87
87
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB-A3
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant To Section 12(g) of the Securities Exchange Act of 1934
Reliant Interactive Media Corp.
formerly Reliant Corporation
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
April 7, 2000
The EXHIBIT INDEX is located at Page 85 of this Registration Statement
1
<PAGE>
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-A3, is
the Registrant's initial public financial report filing with the Securities and
Exchange Commission.
PART I
Item 1. Business: SB 101
Item 1. Description of Business.
(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.
<TABLE>
<CAPTION>
<S> <C>
Issued before 1998 570,400
Issued in 1998 2,803,170
Issued in 1999 (through Sept. 30) 2,761,870
Total Issued and Outstanding 6,135,440
================================= =========
</TABLE>
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
2
<PAGE>
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 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;
3
<PAGE>
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 Section 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
4
<PAGE>
permitting 30-minute blocks of television advertising. In fact, Kevin
Harrington, the Issuer's CEO produced his first infomercial in 1985, and 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.
CEOP5
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
5
<PAGE>
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 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
6
<PAGE>
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.
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
lifestylemall.com cigar.com rimc.com
Users/6 months 19,545 8,875 133,348
Average Users Daily 107 48 732
Hits/6 months 187,086 120,005 1,404,238
Average Hits Daily 1,031 659 7,715
=================== ================= ========= =========
</TABLE>
The Cigar Television Network is a wholly-owned subsidiary of Reliant. This
subsidiary has transferred its two primary business activities to us to operate.
7
<PAGE>
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 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.
CEOP 5
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
8
<PAGE>
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, 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
9
<PAGE>
additional inventory for roll-out of the product. The skill of management is
extremely important in the area of building inventory to anticipate 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 dependence 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
<PAGE>
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 and creates an intermittent
signal in the wiring that drives 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
12
<PAGE>
line of vitamin and energy 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 received 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 were
authorized in March of 1999, but not issued formally until March of 2000, due to
inadvertence and oversight only. These shares are treated as if formally issued,
when they should have been formally issued, for purposes of accurate income per
share calculations. 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.
Although Mr. Rodriguez is a director of both our corporation and Oasis
Entertainment's Fourth Movie Project, Inc., and although the transaction is
deemed a related-party transaction for that reason, Mr. Rodriguez has no
financial interest in the Oasis funding arrangement and is not a shareholder of
Oasis. He serves as its Secretary and General Counsel only.
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,
14
<PAGE>
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 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 was to be completed by March 31, 2000, but has been 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. This $50,000
fee was funded by a loan of that amount for Reliant from Oasis Entertainment's
Fourth Movie Project, Inc., a shareholder of Reliant. The loan is payable in six
months from December 1, 1999, and bears 10% interest per annum. 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.
Third, as of the date of this filing, The private placement is still open,
and at this date a total of $360,000.00 has been placed in escrow, all of which
has been received in the year 2000. A minimum of $500,000.00 must be raised in
order to satisfy the escrow and release funds. The Reliant has no control over
the escrow, and no shares are sold or placed, or can be sold or placed until the
minimum is reached. If the minimum is not reached, there will be no placement.
For the reason that no final transactions have taken place, the tentative
deposits in escrow are not deemed to be assets of or capital of Reliant and are
not reflected in our financial statements.
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.
15
<PAGE>
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
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
16
<PAGE>
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 are 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.
Revenues are Increasing. There were no revenues in 1997. Sales in 1998 were
$120,234. In 1998, costs of sales were 66,664, and gross profit was 53,580.
Quarterly comparisons for 1999/1998 quarters show the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
--------- ------
March 31 Net Sales 352,477 30,059
Cost of Sales 284,523 16,664
--------- ------
Gross Profit 67,954 13,359
============= ========= ======
June 30 Net Sales 2,885,013 30,059
Cost of Sales 1,602,622 16,664
--------- ------
Gross Profit 1,282,391 13,395
============= ========= ======
September 30 Net Sales 5,918,342 31,125
Cost of Sales 3,818,734 17,223
--------- ------
Gross Profit 2,099,608 13,902
============= ========= ======
</TABLE>
In 1998, Gross Margins, after cost of goods sold, was about 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. 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. Our business in 1998
was not the same as our business beginning in 1999. Revenues have improved in
every quarter of operations in 1999. We expect them to continue to improve in
17
<PAGE>
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.
The significant increased sales 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
was achieving marginal profitability by the end of the third quarter, the three
months ended June 30, 1999.
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 and costs and expenses related to sales. 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. 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 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.
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
18
<PAGE>
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 expenses were not a factor in 1998, due to the
differing nature of products marketed. These expenses 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 costs 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
which are a part of the Cost of Sales.
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Quarter 1999 1998
---------- ---------
March 31 Operating Expenses 699,101 228,027
Operating Income/(Loss) (631,147) (214,632)
======================= ========== =========
June 30 Operating Expenses 1,907 228,027
Operating Income/(Loss) (625,170) (214,632)
======================= ========== =========
September 30 Operating Expenses 1,690,604 326,102
Operating Income/(Loss) 409,004 (312,200)
======================= ========== =========
</TABLE>
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 third operating
quarter of 1999, when operations turned decisively favorable. Total operating
expenses as a percent of sales is expected to 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.
Profitability, as indicated previously, appeared in the third quarter of
1999. It is expected to continue to improve. The achievement of marginal
profitability does not guaranty that the trend to increasing profitability will
19
<PAGE>
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.
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.
Item 3. Property SB 102
Item 3. Description of Property.
We 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. We have 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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
======================================= ========== =========
</TABLE>
20
<PAGE>
Item 4. SECURITY OWNERSHIP
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.
The Remainder of this Page is Intentionally left Blank
21
<PAGE>
Table A
COMMON STOCK
Officers and Directors and Owners of 5% or more
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address of Beneficial Owner Actual
Ownership %
Kevin Harrington Chairman and CEO 2,156,101 35.14
80 Gulf Blvd
Belleair Beach FL 33786
Tim Harrington President and COO 1,100,000 17.93
531 Rafael Blvd NE
St. Petersburg FL 33704
Mel Arthur, Executive Vice President 105,000 1.71
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 54.80
====================================== ========= =======
Total Shares Issued and Outstanding 6,135,440 100.00
====================================== ========= =======
</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
60 day Exercisable Option/Bonus Rights
- --------------------------------------------------------------------------------
Compensatory Stock Option Plan (See Exhibit 6.2):
Kevin Harrington - 6 months: 60,000 shares @ $2.50
Tim Harrington - 6 months: 40,000 shares @ $2.50
Mel Arthur - 6 months: 5,000 shares @ $2.50
Revenue Performance Stock Bonus
Kevin Harrington - For each $10,000,000 in gross revenues, issuance of 100,000
shares up to a total of 3,000,000 shares (no more than 1/6 of
total to vest in any 6 month period).
Tim Harrington - For each $10,000,000 in gross revenues, issuance of 100,000
shares up to a total of 2,000,000 shares (no more than 1/6 of
total to vest in any 6 month period).
Mel Arthur - For each $10,000,000 in gross revenues, issuance of 100,000
shares up to a total of 900,000 shares (no more than 1/6 of
total to vest in any 6 month period).
===============================================================================
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>
<S> <C> <C> <C> <C> <C>
Shares Actual and as Attributed
Options Total if
Option Owner % and awards Options %
Exercised
Kevin Harrington 2,156,101 35.14 160,000 2,316,101 35.41
Tim Harrington 1,100,000 17.93 140,000 1,240,000 18.96
Mel Arthur 105,000 1.71 105,000 210,000 3.21
Total Shares/Options 6,135,440 100.00 405,000 6,540,440 100.00
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.
DIR, OFF, PROMOTERS & CONTROL PERSONS SB-401
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
23
<PAGE>
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 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 Section 228.402.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
a b c d e f g h i
Securities
Other Restric-ted Under-
Name Annual Stock lying All Other
and Compen-sation Awards Options LTIP Compen-sation
Principal Salary Bonus ($) ($) SARs (#) Payouts ($)
Position Year ($) ($) ($)
Kevin Harrington 1999 120,000 (d)(1) 0 (f)(1) (g)(1) (h)(1) 0
CEO (1) 1998 10,000 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Tim Harrington 1999 96,000 (d)(2) 0 (f)(2) (g)(2) (h)(2) 0
COO (2) 1998 8,000 0 0 0 0 0 0
1997 0 0 0 0 0 0 0
Mel Arthur 1999 41,500 0 0 175,000 100,000 (h)(3) 0
VP (3) (f)(3) (g)(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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
=================== ========== ====== ==========
</TABLE>
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
Section 4(2) of the 1933 Securities Act, as follows. First the compensatory
option plan. No options have been exercised.
Margin reset:TR 10
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date Exercisable Number of Options
Optionee Date of Grant Expiration Date Exercise Price
Kevin Harrington 60,000
Tim Harrington 30 June 99 30 Dec 99 30 June 04 $ 2.50 40,000
Mel Arthur 5,000
Kevin Harrington 60,000
Tim Harrington 30 June 99 30 June 00 30 June 04 $ 4.00 40,000
Mel Arthur 5,000
Kevin Harrington 30 June 99 30 Dec 00 30 June 04 $ 6.00 60,000
Tim Harrington 40,000
Mel Arthur 5,000
Kevin Harrington 30 June 99 30 June 01 30 June 04 $ 7.50 60,000
Tim Harrington 40,000
Mel Arthur 5,000
================ =================
</TABLE>
The foregoing options are carried in the following table as "Compensatory
Option Plan".
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Additional Bonuses,
Incentives/Benefits Kevin Harrington Tim Harrington Mel Arthur
Compensatory Stock 6 months: 60,000 shares @ $2.50 6 months: 40,000 shares @ $2.50 6 months: 5,000 shares @ $2.50
Option Plan 12 months: 60,000 shares @ $4.00 12 months: 40,000 shares @ $4.00 12 months: 5,000 shares @ $4.00
(See previous table) 18 months: 60,000 shares @ $6.00 18 months: 40,000 shares @ $6.00 18 months: 5,000 shares @ $6.00
(See Exhibit 6.2): 24 months: 60,000 shares @ $7.50 24 months: 40,000 shares @ $7.50 24 months: 5,000 shares @ $7.50
Revenue Performance For each $10,000,000 in gross For each $10,000,000 in gross For each $10,000,000 in gross
Stock Bonus revenues, issuance of 100,000 revenues, issuance of 100,000 revenues, issuance of 100,000
shares up to a total of 3,000,000 shares up to a total of 2,000,000 shares up to a total of 900,000
shares (no more than 1/6 of total shares (no more than 1/6 of total shares (no more than 1/6 of the
to vest in any 6 mo. period) to vest in any 6 mo. period) total to vest in 6 mo. period)
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 $15; 144,000 shares if $15; 100,000 shares if $15; 12,500 shares if
per share trading at $20; 192,000 trading at $20; 120,000 trading at 20; 15,000
shares if trading at $25. shares if trading at $25. shares if trading at $25.
Life, Health &
Disability Insurance Yes Yes Yes
Automobile $ 1,000/month $ 750/month $ 500/month
================================================================================================================================
</TABLE>
27
<PAGE>
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 Harrington 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
II Item 1. MARKET PRICE/DIVIDENDS SB 201
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
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
======== ======== =======
</TABLE>
(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.
II Item 2. Legal Proceedings: SB 103
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.
II Item 3. Disagreements-SB 304
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 Section 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 Section3(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 Section 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
30
<PAGE>
$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. 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 Section 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 Section 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
Section 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 Section 4(2) of the Securities Act of 1933; however we have since determined
to treat the issuance of these shares as compensation to our officers.
On or about April 1, 1999, the Issuer compensated Lifestyle Marketing with
40,000 shares of common stock, pursuant to Section 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 totaling $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 to
Section 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 Page
F-1 Audited Financial Statements: for the Years Ended December 31,
1998 and 1997 34
F-2 Unaudited Financial Statements: for the Three Months
Ended March 31, 1999 and the Year ended December 31, 1998 50
F-3 Unaudited Financial Statements: for the Six Months
Ended June 30, 1999 and the Year ended December 31, 1998 61
F-4 Unaudited Financial Statements: for the Nine Months
Ended September 30, 1999 and the Year ended December 31, 1998 74
==== ============================================================== ===
33
<PAGE>
Exhibit F-1
Audited Financial Statements
Reliant Interactive Media Corp.
For the period ending December 31, 1998 and 1997
34
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
CONSOLIDATED FINACIAL STATEMENTS
December 31, 1998 and 1997
35
<PAGE>
INDEPENDENT AUDITORS REPORT
---------------------------
Board of Directors
Reliant Interactive Media Corporation
and Subsidiaries
(Formerly Reliant Corporation)
(A Development Stage Company)
Clearwater, Florida
We have audited the accompanying consolidated balance sheet of Reliant
Interactive Media Corporation and Subsidiaries (formerly Reliant Corporation) (a
development stage company) at December 31, 1998 and the related consolidated
statements of operations, stockholders equity and cash flows for the years
ended December 31, 1998 and 1997 and from inception on June 15, 1995 through
December 31, 1998. These consolidated financial statements are the
responsibility of the Company s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Reliant
Interactive Media Corporation and Subsidiaries (formerly Reliant Corporation) (a
development stage company) as of December 31, 1998 and the consolidated results
of their operations and their cash flows for the years ended December 31, 1998
and 1997 and from inception on June 15, 1995 through December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management s plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of the uncertainty.
__________/s/____________
Jones, Jensen & Company
Salt Lake City, Utah
April 13, 1999
36
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A development Stage Company)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
<S> <C>
December 31,
1998
- ---------------------------------------------------
ASSETS
Cash $ 122,257
Inventory (Note 1) 27,342
Total current Assets 149,599
PROPERTY AND EQUIPMENT (Note 1)
Machinery and equipment 25,925
Office furniture and equipment 45,292
Total Property and Equipment 71,217
Less Accumulated depreciation (10,258)
Net Property and Equipment 60,959
OTHER ASSETS
Deposits 12,773
Prepaid advertising (Note 1) 85,302
Patent and trademark costs (Note 1) 26,668
Total Other Assets 124,743
TOTAL ASSETS $ 335,301
</TABLE>
The accompanying notes are an integral part of these financial statements
37
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A development Stage Company)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
<S> <C>
December 31,
1998
- -----------------------------------------------------------
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Accounts Payable $ 73,192
Accrued Expenses 5,418
Notes Payable-current portion (Note 7) 40,000
Total Current Liabilities 118,610
LONG-TERM DEBT
Notes payable - shareholders (Note 6) 87,500
Total long term debt 87,500
TOTAL LIABILITIES 206,110
COMMITMENTS AND CONTINGENCIES (Note3)
STOCKHOLDERS' EQUITY
Common stock; 50,000,000 shares authorized
of $.001 par value,
3,373,570 shares issued and outstanding 3,374
additional Paid in Capital 1,359,985
Deficit accumulated during the development (1,234,168)
stage
Total Stockholders' Equity 129,191
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 335,301
</TABLE>
The accompanying notes are an integral part of these financial statements
38
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C>
From Inception on
For the Years Ended June 15, 1995
December 31, through December 31,
1998 1997 1998
- ----------------------------------------------------------------------------------------
SALES $ 120,234 $ 0 $ 120,234
COST OF SALES 66,654 0 66,654
GROSS PROFIT 53,580 0 53,580
OPERATING EXPENSES
Depreciation 6,629 3,629 10,258
General and administrative 792,533 28,114 854,976
Research and development 41,449 0 41,449
Marketing 339,877 25,147 365,024
Rent 48,226 8,036 56,262
Total Operating Expenses 1,228,714 64,926 1,327,969
OPERATING LOSS (1,175,134) (64,926) (1,274,389)
OTHER INCOME (EXPENSES)
Interest Expense (9,033) 0 (9,033)
Interest Income 296 0 296
Other income 48,958 0 48,958
Total other income (expenses) 40,221 0 40,221
LOSS BEFORE INCOME TAXES (1,134,913) (64,926) (1,234,168)
INCOME TAXES 0 0 0
NET LOSS ($1,134,913) ($64,926) ($1,234,168)
BASIS LOSS PER SHARE (Note 1) ($0.42) ($0.03)
</TABLE>
The accompanying notes are an integral part of these financial statements
39
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the
Common stock Paid-In Development
Shares Amount Capital Stage
Balance, June 15, 1995 0 0 0 0
Shares issued to the founders at
inception at $.0008 per share 2,369,600 2,370 (370) 0
Net Loss from inception on June 15,
1995 through December 31, 1995 0 0 0 (2,000)
Balance, December 31, 1995 2,369,600 2,370 (370) 0
Capital contributions, 1996 0 0 34,401 0
Net loss for the year ended 0 0 0 (32,329)
December 31, 1996
Balance, December 31, 1996 2,369,600 2,370 34,031 (34,329)
Capital contributions, 1997 0 0 343,688 0
Net loss for the year ended
December 31, 1997 0 0 0 (64,926)
Balance, December 31, 1997 2,369,600 2,370 377,719 (99,255)
Capital contributions, 1998 0 0 340,020 0
Common stock issued to acquire
Reliant Corporation 570,400 570 (570) 0
Common stock issued for cash at an
average price of $1.56 per share 329,770 330 513,170 0
Common stock issued for services
valued at $1.25 per share 103,800 104 129,646 0
Net loss for the year ended
December 31, 1998 0 0 0 (1,234,168)
Balance, December 31, 1998 3,373,570 3,374 1,359,985 (1,234,168)
</TABLE>
The accompanying notes are an integral part of these financial statements
40
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C> <C>
From
Inception on
June 15,
For the Years Ended 1995 Through
December 31, December 31,
1998 1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($1,134,913) ($64,926) ($1,234,168)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 6,629 3,629 10,258
Amortization of prepaid advertising 11,651 0 11,651
Common Stock issued for services 129,750 0 129,750
Changes in assets and liabilities
Due from stockholder 4,000 (4,000) 0
Inventory (27,342) 0 (27,342)
Deposits 19,727 (32,500) (12,773)
Other prepaids 11,331 (11,331) 0
Prepaid advertising (96,952) 0 (96,952)
Accounts payable 73,159 (75) 73,191
Accrued Expenses 5,318 0 5,418
Net Cash used in Operaing Activities (997,642) (109,203) (1,140,967)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (51,343) (19,874) (71,217)
Patent and trademark costs (19,783) (6,885) (26,668)
Net Cash used in investing activitites (71,126) (26,759) (97,885)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from notes payable 127,500 0 127,500
Proceeds from issuance of common stock 513,500 0 515,500
Proceeds from additional capital contribution 340,020 343,688 718,109
Net Cash Provided by Financing Activities 981,020 343,688 1,361,109
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (87,748) 207,726 122,257
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD $ 210,005 $ 2,279 $ 0
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 122,257 $ 210,005 $ 122,257
Cash payments for:
Income taxes $ 0 $ 0 $ 0
Interest $ 3,615 $ 0 $ 3,615
</TABLE>
The accompanying notes are an integral part of these financial statements
41
<PAGE>
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Reliant Interactive Media Corporation (formerly Reliant Corporation) (the
Company) was organized under the laws of the State of Utah on July 30, 1984.
The Company subsequently ceased its original business activity in 1993 and was
not engaged in any business activity but was seeking potential investments or
business acquisitions and consequently was considered a development stage
company as defined in SFAS No. 7 until January 1, 1999. At the time of the
acquisition, the Company was a non-operating public shell with nominal assets.
The Company changed its name from Reliant Corporation to Reliant Interactive
Media Corporation (Reliant) in August 7, 1998.
Kevin Harrington Enterprises, Inc. (KHE) was organized under the laws of
the State of Florida on June 15, 1995. The Company is currently developing a
dual flame lighter/cutter cigar product.
Cigar Television Network, Inc. (Cigar TV) was organized under the laws of
the State of Florida on April 1, 1998. The Company was formed to create a cigar
related television show that will air monthly on a national television network
as well as being on the Internet. Cigar TV in conjunction with major magazines
will operate its TV show in conjunction with an Internet site currently under
development called CigarNow.com.
On July 21, 1998, the Company completed an agreement and plan of
reorganization whereby Reliant issued 11,848,000 shares of its common stock in
exchange for all of the outstanding common stock of KHE and Cigar TV. Kevin
Harrington, Chairman and CEO of the Company, was the controlling shareholder of
both KHE and Cigar TV at the time of the reorganization. Immediately prior to
the agreement and plan of reorganization, the Company had 2,852,000 shares of
common stock issued and outstanding. The reorganization was accounted for as a
recapitalization of KHE and Cigar TV because the shareholders of KHE and Cigar
TV controlled the Company immediately after the acquisition. Therefore, KHE and
Cigar TV are treated as the acquiring entities. Accordingly, there was no
adjustment to the carrying value of the assets or liabilities of KHE and Cigar
TV. Reliant is the acquiring entity for legal purposes and KHE and Cigar TV are
the surviving entities for accounting purposes. On August 7, 1998, the
shareholders of the Company authorized a reverse stock split of 1-for-5 prior to
the agreement and plan of reorganization. All references to shares of common
stock have been retroactively restated.
New Accounting Pronouncement
------------------------------
The Financial Accounting Standards Board has issued SFAS No. 130,
Reporting Comprehensive Income and SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 130 establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances.
42
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners. Among
other disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
43
<PAGE>
income be reported in a financial statement that displays with the same
prominence as other financial statements. SFAS No. 131 supersedes SFAS No. 14
Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards on the way that public companies report financial
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosure
regarding products and services, geographic areas and major customers. SFAS No.
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. The Company currently operates in one business
segment, sales through infomercials, and only had sales in the U.S. The Company
also has no items of comprehensive income at December 31, 1998. As a result,
the implementation of SFAS 130 and 131 did not have an effect on the financial
statements.
Basic Loss Per Share
-----------------------
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the financial
statements as follows:
Loss Shares Per Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------
For the year ended
December 31, 1998 $(1,134,913) 2,673,410 $(0.42)
For the Year ended
December 31, 1997 $(64,926) 2,369,600 $(0.03)
Fully diluted earnings (loss) per share is not presented, as any common
stock equivalents are antidilutive in nature.
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Method
------------------
The Company s financial statements are prepared using the accrual method of
accounting. The Company has elected a December 31 year end.
Cash and Cash Equivalents
----------------------------
For purposes of financial statement presentation, the Company considers all
highly liquid investments with a maturity of three months or less, from the date
of purchase, to be cash equivalents.
Inventory
---------
Inventory is stated at the lower of cost determined by the first-in,
first-out method or market.
Property and Equipment
------------------------
Property and equipment are stated at cost less accumulated depreciation.
Expenditures for small tools, ordinary maintenance and repairs are charged to
operations as incurred. Major additions and improvements are capitalized.
Depreciation is computed using the straight-line method over estimated useful
lives as follows:
Office furniture and equipment 5 to 7 years
Machinery and equipment 5 to 7 years
Depreciation expense for the year ended December 31, 1998 was $6,629.
Patent and Trademark Costs
-----------------------------
These costs will be amortized on the straight-line method over their
remaining lives beginning when the patents are received in 1999.
Prepaid Advertising
--------------------
Prepaid advertising consisted of the following at December 31, 1998:
Production costs of informercials $ 44,523
Production costs of tv show 52,430
Subtotal 96,953
Less: accumulated amortization (11,651)
Net prepaid advertising $ 85,302
44
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Prepaid Advertising (Continued)
--------------------
These advertising costs are amortized over the useful life of the
informercials and tv show which is estimated at 18 months. These production
costs will begin amortizing when they begin broadcasting which was August 1998
for the tv show and March 1999 for the informercials. Advertising expense for
the year ended December 31, 1998 was $11,651.
Credit Risks
-------------
The Company maintains its cash accounts primarily in one bank in Florida.
The Federal Deposit Insurance Corporation insures accounts to $100,000. The
Company s accounts occasionally exceed the insured amount.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
-----------------------------
The consolidated financial statements include the accounts of Reliant
Interactive Media Corporation (Reliant), Kevin Harrington Enterprises, Inc.
(KHE) (a wholly-owned subsidiary) and Cigar Television Network, Inc. (Cigar TV)
(a wholly-owned subsidiary). All significant intercompany accounts and
transactions have been eliminated in the consolidation.
Income Taxes
-------------
Under the provisions of SFAS No. 109, the Company s policy is to provide
deferred income taxes related to property and equipment, inventories, net
operating losses and other items that result in differences between the
financial reporting and tax basis of assets and liabilities.
No provision for federal income taxes has been made at December 31, 1998
due to accumulated operating losses. The Company has accumulated approximately
$850,000 of net operating losses as of December 31, 1998, which may be used to
reduce taxable income and income taxes in future years. The use of these
losses to reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operation loss carryforwards.
The carryforwards expire in 2013. KHE and Cigar TV operated as S corporations
prior to their acquisition in 1998. The results of their operations since
acquisition have been included in the net operating loss at December 31, 1998.
45
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
--------------------
Revenue is recognized upon shipment of goods to the customer. The Company
has adopted a returns policy whereby the customer can return any goods received
within 30 days of receipt for a full refund. At year end, the Company makes an
allowance for returns based on past history. At December 31, 1998, the
allowance was $504 and is included in accrued expenses.
NOTE 2 - GOING CONCERN
The Company s financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
relation of assets and liquidation of liabilities in the normal course of
business. The Company has incurred operating losses from its inception through
December 31, 1998. It has not established revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. Management
believes that revenues will continue to increase in 1999 allowing the Company to
cover its product development and marketing costs. It is also the intent of the
Company to complete a limited offering of its common stock in 1999 to help cover
its operating expenses. In the interim, shareholders of the Company have
committed to meet its operating needs.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
In May 1998, the Company entered into a one year lease agreement for office
space located in Florida. The lease obligation is currently $5,157 per month
and expires on May 31, 1999.
NOTE 4 - RELATED PARTY TRANSACTIONS
Related party transactions charged to operations were as follows during
1998:
Interest expense to stockholders $ 1,918
Advertising and promotional services provided
by a stockholders related company. $ 36,813
NOTE 5 - COMMON STOCK TRANSACTIONS
During 1998, the Company sold 1,648,850 shares of its common stock for
$513,500, or an average price of $0.31 per share. The Company also issued
519,000 shares of its common stock for services rendered, valued at $129,750 or
$0.25 per share.
46
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 6 - NOTES PAYABLE - SHAREHOLDERS
Notes payable - shareholders consisted of the following: December 31, 1998
Note payable to a shareholder, unsecured, interest
at 8.0%, interest payments due quarterly beginning
March 31, 1999, principal balance due December 31, 2000. $ 37,500
Note payable to a shareholder, unsecured, interest
at 8.0%, interest payments due quarterly beginning
March 31, 1999, principal balance due December 31, 2000. 50,000
Total notes payable - shareholders 87,500
Less: current portion -0-
Long-term notes payable shareholders $ 87,500
Maturities of notes payable - shareholders are as follows:
Year Ending
December 31,
-------------
1999 $ -
2000 87,500
2001 -
2002 -
2003 -
2004 and thereafter -
-
Total $ 87,500
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following:
December 31,
1998
----
Note payable to Nations Bank, secured by stock,
interest at 8.0%, interest payments due monthly,
principal balance due on demand. $ 40,000
- ------
Total notes payable 40,000
Less: current portion (40,000)
Long-term notes payable $ -
47
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 1998 and 1997
NOTE 7 - NOTES PAYABLE (Continued)
Maturities of notes payable are as follows:
Year Ending
December 31,
-------------
1999 $ 40,000
2000 -
2001 -
2002 -
2003 -
2004 and thereafter -
Total $ 40,000
NOTE 8 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 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 instruments 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. The carrying
amount of long-term debt approximates fair value based on the borrowing rate
(8.0%) currently held by the Company for a bank loan.
NOTE 9 - SUBSEQUENT EVENTS
On March 23, 1999, the Company completed a reverse stock split on a 1 share
for 5 shares basis. No shareholder was reduced to less than 100 shares. All
references to shares issued and outstanding have been retroactively restated at
December 31, 1998.
In 1999, the Company entered into a new lease agreement for its office
space in Florida. The lease requires annual payments of $81,000 or $6,750 per
month.
48
<PAGE>
Exhibit F-2
Un-Audited Financial Statements
Reliant Interactive Media Corp.
For the period ending March 31, 1999 and December 31, 1998
49
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(Formerly Reliant Corporation)
(A Development Stage company)
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and December 31, 1998
50
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
Unaudited
- -----------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 56,144 $ 122,257
Accounts receivable 265,230 0
Prepaids and advances 21,446 0
Inventory 0 27,342
Total Current Assets 342,820 149,599
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 (12,934) (10,258)
Net Property and Equipment 58,283 60,959
OTHER ASSETS
Deposits 0 12,773
Prepaid Advertising 73,365 85,302
Patent and trademark costs 26,668 26,668
Total other assets 100,033 124,743
TOTAL ASSETS $ 501,136 $ 335,301
</TABLE>
The accompanying notes are an integral part of these financial statements
51
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
Unaudited
- ----------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts Payable $ 151,567 $ 73,192
Accrued expenses 44,218 5,418
Payable - related parties 247,177 0
Notes payable, current portion 40,000 40,000
Total Current Liabilities 482,962 118,610
LONG TERM DEBT
Notes Payable - shareholders 87,500 87,500
Total Long-Term Debt 87,500 87,500
TOTAL LIABILITIES 570,462 206,110
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $.001
par value, 3,659,940 and 3,373,570 shares issued
and outstanding, respectively 3,660 3,374
Additional paid-in capital 1,797,449 1,359,985
Deficit accumulated during the development stage (1,870,435) (1,234,168)
Total Stockholders' Equity (Deficit) (69,326) 129,191
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 501,136 $ 335,301
</TABLE>
The accompanying notes are an integral part of these financial statements
52
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the From Inception on
Three Months Ended June 15, 1995 through
March 31, March 31,
1999 1998 1999
- -----------------------------------------------------------------------------------------
NET SALES $ 352,477 $ 30,059 $ 472,711
COST OF SALES 284,523 16,664 351,177
GROSS PROFIT 67,954 13,395 121,534
OPERATING EXPENSES
Depreciation 2,676 1,657 12,934
General and administrative 476,124 165,696 1,331,100
Research and development 4,754 10,362 46,203
Marketing 202,596 38,255 567,620
Rent 12,951 12,057 69,213
Total Operating Expenses 699,101 228,027 2,027,070
OPERATING (LOSS) (631,147) (214,632) (1,905,536)
OTHER INCOME (EXPENSES)
Interest expense (5,120) (2,258) (14,153)
Interest income 0 0 296
Other Income 0 0 48,958
Total Other Income (Expenses) (5,120) (2,258) 35,101
LOSS BEFORE INCOME TAXES (636,267) (216,890) (1,870,435)
INCOME TAXES 0 0 0
NET LOSS ($636,267) ($216,890) ($1,870,435)
BASIC LOSS PER SHARE $ 0.18 $ 0.09
WEIGHTED AVERAGE NUMBER
OF SHARES 3,500,518 2,369,600
</TABLE>
The accompanying notes are an integral part of these financial statements
53
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the
Common stock Paid In Development
Shares Amount Capital Stage
- ------------------------------------------------------------------------------------------
Balance, June 15, 1995 0 $ 0 $ 0 $ 0
Shares issued to the founders at
inception at $0.0008 per share 2,369,600 2,370 (370) 0
Net Loss from inception on June 15,
1995 through December 31, 1995 0 0 0 (2,000)
Balance, December 31, 1995 2,369,600 2,370 (370) (2,000)
Capital contributions, 1996 0 0 34,401 0
Net loss for the year ended
December 31, 1996 0 0 0 32,329
Capital contributions, 1997 2,369,600 2,370 34,031 0
Net loss for the year ended
December 31, 1997 0 0 0 (64,926)
Balance, December 31, 1997 2,369,600 2,370 377,719 (99,255)
Capital contributions, 1998 0 0 340,020 0
Common stock issued is recaptalization
of Reliant Coroporation and Cigar
Television Network, Inc. 570,400 570 (570) 0
Common Stock issued for cash at an
average price of $1.56 per share 329,770 330 513,170 0
Common Stock issued for services
valued at $1.25 per share 103,800 104 129,646 0
Net loss for the year ended
December 31, 1998 0 0 0 (1,134,913)
Balance, December 31, 1998 3,373,570 $ 3,374 $ 1,359,985 $ 1,234,168
</TABLE>
54
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit) (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Deficit
Accumulated
Additional During the
Common Stock Paid In Development
Shares Amount Capital Stage
- ------------------------------------------------------------------------------------------
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 $1.57 per share
(unaudited) 248,000 248 389,752 0
Common stock issued for services
valued at $1.25 per share (unaudited) 38,200 38 47,712 0
Fractional shares issued in the reverse
stock split (unaudited) 170 0 0 0
Net Loss for the three months ended
March 31, 1999 (unaudited) 0 0 0 (636,267)
Balance, March 31, 1999 (unaudited) 3,659,940 $ 3,660 $ 1,797,449 ($1,870,435)
</TABLE>
The accompanying notes are an integral part of these financial statements
55
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
From inception
on June 15,
For the Months 1995 through
Ended March 31, March 31,
1999 1998 1999
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($636,267) ($216,890) ($1,870,435)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 2,676 1,657 12,934
Common Stock issued for services 47,750 0 177,500
Changes in assets and liabilities (265,230)
Accounts receivable (265,230) 0 (21,446)
Prepaids and advances (21,446) 0 0
Inventory 27,342 0 0
Deposits 12,773 4,932 (73,365)
Prepaid expenses 11,937 0 151,567
Accounts payable 78,375 18,290 44,218
Accrued expenses 38,800 0 (1,844,257)
Net Cash used in Operating Activities (703,290) (192,011) (1,844,257)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment 0 0 (71,217)
Patent and trademark costs 0 (19,783) (26,668)
Net cash Used in Investing Activities 0 (19,783) (97,885)
CASH FLOWS FROM FINANCING ACTIVITITES
Proceeds from notes payable 247,177 0 374,677
Proceeds from issuance of common stock 390,000 0 905,500
Proceeds from additional capital contribution 0 181,889 718,109
Net cash Provided by Financing Activities 637,177 181,889 1,998,286
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (66,113) (29,905) 56,144
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 122,257 210,005 0
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 56,144 $ 180,100 $ 56,144
</TABLE>
56
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash Payments for:
Income Taxes $ 0 $ 0 $ 0
Interest $ 5,120 $ 0 $ 8,735
Non-Cash Fiancing Activities:
Common Stock issued for services $ 47,750 $ 0 $ 177,500
</TABLE>
The accompanying notes are an integral part of these financial statements
57
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
58
<PAGE>
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 March 31, 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 March 31, 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.
NOTE 4 - 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.
59
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 1999 and December 31, 1998
NOTE 5 - GOING CONCERN
The Company s financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
relation of assets and liquidation of liabilities in the normal course of
business. The Company has incurred operating losses from its inception through
December 31, 1998. It has not established revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. Management
believes that revenues will continue to increase in 1999 allowing the Company to
cover its product development and marketing costs. It is also the intent of the
Company to complete a limited offering of its common stock in 1999 to help cover
its operating expenses. In the interim, shareholders of the Company have
committed to meet its operating needs.
60
<PAGE>
Exhibit F-3
Un-Audited Financial Statements
Reliant Interactive Media Corp.
For the period ending June 30, 1999 and December 31, 1998
61
<PAGE>
RELIANT INTERACTIVE MEDIA CORP
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and December 31, 1998
62
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1999 1998
Unaudited
- -----------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 0 $ 122,257
Accounts receivable, net 1,047,675 0
Inventory 64,313 27,342
Total Current Assets 1,111,988 149,599
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 (15,610) (10,258)
Net Property and Equipment 55,607 60,959
OTHER ASSETS
Deposits 1,050 12,773
Other Assets 20,000 0
Prepaid Advertising 452,012 85,302
Patent and trademark costs 26,668 26,668
Total other assets 499,730 124,743
TOTAL ASSETS $1,667,325 $ 335,301
</TABLE>
The accompanying notes are an integral part of these financial statements
63
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1999 1998
Unaudited
- ---------------------------------------------------------------------------------
CURRENT LIABILITIES
Cash overdraft $ 91,647 $ 0
Accounts Payable 561,975 73,192
Accrued expenses 43,897 0
Notes payable - related parties, current portion 38,898 0
Notes payable, current portion 200,000 40,000
Total Current Liabilities 976,417 118,610
LONG TERM DEBT
Notes Payable - related parties 87,500 87,500
Total Long-Term Debt 87,500 87,500
TOTAL LIABILITIES 1,063,917 206,110
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: 50,000,000 shares authorized of $.001
par value, 6,035,440 and 3,373,570 shares issued
and outstanding, respectively 6,035 3,374
Additional paid-in capital 3,107,824 1,359,985
Accumulated deficit (2,510,451) (1,234,168)
Total Stockholders' Equity 603,408 129,191
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,667,325 $ 335,301
</TABLE>
The accompanying notes are an integral part of these financial statements
64
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the For the
Three Months Ended six Months Ended
June 30, June 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------
NET SALES $ 2,885,013 $ 30,059 $ 3,237,490 $ 60,118
COST OF SALES 1,602,622 16,664 1,887,145 33,328
GROSS PROFIT 1,282,391 13,395 1,350,345 26,790
OPERATING EXPENSES
Depreciation 2,676 1,657 5,352 3,314
Bad debt expense 17,410 0 17,410 0
General and administrative 1,772,674 165,696 2,248,798 331,392
Research and development 25,401 10,362 30,155 20,724
Marketing 72,399 38,255 274,995 76,510
Rent 17,001 12,057 29,952 24,114
Total Operating Expenses 1,907,561 228,027 2,606,662 456,054
OPERATING (LOSS) (625,170) (214,632) (1,256,317) (429,264)
OTHER INCOME (EXPENSES)
Interest expense (14,941) (2,258) (20,061) (4,516)
Interest income 95 0 95 0
Total Other Income (Expenses) (14,846) (2,258) (19,966) (4,516)
(LOSS) BEFORE INCOME TAXES (640,016) (216,890) (1,276,283) (433,780)
INCOME TAXES 0 0 0 0
NET (LOSS) ($640,016) ($216,890) ($1,276,283) ($433,780)
BASIC (LOSS) PER SHARE ($0.13) ($0.09) ($0.29) ($0.18)
WEIGHTED AVERAGE SHARES
OUTSTADING 5,095,192 2,369,600 4,434,995 2,369,600
</TABLE>
The accompanying notes are an integral part of these financial statements
65
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit
- -----------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,369,600 $ 2,370 $ 377,719 ($99,255)
Capital Contributions, 1998 0 0 340,020 0
Common stock issued in recapitalization
of Reliant Corporation and Cigar
Television Network, Inc. 570,400 570 (570) 0
Common Stock issued for cash at an
average price of $1.56 per share 329,770 330 513,170 0
Common stock issued for services
valued at $1.25 per share 103,800 104 129,646 0
Net loss for the year ended
,December 31, 1998 0 0 0 (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 $.86 per share (unaudited) 1,098,000 1,098 938,902 0
Common stock issued for services
valued at $1.15 per share (unaudited) 43,700 43 50,457 0
Fractional shares issued in the reverse
stock split (unaudited) 170 0 0 0
Common stock issued for investment
in Tony Little Website at $.50 per share
(unaudited) 20,000 20 9,980 0
Common Stock issued for acquisition
of TPH Marketing, Inc. valued at
.50 per share (unaudited) 1,500,000 1,500 748,500 0
Net Loss for the six months ended
June 30, 1999 (unaudited) 0 0 0 (1,276,283)
Balance, June 30, 1999 (unaudited) 6,035,440 $ 6,035 $ 3,107,824 ($2,510,451)
</TABLE>
The accompanying notes are an integral part of these financial statements
66
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (loss) ($640,016) ($216,890) ($1,276,283) ($433,780)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation 2,676 1,657 5,352 3,314
Bad Dept 17,410 0 17,410 0
Loss on purchase of subsidiary 750,000 0 750,000 0
Common stock issued for services 2,750 0 50,500 0
Changes in assets and liabilities
Accounts receivable (799,855) 0 (1,065,085) 0
Prepaids and advances 20,396 0 (1,050) 0
Inventory (64,313) 0 (36,971) 0
Deposits 0 4,932 12,773 9,864
Prepaid expenses (378,647) 0 (366,710) 0
Other Assets 10,000 0 10,000 0
Cash overdraft 91,647 0 91,647 0
Accounts payable 410,408 18,290 488,783 36,580
Accrued expenses (321) 0 38,479 0
Net Cash Used in Operating
Activities (597,865) (192,011) (1,301,155) (384,022)
CASH FLOWS FROM INVESTING
ACTIVITIES
Patent and trademark costs 0 (6,885) 0 (26,668)
Net Cash Used in Investing Activities 0 (6,885) 0 (26,668)
CASH FLOWS FROM FINANCING ACTIVITIE
Proceeds (payments) from notes payable (8,279) 0 238,898 0
Proceeds from issuance of common
stock 550,000 100,000 940,000 100,000
Proceeds from additional capital
contribution 0 68,991 0 250,880
Net Cash Provided by financing
Activities $ 541,721 $ 168,991 $ 1,178,898 $ 350,880
</TABLE>
67
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ($56,144) ($29,905) ($122,257) ($59,810)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 56,144 $ 180,100 $ 122,257 $ 210,005
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 0 $ 150,195 $ 0 $ 150,195
Cash payments for:
Income taxes $ 0 $ 0 $ 0 $ 0
Interest $ 14,941 $ 0 $ 20,061 $ 0
Non-Cash Financing activitites:
Common Stock issued for services $ 2,750 $ 0 $ 50,500 $ 0
Common Stock issued for subsidiary $ 750,000 $ 0 $ 750,000 $ 0
Common Stock issued for other assets $ 10,000 $ 0 $ 10,000 $ 0
</TABLE>
The accompanying notes are an integral part of these financial statements
68
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
69
<PAGE>
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 June 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 June 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 40.50 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.
70
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 3 - COMMON STOCK TRANSACTIONS (Continued)
On May 3, 1999, the Company acquired TPH Marketing, Inc. (TPH). TPH s two
(2) shareholders are the Company s CEO and his brother, making this a related
party transaction. 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 Company purchased TPH to acquire the name and
expertise of TPH s president.
The resulting goodwill is being written off in the second quarter of 1999
with a charge to operating expenses (general and administrative) in the amount
of $750,000 since the main purpose of the acquisition was to gain the services
and expertise of TPH s president. Activity from the date of acquisition to June
30, 1999 has been included in the statement of operations.
NOTE 4 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles Board ( APB ) Option 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for all stock option plans. Under APB Opinion 25, compensation cost
is recognized for stock options granted to employees when the option price is
less than the market price of the underlying common stock on the date of grant.
FASB Statement 123, Accounting for Stock-Based Compensation ( SFAS No.
123 ), requires the Company to provide proforma information regarding net income
and net income per share as if compensation costs for the Company s stock option
plans and other stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock award at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants,
respectively; dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 8.0 percent and
expected lives of 4 years.
Under the accounting provisions of SFAS No. 123, the Company s net income
would have been unchanged during the six months ended June 30, 1999:
71
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
NOTE 4 - OUTSTANDING STOCK OPTIONS (Continued)
A summary of the status of the Company s stock option plans as of June 30,
1999 and December 31, 1998 and changes during the years ending on those dates is
presented below:
June 30, December 31,
1999 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding, beginning
of period - $ - - $ -
Granted 420,000 5.00 - -
Canceled - - - -
Exercised - - - -
Outstanding, end of period 420,000 $ 5.00 - $ -
Exercisable, end of period - $ - - $ -
Weighted average fair value of
options and warrants granted
during the year $ 2.12 $ -
Outstanding Exercisable
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable
At 9/30/99 Life Prices at 9/30/99 Price
$ 2.50 105,000 5.00 $2.50 - $ -
4.00 105,000 5.00 4.00 - -
6.00 105,000 5.00 6.00 - -
7.50 105,000 5.00 7.50 - -
$2.50-7.50 420,000 5.00 $ 5.00 - $ -
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.
Additional stock options are available to Kevin Harrington, Tim Harrington
and Mel Arthur based on the stock trading performance of the Company s common
stock. If the Company s shares are trading at a price of $15.00 per share,
256,500 options will be granted at an exercise price of $7.50 per share. If the
Company s shares are trading at a price of $20.00 per share, 256,500 options
will be granted at an exercise price of $7.50 per share. If the Company s
shares are trading at a price of $25.00 per share, 327,000 options will be
granted at an exercise price of $7.50 per share. As of June 30, 1999, the
Company s common stock has not reached any of the performance measurements
mentioned above.
72
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 1999 and December 31, 1998
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.
NOTE 6 - GOING CONCERN
The Company s financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
relation of assets and liquidation of liabilities in the normal course of
business.
The Company has incurred significant losses since inception and has had no
significant operating revenues until 1999. The Company believes it can meet and
exceed its operating expenses through increased sales in 1999.
73
<PAGE>
Exhibit F-4
Un-Audited Statements
Reliant Interactive Media Corp.
For the period ending September 30, 1999 and December 31, 1998
74
<PAGE>
RELIANT INTERACTIVE MEDIA COPROATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
75
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
1999 1998
Unaudited
- ---------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 189,025 $ 122,257
Accounts receivable, net 797,686 0
Inventory 104,459 27,342
Prepaids 100,000 0
Employee Advances 9,610 0
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 0 12,773
Other Assets 20,000 0
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
</TABLE>
The accompanying notes are an integral part of these financial statements
76
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
September 31, December 31,
1999 1998
Unaudited
- ------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts Payable $ 1,019,575 $ 73,192
Accrued expenses 43,516 5,418
Payable - related parties 96,952 0
Notes payable - related parties, current portion 500,000 0
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 $.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 financial statements
77
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
NET SALES $ 5,918,342 $ 31,125 $ 9,155,832 $ 91,243
COST OF SALES 3,818,734 17,223 5,705,879 50,551
GROSS PROFIT 2,099,608 13,902 3,449,953 40,692
OPERATING EXPENSES
Depreciation 2,676 1,657 8,028 4,971
Bad debt expense 948 0 18,358 0
General and administrative 1,075,795 176,696 3,324,593 508,088
Research and development 10,465 9,621 40,620 30,345
Marketing 585,515 127,211 860,510 203,721
Rent 15,205 10,917 45,517 35,031
Total Operating Expenses 1,690,604 326,102 4,297,266 782,156
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 0 0 0 0
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
OUTSTADING 6,081,092 2,817,235 5,162,783 2,520,451
</TABLE>
The accompanying notes are an integral part of these financial statements
78
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Additional
Paid-In Accumulated
Common Stock Capital Deficit
Shares Amount
- --------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,369,600 $ 2,370 $ 377,719 ($99,255)
Capital contributions, 1998 0 0 340,020 0
Common Stock issued in recapitalizaiton
of Reliant Corporation 570,400 570 (570) 0
Common Stock issued for cash at an
average price of $1.56 per share 329,770 330 513,170 0
Common Stock issued for services
valued at $1.25 per share 103,800 104 129,686 0
Net loss for the year ended
31-Dec-98 0 0 0 (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 $.86 per share
(unaudited) 1,098,000 1,098 938,902 0
Common stock issued for services
valued at $1.15 per share (unaudited) 43,700 43 50,457 0
Fractional shares issued in the reverse
stock split (unaudited) 170 0 0 0
Common stock issued for services
valued at $.50 per share (unaudited) 100,000 100 49,900 0
Common stock issued for investment
in Tony Little Website at $.50 per
share (unaudited) 20,000 20 9,980 0
Common stock issued for acquisition
of TPH Marketing, Inc. valued at
.50 per share (unaudited) 1,500,000 1,500 748,500 0
Net loss for the nine months ended
September 30, 1999 (unaudited) 0 0 0 -879,468
Balance, September 30, 1999 6,135,440 $ 6,135 $ 3,157,724 ($2,113,636)
(unaudited)
</TABLE>
The accompanying notes are an integral part of these financial statements
79
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
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 0 145,626 0
Bad Dept 948 0 18,358 0
Loss on purchase of subsidiary 0 0 750,000 0
Common stock issued for services 50,000 0 100,500 0
Changes in assets and liabilities
Accounts receivable 249,041 0 (816,044) 0
Prepaids and advances (108,560) 0 (109,610) 0
Inventory (30,146) 0 (77,117) 0
Deposits 0 2,909 12,773 12,773
Prepaid expenses (1,185,327) 0 (1,597,711) 0
Other Assets (10,000) 0 (10,000) 0
Cash overdraft (91,647) 0 0 0
Accounts payable 457,600 18,520 946,383 55,100
Accrued expenses (381) 0 38,098 0
Net Cash Used in Operating
Activities (169,029) (292,171) (1,470,184) (676,193)
CASH FLOWS FROM INVESTING
ACTIVITIES
Patent and trademark costs 0 0 0 (26,668)
Net Cash Used in Investing Activities 0 0 0 (26,668)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) from notes payable 358,054 0 596,952 0
Proceeds from issuance of common
stock 0 95,500 940,000 195,000
Proceeds from additional capital
contribution 0 89,140 0 340,020
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 financial statements
80
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Continued)
<S> <C> <C> <C> <C>
For the For the
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN $ 189,025 ($108,031) $ 66,768 ($167,841)
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 0 $ 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 $ 0 $ 0 $ 0 $ 0
Interest $ 12,450 $ 0 $ 32,511 $ 0
Non-Cash Financing Activities:
Common Stock issued for services $ 50,000 $ 0 $ 100,500 $ 0
Common Stock issued for other assets $ 10,000 $ 0 $ 10,000 $ 0
Common Stock issued for subsidiary $ 0 $ 0 $ 750,000 $ 0
</TABLE>
81
<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.
82
<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). TPH s two
(2) shareholders are the Company s CEO and his brother, making this a related
party transaction. 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 Company purchased TPH to acquire the name and
expertise of TPH s president.
The resulting goodwill is being written off in the second quarter of 1999
with a charge to operating expenses (general and administrative) in the amount
of $750,000 since the main purpose of the acquisition was to gain the services
and expertise of TPH s president. Activity from the date of acquisition to
September 30, 1999 has been included in the statement of operations.
NOTE 4 - OUTSTANDING STOCK OPTIONS
The Company applies Accounting Principles board ( APB ) Option 25,
Accounting for Stock Issued to Employees, and related Interpretations in
accounting for all stock option plans. Under APB Opinion 25, compensation cost
is recognized for stock options granted to employees when the option price is
less than the market price of the underlying common stock on the date of grant.
FASB Statement 123, Accounting for Stock-Based Compensation ( SFAS No.
123 ), requires the Company to provide proforma information regarding net income
and net income per share as if compensation costs for the Company s stock option
plans and other stock awards had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock award at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants,
respectively; dividend yield of zero percent for all years; expected volatility
of 32 percent for all years; risk-free interest rates of 8.0 percent and
expected lives of 4 years.
Under the accounting provisions of SFAS No. 123, the Company s net income
would have been unchanged during the nine months ended September 30, 1999:
83
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 4 - OUTSTANDING STOCK OPTIONS (Continued)
A summary of the status of the company s stock option plans as of September
30, 1999 and December 31, 1998 and changes during the years ending on those
dates is presented below:
September 30, December 31,
1999 1998
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding, beginning
of period - $ - - $ -
Granted 420,000 5.00 - -
Canceled - - - -
Exercised - - - -
Outstanding, end of period 420,000 $ 5.00 - $ -
Exercisable, end of period - $ - - $ -
Weighted average fair value of
options and warrants granted
during the year $ 2.12 $ -
Outstanding
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 9/30/99 Life Price at 9/30/99 Price
$ 2.50 105,000 4.75 $ 2.50 - $ -
4.00 105,000 4.75 4.00 - -
6.00 105,000 4.75 6.00 - -
7.50 105,000 4.75 7.50 - -
2.50- 7.50 420,000 4.75 $ 5.00 - $ -
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.
Additional stock options are available to Kevin Harrington, Tim Harrington
and Mel Arthur based on the stock trading performance of the Company s common
stock. If the Company s shares are trading at a price of $15.00 per share,
256,500 options will be granted at an exercise price of $7.50 per share. If the
Company s shares are trading at a price of $20.00 per share, 256,500 options
will be granted at an exercise price of $7.50 per share. If the Company s
shares are trading at a price of $25.00 per share, 327,000 options will be
granted at an exercise price of $7.50 per share. As of September 30, 1999, the
Company s common stock has not reached any of the performance measurements
mentioned above.
84
<PAGE>
RELIANT INTERACTIVE MEDIA CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
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.
85
<PAGE>
PART III
Item 1. Index to Exhibits.
Exhibit Index
# Table Category / Description of Exhibit Page
[2] Articles/Certificates of Incorporation, By-Laws and Minutes
2.0 Articles of Incorporation of the Issuer: 88
Reliant Interactive Media Corp (a Nevada Corporation)
2.1 Articles of Amendment: Reliant Corporation 91
2.2 By-Laws 93
[6] Material Contracts
6.0 Plan of Reorganization and Merger for Change of Situs:
Utah to Nevada, March 15, 1999 103
6.1 Employment Agreement: Kevin Harrington 106
6.2 Employment Agreement: Tim Harrington 120
6.3 Employment Agreement: Mel Arthur 134
6.4 Compensatory Stock Option Plan 146
86
<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
<TABLE>
<CAPTION>
<S> <C>
/s/ /s/
Kevin Harrington Tim Harrington
chairman and ceo/director president and coo/director
/s/ /s/
Mel Arthur Karl E. Rodriguez
executive vice president/director secretary/director
</TABLE>
87
<PAGE>
Exhibit 2.0
Articles of Incorporation
Reliant Interactive Media Corp.
March 18, 1999
88
<PAGE>
ARTICLES OF INCORPORATION
OF
Reliant Interactive Media Corp.
Article I. The name of the Corporation is Reliant Interactive Media Corp.
Article II. Its principal office in the State of Nevada is 774 Mays Blvd.
#10, Incline Village NV 89452. The initial resident agent for services of
process at that address is N&R Ltd. Group, Inc
Article III. The purposes for which the corporation is organized are to
engage in any activity or business not in conflict with the laws of the State of
Nevada or of the United States of America. The period of existence of the
corporation shall be perpetual.
Article IV. The corporation shall have authority to issue an aggregate of
50,000,000 shares of common voting equity stock of par value one mil ($0.001)
per share, and no other class or classes of stock, for a total capitalization of
$50,000. The corporation's capital stock may be sold from time to time for such
consideration as may be fixed by the Board of Directors, provided that no
consideration so fixed shall be less than par value.
Article V. No shareholder shall be entitled to any preemptive or
preferential rights to subscribe to any unissued stock or any other securities
which the corporation may now or hereafter be authorized to issue, nor shall any
shareholder possess cumulative voting rights at any shareholders meeting, for
the purpose of electing Directors, or otherwise.
Article VI. The name and address of the Incorporator of the corporation is
William Stocker, Attorney at Law, 34700 Pacific Coast Highway, Suite 303,
Capistrano Beach CA 92624, phone (949) 248-9561, fax (949) 248-1688. The affairs
of the corporation shall be governed by a Board of Directors of not less than
one (1) nor more than (7) persons. The Incorporator shall act as Sole Initial
Director.
Article VII. The Capital Stock, after the amount of the subscription price
or par value, shall not be subject to assessment to pay the debts of the
corporation, and no stock issued, as paid up, shall ever be assessable or
assessed.
89
<PAGE>
Article VIII. The initial By-laws of the corporation shall be adopted by
its Board of Directors. The power to alter, amend or repeal the By-laws, or
adopt new By-laws, shall be vested in the Board of Directors, except as
otherwise may be specifically provided in the By-laws.
I the undersigned, being the Incorporator hereinbefore named for the
purpose of forming a corporation pursuant the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have set my hand hereunto this Day,
March 17, 1999.
/s/
William Stocker
attorney at law
Incorporator
90
<PAGE>
Exhibit 2.1
Articles of Amendment: Reliant Interactive Media Corp.(Utah)
91
<PAGE>
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
RELIANT CORPORATION
Pursuant to the provisions of Section 16-10a-1006 of the Utah Revised
Business Corporation Act, Reliant Corporation, a Utah corporation, hereinafter
referred to as the "corporation," hereby adopts the following Articles of
Amendment to its Articles of Incorporation.
FIRST: The name of the Corporation is Reliant Corporation
SECOND: Article I of the Articles of Incorporation shall be amended to
read as follows:
Article I
The name of the corporation is Reliant Interactive Media Corp.
THIRD: Except as otherwise expressly amended hereby, the Articles of
Incorporation of the Corporation shall remain in full force and affect.
FOURTH: By executing these Articles of Amendment to the Articles of
Incorporation, the president and secretary of the Corporation do hereby certify
that on August 7, 1998, the foregoing amendment to the Articles of Incorporation
of Reliant Corporation, was authorized and approved pursuant to Section
16-10a-1001 et. seq. of Utah Revised Business Corporation Act by the vote of the
majority of the Corporation's shareholders. The number of issued and outstanding
shares entitled to vote on the foregoing amendment to the Articles of
Incorporation was 14,260,000 of which 11,626,000 shares voted for. -0- shares
voted against and -0- shares abstained from the foregoing amendment to the
Articles of Incorporation. No other class of shares was entitled to vote thereon
as a class.
DATED this 7th day of August, 1998
/s/
T. Kent Rainey, President
/s/
Vicki Lynn Rainey, Secretary
State of Utah )
County of Salt Lake )
On this 7th day of August, 1998, personally appeared before me, the
undersigned, a notary public. T. Kent Rainey and Vicki Lynn Rainey, who being by
me first duly sworn, declared that they are the president and secretary,
respectively, of the above-named corporation, that they signed the foregoing
Articles of Amendment to the Articles of Incorporation and that the statements
contained therein are true.
Notary Public WITNESS MY HAND AND OFFICIAL SEAL
Victor D. Schwarz
350 South 400 East Ste. G-6 /s/
Salt Lake City UT 84111
My Commission Expires Notary Public
August 10, 1998
State of Utah
92
<PAGE>
Exhibit 2.2
By-Laws
93
<PAGE>
By-Laws
OF
Reliant Interactive Media Corp.
a nevada corporation
Article I
Corporate Offices
The principal office of the corporation in the State of Nevada shall be
located at 774 Mays Blvd. Suite 10, Incline Village NV 89451. The corporation
may have such other offices, either within or without the State of incorporation
as the board of directors may designate or as the business of the corporation
may from time to time require.
Article II
Shareholders' Meetings
Section 1. Place of Meetings
The directors may designate any place, either within or without the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate any
place, either within or without the State unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation.
Section 2. Annual Meetings
The annual meeting of the shareholders shall be held on the second Monday
of March in each year, if not a holiday, at Ten o'clock A.M., at which time the
shareholders shall elect a Board of Directors and transact any other proper
business. If this date falls on a holiday, then the meeting shall be held on the
following business day at the same hour.
Section 3. Special Meetings
Special meetings of the shareholders may be called by the President, the
Board of Directors, by the holders of at least ten percent of all the shares
entitled to vote at the proposed special meeting, or such other person or
persons as may be authorized in the Articles of Incorporation.
Section 4. Notices of Meetings
Written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (l0) days nor more than
twenty (20) days before the date of the meeting, either personally or by mail,
by the direction of the president, or secretary, or the officer or persons
calling the meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
94
<PAGE>
Section 5. Closing of Transfer Books or Fixing Record Date.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case twenty (20) days. If the stock transfer books be
closed for the purpose of determining stockholders entitled to notice or to vote
at a meeting of stockholders, such books shall be closed for at least twenty
(20) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the directors may fix in advance a date as the record date for
and such determination of stockholders, such date in any case to be not more
than twenty (20) days and, in case of a meeting of stockholders, not less than
ten (l0) days prior to the date on which the particular action requiring such
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders, or stockholders entitled to receive payment of a dividend, the
date on which notice of the meeting is mailed or the date on which the
resolution of the directors declaring such dividend is adopted, as the case may
be, shall be the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.
Section 6. Voting List.
The officer or agent having charge of the stock transfer books for the
shares of the corporation shall make, at least ten (l0) days before each meeting
of stockholders, a complete list of stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and number of shares held by each, which list, for a period of ten
(l0) days prior to such meeting, shall be kept on file at the principal office
of the corporation and shall be subject to inspection by any stockholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any stockholder during the whole time of the meeting. The original stock
transfer book shall be prima facie evidence as to who are the stockholders
entitled to examine such list or transfer books or to vote at the meeting of
stockholders.
Section 7. Quorum.
At any meeting of stockholders fifty-one (5l) percent of the outstanding
shares of the corporation entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of stockholders. If less than said number
of the outstanding shares are represented at a meeting, a majority of the
outstanding shares so represented may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting originally notified. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
95
<PAGE>
Section 8. Proxies.
At all meetings of the stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the corporation before or
at the time of the meeting.
Section 9. Voting.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such shareholder. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of Nevada.
Section 10. Order of Business.
The order of business at all meetings of the stockholders, shall be as
follows:
a. Roll Call.
b. Proof of notice of meeting or waiver of notice.
c. Reading of minutes of preceding meeting.
d. Reports of Officers.
e. Reports of Committees.
f. Election of Directors.
g. Unfinished Business.
h. New Business.
Section 11. Informal Action by Stockholders.
Unless otherwise provided by law, any action required to be taken, or any
other action which may be taken, at a meeting of the stockholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the stockholders entitled to vote with respect to the
subject matter thereof. Unless otherwise provided by law, any action required to
be taken, or any other action which may be taken, at a meeting of the
stockholders, may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by a Majority of all of the
stockholders entitled to vote with respect to the subject matter thereof at any
regular meeting called on notice, and if written notice to all shareholders is
promptly given of all action so taken.
Section 12. Books and Records.
The Books, Accounts, and Records of the corporation, except as may be
otherwise required by the laws of the State of Nevada, may be kept outside of
the State of Nevada, at such place or places as the Board of Directors may from
time to time appoint. The Board of Directors shall determine whether and to what
extent the accounts and the books of the corporation, or any of them, other than
the stock ledgers, shall be open to the inspection of the stockholders, and no
96
<PAGE>
stockholder shall have any right to inspect any account or book or document of
this Corporation, except as conferred by law or by resolution of the
stockholders or directors. In the event such right of inspection is granted to
the Stockholder(s) all fees associated with such inspection shall be the sole
expense of the Stockholder(s) demanding the inspection. No book, account, or
record of the Corporation may be inspected without the legal counsel and the
accountants of the Corporation being present. The fees charged by legal counsel
and accountants to attend such inspections shall be paid for by the Stockholder
demanding the inspection.
Article III
Board of Directors
Section 1. General Powers.
The business and affairs of the corporation shall be managed by its board
of directors. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
Section 2. Number, Tenure, and Qualifications.
The number of directors of the corporation shall be a minimum of one (l)
and a maximum of nine (9). Each director shall hold office until the next annual
meeting of stockholders and until his successor shall have been elected and
qualified.
Section 3. Regular Meetings.
A regular meeting of the directors, shall be held without other notice than
this by-law immediately after, and at the same place as, the annual meeting of
stockholders. The directors may provide, by resolution, the time and place for
holding of additional regular meetings without other notice than such
resolution.
Section 4. Special Meetings.
Special meetings of the directors may be called by or at the request of the
president or any two directors. The person or persons authorized to call special
meetings of the directors may fix the place for holding any special meeting of
the directors called by them.
Section 5. Notice.
Notice of any special meeting shall be given at least one day previously
thereto by written notice delivered personally, or by telegram or mailed to each
director at his business address. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
97
<PAGE>
Section 6. Quorum.
At any meeting of the directors fifty (50) percent shall constitute a
quorum for the transaction of business, but if less than said number is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 7. Manner of Acting.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
Section 8. Newly Created Directorships and Vacancies.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of the majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.
Section 9. Removal of Directors.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
Section 10. Resignation.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
Section 11. Compensation.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance at
each regular or special meeting of the board may be authorized. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 12. Executive and Other Committees.
The board, by resolution, may designate from among its members an executive
committee and other committees, each consisting of one (l) or more directors.
Each such committee shall serve at the pleasure of the board.
98
<PAGE>
Article IV
Officers
Section 1. Number.
The officers of the corporation shall be the president, a secretary and a
treasurer, each of whom shall be elected by the directors. Such other officers
and assistant officers as may be deemed necessary may be elected or appointed by
the directors.
Section 2. Election and Term of Office.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
Section 3. Removal.
Any officer or agent elected or appointed by the directors may be removed
by the directors whenever in their judgement the best interest of the
corporation would be served thereby, but such removal shall be without prejudice
to contract rights, if any, of the person so removed.
Section 4. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
Section 5. President.
The president shall be the principal executive officer of the corporation
and, subject to the control of the directors, shall in general supervise and
control all of the business and affairs of the corporation. He shall, when
present, preside at all meetings of the stockholders and of the directors. He
may sign, with the secretary or any other proper officer of the corporation
thereunto authorized by the directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the directors have authorized to be executed, except in cases where the
directors or by these by-laws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the directors from time to time.
Section 6. Chairman of the Board.
In the absence of the president or in the event of his death, inability or
refusal to act, the chairman of the board of directors shall perform the duties
of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The chairman of the board of
directors shall perform such other duties as from time to time may be assigned
to him by the directors.
99
<PAGE>
Section 7. Secretary.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these by-laws or as
required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
the duties incident to the office of secretary and such other duties as from
time to time may be assigned to him by the president or by the directors.
Section 8. Treasurer.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
Section 9. Salaries.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of fact that he is also a director of the corporation.
Article V
Contracts, Loans, Checks and Deposits
Section 1. Contracts.
The directors may authorize any officer or officers, agent or agents to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 2. Loans.
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the directors. Such authority may be general or confined to specific instances.
100
<PAGE>
Section 3. Checks, Drafts, etc.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the directors.
Section 4. Deposits.
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the directors may select.
Article VI
Fiscal Year
The fiscal year of the corporation shall begin on the lst day of January in
each year, or on such other day as the Board of Directors shall fix.
Article VII
Dividends
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
Article VIII
Seal
The directors may provide a corporate seal which shall have inscribed
thereon the name of the corporation, the state of incorporation, year of
incorporation and the words, "Corporate Seal".
Article IX
Waiver of Notice
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
101
<PAGE>
Article X
Amendments
These by-laws may be altered, amended or repealed and new by-laws may be
adopted in the same manner as their adoption, by the Board of Directors if so
adopted; by a vote of the stockholders representing a majority of all the shares
issued and outstanding, if so adopted or adopted by the Board of Directors; or,
in any case, at any annual stockholders' meeting or at any special stockholders'
meeting when the proposed amendment has been set out in the notice of such
meeting.
CERTIFICATION
The Secretary of the Corporation hereby certifies that the foregoing is a
true and correct copy of the By-Laws of the Corporation named in the title
thereto and that such By-Laws were duly adopted by the Board of Directors of
said Corporation on the date set forth below.
Executed, and Corporate Seal affixed, this day of March 19, 1999.
/S/
Tim Harrington
Acting Secretary
102
<PAGE>
Exhibit 6.0
Plan of Reorganization and Merger
for Change of Situs: Utah to Nevada
March 15, 1999
103
<PAGE>
PLAN OF REORGANIZATION AND MERGER
FOR CHANGE OF SITUS
BY WHICH
Reliant Interactive Media, Inc.
(a Utah corporation)
WILL MERGE WITH AND INTO
Reliant Interactive Media, Inc.
(a Nevada corporation)
FOR THE PURPOSE OF CHANGING THE PLACE OF INCORPORATION
This Plan of Reorganization is made effective and dated this day of March
15, 1999, by and between the above referenced corporations, sometimes referred
to herein as "the Public Company" and "the Private Company", respectively.
I. Recitals
A. The Parties to this Agreement
1. Reliant Interactive Media, Inc. ("the Public Company") is a Utah
Corporation.
2. Reliant Interactive Media, Inc. ("the Private Company") is a Nevada
Corporation, having been created (or to be created) on behalf of Reliant
Interactive Media, Inc. for the purpose of changing the place of incorporation
from Utah to Nevada.
B. The Capital of the Parties:
1. The Capital of the Public Company consists of 50,000,000 shares of
common voting stock of $0.001 par value authorized, of which 15,000,000 shares
are issued and outstanding.
2. The Capital of the Private Company consists of 50,000,000 shares of
common voting stock of $0.001 par value authorized, of which no shares have been
or are issued or outstanding.
C. The Decision to Reorganize to Change Situs: The Parties have resolved,
accordingly, to merge and relocated the place of incorporation, by means of the
following reorganization, by which the Public Company will merge with and into
the Private Company move to Nevada.
II. Plan of Reorganization
A. Change of Situs: The Public Company (Utah) and the Private Company (Nevada)
are hereby reorganized for the sole and singular purpose of changing the place
of incorporation of Reliant Interactive Media, Inc.; such that immediately
following the Reorganization the Utah Public Company will move to Nevada.
104
<PAGE>
1. The Public Company: Reliant Interactive Media, Inc. of Utah will merge
with and into and thereafter be Reliant Interactive Media, Inc.of Nevada. The
Public Company will retain its corporate personality and status, and will
continue its corporate existence uninterrupted, in and through, and only in and
through the Nevada Corporation.
2. Conversion of Outstanding Shares: Forthwith upon the effective date
hereof, each and every one share of stock of the Public Utah Company shall be
converted to one share of the Nevada Company. Any such holders of shares may
surrender them to the transfer agent for common stock of the Public Utah
Company, which transfer agent shall remain and continue as transfer agent for
the Nevada Company.
3. Effective Date: This Plan of Reorganization shall become effective
immediately upon approval and adoption by Corporate parties hereto, in the
manner provided by the law of its place of incorporation and its constituent
corporate documents, the time of such effectiveness being called the effective
date hereof.
4. Surviving Corporations: The Nevada Company shall survive the
Reorganization after Reorganization, with the operational history of the Utah
Company before the Reorganization, and with the management, duties and
relationships to its shareholders unchanged by the Reorganization and with all
of its property and with its shareholder list unchanged.
5. Further Assurance, Good Faith and Fair Dealing: the Directors of each
Company shall and will execute and deliver any and all necessary documents,
acknowledgments and assurances and do all things proper to confirm or
acknowledge any and all rights, titles and interests created or confirmed
herein; and both companies covenant hereby to deal fairly and good faith with
each other and each others shareholders.
This Reorganization Agreement is executed on behalf of each Company by its
duly authorized representatives, and attested to, pursuant to the laws of its
respective place of incorporation and in accordance with its constituent
documents.
Reliant Interactive Media, Inc. Reliant Interactive Media, Inc.
(a Utah corporation) (a Nevada corporation)
by by
/s/ /s/
- ----------------- ----------------------
Kevin Harrington Kevin Harrington
PRESIDENT, DIRECTOR PRESIDENT, DIRECTOR
/s/ /s/
- -------------------- -----------------------
Tim Harrington Tim Harrigton
SECRETARY, DIRECTOR SECRETARY, DIRECTOR
105
<PAGE>
Exhibit 6.1
Employment Agreement
Kevin Harrington
106
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Kevin Harrington ("Employee").
June 1999 Page 124
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective this 30th
day of June, 1999, by and between Reliant Interactive Media Corp. (the
"Employer"), and Kevin Harrington (the "Employee").
PREMISES
a) Employee possesses expertise, experience and skill in the
development and marketing of products via electronic and other multi-media
means.
b) Employee has demonstrated the ability to run, manage and build a
development stage business.
c) Employer desires to employ Employee to serve as its Chief Executive
Officer to run, manage and build its business.
d) Employee desires to perform all of such services as Employer's
employee and both parties want to enter into a written agreement as to their
understanding of the employment relationship.
AGREEMENT
For and in Consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
ten (10) days following an applicable Termination Date and which shall be equal
to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in connection
with Employee's employment for reasonable and necessary expenses incurred by
Employee and approved by the Employer through the Termination Date; and
(iii) All other payments and benefits to which Employee may be
entitled under the terms of any benefit plan of the Employer.
(b) "Board" shall mean the board of directors of the Employer.
(c) "Cause" shall mean any of the following:
(i) The engagement by Employee in fraudulent conduct, which has a
significant adverse impact on the Employer in the conduct of the Employer's
business;
(ii) Conviction of a felony involving a crime against the
Employer, as evidenced by a binding and final judgment, order or decree of a
court of competent jurisdiction.
107
<PAGE>
(iii) Gross negligence or refusal by Employee to perform his
duties or responsibilities; or
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Confidential Information" means information (i) disclosed to or
actually known by Employee as a consequence of or through his/her employment
with the Employer, (ii) not generally known outside the Employer, and (iii)
which relates to the Employer's business. Confidential Information includes, but
is not limited to, information of a technical nature, such as methods and
materials, trade secrets, inventions, processes, formulas, systems, computer
programs, and studies, and information of a business nature such as project
plans, market information, costs, customer lists, and so forth.
(f) "Disability" shall mean a physical or mental condition whereby
Employee is unable to perform on a full-time basis his customary duties under
this Agreement.
(g) "Developments" means all Inventions (defined hereafter), computer
programs, copyright works, mask works, trademarks, Confidential Information,
Works of Authorship (defined hereafter), and other Intellectual Property
(defined hereafter), made, conceived or authored by Employee, alone or jointly
with others, while employed by the Employer; whether or not during normal
business hours or on the Employer's premises, that are within the present scope
of the Employer's business at the time such Developments are made, conceived, or
authored, or which result from or are suggested by any work Employee or others
may do for or on behalf of the Employer.
(h) "Employer" means Reliant Interactive Media Corp. and its
subsidiaries, divisions and affiliates as well as majority owned companies of
such subsidiaries, divisions and affiliates, or their successors or assigns.
(i) "Invention" means discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to improvements,
know-how, data, processes, methods, formulae, and techniques, as well as
improvements thereof, or know-how related thereto, concerning any present or
prospective activities of the Employer which Employee makes, discovers or
conceives (whether or not during the hours of his engagement of with the use of
the Employer's facilities, materials or personnel), either solely or jointly
with others during his engagement by the Employer or any affiliate and, if based
on or related or Proprietary Information, at any time after termination of such
engagement.
(j) "Intellectual Property" means Inventions, Confidential
Information, Works of Authorship, patent rights, trademark rights, service mark
108
<PAGE>
rights, copyrights, know-how, Developments and rights of like nature arising or
subsisting anywhere in the world, in relation to all of the foregoing, whether
registered or unregistered.
(k) "Notice of Termination" shall mean the notice described in Section
13 hereof.
(l) "Person" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity, other than an employee benefit
plan of the Employer of an entity organized, appointed of established pursuant
to the terms of any such benefit plan.
(m) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a similar nature related to the
business of the Employer disclosed to the Employee or otherwise made known to
him as a consequence of or through his engagement by the Employer (including
information originated by Employee) in any technological area previously
developed by the Employer or developed, engaged in, or researched, by the
Employer during the term of Employee's engagement, including, but not limited
to, trade secrets, processes, products, formulae, apparatus, techniques,
know-how, marketing plans, data, improvements, strategies, forecasts, customer
lists, and technical requirements of customers, unless such information is in
the public domain to such an extent as to be readily available to competitors.
(n) "Termination Date" shall mean, except as otherwise provided in
Section 12 hereof.
(i) Employee's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment on account of Disability pursuant to
Section 16 hereof, unless Employee returns on a full-time basis to the
performance of his duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by Employee voluntarily; and
(iv) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by the Employer for any
reason other than death or Disability.
(o) "Termination Payment" shall mean the payment described in Section
14 hereof.
(p) "Works of Authorship" means an expression fixed in a tangible
medium of expression regardless of the need for a machine to make the expression
109
<PAGE>
manifest, and includes but is not limited to, writings, reports, drawings,
sculptures, illustrations, video recordings, audio recordings, computer
programs, and charts.
2. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth.
3. Term. Subject to the terms and conditions of this Agreement, the term of
this Agreement shall commence retroactively from December 1, 1998, and end on
December 1, 2003.
4. Duties. During the term of this Agreement, Employee shall be employed by
Employer as its Chief Executive Officer. In addition to the office of Chief
Executive Officer, Employee agrees to serve in such other office or position
with Employer or any subsidiary of Employer and as such shall, from time to
time, be determined by Employer's Board. Employee agrees to serve as a member of
the Employer's Board as Chairman of its Board. Employee shall devote
substantially all of his working time and efforts to the business of Employer
and its subsidiaries and shall not during the term of this Agreement be engaged
in any other substantial business activities which will significantly interfere
or conflict with the reasonable performance of his duties hereunder.
5. Compensation.
(a) Salary. For all services rendered by Employee, Employer shall pay
to Employee a base salary of $120,000 for the first year, and the base salary
shall increase by $12,000 per year for each of the remaining four years of this
Agreement, payable in bi-monthly installments. Employee shall also be due a base
salary from the time of the inception of employment by Employer of the Employee
to the date of this Agreement equal to the rate of compensation as defined for
the first year of this Agreement. If Employer's financial constraints so
dictate, Employee agrees to defer a portion of the salary contained in this
Section. This deferred base salary along with any deferred base salary earned
prior to the date of this Agreement shall be paid to Employee at such time or
times as financial constraints so dictate. All salary payments shall be subject
to withholding and other applicable taxes. The rate of salary may be increased
at any time, as the Board may determine, based on earnings, increased activities
of the Employer, or such other factors as the Board may deem appropriate from
time to time. Employee shall receive bonus or incentive compensation as approved
by the Board.
(b) Incentive Compensation. In the event that Employer achieves
"ADJUSTED GROSS REVENUES" annually in excess of $10,000,000 Employee shall
receive additional compensation equal to 9/10 of 1% of "ADJUSTED GROSS
REVENUES". This Incentive compensation shall be paid on a quarterly basis within
110
<PAGE>
thirty days of the end of the calendar quarter based on the preceding calendar
quarter's "ADJUSTED GROSS REVENUES". "GROSS" and "ADJUSTED GROSS REVENUES" are
defined as follows: "GROSS REVENUES" shall mean all income of Employer from all
sources exclusive of sales taxes, use taxes, value added taxes, and any other
taxes imposed upon sales of products. "ADJUSTED GROSS REVENUES" shall mean
Employer's Gross Revenues from sales of the Products, less all of the following:
(i) refunds, credits or other allowances on account of return or
rejection of goods or otherwise granted in the ordinary course of business, as
actually incurred and as reserved for ("Returns");
111
<PAGE>
(ii) uncollectible accounts due to credit card charge backs, bad
checks or other reasons of uncollectability, as actually incurred and as
reserved for ("Uncollectibles"); and
(iii) sales made at or below Reliant's cost of goods for purposes of
liquidation or closeout ("Liquidation Sales").
(c) Insurance Benefits. Employer shall provide health and medical
insurance for Employee in a form and program to be chosen by Employer for
certain of its full-time employees. Employer shall provide Employee with
directors and officers liability insurance in the amount of $2,000,000 and life
and disability insurance in amounts approved by the Board.
(d) Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, or other plan as may be put in effect from
time to time by the Board, including the following:
(i) Qualified Stock Option Plan. Pursuant to a Qualified Stock Option
Plan authorized by the Board and approved by the Shareholders of Employer,
Employee shall have the option to purchase up to 60,000 shares of Employer's
stock in six months at $2.50 per share, in 12 months at $4.00 per share, in
eighteen months at $6.00 per share and in twenty-four months at $7.50 per share;
(ii) Revenue Performance Bonuses. Employee shall be issued 100,000
shares of Employer's stock for each $10,000,000 in gross revenues (in accordance
with SEC Reg SX accounting rules) received by Employer with a maximum of
3,000,000 shares to be issued; and
(iii) Stock Performance Options. Employee shall have the option to
purchase stock of Employer at $7.50 per share as follows: up to 144,000 shares
if the public trading price close at a minimum of $15 per share for five
consecutive days; up to an additional 144,000 shares should the public trading
price close at a minimum of $20 per share for five consecutive days; and up to
112
<PAGE>
an additional 192,000 shares if the public trading price should close at a
minimum of $25 for five consecutive days.
(e) Automobile / Transportation. Employer shall pay for Employees
monthly automobile payment, not to exceed $1,000 per month, including applicable
insurance.
6. Expenses. Employer will reimburse Employee for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items of Employee's periodic
presentation of an account of such expenses. Employer shall reimburse Employee
for the following expenses whether incurred or to be incurred on behalf of
Employer:
(a) Reimbursement for Legal Expenses Incurred by Employee. To date,
Employee has paid and/or incurred legal fees in the amount of $50,000 for
services rendered in connection with the operation of Reliant Interactive Media
Corp. Employer hereby agrees to either release Employee from any further
obligation or reimburse Employee for all such expenses on or before December 1,
1999.
(b) Reimbursement for Accounting Expenses Incurred by Employee. To
date Employee has paid and/or incurred accounting fees in the amount of $20,000
for services rendered in connection with the operation of Reliant Interactive
Media Corp. Employer hereby agrees to either release Employee from any further
obligations or reimburse Employee of such expenses on or before December 1,
1999.
(c) Assumption of Loan. Employer agrees to assume all financial
obligations to the loans in the approximate aggregate amounts of $300,000, now
held in the name of Kevin Harrington and as shown in detail on the attached
Schedule A. Employer shall sign and execute all necessary documents of
assumption as required by the banks on or before June 30, 1999.
7. Working Facilities. Employer shall provide to Employee offices and
facilities appropriate to Employee's position and suitable for the performance
of Employee's duties as set forth in this Agreement.
8. Nondisclosure of Proprietary and Confidential Information. Recognizing
that the Employer is presently engaged, and may hereafter continue to be engaged
in the research and development of processes, the manufacturing of products or
performance of services, which involve experimental and inventive work and that
the success of the Employer's business depends upon the protection of the
processes, products and services by patent, copyright or by secrecy and that
Employee has had, or during the course of his engagement may have, access to
Proprietary and Confidential Information, as herein defined, of the Employer or
other information and data of a secret or proprietary nature of the Employer
113
<PAGE>
which the Employer wishes to keep confidential and Employee has furnished, or
during the course of his engagement may furnish, such information to the
Employer, Employee agrees and acknowledges that:
(a) The Employer has exclusive property rights to all Proprietary and
Confidential Information and Employee hereby assigns all rights he might
otherwise possess in any Proprietary and Confidential Information to the
Employer. Except as required in the performance of his duties to the Employer,
Employee will not at any time during or after the term of his engagement, which
term shall include any time in which Employee may be retained by the Employer as
a consultant, directly or indirectly use, communicate, disclose or disseminate
any Proprietary or Confidential Information of a secret, proprietary,
confidential or generally undisclosed nature relating to the Employer, its
products, customers, processes and services, including information relating to
testing, research, development, manufacturing, marketing and selling.
(b) All documents, records, notebooks, notes, memoranda and similar
repositories of, or containing, Proprietary and Confidential Information or any
other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Employer or its operations and activities
made or compiled by Employee at any time or made available to him prior to or
during the term of his engagement by the Employer, including any and all copies
thereof, shall be the property of the Employer, shall be held by him in trust
solely for the benefit of the Employer, and shall be delivered to the Employer
by him on the termination of his engagement or at any other time on the request
of the Employer.
(c) Employee will not assert any rights under any inventions,
trademarks, copyrights, discoveries, concepts or ideas, or improvements thereof,
or know-how related thereto, as having been made or acquired by him during the
term of his engagement if based on or otherwise related to Proprietary or
Confidential Information.
9. Assignment Of Inventions.
(a) All Inventions shall be the sole property of the Employer, and
Employee agrees to perform the provisions of the Section 9 with respect thereto
without the payment by the Employer of any royalty or any consideration therefor
other than the regular compensation paid to Employee in the capacity of any
employee or consultant, with the exception that Employee shall continue to
receive royalties from sales of the Cobee Dual-Flame Lighter, as per the
previously contracted agreement.
114
<PAGE>
(b) Employee shall apply, at the Employer's request and expense, for
United States and foreign letters patent or copyrights either in Employee's name
or otherwise an the Employer shall desire.
(c) Employee hereby assigns to the Employer all of his rights to such
Inventions, and to applications for United States and/or foreign letters patent
or copyrights and to United States and/or foreign letter patent or copyrights
granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Employer,
without charge to the Employer, but at its expense, such written instruments
(including applications and assignments) and do such other acts, such as giving
testimony in support of Employee's inventorship, as may be necessary in the
opinion of the Employer to obtain, maintain, extend, reissue and enforce United
States and/or foreign letters patent and copyrights relation to the Inventions
and to vest the entire right and title thereto in the Employer of its nominee.
Employee acknowledges and agrees that any copyright developed or conceived of,
by Employee during the term of his employment which is related to the Business
of the Employer shall be a "work for hire" under the copyright law of the United
States and other applicable jurisdictions.
(e) Employee represents that his performance of all the terms of this
Agreement and as an employee of or consultant to the Employer does not and will
not breach any trust prior to his employment by the Employer. Employee agrees
not to enter into any agreement either written or oral in conflict herewith and
represents and agrees that he has not brought and will not bring with to the
Employer or use in the performance of his responsibilities at the Employer any
materials or documents of a former employer which are not generally available to
the public, unless he has obtained written authorization from the former
employer for their possession and use, a copy of which has been provided to the
Employer.
(f) No provisions of the Paragraph shall be deemed to limit the
restrictions applicable to Employee under Section 8 and 9.
10. Shop Rights.
The Employer shall also have the royalty-free right to use in its business,
and to make, use and sell products, processes and/or services derived from any
inventions, discoveries, concepts and ideas, whether or not patentable,
including but not limited to processes, methods, formulas and techniques, as
well as improvements thereof or know-how related thereto, which are not within
the scope of Inventions as defined herein but which are conceived of or made by
Employee during the period he is engaged by the Employer or with the use or
assistance of the Employer's facilities, materials or personnel.
115
<PAGE>
11. Non-Compete.
Employee hereby agrees that during the term of this Agreement, that
Employee will not:
(a) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, own, manage,
operate, or control any business of the type and character engaged in and
competitive with the Employer or any subsidiary thereof. For purposes of this
paragraph, ownership of securities of not in excess of five percent (5%) of any
class of securities of a public employer listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) shall not be considered to be competition with the
Employer or any subsidiary thereof;
(b) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, act as, or
become employed as an officer, director, employee, consultant or agent of any
business of the type and character engaged in and competitive with the Employer
or any of its subsidiaries;
(c) Solicit any similar business to that of the Employer's for, or
sell any products that are in competition with the Employer's products to which
is, as of the date hereof, a customer or client of the Employer or any of its
subsidiaries, or was such a customer or client thereof within two years prior to
the date of this Agreement; or
(d) For up to six months following the termination of this Agreement
solicit the employment of, or hire, any full time employee employed by the
Employer or its subsidiaries as of the date of termination of this Agreement.
12. Termination. Employer may not terminate this Agreement during its term
without Cause as defined herein. If this Agreement is terminated without Cause,
Employee shall be entitled to the Termination Payments set forth in Section 14
hereof. Any termination by Employer of Employee of Employee's employment during
the term hereof shall be communicated by written Notice of Termination to
Employee, if such Notice of Termination is delivered by the Employer, and to the
Employee, if such Notice of Termination is delivered by Employee, all in
accordance with the following procedures:
(a) The Notice of termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination;
(b) Any Notice of Termination by the Employer shall be approved by a
resolution duly adopted by a majority of the members of the Employer;
(c) If Employee shall provide the president or chief executive officer
with a Notice of Termination at least 30 days prior to leaving the employment of
the Employer. Upon the end of the thirty days, all compensation provisions of
this Agreement shall cease.
116
<PAGE>
13. Termination Upon Transfer of Business. Notwithstanding any provision
this Agreement to the contrary, Employee may terminate this Agreement upon the
happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the sale, exchange, or other disposition to a single
entity or group of entities under common control in one transaction or series of
related transactions of greater than 50% of the outstanding shares of Employer's
common stock; (c) the decision by Employer to terminate its business and
liquidate its assets; or (d) the merger or consolidation of Employer in a
transaction in which the shareholders of the Employer immediately prior to such
merger or consolidation receive less than 50% of the outstanding voting shares
of the new or continuing corporation. In the event Employee does not elect to
terminate this Agreement upon the happening of any of the events noted above,
and as a result of such event, Employer is not the surviving entity, then the
provisions of this Agreement shall inure to the benefit of and be binding upon
the surviving or resulting entity. If as a result of the merger, consolidation,
transfer of assets, or other event listed above, the duties of Employee are
increased, then the compensation of Employee provided for in paragraph 5 of this
Agreement shall be reasonably adjusted upward for the additional duties and
responsibilities assumed.
14. Termination Payments. In the event the Employee's employment is
terminated by the Employer during the term hereof for reasons other than Cause,
as defined herein, Employee shall be paid any sums owed under this Agreement,
including but not limited to any salary, any deferred compensation, accrued
benefits, bonuses and options, and for any potential actions for breach of this
Agreement by Employer. Other than any payments set forth in this Section 14,
Employment shall be entitled to no further compensation nor any other payments
after termination. Employee shall receive no further payments if terminated for
Cause other than Accrued Benefits.
15. Death During Employment. If Employee dies during the term of this
Agreement, Employer shall have no further obligations to pay Employee other than
any Accrued Benefits.
16. Illness or Incapacity. If Employee is unable to perform Employee's
services by reason of illness or incapacity for a period of more than two (2)
consecutive months, the compensation thereafter payable to Employee during the
next two (2) consecutive months shall be 50% of the compensation provided for
herein. During such period of illness or incapacity, Employee shall be entitles
to receive incentive compensation if any. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within a four (4) consecutive
117
<PAGE>
month period, Employee shall not be entitled to receive any further compensation
nor any payments for such illness or incapacity, and Employer may terminate this
Agreement without further liability to Employee. Any existing options to
purchase Employer's common stock held by Employee at the time termination shall
be governed by the terms of the option and not affected by this provision. At
the termination of such illness or incapacity, Employee shall be entitled to
receive Employee's full compensation payable pursuant to the terms of this
Agreement.
17. Nontransferability. Neither Employee, Employee's spouse, Employee's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement. Such
payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
18. 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.
19. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
20. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of employee by employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by the
parties to this Agreement.
21. Enforcement. Each of the parties to this Agreement shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party. Employee hereby specifically
acknowledges and agrees that a breach of the agreements, covenants and
conditions of this Agreement will cause irreparable harm and damage to the
Employer, that the remedy at law, for the breach or threatened breach of this
Agreement will be adequate, and that, in addition to all other remedies
available to the Employer for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be entitled
to injunctive relief for any breach or threatened breach of this Agreement.
22. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
118
<PAGE>
23. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
24. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
25. Litigation Expenses. In the event that it shall be necessary or
desirable for the Employee or Employer to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
provisions of this Agreement, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees, costs, and expenses incurred by
the prevailing party in connection with the enforcement of this Agreement.
Payment shall be made upon the conclusion of such action.
26. Survivability. The provisions of Section 8, 9, 10, 11 and 12 shall
survive termination of this Agreement.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER:
Reliant Interactive Media Corp.
By: /s/
__________________________________
Duly Authorized Officer
EMPLOYEE:
By: /s/
________________________________
Kevin Harrington
119
<PAGE>
Exhibit 6.2
Employment Agreement
Tim Harrington
120
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Tim Harrington ("Employee").
June 1999 Page 143
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective this 30th
day of June, 1999, by and between Reliant Interactive Media Corp. (the
"Employer"), and Tim Harrington(the "Employee").
PREMISES
a) Employee possesses expertise, experience and skill in the
development and marketing of products via electronic and other multi-media
means.
b) Employee has demonstrated the ability to run, manage and build a
development stage business.
c) Employer desires to employ Employee to serve as its President and
Chief Operating Officer to run, manage and build its business.
d) Employee desires to perform all of such services as Employer's
employee and both parties want to enter into a written agreement as to their
understanding of the employment relationship.
AGREEMENT
For and in Consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
ten (10) days following an applicable Termination Date and which shall be equal
to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in connection
with Employee's employment for reasonable and necessary expenses incurred by
Employee and approved by the Employer through the Termination Date; and
(iii) All other payments and benefits to which Employee may be
entitled under the terms of any benefit plan of the Employer.
(b) "Board" shall mean the board of directors of the Employer.
(c) "Cause" shall mean any of the following:
(i) The engagement by Employee in fraudulent conduct, which has a
significant adverse impact on the Employer in the conduct of the Employer's
business;
(ii) Conviction of a felony involving a crime against the
Employer, as evidenced by a binding and final judgment, order or decree of a
court of competent jurisdiction.
121
<PAGE>
(iii) Gross negligence or refusal by Employee to perform his
duties or responsibilities; or
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Confidential Information" means information (i) disclosed to or
actually known by Employee as a consequence of or through his/her employment
with the Employer, (ii) not generally known outside the Employer, and (iii)
which relates to the Employer's business. Confidential Information includes, but
is not limited to, information of a technical nature, such as methods and
materials, trade secrets, inventions, processes, formulas, systems, computer
programs, and studies, and information of a business nature such as project
plans, market information, costs, customer lists, and so forth.
(f) "Disability" shall mean a physical or mental condition whereby
Employee is unable to perform on a full-time basis his customary duties under
this Agreement.
(g) "Developments" means all Inventions (defined hereafter), computer
programs, copyright works, mask works, trademarks, Confidential Information,
Works of Authorship (defined hereafter), and other Intellectual Property
(defined hereafter), made, conceived or authored by Employee, alone or jointly
with others, while employed by the Employer; whether or not during normal
business hours or on the Employer's premises, that are within the present scope
of the Employer's business at the time such Developments are made, conceived, or
authored, or which result from or are suggested by any work Employee or others
may do for or on behalf of the Employer.
(h) "Employer" means Reliant Interactive Media Corp. and its
subsidiaries, divisions and affiliates as well as majority owned companies of
such subsidiaries, divisions and affiliates, or their successors or assigns.
(i) "Invention" means discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to improvements,
know-how, data, processes, methods, formulae, and techniques, as well as
improvements thereof, or know-how related thereto, concerning any present or
prospective activities of the Employer which Employee makes, discovers or
conceives (whether or not during the hours of his engagement of with the use of
the Employer's facilities, materials or personnel), either solely or jointly
with others during his engagement by the Employer or any affiliate and, if based
on or related or Proprietary Information, at any time after termination of such
engagement.
(j) "Intellectual Property" means Inventions, Confidential
Information, Works of Authorship, patent rights, trademark rights, service mark
122
<PAGE>
rights, copyrights, know-how, Developments and rights of like nature arising or
subsisting anywhere in the world, in relation to all of the foregoing, whether
registered or unregistered.
(k) "Notice of Termination" shall mean the notice described in Section
13 hereof.
(l) "Person" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity, other than an employee benefit
plan of the Employer of an entity organized, appointed of established pursuant
to the terms of any such benefit plan.
(m) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a similar nature related to the
business of the Employer disclosed to the Employee or otherwise made known to
him as a consequence of or through his engagement by the Employer (including
information originated by Employee) in any technological area previously
developed by the Employer or developed, engaged in, or researched, by the
Employer during the term of Employee's engagement, including, but not limited
to, trade secrets, processes, products, formulae, apparatus, techniques,
know-how, marketing plans, data, improvements, strategies, forecasts, customer
lists, and technical requirements of customers, unless such information is in
the public domain to such an extent as to be readily available to competitors.
(n) "Termination Date" shall mean, except as otherwise provided in
Section 12 hereof.
(i) Employee's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment on account of Disability pursuant to
Section 16 hereof, unless Employee returns on a full-time basis to the
performance of his duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by Employee voluntarily; and
(iv) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by the Employer for any
reason other than death or Disability.
(o) "Termination Payment" shall mean the payment described in Section
14 hereof.
(p) "Works of Authorship" means an expression fixed in a tangible
medium of expression regardless of the need for a machine to make the expression
123
<PAGE>
manifest, and includes but is not limited to, writings, reports, drawings,
sculptures, illustrations, video recordings, audio recordings, computer
programs, and charts.
2. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth.
3. Term. Subject to the terms and conditions of this Agreement, the term of
this Agreement shall commence retroactively from December 1, 1998, and end on
December 1, 2003.
4. Duties. During the term of this Agreement, Employee shall be employed by
Employer as its President and Chief Operating Officer. In addition to the office
of President and Chief Operating Officer, Employee agrees to serve in such other
office or position with Employer or any subsidiary of Employer and as such
shall, from time to time, be determined by Employer's Board. Employee agrees to
serve as a member of the Employer's Board. Employee shall devote substantially
all of his working time and efforts to the business of Employer and its
subsidiaries and shall not during the term of this Agreement be engaged in any
other substantial business activities which will significantly interfere or
conflict with the reasonable performance of his duties hereunder.
5. Compensation.
(a) Salary. For all services rendered by Employee, Employer shall pay
to Employee a base salary of $96,000 for the first year and the base salary
shall increase by $12,000 per year for each of the remaining four years of this
Agreement payable in bi-monthly installments. Employee shall also be due a base
salary from the time of the inception of employment by Employer of the Employee
to the date of this Agreement equal to the rate of compensation as defined for
the first year of this Agreement. If Employer's financial constraints so
dictate, Employee agrees to defer a portion of the salary contained in this
Section. This deferred base salary along with any deferred base salary earned
prior to the date of this Agreement shall be paid to Employee at such time or
times as financial constraints so dictate. All salary payments shall be subject
to withholding and other applicable taxes. The rate of salary may be increased
at any time, as the Board may determine, based on earnings, increased activities
of the Employer, or such other factors as the Board may deem appropriate from
time to time. Employee shall receive bonus or incentive compensation as approved
by the Board.
(b) Incentive Compensation. In the event that Employer achieves
"ADJUSTED GROSS REVENUES" annually in excess of $10,000,000 Employee shall
receive additional compensation equal to 6/10 of 1% of "ADJUSTED GROSS
REVENUES". This Incentive compensation shall be paid on a quarterly basis within
thirty days of the end of the calendar quarter based on the preceding calendar
124
<PAGE>
quarter's "ADJUSTED GROSS REVENUES". "GROSS" and "ADJUSTED GROSS REVENUES" are
defined as follows: "GROSS REVENUES" shall mean all income of Employer from all
sources exclusive of sales taxes, use taxes, value added taxes, and any other
taxes imposed upon sales of products. "ADJUSTED GROSS REVENUES" shall mean
Employer's Gross Revenues from sales of the products, less all of the following:
(i) refunds, credits or other allowances on account of return or
rejection of goods or otherwise granted in the ordinary course of business, as
actually incurred and as reserved for ("Returns");
125
<PAGE>
(ii) uncollectible accounts due to credit card charge backs, bad
checks or other reasons of uncollectability, as actually incurred and as
reserved for ("Uncollectibles"); and
(iii) sales made at or below Reliant's cost of goods for purposes of
liquidation or closeout ("Liquidation Sales").
(c) Insurance Benefits. Employer shall provide health and medical
insurance for Employee in a form and program to be chosen by Employer for
certain of its full-time employees. Employer shall provide Employee with
directors and officers liability insurance in the amount of $2,000,000 and life
and disability insurance in amounts approved by the Board.
(d) Other Benefits. Employee shall be entitled to participate in any
retirement, pension, profit-sharing, or other plan as may be put in effect from
time to time by the Board, including the following:
(i) Qualified Stock Option Plan. Pursuant to a Qualified Stock Option
Plan authorized by the Board and approved by the Shareholders of Employer,
Employee shall have the option to purchase up to 40,000 shares of Employer's
stock in six months at $2.50 per share, in 12 months at $4.00 per share, in
eighteen months at $6.00 per share and in twenty-four months at $7.50 per share;
(ii) Revenue Performance Bonuses. Employee shall be issued 100,000
shares of Employer's stock for each $10,000,000 in gross revenues (in accordance
with SEC Reg SX accounting rules) received by Employer with a maximum of
2,000,000 shares to be issued; and
(iii) Stock Performance Options. Employee shall have the option to
purchase stock of Employer at $7.50 per share as follows: up to 100,000 shares
if the public trading price close at a minimum of $15 per share for five
consecutive days; up to an additional 100,000 shares should the public trading
price close at a minimum of $20 per share for five consecutive days; and up to
126
<PAGE>
an additional 120,000 shares if the public trading price should close at a
minimum of $25 for five consecutive days.
(e) Automobile / Transportation. Employer shall pay for Employees
monthly automobile payment, not to exceed $750 per month, including applicable
insurance.
6. Expenses. Employer will reimburse Employee for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items of Employee's periodic
presentation of an account of such expenses.
7. Working Facilities. Employer shall provide to Employee offices and
facilities appropriate to Employee's position and suitable for the performance
of Employee's duties as set forth in this Agreement.
8. Nondisclosure of Proprietary and Confidential Information. Recognizing
that the Employer is presently engaged, and may hereafter continue to be engaged
in the research and development of processes, the manufacturing of products or
performance of services, which involve experimental and inventive work and that
the success of the Employer's business depends upon the protection of the
processes, products and services by patent, copyright or by secrecy and that
Employee has had, or during the course of his engagement may have, access to
Proprietary and Confidential Information, as herein defined, of the Employer or
other information and data of a secret or proprietary nature of the Employer
which the Employer wishes to keep confidential and Employee has furnished, or
during the course of his engagement may furnish, such information to the
Employer, Employee agrees and acknowledges that:
(a) The Employer has exclusive property rights to all Proprietary and
Confidential Information and Employee hereby assigns all rights he might
otherwise possess in any Proprietary and Confidential Information to the
Employer. Except as required in the performance of his duties to the Employer,
Employee will not at any time during or after the term of his engagement, which
term shall include any time in which Employee may be retained by the Employer as
a consultant, directly or indirectly use, communicate, disclose or disseminate
any Proprietary or Confidential Information of a secret, proprietary,
confidential or generally undisclosed nature relating to the Employer, its
products, customers, processes and services, including information relating to
testing, research, development, manufacturing, marketing and selling.
(b) All documents, records, notebooks, notes, memoranda and similar
repositories of, or containing, Proprietary and Confidential Information or any
other information of a secret, proprietary, confidential or generally
127
<PAGE>
undisclosed nature relating to the Employer or its operations and activities
made or compiled by Employee at any time or made available to him prior to or
during the term of his engagement by the Employer, including any and all copies
thereof, shall be the property of the Employer, shall be held by him in trust
solely for the benefit of the Employer, and shall be delivered to the Employer
by him on the termination of his engagement or at any other time on the request
of the Employer.
(c) Employee will not assert any rights under any inventions,
trademarks, copyrights, discoveries, concepts or ideas, or improvements thereof,
or know-how related thereto, as having been made or acquired by him during the
term of his engagement if based on or otherwise related to Proprietary or
Confidential Information.
9. Assignment Of Inventions.
(a) All Inventions shall be the sole property of the Employer, and
Employee agrees to perform the provisions of the Section 9 with respect thereto
without the payment by the Employer of any royalty or any consideration therefor
other than the regular compensation paid to Employee in the capacity of any
employee or consultant.
(b) Employee shall apply, at the Employer's request and expense, for
United States and foreign letters patent or copyrights either in Employee's name
or otherwise an the Employer shall desire.
(c) Employee hereby assigns to the Employer all of his rights to such
Inventions, and to applications for United States and/or foreign letters patent
or copyrights and to United States and/or foreign letter patent or copyrights
granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Employer,
without charge to the Employer, but at its expense, such written instruments
(including applications and assignments) and do such other acts, such as giving
testimony in support of Employee's inventorship, as may be necessary in the
opinion of the Employer to obtain, maintain, extend, reissue and enforce United
States and/or foreign letters patent and copyrights relation to the Inventions
and to vest the entire right and title thereto in the Employer of its nominee.
Employee acknowledges and agrees that any copyright developed or conceived of,
by Employee during the term of his employment which is related to the Business
of the Employer shall be a "work for hire" under the copyright law of the United
States and other applicable jurisdictions.
(e) Employee represents that his performance of all the terms of this
Agreement and as an employee of or consultant to the Employer does not and will
not breach any trust prior to his employment by the Employer. Employee agrees
not to enter into any agreement either written or oral in conflict herewith and
128
<PAGE>
represents and agrees that he has not brought and will not bring with to the
Employer or use in the performance of his responsibilities at the Employer any
materials or documents of a former employer which are not generally available to
the public, unless he has obtained written authorization from the former
employer for their possession and use, a copy of which has been provided to the
Employer.
(f) No provisions of the Paragraph shall be deemed to limit the
restrictions applicable to Employee under Section 8 and 9.
10. Shop Rights.
The Employer shall also have the royalty-free right to use in its business,
and to make, use and sell products, processes and/or services derived from any
inventions, discoveries, concepts and ideas, whether or not patentable,
including but not limited to processes, methods, formulas and techniques, as
well as improvements thereof or know-how related thereto, which are not within
the scope of Inventions as defined herein but which are conceived of or made by
Employee during the period he is engaged by the Employer or with the use or
assistance of the Employer's facilities, materials or personnel.
11. Non-Compete.
Employee hereby agrees that during the term of this Agreement Employee will
not:
(a) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, own, manage,
operate, or control any business of the type and character engaged in and
competitive with the Employer or any subsidiary thereof. For purposes of this
paragraph, ownership of securities of not in excess of five percent (5%) of any
class of securities of a public employer listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) shall not be considered to be competition with the
Employer or any subsidiary thereof;
(b) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, act as, or
become employed as an officer, director, employee, consultant or agent of any
business of the type and character engaged in and competitive with the Employer
or any of its subsidiaries;
(c) Solicit any similar business to that of the Employer's for, or
sell any products that are in competition with the Employer's products to which
is, as of the date hereof, a customer or client of the Employer or any of its
subsidiaries, or was such a customer or client thereof within two years prior to
the date of this Agreement; or
129
<PAGE>
(d) For up to six months following the termination of this Agreement,
solicit the employment of, or hire, any full time employee employed by the
Employer or its subsidiaries as of the date of termination of this Agreement.
12. Termination. Employer may not terminate this Agreement during its term
without Cause as defined herein. If this Agreement is terminated without Cause,
Employee shall be entitled to the Termination Payments set forth in Section 14
hereof. Any termination by Employer of Employee of Employee's employment during
the term hereof shall be communicated by written Notice of Termination to
Employee, if such Notice of Termination is delivered by the Employer, and to the
Employee, if such Notice of Termination is delivered by Employee, all in
accordance with the following procedures:
(a) The Notice of termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination;
(b) Any Notice of Termination by the Employer shall be approved by a
resolution duly adopted by a majority of the members of the Employer;
(c) If Employee shall provide the president or chief executive officer
with a Notice of Termination at least 30 days prior to leaving the employment of
the Employer. Upon the end of the thirty days, all compensation provisions of
this Agreement shall cease.
13. Termination Upon Transfer of Business. Notwithstanding any provision
this Agreement to the contrary, Employee may terminate this Agreement upon the
happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the sale, exchange, or other disposition to a single
entity or group of entities under common control in one transaction or series of
related transactions of greater than 50% of the outstanding shares of Employer's
common stock; (c) the decision by Employer to terminate its business and
liquidate its assets; or (d) the merger or consolidation of Employer in a
transaction in which the shareholders of the Employer immediately prior to such
merger or consolidation receive less than 50% of the outstanding voting shares
of the new or continuing corporation. In the event Employee does not elect to
terminate this Agreement upon the happening of any of the events noted above,
and as a result of such event, Employer is not the surviving entity, then the
provisions of this Agreement shall inure to the benefit of and be binding upon
the surviving or resulting entity. If as a result of the merger, consolidation,
transfer of assets, or other event listed above, the duties of Employee are
increased, then the compensation of Employee provided for in paragraph 5 of this
Agreement shall be reasonably adjusted upward for the additional duties and
responsibilities assumed.
130
<PAGE>
14. Termination Payments. In the event the Employee's employment is
terminated by the Employer during the term hereof for reasons other than Cause,
as defined herein, Employee shall be paid any sums owed under this Agreement,
including but not limited to any salary, any deferred compensation, accrued
benefits, bonuses and options, and for any potential actions for breach of this
Agreement by Employer. Other than any payments set forth in this Section 14,
Employment shall be entitled to no further compensation nor any other payments
after termination. Employee shall receive no further payments if terminated for
Cause other than Accrued Benefits.
15. Death During Employment. If Employee dies during the term of this
Agreement, Employer shall have no further obligations to pay Employee other than
any Accrued Benefits.
16. Illness or Incapacity. If Employee is unable to perform Employee's
services by reason of illness or incapacity for a period of more than two (2)
consecutive months, the compensation thereafter payable to Employee during the
next two (2) consecutive months shall be 50% of the compensation provided for
herein. During such period of illness or incapacity, Employee shall be entitles
to receive incentive compensation if any. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within a four (4) consecutive
month period, Employee shall not be entitled to receive any further compensation
nor any payments for such illness or incapacity, and Employer may terminate this
Agreement without further liability to Employee. Any existing options to
purchase Employer's common stock held by Employee at the time termination shall
be governed by the terms of the option and not affected by this provision. At
the termination of such illness or incapacity, Employee shall be entitled to
receive Employee's full compensation payable pursuant to the terms of this
Agreement.
17. Nontransferability. Neither Employee, Employee's spouse, Employee's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement. Such
payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
18. 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.
19. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
131
<PAGE>
20. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of employee by employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by the
parties to this Agreement.
21. Enforcement. Each of the parties to this Agreement shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party. Employee hereby specifically
acknowledges and agrees that a breach of the agreements, covenants and
conditions of this Agreement will cause irreparable harm and damage to the
Employer, that the remedy at law, for the breach or threatened breach of this
Agreement will be adequate, and that, in addition to all other remedies
available to the Employer for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be entitled
to injunctive relief for any breach or threatened breach of this Agreement.
22. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
23. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
24. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
25. Litigation Expenses. In the event that it shall be necessary or
desirable for the Employee or Employer to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
provisions of this Agreement, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees, costs, and expenses incurred by
the prevailing party in connection with the enforcement of this Agreement.
Payment shall be made upon the conclusion of such action.
132
<PAGE>
26. Survivability. The provisions of Section 8, 9, 10, 11 and 12 shall
survive termination of this Agreement.
AGREED AND ENTERED INTO as of the date first above written.
C
EMPLOYER:
Reliant Interactive Media Corp.
By: /s/
__________________________________
Duly Authorized Officer
EMPLOYEE:
By: /s/
________________________________
Tim Harrington
133
<PAGE>
Exhibit 6.3
Employment Agreement
Mel Arthur
134
<PAGE>
EMPLOYMENT AGREEMENT
Reliant Interactive Media Corp. ("Employer")
and Mel Arthur ("Employee").
June 1999 Page 161
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into effective this 30th
day of June, 1999, by and between Reliant Interactive Media Corp. (the
"Employer"), and Mel Arthur (the "Employee").
PREMISES
a) Employee possesses expertise, experience and skill in the
development and marketing of products via electronic and other multi-media
means.
b) Employee has demonstrated the ability to run, manage and build a
development stage business.
c) Employer desires to employ Employee to serve as its Executive Vice
President.
d) Employee desires to perform all of such services as Employer's
employee and both parties want to enter into a written agreement as to their
understanding of the employment relationship.
AGREEMENT
For and in Consideration of the mutual covenants contained herein and of
the mutual benefits to be derived hereunder, the parties agree as follows:
1. Definitions. Whenever used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
ten (10) days following an applicable Termination Date and which shall be equal
to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in connection
with Employee's employment for reasonable and necessary expenses incurred by
Employee and approved by the Employer through the Termination Date; and
(iii) All other payments and benefits to which Employee may be
entitled under the terms of any benefit plan of the Employer.
(b) "Board" shall mean the board of directors of the Employer.
(c) "Cause" shall mean any of the following:
(i) The engagement by Employee in fraudulent conduct, which has a
significant adverse impact on the Employer in the conduct of the Employer's
business;
(ii) Conviction of a felony involving a crime against the
Employer, as evidenced by a binding and final judgment, order or decree of a
court of competent jurisdiction.
135
<PAGE>
(iii) Gross negligence or refusal by Employee to perform his
duties or responsibilities; or
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "Confidential Information" means information (i) disclosed to or
actually known by Employee as a consequence of or through his/her employment
with the Employer, (ii) not generally known outside the Employer, and (iii)
which relates to the Employer's business. Confidential Information includes, but
is not limited to, information of a technical nature, such as methods and
materials, trade secrets, inventions, processes, formulas, systems, computer
programs, and studies, and information of a business nature such as project
plans, market information, costs, customer lists, and so forth.
(f) "Disability" shall mean a physical or mental condition whereby
Employee is unable to perform on a full-time basis his customary duties under
this Agreement.
(g) "Developments" means all Inventions (defined hereafter), computer
programs, copyright works, mask works, trademarks, Confidential Information,
Works of Authorship (defined hereafter), and other Intellectual Property
(defined hereafter), made, conceived or authored by Employee, alone or jointly
with others, while employed by the Employer; whether or not during normal
business hours or on the Employer's premises, that are within the present scope
of the Employer's business at the time such Developments are made, conceived, or
authored, or which result from or are suggested by any work Employee or others
may do for or on behalf of the Employer.
(h) "Employer" means Reliant Interactive Media Corp. and its
subsidiaries, divisions and affiliates as well as majority owned companies of
such subsidiaries, divisions and affiliates, or their successors or assigns.
(i) "Invention" means discoveries, concepts, and ideas, whether or not
patentable or copyrightable, including but not limited to improvements,
know-how, data, processes, methods, formulae, and techniques, as well as
improvements thereof, or know-how related thereto, concerning any present or
prospective activities of the Employer which Employee makes, discovers or
conceives (whether or not during the hours of his engagement of with the use of
the Employer's facilities, materials or personnel), either solely or jointly
with others during his engagement by the Employer or any affiliate and, if based
on or related or Proprietary Information, at any time after termination of such
engagement.
(j) "Intellectual Property" means Inventions, Confidential
Information, Works of Authorship, patent rights, trademark rights, service mark
136
<PAGE>
rights, copyrights, know-how, Developments and rights of like nature arising or
subsisting anywhere in the world, in relation to all of the foregoing, whether
registered or unregistered.
(k) "Notice of Termination" shall mean the notice described in Section
13 hereof.
(l) "Person" shall mean any individual, partnership, joint venture,
association, trust, corporation or other entity, other than an employee benefit
plan of the Employer of an entity organized, appointed of established pursuant
to the terms of any such benefit plan.
(m) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a similar nature related to the
business of the Employer disclosed to the Employee or otherwise made known to
him as a consequence of or through his engagement by the Employer (including
information originated by Employee) in any technological area previously
developed by the Employer or developed, engaged in, or researched, by the
Employer during the term of Employee's engagement, including, but not limited
to, trade secrets, processes, products, formulae, apparatus, techniques,
know-how, marketing plans, data, improvements, strategies, forecasts, customer
lists, and technical requirements of customers, unless such information is in
the public domain to such an extent as to be readily available to competitors.
(n) "Termination Date" shall mean, except as otherwise provided in
Section 12 hereof.
(i) Employee's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment on account of Disability pursuant to
Section 16 hereof, unless Employee returns on a full-time basis to the
performance of his duties prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by Employee voluntarily; and
(iv) Thirty (30) days after the delivery of the Notice of
Termination if Employee's employment is terminated by the Employer for any
reason other than death or Disability.
(o) "Termination Payment" shall mean the payment described in Section
14 hereof.
(p) "Works of Authorship" means an expression fixed in a tangible
medium of expression regardless of the need for a machine to make the expression
137
<PAGE>
manifest, and includes but is not limited to, writings, reports, drawings,
sculptures, illustrations, video recordings, audio recordings, computer
programs, and charts.
2. Employment. Employer hereby employs Employee to perform those duties
generally described in this Agreement, and Employee hereby accepts and agrees to
such employment on the terms and conditions hereinafter set forth.
3. Term. Subject to the terms and conditions of this Agreement, the term of
this Agreement shall commence retroactively from __________________, and end on
______________________.
4. Duties. During the term of this Agreement, Employee shall be employed by
Employer as its Executive Vice President. In addition to the office of Executive
Vice President, Employee agrees to serve in such other office or position with
Employer or any subsidiary of Employer and as such shall, from time to time, be
determined by Employer's Board. Employee agrees to serve as a member of the
Employer's Board. Employee shall devote substantially all of his working time
and efforts to the business of Employer and its subsidiaries and shall not
during the term of this Agreement be engaged in any other substantial business
activities which will significantly interfere or conflict with the reasonable
performance of his duties hereunder.
5. Compensation.
(a) Salary. For all services rendered by Employee, Employer shall pay
to Employee a base salary of $3,500 per month, in bi-monthly installments.
Employee shall also be due a base salary from the time of the inception of
employment by Employer of the Employee to the date of this Agreement equal to
the same base salary rate. If Employer's financial constraints so dictate,
Employee agrees to defer a portion of the salary contained in this Section. This
deferred base salary along with any deferred base salary earned prior to the
date of this Agreement shall be paid to Employee at such time or times as
financial constraints so dictate. The rate of salary may be increased at any
time, as the Board may determine, based on earnings, increased activities of the
Employer, or such other factors as the Board may deem appropriate from time to
time. Employee shall receive bonus or incentive compensation as approved by the
Board.
(b) Insurance Benefits. Employer shall provide health and medical
insurance for Employee in a form and program to be chosen by Employer for
certain of its full-time employees. Employer shall provide Employee with
directors and officers liability insurance in the amount of $2,000,000 and life
disability insurance in amounts approved by the Board.
138
<PAGE>
(c) Other Benefits. On or about August 5, 1999, Employee shall be
issued 100,000 shares of Employer's stock as additional compensation for his
services. Employee shall be entitled to participate in any retirement, pension,
profit-sharing, or other plan as may be put in effect from time to time by the
Board, including the following:
(i) Qualified Stock Option Plan. Pursuant to a Qualified Stock Option
Plan authorized by the Board and approved by the Shareholders of Employer,
Employee shall have the option to purchase up to 5,000 shares of Employer's
stock in six months at $2.50 per share, in 12 months at $4.00 per share, in
eighteen months at $6.00 per share and in twenty-four months at $7.50 per share;
(ii) Revenue Performance Bonuses. Employee shall be issued 100,000
shares of Employer's stock for each $10,000,000 in gross revenues (in accordance
with SEC Reg SX accounting rules) received by Employer with a maximum of 900,000
shares to be issued; provided that no more than 1/6 of this stock can be vested
in any six month period. However, the first 100,000 shares cannot be vested
prior to February 5, 2000, and for this first issuance hereunder Employer must
have received a minimum of $20,000,000 in gross revenues; and
(iii) Stock Performance Options. Employee shall have the option to
purchase stock of Employer at $7.50 per share as follows: up to 12,500 shares if
the public trading price close at a minimum of $15 per share for five
consecutive days; up to an additional 12,500 shares should the public trading
price close at a minimum of $20 per share for five consecutive days; and up to
an additional 15,000 shares if the public trading price should close at a
minimum of $25 for five consecutive days.
(d). Automobile / Transportation. Emploer shall pay for Employee's
monthly automobile payment, not to exceed $500 per month, including
applicable insurance.
6. Expenses. Employer will reimburse Employee for expenses incurred in
connection with Employer's business, including expenses for travel, lodging,
meals, beverages, entertainment, and other items of Employee's periodic
presentation of an account of such expenses.
7. Working Facilities. Employer shall provide to Employee offices and
facilities appropriate to Employee's position and suitable for the performance
of Employee's duties as set forth in this Agreement.
8. Nondisclosure of Proprietary and Confidential Information. Recognizing
that the Employer is presently engaged, and may hereafter continue to be engaged
in the research and development of processes, the manufacturing of products or
performance of services, which involve experimental and inventive work and that
139
<PAGE>
the success of the Employer's business depends upon the protection of the
processes, products and services by patent, copyright or by secrecy and that
Employee has had, or during the course of his engagement may have, access to
Proprietary and Confidential Information, as herein defined, of the Employer or
other information and data of a secret or proprietary nature of the Employer
which the Employer wishes to keep confidential and Employee has furnished, or
during the course of his engagement may furnish, such information to the
Employer, Employee agrees and acknowledges that:
(a) The Employer has exclusive property rights to all Proprietary and
Confidential Information and Employee hereby assigns all rights he might
otherwise possess in any Proprietary and Confidential Information to the
Employer. Except as required in the performance of his duties to the Employer,
Employee will not at any time during or after the term of his engagement, which
term shall include any time in which Employee may be retained by the Employer as
a consultant, directly or indirectly use, communicate, disclose or disseminate
any Proprietary or Confidential Information of a secret, proprietary,
confidential or generally undisclosed nature relating to the Employer, its
products, customers, processes and services, including information relating to
testing, research, development, manufacturing, marketing and selling.
(b) All documents, records, notebooks, notes, memoranda and similar
repositories of, or containing, Proprietary and Confidential Information or any
other information of a secret, proprietary, confidential or generally
undisclosed nature relating to the Employer or its operations and activities
made or compiled by Employee at any time or made available to him prior to or
during the term of his engagement by the Employer, including any and all copies
thereof, shall be the property of the Employer, shall be held by him in trust
solely for the benefit of the Employer, and shall be delivered to the Employer
by him on the termination of his engagement or at any other time on the request
of the Employer.
(c) Employee will not assert any rights under any inventions,
trademarks, copyrights, discoveries, concepts or ideas, or improvements thereof,
or know-how related thereto, as having been made or acquired by him during the
term of his engagement if based on or otherwise related to Proprietary or
Confidential Information.
9. Assignment Of Inventions.
(a) All Inventions shall be the sole property of the Employer, and
Employee agrees to perform the provisions of the Section 9 with respect thereto
without the payment by the Employer of any royalty or any consideration therefor
other than the regular compensation paid to Employee in the capacity of any
employee or consultant.
140
<PAGE>
(b) Employee shall apply, at the Employer's request and expense, for
United States and foreign letters patent or copyrights either in Employee's name
or otherwise an the Employer shall desire.
(c) Employee hereby assigns to the Employer all of his rights to such
Inventions, and to applications for United States and/or foreign letters patent
or copyrights and to United States and/or foreign letter patent or copyrights
granted upon such Inventions.
(d) Employee shall acknowledge and deliver promptly to the Employer,
without charge to the Employer, but at its expense, such written instruments
(including applications and assignments) and do such other acts, such as giving
testimony in support of Employee's inventorship, as may be necessary in the
opinion of the Employer to obtain, maintain, extend, reissue and enforce United
States and/or foreign letters patent and copyrights relation to the Inventions
and to vest the entire right and title thereto in the Employer of its nominee.
Employee acknowledges and agrees that any copyright developed or conceived of,
by Employee during the term of his employment which is related to the Business
of the Employer shall be a "work for hire" under the copyright law of the United
States and other applicable jurisdictions.
(e) Employee represents that his performance of all the terms of this
Agreement and as an employee of or consultant to the Employer does not and will
not breach any trust prior to his employment by the Employer. Employee agrees
not to enter into any agreement either written or oral in conflict herewith and
represents and agrees that he has not brought and will not bring with to the
Employer or use in the performance of his responsibilities at the Employer any
materials or documents of a former employer which are not generally available to
the public, unless he has obtained written authorization from the former
employer for their possession and use, a copy of which has been provided to the
Employer.
(f) No provisions of the Paragraph shall be deemed to limit the
restrictions applicable to Employee under Section 8 and 9.
10. Shop Rights.
The Employer shall also have the royalty-free right to use in its business,
and to make, use and sell products, processes and/or services derived from any
inventions, discoveries, concepts and ideas, whether or not patentable,
including but not limited to processes, methods, formulas and techniques, as
well as improvements thereof or know-how related thereto, which are not within
the scope of Inventions as defined herein but which are conceived of or made by
Employee during the period he is engaged by the Employer or with the use or
assistance of the Employer's facilities, materials or personnel.
141
<PAGE>
11. Non-Compete.
Employee hereby agrees that during the term of this Agreement Employee will
not:
(a) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, own, manage,
operate, or control any business of the type and character engaged in and
competitive with the Employer or any subsidiary thereof. For purposes of this
paragraph, ownership of securities of not in excess of five percent (5%) of any
class of securities of a public employer listed on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (NASDAQ) shall not be considered to be competition with the
Employer or any subsidiary thereof;
(b) Within any jurisdiction or marketing area in the United States in
which the Employer or any subsidiary thereof is doing business, act as, or
become employed as an officer, director, employee, consultant or agent of any
business of the type and character engaged in and competitive with the Employer
or any of its subsidiaries;
(c) Solicit any similar business to that of the Employer's for, or
sell any products that are in competition with the Employer's products to which
is, as of the date hereof, a customer or client of the Employer or any of its
subsidiaries, or was such a customer or client thereof within two years prior to
the date of this Agreement; or
(d) For up to six months following the termination of this Agreement,
solicit the employment of, or hire, any full time employee employed by the
Employer or its subsidiaries as of the date of termination of this Agreement.
12. Termination. Employer may not terminate this Agreement during its term
without Cause as defined herein. If this Agreement is terminated without Cause,
Employee shall be entitled to the Termination Payments set forth in Section 14
hereof. Any termination by Employer of Employee of Employee's employment during
the term hereof shall be communicated by written Notice of Termination to
Employee, if such Notice of Termination is delivered by the Employer, and to the
Employee, if such Notice of Termination is delivered by Employee, all in
accordance with the following procedures:
(a) The Notice of termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination;
(b) Any Notice of Termination by the Employer shall be approved by a
resolution duly adopted by a majority of the members of the Employer;
(c) If Employee shall provide the president or chief executive officer
with a Notice of Termination at least 30 days prior to leaving the employment of
the Employer. Upon the end of the thirty days, all compensation provisions of
this Agreement shall cease.
142
<PAGE>
13. Termination Upon Transfer of Business. Notwithstanding any provision
this Agreement to the contrary, Employee may terminate this Agreement upon the
happening of any of the following events: (a) the sale by Employer of
substantially all of its assets to a single purchaser or to a group of
associated purchasers; (b) the sale, exchange, or other disposition to a single
entity or group of entities under common control in one transaction or series of
related transactions of greater than 50% of the outstanding shares of Employer's
common stock; (c) the decision by Employer to terminate its business and
liquidate its assets; or (d) the merger or consolidation of Employer in a
transaction in which the shareholders of the Employer immediately prior to such
merger or consolidation receive less than 50% of the outstanding voting shares
of the new or continuing corporation. In the event Employee does not elect to
terminate this Agreement upon the happening of any of the events noted above,
and as a result of such event, Employer is not the surviving entity, then the
provisions of this Agreement shall inure to the benefit of and be binding upon
the surviving or resulting entity. If as a result of the merger, consolidation,
transfer of assets, or other event listed above, the duties of Employee are
increased, then the compensation of Employee provided for in paragraph 5 of this
Agreement shall be reasonably adjusted upward for the additional duties and
responsibilities assumed.
14. Termination Payments. In the event the Employee's employment is
terminated by the Employer during the term hereof for reasons other than Cause,
as defined herein, Employee shall be paid any sums owed under this Agreement,
including but not limited to any salary, any deferred compensation, accrued
benefits, bonuses and options, and for any potential actions for breach of this
Agreement by Employer. Other than any payments set forth in this Section 14,
Employment shall be entitled to no further compensation nor any other payments
after termination. Employee shall receive no further payments if terminated for
Cause other than Accrued Benefits.
15. Death During Employment. If Employee dies during the term of this
Agreement, Employer shall have no further obligations to pay Employee other than
any Accrued Benefits.
16. Illness or Incapacity. If Employee is unable to perform Employee's
services by reason of illness or incapacity for a period of more than two (2)
consecutive months, the compensation thereafter payable to Employee during the
next two (2) consecutive months shall be 50% of the compensation provided for
herein. During such period of illness or incapacity, Employee shall be entitles
to receive incentive compensation if any. Notwithstanding the foregoing, if such
illness or incapacity does not cease to exist within a four (4) consecutive
143
<PAGE>
month period, Employee shall not be entitled to receive any further compensation
nor any payments for such illness or incapacity, and Employer may terminate this
Agreement without further liability to Employee. Any existing options to
purchase Employer's common stock held by Employee at the time termination shall
be governed by the terms of the option and not affected by this provision. At
the termination of such illness or incapacity, Employee shall be entitled to
receive Employee's full compensation payable pursuant to the terms of this
Agreement.
17. Nontransferability. Neither Employee, Employee's spouse, Employee's
designated contingent beneficiary, nor their estates shall have any right to
anticipate, encumber, or dispose of any payment due under this Agreement. Such
payments and other rights are expressly declared nonassignable and
nontransferable except as specifically provided herein.
18. 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.
19. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party.
20. Entire Agreement. This Agreement is and shall be considered to be the
only agreement or understanding between the parties hereto with respect to the
employment of employee by employer. All negotiations, commitments, and
understandings acceptable to both parties have been incorporated herein. No
letter, telegram, or communication passing between the parties hereto covering
any matter during this contract period, or any plans or periods thereafter,
shall be deemed a part of this Agreement; nor shall it have the effect of
modifying or adding to this Agreement unless it is distinctly stated in such
letter, telegram, or communication that is to constitute a part of this
Agreement and is attached as an amendment to this Agreement and is signed by the
parties to this Agreement.
21. Enforcement. Each of the parties to this Agreement shall be entitled to
any remedies available in equity or by statute with respect to the breach of the
terms of this Agreement by the other party. Employee hereby specifically
acknowledges and agrees that a breach of the agreements, covenants and
conditions of this Agreement will cause irreparable harm and damage to the
Employer, that the remedy at law, for the breach or threatened breach of this
Agreement will be adequate, and that, in addition to all other remedies
available to the Employer for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be entitled
to injunctive relief for any breach or threatened breach of this Agreement.
22. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
144
<PAGE>
23. Severability. If and to the extent that any court of competent
jurisdiction holds any provision or any part thereof of this Agreement to be
invalid or unenforceable, such holding shall in no way affect the validity of
the remainder of this Agreement.
24. Waiver. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement, or condition of this Agreement or to exercise
any right or remedy consequent upon a breach hereof shall constitute a waiver of
any such breach or of any covenant, agreement, term, or condition.
25. Litigation Expenses. In the event that it shall be necessary or
desirable for the Employee or Employer to retain legal counsel and/or incur
other costs and expenses in connection with the enforcement of any or all of the
provisions of this Agreement, the prevailing party shall be entitled to recover
from the other party reasonable attorneys' fees, costs, and expenses incurred by
the prevailing party in connection with the enforcement of this Agreement.
Payment shall be made upon the conclusion of such action.
26. Survivability. The provisions of Section 8, 9, 10, 11 and 12 shall
survive termination of this Agreement.
AGREED AND ENTERED INTO as of the date first above written.
EMPLOYER:
Reliant Interactive Media Corp.
By: /s/
__________________________________
Duly Authorized Officer
EMPLOYEE:
By: \s\
________________________________
Mel Arthur
145
<PAGE>
Exhibit 6.4
Compensatory Stock Option Plan
146
<PAGE>
Reliant Interactive Media Corp.
1999 COMPENSATORY STOCK OPTION PLAN
1. Purpose of this Plan.
This Compensatory Stock Option Plan ("Plan") is intended as an employment
incentive, to aid in attracting and retaining in the employ or service of
Reliant Interactive Media Corp. ("Company"), a Nevada corporation, and any
Affiliated company, persons of experience and ability and whose services are
considered valuable, to encourage the sense of proprietorship in such persons,
and to stimulate the active interest of such persons in the development and
success of the Company. This Plan provides for the issuance of non-statutory
stock options ("CSOs" or "Options") which are not intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"). Certain other terms also are defined
in Paragraph 17 and elsewhere of this Plan.
2. Administration of this Plan.
The Company's Board of Directors ("Board") may appoint and maintain as
administrator of this Plan the Compensation Committee ("Committee") of the Board
which shall consist of at least two members of the Board. At any time that the
Committee is not duly constituted, the Board itself shall have and fulfill the
duties herein allocated to the Committee. The Committee shall have full power
and authority to designate Plan participants, to determine the provisions and
terms of respective CSOs (which need not be identical as to number of shares
covered by any CSO, the method of exercise as related to exercise in whole or in
installments, or otherwise), including the CSO price, and to interpret the
provisions and supervise the administration of this Plan. The Committee may in
its discretion provide that certain CSOs not vest (that is, become exercisable)
until expiration of a certain period after issuance or until other conditions
are satisfied, so long as not contrary to this Plan.
A majority of the members of the Committee shall constitute a quorum. All
decisions and selections made by the Committee pursuant to this Plan's
provisions shall be made by a majority of its members. Any decision reduced to
writing and signed by all of the members shall be fully effective as if it had
been made by a majority at a meeting duly held. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and
places as it deems advisable. Each Option shall be evidenced by a written
agreement containing terms and conditions established by the Committee
consistent with the provisions of this Plan.
3. Designation of Participants
Only Employees shall be eligible for participation in this Plan. The
Committee shall have full power to designate, from among eligible individuals,
the persons to whom CSOs may be granted. A person who has been granted a CSO
hereunder may be granted an additional CSO or CSOs, if the committee shall so
determine. Persons eligible under this Plan additionally may be granted one or
more options under any other compensation or stock option plan or awarded shares
under any other benefit plan of the Company. No Option shall confer any right
upon the Optionee with respect to the continuation of his employment (or his
147
<PAGE>
position as an officer, director, employee or consultant) with the Company or
any Affiliated Company, and shall not interfere with the right of the Company or
any Affiliated Company to terminate such relationship(s) at any time in
accordance with law and any agreements then in force.
4. Stock Reserved for this Plan.
Subject to adjustment as provided in Paragraph 9 below, a total of 500,000
Shares of Common Stock of the Company ("Option Stock" or "Option Shares") shall
be subject to this Plan. The Option Stock subject to this Plan shall consist of
unissued shares of Common Stock or previously issued shares of Common Stock
reacquired and held by the Company or any Affiliated Company, and such number of
Option Shares shall be and is hereby reserved for sale for such purpose. Any
Option Shares which may remain unsold and which are not subject to outstanding
CSOs at the termination of this Plan shall cease to be reserved for the purpose
of this Plan, but until termination of this Plan the Company shall at all times
reserve a sufficient number of shares to meet the requirements of this Plan.
Should any CSO expire or be cancelled prior to its exercise in full, the
unexercised Option Shares theretofore subject to such CSO may again be subjected
to a CSO under this Plan.
5. Option Exercise Price.
The purchase (exercise) price of each share of Option Stock made subject to
an Option shall be Two Dollars and fifty cents ($2.50) per share for the first
six (6) months; Four Dollars ($4.00) per share for the seventh (7th) through
twelfth (12th) month; Six Dollars ($6.00) per share for the thirteenth (13th)
through eighteenth (18th) month; and Seven Dollars and fifty cents ($7.50) for
the nineteenth (19th) through twenty-fourth (24th) month of Common Stock.
6. Exercise Period; Vesting.
(a) An Option shall have a term of not more than five (5) years from
the date of grant and shall automatically terminate:
(i) Upon termination of the Optionee's employment with the Company
for cause;
(ii) At the expiration of a period to be determined by the
Committee at the time of grant which is not to exceed six (6) months following
the date of termination of the Optionee's employment with the Company without
cause for any reason other than death; provided that if no such period is
specified in the Option, the Option shall automatically terminate thirty days
following termination of Optionee's employment; provided, further, that if the
Optionee dies within such period, subclause (iii) below shall apply; or
(iii) At the expiration of twelve (12) months after the date of
death of the Optionee; provided, that the Committee may in its discretion
provide that any Option not be exercisable after the Optionee's death or may be
exercised for a further period which shall be less than further twelve months.
(iv) Unless otherwise specified in the Option, if termination is
due to the Optionee's "permanent and total disability" within the meaning of
Section 422(c)(6) of the Code, on Option may be exercised at any time within
twelve (12) months following termination of employment or relationship as a
consultant or director.
148
<PAGE>
(b) "Employee" and "Employment with the Company" as used in this Plan
shall include employment or relationship as a consultant, adviser or director
with the Company or any Affiliated Company in any such capacity, even if
employment or engagement in another capacity ceases. Options granted under this
Plan shall not be affected by an employee's transfer of employment among the
Company and any one or more Affiliated Companies. An Optionee's employment with
the Company shall not be deemed interrupted or terminated by a bona fide leave
of absence (such as sabbatical leave or employment by the Government) duly
approved, military leave or sick leave. As to consultants, advisers or other
non-employee providers of services, employment with the Company shall be deemed
to cease upon formal termination of the Optionee's engagement.
(c) Each Option may be made exercisable (that is, vest) in whole or in
installments, cumulative or otherwise, during its term, or subject to other
restrictions or limitations. Unless otherwise set forth in the granting
resolution, an Option shall vest immediately upon grant. If an Option is made to
vest over time, any portion not vested at the time of termination of employment
or relationship as a direct or consultant with the Company shall lapse as if
never granted. Nothing contained in this Section shall be construed to extend
the term of any Option or to permit anyone to exercise an Option after
expiration of its term, nor shall it be construed to increase the number of
shares as to which any Option is exercisable from the amount exercisable on the
date of termination of the Optionee's employment or relationship as a consultant
or director.
7. Exercise Options.
(a) The Committee, in granting CSOs, shall have discretion to determine
the terms upon which CSOs shall be exercisable, subject to applicable provisions
of this Plan. Once available for purchase, unpurchased Option Shares shall
remain subject to purchase until the CSO expires or terminates in accordance
with Paragraph 6 above. Unless otherwise provided in the CSO, a CSO may be
exercised in whole or in part, one or more times, but no CSO may be exercised
for a fractional share. Resulting fractions shall be rounded up or down, as
appropriate.
(b) CSOs may be exercised solely by the Optionee or a permitted
transferee during his lifetime or by a spouse or former spouse pursuant to a
qualified domestic relations order, or if the Option permits, after his death
(with respect to the number of shares which the Optionee could have purchased at
the time of death) by the person or persons entitled thereto under the
decedent's will or the laws of descent and distribution.
(c) The purchase price of the Option Shares as to which a CSO is
exercised shall be paid or delivered in full at the time of exercise and no
Option Shares shall be issued until full payment is made therefore. Payment
shall be made by any one or more of the following means:
(i) in cash, represented by bank or cashier's check, certified
check or money order, or made by bank wire transfer;
149
<PAGE>
(ii) by offsetting against the purchase price a cash obligation of
the Company which is both liquidated (meaning the dollar amount is fixed and
known or easily determinable) and uncontested;
(iii) with the prior approval of the Committee, by delivering
shares of the Company's Common Stock which have been beneficially owned by the
Optionee, the Optionee's spouse or both of them, for a period of at least six
(6) months prior to the time of exercise (the "Delivered Stock"), the Delivered
Stock to be valued by the Committee in good faith at its Fair Market Value on
the date of exercise;
(iv) with the prior approval of the Committee, by delivery of
shares of corporate stock which are freely tradeable without restriction and
which are part of a class of securities which has been listed for trading on the
Nasdaq National Market System, the Nasdaq Small Cap Market or a national
securities exchange, with an aggregate Fair Market Value on the date of exercise
equal to or greater than the exercise price of the Option Shares being purchased
under the Option ("Other Shares"); or
(v) with the prior approval of the Committee, by delivering to the
Company the Optionee's personal recourse promissory note, adequately secured by
property other than the Option Shares thereby purchased, containing such terms
and conditions as the Committee shall determine.
(d) An Option shall be deemed exercised when written notice thereof,
accompanied by the appropriate payment in full, is received by the Company. No
holder of an Option shall be,or have any of the rights and privileges of, a
shareholder of the Company in respect of any Option Shares purchasable upon
exercise of an Option unless and until certificates evidencing such shares shall
have been issued by the Company to him, her or it.
(e) An Option may, but need not, provide that the Optionee may at any
time when and to the extent the Option is exercisable, effect an Option
Exchange, provided the then market price of the Common Stock exceeds the
Option's exercise price. To effect an Option Exchange, the Optionee must
surrender the Option at the Company's principal offices stating the intent to
effect the Option Exchange and the number of Option Shares being exchanged, an
the Option Exchange shall be deemed to take place on the date of the Company's
receipt thereof or such later date as the Optionee specifics in writing. In
connection with any Option Exchange, an Option shall represent the right to
subscribe for and acquire the number of Option Shares equal to (i) the number of
Option Shares specified by the Optionee in its notice of exchange (the "Total
Number") LESS (ii) the number of Option Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the exercise price by (B) the
current Fair Market Value of a share of the Common Stock on the date of
exchange, or if such date is not a trading day, on the trading day preceding.
One or more certificates for the Option Shares issuable and, if applicable, a
new Option of like tenor evidencing the balance of the Option Shares remaining
subject to the Option, shall be issued as of the exercise date.
150
<PAGE>
8. Non-Transferability of Options.
No Option shall be assignable or otherwise transferable except by will or
by operation of law, pursuant to a qualified domestic relations order (as
defined in Rule 16b-3 of the Securities and Exchange Commission, or any
successor rule), or pursuant to Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or rules thereunder. No CSO shall be
pledged or hypothecated in any manner, whether by operation of law or otherwise,
nor be subject to execution, attachment or similar process. The same
restrictions on transfer or assignment shall apply to any heirs, devisees,
beneficiaries, legal representatives or other persons acquiring this Option or
an interest herein under such an instrument or by operation of law. Any attempt
to transfer or otherwise dispose of an Option in contravention of its terms
shall void the Option.
9. Reorganization and Recapitalization of the Company.
(a) No Limit Imposed on Corporate Powers. The existence of this Plan
and Options granted hereunder shall not affect in any way the right or power of
the Company or its shareholders to make or authorize any and all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bonds, debentures or other indebtedness, or any preferred or prior
preference stocks senior to or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale, exchange or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) Certain Adjustments to be Made. The Option Shares with respect to
which Options may be granted hereunder are shares of the Common Stock of the
Company as currently constituted. In certain instances, the number of shares
purchasable upon exercise of Options and the exercise price shall be adjusted as
provided herein. All adjustments and made under this Section shall be made by
the Committee in good faith in its sole discretion. Every adjustment inn
outstanding options shall be made without change in the total price applicable
to the unexercised portion of the Option but with a corresponding adjustment in
the exercise price per share and numbers (and if applicable, kind) of share
purchasable.
(c) Stock Splits, Stock Combinations, Etc. If, and whenever, prior to
delivery by the Company of all of the Option Shares which are subject to Options
granted hereunder, the Company shall effect a split or combination of the Common
Stock or other capital readjustment, the payment of a Common Stock dividend, or
recapitalization, reclassification or other increase or reduction of the number
of shares of the Common Stock outstanding without receiving compensation
therefor in money, services or property, then the number of Option shares
available under this Plan and the number of Option shares with respect to which
Options granted hereunder may thereafter be exercised shall (i) in the event of
an increase in the number of outstanding shares of Common Stock, be
proportionately increased , and the cash consideration payable per share shall
be proportionately reduced; and (ii) in the event of a reduction in the number
of outstanding shares of Common Stock, be proportionately reduced, and the cash
consideration payable per share shall be proportionately increased.
(d) Certain Other Changes in the Common Stock. If the outstanding
Common Stock shall be hereafter increased or decreased, or changed into or
exchanged for a different number or kind of shares or other securities of the
Company or of another corporation, by reason of reorganization, merger,
151
<PAGE>
consolidation, share exchange or other business combination in which the Company
is the surviving parent corporation, appropriate adjustment shall be made by the
Committee in the number and kind of shares for which Options may be granted
under the Plan. In addition, the Committee shall make appropriate adjustment in
the number and kind of shares as to which outstanding and unexercised Options
shall be exercisable, to the end that the proportionate interest of the holder
of the Option shall, to the extent practicable, be maintained as before the
occurrence of such event.
(e) Certain Defined Reorganization. For purposes of this Section, the
term "Reorganization" shall mean any reorganization, merger, consolidation,
share exchange, or other business combination pursuant to which the Company is
not the surviving parent corporation after the effective date of the
Reorganization, or any sale or lease of all or substantially all of the assets
of the Company, and the therm "Reorganization Agreement" shall mean a plan or
agreement with respect to a Reorganization. Nothing herein shall require the
Company to adopt a Reorganization Agreement, or to make provision for the
adjustment, change, conversion, or exchange of any Options, or the shares
subject thereto, in any Reorganization Agreement which it does adopt. In the
event of a Reorganization (as hereinafter defined), then,
(i) If there is no Reorganization Agreement, or if the
Reorganization Agreement does not specifically provide for the adjustment,
change, conversion, or exchange of the outstanding and unexercised options for
cash or other property or securities of another corporation, then any
outstanding and unexercised options shall terminate as of a future date to be
fixed by the Committee; or,
(ii) If there is a Reorganization Agreement, and the
Reorganization Agreement specifically provides for the adjustment, change,
conversion, or exchange of the outstanding and unexercised options for cash or
other property or securities of another corporation, the Committee shall adjust
the shares under such outstanding and unexercised options, and shall adjust the
shares remaining under the Plan which are then available for the issuance of
options under the Plan if the Reorganization Agreement for the adjustment,
change, conversion, or exchange of such options and shares.
(iii) The Committee shall provide to each Optionee then holding an
outstanding and unexercised Option not less than thirty (30) calendar days'
advance written notice of any date fixed by the Committee pursuant to this
Section 13 and of the terms of any Reorganization Agreement providing for the
adjustment, change, conversion, or exchange of outstanding and unexercised
Options. Except as the Committee may otherwise provide, each Optionee shall have
the right during such period to exercise his Option only to the extent that the
Option was exercisable on the date such notice was provided to the Optionee.
(f) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company, any outstanding and unexercised options shall
terminate as of a future date to be fixed by the Committee.
152
<PAGE>
(g) No Adjustments to be Made. Except as expressly provided above, the
Company's issuance of shares of its capital stock of any class, or securities
convertible into shares of its capital stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into or exchangeable for shares of capital stock or
other securities of the Company, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of Option shares subject to
CSOs granted hereunder or the purchase price of such shares.
10. Purchase for Investment.
Unless the Option Shares covered by this Plan have been registered under
the Act prior to issuance, each person exercising a CSO under this Plan may be
required by the Company to give a representation in writing that he is acquiring
such shares for his or her own account for investment and not with a view to, or
for sale in connection with, the distribution of any part thereof.
11. Effective Date and Expiration of this Plan.
This Plan shall be effective as of EFFECTIVE DATE, the date of its adoption
by the Board, and no CSO shall be granted pursuant to this Plan after its
expiration. This Plan shall expire on EXPIRATION DATE except as to CSOs then
outstanding, which shall remain in effect until they have expired or been
exercised.
12. Amendments or Termination.
The Committee or Board may amend, alter or discontinue this Plan at any
time in such respects as it shall deem advisable in order to conform to any
change in any other applicable law, or in order to comply with the provisions of
any rule or regulation of the Securities and Exchange Commission required to
exempt this Plan or any CSOs granted thereunder from the operation of Section
16(b) of the Exchange Act, or in any other respect not inconsistent with Section
16(b) of the Exchange Act; provided, that no amendment or alteration shall be
made which would impair the rights of any participant under any CSO theretofore
granted, without his consent (unless made solely to conform such CSO to, and
necessary because of, changes in the foregoing laws, rules or regulations), and
except that no amendment or alteration shall be made without the approval of
shareholders which would increase the total number of shares reserved for the
purposes of this Plan (except as provided in Paragraph 9) or extend the
expiration date of this Plan as set forth in Paragraph 11.
13. Government Regulations.
This Plan, and the granting and exercise of CSOs hereunder, and the
obligation of the Company to sell and deliver Option Shares under such CSOs,
shall be subject to all applicable laws, rules and regulations, and to such
approvals by any governmental agencies or national securities exchanges as may
be required.
14. Liability.
No member of the Board of Directors or the Committee, nor any officers,
employees or agents of the Company or any Affiliated Company shall be personally
liable for any action, omission or determination made in good faith in
connection with this Plan.
153
<PAGE>
15. Options in Substitution for Other Options.
The Committee may, in its sole discretion, at any time during the term of
this Plan, grant new options to an employee under this Plan or any other stock
option plan of the Company on the condition that such employee shall surrender
for cancellation one or more outstanding options which represent the right to
purchase (after giving effect to any previous partial exercise thereof) a number
of shares, in relation to the number of shares to be covered by the new
conditional grant hereunder, determined by the Committee. If the Committee shall
have so determined to grant such new options on such a conditional basis ("New
Conditional Options"), no such New Conditional Option shall become exercisable
in the absence of such employee's consent to the condition and surrender and
cancellation as appropriate. New Conditional Options shall be treated in all
respects under this Plan as newly granted option. Options may be granted under
this Plan from time to time in substitution for similar rights held by employees
of other corporations who are about to become employees of the Company or an
Affiliated Company as a result of a merger or consolidation of the employing
corporation with the Company or an Affiliated Company, or the acquisition by the
Company or an Affiliated Company of the assets of the employing corporation, or
the acquisition by the Company or an Affiliated Company of stock of the
employing corporation as the result of which such other corporation becomes an
Affiliated Company.
16. Withholding Taxes.
Pursuant to applicable federal and state laws, the Company may be required
to collect withholding taxes upon the exercise of a CSO. The Company may
require, as a condition to the exercise of a CSO, that the Optionee concurrently
pay to the Company the entire amount or a portion of any taxes which the Company
is required to withhold by reason of such exercise, in such amount as the
Committee or the Company in its discretion may determine. In lieu of part or all
of any such payment, the Optionee may elect to have the Company withhold from
the shares to be issued upon exercise of the option that number of shares having
a Fair Market Value equal to the amount which the Company is required to
withhold.
17. Other Definitions.
Whenever used in this Plan, except where the context might clearly indicate
otherwise, the following terms shall have the meanings set forth below:
a. "Act" means the U.S. Securities Act of 1933, as amended.
b. "Affiliated Company" means any Parent or Subsidiary of the Company.
c. "Award" or "grant" means any grant of a CSO (Option) made under this
Plan.
d. "Board of Directors" means the Board of Directors of the Company.
The term "Committee" is defined in Section 2 of this Plan.
e. "Common Stock" or "Common Shares" means the common stock, $.001 par
value per share, of the Company, or in the event that the outstanding Common
shares are hereafter changed into or exchanged for different shares or
securities of the Company or any other issuer, such other shares or securities.
154
<PAGE>
f. "Date of Grant" means the day the Committee authorizes the grant of
a CSO or such later date as may be specified by the Committee as the date a
particular grant will become effective.
g. "Employee" means and includes the following persons: (i) executive
officers, officers and directors (including advisory and other special
directors) of the Company or an Affiliated Company, (ii) full-time and part-time
employees of the Company or an Affiliated Company (iii) persons engaged by the
Company or an Affiliated Company as a consultant, advisor or agent; and (iv) a
lawyer, law firm, accountant or accounting firm, or other professional or
professional firm engaged by the Company or an Affiliated Company.
h. "Optionee" means an Employee to whom a CSO is granted.
i. "Parent" means any corporation owning 50% or more of the total
combined voting stock of all classes of the Company or of another corporation
qualifying as a Parent within this definition.
j. "Subsidiary" means a corporation more than 50% of whose total
combined capital stock of all classes is held by the Company or by another
corporation qualifying as a Subsidiary within this definition.
18. Litigation.
In the event that any Optionee or Optionee's successor should bring any
lawsuit or other action or proceeding ("Action") against the Company or an
Affiliated Company based upon or arising in relation to an Option, an Optionee,
or successor, as the case may be, not prevailing in such Action shall be
required to reimburse the Company or Affiliated Company's costs and expenses,
including reasonable attorneys' fees, incurred in defending such action and
appealing any award by a lower court.
19. Miscellaneous Provisions.
The place of administration of this Plan shall be in the State of Nevada
(or subsequently, wherever the Company's principal executive offices are
located), and the validity, construction, interpretation and effect of this Plan
and of its rules, regulations and rights relating to it, shall be determined
solely in accordance with the laws of the State of Nevada or subsequent state of
domicile, should the Company be redomiciled. Without amending this Plan, the
Committee may issue Options and Options Shares to employees of the Company who
are foreign nationals or employed outside the United States, or both, on such
terms and conditions different from those specified in this Plan but consistent
with the purpose of this Plan, as it deems necessary and desirable to create
equitable opportunities given differences in tax laws in other countries. All
expenses of administering this Plan and issuing Option and Option Shares shall
be borne by the Company.
155
<PAGE>
By signature below, the undersigned officers of the Company hereby certify
that the foregoing is a true and correct copy of the 1999 Compensatory Stock
Option Plan of the Company.
DATED: March 23, 1999
Reliant Interactive Media Corp.
/s/ /s/
By: ____________________________ By: ______________________________
Authorized Officer Secretary
156
<PAGE>
Reliant Interactive Media Corp.
CERTIFICATION OF PLAN ADOPTION
I, the undersigned Secretary of this corporation, hereby certify that the
foregoing Compensatory Stock Option Plan of this corporation was duly approved
by the requisite number of holders of the issued and outstanding common stock of
this corporation as of the date below.
Date of Approval: March 23, 1999
/s/
- -------------------------
Secretary
157
<PAGE>
Attachment
Reliant Interactive Media Corp. Option List
158
<PAGE>
Reliant Interactive Media Corp.
Option List
Kevin Harrington - Up to 60,000 shares for each six month period
up to a total of 240,000 shares.
Tim Harrington - Up to 40,000 shares for each six month period
up to a total of 160,000 shares.
Mel Arthur - Up to 5,000 shares for each six month period
up to a total of 20,000 shares.
