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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPROT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from_________to______________
Commission file number 000-26047
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emailthatpays.com, Inc.
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(Name of Small Business Issuer in Its Charter)
Florida 65-0609891
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
428 West Sixth Avenue, Vancouver, BC, Canada V5Y 1L2
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(Address of Principal Executive Offices) (Zip Code)
(604) 801-5566
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock
(Title of Class)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
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The Issuer's revenues for its most recent fiscal year were $1,102,732
The aggregate market value of the voting and non-voting common equity
held by non-affiliates as of March 24, 2000 was $44,039,000, based on the
average of the closing bid and asked prices of the Registrant's common stock as
reported by the Nasdaq OTC Bulletin Board.
As of March 14, 2000, the Registrant had outstanding 8,703,092 shares of common
stock.
Transitional Small Business Disclosure Format (check one).
YES NO X
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PART I
Cautionary Statement Regarding Forward-Looking Statements
This Report includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and about our affiliate companies,
including, among other things:
o development of an e-commerce market;
o our ability to successfully execute our business model;
o growth in demand for Internet products and services; and
o adoption of the Internet as an advertising medium.
In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this Report might not occur.
Item 1. Description of Business
Corporate Structure
Emailthatpays.com, Inc. (the "Company"), (formerly tvtravel.com, Inc. and
formerly Realm Production and Entertainment Inc.), was incorporated under the
laws of the State of Florida in May 1995.
On October 22, 1999, pursuant to the terms of an Agreement and Plan of Merger
and Reorganization, (the "Merger Agreement"), dated as of September 17, 1999, by
and among Realm Production and Entertainment, Inc. (the "Company"), Realm
Acquisition Corp., a wholly-owned subsidiary of the Company ("Merger Sub") and
emailthatpays.com, a company incorporated in the state of Nevada ("email
Nevada"), Merger Sub was merged (the "Merger") with and into email Nevada.
Pursuant to the Merger, the Company issued 6,572,000 shares (post reverse split)
of its common stock as consideration in exchange for 100% of the issued and
outstanding shares of email Nevada.
In connection with the Merger, the Company 1) issued an aggregate of 6,930,164
shares (pre reverse split) of its common stock in satisfaction of outstanding
debt and in exchange for a $500,000 note receivable, 2) declared a one-for-ten
reverse stock split whereby each share of common stock issued and outstanding on
September 27, 1999 was reclassified and changed to one-tenth of one share of
common stock, and 3) issued 525,000 shares (post reverse split) as an investment
banking fee.
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During September 1999, the Company's Board of Directors also approved as a
dividend the distribution of 100% of the stock of its subsidiary VidKid
Distribution Inc. to the shareholders of the Company as of September 29, 1999
(the "VidKid Spin-off"). A Registration Statement with respect to this public
distribution will be filed in the near future and it is expected that this
distribution will be completed during the second quarter of 2000. In conjunction
with the Merger, the shareholders of email Nevada waived any right to
participate in or receive any interest in VidKid pursuant to the VidKid
Spin-off.
The net effect of the above noted transactions was that immediately prior to the
Merger, the Company consisted of a $500,000 note receivable, no outstanding
liabilities, 1,522,759 shares of issued and outstanding common stock and no
operational activities.
For accounting purposes, the Merger has been accounted for as a recapitalization
of email Nevada, effectively as if email Nevada had issued common stock for
consideration equal to the net assets of the Company.
The Company's historical financial statements reflect the financial position,
results of operations and cash flows of email Nevada for each of the years in
the two-year period ended December 31, 1999 and include the operations of the
Company from the date of the effective recapitalization, being October 22, 1999.
Stockholders' equity gives effect to the shares issued to the shareholders of
email Nevada prior to October 22, 1999 and of the Company thereafter.
Email Nevada (formerly Hotel media Group Inc.) was founded in June 1998. In
August 1999, it acquired 100% of Coastal Media Group Ltd. ("Coastal") - a
full-service advertising agency founded in May 1998. As common shareholders
controlled email Nevada and Coastal, the acquisition of Coastal by email Nevada
represents a "common control transaction." A common group of shareholders
controlled both Coastal and email Nevada. For accounting purposes, this
transaction was considered to be an acquisition by Coastal for consideration
equal to the net assets and liabilities of email Nevada. Accordingly, the assets
and liabilities of email Nevada have been recorded at their carrying values in
the Company's accounts.
Overview of Business
This Overview of Business contains forward-looking statements. See our
Cautionary Statement Regarding Forward-Looking Statements.
General
We are an emerging "permission-based" email marketing service. Combining online
direct marketing technology with promotional and marketing expertise, our
infrastructure is set up to offer a full slate of marketing solutions to a wide
variety of product categories.
The Internet represents a revolutionary vehicle for businesses through its
ability to deliver information and targeted advertisements that can be tailored
for individual viewers and quickly modified based on viewers' responses. This
uniqueness, when combined with the rapid growth and complexity of the Internet
as an advertising medium, has greatly expanded the importance being placed by
businesses on the use of the Internet to enhance relationship management, expand
brand development and cultivate new and existing customers.
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However, significant challenges must often be overcome in order for businesses
to take full advantage of the potential of the Internet as a marketing tool.
Some of these challenges include the scale and complexity of the Internet, the
costs and time associated with data research and analysis, the difficulties
involved in implementing and operating customer retention and branded loyalty
programs, technological barriers and the integration of traditional advertising
with Internet advertising.
We are positioned to help businesses overcome these challenges and generate
exciting returns-on-investment by enabling marketers to develop and sustain
responsible, two-way relationships with audiences while avoiding the problems
associated with sending untargeted messages. Our proprietary relational database
and custom delivery mechanism provide the technology to create, deliver and
analyze highly targeted online "one-to-one" marketing campaigns and custom
loyalty programs. Our wholly owned advertising agency, Coastal Media Group Inc.,
supplies the team of people with expertise in the planning, integration and
execution of online and traditional advertising strategies.
The Market
The Internet has emerged as a global medium, enabling millions of people
worldwide to communicate, share information and conduct business electronically.
International Data Corporation "IDC", a leading technology research
organization, estimates that the number of Web users worldwide will grow from
approximately 142 million at the end of 1998 to 399 million by the end of 2002.
The growing use of the Web represents a significant opportunity for businesses
to conduct commerce over the Internet. According to IDC, the number of Web
buyers worldwide is estimated to increase from 30.8 million in 1998 to 133.9
million in 2002. IDC also estimates that the total value of goods and services
purchased worldwide over the Web will increase from $50.4 billion in 1998 to
$733.6 billion in 2002.
Businesses typically use the Internet to offer products and services such as
software, books, home loans and airline tickets, which do not require the
customer's physical presence to make a purchase decision. The Internet allows
these businesses to develop one-to-one relationships with customers worldwide
without making significant investments in traditional infrastructure such as
retail outlets, distribution networks and sales personnel.
Businesses engage in various forms of offline and online direct marketing to
generate sales of products or services. Direct marketing is advertising that is
intended to generate a specific response or action from a targeted group of
consumers. Traditional forms of offline direct marketing include television
infomercials, catalog mailings, magazine inserts and telesales. Online direct
marketing can take the form of email or Web-based promotional offers. According
to the Direct Marketing Association, $163 billion was spent on direct marketing
in the United States in 1998. Furthermore, the DMA projects direct marketing
spending to grow to $221 billion by 2003.
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Online direct marketing programs are particularly attractive to businesses
because of the unique advantages they offer to advertisers. These include:
o An interactive advertising format that enables consumers to respond and
purchase online, without the need for telephone calls or store visits;
o High (5.0 - 15.0%) response rates. By comparison, Forrester Research
estimates banner bar click-through rates average only .7%;
o Cost savings of 75-90% versus direct mail according to the Gartner Group.
Costs per email message are generally between $0.01 and $0.25, compared to
$1.00 to $2.00 per piece of direct marketing material sent via postal mail;
o Email campaigns that deliver rapid feedback on member response through the
use of "click-through" and "one-click" options. This feedback can then be
used to tailor new messages and targeted offers;
o The possibility of executing campaigns in relatively short time frames of
between 48 and 72 hours, versus six to eight weeks offline.
Mainly due to these advantages, advertisers are committing relatively more
dollars to online direct marketing campaigns than to other forms of Internet
advertising. Forrester Research projects Internet advertising expenditures in
general to increase from $2.8 billion in 1999 to $22.1 billion in 2003.
Forrester further estimates that direct marketing will account for 53% of the
total online advertising expenditures in 2004, up from 15% in 1999.
Online direct marketing programs typically have focused on customer acquisition.
As the Internet grows as a commercial medium, companies doing business online
are increasingly focusing on customer retention. A recent survey by the web
research firm NFO Interactive found that approximately 53% of online customers
would increase the amount they spend in online transactions if loyalty points
were offered. This creates an opportunity for integrated e-mail marketing and
custom loyalty programs.
However, businesses face many challenges in successfully marketing on the
Internet. These challenges range from goal setting to strategy deployment, from
database development to research and analysis, from technological infrastructure
requirements to the integration of traditional advertising with Internet
advertising.
We believe that the rapid growth and complexity of the Internet as an
advertising medium combined with the difficulties management faces in
implementing effective and cost efficient online advertising strategies will
lead many companies to outsourced solutions. Therefore, there is a significant
opportunity for a company that can overcome the barriers to direct marketing and
loyalty on the Internet, and bring cost-effective, integrated direct marketing
and loyalty solutions to the online market.
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Business Development Strategy
Online direct marketing programs have typically focused on customer acquisition.
As the Internet continues to grow as a commercial medium, companies doing
business online are increasingly focusing on customer retention. This creates an
opportunity for us to build a leading branded service that enables businesses to
acquire and retain customers online more effectively. To meet this market
opportunity, we are implementing the following strategies:
o Leverage Our Direct Marketing Expertise. We anticipate applying our
experience in managing traditional direct marketing, thereby maximizing our
advertisers' response rates, increasing customer retention and providing
superior return on an advertiser's investment.
o Leverage Our Traditional Advertising and Brand Management Capabilities.
Through Coastal Media Group Inc., we expect to use our knowledge in the
development, planning, integration, execution, and analysis of online and
traditional marketing and brand management strategies.
o Leverage Our Advertising Contacts. We forecast utilizing our advertising
agency and media contacts to aggressively expand our client base, establish
cooperative relationships with our merchant partners' advertising agencies
and seize opportunities for the expansion of online direct marketing
expenditures.
o Provide Superior Client Service. We are determined to provide superior client
service by supplying a complete package of online direct marketing technology
and integrated promotional, online and offline marketing expertise.
o Develop a Leading Brand. We believe that a trusted brand will be a key
decision factor as individuals seek to obtain more control over the marketing
messages they receive. Emailthatpays.com establishes a concise, descriptive,
universally understood URL and logo for online direct marketing applications.
o Cultivate Trust. Our foundation is based on committed long-term relationships
with clients. We embrace responsible business practices and look to maintain
and improve industry standards regarding privacy, confidentiality, "double"
opt-in practices, one click opt-out structures, and ongoing "netiquette"
developments.
o Target Demographically. We intend to offer exclusive opportunities to
advertisers by utilizing distinct domain names to separate our market into
targeted sections.
o Develop Technology Leadership. We have built and utilize a high caliber,
relational database. Our network architecture and database development is
designed to take advantage of the scalability, reliability and efficiency of
Sun Microsystems' Solaris operating system, the Oracle 8i database
infrastructure and the cluster capabilities provided by Linux technology. A
custom delivery mechanism provides the capacity to deliver high loads of
promotional messages.
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o Pursue Strategic Acquisitions and Alliances. We intend to pursue strategic
alliances and acquisitions to access new geographic markets and client bases,
offer new products and services, obtain additional proprietary technologies
and extend our capabilities through emerging digital media developments.
During 1999, we:
o Completed development and testing of our proprietary relational database,
network architecture, and custom mail delivery mechanisms.
o Refocused Coastal Media's direction from that of a deliverer of conventional
advertising solutions to an integrated marketer of online products and
services with traditional offline strategies.
o Enlarged our revenue and client base.
o Substantially completed development of the emailthatpays.com, Inc. and
Coastal Media Web sites.
o Secured an attractive array of targeted URL's.
o Expanded and enhanced our technological, sales, marketing, and administrative
infrastructure.
o Initiated key strategic alliance and partnership discussions.
Competition
We face significant competition from both online and traditional advertising
businesses. We expect competition to increase due to the lack of significant
barriers to entry in the online advertising market. As we expand the scope of
our services, we may compete with a greater number of media companies across a
wide range of advertising and direct marketing services. Currently, several
companies offer competitive online products or services, including E-Dialog,
MessageMedia, PostmasterDirect and Bigfoot Interactive. These companies all have
longer operating histories, greater brand recognition, larger client bases and
established infrastructures that substantially exceed our current levels. We may
also face competition from established online portals and community Web sites
that engage in direct marketing, as well as from other traditional advertising
agencies and direct marketing companies that may seek to offer online products
or services.
Employees
We currently have 17 employees.
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Item 2. Description of Property
We lease 2,760 square feet of space for our marketing and administrative staff
at 428 West 6th Ave., Vancouver, British Columbia. The lease is a three-year
term expiring May 31, 2002. We lease 5,942 square feet of space for our
technology development and database management staff at 611 Alexander Street,
Vancouver, British Columbia. The lease is a six-month term expiring June 30,
2000. It is our intention to combine these offices into one location within the
next 12 months.
It is also our intention to open additional Sales and Marketing offices
throughout North America within the next 12 months.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
From January 1, 1999 through December 31, 1999 we did not submit any matters to
a vote of security holders. On September 16, 1999 we received the Consent of a
Majority of the Shareholders approving the one-for-ten reverse stock split. On
October 26, 1999 we received the Consent of a Majority of the Shareholders
approving our name change from Realm Production and Entertainment, Inc. to
tvtravel.com, Inc. On December 20, 1999 we received the Consent of a Majority of
the Shareholders approving our name change from tvtravel.com, Inc. to
emailthatpays.com, Inc.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our common stock is traded through the NASDAQ Over-the-Counter Bulletin Board
Trading System. From April 1998 until October 1999 our common stock was listed
under the symbol "RMPE". In connection with our name change on October 27, 1999,
our trading symbol changed to "TVCM". In connection with or name change on
December 21, 1999, our trading symbol changed to "EMTP".
The following table presents the range of high and low bid prices for our common
stock for the periods indicated. The quotations reflect inter-dealer prices and
do not include retail mark-up, mark-down or commissions, and may not represent
actual transactions.
High Low
January 1, 1998 - March 31, 1998 N/A N/A
April 1, 1998 - June 30, 1998 4.50 3.38
July 1, 1998 - September 30, 1998 6.00 4.00
October 1, 1998 - December 31, 1998 5.00 3.50
January 1, 1999 - March 31, 1999 5.12 3.50
April 1, 1999 - June 30, 1999 3.62 0.81
July 1, 1999 - September 30, 1999 0.46 0.13
October 1, 1999 - December 31, 1999 7.12 0.44
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As of December 31, 1999 the closing bid price of our common stock was $7.015. At
December 31, 1999, there were 69 holders of record of 8,202,897 shares of common
stock, exclusive of holders that maintain their ownership in "Street-Name" at
brokerage houses. There are approximately 225,195 shares held in street name.
No cash dividends have been declared with respect to our common stock since
inception. We are not likely to pay any dividends in the foreseeable future. We
intend to reinvest any earnings in our operations.
The transfer agent for our securities is StockTrans, Inc., 7 East Lancaster
Avenue, Ardmore, Pennsylvania.
Recent Sales of Unregistered Securities
In January 1996, the Company issued warrants to purchase up to 30,000 shares of
Common Stock of the Company to a shareholder and officer of the Company. These
warrants are exercisable at $12.50 per share on or prior to December 31, 2000.
The exercise period of the warrants was subsequently extended to December 31,
2005.
During August 1997, the Company issued 30,307 shares of Common Stock at a price
of $17.50 per share to 4 investors in accordance with Rule 504 under Regulation
D promulgated under the Securities Act of 1933, as amended for net proceeds of
$530,000 to be used for the operations of the Company.
Between August 1997 and October 1998, the Company issued an aggregate of 41,050
shares of Common Stock to 16 individuals (four of whom were affiliates or family
members of affiliates of the Company) in exchange for professional services
rendered to the Company.
During August 1997, the Company converted notes payable and accrued salaries
amounting to $114,375 into 8,526 shares of Common Stock at per share prices
ranging from $12.50 to $17.50 per share.
In January 1997, the Company issued warrants to purchase up to 15,000 shares of
Common Stock of the Company to shareholders and employees of the Company. These
warrants are exercisable at $20.00 per share on or prior to December 31, 1999.
The exercise period of the warrants was subsequently extended to December 31,
2005. The individuals had access to financial and other information concerning
the Company and had the opportunity to ask questions concerning the Company and
its operations. Accordingly, the issuance of the shares was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
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In December 1997, the Company issued warrants to purchase up to 15,000 shares of
Common Stock of the Company to shareholders and employees of the Company. These
warrants are exercisable at $23.00 per share on or prior to December 31, 2002.
The exercise period of the warrants was subsequently extended to December 31,
2005. The individuals had access to financial and other information concerning
the Company and had the opportunity to ask questions concerning the Company and
its operations. Accordingly, the issuance of the shares was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
In August 1998, the Company issued 22,743 shares of Common Stock at an average
price of $24.20 per share to six accredited investors in accordance with Rule
504 of Regulation D promulgated under the Act.
During October 1998, the Company issued warrants to purchase 3,750 shares of
stock of the Company to one employee. The warrants are exercisable at $50.00 per
share through January 20, 2001. The individuals had access to financial and
other information concerning the Company and had the opportunity to ask
questions concerning the Company and its operations. Accordingly, the issuance
of the shares was exempt from the registration requirements of the Act pursuant
to Section 4(2) of the Act.
During October 1998, the Company exchanged 5,000 shares of its common stock for
72.5% of BRT Video, Inc.
During November 1998, the Company issued warrants to purchase 1,440 shares of
stock of the Company to three employees of BRT Video, Inc. The warrants are
exercisable at $50.00 per share through December 31, 2001. The individuals had
access to financial and other information concerning the Company and had the
opportunity to ask questions concerning the Company and its operations.
Accordingly, the issuance of the shares was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
During the nine months period ended September 30, 1999, the Company converted
accrued salaries amounting to $85,500 into 6,951 shares of common stock at per
share prices ranging from $9.50 to $21.25 per share.
During March 1999, the Company issued 500 shares of common stock in exchange for
professional services rendered. These shares were valued at $33.75 per share,
the fair value, and charged to operations.
During March 1999, the Company agreed to exchange 585 shares of its common stock
for 7.5% of BRT Video, Inc.
During April 1999, the Company issued 100 shares of common stock in exchange for
professional services rendered. These shares were valued at $30.00 per share,
the fair value, and charged to operations.
During May 1999, the Company issued 3,235 shares of common stock in exchange for
professional services rendered. These shares were valued at approximately $9.60
to $11.25 per share, the fair values, and charged to operations.
In connection with the signing of the Merger Agreement, the Company declared a
one-for-ten reverse stock split whereby each share of common stock issued and
outstanding on September 27, 1999 was reclassified and changed to one-tenth
of one share of common stock, rounded down to the nearest whole share. All
common shares and per share data have been retroactively adjusted to reflect
this stock split.
On October 22, 1999, pursuant to the Merger, the shareholders of email Nevada
received one share of the Company's common stock in exchange for each share of
email Nevada's common stock, or an aggregate of 6,572,000 shares of the
Company's common stock.
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In connection with the Merger, the Company issued 393,016 shares of its common
stock in full satisfaction of certain indebtedness amounting to $432,318 and
issued 300,000 shares of common stock to a third party in exchange for the
assignment to the Company of a $500,000 obligation owed to this third party.
Also in connection with the Merger, the Company issued an aggregate of 525,000
shares of its common stock as an investment banking fee.
In October 1999 the Company issued and sold an aggregate of 333,333 shares of
common stock at an offering price of $1.50 per share to the following accredited
investors pursuant to Rule 506: SPH Equities, Inc., Capital Growth Investment
Trust and Equity Associates Corp. This offering generated gross proceeds of
$500,000.
Item 6. Management's Discussion and Analysis
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements. See Cautionary
Statement Regarding Forward-Looking Statements.
The following discussion should be read in conjunction with our audited
Consolidated Financial Statements and related Notes thereto included elsewhere
in this Report.
Overview
We are an emerging "permission-based" email marketing service. Combining online
direct marketing technology with promotional and marketing expertise, our
infrastructure is set up to offer a full slate of marketing solutions to a wide
variety of product categories.
Our services include the creation, delivery, and analysis of targeted
"one-to-one" email campaigns and custom loyalty programs and the planning,
integration and execution of online and traditional advertising strategies.
As described in Item 1, on October 22, 1999, pursuant to the terms of an
Agreement and Plan of Merger and Reorganization, (the "Merger Agreement"), dated
as of September 17, 1999, by and among Realm Production and Entertainment, Inc.
("the Company"), Realm Acquisition Corp., a wholly-owned subsidiary of the
Company ("Merger Sub") and emailthatpays.com, a company incorporated in the
state of Nevada ("email Nevada"), Merger Sub was merged (the "Merger") with and
into email Nevada. Pursuant to the Merger, the Company issued 6,572,000 shares
(post reverse split) as consideration in exchange for 100% of the issued and
outstanding shares of email Nevada.
For accounting purposes, this transaction has been accounted for as a
recapitalization of email Nevada, effectively as if email Nevada had issued
common stock for consideration equal to the net assets of the Company.
The Company's historical financial statements reflect the financial position,
results of operations and cash flows of email Nevada for each of the years in
the two-year period ended December 31, 1999 and include the operations of the
Company from the date of the effective recapitalization, being October 22, 1999.
Stockholders' equity gives effect to the shares issued to the stockholders of
email Nevada prior to October 22, 1999 and of the Company thereafter.
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RESULTS FROM OPERATIONS
Revenue
We earn revenues by delivering online direct marketing offers and by developing
integrated marketing and advertising strategies. We charge our advertisers a fee
based on a number of criteria including offers delivered, qualified leads
generated, online transactions executed and development services performed.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising, which are typically higher
during the second and fourth calendar quarters. In addition, expenditures by
advertisers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns.
Total revenue for the year ending December 31, 1999 was $1.1 million, an
increase of $975,000 from the period ending December 31, 1998. The increase
results from a full year of operations (versus 6 months from our June 1998
inception in 1998) and growth of our client base.
As our relational database program and email delivery system was not completed
until late Fall 1999, 100% of our revenues to date have been generated from the
development of integrated marketing and advertising strategies.
Cost of Sales
Cost of sales represents the cost of advertising purchased for clients. The
increase to $838,000 in 1999 versus $91,000 in 1998 results from a full year of
operation and an increase in our client base.
Operating Expenses
Salaries and benefits increased from $178,000 in 1998 to $622,000 in 1999 as
staffing levels increased to support increased client activity and the expansion
of marketing, technological and administrative infrastructure.
Legal and accounting costs increased from $22,000 in 1998 to $146,000 in 1999
primarily due to expenses associated with the Merger and requirements for public
reporting.
Other operating expenses increased from $79,000 in 1998 to $585,000 in 1999.
This increase reflects a complete year of operation and increased costs related
to our development and marketing of our "permission-based" email program and
services.
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LIQUIDITY AND CAPITAL RESOURCES
We have sustained net losses and negative cash flows from operations since our
inception. Our ability to meet our obligations in the ordinary course of
business is dependent upon our ability to establish profitable operations or to
obtain additional funding through public or private equity financing,
collaborative or other arrangements with corporate sources, or other sources. We
are seeking to increase revenues through continued marketing of our services;
however additional funding will be required.
We are working to obtain sufficient working capital from external sources in
order to continue operations. There is however, no assurance that the
aforementioned events will occur and be successful. Subsequent to December 31,
1999, the Company issued common stock for net cash consideration of $1,265,000.
Net cash used in operating activities was $1,000,000 and $205,000 for the year
and period ended December 31, 1999 and 1998, respectively. Cash used in
operations was primarily the result of the net losses of $1,120,000 and
$252,000, for the year and period ended December 31, 1999 and 1998 respectively,
and increases in accounts receivable of $160,000 and $16,000. The increases in
accounts receivable were due to increases in revenue. These net losses and
increases in accounts receivable were partially offset by increases in accounts
payable and accrued expenses.
Net cash used in investing activities was $211,000 and $22,000 for the year and
period ended December 31, 1999 and 1998, respectively. Cash used in investing
activities related to purchases of property and equipment.
Net cash provided by financing activities was $1,310,000 and $250,000 for the
year and period ended December 31, 1999 and 1998 respectively. Cash provided by
financing activities for the year ended December 1999 consists of $295,000 from
borrowings of short and long-term debt and $1,115,000 from the issuance of
capital stock, less a reduction in advances from related parties of $99,000.
Cash provided by financing activities for the period ended December 31, 1998 is
$4,000 from the issuance of capital stock and $246,000 from advances from
related parties.
FACTORS AFFECTING OPERATING RESULTS
WE HAVE A HISTORY OF OPERATING LOSSES AND FUTURE LOSSES ARE LIKELY
We incurred a net loss of $1,120,000 during the year ended December 31, 1999 and
$252,000 during the period ended December 31, 1998. We require substantive
levels of spending and financing to implement our strategies of client
realization and servicing, expansion and maintenance of products, brand
awareness, technological advancement and infrastructure development. As a
result, we expect increases in its net losses and negative cash flows for the
next several quarters. We expect to incur net losses through 2001.
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OUR EXTREMELY LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO
EVALUATE OUR BUSINESS AND PROSPECTS
We only recently completed development and testing of our proprietary relational
database, network architecture, and custom mail delivery mechanisms and began
marketing of our "permission-based" email direct marketing service. Accordingly,
you have limited information about us with which to evaluate our business,
strategies and performance and an investment in our common stock.
Our limited operating history makes it difficult to forecast future operating
results. We cannot be certain that revenues will increase at a rate sufficient
to achieve and maintain profitability. Even if we were to achieve profitability
in any period, we might fail to sustain or increase that profitability on a
quarterly or annual basis
OUR MANAGEMENT TEAM HAS ONLY WORKED TOGETHER FOR A SHORT PERIOD OF TIME AND MAY
NOT WORK WELL TOGETHER.
Virtually all of our executive officers, including our Chief Technical Officer,
Chief Financial Officer, Vice President of Sales and Senior Vice President have
joined us in 1999. Due to the fact that many of our executive officers are new
to us and have limited work experience together, our management may not be able
to function effectively, individually or as a team.
OUR FUTURE OPERATING RESULTS REMAIN UNCERTAIN AND MAY FLUCTUATE
SIGNIFICANTLY FROM QUARTER TO QUARTER
Our operating results are difficult to predict. Our future quarterly operating
results may fluctuate significantly and may not meet the expectations of
securities analysts or investors. If this occurs, the price of our common stock
would likely decline, perhaps substantially. Factors that may cause fluctuations
of our operating results include the following:
o The level of market acceptance of our products and services;
o The growth of our client base;
o Delays in introducing new products and services;
o Seasonality of direct marketing expenditures which are typically higher in
the second and fourth quarters and lower in the first and third quarters;
o Competitive developments;
o Demand for advertising on the Internet;
o Changes in pricing policies and resulting margins;
o Changes in the growth rate of Internet usage;
o Changes in the mix of products and services sold;
o Changes in the mix of sales channels through which products and services are
sold;
o Costs related to acquisitions of technology or businesses; and
o Economic conditions generally as well as those specific to the Internet and
related industries.
13
<PAGE>
We expect that an increasing portion of our future revenues will be derived from
permission-based email marketing products and services. Our revenues are
difficult to predict because the market for our products is in its infancy and
the sales cycle may vary substantially from customer to customer. Moreover, our
sales are expected to fluctuate due to the seasonal and cyclical nature of our
customers' annual budgetary, purchasing and marketing campaigns.
OUR SUCCESS DEPENDS UPON BROAD MARKET ACCEPTANCE OF PERMISSION EMAIL MARKETING
SERVICES AND WE ARE UNCERTAIN IF OR WHEN SUCH MARKET ACCEPTANCE WILL OCCUR.
We expect to derive a substantive portion of our revenues from online
advertising and direct marketing, including both email and web-based programs.
If these services do not continue to achieve market acceptance, we cannot assure
you that we will generate business at a sufficient level to support our
continued operations. The Internet has not existed long enough as an advertising
medium to demonstrate its effectiveness relative to traditional advertising
media. The market for permission email marketing services is in its infancy, and
we are not certain whether our target customers will widely adopt and deploy
this technology. Even if they do so, they may not choose our products for
technical, cost, support or other reasons. Adoption of permission email
marketing services, particularly by those entities that have historically relied
upon traditional means of direct marketing, such as telemarketing and direct
mail, requires the broad acceptance of a new and substantially different
approach to direct marketing. Enterprises that have already invested substantial
resources in other advertising methods may be reluctant or slow to adopt our new
approach.
COMPETITION FOR INTERNET ADVERTISING AND DIRECT MARKETING IS INTENSE AND COULD
ADVERSELY AFFECT OUR BUSINESS.
The market for Internet advertising and direct marketing is intensely
competitive, rapidly changing and highly fragmented. With no significant
barriers to entry and increasing attention being placed on the Internet as a
means of advertising and direct marketing, we expect that competition will
increase significantly in the near term. Our primary long-term competitors may
not yet have entered the market.
Our ability to generate revenue from businesses will depend on our skill in
differentiating the services and technology we provide and our success in
delivering online direct marketing, custom loyalty and integrated advertising
programs that meet our client's business objectives. Currently, several
companies (PostmasterDirect, Bigfoot Interactive, MessageMedia and E-Dialog)
offer competitive online services or products. Many of these companies have
greater name recognition, longer operating histories, larger customer bases and
significantly greater financial, technical, marketing, public relations, sales,
distribution and other resources than we do.
14
<PAGE>
As we expand the scope of our product and service offerings, we may compete with
a greater number of media companies across a wide range of advertising and
direct marketing services. Some of our potential competitors are among the
largest and most well capitalized companies in the world. We also expect to face
competition from established online portals and community web sites, traditional
list brokers, banner advertising managers, online advertising technology
providers, and customer management and retention service companies. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective advertisers
and advertising agency customers. As a result, we may not be able to compete
effectively and competitive pressures may result in price reductions, reduced
gross margins and an inability to gain market share.
THE FAILURE TO ESTABLISH, BUILD, AND MAINTAIN THE EMAILTHATPAYS.COM
BRAND WOULD IMPAIR OUR COMPETITIVE POSITION
We are dependent on establishing, building and maintaining our brand. As
competitive pressures in the online direct marketing industry increase, we
believe that brand strength will become increasingly important. The reputation
of the emailthatpays.com brand will depend on our ability to bridge the gap
between marketing goals and real results. We cannot assure you that we will be
successful in delivering these results. Any event or circumstance that
negatively impacts our brand could have a direct and material adverse effect on
our business, results of operations and financial condition.
FAILURE TO SAFEGUARD MEMBER PRIVACY COULD AFFECT OUR REPUTATION
AMONG CONSUMERS.
An important feature of the emailthatpays.com program is our ability to capture
list member profiles on behalf of our clients. Security and privacy concerns may
cause consumers to resist providing the personal data necessary to support this
profiling capability. Usage of the emailthatpays.com program could decline if
any well-publicized compromise of security occurred. As a result of these
security and privacy concerns, we may incur significant costs to protect against
the threat of security breaches or to alleviate problems caused by such
breaches.
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN AND
FAILURE TO OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO
PURSUE FUTURE GROWTH
We need to raise funds to implement our strategies of client realization and
servicing, expansion and maintenance of products, brand awareness, technological
advancement and infrastructure development. We cannot assure you that additional
financing will be available on terms favorable to us, or at all. If adequate
funds were not available on acceptable terms, our ability to implement our
strategies, take advantage of unanticipated opportunities, or otherwise respond
to competitive pressures would be significantly limited. If additional funds are
raised through the issuance of equity or convertible debt securities, the
percentage ownership of our stockholders would be reduced and these securities
might have rights, preferences or privileges senior to those of our current
stockholders.
15
<PAGE>
IF WE ARE UNABLE TO MANAGE OUR EXPECTED GROWTH, OUR BUSINESS WILL
SUFFER.
In the rapidly evolving market for permission email marketing services, our
ability to implement our business plan and successfully develop and offer our
products and services requires an effective planning and management process. We
expect to increase the scope of our operations and grow our headcount. We
anticipate that our future operations will place a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our operational, financial and managerial controls and our reporting
systems and procedures. We also will need to continue to expand, train and
manage our work force.
TO REMAIN COMPETITIVE, WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL
CHANGES IN OUR INDUSTRY
The Internet and our market are characterized by rapidly changing technologies,
frequent new product and service introductions, short development cycles,
evolving industry standards and intense competition. We must adapt to rapidly
changing technologies by maintaining and improving the performance features and
reliability of our services. We may experience technical difficulties that could
impact the operation of existing systems or delay the successful development,
introduction or marketing of new products and services.
CONTINUED DEVELOPMENT AND USE OF THE INTERNET INFRASTRUCTURE IS
CRITICAL TO OUR ABILITY TO OFFER OUR SERVICES
We depend heavily on third-party providers of Internet and related
telecommunication services to operate our online direct marketing service. Our
clients depend on Internet service providers for access to our web site.
Internet service providers and web sites have experienced significant outages in
the past, and could experience outages, delays and other difficulties due to
system failures unrelated to our systems. If outages or delays occur frequently
in the future, Internet usage, as well as electronic commerce and the usage of
our products and services, could grow more slowly or decline. If Internet usage
grows, the Internet infrastructure may not be able to support the demands placed
on it by this growth and its performance and reliability may decline.
GOVERNMENT REGULATION AND THE LEGAL UNCERTAINTIES OF DOING BUSINESS ON THE
INTERNET COULD NEGATIVELY IMPACT OUR BUSINESS.
Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. These regulations could affect the cost
of communicating on the Internet and negatively affect the demand for our direct
marketing solutions or otherwise harm our business. Laws and regulations may be
adopted covering issues such as user privacy, pricing, libel, acceptable
content, taxation and quality of products and services. This legislation could
hinder growth in the use of the Internet generally and decrease the acceptance
of the Internet as a communications, commercial and direct marketing medium.
The laws governing the Internet remain largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws apply to the Internet and Internet advertising. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. This may impose additional burdens on companies conducting
business over the Internet.
16
<PAGE>
WE FACE RISKS ASSOCIATED WITH THIRD PARTY CLAIMS AND LITIGATION
RELATING TO INTELLECTUAL PROPERTY RIGHTS
Our business activities may infringe upon the proprietary rights of others, and
other parties may assert infringement claims against us. A successful claim of
product infringement against us and our failure or inability to license the
infringed or similar technology could harm our business. From time to time,
third parties may assert exclusive patent, copyright, trademark and other
intellectual property rights to technologies and related standards that are
important to us. Any claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, result in an injunction which would prohibit us from offering a
particular product or service or require the payment of monetary damages.
OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES EXERCISE SIGNIFICANT
CONTROL OVER OUR COMPANY.
Our directors and executive officers, and certain of their affiliates,
individually and as a group, effectively control us and direct our affairs and
business, including any determination with respect to the acquisition or
disposition of assets by us, future issuance's of common stock or other
securities by us, declaration of dividends on our common stock and the election
of directors. This concentration of ownership also may have the effect of
delaying, deferring or preventing a change in control of our company.
Item 7. Financial Statements
Audited Consolidated Financial Reports for Years ended December 31, 1999 and
1998.
o Independent Auditors Report
o Consolidated Balance Sheets
o Consolidated Statements of Operations and Deficit
o Consolidated Statement of Stockholders' Equity
o Consolidated Statement of Cash Flows
o Notes to Consolidated Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
17
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with 16(a) of the Exchange Act.
Our directors and executive officers, their ages and positions are set
forth below:
Name Age Title
- ------------------------- --- ------------------------------------
Daniel Hunter 40 Chief Executive Officer, Director
Donald James MacKenzie 43 President and Secretary, Director
Frank Giovinazzo 26 Chief Technical Officer
Bruce Hamlin 42 Vice-President
Mitch Drew 37 Vice President of Sales
Warren Olson 40 Chief Financial Officer
Mr. Hunter was appointed our Chief Executive Officer and a Director in October
1999. Mr. Hunter was appointed Chief Executive Officer and a Director of email
Nevada in July 1999. Since September 1998, Mr. Hunter has been the Chief
Executive Officer and a Director of Coastal Media Group Ltd., a 100% owned
subsidiary of us. From 1993 to 1998, Mr. Hunter was an account executive and
Partner at Canaccord Capital and has participated in the financing of numerous
private and public companies.
Mr. MacKenzie was appointed our President, Secretary, and a Director in October
1999. Mr. MacKenzie has been the Secretary, Treasurer, and a Director of email
Nevada since its inception in June 1998. From 1990 to 1998, Mr. MacKenzie was a
senior account executive at BCTV, a major local television station in Vancouver.
Mr. Giovinazzo has been our Chief Technical Officer since July 1999. For
approximately one year prior to joining us, Mr. Giovinazzo provided Internet
consulting services to several organizations, including us. Prior to forming his
own consulting firm, Mr. Giovinazzo held a number of technical and marketing
positions with Creo Products Inc, a high tech engineering firm specializing in
publishing.
Mr. Hamlin joined us as a Vice-President in July 1999. Prior to joining us, Mr.
Hamlin spent 11 years as a senior account executive at WIC Western International
Communications Inc., a broadcasting company with radio and television holdings
throughout Canada.
18
<PAGE>
Mr. Drew joined us as Vice President of Sales in November 1999. From 1997-1999,
Mr. Drew was a senior sales executive at CHEK TV, a CTV network affiliate based
in Victoria, British Columbia, Canada. Prior to CHEK TV, Mr. Drew was an account
executive at BCTV.
Mr. Olson joined us as Chief Financial Officer in December 1999. From 1997 to
1999, Mr. Olson was the General Manager of CHEK TV. From 1990 - 1997, Mr. Olson
was the Vice-President of Finance and Administration for BCTV and CHEK TV.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, certain of
our officers and persons who own more than ten percent of our common stock
(collectively the "Reporting Persons") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and to furnish us with
copies of these reports.
Based on our review of the copies of these reports received by us, and
representations received from Reporting Persons, we believe that, all filings
required to be made by the Reporting Persons for the period July 12, 1999 (the
effective date of our Form 10-SB) through December 31, 1999 have been made,
except for filings required to be made by Mr. Adelstein and by Gus Guilbert, our
former Secretary. Between July 12, 1999 and Octber 29, 1999 Mr. Adelstein and
Mr. Guilbert were our only directors and officers. On October 29, 1999 Mr.
Adelstein and Mr. Guilbert resigned from their director and officer positions.
Neither Mr. Adelstein nor Mr. Guilbert made any reports of ownership and changes
in ownership. Messrs. Hunter, MacKenzie, Giovinazzo, Hamlin, Drew and Olson have
filed the appropriate reports, however the reports were filed late.
Item 10. Executive Compensation
The following Summary Compensation Table sets forth the cash compensation and
certain other components of the compensation received by (i) Daniel Hunter, our
current Chief Executive Officer (ii) Steven Adelstein, our former Chairman and
President, and (iii) Donald James MacKenzie.
19
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------------------------------------------------------------------
Awards Payouts
----------------------------------------------------------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options / LTIP Compen-
Year Salary Bonus sation Award SAR Payouts sation
---- ------ ----- ------ ----- --- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel Hunter, 1999 $ 89,584 - - - 70,000 - -
Chief Executive 1998 $ 26,970
Officer
Steven 1999 $100,000 - - - 50,000 (2) - -
Adelstein, (1)
Former
Chairman and
President
Donald James 1999 $103,684 - - - 70,000 - 776 (3)
MacKenzie 1998 $ 57,312
</TABLE>
(1) For the period from January 1, 1999 through October 29, 1999, the date that
Mr. Adelstein resigned from his positions as Chairman and President.
(2) Includes 50,000 warrants held by Mr. Adelstein's family members and
affiliates. See "Security Ownership of Certain Beneficial Owners and
Management."
(3) Term life insurance premiums paid by us.
The following Option / SAR Grants Table shows information regarding grants of
stock options in this last completed fiscal year to the executive officers named
in the Summary Compensation Table.
Option / SAR Grants Table
<TABLE>
<CAPTION>
Number of
Securities Percent of
Underlying Total Options /
Options / SARs Granted
SARs To Employees Exercise Or Expiration
Granted (#) In Fiscal Year Base Price Date
----------- -------------- ---------- ----
<S> <C> <C> <C> <C> <C>
Daniel Hunter 70,000 7% $5.75 12-21-2009
Donald James 70,000 7% $5.75 12-21-2009
MacKenzie
</TABLE>
20
<PAGE>
The following Aggregate Options / SAR Exercises in and Fiscal Year-End Option /
SAR Value Table provides information concerning each exercise of stock options
(or tandem SARs) and freestanding SARs during the last completed fiscal year by
the executive officers named in the Summary Compensation Table and the fiscal
year-end value of unexercised options and SARs.
Aggregate Options / SAR Exercises in and Fiscal Year-End Option /
SAR Value Table
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-The-Money
Options / SARs Options / SARs At
Shares At FY-End (#) FY-End ($)
Acquired On Value Exercisable / Exercisable /
Exercise Realized Unexercisable Unexercisable
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Daniel Hunter - - - / 70,000 0 / 88,550 (1)
Steven Adelstein - - 50,000 / 0 0 (2) / 0
Donald James - - - / 70,000 0 / 88,550 (1)
MacKenzie
</TABLE>
(1) FY-End Option/SAR Values based on exercise price of $5.75 per share and
12-31-99 closing price of $7.015 per share.
(2) FY-End Option/SAR Values based on exercise price of $12.50 per share and
12-31-99 closing price of $7.015 per share.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the latest fiscal year end, the stock
ownership of each named executive officer, directors, all executive officers and
directors as a group, and of each person known by us to be a beneficial owner of
5% or more of our common stock. Except as otherwise noted, each person listed
below is the sole beneficial owner of the shares and has sole investment and
voting power of such shares. No person listed below has any option, warrant or
other right to acquire additional securities of us except as otherwise noted.
21
<PAGE>
Security Ownership Table
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Owner Percent of Class
-------------------- ---------------- ----------------
<S> <C> <C>
Daniel Hunter (2) 1,503,889 (3) 17.6
Bruce Hamlin (4) 278,889 (3) 3.3
Donald James MacKenzie (5) 1,503,889 (3) 17.6
Frank Giovinazzo 203,889 (3) 2.4
Mitch Drew 41,389 (6) 0.5
Warren Olson 41,389 (6) 0.5
Steven Adelstein (7) 140,559 (8) 1.7
Michael Marcus (9) 500,000 (10) 5.9
All executive officers and 3,573,334 42.0
directors as a group (11)
</TABLE>
(1) Unless otherwise indicated, the business address of all beneficial owners is
428 West 6th Avenue, Vancouver, BC V5Y 1L2.
(2) Mr. Hunter's shares are held by Hunter Holdings Inc. Mr. Hunter is the sole
shareholder of Hunter Holdings Inc.
(3) Includes 3,889 shares which the holder has the right to acquire within 60
days upon the exercise of stock options.
(4) Mr. Hamlin's shares are held by Hamlin Holdings Inc. Mr. Hamlin is the sole
shareholder of Hamlin Holdings Inc.
(5) Mr. MacKenzie's shares are held by Vicdra Holdings Inc. Mr. MacKenzie is the
sole shareholder of Vicdra Holdings Inc.
(6) Includes 41,389 shares which the holder has the right to acquire within 60
days upon the exercise of stock options.
(7) Mr. Adelstein's address is 4950 West Prospect Road, Ft. Lauderdale, FL,
33309.
(8) Includes (i) Warrants to purchase up to 30,000 shares of common stock held
by Mr. Adelstein's children; (ii) Warrants to purchase 10,000 shares of
common stock owned by AUW, Inc. ("AUW"), a company of which Mr. Adelstein is
an officer and which is controlled by Mr. Adelstein's family members; (iii)
Warrants to purchase 10,000 shares of common stock owned by Mr. Adelstein's
parents; (iv) 60,709 shares owned by AUW; and (v) 29,850 shares owned by
West Tropical Investments Corp., a company of which Mr. Adelstein is an
officer.
22
<PAGE>
(9) Mr. Marcus' address is 27622 Pacific Coast Highway, Malibu, CA 90265.
(10) Includes 300,000 shares held by Canmarc Trading, Inc., a company which is
controlled by Mr. Marcus.
(11) Includes shares held by Messrs. Hunter, Hamlin, MacKenzie, Giovinazzo,
Drew and Olson. Also includes 98,334 shares which the holders have the
right to acquire within 60 days upon the exercise of stock options.
Item 12. Certain Relationships and Related Transactions
As presented in the following table, Mr. Hunter, our Chief Executive Officer,
has personally and through a controlled company advanced funds to us for working
capital purposes.
- ------------------------------------------------------------------------------
December 31, December 31,
1999 1998
- ------------------------------------------------------------------------------
Controlled company $ 146,804 $ 217,530
- ------------------------------------------------------------------------------
Mr. Hunter 0 28,667
- ------------------------------------------------------------------------------
----------- -----------
- ------------------------------------------------------------------------------
146,804 246,197
- ------------------------------------------------------------------------------
Less: current portion 55,667 0
- ------------------------------------------------------------------------------
----------- -----------
- ------------------------------------------------------------------------------
$ 91,137 $ 246,197
- ------------------------------------------------------------------------------
The advance from the controlled company is unsecured, bears interest at
an annual rate of 7%, and is repayable over 36 months commencing July
19, 1999 with blended monthly payments of $5,348. Annual maturities of
the controlled company advance are:
55,667
59,692
31,445
Mr. Hunter's advances are unsecured, non-interest bearing and have no
set terms of repayment.
Mr. Hunter also personally guarantees our loans payable.
Item 13. Exhibits and Reports on Form 8K
(a) Exhibits
2.1 Agreement and Plan of Merger and Reorganization, dated
as of September 17, 1999, by and among Realm Production
and Entertainment, Inc., Realm Acquisition Corp., and
emailthatpays.com (excluding exhibits and schedules
thereto).*
23
<PAGE>
3.1 Articles of Amendment to the Articles of Incorporation
of Realm Production and Entertainment, Inc.*
3.2 Articles of Amendment to the Articles of Incorporation
of tvtravel.com, Inc.
4.1 1999 Equity Compensation Plan
21 Subsidiaries.
27 Financial Data Schedule.
* Included on the Current Report on Form 8-K filed on November 5, 1999.
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K on November 5, 1999 relating to
the Merger, the name change from Realm Production and Entertainment, Inc. to
tvtravel.com, Inc. and the changes to the Directors and executive officers. We
filed an amendment to the Form 8-K on January 5, 2000 relating to the Merger.
24
<PAGE>
emailthatpays.com, Inc.
Index to Audited Consolidated Financial Statements
Years ended December 31, 1999 and 1998
With Independent Auditors' Report
Page
----
Independent Auditors' Report................................................F-1
Consolidated Balance Sheets.................................................F-2
Consolidated Statements of Operations and Deficit...........................F-3
Consolidated Statement of Stockholders' Equity..............................F-4
Consolidated Statements of Cash Flows.......................................F-5
Notes to Consolidated FinancialStatements............................F-6 - F-18
<PAGE>
Audited Consolidated Financial Statements of
emailthatpays.com, Inc.
Years ended December 31, 1999 and 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
emailthatpays.com, Inc.
We have audited the accompanying consolidated balance sheets of
emailthatpays.com, Inc. and its subsidiaries as of December 31, 1999 and 1998
and the related consolidated statements of operations and deficit, stockholders'
equity and cash flows for the year ended December 31, 1999 and the period from
June 26, 1998 to December 31, 1998. 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 audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
emailthatpays.com, Inc. and subsidiaries as of December 31, 1999 and December
31, 1998, and the results of their operations and their cash flows for the year
ended December 31, 1999 and the period from June 26, 1998 to Decmeber 31, 1998,
in conformity with United States generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
emailthatpays.com, Inc. will continue as a going concern. As discussed in note 2
to the consolidated financial statements, the Company's need to generate cash
from operations and obtain additional financing raises substantial doubt about
its ability to continue as a going concern. Management plans as to this matter
are discussed in note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Chartered Accountants
Victoria, Canada
March 17, 2000
F-1
<PAGE>
emailthatpays.com, Inc.
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 121,609 $ 22,264
Accounts receivable 176,688 16,481
Prepaid expenses 10,510 254
- ------------------------------------------------------------------------------------------------------------
308,807 38,999
Property and equipment, less accumulated depreciation (note 4) 191,115 19,186
- ------------------------------------------------------------------------------------------------------------
$ 499,922 $ 58,185
============================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 280,818 $ 25,634
Accrued salaries 23,565 32,609
Loans payable- current portion 121,112 -
Lease obligation- current portion 5,002 -
Due to related parties - current portion 55,667 -
- ------------------------------------------------------------------------------------------------------------
486,164 58,243
Loans payable (note 6) 146,766 -
Lease obligation (note 7) 22,457 -
Due to related parties (note 5) 91,137 246,197
- ------------------------------------------------------------------------------------------------------------
Total liabilities 746,524 304,440
Stockholders' deficit (notes 8 and 9):
Common stock 43,140 -
Additional paid-in capital 2,224,432 3,914
Deficit (1,372,793) (252,792)
Deferred stock-based compensation (1,130,000) -
Accumulated other comprehensive income (loss):
foreign currency translation adjustment (11,381) 2,623
- ------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (246,602) (246,255)
Commitments (note 12)
- ------------------------------------------------------------------------------------------------------------
$ 499,922 $ 58,185
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
emailthatpays.com, Inc.
Consolidated Statements of Operations and Deficit
Year ended December 31, 1999, with comparative figures for the period ended
December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 1,102,732 $ 125,119
Cost of revenue (838,496) (91,300
- ------------------------------------------------------------------------------------------------------------
Gross profit 264,236 33,819
Operating expenses:
Depreciation 30,908 3,130
Salaries and fringe benefits 622,426 177,937
Legal and accounting 146,450 21,879
Consulting fees 234,892 -
Phones and utilities 28,723 6,565
Rent 50,752 20,064
Computer services 22,522 20,227
Advertising and promotion 104,187 14,315
Other selling, general and administrative 112,323 15,361
- ------------------------------------------------------------------------------------------------------------
1,353,183 279,478
- ------------------------------------------------------------------------------------------------------------
Loss from operations (1,088,947) (245,659)
Other income (expenses):
Interest income 2,184 -
Interest expense (33,238) (7,133)
- ------------------------------------------------------------------------------------------------------------
(31,054) (7,133)
- ------------------------------------------------------------------------------------------------------------
Net loss (1,120,001) (252,792)
Deficit, beginning of period (252,792) -
- ------------------------------------------------------------------------------------------------------------
Deficit, end of period $(1,372,793) $(252,792)
============================================================================================================
Net loss per common share, basic and diluted $ (0.33) $(252,792)
Weighted average common shares outstanding,
basis and diluted (note 3(k)) 3,397,856 1
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
emailthatpays.com, Inc.
Consolidated Statements of Stockholders' Equity
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Total
Common Additional Comprehensive Stockholders
Stock Capital Deficit Compensation Income (Loss) Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued in connection with:
Issuance of common stock (1 share) $ 0 $ 3,914 $ 0 $ 0 $ 0 $ 3,914
Net Loss (252,792) (252,792)
Comprehensive income (loss):
Foreign exchange translation adjustment 2,623 2,623
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 0 3,914 (252,792) 2,623 (246,255)
Shares issued in connection with:
Issuance of common stock (8,428,092 shares) 42,140 1,072,518 1,114,658
Deferred stock-based compensation 1,000 1,148,000 (1,149,000) 0
Amortization of deferred compensation 19,000 19,000
Net loss (1,120,001) (1,120,001)
Comprehensive income (loss):
Foreign exchange translation adjustment (14,004) (14,004)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 43,140 $ 2,224,432 $(1,372,793) $ (1,130,000) $(11,381) $ (246,602)
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
emailthatpays.com, inc.
Consolidated Statements of Cash Flows
Year ended December 31, 1999, with comparative figures for the period ended
December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Net loss $(1,120,001) $(252,792)
Items not involving cash:
Depreciation 30,908 3,130
Stock-based compensation 19,000 -
Foreign exchange on subsidiary operations (14,004) 2,623
Loss on disposal of equipment 8,241 -
Changes in operating assets and liabilities:
Increase in accounts receivable (160,207) (16,481)
Increase in prepaid expenses (10,256) (254)
Increase in accounts payable and accrued liabilities 255,184 25,634
Decrease in accrued salaries (9,044) 32,609
- ------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,000,179) (205,531)
Cash flows used in investing activities:
Purchase of property and equipment (229,886) (22,316)
Proceeds from disposal of equipment 18,808 -
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (211,078) (22,316)
Cash flows from financing activities:
Increase in loans payable 295,337 -
Increase (decrease) in advances from related parties (99,393) 246,197
Issue of common shares 1,114,658 3,914
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,310,602 250,111
- ------------------------------------------------------------------------------------------------------------
Increase in cash 99,345 22,264
Cash, beginning of period 22,264 -
- ------------------------------------------------------------------------------------------------------------
Cash, end of period $ 121,609 $ 22,264
============================================================================================================
Supplementary information:
Interest paid 33,238 7,133
Income taxes paid - -
Non-cash transactions:
Assets purchased under capital lease 29,501 -
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. The Company and description of business:
emailthatpays.com, Inc. (the "Company") is incorporated in the state of
Florida and is an emerging "permission-based" e-mail marketing service. The
Company's services include the creation, delivery and analysis of targeted
"one-to-one" e-mail campaigns and customer loyalty programs, and the
planning, integration and execution of both online and traditional
advertising strategies. To December 31, 1999, 100% of the Company's
revenues have been generated from the development of integrated marketing
and advertising strategies.
On October 22, 1999, Realm Production and Entertainment, Inc. ("Realm"), a
public company listed on the over-the-counter bulletin board in the United
States, issued 6,572,000 shares as consideration in exchange for 100% of
the issued and outstanding shares of emailthatpays.com ("email Nevada"), a
company incorporated in the state of Nevada. This transaction was accounted
for as a recapitalization of email Nevada, effectively as if email Nevada
had issued common shares for consideration equal to the net monetary assets
of Realm. On October 27, 1999 Realm changed its name to tvtravel.com, Inc.
and subsequently on December 21, 1999 to emailthatpays.com, Inc.
The Company's historical financial statements reflect the financial
position, results of operations and cash flows of email Nevada for each of
the years in the two-year period ended December 31, 1999 and include the
operations of Realm from the date of the effective recapitalization, being
October 22, 1999. Stockholders' equity gives effect to the shares issued to
the stockholders of email Nevada prior to October 22, 1999 and of the
Company thereafter.
email Nevada (formerly Hotel Media Group Inc.) was incorporated on June 26,
1998. In August 1999, it acquired 100% of Coastal Media Group Ltd.
("Coastal"), a full-service advertising agency founded in May 1998. As
common shareholders controlled email Nevada and Coastal, this acquisition
represents a "common control transaction". A common group of shareholders
controlled both Coastal and email Nevada. For accounting purposes, this
transaction was considered to be an acquisition by Coastal for
consideration equal to the net assets and liabilities of email Nevada.
Accordingly, the assets and liabilities of email Nevada have been recorded
at their carrying values in the Company's accounts.
2. Liquidity and future operations:
The Company has sustained net losses and negative cash flows from
operations since its inception. At December 31, 1999, the Company has
negative working capital of $177,357. The Company's ability to meet its
obligations in the ordinary course of business is dependent upon its
ability to establish profitable operations or to obtain additional funding
through public or private equity financing, collaborative or other
arrangements with corporate sources, or other sources. Management is
seeking to increase revenues through continued marketing of its services;
however additional funding will be required.
F-6
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
2. Liquidity and future operations (continued):
Management is of the opinion that sufficient working capital will be
obtained from external sources in order to continue operations. Subsequent
to December 31, 1999, the Company issued common stock for net cash
consideration of $1,265,000 (note 13). There is no assurance that the
aforementioned events, including the receipt of additional funding, will
occur and be successful.
3. Significant accounting policies:
(a) Basis of presentation:
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principals in the United
States and are presented in United States dollars. The consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in the consolidation process.
(b) Use of estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting procedures in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of expenses during the period.
Actual results could differ from the estimates used in the preparation
of consolidated financial statements.
(c) Revenue recognition:
The Company earns revenue by charging fees for sending targeted email
and for providing integrated marketing and advertising solutions.
Revenue is recognized in accordance with contractual arrangements which
generally is when email is transmitted and services are performed.
(d) Foreign currency:
The functional currency of the operations of the Company's wholly-owned
Canadian operating subsidiaries is the Canadian dollar. Assets and
liabilities measured in Canadian dollars are translated into United
States dollars using exchange rates in effect at the consolidated
balance sheets date with revenue and expense transactions translated
using average exchange rates prevailing during the period. Exchange
gains and losses arising on this translation are excluded from the
determination of income and reported as foreign currency translation
adjustment (which is included in the comprehensive income (loss)) in
stockholders' equity.
F-7
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(e) Property and equipment:
Property and equipment are recorded at cost and are depreciated at
rates which will reduce original cost to estimated residual value over
the useful life of each asset. Maintenance and repairs are charged to
expense as incurred, and improvements and betterments are capitalized.
When assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the accounts
and any resulting gain or loss is reflected in the consolidated
statements of operations and deficit for the period in which it is
realized.
The annual rates used to compute depreciation on a declining balance
basis are as follows:
-----------------------------------------------------------------------
Asset Rate
-----------------------------------------------------------------------
Office furniture and equipment 20%
Computer hardware 30%
Computer software 100%
-----------------------------------------------------------------------
Leasehold improvements are amortized over the term of the lease.
(f) Capital leases and obligations:
The asset value and amount of the capital lease obligation recorded at
the beginning of the lease term are calculated based upon the present
value of the minimum lease payments. Assets under a capital lease are
depreciated at the same rates as property and equipment.
(g) Computer development software:
Programming costs associated with the development of the Company's
relational database program are expensed as incurred.
The Company expenses Web site products and related application
development and enhancement costs as incurred.
F-8
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(h) Financial instruments and concentration of risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, accounts
receivable, accounts payable, short-term debt, obligations under
capital leases and accrued liabilities. At December 31, 1999 and 1998,
the fair market value of these instruments approximated their financial
statement carrying amount due to the short term maturity of these
instruments. The Company does not require collateral for accounts
receivable, but does evaluate customer creditworthiness and establishes
allowances as necessary based on management estimates of
collectibility.
Amounts owing to related parties are stated at their exchange values
which approximates fair value due to their short term maturity and
market rates of interest.
(i) Income taxes:
The Company has adopted Statement of Financial Accounting Standards No.
109 - "Accounting for Income Taxes" (SFAS 109). This standard requires
the use of the asset and liability approach for accounting and
reporting on income taxes. Deferred tax assets and liabilities are
recognized for the future consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
(j) Stock-based compensation:
The Company accounts for stock-based employee and director compensation
arrangements in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". Under APB No. 25, compensation expense is based on the
difference, if any, on the date the number of shares exercisable is
determined, between the market value of the Company's stock and
the exercise price of options to purchase that stock. Stock-based
compensation arrangements for others are recorded at their fair value
and charged against earnings over their vesting period.
F-9
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(k) Net loss per share:
The Company computes net loss per share in accordance with SFAS No.
128, Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No.
98. Under the provisions of SFAS No. 128 and SAB No. 98, basic loss per
share is computed using the weighted average number of common stock
outstanding during the periods, and gives retroactive effect to the
shares issued on the recapitalization described in note 1. Diluted loss
per share is computed using the weighted average number of common and
potentially dilutive common stock outstanding during the period. As the
Company generated net losses in each of the periods presented basic and
diluted net loss per share is the same as any exercise of options would
be anti-dilutive.
(l) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of". This
statement requires that long-lived assets and certain identifiable
recorded intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount of fair value less costs
to sell. At December 31, 1999, the only long-lived assets reported on
the Company's consolidated balance sheets are capital assets.
(m) Comprehensive income (loss):
Effective January 1, 1999, the Company adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 which
establishes standards for reporting comprehensive income (loss) and its
components in financial statements. Other comprehensive income, as
defined, includes all changes in equity (net assets) during a period
from non-owner sources. Comprehensive loss for each of the periods
presented is as follows:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Net loss $ 1,120,001 $ 252,792
Other comprehensive (income) / loss:
Foreign currency translation adjustment 14,004 (2,623)
- --------------------------------------------------------------------------------
Comprehensive loss $ 1,134,005 $ 250,169
- --------------------------------------------------------------------------------
F-10
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(n) Recently issued accounting pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives,
requires that all derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. SFAS No. 133 is
effective for the Company in 2001. Although the Company has not fully
assessed the implications of SFAS No. 133, the Company does not believe
that the adoption of this statement will have a material impact on the
Company's financial position or results of operations.
4. Property and equipment:
-----------------------------------------------------------------------------
Accumulated Net book
1999 Cost depreciation value
-----------------------------------------------------------------------------
Office furniture and fixtures $ 91,941 $10,206 $ 81,735
Computer hardware 98,148 11,064 87,084
Computer software 11,008 5,624 5,384
Leasehold improvements 19,730 2,818 16,912
-----------------------------------------------------------------------------
$220,827 $29,712 $191,115
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Accumulated Net book
1998 Cost depreciation value
-----------------------------------------------------------------------------
Office furniture and fixtures $ 7,133 $ 712 $ 6,421
Computer hardware 14,786 2,217 12,569
Computer software 397 201 196
-----------------------------------------------------------------------------
$22,316 $3,130 $19,186
-----------------------------------------------------------------------------
5. Due to related parties:
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Stockholder-controlled company $146,804 $217,530
Stockholders - 28,667
- --------------------------------------------------------------------------------
146,804 246,197
Less current portion 55,667 -
- --------------------------------------------------------------------------------
$ 91,137 $246,197
- --------------------------------------------------------------------------------
F-11
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
5. Due to related parties: (continued):
The advance from the stockholder-controlled Company is unsecured, bears
interest at an annual rate of 7%, and is repayable over 36 months
commencing July 1999 with blended monthly payments of $5,348.
Stockholder advances are unsecured, non-interest bearing and have no set
terms of repayment.
6. Loans payable:
-----------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------
Bank demand operating loan, $139,000 limit,
bears interest at prime plus 1.5%
(at December 31, 1999 - 8.0%), repayable
in Canadian dollars $ 83,142 $ -
Bank installment loan, bears interest at
prime plus 1.25% (at December 31, 1999
-7.75%), payable in blended monthly
payments of $4,261, repayable in
Canadian dollar 184,736 -
-----------------------------------------------------------------------------
267,878 -
Less current portion 121,112 -
-----------------------------------------------------------------------------
$146,766 $ -
-----------------------------------------------------------------------------
All loans are designated in Canadian dollars (total repayable in Canadian
funds: Cdn$386,628) and are secured by a general security agreement
covering all assets of the Company and a general assignment of book debts.
Principal payments required on the installment loan in each of the next
five years are as follows:
---------------------------------------------------------------------------
2000 $ 37,970
2001 41,252
2002 44,566
2003 48,146
2004 12,802
---------------------------------------------------------------------------
$184,736
---------------------------------------------------------------------------
F-12
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. Capital leases:
The Company leases equipment under capital lease arrangements which expire
in 2004. Future obligations under these leases are as follows:
---------------------------------------------------------------------------
2000 $ 7,157
2001 7,157
2002 7,157
2003 7,157
2004 4,771
---------------------------------------------------------------------------
Total minimum lease payments 33,399
Less interest component 5,940
---------------------------------------------------------------------------
Present value of capital lease obligations 27,459
Less current portion 5,002
---------------------------------------------------------------------------
$ 22,457
---------------------------------------------------------------------------
8. Capital structure:
The transaction described in note 1 between Realm and email Nevada was
accounted for as a recapitalization of email Nevada, effectively as if
email Nevada had issued common shares for consideration equal to the net
monetary assets of Realm. Stockholders' equity gives effect to the shares
issued to the stockholders of email Nevada prior to October 22, 1999 and
the Company thereafter. The following table presents the issued and
outstanding common stock:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Company email Nevada Additional
common common paid-in
shares shares Par value capital
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issuance of stock at inception 1 $ - $ 3,914
------------------------------------------------------------------------------------------------------------
December 31, 1998 1 - 3,914
Private placement, July 9, 1999 6,000,000 30,000 81,798
Private placement, September 9, 1999 572,000 2,860 -
Shares issued and outstanding
immediately prior to transaction
on October 22, 1999 1,522,759 - 7,613 492,387
Share exchange on recapitalization 6,572,001 (6,572,001) - -
Private placement 333,333 - 1,667 498,333
Deferred stock-based compensation 1,000 1,148,000
------------------------------------------------------------------------------------------------------------
December 31, 1999 8,428,093 - 43,140 2,224,432
------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has authorized 10,000,000 $0.005 par value common shares,
2,000,000 $0.01 par value preferred shares (0 issued and outstanding).
F-13
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. Common stock options:
On December 21, 1999, the Company adopted the 1999 Equity Compensation Plan
(the "Plan"). The Plan provides for the grant of up to 1,000,000 incentive
or non-qualified stock options or shares of restricted stock to employees
and key advisors (an "Optionee") of the Company. Options granted under the
Plan generally vest ratably over a period of three years and expire ten
years from the date of grant. If an Optionee ceases employment with or
service to the Company (a "Termination"), the Optionee may exercise any
vested option at the time of Termination within such period of time
specified in the option agreement. In the absence of a specified time in
the option agreement, the option remains exercisable for three months
following the Optionee's Termination. Unvested options revert to the Plan
at the date of the Termination. If, after Termination, the Optionee does
not exercise the options within the time specified, the Option shall
terminate and the shares revert to the Plan.
During 1999, the Company granted a total of 930,000 non-qualified stock
options. 730,000 options with a three-year vesting period and an exercise
price of $5.75 (an amount that approximates or exceeds the market value of
the Company stock) were granted to certain employees and directors. A
further 200,000 options were granted with a two-year vesting period and an
exercise price of $.005 (an amount below the market value of the Company
stock) to certain employees of the Company. The Company recorded a non-cash
compensation expense of $19,000 relating to these options, representing an
implicit benefit derived form the exercise price being less than market
value. The deferred compensation is being amortized over the estimated
service life of the employees holding the options.
Following is a summary of stock option activity for the year ended December
31, 1999:
---------------------------------------------------------------------------
Weighted
average
Outstanding exercise
shares price
---------------------------------------------------------------------------
Outstanding as of December 31, 1998 - $ -
Granted 930,000 4.51
Exercised - -
Canceled - -
---------------------------------------------------------------------------
Outstanding as of December 31, 1999 930,000 $ 4.51
---------------------------------------------------------------------------
Options vested as of December 31, 1999 75,000 $ .005
---------------------------------------------------------------------------
F-14
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. Common stock options (continued):
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Average
remaining Weighted Weighted
Range of contractual average average
exercise Number life exercise Number exercise
prices outstanding (years) price vested price
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$.005 200,000 10 $ .005 75,000 $ .005
$5.75 730,000 10 $ 5.75 - $ 5.75
930,000 $ 4.51 75,000 $ .005
----------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure requirements of SFAS No. 123 ("FAS
123"), "Accounting for Stock Based Compensation", to account for grants to
employees under the Company's existing stock-based compensation plan. Had
compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date for awards under those plans consistent
with the measurement provisions of FAS 123 with that fair value benefit
being recognized over the vesting period, the Company's net loss and basic
loss per share would have been adjusted as follows (as no options were
granted prior to the year ended December 31, 1999, there would be no
difference to actual reported loss and loss per share prior to 1999):
---------------------------------------------------------------------------
December 31,
1999
---------------------------------------------------------------------------
Loss for the period $1,120,001
Loss for the period - pro-forma 1,166,001
Basic loss per share 0.33
Basic loss per share - pro-forma 0.34
---------------------------------------------------------------------------
F-15
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. Common stock options (continued):
The fair value of each option grant has been estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions:
---------------------------------------------------------------------------
December 31,
1999
---------------------------------------------------------------------------
Expected dividend yield 0.0%
Expected stock price volatility 75%
Risk-free interest rate 6.0%
Expected life of options 5 years
---------------------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in
estimating the fair value of options which have no vesting restrictions and
are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. The actual benefit of the options issued will only be
determined over their life based on the timing and extent of future market
price changes, and such implied benefit may differ from the amount
calculated by the Black-Scholes model.
10. Share purchase warrants:
Immediately prior to the share exchange between email Nevada and Realm,
65,190 stock purchase warrants were outstanding. The warrants allow the
holder to purchase one common share at prices between $12.50 and $50.00.
The exercise price of the warrants exceeded the market price of the
Company's common stock on the date of issuance. The warrants have the
following price and expiration dates:
---------------------------------------------------------------------------
Number of warrants Exercise price Expiration date
---------------------------------------------------------------------------
30,000 $ 12.50 December 31, 2005
15,000 $ 20.00 December 31, 2005
15,000 $ 23.00 December 31, 2005
5,190 $ 50.00 December 31, 2001
---------------------------------------------------------------------------
To December 31, 1999 no warrants have been exercised.
F-16
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
11. Income taxes:
Current income taxes are computed at statutory rates on pre-tax income.
Deferred taxes would be recorded based on differences in the carrying
values of assets and liabilities for financial statement and income tax
purposes. At December 31, 1999, the Company has elected to carry forward
net operating losses for international, federal and state income tax
purposes of approximately $1,174,000 that are available to reduce future
taxable income to 2014. As utilization of such operating losses for tax
purposes is not assured, the deferred tax asset has been fully reserved
through the recording of a 100% valuation allowance. These operating losses
may be limited to the extent an "ownership change" occurs.
The components of the deferred tax asset as of December 31, 1999 are as
follows:
---------------------------------------------------------------------------
1999 1998
---------------------------------------------------------------------------
Deferred tax asset:
Net operating loss carry forward $448,000 $122,000
Less valuation allowance (448,000) (122,000)
---------------------------------------------------------------------------
Net deferred tax $ - $ -
---------------------------------------------------------------------------
Net operating losses expire as follows:
---------------------------------------------------------------------------
2005 $ 72,268
2006 373,746
2007 -
2008 -
2009 -
2009 -
2010 -
2011 -
2012 -
2013 133,620
2014 594,473
---------------------------------------------------------------------------
Total $ 1,174,107
---------------------------------------------------------------------------
F-17
<PAGE>
emailthatpays.com, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
12. Commitment:
The Company leases office space and equipment under non-cancelable
operating leases with various expiration dated through the year 2002:
----------------------------------------------------------------------------
Operating
leases
----------------------------------------------------------------------------
2000 $ 68,505
2001 41,263
2002 20,632
----------------------------------------------------------------------------
13. Subsequent events:
In March 2000, the Company issued 275,000 shares at $5 each for a total of
$1,375,000. After deducting commission/investment banking fee of 8% or
$110,000, the net consideration received for this share issuance is
$1,265,000.
F-18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
emailthatpays.com, Inc.
By: /s/ Daniel Hunter
--------------------------------------
Daniel Hunter, Chief Executive Officer
By: /s/ Donald James MacKenzie
--------------------------------------
Donald James MacKenzie, President
and Secretary
By: /s/ Warren Olson
--------------------------------------
Warren Olson, Chief Financial Officer
(Principal Accounting and Financial
Officer)
In accordance with the Securities Exchange Act of 1934, this Report has
been duly signed below by the following persons on behalf of the Registrant in
the capacities and on March 29, 2000.
By: /s/ Daniel Hunter
-----------------------------------------------
Daniel Hunter, Chief Executive Officer
By: /s/ Donald James MacKenzie
-----------------------------------------------
Donald James MacKenzie, President and Secretary
By: /s/ Warren Olson
-----------------------------------------------
Warren Olson, Chief Financial Officer
(Principal Accounting and Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.2 Articles of Amendment to the Articles of Incorporation of
tvtravel.com, Inc.
4.1 1999 Equity Compensation Plan
21 Subsidiaries
27 Financial Data Schedule
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
TVTRAVEL.COM, INC.
Pursuant to the provisions of section 607.1006, Florida Statutes,
tvtravel.com, Inc. (a Florida profit corporation) adopts the following articles
of amendment to its articles of incorporation:
FILED
99 DEC 21 PM 3:58
FIRST: Amendments adopted: SECRETARY OF STATE
TALLAHASSEE, FLORIDA
Article I is amended to read in its entirety as follows:
ARTICLE I
CORPORATE NAME
--------------
The name of this Corporation is emailthatpays.com, Inc.
SECOND: If an amendment provides for an exchange, reclassification or
cancellation of issued shares, provisions for implementing the amendment if not
contained in the amendment itself, are as follows:
N/A
THIRD: The date of each amendment's adoption: December 21, 1999.
FOURTH: Adoption of Amendment(s) (CHECK ONE)
|X| The amendment(s) was/were approved by the shareholders. The
number of votes cast for the amendment(s) was/were sufficient
for approval.
|_| The amendment(s) was/were approved by the shareholders though
voting groups. The following statement must be separately
provided for each voting group entitled to vote separately on
the amendment(s):
"The number of votes cast for the amendment(s) was/were
sufficient for approval by ________________________."
voting group
|_| The amendment(s) was/were adopted by the board of directors
without shareholder action and shareholder action was not
required.
<PAGE>
|_| The amendment(s) was/were adopted by the incorporators without
shareholder action and shareholder action was not required.
Signed this 20th day of December, 1999.
Signature /s/ Daniel Hunter
-----------------------------------------------------------------------
(By the Chairman or Vice Chairman of the Board of Directors, President
or other officer if adopted by the shareholders)
OR
(By a director if adopted by the directors)
OR
(By an incorporator if adopted by the incoporators)
Daniel Hunter
--------------------------------------------------
Typed or printed name
Chief Executive Officer
--------------------------------------------------
Title
<PAGE>
emailthatpays.com, Inc.
1999 EQUITY COMPENSATION PLAN
<PAGE>
emailhthatpays.com, Inc.
1999 EQUITY COMPENSATION PLAN
The name of this plan is the emailhthatpays.com, Inc.1999 Equity
Compensation Plan (the "Plan"). The Board of Directors (the "Board") of
emailthatpays.com, Inc. (the "Company") adopted the Plan on December 21, 1999
subject to the approval of the Company's stockholders, which approval was
obtained on [ ]. The purpose of the Plan is to enable the Company to
attract and retain highly qualified personnel who contribute to the Company's
success by their ability, ingenuity and industry and to provide incentives that
are linked directly to increases in stockholder value to the participating
officers, directors, employees, consultants, advisors and others.
1. Administration.
(a) Committee. To the extent applicable, the Plan shall be
administered by a compensation committee (the "Committee") consisting of two or
more persons the Board appoints, all of whom are "outside directors" as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and related Treasury regulations and who are "non-employee directors" as
defined under Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). In the event the Board does not appoint a Committee, the
Board shall serve as the Committee. The Board may remove individuals, add
individuals, and fill vacancies on the Committee from time to time, all in
accordance with the Plan, the Company's Articles of Incorporation, the Company's
By-Laws and applicable law. Appointment to the Committee shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board.
(b) Committee Authority. The Committee shall act through a
majority vote. The Committee shall have the sole authority to (i) determine to
whom grants shall be made under the Plan, (ii) determine the type, number of
shares and terms and conditions of the grants, (iii) determine the time when the
grants will be made and the duration of any applicable exercise or restriction
period, including the criteria for exercisability and the acceleration of
exercisability and (iv) deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee, in its sole
discretion, shall have full power and authority to administer and interpret the
Plan, make factual determinations, adopt or amend rules, regulations, agreements
and instruments for implementing the Plan. The Committee's interpretations of
the Plan and determinations shall be conclusive and binding on all parties
having any interest in the Plan or in any awards granted hereunder.
2. Grants. Awards under the Plan may consist of grants of incentive
stock options as described in Section 5 ("Incentive Stock Options"),
nonqualified stock options as described in Section 5 ("Nonqualified Stock
Options" and, together with Incentive Stock Options, "Options"), and restricted
stock as described in Section 6 ("Restricted Stock") (hereinafter collectively
referred to as "Grants"). All Grants shall be subject to the terms and
conditions set forth in this
-1-
<PAGE>
Plan and to the other terms and conditions consistent with this Plan as the
Committee deems appropriate and specifies in writing in a grant instrument (a
"Grant Instrument"). In the event there is an inconsistency between the terms of
the Grant Instrument and the terms of the Plan, the terms of the Plan shall
govern. The Committee shall approve the provisions of each Grant Instrument.
Grants under need not be uniform as among the Grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified in
subsection (b), the aggregate number of shares of common stock of the Company
("Company Stock") that may be issued or transferred under the Plan is 1,000,000
shares. The aggregate number of shares of Company Stock that may be subject to
Grants made under the Plan to any one individual or entity during any calendar
year is 1,000,000 shares ("Award Limit"). The shares may be authorized but
unissued shares of Company Stock or reacquired shares of Company Stock. If and
to the extent Options granted under the Plan terminate, expire, or are canceled,
forfeited, exchanged or surrendered without having been exercised, or if any
shares of Restricted Stock are forfeited, the shares subject to the Grants shall
again be available to grant. However, to the extent Section 162(m) of the Code
requires, such shares continue to be counted against the Award Limit.
(b) Adjustments. If there is any change in the number or kind
of shares of Company Stock outstanding by reason of (i) a stock dividend,
spinoff, recapitalization, stock split or combination or exchange of shares,
(ii) a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) a reclassification or change in par value, or (iv)
any other extraordinary or unusual event affecting the outstanding Company Stock
as a class without the Company's receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of a
spinoff or the Company's payment of an extraordinary dividend or distribution,
the Committee may adjust the maximum number of shares of Company Stock that any
individual or entity participating in the Plan may be granted in any year, the
maximum number of shares of Company Stock available for Grants, the number of
shares covered by outstanding Grants, the kind of shares issued under the Plan,
and the price per share or the applicable market value of such Grants to reflect
any increase or decrease in the number or change in the kind or value of issued
shares of Company Stock to preclude, to the extent practicable, the enlargement
or dilution of rights and benefits under such Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated. Any
adjustments the Committee determines shall be final.
With respect to Options which are granted to Section
162(m) Participants and are intended to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, no adjustment or action
described in this section 3(b) or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Option
to fail to qualify under Section 162(m)(4)(C) of the Code, or any successor
provisions thereto. Furthermore, no adjustment or action shall be authorized to
the extent the adjustment or action would result in short-swing profit liability
under Section 16 of the Exchange Act or violate the exemptive conditions of Rule
16b-3 of the Exchange Act unless the Committee determines that the Option or
other award is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to any Option shall always be rounded to the next
whole number.
-2-
<PAGE>
No adjustments will be made to Incentive Stock Options
unless the following requirements are satisfied: (x) the adjustment is caused by
a merger, consolidation, acquisition of stock or property, spinoff,
reorganization, or a partial or complete liquidation ("Corporate Transaction");
(y) the value of the substituted or assumed option immediately after the
Corporation Transaction does not exceed the value of the Incentive Stock Option
immediately preceding the transaction; and (z) the substituted or assumed option
does not give the participant additional benefits which he or she did not have
with the prior option.
4. Eligibility for Participation.
(a) Eligible Persons. All employees of the Company and the
Company's subsidiaries ("Employees"), including Employees who are officers or
members of the Board, and members of the Board who are not Employees
("Non-Employee Directors") shall be eligible to participate in the Plan.
Advisors, consultants, independent contractors and others that perform services
for the Company or any of its subsidiaries ("Key Advisors") shall be eligible to
participate in the Plan if they render bona fide services and the services are
not in connection with the offer or sale of securities in a capital-raising
transaction.
(b) Selection of Grantees. The Committee shall select the
Employees, Non-Employee Directors and Key Advisors to receive Grants.
Employees, Key Advisors and Non-Employee Directors who receive Grants under
this Plan shall hereinafter be referred to as "Grantees." The Grantees can be
individuals, partnerships, limited liability companies, joint ventures,
corporations, trusts or unincorporated organizations or similar entities.
5. Granting of Options.
(a) Number of Shares. The Committee shall determine the
number of shares of Company Stock that will be subject to each Grant.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options
that are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code or Nonqualified Stock Options that are not intended to
so qualify or any combination of Incentive Stock Options and Nonqualified Stock
Options, all in accordance with the terms and conditions set forth herein.
Incentive Stock Options may be granted only to Employees. Nonqualified Stock
Options may be granted to Employees, Non-Employee Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of
Company Stock subject to an Option shall be determined by the Committee and may
be equal to, greater than, or less than the Fair Market Value (as defined below)
of a share of Company Stock on the date the Option is granted, provided,
however, that (A) the Exercise Price of an Incentive Stock Option
-3-
<PAGE>
shall be equal to, or greater than, the Fair Market Value of a share of Company
Stock on the date the Incentive Stock Option is granted; (B) an Incentive Stock
Option may not be granted to an Employee who, at the time of grant, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary of the Company, unless the
Exercise Price is greater than 110% of the Fair Market Value of Company Stock on
the date of grant; (C) in the case of an option intended to qualify as
performance based compensation (as described in Section 162(m)(4)(c) of the
Code), the Exercise Price shall not be less than 100% of the Fair Market Value
of Company Stock on the date of grant; and (D) if required by the applicable
state law, the Exercise Price cannot be less than the stock's par value.
(iii) The Fair Market Value per share shall mean the
fair market value determined by such methods or procedures as shall be
established from time to time by the Committee.
(c) Option Term. The Committee shall determine the term of
each Option, provided, however, the term shall not exceed ten years from the
date of grant and, provided further that, an Incentive Stock Option that is
granted to an Employee who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company, or any parent or subsidiary of the Company, may not have a term
that exceeds five years from the date of grant.
(d) Vesting and Exercisability of Options. Options shall vest
and become exercisable in accordance with the terms and conditions the Committee
specifies in the Grant Instrument and pursuant to the provisions of section 5(e)
below.
(e) Termination of Employment.
(i) Unless otherwise provided in the Grant
Instrument, the termination of an Employee's employment with the Company for any
reason shall cause all unvested Options to terminate. Unless otherwise provided
in the Grant Instrument, an Employee must exercise all vested Options pursuant
to the following rules:
(A) In the event an Employee ceases to be
Employed by the Company (as defined in subsection (iii)) on account of a
"Termination for Cause" (as defined in subsection (iii)), all vested Options
shall terminate as of the date of termination.
(B) In the event an Employee has a
"Permanent Disability" or dies, the Employee must exercise all vested Options
within one year after the determination of such Permanent Disability or date of
death.
(C) In the event an Employee ceases to be
employed by the Company for any other reason, the Employee must exercise all
vested Options within ninety (90) days of the date of termination.
(ii) Unless otherwise provided in the Grant
Instrument, the termination
-4-
<PAGE>
of a Key Advisor's relationship with the Company or a Non-Employee Director's
engagement with the Company for any reason shall not impact the vesting or
exercisability of the Key Advisor's or Non-Employee Director's Options.
(iii) For purposes of Sections 5(e), 6, 7 and 8:
(A) "Company," when used in the phrase
"employed by the Company," shall mean the Company and its parent and subsidiary
corporations, if any exist.
(B) "Employed by the Company" shall mean
employment or service as an Employee, Key Advisor or member of the Board (so
that, for purposes of exercising Options and satisfying conditions with respect
to Restricted Stock, a Grantee shall not be considered to have terminated
employment or service until the Grantee ceases to be an Employee, Key Advisor or
member of the Board), unless the Committee determines otherwise.
(C) "Permanent Disability" means any
physical or mental disability that prevents a Grantee from performing one or
more of the essential functions of his or her position for a period of ninety
(90) days or more in any twelve (12) month period and which is expected to be of
permanent duration; provided that if such term is otherwise defined in any
employment agreement which the Grantee and the Company are party, such other
definition shall prevail.
(D) "Termination for Cause" shall mean,
except to the extent the Committee otherwise specifies, a finding by the
Committee that the Grantee has breached his, her or its employment, service,
noncompetition, nonsolicitation or other similar contract with the Company, or
has been engaged in disloyalty to the Company, including, without limitation,
fraud, embezzlement, theft, commission of a felony or dishonesty in the course
of his, her or its employment or service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive such
information.
(f) Exercise of Options. A Grantee may exercise an Option that
has become exercisable, in whole or in part, by delivering the following to the
Company: (i) written notice signed by the Grantee or other person then entitled
to exercise the Option specifying the number of shares in respect of which the
Option is to be exercised; (ii) such representations and documents as the
Committee, in its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Exchange Act, and any other
federal or state securities laws or regulations; and the Committee may, in its
absolute discretion, take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on share
certificates and issuing stop-transfer notices to agents and registrars; and
(iii) the Exercise Price. The Committee may provide in the Grant Instrument that
a Grantee can satisfy the exercise price in cash or by other methods, including
delivery of shares of Company Stock having a Fair Market Value on the date of
exercise equal to the Exercise Price. Unless otherwise provided in the Grant
Instrument, the Grantee shall pay the Exercise Price in cash. The Grantee shall
pay the Exercise Price and the amount of any withholding tax due (pursuant to
Section 7) at the time of exercise.
-5-
<PAGE>
(g) Limits on Incentive Stock Options. Each Incentive Stock
Option shall provide that, if the aggregate Fair Market Value of the stock on
the date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under the
Plan or any other stock option plan of the Company or a parent or subsidiary,
exceeds $100,000, then the Option, as to the excess, shall be treated as a
Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any
person who is not an Employee of the Company or a parent or subsidiary (within
the meaning of Section 424(f) of the Code).
6. Restricted Stock Grants. The Committee may grant Restricted Stock to
Employees, Key Advisors and Non-Employee Directors pursuant to the terms the
Committee provides in a Grant Instrument. The following provisions are
applicable to the Restricted Stock:
(a) General Requirements. The Committee shall determine the
number of shares of Restricted Stock granted to a Grantee. The Committee shall
also determine the consideration, if any, a Grantee must pay for the Restricted
Stock. The Restricted Stock shall be subject to the restrictions the Committee
determines, which shall lapse pursuant to the schedule the Committee provides in
a Grant Instrument. The period of time during which the Restricted Stock is
subject to restrictions is the "Restriction Period."
(b) Restrictions. Unless otherwise provided in the Grant
Instrument, the Restricted Stock shall be subject to the following restrictions:
if the Grantee ceases to be Employed by the Company (as defined in section
5(e)(iii)(B)) during the Restriction Period, or if other specified conditions
are not met, the Restricted Stock Grant shall terminate as to all shares covered
by the Grant as to which the restrictions have not lapsed; and during the
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 8(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions. The
Grantee shall be entitled to have the legend removed from the stock certificate
covering the shares subject to restrictions when all restrictions on such shares
have lapsed. The Committee may determine that the Company will not issue
certificates for shares of Restricted Stock until all restrictions on such
shares have lapsed, or that the Company will retain possession of certificates
for shares of Restricted Stock until all restrictions on such shares have
lapsed.
(c) Right to Vote and to Receive Dividends. Unless the
Committee determines otherwise, during the Restriction Period, the Grantee shall
have the right to vote shares of Restricted Stock and to receive any dividends
or other distributions paid on such shares, subject to any restrictions the
Committee deems appropriate.
(d) Lapse of Restrictions. All restrictions imposed on
Restricted Stock shall lapse upon the expiration of the applicable Restriction
Period and the satisfaction of all conditions imposed by the Committee. The
Committee may determine, as to any or all Restricted Stock Grants, that the
restrictions shall lapse without regard to any Restriction Period.
-6-
<PAGE>
(e) Performance Based Compensation. The Committee may grant
Restricted Stock to an individual or entity covered under Section 162(m) of the
Code that vests upon the attainment of performance targets for the Company which
are related to one or more of the following performance goals: (i) pre-tax
income, (ii) operating income, (iii) cash flow, (iv) earnings per share, (v)
return on equity, (vi) return on invested capital or assets and (vii) cost
reductions or savings. To the extent necessary to comply with the
performance-based compensation requirements of Section 162(m)(4)(c) of the Code,
with respect to Restricted Stock which may be granted to one or more employees
covered under Section 162(m) of the Code, no later than ninety days following
the commencement of any fiscal year in question or any other designated fiscal
period, the Committee shall, in writing, (i) designate the employees covered
under Section 162(m) of the Code, (ii) select the performance goal or goals
applicable to the fiscal year or other designated fiscal period, (iii) establish
the various targets and bonus amounts which may be earned for such fiscal year
or other designated fiscal period and (iv) specify the relationship between
performance goals and targets and the amounts to be earned by each Section
162(m) participant for such fiscal year or other designed fiscal period.
Following the completion of each fiscal year or other designated fiscal period,
the Committee shall certify in writing whether the applicable performance target
has been achieved for such fiscal year or other designated fiscal period. In
determining the amount earned by a Section 162(m) participant, the Committee
shall have the right to reduce (but not to increase) the amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the fiscal year or other designed fiscal period.
7. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be
subject to applicable federal, state and local tax withholding requirements. The
Company shall have the right to deduct from all Grants, or from other wages paid
to the Grantee, any federal, state or local taxes required by law to be withheld
with respect to such Grants. In the case of Options and other Grants paid in
Company Stock, the Company may require the Grantee or other person receiving
such shares to pay to the Company the amount of any taxes that the Company is
required to withhold with respect to the Grants, or the Company may deduct from
other wages paid by the Company the amount of any withholding taxes due with
respect to the Grants.
(b) Election to Withhold Shares. If the Committee permits, a
Grantee may elect to satisfy the Company's income tax withholding obligation
with respect to an Option or Restricted Stock paid in Company Stock by having
shares withheld up to an amount that does not exceed the Grantee's maximum
marginal tax rate for federal (including FICA), state and local tax liabilities.
The election must be in a form and manner prescribed by the Committee and shall
be subject to the Committee's prior approval.
-7-
<PAGE>
8. Transferability of Grants
(a) Nontransferability of Grants. Unless otherwise provided in
a Grant Instrument, except as provided in subsection (b), only the Grantee may
exercise rights under a Grant during the Grantee's lifetime. A Grantee may not
transfer those rights except by will or by the laws of descent and distribution
or, with respect to Grants other than Incentive Stock Options, if permitted in
any specific case by the Committee, pursuant to a domestic relations order (as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the regulations thereunder). When a Grantee dies, the
personal representative or other person entitled to succeed to the rights of the
Grantee ("Successor Grantee") may exercise such rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding
the foregoing, the Committee may provide, in a Grant Instrument, that a Grantee
may transfer Nonqualified Stock Options to family members or other persons or
entities according to such terms as the Committee may determine; provided that
the Grantee receives no consideration for the transfer of an Option and the
transferred Option shall continue to be subject to the same terms and conditions
as were applicable to the Option immediately before the transfer.
9. Change of Control.
(a) Definition. As used herein, a "Change of Control" shall
means the happening of any of the following events: (i) an acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) of beneficial ownership of 50% or more of either the then
outstanding shares of common stock of the Company or the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors; excluding the following: (a) any
acquisition directly from the Company, other than any acquisition by virtue of
the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company (b) any acquisition by the Company
or (c) any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company; or
(ii) a change in the composition of the Board such that the individuals who, as
of the effective date, constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board; provided, however,
that for purposes of this definition, that any individual who becomes a member
of the Board subsequent to the Effective Date, whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be pursuant to this provision)
shall be considered as though the individual were a member of the Incumbent
Board; or (iii) the merger, reorganization, consolidation or sale or other
disposition of all or substantially all of the Company's assets.
(b) Assumption of Grants. Upon a Change of Control where the
Company is not the surviving corporation (or survives only as a subsidiary of
another corporation), all outstanding Options that are not exercised shall be
assumed by, or replaced with comparable options or rights by, the surviving
corporation.
-8-
<PAGE>
(c) Notice and Acceleration. The Committee may, in its sole
discretion, provide in a Grant Instrument that upon a Change of Control (i) the
Committee will provide each Grantee who has outstanding Grants with written
notice of the Change of Control; (ii) all outstanding Options shall
automatically accelerate and become fully exercisable and (iii) the restrictions
and conditions on all outstanding Restricted Stock shall immediately lapse. If
the Committee does not provide such terms in the Grant Instrument, a Change of
Control will not impact a Grant.
10. Requirements for Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder unless and
until all legal requirements applicable to the issuance or transfer of such
Company Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable as a result of any
applicable law, regulation or official interpretation thereof, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
11. Amendment and Termination of the Plan.
(a) Amendment. The Board may amend or terminate the Plan at
any time; provided, however, that the Board shall not amend the Plan without
shareholder approval if such approval is required by Section l62(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
Plan is terminated earlier by the Board or is extended by the Board with the
approval of the shareholders.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the Plan that occurs after a Grant is made shall not
materially impair the rights of a Grantee unless the Grantee consents. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant. Whether or not the Plan has
terminated, an outstanding Grant may be terminated or amended in accordance with
the Plan or, may be amended by agreement of the Company and the Grantee
consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling
document. No other statements, representations, explanatory materials or
examples, oral or written, may amend the Plan in any manner. The Plan shall be
binding upon and enforceable against the Company and its successors and assigns.
12. Funding of the Plan. This Plan shall be unfunded. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants under this Plan. In no
event shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.
-9-
<PAGE>
13. Rights of Participants. Nothing in this Plan shall entitle any
Employee, Key Advisor, Non-Employee Director or other person or entity to any
claim or right to be granted a Grant under this Plan. Neither this Plan nor any
action taken hereunder shall be construed as giving any individual or entity any
rights to be retained by or in the employ of the Company or any other employment
rights.
14. No Fractional Shares. No fractional shares of Company Stock shall
be issued or delivered pursuant to the Plan or any Grant. The Committee shall
determine whether cash, other awards or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
15. Headings. Section headings are for reference only. In the event of
a conflict between a title and the content of a Section, the content of the
Section shall control.
16. Effective Date of the Plan. Subject to the approval of the
Company's shareholders, the Plan shall be effective on December 21, 1999.
17. Miscellaneous.
(a) Grants in Connection with Corporate Transactions and
Otherwise. Nothing contained in this Plan shall be construed to (i) limit the
right of the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including Grants to
employees thereof who become Employees of the Company, or for other proper
corporate purposes, or (ii) limit the right of the Company to grant stock
options or make other awards outside of this Plan. Without limiting the
foregoing, the Committee may make a Grant to an employee of another corporation
who becomes an Employee by reason of a corporate merger, consolidation,
acquisition of stock or property, reorganization or liquidation involving the
Company or any of its subsidiaries in substitution for a stock option or
restricted stock grant made by such corporation. The terms and conditions of the
substitute grants may vary from the terms and conditions required by the Plan
and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.
(b) Loans. The Committee may, in its discretion, extend a loan
in connection with the exercise or receipt of a grant under this Plan. The terms
and conditions of any such loan shall be set by the Committee.
(c) Compliance with Law. The Plan, the exercise of Options and
the obligations of the Company to issue or transfer shares of Company Stock must
be subject to all applicable laws and to approvals by any governmental or
regulatory agency as may be required. With respect to persons subject to section
16 of the Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan comply with all applicable provisions of Rule 16b-3
of the Exchange Act or its successors under the Exchange Act. The Committee may
revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory government regulation. The Committee may
also adopt rules regarding the withholding of taxes on payments to Grantees. The
Committee may, in its sole discretion, agree to limit its authority under this
Section.
-10-
<PAGE>
(d) Approval of Plan by Stockholders. This Plan will be
submitted for the approval of the Company's stockholders within twelve months
after the date of the Board's initial adoption of this Plan. If the stockholders
fail to approve such Plan, all Options granted hereunder shall be Non-Qualified
Options.
(e) Governing Law. The validity, construction, interpretation
and effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
State of Florida.
-11-
<PAGE>
emailthatpays.com
Coast Media Group, Ltd.
tvtravel.com
emailpages.com
emailthatpays.com Media Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
EMAILTHATPAYS.COM, INC. AND SUBSIDIARIES FORM 10-KSB FINANCIAL STATEMENTS FOR
THE FISCAL YEAR ENDED DECEMBER 31, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 121,609
<SECURITIES> 0
<RECEIVABLES> 179,336
<ALLOWANCES> (2,648)
<INVENTORY> 0
<CURRENT-ASSETS> 308,807
<PP&E> 220,827
<DEPRECIATION> (29,712)
<TOTAL-ASSETS> 499,922
<CURRENT-LIABILITIES> 486,164
<BONDS> 0
0
0
<COMMON> 43,140
<OTHER-SE> (289,742)
<TOTAL-LIABILITY-AND-EQUITY> 499,922
<SALES> 1,102,732
<TOTAL-REVENUES> 1,102,732
<CGS> 838,496
<TOTAL-COSTS> 838,496
<OTHER-EXPENSES> 1,353,183
<LOSS-PROVISION> (1,088,947)
<INTEREST-EXPENSE> 31,054
<INCOME-PRETAX> (1,120,001)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,120,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,120,001)
<EPS-BASIC> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
