to the terms of the
agreement GLCD will operate as the Territory Marketing Representative ("TMR") in
Colorado and Utah and license resellers of the CARDS. The Licensed Activated
Resellers ("LAR") will be licensed through GLCD, the TMR.
In December 2003 GLCD acquired the assets of DCM for 60,000,000 shares
of GLCD which included reduction of the note owed by the Company to $515,000,
which was transferred as an asset to GLCD. GLCD is traded over the counter
(OTC) on the Pink Sheets LLC quotation service under the symbol "GLCD".
22
INTERNET BUSINESS'S INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
(C) OFF-BALANCE SHEET ARRANGEMENTS
None.
(D) SAFE HARBOR
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, 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 fo
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. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company 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
Company's President. Based upon the evaluation, it was concluded that the
Company's disclosure controls and procedures are effective in gathering,
analyzing and disclosing information needed to satisfy the Company's disclosure
obligations under the Exchange Act.
23
INTERNET BUSINESS'S INTERNATIONAL, INC.
ITEM 3. CONTROLS AND PROCEDURES (CONTINUED)
(B) CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect the Company's internal
controls subsequent to the date of their evaluation.
PART II.
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments with respect to any of the
legal proceedings previously reported by the Company.
ITEM 2. CHANGES IN SECURITIES
During the quarter ended March 31, 2004, the Company issued
180,000,000 shares of S-8 stock for services rendered to the Company.
During the quarter ended March 31, 2004, 156,390,807 shares of
restricted common stock were issued to Global Debit Cash Card pursuant to the
Territory Marketing Agreement, as amended on March 15, 2003, in exchange for the
limited exclusive marketing rights to sell the debit cards in the states of
Colorado and Utah for a period of ten (10) years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
24
INTERNET BUSINESS'S INTERNATIONAL, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibits included or incorporated by reference herein are set forth in
the Exhibit Index following the signatures.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter covered by this
Form 10-QSB.
SIGNATURES
Pursuant to the requirements 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.
INTERNET BUSINESS'S INTERNATIONAL, INC.
Date: May 20, 2004 /s/ Albert R. Reda
---------------------
Albert R. Reda
Chief Executive Officer, Secretary
25
EXHIBIT INDEX
Number Description
--------------------------------------------------------------------------------
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).
26