<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Act of 1934
ISM HOLDING CORP.
-----------------
(Name of Small Business issuer in its charter)
INDIANA 35-2020266
------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5811 W. 73rd STREET, INDIANAPOLIS, IN 46268
-------------------------------------------
(Address of principal executive offices)
(317) 328-4858
--------------
(Issuer's telephone number)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
---------------------------------------
(Title of Class)
On September 30, 1999 the Registrant had outstanding 16,257,480 shares of Common
Stock par value $0.01 per share.
<PAGE>
ISM HOLDING CORP.
-----------------
FORM 10K-SB
----------
PART I
- ------
ITEM 1 DESCRIPTION OF BUSINESS
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 3 DESCRIPTION OF PROPERTIES
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 5 DIRECTORS, OFFICERS, PROMOTERS & CONTROL PERSONS
ITEM 6 EXECUTIVE COMPENSATION
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 8 DESCRIPTION OF SECURITIES
PART II
- -------
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS
ITEM 2 LEGAL PROCEEDINGS
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES
PART F/S
FINANCIAL STATEMENTS
PART III
- --------
ITEM I INDEX TO EXHIBITS
ITEM 2 DESCRIPTION OF EXHIBITS
SIGNATURES
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
From 1993 to 1998 the company operated primarily in the sports management
business servicing clients requiring corporate sponsorship. The company either
represented entities needing sponsorship, or corporations who required entities
as their representatives. In the fourth quarter of 1999 and the first quarter of
2000 the company focused efforts on reorganization. Potential acquisitions will
be evaluated for their contribution to earnings and use of capitol as a return
on investment. Additionally, growing the sports sponsorship through utilization
of strategic alliances with existing corporate partners will enhance the net
income of the company. The companies entrance into internet marketing with the
promotion of www.racingcasino.com Has opened opportunities for the company to
expand operations in this rapidly expanding market. The company continues in
it's three tiered strategy, with core business emphasis On Corporate
representation in incremental revenue programs, securing Team sponsorship and
partner Opportunities for strategic partners, and Internet related
opportunities.
The company is evaluating acquisition opportunities, as well as additional
Strategic partners for expanding the incremental revenue opportunities the
Company's worldwide network provides.
MARKET ENVIRONMENT
The company operates in the Sports Management and Sales industry that has rapid
double-digit annual growth. Corporate spending in sports is growing in excess of
30% annually, and with the companies experience in corporate sponsorship the
company expects it will increase it's Sports Management revenues consistent with
industry growth. Auto racing sponsorship values have been escalating at or above
20% annually. It is unknown if this trend will continue, as there is a trend
toward cost containment. Additionally, the company has entered the Internet that
has exponential growth. Although new to the Internet, the company expects a
growing part of the company will be representing emerging companies seeking
brand awareness for their company. The sports marketing industry in the
e-commerce segment is growing, as corporate partners look for ways to reach the
consumer.
INDUSTRY ANALYSIS
The Motorsports industry has recently begun to be inhabited by public entities.
Public companies own tracks, Public companies own apparel companies, and now
Public companies own Teams, and the Marketing of teams is now a public venture.
MARKET SEGMENT
The company operates in Team Ownership, Marketing of Sports Sponsorship, and
Corporate representation of Companies involvement in sports. This three tiered
Approach allows the company to continue to expand the customer base. Sports
spending by corporate America have Been the base for sports growth in the last
few years. Team ownership, Team representation, and corporate representation in
sports allows the company to participate in all areas of growth. If the sponsor
wants a demographic represented in a category that the company owns a team the
sale can be direct. If the company wants to meet a demographic the company does
not own, it can contract with a strategic partner to provide the services.
Finally, because of the vast experience in the industry, the company can
negotiate the clients involvement in sports by providing negotiation,
documentation and review of performance on behalf of the sponsor. This approach
provides valuable resources to the sponsor by allowing cross promotion with all
potential alliance partners.
COMPETITION
The Sports marketing industry is there are over 10,000 companies that provide
services in the Sports marketing and Management business. Specialization in
Motorsports allows the company to compete with approximately 200 companies with
extensive business experience is sports, the company is in a position to provide
expertise to corporate clients who desire representation in sports.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following is a discussion of the financial condition and results of
operation of the Company as of the date of this Registration Statement. This
Discussion and analysis should be read in conjunction with the Company's audited
Consolidated Financial including the Notes thereto which are included elsewhere
In this form 10-SB.
<PAGE>
GENERAL
ISM Holding is located in Indianapolis Indiana, and has two main operating
Divisions, ISM Marketing and ISM Motorsports. ISM Marketing sells corporate
Sponsorships for company teams and other properties throughout the world. It
Also uses its strategic alliances to operate Internet gaming sites worldwide.
The Motorsports company operates race teams. The company currently owns an Indy
Racing League team. Ownership in future teams will be dependant on financial
Viability and the decision to own and operate verses represent will be made
Based on return on investment and return on capitol as well as risk reward
considerations. The Internet gaming operation was started in the fourth quarter
1999. The industry Is in an emerging growth industry and is heavily sensitive to
name recognition and Traffic building. It is believed that the company can
provide considerable growth To this segment of the companies operation through
inventory of ad space provided Through company contracts with Internet
companies. In 1998 the company had revenue from Team ownership and sponsorship
sales. Team Ownership was over 65% of the sales in 1998, with heavy
concentration (85%) With one customer. The company has concentrated On
eliminating such concentrations, and the business plan would be to eliminate
Concentrations where possible by diversifying resources.
1999 vs. 1998
-------------
Net Loss
For the year ended December 31, 1999, revenue was $1,523,732 a decrease of
$7,748,407. The company reduced the loss by $1,509,637 to $860,179 from The
$2,369,816 of 1998. The decrease in losses and the accompanying reduction in
Sales was a result of the company focusing the resources of the company on
profitability not Gross Sales.Company operations were streamlined and the
salaried sales force was changed to commission based on contribution to profit.
This change in operations was required to sustain operations. Future
compensation programs will be based on profit and salespeople will no longer
receive salary regardless of profitability.
COSTS AND EXPENSES
Total Operating Expenses in 1999 decreased from $11,375,770 in 1998 To
$2,260,646. Labor and operations decreased significantly as the Company Focused
on return on investment with every sale, and eliminated expenditures That did
not directly effect profits. Salaries were reduced from $1,853,666 in 1998 to
$385,270 in 1999 reflecting elimination of staff and the elimination of salaries
for sales personnel.
Interest expenses in 1999 decreased from $266,185 in 1998 to 123,265 in 1999 by
reducing the amount Borrowed thus reducing interest.
LIQUIDITY AND CAPITAL RESOURCES
1999 V. 1998
------------
As of December 31, 1999, the Company had paid in capitol of $2,947,475 verses
$1,376,699 an increase of $1,570,776. The increase in working capital was
substantially due to the equity investments. These infusions were made by an
equity investor in return for restricted shares provided to the equity investor
by the officers from their holdings.
The Company's Officer's have provided funds to the Company from time to time to
provide additional working capital. The company has negotiated a line of credit
from an equity investor should the company need additional funding for expansion
or acquisition. The officers of the company will provide the stock from their
holdings to the accredited investor eliminating the need for dilution at this
time.
Year Ended, 1999 and 1998
-------------------------
As of September 30, 1999 the company had a total equity injected of $2,947,475.
The company has loans and notes payable totaling $1,118,955, a reduction of
$810,983 or 41.9% from 1997. The company also reduced Accounts payable from 1998
to 1999 by $301,023.
The Officer's have provided funds to the Company from time to time to provide
additional working capital.
RECENT ACCOUNTING PRONOUNCEMENTS
There is no impact on the Company's financial statement.
<PAGE>
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Registration Statement on Form 10-SB contains forward-looking statements
made pursuant to the safe harbor provisions of the Securities Litigation Reform
Act of 1995. Such statements consist of any statement other than a recitation of
historical facts and can be identified by words such as "may," "expect,"
"anticipate," "estimate," "hopes," "believes," "continue," "intends," "seeks,"
"contemplates," "suggests," "envisions" or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are based largely on the Company's expectations and are subject to a number of
risks and uncertainties, including but not limited to, those risks associated
with economic conditions generally and the economy in those areas where the
Company has or expects to have assets and operations. Competitive and other risk
factors affecting the Company's operations, markets, products and services and
risks relating to existing litigation, attorney general investigations, taxes
owed, and associated costs arising out of the Company's activities and the
matters discussed in this report; risks relating to changes in interest rates
and in the availability, cost and terms of financing; risks related to the
performance of financial markets; risks related to changes in domestic and
foreign laws, regulations and taxes; risks related to changes in business
strategy or development plans; risks related to the outcomes of the pending
lawsuits against the Company and the associated costs; risks associated with
future profitability; and other factors discussed elsewhere in this report and
in documents filed by the Company with the Securities and Exchange Commission.
Many of these factors are beyond the Company's control. Actual results could
differ materially from these forward-looking statements. In light of these risks
and uncertainties, there can be no assurance that the forward-looking
information contained in this registration on Form 10-SB will, in fact, occur.
The Company does not undertake any obligation to revise these forward-looking
statements to reflect future events or circumstances and other factors discussed
elsewhere in this report and the documents filed by the Company with the
Securities and Exchange Commission.
ITEM 3. DESCRIPTION OF PROPERTIES
The Company's principal executive and administrative offices are located in a
leased premises in Indianapolis Indiana . The company does not expect to require
additional facilities, however acquisitions may have existing facilities that
may or may not allow for consolidation.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the beneficial
ownership of the Company's Common Stock as of December 31, 1999 by (i) each
person (or group of affiliated persons who to the knowledge of the company is
the beneficial owner of five percent or more of the Company's outstanding Common
Stock, (ii) each director and each Named Executive Officer of the Company and
(iii) all directors and executive officers of the Company as a group. Except as
otherwise noted, the Company believes that the persons listed in this table have
sole voting and investment power respecting all shares of Common Stock owned by
them. The business address of each director and named Executive Officer listed
below is the company's corporate address, 5811 W. 73rd Street Indianapolis, In.
46268.
Table 1. Security Ownership of Certain Beneficial Owners
Asia equities is an accredited investor in accordance with the rules and
regulations of the 504D. Asia equities has no beneficial ownership in the
securities owned by Management. There are no options, warrants or any
instruments allowing for acquisition of shares outstanding at this time.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND PERCENT
OF BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL OWNER
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Asia Equities 4,900,000 30.14%**
The increases came from Mr. Hancher and Mr. Outlaw agreeing to provide restricted shares
for equity infusion as agreed to avoid general dilution of shareholder value.
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Table 2. Security Ownership of Management
- -------- --------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND PERCENT
OF BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL OWNER
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock L.G. Hancher Jr. 3,635,000 22.36%
Common Stock G.D. Sallee 4,500,000 27.68%
Common Stock G.B. Outlaw 1,600,000 9.8%
</TABLE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of the date of this
Registration Statement with respect to the directors and executive officers of
the Company. A summary of the background and experience of each of these
individuals is set forth after the table. The executive officers serve at the
discretion of the Company's Board of Directors. None of the officers are related
to the other. At the present time the directors do not hold directors positions
with other Public companies.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
L.G. Hancher Jr 46 C.E.O., Director
Kevin Simpson* 47 Director
G.B. Outlaw 42 Director
Mr. Hancher and Mr. Outlaw have been board members since the companies 504D
filing in July of 1998. Mr. Hancher has extensive sports management experience,
and has operated Motorsports teams For 15 years. Mr. Outlaw has been a marketing
executive in sports for 10 years, with extensive Experience in corporate sports
sales. Mr. Simpson has over 15 years experience operationally in Public
companies.
Mr. Hancher, Simpson, and Outlaw have 2 year terms. Mr. Hancher and
Mr. Outlaw Expiring in 2000, and Mr. Simpson in 2001. The elections will take
place at the annual Board of Director and Shareholder meeting in 2000.
ITEM 6. EXECUTIVE COMPENSATION
As of the date of filing,the officers of the company, Mr. Hancher, Mr. Simpson,
and Mr. Outlaw do not take a salary, nor do they receive any compensation
covered by Item 402 of Reg S-B. Mr. Hancher as C.E.O. received $29,124 in wages
in 1999 accrued in 1998.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the preceding two years the Company has received loans from management
from time to time. The loans were at market interest rates, and unsecured.
Additionally, the company has negotiated an equity credit facility with Asia
Equities, a shareholder of record holding greater than 5% of the companies
common stock.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company has 50,000,000 authorized shares of Common Stock, $0.01 par value
per share, of which 16,257,480 shares are issued and outstanding as of September
30, 1999. All shares of Common Stock outstanding are legally issued, fully paid
and non-assessable. Holders of the Common Shares are entitled to one vote per
share with respect to all matters that are required by law to be submitted to a
vote of the shareholders. Holders of the Common Stock are not entitled to
cumulative voting. The common Stock has no redemption, preemptive or sinking
fund rights. Holders of the Common Stock are entitled to dividends, when, as and
if declared by the Board of Directors from funds legally available therefore.
Future dividend policy will be determined by the Board of Directors of the
Company in light of financial need and earnings, if any, of the Company and
other relevant factors. In the event of liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to share proportionately
all the remaining assets of the Company, after satisfaction of the liabilities
of the Company.
<PAGE>
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, par
value $0.01 per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and other rights and preferences as the Board
of Directors may determine without further action by the Company's shareholders.
As of the date hereof, there are no shares of Preferred Stock issued and
outstanding.
TRANSFER AGENT
The transfer agent for the Company is Atlas Stock Transfer Company, whose
address is 5899 S. State Street, Salt Lake City, Utah 84107.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON AND OTHER
STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"ISMH." On December 11, 1997 the Board of Governors of the National Association
of Securities Dealers, Inc. ("NASD") approved a series of changes for the OTC
Bulletin Board which affect the Company. The principal changes include: (i) a
rule that only those companies that report their current financial information
to the Securities and Exchange Commission, banking or insurance regulators will
be included for quotation on the OTC Bulletin Board, (ii) that brokers must
review current financial statements on a company they are recommending before
they recommend a transaction in an OTC security, and (iii) that prior to the
initial purchase of an OTC security, every investor must receive a standard
disclosure statement prepared by the NASD emphasizing the differences between
the OTC securities and other market-listed securities, such as those traded on
the NASDAQ Stock Market, Inc. This Registration Statement is being filed on Form
10-SB with the Securities and Exchange Commission to register the Company's
Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended, to comply with the above-stated rule change. In the event the Company's
proposed Registration Statement is not declared effective, the Company's
securities would not be eligible for continued quotation on the OTC Bulletin
Board, which would materially and adversely affect the liquidity in the
Company's Common Stock.
PRICE RANGE OF COMMON STOCK
In January of 1999, the Company obtained the symbol, "ISMH" and application was
made for trading on the NASD OTC Bulletin Board system. The first active trading
in the shares of the Company began in January 1999. The following table sets
forth for the periods indicated the high and low closing prices of the Company's
Common Stock as reported on the OTC Bulletin Board. The following quotations are
over-the-market quotations and, accordingly, reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.
COMMON STOCK
QUARTER 1999 TRADE
HIGH
LOW
- ---------------------------------------------------
1st Quarter 3.00
.625
- ---------------------------------------------------
2nd Quarter 2.25
1.00
- ---------------------------------------------------
3rd Quarter 1.5625
.315
- ---------------------------------------------------
4th Quarter 1.250
.06
- ---------------------------------------------------
<PAGE>
NO DIVIDENDS ANTICIPATED TO BE PAID
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends in the foreseeable
future. The future payment of dividends is directly dependent upon future
earnings of the Company, its financial requirements and other factors to be
determined by the Company's Board of Directors, in its sole discretion. For the
foreseeable future, it is anticipated that any earnings which may be generated
from the Company's operations will be used to finance the growth of the Company,
and that cash dividends will not be paid to Common Stockholders.
CONTROL OF THE COMPANY; POSSIBLE ISSUANCES OF PREFERRED STOCK
Due to the widely dispersed ownership of the issued and outstanding shares of
Common Stock of the Company and the number of shares owned by management, the
Company's officers and directors and will be able to influence the election of
all of the Company's directors and thereby control the operations of the
Company. In addition, the Board of Directors has the authority to issue up to
10,000,000 shares of preferred stock and to fix the dividend, liquidation,
conversion, redemption and other rights, preferences and limitation of such
shares without any further vote or action of the shareholders. Accordingly, the
Board of Directors is empowered, without shareholder approval, to issue
preferred stock and dividend, liquidation, conversion, voting or other rights
which could adversely affect the voting power or the rights of the holders of
the Company's Common Stock. In the event of issuance, the preferred stock could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change in control of the Company. Although the Company has no
present intention to issue any additional shares of its preferred stock, there
can be no assurance that the Company will do so in the future. See Part 1, Item
8. "DESCRIPTION OF SECURITIES."
ITEM 2. LEGAL PROCEEDINGS
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. It is the opinion of management that the disposition or ultimate
resolution of such claims and lawsuits will not have a material adverse effect
on the consolidate financial position of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
T.J. Sullivan & Company is the Company's independent auditor at the present
time. Geo. S. Olive company was the auditor for the company in 1997. Upon review
by the board of directors, the company decided to change companies in 1998,
based on costs for like services. The Company has no disagreements with the
reports issued by either auditors.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The company has not offered unregistered securities since the 504D placement in
1998.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify its directors and
executive officers and may indemnify its other officers, employees and agents.
The Company is also empowered under its Bylaws to enter into indemnification
agreements with its directors and officers and to purchase insurance on behalf
of any person it is required or permitted to indemnify.
There is no pending litigation or proceeding involving a director or officer of
the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
ITEM 6. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of the stockholders of the Company
during the past three years through the date of this Registration Statement.
PART F/S
The Company's financial statements for the years ending 1998 and 1999 have been
examined to the extent indicated in their reports T.J. Sullivan & Co.
independent certified accountants, and have been prepared in accordance with
generally accepted accounting principles and pursuant to Regulation S-B as
promulgated by the Securities and Exchange Commission and are included herein.
Both are made a part of Part F/S of this form 10-SB.
<PAGE>
1999 Audit
PART III
ITEMS 1 AND 2. INDEX TO AND DESCRIPTION OF EXHIBITS
EXHIBIT NO. EXHIBIT NAME
- ----------- ------------
3(i) Certificate of Incorporation of ISM Holding, Inc.
3(i)(1) Certificate of Amendment of Certificate of
Incorporation of ISM Holding, Inc.
3(ii) Bylaws of ISM Holding, Corp.
ISM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated Statement of income 2
Consolidated balance sheet 3
Consolidated statement of stockholders' equity (deficit) 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
<PAGE>
Index to Financial Statements
Independent Auditors' Report ..........................................3
1999 Consolidated Income Statement.....................................4
1999 Consolidated Balance Sheet........................................5
1999 Statements of Stockholder's Equity................................6
1999 Statements of Cash Flows..........................................7
Notes to Financial Statements..........................................8
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
ISM Holding
By: /s/ L.G. Hancher Jr.
------------------------------
L.G. Hancher Jr. C.E.O.
Date: April 12,2000
<PAGE>
ISM HOLDING CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
DECEMBER 31, 1999
ISM HOLDING CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 3
FINANCIAL STATEMENTS
Consolidated Statement of Income 4
Consolidated Balance Sheet 5
Consolidated Statement of Stockholders' Equity (Deficit) 6
Consolidated Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8
2
<PAGE>
TJ SULLIVAN & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
ISM Holding Corp. and Subsidiaries
Indianapolis, Indiana
We have audited the accompanying consolidated balance sheet of ISM Holding Corp.
and Subsidiaries as of December 31, 1999, and the related consolidated
statements of income and stockholders' equity (deficit), and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ISM
Holding Corp. and Subsidiaries at December 31, 1998, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ TJ Sullivan & Company
Indianapolis, Indiana
April 11,2000
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31,1999
- -------------------------------------------------------------------------------
1999 1998
Revenue
Sponsorship $ 1,063,697 8,265,720
Other, net 460,035 1,006,419
------------- -------------
Total revenue 1,523,732 9,272,139
Operating Expenses
Cost of racing equipment 509,405 4,142,380
Salaries and wages 385,270 1,853,666
Rent 82,048 251,164
Travel 304,551 1,189,441
Driver contracts 146,260 1,160,901
Payroll taxes 46,762 135,322
Other operating expenses 669,097 2,642,896
Depreciation 117,347
------------- -------------
Total operating expenses 2,260,740 11,375,770
------------- -------------
Operating Loss (737,008) (2,103,631)
Interest Expense 123,265 266,185
------------- -------------
NET LOSS $ (860,273) $ (2,369,816)
============= =============
<PAGE>
<TABLE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
YEAR ENDED DECEMBER 31,1999
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
1999 1998
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSET
Cash $ 84,975 $ 30,938
PROPERTY AND EQUIPMENT
Transportation equipment $ 98,476 $ 40,945
Telephone and computer equipment 186,140 174,190
Furniture, fixtures, & equipment 126,260 115,207
----------- -----------
Total Cost 410,876 330,342
Accumulated depreciation (329,293) (214,414)
----------- -----------
81,583 115,928
------------ ------------
$ 166,558 $ 146,866
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Lines of credit $ 295,625 1,049,458
Note payable 750,000 750,000
Accounts payable 788,318 578,840
Accounts payable - related party 6,929 6,929
Other accrued expenses 103,791 31,755
----------- -----------
Total current liabilities $ 1,944,663 $ 2,416,982
LONG-TERM DEBT
Notes payable - related parties 22,500 22,500
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value 162,575 162,500
Authorized - 50,000,000 share
Issued and outstanding - 16,257,480 shares
Additional paid-in capital 2,947,475 1,376,699
Accumulated deficit (4,910,655) 3,831,890
----------- -----------
(1,800,605) (2,292,616)
------------ ------------
$ 166,558 $ 146,686
============ ============
</TABLE>
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL
OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C
BALANCES: January 1, 1999 16,257,480 $162,575 $1,376,699 $(3,831,890) $(2,292,616)
December 31, 1999 16,257,480 162,575 2,947,475 $(4,910,655) $(1,800,605)
==============================================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
ISM HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
1999
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,369,816) $ (860,273)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation 97,751 117,347
Gain on sale of assets (35,842)
Changes in assets and liabilities
Accounts payable 40,215 209,478
Accrued expenses (202,393) 72,036
------------ -----------
Net cash by operating activities $(2,470,085) (461,412)
INVESTING ACTIVITIES
Sales of property & equipment 1,715,660 0
Payments on notes receivable - related party 6,000 0
------------ -----------
Net cash by investing activities 1,721,660
FINANCING ACTIVITIES
Proceeds from Paid in capitol 1,188,274 1,570,776
Reduction of long-term debt - related parties (22,500) 0
Reduction of debt (395,535) (1,055,327)
------------ -----------
Net cash provided by financing activities 770,239 515,449
------------ -----------
NET CHANGE IN CASH 21,814 54,037
CASH: BEGINNING OF YEAR 9,124 30,938
------------ -----------
CASH: END OF YEAR $ 30,938 $ 84,975
============ ===========
</TABLE>
See notes to Consolidated Financial Statements.
7
<PAGE>
ISM HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
ISM Holding Corp. (the Company) became a public company, receiving its
OTCBB:ISMH symbol December 4, 1998 and began trading January 4, 1999. The
Company's core business is sponsorship solicitation for Company owned teams, or
for others. All material intercompany transactions between subsidiaries: ISM
Marketing, ISM Management, ISM Motorsports, ISM Racing, and ISM Aviation have
been eliminated in this consolidation.
The Company funds its operations through corporate sponsorship for its teams and
obtains sponsorship commissions from various people and entities. The
preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
effect reported amounts of assets, liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results may
differ from those estimates.
CASH
Cash consists of bank deposits in federally insured accounts.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using the
straight-line methods over a useful life of three to seven years. Racecars and
car parts are expensed in the year purchased due to the short life span of such
assets. This is consistent with accounting practices and standards within the
racing industry. When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to income as incurred; significant renewals
and improvements are capitalized.
INCOME TAXES
The Company has elected to be treated as an C - Corporation for income tax
purposes as provided in Section 1362(a) of the Internal Revenue Code. The
company is currently filing returns for 1998, and expects a small refund. The
1999 taxes have not been filed, although an extension was filed 3/15/00.
SPONSORSHIP REVENUE
The Company obtains a significant amount of financing through sponsorship
agreements. Various commercial enterprises will fund the Company's automobile
racing activities (in the form of cash or in-kind contributions) in exchange for
advertising on Company racecars and other equipment. Total in-kind contributions
recognized in sponsorship revenue for the year ended December 31, 1999 were
$312,516. An equal and corresponding amount was recognized in costs of racing
equipment.
NOTE 2 - LINES OF CREDIT
The Company has converted the lines of credit to a note. At December 31, 1999,
there was a total of $$290,000 borrowed and principle and interest at 8.5% is
being paid monthly.
NOTE 3 - NOTE PAYABLE
The Company has a $750,000 90-day note payable that has matured at December 31,
1999. The note is collateralized by substantially all of the Company's assets
and is guaranteed by two stockholders. Interest is 8.5% and is payable monthly.
NOTE 4 - LEASES
The Company leases operating facilities and various items of equipment and
vehicles under noncancellable operating lease arrangements. These leases expire
at various dates during 2000. Rental expense for these leases included in the
income statement for the year ended December 31, 1999 was $142,465.
<PAGE>
During 1999 all leases, with the exception of the operating facility and one
vehicle, were transferred to eliminate liability for the Company. No new leases
will be entered into without Board of Director approvals.
Minimum annual rental payments required under operating leases that have
remaining terms in excess of one year as of December 31, 1998 are as follows:
YEARS ENDING DECEMBER 31
- --------------------------------------------------------------------------------
2000 $ 24,304
---------
NOTE 5 - EMPLOYEE BENEFITS
The employee benefit plan for company contribution to the 401K plan was
cancelled in June of 1999.The employees received their vested share from the
plan. No additional expenses were incurred.
NOTE 6 - RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company had an outstanding note payable to one of its
stockholders totaling $22,500. This note is unsecured, payable upon demand, and
bears no interest. However, payment is not expected within the next fiscal year,
therefore the amount is classified as Long Term.
NOTE 7 - CONTINGENT LIABILITIES
The Company is subject to claims and lawsuits that arise in the ordinary course
of business. It is the opinion of management that the disposition or ultimate
resolution of such claims and lawsuits will not have a material adverse effect
on the consolidate financial position of the Company.
NOTE 8 - Year 2000 The company was properly prepared and had no effect of year
2000 problems.
NOTE 9 - CONCENTRATIONS
The Company purchases significant components (such as chassis and engine parts)
for its racecars from a limited number of suppliers. Although few suppliers
exist, the Company believes components can be purchased from others on
comparable terms and prices without adversely affecting the Company.
As noted, the Company obtains a significant amount of financing through
sponsorship agreements. The sponsorship agreements typically have lives of one
to several years. The Company must continually renew such agreements or obtain
new ones in order to remain in operations without an adverse impact on the
organization.The company is working to avoid concentrations, but has no
guarantee concentrations will not continue to be a problem.
NOTE 10 - SUBSEQUENT EVENTS
There have not been significant changes to the Company's corporate structure in
2000. The company had already reduced overhead, and eliminated salaries not tied
to a spacific inome stream.
In 1999 the Company has made principal payments against the lines of credit of
approximately $800,000 and has reached an agreement with the lender to pay the
remaining balance in monthly installments.
The Company is currently negotiating payment arrangements with National City
Bank, the holder of the $750,000 note. The Company's management believes
satisfactory arrangements will be agreed upon by the 1st of May,2000.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 84,975
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 84,975
<PP&E> 410,876
<DEPRECIATION> (329,293)
<TOTAL-ASSETS> 166,558
<CURRENT-LIABILITIES> 1,944,663
<BONDS> 0
0
0
<COMMON> 162,575
<OTHER-SE> (1,963,180)
<TOTAL-LIABILITY-AND-EQUITY> 166,558
<SALES> 1,063,697
<TOTAL-REVENUES> 1,523,732
<CGS> 509,405
<TOTAL-COSTS> 2,260,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123,265
<INCOME-PRETAX> (860,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (860,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (860,273)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
