United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities
Exchange Act of 1934
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD.
(Name of Small Business Issuer in its charter)
Nevada 95-3538903
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5740 Ralston Street, Suite 110
Ventura, CA 93003
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(Address of principal executive office) Zip Code
Issuer's telephone number: (805) 677-6720
---------------
Securities to be registered under Section 12(b) of the Act.
NONE
Securities to be registered under Section 12(g) of the Act:
Common Stock $.01 Par Value
(Title of class)
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PART I
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Interactive Buyers Network International, Ltd. ("Interactive Buyers") operates
the Virtual Source Network, a server-based computer system for conducting
electronic commerce over the Internet. Interactive Buyers also offers Virtual
Source Publisher, a do-it-yourself Internet web site builder.
VIRTUAL SOURCE NETWORK
Currently all financial, technical and marketing resources of Interactive Buyers
are dedicated to Virtual Source Network. In return for initial costs and fees
totaling between $25,000 and $300,000, plus transaction fees of up to $1.00, per
electronic purchase, clients may obtain access to Virtual Source Network and use
it for corporate procurement via the Internet on a pilot program basis. Full
implementation may cost the client as much as $2,000,000 before full-scale
operation is achieved. These initial cost figures are approximate because most
of the costs result from the use of outside systems consultants (non-Interactive
Buyers employees) needed to integrate Virtual Source Network into a client's
existing computer systems. Management expects that these costs will vary
significantly from client to client.
By accessing a Virtual Source Network web site, the client, or buyer, uses its
customized version of Virtual Source Network to initiate a request for quotation
which is electronically distributed to vendors via the Internet. Vendors
respond, via the Internet, with price quotations for the items requested. At
that point, the buyer may select one of the vendor quotations and send an
electronic purchase order, or the buyer may communicate electronically with the
vendor regarding counter-proposals or to request additional information. This
Internet version of Virtual Source Network has just recently been made available
for use by clients. Currently five Virtual Source Network clients are at various
stages of implementation. Generally there are five stages which Interactive
Buyers expects clients to proceed through:
1. Decision to select Virtual Source Network.
2. Collection of relevant client data.
3. Configuration of Virtual Source Network to meet client requirements.
4. Pilot operation of Virtual Source Network:
(a) Without integration into client systems. This pilot operation is
expected to cost approximately $25,000 including approximately
$18,000 paid to Interactive Buyers and $3,000 to IBM for
training, or
(b) Limited integration with selected client systems. The cost of
this pilot operation may range from $100,000 to $300,000, most of
which is expected to represent fees to PricewaterhouseCoopers or
other system integrators.
5. Full integration and operation.
Interactive Buyers expects volume usage of these and other potential clients to
become significant in the future, although it is not practical to estimate when
this might occur.
As of August 31, 1999, two clients, one a world leader in the entertainment
industry and the other a middle market apparel company, are nearing the end of
stage 2 and beginning the work of stage 3. One client, Royal Caribbean Cruise
Lines, is at stage 3. One client, a large aluminum processing company, is at
stage 4. One client, Technicolor, is at stage 4 and has begun the planning
process for stage 5.
During 1997 and early 1998, Interactive Buyers offered an earlier version of
Virtual Source Network, which was a software application installed on client
computers. In return for access to the network, clients paid annual subscription
fees of $980. Several clients had subscribed to that earlier
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version. A representative list of these earlier clients includes Terry Lumber,
McKesson Water Products, Delta Microwave, Great Western Malting division of
ConAgra, Industrial Metal Supply, Sargent Fletcher, AML Communications, Empire
Oil, Timco-Standard-Tandem, Stone Container, WEA Manufacturing division of Time
Warner, Xircom, Neiman-Reed Lumber, Regal Plastics, Mole-Richardson, Ernest
Paper Products, Motion Industries, TubeSales, J.C. Carter, Kelly Paper,
B.F.Goodrich, Warner Brothers Studios, CBS-Television City, Technicolor,
Georgia-Pacific, Parsons Airgas, Castle Metals, Monogram Aerospace Fasteners,
Earle M. Jorgensen Company, Manfred Industries, and others.
Virtual Source Network is sold through direct contact by sales people employed
by Virtual Source, Inc., a 100% owned subsidiary of Interactive Buyers. The
number of sales people has varied during recent months, and currently there are
two of these employees. Interactive Buyers' president also spends a significant
amount of his time on sales efforts. In addition, Virtual Source has one
independent sales representative working on a commission-only basis. In March of
1999, Interactive Buyers verbally established a strategic partnership with
Analytics, Inc. of Madison, Connecticut.
VIRTUAL SOURCE PUBLISHER
In addition to Virtual Source Network, Interactive Buyers also offers Virtual
Source Publisher, a do-it-yourself web site builder that allows a user to
establish its own Internet web site. At this time, Virtual Source Publisher is a
secondary priority of Interactive Buyers. Financial, technical and marketing
resources will be dedicated to Virtual Source Publisher only after the needs of
Virtual Source Network are addressed. Use of Virtual Source Publisher requires
no special technical skills, no additional software, and does not require the
services of a consultant. These sites are offered over the Internet, and are
marketed through a variety of distributor arrangements. In addition, Interactive
Buyers has provided free sites to high schools and colleges, and is offering
free sites to churches and other community groups. Once established, these sites
will offer other goods and services to group members, including students, church
members, and others, through commission-sharing affiliate agreements with
Internet retailers. There are existing affiliate agreements with Beyond.com,
Varsity Books, and TheGift.com. Other affiliate programs may be added in the
future. Interactive Buyers will receive a portion of the commission earned from
such arrangements, and plans to offer these sites as a medium for Internet
advertisers. Advertising revenue would be shared with the schools, churches, or
community groups who agree to participate. Management does not expect
commissions received from affiliate agreements to be material through the next
eighteen months and perhaps, not even then. It is not practical at this date to
estimate potential revenues from affiliate agreements.
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Interactive Buyers has a verbal arrangement with Group IV, Inc. to distribute
Virtual Source Publisher web sites to its national subscriber base of
approximately 500,000 small businesses. Group IV will also be providing that
subscriber base with information about Virtual Source Network.
Interactive Buyers also offers potential users the ability to set up their own
Virtual Source Publisher web sites by directly accessing one of Interactive
Buyers' web sites. Those sites are: http://www.vsource.net or
http://www.fillintheblanks.com. At this point there are several hundred Virtual
Source Publisher web sites up and running in total, although many of the users
have not progressed to a point where their sites are functioning as fully
operational businesses. Management does not intend to dedicate the programming
resources necessary to complete the automatic credit card billing until the
higher priority work related to Virtual Source Network is completed. When the
automatic credit card billing is completed, if ever, and users' credit cards
start to be charged, Interactive Buyers believes that a significant number of
users may discontinue their Virtual Source Publisher web sites rather than
paying the monthly charges. Management does not expect to receive revenues from
Virtual Source Publisher until 2000 or 2001, if ever. It is not practical to
estimate the start date or amount of potential revenues. No assurance can be
given that the automatic credit card billing system will be completed or that,
if completed, sales of Virtual Source Publisher will generate significant income
for Interactive Buyers.
Virtual Source Publisher is sold directly by Interactive Buyers and through
distributors. There are approximately fifteen Virtual Source Publisher
distributors at this point, although most of them have not sold any Virtual
Source Publisher web sites. Since Interactive Buyers' top priority is Virtual
Source Network, not much effort is being made, at this time, to sell Virtual
Source Publisher, or to encourage Virtual Source Publisher distributors. To
date, no Virtual Source Publisher revenue has been received, no commissions have
been earned by DX3, Inc. (see HISTORY, below) and no commission expense has been
accrued by Interactive Buyers.
OTHER INFORMATION: GOVERNMENT APPROVALS, DEPENDENCE ON SUPPLIERS, TRADEMARKS,
EMPLOYEES AND INDEPENDENT CONTRACTORS
GOVERNMENT APPROVALS
While there are no governmental approvals required specifically related to the
licensing or use of Virtual Source Network or Virtual Source Publisher, and no
direct governmental regulation, that could change. In those circumstances,
competitors with larger administrative staffs and more financial resources will
be in a better position to comply with this regulation and obtain any necessary
approvals. However, management is not aware of any pending or anticipated
government regulations that will negatively impact Interactive Buyers in a
material way.
DEPENDENCE ON SUPPLIERS
Interactive Buyers is not dependent on suppliers of raw materials, although it
is dependent on the Internet, including the ability to communicate with its
remote servers. Interactive Buyers' clients are also dependent on the Internet
for this communication, without which clients would be unable to use any of the
Internet-based services provided by Interactive Buyers.
TRADEMARKS
Virtual Source Network is listed on the Supplemental Register of Trademarks
maintained by the U. S. Patent and Trademark Office. Interactive Buyers has no
other trademarks or patents.
EMPLOYEES AND INDEPENDENT CONTRACTORS
As of August 31, 1999, Interactive Buyers had sixteen (16) full-time employees,
four of whom are executive officers, one part-time employee who is an executive
officer, and one active independent sales representative working on a
commission-only basis. There is one other independent sales representative that
may be re-activated in the future. In addition, Interactive Buyers has engaged
twelve independent contractors who are working on a variety of technical systems
and programming projects.
HISTORY
Interactive Buyers was incorporated in the state of Nevada on October 22, 1980
as Cinema-Star Corporation, in September 1989 was re-named Dyna-Seal
Corporation, and subsequently changed its name several times prior to becoming
inactive. In July 1995, the Interactive Buyers name was established. Prior to
becoming Interactive Buyers, the entity was a dormant corporation with no
significant business, assets or liabilities although it did have several hundred
public shareholders.
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In July 1995, Interactive Buyers acquired all the shares of Buyer/Seller
Interactive Software, Inc., which had been incorporated July 11, 1995 in the
state of Nevada. The acquisition was accounted for as a purchase. Buyer/Seller
Interactive was a software development company, working on an interactive system
that would allow corporate buyers and sellers to conduct business
electronically. At that time Interactive Buyers changed its name to Interactive
Buyers Network International, Ltd. in order to properly reflect the nature of
its newly acquired business operation. In December of 1996, control of
Interactive Buyers was acquired by Joseph E. Thomure and Samuel E. Bradt through
the exchange of $305,000 in convertible notes for 3,028,900 new shares of
Interactive Buyers common stock. Mr. Thomure then became Chairman, President and
Chief Executive Officer, and Mr. Bradt became Chief Financial Officer. In early
1997, Interactive Buyers raised additional capital by issuing common stock, with
the result that no one individual or group of shareholders retained voting
control of Interactive Buyers.
In May of 1997, Robert C. "Jay" McShirley, founder of Buyer/Seller Interactive
and originator of the Virtual Source Network concept, replaced Mr. Thomure as
President and CEO of Interactive Buyers. Mr. Thomure became inactive in the
business at that point, and did not stand for re-election to the board of
directors. Mr. Bradt continued as Chief Financial Officer, and replaced Mr.
Thomure as Chairman of the Board. In July of 1997, Buyer/Seller Interactive
changed its name to Virtual Source, Inc.
Virtual Source Publisher was acquired on June 1, 1998, when Interactive Buyers
acquired all of the outstanding shares of Wpg.Net, Inc. for consideration valued
at $455,000. Interactive Buyers issued 500,000 shares of common stock with a
fair value of $375,000 (75 cents per share), plus stock options on 500,000
shares with a fair value of $80,000. The options vest ratably, on a monthly
basis, over the 3 years subsequent to the purchase. If Wpg.Net, Inc. division
revenues reach $500,000 before the 3 years vesting period has expired, the
additional 500,000 share option vests immediately. The former shareholders of
Wpg.Net, Inc. are entitled to a commission of 50% of Virtual Source Publisher
revenue generated by the Wpg.Net, Inc. division. If the Virtual Source division
sales force generates the revenue, the former Wpg.Net, Inc. shareholders are
entitled to a commission of 25% of the revenue. In the event that Interactive
Buyers is sold, the former Wpg.Net, Inc. shareholders are entitled to a one-time
payment of $3,000,000, the options vest immediately, and all commission
obligations cease to accrue at that time. Interactive Buyers guaranteed a
minimum stock price of $7.00 per share for stock held by the former Wpg.Net,
Inc. shareholders upon the sale of Interactive Buyers.
The above payments that may be due to the former shareholders of Wpg.Net, Inc.
will be paid to DX3, Inc. DX3, Inc. is a corporation formed by and owned by the
former shareholders of Wpg.Net, Inc., now a wholly-owned subsidiary of
Interactive Buyers, and was established to receive the consideration paid by
Interactive Buyers for the acquisition of Wpg.Net. The 500,000 shares of common
stock and the option to purchase another 500,000 shares granted for the
acquisition of Wpg.Net were issued in the name of DX3, Inc. To date, no Virtual
Source Publisher revenue has been received, and no commissions have been earned
by DX3, Inc.
In conjunction with the acquisition of Wpg.Net, three of Wpg.Net's executives
signed one-year employment agreements with Interactive Buyers. The contracts
guaranteed the Wpg.Net executives salaries ranging from $49,500 to $77,250 per
year. These employment agreements have all expired.
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In June 1999, Mr. Robert C. "Jay" McShirley became Chairman of Interactive
Buyers, with Mr. Bradt continuing as Chief Financial Officer. Also, Interactive
Buyers authorized management to transfer all assets, liabilities and operations
of Wpg.Net, Inc. into Virtual Source, Inc., to be followed by the dissolution of
the Wpg.Net, Inc. corporate entity. Following that action, Interactive Buyers
will function as a holding company with Virtual Source, Inc. as its only
operating subsidiary.
RISK FACTORS
UNCERTAINTY OF INTERACTIVE BUYERS' ABILITY TO CONTINUE AS A GOING CONCERN; NEED
FOR ADDITIONAL CAPITAL Interactive Buyers' auditor has included a "Going
Concern" comment in the footnotes to its financial statements, indicating that
operating losses and a stockholders' deficit at January 31, 1999, create an
uncertainty about Interactive Buyers' ability to continue as a going concern.
Interactive Buyers is pursuing various financing alternatives. In April 1999,
Interactive Buyers completed an offering of common stock under Rule 504 of
Regulation D, where it raised $1,000,000, less offering costs of approximately
$5,000. Interactive Buyers also raised $100,000 in the quarter ended July 31,
1999 and $400,000 in August, 1999 in private placements from existing
shareholders. Interactive Buyers expects these proceeds to fund operations
through November or December 1999. Since Interactive Buyers has not yet earned
any significant revenues, additional funds will be needed in the near future.
Since Interactive Buyers' financial position does not support bank financing or
other conventional debt financing, additional common shares will likely be
issued, thus resulting in further shareholder dilution. Even after that,
Interactive Buyers may need to raise additional funds and it cannot be certain
that additional financing will be available on favorable terms, if at all.
Should Interactive Buyers not be successful in raising further capital, as to
which no assurance can be given, Interactive Buyers may not be able to continue
its operations.
INTANGIBLE ASSETS REPRESENT UNUSUALLY LARGE PERCENTAGE OF INTERACTIVE BUYERS'
TOTAL ASSETS
Interactive Buyers' financial position at July 31, 1999 includes $418,656 of
intangible assets, representing over 39% of Interactive Buyers' total assets.
This is an unusually large percentage, and emphasizes the fact that Interactive
Buyers does not have significant tangible assets, and does not have substantial
liquid reserves, thus making it almost totally dependent upon operating funds
obtained from investors, at this point in time. No assurance can be given that
these funds will be available upon terms acceptable to Interactive Buyers.
LIMITED OPERATING HISTORY
Virtual Source Network, Interactive Buyers' primary service offering, began
operations in October 1996 when the earlier version of Virtual Source Network, a
software application for personal computers rather than an Internet application,
was successfully installed and used at a private company in southern California.
Interactive Buyers has had a limited operating history since then, although it
did successfully install the earlier Virtual Source Network version (personal
computer application) for several clients, and was paid the annual subscription
rate then in effect. This limited history makes an evaluation of Interactive
Buyers' future prospects very difficult. The new Internet version of Virtual
Source Network has been installed for evaluation and use by five different
companies, each at various stages of the implementation process (see Item 1.
DESCRIPTION OF BUSINESS-VIRTUAL SOURCE NETWORK). The Internet version of Virtual
Source Network is a much more powerful system and, at the same time, much more
complex than the earlier version. To fully benefit from the capabilities of the
new system, it must be integrated with the existing computer systems being used
by the client, such as their inventory management, accounts payable, and general
accounting systems. This takes time, and must be fit into the work schedules of
the Information Technology Departments at client companies. At this point in
time, work on these integration projects is being delayed by many higher
priority client projects associated with Y2K issues. Focus on Y2K issues is
likely to intensify as the year 2000 approaches, and may result in further
delays in Virtual Source Network installations beyond January of the year 2000.
See YEAR 2000 RISK, below, and Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
RESULTS OF OPERATIONS-IMPACT OF Y2K. In addition, certain systems projects must
be completed, either at client companies, or
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with respect to Virtual Source Network modifications requested by clients, in
order to meet information needs of their unique systems before Virtual Source
Network becomes fully operational for those clients. Each company is different,
and information needs as well as preferences of management differ. Interactive
Buyers intends to accommodate many of these special requests. There can be no
assurance that any client will ever produce substantial revenues for Interactive
Buyers.
RISKS OF EARLY STAGE COMPANY; NEW, RAPIDLY CHANGING MARKET; NEED TO ATTRACT
LARGE TECHNOLOGICALLY ADVANCED CORPORATIONS The market for Internet applications
And services is at an early stage, and changing rapidly. Internet procurement
is a new market. Its rate of growth and change is unpredictable, as is the
nature of this change. Interactive Buyers will encounter the risks and
difficulties often encountered by early-stage companies in new and rapidly
evolving markets. Interactive Buyers' initial success will depend upon
attracting several large, technologically advanced corporations to use Virtual
Source Network, and their favorable results from this usage. Subsequent success
will depend on Interactive Buyers' ability to communicate these early successes
to the marketplace, thus attracting significant numbers of other businesses and
buying organizations. No assurance can be given that Interactive Buyers will be
successful in the marketplace, or if successful, that it will attract
significant numbers of clients. There can be no assurance that an adequate
demand for, and usage of, Interactive Buyers' products will develop.
COMPLEX IMPLEMENTATION AND INTEGRATION OF VIRTUAL SOURCE NETWORK MAY IMPEDE
MARKET PENETRATION The installation of Virtual Source Network, and integration
with a client's systems currently in use is a complex, time consuming and
expensive process. Interactive Buyers' management estimates that the
installation and integration process may take anywhere from four months to six
months, depending on the size of the client company, the complexity of its
operations, the configurations of its current computer systems, and other
systems projects that compete for the time and attention of the Information
Technology departments of the clients. Management expects that most integration
projects will involve various integrators as outside systems consultants to
the client, and estimates the combined cost (to the client) of internal and
external resources applied may be as much as $2,000,000 per installation.
Interactive Buyers' ability to continually enhance the features of Virtual
Source Network, in response to client's widely differing needs, is yet to be
proven. As a result, Virtual Source Network may not achieve significant market
penetration in the near future, or ever. Failure to achieve significant market
penetration would have negative consequences for Interactive Buyers.
LARGE OPERATING LOSSES EXPECTED TO CONTINUE Interactive Buyers has accumulated
net losses of $4.5 million through July 31, 1999, the end of the second quarter
of fiscal 2000. Since inception, Interactive Buyers has not had material
revenues, and has recognized no revenues at all from the Internet version of
Virtual Source Network. Interactive Buyers expects to derive the majority of its
revenues from Virtual Source Network fees over the next five years. In addition,
provided that revenues develop more or less as expected, Interactive Buyers
expects to spend as much as 10 million to 15 million dollars per year, during
the next two or three years, on marketing, sales, technology development,
training and administration. There can be no assurance that Interactive Buyers
Network will be able to fund these expenses. Failure to fund these expenses
would have materially adverse consequences for Interactive Buyers.
MARKET LIMITATIONS DUE TO APPLICATION OF PENNY STOCK RULES TO THE COMMON STOCK
OF INTERACTIVE BUYERS The securities of Interactive Buyers are subject to a
Securities and Exchange Commission rule that imposes special sales practice
requirements upon broker-dealers who sell such securities to persons other than
established customers or accredited investors. For purposes of the rule, the
phrase "accredited investors" means, in general terms, institutions with assets
in excess of $5,000,000, or individuals having a net worth in excess of
$1,000,000 or having an annual income that exceeds $200,000 (or that, when
combined with a spouse's income, exceeds $300,000). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the transaction
prior to the sale. Consequently, the rule may affect the ability of
broker-dealers to sell the securities of Interactive Buyers and also may affect
the ability of any shareholder to sell their securities in any market that might
develop for the common stock.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities Exchange Act of 1934,
as amended. Because the securities of Interactive Buyers constitute "penny
stocks" within the meaning of the rules, the rules apply to Interactive Buyers
and to its securities. The rules may further affect the ability of owners of
shares to sell the securities of Interactive Buyers in any market that might
develop for them.
Shareholders should be aware that, according to Securities and Exchange Release
No. 34-29093, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales person; (iv) the wholesale dumping of the
same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of
those prices and with consequent investor losses. Management of Interactive
Buyers is aware of the abuses that have occurred historically in the penny stock
market. Although management does not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to the securities of
Interactive Buyers.
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INCREASED OPERATING EXPENSES EFFECT ON OPERATIONS AND PRICE OF COMMON STOCK
Interactive Buyers plans to increase operating expenses to expand its sales and
marketing operations, establish new strategic relationships, fund additional
systems development, and increase its business and professional staff internal
business systems. These planned expenses will increase operating losses during
reporting periods before significant revenues develop. This could lead to drops
in the market price of Interactive Buyers shares.
SUBSTANTIAL COSTS OF ANY SECURITIES LITIGATION COULD DIVERT LIMITED RESOURCES OF
INTERACTIVE BUYERS In the past, securities class action litigation has often
been brought against a company following periods of volatility in the market
price of its securities. Interactive Buyers could become a target of similar
securities litigation. Litigation of this type could result in substantial costs
and divert management's attention and resources.
DEPENDENCE ON VIRTUAL SOURCE NETWORK ANTICIPATED REVENUES Interactive Buyers
expects that when revenues do develop, substantially all of those revenues will
come from Virtual Source Network clients. Although Virtual Source Network fees
are believed by management of Interactive Buyers to be below those currently
charged for leading competitive systems and services, future reductions in
competitive prices could negatively impact the demand for, or usage of, Virtual
Source Network. These changes may impede Virtual Source Network's ability to
achieve broad market acceptance, thus negatively impacting Interactive Buyers'
opportunity to eventually become profitable. There can be no assurance that
broad and timely acceptance of Virtual Source Network, which is critical to
Interactive Buyers' future success, will be achieved. Failure to achieve
anticipated revenues would have adverse consequences for Interactive Buyers.
COMPETITIVE "BUSINESS-TO-BUSINESS" INTERNET COMMERCE MARKET; EFFECT ON MARKET
SHARE AND BUSINESS The market for Virtual Source Network is very competitive,
evolving and subject to rapid technological change. Intensity of competition is
likely to increase in the future. Increased competition from new competitors is
likely to result in loss of market share, which could negatively impact
Interactive Buyers' business. Competitors vary in size, and in the scope and
breadth of the products and services offered. Virtual Source Network will
encounter competition from Ariba, Clarus, Commerce One, Concur Technologies,
Extricity, GE Information Services, Intelysis, Netscape Communications, Purchase
Pro, and TRADE'ex Electronic Commerce Systems. Virtual Source Network may also
encounter
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competition from several major enterprise software developers, such as Oracle,
PeopleSoft and SAP who are not presently considered to be direct competitors,
but who have announced intentions to enter into the market. In addition, because
there are relatively low barriers to entry in this market, additional
competition from other established and emerging companies may develop.
Many current and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources than
Interactive Buyers, significantly greater name recognition, and a larger
installed base of customers. In addition, many of the competitors have
well-established relationships with Interactive Buyers' clients and potential
clients, and have extensive knowledge of the industry. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address customer needs. Accordingly, it is possible that new competitors, or
alliances among competitors, may emerge and rapidly acquire significant market
share. Actions taken by Interactive Buyers competitors, including price cuts,
new product introductions and enhancements could have material adverse
consequences for Interactive Buyers. There can be no assurance that Interactive
Buyers will be able to compete with price cuts, or develop, introduce and market
enhancements to its service on a timely basis to compete successfully in this
market.
VIRTUAL SOURCE NETWORK REVENUES EXPECTED FROM A LIMITED NUMBER OF CLIENTS,
MEANING INCREASED POTENTIAL IMPACT OF CUSTOMER LOSS Interactive Buyers expects
that Virtual Source Network revenues, if any, during the current fiscal year
will come from a small number of clients, perhaps as few as five or less. The
loss of any single customer or change in a client's budget could have a
substantial negative impact on the business of Interactive Buyers.
THIRD PARTIES IMPLEMENT/INTEGRATE VIRTUAL SOURCE NETWORK; NEGATIVE IMPACT UPON
REVENUE GOALS IF THIRD PARTIES UNAVAILABLE OR DO NOT PERFORM Interactive Buyers
expects to rely, almost exclusively, on a number of third parties to propose and
explain Virtual Source Network to prospective clients, to implement Virtual
Source Network, to integrate Virtual Source Network with clients' existing
systems, and to train users. Interactive Buyers' ability to support its
strategic partners, in pursuit of large numbers of buyers and suppliers, is yet
to be proven. If Interactive Buyers is unable to establish and maintain
effective, long-term relationships with these third parties, or if these third
parties are unable to meet the needs and expectations of Virtual Source Network
clients, Interactive Buyers would have difficulty achieving its revenue goals.
Interactive Buyers has established relationships with PricewaterhouseCoopers for
integration of Virtual Source Network into the clients technology departments;
with Analytics, Inc. for analysis of client dollars spent, and potential
benefits of Internet procurement, and with IBM for training of clients in the
use of Virtual Source Network. This strategy may also require that Interactive
Buyers develop new relationships with third party implementers/integrators as
the number of Virtual Source Network users
increases.
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A number of potential competitors, including Oracle, SAP and PeopleSoft, have
significantly more well-established relationships with these third parties and,
as a result, these third parties may be more likely to recommend competitors'
products and services.
VENDORS ARE ESSENTIAL TO SUCCESS OF VIRTUAL SOURCE NETWORK; NEGATIVE IMPACT OF
VENDORS' FAILURE TO JOIN THE NETWORK In order to operate, Virtual Source
Network requires that vendors be able to access the network and that client
buyers be able to communicate their requirements electronically to vendors.
Currently, vendors can access Virtual Source Network even if they have not
joined the network, but it is far more efficient if a vendor does join the
network. It is necessary that a client's key vendors join the network in order
to achieve the full benefits of the system, and Interactive Buyers does expect
that vendors will join. Network membership is now free for any vendor, and
client buyers joining Virtual Source Network make direct requests of their key
vendors that they join. When a large corporation requests that its vendors adapt
to a new purchasing process, and that change is free, there is a strong
incentive for those vendors to make that change, and to protect their customer
relationships. To date there has been no significant vendor resistance to
joining the new Internet version of Virtual Source Network. During 1996 and
1997, however, Interactive Buyers found significant vendor resistance to
joining the Virtual Source Network. Vendors viewed Virtual Source Network as
another increase in competitive price pressure. They also saw an increased
possibility of losing customers to lower cost vendors not previously competing
for the business. Vendors also resisted annual subscription fees of $980.
Finally, the non-Internet version was more difficult for vendors to operate.
Since 1997 several important changes have occurred. First, electronic commerce
and the resultant increased competition have become more accepted by vendors.
It is management's opinion that most vendors believe that they will eventually
be required to do business electronically, if they have not already started.
Second, the Internet version of Virtual Source Network is easier for vendors to
use. Finally, Interactive Buyers no longer charges subscription fees to vendors.
Despite these changes, there can be no assurance that vendor resistance will not
again develop. Should significant new vendor resistance develop, that could
slow adoption of Virtual Source Network by clients, and negatively impact
potential Interactive Buyers' revenues.
SUBSTANTIAL COSTS OF ANY PRODUCT LIABILITY CLAIMS; NO PRODUCT LIABILITY
INSURANCE Errors, defects or other performance problems with Virtual Source
Network could result in financial or other damages to our clients. Management
believes that the contractual limits of liability, indemnification provisions
and disclaimers of warranties should eliminate liability of Interactive Buyers
in the event of a product liability claim. A product liability claim, however,
even if not successful, would likely be time consuming and costly and could
seriously harm Interactive Buyers. Interactive Buyers does not maintain product
liability insurance. Although the terms and conditions in Virtual Source Network
user agreements contain disclaimers of any warranties designed to limit exposure
to these claims, existing or future laws, or unfavorable judicial decisions,
could weaken or negate these provisions and have materially adverse consequences
for Interactive Buyers.
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SUCCESS DEPENDS ON KEY PERSONNEL; NO "KEY MAN" LIFE INSURANCE Future
performance depends on the continued service of key personnel, and the ability
to attract, train, and retain additional technical, marketing, customer support,
and management personnel. The loss of one or more key employees could
negatively impact Interactive Buyers, and there is no "key man" life insurance
in force at this time. However, Interactive Buyers does plan to obtain this
insurance. Competition for qualified personnel is intense, and there can be no
assurance that Interactive Buyers will retain key employees, or attract and
retain other needed personnel.
PROTECTION OF INTELLECTUAL PROPERTY; LACK OF PATENTS; POTENTIAL PIRATING
Interactive Buyers' success depends to a large extent on its exclusive
technology, and relies on a combination of contractual provisions,
confidentiality procedures, trade secrets, copyrights and trademark protections.
Interactive Buyers has no patents at this point, and Interactive Buyers'
technologies may not be patentable. Despite efforts to protect its exclusive
rights, unauthorized parties may attempt to copy aspects of that technology, or
to obtain and use our exclusive information. Policing unauthorized use of this
technology is difficult, and while Interactive Buyers is unable to determine the
extent to which piracy of Interactive Buyers' software may exist, software
piracy can be expected to be a persistent problem. Further, competitors may
independently develop similar technology, or duplicate Interactive Buyers'
services without violating intellectual property rights.
At present, Interactive Buyers' technologies are owned outright by Interactive
Buyers. However, Interactive Buyers may in the future have to license or
otherwise obtain access to intellectual property of third parties.
SUBSTANTIAL COSTS OF ANY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS There has
been a substantial amount of litigation in the software industry and the
Internet industry regarding intellectual property rights. It is possible that in
the future, third parties may claim that Interactive Buyers' technology may
infringe their intellectual property. Management is not aware of any
infringement or claim of infringement by a third party. It is expected that
software product developers and providers of electronic commerce solutions will
increasingly be subject to infringement claims as the number of products and
competitors grows and the functionality of products in different industry
segments overlaps. Any claims, with or without merit, could be time-consuming,
resulting in costly litigation.
STRAIN ON LIMITED RESOURCES DUE TO NEED TO MANAGE GROWTH AND EXPANSION
Interactive Buyers anticipates a period of significant expansion and growth,
which most likely will place significant strain upon management, systems, and
resources. Failure to properly manage that growth and expansion, if and when it
occurs, will jeopardize the future of the business.
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YEAR 2000 RISK
Although management believes that its internally developed systems and
technology are Year 2000 compliant, certain other technologies nevertheless
could be substantially impaired, or cease to operate, due to Year 2000 problems.
See Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF
OPERATIONS-IMPACT OF Y2K. Interactive Buyers relies on information technology
supplied by third parties as well, and strategic partners may also be dependent
on information technologies not Year 2000 compliant, and on their own
third-party vendor systems that may be at risk. These Year 2000 problems could
adversely affect Interactive Buyers. Further, the Internet itself could face
serious disruptions arising from Year 2000 problems.
Many potential Virtual Source Network clients have implemented policies that
prohibit or strongly discourage making changes or additions to their internal
computer systems until after January 1, 2000. Further, some technology budgets
have been diverted from other projects to deal with Year 2000 issues.
Interactive Buyers has already experienced delays in the new client
decision-making process for this reason, and expects delays to continue through
December 31, 1999, and into 2000.
INTERACTIVE BUYERS' DEPENDENCE UPON, AND RISKS RELATED TO, THE INTERNET
The use of Virtual Source Network and Virtual Source Publisher depends on the
increased acceptance and use of the Internet as a medium of commerce and
communication. While management believes that acceptance and use of the Internet
will continue to increase at very rapid rates, it is not guaranteed. If that
growth does not continue, clients may not adopt or use these new Internet
technologies at the rates management has assumed, and Interactive Buyers may not
be as successful as originally thought. Further, even if acceptance and use of
the Internet does increase rapidly, but the technology underlying the Internet
and other necessary technology and related infrastructure does not effectively
support that growth, Interactive Buyers' future would be negatively impacted.
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POTENTIAL BREACHES OF INTERACTIVE BUYERS' SECURITY SYSTEMS A significant barrier
to electronic commerce and communications is the secure transmission of
confidential information over public networks. Advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments could result in compromises or breaches of Interactive Buyers'
security systems or those of other web sites to protect Interactive Buyers'
exclusive information. If any well-publicized compromises of security were to
occur, it could have the effect of substantially reducing the use of the web for
commerce and communications. Anyone who circumvents Interactive Buyers' security
measures could misappropriate its exclusive information or cause interruptions
in services or operations. The Internet is a public network, and data is sent
over this network from many sources. In the past, computer viruses, software
programs that disable or impair computers, have been distributed and have
rapidly spread over the Internet. Computer viruses could theoretically be
introduced into Interactive Buyers' systems, or those of our clients or vendors,
which could disrupt Virtual Source Network or Virtual Source Publisher, or make
it inaccessible to clients or vendors. Although language in its user agreement
places responsibility with users to protect Virtual Source Network from such
threats, Interactive Buyers may be required to expend significant capital and
other resources to protect against the threat of security breaches or to
alleviate problems caused by breaches. To the extent that Interactive Buyers'
activities may involve the storage and transmission of exclusive information,
such as credit card numbers, security breaches could expose Interactive Buyers
to a risk of loss or litigation and possible liability. Despite provisions to
the contrary in its user agreements, Interactive Buyers' security measures may
be inadequate to prevent security breaches, and business could be seriously
impacted if they are not prevented.
GOVERNMENT REGULATION
As Internet commerce continues to grow, the risk that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services, increases. It is possible that
legislation could expose companies involved in electronic commerce to liability,
which could limit the growth of electronic commerce generally. Legislation could
dampen the growth in Internet usage and decrease its acceptance as a
communications and commercial medium. If enacted, these laws, rules or
regulations could limit the market for Interactive Buyers' services.
One or more states may seek to impose sales tax collection obligations on
out-of-state companies like Interactive Buyers that engage in or facilitate
electronic commerce throughout numerous states. These proposals, if adopted,
could substantially impair the growth of electronic commerce and could adversely
affect Interactive Buyers' opportunity to derive financial benefit from
these activities.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this document constitute forward-looking statements.
These statements involve known and unknown risks, uncertainties, and other
factors that may cause actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by these
forward-looking statements.
Although management believes that the expectations reflected in the
forward-looking statements are reasonable, there is no guarantee that future
results, levels of activity, performance or achievements will be attained.
Moreover, neither management nor any other person assumes responsibility for the
accuracy and completeness of these statements. Management is under no duty to
update any of the forward-looking statements to conform these statements to
actual results.
INDUSTRY OVERVIEW
The Internet has emerged as the fastest growing communication medium in history.
Management estimates there were approximately 100 million users at the end of
1998, with projected growth to more than 300 million users by 2002. The Internet
is dramatically changing how businesses and individuals communicate and share
information. The Internet has created new opportunities for conducting commerce,
such as business-to-consumer and person-to-person electronic commerce. Recently,
the widespread adoption of intranets and the acceptance of the Internet as a
business communications platform has created a foundation for
business-to-business electronic commerce that will enable organizations to
streamline complex processes, lower costs and improve productivity.
With this foundation, management believes that Internet-based,
business-to-business electronic commerce is poised for rapid and substantial
growth and represents a significantly larger opportunity than
business-to-consumer or person-to-person electronic commerce. Management expects
that this market will create a substantial demand for Internet-based electronic
commerce applications.
Today, most organizations buy goods and services through paper-based or
semi-automated processes. These processes are costly, time consuming and complex
and often include the re-keying of information, lengthy approval cycles and
significant involvement of financial and administrative personnel. Management
estimates that the cost per procurement transaction ranges from $75 to $175,
often exceeding the cost of the items being purchased. Beyond the time and
expense associated with manual processing costs, organizations suffer even
greater costs when they cannot fully exploit procurement economies of scale.
Most organizations lack the systems that enable them to monitor purchases and
compile data necessary to negotiate better volume discounts with preferred
suppliers. When preferred suppliers are not used, organizations pay a premium.
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With the widespread adoption of the Internet as a business communication
platform, organizations can now automate commerce activities. The availability
of this technology creates a significant market opportunity for Internet-based
business-to-business electronic commerce solutions.
COMPETITION
The market for Virtual Source Network is very competitive and likely to become
more so, and is subject to rapid technological change. Increased competition is
likely to result in price reductions, to some extent caused by Virtual Source
Network pricing which management believes is below current industry averages.
See COMPETITIVE "BUSINESS-TO-BUSINESS" INTERNET COMMERCE MARKET; EFFECT ON
MARKET SHARE AND BUSINESS, above. Although management believes that Virtual
Source Network compares favorably with respect to most competitive offerings,
and favorably with respect to overall cost, Virtual Source Network does not yet
have a large referral base, nor large numbers of buyers or vendors using the
network, and its performance has yet to be proven with regard to the new
Internet version of Virtual Source Network. As a result, it is yet to be seen
whether Virtual Source Network can compete successfully.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATION
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 1998:
Interactive Buyers' business is at an early stage, and is in transition from a
firm primarily engaged in technology development and refinement, to a firm that
is marketing and selling its services. During the last two fiscal years,
expenditures have been made primarily for the purpose of developing, testing and
improving Interactive Buyers' two Internet applications, Virtual Source Network
and Virtual Source Publisher. A modest amount of revenue has been received from
Virtual Source Network users paying annual subscription fees, but that revenue
ceased when efforts turned to the development of the Internet version of Virtual
Source Network, and a decision was made to charge transaction fees for usage of
Virtual Source Network rather than subscription fees. Substantially all the cash
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required for operations during fiscal years ended January 31, 1998 and 1999 has
come from investors. Other than convertible demand notes of $857,200 at January
31, 1999, and normal accounts payable, Interactive Buyers has no outstanding
debts.
REVENUE
Revenue in fiscal 1999 was $61,387, down $10,628 (14.8%) from $72,015 in fiscal
1998. Both figures consisted primarily of subscription revenues and, as stated
above, Interactive Buyers' policy of charging subscription fees has been
discontinued, so revenues from this source will cease.
GENERAL & ADMINISTRATIVE EXPENSES
Expenses in fiscal 1999 were $1,253,559 up $365,031 (41.1%) from $888,528 in
fiscal 1998. The increase was primarily due to the added payroll and operating
expenses associated with Wpg.Net, Inc., which was acquired in June of 1998.
Interactive Buyers, from time to time, issues shares of its common stock to
employees as bonuses and to outside consultants in lieu of fees. 403,722 shares
were issued for the fiscal year ended January 31, 1998, at an expense of $92,706
to Interactive Buyers. 318,500 shares were issued for the fiscal year ended
January 31, 1999 at an expense of $67,363.
NET LOSS FROM OPERATIONS
The Net Loss from Operations was $1,192,172, up $375,659 (46.0%) from a loss of
$816,513 in fiscal 1998, primarily because of the increase in general and
administrative expense noted above.
LOSS ON ABANDONMENT OF EQUIPMENT
Loss on Abandonment of Equipment was zero in fiscal 1999, down 100% from a loss
of $27,856 in fiscal 1998. In the fiscal year ended January 31, 1998, laptop
computers valued at $27,856 were written off. There was no similar write-off in
fiscal 1999. The laptops in question were provided to an eighteen person sales
force in early 1997. The sales approach used at that time proved particularly
unsuccessful, and was terminated. By that time, the laptop computers had become
partially obsolete and their value had decreased significantly. Interactive
Buyers elected not to upgrade them, nor to attempt collection from the
terminated sales people.
LITIGATION SETTLEMENT
The litigation settlement in fiscal 1999 was $91,110, up from zero in fiscal
1998. During fiscal 1999, a mutual compromise settlement between Interactive
Buyers and its landlord resulted in a $30,000 cash payment to Interactive Buyers
and free rent for one year beginning December 1, 1998. The $91,110 settlement
included that cash payment, the free rent, and reimbursement of legal fees and
costs associated with the move. There was no similar litigation or settlement in
the prior year.
NET LOSS
The Net Loss for fiscal 1999 was $1,101,062, up $256,693 (30.4%) from $844,369
in fiscal 1998. The largest factor contributing to the increase in fiscal 1999
net loss, compared to the prior year, was the increased payroll and operating
expense associated with the June 1998 acquisition of Wpg.Net, Inc.
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WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Weighted Average Common Shares Outstanding were 10,529,147 during fiscal 1999,
up 1,336,336 (14.5%) from 9,192,811 in fiscal 1998. During fiscal 1999, 500,000
shares were issued as consideration in the acquisition of Wpg.Net, Inc., 778,656
shares were issued upon conversion of certain convertible demand notes, and
318,500 shares were issued for services rendered. These issuances were partially
offset by the surrender of 1,000,000 shares from two shareholders.
NET LOSS PER COMMON SHARE
The Net Loss per Common Share was $0.10 in fiscal 1999, up $.01 (11.1%) from
$0.09 in fiscal 1998. The percentage increase in loss per share was less than
the percentage increase in Net Loss, because of the increase in Weighted Average
Common Shares Outstanding.
CASH
Cash at January 31, 1999 was $59,937, up $4,531 (8.2%) from $55,406 at January
31, 1998. The change reflects normal fluctuations in operating cash balances.
ACCOUNTS RECEIVABLE
Accounts Receivable were $3,590 at January 31, 1999, down $23,973 (86.9%) from
$27,563 at January 31, 1998. The decrease in accounts receivable from year to
year is a direct result of Interactive Buyers' change in pricing structure of
the new Internet version of Virtual Source Network from a subscription basis to
a transaction usage fee basis. During the transition period the subscription
fees were discontinued and the transactional fees had not yet developed.
TOTAL CURRENT ASSETS
Current Assets were $63,527, down $19,442 (23.4%) from $82,969 at January 31,
1998. The decrease in Current Assets is due to the reduction in Accounts
Receivable.
FURNITURE AND FIXTURES
Furniture and Fixtures were $64,588 at January 31, 1999, unchanged from January
31, 1998.
SOFTWARE
Software was $8,899 at January 31, 1999, unchanged from January 31, 1998.
ACCUMULATED DEPRECIATION
Accumulated Depreciation was $50,920 at January 31, 1999, up $21,660 (74.0%)
from $29,260 at January 31, 1998. The increase resulted from normal depreciation
expense during fiscal 1999.
PROPERTY AND EQUIPMENT, NET
Property and Equipment, Net was $22,567 at January 31, 1999, down $21,660
(49.0%) from $44,227 at January 31, 1998. The year to year reduction is the
result of a comparable increase in accumulated depreciation. There was no other
change.
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PREPAID RENT
Prepaid Rent was $37,500 at January 31, 1999, up from zero at January 31, 1998.
The $37,500 of prepaid rent at January 31, 1999 represents the remaining ten
months of free rent (at $3,750 per month) available to Interactive Buyers as a
result of the litigation settlement discussed earlier. There was no similar
settlement in effect at January 31, 1998.
EMPLOYEE RECEIVABLES
Employee Receivables were $68,027, up $9,400 (16.0%) from $58,627 at January 31,
1998. This increase was primarily due to expense advances.
INTANGIBLE ASSETS
Intangible Assets were $433,774 at January 31, 1999, up from zero at January 31,
1998. This amount represents the unamortized portion of the goodwill, or excess
of price paid over book value of assets acquired, booked as a result of the
Wpg.Net, Inc. acquisition in June 1998. There was no comparable item at January
31, 1998.
ORGANIZATIONAL COSTS, NET OF ACCUMULATED AMORTIZATION
Net Organizational Costs were $1,757 at January 31, 1999, down $876 (33.3%) from
$2,633 at January 31, 1998. The reduction represents normal amortization during
the year.
TOTAL OTHER ASSETS
Total Other Assets were $541,058 at January 31, 1999, up $479,798 (783.2%) from
$61,260 at January 31, 1998, primarily due to the large increase in Intangible
Assets described above.
TOTAL ASSETS
Total Assets were $627,152 at January 31, 1999, up $438,696 (232.8%) from
$188,456 at January 31, 1998, primarily due to the large increase in Intangible
Assets described above.
ACCOUNTS PAYABLE
Accounts Payable were $49,222 at January 31, 1999, up $16,735 (51.5%) from
$32,487 at January 31, 1998. This increase represents increases in normal
business activity.
ACCRUED LIABILITIES
Accrued Liabilities were $77,785 at January 31, 1999, up $47,597 (157.7%) from
$30,188 at January 31, 1998. Most of this increase represents interest expense
accrued on Interactive Buyers' $857,200 of convertible demand notes outstanding
at January 31, 1999. This interest is payable in cash at the option of
Interactive Buyers. If not paid in cash, the holders have the right to convert
any of this accrued interest into Interactive Buyers common stock.
CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible Notes payable were $857,200 at January 31, 1999, up $659,525
(333.6%) from $197,675 at January 31, 1998. This increase represents the
principal amount of new notes issued during the period, less the principal
amount of notes converted into common shares during the same period.
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TOTAL CURRENT LIABILITIES
On January 31, 1999 Total Current Liabilities were $984,207 up $723,857 (278.0%)
from $260,350 on January 31, 1998. This change resulted primarily from the
increase in Convertible Notes payable, as described above.
DEFERRED REVENUE
On January 31, 1999 Deferred Revenue was $3,250 down $25,469 (88.7%) from
$28,719 on January 31, 1998. This change represents deferred subscription
revenue recognized as income during the period. It also reflects the fact that
Interactive Buyers no longer sells subscriptions to the earlier version of
Virtual Source Network, meaning that no new deferred subscription amounts were
added during the period.
TOTAL LIABILITIES
On January 31, 1999 Total Liabilities were $987,457 up $698,388 (241.6%) from
$289,069 on January 31, 1998. This change resulted primarily from the increase
in Convertible Notes payable, as described above.
COMMON STOCK, $.01 PAR VALUE
Common Stock increased $5,971 or 5.5%, from $108,043 on January 31, 1998, to
$114,014 on January 31, 1999. This increase represents the sum of the par value
of 778,656 shares issued upon conversion of convertible demand notes, 500,000
common shares issued in connection with the acquisition of Wpg.Net, Inc., and
318,500 shares issued in return for services rendered, less the par value of
1,000,000 shares surrendered by certain shareholders.
PAID-IN-CAPITAL IN EXCESS OF PAR
Paid-in-Capital increased $835,399, or 38.59%, from $2,164,804 on January 31,
1998 to $3,000,203 on January 31, 1999. This increase represents the transaction
value per share, in excess of par, for each of the shares issued during the
fiscal year ended January 31, 1999. See "COMMON STOCK, $.01 PAR VALUE" above.
ACCUMULATED DEFICIT
On January 31, 1999 the Accumulated Deficit was $3,474,522 up $1,101,062 (46.4%)
from $2,373,460 on January 31, 1998. This increase represents the Net Loss
recorded for the year ended January 31, 1999.
MANAGEMENT DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS - SIX MONTHS ENDED
JULY 31, 1999, COMPARED TO THE SIX MONTHS ENDED JULY 31, 1998:
REVENUE
For the six months ended July 31, 1999 revenue was $7,985, down $33,717 (80.9%)
from $41,702 during the six months ended July 31, 1998. This decrease results
from Interactive Buyers' decision, early in the 1999 fiscal period, to
discontinue the annual subscription program relative to the previous version of
Virtual Source Network. It also reflects the fact that the new Internet version
of Virtual Source Network has not yet begun to generate revenue.
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GENERAL AND ADMINISTRATIVE EXPENSES
For the six months ended July 31, 1999, General and Administrative Expenses were
$1,065,822, up $410,279 (62.6%) from $655,543 during the six months ended July
31, 1998. This increase was caused primarily by the added payroll and other
expenses associated with the operation of Wpg.Net, Inc., acquired in June of
1998, and by additional payroll and systems development expense associated with
continuing work on the Internet version of Virtual Source Network.
NET LOSS FROM OPERATIONS/NET LOSS
For the six months ended July 31, 1999, Net Loss from Operations and Net Loss
were identical line items and were each $1,057,837, up $443,996 (72.3%) from
$613,841 during the six months ended July 31, 1998. The largest factor
contributing to the increased loss is the increase in General and Administrative
Expenses, which, in turn, results primarily from the Wpg.Net, Inc. acquisition
and the increase in system development efforts, as discussed above.
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC
For the six months ended July 31, 1999, the Weighted Average of Common Shares
Outstanding was 12,231,402, up 1,474,782 (13.7%) from 10,756,620 during the six
months ended July 31, 1998. This increase reflects the issuance of 887,869
shares in connection with a private placement financing, 636,100 shares upon
exercise of employee stock options, and 135,932 shares for other purposes,
including conversion of convertible demand notes and consideration for services
rendered.
NET LOSS PER COMMON SHARE - BASIC
For the six months ended July 31, 1999, the Net Loss per Common Share was $0.09,
up $0.03 (50.0%) from $0.06 during the six months ended July 31, 1998. The
increased per share loss reflects the $443,996 increase in Net Loss, partially
offset by the 1,474,782 share increase in Weighted Average Common Shares
Outstanding during the same period.
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION - AT JULY 31, 1999,
COMPARED TO JANUARY 31, 1999:
CASH
On July 31, 1999 Cash totaled $438,300, up $378,363 (631.3%) from $59,937 on
January 31, 1999. This increase reflects the remaining proceeds of the private
placement financing completed in April 1999, plus a $100,000 investment from an
existing shareholder in July 1999.
ACCOUNTS RECEIVABLE
On July 31, 1999 Accounts Receivable were zero, down $3,590 (100.0%) from $3,590
on January 31, 1999. This decline resulted from Interactive Buyers' decision,
early in fiscal 1999, to discontinue marketing the previous version of Virtual
Source Network while the new Internet version was in development. In addition,
the new Internet version has not yet begun to generate revenue, and therefore no
new accounts receivable.
TOTAL CURRENT ASSETS
On July 31, 1999 Total Current Assets were $438,300, up $374,773 (589.9%) from
$63,527 on January 31, 1999. This increase reflects the remaining proceeds of
the private placement financing completed in April 1999 plus the additional
$100,000 investment in July 1999 as described above.
FURNITURE AND FIXTURES
On July 31, 1999 Furniture and Fixtures totaled $155,547, up $90,959 (140.8%)
from $64,588 on January 31, 1999. This increase represents additional computer
hardware purchased, as well as office furniture.
SOFTWARE
On July 31, 1999 Software totaled $8,899, unchanged from January 31, 1999.
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ACCUMULATED DEPRECIATION
On July 31, 1999 Accumulated Depreciation totaled $72,170, up $21,250 (41.7%)
from $50,920 on January 31, 1999. This increase represents depreciation expense
for the six months ended July 31, 1999.
PROPERTY AND EQUIPMENT, NET
On July 31, 1999 Property and Equipment, Net totaled $92,276, up $69,709
(308.9%) from $22,567 on January 31, 1999. This change resulted primarily from
the acquisition of computer hardware and office furniture mentioned above.
PREPAID RENT
On July 31, 1999 Prepaid Rent was $15,000, down $22,500 (60.0%) from $37,500 on
January 31, 1999. This asset represents the free rent negotiated in Interactive
Buyers' settlement agreement with its landlord. The decrease represents six
months rent value at $3,750 per month.
EMPLOYEE RECEIVABLES
On July 31, 1999 Employee Receivables totaled $102,597, up $34,570 (50.8%) from
$68,027 on January 31, 1999. This change resulted primarily from expense
advances to officers and other employees who travel extensively on behalf of
Interactive Buyers. During the first six months of this fiscal year, travel has
increased significantly as a result of Interactive Buyers' greatly increased
marketing activities.
INTANGIBLE ASSETS, NET OF AMORTIZATION
On July 31, 1999 Intangible Assets, net, were $418,656, down $15,118 (3.5%) from
$433,774 on January 31, 1999. This change resulted primarily from amortization
during the six month period. The intangible asset represents Goodwill associated
with the June 1998 acquisition of Wpg.Net, Inc.
OTHER ASSETS
On July 31, 1999 Other Assets totaled $1,319, down $438 (24.9%) from $1,757 on
January 31, 1999. This was not a material change.
TOTAL ASSETS
On July 31, 1999 Total Assets were totaled $1,068,148, up $440,996 (70.3%) from
$627,152 on January 31, 1999. This change resulted primarily from the increase
in cash (remaining proceeds of private placement), and furniture & fixtures
(computer hardware & office furniture).
ACCOUNTS PAYABLE
On July 31, 1999 Accounts Payable totaled $120,487, up $71,265 (144.8%) from
$49,222 on January 31, 1999. This change resulted primarily from contract
programming expenses associated with development work on Virtual Source Network.
Most of these invoices were paid subsequent to July 31, 1999.
ACCRUED LIABILITIES
On July 31, 1999 Accrued Liabilities totaled $87,727, up $9,942 (12.8%) from
$77,785 on January 31, 1999. This increase resulted primarily from the accrual
of interest due on Interactive Buyers' outstanding convertible demand notes.
NOTES PAYABLE-RELATED PARTIES
On July 31, 1999 Interactive Buyers' outstanding convertible demand notes
totaled $777,206, down $79,994 (9.3%) from $857,200 on January 31, 1999. This
change reflects the net result of new notes issued less notes converted to
shares of common stock of Interactive Buyers.
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DEFERRED REVENUE
On July 31, 1999 Deferred Revenue was $933, down $2,317 (71.3%) from $3,250 on
January 31, 1999. This change represents deferred subscription revenue
recognized as income during the period.
TOTAL LIABILITIES
On July 31, 1999 Total Liabilities were $986,353, down $1,104 (0.1%) from
$987,457 on January 31, 1999. This change resulted primarily from the increase
in accounts payable and accrued liabilities offset by a reduction in notes
payable, all as described above.
COMMON STOCK
On July 31, 1999 the par value of outstanding common shares was $130,614, up
$16,600 (14.6%) from $114,014 on January 31, 1999. This change represents the
par value of new shares issued during the quarter.
ADDITIONAL PAID-IN-CAPITAL
On July 31, 1999 Paid-in-Capital totaled $4,662,338, up $1,662,135 (55.4%) from
$3,000,203 on January 31, 1999. This increase represents the value (in excess of
par) of new shares issued in connection with the private placement financing
completed in April 1999, the additional $100,000 investment in July 1999,
options exercised during the period, convertible demand notes converted during
the period, and the issuance of stock for services.
ACCUMULATED DEFICIT
On July 31, 1999 the Accumulated Deficit was $4,532,359, up $1,057,837 (30.4%)
from $3,474,522 on January 31, 1999. This increase represents the Net Loss
recorded for the six months ended July 31, 1999.
NOTES RECEIVABLE - RELATED PARTIES
On July 31, 1999 Notes Receivable-Related Parties was $178,798. There was no
comparable item at January 31, 1999. These notes are receivable from employees
who exercised stock options in May 1999. Interactive Buyers' stock option
program provides several alternative methods of paying for shares acquired
through exercise of options. One of those alternatives is to provide a demand
note in the amount of the purchase, payable to Interactive Buyers.
LIQUIDITY AND CAPITAL RESOURCES
Interactive Buyers has no revenue at this time, other than small amounts of
interest income, and certain non-recurring items. While Interactive Buyers
expects to generate significant amounts of revenue in the future, it is entirely
dependent on investor funds at this point in time. At July 31, 1999, Interactive
Buyers had cash balances totaling $438,300, primarily as a result of its private
placement of common stock in April 1999. An additional $100,000 was invested by
an existing shareholder who purchased additional shares of Interactive Buyers
common stock in July 1999. Since July 31, 1999 an additional $400,000 has been
raised as the result of common stock issued to three existing shareholders (one
of whom had been the investor in July 1999) in private transactions. Management
expects those funds to last until November or December 1999. Interactive Buyers
is having conversations with several funding sources but, at this time, no firm
commitments have been received, and there can be no assurances that funding
commitments will result from these discussions.
The Consolidated Statements of Cash Flows for fiscal years ended January 31,
1999 and 1998 show that net losses ($1,101,062 and $844,369 respectively)
represent the primary use of funds in each fiscal year. In fiscal 1999, $153,000
of convertible notes were issued for services, expense reimbursements, and
accrual of interest, thus reducing the extent to which cash was required to
cover those obligations. Common stock valued at $67,000 was issued for services,
similarly reducing the requirement for cash. The $825,000 proceeds from
convertible note issuance during the fiscal year provided almost all of the cash
required to support the remaining operational expenditures.
21
<PAGE>
The Consolidated Statements of Cash Flows for the six months ended July 31,
1999, and six months ended July 31, 1998, show a similar pattern. Net losses
were ($1,057,837) and ($613,841), respectively, with the issuance of stock for
cash ($1,199,942) and notes for cash ($29,700) in the six months ended July 31,
1999, partially offsetting the cash requirement. A non-cash accounting entry
of $142,720 offsetting a similar entry for compensation expense, required by
Statement of Financial Accounting Standards #123, Accounting for Stock-Based
Compensation, as issued by the Financial Accounting Standards Board, is shown as
an increase in Paid-in-Capital. This did not offset any cash requirement
directly or indirectly, and there was no such cash or other consideration paid
as compensation in the period. These entries in compliance with Statement of
Financial Accounting Standards #123 had no impact on cash flows for any period.
See Item 1. DESCRIPTION OF BUSINESS - RISK FACTORS-NEED FOR ADDITIONAL
FINANCING.
RESEARCH AND DEVELOPMENT FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
During the fiscal year ended January 31, 2000, it is expected that approximately
$1,000,000 will be spent on product development. Interactive Buyers does not
expect to expend any resources in basic research. The Internet version of the
Virtual Source Network is a functioning system as it now exists, but additional
work is being done to enhance the present system. Enhancements will make the
system more flexible, and allow for additional options for the user to modify
portions of the system to better meet the unique needs of each particular user's
business. Other enhancements will add new capabilities to the system in the
future. No assurance can be given that Interactive Buyers will have the
resources necessary to conduct this product development.
IMPACT OF Y2K
GENERAL DESCRIPTION OF THE Y2K ISSUE
The Y2K issue is the result of computer hardware and software language which
utilizes two digits rather than four digits to define the applicable year. As a
result, some of Interactive Buyers' software and hardware may have software or
embedded chips which fail to distinguish between 1900 and 2000 or do not
recognize the year at all. This could disrupt Interactive Buyers' operations,
including a temporary inability to process transactions or engage in normal
business activities. Failure of customer and supplier computer systems could
impact revenues and deliveries of key supplies or services. Interactive Buyers
cannot predict with certainty the nature or likelihood of such impacts.
22
<PAGE>
STATE OF READINESS
Management believes that all of Interactive Buyers' internally used computers
are Y2K compliant and does not anticipate that it will experience a material
adverse impact to its operations, liquidity or financial condition related to
systems under its control. Virtual Source Network and Virtual Source Publisher
were developed to be Y2K compliant, and do not represent a risk for users.
Interactive Buyers' servers are housed in a facility especially designed for
mission-critical computers, and the managers of that facility have assured
Interactive Buyers that all systems and services under the control of the
facility managers are Y2K compliant. Each of Interactive Buyers' business
partners, including Analytics, PricewaterhouseCoopers, and IBM, are Y2K
compliant. All use Microsoft software that is Y2K compliant. Interactive Buyers
cannot be sure that all outside organizations, beyond its control, which may
impact Interactive Buyers' operations, will be Y2K compliant by December 31,
1999. Interactive Buyers plans to take the necessary steps to provide itself
with reasonable assurance that its service providers, customers and financial
institutions are Y2K compliant. If outside organizations beyond the control of
Interactive Buyers are not compliant on time, or if Interactive Buyers or its
business partners or clients experience unanticipated Y2K problems of their own,
the Y2K issue could have a material impact on the operations of Interactive
Buyers. The material impact would include delay of the receipt of revenue by
Interactive Buyers and increase the need for additional financing.
CONTINGENCY PLAN
Interactive Buyers' Y2K compliance plan will ultimately include the development
of contingency plans in the event that Interactive Buyers is not Y2K compliant
or as a result of any third parties who are unable to provide goods or services
essential to Interactive Buyers' operations. There can be no assurance that
Interactive Buyers' contingency plan will be adequate to address unanticipated
Y2K problems. Failure to adequately address Y2K problems may have materially
adverse consequences for Interactive Buyers.
WORST CASE SCENARIO
The worst case scenario for Interactive Buyers would be the shutting down of the
Internet. Neither Virtual Source Network nor Virtual Source Publisher could
operate and communications for Interactive Buyers would be severely disrupted.
Under these circumstances, Interactive Buyers would have no financially feasible
alternative to resume its operations but to wait for the Internet to function
again.
Item 3. DESCRIPTION OF PROPERTY
Interactive Buyers leases approximately 2,500 square feet of standard office
space at its principal location in Ventura, California. This space is rent free,
as a result of the litigation settlement discussed earlier, until the December
31, 1999 end of the lease term. Interactive Buyers has exercised its option to
extend its lease until December 31, 2000 at a monthly rental of $3,750.
Interactive Buyers' subsidiary, Wpg.Net, Inc., rents approximately 2,100 square
feet of standard office space near Seattle Washington, at a current rate of
$2,485 per month.
23
<PAGE>
The lease agreement is month-to-month. Wpg.Net, Inc. is in negotiations to
lease approximately 6,500 square feet of standard office space at a monthly
rental of approximately $8,000. This expanded space would be necessary to
support increased personnel requirements related to Virtual Source Network. The
lease term would be 36 months. Interactive Buyers' main servers are housed in a
Seattle facility especially designed for mission-critical computers. The cost is
$2,200 per month, and is available on a month-to-month basis. This facility
maintains back-up electrical power, fire protection, and other security
features. Data communications connections available within this facility provide
direct access to the Internet, without the need to connect through T-1, T-2, or
T-3 high volume telephone lines.
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 1999, information regarding
ownership of Interactive Buyers' common stock, by each person known by
Interactive Buyers to be the beneficial owner of more than 5% of its outstanding
common stock, by each director, by certain related shareholders, and by all
executive officers and directors of Interactive Buyers as a group. All persons
named below have sole voting and investment power over their shares except as
otherwise noted. Interactive Buyers common stock is the only class of voting
securities outstanding. There are no existing arrangements which may, or are
expected to, result in a change in control of Interactive Buyers.
<TABLE>
<CAPTION>
SHARES
SHARES UNDERLYING
HELD DEMAND NOTES TOTAL
DIRECTLY % BEING CONVERTED SHARES
<S> <C> <C> <C> <C> <C>
NAME & ADDRESS
Robert C. McShirley . . . . . . . . (1) 880,325 12.6% 245,317 1,125,642
4536 Falkirk Bay
Oxnard, CA 93035
Joseph E. Thomure . . . . . . . . . (2) 785,343 (included in none 785,343
12543 Conway Road. . . . . . . . . . 12.6% above)
Creve Coeur, MO 63141
Richard S. McShirley . . . . . . . . (3) 801,418 6.0% 188,116 989,534
794 Hot Springs Road
Santa Barbara, CA 93108
Samuel E. Bradt . . . . . . . . . . (4) 678,818 5.1% none 678,818
6925 N. Wildwood Point
Chenequa, WI 53029
Jawsh Corporation . . . . . . . . . . (5) 655,487 4.9% 112,969 768,456
William Bates, President
258 Lansbrooke Drive
Chesterfield, MO 63005
DX3,Inc.. . . . . . . . . . . . . . . (6) 733,338 5.5% none 733,338
Dennis W. McQuilliams
16623 N.E. 145th Street
Woodinville, WA 98072
Jeri D. Sessler . . . . . . . . . . . (7) none 0.0% none 0
3410 Penensula Road
Oxnard, CA 93035
P. Scott Turner . . . . . . . . . . . (8) 29,408 0.2% none 29,408
30452 Winchester Road
Castaic, CA 91384
Scott T. Behan . . . . . . . . . . . (8) 10,000 0.1% none 10,000
P.O. Box 1244
Somis, CA 91384
Robert N. Schwartz . . . . . . . . . (8) 19,647 0.1% none 19,647
Hughes Research Laboratories
3011 Malibu Canyon Road
Malibu, CA 90265
All Executive Officers and Directors. 3,152,954 23.8% 433,433 3,586,387
as a group (eight individuals) . . . (9)
<FN>
(1) Includes 180,000 shares acquired by option exercise May 15, 1999, but which shares were physically
issued after July 31, 1999, plus 275,520 shares in street name. Mr. McShirley also has an unvested
option to purchase 100,000 shares at $0.75 per share. These shares were not included in the total.
(2) Includes 267,000 in Jelaine Ltd partnership, 80,000 held by four family members, and 100,816 in street
name. Under an August 1998 agreement, Mr. Thomure has given Robert C. McShirley a continuing proxy
to vote all shares owned directly or beneficially by Mr. Thomure until August 2000. The percentages above
reflect the shares subject to this proxy.
(3) Includes 22,000 held jointly with his wife Marjorie McShirley. Richard S. McShirley also has an unvested
option to purchase 50,000 shares at $0.75 per share. These shares were not included in the total.
(4) Includes 20,768 held by Merganser Corporation, where Mr. Bradt is President and sole owner. Mr. Bradt
also has an unvested option to purchase 25,000 shares at $0.75 per share. These shares were not included
in the total.
(5) Includes 62,500 shares held by William Bates, President of Jawsh Corporation, and his family. Mr. Bates
has voting and investment control over the shares of Interactive Buyers that are owned by Jawsh Corporation.
(6) Includes 208,338 shares which, after September 30, 1999, could be purchased at $0.59 per share under a
500,000 share option granted to DX3, Inc. in connection with the June 1998 acquisition of Wpg.Net,
Inc. Also included are 25,000 shares held in the name of Wpg.Net, Inc., now being transferred
to DX3, Inc. Dennis W. McQuilliams is President of DX3, Inc., and has shared investment control
over the shares and option held by DX3, Inc. In addition, Mr. McQuilliams has an unvested option to purchase
75,000 shares at $0.75 per share. These shares are not included.
(7) Jeri D. Sessler joined Interactive Buyers as Chief Operating Officer. She will be granted an option to
purchase up to 500,000 shares at a price not more than $1.25 per share. 30,000 of the 500,000
shares may be provided as a grant, rather than an option. Terms and conditions are still under
under discussion, and none of these shares are included in the total.
(8) Outside Director.
(9) Includes eight of the holdings listed here, including the DX3, Inc. holdings as shown. Although Jeri D.
Sessler is one of the eight individuals counted, she owns no shares.
</TABLE>
24
<PAGE>
Item 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors are elected at each annual shareholder meeting or through interim
board action when required, to serve until his or her successor is qualified,
elected, and begins to serve a new term. Officers are elected at each annual
board of directors meeting or through interim board action when required, to
serve until his or her successor is qualified, elected and begins to serve,
unless the board takes other action relative to the officer.
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- --- --------------------------
<S> <C> <C>
Robert C. McShirley 44 President, CEO
Director since Jan. 1998
and Chairman since June 1999
Jeri D. Sessler 45 Chief Operating Officer
Samuel E. Bradt 61 Chief Financial Officer,
Secretary, Treasurer
Director since Dec. 1996
P. Scott Turner 45 Director since Jan. 1998
Scott T. Behan 37 Director since Jan. 1998
Robert N. Schwartz 59 Director since Jan. 1998
Richard S. McShirley 43 Vice President, Sales &
Marketing
Dennis W. McQuilliams 58 Vice President & Chief
Technical Officer
Daniel J. Jinguji 43 Vice President
</TABLE>
BUSINESS EXPERIENCE OF KEY MANAGEMENT PERSONNEL
Robert C. "Jay" McShirley, Chairman, President, and Chief Executive Officer -
Mr. McShirley originated the Virtual Source concept in 1994, and began
development work on the system at that time. In 1995, when Interactive Buyers
acquired Buyer/Seller Interactive, which was subsequently re-named Virtual
Source, Inc., and began to commercialize the concept, Mr. McShirley became
inactive. Prior to rejoining Interactive Buyers in May of 1997, he worked as a
manufacturing consultant with his most recent assignment being with AML
Communications, Inc., a communications products company. While on assignment
25
<PAGE>
with AML, he reorganized their manufacturing processes, and moved operations to
a new, more efficient facility, thus allowing production to expand and allowing
revenues to increase from approximately $2 million annual rate to a $14 million
annual rate. This was accomplished in a one-year period. Prior to 1995, Mr.
McShirley was employed in several manufacturing positions. Prior to that, he
worked with McShirley Products, Inc., a manufacturing firm established by his
father. Robert C. McShirley and Richard S. McShirley are brothers.
Jeri D. Sessler, Chief Operating Officer effective August 1, 1999 - Ms. Sessler
was with PricewaterhouseCoopers from 1996 to 1999 in their Center of Excellence,
Full Value Procurement Practice, Western Region. Her responsibilities included
leading edge procurement practices and technologies, working with Fortune 1000
companies. Prior to 1996, she spent fifteen years with A.T. Kearney, Inc. where
she was Director, Practice Development, Supply Chain Integration Practice. Ms.
Sessler received her MBA from the Lake Forest Graduate School of Management,
and her B.A from Northern Illinois University.
Samuel E. Bradt, Chief Financial Officer, Corporate Secretary, Treasurer,
Director - Since 1984, Mr. Bradt has worked with a number of successful
entrepreneurial businesses as an officer, director and shareholder. Mr. Bradt
devotes approximately fifty (50%) percent of his time to the affairs of
Interactive Buyers during an average month. He is currently a director of six
private companies, two public companies, Lunar Corporation of Madison,
Wisconsin, and Interactive Buyers, and one private foundation. He serves as an
officer in all but two of those organizations. Prior to 1984, Mr. Bradt served
as a financial officer with Abbott Laboratories, and with Federal Signal
Corporation, and was a commercial lending officer with the American National
Bank in Chicago. Mr. Bradt received his B.S. at Stanford University, and MBA at
the University of Chicago Graduate School of Business.
Richard S. McShirley, Vice President, Sales and Marketing - Richard McShirley
has more than fifteen years experience developing and implementing marketing and
sales programs. He worked closely with the creators of King World Productions,
and the creators of the successful television series "Wild America". He led the
development of a complete merchandising and licensing program related to that
television series. Prior to that, he worked with McShirley Products, Inc., a
manufacturing business established by his father. Robert C. McShirley and
Richard S. McShirley are brothers.
Dennis W. McQuilliams, Vice President and Chief Technology Officer - Mr.
McQuilliams has a background in finance, and over fifteen years experience in
design, development and implementation of business application software for mini
and microcomputers. He has developed multi-user programs for municipal entities,
and the vision health industry, as well as accounting systems, payroll systems
and other custom applications. Mr. McQuilliams is an officer and a former
shareholder of Wpg.Net, Inc., now a wholly-owned subsidiary of Interactive
Buyers. See Item 1. DESCRIPTION OF BUSINESS - HISTORY.
26
<PAGE>
Daniel J. Jinguji, Vice President, Product Development - Mr. Jinguji spent
fifteen years with Microsoft, where he co-authored "Learn Microsoft Visual J++
6.0" to help explain the Microsoft version of the Java programming language. He
attended the University of Washington in Seattle where he received his B.A. in
mathematics, B.S. in biology and M.S. in computer science.
Item 6. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation;
Shares Subject to
Name Position Annual Stock Options
Salary (a) Granted (b)
- ----------------------------- -------------------------- -------------- ------------------
<S> <C> <C> <C>
Robert C. McShirley Chmn., Pres., $ 114,000 100,000(c)
CEO & Director
Jeri D. Sessler Chief Operating $ 180,000 500,000(f)
Officer
Richard S. McShirley Vice Pres., Sales $ 114,000 50,000(d)
& Marketing
Dennis W. McQuilliams Vice Pres., Chief $ 74,500 75,000(e)
Technical Officer
Samuel E. Bradt CFO, Secy, $ 60,000 25,000(g)
Treas, Director
Daniel J. Jinguji Vice Pres., $ 60,000 50,000(h)
Product Development
27
<PAGE>
<FN>
(a) Salary figures shown represent current monthly pay rates, multiplied by
twelve. Compensation is limited to salary and stock options; there are
currently no other forms of compensation.
(b) Underlying shares of the common stock of Interactive Buyers as of July 31,
1999.
(c) May 15, 1999 option to purchase 100,000 shares at $0.75 per share, with two
year vesting. No shares will vest during the first year.
(d) May 15, 1999 option to purchase 50,000 shares at $0.75 per share, with two
year vesting. No shares will vest during the first year.
(e) May 15, 1999 option to purchase 75,000 shares at $0.75 per share, with two
year vesting. No shares will vest during the first year.
(f) Ms. Sessler joined Interactive Buyers effective August 1, 1999. She will
receive 500,000 shares in the form of a stock option, the terms of which
are still under discussion. The exercise price will not be more than $1.25
per share, and it is possible that up to 30,000 of the 500,000 shares will
be provided as a grant, rather than an option.
(g) May 15, 1999 option to purchase 25,000 shares at $0.75 per share, with
two year vesting. No shares will vest during the first year.
(h) April 16, 1999 stock option for 50,000 shares @ $0.75 per share, of which
5,000 shares vested 4/16/99, 20,000 shares vested 7/16/99, and the
balance vest 12/16/99.
</TABLE>
OPTIONS GRANTED DURING FISCAL YEAR ENDED JANUARY 31, 1999
The following table sets forth, information for the fiscal year ended January
31, 1999, regarding the granting of options to executive officers of Interactive
Buyers to purchase Interactive Buyers' common stock. All persons named below
have sole exercise, voting and investment power over the options and the
underlying shares except as otherwise noted.
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING FISCAL YEAR ENDED JANUARY 31, 1999:
NAME SHARES Exercise Price EXPIRATION PERCENT
- -------------------- ------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Robert C. McShirley 80,000 $.625 8-4-2008 (a) 61.5%
Richard S. McShirley 35,000 $.625 8-4-2008 (a) 26.9%
Samuel E. Bradt 15,000 $.625 8-4-2008 (a) 11.5%
------- --------
Total 130,000 100.0%
------- --------
<FN>
(a) These options were subsequently amended to provide for immediate vesting on
the condition that all shares would be purchased. All these options were
exercised and shares purchased on May 15, 1999.
</TABLE>
OPTIONS GRANTED DURING THE SIX MONTHS ENDED JULY 31, 1999
The following table sets forth, information for the six months ended July
31, 1999, regarding the granting of options to purchase Interactive Buyers'
common stock. All persons named below have sole exercise, voting and investment
power over the options and the underlying shares except as otherwise noted.
<TABLE>
<CAPTION>
OPTIONS GRANTED DURING THE SIX MONTHS ENDED JULY 31, 1999:
NAME SHARES Exercise Price EXPIRATION PERCENT
- -------------------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Robert C. McShirley 100,000 $.75 5-15-2009 33.3%
Richard S. McShirley 50,000 $.75 5-15-2009 16.7%
Dennis W. McQuilliams 75,000 $.75 5-15-2009 25%
Samuel E. Bradt 25,000 $.75 5-15-2009 8.3%
Daniel J. Jinguji 50,000 $.75 4-16-2009 16.7%
--------- ---------
Total 300,000 100.0%
--------- ---------
</TABLE>
28
<PAGE>
OPTIONS EXERCISED DURING THE SIX MONTHS ENDED JULY 31, 1999
The following table sets forth, information for the six months ended July 31,
1999, regarding the exercise of options to purchase Interactive Buyers' common
stock and the value of unexercised options. No options were exercised during the
fiscal year ended January 31, 1999. All persons named below have sole exercise,
voting and investment power over the options and the underlying shares except as
otherwise noted.
<TABLE>
<CAPTION>
OPTIONS EXERCISED DURING THE SIX MONTHS ENDED JULY 31, 1999:
VALUE OF
OPTION UNEXERCISED
SHARES OPTIONS
SHARES UNEXERCISED EXERCISE PER SHARE AT JANUARY 31,
NAME ACQUIRED AT YEAR END PRICE VALUE 1999
- -------------------- -------- ------------ -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Robert C. McShirley 0 100,000 $ 0.18 $ 1.10 $ 91,836
80,000 $ 0.63 n/a n/a
Richard S. McShirley 0 306,100 $ 0.20 $ 1.10 $275,490
100,000 $ 0.18 $ 1.10 $ 91,836
35,000 $ 0.63 n/a n/a
Samuel E. Bradt 0 15,000 $ 0.63 n/a n/a
<FN>
Value is based on closing price at 1-31-99 of $2.00 per share for unrestricted
shares. A discount is used to value restricted shares, resulting in a year-end
value of $1.10 per share. This discount of 45% was based upon the results of
studies performed from 1980 through 1995 comparing the prices in closely held
stock transactions when no public market existed, with the prices of subsequent
initial public offerings in the same stocks. As a result of the discount, the
options with $0.63 exercise prices are not "in the money" and therefore no value
is indicated. All these options were exercised May 15, 1999 after the close of
the fiscal year ended January 31, 1999.
</TABLE>
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Interactive Buyers has issued convertible demand notes, from time to time, each
in a private transaction. The proceeds of these notes have been used to fund
operations. At July 31, 1999 there were $777,206 principal amount of these notes
outstanding, payable to twenty-two different investors, most of whom are also
Interactive Buyers shareholders. Among the note holders is Jawsh Corporation,
with $55,000 principal amount. The principal amount plus accrued interest is
convertible into 112,969 shares of Interactive Buyers' common stock. Jawsh
Corporation is one of Interactive Buyers' largest shareholders with 655,487
shares at July 31, 1999 (including shares owned by William Bates, president of
Jawsh Corporation, and his family). Also, Robert C. McShirley, chairman,
president and chief executive officer of Interactive Buyers owns $95,600
principal amount of the notes convertible along with accrued interest into
245,317 shares of common stock. Richard S. McShirley, vice president of
Interactive Buyers owns $33,100 principal amount of the notes convertible along
with accrued interest into 188,116 shares of common stock.
29
<PAGE>
Malcolm Powell and his family, through various trusts, are beneficial owners of
$55,000 principal amount of the notes. The principal amount plus accrued
interest is convertible into 232,757 shares of common stock. Dr. Powell also
owns 150,000 shares of Interactive Buyers common stock, and is a first cousin of
Samuel Bradt, chief financial officer, secretary, treasurer and a director of
Interactive Buyers. The largest principal amount of the Notes held by any one
holder, are held by Daniel Bunn who owns $266,000 principal amount. The
principal amount plus accrued interest is convertible into 673,348 shares of
common stock. Mr. Bunn is a business associate of Robert C. McShirley. Each
remaining note holder has less than $55,000 principal amount of the notes.
Item 8. DESCRIPTION OF SECURITIES
COMMON STOCK. Interactive Buyers has 50 million shares of its $0.01 par common
stock authorized. As of July 31, 1999 there were 13,061,352 shares outstanding.
Each share is entitled to one vote. There are no pre-emptive rights, and
Interactive Buyers has never paid a cash dividend. There are approximately 1,000
shareholders of record. CEDE & Co. is listed as one shareholder "of record",
with 6,514,409 shares, but represents shares held in numerous brokerage
accounts, for an even larger number of beneficial holders, and is otherwise
known as "street name" stock.
PREFERRED STOCK
Interactive Buyers has 5 million shares of $0.01 preferred stock authorized, but
none outstanding. Interactive Buyers has no plans to issue preferred shares.
DEBT SECURITIES
At July 31, 1999 there were $777,206 principal amount of convertible demand
notes outstanding. In return for converting their notes as of July 31, 1999,
note holders were offered an additional three months of interest in shares of
common stock to avoid the ninety-day notice period and lengthy
"forced-conversion" process. Management expects all note holders to accept this
offer and voluntarily convert. All these notes accrue interest at 10% per annum,
and are payable on demand after various dates, but none later than December 31,
1999. Interest is payable in cash at the option of Interactive Buyers. Interest
accrued but not paid, at the option of the holder, at any time after thirty days
advance notice, could have been converted into Interactive Buyers common shares
at the conversion rate specified in each note, whether or not the principal was
also converted. The conversion rates of the notes varied based upon negotiations
with the note holder, the date of issuance and the market price of the common
stock of Interactive Buyers on that date. The conversion rate represented a
discount from the common stock's market price. The notes were convertible at
rates ranging from $0.20 per share to $1.30 per share. There were no sinking
fund provisions. After December 31, 1999, Interactive Buyers could have, at its
option forced conversion of the entire principal amount, or repaid the principal
amount, with ninety days advance notice. During the ninety-day notice period,
the note holders could have converted into Interactive Buyers common stock.
However, if they failed to do so they could have been prevented from ever doing
so if Interactive Buyers paid them in cash. Since Interactive Buyers will
convert all of the notes into its common stock, no note holder will be forced to
accept cash. The terms of the notes do not provide for trustees or other persons
or entities to act on behalf of note holders. Set forth below is a summary of
the total principal amounts of the convertible demand notes, the conversion rate
and the total number of shares of common stock into which the notes may be
converted.
<TABLE>
<CAPTION>
CONVERTIBLE DEMAND NOTE REGISTER
--------------------------------
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD.
JULY 31, 1999 SHARES TO BE ISSUED UPON CONVERSION OF:
---------------------------------------
INTEREST
CONVERSION PRINCIPAL FROM INCEPTION
RATE AMOUNT THROUGH
7/31/99(A) INTEREST PRINCIPAL TOTAL
- ----------- ---------- ---------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
0.20 $ 135,000 $ 28,466 142,329 675,000 817,329
0.35 $ 150,006 $ 21,830 62,373 428,589 490,961
0.45 $ 55,000 $ 5,118 11,373 122,222 133,596
0.53 $ 55,000 $ 6,279 11,847 103,774 115,621
0.55 $ 85,000 $ 8,858 16,106 154,545 170,652
0.60 $ 10,000 $ 1,056 1,759 16,667 18,426
0.65 $ 10,000 $ 1,072 1,650 15,385 17,034
0.80 $ 140,000 $ 17,490 21,863 175,000 196,863
0.85 $ 5,000 $ 456 536 5,882 6,418
0.95 $ 35,000 $ 2,951 3,107 36,842 39,949
1.00 $ 5,000 $ 299 299 5,000 5,299
1.10 $ 5,000 $ 440 400 4,545 4,946
1.20 $ 19,700 $ 1,138 949 16,417 17,365
1.25 $ 62,500 $ 9,002 7,201 50,000 57,201
1.30 $ 5,000 $ 365 281 3,846 4,127
---------- ---------------- -------- --------- ---------
$ 777,206 $ 104,821 282,073 1,813,714 2,095,787
<FN>
(a) Including three months "bonus interest", to be credited in shares, in
return for converting effective 7-31-99, and excluding interest previously
converted to shares.
</TABLE>
30
<PAGE>
PART II
Item 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Interactive Buyers' common stock is currently traded on the National Association
of Securities Dealers Inc. Automated Quotation System's Bulletin Board, using
the stock symbol "IBNL". Only a limited public trading market exists for
Interactive Buyers outstanding stock, and there can be no assurance that an
active public market will develop. The highest and lowest prices for Interactive
Buyers common stock during the calendar quarter preceding the dates below, and
the closing bid price on each date, are as follows:
Quarters ended:
<TABLE>
<CAPTION>
1997 High Low Close
- ------------------ ------ ------ --------
<S> <C> <C> <C>
March 31, 1997 $0.875 $0.250 $ 0.313
June 30, 1997 $0.500 $0.188 $ 0.260
September 30, 1997 $0.320 $0.160 $ 0.313
December 31, 1997 $1.063 $0.290 $ 0.438
1998
- ------------------
March 31, 1998 $0.813 $0.313 $ 0.688
June 30, 1998 $3.250 $0.400 $ 1.563
September 30, 1998 $1.625 $0.625 $ 0.875
December 31, 1998 $2.875 $0.688 $ 1.625
31
<PAGE>
1999
- ------------------
March 31, 1999 $3.000 $1.500 $ 1.688
June 30, 1999 $2.000 $1.375 $ 1.875
Month of
July, 1999 $2.130 $1.750 $ 2.050
Month of
August $2.875 $1.980 $ 2.220
<FN>
* Source: National Association of Securities Dealers, Inc. Automated
Quotation System, OTC Bulletin Board.
</TABLE>
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
As of July 31, 1999, there were 932 holders of record of Interactive Buyers'
outstanding shares of common stock.
DIVIDEND POLICY
Interactive Buyers has not paid any cash dividends on its common stock and has
no present intention of changing this policy. Interactive Buyers currently
intends to retain future earnings, if any, to fund the development and growth of
its business. Any future determination to pay cash dividends will be at the
discretion of the board of directors and will be dependent upon Interactive
Buyers' financial condition, operating results, capital requirements, applicable
contractual restrictions and other factors as the board of directors deems
relevant.
VOLATILITY AND LIMITED MARKET
The market price of Interactive Buyers common stock has in the past been highly
volatile and is expected to continue to be subject to significant price and
volume fluctuations in the future based on a number of factors, including market
uncertainty about Interactive Buyers' financial condition or business prospects;
shortfalls in the revenues or results of operations expected by securities
analysts; analyst's reports or recommendations; quarterly fluctuations in
Interactive Buyers' financial results or in the results of other similar
companies, including competitors of Interactive Buyers; the introduction of new
services or enhancements by Interactive Buyers or its competitors; general
conditions in the industry; changes in prices for Interactive Buyers' or
competitors' products or services; and changes in general economic conditions.
In addition, the stock market may from time to time experience extreme price and
volume fluctuations, which particularly affect the market for the securities of
many Internet-related companies and which have often been unrelated to the
operating performance of the specific companies. There can be no assurance that
the market price of Interactive Buyers common stock will not experience
significant fluctuations in the future.
32
<PAGE>
Item 2. LEGAL PROCEEDINGS
There are currently no legal proceedings involving Interactive Buyers, and none
threatened. However, because of the rapidly changing environment surrounding the
Internet, and the rapid pace with which new businesses enter or attempt to enter
Internet related businesses, it is possible that disagreements will develop
regarding business names, relationships, markets, technologies, and other
subjects. Any future disagreement could lead to legal action.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There are and have been no substantive disagreements with Interactive Buyers'
outside accounting firm, and there have been no changes in accounting firms
during the last three years.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES
During January and February of 1997, Interactive Buyers sold 2,918,653 shares of
restricted common stock and received proceeds of $583,731 before expenses. Since
no underwriters were used and no commissions were paid, expenses were limited to
legal fees approximating $10,000. This offering was a private placement made in
accordance with Regulation D, and in the opinion of legal counsel for
Interactive Buyers, was exempt from registration under the Exchange Act. There
were less than 25 offerees. The recipients of these shares, except one who was a
senior sales executive of Interactive Buyers, were accredited investors. The
investors, approximately ten in total, were primarily existing Interactive
Buyers investors, or friends, relatives and business associates of Interactive
Buyers officers, directors or investors. The chief executive officer and the
chief financial officer were included as investors. The investors represented
their intention to acquire the shares for investment purposes only, and not with
a view to resale or distribution, and appropriate restrictive legends were
placed on each stock certificate issued pursuant to this offering. Each investor
had ample access to the kind of information from Interactive Buyers that a
registration statement would include.
From August through November of 1997, Interactive Buyers sold 1,487,763 shares
of unrestricted common stock, and received $346,721 before offering costs. As
before, no underwriters were used, and no commissions paid. Offering costs were
limited to approximately $4,000 for legal fees. This offering was a private
placement and in the opinion of legal counsel for Interactive Buyers, was exempt
from registration under the Exchange Act and made in accordance with Regulation
D. Further, Interactive Buyers was
33
<PAGE>
eligible under Securities and Exchange Commission Rule 504, which allowed the
shares sold in this private placement to be issued without restrictive legend.
The recipients of these shares, primarily being existing Interactive Buyers
investors, or friends, relatives and business associates of Interactive Buyers
officers, directors and investors, represented their intention to acquire the
shares for investment purposes only, and not with a view to resale or
distribution.
During March and April of 1999, Interactive Buyers sold 737,493 shares of
unrestricted common stock, and received $999,942 less offering costs. As before,
no underwriters were used and no commissions were paid. Legal fees approximated
$5,000. This offering was a private placement and, in the opinion of counsel,
was exempt from registration under the Exchange Act and made in accordance with
Regulation D. Interactive Buyers was again eligible under Securities and
Exchange Commission Rule 504, which allowed the shares sold in this private
placement to be issued without restrictive legend. Because Rule 504 was changed
effective April 7, 1999, the last sale of shares under this offering was made on
April 6, 1999. The recipients of these shares, primarily being existing
Interactive Buyers investors, or friends, relatives and business associates of
Interactive Buyers officers, directors and investors, represented their
intention to acquire the shares for investment purposes only, and not with a
view to resale or distribution.
During July and August of 1999, Interactive Buyers sold 351,251 shares of
restricted common stock, and received $500,000. As before no underwriters were
used and no commissions were paid. The sales were a private placement and, in
the opinion of counsel, exempt from registration under Section 4(2) of the
Securities Exchange Act of 1934. The transactions did not involve a public
offering. There were five offerees and three purchasers, each of whom were
accredited investors, familiar with Interactive Buyers and existing
shareholders. The investors represented their intention to acquire the shares
for investment purposes only, and not with a view to resale or distribution, and
appropriate stop transfer instructions and restrictive legends indicating the
transfer restrictions will be placed on each stock certificate when issued. Each
individual had ample access to the kind of information from Interactive Buyers
that a registration statement would include.
Item 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Officers and directors of Interactive Buyers, and officers and directors of its
100% owned subsidiary, Virtual Source, Inc., are indemnified to the greatest
extent allowed by Nevada law.
PART F/S
FINANCIAL STATEMENTS AND EXHIBITS
Interactive Buyers' financial statements are presented in the following
exhibits.
*****
34
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
FINANCIAL STATEMENTS
January 31, 1999
(with Independent Auditors' Report Thereon)
35
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Pages
-----
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . . . F-1
Consolidated Balance Sheet. . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity (Deficit) F-4
Consolidated Statements of Cash Flows . . . . . . . . . . F-5
Notes to Consolidated Financial Statements. . . . . . . . F-6
</TABLE>
36
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Interactive Buyers Network International, Ltd.
and Subsidiaries
Ventura, California
We have audited the accompanying consolidated balance sheet of Interactive
Buyers Network International, Ltd. and subsidiaries as of January 31, 1999 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended January 31, 1999 and 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Interactive Buyers
Network International, Ltd. and subsidiaries as of January 31, 1999 and the
results of its operations, and its cash flows for the years ended January 31,
1999 and 1998 in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As shown in the financial
statements, the Company incurred a net loss of $1,101,062 during the year ended
January 31, 1999, and as of that date, had a working capital deficiency of
$920,680 and stockholders' deficit of $360,305. These conditions raise
substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters are described in Note 9. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/S/ Lucas, Horsfall, Murphy & Pindroh, LLP
Pasadena, California
May 15, 1999, except for Note 10 to the financial statements
which is as of September 3, 1999.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-1
<PAGE>
<TABLE>
<CAPTION>
Interactive Buyers Network International Ltd. and subsidiaries
CONSOLIDATED BALANCE SHEET
INFORMATION AS OF JULY 31, 1999 IS UNAUDITED
ASSETS
JANUARY 31, JULY 31,
1999 1999
--------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59,937 $ 438,300
Accounts receivable . . . . . . . . . . . . . . . . . . . 3,590 -
--------------- -------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . 63,527 438,300
--------------- -------------
PROPERTY AND EQUIPMENT
Furniture and fixtures. . . . . . . . . . . . . . . . . . 64,588 155,547
Software. . . . . . . . . . . . . . . . . . . . . . . . . 8,899 8,899
--------------- -------------
73,487 164,446
Less: accumulated depreciation. . . . . . . . . . . . . . 50,920 72,170
--------------- -------------
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . 22,567 92,276
--------------- -------------
OTHER ASSETS
Prepaid rent. . . . . . . . . . . . . . . . . . . . . . . 37,500 15,000
Employee receivables. . . . . . . . . . . . . . . . . . . 68,027 102,597
Intangible assets, net of accumulated amortization. . . . 433,774 418,656
Other assets. . . . . . . . . . . . . . . . . . . . . . . 1,757 1,319
--------------- -------------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . . 541,058 537,572
--------------- -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $ 627,152 $ 1,068,148
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . . . . . . . $ 49,222 $ 120,487
Accrued liabilities . . . . . . . . . . . . . . . . . . . 77,785 87,727
Convertible notes payable - related parties . . . . . . . 857,200 777,206
--------------- -------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . 984,207 985,420
DEFERRED REVENUE. . . . . . . . . . . . . . . . . . . . . . 3,250 933
--------------- -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . 987,457 986,353
--------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value
5,000,000 shares authorized,
- 0 - shares issued and outstanding . . . . . . . . . . - -
Common stock, $.01 par value,
50,000,000 shares authorized,
11,401,451 issued and outstanding on Jan. 31, 1999
and 13,061,352 issued and outstanding on July 31, 1999. 114,014 130,614
Additional paid-in capital. . . . . . . . . . . . . . . . 3,000,203 4,662,338
Accumulated deficit . . . . . . . . . . . . . . . . . . . (3,474,522) (4,532,359)
--------------- -------------
(360,305) 260,593
Less: notes receivable - related parties. . . . . . . . - (178,798)
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT). . . . . . . . . . (360,305) 81,795
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT). . . . $ 627,152 $ 1,068,148
=============== =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-2
<PAGE>
<TABLE>
<CAPTION>
Interactive Buyers Network International Ltd. and subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1998 1999 1998 1999
(UNAUDITED) (UNAUDITED)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . $ 72,015 $ 61,387 $ 41,702 $ 7,985
General and administrative expenses. . 888,528 1,253,559 655,543 1,065,822
-------------- -------------- -------------- --------------
Loss from operations . . . . . . . . . (816,513) (1,192,172) (613,841) (1,057,837)
-------------- -------------- -------------- --------------
Other income (expenses):
Loss on abandonment of equipment . . (27,856) - - -
Income from litigation settlement. . - 91,110 - -
-------------- -------------- -------------- --------------
Total other income (expenses) (27,856) 91,110 - -
-------------- -------------- -------------- --------------
Net loss . . . . . . . . . . . . . . . $ (844,369) $ (1,101,062) $ (613,841) $ (1,057,837)
============== ============== ============== ==============
Basic weighted average number of
common shares outstanding. . . . . . 9,192,811 10,529,147 10,756,620 12,231,402
============== ============== ============== ==============
Net loss per common share
Basic. . . . . . . . . . . . . . . . $ (0.09) $ (0.10) $ (0.06) $ (0.09)
============== ============== ============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
Interactive Buyers Network International Ltd. and subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
Notes
Common Stock Additional Receivable -
------------------------
No. of Paid-in- Related Accumulated
Shares Amount Capital Parties (Deficit)
----------- ----------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at January 31, 1997 . . . . . . . . . . 6,042,880 $ 60,429 $ 1,198,110 $ - $ (1,529,091)
Issuance of common stock - private placements
net of $8,500 issuance cost . . . . . . . . . 3,882,693 38,827 787,775 - -
Issuance of common stock upon
conversion of demand notes . . . . . . . . . . 475,000 4,750 90,250 - -
Issuance of common stock for services. . . . . . 403,722 4,037 88,669 - -
Net loss . . . . . . . . . . . . . . . . . . . . - - - - (844,369)
----------- ----------- ------------ ---------- ---------------
Balances at January 31, 1998 . . . . . . . . . . 10,804,295 108,043 2,164,804 - (2,373,460)
Common stock surrendered . . . . . . . . . . . . (1,000,000) (10,000) 10,000 - -
Issuance of common stock -
Acquisition of Wpg.Net, Inc. . . . . . . . . . 500,000 5,000 450,000 - -
Issuance of common stock upon
conversion of demand notes . . . . . . . . . . 778,656 7,786 311,221 - -
Issuance of common stock for services. . . . . . 318,500 3,185 64,178 - -
Net loss . . . . . . . . . . . . . . . . . . . . - - - - (1,101,062)
----------- ----------- ------------ ---------- ---------------
Balances at January 31, 1999 . . . . . . . . . . 11,401,451 114,014 3,000,203 - (3,474,522)
Unaudited:
Issuance of common stock - private placements
net of $7,400 issuance costs . . . . . . . . 887,869 8,879 1,191,063 - -
Issuance of common stock upon
conversion of demand notes . . . . . . . . . 91,932 920 110,200 - -
Issuance of common stock for services. . . . . 44,000 440 41,910 - -
Issuance of common stock options for services. - - 3,805 - -
Modification in term of stock options. . . . . - - 142,720 - -
Exercise of stock options. . . . . . . . . . . 636,100 6,361 172,437 (178,798) -
Net loss . . . . . . . . . . . . . . . . . . . - - - - (1,057,837)
----------- ----------- ------------ ---------- ---------------
Balances at July 31, 1999 (unaudited). . . . . . 13,061,352 $ 130,614 $ 4,662,338 $(178,798) $ (4,532,359)
=========== =========== ============ ========== ===============
Total
Stockholders'
Equity
(Deficit)
------------
<S> <C>
Balances at January 31, 1997 . . . . . . . . . . $ (270,552)
Issuance of common stock - private placements
net of $8,500 issuance cost . . . . . . . . . 826,602
Issuance of common stock upon
conversion of demand notes . . . . . . . . . . 95,000
Issuance of common stock for services. . . . . . 92,706
Net loss . . . . . . . . . . . . . . . . . . . . (844,369)
------------
Balances at January 31, 1998 . . . . . . . . . . (100,613)
Common stock surrendered . . . . . . . . . . . . -
Issuance of common stock -
Acquisition of Wpg.Net, Inc. . . . . . . . . . 455,000
Issuance of common stock upon
conversion of demand notes . . . . . . . . . . 319,007
Issuance of common stock for services. . . . . . 67,363
Net loss . . . . . . . . . . . . . . . . . . . . (1,101,062)
------------
Balances at January 31, 1999 . . . . . . . . . . (360,305)
Unaudited:
Issuance of common stock - private placements
net of $7,400 issuance costs . . . . . . . . 1,199,942
Issuance of common stock upon
conversion of demand notes . . . . . . . . . 111,120
Issuance of common stock for services. . . . . 42,350
Issuance of common stock options for services. 3,805
Modification in term of stock options. . . . . 142,720
Exercise of stock options. . . . . . . . . . . -
Net loss . . . . . . . . . . . . . . . . . . . (1,057,837)
------------
Balances at July 31, 1999 (unaudited). . . . . . $ 81,795
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
Interactive Buyers Network International Ltd. and subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1998 1999 1998 1999
(UNAUDITED) (UNAUDITED)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (844,369) $ (1,101,062) $ (613,841) $ (1,057,837)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation & amortization. . . . . . . . . . . . . . . . 21,753 41,441 16,213 36,806
Loss on abandonment of equipment . . . . . . . . . . . . . 27,856 - - -
Issuance of stock, stock options, and debt for services,
expense reimbursements and accrued interest. . . . . . . . 92,706 220,735 68,410 190,300
(Increase) decrease in accounts receivable. . . . . . . . . - (3,590) - 3,590
(Increase) decrease in prepaid expenses . . . . . . . . . . (22,317) 27,562 15,750 -
(Increase) decrease in prepaid rent . . . . . . . . . . . . - (37,500) (600) 22,500
(Increase) decrease in other assets . . . . . . . . . . . . (49,376) 877 (6,074) -
Increase (decrease) in accounts payable. . . . . . . . . . (119,898) 16,735 31,211 71,266
Increase (decrease) in deferred revenue. . . . . . . . . . 19,351 (25,469) (12,657) (2,317)
Increase (decrease) in accrued liabilities . . . . . . . . 17,222 49,042 36,783 9,942
-------------- -------------- -------------- --------------
NET CASH USED BY OPERATING ACTIVITIES . . . . . . . . . . (857,072) (811,229) (464,805) (725,750)
CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Advances to employees . . . . . . . . . . . . . . . . . . . - (9,400) - (34,570)
Purchase of equipment . . . . . . . . . . . . . . . . . . . (1,355) - - (90,959)
-------------- -------------- -------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES. . . . . (1,355) (9,400) - (125,529)
-------------- -------------- -------------- --------------
CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Proceeds from issuance of common stock. . . . . . . . . . . 826,602 - - 1,199,942
Proceeds from borrowings. . . . . . . . . . . . . . . . . . 62,675 825,160 433,499 29,700
-------------- -------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . 889,277 825,160 433,499 1,229,642
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH . . . . . . . . . . . . . . . 30,850 4,531 (31,306) 378,363
CASH, BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 24,556 55,406 55,406 59,937
-------------- -------------- -------------- --------------
CASH, END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $ 55,406 $ 59,937 $ 24,100 $ 438,300
============== ============== ============== ==============
<FN>
See Note 1 for supplemental disclosure.
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-5
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
Organization and business
- ---------------------------
Interactive Buyers Network International, Ltd. and Subsidiaries ("IBNL" or the
Company) offers two unique Internet applications. Virtual Source Network is an
Internet based electronic procurement system, used by businesses to improve
efficiencies and reduce costs associated with their purchasing activities, as
well as goods and services they purchase. Virtual Source Publisher is a user
friendly, do-it-yourself, web site builder that requires no technical expertise,
no special software, and no consultants.
IBNL was incorporated in the State of Nevada on October 22, 1980 as Cinema-Star
Corporation, and in September 1989, was renamed Dyna-Seal Corporation. Prior to
February 1, 1995, the Company's name was changed several times, and its former
line of business (manufacturing, packaging and distribution of coatings,
sealants and adhesive for use in aircraft and marine industries) was completely
discontinued.
In July 1995 the Company changed its name to Interactive Buyers Network
International, Ltd., and acquired all of the outstanding shares of Buyer/Seller
Interactive Software, Inc. a corporation who's name subsequently changed to
Virtual Source, Inc., ("VSI") (incorporated in the State of Nevada on July 11,
1995).
On June 1, 1998, the Company acquired all of the outstanding stock of Wpg.Net,
Inc. ("Wpg.Net") See Note 2.
Principles of Consolidation
- -----------------------------
The consolidated financial statements include the accounts of Interactive Buyers
Network International, Ltd. and its wholly owned subsidiaries Virtual Source,
Inc. and Wpg.Net, Inc. Significant intercompany accounts have been eliminated.
Revenue Recognition
- --------------------
Under the Company's early version of Virtual Source Network (VSN), which was
used for the first few months of 1999, in return for access to the network,
clients paid a subscription fee of $980. These fees were initially included as
deferred revenues, and amortized over the term of the subscription. Subsequent
to the first few months of 1999, the Company stopped offering the VSN and thus
had revenues from amortization of the previously deferred subscription fee. The
new Internet version of the software was not operational during 1999. When the
Internet software becomes fully operational, customers will be charged an
initial setup fee for VSI, which will be recognized as income at the time of the
setup of the software on the customer's computer or network. In addition to the
initial setup fee, there is a transaction fee for every transaction initiated by
the customer. This fee will be recognized as income at the time the transaction
occurs.
Under Wpg.Net's Virtual Source Publisher, a monthly fee will be charged to
clients after an initial free introductory period has lapsed. The monthly
charge will be recognized as income in the period in which the fee is charged.
The Company did not recognize any revenue on Virtual Source Publisher in 1999.
Year 2000 Issues
- ------------------
Many computers and other equipment with embedded chips or microprocessors may
not be able to appropriately interpret dates after December 31, 1999, because
such systems use only two digits to indicate a year in the date field rather
than four digits. If not corrected, many computers and computer applications
could fail or create miscalculations, causing disruptions to the Company's
operations. In addition, the failure of customer and supplier computer systems
could result in interruption of sales and deliveries of key supplies or
utilities. Because of the complexity of the issues and the number of parties
involved, the Company cannot reasonably predict with certainty the nature or
likelihood of such impacts.
F-6
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(Continued)
The Company is actively addressing this situation and anticipates that it will
not experience a material adverse impact to its operations, liquidity or
financial condition related to systems under control. The Company is addressing
the Year 2000 issue in four overlapping phases: (i) identification and
assessment of all critical software systems and equipment requiring modification
or replacement prior to 2000; (ii) assessment of critical business relationships
requiring modification prior to 2000; (iii) corrective action and testing of
critical systems; (iv) development of contingency and business continuation
plans to mitigate any disruption to the Company's operations arising from the
Year 2000 issue.
The Company is in the process of implementing a plan to obtain information from
its external service providers, significant suppliers and customers, and
financial institutions to confirm their plans and readiness to become Year 2000
compliant, in order to better understand and evaluate how their Year 2000 issues
may affect the Company's operations. The Company currently is not in a position
to assess this aspect of the Year 2000 issues; however, the Company plans to
take the necessary steps to provide itself with reasonable assurance that its
service providers, suppliers, customers and financial institutions are Year 2000
compliant.
The Company is developing contingency plans to identify and mitigate potential
problems and disruptions to its operations arising from the Year 2000 issue.
The total cost to achieve Year 2000 compliance is not expected to be material.
Amounts spent to date have not been material.
While the Company believes that its own internal assessment and planning efforts
with respect to its external service providers, suppliers, customers and
financial institutions are and will be adequate to address its Year 2000
concerns, there can be no assurance that these efforts will be successful or
will not have a material adverse effect on the Company's operations.
Recently Issued Accounting Pronouncements
- --------------------------------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statements No.
130, "Reporting Comprehensive Income", and No. 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's adoption of these
statements had no significant impact on the accompanying financial statements.
Property and Equipment
- ------------------------
Property and equipment are stated at cost. The assets are depreciated using the
straight-line method over their estimated useful lives of five years. Carrying
values are reviewed periodically for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable.
It is the policy of the Company to capitalize significant improvements and to
expense repairs and maintenance.
Depreciation expense for the years ended January 31, 1998 and 1999 was $20,877
and $21,661, respectively. Depreciation expense for the six months ended July
31, 1998 and 1999 was $10,830 and $21,250, respectively.
Impairment of Long Lived Assets
- -----------------------------------
The Company evaluates its long lived assets by measuring the carrying amount of
the assets against the estimated undiscounted future cash flows associated with
them. If such evaluations indicate that the future undiscounted cash flows of
certain long lived assets are not sufficient to recover the carrying value of
such assets, the assets are adjusted to their fair values. No adjustment to the
carrying values of the assets has been made.
F-7
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(Continued)
Intangible Assets
- ------------------
Intangible assets, principally goodwill, are amortized on the straight-line
method over a period of 15 years. The carrying amounts of intangible assets are
assessed for impairment when operating profit from the related business
indicates the carrying amounts of the assets may not be recoverable. Carrying
values are reviewed periodically for impairment whenever events or changes in
circumstances indicate that the carrying amounts of assets may not be
recoverable. Amortization for the years ended January 31, 1998 and 1999 was
$876 and $19,780, respectively. Amortization for the six months ended July 31,
1998 and 1999 was $5,383 and $15,556, respectively.
Stock Based Compensation
- --------------------------
The Company accounts for stock-based compensation as prescribed by Statement of
Financial Accounting Standard (SFAS) No. 123 Accounting for Stock-Based
Compensation, and has adopted its disclosure provisions. The Company has chosen
under the provisions of SFAS 123 to continue using the intrinsic-value method of
accounting for employee stock-based compensation in accordance with Accounting
Principles Board (APB) Opinion No. 25 Accounting for Stocks Issued to Employees.
Loss Per Share
- ----------------
Loss per share of common stock is computed using the weighted average number of
common shares outstanding during the period shown. Common stock equivalents are
not included in the determination of the weighted average number of shares
outstanding, as they would be antidilutive.
Advertising Cost
- -----------------
The Company charges advertising costs to expense as incurred. Advertising
expense for the years ended January 31, 1998 and 1999 was $5,152 and $1,073,
respectively. Advertising expense for the six months ended July 31, 1998 and
1999 was $1,073 and $0, respectively.
Statement of Cash Flows
- --------------------------
For the purpose of the statement of cash flows, cash includes amounts "on-hand"
and amounts deposited with financial institutions.
Supplemental disclosure of cash flow information is as follows:
Cash paid during the periods for:
<TABLE>
<CAPTION>
For the For the For the six For the six
year ended year ended months ended months ended
January January July 31, 1998 July 31, 1999
31, 1998 31, 1999 (UNAUDITED) (UNAUDITED)
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Interest . . $ - $ - $ - $ -
Income taxes $ 1,600 $ 1,600 $ 1,600 $ 1,600
</TABLE>
F-8
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
(continued)
Supplemental schedule of non-cash investing and financing transactions:
Issuance of common stock in connection with the following transactions:
<TABLE>
<CAPTION>
For the For the For the six For the six
year ended year ended months ended months ended
January January July 31, 1998 July 31, 1999
31, 1998 31, 1999 (UNAUDITED) (UNAUDITED)
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Conversion of notes payable $ 95,000 $ 319,007 $ 25,000 $ 111,120
Purchase of Wpg.Net, Inc. . $ - $ 455,000 $ 455,000 $ -
</TABLE>
For the six month period ended July 31, 1999, 636,100 stock options were
exercised upon the issuance of notes receivable in the amount of $178,798. See
Note 10.
Use of Estimates
- ------------------
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities at the
date of the financial statements, and revenues and expenses during the reporting
period. Actual results could differ from estimates and assumptions made.
Unaudited Interim Financial Statements
- -----------------------------------------
In the opinion of management, the unaudited interim financial statements for the
six month periods ending July 31, 1998 and 1999 are presented on a basis
consistent with the audited financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods.
2. ACQUISITION OF WPG.NET, INC.
On June 1, 1998, the Company acquired all of the outstanding stock of Wpg.Net,
Inc. for an aggregate purchase price of $455,000. IBNL issued 500,000 shares of
common stock with a fair value of $375,000 (75 cents per share), plus stock
options on 500,000 shares with a fair value of $80,000. The options vest
ratably, on a monthly basis, over the 3 years subsequent to the purchase. If
Wpg.Net, Inc. division revenues reach $500,000 before the 3-year vesting period
has expired, the additional 500,000 options vest immediately. The former
shareholders of Wpg.Net, Inc. (Wpg.Net, Inc. Shareholders) are entitled to a
commission of 50% of revenue generated by the Wpg.Net, Inc. division. If the
revenue is generated by the Virtual Source division sales force, Wpg.Net, Inc.
Shareholders are entitled to a commission of 25% of the revenue. In the event
that IBNL is sold, the Wpg.Net, Inc. Shareholders are entitled to a one-time
payment of $3,000,000, the options vest immediately, and all commission
obligations cease to accrue at that time. IBNL guaranteed a minimum stock price
of $7.00 per share for stock held by the Wpg.Net, Inc. Shareholders upon the
sale of the Company.
The acquisition was accounted for as a purchase and was included with the
combined operations from June 1, 1998 through January 31, 1999. As a result of
the acquisition, goodwill was recorded in the amount of $453,555. In
conjunction with the acquisition of Wpg.Net, three of Wpg.Net's executives
signed one-year employment agreements with the Company. The contracts
guaranteed the Wpg.Net executives salaries ranging from $49,500 to $77,250 per
year.
F-9
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
3. NOTES RECIEVABLE - RELATED PARTIES
The Company has unsecured notes receivable from several officers which totaled
$178,798 at July 31, 1999. The notes are due on demand and bear interest at an
annual rate of 6%. The notes were granted in connection with the exercise of
636,100 stock options on May 15, 1999. See Note 10.
4. CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
The following table summarizes information about convertible notes payable
outstanding at January 31, and July 31, 1999:
<TABLE>
<CAPTION>
Amount
Approximate Range of of
Maturity shares if conversion Notes
dates Interest rate converted rates Convertible
------------- -------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
On demand--
January 31, 1999 Dec. 31, 1999 10% 2,042,946 $0.20 - $1.25 $ 857,200
On demand-
July 31, 1999 Dec. 31, 1999 10% 2,095,787 $0.20 - $1.25 $ 777,206
</TABLE>
At January 31, and July 31, 1999, on an as converted basis, the related party
notes were convertible to approximately 2,042,946 and 2,095,787 shares of IBNL
common stock, respectively.
At January 31, and July 31, 1999, accrued interest on the convertible notes
payable in the amount of approximately $48,000 and $87,727 (UNAUDITED),
respectively, is included in accrued liabilities on the consolidated balance
sheet.
The following table indicates the high and low closing prices of the stock for
the years ended January 31, 1998 and 1999 and for the six month period ended
July 31, 1999:
<TABLE>
<CAPTION>
Low High
----- -----
<S> <C> <C>
January 31, 1998 $0.15 $1.00
January 31, 1999 $0.44 $2.75
July 31, 1999 $1.41 $2.13
</TABLE>
5. STOCK OPTIONS
Under various plans, the Company may grant stock options to key executives,
management and other employees at exercise prices equal to or exceeding the
market price at the date of grant. In general, options become exercisable from
2 to 10 year periods from the grant date. Stock reserved for current or future
option exercise at January 31, and July 31, 1999, totaled 1.5 million, inclusive
of the 1,436,100 shares related to options previously granted.
On June 10, 1998, the Board of Directors granted options to shareholders' of
Wpg.Net, Inc., to purchase 500,000 shares of the Company's restricted common
stock at an exercise price of $0.59 per share. The options vest monthly over a
three-year period and have a term ending June 2008.
F-10
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
5. STOCK OPTIONS (Continued)
The following table summarizes information about stock option transactions for
the year ended January 31, 1998 and 1999 and six months ended July 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
---------- ---------
<S> <C> <C>
Outstanding at beginning of year. . . . . . . . . - -
Awards:
Granted for the year ended January 31, 1998 . . 506,100 $ 0.19
Exercised. . . . . . . . . . . . . . . . . . . - -
Forfeited. . . . . . . . . . . . . . . . . . . - -
Outstanding at January 31, 1998 . . . . . . . . . 506,100 0.18
Awards:
Granted for the year ended January 31, 1999 . . 630,000 0.59
Exercised. . . . . . . . . . . . . . . . . . . - -
Forfeited. . . . . . . . . . . . . . . . . . . - -
Outstanding at January 31, 1999 . . . . . . . . . 1,136,100 0.42
Awards:
Granted for the six months ended July 31, 1999. 300,000 0.65
Exercised. . . . . . . . . . . . . . . . . . . (636,100) 0.28
Forfeited. . . . . . . . . . . . . . . . . . . - -
Outstanding at July 31, 1999. . . . . . . . . . . 800,000 $ 0.65
Exercisable at January 31, 1998 . . . . . . . . . 29,589 $ 0.18
Exercisable at January 31, 1999 . . . . . . . . . 268,343 $ 0.29
Exercisable at July 31, 1999 (UNAUDITED). . . . . 252,215 $ 0.63
</TABLE>
The following table summarizes information about stock options outstanding at
January 31, 1998 and 1999 and at July 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average Exercisable
Range Number Remaining Weighted Number Weighted
of of Years of Average of Average
exercise options Contractual Exercise Options Exercise
prices outstanding life Price Exercisable Price
------------ ----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
January 31, 1998. $0.18 - 0.63 506,100 9.24 $ 0.19 29,589 $ 0.18
January 31, 1999. $0.18 - 0.63 1,136,100 8.88 $ 0.42 268,343 $ 0.29
July 31, 1999
(UNAUDITED) . $0.59 - 0.75 800,000 9.21 $ 0.65 252,215 $ 0.63
</TABLE>
F-11
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
5. STOCK OPTIONS (Continued)
During fiscal 1997, the Company adopted SFAS 123 and under the provisions of the
new standard has elected to continue using the intrinsic-value method of
accounting for stock-based awards granted to employees in accordance with APB
25. For the six months ended July 31, 1999, the Company recorded compensation
expense in the amount of $146,525.
The following table reflects pro forma net income and earnings per share had the
Company elected to adopt the fair value approach of SFAS 123 for the years ended
January 31, 1998 and 1999 and the six months ended July 31, 1998 and 1999:
<TABLE>
<CAPTION>
January January July 31, July 31,
31, 1998 31, 1999 1998 1999
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss: (UNAUDITED) (UNAUDITED)
As reported. . $(844,369) $(1,101,062) $ (613,841) $(1,057,837)
Pro forma. . . (847,624) (1,214,914) (622,635) (1,228,660)
Loss per share:
As reported . $ (0.09) $ (0.10) $ (0.06) $ (0.09)
Pro forma . . (0.09) (0.12) (0.06) (0.10)
</TABLE>
The estimated fair value of each option granted is calculated using the
Black-Scholes option-pricing model with a weighted average risk free rate of
6.4%, volatility of 177% and expected life of 1 to 3 years.
6. INCOME TAXES
Income taxes are provided pursuant to SFAS No. 109 Accounting for Income Taxes.
The statement requires the use of an asset and liability approach for financial
reporting for income taxes. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized. Accordingly, as the realization and use of the net operating loss
carryforward is not probable at January 31, 1999 and July 31, 1999 the tax
benefit of the loss carryforward has been offset by a valuation allowance of the
same amount.
The composition of deferred tax assets are as follows:
<TABLE>
<CAPTION>
January 31, July 31,
1999 1999
------------- ------------
<S> <C> <C>
(UNAUDITED)
Total deferred tax assets $ 779,000 $ 1,006,251
Total valuation allowance (779,000) (1,006,251)
------------- ------------
Total deferred tax assets $ - $ -
============= ============
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
deferred assets are as follows:
<TABLE>
<CAPTION>
January 31, July 31,
1999 1999
------------- ------------
<S> <C> <C>
Deferred tax assets: (UNAUDITED)
Net operating loss carryforwards $ 779,000 $ 1,006,251
Gross deferred tax assets. . . . 779,000 1,006,251
Valuation allowance. . . . . . . (779,000) (1,006,251)
------------- ------------
Net deferred tax assets. . . . $ - $ -
============= ============
</TABLE>
F-12
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
6. INCOME TAXES (Continued)
No provision for income taxes has been recorded for the periods ended January
31, 1999 and 1998 and for the periods ended July 31, 1999 and 1998 as the
Company has incurred losses during these periods.
The Company had approximately $4,200,000 of federal and state loss carryforwards
available to reduce future federal and state tax liability through the year 2018
for federal loss carryforwards and 2003 for the state loss carryforwards.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has used market information for similar instruments and applied
judgment to estimate fair values of financial instruments. At January 31, 1999,
and July 31, 1999, the fair values of cash, accounts receivable, employee
receivables, notes payable and accounts payable approximated carrying values
because of the short-term nature of these instruments.
8. COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases its main office facilities under a noncancellable operating
lease agreement expiring December 31, 1999 with the option to extend the lease
for one additional year. The Company has exercised their right to a one-year
extension through December 31, 2000. The future expense that will be incurred
under the lease for the year ended January 31, 2000 is $37,500, which is
reflected as prepaid rent at January 31, 1999. See Litigation Settlement
discussion below.
Rent expense for the years ended January 31, 1998 and 1999 was $94,067 and
$35,063, respectively. Rent expense for the six months ended July 31, 1998 and
1999 was $15,750 and $37,457, respectively.
Litigation Settlement
- ----------------------
On August 28, 1998, the Company filed a complaint against the owner of the
building complex in which its main office is maintained in Ventura, California.
The complaint arose out of a dispute between the parties regarding the exercise
by the Company of an option to extend the term of the current lease, and
concerning the actions of the parties in connection with the negotiation of a
potential new lease. The Company, in its complaint, sought specific
performance, declaratory relief, injunctive relief, and damages.
In a mutual compromise settlement reached in October 1998, the Company agreed to
accept the following in settlement of the complaint: an amount of $30,000 in
cash; payment of attorney fees incurred in the amount of $7,500; payment of
out-of-pocket expenses it incurred in a move to a new office space, up to a
maximum of $10,000; and new office space in an adjacent building with
"free-rent" for a one year period commencing December 1, 1998, with a monthly
lease fair value of $3,750. The total settlement amount of $91,110 is reflected
as income from litigation settlement in the consolidated statement of operations
for the year ended January 31, 1999. The remaining months of abated rent are
reflected as prepaid rent on the consolidated statement of financial position in
the amount of $37,500 and $15,000 (UNAUDITED) at January 31, 1999 and July 31,
1999, respectively.
9. GOING CONCERN
The Company has not had significant revenues and has experienced operating
losses since inception primarily caused by its continued development and
marketing costs. As shown in the accompanying financial statements, the Company
incurred a net loss of $1,101,062 during the year ended January 31, 1999, and as
of that date, the Company's current liabilities exceeded its current assets by
$920,680. At January 31, 1999, the Company's shareholders' deficit was
$360,305. Those factors create an uncertainty about the Company's ability to
continue as a going concern. The management of the Company intends to pursue
various means of obtaining additional capital. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern. Continuation of the Company as a going concern is
dependent on the Company continuing to raise capital, developing significant
revenues, and ultimately attaining profitable operations.
F-13
<PAGE>
Interactive Buyers Network International, Ltd.
and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INFORMATION FOR THE PERIODS ENDED JULY 31, 1998 AND 1999 IS UNAUDITED
10. SUBSEQUENT EVENTS
Option Vesting Term Modification and Exercise
- --------------------------------------------------
As of May 15, 1999, the Board of Directors of the Company modified the terms of
all employee stock options held by three executives, in order to gain their
additional commitment to the Company. On the condition that all of those
options be immediately exercised, and all 636,100 common shares purchased, the
Board accelerated the vesting so that all shares were vested. The exercise
prices, and numbers of shares, however, remained unchanged. As a result of this
modification, and as required by SFAS Number 123, the Company recognized
additional compensation expense of $142,720, although there were no payments of
cash or other consideration to those executives. Upon exercise of the options,
the option holders issued their personal notes payable to the Company, in the
aggregate amount of $178,798 (UNAUDITED), in connection with purchase of their
shares. These notes are reflected as a reduction of stockholder's equity
(deficit) on the financial statements.
Transfer of Wpg.net Assets, Liabilities, and Operations to the VSI Subsidiary
- --------------------------------------------------------------------------------
In June 1999, the Board of Directors approved the transfer of all assets,
liabilities, and operations of Wpg.Net into the VSI subsidiary, to be followed
by the dissolution of the Wpg.Net corporate entity. Following that action, IBNL
will function as a holding company with VSI as its only operating subsidiary.
Conversion Notice given to Convertible Notes Payable Holders
- -------------------------------------------------------------------
On July 31, 1999, the Board of Directors provided all holders of the convertible
notes payable with notification that the Board would exercise the conversion
provision in the note agreements. In accordance with the note agreements, the
note holders were given the required 90-day notice on the conversion which is to
be effective on October 31, 1999. The Company further informed the note holders
that it desired to accelerate the conversion of the notes to an effective date
of July 31, 1999. As consideration for agreeing to a July 31, 1999 conversion,
the Company will give the note holders the share equivalent of interest that
would have accrued during the period from August 1, 1999 to October 31, 1999.
As of September 3, 1999, the Company has not yet determined which note holders
will accept early conversion. Thus, no adjustments have been reflected in the
accompanying financial statements for the effective conversion of the notes
payable to stock as of July 31, 1999.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD.
By: /s/ Robert C. McShirley
-----------------------------------------------
Robert C. McShirley
President, Chief Executive Officer and Director
Date: September 20, 1999
37
<PAGE>
PART III
Item 1. INDEX TO EXHIBITS
The Exhibits listed below are filed as part of this Registration
Statement.
Exhibit
No. Document
- ------- ---------------------------------------------
2.1 Articles of Incorporation
2.2 Bylaws
3.1 Specimen Stock Certificate
3.2 Specimen Convertible Demand Note Series 3
3.3 Specimen Convertible Demand Note Series 2
3.4 Specimen Convertible Demand Note
10.1 Stock Purchase and Exchange Agreement
10.2 Option to Purchase Common Stock
17 Computation of Earnings/Loss Per Common Share
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
38
<PAGE>
ARTICLES OF INCORPORATION
OF
CINEMASTAR CORPORATION
* * * * *
FIRST. That the name of the corporation is CINEMASTAR CORPORATION
SECOND. Its principal office in the State of Nevada is located at One East
First Street, Reno, Washoe County, Nevada 89501. The name and address of its
resident agent is The Corporation Trust Company of Nevada, One East First
Street, Reno, Nevada 89501.
THIRD. The nature of the business, or objects or purposes proposed to be
transacted, promoted or carried on are:
To engage in any lawful act or activity.
FOURTH. The amount of the total authorized capital stock of the
corporation is Twenty Five Thousand Dollars ($25,000.00) consisting of two
million five hundred thousand (2,500,000) shares of stock of the par value of
($.01) each.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the by-laws of this
corporation, provided that the number of directors shall not be reduced to less
than three (3), except that in cases where all the shares of the corporation are
owned beneficially and of record by either one or two stockholders, the number
of directors may be less than three (3) but not less than the number of
stockholders.
The name and post-office address of the first board of directors, which
shall be three (3) in number, are as follows:
1
<PAGE>
NAME POST-OFFICE ADDRESS
- -------------------- --------------------------
Joseph Mazin 735 East Gayo Avenue
Los Angeles, CA 90001
Leonard Rothstein 5720 Wilshire Blvd.
Beverly Hills, CA 90211
Bruce Stuart 6380 Wilshire Blvd.
Los Angeles, CA 90048
SIXTH. The capital stock, after the amount of the subscription price,
or par value, has been paid in shall not be subject to assessment to pay the
debts of the corporation.
SEVENTH. The name and post-office address of each of the incorporators
Signing the articles of incorporation are as follows:
NAME POST-OFFICE ADDRESS
- -------------------------- ----------------------------------
M. A. Shelton 700 S. Flower St., Ste. 1010
Los Angeles, CA 90017
S. C. Becker 700 S. Flower St., Ste. 1010
Los Angeles, CA 90017
Y. Mansfield 700 S. Flower St., Ste. 1010
Los Angeles, CA 90017
EIGHT. The corporation is to have perpetual existence.
NINTH. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
Subject to the by-laws, if any, adopted by the stockholders, to make, alter
or amend the by-laws of the corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgages and liens
upon the real and personal property of this corporation.
2
<PAGE>
By resolution passed by a majority of the whole board, to designate
one (1) or more committees, each committee to consist of one (1) or more of the
directors of the corporation, which, to the extent provided in the resolution or
in the by-laws of the corporation, shall have and may exercise the powers of the
board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be stated in the by-laws of the corporation or as may be
determined from time to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a stockholders= meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the board of directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of directors deem expedient and for the best
interests of the corporation.
TENTH. Meetings of stockholders may be held outside the State of Nevada,
if the by-laws so provide. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Nevada at such
place or places as may be designated from time to time by the board of directors
or in the by-laws of the corporation.
ELEVENTH. This corporation reserves the right to amend, alter, change or
repeal any provision contained in the articles of incorporation, in the manner
now or hereafter prescribed by statute, or by the articles of incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
3
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TWELFTH. At all elections of directors of the corporation each holder of
stock possessing voting power is entitled to as many votes as equal the number
of his shares of stock multiplied by the number of directors to be elected, and
he may cast all such votes for a single director or may distribute them among
the number to be voted for or any two or more of them, as he may see fit.
THIRTEENTH. No stockholder of this corporation shall by reason of his
holding shares of any class have any pre-emptive or preferential right to
purchase or subscribe to any shares of any class of this corporation, now or
hereafter to be authorized, or any notes, debentures, bonds, or other securities
convertible into or carrying options or warrants to purchase shares of any
class, now or hereafter to be authorized, whether or not the issuance of any
such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend or voting rights of such stockholder, other than
such rights, if any, as the board of directors, in its discretion from time to
time may grant, and at such price as the board of directors in its discretion
may fix; and the board of directors may issue shares of any class of this
corporation, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, without
offering any such shares of any class, either in whole or in part, to the
existing stockholders of any class.
4
<PAGE>
FOURTEENTH. The corporation shall indemnify any and all of its directors
or officers or former director or officers or any person who may have served at
its request as a director or officer of another corporation in which it owns
shares of capital stock or of which it is a creditor against expenses actually
and necessarily incurred by them in connection with the defense of any action,
suit or proceeding in which they, or any of them, are made parties, or a party,
by reason of being or having been directors or officers or a director or officer
of the corporation, or of such other corporation, except in relation to matters
as to which any such director or officer or former director or officer or person
shall be adjudged in such action, suit or proceeding to be liable for negligence
or misconduct in the performance of duty. Such indemnification shall not be
deemed exclusive of any other rights to which those indemnified may be entitled,
under any by-law, agreement, vote of stockholders, or otherwise.
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CINEMASTAR CORPORATION
BY
INCORPORATORS BEFORE PAYMENT
OF ANY PART OF THE CAPITAL
We, the undersigned, being two-thirds of the original incorporators of
CINEMASTAR CORPORATION, a corporation organized under and existing by virtue of
the Laws of the State of Nevada, having filed its Articles of Incorporation with
the Secretary of State of Nevada on the 22nd day of October, 1980, and a copy
thereof, certified by the Secretary of State of Nevada, having been filed in the
office of the Clerk of the County of Washoe, Nevada, on the 24th day of October,
1980, desire to amend said Articles of Incorporation in the manner hereinafter
set forth, and do hereby certify that, to the date of this certificate, no part
of the capital of said corporation has been paid, and that said Articles of
Incorporation are amended in the manner following:
Article First of said Articles of Incorporation, reading as follows:
"FIRST: The name of this corporation is CINEMASTAR CORPORATION"
is hereby amended to read as follows:
"FIRST: The name of this corporation is CINEMA-STAR CORPORATION".
6
<PAGE>
IN WITNESS WHEREOF we have hereunto set our hands and seals, and executed
these presents, this 15th day of November, 1980.
/s/ M. A. Shelton, Incorporator
------------------------------ (SEAL)
M. A. Shelton, Incorporator
/s/ S. C. Becker, Incorporator
------------------------------ (SEAL)
S. C. Becker, Incorporator
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES )
On November 15, 1980 personally appeared before me, a Notary Public, M. A.
Shelton and S. C. Becker, who acknowledged that they executed the above
instrument.
____________________________________
Notary Public
Ramona E. Moza
7
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CINEMASTAR CORPORATION
We, the undersigned, being the President and Secretary of CINEMASTAR
CORPORATION, a corporation organized under and existing by virtue of the laws of
the State of Nevada, having filed its Articles of Incorporation with the
Secretary of State of Nevada on the 22nd day of October, 1980, and a copy
thereof, certified by the Secretary of State of Nevada, having been filed in the
Office of the Clerk of the County of Washoe, Nevada, on the 24th day of October,
1980, desire to amend said Articles of Incorporation in the manner hereinafter
set forth, and that said Articles of Incorporation are amended in the manner
following:
Article First of said Articles of Incorporation, reading as follows:
"FIRST: The name of this corporation is CINEMASTAR CORPORATION"
is hereby amended to read as follows:
"FIRST: The name of this corporation is IMPACT RESOURCES, INC."
Said resolution has been approved by a majority of the outstanding shares.
8
<PAGE>
IN WITNESS WHEREOF we have hereunto set our hands and seals, and
executed these presents, this 20th day of December, 1983.
/s/ JOE MAZIN
------------------------------ (SEAL)
JOE MAZIN, President and Chairman
/s/ BRUCE D. STUART
------------------------------ (SEAL)
BRUCE D. STUART, Secretary,
Treasurer, and Director
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES )
On December 20, 1983 personally appeared before me, a Notary Public, JOE
MAZIN and BRUCE D. STUART, who acknowledged that they executed the above
instrument.
/S/ Diane Pedrin
____________________________________
NOTARY PUBLIC
9
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
IMPACT RESOURCES, INC.
IMPACT RESOURCES, INC., a Nevada Corporation, under its corporate seal, and
the hands of its duly elected and acting President and Secretary does hereby
certify:
1. That at a special meeting of the Board of Directors of this
corporation regularly convened in Los Angeles, California, on the 11th day of
September, 1989, at which meeting there was at all times present and acting a
quorum, certain resolutions were regularly adopted setting for the amendment
herein, and declaring its advisability and signing a special resolution of the
stockholders entitled to vote for the consideration thereof, to wit:
ARESOLVED, that it is deemed advisable, in the judgment of this Board of
Directors, that Articles I, II and IV of the Articles of Incorporation be
deleted and amended to read in their entirety as follows:
I: The name of this corporation is "DYNA-SEAL CORPORATION."
II: The Corporation shall effectuate a twenty-eight to one (28-1) reverse split.
IV: The amount of the total authorized capital stock of the corporation is FIVE
MILLION (5,000,000), all of said shares shall be of one class, without series or
other distinction and shall be designated as "common stock," the par value of
$.01 per share shall remain the same.
"RESOLVED, that stockholders entitled to exercise a majority of the voting power
shall consent in writing to the amendment, then the corporation shall make,
under its corporate seal, and the hands of its President or Vice President, and
Secretary, or Assistant Secretary, and shall acknowledge and file, the
certificate required by NRS 78.390, and do all things necessary to effect the
amendment."
10
<PAGE>
IN WITNESS WHEREOF we have hereunto set our hands and seals, and executed
these presents, this 31st day of March, 1981.
/s/ M. A. Shelton, Incorporator
------------------------------ (SEAL)
M. A. Shelton, Incorporator
/s/ S. C. Becker, Incorporator
------------------------------ (SEAL)
S. C. Becker, Incorporator
STATE OF CALIFORNIA )
) ss:
COUNTY OF LOS ANGELES )
On March 31, 1981, personally appeared before me, a Notary Public, M. A.
Shelton and S. C. Becker, who acknowledged that they executed the above
instrument.
/s/ Ramona E. Moza
____________________________________
Notary Public
Ramona E. Moza
11
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CINEMA-STAR CORPORATION
BY
INCORPORATORS BEFORE PAYMENT
OF ANY PART OF THE CAPITAL
We, the undersigned, being two-thirds of the original incorporation of
CINEMA-STAR CORPORATION, a corporation organized under and existing by virtue of
the Laws of the State of Nevada, having filed its Articles of Incorporation with
the Secretary of State of Nevada on the 22nd day of October, 1980, and a copy
thereof, certified by the Secretary of State of Nevada, having been filed in the
office of the Clerk of the County of Washoe, Nevada, on the 24th day of October,
1980, desire to amend said Articles of Incorporation in the manner hereinafter
set forth, and do hereby certify that, to the date of this certificate, no part
of the capital of said corporation has been paid, and that said Articles of
Incorporation are amended in the manner following:
Article FOURTH of said Articles of Incorporation reading as follows:
FOURTH. The amount of the total authorized capital stock of the
corporation is Twenty Five Thousand Dollars ($25,000.00) consisting of two
million five hundred thousand (2,500,000) shares of stock of the par value of
($.01) each.
is hereby amended to read as follows:
FOURTH. The amount of the total authorized capital stock of the
corporation is Twenty Five Thousand Dollars ($25,000.00) consisting of twenty
five million (25,000,000) shares of stock of the par value of ($.001) each.
12
<PAGE>
2. That there was issued and outstanding the following number of
shares of the authorized capital stock of the corporation entitled to vote at
the meeting:
2,500,000 shares of issued and outstanding stock.
3. That the resolution of the Board of Directors above referred to
was duly considered at the meeting, and upon motion regularly made and seconded,
the proposed amendment was approved by the following resolution:
"RESOLVED, that the Amendment of Articles I, II and IV of the Articles of
Incorporation proposed to the stockholders by Resolution of the Board of
Directors regularly adopted by them on the 11th day of September, 1989, be and
the same hereby is adopted and approved."
This resolution was adopted by the following vote of the holders of the
stock of all classes having voting power, present in person or by proxy at the
meeting:
2,500,000 shares were voted for the adoption of the resolution, and 0 shares
were voted against the adoption of the resolution, there being only one class of
stock.
The shares voting for the adoption of the resolution constituted at least a
majority of the joint power.
4. That pursuant to the resolution, and as required by NRS 78.390,
notice of the meeting thus called was given to, or has been duly waived in
writing by, all stockholders of records of the corporation having voting power;
and there having been secured the written consent to the proposed amendment of a
majority of such voting power.
5. That this form of written consent of the stockholders to the
amendment is filed herewith and made a part hereof.
6. That there were issued and outstanding the following number of
shares of authorized capital stock of the corporation entitled to consent to the
proposed amendment:
2,500,000 shares of common stock.
13
<PAGE>
7. That the following number of shares, which number represented a
majority of the voting power entitled to vote, consented to and authorized and
adopted the amendment:
2,500,000 shares of common stock.
DATED: September 11, 1989
IMPACT RESOURCES, INC.,
A Nevada Corporation
By /s/ JOSEPH MAZIN
--------------------------------
JOSEPH MAZIN, President
By /s/ BRUCE D. STUART
--------------------------------
BRUCE D. STUART,
Vice-President/Secretary
14
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
DYNA-SEAL CORPORATION
DYNA-SEAL CORPORATION, A Nevada Corporation, under its corporate seal,
and the hands of its duly elected and acting President and Secretary does hereby
certify:
1. That at a special meeting of the Board of Directors of this
corporation regularly convened in Sun Valley, California, on the 31st day of
January, 1995, at which meeting there was at all times present and acting a
quorum, certain resolutions were regularly adopted setting forth the amendment
herein, and declaring its advisability and signing a special resolution of the
stockholders entitled to vote for the consideration thereof, to wit:
"RESOLVED, that it is deemed advisable, in the judgment of this Board of
Directors, that Articles I, IV and V of the Articles of Incorporation be deleted
and amended to read in their entirety as follows:
I: The name of this corporation is "COMPUTER X-RAY SYSTEMS, INC."
IV: That the total amount of authorized capital stock of the
Corporation shall be increased from the present Five Million Shares (5,000,000)
to Fifty Million (50,000,000) Shares.
V: That a Class "A" Preferred Stock shall be authorized in the amount
of 5,000,000 (Five Million) having a par value of $.01/share, with the terms,
conditions, description and issuance to be determined by the Board of Directors.
"RESOLVED, that stockholders entitled to exercise a majority of the voting power
shall consent in writing to the amendment, then the corporation shall make,
under its corporate seal, and the hands of its President or Vice President, and
Secretary, or Assistant Secretary, and shall acknowledge and file, the
certificate required by NRS 78.390, and do all things necessary to effect the
amendment."
15
<PAGE>
2. That there was issued and outstanding the following number of
shares of the authorized capital stock of the corporation entitled to vote at
the meeting:
892,626 shares of issued and outstanding stock.
3. That the resolution of the Board of Directors above referenced
to was duly considered at the meeting, and upon motion regularly made and
seconded, the proposed amendment was approved by the following resolution:
"RESOLVED, that the amendment of Articles I, IV and V of the Articles of
Incorporation proposed to the stockholders by Resolution of the Board of
Directors regularly adopted by them on the 31st day of January, 1995, be and the
same hereby is adopted and approved."
The resolution was adopted by the following vote of the holders of the
stock of all classes having voting power, present in person or by proxy at the
meeting:
892,626 shares were voted for the adoption of the resolution and 0 shares were
voted against the adoption of the resolution, there being only one class of
stock.
The shares voting for the adoption of the resolution constituted at least a
majority of the joint power.
4. That pursuant to the resolution, and as required by NRS 78.390,
notice of the meeting thus called was given to, or has been duly waived in
writing by all stockholders of records of the corporation having voting power;
and there having been secured the written consent to the proposed amendment of a
majority of such voting power.
5. That this form of written consent of the stockholders to the
amendment is filed herewith and made a part hereof.
6. That there were issued and outstanding the following number of
shares of authorized capital stock of the corporation entitled to consent to the
proposed amendment:
892,626 shares of common stock.
7. That the following number of shares, which number represented a
majority of the voting power entitled to vote, consented to and authorized and
adopted the amendment:
892,626 shares of common stock.
DATED: January 31, 1995
DYNA-SEAL CORPORATION,
A Nevada Corporation
By /s/ JOSEPH MAZIN
----------------------------------
JOSEPH MAZIN, President
By /s/ BRUCE D. STUART
----------------------------------
BRUCE D. STUART, Secretary
16
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
COMPUTER X-RAY SYSTEMS, INC.
We the undersigned President and Assistant Secretary of COMPUTER X-RAY
SYSTEMS, INC., a Nevada corporation, do hereby certify:
1. That the Board of Directors of this corporation at a meeting duly
convened on the 26th day of June, 1995, adopted a resolution to amend the
Articles of Incorporation as follows:
Article I is hereby amended to read as follows:
The name of this corporation is INTERACTIVE NETWORK INTERNATIONAL LTD.
2. The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 892,828; that the said
change and amendment has been consented to and approved by a majority vote of
the stockholders holding at least a majority of each class of stock outstanding
and entitled to vote thereon.
DATED: July 18, 1995
COMPUTER X-RAY, INC.
By /s/ Phillip Oakes
----------------------------------
Phillip Oakes, President
By /s/ Edward Mimides
----------------------------------
Edward Mimides,
Assistant Secretary
17
<PAGE>
CINEMASTAR CORPORATION
* * * * *
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Reno,
County of Washoe, State of Nevada.
Section 2. The corporation may also have offices at such other places
both within and without the State of Nevada as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All annual meetings and special meetings of the
stockholders may be held at such time and place within or without the State of
Nevada as shall be stated in the notice of the meeting, or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1981, shall be held on the first day of October, if not a legal holiday,
and if a legal holiday, then on the next secular day following, at 3:00 P. M.,
at which they shall elect by a plurality vote a board of directors, and transact
such other business as may properly be brought before the meeting.
1
<PAGE>
Section 3. Special meetings of the stockholders, for any purpose
or purposes, unless otherwise prescribed by statute or by the articles of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the
president or a vice president, or the secretary, or an assistant secretary, or
by such other person or persons as the directors shall designate. Such notice
shall state the purpose or purposes for which the meeting is called and the time
when, and the place, which may be within or without this state, where it is to
be held. A copy of such notice shall be either delivered personally to or shall
be mailed, postage prepaid, to each stockholder of record entitled to vote at
such meeting not less than ten nor more than sixty days before such meeting. If
mailed, it shall be directed to a stockholder at his address as it appears upon
the records of the corporation and upon such mailing of any such notice, the
service thereof shall be complete, and the time of the notice shall begin to run
from the date upon which such notice is deposited in the mail for transmission
to such stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery or mailing of the notice of and
prior to the holding of the meeting it shall not be necessary to deliver or mail
notice of the meeting to the transferee.
2
<PAGE>
Section 5. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 6. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
articles of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 7. When a quorum is present or represented at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which be express provision of the
statutes or of the articles of incorporation a different vote is required in
which case such express provision shall govern and control the decision of such
question.
3
<PAGE>
Section 8. Except as hereinafter provided, every stockholder of record
of the corporation shall be entitled at each meeting of stockholders to one vote
for each share of stock standing in his name on the books of the corporation.
At all elections of directors each holder of stock possessing voting power shall
be entitled to as many votes as shall equal the number of his shares of stock
multiplied by the number of directors to be elected, and he may cast all of such
votes for a single director or may distribute them among the number to be voted
for or any two or more of them, as he may see fit.
Section 9. At any meeting of the stockholders, any stockholder may
be represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two
or more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No such
proxy shall be valid after the expiration of six months from the date of its
execution, unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which it is to continue in force, which
in no case shall exceed seven years from the date of its execution. Subject to
the above, any proxy duly executed is not revoked and continues in full force
and effect until an instrument revoking it or a duly executed proxy bearing a
later date is filed with the secretary of the corporation.
Section 10. Any action which may be taken by the vote of the
stockholders at a meeting, may be taken without a meeting if authorized by the
written consent of stockholders holding at least a majority of the voting power,
unless the provisions of the statutes or of the articles of incorporation
require a greater proportion of voting power to authorize such action in which
case such greater proportion of written consents shall be required.
4
<PAGE>
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole board shall be five (5), all of whom shall be at least 18 years of age.
The number of directors may from time to time be increased to not more than nine
(9) or decreased to not less than three by amending this section of the by-laws.
Section 2. Vacancies, including those caused by an increase in the
number of directors, may be filled by a majority of the remaining directors
though less than a quorum. When one or more directors shall give notice of his
or their resignation to the board, effective at a future date, the board shall
have power to fill such vacancy or vacancies to take effect when such
resignation or resignations shall become effective, each director so appointed
to hold office during the remainder of the term of office of the resigning
director or directors.
Section 3. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the articles of
incorporation or by these by-laws directed or required to be exercised
or done by the stockholders.
5
<PAGE>
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Nevada.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
board of directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and place as shall from time to time be determined
by the board.
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<PAGE>
Section 7. Special meetings of the board of directors may be called
by the president or secretary on the written request of two directors. Written
notice of special meetings of the board of directors shall be given to each
director at least forty eight (48) hours before the date of the meeting.
Section 8. A majority of the board of directors, at a meeting duly
assembled, shall be necessary to constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the articles of
incorporation. Any action required or permitted to be taken at a meeting of the
directors may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors entitled to vote
with respect to the subject matter thereof.
COMMITTEES OF DIRECTORS
Section 9. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation, which, to the extent
provided in the resolution, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may have power to authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors.
7
<PAGE>
Section 10. The committee shall keep regular minutes of their proceedings
and report the same to the board when required.
COMPENSATION OF DIRECTORS
Section 11. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payments shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICE
Section 1. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
8
<PAGE>
Section 2. Whenever all parties entitled to vote at any meeting,
whether of directors or stockholders, consent, either by a writing on the
records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meeting
shall be as valid as if had at a meeting regularly called and noticed, and at
such meeting any business may be transacted which is not excepted from the
written consent or to the consideration of which no objection for want of notice
is made at the time, and if any meeting be irregular for want of notice or of
such consent, provided a quorum was present at such meeting, the proceedings of
said meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meetings; and such consent or approval of stockholders
may be by proxy or attorney, but all such proxies and powers of attorney must be
in writing.
Section 3. Whenever any notice whatever is required to be given
under the provisions of the statutes, of the articles of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a president,
a vice president, a secretary and a treasurer. Any person may hold two or more
offices.
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Section 2 The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, a vice president, a secretary
and a treasurer, none of whom need be a member of the board.
Section 3. The board of directors may appoint additional vice
presidents, and assistant secretaries and assistant treasurers and such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the corporations
shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officers elected or appointed by
the board of directors maybe removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise shall be filled by the
board of directors.
THE PRESIDENT
Section 6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation, and shall see that all orders and resolutions of the board of
directors are carried into effect.
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Section 7. He shall execute bonds, mortgage and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENT
Section 8. The vice president shall, in the absence or disability of
the president, perform the duties and exercise the powers of the president and
shall perform such other duties as the board of directors may from time to time
prescribe.
THE SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall keep in safe his death,
resignation, retirement or removal from office, of all books, papers, voucher,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
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ARTICLE VI
CERTIFIVATES OF STOCK
Section 1. Every stockholder shall be entitled to have a certificate,
signed by the president or a vice president and the treasurer or an assistant
treasurer, or the secretary or a assistant secretary of the corporation,
certifying the number of shares owned by him in the corporation. When the
corporation is authorized to issue shares of more than one class or more than
one series of any class, there shall be set forth upon the face or back of the
certificate, or the certificate shall have a statement that the corporation will
furnish to any stockholders upon request and without charge, a full or summary
statement of the designations, preferences and relative, participation, options
or other special rights of the various classes of stock or series thereof and
the qualifications, limitations or restrictions of such rights, and, if the
corporation shall be authorized to issue only special stock, such certificate
shall set forth in full or summarize the rights of the holders of such stock.
Section 2. Whenever any certificate is counter signed or otherwise or
otherwise authenticated by a transfer agent or trans-custody the seal of the
corporation and, when authorized by the board of directors, affix the same to
any instrument requiring it and, when, so affixed, it shall be attested by his
signature or by the signature of the treasurer or an assistant secretary.
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THE TREASURER
Section 10. The treasure shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 11. He shall disburse the funds of the corporation as may be
ordered by the board of directors taking proper voucher for such disbursements,
and shall render to the president and the board of directors, at the regular
meetings of the board, or when the board of director so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
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Section 12 If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties no shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
for clerk, and by register, than a facsimile of the signatures of the officers
or agents of the corporation may be printed or lithographed upon such
certificates in lieu of the actual signatures. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be adopted by
the corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon, had not ceased to be the officer or
officers of such corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates therefore
issued by the corporation alleged to have been lost or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost or destroyed. When authorizing such issue of a new certificate
or certificates, the board of directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it shall require and/or give the corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost or destroyed.
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TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The directors may prescribe a period not exceeding sixty
days prior to any meeting of the stockholders during which no transfer of stock
on the books of the corporation may be made, or may fix a day not more than
sixty days prior to the holding of any such meeting as the day as of which
stockholders entitled to notice of and to vote at such meeting shall be
determined, and only stockholders of record on such day shall be entitled to
notice or to vote at such meeting.
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Nevada.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the articles of incorporation, if any, may be declared by
the board of directors at any regular or special meeting pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the articles of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserves in the
manner in which it was created.
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CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
SEAL
Section 4. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its incorporation and the words "Corporate Seal,
Nevada."
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the board of directors, at any special meeting
of the stockholders or of the board of directors if notice of such alteration or
repeal be obtained in the notice of such special meeting.
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I, THE UNDERSIGNED, being the secretary of CINEMASTER CORPORATION DO HEREBY
CERTIFY the foregoing to be the by-laws of said corporation, as adopted at a
meeting of the directors held on the 4 day of Nov. 1998.
/s/ BRUCE D. STUART
-------------------
Secretary
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COMMON STOCK COMMON STOCK
INTERACTIVE BUYERS NETWORK INTERNATIONAL LTD.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
AB 3483
CUSIP 45837B SEE REVERSE FOR
- --------------------------------------------------------------------------------
This Certifies that: SPECIMEN
Is the registered holder of
SHARES OF THE COMMON STOCK OF $.01 PAR VALUE, 50,000,000 SHARES AUTHORIZED
Hereinafter called "Corporation" transferable only on the books of the
Corporation by the holder thereof in person or by duly authorized attorney, upon
the surrender of this certificate properly endorsed. This certificate is not
valid until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile corporate seal of said Corporation and the facsimile
signatures of its duly authorized officers. Dated:
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
(Glendale, California)
Transfer Agent and Registrar
By
Authorized Officer
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD. ("IBNL")
-------------------------------------------------------
CONVERTIBLE DEMAND NOTE
-----------------------
SERIES 3
Date of this Note: X-XX-99 Holder's name:
Principal Amount: $0
Interest Rate: 10% Holder's Tax ID:
Conversion Rate: $$$$ per share
At any time after December 31, 1999, IBNL promises to pay Holder the principal
amount of this SERIES 3 - CONVERTIBLE DEMAND NOTE ("Note"), plus interest
accrued but not yet paid, upon thirty (30) days advance written notice from
Holder demanding payment ("Demand"). Holder may make Demand for partial
payment of the principal due, plus interest only on that partial amount, and
receive a new Note for the remaining principal balance. Interest shall accrue
at the above rate and, in the absence of a Demand, may be paid in cash at the
option of IBNL. If not paid in cash, the interest may be converted as
described below. Interest shall accure at the annual rate stated above and
shall not be compounded.
At any time after issuance, Holder may convert the entire principal amount of
this Note, plus any interest accrued but unpaid through conversion date, into
IBNL common shares at the conversion rate stated above. As of the end
(January 31)of any fiscal year, Holder may convert accrued interest into IBNL
shares at the conversion rate above. In order to achieve conversion, Holder
must provide thirty (30) days advance written notice to IBNL indicating
Holder's election to convert, the name in which the new shares shall be
registered, and the address to which the shares should be sent ("Conversion").
If this Note is not converted or repaid in full by December 31, 1999, IBNL
shall have the right, following ninety (90) day advance written notice to
Holder, to either (1) force conversion of the entire Principal Amount, plus
accrued but unpaid interest, into IBNL common shares at the con- version rate
shown above, or (2) pay in full the Principal Amount plus accrued but unpaid
interest, thus eliminating entirely the Holder's right to convert.
REPRESENTATIONS AND WARRANTIES
Holder represents and warrants that he(she) fully understands the risks of this
investment, including the risk that all invested funds could be lost. Holder
has received a copy of the IBNL financial statements for its most recent fiscal
year end, and has had opportunities to ask relevant questions of management
about the company, its business and its finances, and has been satisfied in that
regard. Holder is an accredited investor as that term is used relative to
private investments of this nature and is experienced in such investments.
Holder acknowledges that this note and the underlying shares of IBNL common
stock, have not been registered under the Securities Act of 1933, as amended,
and may not be sold without such registration or exemption therefrom. Holder
represents that this Note is being acquired for investment, and without any
present intention of distributing it or the underlying stock, and understands
that the underlying shares of stock, when and if issued, will be restricted
stock subject to holding period requirements and other restrictions imposed by
securities law.
THIS NOTE REPRESENTS AN OBLIGATION OF IBNL ONLY IF SIGNED BELOW BY THE HOLDER,
AND A SIGNED COPY IS RETURNED TO IBNL. THE TERMS AND CONDITIONS HEREIN ARE
AGREED AS OF THE DATE OF THIS NOTE:
x__________________________(Holder) x________________________________
(holder's name) Interactive Buyers Network
International, Ltd.
(holder's address) Samuel E. Bradt, Chief Financial
Officer
================================================================================
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD. ("IBNL")
-------------------------------------------------------
CONVERTIBLE DEMAND NOTE
-----------------------
SERIES 2
Date of this Note: X-XX-99 Holder's name:
Principal Amount: $0
Interest Rate: 10% Holder's Tax ID:
Conversion Rate: $$$$ per share
At any time after December 31, 1999, IBNL promises to pay Holder the principal
amount of this SERIES 2 - CONVERTIBLE DEMAND NOTE ("Note"), plus interest
accrued but not yet paid, upon thirty (30) days advance written notice from
Holder demanding payment ("Demand"). Holder may make Demand for partial
payment of the principal due, plus interest only on that partial amount, and
receive a new Note for the remaining principal balance. Interest shall accrue
at the above rate and, in the absence of a Demand, may be paid in cash at the
option of IBNL. If not paid in cash, the interest may be converted as
described below.
At any time after issuance, Holder may convert the entire principal amount of
this Note, plus any interest accrued but unpaid through conversion date, into
IBNL common shares at the conversion rate stated above. In order to achieve
such conversion, Holder must provide thirty (30) days advance written notice to
IBNL indicating Holder's election to convert, the name in which the new shares
shall be registered, and the address to which the shares should be sent
("Conversion").
If this Note is not converted or repaid in full by December 31, 1999, IBNL
shall have the right, following ninety (90) day advance written notice to
Holder, to either (1) force conversion of the entire Principal Amount, plus
accrued but unpaid interest, into IBNL common shares at the con- version rate
shown above, or (2) pay in full the Principal Amount plus accrued but unpaid
interest, thus eliminating entirely the Holder's right to convert.
REPRESENTATIONS AND WARRANTIES
Holder represents and warrants that he(she) fully understands the risks of this
investment, including the risk that all invested funds could be lost. Holder
has received a copy of the IBNL financial statements for its most recent fiscal
year end, and has had opportunities to ask relevant questions of management
about the company, its business and its finances, and has been satisfied in that
regard. Holder is an accredited investor as that term is used relative to
private investments of this nature and is experienced in such investments.
Holder acknowledges that this note and the underlying shares of IBNL common
stock, have not been registered under the Securities Act of 1933, as amended,
and may not be sold without such registration or exemption therefrom. Holder
represents that this Note is being acquired for investment, and without any
present intention of distributing it or the underlying stock, and understands
that the underlying shares of stock, when and if issued, will be restricted
stock subject to holding period requirements and other restrictions imposed by
securities law.
THIS NOTE REPRESENTS AN OBLIGATION OF IBNL ONLY IF IT IS SIGNED BELOW BY THE
HOLDER. THE TERMS AND AND CONDITIONS HEREIN ARE ACKNOWLEDGED AND AGREED AS OF
THE DATE OF THIS NOTE:
x__________________________(Holder) x________________________________
(holder's name) Interactive Buyers Network
International, Ltd.
(holder's address) Samuel E. Bradt, Chief Financial
Officer
================================================================================
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD. ("IBNL")
-------------------------------------------------------
CONVERTIBLE DEMAND NOTE
-----------------------
Date of this Note: X-XX-99 Holder's name:
Principal Amount: $0
Interest Rate: 10% Holder's Tax ID:
Conversion Rate: $$$$ per share
At any time after June 30, 1998, IBNL promises to pay Holder the principal
amount of this CON- VERTIBLE DEMAND NOTE ("Note") plus interest accrued through
payment date, on principal being paid, upon thirty (30) days advance written
notice from Holder demanding payment of part of, or all principal ("Demand")
being paid. Interest shall accrue at the rate stated above.
At any time after June 30, 1998, Holder may convert the entire principal amount
of this Note, plus interest accrued but unpaid through conversion date, into
IBNL common shares at the conversion rate stated above. In order to achieve
such conversion, Holder must provide thirty (30) days advance written notice to
IBNL indicating Holder's election to convert, the name in which the shares
shall be registered, and the address to which the shares should be sent
("Conversion").
If this Note is not converted or repaid in full by December 31, 1998, IBNL
shall have the right, following ninety (90) day advance written notice to
Holder, to either (1) force conversion of the entire Principal Amount plus
accrued but unpaid interest into IBNL common shares at the conversion rate
shown above, or (2) pay in full the Principal Amount plus accrued but unpaid
interest, thus eliminating entirely the Holder's right to convert. During the
first fifty-nine (59) days of this ninety day notice period, Holder retains the
right to Demand payment of this Note in full, or initiate Conversion into IBNL
common shares.
REPRESENTATIONS AND WARRANTIES
Holder represents and warrants that he(she) has read the IBNL Confidential
Private Placement Memorandum dated August 20, 1997 (the "Memorandum") in its
entierty, understands and is willing to take all of the risks described in the
Memorandum, and agrees to all the relevant terms and conditions of the IBNL
Subscription Agreement associated with the Memorandum.
This Note represents an obligation of IBNL only if it is signed below by the
Holder.
Acknowledged and agreed as of the Date of this Note:
x__________________________(Holder) x________________________________
(holder's name) Interactive Buyers Network
International, Ltd.
(holder's address) Robert C. McShirley, President
================================================================================
STOCK PURCHASE AND EXCHANGE AGREEMENT
THIS STOCK PURCHASE AND EXCHANGE AGREEMENT (this "Agreement") is made and
entered into as of the tenth day of June 1998, by and among Interactive Buyers
Network International, Ltd., a Nevada corporation ("IBNL", and/or "Optionor"),
Dennis W. McQuilliams ("McQuilliams"), Donald E. Britton ("Britton") and David
K. Brazier ("Brazier"). McQuilliams, Britton and Brazier are hereinafter
collectively referred to as the "WPG Shareholders", DX3,Inc. a corporation of
the State of Washington, that is wholly owned by the WPG Shareholders,
hereinafter referred to as "DX3".
A. Wpg.net, Inc. ("WPG") is incorporated under the laws of the State of
Washington.
B. As of the date hereof, there are an aggregate of 1,000,000 shares of
WPG's Common Stock no par value (the "WPG Common Stock"), issued and
outstanding. There are no options or warrants or other rights outstanding to
purchase shares of WPG Common Stock or any other ownership interest in WPG.
C. All of the issued and outstanding shares of WPG Common Stock are
owned, beneficially and of record, by the WPG Shareholders, who together own an
aggregate of 1,000,000 shares of WPG Common Stock in the respective numbers of
shares set forth opposite the name of each on the signature page of this
Agreement.
D. The WPG Shareholders desire to sell to IBNL, and IBNL desires to
purchase and acquire from the WPG Shareholders, all of the shares of WPG's
Common Stock, in consideration of the exchange therefor of 500,000 shares of the
common stock of IBNL, on the terms and subject to the conditions set forth
herein; and an option to purchase an additional 500,000 shares of the common
stock of IBNL subject to the terms and conditions set forth in the "Option to
Purchase Common Stock of Interactive Buyers Network International, Ltd. "
agreement incorporated herein by this reference; and the Royalties as set forth
in paragraph "F" of this agreement.
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E. The parties hereto intend that the issuance of the shares of IBNL's
Common Stock in exchange for all of the WPG Common Stock shall qualify as a
"tax-free" reorganization as contemplated by the provisions of Section
368(a)(1)(B) of the Internal Revenue Code of 1954, as amended.
F. 1 ROYALTY. DX3, Inc. shall be paid a royalty based upon gross
sales or use, as defined in F,3, of Base Publisher ("BP"), a product now under
development by WPG with release expected by July 1998. The royalty will be
continually and perpetually paid on a quarterly basis at the rate of fifty
percent (50%) of all gross revenue, less returns, credit losses and cash
discounts, received by Optionor, from the sale or use of BP based upon financial
records of Optionor, subject to adjustment annually upon audit by Optionor's
independent auditors.
F.2. Base Publisher ("BP"), a product now under development by WPG is
to include, but not be limited to, all evolutions, revisions, enhancements,
upgrades, additions, tools, defined if F.4, and/or new versions or similar
products and to include any name changes in the product.
F.3 The term "use" as relating to the BP product as used herein is
defined as any use of the BP product, as defined, whether or not revenue is
derived from the use or sale of the BP product. If the BP is sold or marketed
without a minimum of Five dollars ($5.00) per site specific revenue or is sold
or marketed as part of a package of products or services, then IBNL will
negotiate with DX3 and agree to a fair value being assigned as revenue to the BP
sales for purposes of this agreement. If IBNL and DX3 cannot agree to a fair
value then a minimum value of Five dollars ($5.00) or Fifty percent (50%) of the
package of products, whichever is greater, per site shall be assigned as BP
revenue.
F.4 The term "Tools" shall mean any products developed in support or
the BP product or to be used in conduction with the BP product or as an add on
to the BP product. The term "ToolBox" in inclusive with the term "Tools". This
clause shall not apply to the Virtual Source product or any enhancements or
improvements to the Virtual Source product.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, agreements, representations and warranties contained herein, the
parties hereto agree as follows:
ARTICLE 1
1.1 At the Closing to be held in accordance with the provisions of
Section 2 below, IBNL agrees to sell, and each of the WPG Shareholders agrees,
jointly and severally, to purchase from IBNL an aggregate of 500,000 of
authorized and newly issued shares of IBNL's Common Stock. The 500,000 shares
shall be issued in the name of DX3, Inc., a corporation of the State of
Washington that is wholly owned by the WPG Shareholders. In consideration for
the issuance and sale of IBNL's Common Stock to the WPG Shareholders, and as
payment in full of the purchase price for IBNL's Common Stock to be issued and
sold to, and purchased by, each of them pursuant to the provisions of this
Agreement, at the Closing each WPG Shareholder shall deliver to IBNL the
certificates evidencing that respective number of shares of WPG Stock owned by
each which is set forth opposite his name on the signature page hereof.
ARTICLE 2
CLOSING AND POST-CLOSING
2.1 The consummation of the sale to and purchase by the WPG
Shareholders of IBNL's Common Stock contemplated hereby (the "Closing") shall be
effective upon final execution and delivery by all of the parties of this
Agreement and each of the agreements and certificates specified in this Section
2.1 (the "Closing Date"). If the Closing fails to occur by June 30, 1998, or by
such later date to which the Closing may be extended as provided hereinabove,
this Agreement shall automatically terminate, all parties shall pay their own
expenses incurred in connection herewith, and no party hereto shall have any
further obligations hereunder; provided, however, that no such termination shall
constitute a waiver by any party or parties which is not in default of any of
its or their respective representations, warranties or covenants herein, of any
rights or remedies it or they might have at law if any other party or parties is
in default of any of its or their respective representations, warranties or
covenants under this Agreement. At the Closing, as conditions thereto,
(a) IBNL shall deliver, or cause to be delivered, to the WPG Shareholders:
(i) Certificates for the 500,000 shares of IBNL's Common Stock issued
in the name of DX3, Inc., in form and substance reasonably
satisfactory to the WPG Shareholders (these certificates will be
delivered after the Closing);
(ii) Employment Agreements between IBNL and Messrs. McQuilliams,
Britton and Brazier specified in Section 6.3(b) below; and
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<PAGE>
(iii)Option Agreement between IBNL and DX3, Inc. specified in Section
6.3(c) below.
(iv) UBC filing or other security filing in favor of DX3 to protect
the terms in Clause 2.3 contained herein.
(b) The WPG Shareholders shall deliver, or cause to be delivered, to IBNL:
(i) A stock certificate or certificates evidencing the ownership of
each WPG Shareholder of all shares of WPG Stock owned by them,
duly endorsed for transfer to IBNL (these certificates will be
delivered after the Closing);
(ii) The Employment Agreements referred to in Section 6.3(b) below;
and
(iii)Resignations of WPG's officers and directors specified in
Section 6.4(c) below.
2.2 Following the Closing, WPG will become a wholly owned subsidiary of
IBNL. Subject to the terms and conditions of the Employment Agreements referred
to in Section 6.3(b) below, McQuilliams will be the chief executive of WPG.
Britton and Brazier will report to McQuilliams.
2.3 In the event that IBNL ceases to operate, for any reason, including
without limitation the filing of a voluntary bankruptcy petition, making an
assignment for the benefit of creditors or ceasing all business operations, or
if IBNL is sold without WPG or the BP product as defined herein, and/or ceases
to actively sell, market, promote and/or utilize the BP product as defined
herein, the intellectual property rights to Base Publisher that are owned by
IBNL at that time, including improvements made to Base Publisher prior to such
cessation or sale, and other products developed by WPG prior to the date of this
Agreement, except for any such rights related to products of IBNL or its
subsidiary, Virtual SOURCE, Inc., a Nevada corporation, shall be transferred to
DX3, Inc.
ARTICLE 3
IBNL hereby represents and warrants to the WPG Shareholders, and each of
them, as follows (it being acknowledged that the WPG Shareholders are entering
into this Agreement in material reliance upon each of the following
representations and warranties, and that the truth and accuracy of each of which
constitutes a condition precedent to the obligations of the WPG Shareholders
hereunder):
3.1 IBNL is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada, and is duly qualified and in
good standing to do business as a foreign corporation in each jurisdiction in
which such qualification is required and where the failure to be so qualified
would have a materially adverse effect upon IBNL. IBNL has all requisite
corporate power and authority to conduct its business as now being conducted and
to own and lease the properties which it now owns and leases. The Articles of
Incorporation as amended to date and the Bylaws of IBNL as amended to date,
certified by the President and the Secretary of IBNL, which have been made
available to the WPG Shareholders prior to the execution hereof are true and
complete copies thereof as in effect as of the date hereof.
3.2 IBNL has full power, legal capacity and authority to enter into
this Agreement, to execute all attendant documents and instruments necessary to
consummate the transactions herein contemplated, and to issue and sell IBNL's
Common Stock to the WPG Shareholders and to perform all of its obligations
hereunder. This Agreement and all other agreements, documents and instruments to
be executed in connection herewith have been effectively authorized by all
necessary action, corporate or otherwise, on the part of IBNL, which
authorizations remain in full force and effect, have been duly executed and
delivered by IBNL, and no other corporate proceedings on the part of IBNL are
required to authorize this Agreement and the transactions contemplated hereby.
This Agreement constitutes the legal, valid and binding obligation of IBNL and
is enforceable with respect to IBNL in accordance with its terms, except as
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
priority or other laws or court decisions relating to or affecting generally the
enforcement of creditors' rights or affecting generally the availability of
equitable remedies. Neither the execution and delivery of this Agreement, nor
the consummation by IBNL of any of the transactions contemplated hereby, or
compliance with any of the provisions hereof, will (i) conflict with or result
in a breach of, violation of, or default under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, lease, credit
agreement or other agreement, document, instrument or obligation (including,
without limitation, any of its charter documents) to which IBNL is a party or by
which IBNL or any of its assets or properties may be bound, or (ii) violate any
judgment, order, injunction, decree, statute, rule or regulation applicable to
IBNL or any of the assets or properties of IBNL. No authorization, consent or
approval of any public body or authority is necessary for the consummation by
IBNL of the transactions contemplated by this Agreement.
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3.3 The authorized capital stock of IBNL consists of 50,000,000 shares
of Common Stock, $.01 par value (defined above as the "IBNL's Common Stock"),
and 5,000,000 shares of Preferred Stock, $.01 par value. As of June 1, 1998
there are 10,054,336 shares of IBNL's Common Stock issued and outstanding (not
including outstanding warrants, options, calls, commitments or other rights to
subscribe for or to purchase from IBNL any capital stock of IBNL or any
securities convertible into or exchangeable for any shares of capital stock of
IBNL, or any other securities or agreement pursuant to which IBNL is or may
become obligated to issue any shares of its capital stock) and no shares of
Preferred Stock are outstanding. All of the outstanding shares of IBNL's Common
Stock have been, and all of IBNL's Common Stock to be issued and sold to the WPG
Shareholders pursuant to this Agreement will be, duly authorized, validly
issued, fully paid and nonassessable. There currently are no rights, agreements
or commitments of any character obligating IBNL, contingently or otherwise, to
register any shares of its capital stock under any applicable federal or state
securities laws.
3.4 True and complete copies of IBNL's financial statements for the
fiscal year ended January 31, 1997, which contains the audited financial
statements of IBNL for the year ended, have been made available to the WPG
Shareholders. Such financial statements (and the notes related thereto) are
herein sometimes collectively referred to as the "IBNL Financial Statements,"
and IBNL's balance sheet as of January 31, 1997 included therein is hereinafter
sometimes referred to as the "Balance Sheet." IBNL Financial Statements (i) are
derived from the books and records of IBNL, which books and records have been
consistently maintained in a manner which reflects, and such books and records
do fairly and accurately reflect, the assets and liabilities of IBNL, (ii)
fairly and accurately present the financial condition of IBNL on the respective
dates of such statements and the results of its operations for the periods
indicated, except as may be disclosed in the notes thereto, and (iii) have been
prepared in all material respects in accordance with generally accepted
accounting principles consistently applied throughout the periods involved
(except as otherwise disclosed in the notes thereto). True and complete copies
of IBNL's preliminary financial statements for the year ended January 31, 1998,
have been made available to the WPG Shareholders.
3.5 IBNL has no subsidiaries and no investments, directly or
indirectly, or other financial interest in any other corporation or business
organization, joint venture or partnership of any kind whatsoever except as
reflected in IBNL Financial Statements.
3.6 Except as and to the extent reflected or reserved against in the
Balance Sheet or other financial statements described in Section 3.4 above, IBNL
has no liability(s) or obligation(s) (whether accrued, to become due, contingent
or otherwise) which individually or in the aggregate could have a materially
adverse effect on the business, assets, properties, condition (financial or
otherwise) or prospects of IBNL.
3.7 Since January 31, 1998, except as disclosed in Exhibit B there has
been no materially adverse change in the condition (financial or otherwise) of
the Company or in its assets, liabilities, properties, business, operations or
prospects.
3.8 There are no actions, suits or proceedings pending or, to the best
of IBNL's knowledge, threatened against or affecting IBNL (including actions,
suits or proceedings where liabilities may be adequately covered by insurance)
at law or in equity or before or by any federal, state, municipal or other
governmental department, commission, court, board, bureau, agency or
instrumentality, domestic or foreign, or affecting any of the officers or
directors of IBNL in connection with the business, operations or affairs of
IBNL, which might result in any adverse change in the business, properties or
assets, or in the condition (financial or otherwise) of IBNL, or which might
prevent the sale of the Shares pursuant to this Agreement. IBNL is not subject
to any voluntary or involuntary proceeding under the United States Bankruptcy
Code and has not made an assignment for the benefit of creditors.
3.9 IBNL has no obligation to any person or entity for brokerage
commissions, finder's fees or similar compensation in connection with the
transactions contemplated by this Agreement, and IBNL shall indemnify and hold
the WPG Shareholders harmless against any liability or expenses arising out of
any such claim, asserted against either the WPG Shareholders or IBNL by any
party.
3.10 IBNL, through its current officers and directors, has the
knowledge and experience in business and financial matters to meaningfully
evaluate the merits and risks of the issuance of IBNL's Common Stock in exchange
and consideration for the WPG Stock as contemplated hereby. IBNL understands and
acknowledges that the WPG Stock was originally issued to the WPG Shareholders,
and will be sold and transferred to IBNL, without registration or qualification
under the Securities Act of 1933, as amended, or any applicable state securities
or "Blue Sky" law, in reliance upon specific exemptions therefrom, and in
furtherance thereof IBNL represents that the WPG Stock will be taken and
received by IBNL for its own account for investment, with no present intention
of a distribution or disposition thereof to others. IBNL further acknowledges
and agrees that the certificate(s) representing the WPG Stock transferred to
IBNL shall bear a restrictive legend, in substantially the following form:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), ARE "RESTRICTED
SECURITIES," AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS NOT REQUIRED TO BE REGISTERED
UNDER THE ACT."
3.11 Neither this Agreement, nor any certificate, exhibit, or other
written document or statement, furnished to the WPG Shareholders by IBNL in
connection with the transactions contemplated by this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to be stated in order to make the statements contained
herein or therein not misleading.
ARTICLE 4
Each of the WPG Shareholders hereby represents and warrants to IBNL as
follows (it being acknowledged that IBNL is entering into this Agreement in
material reliance upon each of the following representations and warranties,
that the truth and accuracy of each of which constitutes a condition precedent
to the obligations of IBNL hereunder):
4.1 Each of the WPG Shareholders has full power, legal capacity and
authority to enter into this Agreement, to execute all attendant documents and
instruments necessary to consummate the transactions herein contemplated, and to
perform all of the obligations to be performed by them hereunder. This
Agreement and all other agreements, documents and instruments to be executed by
the WPG Shareholders in connection herewith have been duly executed and
delivered and constitute the legal, valid and binding obligations of the WPG
Shareholders executing and delivering the same, and are enforceable with respect
to such WPG Shareholders in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, priority or
other laws or court decisions relating to or affecting generally the enforcement
of creditors' rights or affecting generally the availability of equitable
remedies. Neither the execution and delivery of this Agreement, nor the
consummation by any of the WPG Shareholders of any of the transactions
contemplated hereby, or compliance with any of the provisions hereof, will (i)
conflict with or result in a breach of, violation of, or default under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, lease, credit agreement or other agreement, document, instrument or
obligation to which a WPG Shareholder is a party or by which a WPG Shareholder
or any of his assets or properties may be bound, or (ii) violate any judgment,
order, injunction, decree, statute, rule or regulation applicable to WPG
Shareholder or any of the assets or properties of a WPG Shareholder. No
authorization, consent or approval of any public body or authority is necessary
for the consummation by the WPG Shareholders of the transactions contemplated
hereby.
4.2 The WPG Shareholders together collectively own an aggregate of
1,000,000 shares of WPG Stock, constituting all of the issued and outstanding
shares of capital stock of WPG, free and clear of (i) any lien, charge,
mortgage, pledge, conditional sale agreement, or other encumbrance of any kind
or nature whatsoever, and (ii) any claim as to ownership thereof or any rights,
powers or interest therein by any third party, whether legal or beneficial, and
whether based on contract, proxy or other document or otherwise. All of the
shares of WPG Stock have been duly authorized and validly issued and are fully
paid and nonassessable. At of the date hereof there are 1,000,000 shares of
WPG's Common Stock issued and outstanding, with no shares of WPG's Common Stock
held in its treasury, and no shares of Preferred Stock are outstanding. All of
the outstanding shares of WPG's Common Stock have been, and all of WPG's Common
Stock to be sold to IBNL pursuant to this Agreement will be, duly authorized,
validly issued, fully paid and nonassessable. Except as set forth above in this
Section 4.2, there are no warrants, options, calls, commitments or other rights
to subscribe for or to purchase from WPG any capital stock of WPG or any
securities convertible into or exchangeable for any shares of capital stock of
WPG, or any other securities or agreement pursuant to which WPG is or may become
obligated to issue any shares of its capital stock, nor is there outstanding any
commitment, obligation or agreement on the part of WPG to repurchase, redeem or
otherwise acquire any outstanding shares of WPG's Common Stock. There currently
are no rights, agreements or commitments of any character obligating WPG,
contingently or otherwise, to register any shares of its capital stock under any
applicable federal or state securities laws.
4.3 WPG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington, WPG has all requisite
corporate power and authority to conduct its business as now being conducted and
to own and lease the properties which it now owns and leases. The Articles of
Incorporation of WPG as amended to date and the Bylaws of WPG as amended to
date, certified by the President and the Secretary of WPG, which have been
delivered to IBNL prior to the execution hereof are true and complete copies
thereof as in effect as of the date hereof.
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4.4 WPG was incorporated on October 23, 1996. True and complete copies
of WPG's financial statements for the period ended May 31, 1998, which contains
the unaudited financial statements of WPG, have been made available to the IBNL.
Such financial statements (and the notes related thereto) are herein sometimes
collectively referred to as the "WPG Financial Statements," and WPG's balance
sheet as of May 31, 1998, included therein is hereinafter sometimes referred to
as the "WPG Balance Sheet." WPG Financial Statements (i) are derived from the
books and records of WPG, which books and records have been consistently
maintained in a manner which reflects, and such books and records do fairly and
accurately reflect, the assets and liabilities of WPG, (ii) fairly and
accurately present the financial condition of WPG on the respective dates of
such statements and the results of its operations for the periods indicated,
except as may be disclosed in the notes thereto, and (iii) have been prepared in
all material respects in accordance with generally accepted accounting
principles consistently applied throughout the periods involved (except as
otherwise disclosed in the notes thereto)Effective upon the Closing, all
proprietary systems and programs, computer technology, and other intellectual
property developed or in development by WPG, or by others for WPG's benefit
(hereinafter collectively referred to as the "WPG Properties"), shall become the
property of IBNL whether now owned by WPG or the WPG Shareholders. A complete
list of the WPG Properties is described in Exhibit C attached hereto.
4.5 WPG has no subsidiaries and no investments, directly or indirectly,
or other financial interest in any other corporation or business organization,
joint venture or partnership of any kind whatsoever except as reflected in WPG's
Financial Statements.
4.6 WPG has no liability(s) or obligation(s) (whether accrued, to
become due, contingent or otherwise) which individually or in the aggregate
could have a materially adverse effect on the business, assets, properties,
condition (financial or otherwise) or prospects of WPG.
4.7 Since May 31, 1998, there has been no materially adverse change in
the condition (financial or otherwise) of WPG or in its assets, liabilities,
properties, business, operations or prospects.
4.8 There are no actions, suits or proceedings pending or, to the best
of the WPG Shareholders' knowledge, threatened against or affecting any of the
WPG Shareholders or WPG (including actions, suits or proceedings where
liabilities may be adequately covered by insurance) at law or in equity or
before any federal, state, municipal or other governmental department,
commission, court, board, bureau, agency or instrumentality, domestic or
foreign, or affecting any of the officers or directors of WPG in connection with
the business, operations or affairs of WPG which might result in any material
adverse change in the business, properties or assets, or in the condition
(financial or otherwise) of WPG, or which might prevent the purchase of IBNL's
Common Stock by the WPG Shareholders or the transfer to IBNL of the WPG Stock by
the WPG Shareholders pursuant to this Agreement or the performance by the WPG
Shareholders of any of the obligations to be performed by the WPG Shareholders
under this Agreement. Neither WPG nor any of the WPG Shareholders is subject to
any voluntary or involuntary proceeding under the United States Bankruptcy Code,
nor have any of them made an assignment for the benefit of creditors.
4.9 The WPG Shareholders have no obligation to any person or entity for
brokerage commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement, and the WPG Shareholders shall
each individually indemnify and hold IBNL harmless against any liability or
expenses arising out of any such claim asserted against IBNL but only to the
extent where said individual had prior knowledge or responsibility for
circumstances leading to such claims.
4.10 Each WPG Shareholder has the knowledge and experience in business
and financial matters to meaningfully evaluate the merits and risks of the
purchase and acquisition of IBNL's Common Stock in exchange and consideration
for the shares of WPG Stock owned by him as contemplated hereby. Each WPG
Shareholder acknowledges that the shares of IBNL's Common Stock to be issued to
DX3 in the transactions contemplated hereby will be issued by IBNL without
registration or qualification or other filings being made under the Federal
Securities Act of 1933, as amended, or the securities or "Blue Sky" laws of any
state, in reliance upon specific exemptions therefrom, and in furtherance
thereof each WPG Shareholder represents that the shares of IBNL's Common Stock
to be received by DX3 will be taken for DX3's account for investment, with no
present intention of a distribution or disposition thereof to others. Each WPG
Shareholder agrees that the certificate(s) representing the shares of IBNL's
Common Stock issued to DX3 shall be subject to a stop-transfer order and shall
bear a restrictive legend, in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), ARE "RESTRICTED
SECURITIES," AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS NOT REQUIRED TO BE REGISTERED
UNDER THE ACT."
4.11 Neither this Agreement, nor any certificate, exhibit, or other
written document or statement, furnished to IBNL by the WPG Shareholders in
connection with the transactions contemplated by this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to be stated in order to make the statements contained
herein or therein not misleading.
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ARTICLE 5
IBNL and the WPG Shareholders hereby covenant to and agree with the other
that between the date hereof and the Closing:
5.1 IBNL and the WPG Shareholders shall each give to other and
authorized representatives thereof full access, during reasonable business
hours, in such a manner as not unduly to disrupt normal business activities, to
any and all of the premises, properties, contracts, books, records and affairs
of IBNL or WPG, as the case may be, and will cause the officers of IBNL or WPG,
as the case may be, to furnish any and all data and information pertaining to
its business that the other may from time to time reasonably require. Unless and
until the transactions contemplated by this Agreement have been consummated,
each party and its representatives shall hold in confidence all information so
obtained and if the transactions contemplated hereby are not consummated will
return all documents hereinabove referred to and obtained therefrom. Such
obligation of confidentiality shall not extend to any information which is shown
to have been previously (i) known to the party receiving it (ii) generally known
to others engaged in the trade or business of IBNL or WPG, as the case may be,
(iii) part of public knowledge or literature, or (iv) lawfully received from a
third party.
5.2 The current officers and directors of IBNL and the WPG Shareholders
shall each take all necessary actions to cause IBNL and WPG, respectively, to
maintain in full force and effect its corporate existence, rights, franchises
and good standing, and shall not cause or permit to be made any change in the
Articles or Bylaws of IBNL or WPG, as the case may be.
5.3 The WPG Shareholders shall take all necessary actions to cause WPG
to conduct its business diligently in the ordinary course of business as an
ongoing concern and to maintain the books, accounts and records of WPG in the
usual, regular and ordinary manner.
ARTICLE 6
The respective obligations of the parties hereto to consummate the
transactions contemplated hereby shall be subject to the fulfillment, at or
prior to the Closing, of the following conditions:
6.1 There shall have been obtained any and all permits, approvals and
qualifications of, and there shall have been made or completed all filings,
proceedings and waiting periods, required by any governmental body, agency or
regulatory authority which, in the reasonable opinion of counsel to the WPG
Shareholders and to IBNL, are required for the consummation of the transactions
contemplated hereby.
6.2 No claim, action, suit, investigation or other proceeding shall be
pending or threatened before any court or governmental agency which presents a
substantial risk of the restraint or prohibition of the transactions
contemplated by this Agreement or the obtaining of material damages or other
relief in connection therewith.
6.3 The obligation of the WPG Shareholders hereunder to consummate the
transactions contemplated by this Agreement are expressly subject to the
satisfaction of each of the further conditions set forth below, any or all of
which may be waived by the WPG Shareholders in whole or in part without prior
notice; provided, however, that no such waiver of a condition shall constitute a
waiver by the WPG Shareholders of any other condition or of any of their rights
or remedies, at law or in equity, if IBNL shall be in default or breach of any
of its representations, warranties or covenants under this Agreement:
(a) IBNL shall have performed the agreements and covenants required to
be performed by them under this Agreement prior to the Closing, there shall have
been no material adverse change in the condition (financial or otherwise),
assets, liabilities, earnings or business of IBNL since the date hereof, and the
representations and warranties of IBNL contained herein shall, except as
contemplated or permitted by this Agreement, be true in all material respects on
and as of the date of Closing as if made on and as of such date;
(b) IBNL shall have executed and delivered an Employment Agreement to
each of Messrs. McQuilliams, Britton and Brazier, dated as of June 16, 1998, in
the forms thereof attached hereto as Exhibits C-1, C-2 and C-3, respectively;
and
(c) IBNL shall have executed and delivered an Option Agreement between
IBNL and DX3, Inc. to the WPG Shareholders, dated as of June 10, 1998, in the
forms thereof attached hereto as Exhibit D.
6.4 The obligation of IBNL to consummate the transactions contemplated
by this Agreement is expressly subject to the further conditions set forth
below:
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(a) The WPG Shareholders and WPG shall have performed the agreements
and covenants required to be performed by them under this Agreement prior to the
Closing, there shall have been no material adverse change in the condition
(financial or otherwise), assets, liabilities, earnings or business of the WPG
since the date hereof, and the representations and warranties of the WPG
Shareholders contained herein shall, except as contemplated or permitted by this
Agreement, be true in all material respects on and as of the date of Closing as
if made on and as of such date;
(b) Each of the current officers and directors of WPG, except
McQuilliams, shall have resigned all of their respective offices of WPG,
effective as of the Closing Date, electing the following individuals to the
Board of Directors of WPG:
Robert C. McShirley
Samuel E. Bradt
Dennis W. McQuilliams
ARTICLE 7
7.1 IBNL and the WPG Shareholders shall each pay all of their own
respective taxes, attorneys' fees and other costs and expenses payable in
connection with or as a result of the transactions contemplated hereby and the
performance and compliance with all agreements and conditions contained in this
Agreement respectively to be performed or observed by each of them.
7.2 The respective representations and warranties contained herein and
in any other document or instrument delivered by or on behalf of IBNL and the
WPG Shareholders shall survive the Closing. Nothing contained in this Section
7.2 shall in any way affect any obligations of any party under this Agreement
that are to be performed, in whole or in part, at any time after the Closing,
nor shall it prevent or preclude any party from pursuing any and all available
remedies at law or in equity for actual fraud in the event that, prior to the
Closing, any other party had actual knowledge of any material breach of any of
its representations and warranties herein but failed to disclose to or actively
concealed such knowledge prior to the Closing from the other party(s) to whom
the representations and warranties were made.
ARTICLE 8
8.1 Each of the parties hereto shall execute and deliver such other and
further documents and instruments, and take such other and further actions, as
may be reasonably requested of them for the implementation and consummation of
this Agreement and the transactions herein contemplated.
8.2 This Agreement shall be binding upon and inure to the benefit of
the parties hereto, and the heirs, personal representatives, successors and
assigns of all of them, but shall not confer, expressly or by implication, any
rights or remedies upon any other party.
8.3 This Agreement is made and shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
California.
8.4 All notices, requests or demands and other communications hereunder
must be in writing and shall be deemed to have been duly made if personally
delivered or sent by registered or certified mail, return receipt requested
(first-class, postage prepaid), to the parties as follows:
(a) If to IBNL, to:
Interactive Buyers Network International, Ltd.
5720 Ralston Street
Suite 312
Ventura, CA 93003
With copies to :
Robert M. Kern, Esq.
Law Offices of Robert M. Kern
23676 Blythe Street
West Hills, CA 91304
(b) If to any of the WPG Shareholders, to:
Dennis W. McQuilliams
P.O. Box 2347
Woodinville, WA 98072-2347
Any party hereto may change its address by written notice to the other
party given in accordance with this Section 8.4.
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8.5 This Agreement and the exhibits attached hereto contain the entire
agreement between the parties and supersede all prior agreements, understandings
and writings between the parties with respect to the subject matter hereof and
thereof. Each party hereto acknowledges that no representations, inducements,
promises or agreements, oral or otherwise, have been made by any party, or
anyone acting with authority on behalf of any party, which are not embodied
herein or in an exhibit hereto, and that no other agreement, statement or
promise may be relied upon or shall be valid or binding. Neither this Agreement
nor any term hereof may be changed, waived, discharged or terminated orally.
This Agreement may be amended or any term hereof may be changed, waived,
discharged or terminated by an agreement in writing signed by all parties
hereto. The parties understand and agree that further and mutual revisions to
this agreement are contemplated and the final version of this agreement will
incorporate the changes made herein and will supercede this agreement and will
be effective as the date of this agreement.
8.6 Prior to the Closing, neither the execution of this Agreement nor
the performance of any provision contained herein shall cause any party hereto
to be or become liable in any respect for the operations of the business of any
other party, or the condition of property owned by any other party, for
compliance with any applicable laws, requirements, or regulations of, or taxes,
assessments or other charges now or hereafter due to any governmental authority,
or for any other charges or expenses whatsoever pertaining to the conduct of the
business or the ownership, title, possession, use, or occupancy of any other
party.
8.7 The captions and headings used herein are for convenience only and
shall not be construed as a part of this Agreement.
8.8 In the event of any litigation between the parties hereto, the
non-prevailing party shall pay the reasonable expenses, including the attorneys'
fees, of the prevailing party in connection therewith.
8.9 This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which taken together shall
constitute but one and the same document. For purposes of executing this
Agreement, a document signed and transmitted by facsimile machine or telecopier
is to be treated as an original document.
8.10 If any term or provision of this Agreement shall to any extent be
invalid or unenforceable, the remainder of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
8.11 Each party has participated fully in the review and revision of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
INTERACTIVE BUYERS NETWORK
INTERNATIONAL, LTD.
By: /S/ Robert C. McShirley
------------------------
Robert C. McShirley, President
"WPG Shareholders"
/S/ Dennis W. McQuilliams /S/ Donald Britton
- ------------------------------ ------------------------------
Dennis W. McQuilliams Donald Britton
375,000 shares of WPG Stock 250,000 shares of WPG Stock
/S/ David K. Brazier
- ------------------------------
David K. Brazier
375,000 shares of WPG Stock
9
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EXHIBIT A
IBNL'S MATERIAL ADVERSE CHANGES
For the four months ended May 31, 1998, the Company has lost approximately
$400,000 and the Notes payable by the Company have increased by approximately
the same amount
Full dilution at time of closing if all options, warrants and convertible
notes are exercised is approximately an additional Two Million Four Hundred
Thousand (2,400,000) shares.
10
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EXHIBIT B
WPG's PROPERTIES
All proprietary systems and programs, computer technology, or other
intellectual property developed or in development by WPG, or by others for its
benefit, shall become the property of IBNL whether now owned by WPG or the WPG
Shareholders. Any intellectual property relating to work done by WPG, or others
under WPG direction, for Virtual Source, Inc. or Interactive Buyers Network
International, Ltd., and all intellectual property relating to Base Publisher or
other products developed for commercialization by WPG, or needed for support, or
for WPG business infrastructure, or work in progress for other clients are also
included.
Due to the timeliness of this contract all cash in the WPG corporate checking
account balance as of June 12, 1998 shall be transferred to DX3, Inc. and are
not part of this stock transfer Stock holdings in the Prudential Securities
accounts shall be transferred in their entirety to DX3, Inc. as soon as
possible and is not part of this stock transfer. A new computer purchased and
installed on behalf of WPG is not part of this stock transfer and will be
reimbursed by IBNL to DX3 These three foregoing items are not to be construed
as part of WPG assets or deemed to be part of this contract.
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Resignations From WPG.net, Inc. of Donald Britton and David K. Brazier
Election of Robert C. McShirley and Samuel E. Bradt
I, Donald E. Britton, effective immediately, hereby resign from all of my
offices and as a director of Wpg.net, Inc.
- ------------------------- Dated:__________________
Donald E. Britton
I, David K. Brazier, effective immediately, hereby resign from all of my
offices and as a director of Wpg.net, Inc.
- ------------------------- Dated:__________________
David K. Brazier
I, Dennis W. McQuilliams, as the sole officer and director of Wpg.net,
Inc., do hereby accept the resignations of David K. Brazier and Donald Britton
and elect as their replacements on the Board of Directors, the following
persons:
Samuel E. Bradt
Robert C. McShirley
- ------------------------- Dated:__________________
Dennis W. McQuilliams
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OPTION TO PURCHASE COMMON STOCK
OF
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD.
For and in consideration of good and valuable consideration received
from Dennis W. McQuilliams ("McQuilliams"), Donald E. Britton ("Britton") and
David K. Brazier ("Brazier") (McQuilliams, Britton and Brazier are hereinafter
collectively referred to as the "WPG Shareholders.") and as an incentive to the
WPG Shareholders to generate revenue for the company, Interactive Buyers Network
International, Ltd., a Nevada corporation, hereby agrees to grant to DX3, Inc.,
a corporation of the State of Washington and owned by the WPG Shareholders
("Optionee"), an option to purchase Five Hundred Thousand (500,000) shares of
restricted common stock of Interactive Buyers Network International, Ltd. in
accordance with the following terms and conditions:
1. GRANT OF OPTION. Interactive Buyers Network International, Ltd., a
-----------------
corporation having an address at 5720 Ralston Street, Suite 312, Ventura, CA
93003 (hereinafter referred to as "Optionor"), subject to the terms and
conditions of this Option hereby grants to Optionee, having an address at P.O.
Box 2347, Woodinville, WA 98072, an option to purchase Five Hundred Thousand
(500,000) shares of the restricted common stock of Interactive Buyers Network
International, Ltd. (hereinafter referred to as the "Common Stock") at any time
within ten years following the date of this Option (hereinafter referred to as
the "Option"). After such date, the Option shall be canceled.
2. EXERCISE PRICE. The exercise price for all options granted
---------------
hereunder shall be Fifty Nine Cents ($ 0.59 ) per share of the Common Stock.
3. VESTING OF OPTION. The right of Optionee to exercise the Option and
-----------------
purchase the Common Stock shall be subject to the following additional terms and
conditions:
(a) All of the Option shall be restricted from exercise by Optionee in
accordance with the provisions hereof until such restrictions (the
"Restrictions") are terminated as provided in subparagraph 3(b) below.
(b) The Restrictions on the right to exercise the Option by Optionee
shall terminate as to two and three-quarters percent (2 3/4%) of the shares of
Common Stock subject to the Option upon the expiration of each full month, from
the date of this option, until such time, if any, as the Restrictions shall have
lapsed as to all of the Common Stock (as an example, after three months the
Option will be exercisable for 41,250 shares of Common Stock (3 times .0275
times 500,000). In addition, the Restrictions on the right to exercise the
Option shall terminate after Optionor has received total gross revenue totaling
$500,000 from sales or use of Base Publisher, as defined in paragraph "F" of the
"Stock Purchase and Exchange Agreement" herein made a part of this agreement,
("BP"), a product now under development by WPG with release expected by July
1998. The total gross revenue will be calculated quarterly based upon financial
records of Optionor, subject to adjustment annually upon audit by Optionor's
independent auditors.
(c) Until the termination of the Restrictions as provided in
subparagraph 3(b) hereof, none of the unexercised Option may be assigned,
transferred, pledged or hypothecated in any way, except to Optionor, nor shall
any of such Option be assignable by operation of law, or be subject to
execution, attachment or similar process. Any attempt at assignment, transfer,
pledge, hypothecation or other disposition contrary to the provisions of this
Option, and the levy of any execution, attachment or similar process upon or
against this Option shall be null and void and without effect.
(d) In the event of a change in control or ownership of Optionor, the
Unvested Option shall vest in its entirety simultaneously with the change in
control.
4. PROCEDURE FOR EXERCISE OF OPTION. Except as provided herein, upon
------------------------------------
delivery of a copy of this Option with the Exercise Form annexed hereto, duly
executed, together with payment of the exercise price of the shares of Common
Stock being purchased, Optionor will deliver the shares of Common Stock to
Optionee at such address as Optionee may designate. This Option shall be deemed
to have been exercised immediately prior to the close of business on the day
after which the duly executed Exercise Form and payment of the exercise price is
received by Optionor.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
---------------------------------------------
warranties set forth in this Agreement shall survive the exercise of this
Option.
6. ADJUSTMENTS IN EXERCISE PRICE AND COMMON STOCK. If the outstanding
---------------------------------------------------
shares of Optionor's Common Stock at any time shall be changed or exchanged by
declaration of a stock dividend, stock split, combination of shares, the Common
Stock then subject to this Option, and the price at which Optionee shall be
entitled to purchase such Common Stock as provided in paragraph 2 above, shall
be proportionately and equitably adjusted.
1
<PAGE>
7. REPRESENTATIONS BY OPTIONOR. In order to induce the WPG Shareholders
-----------------------------
and Optionee to enter into this agreement, Optionor unconditionally warrants,
represents and guarantees that:
(a) Upon exercise of the Option by Optionee pursuant to this agreement,
Optionee will thereby acquire good, absolute marketable title to the Common
Stock, which will be free and clear of all liens, encumbrances and restrictions
(excluding securities law restrictions) of any nature whatsoever.
(b) The Common Stock, when issued, will be fully paid and
non-assessable.
(c) All corporate and other proceedings required to be taken by
Optionor in order to enter into and to carry out this agreement have been duly
and properly taken. This agreement has been duly executed by Optionor and
constitutes its valid and binding obligation. The execution and delivery of
this agreement and the carrying out of its purposes will not result in the
breach of any of the terms or conditions of, or constitute a default under or
violate, Optionor's Certificate of Incorporation or By-Laws, or any agreement,
lease, mortgage, bond, indenture, license or other document or undertaking, oral
or written, to which Optionor is a party or is bound or may be affected, nor
will such execution, delivery and carrying out violate any order, writ,
injunction, decree, law, rule or regulation of any court, regulatory agency or
other governmental body.
(d) When duly executed and delivered, this Agreement is legal, valid,
and enforceable by Optionee according to its terms.
8. REPRESENTATIONS BY OPTIONEE AND THE WPG SHAREHOLDERS. In order to
----------------------------------------------------------
induce Optionor to enter into this agreement, Optionee and the WPG Shareholders
each individually and unconditionally warrant, represent and guarantee that:
(a) The Option is being acquired and will be taken and received for
DX3's private, personal investment for it's own account, with no present
intention of distributing any of the Option or underlying shares to others.
(b) DX3 has no contract, undertaking, agreement or arrangement with
any person or persons to sell, transfer or otherwise distribute to such persons
or to have any such person sell, transfer or otherwise distribute for DX3 any
of the Option or any interest therein, and DX3 is presently not engaged, nor
does DX3 plan to engage within the presently foreseeable future, in any
discussions with any person relative to such sale, transfer or other
distribution of any of the Option or any interest therein.
(c) DX3 has no present obligation, indebtedness or commitment
pending, nor is any circumstance in existence which will compel it to secure
funds by the sale, transfer or other distribution of any of the Option or any
interest therein, nor is DX3 a party to any plan or undertaking requiring funds
which can be consummated only by the sale, transfer or other distribution of any
of the Option or any interest therein.
2
<PAGE>
(d) DX3 fully comprehends that you are relying to a material degree on
the representations, warranties and covenants contained herein, and with such
realization authorize you to act as you may see fit in reliance thereon,
including without limitation the placement of the following legend on any stock
certificate issued, in addition to any other legends that may be imposed
thereon, and to the imposition of stop transfer orders against DX3's Option or
the underlying shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), ARE "RESTRICTED
SECURITIES," AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS NOT REQUIRED TO BE REGISTERED
UNDER THE ACT."
(e) DX3 agrees that none of the Option or any interest therein will
be sold, transferred or otherwise disposed of unless and until registered under
the Securities Act of 1933, as amended (the "Act"), or similar successor law,
without first having presented to you or your counsel (i) an unqualified written
opinion of counsel experienced in securities law matters satisfactory to you
indicating that the proposed transfer will not be in violation of any of the
registration provisions of the Act or similar successor law, and the rules and
regulations promulgated thereunder, or (ii) a "no-action" letter to such effect
issued by the Securities and Exchange Commission. In any event and regardless
of when any such sale, transfer or other disposition of any Option or securities
or any interest therein may be made, DX3 will make no sale, transfer pledge or
other disposition of any of the Option or securities or any interest therein
without first having presented to you (i) an unqualified opinion of such counsel
indicating exemption from, compliance with, or qualification under all
applicable state securities or "blue sky" laws, and (ii) DX3's indemnification
of you against any liabilities, costs or expenses which might result should any
such transfer, sale or other disposition (or any action by any broker or dealer
in connection with the foregoing) violate or be alleged to violate the Act, the
rules and regulations promulgated thereunder, or any applicable federal laws or
state securities or "blue sky" laws or regulations or any court or
administrative order.
(f)
3
<PAGE>
(g) In the case of sales pursuant to Rule 144 of the Securities and
Exchange Commission, in addition to the matters set forth above, DX3 will
forward to you a copy of the Form 144 as filed with the Securities and Exchange
Commission, and a letter from the executing broker indicating compliance with
Rule 144. If Rule 144 is amended or if the interpretation of the Securities and
Exchange Commission thereof in effect at the time of any sale by DX3 of any of
the Option or securities has changed, DX3 will provide you with such additional
documents as you may reasonably require. DX3 understands that sales by DX3 of
any of the Option or securities made in reliance on Rule 144 could be made only
in certain limited amounts and in a specified manner, only after certain holding
periods have been met, and only when there were available specified current
public information, all in accordance with the terms and conditions of the Rule.
DX3 understands that if Rule 144 is not available, compliance with some other
exemption under the Act will be required if any of the Option or securities are
to be sold in compliance herewith but without registration under the Act.
10. NOTICES. Except as provided herein, all notices, correspondence and
-------
payments, etc., required or permitted to be given under this agreement shall be
in writing and shall be delivered personally or sent by registered or certified
mail return receipt requested (first-class, postage prepaid), to such party at
the address set forth above or at such other address as such party shall have
designated by notice duly given in the manner above provided. Notices given by
mail shall be deemed given four (4) days from the date of mailing.
11. ENTIRE AGREEMENT; COUNTERPARTS. This agreement contains the entire
--------------------------------
agreement between the parties with respect to the option. It may be executed in
any number of counterparts, each of which shall be deemed an original, but such
counterparts together constitute only one and the same instrument. For purposes
of executing this agreement, a document signed and transmitted by facsimile
machine or telecopier is to be treated as an original document.
12. INTERPRETATION. Each party has participated fully in the review
--------------
and revision of this agreement.
13. MODIFICATION. This agreement shall become effective as of the date
------------
hereof. No modification or amendment of this agreement shall be effective
unless such modification or amendment shall be evidenced in writing and signed
by the parties hereto.
14. WAIVER. The failure of either party at any time to require
------
performance by the other party of any provision hereof shall not affect in any
way the full right to require such performance at any time thereafter. Nor
shall the waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of the provision itself. No waiver shall be deemed to be a
continuing waiver unless so expressly stated in writing.
15. NECESSARY ACTS. Each of the parties hereto hereby agrees, at the
---------------
request of the other party, to execute such documents and perform such other
acts as may be necessary to carry out the provisions of this agreement.
16. BINDING AGREEMENT. This agreement shall be binding upon and inure to
------------------
the benefit of the parties and their successors and assigns.
17. GOVERNING LAW. This agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California.
18. CLAUSE HEADINGS. The headings and subheadings of clauses contained
----------------
herein are used for convenience and ease of reference and shall not limit the
scope or intent of the clause.
IN WITNESS WHEREOF, the parties have caused this agreement to be duly
executed as of the tenth day of June, 1998.
INTERACTIVE BUYERS NETWORK DX3, INC.
INTERNATIONAL, LTD.
By: By:
------------------------------ ---------------------------------
Robert C. McShirley, President Dennis W. McQuilliams, President
------------------------------ ---------------------------------
Dennis W. McQuilliams Donald E. Britton
------------------------------
David K. Brazier
4
<PAGE>
OPTION EXERCISE FORM
COMMON STOCK OF
INTERACTIVE BUYERS NETWORK INTERNATIONAL, LTD.
The undersigned hereby exercises the right to purchase _______ shares of
the Common Stock covered by the attached Option Agreement (the "Securities"),
according to the conditions thereof, and herewith makes payment in full in the
amount of $__________ for such shares.
Optionee unconditionally warrants, represents and guarantees that:
(a) The Securities are being acquired and will be taken and received for
it's private, personal investment for it's own account.
(d) DX3 fully comprehend that you are relying to a material degree on the
representations, warranties and covenants contained herein, and with such
realization authorize you to act as you may see fit in reliance thereon,
including without limitation the placement of the following legend on any stock
certificate issued, in addition to any other legends that may be imposed
thereon, and to the imposition of stop transfer orders against my securities:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), ARE "RESTRICTED
SECURITIES," AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, IS NOT REQUIRED TO BE REGISTERED
UNDER THE ACT."
(e) DX3 agrees that none of the Securities or any interest therein will
be sold, transferred or otherwise disposed of unless and until registered under
the Securities Act of 1933, as amended (the "Act"), or similar successor law,
without first having presented to you or your counsel (i) an unqualified written
opinion of counsel experienced in securities law matters satisfactory to you
indicating that the proposed transfer will not be in violation of any of the
registration provisions of the Act or similar successor law, and the rules and
regulations promulgated thereunder, or (ii) a "no-action" letter to such effect
issued by the Securities and Exchange Commission. In any event and regardless
of when any such sale, transfer or other disposition of any Securities or any
interest therein may be made, DX3 will make no sale, transfer pledge or other
disposition of any of the Securities or any interest therein without first
having presented to you (i) an unqualified opinion of such counsel indicating
exemption from, compliance with, or qualification under all applicable state
securities or "blue sky" laws, and (ii) DX3's indemnification of you against
any liabilities, costs or expenses which might result should any such transfer,
sale or other disposition (or any action by any broker or dealer in connection
with the foregoing) violate or be alleged to violate the Act, the rules and
regulations promulgated thereunder, or any applicable federal laws or state
securities or "blue sky" laws or regulations or any court or administrative
order.
(g) In the case of sales pursuant to Rule 144 of the Securities and
Exchange Commission, in addition to the matters set forth above, DX3 will
forward to you a copy of the Form 144 as filed with the Securities and Exchange
Commission, and a letter from the executing broker indicating compliance with
Rule 144. If Rule 144 is amended or if the interpretation of the Securities and
Exchange Commission thereof in effect at the time of any sale by DX3 of any of
the Securities has changed, DX3 will provide you with such additional documents
as you may reasonably require. DX3 understand that sales by me of any of the
Securities made in reliance on Rule 144 could be made only in certain limited
amounts and in a specified manner, only after certain holding periods have been
met, and only when there were available specified current public information,
all in accordance with the terms and conditions of the Rule. DX3 understands
that if Rule 144 is not available, compliance with some other exemption under
the Act will be required if any of the Securities are to be sold in compliance
herewith but without registration under the Act.
DX3, INC.
By:____________________________________
Address: ____________________________
____________________________
____________________________
Dated: ______________, _____.
5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 17
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE YEAR FOR THE YEAR FOR THE SIX FOR THE SIX
ENDED ENDED MONTHS ENDED MONTHS ENDED
JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1998 1999 1998 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Basic:
Net income (loss) attributable
to common stockholders $ (844,369) $ (1,101,062) $ (613,841) $ (1,057,837)
============= ============= ============== ==============
Weighted average number of
common shares outstanding 9,192,811 10,529,147 10,756,620 12,231,402
============= ============= ============== ==============
Income (loss) per common share $ (0.09) $ (0.10) $ (0.06) $ (0.09)
============= ============= ============== ==============
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of our
report included herein dated May 15, 1999, except for Note 10 to the financial
statements which is as of September 3, 1999, and the reference to our firm under
the caption "Experts" included in or made part of this Form 10-SB.
/S/ Lucas, Horsfall, Murphy & Pindroh, LLP
Pasadena, CA
June 29, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1999 JAN-31-2000
<PERIOD-START> FEB-01-1998 FEB-01-1999
<PERIOD-END> JAN-31-1999 JUL-31-1999
<CASH> 59937 438300
<SECURITIES> 0 0
<RECEIVABLES> 3590 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 63527 438300
<PP&E> 73587 164446
<DEPRECIATION> 50920 72170
<TOTAL-ASSETS> 627152 1068148
<CURRENT-LIABILITIES> 984207 985420
<BONDS> 0 0
<COMMON> 114014 130614
0 0
0 0
<OTHER-SE> 474319 (48819)
<TOTAL-LIABILITY-AND-EQUITY> 627152 1068148
<SALES> 61387 7985
<TOTAL-REVENUES> 0 7985
<CGS> 0 0
<TOTAL-COSTS> 1253559 1065822
<OTHER-EXPENSES> 91110 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1101062) (1057837)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1101062) (1057837)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1101062) (1057837)
<EPS-BASIC> (0.10) (0.09)
<EPS-DILUTED> 0 0
</TABLE>
