10-Q 1 d51636_10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) |X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 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 000-27603 I2CORP.COM (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 84-1423373 (I.R.S. Employer Identification No.) 320 Alisal Road Bldg. C Ste 304 Solvang CA 93463 (Address of principal executive offices) (zip code) (805) 693-8198 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 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 issuer's classes of common equity, as of the latest practicable date. Class Common Stock, par value $0.001 Outstanding at August 8, 2002 37,500,000 Traditional Small Business Disclosure Format Yes |X| No |_| i2corp.com Form 10-QSB June 30, 2001 Index PART I - FINANCIAL INFORMATION Item 1. Interim Condensed Consolidated Financial Statements Condensed Consolidated Balance Sheets - June 30 and March 31, 2002 Condensed Consolidated Statements of Operations for the three-month periods ended June 30, 2002 and 2001. Condensed Consolidated Statements of Stockholders' Equity Deficiency for the three-months ended June 30, 2002 and the year ended March 31, 2002. Condensed Consolidated Statements of Cash Flows for the three-month periods ended June 30, 2002 and 2001. Notes to the Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis or Plan of Operation PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 2. Changes In Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES PART I - FINANCIAL INFORMATION Item 1. Interim Condensed Consolidated Financial Statements i2corp.com and Subsidiaries CONSOLIDATED BALANCE SHEETS JUNE 30, AND MARCH 31, 2002 --------------------------------------------------------------------------------

See notes to consolidated financial statements. i2corp.com and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 -------------------------------------------------------------------------------- 2002 2001 ------------ ------------ Revenues Licensing $ 35,000 0.00 Other 9,368 0.00 ------------ 44,368 0.00 Selling, general and administrative expenses 188,335 $ 513,849 ------------ ------------ Operating loss (143,967) (513,849) ------------ ------------ Other income (expense) Interest expense (1,573) (3,556) ------------ ------------ Net loss $ (145,540) $ (517,405) ============ ============ Loss per share $ (0.005) $ (0.017) ============ ============ Weighted average number of shares outstanding 31,303,113 30,208,254 ============ ============ See notes to consolidated financial statements. i2corp.com and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DEFICIENCY FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND THE YEAR ENDED MARCH 31, 2002 --------------------------------------------------------------------------------

See notes to consolidated financial statements. i2corp.com and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 -------------------------------------------------------------------------------- 2002 2001 --------- --------- Operating activities: Net cash used in operating activities $ (9,869) $(160,341) --------- --------- Investing activities: Purchases of furniture, fixtures and equipment (339) Patent costs (4,888) --------- Cash used in investing activities (5,227) --------- Financing activities: Collection of capital contribution receivable 103,250 Exercise of stock options 10,000 96,120 --------- --------- Cash provided by financing activities 10,000 199,370 --------- --------- Net increase in cash 131 33,802 Cash: Beginning of period 1,238 1,418 --------- --------- End of period $ 1,369 $ 35,220 ========= ========= See notes to consolidated financial statements. I2CORP.COM AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND 2001 1. Basis of Presentation: The interim consolidated financial statements of i2corp.com and its subsidiaries, Home Gambling Network, Inc. (HGN), i2consult.com, and i2develop.com (collectively, the Company), are unaudited. It is the opinion of the Company's management that all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the interim results have been reflected therein. Results for any interim period are not necessarily indicative of results that may be expected for the entire year. These statements should be read in conjunction with the financial statements and related notes that appear in the Company's Annual Report on Form 10-KSB for the year ended March 31, 2002. The balance sheet at March 31, 2002, was derived from the audited financial statements included in that report. 2. Contingencies: Going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30, 2002, the Company has accumulated an operating deficit of $2,858,052 and a working capital deficiency of $357,981. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. It is management's plan to explore financing options in the investment community. Management is also in the process of negotiating additional licensing agreements that, if consummated, would generate operating revenues. However, there can be no assurance that these sources will provide sufficient cash inflows to enable the Company to achieve its operational objectives in the short term or sustain its operations. Other. The Company has been presented with claims asserting that certain individuals and/or entities are entitled to an aggregate of approximately 750,000 shares of the Company's common stock. Based on the available evidence, management believes these claims are inconsistent with the Company's records and invalid. There may be other similar claims asserted in the future. However, based, in part, upon the advice of counsel, management believes that such matters will not have a significant effect on the Company. In the unlikely event the Company would be required to issue some or all of the shares that are claimed by these individuals or entities, there would be up to approximately 2.3% dilution of interests of its stockholders, based on claims presently known. 3. Capital Contribution: During the three-month period ended June 30, 2002, noncurrent liabilities, officers/shareholders, net of advances to officers/shareholders, were contributed by the officers/shareholders resulting in a capital contribution of $557,356. 4. Stock options: During the three-month period ended June 30, 2002, the Company entered into a short-term management consulting agreement with W.B. Orlin and Lucinda Wei. In exchange for the consulting services, the Company issued options to purchase 3,500,000 shares of newly issued common stock, exercisable at $.04 per share and 1,500,000 shares of newly issued common stock, exercisable at $.08 per share. Consulting expense related to the issuance of these stock options totaled $28,000 for the three-months ended June 30, 2002. As of June 30, 2002, 250,000 shares have been exercised at $.04 per share. 5. Licensing Agreements: The Company entered into licensing agreements with Broadcasting Concepts LLC. who has not yet raised sufficient capital to commence operations. Therefore, collection of related receivables is not yet reasonably assured, and uncollected revenue on these contracts has been deferred as of June 30, 2002 and offset against the related receivable. Item 2. Management's Discussion and Analysis or Plan of Operation Forward Looking Statements Statements which are not historical facts, including statements about our confidence and strategies and our expectations about our product, technologies and opportunities, market and industry segment growth, demand and acceptance of our products are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These risks include, but are not limited to, product demand and market acceptance risks; the impact of competitive products; the results of financing raising activities; the effects of economic conditions and trade, legal, social and economic risks, such as regulations, governmental licensing issues, foreign qualifications and ability to conduct our method of business and the results our business plan. Results of Operations Revenues We are in the initial stages of realizing licensing revenues as result of the efforts of our sales and marketing. During the quarter ended June 30, 2002, we received revenues of $35,000 from a license and consulting agreement with Broadcasting Concepts LLC and additional revenues of $9,368 from non-refundable payments received in connection with cancelled or expired licensing agreements and miscellaneous income. We did not generate any revenues during the three months ended June 30,2001 Expenses We incurred selling, general and administrative expenses of $188,335 and $513,849 for the quarters ended June 30, 2002 and 2001, respectively. The decrease in selling, general and administrative expenses was due primarily to management's effort to reduce our expenses by such measures as forgiving accrued salaries, reducing overhead, and scaling back paid marketing efforts. Although we have decreased our selling, general and administrative expenses, we expect incur substantial marketing expenses for product positioning that will cause us to incur additional losses in the near future. In addition, salaries, professional fees and occupancy costs will continue to contribute to our losses. Net Loss For the quarters ended June 30, 2002 and 2001, we incurred a net loss, of $145,540 and $517,405, respectively. The decrease in net loss was due primarily to the commencement of revenue and the reduction in selling, general and administrative expenses. Cash Flow Net cash used in operating activities in the quarter ended June 30, 2002 amounted to $9,869 compared to $160,341 in the quarter ended June 30, 2001. The decreased use of cash is mainly attributable to decreased selling, general and administrative expenses as a result of less cash on hand and management's efforts to reduce expenditures. Net cash used in investing activities amounted to $0 in the quarter ended June 30, 2002 compared to $5,227 in the quarter ended June 30, 2001. This decrease in use of cash is primarily due to decreases in purchases of furniture, fixtures and equipment and in patent costs. Financing activities generated net cash of $10,000 in the quarter ended June 30, 2002 compared with $199,370 in the quarter ended June 30, 2001. The decrease in cash provided by financing activities was due to the collection of a capital contribution receivable and the increase in the exercise of stock options during the three months ended June 30, 2002. Liquidity and Capital Resources At June 30, 2002, we had cash of $1,369 and a working capital deficit of $357,981. Due to our limited cash-on-hand and our limited sources of liquidity, we are in constant need of additional working capital. Our accumulated deficit was $2,858,052 at June 30, 2002 and $2,712,512 at March 31, 2002. The increase was due to our continued net losses and our inability to generate sufficient revenue to sustain our operations. Although we started to generate limited cash flows from operating activities during the fiscal year ending March 31, 2002, our current cash on hand is not sufficient to meet our ongoing operating expenses. The license agreement that has been executed with Broadcasting Concepts is currently in default due to non-payment and all revenue booked from that license agreement has been deferred. Broadcasting Concepts has been notified of its breach. If Broadcasting Concepts fails to cure the breach we will be required to seek a judicial enforcement of the license agreement. As we are not able to rely on our operations for cash and will have to depend upon our ability to execute revenue-generating licensing agreements and upon additional financing from private or public debt or equity placements, loans from banks or officers, directors, stockholders or traditional funding sources interest, or a combination of these. Our ability to enter into additional revenue-generating licensing agreements will depend, in part, on the constantly changing legislative climate and legal entrance into the Internet gambling market of gaming and wagering operators. In addition, our ability to raise additional working capital will depend, in part, on many factors, including the nature and prospects of any business to be acquired and the economic and market conditions prevailing at the time financing is sought. Though we believe that we will obtain financing, there can be no assurances that financing in the amount and on terms acceptable to us will be available within the time frame required. Due to our limited cash resources, our ability to continue operations may be severely limited requiring us to postpone or cancel certain operating plans until further capital is available. RISK FACTORS We are subject to a high degree of risk as we are considered to be in unsound financial condition. The following risks, if any one or more occurs, could materially harm our business, financial condition or future results of operations. If that occurs, the trading price of our common stock could decline. Risks Related to i2corp We have a history of significant operating losses and anticipate continued operating losses for the foreseeable future. For the three months ended June 30, 2002 and the years ended March 31, 2002 and 2001, we have incurred net losses of $145,540, $1,048,600 and $1,354,840, respectively, and our operations have used $9869, $176,309 and $989,319 of cash, respectively. As of March 31, 2002 and 2001, we had accumulated deficits of $2,712,512 and $1,663,912, respectively. If our revenues decline or grow at a slower rate than we anticipate, or if our spending levels exceed our expectations or cannot be adjusted to reflect slower revenue growth, our business would be severely harmed. We cannot assure you that revenues will grow in the future or that we will generate sufficient revenues for profitability, or that profitability, if achieved, can be sustained on an ongoing basis. Over the last few years, our activities have been limited to analyzing the gaming industry, consulting with persons in the gaming industry and marketing our Patent to the gaming industry. There is no guarantee that we will be able to generate sufficient revenue to sustain our operations. No independent organization has conducted market research providing management with independent assurance from which to estimate potential demand for our business operations. We are dependent upon the abilities and efforts of certain management personnel, including deedee Molnick, Chris P. Almida, Jesse D. Molnick and Melvin Molnick. Our future success will depend in part upon our ability to attract and retain qualified personnel to fill key sales, administrative and management positions. There can be no assurance that we will be able to locate and retain key individuals in the event of the loss of such key individuals. We believe our intellectual property, such as the Patent, is important to our competitive position. If we are unable to protect our intellectual property against unauthorized use by others, our competitive position could be harmed. We enter into confidentiality and/or non-compete agreements with our employees and consultants, and control access to and distribution of our documentation and other proprietary information. Despite these precautions, we cannot assure you that these strategies will be adequate to prevent misappropriation of our intellectual property. We could be required to expend significant amounts to defend our rights to intellectual property. Risks Related to Our Industry The gaming industry is highly regulated. Many gaming authorities have broad authority regarding licensing and registration of entities and individuals involved in gaming operations, including the ability to, among other things, revoke the gaming license of any person licensed. Due to the uncertainty regarding Internet gaming and the hesitation of state gaming authorities to sanction Internet gaming, the involvement of a gaming licensee in Internet gaming may cause the revocation of the licensee's gaming license. In addition, for some states, it will be required to pass enabling legislation in order to legalize Internet gaming. Accordingly, there is no assurance that state gaming authorities will permit Internet gaming and, if so, whether such rules or regulations will conflict with federal laws related to Internet gaming. We cannot predict the effects that adoption of and changes in Internet gaming laws, rules and regulations might have on our future operations. There is significant competition in the Internet gaming industry. Although our technology is applicable to Internet gaming, Internet gaming competes with various forms of gaming, including land-based casinos, riverboat casinos and cruise-to-nowhere floating casinos. In addition, we compete with other companies involved in Internet gaming that are substantially larger, have more substantial histories, backgrounds, experience and records of successful operations, greater financial, technical, marketing and other resources, more employees and more extensive facilities than we now have, or will have in the foreseeable future. In addition, due to the growth potential of Internet gaming, we will face many new competitors in the near future. There is no assurance that we will continue to compete successfully in the marketplace. The inability to compete successfully will adversely affect our operating results. Although we have generated limited revenues, there is no assurance that we will be successful in commercializing the Patent. In light of the uncertainty surrounding whether Internet gaming will be legalized in the United States and even if Internet gaming were legalized in the United States, there is no assurance that we will be able to market the Patent. Insufficient market acceptance of our Patent will have a materially adverse effect on our business, financial condition and results of operations. Risks Related to Our Common Stock We currently anticipate the need to supplement the revenue generated by our operations, if any, from proceeds through private or public offerings of our equity or convertible debt securities. The issuance of additional equity or convertible debt securities will have the effect of reducing the percentage ownership of our current stockholders. In addition, these equity or convertible debt securities may have additional rights, preferences or privileges to those of our common stock, such as registration rights. In the event we are required to raise additional funds to support our operations, we cannot assure our stockholders that the additional funds will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund operations or otherwise continue as a going-concern. Our executive officers and members of our board of directors beneficially own 23,074,140 shares of common stock, or approximately 72.2% of the outstanding shares of our common stock. These stockholders will have the power to influence all matters requiring approval by our stockholders, including the election of directors and approval of mergers and other significant corporate transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control of i2corp. RIDER A: Our common stock is currently quoted on the OTC Bulletin Board under the symbol, "ITOO." On March 22, 2002, the Nasdaq Stock Market, Inc., or Nasdaq, announced the proposed launch of the Bulletin Board Exchange, or the BBX, that is designed to replace the OTC Bulletin Board. Pending approval of the BBX from the Securities and Exchange Commission, Nasdaq proposes to launch the BBX in the first quarter of 2003. From the launch of the BBX and until six months thereafter, Nasdaq will terminate the OTC Bulletin Board and only operate the BBX. The BBX will be a listed marketplace, with qualitative listing standards but with no minimum share price, income, or asset requirements, therefore allowing entrance to a wide array of listings. The key qualitative listing standards include the requirements to, among other things: o hold annual stockholder meetings, have at least one independent director; o maintain an audit committee comprised of, at least, a majority of independent directors; o have stockholders approve stock option grants to officers or directors, below market issuances of stock, acquisitions and changes of control; and o engage auditors that are subject to the peer review consistent with AICPA procedures. In the event that we elect not to apply for listing on the BBX or in the event that we are not able to meeting the listing requirements of the BBX, our common stock will remain quoted on the OTC Bulletin Board for only six months after the launch of the BBX, and, after the expiration of this six-month period, will not be eligible for quotation on Nasdaq. PART II -- OTHER INFORMATION Item 1. Legal Proceedings On July 2, 2001, HGN filed a lawsuit for patent infringement in United States Federal Court, District of Nevada against Dr Ho.com, its owners, management, officers, executives and related contributing infringing companies. A counterclaim has been filed by Carribean Online Ltd. ("COL") for declaratory relief, attorney fees and litigation expenses. HGN also filed a motion for preliminary injunction; however, the motion was denied on May 1, 2002. Both HGN and COL have since filed Markman briefs, in order for the court to construe the claims of the Patent. Presently the case is in the initial stages of discovery. HGN has and will continue to litigate the case vigorously. Although it is difficult to predict with certainty what result will occur on the infringement issues, HGN is confident in its ability to prevail in this action. Other than the foregoing, there are no legal proceedings against the Company. The Company is unaware of any proceedings contemplated against it. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information On June 18, 2002, deedee Molnick our CEO and Chairperson, began maternity leave. Chris Almida, our President, will act as CEO and Chairman of the Board on an interim basis until further notice. On August 1, 2002, the Company relocated to and established an office in Solvang California. The new corporate address is PO Box 541, Solvang, CA 93464 and its offices are located at 320 Alisal Road Bldg C Ste 304, Solvang, CA 93463. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K There were no reports of Form 8-K filed by the Company for any of the three months ended June 30, 2001. 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. I2CORP.COM By: /s/ Christopher P. Almida ----------------------------- Christopher P. Almida President /CEO Dated: August 14, 2002 End of Filing

I2CORP COM 10-Q