U. S. Securities and Exchange Commission
Washington, D. C. 20549
AMENDMENT NO. 1 TO 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 0-27633 95-4679342
- ------------------------------- ------------- ----------------------
(State or other jurisdiction of (SEC File No.) (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 Profit (Loss) .......................................... 8
Balance Sheet Items ........................................ 8
Liquidity and Outlook ...................................... 9
Costs of Filing Periodic Reports ........................... 9
Properties ................................................................ 10
Security Ownership of Certain Beneficial Owners and
Management ........................................................ 10
Changes in Control ......................................... 11
Directors, Executive Officers and Control Persons ......................... 11
Executive Compensation .................................................... 13
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
ii
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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
<PAGE>
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.
1
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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 -
2
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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
3
<PAGE>
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.
4
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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.
5
<PAGE>
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 six-month periods ended September 30, 1998 and September 30, 1999:
<TABLE>
<CAPTION>
Year Ended 3-31 6-months Ended 9-30
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 67.8 75.8
----- ------ ------ ------
Gross margin 22.1 25.9 32.2 24.2
Selling, general and
administrative
expenses 30.4 18.5 21.4 15.2
Asset impairment
charge -- 23.5 -- --
Other expenses:
Amortization and
interest 0.8 2.3
------ ------ ----- -----
Net income (loss) before
income taxes (8.3) (16.1) 10.0 6.7
</TABLE>
6
<PAGE>
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, an 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 6.5% from $583,033 in the six-month period ended
September 30, 1998 to $620,783 in the six-month period ended September 30, 1999.
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 $187,610, or 32.2 percent of sales, in the
six-month period ended September 30, 1998 to $150,300, or 24.2 percent of sales,
in the six-month period ended September 30, 1999. 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 $124,443,
or 21.4 percent of sales, in the six-month period ended September 30, 1998 to
$94,736, or 15.2 percent of sales, in the six-month period ended September 30,
1999. This decrease in selling, general and administrative expenses as a percent
of sales is attributable primarily to tighter cost controls on promotional
services.
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
7
<PAGE>
not paid any prepaid royalties. Royalties owed to L&M from the sales of any L&M
programs, 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 six-month period ended September 30, 1999, the cash flow
received by the company was $61,229 from sales of $620,783 less $470,483 cost of
goods and $2,328 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 Profit (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 of $58,837, or $0.006 per share of
our common stock in the six-month period ended September 30, 1998 and a net
income from operations of $33,154 after a provision for income taxes of $8,000,
or $0.003 per share of our common stock in the six-month period ended September
30, 1999. The lower net income is attributed to a higher cost of goods for the
six months ended September 30, 1999 that was partially offset by lower operating
expenses for the six months ended September 30, 1999.
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
8
<PAGE>
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.
Interim balance sheet items.
---------------------------
Our cash position decreased from $64,458 at March 31, 1999 by $37,083
to $27,375 at September 30, 1999. Accounts receivable from non-affiliates
increased from $129,537 at the end of fiscal year 1999 to $146,541 for the
six-month period ended September 30, 1999. Accounts receivable from affiliated
companies increased from $110,351 at the end of fiscal year 1999 to $208,258 for
the six-month period ended September 30, 1999.
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 high gross margin,
pre-recorded 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 for over one year a small business site called "Internet
Infinity to Business" and hopes to launch the site before the end of calendar
1999. The site will be used for the sale of business productivity books,
software, tapes, electronics and supplies. 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.
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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 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.
10
<PAGE>
Changes in Control
There are no arrangements which may result in a change in control of the
company.
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
11
<PAGE>
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.
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.
12
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1997,
1998 and 1999 of the chief executive officer of the company.
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>
13
<PAGE>
(1) These options are under the control of George Morris, chief executive
officer of the company.
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,
14
<PAGE>
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.
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
15
<PAGE>
the replacement cost of each of the twenty-five programs to be approximately
$62,500 or a total in excess of $1,500,000.
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> <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 September 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 September 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
Basis of Presentation of Interim Financial Statements ....................F-15
Consolidated Balance Sheet (unaudited)
at September 30, 1999 ............................................F-16
Consolidated Statement of Operations (unaudited)
for the Six Months Ended September 30, 1999
and September 30, 1998 ...........................................F-17
Consolidated Statement of Cash Flows (unaudited)
for the Six Months Ended September 30, 1999
and September 30, 1998 ...........................................F-18
Notes to Consolidated Financial Statements
September 30, 1999 ...............................................F-19
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 (Note 8) 36,526
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
CURRENT LIABILITIES
<S> <C>
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 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 royalties 517,241 517 149,483 -- 150,000
(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
------------------ ------------------
CASH FLOWS PROVIDED (USED ) BY OPERATING
ACTIVITIES:
<S> <C> <C>
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 600 --
Activities
------------------ ------------------
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 51,394 101,323
Activities
------------------ ------------------
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 Morris & Associates), 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)
Maturities of due to officer are as follows:
<TABLE>
<CAPTION>
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>
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>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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>
BASIS OF PRESENTATION
OF
INTERIM FINANCIAL STATEMENTS
The balance sheet as of September 30, 1999, and the statements of operations and
cash flows for the periods ended September 30, 1999 and 1998, have not been
audited by independent accountants but reflect all adjustments which are in the
opinion of management necessary to a fair statement of the results for such
periods. The results of operations for the six months ended September 30, 1999,
are not necessarily indicative of results to be expected for the year ending
March 31, 2000.
F-15
<PAGE>
INTERNET INFINITY, INC.AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
09-30-99 03-31-99
(Unaudited) Audited
ASSETS ----------- -----------
Current assets: (Unaudited)
<S> <C> <C>
Cash $ 27,375 $ 64,458
Accounts receivable - net of allowance
for doubtful accounts of $10,000 146,541 129,537
Inventories 59,918 59,918
Prepaid Royalties 46,075 46,075
Note receivable - related company 36,526
Net Current Deferred Tax Asset 28,414 36,414
----------- -----------
TOTAL CURRENT ASSETS 308,323 372,928
Due from Related Companies 208,258 110,351
Programming Costs 2,983 5,969
Prepaid Royalties - Non-Current 46,075 46,075
Property and Equipment, at cost
Office Equipment 16,955 16,955
Office Furniture 15,367 15,366
----------- -----------
32,322 32,321
Less Accumulated Depreciation (32,322) (32,322)
----------- -----------
Net Property & Equipment - - -
----------- -----------
TOTAL NON-CURRENT ASSETS 257,316
-----------
TOTAL ASSETS $ 565,639 $ 535,323
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: (Unaudited)
Notes payable $ 87,142 $ 92,386
Accounts Payable 51,840 51,123
Accrued Payroll 4,127 4,127
Due to Officer 71,856 71,856
Other 7,284 2,000
----------- -----------
TOTAL CURRENT LIABILITIES 222,249 224,682
Long-term Liabilities
Due to Officer - Non Current 144,303 144,708
----------- -----------
TOTAL LONG-TERM LIABILITIES 144,303 144,708
----------- -----------
TOTAL LIABILITES 366,552 369,390
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $.001;
authorized 1,000,000 shares: issued
and outstanding -0- shares
Common stock, par value $0.001;
Authorized 20,000,000 shares; issued and
Outstanding 10,010,196 10,010 10,010
Paid-in Capital 898,859 898,859
Retained Earnings (Deficit) (709,782) (742,396)
----------- -----------
STOCKHOLDERS' EQUITY 199,087 165,933
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 565,639 $ 535,323
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended Six months ended
September 30, 1999 September 30, 1998
Amount Amount
(Unaudited) Percent (Unaudited) Percent
<S> <C> <C> <C> <C>
REVENUE
Sales (Net) $620,783 100.0 $583,033 100.0
COST OF SALE 470,483 75.8 395,423 67.8
-------- ----- -------- -----
GROSS PROFIT 150,300 24.2 187,610 32.2
-------- ----- -------- -----
OPERATING EXPENSES 94,736 15.2 124,443 21.4
------- ----- -------- -----
OPERATING INCOME 55,564 9.0 63,167 10.8
------- ----- -------- -----
OTHER EXPENSES
Amortization Expense 2,986 -
Interest Expense 11,424 4,810
-------- --------
14,410 2.4 4,810 .8
-------- ----- -------- -----
NET INCOME BEFORE
INCOME TAXES 41,154 6.6 58,357 10.0
-------- ----- -------- -----
Provision for Income
Taxes Deferred 8,000 -
-------- -----
NET INCOME $ 33,154 5.3 $ 58,357 10.0
======== ===== ======== =====
Weighted Average of
Shares Outstanding(1) 11,447,438 9,259,714
---------- ---------
Per Share $0.003 $0.006
====== ======
</TABLE>
- -------------------------
(1) Includes stock options
F-17
<PAGE>
INTERNET INFINTY, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended September 30,
1999 1998
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED (USED)BY
OPERATING ACTIVITIES:
Net income (loss) $ 33,154 $ 58,357
----------- -----------
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Amortization of Programming Cost 2,986
Provision for doubtful accounts
Other
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (17,004) (173,365)
Deferred Tax Asset 8,000
Inventory
Notes Payable - current (5,244) 35,691
Accounts Payable 717 (25,492)
Interest Payable (3,190)
Due to Related Companies (2,000) 2,000
Due from Related Companies 36,526 50,238
Other Current Liabilities 7,284
----------- -----------
NET CASH FLOWS PROVIDED (USED) BY
0PERATING ACTIVITIES 61,229 52,271
CASH FLOWS PROVIDED (USED) BY
INVESTMENT ACTIVITIES --
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES
Capital Contributed 25,000
Due to Officer (405)
Due from Related Companies (97,907)
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (98,312) 25,000
NET INCREASE (DECREASE) IN CASH (37,083) (37,083)
Cash: Beginning of the year 64,458 10,610
----------- -----------
$ 27,375 $ (16,961)
=========== ===========
ADDITIONAL DISCLOSURES
Interest Paid $ 6,380
===========
Taxes Paid $ 800 $ 800
=========== ===========
</TABLE>
See notes to financial statements.
F-18
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 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.
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 Morris & Associates), consists of
the following:
Duplicated tapes and display boxes $ 59,918
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-19
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
However, this has not yet been verified.
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
interim period ended September 30, 1999, no amount has been reclassified to "due
from related party" (see Note 6). 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.
(d/b/a Hollywood Rivera 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. No amount was reclassified for the
interim period ended September 30, 1999.
F-20
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 4 - PROGRAMMING COSTS
Programming costs, consisting of video production and editing, are capitalized
and amortized over three years. Accumulated amortization was $14,924 at
September 30, 1999.
NOTE 5 - NOTES PAYABLE
The Company has nine notes payable with various unrelated individuals, totaling
$93,116. 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 6 - 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. $202,922
Less current portion 36,526
--------
Long-term portion $166,396
========
Loan payable to Morris Financial, without interest. Loan was paid
subsequent to year end. Morris Financial is owned 100% by George Morris. $ (500)
========
</TABLE>
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 13).
L&M Media, Inc. owns 45.3% of the outstanding stock of Internet Infinity, Inc.
NOTE 7 - 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 April 1, 2001 $133,753
Two unsecured notes payable to George Morris, due on demand with 90 days
notice, with interest at 6% per annum. 71,856
--------
205,609
Less current portion 71,856
--------
Long-term portion $133,753
========
</TABLE>
<TABLE>
<CAPTION>
Maturities of due to officer are as follows:
For Year Ended
March 31,
--------------
<S> <C>
2000 $ 71,856
2001 133,753
--------
$205,609
========
</TABLE>
F-21
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 8 - 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.
NOTE 9 - DEFERRED 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 $ 28,814
Deferred tax liability - current --
---------
Net asset - current $ 28,814
=========
Deferred tax asset - non-current $ 190,210
Deferred tax liability - non-current
--
Less valuation allowance (190,210)
Net asset - non current $ 0
=========
</TABLE>
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 $199,210.
NOTE 10 - (PROVISION) BENEFIT FOR INCOME TAXES
The components of the provision benefit for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
------- ---------
Deferred (Provision) Benefit
<S> <C> <C>
Federal $5,200 $ 0
State 1,300 0
------ ---------
$6,500 $ 0
====== =========
</TABLE>
The Company has a net operating loss carryforward of $473,000 for tax purposes.
For federal income tax purposes, the net operating loss carryforwards expire
through 2018.
NOTE 11 - NET (INCOME) PER SHARE
Net income per share for the interim period ended September 30, 1999 and 1998 is
based on the weighted average of shares outstanding which were 11,447,408 shares
and 9,295,714 shares, respectively. Stock options have been considered in the
calculation of income per share.
F-22
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 12 - 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, and September 30, 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>
NOTE 13 - MAJOR SUPPLIER
Apple Media, Inc. is a wholly owned subsidiary of L&M Media, Inc., which is
owned 98% by George Morris. Apple Media, Inc. is the major supplier of products
to Internet Infinity, Inc. and subsidiaries.
F-23
<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.*
*Previously filed and incorporated herein by reference.
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: November 15, 1999 By /s/ George Morris
---------------------------------
George Morris, Chief Executive Officer
23
