SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1999
INTERNATIONAL MEDIA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida
333-42499
59-3307487
(State or other jurisdiction
of incorporation)
(Commission File Number)
(IRS Employer Identification No.)
9799 Old St. Augustine Road
Jacksonville, Florida 32257
(Address of principal executive offices)
(904) 886-2985
Registrant's telephone number, including area code
SUCCESS DEVELOPMENT INTERNATIONAL, INC.
The Company has changed its fiscal year end from December 31 to June 30,
effective March 31, 1999.
(former name, former address and former fiscal year if changed since last
report)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1999
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission File No. 333-42499
INTERNATIONAL MEDIA HOLDINGS, INC.
(Name of small business issuer in its charter)
Florida
59-3307487
(State or other jurisdiction
of incorporation)
(IRS Employer Identification No.)
9799 Old St. Augustine Road
Jacksonville, Florida 32257
(Address of principal executive offices) (Zip Code)
(904) 886-2985
(Issuer's telephone number)
Securities Registered Under Section 12(b) of the Exchange Act:
None (Title of Each Class)
None (Name of Each Exchange on which Registered.)
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock (par value $.001 per share)
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ ] No [ X ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
The issuer's revenues for its most recent fiscal year ending on June 30, 1999
was Six Million Eight Hundred Nine Thousand Seven Hundred Sixty and No/100
Dollars ($6,809,760.00).
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was exchanged on March 31, 1999 was approximately ten cents ($.10) per share.
None of the Company's common equity was sold thereafter and there were no
bids or asked prices of such common equity within the past sixty (60) days.
(Issuers involved in bankruptcy proceeding during the past five years)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes [ ] No [ ]
The number of shares outstanding of the Registrant's common stock on June 30,
1999 was 24,180,442 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-KSB for Fiscal Year Ended December 31, 1998
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
TABLE OF CONTENTS
Part I Page
Item 1. Description of Business 1
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to
a Vote of Security Holders 7
Part II
Item 5. Market for Common Equity and
Related Stockholder Matters 7
Item 6. Management's Discussion and
Analysis and Results of Operation 7
Item 7. Financial Statements 11
Item 8. Changes In and Disagreements
With Accountants in Accounting
and Financial Disclosure 11
Part III
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a)
of the Exchange Act 11
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain
Beneficial Owners and Management 16
Item 12. Certain Relationships and
Related Transactions 17
Item 13. Exhibits and Reports on Form 8-K 18
Part I
Item 1. DESCRIPTION OF BUSINESS
International Media Holdings, Inc. ("Company") was formerly known as Success
Development International, Inc. ("SDI") prior to a name change during 1999.
Effective March 31, 1999, Company was created in its present form when SDI
was merged with Great Wisdom Publishing, Inc. ("GWP") through a reverse
merger. The former stockholders of GWP have a controlling interest in the
voting common stock of the combined organization. Also, the management of
GWP has continued as the management of Company. This combination was
accounted for as a purchase by GWP. Company was incorporated in Florida in
1995 and serves as a holding company for Great Wisdom Publishing Company,
Inc. ("GWP") and GWP's six operating subsidiaries, SDI Wealth Institute, Inc.
("SDI Wealth"), Access Publishers Network, Inc. ("Access"), SDI LeGrand
Publishing, Inc. ("SDI LeGrand"), Advanced Communications, Inc. ("Advanced"),
Small Press Express, Inc. ("Small Press"), and Astro Communications Services,
Inc. ("Astro").
GWP was formed in Delaware in 1996 with the objective of building a large
publishing company with capabilities to create and acquire informational
products in niche subject categories that can be sold through its established
and developing sales, marketing, and distribution network. GWP has
formulated an acquisition and consolidation strategy to acquire content or
companies in the communication industry who have identifiable niche market
strengths and fit certain established criteria.
In an effort to consolidate business operations and reduce administrative
costs and overhead, certain wholly-owned subsidiaries of GWP were merged in
non-taxable transactions. The merger transactions were as follows:
1. As of May 25, 1999, Telstar, Inc. ("Telstar") merged with Results
Publishing, Inc. ("Results"), and Results was the surviving corporation.
The separate corporate existence of Telstar ceased and Results continued
as the surviving corporation after the merger and is a wholly-owned
subsidiary of GWP.
2. As of May 26, 1999, SDI Direct Corporation ("SDI Direct") merged with
Results and Results was the surviving corporation. The separate corporate
existence of SDI Direct ceased and Results continued as the surviving
corporation after the merger and is a wholly-owned subsidiary of GWP.
3. As of May 26, 1999, SDI Internet Services, Inc. ("SDI Internet") merged
with The LeGrand Group, Inc. ("LGI") and LGI was the surviving corporation.
The separate corporate existence of SDI Internet ceased and LGI continued as
the surviving corporation after the merger and is a wholly-owned subsidiary
of GWP.
On May 26, 1999, LGI formally changed its name to SDI LeGrand Publishing,
Inc. On May 26, 1999, Results formally changed its name to SDI Wealth
Institute, Inc. Management believes that the new names better reflect the
consolidated business operations of these entities.
On June 15, 1999, Company and the sole director of Valley Print and Mail,
Inc. ("VPM") determined it was in VPM's best interests to be dissolved. No
business had been conducted by VPM since its incorporation in 1998. In an
effort to reduce administrative costs, VPM was dissolved on June 24, 1999.
Business Strategy
Company's business is centered around several product areas: business
information (real estate investment, business growth and development,
marketing, self-help, leadership and management, career, etc.) and the Mind,
Body & Spirit (religion, philosophy, spiritual, astrology, alternative
medicine, etc.). Each area is fast growing (mainly fueled by the increased
maturity of the baby boomer market) and is an easily identifiable market.
Company's goal is to obtain useful information content and produce it through
various mediums (books, tapes, videos, electronic, etc.) and market these
items through various distribution channels (book trade, seminars,
infomercials, direct mail, the internet, etc.).
Marketing Strategy
Company's marketing strategy is divided into two (2) major niche categories:
(i) the Business information market for the independent business owner,
manager, leader and entrepreneur; and (ii) the Body, Mind & Spirit market for
those consumers interested in alternative health practices and holism, self-
help and spirituality. Company and its subsidiaries share resources between
divisions, thereby creating a greater cumulative benefit for all. In
addition, Company and its subsidiaries will coordinate internet and
e-commerce marketing strategies, as well as, utilizing catalog and mail
orders, live events, telemarketing, direct mail, television and radio
infomercials.
Products and Services
SDI LeGrand and SDI Wealth produce, market and distribute information,
educational and financial products and services to consumers. The products
and services are designed to help customers create, increase and maintain
real estate and other home-based businesses. Company intends to increase the
marketing and distribution for the existing products and services, to expand
into more lines of products and services, and to make specific alliances with
or acquisitions of companies that will fit Company's strategy.
SDI LeGrand, one of GWP's wholly-owned subsidiaries, was incorporated in
Florida in 1989 for the purpose of developing and selling a variety of real
estate related educational materials. SDI LeGrand also creates an Internet
presence for Company through its web site. The web site provides information
to interested parties about Company's products and services. SDI LeGrand's
products and services consist of the Cash-Flow Generator, Fast Cash With
Quick-Turn Real Estate, Wholesale/Retail Cash-Flow System, Private Lending
for High Profits, Mega Mortgage System, How to Get the Money to Fund Your
Deals and Guerrilla Marketing. The majority of the sales and marketing of
these products is performed by SDI Wealth.
SDI Wealth, one of GWP's wholly-owned subsidiaries, was originally
incorporated in Nevada in 1995 and subsequently became a Florida corporation
pursuant to a merger with a wholly-owned subsidiary of Company for the purpose
of sponsoring workshops and seminars about SDI LeGrand's financial products
and business opportunities. SDI Wealth also supplies telemarketing sales for
itself and other third party products and services. SDI Wealth also creates
and markets products and services through television infomercials. SDI Wealth
produces live training events nationwide designed to enhance the financial
futures of real estate investors and entrepreneurs. SDI Wealth also conducts
Boot Camps that offer hands-on training in the Cash Flow Systems offered by
SDI LeGrand.
Boot Camp participants have the option of attending live training courses for
one year following their purchase of the product. In addition, SDI LeGrand
promotes and sponsors various conferences throughout the United States that
feature speakers on various topics ranging from real estate investment and
management, business planning, reducing your taxes and protecting your assets.
In 1996, GWP acquired the assets of Publishers Distribution Service, Inc.
("PDS"), one of ten master distributors in the country, through a wholly-owned
subsidiary of GWP named Access, to gain distribution volume and expertise.
This acquisition allowed GWP to obtain immediate access to buyers from
national chains and major customers. Buyers from large companies only allot
certain time to visit with publishers with sufficient product to be cost
effective. As a master distributor, Access provides a "consolidation" effect
for smaller publishers with a nationwide sales force, customer credibility,
and consolidated invoicing and accounts. In addition, Access produces a
catalog for each season for sale purposes and helps coordinate co-op
advertising among its services.
Access provides a pipeline to the retail and bookstore market allowing
Company to not only get its products into the hands of the consumer, but to
control and profit from that distribution stream as well. While handling the
proprietary goods and services of its sister companies is a priority of
Access, a wide variety of titles in a number of subject categories is also a
large part of the Access product base. Access is aggressively acquiring new
products to keep its catalog of titles as current and up-to-date as possible.
Access provides proactive sales and promotions to chain category buyers and
independent bookstore owners and managers, and advances books to and
processes returns from bookstores, public libraries and general book
wholesalers and jobbers that serve the book-consuming public in North America.
In 1998, GWP, through Advanced (which was specifically formed for that
purpose), acquired the stock of Astro, a San Diego based publisher of "body,
mind and spirit" information. Astro was founded in 1973 and is a leader in
astrological publications, software and computer reports, including a software
program that is considered the leading reference material in the astrological
community. GWP successfully consolidated Astro's warehouse and back room
functions. While the market for astrology-related materials remains an
important part of the Astro product mix, Astro is moving towards broader
offerings in the areas of holistic medicine, herbal healing, self-help, self-
awareness and all other subject matter within the scope of the Body, Mind &
Spirit publishing industry. Astro provides a widely-used reference volume
that lists the positions of the planets on a daily basis. Astro also
publishes a range of books and brochures for professional astrologers,
students and casual readers. Astro also prepares personalized astrological
charts for individual consumers. Astro's astrological software division
offers several CD-ROM (and diskette) packages. Astro has acquired worldwide
distribution rights to a complete audio-visual library of self empowerment
audio products. This features programs on self-empowerment, health and
beauty, mental mastering, personal enrichment, sports performance, special
exercises for children and personal transformation.
Small Press was incorporated in Michigan in 1998 for the purpose of
attracting small micropresses to be distributed by Access.
Joint Ventures, Strategic Alliances and Acquisitions
Company intends to seek other joint ventures with businesses in related
markets. Company will consider additional forms of strategic alliances with \
other companies, as well as possible acquisitions.
Competition
Company, through GWP and its direct and indirect subsidiaries, competes with
other companies in each of its product areas. In management's view, the
financial and personal development information industry, as well as the
publishing industry, while large, is highly fragmented into many niches with
some competitors being successful in only certain niches, and with no company
have acquired dominance in the industry. Many competitors have products and
services that are marketed as being similar.
Company competes primarily with a large number of privately-owned,
educational and publishing companies providing personal and financial
development information through a variety of media. Some of Company's
competitors have greater financial, marketing, distribution, technical and
other resources than Company. Company regards Anthony Robbins & Associates,
Nightingale-Conant Corporation, American Marketing Systems, Inc., David G.
Phillips Publishing Company, Inc., Agora, Inc., Whitney Leadership Group and
The Hume Group, Inc. as its closest competitors.
Government Regulation
Company's business is subject to regulation under the Telemarketing and
Consumer Fraud and Abuse Prevention Act and state laws applicable to
telemarketing activities. Management believes that it is in substantial
compliance with all of the foregoing federal and state laws and the
regulations promulgated thereunder. Any claim that Company was not in
compliance could result in judgments or consent agreements that would require
Company to modify its marketing program. In the worst cases, enforcement of
fraud laws can result in forcing a business to close and subject the business
and its management and employees to criminal prosecution and civil damage
actions.
Employees
As of June 30, 1999, Company and its subsidiaries had 51 full-time employees
and 9 part-time employees. Company's employees are not represented by a
labor union and are not subject to any collective bargaining arrangement.
Company has never experienced a work stoppage and Company believes that it
has good relations with its employees and contractors.
Item 2. DESCRIPTION OF PROPERTY
Company, through one of GWP's wholly-owned subsidiaries, SDI LeGrand, owns
the building in which its headquarters is located at 9799 Old St. Augustine
Road, Jacksonville, Florida 32257. This office building contains
approximately 14,008 square feet of space and is occupied entirely by Company.
Management believes that this building will provide adequate office space to
meet Company's needs for the foreseeable future.
Company, through SDI LeGrand, also owns two properties located at 3001 and
3003 Hartley Road, Jacksonville, Florida 32257. Company leases one of these
buildings as office space to one tenant under a lease agreement subject to
renewal options. Company currently receives rent in the amount of $3,253.00
per month. The buildings contain 3,789 and 3,626 square feet, respectively.
All of Company's properties are security for mortgage loans.
Item 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which Company is a party or in
which Company's property is the subject. The only legal proceedings against
Company are set forth below:
a.) Company was the defendant in the civil action titled The
Marketing Group, Inc. v. Success Development International,
Inc., Case Number 98-2582-GTV, filed on October 28, 1998.
The case was settled in June of 1999.
b.) One of Company's affiliated entities is the defendant in the
civil action titled Jim Fletcher v. The LeGrand Group, Inc.,
Case Number CC-99-CL-603, filed in May of 1999 and
currently pending the Circuit Court of the Ninth Judicial
Circuit, Osceola County, Florida. In that action the plaintiff,
Jim Fletcher ("Fletcher") has alleged that The LeGrand Group,
Inc. now known as SDI LeGrand Publishing, Inc. ("SDI
LeGrand") breached a contract which called for Fletcher to be
compensated for speaking at SDI LeGrand events. The amount
claimed to be due to Fletcher in the action is $7,000 plus
attorneys' fees. SDI LeGrand has filed a counterclaim alleging
that Fletcher failed to provide certain internet related services
that Fletcher promised. SDI LeGrand is vigorously defending
the action as well as pursuing its own claim.
c.) On January 28, 2000, a majority of stockholders, by written
consent under Florida law, removed Mr. Daniel S. Pena, Sr.,
the former Chairman of the Board of Directors of Company
(the "Former Chairman") for actions they considered
detrimental to the welfare of Company. Soon after his
removal, the former Chairman commenced an action against
Company and its President, Mr. David Reecher, Vice-
President, Mr. Ray Rach, Chief Financial Officer, Mr. Jose
Alvarez, and a Board Member, Mr. Ron LeGrand (the majority
stockholders that had taken the action by written consent). The
Former Chairman sought no affirmative relief from Company,
but sought relief from one or more of the other defendants for
alleged breach of fiduciary duty, conversion of corporate funds,
constructive fraud, usurpation of corporate opportunity, waste
of corporate assets, conspiracy to defraud and breach of
contract.
Company filed a motion to dismiss. Prior to hearing such
motion, the Former Chairman amended his action. The
complaints included allegations against the President and Chief
Financial Officer for actions alleged to have taken place while
they were not involved with Company. The plaintiff had been
the Chairman of the Board for the entire period of most of the
allegations. Company filed an amended motion to dismiss on
April 13, 2000.
On April 19, 2000, Company filed suit against the Former
Chairman and three of his related companies alleging certain
improprieties in regards to the actions that were taken that led
to the Former Chairman's dismissal, as well as the interference
with advantageous business relationships resulting from the
effect of a series of letters sent by the Former Chairman
addressed to stockholders, creditors, acquisition candidates,
Company vendors and business relationships. The suit further
alleges he has posted these letters (as well as other confidential
Company information) on a website.
Special counsel has been retained by Company in connection
with this action. Company would be responsible for the
payment of the fees of the special counsel with respect to the
claim against the named directors in the event the directors are
successful.
Company intends to vigorously defend the lawsuit filed by the
Former Chairman, and to vigorously pursue its claims against
the Former Chairman. The ultimate outcome of these matters
is not presently determinable.
Item 4. SUBMISSION OF MATERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to a vote of security holders during the final
quarter for Company's 1999 fiscal year.
PART II.
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Public Market
There is no public trading market for the Company's common stock at this
time.
Number of Holders/Dividends
The number of holders of record of Company's common stock on June 30,
1999 was 184. In addition, Company has never declared a dividend and does not
presently intend to pay any dividends. Future dividends, if any, will depend
on Company's profitability, financial condition, capital requirements and
other considerations determined by the Board of Directors. Any future
agreements with lenders may also restrict Company's ability to pay dividends.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND
RESULTS OF OPERATIONS
THIS SHOULD BE READ TOGETHER WITH THE FINANCIAL
STATEMENTS AND THEIR NOTES. OPERATING DATA PRESENTED
IN THIS DISCUSSION ARE AUDITED FOR JUNE 30, 1999 BUT
UNAUDITED FOR JUNE 30, 1998.
The following discussion and analysis of the Company's consolidated
results of operations for the years ended June 30, 1999 and 1998 is based upon
and should be read in conjunction with, the financial information set forth
in the Consolidated Financial Statements, including their notes, included
elsewhere in this report.
The following discussion may contain forward-looking statements that
involve risks and uncertainties. You can identify these forward-looking
statements by the use of terms including "may," "will," "should," "expect,"
"anticipate," "believe," "estimate," or "continue" or variations of those
terms, or the use of those terms in the negative or words of similar import
in the context presented. The Company's actual results could materially
differ from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed on this
section, as well as in the sections entitled Competition, Government
Regulation, and Legal Proceedings including in this Form 10-KSB for the year
ended June 30, 1999.
Overview
International Media Holdings, Inc. ("the Company") was formerly known as
Success Development International, Inc. (SDI) prior to a name change during
1999. Effective March 31, 1999, the Company was created in its present from
when SDI was merged with Great Wisdom Publishing, Inc. (GWP) through a
reverse merger. The former stockholders of GWP have a controlling interest in
the voting common stock of the combined organization. Also, the management of
GWP has continued as the management of the Company.
The Merger was accounted for as a reverse acquisition whereby GWP was
treated as the acquirer and SDI as the acquiree, because GWP stockholders
owned a majority of the Company as of the Merger Date, and GWP management
remained as the Company's management. Purchase accounting was applied to
SDI based upon its fair market value at the Merger Date. See Note 11, Merger
of GWP and SDI, of Notes to Consolidated Financial Statements, for further
discussion in Exhibit A.
In February 1998, GWP acquired Astro Communication Services, Inc. ("Astro")
through their subsidiary, Advanced Communications, Inc. The financial data
for the year ended June 30, 1998 included five months of operations versus a
full year for June 30, 1999.
The consolidated financial statements include the accounts of the Company
(GWP's historical financial information) and its wholly-owned subsidiaries.
Upon consolidation, all material intercompany balances and transactions have
been eliminated. The results of operations for SDI are for the period
subsequent to acquisition by GWP, which is April 1, 1999 through June 30,
1999. GWP was a non-public entity at the time of the Merger.
Results of Operations
Year Ended June 30, 1999 Compared To Year Ended June 30, 1998
Revenues increased $1,479,719, or 27.8%, to $6,809,760 in 1999 from
$5,330,041 in 1998. The increase resulted primarily from the Company's
acquisition of SDI for the fourth quarter, which generated $1,673,885 of
revenues. The decrease of $194,166 of revenues for the GWP segments was
primarily due to an increase of returns of books sold through major
wholesalers and national book retail chains. This was a factor throughout
the book trade industry.
Direct costs increased $82,795 or 2.2% to $3,865,118 in 1999 from $3,782.323
in 1998. The increase of $556,748 from the SDI acquisition was mostly offset
by a decrease in direct costs from Access due to decreased revenues, as
explained above, and improved margins.
Administrative and general expenses increased $332,519 or 79.4% to $751,045
in 1999 from $418,526 in 1998. The increase in expenses was attributable to
$166,308 from the acquisition of SDI, an increase of $63,560 from Astro's
full year in 1999 and the remaining primarily due to increased management
personnel, information systems, computers, legal and accounting costs.
Sales, marketing and publishers acquisitions expenses increased $574,059,
or 80.9% to $1,283,441 in 1999, from $709,382 in 1998. $416,693 of the
increase was due to the acquisition of SDI and an increase of $153,532 from
Astro due to it being owned for a full year in 1999 versus five months in
1998.
Warehouse and distribution expenses were approximately the same with a
minimal decrease of $1,847 as consolidation of some of these functions
resulted in reducing what would have been higher costs from the acquisitions.
Corporate acquisition costs of $106,612 for 1999 reflect costs and expenses
in the pursuit of acquisitions not capitalized in regards to other possible
acquisitions.
Depreciation and amortization expenses increased $131,625, or 112.6%, to
$248,508 in 1999 from $116,883 in 1998. The increase resulted primarily from
amortization of goodwill from the acquisitions of SDI and Astro.
Interest expense increased $155,512. Or 79.9%, to $350,137 in 1999 from
$194,625 in 1998, primarily attributed to increase in line of credit debt,
subordinated debt and assumption of SDI debt.
Liquidity and Capital Resources
The Company has financed its operations and expansion programs to date
principally through operating cash flow, private placement of convertible
debt, issuance of stock, subordinated debt and borrowings under its credit
facility.
Cash management is a key element of our operation philosophy and future
strategic plans. Even while under capitalized, we have managed cash flow
sufficiently given the turnover rate of our current liabilities.
In our opinion, working capital is sufficient to meet our present working
capital needs. We have historically grown at a fast pace despite being under
capitalized. We will use the available funds in the manner which we feel
will best produce revenues and profitability. Our emphasis will be to focus
on effective marketing programs.
Operating activities used $128,074 in cash for 1999 as compared to $95,747 in
1998. For 1999, cash used was primarily due to a decrease in advanced
tuition received of $196,971. Receivables and other current assets increased
about the same as accounts payable and accrued liabilities. For 1998, cash
used was primarily due to its operation cash loss. Accounts receivable and
inventory as well as accounts payable and accrued liabilities increased
approximately $500,000 each due to the company's growth in 1998.
During 1999, investing activities which used cash consisted primarily of
acquisition costs and other assets of $289,065 and investment in property and
equipment of $27,708. The 1998 investing activities which used cash consisted
primarily of the purchase of Astro for $500,000, acquisition costs and other
assets paid of $272,159 and investment in property and equipment of $26,083.
Net cash flows from financing activities of $310,382 in 1999 consist
primarily of borrowing from the Company's line of credit. The 1998 cash flows
from financing activities of $928,625 was primarily from $1,000,000
subordinated debt obtained in February 1998 and $250,000 of financing of the
Astro acquisition.
We have approximately $1,100,000 in net operating loss carryovers from 1999
and prior years available to reduce future taxable income, which expire in
the years 2010 through 2019. Utilization of the net operation loss
carryovers is subject to the separate return limitation year ("SRLY")
restrictions for consolidated tax returns, and realization is dependent upon
generating sufficient separate taxable income to utilize the net operating
losses. A valuation allowance was established for the deferred income tax
asset because it is probable the deferred tax asset will not be realized. As
time passes, management will be able to better assess any benefit it may
realize from using the loss carryforward.
As shown in the accompanying consolidated financial statements, the Company
incurred a net loss of $149,368 during the year ended June 30, 1999. As of
that date, the Company's current liabilities exceeded its current assets by
$2,510,636. Current liabilities included $847,474 of a revolving line of
credit that the Company expects to continue to renew and $484,603 of unearned
revenue for which the Company expects to continue at or near that level.
Current management of the Company has developed plans to return to
profitability by restructuring existing liabilities, instituting various cost
savings measures, implementing an aggressive media campaign, and limiting
acquisitions to those that can be obtained through equity or long-term debt.
EFFECT OF INFLATION. The Company's income and profitability is not affected
positively or adversely by inflation.
Item 7. FINANCIAL STATEMENTS
The information required by this Item is attached as Appendix A. The
material provided for June 30, 1998 is unaudited (please see Item 13(b) for
items reported on Form 8-K) and is attached as Appendix B.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING
AND FINANCIAL DISCLOSURE
When the merger between Company and GWP was consummated a decision was to be
made on whether to continue use of Company's independent public accountants,
James Moore & Co., P.L. of Daytona Beach, Florida or use GWP's auditor BDO
Seidman LLP of Grand Rapids, Michigan. Company decided to continue the use
of James Moore & Co., P.L. for its audits.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following persons were the executive officers and directors of Company as
of June 30, 1999:
<TABLE>
<CAPTION>
DIRECTOR TERM TO
NAME AGE POSITION SINCE EXPIRE
<S> <C> <C> <C> <C>
Daniel S. Pena, Sr. (1) 53 Director & Chairman 1995 2002
David A. Reecher 39 Director & CEO/President 1999 2002
Jose A. Alvarez 50 Director & Executive 1999 2002
V.P./CFO
Raymond Rach 64 Director & Vice President 1995 2001
Ted Nicholas (2) 67 Director 1999 2001
Bob Stone (3) 80 Director 1999 2001
Shawn M. Casey (4) 39 Director and Vice Chairman 1995 2000
Jarrell D. Ormand (5) 79 Director 1996 2000
<FN>
(1) Member was removed from Board January 28, 2000 (See Item 3, litigation)
(2) Member resigned from Board on February 21, 2000 and now serves on the
Company's marketing advisory council.
(3) Member resigned from Board on February 21, 2000 and now serves on the
Company's marketing advisory council.
(4) Member resigned Board and his position as Vice Chairman in September 1999
(5) Member resigned from Board in November 1999
</TABLE>
Background of Officers and Directors.
Directors of Company serve staggered three year terms, so that two directors
are elected each year. Following is a brief description of the background of
the officers and directors of Company based on information provided by them
to Company.
Daniel S. Pena, Sr., joined Company in early 1995 as a director and Chairman
of the Board. He became a director of Company in April 1995, and Chairman of
the Board of Company in November 1995. Since 1992, Mr. Pena has been the
controlling shareholder and chairman of Great Western Development
Corporation, a publishing company. Mr. Pena founded Great Western Resources,
a publicly held natural resources company, in 1982 and served as its Chief
Executive Officer and Chairman until 1992. From 1979 to 1982, Mr. Pena was
chairman and CEO of JPK Industries, a natural resources company. From 1977
until 1979, Mr. Pena held the position of Vice President at the investment
banking firm of Bear Stearns and Co. in Los Angeles, California, and from
1975 until 1977, that of Director of Financial Planning at Paine Webber
Jackson & Curtis in Los Angeles, California. He was until recently a member
of the board of trustees, California State University, Northridge, where he
graduated in 1971 with a B.S. in Business Administration.
Raymond Rach joined Company, as President in January 1993. Mr. Rach served
as President of Company from April 1995 until November 1995, when he became
President of SDI Wealth, Company's telemarketing subsidiary, and a Vice
President of Company. He has served as a director of Company since April
1995. Before joining Company, Mr. Rach spent five years, from 1987 to 1992,
as Executive Vice President with Budd Mayer Corporation, one of the nation's
largest regional food brokerage firms.
David A. Reecher is the founder, President and Chief Executive Officer of
GWP. Prior to founding GWP, he was Vice President and co-owner of TOWERS
Club Press, Inc., a publisher and advertising agency. Mr. Reecher is co-
founder and former President of Aviation Surplus Sales, Inc., an aircraft
parts company; and is the founder, Chairman and majority owner of Little
Mountain Promotions, Inc., an advertising distribution service. Mr. Reecher
has also been involved with the advertising and marketing of a variety of
businesses which include restaurants, insurance companies, mail order
companies, and chiropractors. He has been leading large organizations for
over a decade, including the Powerplant Programs for both Presidential
Airways and Discovery Airways, and the production facility for Aerotest, a
large southern California aircraft repair facility.
Jose A. Alvarez is a C.P.A. who founded his own accounting firm in 1975 and
developed it through mergers, acquisitions and referrals. At one point he was
involved with offices in four cities, with nearly $2,000,000 in revenue. He
sold his practice in 1996. In addition to running his practice, he was a
college accounting professor for six years. In 1996, Mr. Alvarez co-founded
GWP as its Chief Financial Officer and Director. Mr. Alvarez had been a
consultant on business growth, financial, tax and management advice, mergers,
sales and acquisitions, estate and gift tax considerations, and company
valuations. He graduated from the University of South Florida in 1971 with a
B.A. in accounting.
Ted Nicholas is an author, copywriter, public speaker and direct marketing
expert. He is the President of Nicholas Direct, Inc., which markets his
books, audio and video tapes, newsletters, seminars, and other information
products, and publisher of the "Direct Marketing Success Letter." Since 1956
he has founded 22 companies in such fields as candy and ice cream
manufacturing and retailing, franchising, real estate, machinery and food.
He has written 14 best sellers and published 53 books by other authors.
Bob Stone is cofounder and Chairman Emeritus of Stone & Adler, now a Young &
Rubican direct marketing company, which he started in 1966. He is currently
Professor of Direct Marketing at Northwestern University and the University
of Missouri. He is a member of the Direct Marketing Hall of Fame and is the
only direct marketer to win the Best in Industry Award eight times. He has
written over 200 articles on direct marketing which have appeared in
Advertising Age magazine since 1967.
Shawn M. Casey, Esq., joined Company as General Counsel and Conference
Director in January 1995. From November, 1995 to February 15, 1999, he
served as President, Chief Executive Officer and Secretary of Company. He
became a director of Company in April, 1995. In August 1997, he was elected
Vice-Chairman of the Board of Directors. From 1989 until 1994, Mr. Casey
conducted a solo law practice in Pittsburgh, Pennsylvania focused primarily on
real estate and business matters. At the same time he was a shareholder and
President of Emerald Settlement Services, Inc., a title insurance agency in
Pittsburgh, Pennsylvania. He founded Dream Development Corporation in 1993
to sponsor and promote seminars, workshops and information products. He
graduated from the University of Scranton in Pennsylvania with a B.A. in
communications in 1981, and received his Juris Doctor degree from Duquesne
University in 1985.
Jarrell D. Ormand joined Company in July, 1996 as a Director. From 1963 to
1990, Mr. Ormand was the Chairman and Chief Executive of Ormand Industries,
Inc., a publicly-traded American Stock Exchange company whose interests
included advertising, container manufacturing, apparel, auto leasing and
electronics. From 1955 to 1958, Mr. Ormand was on the Board of Directors of
the American Petroleum Institute of the Permian Basin (West Texas and New
Mexico). Mr. Ormand is currently a director of Centinela Hospital, a
nonprofit hospital based in California. Since 1990, Mr. Ormand has been
retired.
Key Employee:
Ron LeGrand, 51, founded SDI LeGrand in 1989. He was President and a
Director of SDI LeGrand until January, 1995 and President, Secretary,
Treasurer and a Director of Results Publishing, Inc., until November 1995.
He resigned as a Director of Company in March, 1996. An active real estate
entrepreneur, Mr. LeGrand has bought and sold more than 1,100 single family
houses over the last 13 years. Based upon this personal experience, Mr.
LeGrand developed many of the courses and programs offered by Company today.
In addition, Mr. LeGrand speaks nationally, teaching his real estate
investing and management methodology at Company's programs.
Company Committees
On April 20, 1999, the Board of Directors of Company appointed the following
named individuals to serve on the following committees of Company until their
successors have been duly appointed and qualified or until their earlier
death, resignation or removal:
Executive Committee Compensation Committe Audit Committee
Daniel S. Pena, Sr. Daniel S. Pena, Sr. Jose A. Alvarez
David A. Reecher Raymond Rach Jarrell D. Ormand
Jose A. Alvarez Jarrell D. Ormand Ted Nicholas
Resignation of Hugh L. Carey
Mr. Hugh L. Carey resigned as a member of the Board of Directors of Company
in April 1999. There was no disagreement with management related to
Company's operations, policies or practices.
Employment Agreements
Company has entered into Employment Agreements with Mr. Reecher and Mr.
Alvarez. Each agreement prohibits the employee from engaging in a competing
business in the United States or any country in which Company does business
for a period of two years after termination of employment.
<TABLE>
<CAPTION>
Annual Base Current Term
Name Position Salary Bonus Ends
<S> <C> <C> <C> <C>
David Reecher CEO/President $150,000 Formula* 03/09/00
Jose A. Alvarez CFO/EVP/Sec/Treas $150,000 Formula* 03/09/00
<FN>
* See more detailed description of bonus below.
</TABLE>
Mr. Reecher - Mr. Reecher's agreement, effective March 9, 1999, provides for
a base salary of $12,500 per month ($150,000 annually) and a quarterly bonus
of $15,000 with respect to any fiscal quarter in which Company's net income
exceeds 10% but not more than 15% of its gross revenue. The quarterly bonus
is equal to $25,000 with respect to any fiscal quarter in which net income
exceeds 15% of gross revenue. The agreement renews automatically annually
but is subject to termination by Mr. Reecher upon 60 days notice and by the
Board of Directors of Company for good cause, as defined in the agreement.
Mr. Alvarez - Mr. Alvarez's agreement, effective March 9, 1999, provides for
a base salary of $12,500 per month ($150,000 annually) and a quarterly bonus
of $15,000 with respect to any fiscal quarter in which Company's net income
exceeds 10% but not more than 15% of its gross revenue. The quarterly bonus
is equal to $25,000 with respect to any fiscal quarter in which net income
exceeds 15% of gross revenue. The agreement renews automatically annually
but is subject to termination by Mr. Alvarez upon 60 days notice and by the
Board of Directors of Company for good cause, as defined in the agreement.
Item 10. EXECUTIVE COMPENSATION
For the fiscal years set forth below, the following executive officers were
the most highly compensated executive officers of Company:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION*
GWP/IMH SDI
Name/Principal For Year Other Annual Other Annual
Position Ending Salary Compensation Salary Compensation
<S> <C> <C> <C> <C> <C>
David A. Reecher 1999 110,167 -0- -0- -0-
President/CEO 1998 12,000 30,000 -0- -0-
1997 -0- -0- -0- -0-
Daniel S. Pena, Sr. 1999 -0- 40,000 -0- 10,000
Chairman of Board 1998 -0- -0- -0- 12,528
1997 -0- -0- -0- 3,009
Raymond Rach 1999 92,162 -0- 52,050 -0-
Vice President 1998 -0- -0- 244,374 -0-
1997 -0- -0- 133,914 -0-
Jose A. Alvarez 1999 104,167 16,650 -0- -0-
Executive Vice 1998 -0- 82,750 -0- -0-
President, 1997 -0- 3,000 -0- -0-
Treasurer and CFO
Shawn Casey 1999 -0- 24,237 18,386 38,333
Former President 1998 -0- -0- 108,272 214,886
and CEO 1997 -0- -0- 147,253 147,010
Ron LeGrand 1999 59,106 -0- 55,407 -0-
1998 -0- -0- 231,801 -0-
1997 -0- -0- 115,438 -0-
<FN>
* Salaries and other Compensation for GWP/IMH based upon fiscal years ending
June 30. Salaries and other Compensation for SDI in 1999 are through March
31, 1999 and calendar years 1998 and 1997.
</TABLE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below presents certain information regarding beneficial ownership
of Company's common stock (Company's only voting security) as of June 30,
1999 by (i) each shareholder known to Company to own, or have the right to
acquire within 60 days, more than 5% of the outstanding shares of common
stock, (ii) each executive officer and director of Company, and (iii) all
executive officers and directors as a group.
<TABLE>
<CAPTION>
No. of Shares
Number of Which May be Total Shares
Shares Acquired Beneficially Percent
Name Owned W/In 60 Days Owned of Class
<S> <C> <C> <C> <C>
Daniel S. Pena (c) 6,214,555 1,000,000 7,214,555 25.51%
Ron LeGrand (b) 5,586,982 125,000 5,711,982 20.19%
David A. Reecher (a) 5,663,650 0 5,663,650 20.02%
Shawn M. Casey (b) 600,000 1,075,000 1,675,000 5.92%
Jose A. Alvarez (b) 1,472,549 0 1,472,549 5.21%
Raymond Rach (b) 773,179 125,000 898,179 3.18%
Ted Nicholas (a) 566,365 0 566,365 2.00%
Bob Stone (a) 453,092 0 453,092 1.60%
Hugh L. Carey (b) 120,000 0 120,000 0.004%
Jarrell D. Ormand (b) 120,000 0 120,000 0.004%
All Directors and
Executive Officers as
a Group (9 persons) 15,983,390 2,200,000 18,183,390 83.64%
Total Shares Out-
standing / Vested
Options 24,180,442 4,105,902 28,286,344 100.00%
<FN>
(a) Business Address: 3904 Airport Road, Plant City, FL 33567
(b) Business Address: 9799 Old St. Augustine Road, Jacksonville, FL 32257
(c) Business Address: 11622 Dorrance Lane, Stafford, Texas 77477
</TABLE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Shawn M. Casey, one of Company's current directors and Vice Chairman of the
Board, is the sole shareholder and President of Dream Development Corporation
("DDC"). Under an arrangement with Company, DDC accrued 70% of the gross
sales price of its products sold at Company events at which Mr. Casey was a
speaker and 49% of the gross sales price of its products otherwise sold by
Company. DDC was responsible for paying Mr. Casey's travel expenses (except
for travel to certain conferences, which are paid by Company), product costs,
event costs and shipping and related costs. DDC received from Company,
pursuant to this arrangement, $147,010 in calendar year 1997, $214,886 in
calendar year 1998, $38,333 from January through March, 1999 and $24,237 in
the 3 months of fiscal year ended June 30, 1999.
Mr. Daniel S. Pena, the former Chairman, is the controlling shareholder and
Chairman of Great Western Development Corporation ("Great Western"). Great
Western received $10,000 per month total from the Company, GWP and SDI,
beginning with February, 1999. Great Western had received $50,000 as of
June 30, 1999.
GWP's central processing area is located at a facility in Plant City,
Florida, owned by Jose A. Alvarez. Mr. Alvarez receives market or below
market rent for the leasing of the facility to GWP. During the period
September, 1998 through June 30, 1999, Company used the facility as its
financial office. In addition, Alvarez & Co. received $16,650 in consulting
fees for services in fiscal year ended June 30, 1999, $82,750 in 1998 and
$3,000 in 1997 provided to Company by Mr. Alvarez, who was President of
Alvarez & Co. Mr. Alvarez started receiving salary as an employee in August,
1998.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Required by Item 601 of Regulation S-B
Exhibit
Number
1 Agency Agreement between Company and Attkisson, Carter & Akers
is incorporated by reference to the indicated exhibit to Company's
Form 10-QSB (File Number 333-42499) Filed on November 13, 1998
2 Amended and Restated Articles of Incorporation are incorporated by
reference to the indicated exhibit to Company's Definitive 14A File
Number 333-42499 Filed on March 1, 1999
10.1 Executive Stock Option is incorporated by reference to the indicated
exhibit to Company's Form 10-QSB (Filed Number 333-42499) Filed
on November 13, 1998
10.2 Incentive Stock Option Agreement is incorporated by reference to the
indicated exhibit to Company's Form 10-QSB (File Number 333-42499)
filed on November 13, 1998
10.3 Restricted Stock Agreement is incorporated by reference to the
indicated exhibit to Company's Form 10-QSB (File Number 333-42499)
Filed on November 13, 1998
10.4 Employment Agreement is incorporated by reference to the indicated
exhibit to Company's Form 10-QSB (File Number 333-42499) Filed on
November 13, 1998
10.5 Long Term Incentive Plan is incorporated by reference to the
indicated exhibit to Company's Form 10-QSB (File Number 333-42499)
Filed on November 13, 1998
10.6 Agreement and Plan of Merger is incorporated by reference to the
indicated exhibit to Company's definitive 14A Filed Number 333-
42499 Filed on March 1, 1999
10.7 Alvarez Employment Agreement - Attached as Appendix C
10.8 Reecher Employment Agreement - Attached as Appendix D
(b) Reports on Form 8-K
A report on Form 8-K was filed during the last quarter of the period covered
by this report. The items reported were as follows:
Item 1 - Change of Control of Registrant - Effective March 31, 1999,
Company acquired all of the assets of GWP in a non-taxable reverse triangular
reorganization (the "Merger"). Initially it was Company's understanding that
the effective date of the Merger was April 12, 1999 because Company was
required to refile the Articles of Merger with the Delaware Secretary of
State. However, the Delaware Secretary of State stated subsequently that the
effective date of the Merger was March 31, 1999 because that was the date of
the original filing of the Articles of Merger. The consideration for the
acquisition of GWP was the issuance of shares of Company to the shareholders
of GWP at the Exchange Ratio as defined in page 5 of Schedule 14A (11,327.288
shares of Company for each share of common stock of GWP). The amount of
consideration was determined based upon a fairness opinion (attached to the
Form 8-K as Exhibit B) dated March 23, 1999, issued by Sheldrick, McGehee &
Kohler, Inc., to the effect that as of the date of the opinion, Company and
GWP were of substantially equal value from a financial point of view and from
the perspective of the shareholders of both Company and GWP.
Item 5 - Other Events - Effective March 16, 1999, the name of Company was
changed from Success Development International, Inc. to International Media
Holdings, Inc.
Item 7 - Financial Statements and Exhibits - Audited financial statements
of GWP were not available as of the date of filing of the Form 8-K. The most
current unaudited consolidated financial statements of GWP and its
subsidiaries for the fiscal year ending June 30, 1997, the fiscal year ending
June 30, 1998, and the five month interim period ending November 30, 1998 were
attached as Exhibit "E" to Schedule 14A.
Signature
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTERNATIONAL MEDIA HOLDINGS, INC.
Date: June 14, 2000 By: /s/ Jose A. Alvarez
Jose A. Alvarez, CPA
Executive Vice President & CFO
APPENDIX A
INTERNATIONAL MEDIA HOLDINGS, INC.
CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 1999
JAMES MOORE & CO., P.L.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
International Media Holdings, Inc.:
We have audited the accompanying consolidated balance sheet of International
Media Holdings, Inc. and subsidiaries ("the Company") as of June 30, 1999,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of International Media Holdings, Inc. and subsidiaries as of June
30, 1999 and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
//S// James Moore & Co.
Daytona Beach, Florida
March 24, 2000, except for Notes (14) and (15) which are as of April 19, 2000
INTERNATIONAL MEDIA HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 13,958
Accounts receivable, net 1,807,252
Inventories 320,785
Other current assets 194,445
Receivables from related parties 66,812
Total current assets 2,403,252
PROPERTY AND EQUIPMENT, net 2,147,937
OTHER ASSETS
Goodwill, net 3,446,828
Financing costs, net 118,634
Total other assets 3,565,462
TOTAL ASSETS $ 8,116,651
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit note payable $ 847,474
Current portion of long-term debt 150,075
Current portion of investors' subordinated loans 37,102
Accounts and due to publishers payable 2,404,818
Accrued expenses 679,548
Unearned revenues 484,603
Payables to related parties 310,268
Total current liabilities 4,913,888
LONG-TERM DEBT, less current portion 972,002
INVESTORS' SUBORDINATED LOANS, less current portion 962,898
LOANS FROM STOCKHOLDER 307,907
Total liabilities 7,156,695
STOCKHOLDERS' EQUITY
Common stock, $.001 par value; 500,000,000
shares authorized, 24,180,442 shares issued
and outstanding 24,180
Additional paid in capital 1,538,901
Accumulated deficit (603,125)
Total stockholders' equity 959,956
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,116,651
</TABLE>
INTERNATIONAL MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 6,809,760
OPERATING EXPENSES
Direct cost 3,865,118
Administrative and general 751,045
Sales, marketing and publishers acquisitions 1,283,441
Warehouse and distribution 354,717
Corporate acquisitions 106,162
Total operating expenses 6,360,483
INCOME BEFORE INTEREST, DEPRECIATION AND AMORTIZATION 449,277
OTHER EXPENSES
Interest 350,137
Depreciation and amortization 158,641
Total other expenses 508,778
LOSS BEFORE AMORTIZATION OF GOODWILL (59,501)
AMORTIZATION OF GOODWILL 89,867
NET LOSS $ (149,368)
NET LOSS PER COMMON SHARE
Primary $ (.01)
Fully diluted $ (.01)
</TABLE>
INTERNATIONAL MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Total
Common Additional Stockholders'
Common Stock Paid In Accummulated Equity
Stock Shares Amount Capital Defecit (Defecit)
<S> <C> <C> <C> <C> <C>
Balance June 30,
1998 (1) 11,644,463 $ 11,644 $ 426,953 $ (453,757) $ (15,160)
Common stock issued
to officer for
compensation (2) 906,184 906 7,094 - 8,000
Restricted common
stock issued to
employees for
compensation (2) 88,919 89 695 - 784
Common stock of
SDI outstanding
at date of merger 11,472,674 11,473 1,088,527 - 1,100,000
Options exercised 75,000 75 15,625 - 15,700
Forfeiture of
restricted common
stock (6,798) (7) 7 - -
Net loss - - - (149,368) (149,368)
Balance, June 30,
1999 24,180,442 $ 24,180 $ 1,538,901 $ (603,125) $ 959,956
<FN>
(1) This reflects GWP's shares converted to reflect the reverse merger
conversion rate as described in Note (11).
(2) These shares were issued to GWP employees and officer prior to the
reverse merger and reflect the conversion rate.
</TABLE>
INTERNATIONAL MEDIA HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (149,368)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 248,508
Allowance for book returns and uncollectibles (107,308)
Issuance of common stock for compensation 8,784
Change in assets and liabilities:
Accounts receivable (67,659)
Receivables/payables from related parties (72,644)
Inventories (95,486)
Other current assets (50,701)
Accounts payable and accrued liabilities 354,771
Unearned revenue (196,971)
Total adjustments (21,294)
Net cash used in operating activities (128,074)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in purchase of SDI 25,796
Purchases of property and equipment (27,708)
Cash paid for acquisition costs and other assets (289,065)
Net cash used in investing activities (290,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit 403,757
Repayment of long-term debt (109,075)
Issuance of common stock 15,700
Net cash provided by financing activities 310,382
NET DECREASE IN CASH AND CASH EQUIVALENTS (108,669)
CASH AND CASH EQUIVALENTS, beginning of year 122,627
CASH AND CASH EQUIVALENTS, end of year $ 13,958
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 359,030
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1999, the Company entered into various capital leases for
equipment for $24,333.
During the year, the Company acquired the total assets of $1,244,577 and
total liabilities of $2,060,800 of Success Development, Inc. by issuance of
common stock valued at $1,100,000.
(1) The Company and Its Operations:
International Media Holdings, Inc. ("the Company") was formerly known as
Success Development International, Inc. (SDI) prior to a name change during
1999. Effective March 31, 1999, the Company was created in its present form
when SDI was merged with Great Wisdom Publishing, Inc. (GWP) through a
reverse merger. The former stockholders of GWP have a controlling interest in
the voting common stock of the combined organization. Also, the management of
GWP has continued as the management of the Company. This combination was
accounted for as a purchase by GWP. (See Note 11).
SDI was incorporated in 1995 and owned two active subsidiaries, SDI LeGrand
Publishing, Inc. ("LeGrand"), (formerly known as the LeGrand Group, Inc.),
and SDI Wealth Institute, Inc. ("Wealth"), (formerly known as Results
Publishing, Inc.). Both of these companies are now wholly owned subsidiaries
of the Company.
LeGrand develops and sells a variety of real estate related educational
materials. Wealth organizes and promotes general business conferences
designed to provide participants with real estate and other home based
business opportunities. These operations are conducted throughout the United
States.
GWP was incorporated in 1996 to form a vertically integrated communications
company with a focus toward creating a niche in the communications market.
During 1996, GWP acquired the assets of Publishers Distribution Service, Inc.
("PDS"), through its wholly owned subsidiary, Access Publishers Network, Inc.
("Access"). Access functions as the Company's global distribution network and
sells, on credit terms, to major wholesalers and national book retail chains
throughout the United States as well as internationally.
In February 1998, GWP acquired Astro Communications Services, Inc. ("Astro")
through their subsidiary, Advanced Communications, Inc. Astro creates and
sells astrological reference data and books, on credit terms, to wholesalers
and retailers throughout the world. They also create special astrological
reports that are sold directly to consumers.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Upon consolidation, all material intercompany
balances and transactions have been eliminated. The results of operations for
SDI are for the period subsequent to acquisition by GWP, which is April 1,
1999 through June 30, 1999.
(2) Summary of Significant Accounting Policies:
The following is a summary of the more significant accounting policies and
practices of the Company which affect the accompanying consolidated financial
statements:
(a) Cash and cash equivalents-For purposes of the consolidated statement of
cash flows, the Company considers all highly liquid debt instruments
purchased with an initial maturity of three months or less to be cash
equivalents.
(2) Summary of Significant Accounting Policies: (Continued)
(b) Inventories-Inventories, consisting of finished book products and
educational materials held for resale, are stated at the lower of cost or
market with cost determined on a first-in, first-out basis.
(c) Property and equipment-Property and equipment are recorded at cost less
accumulated depreciation and amortization. Depreciation is computed using
the straight-line method over the estimated useful lives of the
individual assets and leased equipment and software is amortized over the
useful life of the asset. Estimated useful lives of property and
equipment are as follows:
<TABLE>
<S> <C>
Buildings and improvements 40 years
Furniture, fixtures and equipment 5 - 10 years
Computer software 3 years
</TABLE>
Maintenance and repairs are charged to income as incurred. Major renewals
and improvements are capitalized. Upon sale or retirement, the cost and
related accumulated depreciation are removed from the accounts and the
resulting gain or loss is included in operations.
(d) Acquisition costs-The direct costs associated with business combinations
accounted for as purchases have been capitalized as goodwill and are being
amortized over twenty years on the straight-line basis.
(e) Goodwill-Goodwill represents the amount by which the cost of businesses
acquired exceeds the fair value of the net assets acquired. Goodwill is
amortized over twenty years using the straight-line method. The Company
periodically reviews goodwill for impairment based upon undiscounted
operating income over the remaining life of the goodwill. While the
estimates are based on management's historical experience and assumptions
regarding future operations, the amounts the Company will ultimately
realize could differ from those used in the most recent analysis.
Accumulated amortization at June 30, 1999 was $129,000.
(f) Revenue recognition-The Company provides services which entitle the
purchaser to attend training seminars within one year after the order
date. Training seminar tuition is deferred and recognized only upon
receipt of the tuition and after attendance or expiration. Other revenues
are recognized as earned.
(g) Advertising-The Company charges to income the production costs of
advertising the first time the advertising takes place, except for
direct-response advertising, which is capitalized and amortized over its
expected period of future benefit. Direct response advertising consists
primarily of direct mail and infomercials with order response
information. The capitalized costs of the advertising are amortized over
the period following the campaign. The costs of other advertising,
promotion and marketing programs are charged to operations in the year
incurred. Advertising expenses for the year ended June 30, 1999 were
approximately $300,000.
(h) Income taxes-Deferred income tax liabilities and assets are determined
based on the difference between the consolidated financial statement and
tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
(2) Summary of Significant Accounting Policies: (Continued)
(i) Use of estimates-The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(j) Earnings per share-Earnings per share amounts are based on the weighted
average number of shares outstanding. Diluted earnings per share include
the dilutive effect of stock options, warrants and contingent shares.
(k) Segment information-The Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131) in fiscal year 1999. This statement
establishes standards for the reporting of information about operating
segments in annual consolidated financial statements. Operating segments
are defined as components of a business for which separate financial
information is available and that is evaluated regularly by the chief
operating decision makers in determining how to allocate resources and in
evaluating performance. SFAS 131 also requires disclosures about products
and services, geographic areas and major customers. The adoption of SFAS
131 did not affect the reported consolidated results of operations or
financial position, but did result in increased disclosures as presented
in Note (12).
(l) Allowance for book returns and uncollectibles-The Company records an
estimated allowance against both accounts receivable and due to publishers
payable for book returns, which is a standard practice in the book
publishing industry. Consideration is given to fees collected from
publishers for processing returns. At June 30, 1999, an allowance of
$322,648 has been recorded against accounts receivables.
(m) Financing costs-Loan origination fees and other costs associated with
debt financing are deferred and amortized over the various terms of the
corresponding loans using the straight-line method, which approximates
the effective interest method. At June 30, 1999, total financing costs
were $185,760 less amortization of $67,126.
(3) Property and Equipment:
The following is a summary of property and equipment at June 30, 1999:
<TABLE>
<S> <C>
Land $ 378,900
Buildings and improvements 1,327,019
Furniture, fixtures and equipment 397,325
Computer software 266,056
Total 2,369,300
Less: accumulated depreciation (221,363)
Property and equipment, net $ 2,147,937
</TABLE>
(3) Property and Equipment: (Continued)
See Note (5) relative to rental properties included above.
The Company leases certain equipment under capital leases. The cost and
related accumulated amortization on these assets at June 30, 1999, are
approximately $132,000 and $68,000. Some of the capital leases are personally
guaranteed by a stockholder.
(4) Debt Financing:
The following is a summary of debt financing at June 30, 1999.
<TABLE>
<S> <C>
Mortgage note payable in monthly installments of $8,452,
including interest at prime plus 5%, with a floor of 13.5%
(13.5% at June 30, 1999) through May 2008, collateralized
by property and equipment, guaranteed by a stockholder. $ 691,310
Notes payable, bearing interest at 18% payable in varying
amounts at varying dates. 84,482
Obligations under capital leases at varying interest rates
payable in monthly installments ranging from $320 to $2,587
through August 2003, collateralized by equipment. 131,967
Note payable in monthly installments of $2,062 including
interest at 10% collateralized by certain equipment. 21,567
Note payable, interest only at 12% payable monthly through
March 1, 2000. Commencing April 1, 2000 payable in monthly
installments of $22,244 including interest at 12% for a
period of sixty months. The lending institution has a warrant
for 1,415,912 shares at an exercise price of $.00007 per share.
The note is collateralized by certain assets, however, it is
subordinated to other collateralized debt and is personally
guaranteed by certain stockholders of the Company. 1,000,000
Line of credit note payable with a financing company,
limited to the lesser of $1,500,000 or 70% of eligible
accounts receivable, interest at prime plus 3% payable
monthly, administrative fee of .625% payable quarterly,
through February 2000 with automatic annual renewals if
agreed by both parties, collateralized by all assets of
Access. 847,474
Note payable in monthly installments of $5,069 including
interest at 8% due February 2003. Personally guaranteed by
a stockholder. 192,751
Total 2,969,551
Less: current portion 1,034,651
Debt financing, less current portion $ 1,934,900
</TABLE>
(4) Debt Financing: (Continued)
Debt financing is included in the balance sheet under the following captions:
<TABLE>
<S> <C>
CURRENT PORTION OF DEBT FINANCING:
Line of credit note payable $ 847,474
Current portion of long-term debt 150,075
Current portion of investors' subordinated loans 37,102
Total $ 1,034,651
DEBT FINANCING, LESS CURRENT PORTION:
Long-term debt, less current portion 972,002
Investors' subordinated loans, less current portion 962,898
Total $ 1,934,900
</TABLE>
Maturities of debt financing for each of the next five years as of June 30,
1999 are as follows:
<TABLE>
<CAPTION>
Year ending
June 30 Amount
<S> <C>
2000 $ 1,034,651
2001 343,542
2002 264,547
2003 258,442
2004 243,860
</TABLE>
Certain of the notes payable contain covenants which require the Company to
maintain a minimum net worth and a minimum debt service coverage ratio and to
obtain permission prior to payment of dividends. As of June 30, 1999, the
Company was not in compliance with the covenant requiring a minimum debt
service coverage of 1.5. In addition, the Company was in violation of other
covenants regarding timely reporting to the lender. The Company obtained a
waiver from its lender regarding these deficiencies. The Company was in
compliance with all other covenants at June 30, 1999.
CAPITAL LEASE OBLIGATIONS-Minimum future lease payments under capital leases
(included in long-term debt) as of June 30, 1999 for each of the next five
years and in the aggregate are as follows:
<TABLE>
<CAPTION>
Year ending
June 30, Amount
<S> <C>
2000 $ 75,338
2001 51,434
2002 20,365
2003 3,843
2004 320
Total minimum lease payments 151,300
Less: amount representing interest 19,333
Present value of net minimum lease payments $ 131,967
</TABLE>
(5) Lessor Activities:
One of the Company's buildings is leased to a tenant under an operating lease
through June 30, 2001. The costs and accumulated depreciation of property
held for lease are $553,500 and $2,400 at June 30, 1999. A schedule of
minimum future lease receipts under the operating lease based on the rental
in effect at June 30, 1999, without regard to the exercise of renewal
options, follows:
<TABLE>
<CAPTION>
Year ending
June 30, Amount
<S> <C>
2000 $ 40,596
2001 42,216
$ 82,812
</TABLE>
(6) Related Parties:
During the year ended June 30, 1999, a stockholder who was a former officer
and his related company had an agreement with the Company whereby they
received a percentage of the gross sales price of their products sold at
Company events. Expenses recognized by the Company relating to this agreement
for the period from April 1, 1999 to June 30, 1999 were approximately
$24,000. At June 30, 1999, $207,498 was included in payables to related
parties related to this stockholder.
The Company paid the Chairman of the Board, a current stockholder, through
his related company, $40,000 from February 1999 to June 30, 1999. Also, the
Company owes the stockholder $27,770 for fees outstanding since 1998. This
stockholder also owes the Company $18,179 for expenses paid on his behalf.
The Company has notes payable to a stockholder totaling $307,907. Interest on
the notes accrues monthly at rates ranging from 8% to 14%, and the principal
is due in January 2003. The notes are collateralized by all assets of GWP and
are subordinate to certain other notes with financing companies. Interest
paid to the stockholder was $35,146 for the year ended June 30, 1999.
The Company owed fees to certain directors of the Company in the amount of
$75,000 since 1996, which is due upon demand.
The Company is owed $48,633 from two stockholders on promissory notes with
recourse at 9% interest payable in twelve monthly payments.
A Company owned by a stockholder was paid $16,650 for consulting services
during the year ended June 30, 1999.
See Note (13) for leases with related parties.
(6) Related Parties: (Continued)
The following summarizes amounts reported in the consolidated financial
statements:
<TABLE>
<S> <C>
Payables to related parties
Fees for products due to stockholders $ 207,498
Fees due for prior expenses 27,770
Fees due to directors 75,000
$ 310,268
Receivables from related parties
Expenses paid on behalf of stockholder $ 18,179
9% promissory notes 48,633
$ 66,812
Loan from stockholder $ 307,907
</TABLE>
(7) Financial Instruments, Concentration of Credit Risk and Economic
Dependency:
The Company's financial instruments include cash, accounts receivable-trade,
and long-term debt. Financial instruments that are exposed to concentration
of credit risk consist primarily of cash and accounts receivable. Cash, at
times, may exceed the amounts insured by the FDIC. The Company places its
temporary cash investments in what management believes to be high quality
financial institutions. The majority of the Company's accounts receivable are
due from book wholesalers or retailers. The Company has no collateral on its
accounts receivable.
All of the Company's financial instruments are recorded at cost which is
deemed to approximate fair value. The determination of the fair value of
long-term debt is based on current rates at which the Company could borrow
funds with similar remaining maturities.
The founder of Wealth and LeGrand and a major stockholder is a key speaker and
developer of those segments' products, seminars and services.
(8) Stockholders' Equity:
During 1995, IMH adopted a Long-Term Incentive Plan ("the Plan") which
permits the issuance of stock options and restricted stock to employees of
the Company and its subsidiaries. Directors and independent contractors of
the Company and its subsidiaries were eligible to receive grants of
restricted stock. At June 30, 1999, 2,531,402 stock options were outstanding
under the Plan. All options are vested and are exercisable ten years from the
date of issuance, which ranged from October 1995 to May 1998 or three months
after employment.
(8) Stockholders' Equity: (Continued)
The Company has issued a warrant granting a lending institution (Note (4))
the right to purchase 1,415,912 shares of the Company's common stock at an
exercise price of $.00007 per share. The number of shares available to the
institution are subject to certain dilution adjustments as defined in the
warrant. The right to acquire the shares expires on March 1, 2006. Commencing
March 2, 2005 and expiring March 2, 2006, the lending institution has the
right and option to require the Company to acquire the institution's rights
under the warrant. The redemption price is to be based on an agreed-upon
formula, as provided for in the warrant.
The Company also issued 147,255 options to an investment banker in connection
with obtaining certain financing. The options are exercisable at $.0007 per
share and expire on February 12, 2004.
The Company issued 11,333 options to its underwriter which are exercisable at
$5.50 per share until February 18, 2003.
<TABLE>
<CAPTION>
Weighted Weighted
Average Options/ Average
Options/ Exercise Warrants Exercise
Warrants Price Exercisable Price
<S> <C> <C> <C> <C>
Balance, June 30, 1998 (1) 1,563,167 $ .000127 1,563,167 $ .000127
SDI options outstanding
at date of merger 2,717,735 .24 2,717,735 .24
Exercised (75,000) .21 (75,000) .21
Cancelled (100,000) .21 (100,000) .21
Balance, June 30, 1999 4,105,902 $ .15 4,105,902 $ .15
<FN>
Pro forma information as required by SFAS No. 123 for valuing stock options
under the fair value method is not disclosed as there was not significant
value to the options at the date of the grant. Management believes
application of SFAS No. 123 to future option grants will not have a
significant impact on pro forma earnings or financial position.
(1) Number of GWP options outstanding reflects the reverse merger conversion
rate as described in Note (11).
</TABLE>
(9) Income Taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109").At June 30, 1998, the gross deferred tax asset was $120,000 of
which an allowance was recorded to reduce the asset to zero. The components
of the deferred income tax assets and deferred income tax liabilities
recorded on the balance sheet at June 30, 1999 are as follows:
(9) Income Taxes: (Continued)
<TABLE>
<S> <C>
Deferred tax assets:
Net operating losses $ 278,000
Related party accruals 61,000
339,000
Deferred tax liability:
Tax over book depreciation and
amortization (64,000)
Net deferred tax asset 275,000
Valuation allowance (275,000)
$ -
</TABLE>
A valuation allowance was established for the deferred income tax asset
because it is probable that the deferred tax asset will not be realized.
As time passes, management will be able to better assess any benefit it may
realize from using the loss carryforward.
The Company has approximately $1.1 million in net operating loss carryovers,
which primarily expire in years 2010 through 2019. Utilization of net
operating loss carryovers is subject to separate return limitation year
("SRLY") restrictions for consolidated tax returns, and realization is
dependent upon generating sufficient separate taxable income to utilize the
net operating losses. Subsequent tax benefits resulting from realization of
the loss carryforward will be applied to reduce the valuation allowance and
goodwill related to the acquired company.
(10) Earnings Per Share:
<TABLE>
<CAPTION>
For the Year Ended June 30, 1999
Loss Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
BASIC EPS
Net loss $ (149,368) 14,859,921 $ (.01)
EFFECT OF DILUTIVE SECURITIES
Warrants - -
Options - -
DILUTED EPS
Loss available to common
stockholders - assuming
dilution $ (149,368) 14,859,921 $ (.01)
</TABLE>
The diluted share base for the year ended June 30, 1999 excludes incremental
shares of 3,886,142 related to employee stock options and warrants. These
shares are excluded due to their antidilutive effect as a result of the
Company's loss during 1999.
(11) Merger of GWP and SDI:
On March 31, 1999 (the "Merger Date"), GWP merged into a newly formed
subsidiary of SDI (the "Merger"). GWP shareholders received 11,327.3 shares of
SDI common stock for each share owned of GWP common stock.
In total, 12,639,566 shares of SDI common stock were exchanged for 1,115.85
shares of the GWP outstanding common stock ( a conversion rate of 11,327.3 to
one). In addition, each share of GWP stock subject to any options to
purchase, and any restricted stock, were converted into an option to purchase
11,327.3 shares of the Company's stock. For purposes of the consolidated
statement of stockholders' equity, the beginning balance of common stock
shares, and additions to GWP stock shares prior to the merger, have been
restated to reflect the conversion rate. The number of shares of outstanding
common stock of SDI as of the merger date have been reported as being issued
during the year ended June 30, 1999.
The Merger was accounted for as a reverse acquisition whereby GWP was treated
as the acquirer and SDI as the acquiree, because GWP stockholders owned a
majority of the Company as of the Merger Date, and GWP management remained
as the Company's management. Purchase accounting was applied to SDI based
upon its fair market value at the Merger Date.
The fair market value of SDI was based on the appraised value of real estate,
and fair book value of all other assets acquired, and liabilities assumed.
The value of the GWP stock outstanding as of the Merger Date was
independently appraised at $1,100,000 which was used as the purchase price.
The fair market value of the net liabilities of SDI on the Merger Date was
$816,223. Therefore, the purchase price exceeded the fair value of assets
acquired and liabilities assumed, resulting in goodwill of $1,916,223. The
Company also incurred $273,008 of the acquisition costs which are capitalized
as part of goodwill.
The Company's unaudited pro forma consolidated results of continuing
operations assuming the SDI acquisition accounted for under the purchase
method of accounting had occurred at the beginning of the fiscal year follows
for the year ended June 30, 1999:
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Revenue $ 9,901,142
Loss before extraordinary items $ (963,970)
Net loss $ (859,970)
Diluted loss per share $ (0.04)
</TABLE>
The pro forma presentation has been adjusted to reflect SDI for a complete 12
month period ended December 31, 1999 and reflecting the Company's twelve
months ended June 30, 1999 after adjusting for SDI's three months included in
the results of operations. The pro forma information also includes adjustment
for depreciation and amortization of assets, including goodwill to recognize
the bases recognized in recording the combination.
(12) Segment Information:
The Company has four reportable segments, organized by type of product/
service. These reportable operating segments are managed separately based on
location and fundamental differences in their operations. Both Wealth and
LeGrand, based in Jacksonville, Florida are engaged in instructing, educating
and providing continual consulting to prospective entrepreneurs on profitably
buying and selling real estate. Wealth conducts seminars for individuals
across the United States and LeGrand sells related educational materials to
this same customer base. Astro, based in San Diego, California, produces
reference materials for the astrological services industry which are sold
directly to consumers and to Access, which then resells the products to
wholesalers and retailers, primarily in the United States, with limited
international sales. Access, located in Traverse City, Michigan is the
Company's distribution arm and sells to wholesalers and retailers, primarily
in the United States, with limited sales internationally. Access has a customer
from which it generated net revenues of approximately $1.2 million during the
year ended June 30, 1999. Financial information by business segment follows:
<TABLE>
<CAPTION>
Wealth LeGrand Astro Access Others Total
<S> <C> <C> <C> <C> <C> <C>
Revenues from
external
customers $1,562,392 $ 111,493 $ 618,326 $4,497,547 $ 20,002 $6,809,760
Segment
Profit (Loss) 326,856 36,827 (78,187) (373,193) (61,671) (149,368)
Total Assets 1,823,020 2,350,185 1,073,825 2,741,865 127,756 8,116,651
Depreciation and
Amortization 18,513 22,918 65,990 139,474 1,613 248,508
Interest - 28,570 10,930 255,876 54,761 350,137
</TABLE>
(13) Commitment:
Operating Leases-The Company leases facilities under operating leases which
expire at various dates through 2003. Future minimum rental payments under
all operating leases are as follows:
<TABLE>
<CAPTION>
Year ending
June 30, Amount
<S> <C>
2000 $ 191,040
2001 193,040
2002 112,160
2003 85,400
2004 68,180
Total $ 649,820
</TABLE>
The Company leases Michigan and Florida facilities from stockholders. The
Michigan warehouse is leased for an annual rent of $111,840 expiring
September 2001. The Florida office space is leased for an annual rent of
$22,200 expiring August 2003. During 1999, the Company paid $123,040 pursuant
to these lease agreements. Total lease expense for all other leases for the
year ended June 30, 1999 was $44,694.
(14) Litigation:
On January 28, 2000, the majority of stockholders, by written consent under
Florida law, removed the former Chairman of the Board of Directors of the
Company (the former Chairman) for actions they considered detrimental to the
welfare of the Company. Soon after his removal, the former Chairman commenced
an action against the Company and its President, Chief Financial Officer, and
two other major stockholders of the Company (the majority stockholders that
had taken the action by written consent). The former Chairman sought no
affirmative relief from the Company, but sought relief from one or more of
the other defendants for alleged breach of fiduciary duty, conversion of
corporate funds, constructive fraud, usurpation of corporate opportunity,
waste of corporate assets, conspiracy to defraud and breach of contract.
The Company filed a motion to dismiss. Prior to hearing such motion, the
former Chairman amended his action. The complaints included allegations
against the President and Chief Financial Officer for actions alleged to have
taken place while they were not involved with the Company. The plaintiff had
been the Chairman of the Board for the entire period of most of the alleged
actions. The Company filed an amended motion to dismiss on April 13, 2000.
On April 19, 2000, the Company filed suit against the former Chairman and his
related companies alleging certain improprieties in regards to the actions
that were taken that led to the Chairman's dismissal, as well as the
interference with advantageous business relationships resulting from the
effect of a series of letters sent by the former Chairman addressed to
stockholders, creditors, acquisition candidates, Company vendors and business
relationships. The suit further alleges he has posted these letters (as well
as other confidential company information) on a website. In addition, the
Company also filed suit against an internet company which IMH was considering
for acquisition, and for which the former Chairman is now Chairman of its
Board.
Special counsel has been retained by the Company in connection with this
action. The Company would be responsible for the payment of the fees of the
special counsel with respect to the claim against the named directors in the
event the directors are successful.
The Company intends to vigorously defend the lawsuit filed by its former
Chairman, and to vigorously pursue its claims against the former Chairman.
The ultimate outcome of these matters is not presently determinable.
(15) Management Plans:
As shown in the accompanying consolidated financial statements, the Company
incurred a net loss of $149,368 during the year ended June 30, 1999. As of
that date, the Company's current liabilities exceeded its current assets by
$2,510,636. Current liabilities included $847,474 of a revolving line of
credit that the Company expects to continue to renew and $484,603 of unearned
revenue for which the Company expects to continue at or near that level.
Current management of the Company has developed plans to return to
profitability by restructuring existing liabilities, instituting various cost
savings measures, implementing an aggressive media campaign, and limiting
acquisitions to those that can be obtained through equity or long-term debt.
APPENDIX B
GREAT WISDOM PUBLISHING, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30 1998
GREAT WISDOM PUBLISHING, INC
AND SUBSIDIARIES
JUNE 30, 1998
Page
TABLE OF CONTENTS Number
Unaudited Consolidated Financial Statements:
Balance Sheet 3
Statement of Income 4
Statement of Cash Flows 5
Statement of Owners' Equity 7
GREAT WISDOM PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 122,628
Accounts Receivable 1,696,472
Inventories 184,577
Other Current Assets 70,499
TOTAL CURRENT ASSETS 2,074,176
PROPERTY AND EQUIPMENT, at cost
Net of accumulated depreciation of $ 342,206 401,750
OTHER ASSETS 1,429,763
TOTAL ASSETS $ 3,905,689
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
<S> <C>
CURRENT LIABILITIES
Short Term Notes & Factoring $ 475,311
Current maturities of Long Term Debt 110,780
Accounts and Due to Publishers Payable 1,589,614
Accrued Expenses and Payroll Taxes Payable 77,311
TOTAL CURRENT LIABILITIES 2,253,016
LONG TERM DEBT, less current maturities 284,925
DEFERRED INCOME TAXES -
INVESTORS SUBORDINATED LOANS 1,000,000
LOANS FROM SHAREHOLDERS & RELATED PARTIES 382,908
TOTAL LIABILITIES 3,920,849
STOCKHOLDERS' EQUITY
Common Stock, $.001 par value, 3,000 shares
authorized 1,028 shares issued and outstanding 1
Additional Paid in Capital 438,596
Retained Earnings (Deficit) (453,757)
TOTAL STOCKHOLDERS' EQUITY (15,160)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,905,689
</TABLE>
GREAT WISDOM PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME FOR
THE YEAR ENDED JUNE 30, 1998
<TABLE>
<S> <C>
REVENUES $ 5,330,041
OPERATING EXPENSES
Direct Cost 3,782,323
Administrative & General 418,526
Sales, Marketing & Publishers Acquisitions 709,382
Warehouse & Distribution 356,564
TOTAL OPERATING EXPENSES 5,266,795
INCOME BEFORE INTEREST, TAXES,
DEPRECIATION & AMORTIZATION 63,246
OTHER EXPENSES
Interest & Factoring - net 194,625
Depreciation and Amortization 88,055
Income Taxes 2,852
TOTAL OTHER EXPENSES 285,532
LOSS BEFORE AMORTIZATION OF GOODWILL (222,286)
AMORTIZATION OF GOODWILL 28,828
NET INCOME (LOSS) $(251,114)
</TABLE>
GREAT WISDOM PUBLISHING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ (251,114)
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation & Amortization 116,883
(Increase) decrease in:
Accounts Receivable (447,799)
Inventory (18,721)
Prepaids and current other assets (18,594)
Increase (decrease) in:
Accounts Payable 478,308
Other current liabilities 45,290
NET CASH USED IN OPERATING ACTIVITIES $ (95,747)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired in purchase of Astro 75,095
Purchase of Astro Communications, Inc. (500,000)
Purchases of property and equipment (26,083)
Acquisition costs and other assets $ (272,159)
NET CASH USED IN INVESTING ACTIVITIES $ (723,147)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from line of credit $ 124,102
Payoff of Astro's line of credit (119,973)
Proceeds from Subordinated Debt 1,000,000
Financing costs (164,402)
Net decrease in shareholders' loans (44,542)
Proceeds from Long-Term Debt 250,000
Repayment of Long-Term Debt (116,560)
NET CASH FROM FINANCING ACTIVITIES $ 928,625
NET INCREASE IN CASH $ 109,731
CASH AT BEGINNING OF YEAR 12,896
CASH AT END OF YEAR $ 122,627
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 176,680
<FN>
NONCASH FINANCING AND INVESTING ACTIVITIES:
During the year, the company acquired the total assets of $593,128 and total
liabilities of $342,313 of Astro Communications, Inc. by purchasing 100% of
its stock for $500,000.
</TABLE>
GREAT WISDOM PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1998
<TABLE>
<CAPTION>
Common Common
Stock Stock
.001 par .001 par Additional Retained Total
value value Paid In Earnings Stockholders'
SHARES AMOUNT Captial (Defecit) Equity
<S>
BEGINNING <C> <C> <C> <C> <C>
BALANCE 0 $ - $ - $ - $ -
Issuance of
Common Stock 1,028 $ 1 $ 438,596 $ - $ 438,597
Net Loss (202,643) (202,643)
Balance
June 30, 1997 1,028 1 438,596 (202,643) 235,954
Net Loss FYE
6-30-98 - - - (251,114) (251,114)
Balance
June 30, 1998 1,028 $ 1 $ 438,596 $(453,757) $ (15,160)
</TABLE>
APPENDIX C
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 9th day of March, 1999
("Effective Date"), by and between INTERNATIONAL MEDIA HOLDINGS, INC.,
formerly known as SUCCESS DEVELOPMENT INTERNATIONAL, INC., a Florida
corporation (the "Employer"), and JOSE A. ALVAREZ (the "Employee").
WITNESSETH:
WHEREAS, Employer is a corporation formed pursuant to the laws of the State of
Florida and is presently in existence and in good standing; and
WHEREAS, the Employer desires to employ the Employee for a specific term, and
the Employee desires to be employed by the Employer in accordance with and
subject to the terms and conditions hereafter set forth; and
WHEREAS, the parties hereto believe it to be in their best interests to
create a definite and certain Employment Agreement under the terms and
conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Employment. Employer shall employ the Employee for the term provided in
Section 3 (the "Term") to serve as the Employer's Executive Vice President
Chief Financial Officer, and in connection therewith, to devote Employee's
full-time to perform the duties described below, except for vacations,
holidays and reasonable absences due to illness.
2. Duties of Employee. The duties of the Employee shall be to serve as the
Executive Vice President and Chief Financial Officer of the Employer and to
perform those duties assigned to the Employee by the Board of Directors of
the Employer and shall include, but are not limited to, the normal and
customary duties of Executive Vice President and Chief Financial Officer.
3. Term. The term of Employee's employment under this Agreement shall
commence on the Effective Date and shall continue for a one (1) year period
unless earlier terminated as hereinafter provided. The Term shall thereafter
be automatically renewed for successive one (1) year terms at the end of the
initial term unless terminated as hereinafter provided.
4. Compensation. During the Term of Employee's employment pursuant to this
Agreement, the Employer agrees to pay Employee, and Employee agrees to accept
from Employer in full payment of services rendered by Employee and work to be
performed by Employee under the terms of this Agreement, compensation as
follows:
(a) Base Salary. As compensation for all services to be rendered pursuant to
this Agreement, Employer shall pay the Employee during the Term a base salary
of Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00) per month
(the "Base Salary"), less such payroll deductions, taxes and other charges as
shall be required to be withheld by applicable law. The Base Salary shall be
payable biweekly, in arrears. Employee's Base Salary shall be reviewed on an
annual basis and is subject to adjustment by Employer's Compensation
Committee with the first of such reviews beginning on March 9, 2000.
(b) Expenses. The Employer shall pay or reimburse the Employee for all
reasonable expenses actually incurred or paid by the Employee during the Term
in the normal course of performing Employee's duties hereunder. Employee
will submit an expense report with expense statements or vouchers or such
other supporting information as the Employer may reasonably require. The
Employer will reimburse Employee for such reasonable expenses within thirty
(30) days of receipt of such expense report.
(c) Participation in Employee Benefit Plans. The Employee shall be permitted
during the Term, to the extent eligible, to participate in any group life,
hospitalization, or disability insurance plan, health program, pension plan,
profit sharing plan or other employee benefit plans of the Employer that may
be available to other full-time employees or officers of the Employer serving
in a capacity similar to that of the Employee.
(d) Stock Options. The Employee shall be permitted during the Term to
participate in any stock option or other long term incentive plans
established by the Employer that may be available to other full-time
employees or officers of the Employer serving in a capacity similar to that
of the Employee.
(e) Bonus. In addition to the Base Salary provided for in paragraph (a) of
this Section 4, the Employer shall pay to Employee a quarterly bonus (the
"Quarterly Bonus") based on Employer's "net income" as determined by
generally accepted accounting principles and adjusted upon year-end audit by
Employer's CPA. Any Quarterly Bonus shall be due and payable within forty-
five (45) days of the end of each fiscal quarter. For purposes of
determining "net income" under this Section 4(e), "net income" shall mean net
income after taxes, but before the Quarterly Bonuses of the CEO and CFO. The
Quarterly Bonus shall be awarded to Employee as follows:
(i) In any full fiscal quarter of Employer, if the "net income" exceeds ten
percent (10%) of the gross revenue of Employer (but does not exceed fifteen
percent (15%)), then the Employee shall receive Fifteen Thousand and No/100
Dollars ($15,000.00).
(ii) In any full fiscal quarter of Employer, if the "net income" exceeds
fifteen percent (15%) of the gross revenue of Employer, then the Employee shall
receive Twenty-five Thousand and No/100 Dollars ($25,000.00).
5. Vacation. During the term of this Agreement, Employee shall be entitled
to four (4) weeks of vacation per calendar year; provided, however, Employee
shall not take more than one (1) consecutive week of vacation without the
express written consent of the Chairman.
6. Deductions from Compensation. Deductions shall be made from Employee's
compensation and taxable benefits for Social Security, withholding taxes, any
other such taxes as may from time to time be required by any governmental
authority.
7. Termination of this Agreement.
(a) If the Employee dies during the Term, this Agreement shall terminate,
except as provided herein, and the Employee's legal representatives shall be
entitled to any accrued but unpaid salary and prorated bonuses due through
the date of Employee's death. Employer shall also be obligated to pay to
Employee's legal representative the sum of the then current Base Salary at
the date of Employee's death per month for the remainder of the full Term, as
renewed, plus any bonus plan or stock options in effect and owed to Employee
at Employee's date of death. Upon payment in full, Employer shall be fully
and completely discharged of any and all liabilities or obligations to
Employee and Employee's legal representatives hereunder and Employee's estate
shall not be entitled to further benefits under this Agreement.
(b) The Employee may terminate this Agreement upon sixty (60) days prior
written notice to the Employer. If the Employee gives notice pursuant to
this paragraph (b), the Employer shall have the right to relieve the
Employee, in whole or in part, of the Employee's duties under this Agreement
or to accelerate the date of termination, with accrued but unpaid salary and
prorated bonus payable to the Employee only through the last date of service
to Employer. Such payments shall be in full and complete discharge of any and
all liabilities or obligations of the Employer to the Employee hereunder, and
the Employee shall be entitled to no further benefits under this Agreement.
(c) The Employer may terminate the employment of the Employee hereunder
without notice for good cause (as defined below). The term "good cause" as
used in this Agreement shall mean conduct disloyal to the Employer,
conviction of any crime of moral turpitude, any theft, willful or improper
taking, embezzlement or conversion of the Employer's funds or other assets or
fraudulent activity with respect to the Employee or substance dependence, as
determined by the Board of Directors of the Employer. If the employment of
the Employee is terminated pursuant to this paragraph (c), then the Employer
shall pay to the Employee any compensation earned but not paid to the
Employee through the last date of service to Employer. Such payment shall be
in full and complete discharge of any and all liabilities or obligations of
the Employer to the Employee hereunder, and the Employee shall be entitled to
no further benefits under this Agreement.
8. Competitive Business.
(a) For purposes of this Section 8, the term "Restricted Area" shall be deemed
to include the United States and any country in which the Employer conducts its
business.
(b) Employee agrees and covenants that Employee shall not undertake any
new business within the Restricted Area without first giving written notice
to the Employer of such new Business and the opportunity to undertake such
business in lieu of the Employee and only if such new business does not
materially interfere with Employee's duties hereunder. The notice shall be
in writing and addressed to the Chairman.
(i) If the Employer shall elect to undertake such new business after Employee
notifies Employer that Employee will undertake any new business within the
Restricted Area, Employer shall send written notification to Employee of such
election within thirty (30) days after its receipt of the notice of said new
business opportunity. Thereafter, Employee shall not enter into such
business.
(ii) If the Employer notifies the Employee that it shall not enter into
the new business, or if the Employer shall fail to affirmatively notify the
Employee of its election within thirty (30) days of its receipt of notice, then
Employee which then conducts a business at the location of the proposed new
business shall be entitled to pursue said new business if Employee so notifies
Employer within twenty (20) days after the receipt of the first notice by the
Employer or failure of affirmative notice by the Employer. The pursuit of any
new business by Employee may not materially interfere with Employee's duties
under this Agreement. If the Employer elects not to pursue the new business,
then Employee may pursue said new business.
(c) Employee shall not, so long as Employee is employed and for a period of
two (2) years after Employee ceases to be employed by Employer pursuant to
Section 7(b) and 7(c) of this Agreement, without the Employer's prior and
specific written consent, engage in any of the following activities:
(i) Directly or indirectly, through Employee's agents, employees or
otherwise, or as a principal, partner, shareholder, agent, director, officer,
employee, consultant, or in any other capacity whatsoever, engage, participate,
invest or become interested in, affiliated or connected with, render service
to, or furnish any aid, assistance or advice to any person, corporation, firm
or other organization engaged in a business or enterprise similar to or in
competition with the business of the Employer or any of its Affiliates,
within the Restricted Area; or
(ii) Interfere, directly or indirectly, with the conduct of the Business of
the Employer or any of its Affiliates within the Restricted Area; or
(iii) Within the Restricted Area, solicit (directly or indirectly, for
Employee's own account, or for the account of others) orders for services of a
kind or nature like or similar to services performed by the Employer, or any
Affiliate thereof, from any party that was a customer of the Employer, or any
Affiliate thereof, or which the Employer, or any Affiliate, was soliciting to
be its customer during the twenty-four (24) month period preceding the date of
Employee's termination of employment. Employee further agrees that Employee
shall not, directly or indirectly, urge any customer or potential customer of
the Employer, or any Affiliate thereof, to discontinue, in whole or in part,
Business, or not to do business with the Employer, or any Affiliate thereof; or
(iv) Directly or indirectly, through such Employee's agents, employees
or otherwise, or as a principal, partner, shareholder, agent, director,
officer, employee, consultant, or in any other capacity whatsoever, solicit,
direct, or otherwise compete for the services of any of the employees or
personnel of the Employer or any of its Affiliates. In addition, the
Employee shall not influence or attempt to influence any of the employees or
personnel of the Employer or any of its Affiliates from providing services
for, or doing business with, the Employer or any of its Affiliates.
(d) Employee acknowledges that a breach of the terms of this Section 8 may
not be fully or adequately compensable by the award or payment of monetary
damages, and Employee therefore agrees and consents to be subject to any
decree of specific performance, injunction, or any other applicable
equitable, legal or other decree, order, writ or remedy which would require
such Employee's performance in accordance with the terms of this Section 8.
The Employee expressly acknowledges and agrees (i) that the restrictions set
forth herein are reasonable in terms of scope, duration, geographic area,
and otherwise, (ii) that the protections afforded to the Employer and its
Affiliates hereunder are necessary to protect their legitimate business
interests, and (iii) that the agreement to observe such restrictions form a
material part of the consideration for this Agreement.
(e) For purposes of this Section 8, an "Affiliate" of the Employer shall mean
and include any present or future parent, subsidiary, or brother or sister
entity of Employer in which the parent of Employer owns a fifty percent (50%)
or more interest, and any other corporation, partnership or other entity in
which the Employer owns interests aggregating fifty percent (50%) or more of
the ownership interests of such entity.
(f) Employee shall not disclose to any person any information or knowledge
relating to (i) the business, operations or internal structure of the
Employer or any of its Affiliates, (ii) the clients (or customers) or
potential clients (or potential customers) of the Employer or any of its
Affiliates, (iii) any method and/or procedure (such as records, programs,
systems, correspondence, or other documents) relating or pertaining to
projects or products developed by the Employer or any of its Affiliates or
contemplated to be developed by the Employer or any of its Affiliates, or
(iv) the Employer's or any of its Affiliates' business, which information or
knowledge the Employee shall have obtained, and which is otherwise of a
secret or confidential nature. Further, upon ceasing to be an Employee for
any reason whatsoever, the Employee shall not take, without prior written
consent of the Board of Directors of the Employer, and shall return, any
documents, forms, or other reproductions of any data or any information
relating to or pertaining to the Employer or any of its Affiliates, any of
the clients (or customers) or potential clients (or potential customers) of
the Employer or any of its Affiliates or any other confidential information
or trade secrets of Employer or any of its Affiliates.
(g) Any improvements, inventions, new techniques, processes, programs or
products made or developed by Employee relating to the business of the
Employer, shall be deemed to have been made or developed during the course of
employment and by Employee solely for the benefit of the Employer and shall
be the sole and exclusive property of the Employer. In order to further
effectuate the terms of this Agreement, Employee agrees to assign to the
Employer any and all of Employee's rights to patents, copyrights and all
other proprietary interests which Employee might have in any process,
program, technique, product, research item, invention or other improvement
which Employee develops. Employee shall not use or disclose to any other
person or entity any such process, program, technique, product, research
item, invention or other improvement except as expressly authorized in
writing by the Employer.
9. Confidential Information.
(a) The parties recognize that in Employee's employment Employee has had
and/or will have access to various confidential and/or proprietary business
information which relates to Employer's or any of its Affiliates' business
and which has commercial or other value referred to in this Agreement as
"Confidential Information." For purposes of this Agreement, Confidential
Information includes by way of illustration, but without limitation (except
as expressly set forth below), any and all information relating to products
manufactured by Employer, products and processes designed by Employee during
the term of this Agreement, processes therefore, apparatus and maintenance
thereof, research, research programs, computer software and diskettes,
manufacturing techniques, processes, program files, developments for
experimental work, flow charts, drawings, techniques, source and object
codes, standards, specifications, improvements, inventions, customer
information, customer lists, accounting data, statistical data, research
projects, development and marketing plans, strategies, forecasts, sales plans
and sales and marketing information, and the like, that are now in the
possession of or may be acquired by or on behalf of Employer or any of its
Affiliates, whether or not tangibly embodied in a document, model, specimen,
computer storage device, or other physical object, including similar
information with respect to any subsidiary, parent, affiliate or related
companies of Employer.
(b) Employee understands that Employee's position as an employee creates a
relationship of confidence and trust between him and Employer with respect to
any Confidential Information which pertains to Employer's business or to the
business of any actual or potential client or customer of Employer, and which
may be learned or developed by Employee or made known to Employee by Employer
or any of its clients or customers during Employee's employment.
(c) During the term of this Agreement and at all times after the termination of
Employee's employment with Employer for whatever reason, Employee shall not
divulge or convey to any person or other entity any Confidential information
and shall keep, at all times, all Confidential Information in confidence and
trust for the benefit of Employer. Employee shall not use any Confidential
Information except for the benefit of Employer without the express prior
written consent of the Employer except in the ordinary course of his
employment, nor shall Employee disclose any Confidential Information to any
person or entity other than Employer and its authorized employees at any time
without such consent.
(d) Upon termination of employment for any reason, Employee shall not take
and shall return any and all drawings, blueprints, notes, computer software
or diskettes, memoranda, specifications, devices, documents, or any other
tangible embodiments of any Confidential Information.
10. Specific Performance. The Employee agrees that damages at law will be an
insufficient remedy to the Employer in the event that the Employee violates
the terms of Sections 8 or 9 of this Agreement, and that the Employer shall
be entitled, upon application to a court of competent jurisdiction, to obtain
injunctive relief to enforce the provisions of such Section, which injunctive
relief shall be in addition to any other rights or remedies available to the
Employer.
11. Compliance with other Agreements. The Employee represents and warrants
that the execution of this Agreement and performance of the Employee's
obligations hereunder will not conflict with, result in the breach of any
provision of or the termination of or constitute a default under any
agreement to which the Employee is a party or by which the Employee is or
may be bound.
12. Waiver of Breach. The waiver by the Employer of a breach of any of the
provisions of this Agreement by the Employee shall not be construed as a
waiver by the Employer of any subsequent breach by the Employee.
13. Binding Effect; Assignment. The rights and obligations of the Employer
under this Agreement, including the covenants and agreements of Employee as
set forth in Sections 8 and 9 shall inure to the benefit of and shall be
binding upon the successors and assigns of the Employer. This Agreement is a
personal employment contract and the rights, obligations and interests of the
Employee hereunder may not be sold, assigned, transferred, pledged or
hypothecated.
14. Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by
an agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
15. Arbitration. If any dispute or controversy shall arise between the
parties hereto with respect to the making, construction, terms or
interpretations of this Agreement, or the rights of any party hereto, the
dispute or controversy shall be settled by binding arbitration conducted by
one (1) arbitrator, who is selected from the panel of arbitrators of the
American Arbitration Association, in accordance with the commercial
arbitration rules of the American Arbitration Association. Any reasonable
costs associated with such arbitration proceedings shall be borne equally by
the parties. Where damages are at issue, the arbitrators are not empowered
to award damages in excess of actual damages, nor are they empowered to award
punitive damages or attorney's fees. Arbitrators are empowered only to
decide upon all disputes, including monetary issues, by selecting either of
the last best offers of either party. Each party shall bear the costs of its
own attorney's fees and other related legal services expenses.
16. Governing Law and Venue. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA.
17. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by certified or
registered mail, first class, return receipt requested, to the parties at the
following addresses:
To the Employer: International Media Holdings, Inc.
9799 Old St. Augustine Road
Jacksonville, Florida 32257
Attn: Daniel S. Pena, Sr.
To the Employee: Jose A. Alvarez
503 Barnes Drive
Brandon, Florida 33511
18. Strict Construction. The language used in this Agreement shall be deemed
to be in the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied for or against any party
by reason of such party being deemed the draftsman hereof.
19. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
INTERNATIONAL MEDIA HOLDINGS,
INC.
By: /s/ Daniel S. Pena, Sr.
Print Name: Daniel S. Pena, Sr.
Its: Chairman
"Employer"
/s/ Jose A. Alvarez
Jose A. Alvarez
"Employee"
APPENDIX D
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 9th day of March, 1999
("Effective Date"), by and between INTERNATIONAL MEDIA HOLDINGS, INC.,
formerly known as SUCCESS DEVELOPMENT INTERNATIONAL, INC., a Florida
corporation (the "Employer"), and DAVID A. REECHER (the "Employee").
WITNESSETH:
WHEREAS, Employer is a corporation formed pursuant to the laws of the
State of Florida and is presently in existence and in good standing; and
WHEREAS, the Employer desires to employ the Employee for a specific
term, and the Employee desires to be employed by the Employer in accordance
with and subject to the terms and conditions hereafter set forth; and
WHEREAS, the parties hereto believe it to be in their best interests to
create a definite and certain Employment Agreement under the terms and
conditions set forth herein.
NOW, THEREFORE, for and in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Employment. Employer shall employ the Employee for the term provided in
Section 3 (the "Term") to serve as the Employer's President and Chief
Executive Officer, and in connection therewith, to devote Employee's full-
time to perform the duties described below, except for vacations, holidays and
reasonable absences due to illness.
2. Duties of Employee. The duties of the Employee shall be to serve as
President and Chief Executive Officer of the Employer and to perform those
duties assigned to the Employee by the Board of Directors of the Employer and
shall include, but are not limited to, the normal and customary duties of
President and Chief Executive Officer.
3. Term. The term of Employee's employment under this Agreement shall
commence on the Effective Date and shall continue for a one (1) year period
unless earlier terminated as hereinafter provided. The Term shall thereafter
be automatically renewed for successive one (1) year terms at the end of the
initial term unless terminated as hereinafter provided.
4. Compensation. During the Term of Employee's employment pursuant to this
Agreement, the Employer agrees to pay Employee, and Employee agrees to accept
from Employer in full payment of services rendered by Employee and work to be
performed by Employee under the terms of this Agreement, compensation as
follows:
(b) Base Salary. As compensation for all services to be rendered pursuant to
this Agreement, Employer shall pay the Employee during the Term a base salary
of Twelve Thousand Five Hundred and No/100 Dollars ($12,500.00) per month
(the "Base Salary"), less such payroll deductions, taxes and other charges as
shall be required to be withheld by applicable law. The Base Salary shall be
payable biweekly, in arrears. Employee's Base Salary shall be reviewed on an
annual basis and is subject to adjustment by Employer's Compensation
Committee with the first of such reviews beginning on March 9, 2000.
(b) Expenses. The Employer shall pay or reimburse the Employee for all
reasonable expenses actually incurred or paid by the Employee during the Term
in the normal course of performing Employee's duties hereunder. Employee
will submit an expense report with expense statements or vouchers or such
other supporting information as the Employer may reasonably require. The
Employer will reimburse Employee for such reasonable expenses within thirty
(30) days of receipt of such expense report.
(c) Participation in Employee Benefit Plans. The Employee shall be permitted
during the Term, to the extent eligible, to participate in any group life,
hospitalization, or disability insurance plan, health program, pension plan,
profit sharing plan or other employee benefit plans of the Employer that may
be available to other full-time employees or officers of the Employer serving
in a capacity similar to that of the Employee.
(d) Stock Options. The Employee shall be permitted during the Term to
participate in any stock option or other long term incentive plans
established by the Employer that may be available to other full-time
employees or officers of the Employer serving in a capacity similar to that
of the Employee.
(e) Bonus. In addition to the Base Salary provided for in paragraph (a) of
this Section 4, the Employer shall pay to Employee a quarterly bonus (the
"Quarterly Bonus") based on Employer's "net income" as determined by
generally accepted accounting principles and adjusted upon year-end audit by
Employer's CPA. Any Quarterly Bonus shall be due and payable within forty-
five (45) days of the end of each fiscal quarter. For purposes of
determining "net income" under this Section 4(e), "net income" shall mean net
income after taxes, but before the Quarterly Bonuses of CEO and CFO. The
Quarterly Bonus shall be awarded to Employee as follows:
(i) In any full fiscal quarter of Employer, if the "net income" exceeds ten
percent (10%) of the gross revenue of Employer (but does not exceed fifteen
percent (15%)), then the Employee shall receive Fifteen Thousand and No/100
Dollars ($15,000.00).
(ii) In any full fiscal quarter of Employer, if the "net income" exceeds
fifteen percent (15%) of the gross revenue of Employer, then the Employee
shall receive Twenty-five Thousand and No/100 Dollars ($25,000.00).
5. Vacation. During the term of this Agreement, Employee shall be entitled
to four (4) weeks of vacation per calendar year; provided, however, Employee
shall not take more than one (1) consecutive week of vacation without the
express written consent of the Chairman.
6. Deductions from Compensation. Deductions shall be made from Employee's
compensation and taxable benefits for Social Security, withholding taxes,
any other such taxes as may from time to time be required by any governmental
authority.
7. Termination of this Agreement.
(a) If the Employee dies during the Term, this Agreement shall terminate,
except as provided herein, and the Employee's legal representatives shall be
entitled to any accrued but unpaid salary and prorated bonuses due through
the date of Employee's death. Employer shall also be obligated to pay to
Employee's legal representative the sum of the then current Base Salary at
the date of Employee's death per month for the remainder of the full Term, as
renewed, plus any bonus plan or stock options in effect and owed to Employee
at Employee's date of death. Upon payment in full, Employer shall be fully
and completely discharged of any and all liabilities or obligations to
Employee and Employee's legal representatives hereunder and Employee's estate
shall not be entitled to further benefits under this Agreement.
(b) The Employee may terminate this Agreement upon sixty (60) days prior
written notice to the Employer. If the Employee gives notice pursuant to
this paragraph (b), the Employer shall have the right to relieve the
Employee, in whole or in part, of the Employee's duties under this Agreement
or to accelerate the date of termination, with accrued but unpaid salary and
prorated bonus payable to the Employee only through the last date of service
to Employer. Such payments shall be in full and complete discharge of any and
all liabilities or obligations of the Employer to the Employee hereunder, and
the Employee shall be entitled to no further benefits under this Agreement.
(c) The Employer may terminate the employment of the Employee hereunder
without notice for good cause (as defined below). The term "good cause" as
used in this Agreement shall mean conduct disloyal to the Employer,
conviction of any crime of moral turpitude, any theft, willful or improper
taking, embezzlement or conversion of the Employer's funds or other assets or
fraudulent activity with respect to the Employee or substance dependence, as
determined by the Board of Directors of the Employer. If the employment of
the Employee is terminated pursuant to this paragraph (c), then the Employer
shall pay to the Employee any compensation earned but not paid to the Employee
through the last date of service to Employer. Such payment shall be in full
and complete discharge of any and all liabilities or obligations of the
Employer to the Employee hereunder, and the Employee shall be entitled
to no further benefits under this Agreement.
8. Competitive Business.
(a) For purposes of this Section 8, the term "Restricted Area" shall be
deemed to include the United States or any other country in which the
Employer conducts its business.
(b) Employee agrees and covenants that Employee shall not undertake any new
business within the Restricted Area without first giving written notice to
the Employer of such new Business and the opportunity to undertake such
business in lieu of the Employee and only if such new business does not
materially interfere with Employee's duties hereunder. The notice shall be
in writing and addressed to the Chairman.
(i) If the Employer shall elect to undertake such new business after Employee
notifies Employer that Employee will undertake any new business within the
Restricted Area, Employer shall send written notification to Employee of such
election within thirty (30) days after its receipt of the notice of said new
business opportunity. Thereafter, Employee shall not enter into such
business.
(ii) If the Employer notifies the Employee that it shall not enter into the
new business, or if the Employer shall fail to affirmatively notify the
Employee of its election within thirty (30) days of its receipt of notice,
then Employee which then conducts a business at the location of the proposed
new business shall be entitled to pursue said new business if Employee so
notifies Employer within twenty (20) days after the receipt of the first
notice by the Employer or failure of affirmative notice by the Employer.
The pursuit of a new business by Employee may not materially interfere with
Employee's duties under this Agreement. If the Employer elects not to pursue
the new business, then Employee may pursue said new business.
(c) Employee shall not, so long as Employee is employed and for a period of
two (2) years after Employee ceases to be employed by Employer pursuant to
Section 7(b) and 7(c) of this Agreement, without the Employer's prior and
specific written consent, engage in any of the following activities:
(i) Directly or indirectly, through Employee's agents, employees or
otherwise, or as a principal, partner, shareholder, agent, director, officer,
employee, consultant, or in any other capacity whatsoever, engage,
participate, invest or become interested in, affiliated or connected with,
render service to, or furnish any aid, assistance or advice to any person,
corporation, firm or other organization engaged in a business or enterprise
similar to or in competition with the business of the Employer or any of its
Affiliates, within the Restricted Area; or
(ii) Interfere, directly or indirectly, with the conduct of the business of
the Employer or any of its Affiliates within the Restricted Area; or
(iii) Within the Restricted Area, solicit (directly or indirectly, for
Employee's own account, or for the account of others) orders for services of
a kind or nature like or similar to services performed by the Employer, or
any Affiliate thereof, from any party that was a customer of the Employer, or
any Affiliate thereof, or which the Employer, or any Affiliate, was soliciting
to be its customer during the twenty-four (24) month period preceding the
date of Employee's termination of employment. Employee further agrees that
Employee shall not, directly or indirectly, urge any customer or potential
customer of the Employer, or any Affiliate thereof, to discontinue, in whole
or in part, business, or not to do business with the Employer, or any
Affiliate thereof; or
(iv) Directly or indirectly, through such Employee's agents, employees or
otherwise, or as a principal, partner, shareholder, agent, director, officer,
employee, consultant, or in any other capacity whatsoever, solicit, direct,
or otherwise compete for the services of any of the employees or personnel of
the Employer or any of its Affiliates. In addition, the Employee shall not
influence or attempt to influence any of the employees or personnel of the
Employer or any of its Affiliates from providing services for, or doing
business with, the Employer or any of its Affiliates.
(d) Employee acknowledges that a breach of the terms of this Section 8 may
not be fully or adequately compensable by the award or payment of monetary
damages, and Employee therefore agrees and consents to be subject to any
decree of specific performance, injunction, or any other applicable
equitable, legal or other decree, order, writ or remedy which would require
such Employee's performance in accordance with the terms of this Section 8.
The Employee expressly acknowledges and agrees (i) that the restrictions set
forth herein are reasonable in terms of scope, duration, geographic area, and
otherwise, (ii) that the protections afforded to the Employer and its
Affiliates hereunder are necessary to protect their legitimate business
interests, and (iii) that the agreement to observe such restrictions form a
material part of the consideration for this Agreement.
(e) For purposes of this Section 8, an "Affiliate" of the Employer shall mean
and include any present or future parent, subsidiary, or brother or sister
entity of Employer in which the parent of Employer owns a fifty percent (50%)
or more interest, and any other corporation, partnership or other entity in
which the Employer owns interests aggregating fifty percent (50%) or more of
the ownership interests of such entity.
(f) Employee shall not disclose to any person any information or knowledge
relating to (i) the business, operations or internal structure of the
Employer or any of its Affiliates, (ii) the clients (or customers) or
potential clients (or potential customers) of the Employer or any of its
Affiliates, (iii) any method and/or procedure (such as records, programs,
systems, correspondence, or other documents) relating or pertaining to
projects or products developed by the Employer or any of its Affiliates or
contemplated to be developed by the Employer or any of its Affiliates, or
(iv) the Employer's or any of its Affiliates' business, which information or
knowledge the Employee shall have obtained, and which is otherwise of a
secret or confidential nature. Further, upon ceasing to be an Employee for
any reason whatsoever, the Employee shall not take, without prior written
consent of the Board of Directors of the Employer, and shall return, any
documents, forms, or other reproductions of any data or any information
relating to or pertaining to the Employer or any of its Affiliates, any of the
clients (or customers) or potential clients (or potential customers) of the
Employer or any of its Affiliates or any other confidential information or
trade secrets of Employer or any of its Affiliates.
(g) Any improvements, inventions, new techniques, processes, programs or
products made or developed by Employee relating to the business of the
Employer, shall be deemed to have been made or developed during the course of
employment and by Employee solely for the benefit of the Employer and shall
be the sole and exclusive property of the Employer. In order to further
effectuate the terms of this Agreement, Employee agrees to assign to the
Employer any and all of Employee's rights to patents, copyrights and all
other proprietary interests which Employee might have in any process,
program, technique, product, research item, invention or other improvement
which Employee develops. Employee shall not use or disclose to any other
person or entity any such process, program, technique, product, research
item, invention or other improvement except as expressly authorized in
writing by the Employer.
9. Confidential Information.
(a) The parties recognize that in Employee's employment Employee has had
and/or will have access to various confidential and/or proprietary business
information which relates to Employer's or any of its Affiliates' business
and which has commercial or other value referred to in this Agreement as
"Confidential Information." For purposes of this Agreement, Confidential
Information includes by way of illustration, but without limitation (except
as expressly set forth below), any and all information relating to products
manufactured by Employer, products and processes designed by Employee during
the term of this Agreement, processes therefore, apparatus and maintenance
thereof, research, research programs, computer software and diskettes,
manufacturing techniques, processes, program files, developments for
experimental work, flow charts, drawings, techniques, source and object
codes, standards, specifications, improvements, inventions, customer
information, customer lists, accounting data, statistical data, research
projects, development and marketing plans, strategies, forecasts, sales plans
and sales and marketing information, and the like, that are now in the
possession of or may be acquired by or on behalf of Employer or any of its
Affiliates, whether or not tangibly embodied in a document, model, specimen,
computer storage device, or other physical object, including similar
information with respect to any subsidiary, parent, affiliate or related
companies of Employer.
(b) Employee understands that Employee's position as an employee creates a
relationship of confidence and trust between him and Employer with respect to
any Confidential Information which pertains to Employer's business or to the
business of any actual or potential client or customer of Employer, and which
may be learned or developed by Employee or made known to Employee by Employer
or any of its clients or customers during Employee's employment.
(c) During the term of this Agreement and at all times after the termination
of Employee's employment with Employer for whatever reason, Employee shall
not divulge or convey to any person or other entity any Confidential
information and shall keep, at all times, all Confidential Information in
confidence and trust for the benefit of Employer. Employee shall not use any
Confidential Information except for the benefit of Employer without the
express prior written consent of the Employer except in the ordinary course
of his employment, nor shall Employee disclose any Confidential Information
to any person or entity other than Employer and its authorized employees at
any time without such consent.
(d) Upon termination of employment for any reason, Employee shall not take
and shall return any and all drawings, blueprints, notes, computer software
or diskettes, memoranda, specifications, devices, documents, or any other
tangible embodiments of any Confidential Information.
10. Specific Performance. The Employee agrees that damages at law will be an
insufficient remedy to the Employer in the event that the Employee violates
the terms of Sections 8 or 9 of this Agreement, and that the Employer shall
be entitled, upon application to a court of competent jurisdiction, to obtain
injunctive relief to enforce the provisions of such Section, which injunctive
relief shall be in addition to any other rights or remedies available to the
Employer.
11. Compliance with other Agreements. The Employee represents and warrants
that the execution of this Agreement and performance of the Employee's
obligations hereunder will not conflict with, result in the breach of any
provision of or the termination of or constitute a default under any
agreement to which the Employee is a party or by which the Employee is or may
be bound.
12. Waiver of Breach. The waiver by the Employer of a breach of any of the
provisions of this Agreement by the Employee shall not be construed as a
waiver by the Employer of any subsequent breach by the Employee.
13. Binding Effect; Assignment. The rights and obligations of the Employer
under this Agreement, including the covenants and agreements of Employee as
set forth in Sections 8 and 9 shall inure to the benefit of and shall be
binding upon the successors and assigns of the Employer. This Agreement is a
personal employment contract and the rights, obligations and interests of the
Employee hereunder may not be sold, assigned, transferred, pledged or
hypothecated.
14. Entire Agreement. This Agreement contains the entire agreement and
supersedes all prior agreements and understandings, oral or written, with
respect to the subject matter hereof. This Agreement may be changed only by
an agreement in writing signed by the party against whom any waiver, change,
amendment, modification or discharge is sought.
15. Arbitration. If any dispute or controversy shall arise between the
parties hereto with respect to the making, construction, terms or
interpretations of this Agreement, or the rights of any party hereto, the
dispute or controversy shall be settled by binding arbitration conducted by
one (1) arbitrator, who is selected from the panel of arbitrators of the
American Arbitration Association, in accordance with the commercial
arbitration rules of the American Arbitration Association. Any reasonable
costs associated with such arbitration proceedings shall be borne equally by
the parties. Where damages are at issue, the arbitrators are not empowered
to award damages in excess of actual damages, nor are they empowered to award
punitive damages or attorney's fees. Arbitrators are empowered only to
decide upon all disputes, including monetary issues, by selecting either of
the last best offers of either party. Each party shall bear the costs of its
own attorney's fees and other related legal services expenses.
16. Loans Made to Employer by Employee. The parties hereto acknowledge and
agree that Employee advanced monies in the form of subordinated loans to
Great Wisdom Publishing, Inc., a wholly-owned subsidiary of Employer and are
evidenced by three (3) promissory notes in the principal amounts of Fifty-
eight Thousand and No/100 Dollars ($58,000.00), One Hundred Two Thousand and
No/100 Dollars ($102,000.00) and One Hundred Seventeen Thousand Ninety-one
and No/100 Dollars ($117,091.00), respectively (collectively, the "Promissory
Notes"). The parties further agree that such Promissory Notes are due and
payable on January 20, 2003. The parties further agree that if Employer
elects to terminate the Employee for any reason, Employer shall accelerate
the repayment of the Promissory Notes on the following terms and conditions:
(a) Employer shall pay twenty-five percent (25%) of the principal amounts due
and payable on the Promissory Notes within one hundred eighty (180) days of
Employee's termination;
(b) Employer shall pay an additional twenty-five percent (25%) of the
principal amounts due and payable on the Promissory Notes within three
hundred sixty (360) days of Employee's termination;
(c) Employer shall pay an additional twenty-five percent (25%) of the
principal amounts due and payable on the Promissory Notes within five hundred
forty (540) days of Employee's termination; and
(d) Employer shall pay all of the remaining principal and accrued and unpaid
interest due and payable on the Promissory Notes within seven hundred twenty
(720) days of Employee's termination.
Notwithstanding the foregoing, in no event shall the repayment of the
Promissory Notes extend beyond January 20, 2003 and all interest payments
due under the Promissory Notes will continue to be paid in accordance with
the terms of the Promissory Notes.
17. Governing Law and Venue. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA.
18. Notice. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by certified or
registered mail, first class, return receipt requested, to the parties at the
following addresses:
To the Employer: International Media Holdings, Inc.
9799 Old St. Augustine Road
Jacksonville, Florida 32257
Attn: Daniel S. Pena, Sr.
To the Employee: David A. Reecher
26 Chautaugua Road
Arnold, Maryland 21012
19. Strict Construction. The language used in this Agreement shall be deemed
to be in the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied for or against any party
by reason of such party being deemed the draftsman hereof.
20. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
INTERNATIONAL MEDIA HOLDINGS, INC.
By: /s/ Daniel S. Pena, Sr.
Print Name: Daniel S. Pena, Sr.
Its: Chairman
"Employer"
/s/ David A. Reecher
David A. Reecher
"Employee"
