U. S. Securities and Exchange Commission
Washington, D. C. 20549
AMENDMENT NO. 2 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 (I.R.S. Employer
incorporation or organization) (SEC File No.) Identification Number)
3303 Harbor 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)
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TABLE OF CONTENTS
Page
----
Preliminary Statement ......................................... ........ 1
Description of Business................................................. 1
Business Development ........................................... 1
Business of Internet Infinity .................................. 3
Products ................................................ 3
Supplies and Sub-Contractors ............................ 4
Distribution Methods .................................... 6
Competition ............................................. 6
Advertising and Promotion ............................... 7
Dependence on Major Customers ........................... 7
Patents, Trademarks and Licenses ........................ 7
Government Approval and Regulations ..................... 7
Year 2000 Computer Problems ............................. 8
Research and Development ................................ 8
Cost of Compliance with Environmental Laws .............. 8
Seasonality ............................................. 8
Employees ............................................... 8
New Products and Services ............................... 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 9
Results of Operations .......................................... 9
Sales ................................................... 9
Gross Margin ............................................ 10
Selling, General and Administrative Expenses ............ 11
Royalties Expense ....................................... 12
Net Profit (Loss) ....................................... 12
Balance Sheet Items ..................................... 13
Liquidity and Outlook ................................... 13
Costs of Filing Periodic Reports ........................ 14
Properties .............................................................. 14
Security Ownership of Certain Beneficial Owners and
Management ...................................................... 15
Changes in Control ....................................... 15
Directors, Executive Officers and Control Persons ....................... 16
Executive Compensation ................................................... 17
Certain Relationships and Related Transactions ........................... 19
Description of Securities ................................................ 23
Common Stock ..................................................... 23
Voting Rights ............................................. 23
Dividend Rights ........................................... 23
Liquidation Rights ........................................ 24
Preemptive Rights ......................................... 24
Registrar and Transfer Agents ............................. 24
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Dissenters' Rights ....................................... 24
Market for Common Stock and Related Stockholder Matters ................. 24
Holders ......................................................... 25
Dividends ....................................................... 25
Legal Proceedings ....................................................... 25
Recent Sales of Unregistered Securities ................................. 25
Indemnification of Directors and Officers ............................... 26
Financial Statements .................................................... 27
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PRELIMINARY STATEMENT
Internet Infinity, Inc. (the "Company") is filing this registration
statement on a voluntary basis under Section 12g) of the Securities Exchange Act
of 1934. Our common stock trades in the over-the-counter market and is quoted by
NASD market makers on the OTC Bulletin Board. A recent rule change requires that
all Bulletin Board companies must file periodic financial reports with
governmental authorities such as the Securities and Exchange Commission. The
effectiveness of this registration statement subjects Internet Infinity 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.
Sam's Club returned $237,000 of a $257,000 single order of a new Internet Access
program. Sam's Club's reason for the return was a lack of retail sales for this
type of product caused by competitors' low- or free-of-cost browsers and other
Internet utility programs. By early 1997 our software sales were slipping toward
zero and Internet Infinity had to find an alternative revenue opportunity to
survive.
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, LLC. Internet Infinity had experience with videotape duplication and
CD-ROMs from prior sales of our special interest video programs and Internet
software programs. In addition, the growing digital media market offered
compatible alternative electronic media opportunities to Internet Infinity. One
of Internet Infinity's early software packages for the retail market included a
combination of CD and access to the Internet. The 70-year-old owner of Video
Magnetics had primarily sold, to small local companies, video tape duplication
services, CD-ROM duplication services, new low quality and used blank video
tapes, video tape packaging supplies and used video tape duplication equipment.
In December 1996, the owner of Video Magnetics said he wanted to get rid of the
business and retire as soon as possible. He advised Internet Infinity that he
believed a new owner would not want to continue the distribution arrangement
Video Magnetics had with Internet Infinity. Therefore, the only way to guarantee
Internet Infinity's right to distribute the products and retain the existing
customer base that came from Video Magnetics was to acquire Video Magnetics.
Accordingly, George Morris, our chief executive officer and a director with his
wife, Dawn Morris, the controlling shareholders of our company, through another
company, L&M Media, Inc., in which they have had a 98 percent ownership for over
ten years, bought Video Magnetics' business in early 1997. If the Morrises had
not acquired Video Magnetics, the sales to existing Video Magnetics customers
that had been turned over by Video Magnetics to Internet Infinity and the
availability of Video Magnetics' low-cost, in-house manufacturing facilities
would probably have been lost to any other new owner of Video Magnetics.
L&M Media, Inc., the acquirer of Video Magnetics' business, had produced
and created special interest video programs, such as how-to sports, home, auto
and business training.
On December 1, 1998, Apple Media Corporation, a wholly-owned subsidiary
of L&M Media, Inc., assumed all responsibility for business operations of the
former Video Magnetics, Inc. Apple Media focuses on the manufacturing and
duplication of video, CD and related products. Apple Media Corporation, as a
wholly-owned subsidiary of L&M Media, Inc. is indirectly 98 percent owned by
George and Dawn Morris since George and Dawn Morris own 98 percent of L&M Media,
Inc.
Apple Media Corporation is the major supplier of products to Internet
Infinity and its subsidiaries. It provides blank video, video packaging supplies
and duplication of video and CD Media on credit terms as needed by Internet
Infinity and its subsidiaries.
At the time we acquired Video Magnetics we also added to the Internet
Infinity business the distribution of better quality blank videotapes,
recordable compact discs ("CDRs") and pre-recorded video programs on numerous
subjects. L&M Media, Inc. and its wholly-owned subsidiary Apple Media
Corporation, source new suppliers of electronic media materials and components
through aggressive purchasing management. The business rationale is to increase
Internet Infinity sales with more products and services. The licensed,
pre-recorded video programs are owned by L&M Media, Inc., an affiliated company
98 percent owned by George and Dawn Morris. Internet Infinity contacts video
store chains and school distributors by telephone to offer these licensed
programs. Program subjects include "how-to" for various sports, cooking, home
and auto repair, lawn and garden, crafts, business success and computer software
training.
2
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In July 1997 we started to accumulate the distribution rights to
twenty-five Health and Medicine video programs owned by L&M Media, Inc., which
is 98 percent owned by George and Dawn Morris, the controlling shareholders and
officers and directors of Internet Infinity. We completed this accumulation in
February 1998. Then, in early 1999 we purchased, from L&M Media and from
Hollywood Riviera Studio, the distribution rights to five video modules on
Personal and Sales Skill Development. Hollywood Riviera Studios is the "dba" of
Apple Realty, Inc., which is 100 percent owned by George and Dawn Morris, the
controlling shareholders and principal officers and directors of Internet
Infinity. We propose to commence the marketing of the Health and Medicine video
programs and the Personal and Sales Skill Development video modules in the first
half of calendar year 2000. Finally, we are building an "Internet Infinity to
Business" web site that we will launch in early calendar year 2000 to sell our
Personal and Sales Skill Development product.
Business of Internet Infinity
Internet Infinity
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 - Recordable Compact Disc;
o pre-recorded special interest video programs of six types -
o computer training,
o health and medical,
o sports and exercise training,
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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 Internet Infinity, and
o subsidiaries of Internet Infinity.
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
percent of the total invoice amount billed by us to a customer including
shipping. Apple Media Corporation is a wholly-owned subsidiary of L&M Media,
Inc., which is 98 percent owned by George and Dawn Morris, the controlling
shareholders, officers and directors of Internet Infinity. 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 wholly-owned
subsidiary, are responsible for sales force compensation, direct sales and
accounting clerical support and executive management out of our 20 percent of
the invoice discount amount. In addition, Apple Media Corporation also provides,
at a cost of $900 a month or $10,800 for the twelve-month fiscal year ended
March 31, 1999, office facilities, telephone, and utilities to our sales and
management staff.
Our prerecorded video programs are manufactured, duplicated and shipped
by Apple Media at a cost of 20 percent 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 wholly-owned subsidiary to retain the
remaining 80 percent of the sales revenue. Morris & Associates is responsible
for sales force compensation, direct sales and accounting clerical support,
executive management and product packaging out of its 80 percent. Morris &
Associates also pays a licensing royalty fee of between 10 percent to 20 percent
of the gross sales dollars to L&M Media, Inc. which owns the programs. However,
the 80 percent gross margin after cost of goods less royalties of 10 percent to
20 percent generates a net profit of 60 percent to 70 percent on sales of the
programs licensed from L&M Media.
Internet Infinity has a non-exclusive distribution license Agreement
from L&M Media for approximately 200 special interest video programs that
automatically renews each year on August 1 until terminated by either party
without cause with thirty days written notice. Termination by either L&M Media
or Internet Infinity would result in a loss of revenue to Internet Infinity.
Sales for the six-month period ended September 30, 1999 were $30,418, down 42
percent from $52,473 for the six-month period ended September 30, 1998. Internet
Infinity is planning to re-introduce the 200 special interest video programs as
a low cost "budget" ($2.95-$3.95 retail) line in an attempt to increase sales.
Internet Infinity also holds exclusive distribution licenses from L&M Media for
25
4
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programs on Health and Medicine and from L&M Media and Hollywood Riviera Studios
for five modules of Personal and Sales Skill Development programs. Any royalties
owed by Internet Infinity to L&M Media from sales of the 200 special interest
programs may be applied to the balance due on the stock subscription agreements
between Internet Infinity, L&M Media and Hollywood Riviera Studios that are
associated with both the Health and Medical and the Personal Sales Skills
Development program rights obtained from L&M Media and Hollywood Riviera
Studios. The Personal Sales Skills Development programs were originally
developed by L&M Media but were refined and improved by Hollywood Riviera
Studios. L&M Media and Hollywood Riviera Studios share in all royalties earned
by the five Personal Sales Skills Development programs. L&M Media, Inc. is 98
percent owned by George and Dawn Morris, the controlling shareholders of
Internet Infinity and its principal officers and directors. Hollywood Riviera
Studios is 100 percent owned by George and Dawn Morris. Therefore, with the
pooling of earned royalties owed to L&M Media, Internet Infinity is not required
to use cash for royalty payments to L&M Media until all the stock subscription
agreements are completely paid by L&M Media and Hollywood Riviera Studios.
Our Internet design and marketing services delivered to nonaffiliated
customers have declined since first introduced in 1996 due to low cost and free
services offered by competitive Internet service providers. The increased
competition for the creation of smaller Web sites that led to lower prices for
these services and the reduction of the Internet Infinity staff in this area due
to a cash shortage caused Internet Infinity to reduce its offerings of Internet
design services in 1997, 1998 and 1999. It became more expedient for Internet
Infinity to focus on video and CD products and services sales to generate cash
and financially survive in 1997. Although revenues from Internet design services
have declined to zero in early 1999, the opportunity to provide these services
to the visitors of our new, under-construction, Internet Infinity business site
will be pursued. We are now focusing our Internet site design and marketing
services for our own Internet product sales activities. Our current mission is
to help market the products and services of our subsidiaries and selected
clients with multimedia promotion and financial and transactional services to
facilitate successful trade on the Internet. Therefore, Internet Infinity plans
to utilize its experience and resources to launch successful Internet sites that
sell its products and services.
Internet Infinity is currently working with past employees who are now
acting as lower cost independent contractors to Internet Infinity for Internet
site design and development. They are to finish a business to business site that
will offer business productivity tools such as special books, training tapes and
electronics. In addition, a site is now complete and ready for improvement and
promotion for the sale of duplication services at (www.iiemc.com). The Internet
---------------
Infinity plan calls for the utilization of CD's and videos like NetScape,
American On-line to promote these sites since we have experience and a low
internal cost with this media in addition to telemarketing activities.
Our blank video Internet site (www.blankvideo.com) is currently
generating prospects and orders. Internet Infinity is making a marketing
resource commitment to promote this site with telemarketing and on-line
promotion commencing in January 2000. Orders for blank videotapes over the last
six months ended December 31, 1999 were small at $28,775, but management
believes there is an opportunity to increase sales though the blankvideo
Internet site.
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The "Internet Infinity Business to Business" site will launch in the
first calendar quarter of 2000. The new Internet Infinity business to business
site will also provide new opportunities to sell non-affiliate design and
marketing services. Our marketing plan calls for offering web design services to
members as part of belonging to an Internet Infinity community of businesses
with similar interests. The Internet Infinity value-added concept providing
revenue and information benefits to a community member as part of the design and
marketing package should help offset the non-differentiated price focused
competition. Value added services and product differentiation are fundamental
tools for the marketing strategy.
The functional relationship of our wholly-owned subsidiaries, Electronic
Media Central Corporation and Morris & Associates, Inc., to Internet Infinity
facilitates the focus of sales activities and future growth on different
markets. Electronic Media Central targets the business customer/user and Morris
& Associates targets the retailer or reseller to the consumer and education
markets. Internet Infinity uses different personnel and tactics to market to
these different markets. However, both subsidiaries share many of the same
Internet Infinity resources to prepare and fulfill orders and to avoid
duplication of fixed costs such as office, administration and shipping.
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 an
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.
Fortunately, Internet Infinity is located close to 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 allow us to compete effectively
on price. Internet Infinity management is constantly shopping the market for
better supplier products, services and prices concerning shipping, packaging and
materials that allow Internet Infinity to offer more value to its customers. In
addition, Internet Infinity monitors offers from competitors on the Internet,
through direct mail and through comparison-shopping to remain competitive. With
Internet Infinity value pricing and offering special delivery service, special
design consultation and fast order fulfillment, customers are willing to leave
their masters with us for convenient repeat orders. Many competitors in the
media duplication or blankvideo area charge significantly extra for rush orders
or for small orders. Internet Infinity has developed the flexibility to handle
many special situations at a low cost and no charge to the customer.
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The pre-recorded video business of selling special interest programs for
---------------------------
the public has few suppliers in the form of large distributors like Baker and
Taylor and many small independent production companies. "Special interest"
refers to how-to, information and other non-entertainment programs. Examples of
Internet Infinity special interest programs are how-to subjects including
various sports, cooking, home and auto repair, lawn and garden, crafts, business
success and computer software training tapes. With video retail industry
consolidation over the past five years, there are only a few major retail chains
for the sale of special interest programs such as Blockbuster Video and
Musicland/Sam Goody's. 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 at $2.95 to $3.95 retail. We have existing trade
relationships with Musicland and Baker & Taylor Distribution that have supported
sales for our programs in the past. Internet Infinity currently sells
prerecorded video programs on a non-contract limited return basis with Musicland
and Baker and Taylor. All retail store customers can return up to 20 percent of
their total purchases over the last twelve months for credit, not cash, against
future purchases.
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
Business to Business" web site as part of our community member value added
services. The first of several planned addresses for the site is: (ii4b.com)
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, independentcontractor 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.
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
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hardware that are Year 2000 compliant. We anticipate any problems with
integrated circuits will be minimal in effect on the remaining office equipment.
Research and Development
------------------------
We are budgeting approximately $50,000 in Fiscal Year 2000 for the
development of an "Internet Infinity Business 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 Internet
Infinity to retain independent software and back-office information technology
subcontractors 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.
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 Business 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 Ingram Book Company, a
national book distributor that will provide us with up to 38,000 business book
titles. A prior agreement with Ingram Micro, a national computer software
distributor, has been abandoned at this time solely by Internet Infinity due to
a lack of resources to implement it in a timely manner. We plan to start
offering the new products in the first quarter of 2000.
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:
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Year Ended 3-31 6-months Ended 9-30
1998 1999 1998 1999
------------------- -------------------
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 19.3 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) 6.6 10.0 6.7
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 primarily to an increase in sales of
Electronic Media Central from $710,110 in 1998 to $1,222,453 in 1999, an
increase of 72.1 percent, and a decrease in sales of Morris & Associates, Inc.
from $117,913 in 1998 to $89,959 in 1999, a decrease of 23.7 percent. These
changes were due, we believe, to an increased effort by the sales
representatives and the resulting increase in the number of customers for
Electronic Media Central products. The industry growth for electronic media
duplication has helped Internet Infinity sales. This trend should continue with
the proliferation of CD drives in computers, DVD players and large installed
base of videocassette recorders. In addition, the new management focus on blank
videotape sales for Internet Infinity is expected to continue with the
management commitment of additional resources. Internet Infinity is also
expanding its telemarketing sales force to prospect for sales of duplication
services, blank media and accessory product such as packaging materials. On the
other hand, we have experienced gradually declining sales over the past three
years of our fully-priced, special-interest, video line for consumers sold by
Morris & Associates.
Interim results. Sales increased 6.5 percent from $583,033 in the
---------------
six-month period ended September 30, 1998 to $620,783 in the six-month period
ended September 30, 1999. Sales for the Internet Infinity wholly-owned
subsidiary Electronic Media Central Corp. increased 11.3 percent from $530,560
in the six-month period ended September 30, 1998 to $590,365 in the six-month
period ended September 30, 1999 and sales decreased 40.1 percent for Morris &
Associates, Inc. from $52,473 in the six-month period ended September 30, 1998
to $30,418 in the six months ended September 30, 1999. The increase in
Electronic Media Central is due to our sales representatives' continued focus on
duplication sales for the six months ended September 30, 1999, and the decrease
in Morris & Associates sales is due to the increasing age of the special
interest video programs offered at a full price of $9.95 - $19.95. The total
increase in sales was attributable
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to an increased effort by the sales representatives and the resulting increase
in the number of customers for Internet Infinity products.
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 of sales, in fiscal year 1999, an
improvement of 85.2 percent. This improvement is primarily attributed to
increased company sales, smaller inventory and labor adjustments for Morris &
Associates. The increase in gross margin was attributable primarily to an
increase in gross margin of our Electronic Media Central subsidiary from $99,801
in 1998 to $274,988 in 1999, an increase of 175.5 percent, and a decrease in
gross margin of Morris & Associates, Inc. from $83,581 in 1998 to $64,559 in
1999, a decrease of 22.8 percent. These changes were due, we believe, to an
increased effort by the sales representatives and the resulting increase in the
number of customers for Electronic Media Central products. This decrease in
gross margin for the Morris & Associates subsidiary 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. The increasing age of the
original 200 special interest video programs licensed by Internet Infinity with
gross profit margins as high as 70 percent is leading to a decrease in the sales
of these programs at their intended full retail price range of $9.95 to $19.95.
In addition, the increase in higher volume, lower 20 percent margin, duplication
sales reflects the increasing marketing opportunity for this product for
Internet Infinity. Therefore, the proportion of pre-recorded video program sales
to total sales should continue to decrease versus duplication. Reducing the
retail price of the pre-recorded video to a range of $2.95 to $3.95 will
increase unit sales, but it cannot be determined at this time whether total
revenue will increase enough to offset the trend in product sales.
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.
Gross margin for the Internet Infinity wholly-owned subsidiary Electronic Media
Central Corp. decreased 14.5 percent from $150,879 in the six-month period ended
September 30, 1998 to $129,008 in the six-month period ended September 30, 1999.
Gross margins decreased 42.0 percent for Morris & Associates, Inc. from $36,731
in the six-month period ended September 30, 1998 to $21,292 in the six months
ended September 30, 1999. The decrease in Electronic Media Central gross margin
is due to the increased cost of sales for some duplication sales for the six
months ended September 30, 1999. The decrease in Morris & Associates gross
margins is due to the decreasing sales of Morris & Associates products because
of increasing age of the special interest video programs offered at a full price
of $9.95 - $19.95.
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. The sale of Morris & Associates products
involves low sales volume but low overhead - essentially, sales are little more
than simple order taking, and because sales are increasing for Electronic Media
Central and decreasing for Morris & Associates, the
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operating expense improvements are almost totally associated with the Electronic
Media Central operations. Therefore, we believe the reduction in the amount of
these expenses is due to better operating efficiency in Electronic Media
Central. The percentage decrease is a function of this reduced amount and
increased sales for Electronic Media Central.
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 $97,778, or 15.8 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 almost exclusively to tighter
cost controls of expenses for Electronic Media Central versus Morris &
Associates expenses. The comparison of interim expenses for the first six-month
periods of 1998 and 1999 is as follows:
o A 100 percent decrease in advertising expense from $397 to nothing;
o A 188 percent increase in bank charges from $645 to $1,861;
o A 25.7 percent increase in payroll processing expense from $2,031
to $2,553;
o A 64.3 percent decrease in insurance expense from $5,608 to $2,000;
o A 30.6 percent decrease in legal and accounting expense from
$25,017 to $17,360;
o An 11.3 percent decrease in salary expense from $72,530 to $64,358;
o An 11.0 percent decrease in office expense from $839 to $747;
o A 100 percent decrease in taxes and licenses expense from $6,772 to
nothing;
o A 19.2 percent decrease in payroll expense from $6,772 to $5,471;
o A 100 percent decrease in telephone expense from $708 to nothing;
o A 100 percent decrease in trade show expense from $5,727 to nothing
Royalties Expense
-----------------
Our distribution rights to both the health and medical programs and the
personal development and sales training programs require the payment of
royalties equal to fifteen percent of gross sales of these programs. The
royalties are owed to L&M Media and Hollywood Riviera Studios, both of which are
controlled by George and Dawn Morris, controlling shareholders and principal
officers and directors of Internet Infinity. The three-year exclusive
distribution rights granted to Internet Infinity for these programs allow the
royalties to be applied to the extinguishment of the stock subscription
agreement payments owed to Internet Infinity by L&M Media and Hollywood Riviera
Studios before any cash payment is made to Internet Infinity. In addition,
Internet Infinity has a similar but non-exclusive distribution license from L&M
Media for approximately 200 special-interest video programs for which it owes
royalties equal to ten percent
11
<PAGE>
of gross sales. Royalties owed to L&M from the sales of these L&M programs by
Internet Infinity are also applied to the subscription agreement balance due
from L&M Media.
The benefits to Internet Infinity in dealing with L&M Media programs can
be measured by the positive cash flow generated over the past two fiscal years.
Sales of these products have a high 80 percent gross margin before dilution of
royalties. For the year ended March 31, 1998, these royalties accounted for
$10,749 of the $83,859 gross margin obtained from the sale of these products.
For the year ended March 31, 1999, these royalties accounted for $7,368 of the
$64,519 gross margin obtained from the sale of these products.
Interim results. For the six-month period ended September 30,
----------------
1999, these royalties accounted for $3,042 of the $21,292 gross margin obtained
from the sale of these products. For the six-month period ended September 30,
1998, these royalties accounted for $4,634 of the $32,517 gross margin obtained
from the sale of these products. Management of Internet Infinity believes that
it is the best interest of Internet Infinity 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 Internet Infinity.
Net Profit (Loss)
-----------------
We had a net loss from operations, after a provision for income taxes,
in the fiscal year ended March 31, 1998 of $69,372, or $0.01 a share of our
common stock. In the fiscal year ended March 31, 1999 we had a net profit from
operations, after a provision for income taxes, of $121,495, or $0.01 a share of
common stock. This profit of 9.3 percent of sales for fiscal year 1999 is due to
the 58.5 percent increase in sales over fiscal year 1998 while operating
expenses actually decreased by 3.6 percent from such expense in fiscal year
1998.
Interim results. We had net income from operations, after a
----------------
provision for income taxes, of $58,837, or $0.006 a share of our common stock in
the six-month period ended September 30, 1998 and net income from operations of
$30,112, after a provision for income taxes, of $8,000, or $0.003 a 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, a cost that was only partially offset by lower operating
expenses for the six months ended September 30, 1999.
Balance Sheet Items
-------------------
Net income from operations of $121,495 for the fiscal year ended March
31, 1999 reduced the retained earnings deficit from $567,381 to $445,886.
However, a $506,883 charge to stockholders equity for the stock subscription
balance due from L&M Media and Hollywood Riviera Studios reduced stockholders'
equity to create a $33,100 deficit at the end of fiscal year 1999. Our cash
position improved from $10,610 for the fiscal year ended March 31, 1998 to
$64,458 for the fiscal year ended March 31, 1999. Accounts receivable from non
affiliates increased from $78,461 at the end of fiscal year 1998 to $129,537 at
the end of fiscal year 1999, while inventory decreased from $65,175 to $59,918
at the end of fiscal year 1999.
12
<PAGE>
Interim balance sheet items. Net income from operations of
---------------------------
$30,112 for the six-month period ended September 30, 1999, reduced the retained
earnings deficit from $445,886 to $415,774 on September 30, 1999. The impact of
this on total stockholders' equity is a change from a deficit of $33,100 to
positive equity of $54 on September 30, 1999. 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. The $20,079
increase in the combined balance of cash and accounts receivable from
non-affiliates of $193,995 for the fiscal year ended March 31, 1999 over
$173,916 for this combined balance for the six months ended September 30, 1998
is attributed to normal business variance and does not represent any pattern
affecting cash flows.
Liquidity and Outlook
---------------------
We have been able to stay in operation only (1) from the services
provided by Apple Media Corporation, a wholly-owned subsidiary of L&M Media,
Inc., a supplier of electronic media duplication services and blank electronic
media, which is under the control of George and Dawn Morris, the controlling
shareholders and principal officers of Internet Infinity and (2) from the cash
flow generated for Internet Infinity from the sale of high gross margin,
pre-recorded video licensed from L&M Media, Inc. and Hollywood Riviera Studios,
a d/b/a of Apple Realty, Inc., which is 100 percent owned by George and Dawn
Morris. With both the lack of sales and the returns of Internet Infinity
software from retail customers in early 1997, Internet Infinity was in jeopardy
of failing with large accounts payable balances and little cash or accounts
receivable available to pay debts. George and Dawn Morris personally advanced
funds to Internet Infinity. They also acquired Video Magnetics, an insolvent
electronic media duplication company with their personal cash and proceeded to
turn around the situation for the benefit of Internet Infinity, Inc. and its
sales and survival. Since early 1997, sales from electronic blank media and
duplication services have continued to grow and provide the funds to reduce
Internet Infinity debt and to create a new Internet product and service line.
Internet Infinity has been developing for over one year a small business site
called "Internet Infinity Business to Business" and hopes to launch the site in
early 2000. The site will be used for the sale of business productivity books,
software, tapes, electronics and supplies. George Morris has loaned funds to
Internet Infinity 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,
Internet Infinity will begin work on a consumer Internet site based on the
distribution rights to the health and medical programs we acquired from the
George and Dawn Morris-controlled company, L&M Media, Inc.
Internet Infinity management believes that we will generate sufficient
cash flow to support operations during the twelve months ended March 31, 2000.
Sales continue to grow, and Internet Infinity continues to generate a net profit
and positive cash flow from operations.
In addition to cash provided from operations, stock subscription
payments from L&M Media and Hollywood Riviera Studios - both controlled by
George Morris - and additional loans from George Morris, the president of
Internet Infinity, for the further development of the Internet Infinity
eCommerce sites will provide additional cash to Internet Infinity. A credit line
for $25,000 from the Wells Fargo Bank as well as a trade credit from L&M Media,
Inc. will support the cash flow needs of Internet Infinity.
13
<PAGE>
The $92,386 notes payable are due to a group of "friendly" investors
that could be paid from additional lines of credit, operations' cash flow and
additional officer loans. Internet Infinity carries an accounts receivable
insurance policy with CNA Insurance to indemnify it against any large bad debts.
The most serious factors affecting the liquidity of Internet Infinity in
the fiscal year ending March 31, 1999 have been slow-pay accounts receivable and
a high return from retailer customers that bought special interest video
programs and computer software products. Internet Infinity has stopped doing
business with these "slow paying" accounts. The payment record of our existing
customers has been good with little or no bad debt losses for over two years.
Accordingly, management believes the risk of non-payment in the future has been
reduced. In addition, Internet Infinity accounts receivable are insured against
loss by CNA Insurance to further protect Internet Infinity from loss.
The trade relationship between Internet Infinity and L&M Media, which is
owned 98 percent by George Morris, president of Internet Infinity, has resulted
in a $39,994 note receivable to Internet Infinity from L&M Media. The current
amount of $36,526 is due on March 31, 2000 plus 6 percent interest. This note
receivable from L&M Media is secured by George Morris using notes due to him by
Internet Infinity, Inc. Payment of the note will generate additional cash flow.
Costs of Filing Periodic Reports
--------------------------------
The filing of this Form 10-SB registration statement subjects Internet
Infinity to certain requirements of the Exchange Act of 1934. These requirements
include the filing of an annual report of Internet Infinity'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 Internet Infinity. The services of
Internet Infinity'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, Internet Infinity will have to borrow these needed funds
from sources not yet identified.
PROPERTIES
Apple Media Corporation ("AMC"), controlled by George and Dawn Morris,
provides Internet Infinity with approximately 800 square feet of office space in
Costa Mesa, California, and George Morris, chief executive officer of Internet
Infinity, provides it approximately 600 square feet in Redondo Beach,
California. Both locations with telephone and utilities are at a cost of $900 a
month total to Internet Infinity. The space provided is part of Internet
Infinity's distributorship arrangement with AMC, and AMC may terminate the
arrangement for free space at any time with a 30-days notice to Internet
Infinity. There is a large amount of office space available for less than $2.00
a square foot within three miles of the existing office. Internet Infinity
reserves the right to move at any time.
14
<PAGE>
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 Internet Infinity beneficially owned by each officer
and director of Internet Infinity individually and as a group, and by each owner
of more than five percent of the common stock.
Percent of
Number Outstanding
Name and Address of Shares Shares
---------------- --------- -----------
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
Apple Realty, Inc. d/b/a
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)(2) 7,746,196 77.4
------------------------
(1) The shares owned of record by L&M Media, Inc. and Hollywood
Riviera Studios are under the control of George Morris.
(2) These officers and directors are George Morris and Dawn Morris, his
spouse.
Changes in Control
There are no arrangements which may result in a change in control of
Internet Infinity.
15
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
Internet Infinity'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:
Person Positions and Officers Since Expires
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
GEORGE MORRIS, Ph.D. 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 Internet Infinity since
Internet Infinity 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 Internet Infinity and its
affiliates. Morris has produced over 20 computer training programs in video and
interactive hypertext multimedia CD-ROM versions, as well as negotiating
Internet Infinity'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 Internet Infinity and its Affiliates, Dr. Morris had 20 years
of academic experience as a professor of Management, Marketing, Finance and Real
Estate at the University of Southern California (1969 - 1971) and the California
State University (1971 - 1999). During this period Dr. Morris served a
Department Chairman for the Management and Marketing Departments. Morris has
since retired from full time teaching at the University. Dr. Morris was the West
Coast Regional Director of the American Society for Training and Development, a
Director of the South Bay Business Roundtable and a speaker on a number of
topics relating to business, training and education. Morris has created or been
directly involved in the design, writing and development of numerous Internet
web sites for Internet Infinity, blank video, Greg Norman, Northwestern
University, etc. He most recently taught University courses about Internet
Marketing for domestic and foreign markets and Sales Force Management.
16
<PAGE>
ROGER CASAS. Mr. Casas has been a Member of the Board of Directors since
-----------
1998 and the Vice President of Operations since Internet Infinity 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 Internet Infinity, 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 Internet Infinity 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 Internet Infinity, 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 Internet Infinity since it went public
in 1996. She has also been the Vice President of L&M Media, Inc. since 1990, now
an affiliate of Internet Infinity. 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 Internet Infinity 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 Internet Infinity.
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1997,
1998 and 1999 of the chief executive officer of Internet Infinity.
17
<PAGE>
Salaries
Fiscal Year Annual Compensation
----------- -------------------
George Morris(1) 1999 37,700
1998 38,400
1997 41,700
Dawn Morris(1) 1999 1,000
(1) Compensation was reduced from our original compensation plan of
$50,000 salary annually for each of George Morris and Dawn Morris
to help Internet Infinity 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 Internet Infinity.
During the last three fiscal years, the executive officers of Internet
Infinity have received the following Stock Options:
Fiscal Year No. of Shares
----------- -------------
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
1997 5,000
Hollywood Riviera
Studios(1) 1999 258,621
- ------------------------
(1) These options are under the control of George Morris, chief executive
officer of Internet Infinity.
18
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our company is under the control of George and Dawn Morris, husband and
wife, who beneficially own 76.5 percent of all outstanding stock of Internet
Infinity, Inc. The basis of their control, and the relationship of all
affiliates of Internet Infinity, are depicted in the following chart:
1. George and Dawn Morris
----------------------
a. They own 98 percent of L&M Media, Inc.
--------------
i. It owns 100 percent of Apple Media Corporation
-----------------------
ii. It owns 45.3 percent of Internet Infinity, Inc.
-----------------------
b. They own 100 percent of Apple Realty, Inc., d/b/a
----------------------------
Hollywood Riviera Studios
-------------------------
i. It owns 10.3 percent of Internet Infinity, Inc.
-----------------------
c. They own 21.8 percent of Internet Infinity, Inc.
-----------------------
i. It owns 100 percent of Electronic Media Central
------------------------
Corp.
----
ii. It owns 100 percent 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 Fiscal Year 1998 L&M Media, Inc. Transactions
-------------------------------------------------
On July 30, 1997, L&M Media, Inc. subscribed to purchase 125,000 shares
of Internet Infinity Common Stock, valued at $0.60 a share, $0.02 below the
closing price and $0.10 more than the bid price for Internet Infinity common
shares on August 1, 1997. In addition to its obligation to pay cash for these
subscribed shares, L&M Media assigned to Internet Infinity a three-year
exclusive distribution right for five health and medical video programs. L&M
Media is 98 percent owned by George and Dawn Morris, husband and wife, and they
are directors and executive officers of Internet Infinity.
On February 27, 1998, L&M Media, Inc. subscribed to purchase 2,142,897
shares of Internet Infinity Common Stock at $0.14 a share, or 50 percent of the
lowest closing price of $0.28 for Internet Infinity Common Stock within last
sixty days prior to February 27, 1998. In addition to its
19
<PAGE>
obligation to pay cash for these subscribed shares, L&M Media assigned to
Internet Infinity a three-year exclusive distribution right for 20 additional
health and medical video programs.
The 50 percent value of the "free-trading" stock price assigned to the
February 27, 1998 stock subscription for licensing rights to 20 additional
health and medical programs is deemed reasonable considering the inability of
L&M Media to dispose of the restricted stock for a long period of time. In
addition, standard media industry practice usually requires cash advance
payments for the acquisition of distribution rights of programs.
To summarize, L&M Media subscribed to purchase 2,267,897 shares of
Internet Infinity's Common Stock in exchange for:
o a subscription agreement obligation to pay $375,000 to Internet
Infinity,
o the exclusive distribution rights to twenty-five health and
medical video programs, and
o royalties set at fifteen percent of sales, the payment of which
royalties will go to the reduction of the stock subscription
obligation until the stock subscriptions are paid in full.
The Fiscal Year 1999 Hollywood Riviera Studios Transaction.
----------------------------------------------------------
On January 4, 1999, Apple Realty, Inc., d/b/a Hollywood Riviera Studios
subscribed to purchase 517,241 shares of Internet Infinity Common Stock at $0.29
a share, or 50 percent of the closing price of $0.57 for Internet Infinity
Common Stock on January 4, 1999. In addition to its obligation to pay cash for
the subscribed shares, Apple Realty, Inc. assigned to Internet Infinity a
three-year licensing distribution right for five training modules on Personal
and Sales Skill Development. Apple Realty, Inc., d/b/a Hollywood Riviera
Studios, is a company 100 percent owned by George Morris.
The 50 percent value of the "free-trading" stock price assigned to the
January 4, 1999 stock subscription for licensing distribution rights for five
training modules on Personal and Sales Skill Development is deemed reasonable
considering the inability of Hollywood Riviera Studios to dispose of the
restricted stock for a long period of time. In addition, standard media industry
practice usually requires cash advance payments for the acquisition of
distribution rights of programs.
Also, as part of the same transaction, Internet Infinity issued 258,621
stock options to Hollywood Riviera Studios exercisable at $0.627 a share. The
options were priced at 110 percent of the $0.57 Common Stock closing price on
January 4, 1999. The Hollywood Riviera stock options, after the two-for-one
stock split of February 25, 1999, are now for 517,241 shares at a $0.3135
exercise price.
To summarize, Apple Media, d/b/a Hollywood Riviera Studios subscribed to
purchase 517,241 shares of Internet Infinity's Common Stock and obtained stock
options to purchase 517,241 shares of our Common Stock at $0.3135 a share in
exchange for:
20
<PAGE>
o a subscription agreement obligation to pay $150,000 to Internet
Infinity,
o the exclusive distribution rights to five training program
modules on Personal and Sales Skill Development,
o royalties set at twenty percent of sales, the payment of which
royalties will go to the reduction of the stock subscription
obligation until the stock subscription is paid in full.
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 first quarter of the fiscal year to commence
April 1, 2000 and that sales will commence of the Health and Medicine programs
during the second 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. L&M Media agreed to purchase the
Health and Medicine program library in 1986 for $400,000. It consists of 400
hours of video footage and partially or fully edited titles. We estimate the
replacement cost of each of the completed twenty-five programs to be
approximately $62,500 or a total value in excess of $1,500,000.
L&M Media 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 duplication and blank video 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 Internet Infinity. Due to a lack of working capital available to
Internet Infinity, George and Dawn Morris acquired the predecessor to AMC, known
as Video Magnetic, LLC, in order that it would continue to provide a sales
distribution opportunity for Internet Infinity. Internet Infinity 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, the Morrises 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 and Dawn Morris finally
settled the purchase transaction for Video Magnetics through mediation and are
paying the purchase notes over the next four years.
21
<PAGE>
Internet Infinity takes title to the products it purchases from Apple
Media Corporation, which is 98 percent owned by George Morris, president of
Internet Infinity, just as it did under the original distributorship agreement
with independently owned Video Magnetics, LLC. Internet Infinity will take title
to products under the independent distributorship agreement with Ingram Book
Company. This distributorship model for taking title is planned for other,
future distributorship arrangements.
Internet Infinity, Inc. and L&M Media, Inc. Operating Structure
- ---------------------------------------------------------------
Under this distributorship arrangement, Internet Infinity, Inc. is
responsible for the collection of accounts receivable and must collect them or
take a bad debt loss. However, Internet Infinity carries CNA accounts receivable
loss insurance. As is standard business practice with a drop-ship arrangement,
Electronic Media Central, the 100 percent owned subsidiary of Internet Infinity,
does not carry an inventory. However, Morris & Associates does carry a small,
finished goods inventory of special interest videos from time to time and a
$59,918 packaging inventory as of September 30, 1999 to prepare orders for the
200 special interest videos. An Internet hosting service handles the server
computer equipment for the Internet. By these means the management of Internet
Infinity attempts to minimize the risk of loss from inventory and accounts
receivable as well as technology obsolescence.
The process for taking orders, shipping, billing and collection is as
follows: When Internet Infinity sells Electronic Media Central products and
services to an independent customer, we first determine the sales credit terms
that will be given to the customer based on a credit worthiness review. If the
order will be shipped on an open account basis and is over approximately $5,000,
we contact our accounts receivable insurance company, CNA, for credit insurance
approval. After credit terms and freight are determined by Internet Infinity, we
issue a purchase order to Apple Media Corporation, which is 98 percent owned by
George Morris, the president of Internet Infinity, for the products and services
ordered including shipping. Apple Media sources materials and components,
manufactures or assembles and drop ships the order to the Internet Infinity
customer. Internet Infinity invoices the customer for the products and services
delivered and credits its sales account and debits the accounts receivable
account in Internet Infinity's general ledger at the time of shipment and
invoicing. Internet Infinity is responsible for collecting the accounts
receivable from the customers. Apple Media grants a 20 percent wholesale trade
discount to Internet Infinity on the order amount and charges Internet Infinity
at the time of shipping. Internet Infinity is solely responsible for the payment
of its accounts payable to Apple Media, Inc. The CNA accounts receivable loss
insurance does not cover losses under $5,000 and the policy has a $10,000
deductible.
The major risk for Internet Infinity is the non-payment of accounts
receivable from an order. Internet Infinity remains responsible for payment of
the wholesale cost of the order to Apple Media even if a customer doesn't pay.
Internet Infinity maintains a $59,918 packaging inventory and thereby reduces
potential losses on inventory shrinkage and obsolescence. However, the absence
of a complete Internet Infinity inventory and the control of any inventory by a
supplier to Internet Infinity has operated to reduce our control over the
shipping priority of orders.
When we sell pre-recorded video programs to media retailers, wholesalers
and school suppliers, we place an order with Apple Media for the products and
services, including shipping.
22
<PAGE>
Apple Media sources, manufactures or assembles, with Morris & Associates'
packaging, and drop ships the product to our customer. Apple Media gives
Internet Infinity an 80 percent discount off the total order amount including
freight. The 80 percent gross margin before packaging and royalties remaining
for Internet Infinity gives Internet Infinity a very profitable, low volume,
distribution opportunity. The 80 percent gross profit margin for Internet
Infinity from pre-recorded video sales versus the 20 percent 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 for duplicating an independent
customer tape or CD. During fiscal year 1999, the 80 percent of these sales
amounted to $95,858.
DESCRIPTION OF SECURITIES
Internet Infinity 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.
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 Internet Infinity legally
available therefor.
Liquidation Rights
------------------
Upon any liquidation, dissolution or winding up of Internet Infinity,
holders of shares of Common Stock receive pro rata all of the assets of Internet
Infinity available for distribution to shareholders after distributions are made
to the holders of Internet Infinity'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 Internet
Infinity.
Registrar and Transfer Agent
----------------------------
Internet Infinity's registrar and transfer agent is Nevada Agency and
Trust Company, 50 West Liberty Street, Suite 880, Reno, Nevada 87501.
23
<PAGE>
Dissenters' Rights
------------------
Under current Delaware law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require Internet Infinity 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 Internet Infinity's Certificate of
Incorporation.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Internet Infinity'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.
High Low
---- ---
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
4th Qtr. 0.53125 0.35
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."
24
<PAGE>
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 Internet Infinity nor its 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, Internet Infinity 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 shares
issued, the prices paid in cash or services for the shares and the nature of the
consideration received by Internet Infinity are as follows.
No. of
Shares Price per Nature of
Person Date Issued Share Consideration
- ------ ---- ------ --------- -------------
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)
- -------------------------
(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 Internet Infinity to this person upon this
person's exercise of a stock option.
25
<PAGE>
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 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, Internet Infinity 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
Internet Infinity pursuant to the foregoing provisions or otherwise, Internet
Infinity 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.
26
<PAGE>
FINANCIAL STATEMENTS
There appears below the following financial statements of Internet Infinity:
Report of Independent Auditor ................................... F-1
Report of Prior Independent Auditor ............................. F-2
Consolidated Balance Sheet at March 31, 1999..................... F-3
Consolidated Statements of Operations for the Years Ended
March 31, 1999 and March 31, 1998 ....................... F-5
Statements of Changes in Stockholders' Equity
for the Years Ended March 31, 1999 and
March 31, 1998 .......................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1999 and March 31, 1998 ....................... F-7
Notes to Consolidated Financial Statements
March 31, 1999 .......................................... F-9
Basis of Presentation of Interim Financial Statements ........... F-18
Consolidated Balance Sheet (unaudited)
at September 30, 1999 ................................... F-19
Consolidated Statement of Operations (unaudited)
for the Six Months Ended September 30, 1999
and September 30, 1998 .................................. F-20
Consolidated Statement of Cash Flows (unaudited)
for the Six Months Ended September 30, 1999
and September 30, 1998 .................................. F-21
Notes to Consolidated Financial Statements
September 30, 1999 ...................................... F-22
27
<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.*
10.4 - Fulfillment Supply Agreement between Internet
Infinity, Inc. and Ingram Book Company
16 - Letter of resignation from George Brenner, CPA, dated
August 25, 1999
*Previously filed and incorporated herein by reference.
28
<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: February 8, 2000 By /s/ George Morris
---------------------------------------
George Morris, Chief Executive Officer
29
<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 (deficit), 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.
Woodland Hills, California
September 21, 1999
F-1
<PAGE>
George Brenner
Certified Public Accountant
9300 Wilshire Boulevard, Suite 480
Beverly Hills, California 90212
310-276-8845 Fax 310-276-5933
REPORT OF INDEPENDENT ACCOUNTANT
Board of Directors
Internet Infinity, Inc.
Costa Mesa, CA 92626
I have audited the accompanying balance sheets of Internet Infinity, Inc. as of
March 31, 1998 and 1997, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Internet Infinity, Inc. as of March
31, 1998 and 1997 and the results of its operations, and cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ George Brenner
George Brenner, CPA
Beverly Hills, California
August 10, 1998
F-2
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
ASSETS
<TABLE>
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
Note receivable - related company - current 36,526
(Note 7)
Net current deferred tax asset (Note 10) 36,414
-----------------
Total Current Assets 326,853
-----------------
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 7) 3,468
Programming costs, net (Note 5) 5,969
-----------------
Total Other Assets 9,437
-----------------
Total Assets $ 336,290
=================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F - 3
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C>
Notes payable (Note 6) $ 92,386
Accounts payable and accrued expenses 51,123
Accrued payroll 4,127
Interest payable 3,190
Due to officer - current (Note 8) 71,856
Due to related company (Note 7) 2,000
-----------------
Total Current Liabilities 224,682
LONG-TERM LIABILITIES
Due to officer - non-current (Note 8) 144,708
-----------------
Total Liabilities 369,390
-----------------
STOCKHOLDERS' EQUITY (DEFICIT) (Page F-7)
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 909,659
Retained earnings (deficit) (445,886)
Unpaid stock subscription (506,883)
-----------------
Total Stockholders' Equity (Deficit) (33,100)
-----------------
Total Liabilities and Stockholders' Equity (Deficit) $ 336,290
=================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F - 4
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
1999 1998
------------------- -------------------
<S> <C> <C>
REVENUE (NET) $ 1,312,452 $ 828,023
------------------- -------------------
COST OF SALES
Beginning inventory 65,175 85,124
Purchases 961,923 622,338
Labor and video costs 5,725 2,354
------------------- -------------------
1,032,823 709,816
Less ending inventory 59,918 65,175
------------------- -------------------
Total cost of sales 972,905 644,641
------------------- -------------------
Gross Profit 339,547 183,382
OPERATING EXPENSES (Page F-20) 253,666 251,954
------------------- -------------------
Net Income (loss)
Before Income Taxes 85,881 ( 68,572)
(PROVISION) BENEFIT FOR INCOME
TAXES (Note 11)
Current (800) (800)
Deferred 36,414 --
------------------- -------------------
Net Income (loss) $ 121,495 $ ( 69,372)
=================== ===================
Basic net income
(loss)per share $ .01 $ (.01)
(Note 12)
=================== ===================
Diluted net income
(loss) per share $ .01 $ (.01)
(Note 12) =================== ===================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F - 5
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
Additional Unpaid Total
Paid-In Accumulated Stock Stockholders'
Shares Amount Capital (Deficit) Subscription Equity
----------- -------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance April 1, 1997 3,400,000 $ 3,400 $ 319,100 $ (498,009) -- $ (175,509)
Issued in connection
with exercise of 140,000 140 49,860 -- -- 50,000
warrants
Issued in consideration
for note conversion 400,000 400 49,600 -- -- 50,000
Issued in consideration
for services rendered 100,000 100 6,900 -- -- 7,000
Issued in consideration
for prepaid royalties 4,535,714 4,536 370,464 -- -- 375,000
(Note 3)
Net (loss) at March 31, -- -- -- (69,372) -- (69,372)
1998
---------- -------- --------- ----------- --------- -----------
Balance March 31, 1998 8,575,714 8,576 795,924 (567,381) -- 237,119
Reclassification of
unpaid
portion of stock
subscriptions
(Note 3) -- -- -- -- (356,883) (356,883)
Issued in consideration
for note conversion 300,000 300 37,200 -- -- 37,500
Issued in consideration
for prepaid royalties 1,034,482 1,034 148,966 -- (150,000) --
(Note 3)
Common stock for cash 100,000 100 24,900 -- -- 25,000
Non cash dividend (Note 4) -- -- (108,131) -- -- (108,131)
Fair market value for
expenses -- -- 10,800 -- -- 10,800
(Note 7)
Net Income at March 31, -- -- -- 121,495 -- 121,495
1999
---------- -------- --------- ----------- ---------- ------------
Balance March 31, 1999 10,010,196 $ 10,010 $ 909,659 $ (445,886) (506,883) $ (33,100)
========== ======== ========= =========== ========= ============
</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
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
1999 1998
---------------- ------------------
CASH FLOWS PROVIDED (USED ) BY OPERATING
ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 121,495 $ ( 69,372)
Adjustment to reconcile net income to
cash provided(used) by operating
activities:
Rent, telephone and utilities related
to paid in capital increase 10,800 --
Legal fees related to stock issued -- 7,000
Amortization of programming costs 5,970 5,969
Royalty expense used against unpaid stock 7,368 10,749
subscription
(Increase) in accounts receivable ( 36,076) ( 65,618)
Increase in allowance for doubtful accounts (15,000) 15,000
Decrease in inventory 5,257 19,949
Increase in accrued payroll 4,127 --
(Increase) interest payable 3,190 --
Increase (decrease) in accounts payable (68,863) 19,037
Increase in income taxes payable -- (428)
(Increase) in deferred tax asset (36,414) --
----------------- -----------------
Net Cash Flows Provided (Used)
by Operating Activities 1,854 ( 57,714)
------------------ -----------------
CASH FLOWS PROVIDED (USED) BY INVESTING
ACTIVITIES:
Deposit 600 --
------------------ -----------------
Net Cash Flows Provided by
Investing Activities 600 --
------------------ ------------------
CASH FLOW PROVIDED (USED) BY
FINANCING ACTIVITIES:
Increase in note receivable -
related company 31,906 53,265
(Decrease) in due to officer (4,929) --
Reduction in note pay (583) ( 1,942)
Common stock 25,000 50,000
------------------ ------------------
Net Cash Flows Provided by
Financing Activities 51,394 101,323
------------------ ------------------
NET INCREASE IN CASH 53,848 43,609
CASH - BEGINNING OF THE YEAR 10,610 ( 32,999)
------------------ ------------------
CASH - END OF THE YEAR $ 64,458 $ 10,610
================== ==================
ADDITIONAL DISCLOSURES:
Interest paid $ 5,000 $ 9,244
================== ==================
Taxes paid $ 800 $ 800
================== ==================
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F - 7
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
NON-CASH INVESTING AND FINANCING ACTIVITIES:
<TABLE>
1999 1998
------------------- ---------------
Unpaid stock subscription issued
for prepaid royalties
<S> <C> <C>
(Note 3) $ 150,000 $ 375,000
=================== ===============
Note payable converted to stock $ 37,500 $ 50,000
=================== ===============
Non cash dividend (Note 4) $ $ --
108,131
=================== ===============
</TABLE>
The Accompanying Notes are an Integral Part
of the Consolidated Financial Statements
F - 8
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO 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.
This split has been shown retroactively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Internet Infinity,
Inc. and its wholly owned subsidiaries, Morris & Associates, Inc. and
Electronic Media Central Corporation. All significant inter-company transactions
and balances have been eliminated in the consolidation.
Inventory
The Company's inventory (all on the books of "M & A"), consists of the
following:
Duplicated tapes and display boxes $ 59,918
Duplicate tapes and display boxes are valued at the lower of cost or market
(first-in, first-out basis). Inventory has been written down by $5,257 for
possible obsolescence.
Depreciation
The Company's equipment and furniture are carried at cost. Depreciation is
provided over the estimated useful lives of the assets, which are fully
depreciated.
F - 9
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF OPERATING EXPENSES
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
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.
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.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion (APBO)
No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for its stock-based compensation and to provide the disclosures
required under Statement of Financial Standards (SFAS) No. 123, "Accounting
for Stock-Based Compensation."
APBO No. 25 requires no recognition of compensation expense for most of the
stock-based compensation agreements provided by the Company where the exercise
price is equal to the market value at the date of grant. However, APBO No. 25
requires recognition of compensation expense for variable award plans over the
vesting periods of such plans, based upon the then-current market values of the
underlying stock.
F - 10
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF OPERATING EXPENSES
MARCH 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
In contrast, SFAS No. 123 requires recognition of compensation expense for
grants of stock, stock options, and other equity instruments over the vesting
periods of such grants, based on the estimated grant-date fair values of those
grants. See Note 14 for pro forma disclosures required by FAS 123 plus
additional information on the Company's stock options.
Revenue Recognition
Income and expenses are recorded on the accrual basis of accounting. Revenue is
recognized from sales when a product is shipped and collection is probable and
the fee is fixed and determinable. Expenses are recognized when incurred.
Segment Reporting
The Company is a single segment reporting entity. At the current time all sales
and related expenses are from video media programs, which includes tapes and
CD's.
Earnings Per Share of Common Stock
The Company adopted Statement of Financial Accounting Standards No. 128-
Earnings Per Share (SFAS No. 128) in the fourth quarter of fiscal 1998. SFAS
No. 128 is intended to simplify the earnings per share computations and make
them more comparable from company to company. All prior year earnings per share
amounts have been recalculated in accordance with the earnings per share
requirements under SFAS No. 128; however, such recalculation did not result
in any change to the Company's previously reported earnings per share for all
years presented.
NOTE 3 - SUBSCRIPTION AND ROYALTY AGREEMENTS
The Company has royalty agreements with two separate related entities. In July
1997, 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 of
these programs sold between April 1, 1998 and March 31, 2001. In consideration
for these rights, the Company entered into a stock subscription agreement for
2,267,857 shares of common stock, with a trading value of $375,000. Royalties
earned will go toward the reduction of the stock subscription obligation. George
Morris, President of Internet Infinity, Inc. owns 98% of the stock of L&M Media,
Inc.
In January 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
of these programs sold between April 1, 1999 and March 31, 2001. In
consideration for these rights, the Company entered into a stock subscription
agreement for 517,241 shares of common stock, with a trading value of $150,000.
In addition the Company issued 517,241 options at a market price of $.3135 per
share (See Note 13). Royalties earned will go toward the reduction of the stock
subscription obligation. George Morris owns 100% of the stock of Apple Realty,
Inc.
F - 11
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDTED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 3 -ROYALTY AGREEMENTS (CONTINUED)
Currently, the royalty agreement amounts of $375,000 and $150,000, less the
royalties earned of $18,117 (total $506,883) are shown in the equity section as
unpaid subscription receivable.
In addition, the Company has a non-exclusive distribution license from L&M Media
Inc. for approximately 200 special interest video programs for which it has not
prepaid any royalties. Royalties owed to L&M Media Inc. from the sales of any
special interest programs are applied to the prepaid royalties associated with
the health and medical and the sales development training programs.
NOTE 4 - 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.
NOTE 5 - 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 6 - 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 7 - RELATED COMPANY TRANSACTIONS
Note receivable from L&M Media, Inc., payable at
$36,526 per year, 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. $ 39,994
Less current portion 36,526
Long-term portion --------
$ 3,468
========
Loan payable to Morris Financial, without interest.
Loan was paid subsequent to year end. Morris Financial is
owned 100% by George Morris. $ (2,000)
=========
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 $39,994 is secured by
George Morris, President of the Company. Mr. Morris is using the notes
due to him by Internet Infinity, Inc. (see Note 8) as the collateral.
F - 12
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDTED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 7 - RELATED COMPANY TRANSACTIONS (CONTINUED)
The Company utilizes office space, telephone and utilities provided by Apple
Media corporation at no charge. An estimate of the monthly values of the
services are as follows:
Total Internet
Infinity Inc.
---------- -------------
Rent $ 2,620 $ 400
Telephone 500 400
Utilities 1,000 100
-----------
$ 900
===========
The annual charge of $10,800 for 1999 was credited against paid in capital.
NOTE 8 - DUE TO OFFICER
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 7) $ 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
==========
Maturities of due to officer are as follows:
For Year Ended
March 31,
--------------
2000 $ 71,856
2001 144,708
----------
$ 216,564
==========
Interest charged to expense for the year ended March 31, 1999 on the above notes
was $8,680.
NOTE 9 - 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 14).
F - 13
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 10 - DEFERRRED INCOME TAXES
The net deferred tax amounts included in the accompanying balance sheet include
the following amounts of deferred tax assets and liabilities:
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
=========
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.
NOTE 11 - (PROVISION) BENEFIT FOR INCOME TAXES
The components of the (provision) benefit for income taxes are as follows:
<TABLE>
1999 1998
---------- ----------
Current
<S> <C> <C>
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.
F - 14
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDTED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 12 - NET INCOME (LOSS) PER SHARE
Following is a reconciliation of net income and weighted average common shares
outstanding for purposes calculating basic and diluted net income per share:
<TABLE>
1999 1998
-------------- ------------
<S> <C> <C>
Basic net income (loss) per share $ 121,495 $ (69,372)
============== ============
Weighted average common shares
outstanding 8,910,234 4,977,367
-------------- ------------
Basic net income (loss) per share $ .01 $ (0.1)
============== ============
Weighted average common shares
outstanding 8,910,234 4,977,367
Dilutive stock options 53,424 N/A
-------------- ------------
Weighted average common shares
outstanding for purposes of
computing diluted net income
per share 8,963,658 N/A
============== ============
Diluted net income per share .01 --
============== ============
</TABLE>
NOTE 13 - STOCK OPTIONS
The Company's 1996 stock option plans provide that incentive stock options and
nonqualified stock options to purchase common stock may be granted to directors,
officers key employees, consultants, and subsidiaries with a exercise price of
up to 110% of market price at date of grant. Generally, options are exercisable
one or two years from the date of grant and expire three to ten years from the
date of grant. As of March 31, 1999, the maximum of 4 million shares was
approved to be issued under the plan, of which 2.26 million shares were
available for future grants.
For the years ended March 31, 1999 and 1998, the Company granted 1,017,241 and
400,000 shares to various individuals at the average exercise price of $0.311
and $.125, including its officers who received 450,000 and 310,000,
respectively. All options and exercise prices had been adjusted to reflect a 2
for 1 stock split effective March 17, 1999.
In electing to follow Accounting Principles Board Opinion (APBO) No. 25,
Accounting for Stock Issued to Employees, the Company recognizes no compensation
expense related to employee stock options for the fiscal year ended March 31,
1999 and 1998, as no options are granted at a price below the market price on
the day of grant.
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).
F - 15
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 13 - STOCK OPTIONS (CONTINUED)
Presented below is a summary of stock option plans activity for the year shown:
Weight-
Average
Stock Options Exercise Price
---------------- ---------------
Outstanding at March 31, 1997 320,000 $ 0.125
Granted 400,000 0.125
Exercised 0 0.125
Forfeited 0 --
Expired 0 --
---------------- ---------------
Outstanding at March 31, 1998 720,000 0.125
Granted 1,017,241 0.3080
Exercised (300,000) 0.125
Forfeited 0 --
Expired 0 --
================ ===============
Outstanding at March 31, 1999 1,437,241 $ 0.219
================ ===============
Shares exercisable at March 31, 1997 0 --
================ ===============
Shares exercisable at March 31, 1998 720,000 $0.125
================ ===============
Shares exercisable at March 31, 1999 420,000 $0.125
================ ===============
Exercise prices for options outstanding as of March 31, 1999 range from $0.125
to $0.3135. The following table summarizes information for options outstanding
and exercisable at March 3, 1999:
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted
Weight- Average Weight-
Stock Average Remaining Stock Average
Exercise Options Exercise Contractual Options Exercise
Prices Outstanding Price Life Exercisable Price
- ------------- ----------- ---------- ----------- ----------- ----------
$0.1250 420,000 $0.1250 1.9 420,000 $0.1250
$0.3080-$0.3135 1,017,241 0.3080 2.8 0 --
----------- -----------
1,437,241 420,000
In electing to continue to follow APBO No. 25 for expense recognition purposes,
the Company is obliged to provide the expanded disclosures required under SFAS
No. 123 for stock-based compensation granted since 1996, including if materially
different from reported results, disclosure of pro forma net income and earnings
per share had compensation expense relating to the fiscal year ended March 31,
1999 and 1998 grants been measured under the fair value recognition provisions
of SFAS No. 123.
F - 16
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
NOTE 13 - STOCK OPTIONS (CONTINUED)
The weighted-average fair values at date of grant for options granted during the
fiscal year ended March 31, 1999 and 1998 were $0.2825 and $0.109, respectively
and were estimated using the Black-Scholes option valuation model with the
following weighted-average assumptions:
3/31/1999 3/31/1998
----------- -----------
Expected life in years 3 3
Interest Rate 5.0 5.9
Volatility 110.2% 119.3%
Dividend Yield 0% 0%
Because the weighted-average fair values at date of grant for options granted
were the same as the market values during the fiscal year ended March 31, 1999
and 1998, the Company's net income and earnings per share will be the same as
the pro forma net income and earnings per share. Therefore, the Company's pro
forma information had not been presented.
NOTE 14 - 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 - 17
<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 - 18
<PAGE>
INTERNET INFINITY, INC.AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
09-30-99 03-31-99
(Unaudited) Audited
----------- ---------
<TABLE>
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 0 46,075
Note receivable - related company 36,526
Net Current Deferred Tax Asset 28,414 36,414
--------- ---------
TOTAL CURRENT ASSETS 262,248 372,928
Due from Related Companies 101,375 110,351
Programming Costs 2,983 5,969
Prepaid Royalties - Non-Current 0 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 104,358 -
--------- ---------
TOTAL ASSETS $ 366,606 $ 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 908,659 898,859
Retained Earnings (Deficit) (415,774) (742,396)
--------- ---------
STOCKHOLDERS' EQUITY 54 165,933
--------- ---------
Unpaid Stock Subscription (503,841)
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 366,606 $ 535,323
========= =========
</TABLE>
See accompanying notes to financial statements.
F - 19
<PAGE>
INTERNET INFINITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months ended Six months ended
September 30, 1999 September 30, 1998
Amount Amount
(Unaudited) Percent (Unaudited) Percent
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 97,778 15.8 124,443 21.4
-------- ----- -------- -----
OPERATING INCOME 52,522 8.0 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 38,112 6.1 58,357 10.0
-------- ----- -------- -----
Provision for Income
Taxes Deferred 8,000 -
-------- --------
NET INCOME $ 30,112 4.9 $ 58,357 10.0
======== ===== ======== =====
Weighted Average of
Shares Outstanding(1) 11,447,438 9,259,714
---------- ---------
Per Share $0.003 $0.006
====== ======
_________________________
(1) Includes stock options
F-20
<PAGE>
INTERNET INFINTY, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
Six months ended September 30,
------------------------------
1999 1998
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS PROVIDED (USED)BY
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 30,112 $ 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 58,187 52,271
CASH FLOWS PROVIDED (USED) BY
INVESTMENT ACTIVITIES --
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES
Unpaid Stock Subscription 3,042
Capital Contributed 25,000
Due to Officer (405)
Due from Related Companies (97,907)
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (95,270) 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 - 21
<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 - 22
<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 - 23
<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
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)
========
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
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
========
Maturities of due to officer are as follows:
For Year Ended
March 31,
--------------
2000 $ 71,856
2001 133,753
--------
$205,609
========
F - 24
<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:
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
=========
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:
1999 1998
-------- --------
Deferred (Provision) Benefit
Federal $5,200 $ 0
State 1,300 0
------ ------
$6,500 $ 0
====== ======
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 - 25
<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:
Exercise Exercisable Expiration
Options Date Granted Price Date Date
-------------------------------------------------------------------------
20,000 3/31/1997 $ .125 04/01/1998 03/31/2000
400,000 3/31/1998 .125 04/01/1999 03/31/2001
1,017,241 3/31/1999 .190 04/01/2000 03/31/2002
---------
1,437,241
=========
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 - 26
<PAGE>
INDEX TO EXHIBITS
Internet Infinity, Inc. Amendment No. 2 to Form 10-SB
Number Description
- ------ -----------
10.4 - Fulfillment Supply Agreement between Internet Infinity,
Inc. and Ingram Book Company
16 - Letter of resignation from George Brenner, CPA, dated
August 25, 1999
FULFILLMENT SUPPLY AGREEMENT
This Fulfillment Supply Agreement (the "Agreement") is made and entered
into as of August 24, 1999, between INTERNET INFINITY, INC. ("Internet Infinity,
Inc."), and INGRAM BOOK COMPANY ("Ingram Book").
A. Internet Infinity, Inc. intends to maintain an electronic
commerce site "Web Store" on computer systems owned and operated
by Internet Infinity, Inc., utilizing the World Wide Web service
to sell various book products (the "Products"). Products consist
of items purchased by Internet Infinity, Inc.'s customers from
Internet Infinity, Inc.'s Web Store. Internet Infinity, Inc. may
also seek supply of Products under this Agreement for its
customer orders received from sources other than its Web Store.
B. Ingram Book is in the business of providing Products and will
accept Product orders from Internet Infinity, Inc. under this
Agreement.
C. Internet Infinity, Inc. desires that Ingram Book provide Products
on the terms and conditions set forth herein.
AGREEMENT
In consideration of the mutual agreements contained herein, the parties
agree as follows:
1. SERVICES TO BE RENDERED. Ingram Book agrees to process at
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its facilities ("Facility") Internet Infinity, Inc. customer orders for
Products, which will include the following:
1.1 Order Processing. Internet Infinity, Inc. has established
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an account with Ingram Book. Terms of sale will be pursuant to Ingram
Book's standard published terms. Ingram Book will accept electronic customer
orders submitted by Internet Infinity, Inc., in Ingram Book's standard FTP
format. Internet Infinity, Inc. will be responsible for the completeness of
information conveyed in the electronic orders, including shipping charges,
sales taxes, shipping addresses, postal codes, billing addresses, and ISBN
numbers for Products selected by the customer. If the Internet Infinity, Inc.
fails to provide complete or adequate customer information, Ingram Book will
reject the order. Orders will be processed within 24 business hours Monday
through Friday. If the Product is not available Internet Infinity, Inc.
will receive notification from Ingram Book that the order is canceled. Ingram
Book will not be responsible for backorders.
Exhibit 10.4
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Daily, Ingram Book will send an FTP transmission to Internet Infinity, Inc.,
confirming orders that have been completed.
1.2 Delivery. Ingram Book will deliver the Product to Ingram
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Fulfillment Services Inc. ("IFSI") for shipment.
1.3 Returns Processing. Ingram Book will accept returned
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Product from Internet Infinity, Inc. When credit is due Internet Infinity,
Inc.'s account, Ingram Book will issue a credit memo.
2. COMPENSATION FOR PRODUCT. Internet Infinity, Inc. will
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purchase Product from Ingram Book under the terms previously agreed between
Internet Infinity, Inc. and Ingram Book. There are no minimum order requirements
under this Agreement.
3. GENERAL RIGHTS AND OBLIGATIONS OF INGRAM BOOK. In addition
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to the rights and obligations of Ingram Book set forth elsewhere herein, Ingram
Book will have the following rights and obligations.
3.1 Service. Ingram Book will render the Services required
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hereunder in a professional manner and will provide all personnel and supplies
necessary to fulfill its obligations hereunder.
3.2 Liability. Ingram Book will have no liability to Internet
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Infinity, Inc. under the terms of this Agreement, or for any alleged breach
thereof, for direct, indirect, punitive, consequential, or special damages,
including damages for lost profits.
4. GENERAL RIGHTS AND OBLIGATIONS OF INTERNET INFINITY, INC.
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In addition to the rights and obligations of Internet Infinity, Inc. set forth
elsewhere herein, Internet Infinity, Inc. will have the following rights and
obligations.
4.1 Seller of Products. Internet Infinity, Inc. agrees to be
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the seller of the Products, including for sales and use tax purposes, and will
be responsible for reporting and remitting sales and use taxes to the applicable
authorities.
4.2 Title to Product. Internet Infinity, Inc. will take
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title of product upon Ingram Book's delivery to IFSI.
5. CONFIDENTIALITY. Ingram Book recognizes and acknowledges
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that the names and addresses of Internet Infinity, Inc. customers and
information and records respecting Internet Infinity, Inc. or its customers
maintained by Ingram Book are confidential and constitute valuable and unique
assets of Internet Infinity, Inc.'s business. Ingram Book will maintain such
Exhibit 10.4
Page 2 of 4 Pages
<PAGE>
information as confidential. Additionally, in performing its obligations under
this Agreement, Ingram Book or Internet Infinity, Inc. may receive other
confidential information about the other party, which may include but not
be limited to financial information, business plans, technical data, and
identity of Ingram Book's Internet Infinity, Inc.'s. Ingram Books and Internet
Infinity, Inc. will respect the confidentiality of such confidential
information and will make no disclosure thereof to third parties or use it for
its own purposes, except upon written permission of the disclosing party. This
obligation does not apply to any information, which is publicly available.
Ingram Book and Internet Infinity, Inc. will cause its employees to comply with
this section. This section 5 will survive any termination or expiration of this
Agreement.
6. TERM. This Agreement will be effective on the date it is
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executed by all parties and will remain in effect until canceled by a party. Any
party may cancel this Agreement upon 90 days written notice.
7. MISCELLANEOUS.
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7.1 Assignment Binding Effect. With the exception of affiliated
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entities, no party may assign or otherwise transfer this Agreement or any of its
rights and obligations hereunder or any portion thereof without prior written
approval of the other which will not be reasonable withheld. This Agreement will
be binding on and inure to the benefit of Internet Infinity, Inc. and Ingram
Book and their respective permitted successors and permitted assigns.
7.2 Notices. All notices given the parties hereunder relation
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to the terms of this Agreement will be in writing or by telephone confirmed in
writing and will be personally delivered or mailed, by registered or certified
mail, return receipt requested postage prepaid or overnight delivery, addressed
to the respective parties at the addresses of such parties as specified below or
at such address as either party will designate in notice to the other. Notice by
telephone later confirmed promptly in writing will be deemed given at the time
of the telephone call. Send notifications to the following individuals for
communications concerning this Agreement, other than day-to-day business:
INTERNET INFINITY, INC.:
George Morris, chairman & CEO
663 The Village
Redondo Beach, CA 90277
INGRAM BOOK COMPANY:
James E. Chandler, President
One Ingram Blvd.
La Vergne, TN 37086-1986
Exhibit 10.4
Page 3 of 4 Pages
<PAGE>
7.3 Entire Agreement: Waiver. This Agreement sets forth the
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entire understanding of the parties with respect to the subject matter hereof.
No modification or amendment or waiver of any of the provisions of this
Agreement will be effective unless in writing and signed by the party to be
charged.
7.4 Captions. Paragraph headings herein are for convenience
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only and will not affect the construction of this Agreement.
7.5 Governing Law. This Agreement will be governed by the laws
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of the State of Tennessee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
INTERNET INFINITY, INC.
BY: /s/ George Morris hereunto duly authorized
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Name: George Morris
Title: Chairman & CEO
INGRAM BOOK COMPANY
BY: /s/ James E. Chandler hereunto duly authorized
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Name: James E. Chandler
Title: President
Exhibit 10.4
Page 4 of 4 Pages
George Brenner
Certified Public Accountant
9300 Wilshire Boulevard, Suite 480
Beverly Hills, California 90212
310-276-8845 Fax 310-276-5933
August 25, 1999
Mr. George Morris, CEO
Internet Infinity, Inc.
3303 Harbor Blvd., Suite K-5
Costa Mesa, CA 92626
Dear Mr. Morris,
Effective as of today, I must resign as the independent accountant of Internet
Infinity. My reason for this action is due to my inability, as a sole
practitioner, to obtain adequate and price competitive professional liability
insurance.
My audits for the periods March 31, 1998 and 1997 did not have any accounting
differences among you, your counsel and myself. All invoices were timely paid
and there are no fees outstanding.
I understand the Caldwell, Becker, Dervin, Petrick & Co., L.L.P. firm will be
your new independent accountant. I will, of course, be available to assist your
new auditors.
Much success for your new venture.
Very truly yours,
/s/ George Brenner
George Brenner, CPA
cc: Larry Becker, CPA
Caldwell, Becker, Dervin, Petrick & Co., L.L.P.
Office of the Chief Accountant (Via Fax: 202-942-9656)
Attn: SECPS Letter File/Mail Stop 9-5
Exhibit 16
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