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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended March 31, 2000
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from July 1, 1999 to March 31, 2000.
Commission File Number 000-27603
I2CORP.COM.
(Name of small business issuer in its charter)
Nevada 84-1423373
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5392 S. Eastern Avenue, Building A- North
Las Vegas, Nevada 89119
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (702) 564-2240
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the
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best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $6,170.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer was approximately $18,700,750 based on the closing
price of $2.375 of the issuer's Common Stock, par value $.001 share, as reported
by Nasdaq on July 10, 2000.
On July 10, 2000, there were 30,000,000 shares of the issuer's Common Stock
outstanding.
Transitional Small Business Disclosure Format: Yes No X
Part I
ITEM 1. Description of Business.
History of i2corp.com
We were originally incorporated in the state of Utah on November 7, 1985, under
the name of International Hi-Tech Research Corporation ("Hi-Tech"). Hi-Tech was
organized to manufacture and distribute small airplane parts. In October 1991,
Hi-Tech acquired Standard Aero Parts, Inc., a California corporation. In
December 1991, Hi-Tech merged into Standard Group International, Inc. a
California corporation ("Standard California") with Standard California as the
surviving corporation. On June 30, 1996, Standard California rescinded the
acquisition of Standard Aero Parts, Inc.
On July 21, 1997, Standard California's wholly owned subsidiary, Standard Group
International, Inc. was incorporated in the state of Nevada ("Standard Nevada").
Standard California merged with Standard Nevada on April 30, 1998, solely to
change its domicile from California to Nevada. Standard Nevada changed its name
to Entertainment 21, Inc. ("Entertainment") on May 20, 1998. On November 18,
1998, Entertainment merged with PCG Media, Inc. with Entertainment being the
surviving corporation. PCG Media, Inc. was an investment management company
established to acquire and manage independent media and entertainment
properties. Pursuant to the Articles of Merger, Entertainment changed its name
to PCG Media, Inc. ("PCG") on November 18, 1998. Subsequent to the merger,
certain contracts failed to commence, and PCG ceased commercial operations
shortly after the merger.
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On February 10, 2000, Home Gambling Network, Inc., a Nevada Corporation
("HGN"), merged with PCG Sub, Inc., a Nevada corporation and a wholly owned
subsidiary of PCG, formed for the purpose of this merger with HGN as the
surviving corporation. Concurrent with this merger, PCG changed its name to
i2corp.com. In addition to HGN, we have three other wholly owned
subsidiaries. Our other wholly owned subsidiaries are: (i) International
Intertainment Corp., a Nevada corporation and holds the trademark on
International Intertainment Corporation; (ii) i2Consult.com, a Nevada
corporation which provides services to our licensees; and (iii)
i2Develop.com, a Nevada corporation, which develops and markets future
technologies to licensees.
History of Home Gambling Network, Inc.
HGN was formed on August 2, 1995, for the purpose of managing, marketing and
licensing U.S. Patent 5,800,268, which details the method for wagering on live
remote games and events utilizing electronic transactions (the "Patent"). The
Patent was issued to Melvin Molnick, current President of HGN, on September 1,
1998. Mr. Molnick assigned his rights under the Patent to HGN on October 22,
1998. The Patent was published in Europe in November 1999, and allows us to
enjoy full provisional patent protection until final approval and issuance,
which is expected in late 2000 (the "European Patent"). The scope of the
European patent includes full protection in the United Kingdom, Austria,
Germany, the Netherlands, as well as all other European countries, their
territories and possessions. We also have patent applications pending in
Australia and Canada.
Since formation, HGN has concentrated its resources on educating and informing
the gambling industry, regulatory agencies and policy makers around the world
about the Internet (remote) gaming. Such gaming information has been focused on
any and all electronic means and technologies such as, but not limited to TV,
satellite and wireless gambling and our methods incorporating the Patent.
The Patent
Our Patent is comprised of three primary actions:
- The gambling is live
- The player is remote and physically away from the actual game or event
- The winnings and losses are transacted electronically
Today, consumers identify Internet gambling as a manner in which to emulate
casino-style games, otherwise known as virtual gambling. Our method of wagering,
on the other hand, requires the games and events to be live and in real
time. Under our Patent, gamblers may wager with gaming and wagering entities
worldwide that accept wagers on live games and events (to include, but not
limited to, horse racing, soccer, bingo, or blackjack) from players' remote of
the physical facility offering electronic transactions.
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We will only license operators that are licensed in jurisdictions that are
properly regulated by their respective governments. This criterion is in
place to protect the credibility of our licensees among consumers.
Using our method, casinos will be able to recreate on-line, the gambling
experience in their physical properties. Casinos can create a broadcast
facility with real table games staffed by actual dealers and croupiers.
Sports betting facilities can accept remote wagers on live events from
players not physically located at the casino, sportsbook or off-track betting
("OTB") facility. The on-line player will participate remotely through the
Internet (and/or any communication medium available to especially include
wireless technologies), communicating with the dealer through a video camera
using a keyboard or a through a computer-integrated microphone.
Revenues generated from Internet-based broadcast facilities could be
substantial as the industry grows. Also, start-up costs for this type of
gambling are a fraction of what it would cost to develop a Las Vegas-style
casino/hotel property. Furthermore, it is expected that player fraud will be
reduced because all live play will be recorded and archived. Cash handling
will be non-existent because all transactions will be electronic. Casual
gambling is expected to increase because of ease of use and player confidence
in name brand, land-based casinos and other recognized wagering entities. In
addition, the market size is expected to grow exponentially because operators
can take wagers outside their geographic location.
INDUSTRY ANALYSIS
Size and Growth Trends
The global gambling market is expanding at an unprecedented rate, with revenues
in 1999 exceeding $US830 billion. Internet gambling accounted for $US1.2 billion
of those revenues, a remarkable feat considering Internet gambling entered the
market only in 1996. It is estimated that Internet gambling revenues will be in
excess of $US6.3 billion dollars by 2003.
In the United States, some form of legalized gambling exists in 47 states
(Hawaii, Tennessee, and Utah are the exceptions). There are 37 states that
operate lotteries, 21 that license casinos and more than 20 states sanction
off-track betting. According to the Report to the National Gambling Impact Study
Commission, from 1976 to 1997, legalized wagering revenues in the United States
grew nearly 1,600 percent. In 1998 alone, gambling, as a percentage of personal
income, more than doubled during the same time frame. With respect to consumer
spending, gambling generated more than $US54.0 billion dollars.
In recent years, revenues from gambling worldwide have declined, except in the
Internet gambling and new casino market segments, which are maintaining
double-
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digit revenue growth. The number of on-line customers is expected to grow at
a similar rate. In 1998, an estimated 14.5 million people wagered on-line,
which is up from 6.9 million in 1997. Industry experts claimed this number
surpassed 25 million in 1999 and predict that nearly 43 million will visit
wagering websites by 2001.
Regulations
Internet gambling is capturing the attention of regulators, policy makers and
consumers worldwide. Due to an exponential increase in customer demand, the
main issues facing Internet gambling operators are regulation, taxation,
consumer protection and fraud detection. No country is able to monitor and
control the growth of Internet gambling. The United States, for example, is
legislating to make it illegal for non-US sanctioned operators to accept
wagers from US citizens. Other countries, such as Australia, Norfolk Islands,
UK, Holland, Gibraltar, Malta, Belize, Antigua, Curacao and Dominica have
passed legislation that permits Internet gambling. These countries view
Internet gambling as inevitable and therefore believe that they can best
protect consumers through regulation. Other countries embrace Internet
gambling as a form of tax revenues for their respective governments, the
study notes.
There are over 250 Internet gambling operators, most located in the Caribbean,
and Central and South America, who manage more than 700 wagering websites. In
the United States, no nationally recognized, land-based casino (e.g. Harrah's,
MGM, Mandalay Bay) has directly entered the Internet gambling market. However,
name brand Las Vegas sports book operators, such as American Wagering, Inc.
[NMS: betm] are involved in Internet gambling in countries like Australia.
Name-brand casino operator Park Place Entertainment, Inc., [NYSE: PPE] owns
interests in foreign-based casinos that in turn own and operate Internet
gambling operations. Little direct involvement to date is the result of state
and federal legislation that either prohibits or is in the process of
prohibiting Internet gambling. By contrast, non-U.S. wagering operators (E.G.,
Ladbrokes, William Hill, Lasseters, Stanley Leisure plc and Jupiter's) are
aggressively entering the market.
To date, pending and existing federal and state legislation have prevented
United States wagering operators from entering the Internet gambling market. The
Untied States has interpreted the Federal Wire Act of 1961, as amended (the
"Wire Act") to prohibit Internet gaming. The Wire Act was originally created to
assess penalties for the illegal transmission of wagers or wagering information
using telephone lines between two parties (I.E., bookie and bookmaker). The
other significant piece of federal legislation pending in the United States is
the Kyl Bill, introduced by Senator Jon Kyl (R-AZ). The Kyl Bill bans
casino-style Internet gaming, but exempts pari-mutuel wagering, jai alai,
lotteries, Indian gaming and fantasy sport pools. A number of U.S. states
prohibit Internet gambling, but permit closed-loop Intranet gambling.
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Technology
The technology required to benefit from our method of wagering is virtually
accessible to any person or marketplace. Millions of consumers use or have
access to high-speed data and voice communications, satellite and cable
television, or wireless devices. These types of communication tools are needed
for broadcasting live games and events. Continued consumer acceptance of
e-commerce is another technological trend that will support our method of
wagering utilizing electronic transactions.
Barriers to Entry
The barrier to entry to operate an on-line wagering entity is low. Recent
figures estimate that it costs approximately $US800,000 to start a successful
Internet gambling website. Presently, small-cap companies lead the industry
in terms of growth and innovation. Through our Patent, we maintain a legal
barrier to entry in this industry, because we are the only entity that can
use the Patent. In addition, we require that a potential customer be licensed
in a regulated jurisdiction before that entity can utilize our method of
gambling. Licensees must pay an up-front licensing fee and a percentage of
gross revenues during the term of the license. However, to date we have been
required to spend capital to assert our rights under the Patent when we
determine that third parties have employed techniques and/or programs that
infringe on our Patent. See Item 3. Legal Proceedings. We expect that we will
continue to incur legal fees to enforce the Patent worldwide.
The Target Markets
As of June 2000, the number of Internet users worldwide exceeds 333 million.
The following illustrates Internet users by geographic areas.
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Country Users
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Africa 3.0 million
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Asia and the Pacific 76.0 million
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Europe 92.0 million
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The Middle East 2.0 million
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The United States and Canada 147.0 million
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South America 13.0 million
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Major Gambling Market Segments
- Casino-style games
- Horse and dog racing (pari-mutuel wagering)
- Sports wagering
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- Lottery
Target Customers and Proposed Geographic Areas
We intend to market our Patent to name brand, land-based wagering entities,
offshore Internet wagering entities, Native American Indian tribes and
foreign governments. Initial marketing areas will be in the following
geographic target markets: Europe, Australia, United States, Canada, and the
Caribbean and then to the following emerging geographic markets of Africa,
South America, Central America and Russia.
Geographic Market Analysis
Europe
European sports book operators such as Ladbrokes, William Hill and Victor
Chandler are leading the next wave of interactive gambling. To some degree,
these companies are utilizing the Internet and wireless devices to facilitate
wagering. For example, Gibraltar-based Ladbrokes launched bet.co.uk, a
multi-lingual, multi-currency football website that provides bettors worldwide
with a tax-free wagering environment. It has been reported that Ladbrokes is
investing (pound)100 million in Internet and interactive sports betting.
European casinos are evaluating broadcasting live, casino-style games on the
Internet. European-based lottery operators, too, are moving their games to the
Internet. Denmark, for example, operates a national lottery on the Internet that
is only available in that country. Liechtenstein, however, operates an
international lottery and sells tickets worldwide through its website.
Australia
Australia has legalized Internet gambling in a number of its states, including
the Northern Territory, Australian Capital Territory, Tasmania and Queensland.
The Australian government has overseen and participated in the development of
the jurisdiction regulations and licensing process. Name-brand land-based
Australian wagering entities such as Tattersalls, Crown and Lasseters have
obtained licenses that are specifically related to the ability to conduct
Internet gaming. Australia is a $US1.2 billion gaming market with more than 90
percent of Australians over the age of 18 having participated in some form of
legalized wagering.
United States
The United States presents a unique set of issues that define the complexity
associated with the next generation of Interactive gambling. For example, the
United States has taken the position that Internet gambling violates the Wire
Act and thus, Internet gambling is illegal. To date, the United States focused
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enforcement efforts on U.S. citizens who operate offshore wagering websites
rather than on individuals that place bets on such websites.
Individual states, however, can and do offer gambling within their borders.
Nevada, for example, has exempted sports wagering on closed-loop Intranets or
telephone systems. Many states allow wagering on games and live events such as
Bingo, horse and dog racing (legal in 43 states), and lotteries. Several states
are considering putting lotteries and horse and dog racing on-line.
Indian tribes currently operate casinos and are now considering operating
Internet gambling websites. Under the Kyl Bill, which seeks to prohibit Internet
gambling, Indian operated casinos will be exempt. Several Indian casinos offer
casino-style games and lotteries on closed-loop Intranets. It is anticipated
that Indian tribes in California will offer Internet gambling to California's 34
million residents, as well as to the worldwide Internet audience.
Canada
Canada has tried to legalize Internet gambling, but so far has failed to
enact legislation. Vancouver, for example, has become populated with
US/Canadian operators that act as a "server farm" (facilities that are
dedicated solely to housing web servers to conduct virtual casino games) for
gambling sites. It is widely believed that Vancouver is quickly becoming the
Internet gaming capital of the world. On another front, the Kahnawake Mohawk
Nation has created Mohawk Internet Technologies, which is an Internet service
provider (ISP) offering sovereign legal protection for Internet gambling
companies. The tribe also operates an Internet gambling site. The outcome of
this venture is unclear, especially due to the fact that the tribe offers its
services to residents of the United States.
Emerging Markets
South Africa has legalized land-based and Internet gambling in some
jurisdictions, a move designed to generate "export" revenues from state-run
wagering entities as well as to collect tax revenues. In Central America, such
countries as Belize, Guatemala and Costa Rica are welcoming both conventional
and Internet gambling operators. South America, too, is opening its borders to
gaming operators, especially in Argentina and Brazil.
Sales and Marketing
We use various methods to promote our products including field visits to
potential customers, telephone solicitation, direct mailing campaigns,
advertising in trade journals, participation in trade shows and maintenance of a
website. We intend to expand our sales and marketing activities during the
current fiscal year.
License Agreements
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On May 23, 2000, we entered into a licensing agreement with CompuRace Inc.
("CompuRace"). CompuRace is the premier provider of live simulcasting, delayed
streaming and archiving for the horse racing industry, and has contracts with
such major horse tracks as Del Mar, Fairplex, Hollywood Park, Los Alamitos,
Santa Anita, Bay Meadows and Churchill Downs. CompuRace also operates
touch-screen kiosks located at various California racetracks and in major Las
Vegas casinos. The goal of this licensing agreement is to jointly negotiate with
CompuRace the licensing of racetracks and various other wagering entities to
attempt to unify the racing industry. We have just begun to formulate various
strategies in connection with this licensing agreement and expect to commence
marketing to CompuRace's customers during this fiscal year.
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Employees
As of June 30, 2000, we had 6 full-time employees engaged in management and
administration. We also periodically engage consultants to assist it in various
activities. We believe that our employee relations are good.
ITEM 2. Description of Property.
On March 15, 2000, we entered into a two (2) year lease for approximately 3,200
square feet of office space in Las Vegas, Nevada. The monthly lease payment for
this facility is $3,840 and the lease provides for certain annual rent
adjustments. For the fiscal year ending March 31, 2001 lease payments for this
facility are expected to be $46,080. We also lease, on a month-to-month basis,
off-site facilities in Henderson, Nevada for storage.
We do not own any real estate.
ITEM 3. Legal Proceedings.
On or about February 22, 2000, the Federal District Court for Nevada granted to
HGN a permanent injunction preventing First Live Casino, Inc., a corporation
organized under the laws of Saint Vincent and Grenadines (WI), and its
successors, assigns, agents, employees and all others who act on their behalf
from infringing on our Patent ("First Live"). This court action stemmed from our
initial patent infringement lawsuit against First Live after it was discovered
that First Live was using our Patent without our consent or permission.
HGN initiated patent infringement litigation in April 1999 against Starnet
Communications International, Inc., a corporation organized under the laws of
Canada ("Starnet") and located in Vancouver, Canada. The lawsuit contended that
Starnet and/or their joint venturers were and had been using, selling and/or
offering for sale worldwide, including the United States, without permission or
authorization from us, our method for, participating in a live casino game from
a remote location. This lawsuit was dismissed after we received assurances that
Starnet was no longer accepting wagers from customers in the United States as
well as actions taken by the Canadian government regarding Starnet, including
seizure of Starnet's Canadian bank accounts.
On December 11, 1998, we commenced a patent infringement action in the United
States District Court, District of Nevada, against Interactive Television
Services, Inc., a Georgia corporation ("Interactive") (Case #CV-S-98-01755-JBR).
The Defendants have counterclaimed for declaratory relief and a trial date was
set for August 2000. On August 14, 2000, we entered into a Stipulated Order of
Dismissal with Interactive in which Interactive specifically admitted that our
Patent was valid and that Interactive's systems and methods do not infringe on
our Patent
ITEM 4. Submission of Matters to a Vote of Security Holders.
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As reported in our Form 8-K dated February 8, 2000, security holders approved
the merger of Company with Home Gambling Network, Inc. Of the 4,680,000 shares
voting, 100% were in favor of the merger.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
On February 18, 2000, i2corp.com's common stock began trading on the NASDAQ
Bulletin Board under the symbol ITOO. From November 19, 1998 to February 17,
2000 the common stock traded on the NASDAQ Bulletin Board under the symbol PCGM.
From June 8, 1998 to November 18, 1998 the common stock traded on the NASDAQ
Bulletin Board under the symbol ENTM.
The following table sets forth the high and low bid prices per share of our
Common Stock for the quarters indicated. These prices represent inter-dealer
prices, without adjustment for retail markup, markdown or commissions, and may
not necessarily represent actual transactions.
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HIGH LOW
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YEAR ENDED MARCH 31, 2000
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Three months ended--
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September 30, 1999 $2.75 $2.75
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December 31, 1999 $5.00 $1.50
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March 31, 2000 $5.875 $2.00
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YEAR ENDED JUNE 30, 1999
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Three months ended--
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September 30, 1998 N/A N/A
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December 31, 1998 $2.625 $0.125
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March 31, 1999 $2.625 $1.75
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June 30, 1999 $2.75 $0.1875
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As of July 10, 2000, we had approximately 130 stockholders of record, excluding
shares held in street name by brokerage firms and other nominees who hold shares
for multiple investors.
Holders of common stock are entitled to receive dividends if, and when declared
by our Board of Directors out of funds legally available therefore, subject to
the dividend and liquidation rights of any preferred stock that may be issued
and outstanding. We have never declared or paid any dividends on our common
stock. We intend to retain any future earnings for use in the operation and
expansion of
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its business. Consequently, we do not anticipate paying any cash dividends on
our common stock to our stockholders for the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operation.
This Form 10-KSB/A is being filed to retroactively restate our consolidated
balance sheet as of March 31, 2000 to give effect to $3.1 million in
capital contributions previously agreed to informally by a minority
shareholder with respect to the merger with PCG but not formalized until
August 2000. This restatement has had no effect on previously filed
statements of operations and cash flows and is discussed in further detail in
Note 4 to the revised consolidated financial statements.
Statements which are not historical facts, including statements about our
confidence and strategies and our expectations about our product, technologies
and opportunities, market and industry segment growth, demand and acceptance of
our products are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
These risks include, but are not limited to, product demand and market
acceptance risks; the impact of competitive products; the results of financing
raising activities; the effects of economic conditions and trade, legal, social
and economic risks, such as regulations, governmental licensing issues, foreign
qualifications and ability to conduct our method of business and the results our
business plan.
Development Stage Entity
We are in the development stage, with revenues solely generated from
licenses. As of March 31, 2000, we had cumulative net losses since inception
of $309,071 and we expect to continue to incur substantial losses and
negative cash flow at least through fiscal year ended March 31, 2001. We
currently do not have any revenue generating licensing agreements executed
and we expect that we will continue to incur substantial marketing, research
and development expenses for further product enhancement and development
activities which will cause us to incur additional losses in the near future.
General Financial Condition
We expect cash flows from operating activities to begin during this next year.
Factors that may contribute to this include the changing legislative climate and
legal entrance into the Internet gambling market of gaming and wagering
operators. Depending on the success of our efforts to execute revenue generating
licensing agreements, our management believes that present working capital will
need to be supplemented to support our operations over the next 12 months.
Additional working capital may be sought through additional debt or equity
private placements,
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additional notes payable to banks or related parties (officers, directors or
shareholders), or from industry-available funding sources at market rates of
interest, or a combination of these. The ability to raise necessary financing
will depend on many factors, including the nature and prospects of any
business to be acquired and the economic and market conditions prevailing at
the time financing is sought. No assurances can be given that any necessary
financing can be obtained on terms favorable to us, or at all.
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As of June 30, 2000, we have depleted most of our cash resources and do not
possess the collateral to borrow from traditional lending sources. We are
currently dependent on collections on the capital contribution receivable as
well as funding opportunities from third parties, including venture
capitalists. Our current cash on hand is not sufficient to meet ongoing
operating expenses and there can be no assurances that financing in the
amount and on terms acceptable to us will be available within the time frame
required.
Revenues
For the nine months ended March 31, 2000 and the one-year ended June 30, 1999,
our revenues consisted of non-refundable payments received in connection with a
licensing agreement. The licensing agreement was subsequently cancelled, and the
full amount of the payments received was recognized as income.
ITEM 7. Financial Statements.
This information is contained on pages F-1 through F-7 hereof.
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Financial Statements Page
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Report of Independent Auditors F-1
Consolidated Balance Sheet - March 31, 2000 F-2
Consolidated Statements of Development Stage Operations and Deficit for
the nine-months ended March 31, 2000, the year-ended June 30, 1999, and
the cumulative period from August 2, 1995
through March 31, 2000 F-3
Consolidated Statements of Cash Flows for the nine-months ended March
31, 2000, the year-ended June 30, 1999, and the cumulative period from
August 2, 1995 through March 31, 2000 F-4
Notes to Consolidated Financial Statements, for the nine-months ended
March 31, 2000, the year ended June 30, 1999 and the cumulative period
from August 2, 1995 through March 31, 2000 F-5 - F-7
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ITEM 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
On March 23, 2000, we engaged Piercy, Bowler, Taylor & Kern, Certified Public
Accountants and Business Advisors, Las Vegas, Nevada ("PBTK") to audit our
financial statements. Our decision to change our auditors was solely based on
past professional experience with and the geographical location of PBTK and not
the result of any matter, including a disagreement with our former accounting
firm, Crouch, Bierwolf & Chisholm, Salt Lake City, Utah.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act:
The following table sets forth the names of our current directors and executive
officers and certain information with regard to each such person.
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Name Age Position
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dee dee Molnick 28 President and Chairwoman
Chris P. Almida 29 Vice President and Director
Melvin Molnick 57 Secretary and Treasurer, President of Home Gambling Network, Inc.
Michael J. Mehr 32 Chief Accounting Officer
H. Yale Gutnick 58 Director
Philip J. Anderson 48 Director
Suzanne Molnick 44 Director
Bradley Grieco(1) 35 Director
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(1) Bradley Grieco resigned from our Board of Directors on June 15, 2000.
dee dee Molnick became our President and Chairwoman on February 10, 2000. From
its inception in August 1995 until February 2000 she was President and Director
of HGN. Ms. Molnick, an internationally recognized expert on Internet Gaming has
provided information to various governmental authorities around the world
regarding Internet gaming. In addition, Ms. Molnick is a regular columnist in
various gaming publications, including Indian Gaming and Casino International.
Molnick studied civil engineering at the Howard Hughes College of Engineering,
at University of Nevada Las Vegas. Ms. Molnick is the daughter of Melvin Molnick
and Suzanne Molnick, and the wife of Chris Almida.
Chris Almida became our Vice President and Director on February 10, 2000. From
1995 until Feburary 10, 2000, he was Vice President and Director of HGN. Mr.
Almida served in the United States Army from 1989 to 1993. Mr. Almida entered
the world of Information Technology while enlisted in the U.S. Army, where he
assisted in the implementation of the Unit Level Logistic System. Mr. Almida
specializes in new and emerging Internet and wireless technologies to ensure
that
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our products and technology is this ever-changing arena. Mr. Almida is the
husband of dee dee Molnick.
Melvin Molnick became our Secretary and Treasurer on February 10, 2000. From
August 1995 until August 1998, Mr. Molnick served as a Director of HGN and from
August 1998 until February 2000 was HGN's Secretary. Mr. Molnick is the inventor
of our Patent and has served as President of HGN since April 25, 2000. From 1994
to 1997, he served as Vice President of Rocky Mountain Erectors located in
Henderson, Nevada. In 1984, Mr. Molnick received his first patent (U.S.
4,442,581) for a button puncher capable of significantly improving the ease with
which steel sheets are punched together. This technology is now used throughout
the world in the construction trade industry. Mr. Molnick is the husband of
Suzanne Molnick and the father of dee dee Molnick.
Michael J. Mehr became our Chief Accounting Officer in March 2000. From July
1998 to April 2000 he practiced public accounting with Patton & Petersen, Chtd.,
CPA's in Las Vegas, Nevada. From September 1994 to June 1998 he was a partner
with Mehr & Mehr, Ltd., located in Las Vegas, Nevada, and from 1990 to 1993 was
an accountant with David Berdon & Co. located in New York City, New York. Mr.
Mehr earned a Bachelor of Science in Business Management with a concentration in
accounting from the University at Buffalo in 1990. Mr. Mehr is a Certified
Public Accountant licensed in Nevada and New York.
H. Yale Gutnick is a member of our Board of Directors since February 10, 2000.
Since 1978, he has been a partner Strassburger McKenna Gutnick & Potter of
Pittsburgh, PA, where he now serves as Senior Partner. Mr. Gutnick is also Vice
President and Secretary of Tribune Review Publishing Co. located in Pittsburgh,
Pennsylvania since 1988. From 1967 to 1970, he served as a trial attorney for
the United States Justice Department in Washington, D.C. From 1970 to 1978, he
was a partner at the Pittsburgh law firm of Rose, Schmidt & Dixon. He served as
a member of the Board of Directors of Magicworks Entertainment, Inc. from its
inception until it was acquired by SFX Entertainment, Inc. in 1998. Mr. Gutnick
is also a member of the Board of Directors of various privately held companies,
including Richard M. Scaife Publisher, Inc., Calvary, Inc., Mercer Lime and
Stone Company. Mr. Gutnick attended Ohio Wesleyan University and graduated in
1964, with academic honors with a BA degree in Liberal Arts. Mr. Gutnick
obtained his law degree, with honors, from the University of Pittsburgh Law
School in 1967, Mr. Gutnick is admitted to practice law in the Commonwealth of
Pennsylvania.
Philip J. Anderson became a member of our Board of Directors on February 10,
2000. He currently is a partner in the firm of Anderson & Morishita in Las
Vegas, Nevada where he specializes in intellectual property. From November 1995
to April 2000 he was a partner at Quirk & Tratos located in Las Vegas, Nevada.
Mr. Anderson attended the University of Illinois at Champaign-Urbana, Illinois,
and received a degree in Mechanical Engineering. Mr. Anderson received his law
degree from Whittier College School of Law in Southern California in 1979. He is
<PAGE>
admitted to practice law in the states of California, Illinois, and Nevada, and
is admitted to practice in front of the United States Patent Office
Suzanne Molnick became a member of our Board of Directors on February 10, 2000.
Since 1995, Mrs. Molnick has worked in a variety of positions with HGN. Mrs.
Molnick is the wife of Melvin Molnick and the mother of dee dee Molnick.
Bradley Grieco became a member of our Board of Directors on February 10, 2000
and resigned from the Board on June 15, 2000. Mr. Grieco currently is involved
with structuring and financing of several emerging companies. Prior to his
consulting work with emerging companies, Mr. Grieco worked in the restaurant
industry in a variety of capacities, including director of operations for
several restaurant companies. Mr. Grieco attended Ohio State University in
Columbus, Ohio and majored in Hotel and Restaurant Management.
All of our Directors were elected for a term of one year or until their
successors are duly elected and qualified. There are no arrangements or
understandings between any Director and any other person(s) pursuant to which a
Director was selected as a Director.
Our Officers are elected for terms of one year, or until their successors are
duly elected and qualified or until terminated by action of the Board of
Directors. Currently, our officers have not entered into any type of employment
agreement and we are in the process of identifying which employees we need to
enter into employment agreements and the terms for such agreements. We expect to
enter into some employment agreements with certain of our offices during the
next fiscal year.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our Officers,
Directors and persons who own more than ten percent of a registered class of our
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. These reporting persons are required by
regulation to furnish to us with copies of all Section 16(a) forms they file.
Based solely on our copies of such forms received or written representations
from certain reporting persons that no Form 5's were required for those persons,
we believe that, during the time period from the merger of PCG and HGN through
March 31, 2000, all filing requirements applicable to its officers, directors
and greater-than-ten-percent beneficial owners were complied with.
Directors Fees
Our directors currently receive no cash compensation for serving on the Board of
Directors other than reimbursement of reasonable expenses incurred in attending
meetings.
<PAGE>
ITEM 10. Executive Compensation:
The following table sets forth the aggregate compensation paid or accrued by us
for the fiscal year ended March 31, 2000 to the executive officers and key
personnel.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-----------------------------------------------------------------------------------------------------------------------
Awards Payouts
---------- ------------
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation(1) Options Compensation
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
($) ($) ($) (#) ($)
dee dee Molnick 2000 14,571 - 2,160 - -
Chairwoman and President
Chris Almida 2000 14,571 - - - -
Vice President
Melvin Molnick 2000 14,571 - 2,160 - -
Secretary and Treasurer
Michael J. Mehr 2000 1,995 - - - -
Chief Accounting Officer
August Masciotra 2000 14,571(2) - - - -
President, Home Gambling
Network, Inc.
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Other Annual Compensation in the above tables represents benefits
attributable to our payments for the lease of a car.
(2) August Masciotra resigned from the Company on April 25, 2000.
No cash compensation was paid to any Officers until February 10, 2000. The above
salary amounts reflect amounts paid from February 10, 2000 through March 31,
2000.
There are no employment contracts with any of the Company's employees.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 30, 2000, certain information
concerning those persons known to us to be the beneficial owners of more than
five percent of our Common Stock, the number of shares of our Common Stock owned
by our Directors individually, and by all of our
<PAGE>
Directors and executive officers as a group:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial Percent of
Beneficial Owners(1) Ownership Class(2)
-------------------- ------------------------------- ----------
<S> <C> <C>
Melvin Molnick (3)(4)(7) 18,240,000 60.80%
Suzanne Molnick (3)(4)(7) 18,240,000 60.80%
dee dee Molnick (5)(6) 3,840,000 12.80%
Chris Almida (5)(6) 3,840,000 12.80%
Jesse Molnick 1,920,000 6.40%
Trust for Michael Molnick (3)(4)(7) 1,920,000 6.40%
Bradley A. Grieco (8) 46,000 0.15%
H. Yale Gutnick 0 0.00%
Philip J. Anderson 0 0.00%
Shares of all directors, executive
Officers, and key employees
as a group (6 persons) 22,126,000 73.75%
</TABLE>
(1) Unless otherwise noted in a footnote, the mailing address is 5392 S.
Eastern Avenue, Building A-North, Las Vegas, Nevada 89119
(2) Based on 30,130,000 shares outstanding as of July 10, 2000
(3) Of these 18,240,000 shares, 2,160,000 shares are owned by Mr.
Molnick's wife Suzanne of which he disclaims any beneficial ownership
and 1,920,000 shares are held in a trust for the benefit of Mr.
Molnick's minor child, Michael Molnick. Mr. Molnick is a co-trustee of
the trust for Michael Molnick.
(4) Of these 18,240,000 shares, 2,160,000 shares are owned by Mrs.
Molnick's husband Melvin of which she disclaims any beneficial
ownership and 1,920,000 shares are held in a trust for the benefit of
Mrs. Molnick's minor child, Michael Molnick. Mrs. Molnick is a
co-trustee of the trust for Michael Molnick.
(5) Of these 3,840,000 shares, Ms. Molnick disclaims any beneficial
ownership of the 1,920,000 shares owed by her husband.
<PAGE>
(6) Of these 3,840,000 shares, Mr. Almida disclaims any beneficial
ownership of the 1,920,000 shares owed by his wife.
(7) These shares are held in trust for the benefit of Michael Molnick, a
minor. The parents of Michael Molnick, Melvin and Suzanne Molnick are
co-trustees.
(8) The mailing address for Mr. Grieco is 5361 S. Pecos Road, Las Vegas,
Nevada 89120.
ITEM 12. Certain Relationships and Related Transactions:
To date, our main source of funding has been made by advances, in the
form of promissory notes, from certain of our shareholders, including members of
the Molnick family. Generally, the notes earn interest ranging from six to eight
percent (6-8%). The notes from the Molnick family aggregated approximately
$111,500 including interest and we repaid these notes by March 31, 2000. We
believe that these loans were on marketable terms.
As part of the HGN merger, a minority shareholder of PCG agreed
informally to make a capital contribution to our company of $3.1 million.
However, because of substantial uncertainty as to this arrangement, no
accounting recognition was given to this transaction until an understanding was
reached in August 2000 between this shareholder and us. As of August 15, 2000,
the balance under this $3.1 million capital contribution note was approximately
$2.0 million.
From time to time, we have retained Strassburger McKenna Gutnick &
Potter, located in Pittsburgh, Pennsylvania and Anderson & Morishita located in
Las Vegas, Nevada for certain legal matters. Mr. Gutnick, a member of our Board
of Directors is a senior partner with Strassburger McKenna Gutnick & Potter and
Mr. Anderson, also a member of our Board of Directors, is a partner with
Anderson and Morishita. The fees paid by us through March 31, 2000, to each of
these law firms did not exceed five percent of that particular law firm's gross
revenues for that firm's last full fiscal year.
ITEM 13. Exhibits and Reports on Form 8-K:
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger dated as of January 18, 2000 between
PCG Media, Inc. and Home Gambling Network, Inc. (filed as Exhibit
1.1 to the original Report on Form 8-K dated February 8, 2000 and
filed with the
<PAGE>
Commission on February 14, 2000 and hereby incorporated by
reference).
2.2 Certificate of Merger between PCG Media, Inc. and Home Gambling
Network, Inc. (filed as Exhibit 1.2 to the original Report on
Form 8-K dated February 8, 2000 and filed with the Commission on
February 14, 2000 and hereby incorporated by reference)
3.1 Amended and Restated Articles of Incorporation (filed as Exhibit
1.3 to the original Report on Form 8-K dated February 8, 2000 and
filed with the Commission on February 14, 2000 and hereby
incorporated by reference).
3.2 Revised Bylaws of i2corp.com (filed as Exhibit 3.2 to the amended
Report on Form 8-K dated June 6, 2000 and filed with the
Commission on June 6, 2000 and hereby incorporated by reference).
10.1 Form of Licensing Agreement (filed as Exhibit 10.1 to the Form
10-K filed with the Commission on July 14, 2000 and hereby
incorporated by referenced).
10.2 Assignment of Patent, Trademarks and Intellectual Property
between Home Gambling Network, Inc. and Melvin Molnick dated
October 22, 1998 (filed as Exhibit 10.1 to the Form 10-K filed
with the Commission on July 14, 2000 and hereby incorporated by
referenced).
(b) Reports on Form 8-K.
On February 14, 2000, we filed a Current Report on Form 8-K to report
the merger between PCG Media, Inc. and Home Gambling Network, Inc.
On April 14, 2000, we filed a Current Report on Form 8-K to report a
delay in filing financial statements relating to the merger of PCG Media, Inc.
and Home Gambling Network, Inc.
On May 15, 2000, we filed a Current Report on Form 8-K regarding the
change in our fiscal year from June 30 to March 31.
On June 6, 2000, we filed a Current Report on Form 8-K containing the
required financial statements from the merger of PCG Media, Inc. and Home
Gambling Network, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
I2CORP.COM
Dated: August 21, 2000 By: /s/ dee dee Molnick
-------------------
dee dee Molnick
Chairwoman and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Chris P. Almida Chris P. Almida August 21, 2000
------------------- Vice President and Director
/s/ Melvin Molnick Melvin Molnick August 21, 2000
------------------ Secretary & Treasurer
(Principal Accounting Officer)
/s/ H. Yale Gutnick H. Yale Gutnick August 21, 2000
------------------- Director
/s/ Philip J. Anderson Philip J. Anderson August 21, 2000
---------------------- Director
/s/ Suzanne Molnick Suzanne Molnick August 21, 2000
------------------- Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
i2corp.com and Subsidiary
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheet of i2corp.com and
its subsidiary Home Gambling Network, Inc, collectively (the Company) (a
development stage enterprise) as of March 31, 2000, and the related consolidated
statements of development stage operations and deficit, and cash flows for the
nine-months ended March 31, 2000, the year ended June 30, 1999, and the period
from August 2, 1995, through March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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.
As discussed in Note 4 to the financial statements, certain account balances in
the stockholders' equity section of the Company's balance sheet have been
retroactively restated with respect to the accounting for a reverse acquisition
effected in February 2000.
In our opinion, the accompanying consolidated financial statements of i2corp.com
and its subsidiary, as restated with respect to the balance sheet, present
fairly, in all material respects, its financial position as of March 31, 2000,
and the results of its development stage operations and cash flows for the
periods presented, 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, the
Company has incurred development stage losses resulting in substantial working
capital and stockholders' equity deficiencies, and its ability to pay its
obligations when due and to commence operations is dependent upon its obtaining
license agreements for its product with satisfactory terms and raising
additional capital. These conditions raise substantial doubt as to the Company's
ability to continue as a going concern. Management's plans in regard to those
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
(Acct's Name to Come)
May 19, 2000, except for Note 4, as to which
the date is August 9, 2000
F-1
<PAGE>
I2CORP.COM AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 2000
---------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 113,634
Other assets 15,023
-----------------
128,657
FURNITURE, FIXTURES, AND EQUIPMENT, NET 75,856
PATENT 83,032
-----------------
$ 287,545
=================
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
CURRENT LIABILITIES:
Note payable $ 500,000
Accrued expenses and other 53,220
Accounts payable 42,397
-----------------
595,617
-----------------
STOCKHOLDERS' EQUITY DEFICIENCY (RESTATED - NOTE 4):
Common stock, 50,000,000 shares authorized, 30,000,000
issued and outstanding, $.001 par value 30,000
Additional paid-in-capital 3,071,000
Less capital contribution receivable (3,100,000)
Deficit accumulated in the development stage (309,072)
-----------------
(308,072)
-----------------
$ 287,545
=================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
I2CORP.COM AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF DEVELOPMENT STAGE OPERATIONS AND DEFICIT
FOR THE NINE-MONTHS ENDED MARCH 31, 2000, THE YEAR ENDED
JUNE 30, 1999, AND THE CUMULATIVE PERIOD FROM AUGUST 2, 1995,
THROUGH MARCH 31, 2000
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
NINE-MONTHS AUGUST 2, 1995,
ENDED YEAR ENDED THROUGH
MARCH 31, 2000 JUNE 30, 1999 MARCH 31, 2000
--------------------- ------------------- ---------------------
<S> <C> <C> <C>
Selling, general, and administrative expenses $ 224,655 $ 77,790 $ 305,118
Interest expense 10,297 4,765 17,624
Less forfeited license deposit revenue (6,170) (7,500) (13,670)
--------------------- ------------------- ---------------------
NET LOSS 228,782 75,055 309,072
DEFICIT ACCUMULATED IN THE DEVELOPMENT STAGE:
Beginning of period 80,290 5,235
--------------------- ------------------- ---------------------
End of period $ 309,072 $ 80,290 $ 309,072
===================== =================== =====================
Net loss per common share $ 0.010 $ 0.003 $ 0.010
===================== =================== =====================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
I2CORP.COM AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTHS ENDED MARCH 31, 2000, THE YEAR ENDED
JUNE 30, 1999, AND THE CUMULATIVE PERIOD FROM AUGUST 2, 1995,
THROUGH MARCH 31, 2000
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
NINE-MONTHS AUGUST 2, 1995,
ENDED YEAR ENDED THROUGH
MARCH 31, 2000 JUNE 30, 1999 MARCH 31, 2000
-------------------- ------------------- ----------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ (179,519) $ 7,406 $ (167,886)
-------------------- ------------------- ----------------------
INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment (74,516) (74,516)
Patent costs (30,329) (30,329)
-------------------- ----------------------
(104,845) (104,845)
-------------------- ----------------------
FINANCING ACTIVITIES:
Repayments to shareholders (110,408) (114,635)
Proceeds from note payable 500,000 500,000
Proceeds from shareholder loan 1,000 1,000
-------------------- ------------------- ----------------------
Net cash provided by financing activities 389,592 1,000 386,365
-------------------- ------------------- ----------------------
NET INCREASE IN CASH 105,228 8,406 113,634
CASH, BEGINNING 8,406
-------------------- ------------------- ----------------------
CASH, ENDING $ 113,634 $ 8,406 $ 113,634
==================== =================== ======================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
I2CORP.COM AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTHS ENDED MARCH 31, 2000, THE YEAR ENDED JUNE 30,
1999 AND THE CUMULATIVE PERIOD FROM AUGUST 2, 1995,
THROUGH MARCH 31, 2000
--------------------------------------------------------------------------------
1. BACKGROUND INFORMATION:
BUSINESS ACTIVITIES AND HISTORY. i2corp.com and its subsidiary Home Gambling
Network, Inc. (HGN) (collectively, the Company), hold a patent for a method that
allows licensees to bring live gaming to players in remote LOCATIONS VIA the
internet and other electronic media, and that enables making and receiving
electronic payments to and from such players.
In February 2000, in what is commonly referred to as a "reverse acquisition,"
100% of HGN's stock was effectively exchanged for a controlling interest in a
publicly held "shell" company, PCG Media, Inc. (referred to herein as PCG),
which concurrently changed its name to i2corp.com. For financial accounting
purposes, the acquisition has been treated as an acquisition of PCG by, and a
recapitalization of, HGN. Accordingly, the historical statements of development
stage operations and cash flows presented are those of HGN. Net loss per share
is calculated based on 30,000,000 shares outstanding in all periods after giving
retroactive effect to the recapitalization (Note 4).
PCG engaged in no business activity for a number of years prior to the
transaction described in the preceding paragraph. Therefore, the Company has, in
substance, been in the development stage since the inception of HGN, August 2,
1995.
Prior to the reverse acquisition, PCG had recently registered its outstanding
common stock with the United States Securities and Exchange Commission (SEC)
under the Securities Exchange Act of 1934. PCG previously reported on the basis
of a fiscal year ending June 30. Effective with the current period, the Company
changed its fiscal year end to March 31.
EQUIPMENT, FURNITURE AND FIXTURES. Equipment, furniture and fixtures are stated
at cost. Depreciation is provided using the declining balance method over the
estimated useful lives of the assets.
PATENT COSTS. Patent costs are amortized over the life of the patents.
ADVERTISING COSTS. Costs for advertising are expensed as incurred. Advertising
costs expensed totaled $29,842 and $5,761 in 2000 and 1999.
USE OF ESTIMATES. Timely preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures, some of which
may require revision in future periods.
2. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES. The Company is lessee under noncancelable operating lease
agreements for automobiles and office space. The Company's minimum future lease
under noncancelable operating leases are $63,523 and $16,963 for 2001 and 2002
respectively. The Company incurred rent expense under these leases of $8,161
during the periods ended March 31, 2000, and none in prior periods.
GOING CONCERN. The accompanying financial statements have been prepared assuming
that the company will continue as a going concern. As of March 31, 2000, the
Company has accumulated a stockholders' euity deficiency of $309,072 and a
working capital deficiency of $466,960. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
It is management's plan to finance its operations for the foreseeable future
primarily with proceeds from the capital contribution receivable from a minority
shareholder (Note 4) and to explore other financing options in the investment
community. Management is also in the process of negotiating licensing agreements
that, if consummated, would generate operating revenues. However, there can be
no assurance that these sources will provide sufficient cash inflows to enable
the Company to achieve its operational objectives.
F-5
<PAGE>
I2CORP.COM AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE-MONTHS ENDED MARCH 31, 2000, YEAR ENDED JUNE 30, 1999
AND FOR THE CUMULATIVE PERIOD FROM AUGUST 2, 1995
THROUGH MARCH 31, 2000
-------------------------------------------------------------------------------
2. COMMITMENTS AND CONTINGENCIES (CONTINUED):
OTHER. The Company has been presented with claims asserting that certain
individuals and/or entities are entitled to an aggregate of approximately
400,000 shares of the Company's common stock. Based on the available evidence,
management believes these claims are inconsistent with the Company's records and
invalid. There may be other similar claims asserted in the future. However,
based, in part, upon the advice of counsel, management believes that such
matters will not have a significant effect on the Company even if the Company
would be required to issue some or all of the shares that are claimed by these
individuals or entities, but there would be up to 1.33% dilution of interests of
its stockholders, based on claims presently known.
3. INCOME TAXES:
Because, as of March 31, 2000, the Company has engaged in extensive development
stage activities and generated limited revenues over a period of five years, it
has incurred substantial losses, and the potential income tax benefits of such
losses have been effectively offset by a 100% valuation allowance and, therefore
are not reflected in the accompanying financial statements.
4. CAPITALIZATION AND RELATED PARTY TRANSACTIONS:
The initial capitalization of HGN was $1,000 and was made in the form of
stockholder advances in payment of HGN's expenses (Note 6). In giving
retroactive effect to the reverse acquisition, the Company was recapitalized in
2000 with 30,000,000 shares of $.001 common stock, requiring the $1,000 to be
eliminated in consolidation and $30,000 to be assigned to common stock.
The Company's only significant sources of financing has been a 6% loan in the
amount of $500,000 made by a minority stockholder (whose son was a director of
the Company at the time the loan was made), due July 2000, and advances made on
its behalf by its principal stockholders, which have earned interest at 8% and
were due on demand until repaid in the period ended March 31, 2000. Interest
charged to operations on these obligations totaled $4,623, $4,765, and $11,949
for 2000, 1999, and the cumulative period presented, respectively.
In connection with, and as an incentive for HGN to enter into, the reverse
acquisition, the minority stockholder (then of PCG) agreed informally to make a
capital contribution to the Company of $3.1 million. However, because of
substantial uncertainty as to its realizability, no accounting recognition was
given thereto in the Company's previously issued financial statements until this
understanding was formalized in August 2000. The accompanying balance sheet has
been retroactively restated to give effect to the formalization of this
understanding by recording the capital contribution receivable as a reduction of
stockholders' equity as of the date of the original transaction. This
restatement has had no effect on the statements of operations and cash flows.
The receivable may be paid off in whole or in part at any time without premium
or discount. Subsequent to March 31, 2000, $650,000 was received in cash, and
the $500,000 note payable to the minority stockholder was applied against this
obligation.
The Company's officer/stockholders have provided their services to the Company,
during substantially all of the development stage periods presented, without
compensation.
5. FINANCIAL INSTRUMENTS:
The carrying amounts of financial instruments approximates their fair value
because of their short maturities or because the debt bears fixed rates that
approximate current rates available on similar borrowings.
F-6
<PAGE>
I2CORP.COM AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE-MONTHS ENDED MARCH 31, 2000, YEAR ENDED JUNE 30, 1999
AND FOR THE CUMULATIVE PERIOD FROM AUGUST 2, 1995
THROUGH MARCH 31, 2000
-------------------------------------------------------------------------------
6. SUPPLEMENTAL CASH FLOW INFORMATION:
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES:
Nine-months Year-ended August 2, 1995,
ended June 30, through
March 31, 2000 1999 March 31, 2000
------------ ---------- ------------
Net loss $ (228,782) $ (75,055) $ (309,072)
Increase in other
assets (15,023) (15,023)
Depreciation 7,592 4,774 14,934
Expenses paid by
officer/ stockholders 34,500 38,832
Increases in:
Accounts payable 3,973 38,423 42,396
Accrued expenses 52,721 4,764 60,047
------------ ---------- ------------
$ (179,519) $ 7,406 $ (167,886)
============ ========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES: Advances made as direct payments by
the stockholders on behalf of the Company for patent costs, other assets
purchases, and selling, general and administrative expenses totaled $103,040,
and $106,808, in 1999 and the cumulative period presented, respectively.
Previoulsly, $1,000 of such payments was credited as common stock in connection
with HGN's initial capitalization.
F-7
