As Filed With The Securities And Exchange Commission On August 7, 2000
Commission File No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INTERACTIVE TECHNOLOGIES.COM, LTD.
(Name of small business issuer in its charter)
Delaware 7389 06-1460654
-------- ---- ----------
(State or Jurisdiction of (Primary Standard Industrial (IRS Employer
Organization or Incorporation) Classification Code Number) Identification
Number)
110 East Atlantic Avenue, Suite 400
Delray Beach, Florida 33444
561-454-3300
(Address and telephone number of principal executive
offices and principal place of business)
William R. Becker, Chief Executive Officer
Interactive Technologies.com, Ltd.
110 East Atlantic Avenue, Suite 400
Delray Beach, Florida 33444
561-454-3300
(Name, address and telephone number of agent for service)
Copy to:
Steven D. Dreyer, Esq.
Hall Dickler Kent Goldstein & Wood, LLP
909 Third Avenue
New York, New York 10022
(212) 339-5400
Fax: (212) 935-3121
Approximate date of proposed sale to the public: AS SOON AS PRACTICAL AFTER THE
EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
<PAGE>
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to rule 434, check
the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Title of Each Class Proposed Maximum Maximum Amount of
of Securities to be Amount Offering Price Aggregate Registration
Registered to be Registered Per Share Offering Price Fee
---------- ---------------- -------------- -------------- ---
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share, for Selling
Stockholder 1,940,570 (1) $1.30 $2,522,741 $666.00 (2)
Common Stock, par value $.001
per share, issuable upon
exercise of Warrants issued to the
Selling Stockholder in connection
with the issuance of Common Stock 329,896 (3) $5.82 $1,919,995 $507.00 (4)
---------- -----------
$4,442,736 $1,173.00
</TABLE>
----------------------
(1) In accordance with Rules 416 and 457, this Registration Statement also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon repricing of the shares of Common Stock initially issued to
the Selling Stockholder and to prevent dilution resulting from stock splits or
stock dividends.
(2) Fee determined pursuant to Rule 457(c) based upon August 2, 2000 stock
pricing.
(3) In accordance with Rules 416 and 457, this Registration Statement also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon exercise of the Warrants to prevent dilution resulting from
stock splits or stock dividends.
(4) Fee determined pursuant to Rule 457(g).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to Completion, Dated August __, 2000
Prospectus
_______________ Shares
Interactive Technologies.com, Ltd.
Common Stock
The selling stockholder is offering up to [ ] shares of our common stock. We
will not receive any proceeds from the sale ofs this common stock. No shares are
being offered for sale us at this time.
The selling stockholder may sell these shares from time to time in the
over-the-counter market or otherwise.
Our common stock is quoted in the National Quotation Bureau Pink Sheets under
the symbol "INTR." On July 31, 2000, the last reported bid price of the common
stock on the Pink Sheets was $1.45 per share.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_______________, 2000
<PAGE>
You may rely only on the information contained in this prospectus. We have not
authorized anyone to provide information different from that contained in this
prospectus. Neither the delivery of this prospectus nor sale of shares means
that information contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or solicitation of an offer
to buy these securities in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
Page
Prospectus summary 1
Risk factors.
Use of proceeds.
Forward-looking statements
Price range of common stock.
Dividend policy.
Capitalization
Selected consolidated financial data
Management's discussion and analysis of financial condition and
results of operations.
Business Management
Certain transactions
Principal stockholders
Selling stockholder
Description of securities.
Shares eligible for future sale.
Plan of distribution
Legal matters.
Experts
Additional information
-------------------------
Until _______________, 2000 (40 days after the date of this prospectus), all
dealers effecting transactions in the common stock may be required to deliver a
prospectus. This is in addition to the obligations of dealers to deliver a
prospectus when acting as underwriters.
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the risks of investing in our common stock,
and our financial statements and notes to those statements appearing elsewhere
in this prospectus.
OUR BUSINESS
We were incorporated in the State of Delaware on March 31, 1993 under the name
ADV Acquisition Corp. On February 26, 1999, control of our corporation, which
was then called Interfund Resources, Ltd., was transferred to William R. Becker
and to entities affiliated with him in a "reverse acquisition" transaction. Upon
completion of that transaction,
o we obtained an 80% ownership interest in the four corporations
identified below;
o we issued to Mr. Becker, individually and jointly with his wife,
Joni, and to a family trust established by Mr. Becker, 18,000,000
shares of our common stock;
o Mr. and Mrs. Becker, together with the family trust, retained the
remaining 20% ownership interest in those four corporations; and
o our name was changed to Interactive Technologies.com, Ltd.
Our principal executive offices are located at 110 East Atlantic Avenue, Delray
Beach, Florida 33444, and our telephone and fax numbers are 561-454-3300 and
561-454-3360, respectively. Our Web site address is www.intrinfo.com.
Information accessed on or through our Web site, or the Web sites of any of our
subsidiaries, does NOT constitute a part of this prospectus.
We offer to companies, businesses, fund raising organizations, large
associations, affinity groups, their members and customers, directly and through
our 80%-owned subsidiary, JoinUsOnline.com, Inc. ("JoinUsOnline"), privileged
access to Internet business-to-business and business-to-consumer benefits,
products and services. Through the agreements that we and JoinUsOnline have with
such organizations, more than 29,000,000 households and 1,500,000 businesses
have access to those benefits, products and services. As of the date of this
prospectus, approximately 3,500,000 of those households and businesses have
obtained one or more of the benefits, products and services that that we
provide. We offer such benefits, products and services through web portals that
we develop and operate for our own use, and also through "private labeled" web
portals that we develop and operate for other businesses and organizations.
We also conduct business through:
o United Interactive Technologies, Inc. ("United Interactive"), an
80%-owned subsidiary which develops and hosts Internet web portals
and Web sites, and which provides high speed Internet access
services via its direct connection to the Internet at the only
Internet network access point located in the state of Florida;
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o Integrated Merchant Services, Inc. ("IMS"), an 80%-owned subsidiary
which operates a credit card processing business through which
merchants may process and obtain payment for their customers'
e-commerce and in-store credit and debit card purchase transactions;
o Web Classified.net, Inc. ("Web Classified"), an 80%-owned subsidiary
which markets to small businesses the ability to inexpensively
construct a customized business-to-business or business-to-consumer
three page Web site which the customer can create on-line through a
database driven Web site generation application produced by IMS;
o Express Financial Corp. ("Express Financial"), a 100%-owned
subsidiary which is a licensed mortgage banker and approved lender
for various federal lending programs including FHA, VA and Title II
loans. Express Financial conducts its business through traditional
"brick and mortar" offices, as well as via a virtual branch located
at its Web site on the world wide web; and
o GKB Software, Inc. ("GKB"), an 80%-owned subsidiary that has created
a food industry specific internet portal called FattyDaddy.com,
which presently covers selected aspects of the food industry on one
web site. Fattydaddy.com will be offered to JoinUsOnline member
organizations, and it also will be marketed directly to
non-JoinUsOnline members. GKB also manufactures a touch-screen point
of sale, employee scheduling and payroll and inventory maintenance
software application used in the restaurant industry by owners of
stand-alone, multi-store and franchised restaurant operations.
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THE OFFERING
Shares Offered [ ] shares of common stock
Proceeds to us None. All sales will be for the benefit of
the selling stockholder
Common stock to be outstanding [ ](1)
after the offering
Pink Sheets symbol INTR
-----------------------
(1) In addition to [ ] shares of common stock outstanding after the
offering, we may issue 232,868 shares of common stock on the exercise of
outstanding warrants, and 6,707,750 shares of common stock on exercise of
outstanding options.
SUMMARY CONSOLIDATED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
Year Ended Three Months Ended
December 31, March 31,
------------------- ------------------
1999 1998 2000 1999
------- ------- ------- ------
(unaudited)
(in thousands except per share data)
Total revenues $ 3,312 $ 3,824 $ 1,020 $ 917
Cost of sales 338 182 65 113
Selling, general and administrative
expenses 4,198 1,817 2,208 527
------- ------- ------- ------
Net Earnings (loss) (1,137) 1,824 (1,425) 277
Basic earnings (loss) per share (.07) .92 (.06) .03
Fully diluted earnings (loss) per share (.07) .36 (.06) .03
The following table indicates a summary of our balance sheet as of December 31,
1999 and March 31, 2000.
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CONSOLIDATED BALANCE SHEET DATA
December 31, 1999 March 31, 2000
----------------- --------------
(unaudited)
(in thousands)
Cash and cash equivalents $ 452 $1,076
Total current assets 2,396 4,079
Total assets 4,214 6,185
Total current liabilities 2,488 2,034
Total liabilities 2,531 2,272
Total stockholders' equity 1,683 3,913
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RISK FACTORS
WE REPORTED A LOSS IN 1999. IF WE DO NOT BECOME PROFITABLE, OUR BUSINESS COULD
BE ADVERSELY AFFECTED AND THE VALUE OF YOUR INVESTMENT COULD DECLINE.
For the year ended December 31, 1999, we incurred a net loss of $1,136,870 as
compared to earnings of $1,824,161 for the year ended December 31, 1998. We also
incurred a loss of $1,425,002 for the three months ended March 31, 2000. Our
losses in 1999 were primarily due to the costs incurred by United Interactive in
developing the JoinUsOnline.com portal system and increased costs for accounting
and legal services. There can be no assurance that we will be able to generate
sufficient revenues to operate profitably in the future or to pay our debts as
they become due.
SOME OF OUR BUSINESSES HAVE LIMITED OPERATING HISTORIES.
JoinUsOnline has been operating as a provider of benefits, goods and services
since 1990. However, we have recently shifted the focus of JoinUsOnline's
marketing approach away from a paper-based system which relies on the mails to
an Internet-based system which functions through web portals. Also, United
Interactive and IMS have limited operating histories upon which to base an
evaluation of the business that we conduct. Our prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in the new
and rapidly evolving markets for Internet and interactive media products and
services. In addition, we will be subject to all of the risks, uncertainties,
expenses, delays, problems and difficulties typically encountered in the growth
of an emerging business and the development and market acceptance of new
products and services. There can be no assurance that unanticipated expenses,
problems or technical difficulties will not occur which would result in material
delays in market acceptance of our products and services or that our efforts
will result in such market acceptance.
WE MUST DO BUSINESS IN A DEVELOPING MARKET AND FACE NEW ENTRANTS. FAILURE TO
MEET THE CHALLENGES OF NEW PRODUCTS AND COMPETITORS WILL REDUCE OUR MARKET SHARE
AND THE VALUE OF YOUR INVESTMENT.
The market for Internet products and services is rapidly evolving and is
characterized by an increasing number of market entrants. The diverse segments
of the Internet market might not provide opportunities for more than one
dominant supplier of products and services similar to ours. If a single supplier
other than us dominates one or more market segments, our revenue is likely to
decline and we will become a less valuable company.
BECAUSE WE LACK THE NAME RECOGNITION, CUSTOMER BASE AND RESOURCES OF OTHER
COMPANIES PROVIDING INTERNET BASED PRODUCTS AND SERVICES, WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY WHICH WOULD REDUCE OUR REVENUE AND THE VALUE OF YOUR
INVESTMENT.
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The membership benefits and service industry serves a market of consumers and
businesses nationwide. Benefits companies have traditionally marketed their
benefits programs via direct sales, credit card issuers, airline services, oil
companies, banking institutions, and most recently Internet web sales. The
majority of customers for these programs are considered to be consumers, with a
small percentage of small business owners. Individual benefit and service
program offerings vary dramatically from Company to Company. JoinUsOnline's
principal competitors in the benefits and services industry include The
Signature Group and Cendant Corp. They have longer operating histories, larger
client bases, longer relationships with clients, greater brand or name
recognition and significantly greater financial, technical, marketing and public
relations resources than JoinUsOnline possesses.
United Interactive competes with major Internet Web site hosting companies,
e-commerce Web site hosting companies, and Internet e-commerce merchant credit
card processing companies that market to small, mid-size businesses and
corporations. The most significant competitors in these markets are Verio, Inc.
and Concentric Network Corporation. Both of these companies have significantly
greater operating and marketing experience, name recognition, financial and
other resources and customer bases than United Interactive possesses.
The credit, charge and debit card transaction processing services business is
highly competitive. The level of competition has increased significantly in
recent years, and we expect this trend to continue. Several of our competitors
and potential competitors have greater financial, technological, marketing and
personnel resources, and we are uncertain whether we will continue to be able to
compete successfully with such entities. In addition, our profit margins could
decline because of competitive pricing pressures that may have a material
adverse effect on our business, financial condition and results of operations.
Many of IMS's competitors, such as SPS Transaction Services and Card Service
International, have longer operating histories, greater name recognition, larger
customer bases and substantially greater resources than IMS has.
Web Classified's competitors are primarily either companies with established
positions in software development who sell their software as a third party
application for hosting companies to use for entry-level customers, or companies
which provide Internet directory listings for businesses. Yahoo Yellow Pages
which is a global Internet Media company that offers a branded network of
comprehensive information, communication and shopping services to millions of
users daily. Alta Vista, and the companies with which it is affiliated, develop
and operate Internet and fulfillment services companies. Each of these companies
has much greater financial and operational resources than Web Classified.
A large number of mortgage companies transact business through retail offices
and other traditional channels. Express Financial's competitors include other
mortgage bankers, state and national commercial banks, savings and loan
associations, credit unions, insurance companies and other finance companies. A
great many of these competitors are substantially larger and have considerably
greater financial, technical and marketing resources than Express Financial has.
Mortgage banking on the Internet is highly competitive. A large number of
mortgage companies currently transact business over the Internet in one form or
another. The sophistication of these companies in the Internet channel varies
from simple one-page information Web sites to Web
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sites with extensive on-line content and features. Many of these mortgage
companies share a business strategy and capability similar to those employed by
Express Financial. The competition includes banks such as Chase and Bank of
America, as well as mortgage originators such as Prism Financial Corporation,
E-Loan and Mortgage.com, all of which are larger and better capitalized than
Express Financial. In addition, Express Financial also competes on the Internet
with large, national mortgage companies, such as Countrywide Credit Industries,
Inc. and HomeSide Lending, which have greater origination volumes and
capitalization than Express Financial.
The market in which GKB competes is highly competitive. There are worldwide at
least 40 competitors that offer some form of sophisticated point of sale
restaurant management system similar to GKB's. Many of those competitors have
installed thousands of such systems in table service and quick service
restaurants, country clubs, stadiums, arenas, hotels and cafeterias located
throughout the World. Virtually all of those competitors have far greater
experience, capital and other resources than GKB possesses.
As a result of the foregoing, our and our subsidiaries' principal competitors
may respond more quickly than we can to new or changing opportunities and
technologies. For all of the reasons stated above, we may be unable to compete
successfully against our current and future competitors.
WE DEPEND HEAVILY ON THE INTERNET, AND ANY ADVERSE DEVELOPMENT WITH REGARD TO
THE INTERNET COULD MATERIALLY ADVERSELY AFFECT US.
Our future success substantially depends upon continued growth in the use of the
Internet and the Web. Such growth seems necessary to support the sale of our
products, services and advertising. Rapid growth in the use of the Internet and
the Web is a recent phenomenon. There can be no assurance that communication or
commerce over the Internet will become more widespread. In addition, if Internet
use continues to grow significantly, there can be no assurance that the Internet
infrastructure will remain adequate for supporting the increased demands placed
upon it. The Internet could lose its viability due to either:
o Delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity; or
o Increased governmental regulation
Changes in or insufficient availability of telecommunications services to
support the Internet also could slow response times and adversely affect usage
of the Web and our Web sites. The failure of the Internet use to continue to
grow, or failure of the Internet infrastructure to support effectively growth
that may occur, could materially adversely affect our business, operating
results and financial condition.
7
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WE ARE EXPOSED TO NUMEROUS RISKS DUE TO POTENTIAL FUTURE TECHNOLOGICAL CHANGE.
The Internet and electronic markets involve certain characteristics that expose
our existing and future Web sites, technologies, service practices and
methodologies to the risk of obsolescence. These characteristics included the
following:
o Rapid changes in technology
o Rapid changes in user and customer requirements
o Frequent new service or product introductions embodying new
technologies
o The emergence of new industry standards and practices
Our performance will partially depend on our ability to license leading
technologies, enhance our existing services, and respond to technological
advances and emerging industry standards and practices on a timely and
cost-effective basis. The development of Web sites entails significant technical
and business risks. There can be no assurance that we will use new technologies
effectively or adapt our Web sites to consumer, vendor, advertising or emerging
industry standards. Our inability (for technical, legal, financial or other
reasons) to adapt in a timely manner to changing market conditions or customer
requirements could materially adversely affect our business, results of
operations and financial condition.
ELECTRONIC COMMERCE IS A DEVELOPING MARKET AND INVOLVES CONSIDERABLE UNCERTAINTY
The electronic market for products and services has only recently begun to
develop and is rapidly changing. As is typical for a new and rapidly evolving
market, demand for products, services and advertising over the Internet is
considerably uncertain. There exist few proven services and products. Since the
market for electronic commerce on the Internet is new and evolving, predictions
of the size and future growth (if any) of this market are difficult. Moreover,
no standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising. There can be no assurance that such
standards will develop sufficiently to support Web-based advertising as a
significant advertising medium. Our business, results of operations and
financial condition could be materially adversely affected if any of the
following events occur:
o The markets for our electronic commerce fail to develop
o The markets for our electronic commerce develop more slowly than
expected
o The markets for our electronic commerce become saturated with
competitors
o Our electronic commerce fails to achieve market acceptance
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<PAGE>
ELECTRONIC COMMERCE INVOLVES A NUMBER OF SECURITY RISKS.
A significant barrier to electronic commerce and communications is the secure
transmission of confidential information over public networks. We will rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary for secure transmission of
confidential information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments will not compromise or breach the algorithms we use to protect
customer transaction data. Any such compromise of our security could materially
and adversely affect our business, results of operations and financial
condition. A party able to circumvent our security measures could misappropriate
proprietary information or cause interruptions in our operations. We may need to
expend significant capital and other resources to protect against the threat of
such security breaches or to alleviate problems caused by such breaches.
Concerns over the security of Internet transactions and the privacy of users may
also inhibit the growth of the Internet generally, and the Web in particular,
especially as a means of conducting commercial transactions. To the extent that
our activities or the activities of third party contractors involve the storage
and transmission of proprietary information (such as credit card numbers),
security breaches could expose us to a risk of loss or litigation and possible
liability. There can be no assurance that our security measures will prevent
security breaches or that failure to prevent such security breaches will not
materially and adversely affect our business, results of operations and
financial condition.
INCREASES IN CREDIT CARD ASSOCIATION FEES MAY ADVERSELY AFFECT OUR PROFITABILITY
VISA and MasterCard have increased their respective fees, or "interchange
rates," each year. Although we have reflected these increases in our pricing to
merchants, there can be no assurance that merchants will continue to assume the
entire impact of the future increases or that transaction processing volumes and
merchant attrition will not be adversely affected by the increases.
OUR SUCCESS DEPENDS TO A GREAT EXTENT ON OUR ABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY.
The development of our brands depends significantly on the protection of our
trademarks and trade names. We intend to register the names of each of our
subsidiaries, the FattDaddy.com name and logo, the "Changing the Way America
Buys" slogan employed by JoinUsOnline, as well as other slogans which our other
subsidiaries will use in connection with the operation of their businesses, as
trademarks in the United States. We also claim common law trade name rights in
these and other names. Nonetheless, there can be no assurance that we will be
able to secure significant protection for these trademarks. Our current and
future competitors or others may adopt product or service names similar to our
trademarks, thereby impeding our ability to build brand identity and possibly
leading to customer confusion. Our inability to protect our trademarks and trade
names might materially and adversely affect our business, results of operations
and financial condition. In addition, in the future third parties may claim
certain aspects of our business infringe their intellectual property rights.
While we are not currently
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subject to any such claim, any future claim (with or without merit) could result
in one or more of the following:
o Significant litigation costs
o Diversion of resources, including the attention of management
o Our agreement to certain royalty and licensing arrangements
Any of these developments could materially and adversely affect our business,
results of operations and financial condition. In the future, we may also need
to file lawsuits to enforce our intellectual property rights, to protect our
trade secrets, or to determine the validity and scope of the proprietary rights
of others. Such litigation, whether successful or unsuccessful, could result in
substantial costs and diversion of resources. Such costs and diversion could
materially and adversely affect our business, results of operations and
financial condition.
WE HAVE NO ASSURANCE OF MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES. IF WE
ARE UNABLE TO RAISE MARKET AWARENESS OF OUR PRODUCTS AND SERVICES, WE MAY
EXPERIENCE DECLINING OPERATING RESULTS WHICH WOULD DIMINISH THE VALUE OF YOUR
INVESTMENT.
We are at an early stage of development and our earnings growth depends
primarily upon market acceptance of our products and services. There can be no
assurance that our product and service development efforts will progress further
with respect to any potential new products and services, or that they will be
successfully completed. In addition, there can be no assurance that our
potential new products or services will achieve customer acceptance.
WE FACE LEGAL UNCERTAINTIES ASSOCIATED WITH THE INTERNET AND ELECTRONIC COMMERCE
THAT COULD INCREASE OUR COSTS OR REDUCE DEMANDS FOR OUR SERVICES.
Our operations on the Internet and the operations of our subsidiaries are not
currently subject to direct regulation by any government agency in the United
States beyond mortgage-related regulations and regulations applicable to
businesses generally. However, the adoption of new laws or the application of
existing laws may decrease the use of the Internet, which would decrease the
demand for our services and might increase our cost of doing business.
A number of legislative and regulatory proposals under consideration by federal,
state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including the following:
o taxation;
o access charges;
o online content;
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o user privacy;
o liability for third-party activities; and
o jurisdiction.
The tax treatment of the Internet and electronic commerce is currently unsettled
and has been a subject of debate in Congress, which is awaiting the
recommendation of The Advisory Commission on Electronic Commerce. A number of
proposals have been made that could impose taxes on the sale of goods and
services and other Internet activities. In October 1998, the Internet Tax
Freedom Act was signed into law placing a three-year moratorium on new state and
local taxes on Internet commerce. The moratorium ends October 21, 2001. However,
we cannot assure you that future laws imposing taxes or other regulations would
not substantially impair the growth of our business and our financial condition.
Some local telephone carriers claim that the increasing popularity of the
Internet has burdened the existing telecommunications infrastructure and that
many areas with high Internet use are experiencing interruptions in telephone
service. These carriers have petitioned the Federal Communications Commission to
impose access fees on Internet service providers. If these access fees are
imposed, the costs of communicating on the Internet could increase, which could
decrease demand for our services and increase our cost of doing business.
THE BANKING AND FINANCE INDUSTRIES ARE SUBJECT TO SUBSTANTIAL REGULATION WHICH
MAY INCREASE OUR COST OF DOING BUSINESS; OUR FAILURE TO COMPLY WITH THESE
REGULATIONS COULD ADVERSELY AFFECT OUR OPERATIONS.
Express Financial's mortgage banking business is subject to extensive federal
and state regulation. Its lending activities are subject to regulation under
various federal and state laws including the following:
o the Truth-in-Lending Act;
o the Equal Credit Opportunity Act;
o the Home Mortgage Disclosure Act;
o the Community Reinvestment Act;
o the Electronic Funds Transfer Act;
o the Real Estate Settlement Practices Act; and
o the Fair Credit Reporting Act.
In addition, Express Financial is required to be licensed, and is subject to
regulation in various states as mortgage bankers. Failure to comply with these
statutory and regulatory requirements can lead to, among other remedies,
termination or suspension of licenses, certain rights of rescission for mortgage
loans, class action lawsuits and administrative enforcement actions.
We have implemented procedures to comply with these requirements and we believe
that we
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comply in all material respects with applicable local, state and federal laws,
rules and regulations. However, we cannot be certain that more restrictive laws,
rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive.
OUR PROFITABILITY DEPENDS IN PART ON MARKET CONDITIONS, INCLUDING INTEREST
RATES, WHICH WE CANNOT CONTROL.
Our profitability may be affected by fluctuations in interest rates, changes in
economic conditions, shifts in consumer behavior and other factors. Any decline
in interest rates could reduce the amounts that Express Financial can earn on
its newly originated loans. A decline in interest rates could also result in an
increase in prepayments which could decrease the size of Express Financial's
loan portfolio if it is unsuccessful in originating new loans. Changes in
economic conditions and shifts in customer behavior are difficult to predict,
and our financial performance generally cannot be insulated from these forces.
PERIODIC DECLINES IN PROPERTY VALUES MAY REDUCE EXPRESS FINANCIAL'S LOAN
ORIGINATIONS.
Express Financial's business may be adversely affected by periods of economic
slowdown or recession, which may be accompanied by declining property values.
Any material decline in property values reduces the ability of borrowers to use
equity in the property to support any borrowings and increases the loan-to-value
ratios of mortgage loans previously made, thereby weakening collateral coverage
and increasing the possibility of a loss in the event of default.
REGULATORY RESTRICTIONS AND LICENSING REQUIREMENTS - EXPRESS FINANCIAL OPERATES
IN AN INDUSTRY IN WHICH FEDERAL AND STATE GOVERNMENTAL AUTHORITIES EXTENSIVELY
REGULATE, SUPERVISE AND LICENSE THE PARTICIPANTS; CHANGES IN THE REGULATORY
ENVIRONMENT, PARTICULARLY CHANGES RELATED TO THE MAXIMUM PERMISSIBLE INTEREST
RATES THAT EXPRESS FINANCIAL CHARGES BORROWERS, COULD MATERIALLY HURT ITS
BUSINESS AND COULD IMPAIR OUR PROFITABILITY.
Extensive federal and state laws, some of which require licensing and
qualification, apply to our business. These laws may regulate, among other
things:
o the maximum interest rate that may be charged to our borrowers;
o our rights to repossess and sell collateral.
An adverse change in these laws or the adoption of new laws could have a
materially adverse effect on Express Financial's business by limiting the
interest and fee income it can generate on existing and additional finance
receivables, limiting the states in which we may operate, or restricting its
ability to realize the value of collateral securing its finance receivables.
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Moreover, a reduction in existing statutory maximum interest rates or the
imposition of statutory maximum interest rates below those Express Financial
presently charges in unregulated jurisdictions would directly impair our
profitability. In addition, due to the consumer-oriented nature of the industry
in which Express Financial operates and uncertainties with respect to the
application of various laws and regulations in some circumstances, industry
participants frequently are named as defendants in litigation involving alleged
violations of federal and state consumer lending or other similar laws and
regulations. An adverse change in, modification to, or clarification of any of
these laws or regulations, or judicial interpretations as to whether and in what
manner such laws or regulations apply to our lines of business could result in
potential liability that would materially hurt our financial condition and
results of operations.
LOSSES FROM MATERIAL INACCURACIES IN THE REPRESENTATIONS AND WARRANTIES PROVIDED
BY EXPRESS FINANCIAL COULD ADVERSELY AFFECT ITS BUSINESS AND RESULTS OF
OPERATIONS.
When a mortgage loan originator (retail or wholesale) sells a mortgage loan to
its investors, it makes certain representations and warranties as to the
compliance by the originator with applicable underwriting guidelines. A loan
originator generally becomes obligated to the investor with respect to the
accuracy of those representations and warranties, and if those representations
and warranties are incorrect, the investor may require the servicer or the
lender who originated the loan to repurchase the mortgage loan. Consequently,
any loss resulting from a material inaccuracy in the representations and
warranties would fall on the servicer as the originating seller of the loan.
Express Financial attempts to limit its exposure to repurchase risks through
quality control requirements imposed on the origination staff.
LOSS OF KEY MEMBERS OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS
AND PROSPECTS.
Our success will be dependent largely upon the personal efforts of our Chairman
and Chief Executive Officer, William R. Becker, as well as other senior
managers. The loss of their services could have a material adverse effect on our
business and prospects. We have no life insurance on any of our officers. Mr.
Becker's services are governed by an employment agreement.. Our success is also
dependent upon our ability to hire and retain additional qualified management,
marketing, technical, financial and other personnel. Competition for qualified
personnel is intense and there can be no assurance that we will be able to hire
or retain qualified personnel. Any inability to attract and retain qualified
management and other personnel could have a material adverse effect on us.
IF INTERNET GROWTH SLOWS OR BORROWERS ARE RELUCTANT TO CONDUCT FINANCIAL
BUSINESS THROUGH THE WEB, EXPRESS FINANCIAL WILL GENERATE FEWER LOANS ONLINE.
Express Financial's ability to originate mortgage loans on the Internet and
provide clients with Internet-based mortgage services is dependent upon
continued growth in Internet usage. Web-based mortgage lending is relatively
new, and we cannot predict whether there will be growth in mortgage loans
generated on the Internet.
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INASMUCH AS OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES, YOU MAY HAVE
GREATER DIFFICULTY SELLING YOUR SHARES
The Securities Enforcement and Penny Stock Reform Act of 1990 applies to stock
characterized as "penny stocks," and requires additional disclosure relating to
the market for penny stocks in connection with trades in any stock defined as a
penny stock. The Securities and Exchange Commission has adopted regulations that
generally define a penny stock to be any equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. The exceptions
include exchange-listed equity securities and any equity security issued by an
issuer that has:
o net tangible assets of at least $2,000,000, if the issuer has been
in continuous operation for at least three years;
o net tangible assets of at least $5,000,000, if the issuer has been
in continuous operation for less than three years; or
o average annual revenue of at least $6,000,000 for the last three
years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks.
Our common stock is presently trading at less than $5.00 per share. Until such
time as the market price of our common stock increases to, and stays above
$5.00, or we are able to meet the above tests and, trading in our common stock
will be covered by Rules 15g-1 through 15g-6 and 15g-9 promulgated under the
Securities Exchange Act. Under those rules, broker-dealers who recommend such
securities to persons other than their established customers and institutional
accredited investors must make a special written suitability determination for
the purchaser and must have received the purchaser's written agreement to a
transaction prior to sale. These regulations would likely limit the ability of
broker-dealers to trade in our common stock and thus would make it more
difficult for purchasers of common stock to sell their securities in the
secondary market. The market liquidity for the common stock could be severely
affected.
YOU COULD SUFFER DILUTION OF YOUR INVESTMENT IF CERTAIN WARRANTS OR STOCK
OPTIONS ARE EXERCISED OR IF WE EXERCISE OUR RIGHT TO SELL ADDITIONAL SHARES OF
COMMON STOCK TO THE SELLING STOCKHOLDER
As of the date of this prospectus, we have a total of 28,171,548 shares of
common stock outstanding. We have issued warrants to purchase 232,868 shares of
common stock at a weighted average price of $5.17 per share, as well as options
to purchase 6,707,750 shares of common stock at a weighted average price of
$1.08 per share. Under an option agreement we entered into with the selling
stockholder, we have the right, exercisable during the 18 month period
commencing on the date of this prospectus to sell additional shares of our
common stock to the
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selling stockholder having an aggregate fair market value of $16,000,000 at
prices equal to 90% of the two lowest closing bid prices of our common stock
(not necessarily consecutive) during the ten trading days prior to each date on
which we give notice to the selling stockholder of our intention to sell such
stock to it.
ISSUANCE OF OUR AUTHORIZED PREFERRED STOCK COULD DISCOURAGE A CHANGE IN CONTROL,
COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK AND COULD RESULT IN THE
HOLDERS OF PREFERRED STOCK BEING GRANTED VOTING RIGHTS THAT ARE SUPERIOR TO
THOSE OF THE HOLDERS OF COMMON STOCK
We are authorized to issue 10,000,000 shares of preferred stock without
obtaining the consent or approval of our stockholders. The issuance of preferred
stock could have the effect of delaying, deferring, or preventing a change in
control. We may also grant superior voting rights to the holders of preferred
stock. Any issuance of preferred stock could materially and adversely affect the
market price of the commons stock and the voting rights of the holders of
commons stock. The issuance of preferred stock may also result in the loss of
the voting control of holders of common stock to the holders of preferred stock.
WE WILL PAY NO DIVIDENDS TO YOU
We have not paid, and do not expect to pay, any dividends on common stock in the
foreseeable future.
WE HAVE OUTSTANDING A LARGE NUMBER OF SHARES OF COMMON STOCK THAT ARE ELIGIBLE
FOR SALE UNDER CERTAIN CIRCUMSTANCES, AND SALES, OR EVEN THE MERE POSSIBILITY OF
SALES, OF THESE SHARES MAY MATERIALLY ADVERSELY THE PRICE OF THE COMMON STOCK.
Approximately 28,171,548 shares of Common Stock are issued and outstanding. We
believe that approximately 21,789,724 of these shares are "restricted
securities" as that term is defined in Rule 144 promulgated under the Act. Rule
144 provides in general that a person (or persons whose shares are aggregated)
who has satisfied a one-year holding period, may sell within any three month
period, an amount which does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume during
the four calendar weeks before such sale. The vast majority of the restricted
shares have been outstanding for over one year and thus are eligible for sale
under Rule 144. Rule 144 also permits the sale of shares, under certain
circumstances, without any quantity limitation, by persons who are not
affiliates of the Company and who have beneficially owned the shares for a
minimum period of two years. Hence, the possible sale of these restricted shares
may, in the future dilute an investor's percentage of freely tradable shares and
may depress the price of our Common Stock. Also, if substantial, such sales
might also adversely affect our ability to raise additional equity capital.
However, most of the approximately 21,789,724 shares believed to be "restricted
securities" are held by affiliates of the Company and must (by law) be sold
subject to the volume limitations of Rule 144 described above, thus restraining
the number of shares that can sold in any period of time.
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OUR OBLIGATION TO INDEMNIFY OUR OFFICERS AND DIRECTORS COULD PREVENT OUR
RECOVERY FOR LOSSES CAUSED BY THEM.
Our Bylaws provide that we must indemnify each director, officer, agent and/or
employee to the maximum extent provided for in the General Corporation Law of
Delaware. Further, we have purchased and maintain customary officer and director
insurance on behalf of certain of these persons. Such insurance may cover
certain matters for which we do not have the power to indemnify such persons.
Consequently, because of the actions of officers, directors, agents and
employees, we could incur substantial losses and be prevented from recovering
such losses from such persons. Further, the United States Securities and
Exchange Commission maintains that indemnification is against the public policy
expressed in the Securities Act of 1933 (the "Securities Act"), and is therefore
unenforceable.
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being offered
by the selling stockholder. We received money from the sale of those shares to
the selling stockholder. We also will receive money from the exercise of
warrants to purchase common stock which is offered by this prospectus. This
money will be used for working capital and general corporate purposes. We will
not receive any additional proceeds from the sale of shares by the selling
stockholder. For information about the selling stockholder, see "Selling
Stockholder."
FORWARD-LOOKING STATEMENTS
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing forward-looking statements may be found in
the material set forth under "Prospectus summary," "Management's discussion and
analysis of financial condition and results of operations," and "Business," as
well as within this prospectus generally. In addition, when used in this
prospectus, the words "believes," "intends," "plans," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties.
Actual results could differ materially from those described in the
forward-looking statements as a result of the risk factors set forth and the
information provided in this prospectus generally. We do not intend to update
any forward-looking statements.
PRICE RANGE OF COMMON STOCK
Prior to December 16, 1999, our common stock was admitted to quotation on the
NASD's OTC Bulletin Board under the symbols "INTR" and "INTRE." Since that date,
our common stock has been traded on the National Quotation Bureau's Pink Sheets
under the trading symbol "INTR." The following table sets forth the high and low
bid prices for our common stock since the
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completion of our reverse acquisition in February 1999. The quotations reflect
inter-dealer prices, with no retail mark-up, mark-down or commissions, and may
not represent actual transactions. The information presented has been derived
from National Quotation Bureau, Inc.
Quarter-End High Low Close
------------------- --------- --------- ---------
March 31, 1999 $ 3.87 $ 3.62 $ 3.87
June 30, 1999 12.56 11.62 12.18
Sept. 30, 1999 7.12 6.37 6.75
Dec. 31, 1999 6.50 5.87 6.12
March 31, 2000 5.00 4.50 5.00
June 30, 2000 2.20 2.00 2.00
As of July 31, 2000, there were 479 holders of record of our common stock.
DIVIDEND POLICY
We plan to retain all of our earnings, if any, to finance the expansion of our
business and for general corporate purposes. We have not declared or paid any
cash dividends on our common stock. We do not anticipate paying cash dividends
in the foreseeable future except possibly on preferred stock. The terms of our
outstanding preferred stock prohibit the payment of dividends on our common
stock unless all dividends accrued on the preferred stock have been paid.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999 and
our unaudited capitalization as of March 31, 2000.
You should read this table together with "Management's Discussion and Analysis
of Financial Condition and Result of Operations," consolidated financial
statements and notes to consolidated financial statements appearing elsewhere in
this prospectus.
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December 31, 1999 March 31, 2000
----------------- --------------
(unaudited)
(in thousands)
Stockholders' equity:
Preferred stock $0.001 par value;
10,000,000 shares authorized;
none issued -- --
Common stock, $0.001 par value;
90,000,000 shares authorized;
24,818,885 shares issued and outstanding at
December 31, 1999 and 25,982,948 at
March 31, 2000 25 26
Additional paid-in capital 10,230 13,884
Accumulated Deficit ( 8,572) ( 9,997)
------- -------
Total capitalization $1,683 $3,913
====== ======
The information provided above excludes:
o 232,868 shares of common stock issuable upon exercise of warrants,
o 6,707,750 shares of common stock issuable upon exercise of
outstanding options, and
o an indeterminate number of shares issuable on exercise of our right
to sell common stock valued at $16,000,000 to the selling
stockholder.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by reference to
and should be read in conjunction with the consolidated financial statements and
notes to consolidated financial statements and the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended December 31, 1999 and 1998 and the
consolidated balance sheet data at December 31, 1999 and 1998 are derived from
and qualified by reference to the audited consolidated financial statements
included elsewhere in this prospectus.
The consolidated statements of operations data for the three months ended March
31, 2000 and 1999 and the consolidated balance sheet data at March 31, 2000 have
been derived from our unaudited consolidated financial statements but have been
prepared on the same basis as our audited consolidated financial statements
which are included in this prospectus. In our opinion, these unaudited
consolidated financial statements include all adjustments, consisting of
normally recurring adjustments, considered necessary for a fair presentation of
our consolidated financial position and result of operations for that period.
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Year Ended Three Months Ended
December 31, March 31,
------------------ ----------------
1999 1998 2000 1999
------- ------- ------- -----
(unaudited)
(in thousands except per share data)
Total revenues $ 3,312 $ 3,824 $ 1,020 $ 917
Cost of sales 338 182 65 113
Selling, general and administrative
expenses 4,198 1,817 2,208 527
------- ------- ------- -----
Net Earnings (loss) (1,137) 1,824 (1,425) 277
Basic earnings (loss) per share (.07) .92 (.06) .03
Fully diluted earnings (loss) per share (.07) .36 (.06) .03
The following table indicates a summary of our balance sheet as of December 31,
1999 and March 31, 2000.
CONSOLIDATED BALANCE SHEET DATA
December 31, 1999 March 31, 2000
----------------- --------------
(unaudited)
(in thousands)
Cash and cash equivalents $ 452 $1,076
Total current assets 2,396 4,079
Total assets 4,214 6,185
Total current liabilities 2,488 2,034
Total liabilities 2,531 2,272
Total stockholders' equity 1,683 3,913
See note B of notes to consolidated financial statements for a discussion
regarding the computation and presentation of basic and diluted net loss per
share.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT, AS WELL AS "RISK FACTORS."
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Results of Operations
Years Ended December 31, 1999 and 1998
Revenue
Revenue for the year ended December 31, 1999 decreased 13.1% to $3.3 million as
compared to $3.8 million for the year ended December 31, 1998. This revenue was
generated by the four consolidated subsidiaries that we owned during various
portions of 1999, as compared to the three consolidated subsidiaries that we
owned during a portion of 1998. Of the 1999 revenue, 60.7% came from the sale of
value-added benefits and services, 8.7% came from the sale of our web site
services including web hosting, web design and domain name registration. 25% of
our consolidated revenue was generated from the origination and primary
marketing of mortgage loans, and 10.1% of that revenue resulted from the
addition of new merchants to IMS's credit and debit card transaction processing
services customer base. The decrease in revenue was primarily due to attrition
of JoinUsOnline's membership base during 1999.
Expenses
Cost of Sales. We incurred cost of sales of $338,000 for the year ended December
31, 1999, an 85.5% increase over the $182,000 incurred for the year ended
December 31, 1998. This increase was primarily due to additional purchases of
credit card terminals by IMS and increased costs of telephony incurred by United
Interactive.
Selling. We incurred selling expenses of $503,154 for the year ended December
31, 1999, a 98.7% decrease from the $1.1 million we incurred for the year ended
December 31, 1998. This decrease was primarily due to the conversion of the
commission-based outside sales force that we utilized during 1998 into a
salary-based internal sales group in 1999.
General and administrative. We incurred general and administrative expenses of
$3.7 million for the year ended December 31, 1999, a 420.8% increase over the
$700,000 of G&A expenses incurred by JoinUsOnline, United Interactive and IMS
during the year ended December 31, 1998. The increase in G&A expenses was
primarily due to the acquisition of Express Financial, our employment of a
larger number of corporate personnel and an increase in professional fees.
United Interactive's Internet services operating costs were $900,000 during
1999, a compared to $495,000 during 1998. United Interactive incurred these
costs primarily for technology research, portal development and lease lines for
local networks.
Depreciation and amortization. Our depreciation and amortization expense was
$94,790 for the year ended December 31, 1999, a $59,253 increase over the amount
of that expense during 1998. This increase was primarily due to the amortization
of goodwill arising from the acquisition of one of our subsidiaries in 1999.
That acquisition and the implementation of our internal communications network
also increased our depreciation expense for telecommunications equipment,
hardware, computers and other fixed assets. For 1999, $24,217, or 26%, of our
depreciation and amortization expense was related to the amortization of
acquisition goodwill and $70,573, or 65%, was related to the depreciation of
fixed assets. For
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1998, all of our depreciation and amortization expense was related to the
depreciation of fixed assets.
Marketing and advertising. Marketing and advertising expenses consist primarily
of the cost of national trade shows to establish and increase the public
recognition of our name and the names of our subsidiaries' names. These expenses
were also incurred to secure leads generated through marketing and distribution
agreements, and through direct advertising and trade publications. Marketing and
advertising expenses also include fees paid to other web sites and business
partners for lead generation. During 1999, such expenses amounted to $283,136, a
250% increase over the amount of such expenses in 1998. Such increase was
primarily due to our attendance at 25 trade shows around the country during
1999.
Three Months Ended March 31, 2000 and 1999
Revenue
Revenue for the three months ended March 31, 2000 increased 11.1% to $1.0
million as compared to $900,000 for the comparable period of 1999. This revenue
was generated by the four consolidated subsidiaries that we owned during the
first quarter of 2000, as compared to the three consolidated subsidiaries that
we owned during a portion of 1999. Of the first quarter 2000 revenue, 31.2% came
from the sale of value-added benefits and services, 2.3% came from the sale of
our web site services including web hosting, web design and domain name
registration. 58.4% of our consolidated revenue was generated from the
origination and primary marketing of mortgage loans, and 6.9 % of that revenue
resulted from the addition of new merchants to IMS's credit and debit card
transaction processing services customer base.
Expenses
Cost of Sales. Our cost of sales for the quarter ended March 31, 2000 was
$64,822, a 42.7% decrease from the $113,200 cost of sales we incurred for the
quarter ended March 31, 1999. This decrease was primarily due to the increased
buying power and decreased acquisition costs of electronic merchant equipment
incurred by IMS.
Selling. We incurred selling expenses of $172,003 for the quarter ended March
31, 2000, a 16.6% increase over the $147,521 we incurred for the quarter ended
March 31, 1999. This increase was primarily due to the acquisition of Express
Financial which occurred subsequent to March 31, 1999.
General and administrative. We incurred general and administrative expenses of
$2,208,488 for the quarter ended March 31, 2000, a 482.3% increase over the
$379,293 of G&A expenses we incurred during the first quarter of 1999. This
increase also was primarily due to the acquisition of Express Financial,
increased payroll costs due to our employment of additional corporate personnel
and an increase in professional fees. United Interactive's Internet services
operating costs were $495,234 for the quarter ended March 31, 2000. It incurred
these costs primarily for technology research, portal
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development and lease lines for local networks.
Depreciation and amortization. Our depreciation and amortization expense was
$60,617 for the quarter ended March 31, 2000, a 56.5% increase over the amount
of that expense during 1999. This increase was primarily due to the amortization
of goodwill arising from the acquisition of one of our subsidiaries in 1999.
That acquisition and the implementation of our internal communications network
also increased our depreciation expense for telecommunications equipment,
hardware, computers and other fixed assets
Marketing and advertising. During the first three months of 2000, our marketing
and advertising expenses amounted to $118,167, a 9.1% increase over the amount
of such expenses during the same period in 1999. Such increase was primarily due
to the attendance of additional trade shows.
Liquidity and Capital Resources
As of December 31, 1999, we had cash and cash equivalents of $452,084 and an
additional $2.3 million in cash available for the purpose of funding loans
through Express Financial's warehouse lines of credit. At March 31, 2000 Express
Financial had outstanding warehouse finance facility advances from Impac
Warehouse Lending Group ("Impac") of $1,586,624 which were collateralized by
mortgage loans held for sale having an aggregate carrying value of approximately
$1,631,000. Subject to market conditions, we intend to raise additional cash to
fund our continuing expansion either through private placements or registered
public offerings of our securities.
Net cash used in operating activities for the year ended December 31, 1999
totaled $1.53 million, as compared to $1.7 million of net cash provided by such
activities in 1998. The primary factors which resulted in such cash usage in
1999 were our consolidated operating loss of $1.1 million, a $534,000 increase
in mortgage loans held for sale and a $357,000 decrease in deferred revenue. The
major component of the cash provided from operating activities in 1998 was our
net earnings of $1.8 million. Net cash used in operating activities during the
three month period which ended on March 31, 2000 amounted to $2,910,000, as
compared to $157,000 of net cash provided from such activities during 1999. The
primary factors which resulted in such cash usage during the first three months
of 2000 were our consolidated operating loss of $1.4 million, $909,000 of
advances made to our Chief Executive and other employees, a $52,000 increase in
accounts receivable and a $211,000 decrease in deferred revenue. During the
first three months of 1999, our operating activities generated approximately
$158,000 in cash. The primary factors which resulted in such cash generation
were our net earnings of $252,000 and the $166,000 decrease in deferred revenue.
Net cash used in investing activities for the year ended December 31, 1999
totaled $122,513, $302,131 of which was used for the purchase of computers,
workstations, servers and other equipment to support our growth in technology
support services and costs related to software development. This amount was
partially offset by cash from business acquired of $179,618. Net cash used in
investing activities during the three months ended March 31, 2000 amounted to
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$93,000 which was used for the purchase of computers, workstations, servers and
other equipment.
Net cash provided by financing activities for the year ended December 31, 1999
totaled $2.1 million. $2.0 million of that amount represented the proceeds of
the private placement transactions discussed in the two paragraphs immediately
following this one. During the year ended December 31, 1998, our financing
activities consumed $1.7 million. Of that amount, $1.5 million consisted of
stockholder distributions. During the three months ended March 31, 2000, we
netted $3.6 million from the 970,285 share issuance transaction with the selling
stockholder which is more fully discussed below. During the three months ended
March 31, 1999, our financing activities resulted in our receipt of $435,000 of
the $1,000,000 we derived from the successful completion of the private
placement discussed in the next paragraph.
In 1999, we raised $1,000,000 through an offering of 500,000 shares of common
stock at $2 per share. The shares were offered pursuant to Regulation D, Rule
504 of the Securities Act of 1933. The proceeds from the offering were used for
working capital purposes.
On October 1, 1999, we entered into an agreement to sell 211,640 shares of
common stock to an investor for $1,000,000. The Company received proceeds in
various increments through December 1999. The proceeds are being used for
working capital purposes.
On June 4, 1999, Express Financial entered into a $4,000,000 warehouse finance
facility from Impac, which provides warehouse financing on an as offered basis.
This facility bears interest of 1.5% over a designated institution's prime rate.
Express Financial obtains individual warehouse advances from Impac. At December
31, 1999, Express Financial had outstanding warehouse finance facility advances
from Impac of $1,666,092 which were collateralized by mortgage loans held for
sale having an aggregate carrying value of approximately $1,686,000. Prior to
June 1999, Express Financial had a $2,000,000 warehouse facility from Sun Trust
Bank which provided warehouse financing on an as offered basis. At March 31,
2000 Express Financial had outstanding warehouse finance facility advances from
Impac of approximately $1,587,0000 which were collateralized by mortgage loans
held for sale having an aggregate carrying value of approximately $1,631,000.
Express Financial repays warehouse advances upon the sale of warehoused loans to
third parties.
On February 3, 2000, we received gross proceeds of $4,000,000 in connection with
our issuance of 970,285 shares of common stock pursuant to a common stock
purchase agreement that we entered into with the selling stockholder (the number
of shares were based on 85% of the average closing bid price for five
consecutive business days prior to February 3, 2000, $4.12). Under the terms of
the agreement, the shares are subject to repricing during four separate
repricing periods. The first repricing period will commence on the effective
date of the registration statement of which this prospectus forms a part, and
will end 30 days after that date. If during this time the average closing bid
price for any five business days (not necessarily consecutive) is not equal to
or greater than 117% of the price at which we issued those shares, then the
selling stockholder may request that up to one-third of its shares
(approximately 323,428 shares) be repriced. If the selling stockholder wishes to
reprice, we may elect to issue additional shares according to a formula or elect
to pay the investor based on a different formula.
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The second and third repricing periods commence immediately following the first
and second repricing periods, respectively, and end 30 days thereafter. The
repricing percentage and formulas in the first repricing are the same for the
second and third repricing period. The final repricing period commences
immediately following the third repricing period and ends 180 days thereafter.
If during this time the average closing bid for any five consecutive business
days after the commencement of the final repricing period is not equal to or
greater than 117% of the initial closing price, the investor may request
repricing of up to 50% of the initial shares (not previously repriced). We may
elect to issue additional shares or pay the investors as determined by applying
two separate formulas.
Pursuant to the stock purchase agreement, we issued to the selling stockholder a
warrant to purchase 164,548 shares of common stock at an exercise price of $5.82
per share. The warrant expires on February 2, 2004.
We have the right to redeem that portion of the 970,285 shares held by the
selling stockholder for which a relevant repricing period, other than the final
repricing period, has not commenced, by payment of cash in an amount equal to
the "applicable percentage" of $4.12 multiplied by the number of shares being
redeemed. The applicable percentage ranges from 115% to 130% depending on the
redemption date.
The selling stockholder has committed to purchase up to $16,000,000 of
additional shares of our common stock at a price equal to 90% of the two lowest
closing bid prices of the common stock (not necessarily consecutive) for the 10
trading days prior to the giving of notice by us of our election to enter into
an additional funding transaction with the selling stockholder. The dollar
amount of each additional funding transaction can not be greater than
$2,000,000. We can not exercise our option to sell any additional shares to the
selling stockholder unless our common stock is trading on a Nasdaq market at a
price above $2.00 per share, and until a registration statement covering the
additional shares to be issued in such additional financing has been declared
effective by the SEC. This commitment will expire 18 months after the effective
date of the registration statement. Our common stock is not admitted for trading
on any Nasdaq market. Although we intend to apply for listing of the common
stock on the Nasdaq SmallCap or National Stock Market, we can not give you any
assurance that such application will be granted. If our efforts to secure
admission of our common stock for trading on one of those markets are
unsuccessful, we will seek to have our common stock admitted to quotation on the
NASD's OTC Bulletin Board. Inasmuch as we can not give you any assurance that
our common stock will be admitted for trading or listed on one of those markets,
we also can not give you any assurance that we will be able to obtain any
additional financing under the commitment we received from the selling
stockholder.
Under the terms of the stock purchase agreement, we were required to file a
registration statement with the SEC to register the selling stockholder's shares
in March, 2000, but we did not do so. We were also required to have that
registration statement declared effective by the SEC on or before May 3, 2000,
but that requirement was not satisfied. By reason of the fact that the
registration statement was not filed with or declared effective by the SEC
within the allotted time periods, we may be required, if the selling stockholder
so elects, to pay $80,000, or a pro-
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rata part thereof, for each 30 day or shorter period commencing on or about
April 3, 2000 and ending on the date when such effectiveness is declared.
We paid the sum of $320,000 and issued a warrant to purchase 67,920 shares of
our common stock at an exercise price of $4.53 per share to Ladenburg Thalmann &
Co., Inc. in consideration for the services it rendered as our intermediary in
connection with the negotiation and consummation of the stock purchase agreement
between the selling stockholder and us. We also paid a finder's fee of $200,000
to Boru Enterprises, Inc. in connection with our consummation of that agreement.
In June 2000, Boru agreed to cancel its entitlement to receive finder's fees as
and when we exercise our right to issue additional shares of common stock to the
selling stockholder. In consideration for that cancellation, we issued a five
year option to Boru to purchase 400,000 shares of common stock at an exercise
price of $.69 per share. See "Description of Securities - Warrants and Options."
On April 26, 2000, we acquired an 80% ownership interest in GKB. We issued to
GKB's shareholders in that transaction 2,400,240 shares of our common stock
valued at $9,600,000. The agreement by which that transaction was consummated
calls for contingent shares to be issued at the one-year anniversary of the
closing if our stock price at that time is less than $5.00 per share. The
acquisition has been accounted for as a purchase and accordingly, the acquired
assets and liabilities have been recorded at their fair values at the date of
acquisition. The excess of the consideration paid over the estimated fair value
of the net assets acquired of $9,579,913 has been allocated to goodwill and is
being amortized on a straight-line basis over 5 years. Keith Becker, one of
GKB's shareholders, is the brother of William R. Becker, our Chairman and Chief
Executive Officer. See, "Certain Transactions."
Since inception, we have significantly increased our operating costs and we
anticipate that we will continue to experience significant increases in our
operating costs for the foreseeable future. In addition, we may use cash
resources, including cash generated by the sale of securities, to fund
acquisitions or investments in joint ventures, businesses, technologies and
products or services complementary to our business.
We plan to continue acquiring and investing in operating companies. As a result,
we will continue to amortize substantial amounts of goodwill and other acquired
intangible assets. As we grow, we expect that the amount of goodwill we will
amortize in connection with our investments will represent an increasingly
smaller portion of our expenses. Therefore, we expect to continue to incur net
losses until that point in time when the goodwill we amortize represents a
sufficiently small amount of our expenses that it is exceeded by our net income
before amortization. Exactly when that point in time will occur depends on the
nature, size and timing of future acquisitions, which we cannot predict.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards
Board and the Securities and Exchange Commission are not expected to have a
material impact on our financial statements.
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Year 2000 Compliance
We did not experience any interruptions in our operations when the calendar year
changed to the year 2000. We believe that our products and services, and
products which we purchase from third party vendors, are designed to operate
continuously regardless of date changes.
BUSINESS
OVERVIEW
We offer to companies, businesses, fund raising organizations, large
associations, affinity groups, their members and customers, directly and through
JoinUsOnline, privileged access to Internet business-to-business and
business-to-consumer benefits, products and services. Through the agreements
that we and JoinUsOnline have with such organizations, more than 29,000,000
households and 1,500,000 businesses have access to those benefits, products and
services. As of the date of this prospectus, approximately 3,500,000 of those
households and businesses have obtained one or more of the benefits, products
and services that that we provide.
We offer such benefits, products and services through web portals that we
develop and operate for our own use, and also through "private labeled" web
portals that we develop and operate for other businesses and organizations. An
employee or member of any of the companies or organizations with whom
JoinUsOnline has agreements can obtain the various benefits, goods and services
that offered by that organization through JoinUsOnline either by entering his
user name and password at JoinUsOnline's Web site located at
www.joinusonline.com, or by clicking on the JoinUsOnline button located at his
organization's Web site. In that latter case, the employee or member is
connected to a private labeled version of the JoinUsOnline web portal which
contains his employer's or organization's logos. Thus, without leaving his
employer's or organization's Web site, the employee or member can:
o sign up for any of the free benefits and purchase any of the other
benefits, products and services that he employer or organization has
agreed to provide to him through JoinUsOnline;
o access all of the data and information contained at a MyWay.com web
portal which has been customized by MyWay.com, a subsidiary of CMGI,
Inc., to include his employer's or organization's trademarks and
logos, and incorporated, i.e., linked, to his employer's or
organization's Web site; and
o access various Internet chat rooms maintained by MyWay.com.
Most of our business is currently conducted through six majority- or wholly-
owned subsidiary corporations. Each of our subsidiaries performs a function or
provides a service which is complementary to the basic business that we conduct
directly and through JoinUsOnline. Thus:
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o United Interactive
|_| serves as our research and development facility
|_| develops and hosts all of the web portals and Web sites which
we and our subsidiaries maintain
|_| offers web portal and Web site development and hosting
services to third parties
|_| develops various web-based products that we and our
subsidiaries offer, such as the easy-to-construct customizable
three page Web site we offer through Web Classified
|_| provides us, our subsidiaries and third parties with high
speed Internet access services.
o IMS provides Visa and MasterCard network credit card processing,
check and debit card processing as well as credit card gateway
services for merchants who sign up for such services either directly
at our JoinUsOnline Web site or through the JoinUsOnline Web site
maintained by their organization, and also to non-members.
o Web Classified provides to individual and business members of our
JoinUsOnline customer organizations who elect to purchase an easy to
construct and customize three page Web site
|_| access to Web Classified's database driven Web site generation
application, and
|_| the web hosting services required for the maintenance of such
Web sites.
o Express Financial provides licensed mortgage banking services to
individual and business members of our JoinUsOnline customer
organizations, as well as to individuals and businesses who are not
JoinUsOnline members. Express Financial represents various lending
institutions and is a licensed and approved lender for various
federal lending programs including FHA, VA and Title II loans.
Express Financial engages in residential and commercial mortgage
lending activities through three different channels:
|_| directly with customers who do business with Express
Financial's two offices located in South Florida;
|_| through "net branches," maintained on a full time or part time
basis by individuals and businesses located in various other
states that produce mortgage lending business for Express
Financial; and
|_| via a virtual branch office that Express Financial maintains
on the Worldwide Web at www.efcol.com through which customers
can shop for and obtain mortgage financing by completing an
on-line mortgage loan application.
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o GKB is developing a restaurant industry specific web portal called
FattyDaddy.com which will be offered to JoinUsOnline member
organizations. Access to the FattyDaddy.com portal will also be
marketed directly to non-JoinUsOnline members. When it is completed,
which we estimate will occur around August 1, 2000, the
FattyDaddy.com portal will:
|_| enable restaurants who advertise on the FattyDaddy.com portal
to complete e-commerce transactions with consumers for
takeout/delivery, take reservations on-line, order closeouts
and supplies on-line and hire help;
|_| permit supplier of goods and services to restaurants to
advertise and provide their supplies and services on-line to
restaurants and create e-commerce transactions with those
restaurants; and
|_| enable consumers who visit the FattyDaddy.com Web site to find
a restaurant, order take out and delivery, make a reservation,
print out a coupon, or find employment at a restaurant or
restaurant supplier.
The remaining 20% interest in GKB is held by Keith Becker, who is
William Becker's brother, and two unrelated parties. See "Certain
Relationships and Related Transactions."
In addition to the business that we conduct directly and through our
subsidiaries, we have also formed a joint venture called TVI Marketing.com, Inc.
("TVI") with an unaffiliated company. We own 40% of TVI. The TVI joint venture,
which has not begun to generate any material revenues, will seek to enroll
members and market products to those members via Internet and satellite
television marketing programs.
OUR STRATEGY
During the 1990s, we successfully built a business which provided the consumers
and merchants who were employees and members of our clients' organizations with
access to various benefit and service programs offered by third parties with
whom we contracted to make such offerings available. The strategy we have been
pursuing since 1999 has been
o to convert our benefits and services business from
|_| a paper-based system which was grounded on the distribution of
brochures and leaflets which describe the various benefit and
service offerings and the mailing or faxing of coupons and
certificates by our client organizations' members in order to
activate a benefit or service,
|_| to an internet-based system where members and employees can
log-on to a web page that we create for their organization
through which they can instantaneously receive information
about, and activate any benefit or service offered through
their
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organization; and
o to leverage our access to the millions of consumer members of our
client organizations by creating a one-stop Internet portal system
called JoinUsOnline.com
|_| which we private label for our client organizations and
|_| through which their employees and members can instantaneously
link to the websites of participating businesses who desire to
offer and sell their products and services to those consumers.
In order to implement that strategy we built an infrastructure on the Internet
for web hosting and development through United Interactive, we created our own
proprietary search engine incorporating web pages through WebClassified and we
incorporated the ability to process credit card transactions for products,
benefits and services sold by at various websites within the JoinUsOnline.com
portal system through IMS's e-commerce credit and debit card transaction
operations.
The implementation of that strategy
o has enabled us to significantly lower our costs of delivering our
benefit and service programs by minimizing the need to print and
distribute brochures and fulfillment documents,
o will enable us, we believe, to generate significant revenues from
the sale of JoinUsOnline.com web portals and
o will enable us and our client organizations, we believe, to
participate in the revenues derived by the businesses who sell
products and services to the consumers who link to them via the
private labeled web portals we create for our client organizations.
In order to make our JoinUsOnline.com portal system more attractive to client
organizations, potential client organizations and their various members and
employees, we have incorporated into our strategy, a growth by acquisition
program which is targeted at small so called "dot com" companies - companies
that have established, or who desire to establish, a website on the Internet so
they can gain access to customers to buy their products and services. The dot
coms that we are interested in acquiring are those whose product and service
offerings, we believe, would be of interest to the employees and members of our
client organizations. The general formula we have adopted for our acquisition
program entails our acquisition of 80% of the ownership of a dot com in
consideration for our commitment to invest up to $1,000,000 in the company, and
our creation of a private labeled JoinUsOnline.com web portal for the company.
Through that portal and its linkage to the other portals within the
JoinUsOnline.com portal system, the dot com will gain access to the millions of
customers who are employees and members of our client organizations. To date, we
have employed our acquisition strategy in two cases - our acquisition of Express
Financial and GKB.
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HISTORICAL SUMMARY OF THE COMPANY
We were incorporated under Delaware law on March 31, 1993 as ADV Acquisition
Corp. In June 1993, we changed our name to Empire Capital Corporation. From the
time of that change of name until approximately March 1999, we conducted
business as a provider of asset-based and real estate based financial services.
In July 1996 we changed our name to Interfund Resources, Inc. Upon completion of
the reverse acquisition transaction in February 1999, by which we became the
parent corporation of JoinUsOnline, United Interactive, IMS and WebClassified,
we commenced the business activities described above.
JoinUsOnline's Business
JoinUsOnline offers an ever-expanding portfolio of discounted benefits and
services that provide privileged access to goods and services to companies,
businesses, fund raising organizations, large associations, affinity groups,
their members and customers. JoinUsOnline offers more than 30 different benefit
and service programs which include home shopping, travel, automobile, dining,
health, discount coupon, investment, and other lifestyle enhancement programs,
as well as a variety of business benefits and services. In 1999, JoinUsOnline
changed the focus of its business from a paper-based model to an Internet based
model. By doing so, JoinUsOnline has been able to substantially reduce its costs
of acquiring enrollees in the various benefits and services programs which it
offers to the members of JoinUsOnline's client organizations, and its
fulfillment costs in providing such benefits and services to those enrollees.
Those costs, which ranged as high as $6.00 per member due the high labor costs
associated with the use of paper-based enrollment and fulfillment packages, now
range as low as $.25 per member due to the ease and efficiency of capturing
storing and using membership and program enrollment data transmitted from a
client organization member's PC over the Internet.
At the present time, the list of benefits and services offered by JoinUsOnline
includes:
<TABLE>
<S> <C> <C>
o Dial Up Internet Access o Personal Financial Services o New Car Buying
o Travel Services o Mortgage Loans o Grocery Coupons
o Automobile Rental o Real Estate Services o CDs and Tapes
o Moving Services o Telephone Services o Golf Services
o Consumer and Health Services o Classified Advertising o Fund Raising
o Personal Web Pages o WebClassified.net o Merchant Services
o New and Used Car Pricing o Hotel and Motel Services o Vision Plans
o Discount Pharmacy Services o Chiropractic Services o Dental Services
o Shopping a la Card o Consumer Legal Services o Business Legal Services
o Web Hosting Services o Bi-Weekly Mortgage Services o Magazine Subscriptions
o Online Business Barter Services
</TABLE>
Prior to 1999,
o all JoinUsOnline benefits information was packaged as booklets,
brochures, coupons and other paper-based documents; and
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o the only way that an employee of a company or member of an
organization which had agreed to offer benefits, products and
services through JoinUsOnline could obtain those benefits was by
|_| filling out, and then mailing or faxing a paper coupon, or
|_| by calling a telephone number contained in the descriptive
materials and speaking with a person who would enroll the
employee or member in the particular program or service.
Commencing in 1999, JoinUsOnline adapted its business to the Internet by
creating the JoinUsOnline Internet portal. This Web site, which is customized to
display each client organization's logos and trademarks, contains a standard
format containing links and buttons which, when clicked, take the user to one or
more web pages which
o describe each of the particular benefits, products or services that
the JoinUsOnline client organization has agreed to make available to
its employees or members through JoinUsOnline; and
o which provide the employee or member with a fill-in-the-blanks
registration screen which instantaneously enrolls the him in the
particular program of his choice via a secure Internet connection to
JoinUsOnline's servers.
The JoinUsOnline Web site of each JoinUsOnline client organization is linked
directly to the client's existing Web site, or in some cases, serves as the
client's Web site.
Pursuant to an agreement which JoinUsOnline entered into in March 2000 with
MyWay.com, a subsidiary of CMGI, Inc., a customized version of the MyWay.com
Internet portal containing the logos and trademarks of the client organization
is incorporated into the client organization's JoinUsOnline Web site. Thus, any
employee or member of a client organization who accesses his employer's or
organization's Web site can receive continuous updates of the latest news and
pricing information for the securities that he would like to follow, maintain an
online address book or calendar, link to various e-commerce shopping sites and
link to Web sites grouped by industry, all via the customized MyWay portal
provided by JoinUsOnline to his employer or organization, and, at the same time,
he can gain access to, sign up for and purchase all of the benefits products and
services at his employer's or organization's JoinUsOnline portal just by making
a few clicks of his mouse.
JoinUsOnline packages benefits and services which are either provided directly
by it or by third party providers into programs and it offers these programs
principally to affinity groups (trade group and professional associations),
businesses and charitable organizations which in turn make JoinUsOnline's
programs available to their members, employees and/or customers. To a lesser
degree, JoinUsOnline markets its programs directly to individual consumers and
businesses. The key to JoinUsOnline's marketing strategy is that its programs
are "value added." This is due to the fact that the members of participating
affinity groups or the customers of participating businesses obtain access to
JoinUsOnline's programs as part of their membership dues or in
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conjunction with a purchased product or service. All fees associated with
membership in JoinUsOnline's programs are paid directly by the participating
affinity group or business. Through JoinUsOnline's numerous long standing
relationships and its bulk purchasing capabilities it is able to provide an ever
expanding portfolio of benefits and services that offer privileged access to
goods and services with tremendous buying power for JoinUsOnline's members.
Since the commencement of JoinUsOnline's business operations in 1990, it has
established relationships with over 1,500 affinity groups with combined
memberships in excess of 29 million households and 1,500,000 businesses. On
average, JoinUsOnline's consumer programs offer participants $2,500 or more in
annual savings, and its business programs can save participating companies
$4,000 or more annually.
The JoinUsOnline Portal System
In order to leverage our access to the millions of consumer members of our
client organizations, JoinUsOnline has created a one-stop Internet portal system
called JoinUsOnline.com. JoinUsOnline private labels these portals for our
client organizations. As of the date of this prospectus, approximately 65
JoinUsOnline.com client organization portals are in operation. Through those
portals, the employees and members of those organizations can instantaneously
link to the websites and JoinUsOnline sub-portals (see below) of participating
businesses who desire to offer and sell their products and services to those
consumers.
There are tens of thousands of dot com companies who are trying to sell their
products and services via their websites. We believe that a significant portion
of every dot com's operating budget is geared towards customer acquisition. We
further believe that the costs of customer acquisition are ranging as high as
$800 per transaction with millions of dollars being committed by dot coms in up
front access costs just so they can try and get a customer to look at the
product or service offerings at their websites. It is our view that each of
these dot com companies shares a common goal - the desire to gain access to a
base of customers. Dot coms are paying millions dollars in advertising and
website-related operating fees for this access. JoinUsOnline is able to offer
companies desiring to gain exclusive access to the millions of consumers who are
employees and members of our client organizations a very low cost of customer
acquisition. The total turnkey cost to a client for a private labeled web
sub-portal - a portal within the JoinUsOnline.com portal system which can be
directly accessed via a hyperlink button which is prominently displayed on each
of our client organizations' JoinUsOnline.com portals - can be as low as
$2,400,000. Included within that turnkey cost is exclusivity, either for a
particular category within the customer base, or for the entire customer base,
for the dot com's particular product or service. For example, a dot com that
might be interested in offering discount golf vacation packages to the employees
and members of our client organizations could, for the price of its sub-portal,
gain such access to the exclusion of all other businesses desiring to make the
same type of offering to that potential customer base. As of the date of this
prospectus, approximately two JoinUsOnline.com sub-portals are in operation.
In addition to the turnkey fee, JoinUsOnline will receive a portion of the
revenues derived by the dot com from the sale of products and services via its
sub-portal. JoinUsOnline will share a portion of that dot com revenue with the
client organizations whose members purchase the products or services that
generate such receipts.
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JoinUsOnline derives and will in the further derive its revenues from the
up-front enrollment fees that it charges its clients, from the dot com
sub-portal turnkey fees that it will be charging, from the revenues that its
clients and the dot coms will be deriving from purchases made through the
JoinUsOnline.com portal system and from utilization fees paid by many of the
program benefits and service providers who provide goods and services to the
members of JoinUsOnline's clients who enroll in such programs. The pricing of
JoinUsOnline's programs range from free to $4.95 per month per member. The costs
to JoinUsOnline's clients are based upon the type of program designed for the
client. JoinUsOnline's net sales and its operating earnings during each of the
periods described below were, as follows:
Years Ended Three Months Ended
December 31, March 31,
----------------------- -----------------------
1999 1998 2000 1999
---- ---- ---- ----
Net Sales .................. $2,011,257 $3,274,055 $ 918,245 $ 755,511
Operating earnings (loss) .. $ 119,268 $2,178,675 $ 318,992 $ 614,156
JoinUsOnline's Target Markets
JoinUsOnline markets a variety of business and consumer based value-added
benefit programs and Internet portal programs to and through the
telecommunications and affinity marketplaces. Included in the affinity
marketplace are large groups, associations and fund raising organizations.
JoinUsOnline customizes its programs based upon the demographics of its client
organizations' members, customers and/or employees.
Three of JoinUsOnline's customers, RRV Enterprises, Inc., Consumers Buyline,
Inc. and Catalyst Communication, Inc., were responsible for 62%, 15% and 9%,
respectively, of JoinUsOnline's revenues in 1999. Taken together, such revenues
amounted to 52% of our consolidated revenue in 1999. During the three months
ended March 31, 2000, one of JoinUsOnline's customers, RRV Enterprises, Inc.,
was responsible for 19% of JoinUsOnline's revenues. Such revenues amounted to
17% of our consolidated revenues during that period.
JoinUsOnline's Marketing
JoinUsOnline has historically focused its marketing activities almost
exclusively through trade shows. However, it has begun adding, as a new
marketing channel, a direct sales force of marketing agents drawn from the pool
of independent agents that work for several of the telecommunications companies
who participate as providers in JoinUsOnline's benefits programs.
JoinUsOnline's Competition
The membership benefits and service industry serves a market of consumers and
businesses nationwide. Benefits companies have traditionally marketed their
benefits programs via direct sales, credit card issuers, airline services, oil
companies, banking institutions, and most recently Internet web sales. The
majority of customers for these programs are considered to be
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consumers, with a small percentage of small business owners. Individual benefit
and service program offerings vary dramatically from Company to Company.
JoinUsOnline's major competitors are The Signature Group and Cendant Corp.
The Signature Group commenced operations in 1966 and has estimated annual
revenues of more than $900 million. They sell their benefit and service programs
exclusively to end-users, i.e., consumers, who pay annual membership fees. These
membership fees represent a small segment of the potential annual revenues which
The Signature Group can derive from a consumer because additional benefit
program offerings, at additional costs over the basic membership fee are
available to the consumer. Some examples of these additional programs are
health, dental, vision, pharmacy and chiropractic programs. Therefore the annual
savings that Signature Group members can receive can vary dramatically depending
on the programs in which they enroll. The Signature Group markets its various
benefits to a community of banks, oil companies and retailers through
telemarketing, as well as to a more general consumer market via the Internet.
Cendant Corp. offers 20 individual membership programs, has annual revenues
exceeding $5 billion and claims to have access to over 30 million customers. It
derives most of its earnings from the $69.00 annual membership fee that it
charges its customers. Cendant has a multi-tiered membership fee that starts at
$69.00 and increases depending on the benefits selected. As in the case of The
Signature Group, the actual saving to the end-user varies depending on the
consumer programs in which the end-user chooses to participate. Like The
Signature Group, Cendant's marketing focus consists mainly of telemarketing
through credit card companies, oil companies and retailers. Cendant is in the
process of establishing a marketing presence on the Internet, but does not
currently market via the Internet.
JoinUsOnline's most important competitors have longer operating histories,
larger client bases, longer relationships with clients, greater brand or name
recognition and significantly greater financial, technical, marketing and public
relations resources than we possess. However, JoinUsOnline believes that it
provides one of the most comprehensive benefits and service programs that the
industry affords, and that one factor which separates JoinUsOnline from its
competition and provides it with a significant competitive advantage over them
is that the members of JoinUsOnline's client organizations pay no membership fee
to JoinUsOnline.
JoinUsOnline's Employees
JoinUsOnline currently has 15 employees. None of its employees is represented by
a labor union and JoinUsOnline believes its employee relations are excellent.
United Interactive's Business
United Interactive's primary function is to provide the range of Internet
services delivered to the us and to our subsidiaries. This includes the
development and hosting of corporate Web sites, e-mail management, secure
Inter-company networking, and network design and implementation. United
Interactive manages and maintains the physical components comprising our
computer network as well as the computer systems employed in connection with the
production of the computer-based products and services that we and our
subsidiaries provide.
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United Interactive is responsible for the development of the back office
programming that provides the functionality of sites such as Web Classified's
Web site product and the JoinUsOnline portal system.
United Interactive has three departments: Network Operations, Software
Development and Interactive Media.
The Network Operations Department is responsible for implementing Internet
technologies, monitoring our network on a seven day per week, 24 hour per day
basis, and providing customer support, software development and interactive
media services.
The Software Development Department consists of a team of web and distributed
system developers who design, implement and maintain all of our external
e-commerce and internal web applications. Software Development is responsible
for:
o Management of development projects
o System architecture and design
o Development using JavaScript, Visual Basic, COM, MTS, T-SQL, and a
variety of web application frameworks including MS Site Server
o Database administration
o Maintenance of e-commerce systems and web applications
The Software Development Department acts primarily as an internal development
house, but occasionally accepts select external clients.
The Interactive Media Department's team of graphic artists, multi-media
designers, multi-media programmers and Web designers develop, design, and
maintain our and our subsidiaries' corporate Web sites. In addition Interactive
media is responsible such materials as:
o Marketing materials, broadcast quality VHS productions.
o Internet and local area network streaming video and audio
o Interactive Multi-Media CD presentations for use in corporate
kiosks, presentations, trade shows, education and training.
In addition to acting as our internal media house, the Interactive Media
Department accepts select client assignments from third parties.
United Interactive's Interactive Multimedia Department designs and develops
interactive presentations and multimedia CDs for internal use and use on client
Web sites. United Interactive also designs and produces training and marketing
materials that include interactive CD ROMs and live action video presentations
for use by our marketing personnel and the sales representatives who market our
various benefits and services programs. United Interactive also conducts
business as an Internet service and applications service provider to third
parties. Such services include dial up and dedicated Internet access (primarily
to customers located in the 561 area code), web hosting, and Web site
development.
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United Interactive's business activities generate revenues in the form of
development fees, residual hosting fees and royalty fees. The pricing of United
Interactive's various product and service offerings is based upon the time,
effort and resources United Interactive utilizes for each project. Most of the
projects United Interactive works on will have a long term effect on its
revenues, as most the fees it receives consist of a combination of project
development fees, coupled with residual royalty fees paid by the users of the
products it creates. United Interactive's net sales and its operating losses
during each of the periods described below were, as follows:
Years Ended Three Months Ended
December 31, March 31,
--------------------- -----------------------
1999 1998 2000 1999
---- ---- ---- ----
Net sales ................. $ 287,838 $ 84,259 $ 22,862 $ 112,719
Operating earnings (loss) .. $(576,813) $(366,367) $(495,234) $ (84,735)
United Interactive's Target Markets and Marketing
Aside from acting as a service provider to us and our companies, United
Interactive specializes in creating electronic commerce solutions for small,
medium, and large businesses as well as organizations and affinity groups.
United Interactive primarily markets these services to our existing clients,
which provides a large, qualified customer base without incurring typical
customer acquisition costs. The e-commerce solutions provided by United
Interactive encompass Web site design activities, custom database programming,
web hosting, and secure online transaction processing. United Interactive does
not use any traditional advertising or marketing for their services. Third party
clients are normally acquired by United Interactive through referrals. United
Interactive also participates in several agent programs, and receives business
referrals from partners that include Microsoft and IBM.
United Interactive's Competition
The principal competitive factors affecting the market for United Interactive's
products include product features, product performance and ease of use, pricing
and support. United Interactive's competitors include companies with established
positions in Internet hosting, e-commerce, software development, and Internet
marketing. As a result, such companies may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or to devote
greater resources to the promotion and sale of their products. Competition could
increase as new companies enter the market, and as existing competitors
intensify growth.
United Interactive competes with major Internet Web site hosting companies,
e-commerce Web site hosting companies, and Internet e-commerce merchant credit
card processing companies that market to small, mid-size businesses and
corporations. As ranked by Cnet, the most significant competitors in these
markets are Verio, Inc. and Concentric Network Corporation.
Verio, Inc. is a national provider of Internet services to small and medium
sized businesses.
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Verio provides its customers with the telecommunications circuits that permit
Internet access and also hosts their Web sites.
Concentric Network Corporation provides tailored, value-added Internet Protocol
based network services for enterprises and consumers. Services include dedicated
access facilities, web hosting, remote access services and virtual private
networks.
United Interactive's Employees
The Network Operations Department has five employees, the Software Development
Department has four employees and the Interactive Media Department has four
employees
IMS's Business
IMS conducts business in the transaction processing industry as a marketer of
electronic credit card authorization and payment systems to merchants located
throughout the United States. The transaction processing industry provides
merchants with credit, charge and debit card and other payment processing
services, as well as related information services. Each time that a merchant
initiates a credit card payment transaction by swiping a customer's credit card
through a card reading machine, several distinct business entities become
entitled to receive a portion of the amount of the transaction (called the
discount rate) which can typically fall between 1.6% to 3.5% of the amount of
the charge. For example, the credit card reading machine may have been provided
to the merchant by an organization who serves as a registered agent for a
particular bank. That agent is called an independent sales organization or "ISO"
or it is called a merchant services provider or "MSP". Alternatively, the card
reading machine may have been provided by an agent of the ISO or by an
independent sales representative who must work through an ISO's agent. Each of
those entities will receive some portion of that transaction fee. Upon keying in
the amount of the transaction and swiping the customer's credit card through the
card reading machine, the data is sent simultaneously to the customer's bank for
verification of the status of his account, and to the merchant's bank for
crediting to the merchant's account via one of several transaction processing
networks (such as the NOVA Network or Concord EFS Network, which are the two
processing networks primarily used by IMS). Each of those entities will also
receive a portion of the transaction fee. Also, the card association which
sponsored the customer's credit card (such as Visa or MasterCard ) will also
receive part of that transaction fee.
The transaction processing industry is characterized by a small number of large
transaction processors that focus primarily on servicing large merchants and by
many smaller transaction processors that provide a limited range of services to
small to medium-sized merchants. Large merchants (i.e., those with multiple
locations and high volumes of card transactions) typically demand and receive
the full range of transaction processing services as well as customized
information services at low per-transaction costs. By contrast, transaction
processors historically have not offered small to medium-sized merchants the
same level of services as large merchants or relatively low per-transaction
costs offered to larger merchants. The growth in card transactions and the
transition from paper-based to electronic transaction processing, however, have
caused small to medium-sized merchants increasingly to demand sophisticated
transaction processing and information services similar to those provided to
large merchants.
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Community and regional banks and ISOs such as IMS are the primary groups that
market and sell transaction processing services to small to medium-sized
merchants. In the emerging market sectors which include business to business
sales, government purchasing cards and the explosive growth of Internet
e-commerce, credit card usage is at its all time high. In order to compete with
vertical market Internet e-commerce companies, storefront merchants are
reinventing themselves by building e-commerce web sites. This phenomenon has
created an emerging market for secure real-time transaction processing. Every
day, more and more consumers are becoming more comfortable with the concept of
using their credit card accounts to purchase products from e-commerce companies
over the Internet. A business relationship with a merchant services company such
as IMS has become essential to any business's ability to compete in the business
to business and business to consumer market places.
Prior to January 2000, IMS conducted business as an agent for other registered
agents. In such capacity, IMS marketed and serviced electronic credit card
authorization and payment systems to merchants located throughout the United
States, and received approximately five to ten basis points (a basis point
equals one one-hundredth of one percent of the amount of the charge) on the
amount of each transaction processed by a merchant through a card reading
machine sold or supplied to the merchant by IMS.
Since January 2000, IMS has conducted business as an ISO for Imperial Bank and
for EFS National Bank. As an ISO, IMS offers merchants a cost-effective,
reliable, turnkey debit and credit card processing system. We believe that IMS
will be able to provide its system on a profitable basis because of its low-cost
operational structure, which includes efficient marketing and volume purchasing
arrangements with equipment and communications vendors.
IMS derives revenues in a number of different ways. Chief among them are:
o Revenues from the sale of credit card processing equipment and
software.
o The balance remaining after the fees which IMS pays to the Nova and
Concord EFS Networks, and to the credit card associations for
processing the transactions of IMS's merchant-customers are deducted
from the per transaction fees which IMS charges its
merchant-customers.
o Monthly fees to cover the cost of providing merchant-customers with
monthly transaction statements and seven day per week, 24 hour per
day customer service.
o Lump sum revenues resulting from the occasional sale of entire
portfolios of merchant accounts.
As of March 31, 2000, IMS was providing transaction services to 2,400 merchants
who generated a volume of approximately $87,000,000 in transactions during the
three month period which ended on that date. We believe that IMS's agreements
with Imperial Bank and EFS National Bank will enable IMS to increase
substantially its customer base which, in turn, will increase the volume of
processed transactions and the revenues generated by IMS with respect
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thereto. While we further believe that such activity will permit IMS to generate
a profit from its operations during the year 2000, no assurances can be given
that such volume increases will occur, or if they due, that IMS will derive
sufficient revenues therefrom to achieve profitability.
IMS's net sales and its operating earnings (loss) during each of the periods
described below were, as follows:
Years Ended Three Months Ended
December 31, March 31,
---------------------- ----------------------
1999 1998 2000 1999
---- ---- ---- ----
Net sales ................... $ 334,718 $ 465,474 $ 70,015 $ 83,988
Operating earnings (loss) .... $(124,086) $ 11,853 $(248,443) $ (5,259)
IMS's Target Markets and Marketing
IMS's three primary customer markets are small to mid size companies, Internet
merchants and home based businesses. IMS employs special pricing programs which
are designed to increase its market share. IMS currently supports a local sales
force, and it intends to increase its sales volume by building, in conjunction
with us and our other subsidiaries, and supporting a national sales force of
1,000 representatives. IMS plans to increase its market share by taking
advantage of the synergies that we and our other subsidiaries can provide by
giving IMS access to our various association clients and customers and the
members of such associations. However, no assurances can be given that IMS will
be successful in regard to any of the foregoing plans.
IMS's Competition
The electronic transaction processing industry is intensely competitive.
Increased competition is likely from both existing competitors and new entrants
into IMS's existing or future markets. IMS believes there are low barriers to
entry in its markets. IMS may not be able to compete successfully as other
companies develop new products and services, change prices, improve customer
service and hire additional personnel. Competitors may offer new products and
services resulting in greater competition and lower market share for IMS. Many
of IMS's competitors, such as SPS Transaction Services and Card Service
International, have longer operating histories, greater name recognition, larger
customer bases and substantially greater resources than IMS has. Competitors may
be able to adapt more quickly to new technologies and changes in customer
requirements and may also be able to devote greater resources to marketing.
IMS's Employees
IMS currently has three employees. None of its employees is represented by a
labor union and IMS believes its employee relations are excellent.
Express Financial's Business
Express Financial is a mortgage banker which represents over 70 direct lenders,
and is also a
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fully licensed and approved lender for federal programs including FHA, VA loans
and Title-1 loans. Express Financial has online underwriting authority from
Fannie Mae and Freddie Mac that enables it to issue approval of loan
applications within minutes after it submits a completed application file to
such organizations. Express Financial offers all types of residential and
commercial loans, including first mortgages, second mortgages, commercial and
construction loans, bridge loans, numerous specialty-financing programs, and
foreign national programs.
Express Financial maintains a virtual branch office on the Worldwide Web at
which customers can shop for and obtain mortgage financing by completing an
on-line mortgage loan application over the internet by using Express Financial's
on-line WEBAPP software. Express Financial has extended its virtual branch
concept to the states of West Virginia, Georgia, Pennsylvania, Maryland and Ohio
by permitting selected mortgage bankers licensed in those states to use Express
Financial's WEB APP software in connection with their respective mortgage
lending operations.
Operations - Production of Mortgage Loans
At the initiation of the mortgage banking process is the generation of leads and
the completion of loan applications. Express Financial performs this function
through three separate channels:
o directly with customers who do business with Express Financial's two
offices located in South Florida;
o through "net branches," maintained on a full time or part time basis
by individuals and businesses located in various other states that
produce mortgage lending business for Express Financial; and
o via a virtual branch office that Express Financial maintains on the
Worldwide Web at www.mortgagestogo.com through which customers can
shop for and obtain mortgage financing by completing an on-line
mortgage loan application.
Express Financial evaluates the loan applications and funds those loans that
meet the underwriting criteria established by the lenders and investors who
purchase loans from Express Financial. Express Financial then sells the mortgage
loans in the secondary market to those lenders and investors.
As part of that underwriting process, Express Financial evaluates credit reports
and property appraisals when required, verifies borrowers' income and assets and
obtains any additional third party verifications relating to the borrowers and
the mortgaged properties.
Express Financial obtains commitments from its lenders and investors for the
purchase of every mortgage loan that it funds on the same day that Express
Financial locks in a rate for a borrower. This protects Express Financial
against changes in interest rates between the date Express Financial issues a
loan commitment at a locked-in interest rate to the borrower and the date
Express Financial sells the loan to an investor or lender. Express Financial's
obligation to sell to an investor or lender is generally on a "best efforts"
basis, which means Express Financial is
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required to sell the loan to an investor or lender only if the loan closes
within an agreed upon time period. However, occasionally a borrower will elect
not to lock an interest rate until the closing. In those cases, Express
Financial may choose to sell the loan on a short-term "mandatory" basis, which
means Express Financial is required to sell the loan to an investor or lender,
that pre approved the loan within a specified number of days after the closing.
Express Financial sells, in the aggregate, approximately 70% of all of its loans
to Ohio Savings Bank, Wells Fargo Bank and Washington Mutual Bank NA. The
following is a list of some of the other investors and lenders who purchase
mortgage loans from Express Financial:
o World savings Bank
o Citibank
o Fleet Mortgage
o Bank United
o First Tenn. Bank
o SunTrust Bank
o Bank Of America
o First Union Bank
o Chase Manhattan Bank N.A.
o GE Capital
o Bank One
o Lehman Bros. (Aurora Loans)
o Merrill Lynch
o International Bank Of Miami
o Temple Inland
In most cases when Express Financial sells a mortgage loan to an investor or
lender, there is no recourse to it. However, inaccuracies in loan documents,
information about the borrower or information about the mortgaged property may
require Express Financial to repurchase a mortgage loan from the investor or
lender and indemnify them for any damages caused by the inaccuracies. Since
Express Financial's inception, mortgage loans that Express Financial has
repurchased from lenders and investors have represented an insignificant
percentage of its total mortgage loan originations.
- Funding Mortgage Loans
After a mortgage loan has been approved for funding, Express Financial generally
borrows from the $4,000,000 warehouse line of credit it maintains with Impac
Warehouse Lending Group to fund and close the mortgage loan. This facility bears
interest of 1.5% over a designated prime rate of interest. At December 31, 1999
and March 31, 2000, Express Financial had outstanding warehouse finance facility
advances from Impac of approximately $1,666,000 and $1,587,000, respectively,
which were collateralized by mortgage loans held for sale having aggregate
carrying values of approximately $1,686,000 and $1,631,000, respectively.
Express Financial repays warehouse advances upon the sale of warehoused loans to
third parties.
After Express Financial borrows funds to fund a mortgage loan, Express Financial
must pledge
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the mortgage loan to the warehouse lender as security for its repayment of the
borrowed money. During the time a mortgage loan is pledged to the warehouse
lender, it is considered "warehoused." A mortgage loan is warehoused until
Express Financial sells it to the investor or lender who agreed to purchase it
when Express Financial agreed to fund the loan, at which time Express Financial
repays its warehouse lender and the pledge is released. Express Financial's
mortgage loans are warehoused for an average of approximately 18 days. Sub-prime
mortgage loans are warehoused for an average of approximately 18 days.
Express Financial's net sales and its operating earnings during each of the
periods described below were, as follows:
September 30, 1999 (date
of acquisition) - Three Months Ended March
December 31, 1999 March 31, 2000
------------------------- ------------------------
Net sales....................... $829,352 $595,142
Operating earnings (loss)........ 38,790 $(208,688)
Regulation of Express Financial's Business
Express Financial's mortgage banking business is subject to the rules and
regulations of each state where it makes loans, the Department of Housing and
Urban Development, Federal Housing Administration, Veteran's Administration,
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation,
Government National Mortgage Association and other regulatory agencies in
connection with originating, processing, underwriting and selling mortgage
loans. Rules and regulations issued by these entities impose licensing and work
flow obligations on us, prohibit discrimination and establish underwriting
guidelines. Express Financial also are required to comply with each regulatory
entity's financial requirements.
Mortgage origination activities are further subject to the provisions of various
federal and state statutes including the Equal Credit Opportunity Act, the Home
Mortgage Disclosure Act, the Fair Housing Act, the Federal Truth-in-Lending Act,
the Fair Credit Reporting Act and the Real Estate Settlement Procedures Act. The
Equal Credit Opportunity Act and the Fair Housing Act prohibit Express Financial
from discriminating against applicants on the basis of race, color, religion,
national origin, familial status, sex, age, marital status or other prohibited
characteristics. It also requires us to disclose specific information to
applicants, such as the reason for any credit denial. The Truth-in-Lending Act
requires Express Financial to provide borrowers with uniform, understandable
information about the terms and conditions of mortgage loans so that they can
compare credit terms. It also guarantees borrowers a three-day right to cancel
specified credit transactions. If Express Financial fails to comply with
Truth-in-Lending, aggrieved customers could have the right to rescind their loan
transaction with it and to demand the return of finance charges paid to us. The
Fair Credit Reporting Act requires Express Financial to supply loan applicants
with a name and address of the credit reporting agency Express Financial use
when the applicant is denied credit or when the rate or charge for a loan
increases as a result of information Express Financial obtained from a credit
reporting agency.
Some of Express Financial's client relationships are "affiliated business
arrangements" that must
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comply with complex limitations under the Real Estate Settlement Procedures Act
and to regulation by the Department of Housing and Urban Development. Affiliated
business arrangements permit companies to refer real estate settlement business
to Express Financial without violating the Real Estate Settlement Procedures
Act's prohibition on "kickbacks" to the referring company. There are limitations
on the types of payments that can be made to the referring company and
disclosures that are required to be made to borrowers. Home Mortgage Disclosure
Act also requires us to collect applicant information and file an annual report
with the Department of Housing and Urban Development. Failure to comply with the
Home Mortgage Disclosure Act could result in administrative enforcement actions
that could eliminate important revenue sources for us and could lead to demands
for indemnification or loan repurchases.
Industry participants are frequently named as defendants in class action and
other litigation involving alleged violations of federal and state consumer
lending laws and regulations. Some of the practices that have been the subject
of lawsuits against other companies include:
o "add on" fees;
o truth in lending calculations and disclosures;
o escrow and adjustable rate mortgage calculations;
o private mortgage insurance calculations and disclosures;
o forced-placed hazard, flood and optional insurance; and
o unfair lending practices.
If a significant judgment were rendered against Express Financial in connection
with any litigation, it could have a material adverse effect on its business and
results of operations.
Although Express Financial's operations on the Internet are not currently
regulated by any government agency in the United States beyond the
mortgage-related regulations described above and regulations applicable to
businesses generally, it is likely that a number of laws and regulations may be
adopted governing the Internet. In addition, existing laws may be interpreted to
apply to the Internet. There may be claims that our services violate those laws.
Regulatory and legal requirements are subject to change and may become more
restrictive, making Express Financial's compliance more difficult or expensive
or otherwise restricting its ability to conduct its business as it is now
conducted.
Express Financial's Competition
A large number of mortgage companies transact business through retail offices
and other traditional channels. Express Financial's competitors include other
mortgage bankers (including those noted above), state and national commercial
banks, savings and loan associations, credit unions, insurance companies and
other finance companies. A great many of these competitors
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are substantially larger and have considerably greater financial, technical and
marketing resources than Express Financial has.
Mortgage banking on the Internet is highly competitive. A large number of
mortgage companies currently transact business over the Internet in one form or
another. The sophistication of these companies in the Internet channel varies
from simple one-page information Web sites to Web sites with extensive on-line
content and features. Many of these mortgage companies share a business strategy
and capability similar to those employed by Express Financial. The competition
includes banks such as Chase and Bank of America, as well as mortgage
originators such as Prism Financial Corporation, E-Loan and Mortgage.com, all of
which are larger and better capitalized than Express Financial. In addition,
Express Financial also competes on the Internet with large, national mortgage
companies, such as Countrywide Credit Industries, Inc. and HomeSide Lending,
which have greater origination volumes and capitalization than Express
Financial.
Express Financial's Employees
Express Financial currently has 17 employees. None of its employees is
represented by a labor union and United Interactive believes its employee
relations are excellent.
GKB's Business
GKB manufactures and sells POS Complete, a software-based restaurant management
system. As of the date of this prospectus the POS Complete system has been
installed in nine restaurant locations. The POS Complete system:
o allows restaurant operators to capture data at the point of sale, manage
all of the restaurant's operations, analyze data, communicate electronically
with their sites and interact with vendors;
o features an easy to customize, touch screen interface for recording and
transmitting a customer's order;
o runs on the Windows 95/98 platform;
o supports multiple point of sale terminals and an integrated back office
system;
o is upgradable so that clients can phase in their investment with
additional hardware and software modules; and
o is scalable, so that it can operate a single restaurant, a group of
commonly-owned restaurants, or a chain of franchised restaurants.
GKB customizes each POS Complete installation to meet the specific needs of its
customer.
Training is provided by GKB at the customer's site.
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GKB provides support and maintenance for its installed systems on a 24-hour
basis, and can remotely access its clients' systems in order to perform quick
diagnostics and provide on-line assistance.
GKB has also developed and intends to launch on or about June 15, 2000, a web
portal located at the URL address http://www.fattydaddy.com, which is called
FattyDaddy.com. GKB has positioned FattyDaddy.com as both a so called business
to business (or "B-to-B") and a business to consumer (or "B-to-C") portal. Thus,
businesses within the restaurant industry, such as restaurants, who visit the
FattyDaddy.com web portal will be able to engage in transactions with other
businesses in the industry, such as restaurant supply companies; and those
restaurants also will be able to conduct business with consumers, all via the
same web portal.
GKB intends to charge restaurants and other restaurant industry-related
businesses an annual membership fee as well as transaction fees in connection
with the various categories of business that they will be conducting through the
FattyDaddy portal site. Consumers will not be charged any fees for accessing the
portal or engaging in any transactions with any of those businesses. For
example, it is anticipated that restaurants desiring to conduct B-to-B and
B-to-C business as the FattyDaddy portal site will be charged a fee of $29.95
per month, plus, in the case of take-out orders and deliveries of food ordered
by consumers through the portal site, a transaction fee equal to 4% of the
amount of the sale.
The following products and services will be available to businesses and
consumers through the FattyDaddy.com portal site:
o Takeout/Delivery - Restaurants will be able to post their menus and
provide other pertinent information at their own web sites constructed with Web
Classified's Web Classified.net product and hosted by United Interactive at no
additional charge. Consumers will be able to search the FattyDaddy.com database
of participating restaurants, place a take-out or delivery order with the
restaurant of their choice and pay for their orders via the secure transaction
processing systems provided by IMS.
o Restaurant Reservations - Consumers will be able to search the
FattyDaddy.com database of participating restaurants and place reservations for
tables on-line.
o Catering - Consumers will be able to search the FattyDaddy.com database
of participating restaurants and catering facilities, review their respective
menu offerings on-line, and transact business with such caterers via the
FattyDaddy.com portal site.
o Restaurant Yellow Pages - Consumers will be able to search
FattyDaddy.com's database of participating restaurants by choosing one or more
of several different categories, such as geographic location, price range and
cuisine. The results of each search will be presented with links to each
restaurant's web page.
o Inventory Purchasing - Participating restaurants and other food
preparation businesses will be able to purchase their food and non-food
inventory needs from participating suppliers
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through the facility of the FattyDaddy.com portal
o Help Wanted/Job Postings - All participating businesses will be able to
place advertisements at the fattyDaddy.com portal site which will be searchable
by job seekers on a category-by-category basis.
o Online Coupons/Specials - Participating restaurants will be able to make
special offerings, or provide discount coupons to consumers on-line via the
FattyDaddy.com portal site.
o New/Used Equipment Sales - Restaurants and other food service related
businesses will be able to post offerings to sell equipment at the
FattyDaddy.com portal site, and will be able to consummate purchases and sales
of such equipment on-line at the portal site.
o Commercial Real Estate Availability - Realtors across the country will
be able to post their available food establishment locations for lease and
purchase at the FattyDaddy.com portal site. All participating restaurants and
other food service related businesses will have access to such postings.
o Insurance Quotations for Food Establishments - Participating restaurants
and other food service related businesses will be able to review insurance
program offerings posted at the FattyDaddy.com portal site by various insurance
brokers and agents located throughout the country.
GKB's Target Markets and Marketing
GKB has targeted the quick service food industry as the primary market for its
POS Complete system.
GKB's Competition
The market in which GKB competes is highly competitive. There are worldwide at
least 40 competitors that offer some form of sophisticated point of sale
transaction processing system similar to GKB's. Competitors in the point of sale
systems marketplace include full service providers such as Eltrax (Squirrel
POS), Panasonic, Positouch, Infogenesis, Ibertech (Aloha POS), Hospitality
Solutions International, GEAC, NCR (Compris POS) and Radiant Systems, each of
whom has substantially greater experience, capital and other resources than GKB
possesses.
GKB's Employees
GKB currently has three employees. None of its employees is represented by a
labor union and GKB believes its employee relations are excellent.
Our Intellectual Property
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Our intellectual property includes the proprietary software authored by United
Interactive and GKB, such as the Web Classified.net website product and the POS
Complete restaurant management system, our FattyDaddy and JoinUsOnline
trademarks, and various slogans, such as JoinUsOnline's "Changing the Way
America Buys." We believe that our intellectual property is an important factor
in maintaining our competitive position in our core businesses. To protect our
proprietary rights, we rely generally on copyright, trademark and trade secret
laws. Despite these protections, a third party could, without authorization,
copy or otherwise obtain and use our products or technology to develop similar
products or technology.
We have applied for, or intend to apply for registration of our primary
trademarks in the United States, including "JoinUsOnLine" and "FattyDaddy.com."
We intend to continue to pursue the registration of these and certain of our
other trademarks in the United States and in other countries; however, we cannot
be sure that we can prevent all third-party use of our trademarks. We have
obtained approximately 32 Internet domain names including: "JoinUsOnLine.com,"
"JUOL.com," "FattyDaddy.com," "bank-card.com," "efcol.com," "eft.net,"
"intrinfo.com," "Webclassified.net," "TVI-Marketing.com" and "uworld.net," .
We and our various subsidiaries have developed software for our and their
product and service offerings which are protected by copyright law, including
Web Classified.net and POS Complete. There is no assurance that the steps we and
our subsidiaries take will be adequate to protect these rights or that we or our
subsidiaries will be successful in preventing the illegal duplication,
distribution or other use of this software. Our failure to adequately limit the
unauthorized redistribution of our software could result in litigation or
liability, which could harm our business.
The laws of some foreign countries do not protect our proprietary rights to the
same extent as do the laws of the United States, and effective copyright,
trademark and trade secret protection may not be available in these
jurisdictions.
Third parties may assert infringement claims against us. From time to time we
may be subject to claims in the ordinary course of our business, including
claims of alleged infringement of the trademarks, patents and other intellectual
property rights of third parties by us or our users. Any such claims, or any
resultant litigation, should it occur, could subject us to significant liability
for damages and could result in the invalidation of our proprietary rights. In
addition, even if we were to win any such litigation, such litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention, any of which could materially and adversely affect our
business, results of operations and financial condition. Any claims or
litigation may also result in limitations on our ability to use such trademarks,
patents and other intellectual property unless we enter into arrangement with
such third parties, which may be unavailable on commercially reasonable terms.
Research And Development
Although we do not have a specific research and development budget, United
Interactive serves as our research and development facility. As such, it
develops various web-based products that
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we and our subsidiaries offer, such as the JoinUsOnline portal system and Web
Classified's easy-to-construct, customizable three page Web site.
Properties
Our headquarters consist of approximately 12,000 square feet of office space in
Delray Beach, Florida which are leased from an unaffiliated landlord through
2009. The annual rental under the lease provides is $181,000, including common
area maintenance, taxes and other costs. The lease contains rent escalation
provisions which will increase the annual rent over a period of ten years to a
total of $275,245 (including common area maintenance, taxes and other costs) for
the final year.
JoinUsOnLine occupies approximately 8,400 square feet of the Delray Beach office
which has been finished as separate, secure offices for its sole use.
JoinUsOnline pays 70% of the monthly rental and other charges for such space. We
occupy the balance of the space, and pay the remaining 30% of the monthly rental
and other charges due under the lease.
IMS leases approximately 2,030 square feet of office space in Coral Springs,
Florida pursuant to a lease with an unaffiliated landlord which expires in 2002.
The lease provides for payment of annual rent in the amount of $26,429,
including common area maintenance, taxes and other costs. It also provides for a
rent escalation to $28,014.74 (including common area maintenance, taxes and
other costs) in the final year.
.
Express Financial presently leases approximately 3,600 square feet of office
space in Boca Raton, Florida. This facility is covered under a five-year lease
expiring on March 31, 2002. The monthly obligation is a gross total of
$6,207.29, including all common area maintenance, taxes and other costs.
GKB is the lessee of approximately 750 square feet of space in Uniondale, New
York, pursuant to an office service agreement which provides for the payment of
an office charge of $1,050 per month during the one year term which expires on
April 14, 2001. That term will be automatically extended at 105% of the prior
term's monthly office charge for additional one year terms unless either party
gives notice of termination to the other at least 60 days prior to the end of
the then current term.
Legal Proceedings
There are no material legal proceedings pending against us or any of our
subsidiaries.
MANAGEMENT
The following table sets forth the names, positions with the Company and ages of
the executive officers and directors of the Company. Directors will be elected
at the Company's annual meeting of shareholders and serve for one year or until
their successors are elected and qualify. Officers are elected by the board and
their terms of office are, except to the extent governed by employment
contracts, at the discretion by the Board.
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Name Age Position
---- --- --------
William R. Becker 43 Chief Executive Officer, Director and Chief Operating
Officer
Matthew J. Cohen 41 Director and Chief Financial Officer
Peter Tamayo, Jr. 36 Chief Technical Officer
Lawrence J. Brady 59 Director
Charles R. McCarthy 60 Director
William R. Becker is the Chief Executive Officer and Chairman of the Board of
the Company and each of its subsidiaries. Since June 1992, Mr. Becker has served
as the Chief Executive Officer of JoinUsOnline.
Matthew Cohen has served as our Chief Financial Officer since February 1999, and
as a Director of the Company since September 1999. Between April 1997 and
August, 1999, he served as Chief Financial Officer and as a Director of Legal
Club of America Corporation, a provider of the nation's largest legal benefit
programs. From 1984 to June 1996, he was Vice President and Chief Financial
Officer of Standard Brands of America, Inc., a $100 million publicly held
retailer of consumer electronics and appliances.
Peter Tamayo has served as a Senior Vice President and Chief Technical Officer
of the Company since February, 1999. Since April 1995, he has served as the
Chief Technical Officer of JoinUsOnline. Mr. Tamayo holds several patents in the
computer industry, one in the electronics field and several dozen copyrights. He
is a graduate of Morgan Technical Institute with majors in Industrial
Electronics and Computer Science & Technology.
Lawrence J. Brady has served in senior management positions in government and
the private sector, including founder and director of Capitoline International
Group, Ltd.; a senior Vice President of Hill and Knowlton Public Affairs
Worldwide; and Director of International Marketing for Sanders Associates, a
Lockheed Corporation subsidiary. During the Reagan administration Mr. Brady
served as Assistant Secretary of Commerce for Trade Administration,
administering the government's export and import trade regulatory functions,
including the high technology export control program, as well as the U. S. laws
designed to prevent unfair sales of foreign products into the United States. He
also administered the U.S. Government foreign trade zone program. Mr. Brady
served also in senior staff roles in the Executive Office of the President in
the Nixon and Ford administrations. He has represented the U.S. in trade
negotiations in Europe, Japan and China and has been a frequent witness before
Congress on international economic and trade issues.
Charles R. McCarthy has been of counsel to the law firm of O'Connor & Hannon, a
Washington, D.C. and Minneapolis, Minnesota-based law firm since 1996. Prior
thereto, he was
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<PAGE>
a member of McCarthy & Burke, a Minneapolis-based law firm. He graduated from
the Georgetown Law Center and is a former trial attorney for the U.S. Securities
and Exchange Commission. His prior experience includes serving as a Blue Sky
securities commissioner for the District of Columbia and teaching at the
International School of Law (now George Mason School of Law) as an Assistant
Professor of Law. He has over twenty-five years of experience in serving on,
advising and chairing various international and domestic corporate boards. Mr.
McCarthy recently completed a four-year term as General Counsel to the National
Association of Corporate Directors.
Executive Compensation
None of the persons who served as our officers prior to the completion of our
reverse acquisition in February 1999 is currently employed by us or any of our
subsidiaries. Between the closing of the reverse acquisition and the end of
April, 2000, we and JoinUsOnLine paid the salary of our Chief Executive Officer,
JoinUsOnLine paid the salary of our Chief Financial Officer and United
Interactive paid the salary of our Chief Technical Officer. Since the end of
April 2000, we and JoinUsOnline continue to pay our Chief Executive's salary, we
pay the salary of our Chief Financial Officer and United Interactive continues
to pay the salary of our Chief Technical Officer. Those three officers
(collectively, the "Named Executive Officers") are our only executives who
receive annual compensation and bonus of $100,000 or more.
The following table sets forth compensation awarded to, earned by or paid to the
Named Executive Officers during the year ended December 31, 1999. We have not
paid any compensation that would qualify as payouts pursuant to long-term
incentive plans ("LTIP Payouts"), or "All Other Compensation" and we did not
issue any SARs during such period of time.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------------------------------ --------------------------
Restricted Securities
Name and Principal Other Annual Stock Underlying
Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) Options ($)
------------------ ---- ------------ --------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William R. Becker, CEO 1999 $ 250,000 -- -- -- 2,500,000 (1)
Matthew Cohen, CFO ... 1999 $ 36,462 (2) -- -- -- 100,000 (3)
Peter Tamayo, CTO .... 1999 $ 104,000 -- -- -- --
</TABLE>
-------------------------
(1) In February, 1999, we awarded to Mr. Becker under our 1999 Long-Term
Incentive Stock Option Plan (the "Option Plan") a ten year non-qualified option
to purchase 2,170,000 shares of common stock at an exercise price of $1.50 per
share, and a five year incentive stock option to purchase 330,000 shares of
common stock at the same exercise price. Both options vest at the rate of 20%
per annum at the commencement of each year during the term thereof. Accordingly,
as of the date of this prospectus, Mr. Becker is entitled to purchase a total of
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<PAGE>
1,000,000 shares pursuant to such options. See, "Employment Contracts,
Termination Of Employment And Change In Control Arrangements." Does not include
500,000 shares of common stock issuable pursuant to a ten year non-qualified
option at an exercise price of $.69 per share that we awarded to Mr. Becker in
June 2000 under our Option Plan. That option vests at the rate of 100,000 shares
per year on each of the first five anniversaries of the date on which the option
was granted.
(2) Paid between September 13, 1999, the date of commencement of Mr. Cohen's
employment, and December 31, 1999.
(3) In February 1999, we awarded to Mr. Cohen, who was then providing CFO
services to us, a ten year incentive stock option under our Option Plan to
purchase 100,000 shares of Common Stock at an exercise price of $1.50 per share.
The option vests at the rate of 50% per annum at the end of each of the first
two years during the term thereof. During the quarter ended March 31, 2000, Mr.
Cohen purchased 50,000 shares of common stock pursuant to that option. See,
"Employment Contracts, Termination Of Employment And Change In Control
Arrangements" and "Certain Relationships and Related Transactions." Does not
include 200,000 shares of common stock issuable pursuant to a ten year
non-qualified option at an exercise price of $.69 per share that we awarded to
Mr. Cohen in June 2000 under our Option Plan. That option vests at the rate of
66,666 shares per year on each of the first three anniversaries of the date on
which the option was granted.
Option/SAR Grants In Last Fiscal Year
We did not grant SARs to any of the Named Executives during 1999. The following
table describes the options granted to the Named Executives in 1999.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------------------------------
Number of
Securities % of Total Options
Underlying Granted to Employees Exercise or Base
Name Options Granted (#) In Fiscal Year Price ($/Sh) Expiration Date
------------------------ ------------------- -------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
William R. Becker, CEO 2,170,000 (1) 70.8% $1.50 2/26/2009
William R. Becker, CEO 330,000 (1) 10.8% $1.50 2/26/2009
Matthew Cohen, CFO 100,000 (2) 3.3% $1.50 2/26/2009
</TABLE>
---------------------
(1) In February, 1999, we awarded to Mr. Becker under our Option Plan a ten year
non-qualified option to purchase 2,170,000 shares of common stock at an exercise
price of $1.50 per share, and a five year incentive stock option to purchase
330,000 shares of common stock at the same exercise price. Both options vest at
the rate of 20% per annum at the commencement of each year during the term
thereof. Accordingly, as of the date of this prospectus, Mr. Becker is entitled
to purchase a total of 1,000,000 shares pursuant to such options. See,
"Employment Contracts, Termination Of Employment And Change In Control
Arrangements."
(2) In February 1999, we awarded to Mr. Cohen, who was then providing CFO
services to us, a ten year incentive stock option under our Option Plan to
purchase 100,000 shares of
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<PAGE>
Common Stock at an exercise price of $1.50 per share. The option vests at the
rate of 50% per annum at the end of each of the first two years during the term
thereof. During the quarter ended March 31, 2000, Mr. Cohen purchased 50,000
shares of common stock pursuant to that option. See, "Employment Contracts,
Termination Of Employment And Change In Control Arrangements" and "Certain
Relationships and Related Transactions."
Aggregated Option/Sar Exercises In Last Fiscal Year
And Fiscal Year-End Option/SAR Values
None of the Named Executive Officers exercised any options in 1999.
Compensation Of Directors
The Company has not paid and does not presently propose to pay compensation to
any director for acting in such capacity, except for nominal sums for attending
Board of Directors meetings and reimbursement for reasonable expenses in
attending those meetings.
Employment Contracts, Termination Of Employment And Change In Control
Arrangements
At the end of February 1999, we entered into a five-year Employment Agreement
with William R. Becker, our Chief Executive Officer, President, and Chairman of
the Board of Directors. The terms of this agreement, which is renewable for an
additional five-year term at our option, provides for an annual base salary of
$250,000. Such amount may be increased by vote of the Board of Directors in the
event of a material change in the scope of his duties as a result of a
significant expansion of our business and operations; a material diversification
of our business activities; one or more acquisitions or other similar long term
permanent occurrences.
Under the agreement, Mr. Becker was granted a ten-year non-qualified option (see
"Stock Option Plan," below) under our Option Plan to purchase 2,170,000 shares
of common stock at $1.50 per share which such options will vest at the rate of
20% per year at the beginning of each of said five years. Also, Mr. Becker was
granted 330,000 ten-year incentive stock options (see "Stock Option Plan,"
below) under the Option Plan to purchase 330,000 shares of common stock at $1.50
per share which such options will vest in the same manner as the non-qualified
options.
Under the terms of the agreement, we may terminate the employment of Mr. Becker
either with or without cause. If the agreement is terminated by us without good
cause (which requires a six month notice provision), we would be obligated to
pay Mr. Becker an amount equal to the unpaid salary due an owing during the
balance of the term of the agreement. If the agreement is terminated for cause,
no severance will be paid.
Effective September 12, 1999, we entered into a five-year Employment Agreement
with Matthew J. Cohen, our Chief Financial Officer, Treasurer and a member of
the Board of Directors. The agreement, which is renewable for an additional
five-year term at our option, provides for an annual base salary of $120,000
which increases $12,000 annually for the duration of the term.
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<PAGE>
Under this agreement, Mr. Cohen was granted 100,000 ten-year incentive stock
options under the Option Plan to purchase shares of common stock at 1.50 per
share. These options vest at the rate of 50,000 shares annually at the end of
each year.
Under the terms of the agreement, we may terminate the employment of Mr. Cohen
with or without cause. If the agreement is terminated by us without good cause
(which requires a six month notice provision), we would be obligated to pay Mr.
Cohen an amount equal to the unpaid salary due an owing during the balance of
the term of the agreement. If the agreement is terminated for cause, no
severance will be paid.
Stock Option Plan
In February 1999, we adopted a qualified stock option plan, the Interactive
Technologies.com, Ltd. 1999 Stock Option Plan. The purpose of the Option Plan
was to increase our employees' and non-employee directors' proprietary interest
in the company and to align more closely their interests with the interests of
our shareholders, as well as to enable us to attract and retain the services of
experienced and highly qualified employees and non-employee directors.
Options granted under the Option Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not so qualify
("Non-Qualified Options"). Any Incentive Option granted under the Option Plan
must provide for an exercise price of not less than 100% of the fair market
value of the underlying shares on the date of such grant, but the exercise price
of any Incentive Option granted to an eligible employee owning more than 10% of
our common stock must be at least 110% of such fair market value as determined
on the date of the grant.
The term of each Plan Option and the manner in which it may be exercised is
determined by the Board of the Directors or the Compensation Committee of the
Board, provided that no Plan Option may be exercisable more than 10 years after
the date of its grant and, in the case of an Incentive Option granted to an
eligible employee owning more than 10% of our common stock, no more than five
years after the date of the grant. The exercise price of Non-Qualified Options
shall be determined by the Board of Directors or the Compensation Committee
The per share exercise price of shares granted under the Option Plan may be
adjusted in the event of certain changes in our capitalization, but any such
adjustment shall not change the total purchase price payable upon the exercise
in full of Plan Options granted under the Option Plan. The persons who serve as
our officers, directors, key employees and consultants, or as officers,
directors, key employees and consultants of our subsidiaries will be eligible to
receive Non-Qualified Options under the Option Plan. Only persons who serve as
our, or our subsidiaries' officers, directors and employees are eligible to
receive Incentive Options.
We have reserved an aggregate of 18,000,000 shares of common stock for issuance
pursuant to options granted under the Option Plan. As of the date of this
prospectus, an aggregate of 5,853,900 options have been granted under the Option
Plan. The Board of Directors or the Board's Compensation Committee will
administer the Option Plan including, without limitation,
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<PAGE>
the selection of the persons who will be granted Options under the Option Plan,
the type of Plan Options to be granted, the number of shares subject to each
Plan Option and the Option Plan Option price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
William R. Becker, our Chairman, Chief Executive and a controlling stockholder,
is the owner of a travel service business with which we and our various
subsidiaries conduct business. Neither we, nor any of such subsidiaries pay any
fees or other compensation to such travel service. All compensation earned by
the travel service is paid by the various airlines and other travel service
providers at standard industry rates.
Keith Becker and William R. Becker, our Chairman and Chief Executive Officer,
are brothers. Prior to April 26, 2000, Keith Becker was a 40% owner, the
President and a director of GKB. On that date, we acquired an 80% ownership
interest in GKB from each of its shareholders. We issued 960,096 shares of
common stock to Keith Becker valued at $3,840,000 in connection with that
acquisition. The agreement by which that transaction was consummated calls for
contingent shares to be issued at the one-year anniversary of the closing if our
stock price at that time is less than $5.00 per share. Keith Becker continues to
own an 8% interest in GKB.
In March 2000, William R. Becker borrowed approximately $709,000 from us. His
indebtedness to us is evidenced by a promissory note which obligates him to
repay the principal on December 31, 2000. The note also requires him to pay
interest computed on the unpaid principal at the rate 8% per year. The interest
is also due and payable on December 31, 2000. Mr. Becker has the right to prepay
all amounts due and payable under the note without premium or penalty. As of the
date of this prospectus, $200,000 of the principal amount remains unpaid.
In March 2000, Robert Banner, the President of Express Financial, borrowed
$200,000 from us. His indebtedness to us is evidenced by a promissory note which
contains the same provisions, including those pertaining to the repayment of
principal and the payment of interest, as Mr. Becker's note described in the
immediately preceding paragraph. As of the date of this prospectus, the entire
principal amount of the loan to Mr. Banner remains unpaid.
In March 2000, Matthew Cohen, our Chief Financial Officer, purchased 50,000
shares of our common stock by exercising an option that we granted to him last
year. The $75,000 purchase price due and owing with respect to his exercise of
the option is to be paid as follows: Mr. Cohen has paid the sum of $50.00 to us
which constitutes the aggregate amount of the capital of those shares. He also
has delivered a promissory note to us as evidence of his indebtedness to us in
the amount of the $74,950 balance of the purchase price. That note is payable on
demand and requires Mr. Cohen to pay interest computed on the unpaid principal
at the rate 8% per year. See "Management - Executive Compensation - Summary
Compensation Table."
PRINCIPAL STOCKHOLDERS
The following table sets forth the holdings of the Company's Common Stock as of
the date of this prospectus by (1) each person or entity known to us to be the
beneficial owner of more than
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<PAGE>
5% of our outstanding shares of common stock; (2) each of our directors and
executive officers; and (3) all directors and executive officers as a group. All
of the holders of common stock are entitled to one vote per share.
Number of Shares Percent
Name and Address of Beneficial Owner(1) Beneficially Owned(2) Owned(3)
---------------------------------------- ---------------------- ---------
William R. Becker....................... 14,967,200 (4) 51.3%
Matthew Cohen........................... 51,000 *
Peter Tamayo............................ 1,000,000 3.6%
Charles R. McCarthy (5)................. 50,000 *
Lawrence J. Brady (6)................... 50,000 *
All Directors and Executive Officers
As a Group (5 Persons).................. 16,118,200 (7) 55.3%
----------------------
* Represents less than 1%.
(1) Except as otherwise noted, the address of each of the persons listed below
is 11336 Wiles Road, Coral Springs, Florida 33076.
(2) Includes shares actually and beneficially owned.
(3) Based upon 28,171,548 shares outstanding on the date of this prospectus,
increased by the number of shares under options which the holder(s)
thereof have the right to acquire within 60 days from that date.
(4) Includes (a) 1,000,000 shares which Mr. Becker may acquire pursuant to
options exercisable within 60 days of the date of this prospectus; (b)
2,967,400 shares which Mr. Becker owns jointly with his wife, Joni; and
(c) 9,000,000 shares held by Joni Becker as Trustee of the William R.
Becker Irrevocable Family Trust. Does not include 1,000,800 shares held by
Mrs. Becker, as to which Mr. Becker disclaims beneficial ownership.
(5) The address of Mr. McCarthy is 1666 K Street, NW Washington, DC
20006-2803.
(6) The address of Mr. Brady is 480 South Orange Grove Blvd #16 Pasadena, Ca
91105.
(7) Includes 1,000,000 shares which all of such persons may acquire pursuant
to options exercisable within 60 days of this prospectus. Does not include
the shares excluded from the percentage ownership calculations made with
respect to Mr. Becker pursuant to note 4 above.
SELLING STOCKHOLDER
All of the [ ] shares offered by this prospectus are being registered for sale
for the account of Young, LLC, the selling stockholder. The selling stockholder
also holds warrants to purchase common stock, which we issued to it in
connection with our issuance of the common stock to the selling stockholder. The
table below also includes shares of common stock issuable upon exercise of those
warrants.
55
<PAGE>
We will not receive any portion of the proceeds from the sale of shares of
common stock by the selling stockholder. However, we will receive the sum of
$5.82 per share for each share of common stock purchased by the selling
stockholder upon its exercise of those warrants.
Based on the information supplied to us by the selling stockholder, the
following table sets forth certain information regarding the approximate number
of shares of common stock which the selling stockholder owns or has the right to
immediately acquire as of the date hereof, and as adjusted to reflect the sale
by the selling stockholder of the shares of common stock offered by this
prospectus. The selling stockholder has not held any office or maintained any
material relationship with us or any of our predecessors or affiliates, over the
past three years.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned After
Before Offering(1) Offering(1)(2)
------------------------- -------------------------------
Name and Address Number Percent(3) Shares Offered Number Percent
---------------- ------- ---------- -------------- ------ -------
<S> <C> <C>
Young, LLC
Harbour House, 2nd Floor
Road Town, Tortola
British Virgin Island -0- -0-
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. In computing the number of shares beneficially
owned by the selling stockholder and its percentage ownership, shares of common
stock subject to warrants held by the selling stockholder that are currently
exercisable, or become exercisable within 60 days of the date of this prospectus
are deemed outstanding. The stock purchase agreement which we executed with the
selling stockholder limits the selling stockholder's rights to receive
additional shares in the event we are required to reprice the selling
stockholder's shares. See the "Liquidity and Capital Resources" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In accordance with that limitation, the selling stockholder cannot
receive repricing shares or exercise its warrants to the extent that such
receipt or exercise would result in the selling stockholder and its affiliates
beneficially owning more than 9.99% of our then outstanding common stock. Thus,
although some of the shares listed in the table might not be subject to purchase
by the selling stockholder during that 60 day period, they are nevertheless
included in this table. Except as indicated by this footnote, to our knowledge,
the selling stockholder is believed to have sole voting and investment power
with respect to all shares of common stock shown as beneficially owned by it.
The information regarding the selling stockholder has been furnished by it.
(2) Assumes that all shares of common stock offered in this prospectus will be
sold.
(3) Based on approximately 28,171,548 shares of common stock issued and
outstanding as of the date of this prospectus.
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<PAGE>
DESCRIPTION OF SECURITIES
The following summary description of our capital stock is not intended to be
complete and is subject to and qualified in its entirety by reference to our
Certificate of Incorporation, as amended, copies of each of which are filed as
exhibits to the registration statement of which this prospectus forms a part.
General
Our authorized capital stock consists of 90,000,000 shares of common stock, par
value $0.001 per share and 10,000,000 shares of preferred stock, par value
$0.001 per share.
Common Stock
The shares of common stock:
o have equal rights to dividends from funds legally available therefor,
when, as and if declared by the Board of Directors of the Company;
o are entitled to share ratably, subject to the rights of the holders of
any securities which are senior to, or which have preferences greater than the
common stock, in all of our assets available for distribution to holders of
common stock upon liquidation, dissolution or winding up of our affairs;
o are not subject to preemptive, subscription or conversion rights;
o have no redemption or sinking fund provisions applicable thereto; and
o are entitled to one non-cumulative vote per share on all matters which
stockholders may vote on at all meetings of stockholders.
All of the 28,171,548 shares of common stock now outstanding are fully paid and
non-assessable.
Inasmuch as our common stock does not have cumulative voting rights, the holders
of more than 50% of the outstanding shares can elect all of the directors, if
they choose to do so, in which event the holders of the remaining shares cannot
elect any directors. Accordingly, inasmuch as our current officers, directors
and a control person or persons own more than 50% of the outstanding shares,
they will continue to be able to elect all of the directors.
We have paid no cash dividends and it is not anticipated that any cash dividends
will be paid in the foreseeable future. In all events, the declaration of cash
dividends will depend upon future earnings, if any, our financial needs, and
other pertinent factors.
Our Transfer Agent is Olde Monmouth Stock Transfer Company, Inc., 77 Memorial
Parkway, Atlantic Highlands, New Jersey 07716
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<PAGE>
Our common stock is quoted in the National Quotation Bureau Pink Sheets under
the symbol "INTR." Before the date when the registration statement of which this
prospectus forms a part is declared effective, we intend to apply to the Nasdaq
Stock Market, Inc. for admission of our common stock for trading under the
symbol "INTR" on the Nasdaq SmallCap Market or, if we determine that we meet the
criteria for listing of the common stock on the Nasdaq National Market, we
intend to apply for such listing in lieu of applying to the SmallCap Market. In
the event that our application is denied, we will seek to have our common stock
admitted to quotation under the symbol "INTR" on the NASD's OTC Bulletin Board.
We intend to furnish our stockholders with annual reports of our operations,
containing audited financial statements and with additional information
concerning our business and affairs whenever deemed appropriate by our Board of
Directors.
Preferred Stock
Pursuant to our certificate of incorporation, we are authorized to issue up to
10,000,000 shares of "blank check" preferred stock, which may be issued from
time to time in one or more series upon authorization by our Board of Directors.
The Board of Directors, without further approval of the stockholders, will be
authorized to fix the dividend rights and terms, conversion rights, voting
rights, redemption rights and terms, liquidation preferences, and any other
rights, preferences, privileges and restrictions applicable to each series of
the preferred stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, adversely affect the voting power of the
holders of common stock and, in certain circumstances, make it more difficult
for a third party to gain control of us, discourage bids for our common stock at
a premium, or otherwise adversely affect the market price of the common stock.
Currently, there are no shares of preferred stock outstanding.
Registration Rights
When we issued our shares of common stock to the selling stockholder, we entered
into a registration rights agreement with it. That agreement
o obligates us to register, pursuant to the Securities Act, at our cost
and expense:
|_| all of those shares,
|_| the shares of common stock issuable upon exercise of the
warrants that we also issued at that time; and
|_| a sufficient quantity of additional shares of common stock that
may be issued pursuant to the repricing provisions of our stock purchase
agreement with the selling stockholder that we discussed above in the
"Liquidity and Capital Resources" section of
58
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
o provides that,
|_| if we did not file that registration statement by March 3, 2000,
or
|_| that registration statement was not declared effective by the
SEC on or before May 3, 2000,
we may be required to pay to the selling stockholder, if it so elects,
$80,000 for each 30 day period (pro-rated for periods of less than 30 days)
commencing on or about March 3, 2000 and ending on the date when such
effectiveness is declared. We did not file the registration statement until
August [ ], 2000. The selling stockholder has not yet advised us if it will be
electing to receive such payment. If it does make such election, we will be
required to pay the sum of $[ ] to it for the period which elapsed between April
3, 2000 and the date when the registration statement is declared effective.
Warrants and Options
We issued warrants to the selling stockholder which entitle it to purchase
164,948 shares of common stock at an exercise price of $5.82 per share during
the period between February 3, 2000 and February 2, 2004. The number of shares
which may be purchased under the warrant, and the purchase price are both
subject to adjustment upon the occurrence of various events including, but not
limited to, a repricing of the selling stockholder's currently held shares
pursuant to the provisions of the stock purchase agreement previously discussed.
We are registering all of the shares issuable under to that warrant pursuant to
the registration statement of which this prospectus forms a part.
The investment banking firm of Ladenburg Thalmann & Co., Inc. served as our
intermediary in connection with the transactions that we consummated with the
selling stockholder. In consideration for its services in such capacity,
o we paid the sum of $320,000 to that firm and
o we also issued a four year warrant to the firm which
|_| entitles it to purchase 67,920 shares of our common stock at an
exercise price of $4.53 per share, and
|_| is adjustable as to the number of shares which may be purchased,
and as to the purchase price upon the occurrence of certain events.
We have issued options to purchase a total of 6,707,750 shares of common stock
under our 1999 Stock Option Plan. See, "Management - Employment Contracts,
Termination Of Employment
59
<PAGE>
And Change In Control Arrangements" and "- Stock Option Plan" for a description
of those options.
We have also issued a five year option to purchase 400,000 shares of common
stock at an exercise price of $.69 per share to Boru Enterprises, Inc. See
"Management's discussion and analysis of financial condition and results of
operations - Liquidity and Capital Resources." That option granted "piggyback"
registration rights to Boru which entitle it to cause us to register the shares
issuable upon exercise of that option whenever we propose to register shares of
common stock under the Securities Act, except
o when we register those shares on SEC Form S-8, or
o when such registration is made in connection with an underwritten
offering, and the managing underwriter elects not to include all or a portion of
Boru's option shares as part of the offering.
DELAWARE BUSINESS COMBINATION PROVISIONS
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law ("DGCL"). In general, this statute prohibits a publicly held
Delaware corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested stockholder
unless:
o prior to the date at which the stockholder became an interested
stockholder, the Board of Directors approved either the business combination or
the transaction in which the person became an interested stockholder;
o the stockholder acquired more than 85% of the outstanding voting stock
of the corporation (excluding shares held by directors who are officers and
shares held in certain employee stock plans) upon consummation of the
transaction in which the stockholder became an interested stockholder; or
o the business combination is approved by the Board of Directors and by at
least 66-2/3% of the outstanding voting stock of the corporation (excluding
shares held by the interested stockholder) at a meeting of stockholders (and not
by written consent) held on or after the date such stockholder became an
interested stockholder.
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 15% or
more of the corporation's voting stock. Section 203 defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset-based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the DGCL enables a corporation in its original certificate
of incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to a corporation or its stockholders for violations of
the director's fiduciary duty, except:
o for any breach of a director's duty of loyalty to the corporation or its
stockholders,
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
o pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions), or
o for any transaction from which a director derived an improper personal
benefit.
Our Certificate of Incorporation provides in effect for the elimination of the
liability of directors to the extent permitted by the DGCL.
Section 145 of the DGCL provides, in summary, that directors and officers of
Delaware corporations are entitled, under certain circumstances, to be
indemnified against all expenses and liabilities (including attorney's fees)
incurred by them as a result of suits brought against them in their capacity as
a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to indemnity for such expenses which the
court shall deem proper. Any such indemnification may be made by the corporation
only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. Our By-Laws entitle
our officers and directors to indemnification to the fullest extent permitted by
the DGCL.
We maintain an insurance policy with respect to potential liabilities of its
directors and officers, including potential liabilities under the Securities Act
of 1933.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to our directors, officers and controlling persons
pursuant to the provisions described above, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this offering, we have 28,721,548 shares of common stock
outstanding. Of the outstanding shares of common stock, 7,331,824 are freely
tradable by persons other than executive officers, directors and ten percent
shareholders of the company as that term is defined under the Securities Act,
without restriction or further registration, and 21,389,724 shares would be
deemed "restricted securities" within the meaning of Rule 144 under the
Securities Act. If presently unexercised warrants or options were exercised to
purchase common stock, we would have an additional 6,940,618 shares of
restricted securities outstanding for a total of 35,662,166 shares. Restricted
securities may not be sold in the absence of registration unless an exemption
from registration is available, including the exemption contained in Rule 144.
17,389,724 of the presently outstanding restricted securities became eligible
for resale under Rule 144 on or before April 28, 2000. 970,285 of such
securities will become eligible for resale by the selling stockholder upon the
effective date of the registration statement of which this prospectus forms a
part, and 2,450,240 of such securities will become eligible for resale under
Rule 144 on various dates falling between March 7, 2001 and April 25, 2001.
In general, under Rule 144, a stockholder who has beneficially owned shares of
common stock for at least one year is entitled to sell, within any three-month
period, a number of "restricted" shares that does not exceed the greater of one
percent of the then outstanding shares of common stock or the average weekly
trading volume during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to sale limitations, notice requirements and the
availability of current public information about us. Rule 144(k) provides that a
stockholder who is not deemed to be an "affiliate" and who has beneficially
owned shares of common stock for at least two years is entitled to sell those
shares at any time under Rule 144(k) without regard to the limitations described
above. In addition to the shares of common stock that are currently outstanding,
a total of 5,853,900 shares of common stock are reserved for issuance upon
exercise of options granted to our directors, executive officers and employees
and 1,086,718 shares are issuable upon exercise of outstanding options and
warrants.
We are unable to estimate the number of shares that may be sold in the future by
existing holders of shares of our common stock or holders of options or warrants
or convertible securities that are outstanding or the effect, if any, that sales
of shares of common stock by these persons will have on the market price of the
common stock prevailing from time to time. Sales of substantial amounts of
common stock by these persons could adversely affect the then prevailing market
prices of the common stock and warrants.
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by the
selling stockholder named under "Selling Stockholders" above. The selling
stockholder may sell the shares at market prices or at negotiated prices. It may
sell shares by one or a combination of the following:
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
62
<PAGE>
o purchases by a broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus;
|_| ordinary brokerage transactions and transactions in which a
broker solicits purchasers;
|_| privately negotiated transactions;
|_| short sales;
|_| if such a sale qualifies, in accordance with Rule 144
promulgated under the Securities Act rather than pursuant to this
prospectus; and
|_| any other method permitted pursuant to applicable law.
In making sales, brokers or dealers engaged by the selling stockholder may
arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholder in amounts to be
negotiated prior to the sale. The selling stockholder and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If the selling stockholder notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, we will file a prospectus supplement, if required
pursuant to Rule 424(c) under the Securities Act of 1933, setting forth:
o the name of each of the participating broker-dealers,
o the number of shares involved,
o the price at which the shares were sold,
o the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable,
o a statement to the effect that the broker-dealers did not conduct any
investigation to verify the information set out or incorporated by reference in
this prospectus, and
o any other facts material to the transaction.
We are paying the expenses incurred in connection with preparing and filing this
prospectus and the registration statement to which it relates, other than
selling commissions. In addition, in the event the selling stockholder sells
short shares of common stock, this prospectus may be delivered in connection
with such short sales and the shares offered by this prospectus may be
63
<PAGE>
used to cover such short sales. To the extent, if any, that the selling
stockholder may be considered to be an "underwriter" within the meaning of the
Securities Act, the sale of the shares by it shall be covered by this
prospectus.
LEGAL MATTERS
Hall Dickler Kent Goldstein & Wood, LLP, New York, New York, has advised us with
respect to the validity of the shares of common stock offered by this
prospectus.
EXPERTS
Robert Jarkow, CPA, independent auditor, has audited our consolidated financial
statements for the year ended December 31, 1998 as set forth in his report,
which is included in this prospectus. Our consolidated financial statements are
included in this prospectus in reliance on his report, given his authority as an
expert in accounting and auditing.
Grant Thornton LLP, independent auditors, have audited our consolidated
financial statements for the year ended December 31, 1999, as set forth in their
report, which is included in this prospectus. Our consolidated financial
statements are included in this prospectus in reliance on their report, given
their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, a registration statement on Form SB-2 under the
Securities Act with respect to the securities offered. As permitted by SEC
rules, this prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information concerning the company and the securities
offered, we refer you to the registration statement and the exhibits and
schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any contract
or any other document are not necessarily complete. In each instance where a
copy of that contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement is qualified in all respects by reference to
that exhibit. The registration statement, including its exhibits and schedules,
may be inspected without charge at the SEC's Public Reference Room, at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the SEC's regional
offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, New York New York 10048.
Copies of all or any part of those documents may be obtained from the SEC's
office after payment of the SEC's prescribed fees. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the SEC's public
reference rooms. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC.
64
<PAGE>
We intend to provide our stockholders with annual reports containing
consolidated financial statements by an independent public accounting firm and
will make available to stockholders quarterly reports containing unaudited
consolidated financial data for the first three quarters of each year. On the
effective date of the registration statement of which this prospectus forms a
part, we will be subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and will thereupon be required to
file periodic reports, proxy statements and other information with the SEC.
65
<PAGE>
Interactive Technologies.com, Ltd.
Index to Financial Statements
Page
----
Report of Independent Certified Public Accountants...................... F-2
Independent Auditor's Report............................................ F-3
Consolidated Balance Sheets at December 31, 1998
and 1999 and at March 31, 2000 (unaudited)......................... F-4
Consolidated Statements of Operations for the two
years ended December 31, 1999 and for the three
months ended March 31, 1999 and 2000 (unaudited)................... F-5
Consolidated Statement of Stockholders' Equity (Deficit)
for the two years ended December 31, 1999
and for the three months ended March 31, 1999
and 2000 (unaudited)............................................... F-6
Consolidated Statements of Cash Flows for the two years
ended December 31, 1999 and for the three
months ended March 31, 1999 and 2000 (unaudited)................... F-7
Notes to Consolidated Financial Statements.............................. F-9
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors
Interactive Technologies.Com, Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Interactive
Technologies.Com, Ltd. and Subsidiaries (the "Company") as of December 31, 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1999, and the consolidated results of their operations and their
consolidated cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
Miami, Florida
March 10, 2000 (except for Note V, as
to which is dated April 26, 2000) Grant Thornton LLP
F-2
<PAGE>
11 INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Interactive Technologies.Com, Ltd. and Subsidiaries
I have audited the accompanying consolidated balance sheet of Interactive
Technologies.Com, Ltd. and Subsidiaries as of December 31, 1998 and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I 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. I believe that my audits provide
a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Interactive Technologies.Com, Ltd. and Subsidiaries as of December 31, 1998, and
the results of its consolidated operations and cash flows for the year ended
December 31, 1998, in conformity with generally accepted accounting principles.
Fort Lauderdale, Florida Robert Jarkow
September 10, 1999
F-3
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, March 31,
1998 1999 2000
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 19,440 $ 452,084 $ 1,076,061
Certificate of deposit -- 10,000 10,000
Accounts receivable 8,611 35,836 72,240
Mortgage loans held for sale, net -- 1,686,347 1,630,707
Advances to shareholders -- -- 908,930
Commission receivable -- 38,670 84,688
Marketable Securities -- 91,952 90,090
Prepaid expenses and other current assets -- 81,346 206,619
------------ ------------ ------------
Total current assets 28,051 2,396,235 4,079,335
Property and equipment, net 121,027 369,546 654,586
Goodwill, net -- 1,428,850 1,404,633
Other assets -- 19,367 46,686
------------ ------------ ------------
Total assets $ 149,078 $ 4,213,998 $ 6,185,240
============ ============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Warehouse finance facility $ -- $ 1,666,092 $ 1,586,624
Accounts payable and accrued expenses 95,376 573,137 365,302
Loans from related parties -- 10,717 25,950
Loan payable, current portion -- 4,004 3,003
Capital lease, current portion -- -- 30,203
Due to shareholder 660,000 -- --
Deferred revenue 507,484 233,768 23,026
------------ ------------ ------------
Total current liabilities 1,262,861 2,487,718 2,034,108
Loan payable, net of current portion -- 43,079 39,705
Capital lease, net of current portion -- -- 198,258
Minority Interest -- -- --
Commitments and contingencies -- -- --
Stockholders' equity (deficit)
Preferred stock, 7% cumulative convertible - $.001 par value 10,000,000
shares authorized, -0- and 2,936,541 shares issued and outstanding in
1999 and 1998, respectively 5,751,191 -- --
Common stock - $0.001 par value, 40,000,000 shares
authorized, 1,987,187 and 24,818,885 and 25,982,948
shares issued and outstanding at December 31, 1998,
1999 and March 31, 2000 1,987 24,819 25,789
Additional paid-in capital 12,112 10,230,257 13,884,257
Accumulated deficit (6,879,073) (8,571,875) (9,996,877)
------------ ------------ ------------
Total stockholders' equity (deficit) (1,113,783) 1,683,201 3,913,169
------------ ------------ ------------
Total liabilities and stockholders' equity $ 149,078 $ 4,213,998 $ 6,185,240
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------- ---------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Sales and services $ 3,823,788 $ 2,482,173 $ 917,348 $ 424,371
Loan fees -- 829,352 -- 595,142
------------ ------------ ------------ ------------
3,823,788 3,311,525 917,348 1,019,513
Costs and expenses
Cost of sales 182,322 338,264 113,200 64,822
Selling expenses 1,107,864 503,154 147,521 172,003
General and administrative costs 709,441 3,694,956 379,293 2,208,488
------------ ------------ ------------ ------------
1,999,627 4,536,374 640,014 2,445,313
Other income(expense)
Unrealized gain(loss) on marketable securities -- 81,952 -- (1,862)
Interest income -- 1,860 -- 232
Other -- 4,167 -- 2,428
------------ ------------ ------------ ------------
-- 87,979 -- 798
------------ ------------ ------------ ------------
(Loss) earnings before provision
for income taxes 1,824,161 (1,136,870) 277,334 (1,425,002)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net (loss) earnings $ 1,824,161 $ (1,136,870) $ 277,334 $ (1,425,002)
============ ============ ============ ============
Earnings (loss) per share - basic $ .92 $ (.07) $ .03 $ (.06)
============ ============ ============ ============
Earnings (loss) per share - diluted $ .36 $ (.07) $ .03 $ (.06)
============ ============ ============ ============
Pro Forma Financial Information (unaudited)
Income before pro forma adjustment for
employment agreement and pro forma
provision for income taxes $ 1,824,161 $ (1,136,870) $ 277,334 $ (1,425,002)
Pro forma adjustment for employment
agreement 250,000 250,000 62,500 --
------------ ------------ ------------ ------------
Pro forma (loss) earnings before provision
for income taxes 1,574,161 (1,386,870) 214,834 (1,425,002)
------------ ------------ ------------ ------------
Pro forma provision for income taxes: 592,357 -- -- --
------------ ------------ ------------ ------------
Pro forma net (loss) earnings $ 981,804 $ (1,386,870) $ 214,834 $ (1,425,002)
============ ============ ============ ============
Basic pro forma (loss) earnings per share $ .49 $ (.08) $ .02 $ (.06)
============ ============ ============ ============
Diluted proforma (loss) earnings per share $ .31 $ (.08) $ .02 $ (.06)
============ ============ ============ ============
Weighted-average common shares outstanding 1,987,187 17,169,856 9,333,278 25,477,354
============ ============ ============ ============
Weighted-average common shares outstanding
diluted 5,118,234 17,169,856 9,333,278 25,477,354
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Two Years Ended December 31, 1999 and the Three Months Ended
March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------------- --------------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 2,936,541 $ 5,751,191 1,987,187 $ 1,987 $ 12,112 $ (7,248,564)
Net earnings for the year ended
December 31, 1998 -- -- -- -- -- 1,824,161
Distributions -- -- -- -- -- (1,505,647)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 2,936,541 5,751,191 1,987,187 1,987 12,112 (6,930,050)
Reverse acquisition of
Interactive Technologies
Com Ltd. (80% interest) -- -- 18,000,000 18,000 -- --
Distributions -- -- -- -- -- (504,955)
Acquisition of Express Financial -- -- 246,154 246 1,661,540 --
Common stock issuances -- -- 711,640 712 1,999,288 --
Conversion of preferred stock (2,936,541) (5,751,191) 3,131,047 3,131 5,748,060 --
Capitalization of debt -- -- 642,857 643 659,357 --
Stock issued for services -- -- 100,000 100 149,900 --
Net loss for the year ended
December 31, 1999 -- -- -- -- -- (1,136,870)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 -- -- 24,818,885 24,819 10,230,257 (8,571,875)
Exercise of stock options (unaudited) -- -- 50,000 50 74,950 --
Common stock subscribed
(unaudited) -- -- -- (50) (74,950) --
Common stock issuances (unaudited) -- -- 970,285 970 3,654,000 --
Settlement of litigation (unaudited) -- -- 143,778 -- -- --
Net loss for the three months
ended March 31, 2000
(unaudited) -- -- -- -- -- (1,425,002)
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 2000
(unaudited) -- $ -- 25,982,948 $ 25,789 $ 13,884,257 $ (9,996,877)
============ ============ ============ ============ ============ ============
<CAPTION>
Total
------------
<S> <C>
Balance at
December 31, 1997 $ (1,483,274)
Net earnings for the year ended
December 31, 1998 1,824,161
Distributions (1,505,647)
------------
Balance at December 31, 1998 (1,164,760)
Reverse acquisition of
Interactive Technologies
Com Ltd. (80% interest) 18,000
Distributions (504,955)
Acquisition of Express Financial 1,661,786
Common stock issuances 2,000,000
Conversion of preferred stock --
Capitalization of debt 660,000
Stock issued for services 150,000
Net loss for the year ended
December 31, 1999 (1,136,870)
------------
Balance at December 31, 1999 1,683,201
Exercise of stock options (unaudited) 75,000
Common stock subscribed
(unaudited) (75,000)
Common stock issuances (unaudited) 3,654,970
Settlement of litigation (unaudited) --
Net loss for the three months
ended March 31, 2000
(unaudited) (1,425,002)
------------
Balance at March 31, 2000
(unaudited) $ 3,913,169
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------- --------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $ 1,824,161 $(1,136,870) $ 277,334 $(1,425,002)
Adjustments to reconcile net earnings (loss)
to net cash (used in) provided by operating
activities:
Depreciation 35,537 70,573 38,729 36,500
Stock issued for services -- 150,000 -- --
Amortization -- 24,217 -- 24,217
Unrealized (gains) loss on marketable
securities -- (81,952) -- 1,862
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Certificate of deposit -- (10,000) -- --
Marketable securities -- (10,000) -- --
Accounts receivable (8,611) (20,000) 8,611 (52,240)
Mortgage loans held for sale, net -- (534,134) -- 55,640
Shareholder advances -- -- -- (908,930)
Commission receivable -- (6,633) -- (46,018)
Prepaid expenses and other current
assets -- (85,741) (815) (136,756)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses 84,658 462,319 153 (207,535)
Deferred revenue (195,880) (356,872) (166,087) (210,742)
----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities 1,739,865 (1,535,093) 157,925 (2,869,304)
Cash from investing activities:
Purchase of furniture, fixtures and equipment (52,049) (302,131) -- (93,079)
Cash from business acquired -- 179,618 -- --
----------- ----------- ----------- -----------
Net cash used in investing activities (52,049) (122,513) -- (93,079)
Cash from financing activities:
Net borrowings(repayment) under warehouse
finance facility -- 519,159 -- (79,468)
Borrowings under loan payable -- 47,083 -- --
Payments under loan payable -- -- -- (4,375)
Increase in related party loans (193,154) 10,717 17,450 15,233
Proceeds from sale of common stock -- 2,018,246 -- 3,654,970
Net contributions(distributions) to shareholder (1,505,647) (504,955) 168,474 --
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,698,801) 2,090,250 185,924 3,586,360
----------- ----------- ----------- -----------
Net change in cash and cash equivalents (10,985) 432,644 343,849 623,977
Cash and cash equivalents - beginning of year 30,425 19,440 19,440 452,084
----------- ----------- ----------- -----------
Cash and cash equivalents - end of year $ 19,440 $ 452,084 $ 363,289 $ 1,076,061
=========== =========== =========== ===========
</TABLE>
(continued)
F-7
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
-------------------------------- ----------------------------
1998 1999 1999 2000
-------------- -------------- -------------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid during the period $ -- $ 5,166 $ -- $ 1,292
============== ============== ============== ========
Taxes paid during the period $ -- $ -- $ -- $ --
============== ============== ============== ========
Noncash financing and investing activities Acquisition:
Fair value of assets acquired $ -- $ 259,424 $ -- $ --
============== ============== ============== ========
Liabilities assumed $ -- $ 50,951 $ -- $ --
============== ============== ============== ========
Cost in excess of net assets acquired $ -- $ 1,453,067 $ -- $ --
============== ============== ============== ========
Other:
Capitalization of debt $ -- $ 660,000 $ 660,000 $ --
============== ============== ============== ========
Conversion of preferred stock $ -- $ 5,751,191 $ 5,751,191 $ --
============== ============== ============== ========
Equipment under capital lease $ -- $ -- $ -- $228,461
============== ============== ============== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE A - NATURE OF BUSINESS
Interactive Technologies.Com, Ltd. (the Company) offers Internet
business-to-business and business-to-consumer products and services directly
through web portals that it and its subsidiaries develop and operate for the
Company's own use, and also through "private labeled" web portals that it and
its subsidiaries develop and operate for other businesses and organizations. The
Company's subsidiaries, and the business which each of them conducts, are, as
follows:
A. JoinUsOnline.com, Inc., f/k/a Ubuy.Com, Ltd. ("JUOL"), offers an
ever-expanding portfolio of benefits and services that provide
privileged access to goods and services to companies, businesses,
fund raising organizations, large associations, affinity groups,
their members and customers. Benefit and service programs offered
include home shopping, travel, automobile, dining, health, discount
coupon investment, and other lifestyle enhancement programs. JUOL
packages the benefits and services provided principally by third
party providers. An employee or member of any of the companies or
organizations with whom JoinUsOnline has agreements can obtain the
various benefits, goods and services offered by JoinUsOnline either
by entering his user name and password at JoinUsOnline's web site
located at www.joinusonline.com, or by clicking on the JoinUsOnline
button located at his organization's web site.
B. United Interactive Technologies, Inc. ("UIT") provides a wide range
of Internet services to the Company's subsidiaries and the companies
and organizations with whom it and its subsidiaries enter into
agreements. Such services include, web portal creation and
customization, web site development and hosting and the provision of
Internet access services.
C. Integrated Merchant Services, Inc. ("IMS") provides Visa and
MasterCard network credit card processing, check and debit card
processing as well as credit card gateway services for "brick and
mortar" and internet e-commerce businesses.
D. Web Classified.net, Inc. ("Web Classified") provides to businesses,
through its database driven Web site generation application, the
ability to quickly and inexpensively generate three-page Web sites
which are indexed at a Yellow Pages directory and registered with
the top five Internet search engines. Web Classified.net had minimal
operating activity in 1999.
E. Express Financial Corp. (Express) which was acquired by the Company
on September 30, 1999 (see Note D) is a licensed mortgage banker
that represents various lending institutions and is a licensed and
approved lender for federal programs including FHA, VA loans and
Title II loans. Express offers all types of residential and
commercial loans. Express maintains a virtual branch office on the
Worldwide Web at which customers can shop for and obtain mortgage
financing by completing an on-line mortgage loan application.
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Interactive
Technologies.Com, LTD., its 80% owned subsidiaries, JUOL, UIT, IMS and Web
Classified; and its wholly owned subsidiary Express. All significant
intercompany transactions and balances have been eliminated. Those periods
in which losses applicable to the minority interest in a subsidiary exceed
the minority interest in the equity capital of the subsidiary, such excess
and any further losses applicable to the minority interest is charged
against the majority interest. However, when future earnings do
materialize, the majority interest is credited to the extent of those
losses previously absorbed.
Basis of Presentation
On February 26, 1999, the Company acquired 80% of the outstanding common
stock of JUOL, UIT, IMS and Web Classified (acquired companies) which were
previously companies under common control. For accounting purposes the
acquisition has been treated as a recapitalization of the acquired
companies with the acquired companies as the acquirer (reverse
acquisition) (see Note D).
Interim Financial Information
The financial statements at March 31, 2000 and for the three months
periods ended March 31, 1999 and 2000 are unaudited and prepared on the
same basis as the audited financial statements included herein. In the
opinion of management, such interim financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the results for such periods. The results of operations for
the three months ended March 31, 1999 and 2000 are not necessarily
indicative of the results to be expected for the full year or any other
interim period.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, cash on deposit at
financial institutions, and all investments with an original maturity of
three months or less.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for
using the straight-line method over the following estimated useful lives
of the respective assets.
Leasehold improvements 10 yrs
Furniture and fixtures 5 yrs
Computer equipment 3 yrs
(continued)
F-10
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenues
The Company generates revenue in different ways through its subsidiaries
as follows:
A. JUOL packages a variety of program benefits from various service
providers for its clients. The revenue received will generally be
based upon the number and types of services which are included in
the program. The majority of JUOL's revenue is derived from monthly
fees paid by client entities based upon the number of participants.
JUOL received payment from its major customer 90 days in advance of
services provided through December 31, 1999 at which time the
deferral provision of the agreement terminated. The amount received
was deferred and recognized over a 90 day period. JUOL also defers
payments 30 days in advance of the services provided to other
customers which are recognized as services are rendered.
B. UIT generates revenue in the form of development fees, residual
hosting fees and site maintenance fees. Revenue is recognized when
services are performed.
C. IMS receives fees from Visa, MasterCard and check transactions
processed through equipment sold by IMS. These transaction fees are
based on a percentage of the value of purchases processed through
the equipment and are recorded when cash is wired directly to IMS by
a third party processing company. IMS also receives revenue from
application fees which is recognized when the application is
approved.
D. Express generates revenues through loan origination fees, loan
discount points and gain or loss on sale of loans. Loan origination
fees, net of related costs, and loan discount points are deferred
and recorded as an adjustment of the mortgage loans held for sale
portfolio balance and are recognized in the statement of operations
when the loans are sold. Gain or loss on loan sales are recognized
at the time the sale is consummated.
Mortgage Loans Held for Sale, Net
Mortgage loans held for sale are stated at the lower of aggregate cost or market
value. Market value is determined by current investor yield requirements on the
aggregate basis. No allowance for loan losses is generally provided for since
mortgage loans are not serviced by Express and are sold within 30 days of
origination.
(continued)
F-11
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Income Taxes
Income taxes on net earnings of certain subsidiaries of the Company were
payable personally by the stockholders thereof pursuant to elections under
Subchapter S of the Internal Revenue Code. The S Corporation status for
these subsidiaries was terminated during 1999, effective with their
acquisition of the Company. Accordingly, no provision for taxes has been
provided through the date of acquisition (see Note D).
Effective with the termination of the S Corporation status, the Company
provides for income taxes under the provisions of SFAS No. 109 "Accounting
for Income Taxes". SFAS No. 109 requires an asset and liability based
approach in accounting for income taxes. Deferred income taxes assets and
liabilities are recorded to reflect the tax consequences on future years
of temporary differences of revenue and expense items for financial
statement and income tax purposes. Valuation allowances are provided
against deferred tax assets which are not more likely than not to be
realized.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents is estimated to approximate
their carrying values. Cash and cash equivalents include: cash on hand,
cash on deposit at financial institutions and overnight repurchase
agreements with financial institutions.
The fair value of mortgage loans held for sale is based on the sale price
established with the investor prior to the origination of the loan.
Express obtains a commitment from the investor to purchase the loan prior
to originating the loan.
The fair value of warehouse finance facilities and notes payable are
estimated to approximate their carrying values, as their interest-bearing
rates and terms are considered to approximate current market
interest-bearing rates and terms available to Express for such debt at
December 31, 1999.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements,
as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(continued)
F-12
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Advertising Costs
Advertising costs are expensed as incurred and are included in selling
expenses. Total advertising costs for the years ended December 31, 1999
and 1998 totaled $283,136 and $1,128, respectively.
Earnings (Loss) Per Share
Basic net earnings (loss) per share equals net earnings divided by the
weighted average shares outstanding during the year. The computation of
diluted net earnings per share includes dilutive common stock equivalents
in the weighted average shares outstanding. The reconciliation between the
computations is as follows:
<TABLE>
<CAPTION>
Net earnings Basic Basic Diluted Diluted
(Loss) Shares EPS Shares EPS
--------------- -------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
1999 $ (1,136,870) 17,169,856 $ (.07) 17,169,856 $ (.07)
1998 $ 1,824,161 1,987,187 $ .92 5,118,234 $ .36
</TABLE>
Included in diluted shares in 1998 are common stock equivalents relating
to convertible preferred stock of 3,131,047 shares. Common stock
equivalents in 1999 and for the three months ended March 31, 2000 are not
included in the computation of dilution since their inclusion would be
anti-dilutive.
Goodwill
Goodwill resulting from the Express acquisition (see Note D), is being
amortized on a straight-line basis over a period of 15 years. Goodwill was
$1,453,067 and $ -0- at December 31, 1999 and 1998, respectively, and the
related accumulated amortization was $24,217 and $-0-, respectively.
On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company estimates the value and
future benefits of the net cash flows generated by the related
subsidiaries to determine that no impairment has occurred.
NOTE C - MARKETABLE SECURITIES
On January 25, 1999, the Company purchased 30,030 shares of Legal Club of
America Corporation, a publicly trading company. The Company records
trading securities at fair value, with net unrealized gains or losses
included in the determination of net income. Net unrealized gains on
trading securities of $81,952 is included in the net loss for 1999.
F-13
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE D - ACQUISITIONS
Reverse Acquisition
On February 26, 1999, the Company, which was at that time a public shell,
acquired 80% of JUOL, UIT, IMS and Web Classified (the Acquired Companies)
for 18,000,000 shares of INTR common stock. For accounting purposes the
acquisition has been treated as a capital transaction rather than a
business combination. The accounting is identical to that resulting from a
reverse acquisition except no goodwill is recorded and the Acquired
Companies become the acquirer. The historical financial statements prior
to February 26, 1999 are those of the Acquired Companies.
Express Financial Corp.
On September 30, 1999, the Company consummated its acquisition of Express
for 246,154 shares of the Company's common stock valued at $1,661,540. The
acquisition has been accounted for as a purchase and accordingly, the
acquired assets and liabilities have been recorded at their fair values at
the date of acquisition. The excess of the consideration paid over the
estimated fair value of the net assets acquired of $1,453,067 has been
allocated to goodwill and is being amortized on a straight-line basis over
15 years. The results of operations of Express are included in the
accompanying consolidated statement of operations from the date of
acquisition.
The following unaudited proforma summary presents the consolidated results
of operations of the Company as if the acquisition had occurred at the
beginning of the 1998 and 1999 periods.
1998 1999
------------ -------------
Net sales $ 5,705,730 $ 5,162,906
Net (loss) earnings (1) 1,927,744 (1,588,656)
Earnings (loss) per share (1) .38 (.09)
(1) Includes amortization of goodwill of $96,871 for each year
presented.
F-14
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE E - INVESTMENT IN JOINT VENTURE
On August 12, 1999 the Company and two other investors entered into a
shareholder agreement to conduct a joint venture through TVI Marketing,
Inc. (TVI) a nonoperating Company incorporated by one of the investors.
The Company obtained a 40% interest in the joint venture. The Company will
provide products, services and benefits to be sold and marketed by TVI,
and will also provide operational and logistical support of TVI's
operations. One of the other investors will provide its expertise in the
multi-level marketing of products, services and benefits via television
and the internet. The third investor will contribute $1,000,000 payable in
installments through July 1, 2000 to be used to facilitate the business
plan. The Company accounts for this investment under the equity method.
The Company has no cost basis in its investment since no consideration was
paid for the Company's 40% interest, and TVI had a loss for the year ended
December 31, 1999.
During 1999, the Company advanced TVI $100,000 which is fully reserved for
at December 31, 1999.
NOTE F - REGISTRATION OF SECURITIES
The Company is contemplating the filing of a Registration Statement on
Form SB-2 in connection with the registration under the Securities Act of
1933 of the common stock it previously issued to an investor. Such
Registration Statement will not include any new shares to be sold for the
Company's account.
NOTE G - SHAREHOLDER ADVANCES
During the three month ended March 31, 2000, the Company advanced
available funds to the majority shareholder of the Company for personal
needs net of repayments of $708,930. In addition, the Company advanced
another shareholder $200,000 during the three months ended March 31, 2000.
All advances are due within one year and are not collateralized.
F-15
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE H - PROPERTY AND EQUIPMENT
Property and equipment consist of:
March 31,
1998 1999 2000
-------- -------- --------
(Unaudited)
Leasehold improvements $ -- $ 55,370 $217,727
Furniture and fixtures 12,952 232,118 352,659
Computer equipment 122,691 259,430 297,614
Vehicles -- 44,000 44,000
-------- -------- --------
135,643 590,918 912,002
Less accumulated depreciation 14,616 221,372 257,416
-------- -------- --------
$121,027 $369,546 $654,586
======== ======== ========
NOTE I - WAREHOUSE FINANCE FACILITIES
On June 4, 1999, Express entered into a $4,000,000 warehouse finance
facility from Impac Warehouse Lending Group ("Impac"). This facility bears
interest of 1.5% plus Prime (10% at December 31, 1999). Express obtains
advances from Impac on an individual loan basis. At December 31, 1999,
Express had outstanding warehouse finance facility advances from Impac of
$1,666,092 which was collateralized by mortgage loans held for sale having
an aggregate carrying value of approximately $1,703,800. Express repays
warehouse advances upon the sale of warehoused loans to third parties.
Additionally, Express had a $2,000,000 revolving warehouse line of credit
with a commercial bank which expired in May of 1999 and was not renewed by
Express.
NOTE J - INCOME TAXES
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which requires the Company to recognize deferred tax assets and
liabilities for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.
(continued)
F-16
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE J - INCOME TAXES - Continued
At December 31, 1999, the Company did not record any tax provision
(benefit). The tax provision (benefit) is different from that which would
be obtained by applying the statutory federal income tax rate to income
(loss) primarily because of the valuation allowance recorded against
deferred tax assets.
Significant components of the Company's deferred tax assets (liabilities)
at December 31, 1999, are as follows:
Net operating loss carryforward $ 296,085
Depreciation (2,829)
Accrued expenses 38,296
-----------
Net deferred tax asset 331,552
Less: valuation allowance (331,552)
-----------
$ -
===========
Based on the Company's prior earnings and the amount of income that could
be utilized in carryback years, and the uncertainty of future taxable
income, a 100% valuation allowance has been established to reduce deferred
tax assets.
The federal and state net operating loss carryforward amounted to
approximately $787,000, and will expire in the year 2020.
NOTE K - DISTRIBUTIONS TO STOCKHOLDER
All of the payments made to, or on behalf of, the president during 1999
and 1998 are reflected as distributions of retained earnings in the
accompanying financial statements. The historical financial statements do
not reflect any compensation to the President, a controlling shareholder
of the Company (see Notes P and S for proforma information).
NOTE L - DUE TO STOCKHOLDER
Due to stockholder of $660,000 at December 31, 1998 represents amounts
owed to a former stockholder for past services of $360,000 and advances of
$300,000. In 1999, the $660,000 owed was capitalized into equity (see Note
N).
F-17
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE M - CAPITAL LEASE
During the first quarter ended March 31, 2000, the Company entered into
three five-year lease agreements for office furniture. The lease has been
classified as a capital lease since the lease contains a $1 bargain
purchase option.
The following is a schedule for the remaining nine months of 2000 and
years thereafter of future minimum lease payments under capital leases
together with the present value of the net minimum lease payments as of
March 31, 2000:
Nine months ended December 31, 2000 $ 59,442
Year ended December 31:
2001 67,004
2002 67,004
2003 67,004
2004 67,004
Thereafter 5,584
----------
Total minimum lease payments 333,042
Less: amount representing interest 104,581
----------
Present value of minimum lease payments 228,461
Current portion 30,203
----------
$ 198,258
==========
NOTE N - STOCKHOLDERS' EQUITY
Private Placement
In 1999, the Company completed an offering of 500,000 shares of common
stock at $2 per share. The shares were offered pursuant to Regulation D,
Rule 504 of the Securities Act of 1933. The Company sold all 500,000
shares raising $1,000,000. The proceeds from the offering were used for
working capital purposes.
(continued)
F-18
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE N - STOCKHOLDERS EQUITY - Continued
Other Issuance
On October 1, 1999, the Company entered into an agreement with an investor
to sell the investor 211,640 shares of common stock for $1,000,000. The
Company received proceeds in various increments through December 1999. The
proceeds are to be used for working capital purposes. At December 31, 1999
and as of March 31, 2000, the shares remain to be issued, but are
reflected as issued and outstanding for financial accounting purposes.
Settlement of Litigation
The Company was the subject of various counterclaims interposed in an
action in the Superior Court of the State of Connecticut entitled Empire
Capital Corporation (previous name of the Company) v. David Winstead, et
al. The action involved claims made by the Company against Mr. Winstead
and others for, among other things, misappropriation of corporate assets.
Mr. Winstead filed various counterclaims against the Company, its former
Chief Executive Officer and his spouse, for wrongful cancellation of
common stock which according to Mr. Winstead, had been validly and
properly issued to him as fully paid and non-assessable shares. In March
2000, the action was settled pursuant to an agreement among all the
parties which provided, among other things, for the parties exchange of
releases, the re-issuance of 143,778 shares of common stock to Mr.
Winstead and the delivery to Mr. Winstead of 4,168 shares of common stock
that had been held by the Company's counsel pending the outcome of the
proceedings.
Conversion of Preferred Stock
At December 31, 1998, the Company had 2,936,541 shares outstanding
(including 661,321 of preferred shares issued in lieu of accumulated
dividends) of 7% Cumulative Preferred Stock valued at $5,751,191.
During 1999, the preferred stockholders of the Company's 7% Cumulative
Preferred Stock, converted all its Preferred Stock into 3,131,047 shares
of the Company's common stock.
Capitalization of Debt
In 1999, the Company capitalized debt due to a former stockholder (see
Note L) of $660,000 into 642,857 shares of common stock.
F-19
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE O - SIGNIFICANT CONCENTRATION
In 1999, one of the Company's customers was responsible for 40% of the
Company's revenues. In 1998, two customers accounted for 67% of the
Company's revenues. The Company has a contract with each major customer
which if not cancelled, automatically renews.
NOTE P - COMMITMENT AND CONTINGENCIES
Lease
The Company has entered into various noncancellable operating lease
agreements for office space and equipment that expire at various dates
through January 1, 2009.
Future minimum payments under these noncancellable operating leases are as
follows:
2000 $ 392,135
2001 404,105
2002 347,850
2003 337,979
2004 319,833
Thereafter 1,309,768
------------
$ 3,111,670
============
Rent expense for the year ended December 31, 1999 and 1998 totaled
$115,376 and $40,034, respectively.
Employment Agreement
During 1999, the Company entered into employment agreements with certain
employees of the Company with a 5 year term. The agreements call for
annual base compensation ranging from $62,400 to $156,000. One of the
employees monthly salary will increase by $1,000 for each $100,000 of TVI
sales in excess of $500,000 per month. The annual salary, however, is
capped at $150,000 per annum. If the employees are terminated for cause or
if the employee voluntarily terminates his employment by the Company, the
Company is required to pay within 5 days after the date of termination the
employees base compensation and unused vacation.
Effective January 1, 2000, the Company entered into an employment
agreement with its President for a five year term and an annual base
salary of $250,000. If the President is terminated for cause, or if the
President voluntarily terminates his employment by the Company, the
Company is required to pay within 5 days after the date of termination the
employees base compensation and unused vacation.
F-20
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE Q - RELATED PARTY TRANSACTIONS
The Company coordinates it travel arrangements through a company owned by
the majority stockholder. Total amounts paid to this company for travel
expenditures during 1999 and 1998, was $45,618 and $18,805, respectively.
Customer contacts of the consolidated group of companies are used by the
Parent and its subsidiaries to offer their services to these customers. No
fees are paid among the companies for the use of the customer list.
NOTE R - LONG-TERM INCENTIVE PLAN
In 1999, the Company adopted a Long-Term Incentive Plan for the benefit of
employees of the Company and its subsidiaries. Under the plan, the Board
of Directors (through a committee) can award a Nonqualified Stock Option,
an Incentive Stock Option, a Stock Appreciation Right, or Restricted Stock
to key employees and other persons who contribute materially to the
success and profitability of the Company. The exercise price of each share
subject to an Incentive Stock Option shall not be less than the fair
market value of the stock on the Incentive Stock Option's date of grant.
Each Option Agreement shall specify the vesting schedule applicable to the
Option. The Committee, in its sole and absolute discretion, may accelerate
the vesting of any Option at any time. The aggregate fair market value
(determined on grant date) with respect to which any Incentive Stock
Options may become exercisable by any individual for the first time in any
calendar year shall not exceed $ 100,000. The maximum aggregate number of
shares that may be subject to award under the plan is 5,000,000. During
1999 the Company granted 3,065,000 options at an exercise price of $1.50
which equaled the fair market value of the stock at the date of grant. The
options expire at various dates through February 26, 2004. There were no
options granted or outstanding at December 31, 1998.
Had compensation cost for the options issued to employees been determined
based on the fair value of the options at the grant dates consistent with
the method of SFAS 123, the Company's net loss and loss per share would
have been changed to the pro forma amounts indicated below.
(continued)
F-21
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE R - LONG-TERM INCENTIVE PLAN - Continued
Net loss
As reported $ (1,136,870)
Pro forma $ (1,875,462
Basic loss per share
As reported $ (.07)
Pro forma $ (.11)
The above pro forma disclosures may not be representative of the effects
on reported results of operations for future years as options vest over
several years and the Company may continue to grant options to employees.
The fair value of each option grant is estimated on the date of grant
using the binomial option-pricing model with the following
weighted-average assumptions used for grants in 1999: dividend yield of
0.0 percent; expected volatility of 101.68 percent, risk-free interest
rate of 5.33 percent and expected holding period of up to 5 years.
A summary of the status of the Company's stock options as of December 31,
1999 and changes during the year then ended are as follows:
Weighted -
Average
Exercise
Shares Price
----------- ---------
Outstanding at beginning of year $
Granted 3,065,000 1.50
Exercised - -
Forfeited - -
----------- ---------
Outstanding at end of year 3,065,000 1.50
===========
Options exercisable at end of year 724,011
Weighted-average fair value of options
granted during the year $ 1.50
Weighted-average remaining contractual
Life 2.98
F-22
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE S - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information is unaudited and reflects the
operations of the Company as if the employment agreement with the
President described in Note P had been entered into at the beginning of
the periods presented and as if the Company's subsidiaries had not been S
Corporations for federal income tax purposes.
Pro forma provision for income taxes differs from the amount of pro forma
income tax determined by applying the applicable federal statutory rates
primarily because of the effect of state income taxes.
NOTE T - SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in 1998 which changes the way the
Company reports information about its operating segments. The Company is
organized into four main business units: On-line Benefit and Services,
Website Design and Hosting, Credit Card Processing Services and Mortgage
Brokerage (see Note A).
The accounting policies of the reportable segments are the same as those
described in Note B to the Company's Consolidated Financial Statements.
The Company evaluates the performance of its operating segments based upon
income before income taxes and non-recurring and extraordinary items.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. Corporate related items, results
of insignificant operations and, as it relates to segment profit (loss),
and income and expense not allocated to reportable segments are included
in the reconciliations to consolidated results.
(continued)
F-23
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE T - SEGMENT INFORMATION - Continued
Segment information for the years 1998 and 1999 and for the three months
ended March 31, 1999 and 2000 was as follows:
<TABLE>
<CAPTION>
On-line Website Credit Card
Benefits and Design and Processing Mortgage
Services Hosting Services Brokerage Total
------------ ---------- ----------- --------- -----
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 3,274,055 $ 84,259 $ 465,474 $ -- $ 3,823,788
Operating (loss) earnings 2,178,675 (366,367) 11,853 -- 1,824,161
Depreciation and
amortization 23,590 9,190 2,757 -- 35,537
Total assets 41,611 106,491 975 -- 149,078
Capital expenditures 10,245 38,947 2,857 -- 52,049
1999
Net sales 2,011,257 287,838 334,718 829,352 3,463,165
Operating (loss) earnings 119,268 (576,813) (124,086) 38,790 (542,841)
Interest expense -- -- -- 5,166 5,166
Depreciation and
amortization 9,397 48,533 -- 10,641 68,571
Total assets 94,408 224,317 92 3,535,475 3,854,292
Capital expenditures 36,460 94,396 -- 21,206 152,062
Three Months ended
March 31, 1999
(unaudited)
Net sales 758,165 112,719 83,988 -- 954,871
Operating (loss) earnings 386,776 (84,735) (5,259) -- 296,782
Total assets 28,043 61,298 1,709 -- 91,050
Three Months ended
March 31, 2000
(unaudited)
Net sales 918,245 22,862 70,015 595,142 1,606,264
Operating (loss) earnings 318,992 (495,234) (248,443) (208,688) (633,373)
Total assets 71,293 238,185 5,459 3,548,068 3,863,005
</TABLE>
(continued)
F-24
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE T - SEGMENT INFORMATION - Continued
Reconciliation to consolidated amounts:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1999 1999 2000
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Total revenues for reportable segments $ 3,823,788 $ 3,463,165 $ 954,871 $ 1,606,264
Other revenues -- 450 -- 13,249
Eliminations of intersegment revenues -- (152,090) (37,523) (600,000)
----------- ----------- ----------- -----------
Total consolidated revenues $ 3,823,788 $ 3,311,525 $ 917,348 $ 1,019,513
=========== =========== =========== ===========
Operating earnings
Total earnings for reportable segments $ 1,824,161 $ (542,841) $ 296,782 $ (633,373)
Parent company loss -- (594,029) (19,448) (769,737)
Other -- -- -- (21,892)
----------- ----------- ----------- -----------
Consolidated operating (loss) earnings $ 1,824,161 $(1,136,870) $ 277,334 $(1,425,002)
=========== =========== =========== ===========
Assets
Total assets for reportable segments $ 149,078 $ 3,854,292 $ -- $ 3,863,005
Parent company assets -- 209,637 -- 1,913,630
Parent company - fixed assets -- 150,069 -- 399,509
Other -- -- -- 9,096
----------- ----------- ----------- -----------
Total consolidated assets $ 149,078 $ 4,213,998 $ -- $ 6,185,240
=========== =========== =========== ===========
</TABLE>
NOTE U - SUBSEQUENT EVENTS
Stock Issuance
On February 3, 2000, the Company entered into a common stock purchase
agreement with an investor whereby the Company issued 970,285 shares to
the investor for $4,000,000 (the number of shares were based on 85% of the
average closing bid price for five consecutive business days prior to
February 3, 2000, $4.12). Under the terms of the agreement, the shares are
subject to repricing during four separate repricing periods. The first
repricing takes place 90 days after the closing date (February 3, 2000) or
on the effective date (the date the Securities and Exchange Commission
(SEC) declares effective the registration statement covering the shares
issued under this agreement) and end 30 days after the later date. If
during this time the average closing bid price for any five business days
(not necessarily consecutive) is not equal to or greater than 117% of the
initial Closing Bid Price, then the investor may request that up to
one-third of the initial shares (323,428 shares) be repriced. The Company
may elect to issue additional shares or pay the investor as determined by
applying two separate formulas.
(continued)
F-25
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE U - SUBSEQUENT EVENTS - CONTINUED
Stock Issuance - Continued
The second and third repricing periods commence immediately following the
first and second repricing periods, respectively and end 30 days
thereafter. The repricing percentage and formulas in the first repricing
are the same for the second and third repricing period. The final
repricing period commences immediately following the third repricing
period and ends 180 days thereafter. If during this time the average
closing bid for any five consecutive business days after the commencement
of the final repricing period is not equal to or greater than 117% of the
initial closing price, the investor may request repricing of up to 50% of
the initial shares (not previously repriced). The Company may elect to
issue additional shares or pay the investors as determined by applying two
separate formulas.
The investor has committed to purchase up to $16,000,000 of additional
shares of the Company at a price equal to 90% of the two lowest closing
bid prices of the common stock (not necessarily consecutive) for the 10
trading days prior to the giving of notice by the Company of its election
to enter into an additional funding transaction with the investor. This
commitment is for 18 months following the effective date of the
registration statement.
The Company under the terms of the agreement has the right to redeem that
portion of the initial shares held by the investor for which a relevant
repricing period, other than the final repricing period, has not commenced
by payment of cash for an amount equal to the "Applicable Percentage"
multiplied by the initial closing price ($4.12) of the initial shares
being redeemed. The applicable percentages range from 115% to 130%
depending on the redemption date through 181 days after the closing date
and the conclusion of the final reporting period.
The Company was required to file a Registration Statement with the SEC to
register the shares issued under this agreement within 30 days following
the initial closing date (February 3, 2000), but did not do so. The
Company was also required to have the Registration Statement declared
effective by the SEC no later than 90 days from the initial closing date,
but that requirement was not satisfied. By reason of the fact that the
Registration Statement was not filed with or declared effective by the SEC
within the allotted time periods, the Company may be required, if the
investor so elects, to pay 2% of the purchase price of the initial shares
(2% of $4,000,000) for each 30 day period commencing on or about May 3,
2000 and ending on the respective dates when such filing is made, and such
effectiveness is declared.
The Company under the terms of the agreement issued to the investor a
warrant to purchase 164,948 shares of common stock at an exercise price of
$5.82 per share. The warrant expires on February 2, 2004.
(continued)
F-26
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE U - SUBSEQUENT EVENTS - Continued
Authorized Shares
On January 4, 2000, the Board of Directors approved an increase in the
Company's authorized shares from 25,000,000 to 50,000,000. The 50,000,000
shares consist of 40,000,000 shares of common stock, par value $.001 and
10,000,000 shares of preferred stock, par value $.001.
NOTE V - SUBSEQUENT EVENT - ACQUISITION
On April 26, 2000, the Company acquired 800,000 shares (80%) of the
outstanding stock of GKB Software, Inc. (GKB) for 2,400,240 shares of
common stock valued at $9,600,000. In addition, the agreement calls for
contingent shares to be issued at the one year anniversary of the closing
if the market price of the Company's stock is below $5.00. Under the terms
of the agreement the Company will contribute to GKB $1,000,000 in exchange
for 100,000 Class A Preferred Shares of GKB. The Class A Preferred Shares
consist of 100,000 authorized shares and are non-voting, non-cumulative
and non-redeemable, but provide for a liquidation preference equal to the
par value of $10.00. The $1,000,000 will be paid in installments of
$25,000 by April 30, 2000, $50,000 before May 31, 2000 (which has not been
paid) and the balance of $925,000 in equal installments over 10 months.
The preferred shares will be issued in proportion to the installments
paid. GKB Software, Inc. developed and sells a point-of-sale software for
the fast food industry. GKB was 40% owned by the brother of the Chief
Executive Officer of the Company. The acquisition will be accounted for as
a purchase and accordingly, the acquired assets and liabilities will be
recorded at their fair values at the date of acquisition. The excess
consideration paid over the estimated fair value of the net assets
acquired of $9,579,913 has been allocated to goodwill and is being
amortized on a straight-line basis over 5 years.
(continued)
F-27
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE V - SUBSEQUENT EVENT - ACQUISITION - Continued
The following unaudited pro forma summary presents the consolidated
balance sheet at December 31, 1999, the consolidated results of operations
of the Company for the year end December 31, 1999 as if the acquisition
had occurred at the beginning of 1999, and the consolidated results of
operations for the three months ended March 31, 2000.
PRO FORMA BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<CAPTION>
Interactive
Technologies.com GKB Pro Forma Pro Forma
Ltd. Software Adjustments Sheet
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 452,084 $ 255 $ -- $ 452,339
Mortgage loans held for sale, net 1,686,347 -- -- 1,686,347
Accounts and other receivable 74,506 50 -- 74,556
Marketable securities 101,952 -- -- 101,952
Other current assets 81,346 -- -- 81,346
Property and equipment, net 369,546 6,547 -- 376,120
Goodwill, net 1,428,850 -- 7,663,930(1) 9,092,780
Other assets 19,367 -- -- 19,367
----------- ----------- ----------- -----------
Total assets $ 4,213,998 $ 6,879 $ 7,663,930 $11,884,807
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse finance facility $ 1,666,092 $ -- $ -- $ 1,666,092
Accounts payable and accruals 573,137 6,673 -- 579,810
Loans 57,800 13,311 -- 71,111
Deferred revenue 233,768 -- -- 233,768
----------- ----------- ----------- -----------
Total liabilities 2,530,797 19,984 -- 2,550,781
----------- ----------- ----------- -----------
Stockholders' equity 1,683,201 (13,105) 7,663,930 9,334,026
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity $ 4,213,998 $ 6,879 $ 7,663,930 $11,884,807
=========== =========== =========== ===========
</TABLE>
(1) Goodwill net of amortization of $1,915,983
(continued)
F-28
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE V - SUBSEQUENT EVENT - ACQUISITION - Continued
PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Interactive Pro Forma
Technologies.com GKB Pro Forma Statement of
Ltd. Software Adjustments Operations
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales and service $ 2,482,173 $ 57,068 $ -- $ 2,539,241
Loan fees 829,352 -- -- 829,352
----------- ----------- ----------- -----------
3,311,525 57,068 -- 3,368,593
Cost and expenses
Cost of sales 338,264 47,942 -- 386,206
Selling, general and administrative 4,198,110 14,477 1,915,983(1) 6,128,570
----------- ----------- ----------- -----------
4,536,374 62,419 1,915,983 6,514,776
Other income 87,979 2,198 -- 90,177
Loss before provision for income
taxes (1,136,870) (3,153) (1,915,983) (3,056,006)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(1,136,870) $ (3,153) $(1,195,983) $(3,056,006)
=========== =========== =========== ===========
</TABLE>
(1) Amortization of goodwill over five years
(continued)
F-29
<PAGE>
Interactive Technologies.Com, LTD. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Two Years Ended December 31, 1999 and for the
Three Months Ended March 31, 1999 and 2000
(Information Relating to the Three Months Ended
March 31, 1999 and 2000 is Unaudited)
NOTE V - SUBSEQUENT EVENT - ACQUISITION - Continued
PRO FORMA STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
<TABLE>
<CAPTION>
Interactive Pro Forma
Technologies.com GKB Pro Forma Statement of
Ltd. Software Adjustments Operations
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Sales and service $ 424,371 $ 7,341 $ -- $ 431,712
Loan fees 595,142 -- -- 595,142
----------- ----------- ----------- -----------
1,019,513 7,341 -- 1,026,854
Cost and expenses
Cost of sales 64,822 4,551 -- 693,373
Selling, general and
administrative costs 2,380,491 7,445 478,996(1) 2,866,932
----------- ----------- ----------- -----------
2,445,313 11,996 478,996 2,936,305
Other income 798 -- -- 798
Loss before provision for income
taxes (1,425,002) (4,655) (478,996) (1,908,653)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net loss $(1,425,002) $ (4,655) $ (478,996) $(1,908,653)
=========== =========== =========== ===========
</TABLE>
(1) Amortization of goodwill over five years
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Pursuant to the company's certificate of incorporation, the personal liability
of a director or officer of the company to the company or a shareholder for
monetary damages for breach of a fiduciary duty is limited to situations in
which a director's or officer's acts or omissions involve intentional
misconduct, fraud or knowing violations of law.
The company's certificate of incorporation and bylaws provide for the
indemnification of directors and officers of the company to the maximum extent
permitted by law. The bylaws provide generally for indemnification as to all
expenses incurred or imposed upon them as a result of actions, suits or
proceedings if they act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of the company. These documents,
among other things, indemnify the company's employees, officers and directors
for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the company, on account of services
as any employee, officer or director of the company or as an employee, officer
or director of any affiliate of the company. The company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the company as to which indemnification is being
sought, and the company is not aware of any pending or threatened litigation
that may result in claims for indemnification by any director, officer, employee
or other agent.
The company has purchased directors and officers liability insurance to defend
and indemnify directors and officers who are subject to claims made against them
for their actions and omissions as directors and officers of the company. the
insurance policy provides standard directors and officers liability insurance in
the amount of $3,000,000.
Item 25. Other Expenses of Issuance and Distribution
Description Amount
----------- ------
Registration Fee $1,173
NASD Filing Fee NA
Legal Fees and Expenses (including Blue Sky) *
Accounting Fees and Expenses *
Transfer Agent Fees and Expenses *
Printing Expenses *
Miscellaneous *
------
$*.(1)
======
----------
* To be included by amendment.
II-1
<PAGE>
(1) While all shares registered for sale are being sold by selling stockholder,
all expenses of issuance and distribution are being paid by registrant per
contractual agreements.
Item 26. Recent Sales of Unregistered Securities
Between February 26, 1999 and the date of filing of this Registration
Statement, the Company sold the unregistered securities listed below:
On April 15, 1999, the Company issued 500,000 shares of Common Stock to
the investors identified below at a price of $2.00 per share in connection with
the closing of a private placement made pursuant to the exemption from
registration accorded under Rule 504 of Regulation D.
On April 21, 1999, the Company issued 1,178,572 shares of Common Stock to
Alan Brooks, the Chairman of the Board, and a controlling shareholder of the
Company prior to the February 26, 1999 Reverse Acquisition. Such shares were
issued, pursuant to action taken by the Company's Board of Directors on February
10, 1999, for a total consideration of $1,023,654 owed by the Company to Mr.
Brooks, as follows: (a) accrued but unpaid salary in the amount of $476,250; (b)
reimbursement for expenses incurred and advances made on behalf of the Company
in the aggregate amount of $547,404; and (c) redemption of preferred stock of
the Company acquired by Mr. Brooks at an aggregate price of $300,000. The
issuance of such Common Stock was made pursuant to the exemption from
registration accorded under Section 4(2) of the Securities Act.
On April 28, 1999, the Company issued 18,000,000 shares of Common Stock to
William R. Becker, the Chairman of the Board, Chief Executive Officer and a
controlling shareholder of the Company. Such shares were issued at the closing
of the Reverse Acquisition in consideration for Mr. Becker's contribution of 80%
of the issued and outstanding shares of the common stock of JoinUsOnline, United
Interactive, IMS and Web Classified to the Company. The issuance of such Common
Stock was made pursuant to the exemption from registration accorded under
Section 4(2) of the Securities Act.
Between February 1999 and August 1999, the investors identified below,
exchanged 2,120,000 shares of the Company's 7% Cumulative Convertible Preferred
Stock which had been issued in or about 1994, and an additional 548,584 shares
of such stock issued in lieu of accumulated dividends), for 2,668,584 shares of
Common Stock in a transaction for which no commission or other remuneration was
paid or given directly or indirectly for soliciting such exchange. The
conversion price, which was tied to the market price of the Common Stock on and
immediately prior to the conversion date, ranged between $.56 and $12.18 per
share. The issuance of such Common Stock was made pursuant to the exemption from
registration accorded under Section 3(a)(9) of the Securities Act.
II-2
<PAGE>
Number of Shares of
Preferred Stock Converted
<TABLE>
<CAPTION>
Original Dividend Number of Shares of
Name of Investor Shares Shares Common Stock Issued
---------------- ------ ------ -------------------
<S> <C> <C> <C>
Aircraft Investment
Services, Inc 70,000 66,963 316,963
Asselone, Kimberly 5,000 220 1,042
Brogan, Glenn 20,000 880 4,168
Casatelli, Dr. Bruno 10,000 440 2,084
Collins, Barbara M. 20,000 880 4,168
Collins, Robert E. 10,000 440 2,084
Collins, Gordon & Johnson
PC Pension Trust 90,000 3,523 18,759
Compton, James E. and
Rebecca, JTWROS 5,000 220 1,042
Crink, James W. and
Brenda, JTWROS 5,000 220 1,042
DeCarli, James J. 10,000 440 2,084
Dellin, Edward J. 5,000 220 1,042
DeVico, Angelo 2,500 110 521
Dinkin, Les & Marcy J, JTWROS 10,000 440 2,084
Dubraski, Jr., John M. 20,000 880 4,168
Duffy, L. Robert 10,000 440 2,084
Duffy, L. Robert and Virginia,
JTWROS 10,000 440 2,084
Duffy, L. Robert IRA 10,000 440 2,084
Dzaluk, Joseph Francis Living
Trust Dtd 8/25/93 10,000 440 2,084
Epstein, Jeffrey 5,000 220 1,042
Falcha, James 3,333 146 694
Falcha, Laura 3,333 147 694
Falcha, Robert 3,334 147 694
Fox, James L. IRA Rollover 10,000 440 2.084
Gallagher, William H. & Hyland,
Michael G, Ten in Com 10,000 440 2,084
Gallagher, William H. & Ann
H., JTWROS 15,000 660 3,101
Gallagher, William H. &
Caroline H., JTWROS 5,000 220 1,042
Healy, Esther 10,000 440 2,084
Healy, Thomas B. Family Trust 10,000 440 2,084
Healy, Thomas B. Marital Trust 10,000 440 2,084
Howard, Alexander & Allan,
JTWROS 2,500 110 521
Ignatowicz, Wieslaw B., Dr. Profit
Sharing Plan 10,000 440 2,084
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Ignatowicz, Wieslaw B., Dr. 10,000 440 2,084
Lacasse, Jean-Paul 10,000 440 2,084
Larizza, Louis J. Trust 10,000 440 2,084
Larizza, Louis J. 10,000 440 2,084
Levinson, Leonard 5,000 220 1,042
Lyons, Ellen 70,000 3,080 13,175
Macri, Rocco F. & Barbara C.,
JTWROS 5,000 220 1,042
Mayer, Charles D. Trust
Dtd 3/21/95 10,000 440 2,084
McGeory, G. Holmes & William J.
Giacomo Ten in Com 5,000 220 1,042
Milbier, Donald J. Custodian
for Kyle Milbier UGMA 5,000 220 1,042
Milbier, Donald J. Custodian
for Matthew Milbier UGMA 5,000 220 1,042
Milbier, Donald J. Custodian
for Kathleen Milbier 5,000 220 1,042
Milbier, Donald J. Custodian
for Brenna Milbier 5,000 220 1,042
Milbier, Mary 5,000 220 1,042
Morin, Raymond N. & Bonnie C.,
JTWROS 10,000 440 2,084
Morrell, John D. 10,000 440 2,084
Mulligan, William O. 10,000 440 2,084
Okon, Joseph J. Retirement Trust 50,000 2,200 10,422
Palumbo, Edward Arthur 20,000 880 4,168
Parry, Catherine King 10,000 440 2,084
Picone, Salvadore & Susan,
JTWROS 5,000 220 1,042
Reuben, Mark 10,000 440 2,084
Romanello, Daniel 5,000 220 1,042
Rosenbaum, Henry & Judith,
JTWROS 5,000 220 1,042
Rosenbaum, Jesse & Lydia,
JTWROS 5,000 220 1,042
Scher, Craig 5,000 220 1,042
Schultz, Kimberly 20,000 880 4,168
Skinner, Mark 10,000 440 2,084
Trager, Michael 5,000 220 1,042
Trager, Michael fbo Kevy
Trager Profit Sharing Plan 5,000 220 1,042
Tripodi, Louis 10,000 440 2,084
Ullman, Allan 5,000 220 1,042
Von Arx, Dolph W. Trust
Dtd. 8/18/88 30,000 1,320 6,253
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
Weissenborn, Stanton F. 10,000 440 2,084
Winjum, Scott 20,000 880 4,168
Winstead, David V. 20,000 880 4,168
Yale Asset Management, Inc. 1,250,000 446,418 2,113,083
Zeier, Doris M. Revocable Trust 10,000 440 2,084
--------- ------- ---------
2,120,000 548,584 2,668,584
========= ======= =========
</TABLE>
On February 3, 2000, the Registrant issued 970,285 shares of common stock
to Young, LLC in consideration of that investor's payment of $4,000,000. The
transaction was consummated as a private placement with an "accredited investor"
which was exempt from registration under the Securities Act pursuant to Rule 506
of Regulation D.
On April 26, 2000, the Registrant issued 960,096 shares of common stock to
each of Keith Becker and Gerard Kreischer, and 480,048 shares of common stock to
American Capital Ventures, Inc. in connection with Registrant's acquisition of
80% of the issued and outstanding shares of the common stock of GKB Software,
Inc. from those individuals. The issuance of such Common Stock was made pursuant
to the exemption from registration accorded under Section 4(2) of the Securities
Act.
Item 27. Exhibits
Exhibit
Number Description
------ -----------
2.1 Certificate of Incorporation, as Amended
2.2 By-laws
4.1 Specimen stock certificate of common stock
4.2 1999 Stock Option Plan (the "Plan")
4.3 Form of Option issuable under the Plan.
4.4 Common Stock Purchase Agreement dated February 3, 2000 between the
Company and Young LLC
4.5 Letter Agreement dated February 3, 2000 between the Company and
Young LLC
4.6 Registration Rights Agreement dated February 3, 2000 between the
Company and Young LLC
4.7 Warrant dated February 3, 2000 issued by the Company to Young LLC
II-5
<PAGE>
4.8 Warrant dated February 3, 2000 issued by the Company to Ladenburg
Thalmann & Co., Inc.
4.9 Stock Purchase Option dated June 7, 2000 issued by the Company to
Boru Enterprises, Inc.
10.1 Employment agreement between the Company and William R. Becker
10.2 Employment agreement between the Company and Matthew Cohen
10.3 Delray Lease
10.4 Coral Springs Lease
10.5 Lease dated the 28th day of October 1991 between Mass Mutual Life
Insurance Co. and Express Financial Corporation
10.6 Office Service Agreement made May 27, 2000 between Vantas Long
Island, LLC and GKB Software, Inc.
10.7 Standard Form of JoinUsOnline.com Benefit and Service Portal
Agreement
10.8 Standard Form of JoinUsOnline Benefit and Service Agreement
10.9 ISO Services and marketing Agreement made as of the 29th day of
February 2000 between EFS National Bank and Integrated Merchant
Services, Inc.
10.10 Member Service Provider Credit Card Processing Agreement dated the
28th day of January 2000 among Nova Information Systems, Inc.,
Imperial Bank and Integrated Merchant Services, Inc.
10.11 Agreement dated January 27, 2000 between the Company and Boru
Enterprises, Inc.
10.12 Agreement dated June 7, 2000 between the Company and Boru
Enterprises, Inc.
21 The Company's Subsidiaries
23.1 Consent of Robert Jarkow, CPA
23.2 Consent of Grant Thornton LLP
23.3 Consent of Hall Dickler Kent Goldstein & Wood
24 Power of Attorney (see page II-8)
27.1 Financial Data Schedule
II-6
<PAGE>
27.2 Financial Data Schedule
Item 28. Undertakings
(a) Rule 415 Offering. Registrant will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statements to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the end of the offering.
(e) Request for acceleration of effective date. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of competent jurisdiction
the question whether such indemnification
II-7
<PAGE>
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Delray Beach, State of Florida, on August 7, 2000.
Interactive Technologies.Com, Ltd.
By: /s/ William R. Becker
------------------------------------
William R. Becker, Chief (Principal)
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears appoints each of William R. Becker and
Matthew J. Cohen, his agent and attorney-in-fact, with full power of
substitution to execute for him and in his name, in any and all capacities, all
amendments (including post-effective amendments) to the Registration Statement
to which this power of attorney is attached.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ William R. Becker Chief (Principal) Executive August 7, 2000
----------------------------- Officer, Director
William R. Becker
/s/ Matthew J. Cohen Chief (Principal) Financial August 7, 2000
----------------------------- Officer, Director
Matthew J. Cohen
/s/ Peter Tamayo Director August 7, 2000
-----------------------------
Peter Tamayo, Jr.
/s/ Lawrence J. Brady Director August 7, 2000
-----------------------------
Lawrence J. Brady
/s/ Charles R. McCarthy Director August 7, 2000
-----------------------------
Charles R. McCarthy, Jr.
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
------ ----------- ----
2.1 Certificate of Incorporation, as Amended
2.2 By-laws
4.1 Specimen stock certificate of common stock
4.2 1999 Stock Option Plan (the "Plan")
4.3 Form of Option issuable under the Plan.
4.4 Common Stock Purchase Agreement dated February 3, 2000
between the Company and Young LLC
4.5 Letter Agreement dated February 3, 2000 between the
Company and Young LLC
4.6 Registration Rights Agreement dated February 3, 2000
between the Company and Young LLC
4.7 Warrant dated February 3, 2000 issued by the Company to
Young LLC
4.8 Warrant dated February 3, 2000 issued by the Company to
Ladenburg Thalmann & Co., Inc.
4.9 Stock Purchase Option dated June 7, 2000 issued by the
Company to Boru Enterprises, Inc.
10.1 Employment agreement between the Company and William R.
Becker
10.2 Employment agreement between the Company and Matthew
Cohen
10.3 Delray Lease
10.4 Coral Springs Lease
10.5 Lease dated the 28th day of October 1991 between Mass
Mutual Life Insurance Co. and Express Financial
Corporation
10.6 Office Service Agreement made May 27, 2000 between
Vantas Long Island, LLC and GKB Software, Inc.
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<PAGE>
10.7 Standard Form of JoinUsOnline.com Benefit and Service
Portal Agreement
10.8 Standard Form of JoinUsOnline Benefit and Service
Agreement
10.9 ISO Services and marketing Agreement made as of the
29th day of February 2000 between EFS National Bank
and Integrated Merchant Services, Inc.
10.10 Member Service Provider Credit Card Processing
Agreement dated the 28th day of January 2000 among
Nova Information Systems, Inc., Imperial Bank and
Integrated Merchant Services, Inc.
10.11 Agreement dated January 27, 2000 between the Company
and Boru Enterprises, Inc.
10.12 Agreement dated June 7, 2000 between the Company and
Boru Enterprises, Inc.
21 The Company's Subsidiaries
23.1 Consent of Robert Jarkow, CPA
23.2 Consent of Grant Thornton LLP
23.3 Consent of Hall Dickler Kent Goldstein & Wood
24 Power of Attorney (see page II-8)
27.1 Financial Data Schedule
27.2 Financial Data Schedule
II-11
