SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB-A2
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GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant To Section 12(g) of the Securities Exchange Act of 1934
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Reliant Interactive Media Corp.
formerly Reliant Corporation
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Nevada 87-0411941
(Jurisdiction of Incorporation) (I.R.S. Employer Identification No.)
2701 N. Rocky Point Dr., Suite 200, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 282-1717
The following Securities are to be registered pursuant to Section 12(g) of the
Act:
Class-A Common Voting Equity Stock
6,135,440
February 29, 2000
The EXHIBIT INDEX is located at Page 58 of this Registration Statement
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENT
This Report contains "forward-looking" statements regarding potential
future events and developments affecting the business of the Company. Such
statements relate to, among other things, (i) competition for customers for its
products and services; (ii) the uncertainty of developing or obtaining rights to
new products that will be accepted by the market and the timing of the
introduction of new products into the market; (iii) the limited market life of
the Company's products; and (iv) other statements about the Company or the
direct response industry.
The Company's ability to predict results or the effects of any pending
events on the Company's operating results is inherently subject to various risks
and uncertainties, including competition for products, customers and media
access; the risks of doing business abroad; the uncertainty of developing or
obtaining rights to new products that will be accepted by the market; the
limited market life of the Company's products; and the effects of government
regulations. See MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This 1934 Securities and Exchange Act Registration, on Form 10-SB is the
Registrant's first public financial report filing with the Securities and
Exchange Commission.
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PART I
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Item 1. Description of Business.
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(a) Business Development.
(1) Form and Year of Organization.
This Corporation Reliant Interactive Media Corp. (of Nevada) ("the
Registrant")(also "We" "Us" and "Our") was first incorporated in Utah on July
30, 1984, as Reliant Corporation for the purpose of creating a vehicle to obtain
capital and seek out, investigate and acquire interests in products and
businesses with the potential for profit. On or about July 15, 1998 we acquired
our present name, Reliant Interactive Media Corp. On or about March 18, 1999, we
moved our place of incorporation from Utah to Nevada without other changes in
its corporate organization.
Our common stock has experienced two reverse-splits, each time, five shares
becoming one share. The numbers we will use are those which give effect to both.
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Issued before 1998 570,400
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Issued in 1998 2,803,170
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Issued in 1999 2,761,870
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Total Issued and Outstanding 6,135,440
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Before 1998
In July of 1984, we issued 400,000 shares to the then officers and
directors for cash, at $0.005 per share. In July of 1895, we became a public
company by completing an offering of 2,000,000 shares of common stock, at $0.01,
for $20,000.00, net of offering costs of $5,975, pursuant to Rule 504 of
Regulation D. Our original operating business is somewhat different from its
present business. In June of 1991 we purchased a one-half interest in certain
physical fitness video tapes and a related production contract in exchange for
9,600,000 share of common stock. The video tape venture proved
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unsuccessful and was terminated in 1993. Then, we sought other potential
profitable programs, in the same general industrial area, namely audio-visual
marketing, and/or marketing of audio-visual products.
We ceased business operations and had no significant revenues from business
operations for the period beginning in early 1993 through December of 1998. We
had some slight revenues in 1998, as a carry-over from business operations
unrelated to our current business and products.
In an effort to provide working capital, we engaged in certain limited
offerings and/or private placements of its common stock, selling 300,000 shares
at $0.10, and selling 1,960,000 for $196,000.00, in 1995. The result of these
transactions was a total issued and outstanding 14,260,000, before giving effect
to two successive reverse-splits. Giving effect to those two reverses, that
amount is now recapitalized at 570,400, and is so identified in our financial
statements.
1998
During the second quarter of 1998, we issued 11,848,000 shares (giving
effect to the first 5 to 1 reverse) for the acquisition of both Kevin Harrington
Enterprises, Inc., a Florida corporation ("Harrington Enterprises"), and Cigar
Television Network ("Cigar TV"), a Florida corporation, both becoming
wholly-owned subsidiaries, and changed our corporate name to Reliant Interactive
Media Corp. These two acquisitions were related-party transactions, by which the
Kevin Harrington and Tim Harrington, brothers, acquired control of his
Registrant Corporation. For more information see Item 7 of this Part I, CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
These two acquisitions were as wholly-owned subsidiaries, and not by
merger, such that all three corporations are surviving legal entities. The two
Harrington companies acquired as (2) and (3) above were under common control
when acquired. Giving effect to the second 5 to 1 reverse split, the 11,848,000
became 2,369,600.
We also placed 570,400 shares for cash, at $1.56, and we issued 103,800 for
services valued at $1.25 per share, in 1998.
1999
On or about February 23, 1999, we placed an additional 1,000,000 new
investment shares of common stock to six highly sophisticated investors, for
$330,000.00. These investors received certain special royalty rights in addition
to their stock. These special royalty rights are described in Item 2 of this
Part, MANAGEMENT'S DISCUSSION AND ANALYSIS.
On March 23, 1999, certain actions were taken by a Majority of
Shareholders, which action was ratified by all shareholders at a meeting called
and held May 5, 1999:
1) Approved and empowered the Board of Directors to effect the second
reverse split of the issuer's common stock, every five shares to become one
share;
2) Approved an Agreement and Plan of Reorganization whereby the Company
would acquire TPH Marketing, Inc., in a tax-free exchange, for the issuance
of 1,500,000 [post-reverse] shares of the Company's common stock. The
Shares have been issued to the two shareholders of TPH Marketing, Inc., Tim
Harrington having received 800,000 shares, and Kevin Harrington having
received 700,000 shares.
3) Approved a Qualified Shareholder Option Plan for 24 months for 500,000
[post-reverse] shares at $2.50 to $7.50 per share, based on a formula and
terms to be determined by the Board of Directors, for key employees,
consultants and other key people;
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4) Approved the Issuance [post-reverse] to each of the following, based
upon 100,000 shares for each $10,000,000.00 in gross revenues, received by
the Company and determined in accordance with Regulation SX accounting
standards; no more than 1/6 of the shares shall be vested in any 6 month
period: up to 1,000,000 shares for Mel Arthur; up to 3,000,000 shares to
Kevin Harrington; and up to 2,000,000 shares for Tim Harrington;
5) Approved issuance of the following stock [post-reverse] for services in
connection with financing obtained for the company within the next 24
months, for each of the following: Intrepid International S.A. and N&R Ltd.
Group, Inc. as follows: 100,000 shares per $1,000,000.00 for up to
$10,000,000.00 raised; 50,000 shares per $1,000,000.00 for the next
$20,000.00 raised; 20,000 shares per $1,000,000.00 for over $30,000,000.00
raised. The number of "dollars raised" shall be the gross dollars received
before payment of commissions, fees and other expenses directly connected
to raising these funds.
6) Approved the sale of corporate debentures for a total issuance of not
less than $6,000,000 in denominations of $1,000 and bearing interest at the
market rate, of 8% or less, due in 5 years from issuance. Debentures shall
be convertible to shares of common stock of the company at a conversion
rate of $7.50 per share.
7) Confirmed, Elected and/or re-elected four directors, Kevin Harrington,
Tim Harrington, Mel Arthur, and Karl Rodriguez, to serve until the next
meeting of shareholders.
In 1999, in total, we placed 1,098,000 shares of common stock for cash at
an average price of $0.86 per share; 43,700 shares for services, valued at $1.15
per share; 100,000 shares for services valued at $0.50 per share; 20,000 shares
for investment in Tony Little Website at $0.50; and 1,500,000 shares for
acquisition of TPH Marketing Inc., valued at $0.50 per share. We issued 170
shares as a technical adjustment for fractional shares, in connection with our
most recent reverse split. See Item 4, of Part II, RECENT SALES OF UNREGISTERED
SECURITIES for more information.
About March 23, 1999, we acquired TPH Marketing, Inc., in a tax-free
exchange, for the issuance of 1,500,000 [post-reverse] shares of the Company's
common stock. The Shares have been issued to the two shareholders of TPH
Marketing, Inc., Tim Harrington having received 800,000 shares, and Kevin
Harrington having received 700,000 shares. The shares were valued at the most
recent cash price of the stock which was $0.50 per share. There were no
operations by TPH Marketing Inc., prior to the acquisition, the Company was
mainly purchasing the services of the President and that is why the excess of
the purchase price over the net book value of the TPH is being charged to
operation expense. The business acquired in 1999, TPH Marketing, Inc., does not
qualify as a "significant subsidiary" because it had no revenues or assets prior
to acquisition. Shares issued for acquisition were issued pursuant to Rule 145,
and ss.4(2) of the Securities Act of 1933.
(2) Bankruptcy, Receivership or Similar Proceeding. None from inception to
date.
(b) Business of the Issuer. This Company will engage in the business of
Electronic & Multi Media Retailing (print, radio, television and the internet).
Reliant Interactive Media Corp. is engaged in direct response transactional
television programming (known as "infomercials"), to market consumer products.
Reliant, with its focus on global markets and products of global marketability,
expects to bring its products into more than 370 million households in 70
countries worldwide, primarily through television and the Internet.
Background
The infomercial industry was first developed in the United States after the
FCC rescinded its limitations on advertising minutes per hour in 1984, thereby
permitting 30-minute blocks of television advertising. In fact, Kevin
Harrington, the Issuer's CEO produced his first infomercial in 1985, and
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then founded Quantum Marketing International, one of the pioneers in the
international infomercial industry's development, commencing operations in 1988.
The deregulation of the cable television industry and the resulting
proliferation of cable channels increased the available media time and led to
the growth of the United States infomercial industry. Producers of infomercials
combined direct response marketing and retailing principles within a television
talk show-type format and purchased media time from cable channels to air their
infomercials. After an initial growth period, the industry consolidated through
the end of the 1980's. At the same time, increased attention from the FTC and
the federal and state consumer protection agencies led to greater regulation of
the industry and to the development of the National Infomercial Marketing
Association as a self-regulatory organization. By the early 1990's, infomercials
and home shopping cable channels had become a more accepted forum for obtaining
information about products and services and making purchases from home. As the
infomercial industry has matured, the variety of products marketed through
infomercials has steadily increased. Today, offerings as diverse as car care
products and computers are marketed through infomercials.
Industry Overview
The development of the international infomercial industry began in Western
Europe following the initial industry development in the United States. Quantum
Marketing International, which had been founded by Reliant's chairman, Kevin
Harrington, was acquired by National Media in 1991. Following that acquisition,
Kevin Harrington, who had owned 100% of Quantum International Marketing
International, retained an insignificant amount of stock in the acquired entity.
No affiliate of this Issuer has or maintained any relationship with Quantum
Marketing International.
The industry expanded throughout Europe and then into non-European markets
through the early 1990's and continues to expand into other worldwide markets
today. Whereas domestically, distribution of products through infomercials is
viewed as an alternative to retail, mail order and other means of distribution,
in many international markets distribution through traditional channels is not
readily accessible to many consumers. As a result of these factors, the Company
believes that it has an opportunity to be one of the primary distributors of
innovative consumer products in the international marketplace.
Prior to 1984, the maximum allowable minutes of television per hour was
limited (16 minutes of commercial messages per hour) by the Federal
Communications Commission ("FCC"), making the television infomercial an
impossibility. In 1984, the FCC rescinded its limitations, permitting the sale
of blocks of advertising and the television infomercial was born. Currently, the
electronic retailing industry, which includes infomercials and short-form
commercials, television shopping channels and multimedia marketing, has
estimated annual sales of $8.6 billion. Management estimates that approximately
thirteen million adults in the United States (about 6% of the adult population)
bought at least at one item from a TV offer in 1997 versus in 1995, when
approximately nine million bought merchandise. Many electronic retailers are now
approaching cyberspace and the world of e-commerce as their next frontier. A
U.S. Commerce Department study shows that 100 million consumers are now online.
Internet traffic is doubling every 100 days. The "digital economy" is growing
twice as fast the economy overall. 10 million Internet users made online
purchases by the end of 1997, up from 4.7 million six months earlier.
Company Strategy
Reliant's goal is to be recognized as a worldwide leader in direct
marketing. Through direct response transactional television programming and
integrated consumer marketing techniques, the Company is pursuing a business
strategy focusing on: (i) increasing the utilization of its global relationship,
(ii) developing and marketing innovative consumer products to develop its
library of infomercial programs and (iii) engineering an efficient business
model for the conduct of its worldwide direct response business. The Company is
revving up its efforts to create a position as a worldwide
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leader in infomercial programming. Through its global contracts, and media
access, the Company will have the ability to deliver infomercial programming and
products to over 370 million households worldwide. The Company intends to
continue to explore new ways to effectively utilize and leverage this worldwide
distribution, reach and capability. In addition, the Company intends to
aggressively utilize its assets such as its customer lists in order to realize
the true value thereof.
Develop and Market Innovative Products to
Develop a Library of Infomercial Programs
The Company continually seeks out innovative consumer products which it can
market and distribute profitably. The Company has an in-house product
development/marketing capability responsible for researching, developing and
analyzing products and product ideas. The Company augments its product
development activities through relationships with third party product
developers, from time to time, whose products may appear to management to
present profitable infomercial marketing potential. The Company may develop or
acquire product lines, or may engage in marketing agreements for marketing of
product lines owned by others. As a practical matter, the difference between
acquired product lines, and marketing arrangements for products which may be
owned by third persons is deemed to be technical, but otherwise not
substantially different; in as much as, acquired products or acquired marketing
rights are acquired, with royalty and other arrangements which may amount to the
same essential financial impact upon costs, revenues and profitability See the
unnumbered subtitle below "Current Products".
We have 30 infomercial programs in our library. There are an additional 7
programs in various stages of development.
While the Company incurs certain initial and ongoing costs in connection
with adapting a product and infomercial for specific markets, the primary
expenses are incurred when the product/infomercial is first developed for its
initial target market. Thus, as the Company decides to introduce a product into
additional markets, it can do so quickly, efficiently and relatively
inexpensively. The Company believes that by further expanding its coverage into
other parts of the world it will be able to further leverage its library of
infomercial programs and associated products by extending the time period during
which each product generates revenues and, therefore, the total worldwide
revenues for a particular product. Management reports that the normal range of
costs for a marketing program is $50,000.00 to $250,000.00, with the exceptional
project rarely extending to as much as $500,000.00.
Engineering the Most Efficient Business Model for the Company
The Company continues to explore methods to better control each step in the
development and life cycle of a product/infomercial and develop its expertise
in, and refine its systems with regards to, product sourcing, in-bound
telemarketing, production, order fulfillment and customer service. Reliant
believes that its current competitive advantages of fully-integrated program
production, sourcing, as well as the development of new marketing partners,
provide it with a strong base from which it can lower its costs and engineer a
business model which is the most efficient for a worldwide direct response
business.
The Company will utilize its executive managements' proven expertise in the
direct response transactional television (DRTV) arena, known as infomercials, to
market consumer products. By combining television's proven ability to drive
product sales with the global informational and access capabilities of the
Internet, the Company is a true multi-media marketing company. Print, radio and
direct mail are the other key components of the Company's strategy. The mix of
expenses and revenues for television to other media is heavily weighted to
television, about 95%. Other media expenses are expected to exceed 5% of project
advertising rarely, if ever.
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In 1998, this Issuer was a "Development Stage Company", as described in the
Company's financial statements for the years so ended. During the three months
ended June 30, 1999, revenues exceeded expenses; such that this formerly
"Development Stage Company" is now considered by management to be an "Operating
Company." The term "Development Stage Company" is a cautionary term used to
refer to a company whose principal business activity is organization and capital
formation in order to pursue or launch its business plan. While issues of
capital augmentation may arise in the course of the affairs of an "Operating
Company", by such term, the Issuer means that it has launched its business plan,
and is now generating revenues which reasonably appear to be increasing. It is
therefore expected that increasing revenues will fund continuing operations in
substantial part, supplemented by normal commercial borrowing, such that capital
formation or augmentation would be secondary considerations in relation to
Issuer's ability to sustain itself as a going concern.
The Company is a Corporate Member of the Association of Internet
Professionals ("AIP"). AIP's web site can be found at www.association.org. The
AIP is the premier professional association for internet professionals
worldwide. AIP, founded in 1994, is the largest and fastest growing professional
association in the industry. The Company is also a member of the Electronics
Retailing Association, the trade association for the infomercial industry.
The Company's initial focus will be to market consumer products through the
infomercial vehicle. Reliant has chosen products that offer sales continuity,
and Reliant endeavors to own the full product rights, the name, manufacturing
and the product itself. The Company has full product rights for in excess of 50%
of the products to which it has rights. The specific products and rights are
disclosed in more detail in the following discussion. In product sales,
television creates interest: a broader, multi- media approach ensures maximum
profits. The Company plans to use its infomercial programming to develop a
worldwide presence in e-commerce markets.
Reliant will use segments of its TV infomercial programs to drive consumers
to its web sites, www.lifestylesmall.com, www.cigarnow.com, www.rimc.com. Web
site activities are presently operational. We are now displaying our website
address in all new infomercials produced, in an effort to attract users to the
www.rimc.com site. There users will be able to order products via the Internet,
and would also be exposed to our other products being offered. This concept is
in its early implementation stage. We are just beginning to employ it, and for
that reason, we have no results or statistical information to report or disclose
other than the following.
Revenues from web site activities were insignificant in 1999, and for that
reason no statistical information was formulated for the limited period that web
sites have been operational, other than provided in the following table. For
year the 2000, we will have more detailed statistical information concerning web
site sales of products as well as the information presented as follows:
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lifestylemall.com cigar.com rimc.com
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Users/6 months 19,545 8,875 133,348
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Average Users Daily 107 48 732
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Hits/6 months 187,086 120,005 1,404,238
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Average Hits Daily 1,031 659 7,715
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The Cigar Television Network is a wholly-owned subsidiary of Reliant. This
subsidiary has transferred its two primary business activities to us to operate.
We are now responsible for the marketing and sales of a line of cigar lighters
and the CigarNow.com web site. We are now selling a line of Cobee lighters/cigar
cutters, including dual-flame and triple-flame lighters. CigarNow.com was
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our first web-based e-commerce venture and features over 550 premium cigars,
plus accessories and upscale lifestyle products. CigarNow.com will also serve as
the electronic cigar vendor on several high-profile, high-traffic partner sites.
Reliant entered into a Web Site Purchase Agreement on May 26, 1999 to
purchase from Tony Little the Tony Little Web Site. Tony Little is one of the
most recognized fitness personalities on television and is often referred to as
"America's Fitness Guru." This web site currently offers a variety of
health-related products promoted by Tony Little. The Company is responsible for
the operating expenses of the web site and will receive one-half of the net
revenues. The consideration for the purchase was $10,000 and 100,000 shares of
the Company's common stock to be issued subject to the exemption provided by
section 4(2) of the Securities Act of 1933.
Product Development
The Company's product development/marketing department is the most vital
component of the Company. Kevin and Tim Harrington, along with Mel Arthur,
actively participate on a daily basis in the ongoing effort to research and
develop new products that may be suited for direct response television marketing
and subsequent marketing through non-infomercial distribution channels. This
group develops new product ideas from a variety of sources, including inventors,
suppliers, trade shows, industry conferences, strategic alliances with
manufacturing and consumer product companies and the Company's ongoing review of
new developments within its targeted product categories. As a result of
management's prominence in the infomercial and retail television industry, it
also receives unsolicited new product proposals from independent third parties.
During the evaluation phase of product development, the Company evaluates the
suitability of the product for television demonstration and explanation as well
as the anticipated perceived value of the product to consumers, determines
whether an adequate and timely supply of the product can be obtained and
analyzes whether the estimated profitability of the product satisfies the
Company's criteria.
The Company is devoting attention to the development and products
specifically targeted at markets outside of North America. The Company will
review its infomercial inventory on an ongoing basis to select those products
which it believes will be successful in Europe and/or Asia and/or its other
international markets. When a product which was initially sold domestically is
selected for international distribution, the infomercial is dubbed and product
literature is created in the appropriate foreign languages. In addition, a
review of the product's and the infomercial's compliance with the local laws is
completed. The Company's licensed distributor then begins airing the infomercial
internationally. The Company also airs shows and distributes products of other
independent domestic infomercial companies. 2% of expenses are targeted for
foreign markets. Presently revenues from foreign markets are 1% of total
revenues. It should be anticipated, in the opinion of management, that in the
future, 5% of expenses for foreign markets will ripen into 10% of revenues. The
reasoning upon which this expectation is based is that once the United States
marketing has been put in place, the only significant additional expense, for
foreign distribution would be dubbing into the appropriate foreign language.
The Company obtains the rights to new products created by third parties
through various licensing arrangements generally involving royalties related to
sales of the product. The amount of the royalty is negotiated and generally
depends upon the level of involvement of the third party in the development and
marketing of the product. The Company generally pays the smallest royalty to a
third party that only provides a product concept. A somewhat higher royalty to a
third party that has fully developed and manufactured a product. The Company
also obtains the rights to sell products which have already been developed,
manufactured and marketed through infomercials produced by other companies. In
such cases, the Company generally pays a higher royalty rate to the third party
because of the relatively small amount of the Company's resources required to
develop the product. The Company generally seeks exclusive worldwide rights to
all products in all means of distribution. In some cases,
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the Company does not obtain all marketing and distribution rights, but seeks to
receive a royalty on sales made by the licensor pursuant to the rights retained
by the licensor.
Infomercial Development and Test Marketing
Once the Company decides to bring a product to market, it arranges for the
production of a 30- minute infomercial that will provide in-depth demonstrations
and explanations of the product. The Company attempts to present a product in an
entertaining and informative manner utilizing a variety of program formats. The
Company's infomercials are currently produced in-house by contracting with
established independent experienced producers who work under Reliant's
direction. The cost of producing an infomercial generally ranges from $25,000 to
$350,000. In addition, producers, hosts and spokespersons generally receive fees
based upon sales of the products.
Following completion of the production of an infomercial, the program is
then tested in the United States in specific time slots on both national cable
networks and targeted broadcast stations. If a show achieves acceptable results
in the market tests, it is generally aired on a rapidly increasing schedule on
cable networks and broadcast channels. During this initial phase, the Company
may modify the creative presentation of the infomercial and/or the retail
pricing, depending upon viewer response. After the initial marketing phase, the
Company may adjust the frequency of a program's airing to achieve a schedule of
programs that it believes maximizes the profitability of all of the Company's
products being marketed through infomercial programming at a given time.
Media Access
An important part of the Company's ability to successfully market products
is its access to media time. The Company's infomercial programming will be
available through licensed distributors to more than 370 million households in
70 countries worldwide, including Argentina, Australia, Austria, Belarus, the
Benelux countries, Brazil, China, Denmark, Ecuador, most Eastern European
countries, Finland, France, Germany, Greece, Ireland, Italy, Japan, Mexico, most
Middle Eastern countries, New Zealand, Norway, Peru, Portugal, Russia, Spain,
most South American countries, Sweden, Switzerland, Taiwan, Turkey, Ukraine and
the United Kingdom.
Internationally, the Company's infomercials are aired on one or more of
three technologies by its licensed distributors: (i) satellite transmission
direct to home with satellite reception dishes; (ii) cable operators who
retransmit satellite broadcasts to cable-ready homes and (iii) terrestrial
broadcast television.
Domestically, the Company purchases most of its cable television time
directly from cable networks and their respective media representatives. In
addition to domestic air time purchased on cable networks, the Company also
purchases broadcast television time from network affiliates and independent
stations. Broadcast television time segments are purchased primarily in
30-minute spots. The Company believes that there is currently more than an
adequate supply of broadcast television time available from these sources in the
United States to satisfy the Company's needs. The Company is dependent on having
access to media time to televise its infomercials on cable networks, satellite
networks, network affiliates and local stations.
Sourcing and Manufacturing
The Company intends to develop sources in the United States and several
countries in Europe and Asia to manufacture products sold through its
infomercials if it deems it to be economically advantageous. There are no
commitments or established relationships in place at this time.
In general, before the Company takes any sizable inventory position in a
product, the Company test markets the product. The Company would then purchase
additional inventory for roll-out of the product. The skill of management is
extremely important in the area of building inventory to anticipate
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sales. This is more important in direct response marketing than in elsewhere,
for the reason that delivery time is critical to customer acceptance, and
further by virtue of the dependance on credit card payment, for charges cannot
attach until the product is shipped out of the fulfillment house. The process
begins with a "small test". The amount of initial inventory will vary based upon
the management's best projections of the quality and appeal of the product, the
sales price of the product, and the delivery time projected for the product. A
normal small test will involve the investment of about $30,000.00 dollars in
initial inventory. Although there can never be any guaranty of resulting demand,
management's experience is that about half, and sometimes more, of the initial
inventory will be sold, even if the program is not deemed successful. Skillful
management should not allow the accumulation of excessive inventory.
Management's general policy is to build inventory of a successful product
against one month's anticipated sales, on the basis of continuing evaluation of
current sales and known trends, by which every successful marketing program and
product have a cycle of increasing demand, eventually peak, and ultimately
decline to marginal significance. A typical product/marketing cycle, in any
given market may range from three months to six months, but every program and
product is unique, and its marketing cycle may exceed or fail to match normative
expectations.
In-Bound Telemarketing
The Company strives to create a problem-free fulfillment process for its
customers. This process consists of in-bound telemarketing, order fulfillment
and customer service. The first step in this process is the order-taking
function known as in-bound telemarketing. Customers may order products marketed
through infomercials during or after the infomercial by calling a telephone
number (toll-free in the United States), which is shown periodically on the
television screen during the broadcast.
The Company anticipates normal subcontracting of its telemarketing function
to one of various third parties that provide this service for a fee-based
principally on the number of telephone calls answered. In all instances
domestically, in-bound telemarketers electronically transmit orders to the
Company's order fulfillment contractors where the product is packaged and
shipped. In certain cases, at the time of purchase, the in-bound telemarketers
also promote, cross-sell and upsell complementary and/or additional products
relating to the product for which the inquiry is received. Such sales efforts
are orchestrated by the Company's marketing personnel who script the sales
approaches of the telemarketing personnel. Currently, the Company has no
international subcontractor. Domestically, the Company's telemarketing
subcontractor is West Telemarketing, 9910 Maple Street, Omaha NE 68134; and also
Aftermarket Company, 5260 West Phelts, Suite 8B, Glendale AZ 85306, for computer
sales only.
The majority of customer payments in the United States are made by credit
cards over the telephone with the remainder paid by check.
Order Fulfillment
The Company anticipates contracting with one or more fulfillment centers.
Activities at these facilities include receiving merchandise from manufacturers,
inspecting merchandise for damages or defects, storing and assembling product
for later delivery, packaging and shipping of products and processing of
customer returns. They primarily use bulk shippers to deliver products to
customers in the United States. In certain instances, the manufacturer of the
product ships orders directly to the customer. Each customer is charged a
shopping handling fee, which varies among products. Currently, the Company's
fulfillment centers are BWL Distributors, and Reliant Fulfillment, both at 17250
Dallas Parkway, Dallas TX 75248. There is no other relationship between this
Issuer and its fulfillment center, and the similarity of name is purely
co-incidental. Management reports that Reliant Fulfillment has conducted
business by that name before the first contacts between it and this Issuer.
10
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Customer Service
An important aspect of the Company's marketing strategy is to maintain and
improve the quality of customer service and to respond to customer inquires,
provide product information to customers and process product returns. The
average rate of return, of 8% to 15%, has been consistent in the experience of
the Issuer, and in the previous experience of its management in association with
other direct response companies in the past. Customer service is provided on a
contract basis through third parties who operations are monitored by the
Company. The Company generally offers an unconditional 30-day money back return
policy to purchasers of any of its products. In addition, products are generally
covered by warranties offered by the manufacturer for defective products. The
terms of such warranties vary depending upon the product and the manufacturer.
The Company believes that its return rates will be within the customary range
for direct marketing businesses.
Non-Infomercial Marketing
Based on the success of certain of its products in traditional retail
markets and the evolution of its business, the Company believes that its
transactional television programming is effective in building consumer awareness
of its products, as well as positioning the Company to act as the media
marketing partner for manufacturers of consumer products. The Company's
attempting to capitalize on its ability to create product awareness and its
ability to act as a media marketing partner to extend the sales life of its
products by shifting products from traditional infomercial programming to
non-infomercial marketing channels such as retail distribution, catalogs, direct
mail, direct response print ads, television home shopping programs, credit card
statement inserts and other channels resulting from the development of strategic
partnerships. The Company believes that established manufacturers are
increasingly regarding infomercials as a desirable vehicle to showcase their
products to create and build brand awareness and generate follow-up product
sales through traditional retail outlets.
The Company intends to pursue expansion of its retail operations in order
to capitalize on the consumer brand-awareness created by the Company's
infomercials and reinforced by the "As Seen On TV" in-store signage. The Company
believes that the product exposure created by the Company's transactional
television programming enables the Company and its partners to utilize
traditional retail distribution channels without incurring any of the additional
advertisement costs that other consumer product companies may incur. In this
manner, the Company believes that it will be able to market products to
consumers who view its programming, but do not traditionally purchase products
through direct response marketing.
Current Products
The Company markets consumer products in a wide variety of categories,
i.e.: health fitness, beauty, weight loss, business opportunities, household
appliances, etc. The Company will be dependent, in significant part, upon its
ability to develop or obtain rights to new products to supplement and replace
existing products as they mature through their product life cycles. The
Company's expansion into international markets reduces somewhat its dependency
on new shows by lengthening the potential duration of the life cycle of programs
that will comprise the Company's infomercial library. Historically, the majority
of the industry's products generate their most significant domestic revenues in
the first 6 months following initial airing of the product's infomercial.
Internationally, however, products typically generate revenues more evenly over
a longer period. The Company has not had enough operating history to determine
if it is following the historical trends of its industry. We have 30 infomercial
programs in our library. There are an additional 7 programs in various stages of
development.
The Company enters into agreements for the sale of a number of products. If
the products are successfully tested and deemed to have sufficient commercial
marketability, they are then "rolled-out" in a Nation-wide media effort. The
following products have been rolled-out:
11
<PAGE>
Pure Protein Bar. The Company has an International Marketing and
Distribution Agreement with Worldwide Sports Nutrition, Inc. for television
sales only of the high protein, low carbohydrate, low fat Pure Protein Bar.
The program will be rolled-out on November 15, 1999.
BIOflex Therapeutic Magnet Product Line. The Company has an International
Marketing and Distribution Agreement with BWL Distributors, Ltd. to market
the Sobakawa BIOflex therapeutic magnet product line through direct
response infomercials. Sobakawa Magnetic insoles are ultra thin, cushioned
insoles containing the patented Bioflex Magnets. These specific insoles
have a moisture resistant feature intended to prevent germs and odors. The
roll-out date of this product was February 27, 1999. Sales of this product
currently account for 43% of the revenues of the Company. The Company does
not have full product rights.
Trash or Treasure. The Company has a contract with Dr. Tony Hyman for his
Trash or Treasure program that shows how money can be earned from items
that are often considered as "trash". Through this informative and
educational program, Dr. Hyman shows others how to find the items
collectors are scouring the country to find: salt & pepper shakers,
thimbles, maps, and toys, just to name a few. Many of these items are
sitting in garages, buried in attics or sold at flea markets for next to
nothing! The book includes over 2,200 product categories and the names,
addresses, phone numbers, and e-mail addresses of over 1,200 buyers that
will purchase these items. The rollout date of this product was January 30,
1999. Sales of this product currently accounts for 29% of the revenues of
the Company. The Company does not have full product rights.
Pest Offense. Pest Offense is a safe, effective way to control pests around
your home or business without the use of any dangerous chemicals or
pesticides. This environmentally safe device plugs into a wall a creates an
intermittent signal in the wiring that drive pests out. It will not affect
electrical equipment, has no smell or fumes, cover 2,500 square feet, and
is safe for all household pets. This product was rolled out on May 1, 1999
and accounts for 15% of the Company's revenues. The Company has full
product rights.
Wonder Steamer. The Company has a talent agreement with Sandy Bradley to
promote a light- weight steam iron for pressing clothes while they hang, or
it steams and presses like a flat iron. Steams in less than one minute and
is designed to not burn, scorch, melt, or shine the clothes. The Wonder
Steamer is lightweight, easy for travel and safe for use on delicate
fabrics. The product was rolled out on June 26, 1999 and represents 4% of
the revenues of the Company. The Company has full product rights.
Enduro Bits. Enduro Bits utilize a high-tech metallurgical fusion comprised
of a combination of carbide, titanium, and carbon, making it practically
indestructible. The Enduro Bit cuts wood, steel, aluminum, glass, plastic,
ceramic tile, and even granite without having to change a bit. This product
was rolled out on September 11 1999, and has generated insignificant income
at this time. The Company does not have full product rights.
System Max Computers. The Company has full product rights for the sale of
the 500mz System Max computer system with monitor, printer, and an
assortment of popular software titles. An Infomercial aired at the end of
the 3rd quarter of 1999, generated orders for in excess of $1,000,000.00;
but these revenues have not been realized yet due to shipping delays
attributed to the manufacturer's having been affected by the recent
earthquakes in Taiwan. The Product is now being shipped and the Company
expects to fulfill these orders. Management believes that future computer
sales from infomercials and the internet may account for a significant
percentage of its revenues in the near future.
Eternal Energy Products. The Company has an International Marketing and
Distribution Agreement with Golden Pride, Inc., which manufactures a
proprietary line of vitamin and energy
12
<PAGE>
supplement products. The Agreement provides for television rights only for
selling a starter kit of various products and inviting viewers to join
"Tony Little's Eternal Energy" multi-level marketing program. The show will
be run monthly, and at this time Revenues from this program are not
material.
Government Regulation
Various aspects of the Company's business are subject to regulation and
ongoing review by a variety of federal, state, and local agencies, including the
FTC, the United States Post Office, the CPSC, the FCC, FDA, various States'
Attorneys General and other state and local consumer protection and health
agencies. The statutes, rules and regulations applicable to the Company's
operations, and to various products marketed by it, are numerous, complex and
subject to change.
The Company collects and remits sales tax in the states in which it has a
physical presence. The Company is prepared to collect sales taxes for other
states, if laws are passed requiring such collection. The Company does not
believe that a change in the tax laws requiring the collecting of sales tax will
have a material adverse effect on the Company's financial condition or results
of operations.
Competitive Business Conditions and
Our Competitive Position in the Industry.
Competition in the Electronic Retailing Industry is intense and may be
expected to intensify. There are other, larger and well-established electronic
retailers, with whom this company must compete. The Company competes directly
with several companies which generate sales from infomercials. The Company also
competes with a large number of consumer product companies and retailers which
have substantially greater financial, marketing and other resources than the
Company, some of which have recently commenced, or indicated their intent to
conduct, direct response marketing. The Company also competes with companies
that make imitations of the Company's products at substantially lower prices.
Products similar to the Company's products may be sold in department stores,
pharmacies, general merchandise stores and through magazines, newspapers, direct
mail advertising and catalogs. It is management's opinion that all of its major
competitors are better and longer established, better financed and with enhanced
borrowing credit based on historical operations, and enjoy substantially higher
revenues than the Issuer does currently. As a new entrant into this marketing
industry, the Issuer relies on the skill, experience and innovative discernment
of management in the hope that superior judgment will provide its only
competitive advantage. This Company's major competitors are now listed: Thane
International, Inc.; Fitness Quest, Inc.; Telebrands Advertising Corporation;
Media Group Incorporated; e4L, Inc.; Guthy Renker Corp.; Media Enterprises, Inc.
Properties and Employees.
This Company's principal offices and rent are described in Item 3 of this
Part. are located at 13535 Feather Sound Drive, Suite 220, Clearwater, Florida,
33762 Telephone: (727) 299-0020 Facsimile: (727) 299-0101. The Company currently
leases approximately four thousand (4,000) square feet of office space pursuant
to a year lease for its Clearwater, Florida, principal executive offices. The
lease, which commenced in 1999, provides for monthly rent of $6,750.42 or annual
rent payments of $81,005.04. The facility encompasses 25 separate offices and a
board room. We have 7 full-time employees and 3 contract employees, i.e.
producers, technical and artistic talent. None of the Company's employees are
covered by collective bargaining agreements and management considers relations
with its employees to be good.
13
<PAGE>
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------------------
(a) Plan of Operation for the next twelve months.
Cash Requirements and of Need for additional funds.
We are "a development stage Company" and have only limited capital
resources. While revenues are increasing significantly, it is necessary for the
Company to seek additional capital over time to optimize the accomplishment of
its business plan. The following disclosure treats our interim funding for the
year now past, and our plans and arrangements for future funding.
On or about February 23, 1999, the Company received $330,000.00 for the
sale of 1,000,000 new investment shares of common stock (before the second
reverse split) from six highly sophisticated investors. For information about
these investors, please refer to Item 4 of Part II, RECENT SALES OF UNREGISTERED
SECURITIES. This special investment program was specifically targeted to
infomercial production, by means of a special royalty arrangement with the
investors: the investors will receive an aggregate of 5% of the gross revenues
(as defined by agreement) from sales generated by four specified infomercials
produced, until 120% of the investment has been returned to the investors.
Thereafter, the percentage received by these investors will be reduced to an
aggregate of 4%. The price was arrived at in arms-length negotiations in the
context of the entire transaction. The Company expects to value the 1,000,000
shares at the investment price of $330,000.00 and to treat royalty payments to
investors as expenses, in the same manner as if royalty payments were not
connected with the purchase of shares.
These 1,000,000 shares are included in the earnings per share analysis,
found in the financial statements of this Registrant.
On or about March 24, 1999, the Company made an agreement with Oasis
Entertainment's Fourth Movie Project, Inc. (a related party transaction) to
provide funding in the amount of $250,000.00 for use specifically in the
production of three additional infomercials. Oasis is to receive 250,000 shares
(after the second reverse-split) of common stock upon completion of the funding
in April, plus a royalty of 2% of the adjusted gross revenues derived on all
products designated in the agreement until Oasis has been paid $625,000.00, and
thereafter 1% thereof in perpetuity. This transaction is deemed to be a related
party for the reason that, and only for the reason that, Karl Rodriguez is the
fourth Director of this registering Company and is also Secretary and a Director
of Oasis Entertainment's Fourth Movie Project, Inc. These 250,000 shares have
been authorized, but not issued yet. The Company expects to value the shares at
$250,000.00. We will treat royalty payments to investors as expenses, in the
same manner as if royalty payments were not related to purchase of shares. The
shares are treated as if issued for earnings per share calculations.
We were able to generate enough sales revenues to satisfy our cash
requirements through the end of 1999. Our evaluation of the next twelve months
is different.
Without regard to whether current revenues might be sufficient to maintain
liquidity, new projects must be undertaken to generate future revenues. Every
media-marketing project has a useful life, some longer or shorter than others,
but all eventually run their course. We do not consider it prudent to be passive
about generating new projects, and we have determined that significant new funds
are highly desirable, and possibly necessary to aggressively approach operations
in year 2000.
The Registrant has entered into two letter agreements with Institutional
Equity Corporation ("IEC"):
First, an engagement letter for IEC to conduct a private placement for us,
to raise a minimum of $500,000 and a maximum of $2,000,000 (to be in reliance on
Regulation D, Rule 506, and section
14
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4(2) of the Securities Act of 1933). Units consisting of 10,000 shares each are
to be sold for $20,000 each. This placement has been opened and must be
completed by March 31, 2000, unless extended by a maximum of 90 additional days.
IEC is to be paid a fee equal to 10% of the proceeds and has the right to
acquire up to 100,000 shares of common stock, at $3.00 per share, for every
million dollars raised, or a proportional fractional adjustment. This right to
acquire shares lasts until 18 months from the closing of the placement. The
placement is on a best efforts basis. There is no guaranty that any shares will
be placed.
Second, a firm commitment has been received from IEC to raise $10,000,000
in a registered offering of securities. The structure of this offering has not
been determined. Gross underwriting discounts of approximately 10% of the
offering price and a 2% non-accountable expense allowance is to be paid to IEC
from these offering proceeds. A $50,000 fee has been paid towards an advance of
$100,000 to be applied against the gross underwriting commissions. The expenses
of IEC in connection with this offering will also be reimbursed from the
offering proceeds and are estimated to be $650,000. IEC will also receive
warrants for 10% of the securities purchased by underwriters, good for four
years, at an exercise price of 120% of the offering price.
While there is no guaranty that funding plans will materialize as expected,
we believe that our present arrangements will provide sufficient working capital
to optimize operations for the next twelve months.
Summary of Product Research and Development
The Company's product development/marketing department is the most vital
component of the Company. Kevin and Tim Harrington, along with Mel Arthur,
actively participate on a daily basis in the ongoing effort to research and
develop new products that may be suited for direct response television marketing
and subsequent marketing through non-infomercial distribution channels. This
group develops new product ideas from a variety of sources, including inventors,
suppliers, trade shows, industry conferences, strategic alliances with
manufacturing and consumer product companies and the Company's ongoing review of
new developments within its targeted product categories. As a result of
management's prominence in the infomercial and retail television industry, it
also receives unsolicited new product proposals from independent third parties.
During the evaluation phase of product development, the Company evaluates the
suitability of the product for television demonstration and explanation as well
as the anticipated perceived value of the product to consumers, determines
whether an adequate and timely supply of the product can be obtained and
analyzes whether the estimated profitability of the product satisfies the
Company's criteria.
The Company is devoting attention to the development and products
specifically targeted at markets outside of North America. The Company will
review its infomercial library on an ongoing basis to select those products
which it believes will be successful in Europe and/or Asia and/or its other
international markets. When a product which was initially sold domestically is
selected for international distribution, the infomercial is dubbed and product
literature is created in the appropriate foreign languages. In addition, a
review of the product's and the infomercial's compliance with the local laws
completed. The Company's licensed distributor then begins airing the infomercial
internationally. The Company also airs shows and distributes products of other
independent domestic infomercial companies.
The Company obtains the rights to new products created by third parties
through various licensing arrangements generally involving royalties related to
sales of the product. The amount of the royalty is negotiated and generally
depends upon the level of involvement of the third party in the development and
marketing of the product. The Company generally pays the smallest royalty to a
third party that only provides a product concept. A somewhat higher royalty to a
third party that has fully developed and manufactured a product. The Company
also obtains the rights to sell products which have already been developed,
manufactured and marketed through infomercials produced by other companies. In
15
<PAGE>
such cases, the Company generally pays a higher royalty rate to the third party
because of the relatively small amount of the Company's resources required to
develop the product. The Company generally seeks exclusive worldwide rights to
all products in all means of distribution. In some cases, the Company does not
obtain all marketing and distribution rights, but seeks to receive a royalty on
sales made by the licensor pursuant to the rights retained by the licensor.
Expected purchase or sale of plant and significant equipment. None.
Expected significant change in the number of employees. None.
(b) Discussion and Analysis of Financial Condition and Results of Operations.
Development Stage/Going Concern. There are two material thresholds in the
transition of this Company, from Development Stage to Going Concern. The first
is the commencement of limited operations, during 1998, and the first quarter of
1999. The second is the achievement of substantial revenues and the dawn of
profitability, corresponding to the second quarter of 1999, with continued
improvement throughout that year. While the Harringtons began some limited
operations in 1998, their two companies were not acquired as subsidiaries until
August of that year. The Harringtons honored certain non-compete agreements,
with HSN Direct, a division of Home Shopping Network, which expired in December
of 1998. During the interim period, the Harringtons located, developed and
prepared for production and rollout of various products. For that reason,
full-fledged operations were not launched until April of 1999. While the affairs
of the Company improved consistently, from 1998, the second quarter of 1999 was
the first profitable quarter, and is the first quarter of unlimited operations.
For these reasons, management refers to this Company as in its Development Stage
for 1998, and for the first quarter of 1999, and as an operating company and a
going concern during the second quarter of 1999.
In 1998, the company closed the year with a loss, with minimal revenues, in
pre-launch development mode, but these results are not deemed to reflect true
business operations. In 1998, the company had significant expenses that resulted
in a loss for the year. Revenues increased significantly in 1999; however such
increase should not be considered dramatic, for 1999 was the first real year of
operation under our present business plan. The first quarter was one in which
the Harringtons put in place personnel and selected the first products to
produce.
The second quarter was one in which we aired two successful shows (Trash or
Treasure and Sobakawa Insoles). We also aired other shows which were not so
successful in that quarter. It is not to be expected that every project would be
a stellar success, and two successes in a single quarter is considered a good
result by us.
During the third quarter, we increased staff with a producer and associate
producer for our infomercials, to have better continuity and control of the
details of our production activities. These are two new salaried individuals.
Several other shows were tested during this period. Two of them became
successful (Wonder Steamer and Pest Offense). We also developed our successful
computer infomercial.
During the final quarter of 1999, sales continued to grow from projects in
place, led by those developed in the previous quarters and the new computer
infomercial.
Management believes that revenues and growth will continue to increase, but
to achieve the continued growth of the Company's business, advertising,
promotional and production expenses will remain significant. While the upside
potential from successful infomercial marketing is tremendous, the risk of
failure is always present. Some of the projects may fail, or all may fail. If
some are successful, the success may offset the losses from others significantly
or may not. Accordingly, there can be no assurance that substantial
profitability will be sustained in the next twelve months in proportion to the
rate of growth achieved in 1999.
16
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Revenues are Increasing. There were no revenues in 1997. Sales in 1998 were
$120,234, which was $60,118 for the first half, and $60,116, for the second
half. Corresponding amounts for the first quarter, and second quarter of 1999,
were $352,483 and $3,135,013. 1998 operations have been characterized as
limited. They consisted of the sale of cigarette lighters and the marketing of a
single non-infomercial television show. In 1998, Gross Margins, after cost of
goods sold, was only 45%; whereas that margin has been stable between 85% to 86%
of Gross Sales, for the first half of 1999. This improvement is largely due to
the difference between limited operations, and the economy and efficiency of
unlimited operations, beginning in April of 1999. It is also attributable to the
marketing of different products from those currently offered by the Company.
Thus the sales of the first half of 1999 total $3,477,490. The increase in the
second 1999 quarter reflects the launching of full operations in April, more
completely reflected by the end of the second half of 1999. The significance of
these figures is not only that revenues have increased exponentially, due to
operations, but that the Company has achieved marginal profitability during the
second quarter, the three months ended June 30, 1999.
Revenues have improved in every quarter of operations in 1999. We expect
them to continue to improve in the next twelve months. Although certain
expenses, such as production and media costs are related to revenue creation and
would rise in some proportion to revenues, there are other expenses that are not
expected to rise proportionally. General and administrative expenses would not
rise proportionally as projects increase and revenues improve. We are able to
generate increasing revenues without significant increase in employees, as
production and fulfillment activities are generally out- sourced. The Company
has new products to sell each period, in additions to others, so that the number
of products increase from period to period. For the first quarter there were 5,
for the second 8, the third 8, and the fourth 10 products for sale. We just
recently initiated marketing of products on the QVC home shopping channel. On
QVC we are beginning to sell some products in the traditional short-form live
segments that are seen on television shopping networks. These new revenues are
insubstantial as of the end of 1999, but are expected to become a significant
component of total revenues as more products are sold and exposure increases on
the shopping network.
Product sales are expected to increase in direct proportion to our ability
to acquire media time to promote them. Promotional advertising drives sales in
our business. It is for this reason that increasing revenues do not provide
assurance that markets have been saturated with as much advertising as would be
productive. For this reason, additional capital, whether or not necessary for
fundamental survival, is desired and important for optimum growth.
Cost of goods sold included the total cost of acquiring actual products
acquired for resale. Returns and allowances are deducted from sales.
Operating Expenses would be expected to increase with increasing
operations. Expenses in 1998 were attributable to the marketing of different
products than those which form the core of the Company's current business. In
general, expenses have decreased as a percentage of sales.
================================================================================
General and Administrative Expenses $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 792,533 120,234 659.16
- --------------------------------------------------------------------------------
first quarter 1999 337,843 352,483 95.85
- --------------------------------------------------------------------------------
second quarter 1999 1,010,984 3,135,013 32.25
================================================================================
third quarter 1999 1,299,014 5,918,342 21.95
================================================================================
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These figures reflect a continuing improvement in this relationship, due to
expanding operations, additional products and customers. These expenses do not
rise proportionally as revenues increase. General & Administrative expenses
include the following: fulfillment costs; sales commissions; royalties;
automobile expense; banking fees; consulting fees; insurance; office supplies;
postage & delivery; professional fees; salaries and wages; telephone; and travel
& entertainment.
================================================================================
Research and Development $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 41,449 120,234 34.47
- --------------------------------------------------------------------------------
first quarter 1999 4,754 352,483 1.35
- --------------------------------------------------------------------------------
second quarter 1999 25,401 3,135,013 0.81
================================================================================
third quarter 1999 10,465 5,918,342 0.18
================================================================================
These figures reflect that Research and Development is trending downward as
a decreasing percentage of sales. Research and Development costs should remain
constant as they represent costs associated with development of new infomercial
promotional projects, rather than new technologies. It does not include
royalties on rights acquired. It does not include the cost of acquiring products
for resale. It does not include production and media costs or marketing. It
involves searching for new products, obtaining rights to sell them, and possible
refinement in the products, to achieve more economic manufacture and resale at
attractive pricing. At any given time, there would normally be at least one or
two products/projects under development. At the present time, however, there are
seven infomercials in various stages of development. The number in development
will decrease, while the number in media, producing revenues will increase.
While the costs are expected to remain substantially constant, they would be
expected to decrease as a percentage of sales.
================================================================================
Production and Media Costs $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 -0- 120,234 0.00
- --------------------------------------------------------------------------------
first quarter 1999 355,279 352,483 100.79
- --------------------------------------------------------------------------------
second quarter 1999 1,168,432 3,135,013 37.27
================================================================================
third quarter 1999 2,778,243 5,918,342 46.94
================================================================================
These expenses were not a factor in 1998, due to the differing nature of
products marketed. These figures for 1999 reflect an improvement in the ratio of
these expenses to sales, even as total costs increase with expanding operations.
Production and media costs, consisting of the cost of producing media
productions and the costs of buying media slots, are estimated to settle in the
range of 40% to 50% of sales, overall. This average allows for less successful
or unsuccessful projects. Media expenses for successful projects will be between
35% and 46% of sales, proportionally.
================================================================================
Marketing $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 339,877 120,234 282.68
- --------------------------------------------------------------------------------
first quarter 1999 202,596 352,483 57.48
- --------------------------------------------------------------------------------
second quarter 1999 72,399 3,135,013 2.31
================================================================================
third quarter 1999 585,515 5,918,342 9.89
================================================================================
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These figures reflect an improvement in the ratio of these expenses to
sales, even as total costs increase with expanding operations. Marketing,
consisting of consumer relations and internet promotion is expected to
decrease, as a percent of sales over time. Marketing includes participation
in various trade shows, telemarketing expenses, other marketing expenses
and prepaid advertising. It does not include media buys in direct
infomercial advertising for immediate product fulfillment. Those items are
production and media expenses.
================================================================================
Rent $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 48,226 120,234 40.11
- --------------------------------------------------------------------------------
first quarter 1999 12,951 352,483 3.67
- --------------------------------------------------------------------------------
second quarter 1999 17,001 3,135,013 0.54
================================================================================
third quarter 1999 15,205 5,918,342 0.26
================================================================================
We had leased initially approximately four thousand (4,000) square feet of
office space pursuant to a year lease for our Clearwater, Florida, principal
executive offices. The lease, which commenced in 1999, provided for monthly rent
of $6,750.42, or annual rent payments of $81,005.04 The facility encompassed 25
separate offices and a board room. Some additional space was later taken at a
monthly rent of $16,400.00, which annualized to $196,800.00.
We have entered into a new lease for Suite 200, Island Center, 2701 N.
Rocky Point Drive, Tampa Florida 33607, dated January 13, 2000, and commenced
February 25, 2000. The premises leased constitutes 5,923 square feet on the
second floor, and an additional 1,080 square feet of unallocated space in the
building. We estimate that rent expenses will be about $40,000 per quarter, for
the next year and increase approximately 4% per year over the five year term of
the lease, net of subleases, and will continue to decrease as a percentage of
sales.
================================================================================
Total Operating Expenses $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 1,228,714 120,234 1,021.94
- --------------------------------------------------------------------------------
first quarter 1999 915,099 352,483 259.62
- --------------------------------------------------------------------------------
second quarter 1999 2,314,303 3,135,013 73.82
================================================================================
third quarter 1999 5,918,342 0.00
================================================================================
This comparison shows that total operating expenses are declining as a
percentage of sales, even as total expenses are increasing with expanded
operations. These tables also illustrate the significance of the second
operating quarter of 1999, when operations turned decisively favorable. Total
operating expenses as a percent of sales will remain in the range of 75% to 80%,
as sales increase. The largest single segment, and most material factor, is in
the direct operating area of infomercial production and media costs. These
operations are not only the major area of expense, but it is these activities
which drive sales. It is generally reliable in this industry that higher media
costs are required for increased sales.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
19
<PAGE>
Profitability, as indicated previously, appeared in the second quarter of
1999.
================================================================================
Operating Income (Loss) $ Sales % of Sales
- --------------------------------------------------------------------------------
all of 1998 (1,134913) 120,234 (943.92)
- --------------------------------------------------------------------------------
first quarter 1999 (631,147) 352,483 (179.06)
- --------------------------------------------------------------------------------
second quarter 1999 374,830 3,135,013 11.96
================================================================================
third quarter 1999 396,815 5,918,342 6.70
================================================================================
The achievement of profitability, in the second quarter, does not guaranty
that the trend to increasing profitability will follow. However, it appears to
management that operations are expanding in an orderly and promising manner, and
that expenses are being managed appropriately. Profitability has improved with
sales. As most other costs remain constant, or decrease, as percent of sales,
total profitability, as such a percentage, will fluctuate inversely with the
cost of goods sold. Product costs, as distinguished from infomercial production
and media costs, must be kept under control to maintain real profitability.
While higher media profile and quality of infomercial production tend to
increase sales, increased cost of products sold would have a depressing effect
upon profitability. On the one hand, Infomercial products need to be
attractively priced. On the other, the cost of producing the products must be
controlled and managed well.
Gross Margins on the financial statements indicate the amount by which
Sales exceed the Cost of Goods Sold. In view of the insubstantial nature of 1998
activities, and their lack of relationship to current products and marketing
methods, the comparison of 1998 to 1999 periods is not believed to be materially
instructive or useful. It is clear, however, from the Registrant's Financial
Statements, that the Gross Margins during the three months last ended September
30, 1999, represent more than half of the total for the nine months so ended.
Management believes that this last analysis is the most salient indicator
of increasing profitability.
Balance Sheet. As previously stated the dramatic increase in corporate
financial condition during 1999, as compared to 1998, is not considered
instructive. The 1999 activities should be viewed as the start-up of a new mode
of business activity in 1999, with some apparent success and improvement in the
financial condition of the Registrant, due particularly to increasingly
successful operations. Fortunes may change, however, and no assurance ever
exists that profitable trends will continue, or that the future will be like the
past. A company's initial growth may not be indicative of a sustainable rate of
continued growth. While the Registrant has not yet achieved its potential, there
can be no certain prediction at what level its growth may slow, or when, if at
all, it may reach an optimum level of operations.
Interest Income and Expense reflected on the Company's financial statements
refer to the company's ownership of a certificate of deposit, pledged against a
loan. The interest income from the CD is shown. The interest expense for the
loan is shown.
Conclusion. While this Company is presently able to manage its present
phase of development, for an indefinite interim, it cannot regard its financial
condition as optimal. Unless events in the future are favorable, both in terms
of profit from operations now being undertaken, and also favorable in attracting
investor interest, the Company may not be able to sustain a stable growth
pattern for the Company. These remarks should be understood in context,
discussed elsewhere, that increasing revenues are expected to provide
substantially all of the requirements for continued operations at present levels
and for some possible growth. This company must grow to reach its full
potential. For this reason, stability at its present levels is not considered
optimal for long-term growth.
20
<PAGE>
- --------------------------------------------------------------------------------
Item 3. Description of Property.
- --------------------------------------------------------------------------------
The Company initially had leased approximately four thousand (4,000) square
feet of office space pursuant to a year lease for its Clearwater, Florida,
principal executive offices. The lease, which commenced in 1999, provided for
monthly rent of $6,750.42, or annual rent payments of $81,005.04 The facility
encompassed 25 separate offices and a board room. This tenancy will terminate at
the end of February, 2000.
The Registrant has entered into a new lease for Suite 200, Island Center,
2701 N. Rocky Point Drive, Tampa Florida 33607, dated January 13, 2000, to
commence March 1, 2000. The premises leased constitute 5,923 square feet on the
second floor, and an additional 1,080 square feet of unallocated space in the
building. The schedule of rent/lease payments is provided as follows:
================================================================================
Period Annual Monthly
- --------------------------------------------------------------------------------
March 1, 2000 through February 28, 2001 161,089.04 13,422.42
- --------------------------------------------------------------------------------
March 1, 2001 through February 28, 2002 168,072.00 14,008.00
- --------------------------------------------------------------------------------
March 1, 2002 through February 28, 2003 175,074.96 14,589.58
- --------------------------------------------------------------------------------
March 1, 2003 through February 28, 2004 182,078.04 15,173.17
- --------------------------------------------------------------------------------
March 1, 2004 through February 28, 2005 189,081.00 15,756.75
================================================================================
- --------------------------------------------------------------------------------
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- --------------------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners. To the best of Registrant's
knowledge and belief the following disclosure presents the total security
ownership of all persons, entities and groups, known to or discoverable by
Registrant, to be the beneficial owner or owners of more than five percent of
any voting class of Registrant's stock. More than one person, entity or group
could be beneficially interested in the same securities, so that the total of
all percentages may accordingly exceed one hundred percent of some or any
classes. Please refer to explanatory notes if any, for clarification or
additional information.
(b) Security Ownership of Management. To the best of Registrant's knowledge and
belief the following disclosure presents the total beneficial security ownership
of all Directors and Nominees, naming them, and by all Officers and Directors as
a group, without naming them, of Registrant, known to or discoverable by
Registrant. More than one person, entity or group could be beneficially
interested in the same securities, so that the total of all percentages may
accordingly exceed one hundred percent of some or any classes. Please refer to
explanatory notes if any, for clarification or additional information. Table A
following discloses the share ownership actually issued and outstanding.
Table B following Table A and its notes, discloses the existence and the
effect of certain management options, as if exercised, on the share ownership of
management and affiliates. Please refer to Executive Compensation, Item 6 of
this Part, for details as to entitlement, terms of exercise and prices for the
Options disclosed.
21
<PAGE>
TABLE A
COMMON STOCK
OFFICERS AND DIRECTORS AND OWNERS OF 5% OR MORE
<TABLE>
<CAPTION>
============================================================================================
Name and Address of Beneficial Owner Actual
Ownership %
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kevin Harrington Chairman and CEO 2,156,101 36.64
80 Gulf Blvd
Belleair Beach FL 33786
- --------------------------------------------------------------------------------------------
Tim Harrington President and COO 1,100,000 18.69
531 Rafael Blvd NE
St. Petersburg FL 33704
- --------------------------------------------------------------------------------------------
Mel Arthur, Executive Vice President 105,000 1.78
12001 9th St N #2509
St. Petersburg FL 33716
- --------------------------------------------------------------------------------------------
Karl Rodriguez Secretary 1,000 0.02
23592 Windsong #19E
Aliso Viejo CA 92656
============================================================================================
All Officers and Directors as a Group 3,362,101 57.13
============================================================================================
Total Shares Issued and Outstanding 5,885,271 100.00
============================================================================================
</TABLE>
As more fully developed, discussed and disclosed hereinafter, the following
discloses the amount of shares which each beneficial owner shown in Table A has
the right to acquire within 60 days, from options, warrants, rights, conversion
privileges or similar obligations: (1) Kevin Harrington-160,000 shares; (2) Tim
Harrington-140,000 shares; and (3) Mel Arthur-105,000 shares.
The following table, and its notes, discloses the existence and the effect
of all of certain management options, as if exercised, on the share ownership of
management and affiliates. These Options were granted June 30, 1999. The terms
of the vesting of the various options are somewhat complex. Please refer to
Executive Compensation, Item 6 of this Part, Table C, for details as to
entitlement, terms of exercise and prices for the Options disclosed.
TABLE B
<TABLE>
<CAPTION>
=============================================================================================================================
60 day Exercisable
Option/Bonus Rights Kevin Harrington Tim Harrington Mel Arthur
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensatory Stock 6 months: 60,000 6 months: 40,000 6 months: 5,000
Option Plan (See shares @ $2.50 shares @ $2.50 shares @ $2.50
Exhibit 6.2):
- -----------------------------------------------------------------------------------------------------------------------------
Revenue For each $10,000,000 For each $10,000,000 For each $10,000,000
Performance Stock in gross revenues, in gross revenues, in gross revenues,
Bonus issuance of 100,000 issuance of 100,000 issuance of 100,000
shares up to a total of shares up to a total of shares up to a total of
3,000,000 shares (no 2,000,000 shares (no 900,000 shares (no
more than 1/6 of total more than 1/6 of total more than 1/6 of total
to vest in any 6 month to vest in any 6 month to vest in any 6
period) period) month period)
=============================================================================================================================
</TABLE>
22
<PAGE>
These Compensatory Stock Options were granted June 30, 1999, are vested,
and exercisable January 1, 1999. These Revenue Performance Stock Bonuses are
dependent upon gross revenues. It is deemed likely that the $10,000,000.00
threshold will be reached within 60 days.
The following Table C discloses the effect of share ownership as if all of
the those 60 vestings and rights were exercised.
As more fully developed, discussed and disclosed hereinafter, the following
discloses the amount of shares which each beneficial owner shown in Table A has
the right to acquire within 60 days, from options, warrants, rights, conversion
privileges or similar obligations: (1) Kevin Harrington-160,000 shares; (2) Tim
Harrington- 140,000 shares; and (3) Mel Arthur-105,000 shares.
TABLE C
EFFECT OF OPTION EXERCISE ON SHARE OWNERSHIP
<TABLE>
<CAPTION>
========================================================================================================
Shares
Actual OPTIONS TOTAL IF
Option Owner and as % AND OPTIONS %
Attributed AWARDS EXERCISED
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kevin Harrington 2,156,101 36.64 160,000 2,316,101 36.82
- --------------------------------------------------------------------------------------------------------
Tim Harrington 1,100,000 18.69 140,000 1,240,000 19.71
- --------------------------------------------------------------------------------------------------------
Mel Arthur 105,000 1.78 105,000 210,000 3.34
========================================================================================================
Total Shares/Options 5,885,271 100.00 405,000 6,290,271 100.00
Outstanding
========================================================================================================
</TABLE>
(c) Changes in Control/Reverse Acquisition. There are no arrangements known to
Registrant, including any pledge by any persons, of securities of Registrant,
which may at a subsequent date result in a change of control of the Issuer. A
"reverse acquisition" is the acquisition of a private company by a public
company, by which the private company's shareholders acquired control of the
public company. This Issuer is presently committed to the development of its
infomercial business. While this Issuer is continuously interested in
opportunities for direct acquisition of products, projects, assets and possible
businesses, which may have some synergy with its core business, this Issuer may
not be used as a vehicle for a reverse acquisition.
- --------------------------------------------------------------------------------
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- --------------------------------------------------------------------------------
The following persons are the Directors of Registrant, having taken office
from the inception of the issuer, to serve until their successors might be
elected or appointed. The time of the next meeting of shareholders has not been
determined. Kevin Harrington and Tim Harrington took office August 7, 1998. Mel
Arthur took office January 20, 1999. The present four Directors were
elected/reelected by Majority Shareholder Action, on or about March 23, 1999,
and were confirmed and reelected at a regular meeting of Shareholders held on
May 3, 1999.
Kevin Harrington. 43, prior to his current tenure as Chairman and CEO of
Reliant Interactive Media, Kevin Harrington helped pioneer the growth and
acceptance of televised direct-response marketing, or what our culture more
commonly calls "infomercials." In fact, Harrington produced his first
infomercial in 1985, and then founded Quantum International, one of the most
successful companies in direct response history. Limited to a three-person staff
(which included his brother, Tim), Harrington turned a $25,000 investment into
sales of more $140 million in the company's first two years of operation. While
at the helm of Quantum, Harrington launched a string of highly-profitable
23
<PAGE>
shows featuring such universally popular products as The Great Wok of China,
Wolfman Jack's Solid Gold Rock 'n Roll Hits (the first ever music infomercial),
The JetStream Oven, The Daily Mixer, Ginsu/The Blade Knives, Kevin Trudeau's
Mega Memory and The Flying Lure (the industry's first fishing lure show). In
1989, Harrington started the expansion of direct-response television into more
than 30 foreign markets. In 1991, Quantum was sold to industry giant National
Media. As a result of this transaction, Harrington ascended to the presidency of
National, where he presided over the launch of another string of a blockbuster
shows, including Bruce Jenner's Stair Climber, Bruce Jenner's Super Step, Bruce
Jenner's Powerwalk, Blue Coral's Autofoam and Regal Royal Diamond Cookware. In
July, 1994, Harrington left National Media to form joint venture company with
The Home Shopping Network. Called HSN Direct International, the aim of the
venture was to develop an infomercial company that could take products that had
performed successfully on HSN and roll them out into traditional infomercial
formats for broadcast around the world. The high-profile domestic and foreign
successes of HSN Direct include shows such as Tony Little's Ab Isolator; Sweet
Simplicity, a hair removal product; and Kathy Smith's AirTech Glider. HSN Direct
also forged a number of ground- breaking alliance with international marketers
in countries throughout Europe, Latin America, Asia and the Middle East.
Eventually, the company saw its shows broadcast in some 70 countries around the
world. In August of 1998, Harrington was appointed Chairman and CEO of Reliant
Interactive Media Corp., (OTC BB: RIMC). Kevin Harrington is a founding Board
member Electronic Retailing Association, an industry association.
Tim Harrington. 34, prior to his current tenure as President and COO of
Reliant Interactive Media, Tim Harrington worked in close concert with his
brother pioneering the growth of the infomercial industry into an accepted means
of driving both direct and retail sales. Through his primary focus on the
details of legal, contractual and production matters. He continued in that role
as the executive vice-president of National Media, also picking up executive
responsibility for the firm's marketing and sales departments. As the co-founder
and executive vice-president of HSN Direct International, Tim exercised
executive control and leadership over product development and marketing groups
that generated approximately $30 million in annual sales. HSN Direct's solid
production values and media-buying savvy are directly attributed to his
leadership of those two key areas. In his current role as president of Reliant,
Tim is more involved than ever in over-seeing the infomercial production and
product development activities for the Company.
Mel Arthur. 56, prior to his current tenure as Executive Vice President and
Director of Reliant Interactive Media, Mr. Arthur was the "Top Producing show
host," producing approximately a billion dollars in revenues while on the air
during his eight-year career with Home Shopping Network, and was acknowledged in
the industry as one of the most versatile hosts on the air. His expertise ranges
from computers, fine jewelry, oriental rugs, exercise equipment, home
electronics, vitamins, health and fitness to collectibles and more. Mr. Arthur
achieved record sales, including almost 3 million dollars sold in computers, in
less than 30 minutes. He has appeared with some of the top celebrities on
television and in sports, such as Vanna White, Barbara Mandrel, Ed McMahon,
Mickey Mantle, Ted Williams, Willie Mays, and Jim Brown, just to name a few. His
business experience is highlighted by a six-year career as a sportscaster and
color announcer for the USFL, NASL, the Jacksonville University Basketball Team,
and he was the force behind the first half hour magazine shows emanating from
PGA Tour Headquarters and The Tournament Player's Championship. Mel was voted
Jacksonville's Most Popular radio personality. Mr. Arthur was President of his
own insurance agency for three years; was a leader in the telecommunications
industry for eight years between 1972 and 1980 as a pioneer in the telephone
interconnect industry; and between 1970 and 1972 he was one of the top sales
producers for Honeywell's EDP division, marketing large scale,
multimillion-dollar mainframe computers. From 1962 through 1970, Mel starred all
over the United States, Canada, Europe and the Caribbean as a stand-up comedian,
as well as writing for other stand-up comedians such as Jackie Mason and Gabe
Kaplan.
24
<PAGE>
Karl E. Rodriguez, 52, the Company's Secretary, received his Juris Doctor
degree in 1972 from Louisiana State University Law School. He has practiced
business and corporate law since 1972, emphasizing securities and entertainment
matters, and has been self-employed in that capacity for the past five years. He
has served as a director of Oasis Entertainment's Fourth Movie Project, Inc.,
since April 1998. During his law practice he has also been involved in a variety
of dynamic business experiences. From 1975 to 1982, he was active in real estate
development in the Baton Rouge, Louisiana area. From 1980 until 1985, he
specialized in the sale of businesses and franchises as the owner and operator
of VR Business Brokers. In 1986, he became the Project Manager for Bluffs
Limited Partnership, where he structured the development of an Arnold Palmer
Design Golf Course and in 1992, Mr. Rodriguez was the Managing Director for
MedAmerica, LLC., medicine clinics for children. From 1993 through 1998, he was
the Director, Corporate Secretary and General Counsel for Telco Communications,
Inc., which is a long distance reseller company. From 1992 until 1996, he was
the President of Healthcare Financial and Management Services, Inc., providing
billing services to three Louisiana hospitals.
- --------------------------------------------------------------------------------
Item 6. Executive Compensation.
- --------------------------------------------------------------------------------
The Company has entered into Employment Agreements with Kevin Harrington
and Tim Harrington for 5 years and with Mel Arthur for 3 years. (See Exhibits
6.1, 6.2 and 6.3 "Employment Agreements"). The Company's Officers and Directors
serve with the following elements of compensation at this time:
Summary Compensation Table. the disclosure of Executive compensation is now
provided in the tabular form required by the Securities and Exchange Commission,
pursuant to Regulation ss. 228.402.
<TABLE>
<CAPTION>
-----------------------------------------------
Long Term Compensation
--------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------------------------------
a b c d e f g h i
Securi-
Other Restric- ties All Other
Name Annual ted Under- Compen-
and Compen- Stock lying LTIP sation
Principal Salary Bonus sation ($) Awards Options Payouts ($)
Position Year ($) ($) ($) SARs (#) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 120,000 (d)(1) 0 (f)(1) (g)(1) (h)(1) 0
Kevin
Harrington
CEO (1)
-----------------------------------------------------------------------------------------------------------------
1998 10,000 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------
1997 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
1999 96,000 (d)(2) 0 (f)(2) (g)(2) (h)(2) 0
Tim Harrington
COO (2)
-----------------------------------------------------------------------------------------------------------------
1998 8,000 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------
1997 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
1999 41,500 0 0 175.000 100,000 (h)(3) 0
Mel Arthur (f)(3) (g)(3)
VP (3)
-----------------------------------------------------------------------------------------------------------------
1998 0 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------
1997 0 0 0 0 0 0 0
====================================================================================================================================
</TABLE>
25
<PAGE>
Notes to Table:
(d)(1)(2)(3) Bonuses are based on 0.009% (Kevin Harrington), 0.006% (Tim
Harrington) and none (Mel Arthur), all of Adjusted Gross Revenues for 1999.
These year end figures have not yet been calculated. The amount of bonuses is
expected to take Tim Harrington (2) over $100,000. It is not expected to take
Mel Arthur (3) to that level. Information respecting Mr. Arthur is included
voluntarily for the reason that these three are the only highly compensated
employees expected to remain so in the future.
(f)(1)(2)(3) / (g)(1)(2)(3) / (h)(1)(2)(3) Again, these restricted stock awards
for 1999 cannot be determined until completion of 1999 audit. Mel Arthur was
awarded restricted stock in advance, but may be entitled to further award, based
on final 1999 results.
Additional Discussion.
Kevin Harrington is scheduled to receive $10,000.00 monthly (which is
$120,000.00 annually), and Tim Harrington is scheduled to receive $8,000.00,
monthly (which is $96,000.00 annually), respectively, as a base, with overrides
of 9/10 of 1% for Kevin Harrington and 6/10 of 1% for Tim Harrington of
"ADJUSTED GROSS REVENUES" as hereinafter defined. Mel Arthur is scheduled to
receive $3,500 per month.
Officers have deferred and are deferring a substantial portion of their
accrued compensation pending increased corporate liquidity and profitability.
The Company pays 100% of a medical insurance plan for the three officers above
mentioned, and life insurance for Kevin Harrington. Karl Rodriguez, serves
without compensation from the Issuer.
No other executive officer has received or is entitled to receive
compensation for any service to this Small Business Issuer, during 1997, 1998 or
1999.
================================================================================
1999 through Dec 31 Accrued $ Paid $ Deferred $
- --------------------------------------------------------------------------------
Kevin Harrington 120,000.00 0 120,000.00
- --------------------------------------------------------------------------------
Tim Harrington 96,000.00 5,000 91,000.00
- --------------------------------------------------------------------------------
Mel Arthur 41,500.00 8,125 33,375.00
- --------------------------------------------------------------------------------
Karl Rodriguez 0 0 0
================================================================================
As previously indicated, certain unexercised options and bonuses, are
disclosed in detail in Table D, following.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
26
<PAGE>
TABLES D AND E
OPTIONS, AWARDS AND BENEFITS
The Company has provided certain additional bonuses, incentives and
benefits for Kevin Harrington, Tim Harrington and Mel Arthur, all pursuant to
ss.4(2) of the 1933 Securities Act, as follows. First the compensatory option
plan. No options have been exercised.
<TABLE>
<CAPTION>
====================================================================================================================================
Date Number of
Optionee Date of Grant Exercisable Expiration Date Exercise Price Options
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kevin Harrington 60,000
30 June 99 30 Dec 99 30 June 04 $2.50
- ------------------------- ----------------
Tim Harrington 40,000
- ------------------------- ----------------
Mel Arthur 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin Harrington 60,000
30 June 99 30 June 00 30 June 04 $4.00
- ------------------------- ----------------
Tim Harrington 40,000
- ------------------------- ----------------
Mel Arthur 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin Harrington 60,000
30 June 99 30 Dec 00 30 June 04 $6.00
- ------------------------- ----------------
Tim Harrington 40,000
- ------------------------- ----------------
Mel Arthur 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin Harrington 60,000
30 June 99 30 June 01 30 June 04 $7.50
- ------------------------- ----------------
Tim Harrington 40,000
- ------------------------- ----------------
Mel Arthur 5,000
====================================================================================================================================
</TABLE>
The foregoing options are carried in the following table as "Compensatory
Option Plan".
<TABLE>
<CAPTION>
=============================================================================================================================
Additional Bonuses,
Incentives/Benefits Kevin Harrington Tim Harrington Mel Arthur
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6 months: 60,000 6 months: 40,000 6 months: 5,000
Compensatory Stock shares @ $2.50 shares @ $2.50 shares @ $2.50
Option Plan
(See previous table)
(See Exhibit 6.2):
-----------------------------------------------------------------------------------------------
12 months: 60,000 12 months: 40,000 12 months: 5,000
shares @ $4.00 shares @ $4.00 shares @ $4.00
-----------------------------------------------------------------------------------------------
18 months: 60,000 18 months: 40,000 18 months: 5,000
shares @ $6.00 shares @ $6.00 shares @ $6.00
-----------------------------------------------------------------------------------------------
24 months: 60,000 24 months: 40,000 24 months: 5,000
shares @ $7.50 shares @ $7.50 shares @ $7.50
- -----------------------------------------------------------------------------------------------------------------------------
Revenue For each $10,000,000 For each $10,000,000 For each $10,000,000
Performance Stock in gross revenues, in gross revenues, in gross revenues,
Bonus issuance of 100,000 issuance of 100,000 issuance of 100,000
shares up to a total of shares up to a total of shares up to a total of
3,000,000 shares (no 2,000,000 shares (no 900,000 shares (no
more than 1/6 of total more than 1/6 of total more than 1/6 of total
to vest in any 6 month to vest in any 6 month to vest in any 6
period) period) month period)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Stock Trading Purchase 144,000 Purchase 100,000 Purchase 12,500
Performance Stock shares if trading at shares if trading at shares if trading at
Options @ $7.50 per $15; 144,000 shares if $15; 100,000 shares if $15; 12,500 shares if
share trading at $20; trading at $20; trading at $20; 15,000
192,000 shares if 120,000 shares if shares if trading at
trading at $25. trading at $25. $25.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life, Health &
Disability Insurance Yes Yes Yes
- --------------------------------------------------------------------------------------------------------------
Automobile $1,000/month $750/month $500/month
==============================================================================================================
</TABLE>
The first group of Options exercisable December 31, 1999 have vested. None
of the options have been exercised. Revenue Performance Stock Bonuses are
believed to have been earned or will be earned in early 2000. No Stock Trading
Performance Options have been earned, or are likely to be earned in the next six
months; however options based on market performance are speculative and subject
to uncontrollable market forces. No one can predict nor should predict how the
market will respond to our common stock.
- --------------------------------------------------------------------------------
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------------------------------
Kevin and Tim Harrington are brothers and officers and directors of our
Company. Both of them are the owners of business interests acquired by this
Company; namely, Kevin Harrington Enterprises (Kevin Harrington), and Cigar
Television Network (Tim Harrington).
We acquired TPH Marketing, Inc., in a tax-free exchange, for the issuance
of 1,500,000 [post- reverse] shares of this Company's common stock. The Shares
have been issued to the two shareholders of TPH Marketing, Inc., Tim Harrington
having received 800,000 shares, and Kevin Harrrington having received 700,000
shares.
Karl Rodriguez serves as secretary and general counsel of Oasis Fourth
Movie Project, Inc., engaged in business with the Company, in the film and video
tape production industry. The Ownership and Management of Oasis is otherwise
unrelated to the ownership and management of this Issuer.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
28
<PAGE>
- --------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------
Item 1.
Market Price of and Dividends on Registrant's Common Equity
and Shareholder Matters Equity.
- --------------------------------------------------------------------------------
(a) Market Information. The Common Stock of this Issuer is quoted Over the
Counter on the Bulletin Board ("OTC BB"). There was no substantial market
activity before December 1998. Based upon standard reporting sources, the
following information is provided:
================================================================================
PERIOD HIGH BID LOW BID PERIOD HIGH BID LOW BID
- --------------------------------------------------------------------------------
1st 1998 0.44 0.22 1st 1999 1.69 0.72
- --------------------------------------------------------------------------------
2nd 1998 0.56 0.19 2nd 1999 (1) 10.00 5.50
- --------------------------------------------------------------------------------
3rd 1998 1.75 0.63 3rd 1999 (1) 7.50 2.00
- --------------------------------------------------------------------------------
4th 1998 1.68 0.60
================================================================================
(1) These last two figures have been adjusted, for comparative purposes, as if
the most recent 5 to 1 Reverse had not taken place.
The foregoing price information is based upon inter-dealer prices without
retail mark-up, mark-down or commissions and may not reflect actual
transactions.
(b) Holders. 128
(c) Dividends. No dividends have been paid by the Company on its Common Stock or
other Stock and no such payment is anticipated in the foreseeable future.
- --------------------------------------------------------------------------------
Item 2. Legal Proceedings.
- --------------------------------------------------------------------------------
There are no proceedings, legal, enforcement or administrative, pending,
threatened or anticipated involving or affecting this Issuer, except as
disclosed herein. The Registrant has been named as a defendant in California
state court action seeking damages for rent based upon an oral lease/agreement.
Management has cross-complained against certain third parties believed to be
responsible. Management intends to defend this action vigorously and does not
consider this action to be meritorious, as against it, or a significant
financial exposure to it in any case.
- --------------------------------------------------------------------------------
Item 3. Changes in and Disagreements with Accountants.
- --------------------------------------------------------------------------------
There have been no disagreements of any sort or kind with Auditors or
Accountants respecting any matter or item reflected in the financial statements
of this Issuer.
29
<PAGE>
- --------------------------------------------------------------------------------
Item 4. Recent Sales of Unregistered Securities.
- --------------------------------------------------------------------------------
The following disclosure is provided of sales and placements of
unregistered securities, for the past three years. There having been two
historical reverse splits, all numbers represent the after and current condition
and coordinate with the issuer's financial statements.
During 1998, the Issuer acquired Reliant Corporation (a.k.a. Kevin
Harrington Enterprises) and Cigar Television Network for the issuance of a total
of 570,400 shares of common stock. Kevin and Tim Harrington are brothers and are
officers and directors of this Issuer. Both of them are the owners of business
interests acquired by this Company; namely, Kevin Harrington Enterprises (Kevin
Harrington and Tim Harrington), and Cigar Television Network (Kevin Harrington).
These shares were issued pursuant to ss.4(2) of the Securities Act of 1933.
During 1998, the issuer placed a total of 329,770 (post-reverse) shares of
common stock to sophisticated investors, for cash totaling $513,500. These
shares were issued pursuant to Regulation D, Rule 504, promulgated by the
Commission pursuant to ss.3(b) of the Securities Act of 1933. These investors
had pre-existing relationships with the Company, and had access, by virtue of
those relationships to the kind of information which registration would have
provided.
Also during 1998, the issuer issued a total 103,800 (post-reverse) shares
to and among 29 service providers, for services to the issuer, valued at
$129,750 ($1.25 post-reverse, $0.25 pre-reverse, per share). These shares were
issued pursuant to ss.4(2) of the Securities Act of 1933.
In January of 1999, the company issued 236,000 shares of common stock for
cash and services as follows: Fortune Marketing, 105,000 shares, for public
relations services; Michael Barclay, 100,000 shares for consulting services;
Coffin Communications, 20,000 shares, for consulting services; Tony Hyman, 5,000
shares, for talent services; and David Gray, 100,000 shares, for $25,000.00
cash. The issuances for services were valued at $1.00 per share. Mr. Gray is a
sophisticated investors with pre- existing relationships with the Company,
having access, by virtue of those relationships to the kind of information which
registration would have provided.
On or about February 23, 1999, the Company received $330,000.00, from six
highly sophisticated investors, specifically targeted to infomercial production.
In consideration of this investment, the investors received an aggregate of
1,000,000 shares of restricted common stock of the Company. In addition,
addition to acquiring those shares, the investors will receive certain special
royalties described in Item 2 of Part I, MANAGEMENT'S DISCUSSION AND ANALYSIS.
The circumstances of the special investment are described as follows. Kevin
Harrington, the President of this Registrant, knowing of the Registrant's need
for funds approached the former President, Kent Rainey, as one somewhat familiar
with the Registrant Company, to provide information about the Registrants
current plan and operations, and to solicit his interest in interesting a small
group of investors to help out. The other five investors were introduced by Kent
Rainey. Three of the investors were already non-affiliate shareholders of the
Registrant. The Registrant is aware of no facts to suggest that these investors
are affiliates of each other in any material way, other than as mentioned.
The Company made an agreement in April with Oasis Entertainment's Fourth
Movie Project, Inc. (a related party transaction) to provide funding in the
amount of $250,000.00 for use in the production of three additional
infomercials. Oasis is to receive 250,000 shares of common stock upon completion
of the funding in April, plus a royalty of 2% of the adjusted gross revenues
derived on all products designated in the agreement until Oasis has been paid
$625,000.00, and thereafter 1% thereof in perpetuity. This transaction is deemed
to be a related party for the reason that, and only for the reason that, Karl
Rodriguez is the fourth Director of this registering Company and is also
Secretary and a
30
<PAGE>
Director of Oasis Entertainment's Fourth Movie Project, Inc. The right to
receive these shares has vested, these shares have not been issued as of this
date.
On or about February 18, 1999, the Issuer compensated Concept TV
Productions with 15,000 shares of common stock, pursuant to ss.4(2) of the 1933
Act, for production services valued at $1.00 per share.
On or about March 10, 1999, Earl Greenberg, a sophisticated investor and
the president of the Electronics Retailers Association, a trade group for
infomercial companies, purchased 100,000 new investment shares of common stock,
pursuant to ss.4(2) of the 1933 Act, for $25,000.00. Kevin Harrington having
been associated with that association, the purchaser had a pre-existing
relationship with the Company, and had access, by virtue of that relationship to
the kind of information which registration would have provided.
On or about March 10, 1999, Lee Robinson, a sophisticated investor and the
owner of Robinson Realty of Cincinnati, Ohio, as a personal friend of Kevin
Harrington, purchased 40,000 new investment shares of common stock, pursuant to
ss.4(2) of the 1933 Act, for $25,000.00. The purchaser had a pre-existing
relationship with the Company, and had access, by virtue of that relationship to
the kind of information which registration would have provided.
About March 23, 1999, we acquired TPH Marketing, Inc., in a tax-free
exchange, for the issuance of 1,500,000 [post-reverse] shares of the Company's
common stock. The Shares have been issued to the two shareholders of TPH
Marketing, Inc., Tim Harrington having received 800,000 shares, and Kevin
Harrington having received 700,000 shares. The shares were valued at the most
recent cash price of the stock which was $0.50 per share. There were no
operations by TPH Marketing Inc., prior to the acquisition, the Company was
mainly purchasing the services of the President and that is why the excess of
the purchase price over the net book value of the TPH is being charged to
operation expense. The business acquired in 1999, TPH Marketing, Inc., does not
qualify as a "significant subsidiary" because it had no revenues or assets prior
to acquisition. Shares issued for acquisition were issued pursuant to Rule 145,
and ss.4(2) of the Securities Act of 1933.
On or about April 1, 1999, the Issuer compensated Lifestyle Marketing with
40,000 shares of common stock, pursuant to ss.4(2) of the 1933 Act, for the
acquisition of production services valued at $1.00 per share.
On or about April 1, 1999, and before the effective changes to Rule 504,
three highly sophisticated investors purchased 600,000 additional shares of
common stock, for cash totalling $300,000. These investors had pre-existing
relationships with the Company, and had access, by virtue of those relationships
to the kind of information which registration would have provided.
On or about April 28, 1999, 4,000 new investment shares of common stock
were issued to Coffin Communications for public relations and investor services
valued at $1.00 per share.
On or about April 28, 1999, 1,000 new investment shares of common stock
were issued to Buzz Nofal for Y2K infomercial services valued at $1.00 per
share.
On or about April 28, 1999, 500 new investment shares of common stock were
issued for miscellaneous Y2K infomercial services valued at $1.00 per share.
All of the foregoing "New Investment Shares" were issued pursuant toss.4(2)
31
<PAGE>
- --------------------------------------------------------------------------------
Item 5. Indemnification of Officers and Directors.
- --------------------------------------------------------------------------------
The following indemnification provision is contained in the Employment
Agreements (See Exhibit 6.1) of Kevin Harrington, Tim Harrington and Mel Arthur:
"Indemnification. Employer shall indemnify Employee and hold Employee
harmless from liability for acts or decisions made by Employee while performing
services for Employer to the greatest extent permitted by applicable law.
Employer shall use its best efforts to obtain coverage for Employee under any
insurance policy now in force or hereafter obtained during the term of this
Agreement insuring officers and directors of Employer against such liability."
Karl Rodriguez has no Employment Agreement and no indemnification from the
Company.
32
<PAGE>
- --------------------------------------------------------------------------------
PART F/S
- --------------------------------------------------------------------------------
Financial Statements
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS PAGE
- --------------------------------------------------------------------------------
F-1 AUDITED FINANCIAL STATEMENTS: for the Years Ended
December 31, 1998 and 1997 F-1
** Plese refer to the previous filing (the 10-SB-A1) for all of the above-listed
exhibits, which are incorporated herein by this reference **
- --------------------------------------------------------------------------------
F-2 UNAUDITED FINANCIAL STATEMENTS: for the Nine Months Ended F-14
September 30, 1999 and the Year ended December 31, 1998
================================================================================
33
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
34
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1999 1998
------------- -----------
(Unaudited)
CURRENT ASSETS
Cash $ 189,025 $ 122,257
Accounts receivable, net 797,686 --
Inventory 104,459 27,342
Prepaids 100,000 --
Employee advances 9,610 --
----------- -----------
Total Current Assets 1,200,780 149,599
----------- -----------
PROPERTY AND EQUIPMENT
Machinery and equipment 25,925 25,925
Office furniture and equipment 45,292 45,292
----------- -----------
Total Property and Equipment 71,217 71,217
Less accumulated depreciation (18,286) (10,258)
----------- -----------
Net Property and Equipment 52,931 60,959
----------- -----------
OTHER ASSETS
Deposits -- 12,773
Other assets 20,000 --
Prepaid advertising 1,537,387 85,302
Patent and trademark costs 26,668 26,668
----------- -----------
Total Other Assets 1,584,055 124,743
----------- -----------
TOTAL ASSETS $ 2,837,766 $ 335,301
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
35
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,019,575 $ 73,192
Accrued expenses 43,516 5,418
Payable - related parties 96,952 --
Notes payable - related parties, current portion 500,000 --
Notes payable, current portion 40,000 40,000
----------- -----------
Total Current Liabilities 1,700,043 118,610
----------- -----------
LONG-TERM DEBT
Notes payable - related parties 87,500 87,500
----------- -----------
Total Long-Term Debt 87,500 87,500
----------- -----------
TOTAL LIABILITIES 1,787,543 206,110
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $0.001
par value, 6,135,440 and 3,373,570 shares issued
and outstanding, respectively 6,135 3,374
Additional paid-in capital 3,157,724 1,359,985
Accumulated deficit (2,113,636) (1,234,168)
----------- -----------
Total Stockholders' Equity 1,050,223 129,191
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,837,766 $ 335,301
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
36
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 5,918,342 $ 31,125 $ 9,155,832 $ 91,243
COST OF GOODS SOLD 817,272 17,223 1,331,677 50,551
----------- ----------- ----------- -----------
GROSS MARGIN 5,101,070 13,902 7,824,155 40,692
----------- ----------- ----------- -----------
OPERATING EXPENSES
Depreciation 2,676 1,657 8,028 4,971
Bad debt expense 948 -- 18,358 --
General and administrative 1,299,014 176,696 3,396,841 508,088
Research and development 10,465 9,621 40,620 30,345
Production and media costs 2,778,243 -- 4,301,954 --
Marketing 585,515 127,211 860,510 203,721
Rent 15,205 10,917 45,157 35,031
----------- ----------- ----------- -----------
Total Operating Expenses 4,692,066 326,102 8,671,468 782,156
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 409,004 (312,200) (847,313) (741,464)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest expense (12,450) (3,159) (32,511) (7,675)
Interest income 261 102 356 102
----------- ----------- ----------- -----------
Total Other Income (Expenses) (12,189) (3,057) (32,155) (7,573)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 396,815 (315,257) (879,468) (749,037)
INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 396,815 $ (315,257) $ (879,468) $ (749,037)
=========== =========== =========== ===========
BASIC INCOME (LOSS) PER SHARE $ 0.07 $ (0.11) $ (0.17) $ (0.30)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,815,222 2,817,235 5,207,545 2,520,451
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
37
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 2,369,600 $ 2,370 $ 377,719 $ (99,255)
Capital contributions, 1998 -- -- 340,020 --
Common stock issued in recapitalization
of Reliant Corporation 570,400 570 (570) --
Common stock issued for cash at an
average price of $1.56 per share 329,770 330 513,170 --
Common stock issued for services
valued at $1.25 per share 103,800 104 129,646 --
Net loss for the year ended
December 31, 1998 -- -- -- (1,134,913)
----------- ----------- ----------- -----------
Balance, December 31, 1998 3,373,570 3,374 1,359,985 (1,234,168)
Common stock issued for cash at an
average price of $0.86 per share
(unaudited) 1,098,000 1,098 938,902 --
Common stock issued for services
valued at $1.15 per share (unaudited) 43,700 43 50,457 --
Fractional shares issued in the reverse
stock split (unaudited) 170 -- -- --
Common stock issued for services
valued at $0.50 per share (unaudited) 100,000 100 49,900 --
Common stock issued for investment
in Tony Little Website at $0.50 per
share (unaudited) 20,000 20 9,980 --
Common stock issued for acquisition
of TPH Marketing, Inc. valued at
$0.50 per share (unaudited) 1,500,000 1,500 748,500 --
Net loss for the nine months ended
September 30, 1999 (unaudited) -- -- -- (879,468)
----------- ----------- ----------- -----------
Balance, September 30, 1999
(unaudited) 6,135,440 $ 6,135 $ 3,157,724 $(2,113,636)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
38
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ 396,815 $ (315,257) $ (879,468) $ (749,037)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation 2,676 1,657 8,028 4,971
Amortization of prepaid advertising 99,952 -- 145,626 --
Bad debt 948 -- 18,358 --
Loss on impairment -- -- 750,000 --
Common stock issued for services 50,000 -- 100,500 --
Changes in assets and liabilities:
Accounts receivable 249,041 -- (816,044) --
Prepaids and advances (108,560) -- (109,610) --
Inventory (30,146) -- (77,117) --
Deposits -- 2,909 12,773 12,773
Prepaid expenses (1,185,327) -- (1,597,711) --
Other assets (10,000) -- (10,000) --
Cash overdraft (91,647) -- -- --
Accounts payable 457,600 18,520 946,383 55,100
Accrued expenses (381) -- 38,098 --
----------- ----------- ----------- -----------
Net Cash Used in Operating
Activities (169,029) (292,171) (1,470,184) (676,193)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Patent and trademark costs -- -- -- (26,668)
----------- ----------- ----------- -----------
Net Cash Used in Investing Activities -- -- -- (26,668)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from notes payable 358,054 -- 596,952 --
Proceeds from issuance of common
stock -- 95,000 940,000 195,000
Proceeds from additional capital
contribution -- 89,140 -- 340,020
----------- ----------- ----------- -----------
Net Cash Provided by Financing
Activities $ 358,054 $ 184,140 $ 1,536,952 $ 535,020
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
39
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 189,025 $(108,031) $ 66,768 $(167,841)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- 150,195 122,257 210,005
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 189,025 $ 42,164 $ 189,025 $ 42,164
========= ========= ========= =========
Cash Payments For:
Income taxes $ -- $ -- $ -- $ --
Interest $ 12,450 $ -- $ 32,511 $ --
Non-Cash Financing Activities:
Common stock issued for services $ 50,000 $ -- $ 100,500 $ --
Common stock issued for other assets $ 10,000 $ -- $ 10,000 $ --
Common stock issued for subsidiary $ -- $ -- $ 750,000 $ --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
40
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at
September 30, 1999 and 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 1998 audited consolidated financial statements. The
results of operations for periods ended September 30, 1999 and 1998 are not
necessarily indicative of the operating results for the full years.
NOTE 2 - REVERSE STOCK SPLIT
On March 23, 1999, the Company completed a reverse stock split on a 1 share
for 5 share basis. No shareholder was reduced to less than 100 shares. All
references to shares issued and outstanding have been restated to reflect
the reverse stock split.
NOTE 3 - COMMON STOCK TRANSACTIONS
During the first quarter of 1999, the Company sold 248,000 post-split
shares (1,240,000 pre-split shares) of its common stock for $390,000 or an
average price of $1.57 per share ($0.31 per share pre-split). The Company
also issued 38,200 post-split shares (191,000 pre-split shares) of its
common stock for services rendered, valued at $47,750 or $1.25 per share
($0.25 per share pre-split). The shares were valued at the market price of
the stock at the time of issuance.
During the second quarter of 1999, the Company sold 600,000 shares of its
common stock for $300,000 or $0.50 per share. In addition, the Company sold
250,000 shares of its common stock to a related company for $250,000 or
$1.00 per share. The Company also issued 5,500 shares of its common stock
for services rendered, valued at $2,750 or $0.50 per share, the market
price of the stock at the time of issuance.
During the third quarter of 1999, the Company issued 100,000 shares of its
common stock for services rendered, valued at $50,000 or $0.50 per share,
the market price of the stock at the time of issuance.
On May 26, 1999, the Company purchased a fifty-one percent (51%) interest
in the Tony Little Web Site. The Company paid $10,000 cash and issued
20,000 post-split shares of common stock. The stock was valued at $10,000
or $0.50 per share, the market price of the stock at the time of issuance.
41
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 3 - COMMON STOCK TRANSACTIONS (Continued)
On May 3, 1999, the Company acquired TPH Marketing, Inc. (TPH). The Company
acquired 100% of TPH and TPH became a wholly-owned subsidiary. The Company
issued 1,500,000 post-split shares of its common stock in the acquisition.
The shares were valued at $750,000 or $0.50 per share, the market price of
the stock at the time of the acquisition. The acquisition is accounted for
as a combination under the purchase method of accounting with acquired
assets and liabilities recorded at their fair market values resulting in
goodwill of $750,000 since TPH had no assets and liabilities at the date of
acquisition.
The resulting goodwill is being written off in the first quarter of 1999
with a charge to operating expenses in the amount of $750,000. Activity
from the date of acquisition to September 30, 1999 has been included in the
statement of operations.
NOTE 4 - OUTSTANDING STOCK OPTIONS
The following summarizes the date exercisable, expiration date and exercise
price of the Company's outstanding options to purchase common stock at
September 30, 1999.
Date Exercisable Expiration Date Exercise Price Number
---------------- --------------- -------------- ------
December 30, 1999 June 30, 2004 $ 2.50 105,000
June 30, 2000 June 30, 2004 $ 4.00 105,000
December 30, 2000 June 30, 2004 $ 6.00 105,000
June 30, 2001 June 30, 2004 $ 7.50 105,000
---------
Total Options Outstanding 420,000
=========
The options were granted as compensation and additional bonuses to certain
officers of the Company. These options were issued with an exercise price
above the market value of the stock at the date of issuance.
NOTE 5 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" requires disclosure of the fair value
of financial instruments held by the Company. SFAS 107 defines the fair
value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties. The
following methods and assumptions were used to estimate fair value:
The carrying amount of cash equivalents, accounts receivable and accounts
payable approximate fair value due to their short-term nature.
42
<PAGE>
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Item 1. Index to Exhibits.
- --------------------------------------------------------------------------------
Exhibit Index
<TABLE>
<CAPTION>
============================================================================================
# Table Category / Description of Exhibit Page
- --------------------------------------------------------------------------------------------
<S> <C>
[2] ARTICLES/CERTIFICATES OF INCORPORATION, BY-LAWS AND MINUTES
- --------------------------------------------------------------------------------------------
2.0 ARTICLES OF INCORPORATION of the Issuer: Reliant Interactive Media Corp. 59
(a Nevada Corporation)
- --------------------------------------------------------------------------------------------
2.1 ARTICLES OF AMENDMENT: Reliant Corporation. 62
- --------------------------------------------------------------------------------------------
2.2 BY-LAWS 70
- --------------------------------------------------------------------------------------------
[6] MATERIAL CONTRACTS
- --------------------------------------------------------------------------------------------
6.0 PLAN OF REORGANIZATION AND MERGER FOR CHANGE OF SITUS: Utah to Nevada, 80
March 15, 1999
- --------------------------------------------------------------------------------------------
6.1 EMPLOYMENT AGREEMENT: Kevin Harrington 83
- --------------------------------------------------------------------------------------------
6.2 EMPLOYMENT AGREEMENT: Tim Harrington 97
- --------------------------------------------------------------------------------------------
6.3 EMPLOYMENT AGREEMENT: Mel Arthur 110
- --------------------------------------------------------------------------------------------
6.4 COMPENSATORY STOCK OPTION PLAN 123
- --------------------------------------------------------------------------------------------
</TABLE>
** Plese refer to the previous filing (the 10-SB-A1) for all of the above-listed
exhibits, which are incorporated herein by this reference **
43
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to signed on its behalf by the undersigned, thereunto
authorized.
Reliant Interactive Media Corp
formerly Reliant Corporation
by
/s/ /s/
- ------------------------------ ----------------------------------------
Kevin Harrington Tim Harrington
CHAIRMAN AND CEO/DIRECTOR PRESIDENT AND
COO/DIRECTOR
/s/ /s/
- ----------------------------- ----------------------------------------
Mel Arthur Karl E. Rodriguez
EXECUTIVE VICE SECRETARY/DIRECTOR
PRESIDENT/DIRECTOR
44
