U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
INTERNET INFINITY, INC.
(Name of Small Business Issuer in its charter)
Delaware 95-4679342
- -------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3303Harbor Boulevard, K-5, Costa Mesa, CA 92626
--------------------------------------------------
(Address of principal executive offices)
310-318-2244
-------------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
----------------------------------------
(Title of Class)
<PAGE>
TABLE OF CONTENTS
Page
Preliminary Statement ................................................... 1
Description of Business.................................................. 1
Business Development ............................................ 1
Business of the Company ......................................... 2
Products ................................................. 2
Supplies and Sub-Contractors ............................. 3
Distribution Methods ..................................... 4
Competition .............................................. 4
Advertising and Promotion ................................ 5
Dependence on Major Customers ............................ 5
Patents, Trademarks and Licenses ......................... 5
Government Approval and Regulations ...................... 5
Year 2000 Computer Problems .............................. 5
Research and Development ................................. 5
Cost of Compliance with Environmental Laws ............... 5
Seasonality .............................................. 6
Employees ................................................ 6
New Products ............................................. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 6
Results of Operations ........................................... 6
Sales .................................................... 7
Gross Margin ............................................. 7
Selling, General and Administrative Expenses ............. 7
Asset Impairment Charge .................................. 7
Net Loss ................................................. 8
Balance Sheet Items ...................................... 8
Liquidity and Outlook .................................... 9
Costs of Filing Periodic Reports ......................... 9
Properties .............................................................. 9
Security Ownership of Certain Beneficial Owners and
Management ...................................................... 10
Changes in Control ....................................... 10
Directors, Executive Officers and Control Persons ....................... 11
Executive Compensation .................................................. 12
Certain Relationships and Related Transactions .......................... 14
Description of Securities ............................................... 16
Common Stock .................................................... 17
Voting Rights ............................................ 17
Dividend Rights .......................................... 17
Liquidation Rights ....................................... 17
Preemptive Rights ........................................ 17
Registrar and Transfer Agents ............................ 17
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Dissenters' Rights ....................................... 17
Market for Common Stock and Related Stockholder Matters ................. 17
Holders ......................................................... 18
Dividends ....................................................... 18
Legal Proceedings ....................................................... 18
Recent Sales of Unregistered Securities ................................. 18
Indemnification of Directors and Officers ............................... 19
Financial Statements .................................................... 21
iii
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PRELIMINARY STATEMENT
Internet Infinity, Inc. (the "Company") is filing this registration
statement on a voluntary basis under Section 12g) of the Securities Exchange Act
of 1934. Our common stock trades in the over-the-counter market and is quoted by
NASD market makers on the OTC Bulletin Board. A recent rule change requires that
all Bulletin Board companies must file periodic financial reports with
governmental authorities such as the Securities and Exchange Commission. The
effectiveness of this registration statement subjects the company to the
periodic reporting requirements imposed by Section 13(a) of the Securities
Exchange Act.
We will electronically file with the Commission the following periodic
reports:
o Annual reports on Form 10-KSB;
o Quarterly reports on Form 10-QSB;
o Periodic reports on Form 8-K of matters of material interest to
shareholders;
o Annual proxy statements to be sent to our shareholders in the
notices of our annual shareholders' meetings.
In addition to the above reports to be filed with the Commission, we will
prepare and send to our shareholders an annual report that will include audited
financial statements.
The public may read and copy any materials we file with the Commission at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Also, the Commission
maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that
electronically file reports with the Commission.
DESCRIPTION OF BUSINESS
Business Development
Internet Infinity, Inc. (the "Company") was incorporated on October 27,
1995 in the State of Delaware. We raised $375,000 in a non-registered public
offering of our common stock during the period August 1996 through July 1997. We
conduct our business from our sales headquarters office in Costa Mesa,
California. We first had revenues from operations in 1996.
Our initial focus was on selling Internet software. However, by late 1996
we began experiencing significant product returns from our software sales. By
early 1997 our software sales were slipping toward zero as major companies such
as America Online and Netscape began to give away competing Internet software.
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We first turned our attention and efforts to selling electronic media
duplication and packaging services offered by an unaffiliated company, Video
Magnetics. Then Video Magnetics announced that it was selling its business.
George Morris, our chief executive officer, a director and with his wife, Dawn
Morris, the controlling shareholders of our company, personally bought Video
Magnetics' business - subsequently operated as L&M Media, Inc. and Apple Media
Corporation - in early 1997 to save the sales revenue for Internet Infinity.
We also added to our business at that time the distribution of blank video
tapes and CDRs and the distribution of pre-recorded video programs on numerous
subjects. The programs were owned by L&M Media, Inc., an affiliated company
under 98 percent ownership of George and Dawn Morris.
In July 1997 we started to accumulate the distribution rights to
twenty-five Health and Medicine video programs. We completed this accumulation
in February 1998. Then, in early 1999 we purchased the distribution rights to
five video modules on Personal and Sales Skill Development. We propose to
commence the vigorous marketing of the Health and Medicine programs and the
Personal and Sales Skill Development modules in the first half of calendar year
2000. Finally, we are building an "Internet Infinity to Business" web site that
we will launch by the end of calendar year 1999 to sell our Personal and Sales
Skill Development product.
Business of the Company
The company
o distributes electronic media duplication services and electronic
blank media;
o distributes prerecorded special interest video programs; and
o distributes Internet web site design services and CD authoring
services.
Products
--------
We have four principal products and services:
o electronic media duplication and packaging services of two types -
o compact disks, and
o video tape;
o blank media of two types -
o video tape, and
o CDR;
o pre-recorded special interest video programs of six types -
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o computer training,
o health and medical,
o sports and exercise training,
o children's crafts,
o home and auto repair, and
o personal knowledge and skill development; and
o Internet site design and marketing support in two areas -
o non-affiliated clients of the company, and
o subsidiaries of the company.
Suppliers and Sub-Contractors
-----------------------------
Our duplication services and blank media product orders are manufactured
and fulfilled by an affiliated company, Apple Media Corporation, at a cost of
80% of the total invoice amount billed by us to a customer including shipping.
Apple Media is solely responsible for equipment leases, raw materials and
components, manufacturing, sub-contractors, packaging and shipping labor,
management and physical plant overhead. We, through our Electronic Media Central
Corporation subsidiary, are responsible only for sales force compensation,
direct sales and accounting clerical support and executive management out of our
20% of the invoice amount. In addition, Apple Media Corporation also provides,
at no charge to us, office facilities, telephone, and utilities to our sales and
management staff.
Our prerecorded video programs are manufactured, duplicated and shipped by
Apple Media Corporation at a cost of 20% of the total invoice amount billed by
us to a customer for all costs including shipping. There is a significantly
lower percentage cost of goods and higher percentage gross profit margin for the
pre-recorded programs versus blank media or duplications services. This
difference allows our Morris & Associates subsidiary to retain the remaining 80%
of the sales revenue. Morris & Associates is only responsible for sales force
compensation, direct sales and accounting clerical support, and executive
management out of its 80%. Morris & Associates also pays a licensing royalty fee
of between 10% to 20% of the gross sales dollars to L&M Media, Inc., an
affiliate of the company that is controlled by George and Dawn Morris and that
owns the programs. However, the 80% gross margin after cost of goods less
royalties of 10% to 20% generates a net profit of 60% to 70% on sales of the
programs licensed from L&M.
The company has a non-exclusive distribution license from L&M for
approximately 200 special interest video programs and an exclusive distribution
license from L&M Media for 25 programs on Health and Medicine and five modules
of Personal and Sales Skill Development programs. Royalties owed to L&M from the
sales of any L&M programs are applied to the prepaid
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royalties associated with both the Health and Medical and the Personal and Sales
Skills Development programs obtained from L&M and Hollywood Riviera Studios.
Our Internet design and marketing services delivered to nonaffiliated
customers has declined since first introduced in 1996 due to low cost and free
services offered by Internet service providers. We are now focusing our Internet
site design and marketing services on our own Internet activities. The blank
video Internet site is generating prospects and orders and the "Internet
Infinity to Business" site will launch in the fourth calendar quarter of 1999.
The new Internet Infinity business site will also provide new opportunities to
sell non-affiliate design and marketing services.
Distribution Methods
--------------------
We distribute our products through in-house employee sales persons working
the telephone, fax, mail and the Internet. Shipments are made throughout the
United States with a majority in California.
Our sales representative employees are paid on a salary plus incentive
bonus based on the gross profit generated each month. The sales representatives
are responsible for managing their account orders and customer service.
Competition
-----------
The electronic blank media and duplication industry is highly competitive.
------------------------------------------------
Large competitors such as Technicolor Corporation dominate the large volume
market from the movie studios and advertising premium business. Numerous small
regional competitors such as our company serve the smaller regional business and
nonprofit organization markets. We have over 200 customers that have purchased
more than once and that constitute our core customer base.
We compete effectively on both price and special customer services for
delivery with fast turnaround of orders. There are very competitive suppliers
near the Pacific Coast ports of entry for video materials from China and Korea,
and closely managed cost controls by the company allows us to compete
effectively on price.
The pre-recorded video business has many suppliers and a few major retail
----------------------------
chains for the sale of special interest programs. We have experienced gradually
declining sales over the past three years of our fully priced line for
consumers. We are considering new opportunities to sell these programs as a low
priced budget line for impulse purchases in retail stores. We have existing
trade relationships with a few major accounts like Musicland and Baker & Taylor
that have supported sales for these programs in the past.
Internet site development is an area that has become extremely competitive
-------------------------
over the past two years. Many services originally offered by us are now free or
are offered at very low cost from competitive Internet service providers.
However, we will begin to promote these services to our existing customer base
and to non-affiliated associates of our new "Internet Infinity to Business" web
site.
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Advertising and Promotion
-------------------------
Our advertising and promotion is primarily electronic-media focused. We
engage in telephone and fax campaigns to prospect for new customers in the
electronic duplication and blank media business. In addition, we are attempting
to recruit straight-commission, independent- contractor sales representatives.
Dependence on Major Customers
-----------------------------
We are not dependent on any single major customer.
Patents, Trademarks and Licenses
--------------------------------
We plan to apply for an Internet Infinity trademark. We are advised by
counsel that we have common law trademark protection in areas where we use our
trademark.
Government Approval and Regulations
-----------------------------------
We need no governmental approval for the design and marketing of our
electronic media. We are not aware of any proposed governmental regulations that
would affect our operations.
Year 2000 Computer Problems
---------------------------
We have determined that we do not face material costs, problems or
uncertainties about the Year 2000 computer problems. We have purchased new sales
and accounting software and hardware that are Year 2000 compliant. We anticipate
any problems with integrated circuits will be minimal in effect on the remaining
office equipment. Our supplies, such as compact disks and video tapes, are
manufactured by numerous companies and should be readily available even should
some manufacturers experience Year 2000 problems.
Research and Development
------------------------
We are budgeting approximately $50,000 in Fiscal Year 2000 for the
development of an "Internet Infinity to Business" site in addition to using our
internal non-cash company resources for this development. Our chief executive
officer, George Morris, as a loan will provide cash to the company to retain
independent software and back-office information technology sub-contractors for
this development.
Cost of Compliance with Environmental Laws
------------------------------------------
There are no environmental laws that impact any of our operations of
marketing and distributing electronic duplication and blank media, pre-recorded
video programs or Internet services.
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Seasonality
-----------
Our sales are almost evenly distributed at this time across the year. There
are slight variations with the fall and winter exceeding the spring and summers
seasons for a variety of factors including vacation, school and holiday cycles.
Employees
---------
We employ five full-time persons and no part-time persons.
New Products & Services
-----------------------
We are in the process of designing a new "Internet Infinity to Business"
eCommerce site for the sale of a range of business products to help small
businesses succeed. Products will ultimately include books, software, tapes and
electronics. We have signed an agreement with a national book distributor that
will provide us with up to 38,000 business book titles. We have also signed a
computer product distribution agreement. We plan to start offering the new
products before the end of 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations
The following table presents, as a percentage of sales, certain selected
financial data for the two fiscal years ended March 31, 1998 and March 31, 1999
and for the three-month periods ended June 330, 1998 and June 30, 1999:
<TABLE>
<CAPTION>
Year Ended 3-31 3-months Ended 6-30
1998 1999 1998 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 77.9 74.1 60.1 74.2
----- ------ ------ ------
Gross margin 22.1 25.9 39.9 25.8
Selling, general and
administrative
expenses 30.4 18.5 20.8 12.4
Asset impairment
charge -- 23.5 -- --
Other expenses:
Amortization and
interest 1.7 1.7
------ ------ ----- -----
Net income (loss) before
income taxes (8.3) (16.1) 17.4 11.7
</TABLE>
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Sales
-----
Sales increased from $828,023 in the fiscal year ended March 31, 1998 to
$1,312,452 in the fiscal year ended March 31, 1999, and increase of 58.5
percent. The increase in sales was attributable to an increased effort by the
sales persons and an increase in the number of repeat customers.
Interim results.
---------------
Sales increased 4.1% from $267,123 in the three-month period ended
June 30, 1998 (Q1 1999) to $278,193 in the three-month period ended June 31,
1999 (Q1 2000). The increase was due to the development of new accounts by our
sales force.
Gross Margin
------------
Gross margin improved from $183,382, or 22.1 percent of sales, in fiscal
year 1998 to $339,547, or 25.9 percent, in fiscal year 1999, an improvement of
85.2 percent. This improvement is attributed to the better margin we received on
our media duplication services.
Interim results.
---------------
Gross margin decreased from $106,562, or 39.9 percent of sales, in Q1
1999 to $71,741, or 25.8 percent of sales, in Q1 2000. This decrease in gross
margin is attributable to a decrease in the sales of the higher margin
pre-recorded video and an increase in the sales of lower margin duplication
services.
Selling, General and Administrative Expense
-------------------------------------------
Selling, general and administrative expenses decreased from $251,954, or
30.4 percent of sales in fiscal year 1998, to $242,866, or 18.5 percent of sales
in fiscal year 1999, an improvement of 11.9 percent. This decrease in selling,
general and administrative expenses as a percent of sales is attributable to
higher sales volume for 1999 over 1998 and relatively little increase in selling
general and administrative expenses.
Interim results.
---------------
Selling, general and administrative expenses decreased from $55,618,
or 20.8 percent of sales, in Q1 1999 to $34,469, or 12.4 percent of sales, in Q1
2000. This decrease in selling, general and administrative expenses as a percent
of sales is attributable to higher sales volume for Q1 2000 over Q1 1999 and a
relatively smaller increase in selling general and administrative expenses.
Asset impairment charge
-----------------------
We were required to write down $525,000 of prepaid royalties paid with
common stock to L&M Media, Inc. and Hollywood Riviera Studios for the
distribution rights to both the health and medical programs and the personal
development and sales training programs. L&M Media and Hollywood Riviera Studios
are controlled by George Morris, chief executive officer of the company. The
three-year exclusive distribution rights granted to the company require that
royalties earned by the owners of the programs be charged against the prepaid
royalties before any cash payment is made by the company. In addition, the
company has a non-exclusive distribution license from L&M Media for
approximately 200 special-interest video programs for which it has not paid any
prepaid royalties. Royalties owed to L&M from the sales of any L&M programs,
7
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including the 200 special-interest programs, are pooled and applied to the
prepaid royalties associated with the health and medical and the personal
development and sales training programs.
The benefits to the company in dealing with L&M programs can be measured by
the amount of cash flow generated over the past two fiscal years: selling
pre-recorded video has been both profitable and generated a positive cash flow
business for the company through its Morris & Associates subsidiary. These sales
have a high 80% gross profit margin before the 10% royalties based on the
duplication cost arrangement with L&M Media/Apple Media. For the year ended
March 31, 1998, the cash flow received by the company was $82,539 from sales of
$117,913 less $23,583 cost of goods and $11,791 royalties. For the year ended
March 31, 1999, the cash flow received by the company was $83,876 from sales of
$119,823 less $23,965 cost of goods and $11,982 royalties. The cash flow
generated from these sales has almost no overhead expense to the company.
Interim results.
---------------
For the three-month period ended June 30, 1999 (Q1 2000), the cash
flow received by the company was $7,789 from sales of $11,127 less $2,225 cost
of goods and $1,113 royalties. Management of the company believes that it is the
best interest of the company to have the licensing relationships with L&M Media
and Hollywood Riviera Studios. The cash flow generated by the sales of programs
from affiliates for the last three years has been critical to the survival of
the company.
Net Loss
--------
We had a net loss from operations after a (provision) benefit for income
taxes in fiscal year 1998 of $69,372, or $0.02 per share of our common stock. In
fiscal year 1999 we had a net loss from operations after a (provision) benefit
for income taxes of $175,555, or $0.02 per share of common stock. This greater
loss - despite an increase of 58.5 percent in sales - is attributed to the one
time $307,850 asset impairment charge required to write down the value of the
remaining prepaid royalties paid with company common stock to acquire the rights
to programs for future distribution.
Interim results.
---------------
We had net income from operations after a (provision) benefit for
income taxes of $46,451, or $0.0049 per share of our common stock in the
three-month period ended June 30, 1998 (Q1 1999) and a net income from
operations after a (provision) benefit for income taxes of $25,079, or $0.0028
per share of our common stock in the three-month period ended June 30, 1999 (Q1
2000). The lower net income is attributed to a higher cost of goods for Q1 2000
that was partially offset by lower operating expenses for the Q1 2000 period.
Balance Sheet Items
-------------------
A net loss from operations of $175,555 reduced stockholders' equity to
$165,933 at the end of fiscal year 1999. The decrease was created primarily by
the one-time $307,850 asset impairment charge our auditors required for the
fiscal year ended March 31, 1999. Our cash position improved from $10,610 for
the fiscal year ended March 31, 1998 to $64,458 for the fiscal year ended March
31, 1999. Accounts receivable from non affiliates increased from $78,461 at the
end of fiscal year 1998 to $129,537 at the end of fiscal year 1999 while
inventory decreased from $65,175 to $59,918 at the end of fiscal year 1999.
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Interim balance sheet items.
---------------------------
Our cash position decreased from $64,458 at March 31, 1999 by $37,882
to $26,576 at June 30, 1999 (Q1 2000). Accounts receivable from non-affiliates
increased from $129,537 at the end of fiscal year 1999 to $131,216 for the
three-month period ended June 30, 1999 (Q1 2000).
Liquidity and Outlook
---------------------
We have been able to stay in operation only (1) from the services provided
by Apple Media Corporation, formerly known as L&M Media, Inc., a supplier of
electronic media duplication services and blank electronic media, which is under
the control of George Morris, chief executive officer of our company and (2)
from the cash flow generated for the company from the sale of prerecorded video
licensed from L&M Media, Inc. and Hollywood Riviera Studios, a subsidiary of
Apple Realty, Inc., both controlled by George Morris. With both the lack of
sales and the returns of Internet Infinity software from retail customers in
early 1997, the company was in jeopardy of failing with large accounts payable
balances and little cash or accounts receivable available to pay debts. George
Morris personally advanced funds to the company. He also acquired an electronic
media duplication company with his personal cash and proceeded to turn around
the situation for the benefit of Internet Infinity, Inc. sales and survival.
Since early 1997, sales from electronic blank media and duplication services
have continued to grow and provide the funds to reduce the company debt and to
create a new Internet product and service line. The company has been developing
a small business site called "Internet Infinity to Business" for over one year
and hopes to launch the site before the end of calendar 1999. George Morris has
advanced substantial personal funds to the company to aid in the development of
the site and is providing a personal development and sales training program in
exchange for company stock granted to Hollywood Riviera Studios, a company he
controls. In addition, our company will begin work on a consumer Internet site
based on the distribution rights to the health and medical programs we acquired
from the George Morris-controlled company, L&M Media, Inc.
Costs of Filing Periodic Reports
--------------------------------
The filing of this Form 10-SB registration statement subjects the company
to certain requirements of the Exchange Act of 1934. These requirements include
the filing of an annual report of the company's business, which must include
audited financial statements, quarterly reports, which must include unaudited
interim financial statements; and periodic reports of certain material events of
which investors should be made aware. Legal and accounting expertise are
required to prepare these statements for the company. The services of the
company's securities law attorney and the annual auditor's services must be paid
for in cash. Should cash not be available to pay for these legal and auditor's
services, the company will have to borrow these needed funds from sources not
yet identified.
PROPERTIES
Apple Media ("AMC"), controlled by George Morris, provides the company with
approximately 800 square feet of office space in Costa Mesa, California. George
Morris, chief executive officer of the company, provides approximately 600
square feet in Redondo Beach, California. Both at no cost to the company. The
space provided is part of the company's distributorship arrangement with AMC,
and AMC may terminate the arrangement for free space at any time with a 30-days
notice to the company. There is a large amount of office space available
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for $2.00 per square foot within three miles of the existing office. The company
reserves the right to move at any time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of September 30, 1999, the number of shares
of common stock of the company beneficially owned by each officer and director
of the company individually and as a group, and by each owner of more than five
percent of the common stock.
<TABLE>
<CAPTION>
Percent of
Number Outstanding
Name and Address of Shares Shares
------------------------------ ----------- -----------
<S> <C> <C>
L&M Media, Inc. (1) 4,535,714 45.3
663 the Village
Redondo Beach, CA 90277
Dawn Morris 1,238,000 12.4
663 the Village
Redondo Beach, CA 90277
Hollywood Riviera Studios (1) 1,034,482 10.3
663 the Village
Redondo Beach, CA 90277
George Morris, Chairman/CEO 938,000 9.4
663 the Village
Redondo Beach, CA 90277
Officers and Directors
as a group (2 persons) 7,746,196 77.4
------------------------
</TABLE>
(1) The shares owned of record by L&M Media, Inc. and Hollywood
Riviera Studios are under the control of George Morris.
Changes in Control
There are no arrangements which may result in a change in control of the
company.
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DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The company's directors, officers and significant employees occupying
executive officer positions, their ages as of September 30, 1999, the directors'
terms of office and the period each director has served are set forth in the
following table:
<TABLE>
<CAPTION>
Person Positions and Officers Since Expires
<S> <C> <C> <C>
George Morris, 61 Chairman of the Board of Directors - 1996 2000
Acting President/CEO
Vice President Marketing
Roger Casas, 50 Director 1998 2000
Vice President Operations
Dawn Morris, 44 Member of the Board of Directors 1996 2000
Vice President Internet Sales
Kathy Boag, 46 Vice President Traditional Sales 1999 2000
Shirlene Bradshaw, 60 Member of the Board of Directors 1999 2000
Business Manager
</TABLE>
GEORGE MORRIS.
-------------
Dr. Morris has been the full time Chairman of the Board of Directors,
principal shareholder, Vice President or Acting President/Chief Executive
Officer and Secretary of the company since the company went Public in 1996.
George Morris has also been the Chairman and Vice President of Apple Realty,
Inc. doing business as Hollywood Riviera Studios since 1974 and the Chairman of
the Board of Directors of L&M Media, Inc. since 1990. Dr. Morris is also the
Founder and has been the President, Chairman of the Board of Directors and
principal of Morris Financial, Inc., a NASD member broker-dealer firm, since its
inception in 1987. He has been active in designing, negotiation and acquiring
all equipment, facilities and systems for manufacturing, accounting and
operations of the company and its affiliates. Morris has produced over 20
computer training programs in video and interactive hypertext multimedia CD-ROM
versions, as well as negotiating the company's and its affiliate distribution
and licensing agreements. Dr. Morris earned a Bachelor of Business
Administration and Masters of Business Administration from the University of
Toledo, and a Ph.D. (Doctorate) in Marketing and Finance and Educational
Psychology from the University of Texas. Prior to founding the company and its
Affiliates, Dr. Morris had 20 years of academic experience as a professor of
Management, Marketing, Finance and Real Estate at the University of Southern
California (1969 - 1971) and the California State University (1971 - 1999).
During this period Dr. Morris served a Department Chairman for the Management
and Marketing Departments. Morris has since retired from full time teaching at
the University. Dr. Morris was the West Coast Regional Director of the American
Society for Training and Development, a Director of the South Bay Business
Roundtable and a speaker on a number of topics relating to business, training
and education. Morris has created or been directly involved in the design,
writing and development of numerous Internet web sites for Internet Infinity,
blank video, Greg Norman, Northwestern University, etc. He most recently taught
University courses about Internet Marketing for domestic and foreign markets and
Sales Force Management.
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ROGER CASAS.
-----------
Mr. Casas has been a Member of the Board of Directors since 1998 and the
Vice President of Operations since the company went Public in 1996. Roger has
managed production, personnel, helped coordinate marketing efforts and managed
packaging, printing and shipping on a daily basis. Prior to joining the company,
Mr. Casas was a computer software marketing manager at More Media and a
Financial Consultant for Stonehill Financial in Bel Air, California an Account
Executive for Shearson Lehman Brothers in Rolling Hills, California and Dean
Witter Reynolds in Torrance, California, and the owner and operator of the
Hillside restaurant in Torrance, California. Mr. Casas earned a Bachelor of
Science in Business Administration, from Ashland University in Ashland, Oregon,
along with a Bachelor of Art in Marketing and Psychology. Mr. Casas holds Series
22 and 7 licenses with the National Association of Securities Dealers, Inc. and
is a registered representative with Morris Financial.
KATHY BOAG.
----------
Ms. Boag has been the Sales Manager and/or Vice President of Sales since
joining the company in 1997 where she has developed and managed major accounts.
Ms. Boag manages sales and coordinates the production of her large orders. Prior
to joining the company, she was the President of the International Television
Association of Orange County. She has also been the co-owner of a marketing and
distribution company for Special Interest video. She also handled the marketing,
distribution and promotion for Jack LaLanne exercise programs. Ms Boag has over
20 years experience in the electronic media industry as a Sales Manager and Vice
President for numerous companies. Her clients include major corporations like
Yamaha, Olivetti, Sprint and the major automobile companies.
DAWN MORRIS.
-----------
Ms. Morris has been the President, Vice President, a principal shareholder
and a Director of the company since it went Public in 1996. She has also been
the Vice President of L&M Media, Inc. since 1990, now an affiliate of the
company. Ms. Morris has also been the Manager of Corporate Finance/Mergers and
Acquisitions and a registered representative with Morris Financial, Inc., a NASD
member broker-dealer firm, since 1994. She has been responsible for the
development of educational and computer training video programs, some of which
have been, produced in CD-ROM and other multimedia versions. Ms. Morris has
produced finance and investment, as well as commercial and infomercial programs.
Prior to joining the predecessor company in 1984, Ms. Morris was a Senior
Account Representative in the Office Products Division of Xerox Corporation, and
a Sales Manager at Joseph Magnin Stores. Ms Morris earned a Bachelor of Business
Administration in Marketing from California State University and studied
television production and directing at UCLA and California State University.
Dawn Morris was nominated for Woman Graduate of the Year in the California State
University System.
SHIRLENE BRADSHAW.
-----------------
Ms. Bradshaw has been a Member of the Board of Directors since 1999 and the
company Business Manager since 1997. She has managed accounting including,
receivable and payable processing and helped coordinate the supplier
relationship with the Apple Media Corporation supplier. She was the Business
Manager for More Media, a predecessor company of Morris & Associates, Inc. for
over six years. She had extensive experience in office management and accounting
before joining the company.
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1997,
1998 and 1999 of the chief executive officer of the company.
12
<PAGE>
Salaries
<TABLE>
<CAPTION>
Fiscal Year Annual Compensation
----------- -------------------
<S> <C> <C>
George Morris(1) 1999 37,700
1998 38,400
1997 41,700
Dawn Morris(1) 1999 1,000
</TABLE>
(1) Compensation was reduced from our original compensation plan of $50,000
salary annually for each of George Morris and Dawn Morris to help the
company manage needed cash flow for operations. Options presented below
were granted to offset the reduced salary.
Stock Options
Set forth below are the stock options granted to the officers and directors
of the company.
During the last three fiscal years, the executive officers of the company
have received the following Stock Options:
<TABLE>
<CAPTION>
Fiscal Year No. of Shares
----------- -------------
<S> <C> <C>
George Morris 1999 100,000
1998 75,000
1997 75,000
Dawn Morris 1999 100,000
1998 75,000
1997 75,000
Kathy Boag 1999 10,000
1998 5,000
Roger Casas 1999 15,000
1998 5,000
1999 5,000
Hollywood Riviera
Studios(1) 1999 258,621
- ------------------------
</TABLE>
(1) These options are under the control of George Morris, chief executive
officer of the company.
13
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our company is under the control of George and Dawn Morris, husband and
wife, who beneficially own 76.5 percent of all outstanding stock of Internet
Infinity, Inc. The basis of their control, and the relationship of all
affiliates of the company, are depicted in the following chart:
1. George and Dawn Morris
a. They own 98% of L&M Media, Inc.
--------------
i. It owns 100% of Apple Media Corporation
-----------------------
ii. It owns 45.3% of Internet Infinity, Inc.
----------------------
b. They own 100% of Apple Realty, Inc., d/b/a Hollywood
-----------------------------------
Riviera Studios
---------------
i. It owns 10.3% of Internet Infinity, Inc.
----------------------
c. They own 21.8% of Internet Infinity, Inc.
----------------------
i. It owns 100% of Electronic Media Control Corp.
-----------------------------
ii. It owns 100% of Morris & Associates, Inc.
------------------------
Summary
-------
.98 x .453 = .44394
1.00 x .103 = .103
.218 = .218
------
George and Dawn Morris
beneficially own .765 of Internet Infinity, Inc.
The 1998 L&M Media, Inc. Transactions
-------------------------------------
On July 30, 1997 Internet Infinity issued 125,000 shares of its common
stock, valued at $0.60 a share, to L&M Media, Inc., a company whose shares are
98 percent owned by George and Dawn Morris, husband and wife and directors and
executive officers of Internet Infinity. The shares, valued at $75,000, were
issued in exchange for -
o the distribution rights to five video programs on Health and
Medicine,
o $75,000 in advance royalties on sales, the royalties being set at
fifteen percent of sales,
o extended trade credit terms, with the cost of L&M Media's goods set
at twenty percent of sales, and
14
<PAGE>
o L&M Media's cost of goods to cover all its manufacturing and
assembly costs as well as the shipping costs to our customers'
doors.
On February 27, 1998 Internet Infinity issued 2,142,897 additional shares
of its common stock, valued at $0.14 a share for a total of $300,000, to L&M
Media in exchange for the distribution rights to 20 additional video programs on
Health and Medicine under terms similar to those of the earlier transaction and
with $300,000 in advance royalties deemed paid.
The 1999 Hollywood Riviera Studios Transaction.
----------------------------------------------
On January 4, 1999, Internet Infinity issued 517,241 shares of its common
stock, valued at $0.29 a share, to Apple Realty, Inc., d/b/a Hollywood Riviera
Studios, a company 100 percent owned by George and Dawn Morris. The shares,
valued at $150,000, were issued in exchange for -
o the distribution rights to five video modules on Personal and Sales
Skill Development,
o $150,000 in advance royalty on sales, the royalties being set at
twenty percent of sales,
o extended trade credit terms, with the cost of L&M Media's goods set
at twenty percent of sales, and
o L&M Media's cost of goods to cover all its manufacturing and
assembly costs as well as the shipping costs to our customers'
doors.
As of September 30, 1999 there have been no sales by Internet Infinity or
its affiliates of any of the twenty-five video programs on Health and Medicine
or of any of the five video modules on Personal and Sales Skill Development.
However, no resources were available to promote sales of these products. We
project that sales will commence of the Personal and Sales Skill Development
modules during the fourth quarter of the fiscal year to end March 31, 2000 and
that sales will commence of the Health and Medicine programs during the first
quarter of the fiscal year to commence April 1, 2000.
Internet Infinity also sells special interest video programs on other
subjects, which video programs are owned by L&M Media. There are approximately
200 of these programs. Internet Infinity pays a ten percent royalty on these
sales to L&M Media. L&M Media's cost of goods is set at twenty percent of sales
with its cost of goods to cover all its manufacturing and assembly costs as well
as the shipping costs to our customers' doors. During fiscal year 1999, we sold
$119,823 of these programs. We netted $83,876 after $11.982 in royalties and
$23,964 in cost of goods paid to L&M Media. During fiscal year 1998, we sold
$117,913 of these programs and netted $82,539 after $11,791 in royalties and
$23,582 in cost of goods paid to L&M Media.
L&M Media agreed to purchase the Health and Medicine program library in
1986 for $400,000. It consists of 400 hours of video footage and partially or
fully edited titles. We estimate the replacement cost of each of the twenty-five
programs to be approximately $62,500 or a total in excess of $1,500,000.
15
<PAGE>
L&M Media itself developed the Personal and Sales Skill Development modules
and has sold them over the last ten years. Hollywood Riviera Studios is revising
and expanding the multimedia delivery of the programs. We estimate the
replacement cost of each module to be $150,000 or $750,000 for the set of five.
We buy all of our products and services from Apple Media Corporation
("AMC"), a manufacturing company under the control of and owned by George and
Dawn Morris, directors, executive officers and major shareholders of the
company. Due to a lack of working capital available to the company, George
Morris personally acquired the predecessor to AMC, known as Video Magnetic, LLC,
in order that it would continue to provide a sales distribution opportunity for
our company. Our company had earlier established a distribution arrangement with
Video Magnetics, LLC in 1996. When the previous owner indicated he would sell
Video Magnetics and terminate the distribution arrangement with our company,
George Morris bought Video Magnetics to maintain the product source. Video
Magnetics was an insolvent company at the time of the Morris acquisition.
However, the successor company to Video Magnetics, Apple Media Corporation, is
solvent. George Morris finally settled the purchase transaction for Video
Magnetics through mediation and is personally paying the purchase notes over the
next four years.
When we sell products and services to an independent customer, we place an
order with AMC for the products and services including shipping. AMC sources,
manufactures or assembles and drop ships the product to our customer and bills
us a net 80% of the total order amount including freight. The 20% gross margin
remaining for the company plus the AMC payment of all facilities and non sales
personnel expense gives the company a near risk-free, overhead-free,
investment-free distribution opportunity. The 80% cost of goods was originally
negotiated with the prior owners of Video Magnetics. During fiscal year 1999 our
20% gross margin on these sales amounted to $238,258.
When we sell pre-recorded video programs to media retailers, wholesalers
and school suppliers, we place an order with AMC for the products and services
including shipping. AMC sources, manufactures or assembles and drop ships the
product to our customer and bills us a net 20% of the total order amount
including freight. The 80% gross margin remaining for the company plus the AMC
payment of all facilities and non sales personnel expense gives the company a
near risk-free, overhead-free, investment-free distribution opportunity. The 80%
gross profit margin retained by the company from pre-recorded video sales versus
the 20% for duplication and blank media sales to independent customers reflects
the significantly higher price and profit margin associated with selling a video
tape with a program on it versus a blank tape or the lower margin duplicating on
an independent customer tape or CD. During fiscal year 1999, our 80% of these
sales amount to $95,858.
DESCRIPTION OF SECURITIES
The company is authorized to issue twenty million shares of common stock
($0.001 par value) and one million shares preferred stock at ($0.001 par value).
The presently outstanding shares of common stock are fully paid and
non-assessable.
16
<PAGE>
Common Stock
Voting Rights
-------------
Holders of shares of common stock have one vote per share on all matters
submitted to a vote of the shareholders. Shares of common stock do not have
cumulative voting rights, which means that the holders of a majority of the
shareholders votes eligible to vote and voting for the election of the board of
directors can elect all members of the board of directors.
Dividend Rights
---------------
Holders of record of shares of common stock receive dividends when and if
declared by the board of directors out of funds of the company legally available
therefor.
Liquidation Rights
------------------
Upon any liquidation, dissolution or winding up of the company, holders of
shares of Common Stock receive pro rata all of the assets of the company
available for distribution to shareholders after distributions are made to the
holders of the company's preferred stock.
Preemptive Rights
-----------------
Holders of common stock do not have any preemptive rights to subscribe for
or to purchase any stock, obligations or other securities of the company.
Registrar and Transfer Agent
----------------------------
The company's registrar and transfer agent is Nevada Agency and Trust
Company, 50 West Liberty Street, Suite 880, Reno, Nevada 87501.
Dissenters' Rights
------------------
Under current Delaware law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require the company to purchase his shares.
Dissenters' rights commonly arise in extraordinary transactions such as mergers,
consolidations, reorganizations, substantial asset sales, liquidating
distributions, and certain amendments to the company's Certificate of
Incorporation.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The company's Common Stock is quoted on the OTC Bulletin Board. Its symbol
is "ITNF."
During the last two fiscal years and the subsequent interim period for
which financial statements are provided, the range of high and low bid
information for our common stock is set forth below. The source of this
information is the OTC Bulletin Board.
The quotations reflect the inter-dealer prices without markup, markdown or
commissions and may not represent actual transactions.
17
<PAGE>
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1997
---- 1st Qtr. 2.5 1.25
2nd Qtr. 1.5 0.5625
3rd Qtr. 0.875 0.4375
4th Qtr. 0.5625 0.25
1998
---- 1st Qtr. 0.3125 0.1875
2nd Qtr. 1.3125 0.23
3rd Qtr. 0.96875 0.5625
4th Qtr. 1.1200 0.4000
1999
---- 1st Qtr. 1.7188 0.3750
2nd Qtr. 2.0625 0.3750
3rd Qtr 0.6875 0.4800
</TABLE>
On June 30, 1999 there were 10,010,196 shares of common stock outstanding.
There are 1,437,241 shares subject to outstanding options. No shares are subject
to securities convertible into such shares of stock.
Holders
As of June 30, 1999 there were approximately 36 holders of record of our
common stock. Some 1,454,880 shares of common stock are held in brokerage
accounts under the record name of "Cede & Co."
Dividends
We have paid no cash dividends to our stockholders and do not plan to pay
dividends on our Common Stock in the foreseeable future. We currently intend to
retain any earnings to finance future growth.
LEGAL PROCEEDINGS
Neither the company nor our property is a party to any pending legal
proceeding or any known proceeding that a governmental authority is
contemplating.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the company sold 3,110,098 shares of our
common stock in eight transactions exempt from registration pursuant to the
provisions of Regulation D, Rule 506 of the Securities and Exchange Commission.
No underwriters were used to effect the sales. The names of the persons who
bought the shares of stock, the dates the shares sold, the number of
18
<PAGE>
shares issued, the prices paid in cash or services for the shares and the nature
of the consideration received by the company are as follows.
<TABLE>
<CAPTION>
No. of
Shares Price per Nature of
Person Date Issued Share Consideration
- ------ ---- ------ ----- -------------
<S> <C> <C> <C> <C>
L&M Media, Inc. 07-30-97 125,000 $0.60 (1)
L&M Media, Inc. 02-27-98 2,142,897 $0.14 (1)
Kiowa Oil 03-24-98 100,000 $0.25 Cash
Newport Underwriters 03-24-98 100,000 $0.25 Cash
Thomas J. Kenan 03-24-98 50,000 $0.14 Legal Services
Gary Bryant 08-28-98 50,000 $0.50 Cash
Hollywood Riviera Studios 01-04-99 517,241 $0.29 (2)
George Morris 02-25-99 75,000 $0.25 (3)
Dawn Morris 02-25-99 75,000 $0.25 (3)
- -------------------------
</TABLE>
(1) Assignment of distribution rights to 25 Health and Medical video programs.
(2) Assignment of distribution rights to five Personal Development and Sales
Skill Development training programs.
(3) Reduction of debt owed by the company to this person upon this person's
exercise of a stock option.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be made
parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful.
In the case of any action or suit by or in the right of the corporation
against such persons, the corporation is authorized to provide similar
indemnification, provided that, should any such persons be adjudged to be liable
for negligence or misconduct in the performance of duties to the corporation,
the court conducting the proceeding must determine that such persons are
nevertheless fairly and reasonably entitled to indemnification. To the extent
any such persons are successful on
19
<PAGE>
the merits in defense of any such action, suit or proceeding, Delaware law
provides that they shall be indemnified against reasonable expenses, including
attorney fees.
A corporation is authorized to advance anticipated expenses for such suits
or proceedings upon an undertaking by the person to whom such advance is made to
repay such advances if it is ultimately determined that such person is not
entitled to be indemnified by the corporation.
Indemnification and payment of expenses provided by Delaware law are not
deemed exclusive of any other rights by which an officer, director, employee or
agent may seek indemnification or payment of expenses or may be entitled to
under any by-law, agreement, or vote of shareholders or disinterested directors.
In such regard, a Delaware corporation is empowered to, and may, purchase and
maintain liability insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation. As a result of such corporation
law, the company may, at some future time, be legally obligated to pay judgments
(including amounts paid in settlement) and expenses in regard to civil or
criminal suits or proceedings brought against one or more of its officers,
directors, employees or agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions or otherwise, the company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
20
<PAGE>
FINANCIAL STATEMENTS
There appears below the following financial statements of the company:
Independent accountant's report .......................................... F-1
Consolidated Balance Sheet at March 31, 1999.............................. F-2
Consolidated Statements of Operations for the Years Ended
March 31, 1999 and March 31, 1998 ................................ F-4
Statements of Changes in Stockholders' Equity
for the Years Ended March 31, 1999 and
March 31, 1998 ............. ..................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999 and March 31, 1998 ................................ F-6
Notes to Consolidated Financial Statements
March 31, 1999 ................................................... F-8
Consolidated Balance Sheet (unaudited)
at June 30, 1999 ................................................. F-15
Consolidated Statement of Operations (unaudited)
for the Three Months Ended June 30, 1999
and June 30, 1998 ................................................ F-17
Consolidated Statement of Cash Flows (unaudited)
for the Three Months Ended June 30, 1999
and June 30, 1998 ................................................ F-18
21
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Internet Infinity, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Internet
Infinity, Inc. (a Delaware Corporation) and its Subsidiaries (California
Corporations) as of March 31, 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. The consolidated financial statements
of Internet Infinity, Inc. as of March 31, 1998 were audited by another auditor
whose report dated August 10, 1998 expressed an unqualified opinion on those
statements.
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 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 financial position of Internet Infinity,
Inc. and Subsidiaries as of March 31, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Caldwell, Becker, Dervin, Petrick & Co., L.L.P.
- ---------------------------------------------------
CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P.
September 21, 1999
F-1
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 64,458
Accounts receivable, net of allowance for
doubtful accounts of $10,000 129,537
Inventory (Note 2) 59,918
Prepaid royalties - current (Note 3) 46,075
Note receivable - related company - current 36,526
(Note 8)
Net current deferred tax asset (Note 11) 36,414
-----------------
Total Current Assets 372,928
-----------------
PROPERTY AND EQUIPMENT, AT COST (Note 2)
Office equipment 16,955
Office furniture 15,366
-----------------
32,321
Less Accumulated Depreciation ( 32,321)
-----------------
Net Property and Equipment --
-----------------
OTHER ASSETS
Note receivable - related company (Note 8) 110,351
Programming costs, net (Note 6) 5,969
Prepaid royalties - non-current (Note 3) 46,075
-----------------
Total Other Assets 162,395
-----------------
Total Assets $ 535,323
=================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-2
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Notes payable (Note 7) $ 92,386
Accounts payable and accrued expenses 51,123
Accrued payroll 4,127
Interest payable 3,190
Due to officer - current (Note 9) 71,856
Due to related company (Note 8) 2,000
-----------------
Total Current Liabilities 224,682
LONG-TERM LIABILITIES
Due to officer - non-current (Note 9) 144,708
-----------------
Total Liabilities 369,390
-----------------
STOCKHOLDERS' EQUITY (Page F-6)
Preferred stock, par value $.001;
authorized 1,000,000 shares; issued
and outstanding 0 shares --
Common stock, par value $.001;
authorized 20,000,000 shares; issued
and outstanding 10,010,196 shares 10,010
Paid-in capital 898,859
Retained earnings (deficit) (742,936)
-----------------
Total Stockholders' Equity 165,933
-----------------
Total Liabilities and Stockholders' Equity $ 535,323
=================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-3
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------------------- ---------------------
<S> <C> <C>
REVENUE (NET) $ 1,312,452 $ 828,023
----------------------- ---------------------
COST OF SALES
Beginning inventory 65,175 85,124
Purchases 961,923 622,338
Labor and video costs 5,725 2,354
----------------------- ---------------------
1,032,823 709,816
Less ending inventory 59,918 65,175
----------------------- ---------------------
Total cost of sales 972,905 644,641
----------------------- ---------------------
Gross Profit 339,547 183,382
OPERATING EXPENSES (Page F-17) 242,866 251,954
ASSET IMPAIRMENT CHARGE (Note 4) 307,850 --
----------------------- ---------------------
Net Income (Loss) Before
Income Taxes (211,169) ( 68,572)
(PROVISION) BENEFIT FOR INCOME
TAXES (Note 12)
Current (800) (800)
Deferred 36,414 --
----------------------- ---------------------
Net Income (Loss) $ (175,555) $ ( 69,372)
======================= =====================
Net Income (Loss) Per Share $ (.02) $ (.01)
======================= =====================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-4
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital (Deficit) Equity
----------- ---------------- -------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Balance
April 1, 1997 1,700,000 $ 1,700 $ 320,800 $ (498,009) $(175,509)
Issued in connection
with exercise of
warrants 70,000 70 49,930 -- 50,000
Issued in
consideration
for note conversion 200,000 200 49,800 -- 50,000
Issued in
consideration
for services 50,000 50 6,950 -- 7,000
rendered
Issued in
consideration
for prepaid
royalties 2,267,857 2,268 372,732 -- 375,000
(Note 3)
Net (loss) at
March 31, 1998 -- -- -- (69,372) (69,372)
----------- ---------------- -------------- --------------------------------
Balance
March 31, 1998 4,287,857 4,288 800,212 (567,381) 237,119
Issued in
consideration
for note conversion 150,000 150 37,350 -- 37,500
Issued in
consideration
for prepaid 517,241 517 149,483 -- 150,000
royalties
(Note 3)
Common stock for cash 50,000 50 24,950 _ 25,000
Non cash dividend
(Note 5) -- -- (108,131) -- (108,131)
2 for 1 stock split
(Note 1) 5,005,098 5,005 (5,005) -- --
Net (loss) at
March 31, 1999 -- -- -- (175,555) (175,555)
----------- ------------- ----------- -----------------------------
Balance
March 31, 1999 10,010,196 $ 10,010 $ 898,859 $ (742,936) $ 165,933
=========== ================ ============== ================================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-5
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS PROVIDED (USED ) BY OPERATING
ACTIVITIES:
Net income (loss) $ (175,555) $ (69,372)
Adjustment to reconcile net income to cash
provided
(used) by operating activities:
Asset impairment charge 307,850 --
Legal fees related to stock issued -- 7,000
Amortization of programming costs 5,970 5,969
Amortization of prepaid royalties 7,368 10,749
(Increase) in accounts receivable (36,076) (65,618)
Increase in allowance for doubtful accounts (15,000) 15,000
Decrease in inventory 5,257 19,949
Increase in accrued payroll 4,127 --
(Increase) interest payable 3,190 --
Increase (decrease) in accounts payable (68,863) 19,037
Increase in income taxes payable -- (428)
(Increase) in deferred tax asset (36,414) --
------------------ ------------------
Net Cash Flows Provided (Used) by
Operating Activities 1,854 ( 57,714)
------------------ ------------------
CASH FLOWS PROVIDED (USED) BY INVESTING
ACTIVITIES:
Deposit 600 --
------------------ ------------------
Net Cash Flows Provided by Investing
Activities 600 --
------------------ ------------------
CASH FLOW PROVIDED (USED) BY
FINANCING ACTIVITIES:
Increase in note receivable - related company 31,906 53,265
(Decrease) in due to officer (4,929) --
Reduction in note payable (583) ( 1,942)
Common stock issued 25,000 50,000
------------------ ------------------
Net Cash Flows Provided by Financing
Activities 51,394 101,323
------------------ ------------------
NET INCREASE IN CASH 53,848 43,609
CASH - BEGINNING OF THE YEAR 10,610 ( 32,999)
------------------ ------------------
CASH - END OF THE YEAR $ 64,458 $ 10,610
================== ==================
ADDITIONAL DISCLOSURES:
Interest paid $ 5,000 $ 9,244
================== ==================
Taxes paid $ 800 $ 800
================== ==================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-6
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
1999 1998
-------------------- ---------------
<S> <C> <C>
Prepaid royalties converted to note receivable -
related company $ 106,883 $ --
==================== ===============
Stock issued for prepaid royalties $ 150,000 $ 375,000
==================== ===============
Note payable converted to stock $ 37,500 $ 50,000
==================== ===============
Non cash dividend (Note 5) $ 108,131 $ --
==================== ===============
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F-7
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 1 - ORGANIZATION AND PRESENTATION
Organization
Internet Infinity, Inc. (III) was incorporated in the State of Delaware on
October 27, 1995.
On April 1, 1998, Morris and Associates, Inc., (M&A) was incorporated in
California. Morris and Associates Inc. (formerly a division of Internet
Infinity, Inc.) is owned 100% by III. M&A is licensed to distribute special
interest video programming to educational and consumer distributors for health
and medical titles, computer software training including Microsoft Windows and
Explorer, internet information, golf, sports, home and garden titles.
On April 1, 1998, Electronic Media Central Corporation (EMC) was incorporated in
California. Electronic Media Central Corporation (formerly a division of III) is
owned 100% by III. EMC is engaged in the sale of blank electronic media such as
video tapes and the duplication, replication and packaging of DVD's, CD's, video
tapes and audio tapes.
The Company has registered the web address: www.ib2b.com for its new eCommerce
trade center. The new "ib2b.com" site will offer a variety of productivity
increasing products and services for business. The site will support both
distributors and manufacturers offering services in a cooperative marketing
eCommerce environment.
The Company declared a 2 for 1 stock split on March 17, 1999 to shareholders of
record on that date. The number of shares increased by 5,005,098 to 10,010,196.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Internet Infinity,
Inc. and its wholly owned subsidiaries, Morris & Associates, Inc. and Electronic
Media Central Corporation. All significant inter- company transactions and
balances have been eliminated in the consolidation.
Inventory
The Company's inventory (all on the books of "M & A"), consists of the
following:
Duplicated tapes and display boxes $ 59,918
Duplicate tapes and display boxes are valued at the lower of cost or market
(first-in, first-out basis). Inventory has been written down by $5,257 for
possible obsolescence.
Depreciation
The Company's equipment and furniture are carried at cost. Depreciation is
provided over the estimated useful lives of the assets, which are fully
depreciated.
F-8
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Long-Lived Assets
In 1998, the Company adopted SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." In accordance
with SFAS 121, long-lived assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicated that the
carrying amount of an asset may not be fully recoverable. For purposes of
evaluating the recoverability of long-lived assets, the estimated future cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required (see Note 4).
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash and cash
equivalents to include cash on hand, bank balances and short-term investments
with a maturity of three months or less.
Deferred Income Tax Accounts
Deferred tax provisions/benefits are calculated for certain transactions and
events because of differing treatments under generally accepted accounting
principles and the currently enacted tax laws of the federal government. The
results of these differences on a cumulative basis, known as temporary
differences, result in the recognition and measurement of deferred tax assets
and liabilities in the accompanying balance sheet. The liability method (FASB
109) is used to account for these temporary differences.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Accordingly,
actual results could differ from those estimates.
Year 2000 Compliance
Management does not believe any material year 2000 problems with the Company's
vendors, service providers, or other third parties will affect the Company's
financial information.
Revenue Recognition
Income and expenses are recorded on the accrual basis of accounting. Revenue is
recognized from sales when a product is shipped. Expenses are recognized when
incurred.
F-9
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 3 - PREPAID ROYALTIES
The Company has royalty agreements with two separate related entities. In April
1998, the Company entered into an agreement with L&M Media, Inc. for the rights
to market pre-recorded health and medical programs. The agreement specifies that
the Company shall pay a 15% royalty to L&M Media, Inc. on gross sales for all
programs sold between April 1, 1998 and March 31, 2001. In consideration for
these rights, the Company issued 2,267,857 shares of common stock, with a
trading value of $375,000. Any portion of prepaid royalties under $125,000 per
year unearned, shall be reclassified to "due from related party". For the fiscal
year ended March 31, 1999, $106,883 has been reclassified to "due from related
party" (see Note 8). George Morris, President of Internet Infinity, Inc. owns
98% of the stock of L&M Media, Inc.
In April 1999 the Company entered into an agreement with Apple Realty, Inc. (DBA
Hollywood Riviera Studios) for the rights to market pre-recorded personal and
sales development multimedia success programs. The agreement specifies that the
Company shall pay a 20% royalty to Apple Realty, Inc. on gross sales for all
programs sold between April 1, 1999 and March 31, 2001. In consideration for
these rights, the Company issued 517,241 shares of common stock, with a trading
value of $150,000. Any portion of prepaid royalties under $75,000 per year
unearned, shall be reclassified to "due from related party". George Morris owns
100% of the stock of Apple Realty, Inc.
For the fiscal year ended March 31, 1999, the Company wrote down the value of
the prepaid royalties to $42,150 for the health and medical programs and to
$50,000 for the personal and sales development programs (see Note 4).
NOTE 4 - ASSET IMPAIRMENT CHARGE
As described in Note 3, the Company acquired the rights to market certain
pre-recorded programs from two related entities in exchange for the issuance of
common stock in the Company. A prepaid royalty asset was recorded on the books
for a total value of $525,000. Of this amount, $106,883 has been reclassified
and is included in note receivable for $146,877 (Note 8) and $18,117 has been
amortized due to actual sales being made. The Company's management reviews
assets for impairment when certain events or changes in circumstances indicate
that the carrying value may not be recoverable. Subsequently, pursuant to SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," the Company evaluated the recoverability of the
prepaid royalties. The Company estimated the fair value of the prepaid royalties
on sales performances over the past two years and anticipated future cash flows
discounted at a rate commensurate with the risk involved. Accordingly, the
Company adjusted the carrying value of the prepaid royalties to their estimated
fair value of $92,150, resulting in a non-cash impairment loss of $307,850
NOTE 5 - NON CASH DIVIDEND
At March 31, 1998, the Company had an investment of $108,131 in a wholly owned
subsidiary, More Media, Inc. In 1999, the Company distributed its stock in More
Media, Inc. to the Company's stockholders as a non cash dividend.
F-10
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 6 - PROGRAMMING COSTS
Programming costs, consisting of video production and editing, are capitalized
and amortized over three years. Accumulated amortization was $11,938 at March
31, 1999.
NOTE 7 - NOTES PAYABLE
The Company has nine notes payable with various unrelated individuals, totaling
$92,386. The notes are due upon 90 days written notice from the individuals. The
notes are unsecured, with interest ranging from 6% to 12% payable quarterly. The
notes have been outstanding since 1990.
NOTE 8 - RELATED COMPANY TRANSACTIONS
<TABLE>
<CAPTION>
<S> <C>
Note receivable from L&M Media, Inc., payable at $36,526 per year
for four years, plus interest at 6% per annum. The first payment is
due March 31, 2000. L&M Media, Inc. is 98% owned by
George Morris, President of Internet Infinity, Inc. $146,877
Less current portion 36,526
--------
Long-term portion $110,351
========
Loan payable to Morris Financial, without interest. Loan was
paid subsequent to year end. Morris Financial is owned 100% by
George Morris. $ (2,000)
========
</TABLE>
There is no interest expense on the above notes for the years ended March 31,
1999 or 1998.
L&M Media, Inc. owns 45.3% of the outstanding stock of Internet Infinity, Inc.
The above note receivable from L&M Media, Inc. for $146,877 is secured by George
Morris, President of the Company. Mr. Morris is using the notes due to him by
Internet Infinity, Inc. (see Note 9) as the collateral.
NOTE 9 - DUE TO OFFICER
<TABLE>
<CAPTION>
<S> <C>
Unsecured note payable to George Morris, with simple interest
at 12% per annum beginning March 31, 1999. Note is due and
payable on May 1, 2001 (see Note 8) $144,708
Two unsecured notes payable to George Morris, due on
demand with 90 days notice, with interest at 6% per annum. 71,856
--------
216,564
Less current portion 71,856
--------
Long-term portion $144,708
========
</TABLE>
F-11
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 9 - DUE TO OFFICER (CONTINUED)
<TABLE>
<CAPTION>
Maturities of due to officer are as follows:
For Year Ended
March 31,
--------------
<S> <C>
2000 $ 71,856
2001 144,708
---------
$ 216,564
=========
</TABLE>
Interest charged to expense for the year ended March 31, 1999 on the above notes
was $8,680.
NOTE 10 - CONCENTRATION OF CREDIT RISK
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of businesses comprising the Company's
geographically dispersed customer base.
The Company's only supplier of products is Apple Media, Inc. The Company's cost
for the product is 80% of the selling price. Apple Media, Inc. is owned 98% by
George Morris (see Note 15).
NOTE 11 - DEFERRRED INCOME TAXES
The net deferred tax amounts included in the accompanying balance sheet include
the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax asset - current $ 36,414
Deferred tax liability - current --
----------
Net asset - current $ 36,414
==========
Deferred tax asset - non-current $ 322,093
Deferred tax liability - non-current --
Less valuation allowance (322,093)
----------
Net asset non current $ 0
==========
</TABLE>
The deferred tax asset results from reserves for bad debts that are deductible
when the account receivable is written off as an impairment of assets, which is
not currently deductible for tax purposes, and from a net operating loss
carryforward for federal and state income tax purposes.
The Company has recorded a valuation allowance to reflect the estimated amount
of deferred tax asset which may not be realized. The valuation allowance
increased by $322,093.
F-12
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 12 - (PROVISION) BENEFIT FOR INCOME TAXES
The components of the (provision) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current
Federal $ 0 $ 0
State (800) (800)
--------- ---------
$ (800) $ (800)
========= =========
Deferred (Provision) Benefit
Federal $ 28,900 $ 0
State 7,514 0
--------- ---------
$ 36,414 $ 0
========= =========
</TABLE>
The Company has a net operating loss carryforward of $519,000 for tax purposes.
For federal income tax purposes, the net operating loss carryforwards expire
through 2018.
NOTE 13 - NET (LOSS) PER SHARE
Net loss per share for fiscal years 1999 and 1998 are based on the weighted
average number of shares outstanding which were 8,910,234 shares and 4,977,367
shares, respectively. Stock options have not been considered in the calculation
of loss per share for March 31, 1999 and 1998 because they are anti dilutive.
NOTE 14 - STOCK OPTIONS
For the years ended March 31, 1999 and 1998, the Company granted 1,017,241 and
400,000 shares to various individuals at the exercise price of $.19 and $.125,
including its officers who received 450,000 and 310,000, respectively.
Of the 1,017,241 options granted in the fiscal year ending March 31, 1999, the
Company granted 517,241 options to an affiliate entity, in conjunction with the
stock issued (see Note 3).
On February 25, 1999, the President and the CEO exercised 300,000 options, which
were granted in 1997, reducing the outstanding options for March 31, 1997 to
20,000. As of March 31, 1999, the following options have not been exercised:
<TABLE>
<CAPTION>
Exercise Exercisable Expiration
Options Date Granted Price Date Date
---------------- --------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
20,000 3/31/1997 $ .125 4/01/1998 3/31/2000
400,000 3/31/1998 .125 4/01/1999 3/31/2001
1,017,241 3/31/1999 .190 4/01/2000 3/31/2002
----------------
1,437,241
================
</TABLE>
F-13
<PAGE>
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to the balance sheet date, Apple Media, Inc, which was owned 98% by
George Morris, became a subsidiary of L&M Media, Inc., which is also owned 98%
by George Morris. Apple Media, Inc. is the major supplier of products to
Internet Infinity, Inc. and subsidiaries.
F-14
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Cash $ 26,576
Accounts Receivable, net of allowance
for doubtful accounts of $10,000 131,216
Inventories 59,918
Prepaid Royalties 46,075
Due from Related Companies - current 36,526
Net Current Deferred Tax Asset 29,914
-------------
TOTAL CURRENT ASSETS 330,225
Due from Related Companies 166,396
Programming Costs 4,476
Prepaid Royalties - Non-Current 46,075
Property and Equipment, at cost
Office Equipment 16,955
Office Furniture 15,366
-------------
33,321
Less Accumulated Depreciation (33,321)
-------------
Net Property & Equipment --
-------------
TOTAL NON-CURRENT ASSETS 216,947
-------------
TOTAL ASSETS $ 547,172
=============
</TABLE>
See accompanying notes to financial statements
and accountant's compilation report
F-15
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS? EQUITY
Current Liabilities (Unaudited)
<S> <C>
Notes Payable $ 93,116
Accounts Payable 51,808
Accrued Payroll 4,127
Due to Officer 71,856
Due to Related Companies 500
------------
TOTAL CURRENT LIABILITIES 221,407
------------
Long-term Liabilities
Due to Officer - Non Current 133,753
------------
TOTAL LONG-TERM LIABILITIES 133,753
------------
TOTAL LIABILITIES 355,160
------------
STOCKHOLDERS' EQUITY
Preferred Stock, par value $.001;
authorized 1,000,000 shares: issued
and outstanding -0- shares
Common Stock, par value $.001;
authorized 20,000,000 shares; issued
and outstanding 10,010,196 shares 10,010
Paid-In Capital 898,859
Retained Earnings (Deficit) (716,857)
------------
STOCKHOLDERS' EQUITY 192,012
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 547,172
============
</TABLE>
See accompanying notes to financial statements
and accountant's compilation report.
F-16
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1999
-----------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE
Sales(Net) $ 267,123 $ 278,193
COST OF SALES 160,561 206,452
-----------------------------
GROSS PROFIT 106,562 71,741
OPERATING EXPENSES 55,618 34,469
-----------------------------
NET OPERATING INCOME 50,944 37,272
-----------------------------
OTHER EXPENSES
Amortization Expense 1,493 1,493
Interest Expense 3,000 3,200
-----------------------------
4,493 4,693
-----------------------------
NET INCOME BEFORE
INCOME TAXES 46,451 32,579
Provision for Income Taxes- Deferred -- 6,500
-----------------------------
NET INCOME $ 46,451 $ 26,079
=============================
Weighted Average of
Shares Outstanding(1) 9,295,714 11,447,438
Per Share $ .005 $.002
</TABLE>
(1) Includes stock options
See accompanying notes to financial statements
and accountant's compilation report.
F-17
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months ended June 30,
1998 1999
----------------------------
CASH FLOWS PROVIDED (USED) BY (Unaudited) (Unaudited)
OPERATING ACTIVITIES:
<S> <C> <C>
Net Income(Loss) $ 46,451 $ 26,079
Adjustments to reconcile net income to cash
provided (used) by operating activities:
Amortization of Programming Costs 1,493 1,493
Increase in Accounts Receivable (32,182) (1,679)
Decrease in Inventories 1,314 --
Decrease in Deferred Tax Asset -- 6,500
Decrease in Prepaid Royalties 3,197 --
Increase in Notes Payable - current 25,000 730
Increase decrease in Accounts Payable (60,842) 685
Decrease in Interest Payable -- (3,190)
Decrease in Due to Related Companies (990) (1,500)
Decrease in Due from Related Companies 14,337
------------- -------------
NET CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES (2,222) 29,118
------------- -------------
CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES -- --
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES
Decrease in Due to Officer - non current -- (10,955)
Increase in Due from Related Companies 2,587 (56,045)
------------- -------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (67,000)
------------- -------------
NET INCREASE (DECREASE) IN CASH 365 (37,882)
Cash: Beginning of the year 10,610 64,458
----------------------------
Cash: End of the year $ 10,975 $ 26,576
============= =============
ADDITIONAL DISCLOSURES:
Interest Paid $ -- $ 3,190
=============
Taxes Paid $ 800 $ 800
============= =============
</TABLE>
See accompanying notes to financial statements
and accountant's compilation report
F-18
<PAGE>
EXHIBITS
Index to Exhibits
Exhibit No. Description
----------- -----------
2 - Certificate of Ownership and Merger of
Morris & Associates, Inc., a California
corporation, into Internet Infinity, Inc., a
Delaware corporation
3 - Articles of Incorporation of Internet
Infinity, Inc.
3.1 - Amended Certificate of Incorporation of
Internet Infinity, Inc.
3.2 - Bylaws of Internet Infinity, Inc.
10.1 - Master License and Non-Exclusive Distribution
Agreement between Internet Infinity, Inc. and
Lord & Morris Productions, Inc.
10.2 - Master License and Exclusive Distribution
Agreement between L&M Media, Inc. and
Internet Infinity, Inc.
10.3 - Master License and Exclusive Distribution
Agreement between Hollywood Riviera Studios
and Internet Infinity, Inc.
22
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERNET INFINITY, INC.
Date: October 13, 1999 By /s/ George Morris
---------------------------------
George Morris, Chief Executive Officer
23
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"MORRIS & ASSOCIATES, INC.", A CALIFORNIA CORPORATION,
WITH AND INTO "INTERNET INFINITY, INC." UNDER THE NAME OF "INTERNET
INFINITY, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE
STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF
OCTOBER, A.D. 1996, AT 10 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS
BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2556220 8100M AUTHENTICATION: 8146649
960298464 DATE: 10-15-96
Exhibit 2
Page 1 of 2 Pages
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
MORRIS & ASSOCIATES, INC., A CALIFORNIA CORPORATION
INTO
INTERNET INFINITY, INC., A DELAWARE CORPORATION
The undersigned, George Morris, secretary of each of Morris & Associates,
Inc., a California corporation, and Internet Infinity, Inc., a Delaware
corporation, certifies as follows:
1. Morris & Associates, Inc. owns 100% of the outstanding shares of each
class of the stock of Internet Infinity, Inc.
2. The board of directors of each of Morris & Associates, Inc. and Internet
Infinity, Inc., on October 1, 1996, adopted the following resolutions:
RESOLVED, that Morris & Associates, Inc., a California
corporation, shall merge with and into Internet Infinity, Inc., a
Delaware corporation, Internet Infinity, Inc. being called herein
the "Surviving Corporation" and the two corporations being called
herein the "Constituent Corporations"; and
RESOLVED FURTHER, that upon surrender of any stock certificates
by the stockholders of Morris & Associates, Inc., of which
corporation there are 1,700,000 shares of Common Stock issued and
outstanding, the Surviving Corporation shall issue one share of
its stock for each share of stock of Morris & Associates, Inc.;
and
RESOLVED FURTHER, that the Surviving Corporation assumes all the
liabilities of Morris & Associates, Inc.
3. The proposed merger between the Constituent Corporations, as described
above, has been adopted, approved, certified, executed and acknowledged by each
of the Constituent Corporations in accordance with the laws under which each is
organized.
/s/ George Morris
-----------------------------
George Morris, Secretary of
Morris & Associates, Inc., a
California corporation
/s/ George Morris
-----------------------------
George Morris, Secretary of
Internet Infinity, Inc., a
Delaware corporation
Exhibit 2
Page 2 of 2 Pages
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "INTERNET INFINITY, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SEVENTH DAY OF OCTOBER, A.D. 1995, AT 9 O'CLOCK A.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE NOT BEEN
ASSESSED TO DATE.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2556220 8100 AUTHENTICATION: 7691603
250249560 DATE: 10-27-95
Exhibit 3
Page 1 of 2 Pages
<PAGE>
CERTIFICATE OF INCORPORATION
OF
INTERNET INFINITY, INC.
-----------------------
FIRST. The name of this corporation shall be:
INTERNET INFINITY, INC.
SECOND. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the City of Wilmington, County of New Castle, 19805, and
its registered agent at such address is CORPORATE AGENTS, INC.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
One Thousand Five Hundred Common Stock Shares with No Par Value.
FIFTH. The name and mailing address of the incorporator is as follows:
Cheryl A. Lewis
Corporate Agents, Inc.
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this twenty-seventh day of October, A.D. 1995.
/s/ Cheryl A. Lewis
-------------------
Cheryl A. Lewis
Incorporator
Exhibit 3
Page 2 of 2 Pages
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "INTERNET INFINITY, INC.", FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF
SEPTEMBER, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2556220 8100 AUTHENTICATION: 8145153
960269724 DATE: 10-14-96
Exhibit 3.1
Page 1 of 2 Pages
<PAGE>
AMENDED
CERTIFICATE OF INCORPORATION
OF
INTERNET INFINITY, INC.
-----------------------
The undersigned, being the sole director of Internet Infinity, Inc., a
Delaware corporation, having been designated such by the incorporator of the
Corporation, and, before any shares of capital stock of the Corporation have
been issued, pursuant to the provisions of the General Corporation Law of
Delaware, hereby amends the Certificate of Incorporation of the Corporation
which was filed on October 27, 1995, as follows:
Paragraph FOURTH is hereby amended to be as follows:
FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is 10,000,000 of which stock
1,000,000 of the par value of $0.001 per share shall be
designated Preferred Stock and of which 9,000,000 shares
of the par value of $0.001 per share shall be designated
Common Stock.
Shares of Preferred Stock may be issued from time to time
in one or more series, each such series to have
distinctive serial designations, as shall hereafter be
determined in the resolution or resolutions providing for
the issue of such Preferred Stock from time to time
adopted by the Board of Directors, each series of
Preferred Stock to have such relative, participating,
optional or special rights, qualifications, limitations or
restrictions thereof, all as shall be stated in the
resolution or resolutions providing for the issue of such
Preferred Stock. Shares of any series of Preferred Stock
which may be redeemed, purchased, converted into or
exchanged for shares of stock of any other class or
classes shall have the status of authorized and unissued
shares of preferred stock.
IN WITNESS WHEREOF, the undersigned, being the sole director hereinbefore
named, has executed, signed and acknowledged this amendment to certificate of
incorporation on August 27, 1996.
/s/ George P. Morris
--------------------
George P. Morris
Sole Director
Exhibit 3.1
Page 2 of 2 Pages
BYLAWS
OF
INTERNET INFINITY, INC.
ARTICLE I
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation shall be established and maintained at 1013 Centre Road, in the City
of Wilmington, County of New Castle, Delaware 19805.
SECTION 2. OTHER OFFICES. The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. In
the event the Board of Directors fails to so determine the time, date and place
of meeting, the annual meeting of stockholders shall be held at the registered
office of the corporation in Delaware on the second Tuesday of May of each year
at 11 a.m., local time.
Exhibit 3.2
Page 1 of 16 Pages
<PAGE>
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect a Board of
Directors and they may transact such other corporate business as shall be stated
in the notice of the meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any
purpose other than the election of directors may be held at such time and place
as shall be stated in the notice of the meeting.
SECTION 3. VOTING. Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation and in accordance
with the provisions of these Bylaws shall be entitled to one vote, in person or
by proxy, for each share of stock entitled to vote held by such stockholder, but
no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. Upon the demand of any stockholder, the vote for
directors and the vote upon any question before the meeting, shall be by ballot.
All elections for directors shall be decided by plurality vote of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors; and all other questions shall be decided by the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter, except as
otherwise provided by the Certificate of Incorporation or the laws of the State
of Delaware.
Exhibit 3.2
Page 2 of 16 Pages
<PAGE>
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each, and
the number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 4. QUORUM. Except as otherwise required by law, by the
Certificate of Incorporation or by these Bylaws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the requisite amount of
stock entitled to vote shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at
Exhibit 3.2
Page 3 of 16 Pages
<PAGE>
the meeting as originally noticed shall be entitled to vote at any adjournment
or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the
stockholders for any purpose or purposes may be called by the President or
Secretary, or by resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten (10)
nor more than sixty (60) days before the date of the meeting. No business other
than that stated in the notice shall be transacted at any meeting without the
unanimous consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by
the Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than
Exhibit 3.2
Page 4 of 16 Pages
<PAGE>
unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
---------
SECTION 1. NUMBER AND TERM. The number of directors shall be one
or more. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify. Directors need not be
stockholders.
SECTION 2. RESIGNATIONS. Any director, member of a committee or
other office may resign at any time. Such resignation shall be made in writing,
and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created
Exhibit 3.2
Page 5 of 16 Pages
<PAGE>
may be filled, at the meeting held for the purpose of removal, by the
affirmative vote of a majority in interest of the stockholders entitled to vote.
SECTION 5. INCREASE OF NUMBER. The number of directors may be
increased by amendment of these Bylaws by the affirmative vote of a majority
vote of a majority in interest of the stockholders, at the annual meeting or at
a special meeting called for that purpose, and by like vote the additional
directors may be chosen at such meeting to hold office until the next annual
election and until their successors are elected and qualify.
SECTION 6. POWERS. The Board of Directors shall exercise all of
the powers of the corporation except such as are by law, or by the Certificate
of Incorporation of the corporation or by these Bylaws conferred upon or
reserved to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution
or resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these Bylaws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the
Exhibit 3.2
Page 6 of 16 Pages
<PAGE>
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution, these Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. ANNUAL MEETINGS. The annual meeting of the Board may
be held at such time and place as shall be fixed by a vote of the shareholders
at the annual meeting and no notice of such meeting shall be necessary to the
newly elected directors in order to legally constitute such meeting.
SECTION 9. REGULAR MEETINGS. Regular meetings of the directors
may be held without notice at such places and times as shall be determined from
time to time by resolution of the directors.
SECTION 10. SPECIAL MEETINGS. Special meetings of the board may
be called by the President or by the Secretary on the written request of any two
(2) directors on at least two (2) days' notice to each director and shall be
held at such place or places as may be determined by the directors, or as shall
be stated in the call of the meeting.
SECTION 11. QUORUM. A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
board there shall be less than a quorum present, a
Exhibit 3.2
Page 7 of 16 Pages
<PAGE>
majority of those present may adjourn the meeting from time to time until a
quorum is obtained, and no further notice thereof need be given other than by
announcement at the meeting which shall be so adjourned.
SECTION 12. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board, or of such
committee as the case may be, and such written consent is filed with the minutes
of proceedings of the board or committee.
ARTICLE IV
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one (1)
or more Vice Presidents and such Assistant Secretaries and Assistant
Exhibit 3.2
Page 8 of 16 Pages
<PAGE>
Treasurers as they may deem proper. None of the officers of the corporation need
be directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. More than two (2) offices may be held by
the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors, if
one be elected, shall preside at all meetings of the Board of Directors and he
shall have and perform such other duties as from time to time may be assigned to
him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it
Exhibit 3.2
Page 9 of 16 Pages
<PAGE>
and when so affixed the seal shall be attested by the signature of the Secretary
or an Assistant Secretary.
SECTION 5. VICE PRESIDENT. Each Vice President shall have such
powers and shall perform such duties as shall be assigned to him by the
directors.
SECTION 6. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation. He shall
deposit all monies and other valuables in the name and to the credit of the
corporation in such depositories as may be designated by the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
Exhibit 3.2
Page 10 of 16 Pages
<PAGE>
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
SECTION 9. SALARIES. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
SECTION 10. REMOVAL. Any officer elected or appointed by the
Board of Directors may be removed from office, with or without cause, at any
time by the affirmative vote of a majority of the directors present at any
meeting of the Board at which a quorum is present.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock, signed
by the President or Vice President, and the Treasurer or an Assistant Treasurer,
or Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any of or all
the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not
Exhibit 3.2
Page 11 of 16 Pages
<PAGE>
exceeding double the value of the stock, to indemnify the corporation against
any claim that may be made against it on account of the alleged loss of any such
certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporation action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other
Exhibit 3.2
Page 12 of 16 Pages
<PAGE>
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 5. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares as the holder in
fact thereof, and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as may be
otherwise expressly provided by the laws of Delaware.
SECTION 6. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the directors from or
as a reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the directors shall deem conducive to the interests of the
corporation.
SECTION 7. SEAL. The corporate seal shall be circular in form and
shall contain the name of the corporation and the words "CORPORATE SEAL." Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Exhibit 3.2
Page 13 of 16 Pages
<PAGE>
SECTION 8. FISCAL YEAR. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
SECTION 9. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 10. NOTICE. Whenever any notice is required by these
Bylaws to be given, personal notice is not meant unless expressly so stated, and
any notice so required shall be deemed to be sufficient if given by depositing
the same in the United States mail, postage prepaid, addressed to the person
entitled thereto at his address as it appears on the records of the corporation,
and such notice shall be deemed to have been given on the day of such mailing.
Stockholders not entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise provided by Statute.
SECTION 11. WAIVER OF NOTICE. Whenever any notice whatever is
required to be given under the provisions of any law, or under the provisions of
the Certificate of Incorporation of the corporation or these Bylaws, a waiver
thereof in writing, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto.
Exhibit 3.2
Page 14 of 16 Pages
<PAGE>
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
---------------------------------------
EMPLOYEES AND AGENTS
--------------------
To the extent and in the manner permitted by the laws of the
State of Delaware, and specifically as is permitted under the general
corporation act, the corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement.
ARTICLE VII
AMENDMENTS
----------
These Bylaws may be altered or repealed and Bylaws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or Bylaw or Bylaws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special
Exhibit 3.2
Page 15 of 16 Pages
<PAGE>
meeting of the Board of Directors, if notice of the proposed alteration or
repeal, or Bylaw or Bylaws to be made, be contained in the notice of such
special meeting.
Exhibit 3.2
Page 16 of 16 Pages
AGR40196 4/1/96 Revised
MASTER LICENSE
and
NON-EXCLUSIVE DISTRIBUTION
AGREEMENT
Between
INTERNET INFINITY, INC.
and
Lord & Morris Productions, Inc.
1.) The following agreement is intended to explain the relationship of Internet
Infinity, Inc. and Lord & Morris Productions, Inc.
2.) Lord and Morris Productions, Inc. (L&M) grants Internet Infinity, Inc. (III)
the non-exclusive right to manufacturer, duplicate, promote, sell, exhibit and
distribute the III Programs, as hereinafter defined in Paragraph 11, only in the
videocassette format, in the United States, under the following conditions:
3.) III is also known as Morris Video, Morris & Associates, as a parties to this
agreement.
4.) "Non-exclusive" means that L&M reserves the sole right without restriction
to license or sub-license the programs to third parties other than III without
notification to III. III is prohibited from sublicensing its non-exclusive
distribution rights to any third party
5.) L&M shall have the sole discretion on all issues relating to creating and
marketing the programs including but not limited to the right to create
packaging material, brochures and other selling aids for the programs, and to
create and use all other marketing and promotional materials L&M shall deem
necessary.
8.) L&M shall be responsible for providing any art work for packaging and
promotional material. III does not receive any rights in packing and promotional
materials created by L&M.
9.) Neither party, L&M nor III shall incur any obligation in the other's name.
The parties shall act solely as independent contractors under this agreement and
nothing contained herein shall create or be construed as creating a partnership,
joint venture, agency or any other relationship between the parties other than
one of independent contractor.
10.) III shall be entitled to sell, market and distribute other products,
including its own creations and programs as an independent contractor and such
distribution shall not be deemed to be a breach of this agreement. L&M shall be
entitled to sell, market and
Exhibit 10.1
Page 1 of 4 Pages
<PAGE>
distribute other products, including its own creations and programs as an
independent contractor and such distribution shall not be deemed to be a breach
of this agreement.
11.) "program(s)" defined as:
The Video Tech ?How-To? Library
Video Computer Training Series
12.) The rights granted by L&M to III under this agreement are for a period of
(36) thirty-six months from August 1, 1996 to July 31, 1999. The agreement will
automatically renew each year on August 1, until terminated by either party as
shown in Paragraph 13,
13. This Agreement may be terminated anytime by either party L&M or III without
cause, by giving the other party thirty days written notice.
14.) Good and valuable consideration for the rights granted by L&M to III under
this agreement is the delivery of one VHS 1/2" copy of any master as advanced
royalties. L&M by signing this agreement acknowledges receipt of the VHS video.
15.) III will remit to L&M quarterly a royalty of (10%) ten percent of the gross
funds it receives during the quarter from the sales of L&M programs. Such report
of sales and royalty payments shall be due thirty days after the end of the
quarter.
16.) It is understood by both parties that expenses of operation, costs of
manufacturing, printing, duplication are the responsibility of III and are not
to be deducted from any payments otherwise due L&M, nor are the expenses to be
shared by L&M unless approved in writing, in advance, by L&M.
17.) The parties to this agreement authorize III to send all payments,
statements, notices and other documents required or permitted under this
agreement directly to the address listed for L&M on the last page of this
agreement.
18.) Royalties due L&M shall be paid by check in United States currency and
shall accompany the royalty statement.
19.) III will be responsible for advertising, accepting and filling orders,
billing, collecting payments, and accounting for III sales.
20.) L&M shall provide III with a 3/4 NTSC master program at no cost to III and
L&M will allow copies of the masters (sub-masters) of L&M's programs to be made
and kept in the possession of III during the contract period.
Exhibit 10.1
Page 2 of 4 Pages
<PAGE>
21.) L&M shall, for a period of three months following the final expiration of
this agreement grant III the non-exclusive right to sell its inventory of
programs remaining as of the expiration date. The agreed percentage of royalties
in Paragraph 16, will apply during the three month "sell-off" period.
22.) All copies of each Video program shall contain appropriate and legally
sufficient copyright notices, which shall be inserted by III.
23.) It is L&M's responsibility to pay talent or creative residuals on programs
as they now exist. Payment to present talent persons is in no way a direct or
indirect responsibility of III.
24.) L&M represents, warrants and agrees:
a. that III shall not be responsible to L&M any other person or entity with any
alleged interest in the programs for moneys except as specifically set forth in
this contract.
b. that L&M has obtained or will obtain proper and effective licenses or grants
of authority to use the results of the services or performers, and other
persons, connected with the production of the programs.
c. that L&M has the exclusive right to dispose of each and every right granted
or purported to be granted to III in this agreement.
28.) L&M specifically undertakes and agrees to indemnify and hold III harmless
from and against all demands, claims, costs, losses, damages, liabilities,
causes of action, and expenses (including III?s reasonable attorney's fees)
resulting directly or indirectly from any claimed breach of any agreement,
representation or warranty made by L&M in this contract.
29.) III specifically undertakes and agrees to indemnify and hold L&M harmless
from and against all demands, claims, costs, losses, damages, liabilities,
causes of action, and expenses (including L&M's reasonable attorney's fees)
resulting directly or indirectly from any claimed breach of any agreement,
representation or warranty made by III in this contract.
30.) This agreement has been entered into in the State of California, and the
validity, interpretation and legal effect of this contract shall be governed by
the laws of the State of California with respect to the determination of any
claims, dispute or disagreement which may arise out of the interpretation,
performance, or breach of this contract.
32.) The agreement shall endure to the benefit of and be binding upon the heirs,
successors and assigns of the parties.
Exhibit 10.1
Page 3 of 4 Pages
<PAGE>
33. This agreement contains the entire understanding of the parties hereto
relating to the subject matter hereof and cannot be amended, modified, changed
or terminated except by a written instrument duly signed by authorized officers
of the parties hereof. A waiver by either party of any term or condition of this
agreement in any instance shall not be deemed or construed as a waiver of such
term or condition for the future or of any subsequent breech thereof. The
invalidity of any particular provision of this agreement, and this agreement
shall be construed as if such invalid provisions were omitted.
34.) Any and all actions by III or L&M, with respect to the determination of any
claims, dispute or disagreement, which may arise out of the interpretation,
performance, or breach of this agreement, shall be submitted to mediation at the
written request of either III or L&M. If the matter between the parties is not
resolved within ninety days of the commencement of mediation, the matter shall
be submitted to binding arbitration under the rules of American Arbitration
Association, conducted in Los Angeles County.
This agreement is accepted by both parties as indicated below.
Internet Infinity, Inc. Lord & Morris Productions, Inc.
2707 Plaza Del Amo #601 663 The Village
Torrance, California 90503 Redondo Beach, Ca 90277
- ---------------------- ------------------------
George P. Morris Dawn Morris
Date Date
------------- --------------
Exhibit 10.1
Page 4 of 4 Pages
AGR0022798
MASTER LICENSE
and
EXCLUSIVE DISTRIBUTION
AGREEMENT
Between
L&M Media, Inc.
and
INTERNET INFINITY, INC.
The following agreement is intended to explain the relationship of L&M Media,
Inc. AKA Lord & Morris Productions, Inc. and the Company known as Internet
Infinity, Inc.
2.) L&M Media, Inc. L&M) grants Internet Infinity, Inc., (III) the exclusive
right to manufacturer, duplicate, produce, advertise, promote, sell, rent,
sub-license, exhibit and distribute the (25) twenty-five L&M Health and Medical
Programs, as hereinafter defined in Paragraph 11, worldwide without restriction,
in all languages, in unlimited quantities, in all channels of distribution, in
all media, under the following conditions:
3.) III is Internet Infinity, Inc. and it heirs, assigns, licensees, or any
other trade name used by III as the party to this agreement.
4.) The exclusive right granted to III to distribute certain L&M programs
include the following formats: floppy disk, digital video, CD-ROM,
videocassette, videodisks, film or any other present or future format now in
existence or later developed which can be used to record the L&M media licensed
to III.
5.) The exclusive right granted to III to distribute L&M programs includes all
forms of media and delivery of content of media presently known and/or in use or
to be devised and used in the future, including interactive television,
satellite and Internet, not withstanding the nature of format used, form of
delivery system or contrivance utilized, venue utilizing such programming or
method of payment.
6.) "Exclusive" means sole control and supervision by III of all sales and
marketing efforts of the licensed L&M programs. L&M will not manufacturer,
duplicate, produce, advertise, sell or distribute the programs or license or
sub-license these rights to any third parties, during the term of this
agreement, anywhere, worldwide. L&M grants III the exclusive right and license
to sub-license the rights to third parties under this agreement. L&M reserves
the right to approve any sub-licensing or assignment of the rights granted by
this Agreement to any third party licensee, such approval not to be unreasonably
withheld.
Exhibit 10.2
Page 1 of 6 Pages
<PAGE>
7.) III shall have the sole discretion on all issues relating to creating and
marketing the programs including but not limited to the right to create
packaging material, brochures and other selling aids for the programs, and to
create and use all other marketing and promotional materials III shall deem
necessary.
8.) III will be responsible for providing any artwork for packaging and will
provide such packaging including boxes or folders. L&M does not receive any
rights in packing and promotional materials created by III.
9.) Neither party, L&M nor III shall incur any obligation in the other's name.
The parties shall act solely as independent contractors under this agreement and
nothing contained herein shall create or be construed as creating a partnership,
joint venture, agency or any other relationship between the parties other than
one of independent contractor.
10.) III shall be entitled to sell, market and distribute other products,
including its own creations and programs, as an independent contractor and such
distribution shall not be deemed to be a breach of this agreement. L&M shall be
entitled to sell, market and distribute other products, including its own
creations and programs, as an independent contractor and such distribution shall
not be deemed to be a breach of this agreement.
11.) "program(s)" defined as:
The Health and Medical Series of twenty-five completed titles.
12.) The rights granted by L&M to III under this agreement are for a period of
(36) thirty-six months from April 1, 1998 to March 31, 2001.
13.) The rights granted by L&M to III in this agreement shall be extended for an
additional thirty-six months from April 1, 2001 to March 31, 2004 if III has
performed all its obligations under this agreement.
14.) L&M grants III the first right of refusal to extend the distribution rights
covered by this Agreement, in perpetuity, (in agreement with the longest legal
term allowable under existing copyright and contract laws applicable to this
agreement), beyond the three year extension in paragraph 13 above, if III
continues to perform all its obligations under this agreement.
15.) This Agreement shall terminate forthwith, at the election of L&M, in the
event of any (i) default by III of any of its obligations hereunder, (ii)
insolvency of III (however such insolvency may be evidenced, including, without
limitation, by the inability of III to meet its debts as they mature), (iii)
complete
Exhibit 10.2
Page 2 of 6 Pages
<PAGE>
or partial liquidation or suspension of the business of III, (iv) filing by or
against III of a voluntary or involuntary petition pursuant to any present or
future bankruptcy law, or any law for the protection of debtors, or (v)
dissolution of III under applicable corporation laws.
16.) Good and valuable consideration for the distribution rights granted by L&M
to III under this agreement is the payment of Advance Royalties for the first
thirty-six months as follows:
a. The acquisition consists of two transactions with the first acquisition of
distribution rights requiring the payment of prepaid royalties of $5,000 per
year per program, with three years minimum paid in advance for five (5) programs
for total of $75,000. ($5,000 per year * three years = 15,000 * 5 programs =
$75,000).
b. In the first transaction, III will pay $75,000 in the form of 125,000 shares
of Internet Infinity common stock to L&M at the rate of $0.60 per share.
c. The value per share was based on the last trading price for non-restricted
common shares at $0.62 with a bid of $0.50 and ask of $0.625 quoted OTCBB on
July 29, 1997.
d. The second transaction for acquisition of distribution rights will require
the payment of prepaid royalties of $5,000 per year per program, with three
years paid in advance for twenty (20) programs for a total of $300,000. ($5,000
per year * 3 years = $15,000 * 20 programs = $300,000). e. In the second
transaction, III has agreed to pay L&M $300,000 with Internet Infinity
Restricted Common Shares at 50% of the III free trading stock price. The price
is to be determined by the closing OTCBB trade price for non-restricted shares
of Internet Infinity on February 27, 1998.
f. The total prepaid royalties for the 25 programs will equal $375,000 for a
three year period amortized at $125,000 per year ending 3/31/99, 3/31/00 and
3/31/01.
g. Neither III nor III can guarantee success in the creation, acquisition or
distribution of any particular program. Therefore, L&M agrees to the following
adjustments for III based on the sales performance of the programs:
e. If the accrued royalties due from III to L&M for the sales of these programs
do not exceed $125,000 for each of the three years ending 3/31/99, 3/31/00 and
3/31/01, a credit will be issued from L&M to III for the balance of $125,000
less royalties earned by L&M for that year. III may use the credit as payment
for any other program royalties licensed by L&M or its affiliates to III. L&M at
its sole discretion may allow the III credit to be used for the
Exhibit 10.2
Page 3 of 6 Pages
<PAGE>
purchases of goods and service from L&M or its affiliates including but not
limited to order fulfillment. However, L&M is not obligated to pay the credit in
cash at any time to III except as it elects to make such cash payment at its
sole discretion. L&M may notify III at any time in writing of its decision to
allow III to use the credit for purchases or of it election to pay the credit in
cash. 17.) III will remit to L&M quarterly a royalty of (15) fifteen percent of
the gross funds it receives during the quarter from the sales of L&M programs.
III will remit to L&M quarterly a royalty of (25) twenty-five percent of the
gross funds it receives during the quarter from the rental or sub-licensing of
L&M programs to a third party. Such report of sales and royalty payments shall
be due thirty days after the end of the quarter.
18.) It is understood by both parties that expenses of operation, costs of
manufacturing, printing, duplication are responsibility of III and not to be
deducted from any payments otherwise due L&M, nor are the expenses to be shared
by L&M unless approved in writing, in advance, by L&M.
19.) The parties to this agreement authorize III to send all payments,
statements, notices and other documents required or permitted under this
agreement directly to the address listed for L&M on the last page of this
agreement.
20.) Royalties due L&M shall be paid by check in United States currency and
shall accompany the royalty statement.
21.) III Video will be responsible for advertising, accepting and filling
orders, billing, collecting payments, and accounting for sales.
22.) L&M shall provide III with a 3/4" NTSC master program and 3- 1/2? HD master
floppy at no cost to III and L&M will allow copies of the masters (sub-masters)
of L&M programs to be made and kept in the possession of III during the contract
period.
23.) L&M shall, for a period of six months following the final expiration of
this agreement grant III the non-exclusive right to sell and/or rent its
inventory of programs remaining as of the expiration date. The agreed percentage
of royalties in Paragraph 16, will apply during the six month "sell-off" period.
24.) All copies of each Video program shall contain appropriate and legally
sufficient copyright notices, which shall be inserted by III. Each Video program
shall bear the trademark of III Video.
25.) It is L&M?s responsibility to pay talent or creative residuals on programs
as they now exist. Payment to present talent persons is in no way a direct or
indirect responsibility of III.
Exhibit 10.2
Page 4 of 6 Pages
<PAGE>
26.) III expects to develop a marketing/sales program for all titles during the
term of this agreement.
27.) L&M represents, warrants and agrees:
a. that III shall not be responsible to L&M any other person or entity with any
alleged interest in the programs for moneys except as specifically set forth in
this contract.
b. that L&M has obtained or will obtain proper and effective licenses or grants
of authority to use the results of the services or performers, and other
persons, connected with the production of the programs.
c. that L&M is the copyright proprietor of the masters and has the exclusive
right to dispose of each and every right granted or purported to be granted to
III in this agreement.
29.) L&M specifically undertakes and agrees to indemnify and hold III harmless
from and against all demands, claims, costs, losses, damages, liabilities,
causes of action, and expenses (including III' reasonable attorney's fees)
resulting directly or indirectly from any claimed breach of any agreement,
representation or warranty made by L&M in this contract.
29.) III specifically undertakes and agrees to indemnify and hold L&M harmless
from and against all demands, claims, costs, losses, damages, liabilities,
causes of action, and expenses (including L&M's reasonable attorney's fees)
resulting directly or indirectly from any claimed breach of any agreement,
representation or warranty made by III in this contract.
30.) This agreement has been entered into in the State of California, and the
validity, interpretation and legal effect of this contract shall be governed by
the laws of the State of California with respect to the determination of any
claims, dispute or disagreement which may arise out of the interpretation,
performance, or breach of this contract.
31.) The agreement shall endure to the benefit of and be binding upon the heirs,
successors and assigns of the parties.
32. This agreement contains the entire understanding of the parties hereto
relating to the subject matter hereof and cannot be amended, modified, changed
or terminated except by a written instrument duly signed by authorized officers
of the parties hereof. A waiver by either party of any term or condition of this
agreement in any instance shall not be deemed or construed as a waiver of such
term or condition for the future or of any subsequent breech thereof. The
invalidity of any particular provision of this agreement, and
Exhibit 10.2
Page 5 of 6 Pages
<PAGE>
this agreement shall be construed as if such invalid provisions were omitted.
33.) Any and all actions by III or L&M, with respect to the determination of any
claims, dispute or disagreement which may arise out of the interpretation,
performance, or breach of this agreement shall be submitted to mediation at the
written request of either III or L&M. If no resolution results between the
parties within ninety days of the commencement of mediation, the matter shall be
submitted to binding arbitration under the rules of American Arbitration
Association, conducted in Los Angeles County.
This agreement is accepted by both parties as indicated below.
L&M Media, Inc.
Lord & Morris Productions, Inc. Internet Infinity, Inc.
663 The Village 3303 Harbor Blvd. K-5
Redondo Beach, California 90277 Costa Mesa, California 92626
- ---------------------- ------------------------
George Morris Roger Casas
Date Date
------------- -------------
Exhibit 10.2
Page 6 of 6 Pages
AGR01049A
MASTER LICENSE
and
EXCLUSIVE DISTRIBUTION
AGREEMENT
Between
HOLLYWOOD RIVIERA STUDIOS
and
INTERNET INFINITY, INC.
1.) The following agreement is intended to explain the relationship of Hollywood
Riviera Studios and the Company known as Internet Infinity, Inc.
2.) Hollywood Riviera Studios, (HRS) grants Internet Infinity, Inc., (III) the
exclusive right to manufacturer, duplicate, produce, advertise, promote, sell,
rent, sub-license, exhibit and distribute the Personal & Sales Development
Multimedia Success Programs, as hereinafter defined in Paragraph 11, worldwide
without restriction, in all languages, in unlimited quantities, in all channels
of distribution, in all media, under the following conditions:
3.) III is Internet Infinity, Inc. and its heirs, assigns, licensees, or any
other trade name used by III as the party to this agreement.
4.) The exclusive right granted to III to distribute certain HRS programs
include the following formats: floppy disk, digital video, CD-ROM,
videocassette, videodisks, film or any other present or future format now in
existence or later developed which can be used to record the HRS media licensed
to III.
5.) The exclusive right granted to III to distribute HRS programs includes all
forms of media and delivery of content of media presently known and/or in use or
to be devised and used in the future, including interactive television,
satellite and Internet, not withstanding the nature of format used, form of
delivery system or contrivance utilized, venue utilizing such programming or
method of payment.
6.) "Exclusive" means sole control and supervision by III of all sales and
marketing efforts of the licensed HRS programs. HRS will not manufacturer,
duplicate, produce, advertise, sell or distribute the programs or license or
sub-license these rights to any third parties, during the term of this
agreement, anywhere, worldwide. HRS grants III the exclusive right and license
to sub-license the rights to third parties under this agreement. HRS reserves
the right to approve any sub-licensing or assignment of the rights granted by
this Agreement to any third party licensee, such approval not to be unreasonably
withheld.
Exhibit 10.3
Page 1 of 6 Pages
<PAGE>
7.) III shall have the sole discretion on all issues relating to creating and
marketing the programs including but not limited to the right to create
packaging material, brochures and other selling aids for the programs, and to
create and use all other marketing and promotional materials III shall deem
necessary.
8.) III will be responsible for providing any artwork for packaging and will
provide such packaging including boxes or folders. HRS does not receive any
rights in packing and promotional materials created by III.
9.) Neither party, HRS nor III shall incur any obligation in the other's name.
The parties shall act solely as independent contractors under this agreement and
nothing contained herein shall create or be construed as creating a partnership,
joint venture, agency or any other relationship between the parties other than
one of independent contractor.
10.) III shall be entitled to sell, market and distribute other products,
including its own creations and programs, as an independent contractor and such
distribution shall not be deemed to be a breach of this agreement. HRS shall be
entitled to sell, market and distribute other products, including its own
creations and programs, as an independent contractor and such distribution shall
not be deemed to be a breach of this agreement.
11.) "program(s)" defined as:
Personal & Sales Development Multimedia Success Programs. Material rights
include existing printed text and electronic video, CD and Internet versions to
be created
12.) The rights granted by HRS to III under this agreement are for a period of
(24) twenty-four months from April 1, 1999 to March 31, 2001.
13.) The rights granted by HRS to III in this agreement shall be extended for an
additional thirty-six months from April 1, 2001 to March 31, 2004 if III has
performed all its obligations under the agreement.
14.) HRS grants III the first right of refusal to extend the distribution rights
covered by this Agreement, in perpetuity, (in agreement with the longest legal
term allowable under existing copyright and contract laws applicable to this
agreement), beyond a three year extension in paragraph 13 above, if III
continues to perform all its obligations under the agreement.
15.) This Agreement shall terminate forthwith, at the election of HRS, in the
event of any (i) default by III of any of its obligations hereunder, (ii)
insolvency of III (however such
Exhibit 10.3
Page 2 of 6 Pages
<PAGE>
insolvency may be evidenced, including, without limitation, by the inability of
III to meet its debts as they mature), (iii) complete or partial liquidation or
suspension of the business of III, (iv) filing by or against III of a voluntary
or involuntary petition pursuant to any present or future bankruptcy law, or any
law for the protection of debtors, or (v) dissolution of III under applicable
corporation laws.
16.) Good and valuable consideration for the rights granted by HRS to III under
this agreement the payment of Prepaid Royalties as follows:
III will obtain the rights for the Program from HRS by paying a non refundable
advance royalty fee of $150,000 in restricted III common stock and no cash to
HRS for the development of the Program. III will pay a quarterly cash royalty of
20% on gross sales of the Program over $750,000.
b. III will pay the $150,000 by issuing 517,241 shares of Internet Infinity
Restricted Common Shares to HRS.
c. The total prepaid royalties for the programs will equal $150,000 for a
two-year period amortized at $75,000 per year commencing at the first shipment
of the programs by III.
d. Neither III nor HRS can guarantee success in the creation, acquisition or
distribution of any particular program. Therefore, HRS agrees to the following
adjustments for III based on the sales performance of the programs:
e. If the accrued royalties due from III to HRS for the sales of these programs
do not exceed $150,000 for the two years following commencement of delivery of
the first programs by III, III may request a credit from HRS for that part of
the unearned prepaid royalties paid with stock. The credit shall be equivalent
to 20% of the difference between the actual royalties earned and owed to III and
the $150,000 prepaid with III shares.
Any credit for prepaid royalties issued by HRS to III shall at III?s
sole discretion be applied to: 1) purchases of goods and service from HRS and
its affiliates L&M Media, Inc. or Apple Media Corporation, 2.) other royalties
due to HRS and its affiliates L&M Media from III. HRS is not obligated to pay
off the credit in cash at any time. HRS shall notify III in writing at any time
of its decision to allow III to use the credit for other purchases, royalties or
of it election to pay all or part of the credit in cash.
g. In addition, a Stock Options is granted to HRS for 258,621 @ $0.58 as an
incentive for the creation of the Program. Other stock
Exhibit 10.3
Page 3 of 6 Pages
<PAGE>
options may be granted from time to time by the Board to HRS and the members of
their creative team as incentive for continued high quality performance in the
creation of programs for III.
17.) III shall pay HRS quarterly a royalty of (20%) twenty percent of the gross
funds it receives during the quarter from the sales, rental or sub-licensing of
HRS programs to a third party. Such report of sales and royalty payments shall
be due thirty days after the end of the quarter.
18.) It is understood by both parties that expenses of operation, costs of
manufacturing, printing, duplication are responsibility of III and not to be
deducted from any payments otherwise due HRS, nor are the expenses to be shared
by HRS unless approved in writing, in advance, by HRS.
19.) The parties to this agreement authorize III to send all payments,
statements, notices and other documents required or permitted directly to the
address listed for HRS on the last page of this agreement.
20.) Royalties due HRS shall be paid by check in United States currency and
shall accompany the royalty statement.
21.) III Video will be responsible for advertising, accepting and filling
orders, billing, collecting payments, and accounting for sales.
22.) HRS shall provide III with a 3/4" NTSC master program and 3- 1/2? HD master
floppy at no cost to III and HRS will allow copies of the masters (sub-masters)
of HRS programs to be made and kept in the possession of III during the contract
period.
23.) HRS shall, for a period of six months following the final expiration of
this agreement grant III the non-exclusive right to sell and/or rent its
inventory of programs remaining as of the expiration date. The agreed percentage
of royalties in Paragraph 16, will apply during the six month "sell-off" period.
24.) All copies of each Video program shall contain appropriate and legally
sufficient copyright notices, which shall be inserted by III. Each Video program
shall bear the trademark of III Video.
25.) It is L&M?s responsibility to pay talent or creative residuals on programs
as they now exist. Payment to present talent persons is in no way a direct or
indirect responsibility of III.
26.) III expects to develop a marketing/sales program for all titles during the
term of this agreement.
27.) HRS represents, warrants and agrees:
Exhibit 10.3
Page 4 of 6 Pages
<PAGE>
a. that III shall not be responsible to HRS any other person or entity with any
alleged interest in the programs for moneys except as specifically set forth in
this contract.
b. that HRS has obtained or will obtain proper and effective licenses or grants
of authority to use the results of the services or performers, and other
persons, connected with the production of the programs.
c. that HRS is the copyright proprietor of the masters and has the exclusive
right to dispose of each and every right granted or purported to be granted to
III in this agreement.
28.) HRS specifically undertakes and agrees to indemnify and hold III harmless
from and against all demands, claims, costs, losses, damages, liabilities,
causes of action, and expenses (including III' reasonable attorney's fees)
resulting directly or indirectly from any claimed breach of any agreement,
representation or warranty made by HRS in this contract.
29.) III specifically undertakes and agrees to indemnify and hold HRS harmless
from and against all demands, claims, costs, losses, damages, liabilities,
causes of action, and expenses (including HRS's reasonable attorney's fees)
resulting directly or indirectly from any claimed breach of any agreement,
representation or warranty made by III in this contract.
30.) This agreement has been entered into in the State of California, and the
validity, interpretation and legal effect of this contract shall be governed by
the laws of the State of California with respect to the determination of any
claims, dispute or disagreement which may arise out of the interpretation,
performance, or breach of this contract.
31.) The agreement shall endure to the benefit of and be binding upon the heirs,
successors and assigns of the parties.
32. This agreement contains the entire understanding of the parties hereto
relating to the subject matter hereof and cannot be amended, modified, changed
or terminated except by a written instrument duly signed by authorized officers
of the parties hereof. A waiver by either party of any term or condition of this
agreement in any instance shall not be deemed or construed as a waiver of such
term or condition for the future or of any subsequent breech thereof. The
invalidity of any particular provision of this agreement, and this agreement
shall be construed as if such invalid provisions were omitted.
33.) Any and all actions by III or HRS, with respect to the determination of any
claims, dispute or disagreement which may arise out of the interpretation,
performance, or breach of this agreement
Exhibit 10.3
Page 5 of 6 Pages
<PAGE>
shall be submitted to mediation at the written request of either III or HRS. If
no resolution results between the parties within ninety days of the commencement
of mediation, the matter shall be submitted to binding arbitration under the
rules of the American Arbitration Association, conducted in Los Angeles County.
This agreement is accepted by both parties as indicated below.
Apple Realty, Inc. Internet Infinity, Inc.
DBA: Hollywood Riviera Studios
663 The Village 3303 Harbor Blvd. K-5
Redondo Beach, California 90277 Costa Mesa, California 92626
- ---------------------- ------------------------
George Morris Roger Casas
Date Date
------------- -------------
Exhibit 10.3
Page 6 of 6 Pages
