Securities and Exchange Commission
Washington, D. C. 20549
_______________
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended: February 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 0-29019
INTERACTIVE MARKETING TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 22-3617931
(State of incorporation) (I. R. S. Employer
Identification No.)
3575 Cahuenga Boulevard West, Suite 390
Hollywood, California 90680
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (323) 874-4484
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ]
Check if disclosure of delinquent filers in response to item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of the
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. [ ]
State issuer's revenue for its most recent fiscal year $921,381.
As of May 15, 2000 the registrant had 13,832,000 shares of common stock
outstanding. The aggregate market value of the voting stock held by
non-affiliates as of that date was 5,350,800.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X ]
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Table of Contents
PART I
Item 1: Description of Business .........................................3
Item 2: Description of Property .........................................10
Item 3: Legal Proceedings ...............................................11
Item 4: Submission of Matters to a vote of Security Holders..............11
PART II
Item 5: Market for Common Equity and Related Stockholder Matters.........11
Item 6: Management's Discussion and Analysis or Plan of Operations.......12
Item 7: Financial Statements.............................................16
Item 8: Changes in and Disagreements With Accounts on
Accounting and Financial Disclosure............................16
PART III
Item 9: Directors, Executive Officers, Promoters, and Control Persons,
Compliance With Section 16(a) of the Exchange Act...............16
Item 10: Executive Compensation..........................................17
Item 11: Security Ownership of Certain Beneficial Owners and Management..18
Item 12: Certain Relationships and Related Transactions..................19
PART IV
Item 13: Exhibits and Reports on Form 8-K ...............................20
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FORWARD LOOKING STATEMENTS
In this registration statement references to "Interactive Marketing,"
"we," "us," and "our" refer to Interactive Marketing Technology, Inc.
This Form 10-KSB contains certain forward-looking statements. For this
purpose any statements contained in this Form 10-KSB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology are intended
to identify forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors, many of which are not within
Interactive Marketing's control. These factors include but are not limited to
economic conditions generally and in the industries in which Interactive
Marketing may participate; competition within Interactive Marketing's chosen
industry, including competition from much larger competitors; technological
advances and failure by Interactive Marketing to successfully develop business
relationships.
PART I
ITEM 1: DESCRIPTION OF BUSINESS
Business Development
Interactive Marketing was incorporated in the state of Nevada as Shur De
Cor, Inc. on August 14, 1987. Shur De Cor never commenced operations. In
April of 1999 Shur De Cor merged with Interactive Marketing Technology, Inc.,
a New Jersey corporation ("Interactive New Jersey"). Interactive New Jersey
was formed on April 21, 1998 and was engaged in the business of direct
marketing of consumer products.
Pursuant to the merger agreement, Shur De Cor issued 12,404,000 common
shares of restricted stock to the twenty-two shareholders of Interactive New
Jersey in exchange for all of the issued and outstanding stock of Interactive
New Jersey. Shur De Cor was the surviving corporation and changed its name to
Interactive Marketing Technology, Inc. The directors and officers of Shur De
Cor resigned and the management of Interactive New Jersey filled the
vacancies. Interactive Marketing increased its authorized capital stock from
20,000,000 to 60,000,000 common shares. Also, former shareholders of
Interactive New Jersey obtained 50% of Interactive Marketing's total voting
power at that time. (See, "Part 1, Item II: Managements' Discussion &
Analysis - Reverse Merger Treatment," below.)
We have a short operating history, recorded a net operating loss of
$1,056,964 for the year ended February 29, 2000, have an accumulated deficit
of $1,097,644 and used $753,650 net cash for operations for the fiscal year
ended February 29, 2000. These factors raise substantial doubt about our
ability to continue as a going concern. This fact is reported by our
independent auditor Moore Stephens, P.C.
Business
Interactive Marketing is engaged in the direct marketing of proprietary
consumer products in the United States and worldwide. We facilitate the
design and manufacture of products and develop market strategies for such
products. Our goal is to generate awareness of new and better products for
the home and family and initiate consumer brand recognition of our products in
the marketplace. When appropriate, we may contract with well-known
personalities to serve as spokespersons for a product to increase that
product's credibility and marketability. We manage all phases of our direct
marketing programs and retail marketing for the products we sell, including:
* Product selection, testing and development
* Securing all necessary or appropriate rights to the product
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* Supervision of the manufacturing process, quality control and
packing
* Production and broadcast of infomercials and commercials
* In-bound telemarketing, order fulfillment and customer service
* Print advertisements
IMT's Plumber, Inc.
In June 1998 Interactive New Jersey acquired exclusive rights to a
product called The Plumbers Secret. (See, "Principle Products," below). In
November of 1998, Interactive New Jersey, as licensor, entered into an
agreement to assign the exclusive license to a yet to be formed New Jersey
limited liability company which would have Interactive New Jersey's wholly
owned subsidiary as a majority member. The other member of the limited
liability company would be a entity formed by Bob Vila, a popular
home-improvement expert.
On February 4, 1999, the wholly owned subsidiary, IMT's Plumber, Inc., a
New Jersey corporation and the limited liability company, The Plumber's
Secret, L.L.C., a New Jersey limited liability company, were formed. IMT's
Plumber is a 50.01 % member of The Plumber's Secret, L.L.C. with Vila
Enterprises, L.L.C. as the other member. The Plumber's Secret, L.L.C.
operating agreement provides that all day-to-day management decisions of The
Plumber's Secret L.L.C. are to be made by Interactive Marketing.
Product Development
Interactive Marketing searches out independent third parties who have
invented or patented a product that we believe can be marketed to the public
or we may invent or patent a product. We attempt to develop new product ideas
from a variety of sources including inventors, suppliers, trade shows,
industry conferences and strategic alliances with manufacturing and consumer
product companies. Initially, we evaluate the suitability of a product for
television demonstration and explanation, the perceived value of the product
to the consumer, we determine if an adequate supply of the product can be
obtained and estimate the profitability of the product.
Once we conclude that the product will be commercially viable we attempt
to obtain the rights to the product. We then negotiate licensing arrangements
with the third parties that own the patent or the rights to the product.
Generally these licensing arrangements involve a combination of up-front
advances and/or royalties payable based upon sales or profits of the product.
We ordinarily seek exclusive worldwide rights to sell and to use all means of
distribution. However, we may be unsuccessful in obtaining such broad rights
and may acquire only limited rights. We have negotiated an exclusive license
for The Plumbers Secret and Tom House Physical Fitness and nonexclusive
licenses and/or marketing agreements for five additional proprietary products.
(See, "Principal Products" and "Recent Developments," below).
Once we have obtained the rights to market a product we may decide to
enhance the product to increase its marketability by changing the product
itself or altering its trade name, packaging, etc. Depending on the product,
we may place an order with a third party vendor to manufacture between 15,000
and 35,000 units. That amount is typically allocated for direct response
television sales only. Prior to marketing a product for domestic retail we
place another order with the manufacturer to cover the anticipated sales to
the retail market. We use this procedure to ensure we and our retailers have
enough lead-time to fill the demands for our products.
During fiscal year 1998 we expended $18,000 for research and development
for proprietary formulation, but we did not record any research and
development costs during 1999 fiscal year. During the 2000 fiscal year we
have spent $5,700 for research and development. We expect to market products
for home and business related to fitness, nutrition, pet care, health
emergency, golf and fishing.
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Sales and Marketing
Once we obtain the rights to market a product, we develop what we believe
will be the most effective marketing strategy. Strategies may include one or
more of the following:
* Direct Response Television (transactional television programming
* known as infomercials)
* Spot Buying (30 seconds to two minute commercial spots)
* Catalogs
* Direct mail
* Direct Response print ads
* Television home-shopping programs
* Credit card statement inserts
* Membership programs
* Internet marketing
* Retail
* International Marketing
* Print advertising
We attempt to structure a campaign for the product which most closely
suits the product, its potential consumer and the profit margins associated
with the product. We typically require two to eight weeks to develop the best
approach for marketing a product. During this phase, we: (1) Evaluate the
suitability of the product for direct marketing and retail; (2) Evaluate the
perceived value of the product to consumers; (3) Determine whether an adequate
and timely supply of the product can be obtained; and (4) Analyze whether the
estimated profitability of the product satisfies our criteria.
When we decide to bring a product to market, we may arrange for the
production of a direct response television program ("infomercial") that can
provide in-depth demonstration and/or explanations of our product. The
duration of these productions may vary from one to sixty minutes. We attempt
to present the product in an entertaining and informative manner, and may use
a variety of program formats including live talk shows and paid live studio
audience programs. Our infomercials are produced in-house or by independent
production companies with experience in the infomercial field. We expect the
production of an infomercial to take approximately ten (10) days up to three
weeks to complete, at a cost typically ranging from $75,000 to $200,000 per
infomercial. Additional costs may include fees paid to hosts and
spokespersons.
Following completion of the production of an infomercial, we may test the
program in the United States in specific time slots on both national cable
networks and targeted broadcast stations. If an infomercial achieves
acceptable results in the market tests, we generally air it on a rapidly
increasing schedule on cable networks and broadcast channels. Acceptable
results means that we believe we will be able to sell sufficient amounts of
the product to cover the expense of production and of the media time. During
this initial phase, we may modify the creative presentation of the infomercial
and/or the retail pricing, depending upon viewer response. In general, we
expect to air each infomercial domestically at least four to ten months and we
continue such infomercials for longer periods of time to support retail sales.
An important part of our ability to successfully market products is
access to media time. We do not have, and do not presently intend to have
inventories of media time or long-term contracts with suppliers of media time
for the broadcasting of infomercials. We believe that such inventories and
long-term contracts impose a financial burden and risk which we are unwilling
to accept. The lack of such inventories or long-term contracts causes us to
pay for media time at the prevailing rates at the time the infomercial is
aired. However, when a product tests successfully, media time can be
purchased in bulk, which provides a 40-60% cost savings. We have paid
approximately $244,100 for media time for the period from August 1999 through
February 29, 2000.
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Our infomercials periodically display on the television screen during the
broadcast an "800" telephone number and our Web site, www.shopimt.com, which
a customer can call or visit to order a product. We contract with third-party
vendors to provide in-bound telemarketing for a fee based principally on the
number of telephone calls answered. In-bound telemarketers electronically
transmit orders to our third-party vendors where the product is packaged and
shipped. In the future we expect the in-bound telemarketer to promote,
"up-sell," complementary and/or additional products related to the product
from which the inquiry is received. Such sales efforts will be orchestrated
by our marketing personnel who will script the sales approaches for the
telemarketing personnel.
We believe that an opportunity exists for the retailing of our consumer
products on the Internet. By directly offering products through our own Web
site, we interact with customers in real-time and are able to frequently
adjust the product mix, pricing and visual presentation. In addition, we can
more easily obtain extensive demographic and behavioral data about our
customers, provide them with greater direct marketing opportunities and offer
a more personalized shopping experience. Also, the Internet provides the
convenience of home shopping and 24-hour-a-day, seven-days-a-week operation,
available to any location, foreign and domestic, that has access to the
Internet. In December of 1999 we agreed to link our Web site with Bob Vila's
Web site, www.BobVila.com which is an interactive site specializing in home
improvements. We also intend to create links with hundreds of Web sites to
promote and sell our products.
Principal Products
The Plumbers Secret.
In June 1998, Interactive New Jersey entered into a licensing agreement
with A2000 USA, Inc., licensor, and Robert and John Miller, as inventors, for
the exclusive right to manufacture and or produce, advertise, promote, market
or sell worldwide The Plumbers Secret. Interactive Marketing agreed to pay
A2000 USA a royalty per unit for a period of one year. $20,000 was paid to
the A2000 USA upon execution of the agreement and an additional $30,000 was
paid after successful test marketing. We have paid $66,000 in such royalties
and have accrued an additional $75,000 in royalties as of February 29, 2000.
The Plumbers Secret is a simple plumbing device that is packaged in its
own plastic toolbox-like carry case and can be used up to twelve times for
clearing any clogged drain in a home. The product retails for $39.95 and has
a shelf life of ten years. The case holds a canister, pistol grip extension,
and three adapters which connect to tubs, sinks, toilets, showers, garbage
disposals and removable and non-removable grates. The pressurized canister
releases a patented non-toxic, non-corrosive enzymatic formula that expands
200 times its mass when introduced to water. The aerosol delivery system
propels the standing water through the clog.
We have produced one and two minute spots with Bob Vila, the former host
of the television series "This Old House", as the spokesperson for The
Plumbers Secret. The infomercial began airing in July of 1999 and was
released as part of Apple Computer's QuickTime 4 digital video and streaming
media at the Macworld Expo/NY '99 show. In August of 1999 The Shopping
Channel in Canada and tSc Direct, an Internet site, agreed to market The
Plumber's Secret on Canadian Home Shopping. The Canadian Home Shopping
Channel is similar to the QVC Network in the United States. The Plumber's
Secret infomercial is broadcast throughout English speaking Canada and on the
Sc Direct Internet site located at www.tsc.ca. In November of 1999 we granted
QVC Shopping Channel a license to use The Plumbers Secret promotional video to
promote and sell the product on its program through December 31, 2001. We
anticipate that this programming will appear in early 2001.
We have also expanded into retail markets with The Plumbers Secret. In
December of 1999 we filled product orders with Bed Bath & Beyond, Inc., QVC
Shopping Channel and Kmart Corporation. Our January 23, 2000 appearance of
The Plumbers Secret on QVC Shopping Channel was a success when we sold out
2,500 units within 7.2 minutes. As of February, 2000 net sales for the
Plumbers Secret were approximately $900,000.
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Power-Ti-Pod.
This product is a golf club, a driver, designed to correct a slice (a hit
that fades to the right). We entered into a joint venture with Carizma Golf
Co. in July of 1999 to market and sell this product internationally. We did
not produce an infomercial for this product, but used an infomercial that
Carizma had produced. Profits from this product were split 50/50 with Carizma
and as of February 29, 2000 we had realized sales of approximately $22,000. In
April 2000, we terminated our agreement with Carizma.
Putterball.
In November 1999 we entered into an agreement with Carizma Golf Co. to
develop and market the Putterball. The Putterball is a putting practice
device fashioned with a steel golf ball-like attachment in place of the normal
putter blade. The device does not tolerate error and assists a player to
learn his or her most productive technique through repetitive use of the
Putterball. Profits from the sale of this product were split 50/50 and as of
February 29, 2000 we recorded $8,000 in sales. As noted above, we terminated
our agreement with Carizma in April 2000.
Principal Suppliers
Production needs for our products are provided by third party vendors or
in-house. We contact several vendors until we find the combination of quality
manufacturing for a reasonable price. We consistently search for new
suppliers to insure that we and our customers are always assured the best
product. We currently rely on four vendors to supply the parts for The
Plumbers Secret. Aerosol Services Company located in California supplies the
pressurized cans filled with the non-toxic formula. Blow Molded Products
located in California supplies the plastic case, cap, handles and adapters.
Hawthorne Rubber located in New Jersey supplies the large flange adaptor. GM
Packaging located in California provides the shipping boxes. Carizma provided
the Power-Ti-Pod and Putterball products. We have not entered into formal
long-term written agreements with these suppliers.
We monitor the availability of our products and promptly adjust our
direct marketing campaign if and when a product cannot be adequately supplied.
However, such adjustment may not always be possible in the short term.
Management believes the loss of one or more of these vendors should not result
in a material adverse affect on our operations because we use a secondary
vendor for smaller quantities which allows us to replace the primary vendor
within 30-45 days.
Distribution
We rely on third parties to distribute our products. Sales from direct
response television and Internet sales are handled by our North American order
fulfillment center, PDS, located in Pacoima, California. This facility
receives merchandise from manufacturers, inspects merchandise for damage or
defects, stores product for later delivery, assembles the product as required,
packages and ships the products and processes customer returns. We 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 shipping and handling fee, which varies by
product. The majority of customer payments are made by credit card over the
telephone, with the remainder paid by check. No product is shipped C.O.D. and
we will not ship a product until payment has been received and cleared.
In addition to direct response television we rely on our President, Sandy
Lang, Johnny Bench, Leisure Marketing and 20 independent sales representatives
to market our products. We recently entered into an informal agreement with
Leisure Marketing to market our products. Leisure Marketing has had
twenty-five years experience with direct response television sales. We
currently have engaged fourteen domestic independent distributors who intend
to solicit ninety major retail organizations in the home center, hardware,
farm and fleet and maintenance
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supply centers. Sales to our independent distributors are at a fixed price
and all sales are final with no guaranteed sales provisions. In July of 1999
we began development of an international retail and independent distributor
network. We currently have established ten independent distributors who will
begin marketing our products within the year. We anticipate that we will
engage independent distributors in various foreign countries around the world
to market our products.
Competition
We have been in our market for a short period of time and compete
directly with many other companies, large and small, which generate revenue
from direct marketing, wholesale/retail and Internet commerce activities. We
also compete with consumer products companies and retailers which have
substantially greater financial, marketing and other resources. Some of these
companies presently conduct, or indicate their intent to conduct, direct
response marketing. Products similar to our products may be sold in
department stores, pharmacies, general merchandise stores and through
magazines, newspapers, direct mail advertising catalogs and the Internet.
The Plumbers Secret competes directly with two products available in the
marketplace today that purport to do what our product does. They are called
Power Plumber and Air Force and sell for 30% less than The Plumbers Secret.
We compete with these products by using direct response television advertising
blitzes which provide the customer with the convenience of ordering by phone
or mail and a 30 day, 100% money-back guarantee. Also, we use a
non-corrosive, non-toxic formula in our product where the others use corrosive
chemicals. Our packaging is constructed of sturdy plastic parts where the
other products use cardboard. Finally, the endorsement of nationally known
home improvement expert, Bob Vila, improves The Plumbers Secret credibility
and marketability.
Major Customers
In November 1999 Kmart Corporation placed an initial purchase order for
35,000 units of The Plumbers Secret. From this order Kmart Corporation
accounted for $465,000, or 51%, of our net sales of The Plumbers Secret as of
the year ended February 29, 2000. The loss of Kmart Corporation as a resale
customer would have a material adverse effect on our results of operations.
Recent Developments
The following discussions involve forward looking statements regarding
our business developments that involve substantial risks and uncertainties.
We cannot assure that we will be able to finalize the described agreements.
Share Exchange. Interactive Marketing and Sandy Lang, as an individual,
entered into an share exchange agreement on April 15, 2000 with E-Pawn.com,
Inc., an Internet services company. We have agreed to issue to E-Pawn a
sufficient number of our common shares to give E-Pawn a 51% ownership interest
in Interactive Marketing. However, the share exchange is contingent upon our
shareholders' approval and we cannot assure that such shareholder approval
will be achieved. According to the terms of the agreement, Sandy Lang will
personally exchange 3,000,000 of his Interactive Marketing shares for
3,000,000 E-Pawn shares. We will provide additional shares sufficient to
provide E-Pawn with a 51% interest in Interactive Marketing. The initial
estimate is Interactive Marketing will issue 20,000,000 common shares in
exchange for 5,000,000 E-Pawn common shares. After the closing, E-Pawn will
provide $5 million in capital funding to Interactive Marketing with $1,000,000
due immediately upon closing. Each Interactive Marketing Shareholder will
receive a stock dividend of two common shares of Ubuynetwork.com for each
share of Interactive Marketing held. Sandy Lang will remain as President of
Interactive Marketing and will enter into an employment agreement with
Interactive Marketing. He will also be named Chairman of Ubuynetwork, com.
The following discussions involve forward looking statements regarding
our product developments that involve substantial risks and uncertainties. We
cannot assure that we will be able to finalize licensing or marketing
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agreements for these products, or that the products will prove to be
marketable or successful.
Tom House Physical Fitness. In December of 1999 Interactive Marketing
and Tom House signed a letter of intent to market Dr. House's fitness
products. Tom House is a retired major-league pitcher who has a Ph.D. in
psychology and he is an consultant, performance analyst and sports
psychologist, and is a trainer of elite athletes. We anticipate that the Tom
House Physical Fitness products will include training equipment that weighs
less than one pound, training tapes and nutritional supplements which will
provide body development necessary for a person's needs whether at home, the
office or while traveling. We are in the process of shooting the Tom House
infomercial. The nutritional supplements have been formulated and we
anticipate they will be available in the last quarter of 2000. We hope to
create a continuity package with Tom House where the customer can call an
"800" number and receive answers for any questions regarding the fitness
products.
EFL Fishing Lure. The EFL Fishing Lure is a patented latex plastic in
the shape of a fish developed by actor, Chris Atkins (known for his
performance in Blue Lagoon) and five motion picture special effects people.
When the EFL Fishing Lure is put over a crank bait the bait feels like a fish
and moves like a fish. Chris Atkins will be the spokesman for the EFL Fishing
Lure and we anticipate using many of the recognized pro fishermen along with
celebrities that love to fish as spokespersons. We have incurred through
February 1999 approximately $35,500 in costs for the production of a 30 minute
infomercial and will begin production of the product in foreign countries. We
have created a logo and we plan to use a retail package consisting of a unique
type of tackle box with several types of baits and hooks. We expect the
retail price to be $39.95
Universal Wrench. In January of 2000 we entered into a sales and
distribution agreement with Lacrex SA of Switzerland which granted us the
exclusive North America rights to market the Lacrex Universal Wrench. This
wrench can loosen a range of nuts and bolts and can take the place of a full
set of wrenches at a fraction of the cost. The head of the wrench has a range
of 180 degrees giving it the ability to get into difficult locations. We have
agreed to test market this product within the next quarter to determine if we
will proceed with its marketing. In the event we decide to move forward with
the marketing we have agreed to purchase 300,000 units during the first year
and additional purchases are required in subsequent years to renew this
agreement.
Wonder Ladder. This ladder is extremely light and versatile and comes in
three lengths: 3', 5' and 6'. It is constructed of lightweight aluminum and
when closed it is only 5" wide for easy storage. It will safely hold up to
250 pounds. In December we entered into an agreement to market the Wonder
Ladder with a profit split determined by certain specifications. We have
agreed to manufacture and market this product worldwide through infomercials.
The owners of this product will oversee all domestic retail sales.
Life Mask. The LifeMask was designed to aid the administration of CPR
(cardio-pulmonary resuscitation). The LifeMask is a plastic mask which is
placed over the victim's mouth and the person administering the CPR breathes
into a nipple attached to the outside of the mask. This prevents potential
exposure to any contagions that the victim may have. We have agreed to
produce and market this product for an indefinite period of time with 12% of
the profits paid to the owner.
Rights to Master Audio Recordings. In November of 1999 we purchased
non-exclusive rights to 5,000 master audio recordings from Planet
Entertainment Corporation. A "master recording" is the original, final,
then-recorded version of a song recorded in the studio. These master
recordings represent a variety of music. We intend to electronically enhance
and re-digitize these recordings and market these recordings by offering
compilation CD's and cassettes to the public through television advertising
and retail. We anticipate the marketing of these recordings will begin in the
fourth quarter of 2000.
Trademarks, License and Intellectual Property
We rely upon a combination of licenses, confidentiality agreements and
other contractual covenants to establish and protect development and marketing
rights for our products. We have assigned our exclusive license to
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manufacture and or produce, advertise, promote, market or sell worldwide The
Plumber's Secret to the Plumber's Secret L.L.C. We are currently seeking
trademark protection for The Plumbers Secret. We consider trademark
protection to be very important to brand name recognition and independent
distributor and consumer loyalty to our business. We intend to register our
certain trademarks in the United States.
Our ability to compete effectively will depend in part on our ability to
maintain exclusive licensing and the aggressive continued development of our
products. We can not assure that our competitors will not independently
develop or obtain products that are substantially equivalent or superior to
our products.
Government Regulations
Various aspects of our business are subject to regulation and ongoing
review by a variety of federal, state, local and foreign government agencies.
The products we sell are subject to the evaluation by the Consumer Products
Safety Commission ("CPSC") which protects the public from unreasonable risk of
injuries and death associated with consumer products. The advertising and
marketing of our products is regulated by the Federal Trade Commission ("FTC")
and the Federal Communications Commission, ("FCC"), which enforce consumer
protection laws in regards to truth in advertising. When we rely on the U.S.
Mail for shipment of our products the United States Post Office regulates the
types of products and the manner in which they may be distributed to our
customers. Each state has various comparable agencies or laws that States'
Attorneys General enforce in the areas of consumer protection. These
statutes, rules and regulations which are applicable to our operations and to
our products are numerous, complex and subject to change. Our international
business, when developed, will be subject to the laws and regulations in those
countries in which we sell or market our products.
We have not had any action instituted by any of these regulatory agencies
or governments in regards to our products or marketing. However, if any
significant actions are brought against us or any of our subsidiaries in
connection with a breach of such laws or regulations, including the imposition
of fines or other penalties, or against one of the entities through which we
obtain a significant portion of our media exposure, we could be materially and
adversely affected. There can be no assurance that changes in the laws and
regulations of any state or country which forms a significant portion of our
market will not adversely affect our business or results of operations.
We collect and remit sales tax in the states where we have a physical
presence, however, certain states in which our only activity is direct
response television and Internet marketing have attempted to require direct
marketers, such as Interactive Marketing, to collect and remit sales tax on
sales to customers residing in such states. A 1995 United States Supreme
Court decision held that Congress could legislate such a change. Thus far,
Congress has taken no action to that effect. We are prepared to collect sales
taxes for other states if laws are passed requiring such collection. We do
not believe that a change in the laws requiring the collection of sales taxes
will have a material adverse effect on our financial condition or results of
operations.
Employees
Currently we employ six (6) individuals. We think we have good relations
with our employees and none are subject to a collective bargaining agreement.
ITEM 2: DESCRIPTION OF PROPERTY
Our principal offices are located in Hollywood, California. The property
is a six story office building made of brick and glass which is in good
condition. We lease approximately 2,500 square feet which includes six
offices, a conference room, kitchen and stock room. This property should be
adequate for the immediate future. Our monthly rent begins at $5,398 and
increases 3% per annum plus escalation costs over a five year period. This
lease will expire in September of 2004.
10
TEM 3: LEGAL PROCEEDINGS
We are not a party to any legal proceedings or threatened proceedings as
of the date of this filing.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
a) Market Information
Our common stock is traded over-the-counter and quoted on The National
Quotation Bureau's Pink Sheets under the symbol "IAMK". Until April 17, 2000
our common stock was quoted on the OTC NASDAQ Electronic Bulletin Board under
the symbols "IAMK" and "IAMKE". The following table represents the range of
the high and low bid prices of our stock as reported by the Nasdaq Trading and
Market Services for each fiscal quarter for the last two fiscal years ending
February 29, 2000. There was no trading activity prior to April 1999. Such
quotations represent prices between dealers and may not include retail
markups, markdowns, or commissions and may not necessarily represent actual
transactions.
Quarter Ended High Low
--------------- ------ -------
May 31, 1999 $7.875 $0.0625
August 31, 1999 4.0625 2.00
November 30, 1999 2.6875 0.75
February 29, 2000 1.9375 0.75
We have approximately 43 stockholders of record as of May 8, 2000. On
March 17, 1999, Shur De Cor effected a 2-for-1 forward split of its
outstanding common shares. The discussions in this registration statement
regarding our common shares reflect the forward stock split.
Dividends
We have not declared dividends on our common stock and do not anticipate
paying dividends on our common stock in the foreseeable future.
OTC Bulletin Board Eligibility Rule
In January of 1999, the SEC granted approval of amendments to the NASD
OTC Bulletin Board Eligibility Rule 6530 and 6540. These amendments require a
company listed on the OTC Bulletin Board to be a reporting company and current
in its reports filed with the SEC. As a result of this rule change we
voluntarily filed this registration statement in order to become a fully
reporting company and maintain the listing of our common stock on the OTC
Bulletin Board. The rule requires that the SEC come to a position of no
further comment regarding the registration statement before a company is
considered compliant. According to the rules, we were not in compliance at
our phase-in-date of April 17, 2000 and our listing was removed from the OTC
Bulletin Board. We have moved our listing to the National Quotation Bureau's
Pink Sheets. This move to the "pink sheets" may adversely affect the market,
if any, in our stock.
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b) Recent Sales of Unregistered Securities
The following discussion describes all securities we have sold within the
past years without registration:
On December 22, 1998, Shur De Cor issued 60,000 pre-split shares of
common stock, valued at $600, to James Glavas, our then President, services
rendered on our behalf. The issuance of such shares was exempt from
registration under the Securities Act of 1933 by reason of Section 4(2) as a
private transaction not involving a public distribution.
On January 26, 1999, Shur De Cor issued 50,000 pre-split shares of common
stock, valued at $500, to Principal Holdings, Inc. for investment banking
services rendered on our behalf. The issuance of such shares was exempt from
registration under the Securities Act of 1933 by reason of Section 4(2) as a
private transaction not involving a public distribution.
On February 15, 1999, pursuant to Rule 504, Shur De Cor offered 2,000,000
shares of common stock for an aggregate offering price of $50,000. Sixteen
(16) investors purchased 2,000,000 common shares for the $50,000 aggregate
offering price No underwriting discounts or commissions were paid for this
offering.
On April 13, 1999 we sold 285,000 common shares for $949,050 to Stratus
Investco S.A. The issuance of such shares was exempt from registration under
the Securities Act of 1933 by reason of Section 4(2) as a private transaction
not involving a public distribution.
On November 1, 1999 we sold 295,000 common shares to Finks Consultancy
Limited for $245,000. The issuance of such shares was exempt from
registration under the Securities Act of 1933 by reason of Section 4(2) as a
private transaction not involving a public distribution.
On November 19, 1999 we issued 2,000,000 common shares to Planet
Entertainment Corporation to acquire the non-exclusive rights to 5,000 master
audio recordings valued at $600,000. The issuance of such shares was exempt
from registration under the Securities Act of 1933 by reason of Section 4(2)
as a private transaction not involving a public distribution.
In April 2000 we closed a private placement with an aggregate offering
price of $600,000. We offered six units to accredited investors and each unit
consisted of one $100,000 convertible secured promissory note at 12% per annum
and 50,000 warrants, which expire in March 2005, to purchase 50,000 shares of
our common stock at $1.25 per share. We sold a total of six units, an
aggregate of 300,000 warrants, to eleven accredited investors for $600,000.
The placement agent, M.S. Farrell & Co., Inc., will receive a 10% commission
for all units sold, a 2 1/2% nonaccountable expense allowance and warrants for
10,000 common shares exercisable at $1.25, which expire in March 2005. The
issuance of such warrants was exempt from registration under the Securities
Act of 1933 by reason of Section 3(b) and Regulation D as a limited offering.
In each of the private transactions above, we believe that each purchaser
(i) was aware that the securities had not been registered under federal
securities laws, (ii) acquired the securities for his/her/its own account for
investment purposes of the federal securities laws, (iii) understood that the
securities would need to be indefinitely held unless registered or an
exemption from registration applied to a proposed disposition and (iv) was
aware that the certificate representing the securities would bear a legend
restricting its transfer. We believe that, in light of the foregoing, the
sale of our securities to the respective acquirers did not constitute the sale
of an unregistered security in violation of the federal securities laws and
regulations by reason of the exemptions provided under Sections 3(b) and 4(2)
of the Securities Act, and the rules and regulations promulgated thereunder.
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ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Overview
Interactive Marketing provides comprehensive marketing services for
proprietary consumer products in both the United States and worldwide. We
began operations in August of 1999 and have primarily relied on one product,
The Plumbers Secret, for our revenues. We have had a short operating history
and a history of operating losses, however, management believes we are in the
later stages of developing additional product lines to enhance our current
revenue stream. Currently management plans to introduce in the near-term at
least five additional products over the next three years.
Our fiscal year ends February 28 (or February 29) and the following
discussions are based on the consolidated financial statements of Interactive
Marketing and its wholly-owned subsidiary IMT's Plumber, Inc. and include the
consolidation of IMT's Plumbers, Inc.'s 50.01% members' interest in the
Plumbers Secret, LLC.
Reverse Merger Treatment
In April of 1999 Shur De Cor, a blank check company, merged with
Interactive New Jersey. Shur De Cor, the Nevada corporation, was the
surviving entity following the merger. The reverse merger was completed
pursuant to a stock-for-stock exchange of 12,404,000 shares of the Shur De
Cor's common stock for 100% of the outstanding stock, 2,500 shares, of
Interactive New Jersey. The merger was structured as a tax free
stock-for-stock exchange pursuant to Section 368 (a)(1)(B) of the Internal
Revenue Code, as amended.
IMT's Plumber Subsidiary
On March 16, 1999, the members of The Plumber's Secret L.L.C. agreed to
amend their operating agreement. The members agreed that the initial capital
contribution by both members would be approximately $100,000 each rather than
$1000 as agreed to in the original operating agreement. IMT's Plumber
committed to lend The Plumber's Secret L.L.C. up to $150,000 rather than the
original $250,000. Vila Enterprises has the option to abandon the L.L.C. if
sales of the product do not exceed $2 million in the first year. Management
believes we can meet this threshold.
The members agreed to distribute net cash available 50/50 until $500,000
was generated. After $500,000 in net cash is generated IMT's Plumber will
receive a preferred return on its capital contribution when it will receive
net cash available until the principal and interest of its loan are paid in
full. The operating agreement provides that $100,000 will be paid to B.V.T.V.,
Inc., which employs Bob Vila, for advertising and promoting the product in an
infomercial, however, the $100,000 fee has been applied towards the required
initial contribution as such services were performed. As of February 29, 2000
The Plumber's Secret L.L.C. has incurred a net loss of approximately $475,000
and the first $100,000 in losses has been allocated for tax purposes to Vila
Enterprises. The remaining losses will be allocated 50/50.
Liquidity and Capital Resources
We have funded our cash requirements primarily through loans and private
placements of equity securities. We did not post revenues for the 1999 fiscal
year and have experienced cumulative operating losses since our inception of
approximately $1,100,000 through the 2000 fiscal year. For the fiscal year
ended February 29, 2000 we recorded $252,266 in cash with $508,698 total
current assets and $584,424 total current liabilities. For the 2000 fiscal
year we used $753,650 net cash for operating activities and we posted a $0.09
net loss per share.
During the 2000 fiscal year we invested $238,384 of net cash for patents,
office furniture and equipment, infomercial costs and advances. In November
of 1999 we issued 2,000,000 common shares to purchase non-exclusive rights to
master audio recordings valued at $600,000. The value of the masters was
assigned using an independent valuation which included anticipated future
revenue cash flow calculations . We intend to amortize this
13
<PAGE>
asset over a period of 5 years once we begin to realize revenue from this
product.
Net cash provided by financing activities was $1,239,050 for the 2000
fiscal year. These financing activities were primarily private placements of
our common stock. In April of 1999 we sold 285,000 common shares for $949,050
and in November 1999 we sold 295,000 common shares for $245,000. We also
obtained from a stockholder a $50,000 loan with an interest rate of 10% per
annum which is due in April of 2001.
Starting in March of 2000 we conducted a private placement offering for
an aggregate offering price of $600,000. We offered 6 units to accredited
investors for $100,000 each. Each unit consisted of one $100,000 convertible
secured promissory note at 12% per annum and 50,000 warrants to purchase
50,000 shares of our common stock at $1.25 per share. The promissory notes
are secured by our assets and will mature on the earlier of six months or upon
certain contingent events. The entire principal amount and interest owed on
the note may be converted, at the purchaser's discretion, into common shares
at a conversion rate of $1.25 per share. As of April 12, 2000 we completed
this offering with net proceeds of approximately $517,000 to be used for
working capital.
We have no plans to purchase significant equipment or make other capital
expenditures within the next twelve months. We have monthly lease commitments
for our office space of approximately $5,400. We also have accrued $75,000 in
royalty obligations for the 2000 fiscal year. According to the terms of our
marketing agreements we will be obligated to share profits and/or pay
royalties on any products we sell. Further, if we decide to market the
Universal Wrench, the terms of that agreement require us to purchase 300,000
units at an anticipated cost of $1.5 million during the first year of
marketing. We also expect to employ two to three additional employees based
upon anticipated growth which will increase our payroll costs by approximately
$150,000.
Management believes the anticipated net proceeds from the private
placement should sustain our operations for the next six months. Management
anticipates we will supplement the private placement with future revenues from
our new product lines and equity and debt financing will provide funding for
the longer term. Our management is reviewing various product cost bids and is
discussing with major retailers the selling of our new products.
Management also expects that we will add to our revenue source through
banner stream income from Internet advertisers. Banner stream advertising
refers to the ads that appear on Internet Web sites. Management hopes to
create a Web site that will become a primary source of such banner stream
income by early 2001. To that end, management entered into an share exchange
agreement with E-Pawn. We have agreed to provide E-Pawn with a 51% ownership
interest of our company. The agreement provides for an influx of
approximately $5 million in capital funding and we plan to use Ubuynetwork.com
as an Internet site for sale of our products.
Management anticipates that additional capital will be provided by
private placements of our common stock. However, our common stock listing has
been removed from the OTC Bulletin Board and listed on the National Quotation
Bureau Pink Sheets. Our trading market and our ability to raise capital
through equity may be adversely affected by this change. We intend to
complete such private placements pursuant to exemptions provided by federal
and state securities laws. The purchasers and manner of issuance will be
determined according to our financial needs and the available exemptions. We
do not currently intend to make a public offering of our stock. We also note
that if we issue more shares of our common stock our shareholders may
experience dilution in the value per share of their common stock.
Management is investigating the availability, source and terms for
external debt financing, but has not entered into any agreement with any
persons regarding such financing. We can not assure that funds will be
available from any source, or, if available, that we will be able to obtain
the funds on terms agreeable to us. Also, the acquisition of funding through
the issuance of debt could result in a substantial portion of our cash flows
from operations being dedicated to the payment of principal and interest on
the indebtedness, and could render us more vulnerable to competitive and
economic downturns.
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Results of Operations
The following table summarizes our operations for the year ended February
29, 2000 and the period from inception through February 28, 1999.
From inception
(April 21, 1998)
Year ended through
February 29, 2000 February 28, 1999
------------------ -----------------
Revenues $ 921,381 -
Costs of Sales 448,699 -
Gross profit 472,682 -
Costs and Expenses
Payroll & related costs 413,070 -
General & Administrative 212,932 -
Advertising & Media Buys 303,397 -
Royalties 141,000 -
Selling Expenses 69,561 -
Consulting Fees - Related Party 33,333 -
Travel & Entertainment 147,519 -
Professional fees 115,105 22,680
Depreciation and Amortization 83,829 -
Research & Development 5,700 18,000
Interest Expense - Related Party 4,200 -
Total Costs and Expenses 1,529,646 40,680
Operating (Loss) (1,056,964) (40,680)
We recognize revenues when our product is shipped from our fulfillment
center. We recorded net revenues of $921,381 for the 2000 fiscal year,
compared to no revenues for the 1999 fiscal year. The revenues were
primarily a result of the sales of The Plumbers Secret by Kmart Corporation.
Cost of the goods, which includes the cost of the product and shipping of the
product, were $448,649. As a result, we posted a gross profit of $472,682
for the 2000 fiscal year.
Costs and expenses were $1,529,646 for the 2000 fiscal year compared to
$40,680 for 1999 fiscal year. The 1999 fiscal year expenses included
professional fees of $115,105 for legal and accounting fees and $18,000 for
research and development costs. We commenced our operations during the 2000
fiscal year and $626,002, or 40.9%, of these costs were related to payroll and
general and administrative costs. Advertising and media buys, selling
expenses and royalties accounted for $513,958, or 33.6%, of our costs and
expenses. $55,000 of the total depreciation and amortization expenses of
$83,829 were costs of filming, editing and producing infomercials for our
products which costs were amortized over a two year period, its estimated
useful life.
Our loss from operations was $1,056,964 for the 2000 fiscal year compared
to $40,680 for the period from April 21, 1998 (date of inception) through
February 28, 1999.
We are unaware of any known trends, events or uncertainties that are
reasonably likely to impact revenues from operations. However, we may
experience significant fluctuations in operating results in future periods due
to a variety of factors, including but not limited to, the following factors:
* We may need additional financing in order to carry out our business
plan and management cannot assure that we will be successful in
obtaining such financing. Failure to obtain
15
<PAGE>
necessary financing could have a material adverse impact on our
operations.
* Sales from our products are unproven and some of our products are
yet to be tested in the retail environment.
* We must obtain new products and customers at reasonable costs,
retain customers and encourage repeat purchases.
* We need to develop our customer base through multiple marketing
channels, which include the following: (i) Development of an
aggressive marketing campaign using a combination of online and
traditional marketing: (ii) by entering into linking arrangements
with other web sites; and (iii) using direct marketing techniques
to target new and existing customers with personalized
communications.
Seasonal Trends
Our market is not seasonal because our products are marketed with a
direct response television media blitz, which is not related to the seasonal
variables.
ITEM 7: FINANCIAL STATEMENTS
We have attached our consolidated financial statements for the year ended
February 29, 2000 and February 28, 1999.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Pursuant to the merger agreement, we continue to employ the accounting
survivor, Interactive New Jersey's principal independent accountant, Moore
Stephens, P.C. located in Cranford, New Jersey. On April 7, 1999 Crouch,
Bierwolf and Chisholm, located in Salt Lake City, Utah, was replaced by Moore
Stephens, P.C. Crouch, Bierwolf and Chisholm had audited Shur De Cor's
financials statements as of February 28, 1999, December 31, 1998 and 1997.
Crouch Bierwolf and Chisholm's report on such financials, dated March 29,
1999, did not contain an adverse opinion, disclaimer of opinion nor was it
modified as to uncertainty, audit scope or accounting principles. The
decision to change accountants was approved by the Board of Directors. There
were no disagreements with Crouch, Bierwolf and Chisholm on any matter
regarding accounting practices, financial statement disclosure, or auditing
scope or procedure.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Our directors and executive officers and their respective ages and
positions are listed below. Biographical information for each of those
persons is also presented below. Our executive officers are appointed by our
Board of Directors and serve at its discretion. There are no familial
relationships among or between any of our officers or directors.
a) Directors and Officers
Name Age Position Held
- -------- ------ --------------
Sandy Lang 54 President, Chief Executive Officer,
Director
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Martin Goldrod 58 Secretary, Director
Gregory Haehn 54 Treasurer
Johnny Bench 51 Director
Sandy Lang. Mr. Lang became President and C.O.O. of Interactive New Jersey in
1998. He continues as President of Interactive Marketing, but resigned as the
C.O.O. and was appointed C.E.O. in October of 1999. Mr. Lang has over 25
years of experience in creative media production. From June 1995 until April
1999 he was Chairman of The Board of The Secret, Inc., a company involved in
marketing a golf training program. He served as president of domestic sales
for Epic Films from August 1989 to June of 1995. He has been involved with
syndicated television shows and feature films, televised game shows and
computer graphics for television stations.
Martin Goldrod. Mr. Goldrod was appointed as a Director on January 28, 2000
and appointed as Secretary on April 7, 2000. He has been employed as a Vice
President of Interactive Marketing since April 1999. From 1992 through 1999
he was self-employed as a marketing consultant located in Los Angeles,
California. He has over 25 years experience in management and promotion on
the local, regional and national level related to record companies such as
Capital Records, Arista Records and Mercury Records.
Gregory Haehn. Mr. Haehn was appointed Treasurer on March 14, 2000. He has
over 25 years experience in the development of and operations for retail and
wholesale sales of auto parts. He currently is the president of Yukon
International, Inc., an on-line fitness retailer. He is also the President of
Twin Realty, Inc. which purchases and builds retail outlets for auto parts.
From 1976 to 1997 he served as Chief Executive Officer of Worldwide Auto
Parts, Inc., an auto parts retailer, and was President of Eagle Distributing,
Inc., a warehouse distributor company which provided products to wholesale
customers.
Johnny Bench. Mr. Bench was appointed as our Director in April of 1999.
During the past five years he has derived the majority of his income from his
notoriety as a Hall of Fame baseball player. He also has worked in radio and
television broadcasting related to baseball. During 1997 he was the owner and
C.E.O. of JB Enterprises, Inc. which manufactured and distributed golf
equipment.
b) Compliance with Section 16(a) of the Exchange Act.
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons who own more than ten percent of a
registered class of our equity securities, to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of common stock and our other equity securities.
Officers, directors and greater than ten-percent beneficial owners are
required by SEC regulations to furnish Interactive Marketing with copies of
all Section 16(a) reports they file. Since our registration statement did not
become effective until March 20, 2000, no reporting obligations were effective
during our fiscal year 2000.
ITEM 10: EXECUTIVE COMPENSATION
The following table shows compensation of our chief executive officer for
fiscal years 1999 and 2000. None of our other named executive officers or
directors received compensation in excess of $100,000 for 1999 or 2000.
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SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------
Name and Principal Position Year Salary ($) Bonus Other
- ---------------------------- ------ ---------- -------- --------
Sandy Lang 2000 $ 131,250 $0 $0
President, CEO 1999 50,000 0 0
Compensation of Directors
We do not have any standard arrangement for compensation of our directors
for any services provided as director, including services for committee
participation or for special assignments.
Employment Contracts
We have not entered into formal written employment agreements with our
named officers and directors.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our
outstanding common stock of; (i) each person or group known by us to own
beneficially more than 5% of our outstanding common stock, (ii) each of our
named executive officers, (iii) each of our director's and (iv) all executive
officers and directors as a group. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Except as indicated by footnote,
the persons named in the table below have sole voting power and investment
power with respect to all shares of common stock shown as beneficial ownership
of those shares. The percentage of beneficial ownership is based on
13,832,000 shares of common stock outstanding as of May 8, 2000.
CERTAIN BENEFICIAL OWNERS
Common Stock Beneficially Owned
--------------------------------
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- -------------------- ------------------- -------------------
Planet Entertainment Corp 2,000,000 14.4%
222 Highway 35
Middletown, New Jersey 07748
Navesink Venture Partners, LLC 3,000,000 (1) 21.6%
2 Bridge Avenue
Galleria Bldg. #6
Red Bank, New Jersey 07701
MANAGEMENT
Common Stock Beneficially Owned
--------------------------------
Name and Address of Number of Shares of
Beneficial Owners Common Stock Percentage of Class
- -------------------- ------------------- -------------------
<PAGE> 18
Sandy Lang 7,500,000 (2) 42.0%
3575 Cahuenga Boulevard West,
Suite 390
Hollywood, California 90680
Martin Goldrod 300,000 (3) 2.1%
3575 Cahuenga Boulevard West,
Suite 390
Hollywood, California 90680
Gregory Haehn 25,000 (4) *
2890 Attleboro Rd.
Shaker Heights, Ohio 44120
Johnny Bench 200,000 (5) 1.4%
324 Bisops Bridge
Cincinnati, Ohio 45255
All executive officers and
directors as a group 8,025,000 43.9%
* Less than 1%
(1) Represent options to purchase 3,000,000 shares exercisable in 60
days.
(2) Includes options to purchase 4,000,000 shares exercisable in 60 days.
(3) Includes options to purchase 250,000 shares exercisable in 60 days.
(4) Represents warrants to purchase 25,000 shares exercisable in 60 days
held by Yukon International, Inc., a company owned by Mr. Haehn.
(5) Includes options to purchase 150,000 shares exercisable in 60 days.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following information summarizes certain transactions either we
engaged in during the past two years or we propose to engage in involving our
executive officers, directors, 5% stockholders or immediate family members of
such persons:
Frank Leo, our former director and Secretary, has provided an aggregate
of $194,240 in cash or in property for or on behalf of Interactive New Jersey.
He paid legal fees totaling $14,680 and research and development costs of
$18,000 incurred between October 1, 1997 and June 30, 1998 in connection with
the formation of Interactive New Jersey including the licensing agreements,
and applications for patents and trademarks for the product. In January 1999,
he advanced $5,000 to us for working capital purposes. He paid total
licensing fees of $20,000 for the product, The Plumbers Secret, in June and
July of 1998. These payments were treated as a capital contribution. He also
remitted his acquisition of the title and interest in the mailing list of
past, current, and future names whereby his basis of $136,560 was treated as a
capital contribution. During the 2000 fiscal year, we paid $33,333 for
consulting fees to Kall Group, Inc., which is controlled by Frank Leo.
On November 30, 1999, Sandy Lang and the Kall Group, Inc., which is owned
by Frank Leo, then officers and directors, agreed to return and cancel
2,177,000 and 3,177,000 common shares, respectively, to the corporate treasury
for no compensation. In January of 1999 The Kall Group returned and canceled
an additional 2,000,000 common shares to the treasury. The purpose of the
return was to decrease the number of outstanding shares and provide
Interactive Marketing with additional authorized shares to facilitate equity
financing.
In March of 2000, we sold a fractional unit of our private placement to
Yukon International, Inc., which is owned by our Treasurer, Gregory Haehn.
Yukon International purchased a convertible promissory note for $50,000 at 12%
per annum with 25,000 warrants to purchase 25,000 common shares at $1.25 per
share.
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On April 15, 2000, we and our President, Sandy Lang, as an individual,
entered into a share exchange agreement with E-Pawn which is contingent upon
shareholder approval. Mr. Lang agreed to personally exchange 3,000,000, of
his shares in the share exchange. In consideration for his shares, Mr. Lang
will remain as President of Interactive Marketing upon closing of the share
exchange and he will enter into an employment agreement for this position. He
will also be named the Chairman of Ubuynetwork.com.
PART IV
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Description Location
2.1 Agreement and Plan of Merger between Interactive
Marketing and Shur De Cor, Inc., dated March 24, 1999. (1)
2.2 Stock Acquisition Agreement between Interactive
Marketing and E-Pawn.com, Inc., dated April 15, 2000. (1)
3.1 Articles of Incorporationof Shur De Cor, Inc., dated
August 14, 1987 (1)
3.2 Articles of Merger filed April 7, 1999. (1)
3.3 Bylaws of Interactive Marketing (1)
10.1 Lease Agreement between E.P. Investments and
Interactive Marketing, dated May 10, 1999 (1)
10.2 Agreement between A2000 USA, Inc., and Interactive (1)
Marketing, dated June 1998.
10.3 Amended Operating Agreement of The Plumbers Secret LLC,
dated March 16, 1999. (1)
10.4 Service Agreement between Interactive Marketing and
B.V.T.V., Inc., dated March 11, 1999. (1)
16 Letter of agreement from Crouch, Bierwolf & Chisholm,
dated March 29, 2000 (1)
27 Financial Data Schedule See attached
_______________________
(1) Incorporated by reference to Interactive Marketing's Form 10-SB, as
amended, filed January 19, 2000
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Form 10-KSB to be signed on its behalf by the
undersigned, who is duly authorized.
5/16/00
Date _________________. INTERACTIVE MARKETING TECHNOLOGY, INC.
/s/ Sandy Lang
By: __________________________________________
Sandy Lang, President, CEO and Director
Pursuant to the requirements of the Securities Exchange Act of 1934.
This report has been signed below by the following persons on behalf of
Interactive Marketing and in the capacities and on the dates indicated.
5/16/00 /s/ Sandy Lang
Date: _______________ By: __________________________________________
Sandy Lang, President, CEO and Director
5/16/00 /s/ Martin Goldrod
Date: _______________ By: ____________________________________________
Martin Goldrod, Secretary, Director
5/16/00 /s/ Gregory Haehn
Date: _______________ By:_____________________________________________
Gregory Haehn, Treasurer
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Interactive Marketing Consolidated Financial Statements February 29, 2000 and
April 21, 1998 [date of inception] through February 28, 1999.
<PAGE>
INTERACTIVE MARKETING TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
Interactive Marketing Technology, Inc.:
Report of Independent Auditors.............................................1
Consolidated Balance Sheet as of February 29, 2000.........................2
Consolidated Statements of Operations for the year
ended February 29, 2000 and for the period April 21, 1998 [date of
inception] through February 28, 1999.....................................3
Consolidated Statements of Stockholders' Equity for the
year ended February 29, 2000 and for the period
April 21, 1998 [date of inception] through February 28, 1999.............4
Consolidated Statements of Cash Flows for the year ended
February 29, 2000 and for the period April 21, 1998
[date of inception] through February 28, 1999..........................5-6
Notes to Consolidated Statements........................................7-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Interactive Marketing Technology, Inc.
We have audited the accompanying consolidated balance sheet of Interactive
Marketing Technology, Inc. and subsidiary ["Interactive"] as of February 29,
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the period from April 21, 1998 [date of inception]
through February 28, 1999 and the year ended February 29, 2000. 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Interactive as of February 29, 2000, and the results of their operations and
their cash flows for the period from April 21, 1998 [date of inception]
through February 28, 1999 and the year ended February 29, 2000, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Interactive will continue as a going concern. As discussed in Note 9 to
the consolidated financial statements, Interactive suffered a net loss of
$1,056,964 and utilized $753,650 in cash for operations for the year ended
February 29, 2000. These factors raise substantial doubt about Interactive's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 9. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants.
Cranford, New Jersey
April 1, 2000 [Except as to Note 11A
as to which the date is April 4, 2000]
<PAGE>
INTERACTIVE MARKETING TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET AS OF FEBRUARY 29, 2000.
Assets:
Current Assets:
Cash $ 252,266
Accounts Receivable - [Net of Allowance of $1,000] 6,246
Inventory 164,224
Prepaid Expenses 20,475
Other Current Assets 65,487
-------------
Total Current Assets 508,698
-------------
Fixed Assets - At Cost [Net of Accumulated
Depreciation of $8,779] 70,209
-------------
Other Assets:
Master Recording Rights - Music Catalogues 600,000
Customer List [Net of Accumulated Amortization of $16,000] 120,560
Infomercial Costs [Net of Accumulated Amortization of $55,000] 139,416
Licensing Fees [Net of Accumulated Amortization of $2,300] 17,700
Patents [Net of Accumulated Amortization of $1,750] 13,250
Deposits and Other Assets 104,687
Advance to Minority Shareholder 49,980
-------------
Total Other Assets 1,045,593
-------------
Total Assets $ 1,624,500
=============
Liabilities and Stockholders' Equity:
Current Liabilities:
Promotional Allowances $ 375,000
Accounts Payable 134,424
Accrued Royalties 75,000
-------------
Total Current Liabilities 584,424
-------------
Long-Term Liabilities:
Note Payable - Stockholder [6E] 54,200
Commitments & Contingencies [3] -
-------------
Stockholders' Equity:
Common Stock, Par $.001, 60,000,000 Shares Authorized,
13,832,000 Shares Issued and Outstanding 13,832
Paid-in Capital 2,069,688
Accumulated Deficit (1,097,644)
-------------
Total Stockholders' Equity 985,876
-------------
Total Liabilities and Stockholders' Equity $ 1,624,500
=============
See Notes to Consolidated Financial Statements.
<PAGE> F-2
INTERACTIVE MARKETING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period
April 21, 1998
[Date of Inception]
Year ended through
February 29, February 28,
2000 1999
------------- --------------
Net Revenues $ 921,381 $ -
Cost of Good Sold 448,699 -
------------- --------------
Gross Profit 472,682 -
------------- --------------
Costs and Expenses:
Payroll and Related Costs 413,070 -
General and Administrative Costs 212,932 -
Advertising and Media Buys 303,397 -
Royalties 141,000 -
Selling Expenses 69,561
Consulting Fees - Related Party 33,333 -
Travel and Entertainment 147,519 -
Professional Fees 115,105 22,680
Depreciation and Amortization 83,829 -
Research and Development Costs 5,700 18,000
Interest Expense - Related Party 4,200 -
------------- --------------
Total Costs and Expenses 1,529,646 40,680
------------- --------------
[Loss] from Operations $ (1,056,964) $ (40,680)
============= ==============
Net [Loss] Per Share $ (.09) $ (.01)
============= ==============
Weighted Average Number of
Shares Outstanding 12,063,250 7,050,000
============= ==============
See Notes to Consolidated Financial Statements.
<PAGE> F-3
INTERACTIVE MARKETING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Shares Issued to Founders 2,500 $ 250 $ - $ - $ 250
Issuance of Common Stock
in Share Exchange [6B] 12,404,000 12,404 (12,404) - -
Additional Contributions -
April 21, 1998 through
February 28, 1999 [4A] - - 189,240 - 189,240
Recapitalization Adjustment[6B] (2,500) (250) 250 - -
Net [Loss] for the period
April 21, 1998 through
February 28, 1999 - - - (40,680) (40,680)
Shares Returned and Canceled
by Two Officers in November
1999 and January 2000 [6D] (7,354,000) (7,354) 7,354 - -
------------- ----------- ------------- ------------- --------------
Balance at February 28, 1999 5,050,000 5,050 184,440 (40,680) 148,810
Acquired Equity of Shur
De Cor[6B] 6,202,000 6,202 (6,202) - -
Issuance of Common Stock in
April 1999 [6C] 285,000 285 948,765 - 949,050
Issuance of Common Stock in
November 1999 [6C] 295,000 295 244,705 - 245,000
Issuance of Common Stock in
November 1999 for Acquisition
of Masters Recording Rights 2,000,000 2,000 598,000 - 600,000
------------- ----------- ------------- ------------- --------------
Advertising and Promotion
Contributed by a Minority
Shareholder [3A] - - 99,980 - 99,980
Net [Loss] for the period
March 1, 1999 through
February 29, 2000 - - - (1,056,964) (1,056,964)
------------- ----------- ------------- ------------- --------------
Balance at February 29, 2000 13,832,000 $ 13,832 $ 2,069,688 $ (1,097,644) $ 985,876
============= =========== ============= ============= ==============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> F-4
<TABLE>
<CAPTION>
INTERACTIVE MARKETING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period
April 21, 1998
[Date of Inception]
Year ended through
February 29, February 28,
2000 1999
--------------- ----------------
<S> <C> <C>
Operating Activities:
Net [Loss] $ (1,056,964) $ (40,680)
--------------- ----------------
Adjustments to Reconcile Net [Loss]
to Net Cash [Used for] Operating Activities:
Depreciation and Amortization 83,829 -
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable - Net (6,246) 14,680
Inventory (164,224) 18,000
Prepaid Expenses and Other Current Assets (85,982) -
Deposits and Other Assets (104,687) -
Increase [Decrease] in:
Accounts Payable 126,424 8,000
Promotional Allowances 375,000 -
Accrued Royalties 75,000 -
Accrued Interest - Stockholder 4,200 -
--------------- ----------------
Total Adjustments 303,314 40,680
--------------- ----------------
Net Cash Operating Activities (753,650) -
Investing Activities:
Patents (15,000) -
Fixed Assets (78,988) -
Infomercial Costs (94,416) -
Advance to Minority Shareholder (49,980) -
--------------- ----------------
Net Cash - Investing Activities (238,384) -
Financing Activities:
Proceeds from Common Stock 1,194,050 250
Advance from Stockholder (5,000) 5,000
Loan from Stockholder 50,000 -
--------------- ----------------
Net Cash - Financing Activities 1,239,050 5,250
--------------- ----------------
Net Increase in Cash 247,016 5,250
Cash Beginning of Periods 5,250 -
--------------- ----------------
Cash End of Periods $ 252,266 $ 5,250
=============== ================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> F-5
<TABLE>
<CAPTION>
INTERACTIVE MARKETING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period
April 21, 1998
[Date of Inception]
Year ended through
February 29, February 28,
2000 1999
--------------- ----------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ - $ -
Income Taxes $ - $ -
Supplementary information on Non-Cash Investing and Financing Activities:
During 1998, a stockholder paid a total of $189,240 on behalf of the Company for:
Legal Fees $ 14,680
Research and Development Costs 18,000
Licensing Fees 20,000
Customer Lists 136,560
----------------
$ 189,240
================
In November of 1999, the Company purchased rights for 5,000 master audio recordings for various types
of music from an unrelated entity valued at approximately $600,000 by the issuance of 2,000,000 shares
of the Company's common stock.
In fiscal 1999, the Company's minority shareholder's contribution of $99,980 was exchanged for the
application of a $100,000 promotional fee due to him under a service agreement [See Note 3A]. These
amounts were credited to paid-in capital and capitalized as infomercial costs.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> F-6
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[1] Nature of Operations
Interactive Marketing Technology, Inc. ["Interactive" and the "Company"] was
formed on April 21, 1998. On April 7, 1999, the Company restated and amended
its bylaws under the State of Nevada. The Company's wholly-owned subsidiary
is Interactive's Plumber, Inc., which was formed February 4, 1999. Since
inception, the Company's principal business activity has been primarily to
produce, market, and sell a licensed product called the Plumbers Secret [the
"product"]. The subsidiary commenced selling the product in August 1999.
The Company intends on introducing new products in fiscal 2000 in a direct
response and retail sales environment. The Company continues to be involved
in negotiations to obtain licensing agreements for new products [See Note 3].
The Company was considered a development stage company for the year ended
February 28, 1999, however, since total net revenues of approximately
$921,000 have been realized between August 1999 and February 2000, the
Company is no longer a development stage entity.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiary, Interactive's Plumber, Inc. and include the consolidation of its
50.01% members' interest in the Plumbers Secret, LLC. Intercompany
transactions and balances have been eliminated in consolidation.
Use of 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.
Cash and Cash Equivalents - The Company considers all highly liquid
investments, with a maturity of three months or less when purchased, to be
cash equivalents. At February 29, 2000, the Company did not have any cash
equivalents.
Research and Development Costs - The Company expenses research and
development costs as incurred. For the years ended February 29, 2000 and
February 28, 1999, research and development costs totaled $5,700 and $18,000,
respectively, for new products.
Net [Loss] Per Share - Net [loss] per share is based on the weighted average
number of shares outstanding, reflecting the shares issued in the transaction
[See Note 6B] and the shares reacquired and canceled [See Note 6D]. FASB
issued SFAS No. 128, "Earnings Per Share," in February 1997. SFAS No. 128
simplifies the earnings per share ["EPS"] calculations required by Accounting
Principles Board ["APB"] Opinion No. 15, and related interpretations, by
replacing the presentation of primary EPS with a presentation of basic EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS by entities
with complex capital structures. Basic EPS includes no dilution and is
computed by dividing income available to common stockholders by the
weightedaverage number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of an entity, similar to the fully diluted EPS of APB Opinion No.
15. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. The Company adopted SFAS No. 128. Basic EPS
is based on average common shares outstanding and diluted EPS include the
effects of potential common stock, such as, options and warrants, if
dilutive. As of February 29, 2000, the Company had no potentially dilutive
securities that would be included in the computation of diluted earnings per
share. Such dilutive securities if issued could dilute EPS in future years.
<PAGE> F-7
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[2] Summary of Significant Accounting Policies [Continued]
Intangible Assets - Intangible assets include licensing fees, patents and
customer lists which are amortized over five years using the straight-line
method. Amortization commenced in August of 1999 when the Company commenced
selling the licensed product. Amortization expense for the period August
1999 through February 29, 2000 was $20,050.
Fixed Assets - Fixed assets include office furniture and equipment.
Depreciation began in August of 1999 under the straight-line method over an
estimated useful live of five years. Depreciation expense for the period
August 1999 through February 29, 2000 was $8,779.
Infomercial Costs - These costs include the filming, editing and other film
producing costs for various product infomercials which are used for cable
network viewing audiences. These costs are of a direct response nature and
are therefore capitalized and amortized over the period during which benefits
are expected to be received, which is estimated to be two years. The
amortization expense for the period August 1999 through February 29, 2000 was
$55,000.
Advertising Costs - Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when the advertising
first takes place. Advertising costs inclusive of media buys, amounted to
approximately $304,000 and $-0- for the year ended February 29, 2000 and the
period April 21, 1998 through February 28, 1999, respectively.
Revenue Recognition - The Company recognizes revenue upon shipment of the
product from the fulfillment facility. The Company return policy on direct
response is a full refund money back guarantee in thirty days. The Company
has accrued a liability of $5,000 based upon March 2000 returns for sales
prior to March 1, 2000. The Company's return policy on retail sales is for
defective merchandise only.
Inventory - Inventory is stated at the lower of cost or market. Cost is
determined by the first-in first-out method. The breakdown of the inventory
is as follows:
Supplies $ 30,800
Furnished Goods 133,424
--------------
Total $ 164,224
==============
Impairment - Certain long-term assets of the Company are reviewed when
changes in circumstances require as to whether their carrying value has
become impaired, pursuant to guidance established in Statement of Financial
Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Management
considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations [undiscounted and without
interest charges]. If impairment is deemed to exist, the assets will be
written down to fair value. Management also reevaluates the periods of
amortization to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. As of February 28, 2000, management
expects these assets to be fully recoverable.
<PAGE> F-8
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[3] Commitments and Contingencies
[A] Operating Agreement for The Plumber's Secret, LLC - Interactive 's
subsidiary, Interactive's Plumber, Inc., entered into an operating agreement
in February of 1999 whereby it acquired a 50.01% interest in the Plumber's
Secret, LLC and all day-to-day management decisions of the operating entity
are made by Interactive. Interactive shall be entitled to 10% of "net cash
flow" as defined as a management fee. Interactive, as licensor, has assigned
to the limited liability company a licensing agreement with A2000 USA, Inc.
The other limited liability partner has the right to abandon its interest if
sales from the product are less than $2,000,000 subsequent to the first year
that the infomercial airs on the product, which was July 1999. Net sales
generated from this product since inception [August 1999] amounted to
approximately $900,000 after the accrued promotional allowance.
On March 16, 1999, Interactive entered into an amendment of the operating
agreement for the limited liability company. The initial capital
contribution by both members was approximately $100,000 each. Interactive
committed to lending the limited liability company up to $150,000. As of
February 29, 2000, $415,135 was owed by Plumber's Secret, LLC to Interactive.
Interactive is entitled to receive a preferred return on its capital
contribution. Under a service agreement, $100,000 was to be paid to the
other limited liability member [Vila Enterprises, LLC] for advertising and
promoting the product in an infomercial. The $100,000 fee has been applied
towards the limited liability member's required initial capital contribution
of $99,980. As of February 29, 2000, the Plumber's Secret, LLC incurred a
net loss from operations of approximately $475,000. Pursuant to the
agreement, the first $100,000 in losses from the limited liability company
has been allocated for tax purposes to Vila Enterprises and then the
remainder will be allocated to the members according to the terms of the
first agreement. The minority interest portion of the February 29, 2000 loss
is $287,000 after allocation of the first $100,000 loss, however this loss
has not been allocated to the minority partner for financial statement
purposes. Future profits will be distributed 50/50 after the accumulated
losses are offset.
[B] Licensing Agreement Plumber's Secret - In June 1998, the Company entered
into a licensing agreement for the exclusive right to manufacture and or
produce, advertise, promote, market or sell worldwide the product for a
royalty per unit for a period of one year. Upon execution of agreement,
$20,000 was paid to the licensor. The Company is to pay a royalty fee of
$3.00 per each unit sold to the licensor. The Company paid $66,000 as of
February 29, 2000 and has accrued an additional $75,000 in royalties on this
obligation as of February 29, 2000.
[C] Operating Lease - In September 1999, the Company commenced leasing office
space under an operating lease which expires September 2004 for a monthly
minimum lease payment of approximately $5,400. This lease contains a renewal
option. In addition, the lease contains an escalation clause as defined and
a three percent automatic increase to the minimum monthly rent at the end of
each year. Total rent expense for the space for the year ended February 29,
2000 was approximately $35,500 and is classified as general and
administrative costs. Approximate aggregate future minimum rental payments
under this noncancellable operating lease is as follows:
February 28,
- -----------
2001 $ 66,000
2002 68,000
2003 70,000
2004 72,000
2005 39,000
-------------
Total $ 315,000
=============
[D] Telemarketing and Fulfillment Services Agreement - The Company entered
into a one year agreement on June 24, 1999 to telemarket the Plumber's
Secret, LLC throughout the world with PDS. PDS processes all orders received
for bank authorization and payment before shipping the products. PDS has
acquired a security interest in the Plumber's Secret products. PDS stores
the inventory and related materials as necessary to fulfill orders, subject
to timely receipt of product and materials from manufacturing centers. Total
expense during the year ended February 29, 2000 were approximately $54,000
and is classified as cost of goods sold in the statement of operations.
<PAGE> F-9
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[3] Commitments and Contingencies [Continued]
[E] Nonexclusive and Nontransferable License - On November 30, 1999, the
Company granted QVC a license to use the Plumber's Secret promotional video
to promote and sell the product on the televised shopping program through
December 31, 2001. The first promotional program is slated for the first
quarter of fiscal year 2001.
[F] Letter of Intent - Power-Ti-Pod - On July 14, 1999 entered into an
agreement for Interactive to sell the Power-Ti-Pod internationally and split
the profits 50/50 with a joint venture partner. The Company realized sales
of approximately $22,000 as of February 29, 2000.
[G] Letter of Intent - Tour-One Putter - On July 14, 1999 entered into an
agreement for Interactive to sell the Tour-One-Putter internationally first,
and back into a supply and demand, domestically. If an international market
is established Interactive will pay for telemarketing, media, fulfillment
costs, and product costs to generate a net profit split of 50/50 with a joint
venture partner. There were no sales as of February 29, 2000.
[H] Marketing Agreement - Putter Ball - The Company agreed on November 11,
1999 to develop a marketing plan for the sale of the Putter Ball with a joint
venture partner and for the joint venture partner to pay for the production
infomercial to market the product both domestically and internationally and
the manufacturing costs used for the Putter Ball. The profit split would be
50/50. The Company sold approximately $8,000 of the Putter Ball as of
February 29, 2000 and has no liability for this venture as of February 29,
2000.
[I] Letter of Intent - EFL Product Line - On November 12, 1999, the Company
received a license to manufacture and market the fishing line product that is
called the EFL Product Line. Interactive will be responsible for developing
the product and the infomercial and for fulfilling orders. Interactive will
pay a 15% royalty of the net sales as defined under the agreement. There
were no sales of this product as of February 29, 2000, however, approximately
$35,300 has been incurred for a future infomercial to be produced and is
classified as part of other assets on the balance sheet.
[J] Wonder Wrench - On January 5, 2000, the Company entered into a Sales and
Distribution Agreement with Lacrex SA of Switzerland ["Lacrex"] to solely and
exclusively market in North America the Lacrex Universal Wrench. Interactive
is granted first right of refusal for worldwide direct response rights on a
country to country basis. Interactive has committed to purchase from Lacrex
a minimum of 300,000 units of the product at a purchase price of $5.00 per
unit FOB China within one year. There were no sales of this product as of
February 29, 2000. There is a $20,000 deposit on the future infomercial that
will be produced for this product and is classified as part of other assets
on the balance sheet.
[K] Personal Service Agreement - In 1998, Interactive received the exclusive
rights for product marketing whereby Interactive is to pay a 15% of royalty.
Commencing April 1999, the Company paid $3,000 a month as a draw against the
profit split on Tom House tapes, kits, and products. No sales have been
recorded, therefore, these payments of $30,000 as of February 29, 2000 have
been recorded as part of other assets on the balance sheet.
[L] Royalty Payment - "The Rake" - The Company has not finalized negotiations
related to a royalty arrangement for The Rake. There were no sales or costs
for The Rake as of February 29, 2000.
[M] Noncompete Agreement - "Specialized Collapsible Ladder" - In December of
1999, the Company entered into a noncompete agreement to market the ladder
with a profit split as defined under certain specifications. There were no
sales or cost for the ladder as of February 29, 2000.
<PAGE> F-10
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[3] Commitments and Contingencies [Continued]
[N] Sales Agreement - Life Mask - On November 17, 1999, the Company entered
into an agreement whereby Interactive will pay all costs of the products and
another individual will receive 12% of all income worldwide from the sales of
the product. There were no sales or costs for the Life Mask as of February
29, 2000.
[O] Employment Agreement - On June 30, 1999, the Company entered into a 2
year employment agreement for an officer of the Company for an annual salary
of $135,000 plus reimbursable business expenses.
[P] Sales Price Guarantee - The Company has included a price guarantee on
sales orders for certain retail customers during first quarter of fiscal
2000. The price guarantee provides that the Company will not sell its
product to a competitor at a lower price up until the shipment date.
[4] Related Party Transactions
[A] Stockholder/Former Officer - Legal fees totaling $14,680 and research and
development costs of $18,000 were incurred between October 1, 1997 and June
30, 1998 in connection with the formation of the business, the licensing
agreements, and applications for patents and trademarks for the product.
Total licensing fees for the product, "Plumbers Secret", of $20,000 were paid
in June and July of 1998. These costs were paid by a stockholder of the
Company and were therefore treated as a capital contribution. The stockholder
of the Company also remitted his acquisition of the title and interest in the
mailing list of past, current, and future names whereby his basis of $136,560
was treated as a capital contribution. Therefore, the Company expensed
$40,680 and credited paid-in capital $189,240 for the period ended February
28, 1999 on these related party transactions.
During the year ended February 29, 2000, the Company paid an entity, which is
controlled by this stockholder consulting fees of approximately $33,000 and
paid the stockholder payroll costs of approximately $18,000.
[5] Income Taxes
At February 29, 2000, the Company had a net operating loss carryforward of
approximately $538,000 resulting in a long-term deferred asset of
approximately $183,000. The operating loss carryforward of $538,000 will
expire February 2020. The Company has provided a valuation allowance of
approximately $183,000 due to the uncertainty that the Company will be able
to generate sufficient taxable income in the future necessary to utilize this
asset. There are no material temporary differences that would result in a
deferred tax asset or liability at February 29, 2000.
[6] Equity and Debt Transactions
[A] Formation - Interactive Marketing Technology, Inc. was authorized to
issue 2,500 shares of common stock at no par value. At February 28, 1999,
there were 2,500 shares of common stock issued and outstanding to the
founders and there were no options or warrants outstanding. The 2,500 shares
were exchanged for 12,404,000 shares of common stock of Shur De Cor pursuant
to the Share Exchange Agreement dated March 15, 1999 [See Note 6B].
<PAGE> F-11
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[6] Equity and Debt Transactions [Continued]
[B] Share Exchange Agreement - On March 15, 1999, Interactive entered into a
share exchange agreement with Shur De Cor, Inc. whereby 100% of the common
stock, or 2,500 shares of Interactive, were exchanged for 12,404,000 shares
of common stock of Shur De Cor, Inc. For accounting purposes, the
acquisition was treated as an issuance of shares for cash by Interactive,
with Interactive as the acquirer. The accounting is identical to that
resulting from a reverse acquisition, except that no goodwill or other
intangible is recorded. Historical information prior to March 24, 1999 is
that of Interactive. Shares of 12,404,000 issued in the acquisition are
shown as outstanding for all periods presented in these financial statements
in the same manner as for a stock split. The acquired equity of Shur De Cor,
Inc. is included in the financial statements at the date of acquisition. Pro
forma information on this transaction is not presented as, at the date of
this transaction, Shur De Cor, Inc. was considered a public shell and
accordingly, the transaction was not considered a business combination. On
March 24, 1999, Shur De Cor, Inc. changed its name to Interactive Marketing
Technology, Inc. and increased its authorized capital stock from 20,000,000
to 60,000,000 common shares.
[C] Equity Financing - In April 1999, the Company received total proceeds of
$949,050 from the sale of 285,000 shares of common stock from two foreign
investors. In November of 1999, the Company received proceeds of $245,000
for the issuance of 295,000 shares of the Company's common stock.
[D] Treasury Stock - In November 1999 and January 2000, two of the Company's
officers and directors returned and the Company canceled a total of 7,354,000
shares of the Company's common stock for no compensation in an attempt to
provide additional shares to the Company for future financing. The effect of
this transaction has been reflected retroactively in the financial statements
for all periods presented.
[E] Note Payable - Stockholder - In April 1999, the Company received note
proceeds of $50,000 from a stockholder. The note is due April 2001 with
interest at 10% per annum. Unpaid interest expense for the year ended
February 29, 2000 was $4,200. The total unpaid liability of $54,200 is
classified as a long-term liability.
[F] Acquisition of Rights for Master Recordings - During November 1999, the
Company purchased the non-exclusive rights to 5,000 master audio recordings
[the "Library"] for various types of music from an unrelated entity in
exchange for the issuance of 2,000,000 shares of the Company's common stock.
The value of $600,000 was assigned to these rights based upon an independent
valuation received, which included estimated revenue projections used by
management to assess the recoverability from its future revenue stream.
Under the agreement, the Company has the right to use the Library to record
music on its own label. However, the agreement does not permit the
relicense, sublicense or the assignment of rights in the Library to a third
party.
The Company will commence amortization of this asset over five years. The
Company has not commenced amortization for this asset in fiscal year 1999 as
management intends to market a compilation of these recording in fiscal year
2000.
[7] Significant Risks and Uncertainties
Concentrations of Credit Risk - Cash - Financial instruments which
potentially subject the Company to concentrations of credit risk consists of
cash.
The Company places its cash with high credit quality institutions and is
subject to credit risk to the extent it exceeds federally insured limits. At
February 29, 2000, the Company has approximately $200,000 of cash subject to
such risk. The Company does not require collateral or other security to
support financial instruments subject to credit risk.
[8] Major Customer - For the year ended February 29, 2000, the Company had
sales to one resale customer amounting to approximately $465,000 of net sales
after promotional allowances of $375,000, or 51% of net sales.
<PAGE> F-12
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[9] Going Concern
The accompany financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplates continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business.
The Company has suffered a net loss of $1,056,964 and utilized $753,650 in
cash for operations for the year ended February 29, 2000. The inability of
the Company to generate cash from operations, considering currently available
funds, creates an uncertainty about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
The Company is completing a private placement memorandum and upon receipt of
the estimated net proceeds of $517,000 believes it will be able to complete
anticipated sales orders, including the introduction of new products, with
the infusion of additional working capital and sustain operations for twelve
months [See Note 11A]. The continuation of the Company as a going concern is
dependent upon the success of these plans.
There can be no assurances that management's plans to reduce operating losses
and to obtain additional financing to fund operations will be successful.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the
Company cannot continue in existence.
[10] Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, other current assets as
well as accounts payable and other current liabilities approximates fair
value as a result of their short maturities. The carrying amount of due to
stockholder included in non-current liabilities approximates its fair value
because it bears interest at a rate that approximates the Company's cost of
capital.
[11] Subsequent Events
[A] Private Placement Memorandum ["PPM"] - On March 23, 2000, the Company
engaged a placement agent for an offering to sell up to 6 units, each unit
consisting of one $100,000 convertible secured promissory 12% note and 50,000
warrants to purchase 50,000 shares of common stock at a price of $1.25 per
share. The offering price is $100,000 per unit and the anticipated estimated
net proceeds to the Company is $517,000. The promissory notes will mature on
the earlier of (a) 6 months from the closing, (b) certain change of control
events, (c) the closing of $2,000,000 of bridge financing or $5,000,000 of
equity financing, or (d) the receipt and collection by the Company of
$600,000 in accounts receivable. The promissory notes will be secured by the
assets of the Company. The placement agent is entitled to a 10% commission
for all units sold, a 22% non-accountable expense allowance and warrants for
10,000 shares of common stock exercisable at $1.25 for a period of five
years. The Company has received approximately $400,000 from this offering as
of April 4, 2000. The Company anticipates this offering will help sustain
the Company's growth for six months of operations. Total fair value of the
equity instruments issued will be charged to operations over the life of the
related debt.
[B] Stock Option Plan - On March 28, 2000, the Company's Board of Directors
adopted the 2000 Stock Option Plan whereby it reserved for incentive rewards
10,000,000 shares of common stock for directors, employees, and consultants.
The Company granted stock options under this plan for 8,365,000 shares of the
Company's common stock at an exercise price of $1.00, which approximated the
fair market value at the date of grant.
<PAGE> F-13
INTERACTIVE MARKETING TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[12] Subsequent Events [Unaudited]
Stock Acquisition and Exchange Agreement - On April 15, 2000, the Company
entered into a stock acquisition and exchange agreement with a diversified
internet service company whereby 51% of IMT's issued and outstanding shares
of stock would be acquired subject to shareholder approval.
[13] New Authoritative Accounting Pronouncements
The Financial Accounting Standard Board ["FASB"] has issued Statement of
Financial Accounting Standards No. 133 ["SFAS No. 133"], "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. SFAS No. 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and
how it its designated, for example, gain or losses related to changes in the
fair value of a derivative not designated as a hedging instrument is
recognized in earnings in the period of the change, while certain types of
hedges may be initially reported as a component of other comprehensive income
[outside earnings] until the consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,
but it is permitted only as of the beginning of any fiscal quarter. SFAS No.
133 is not to be applied retroactively to financial statements of prior
periods.
The Company does not currently have any derivative instruments and is not
currently engaged in any hedging activities.
In March 2000, the FASB issued Interpretation No. 44 "Accounting for Certain
Transactions Involving Stock Compensation." Among other issues, this
Interpretations clarifies (a) the definition of employee for purposes of
applying Opinion 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in
a business combination. The Company has adopted this pronouncement.
<PAGE> F-14
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