<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from __________to
Commission File Number 0-25114
IMAGINON, INC.
--------------
(Exact name of registrant as specified in its charter)
Delaware 84-1217733
-------- ----------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1313 Laurel Street, San Carlos, CA 94070
-----------------------------------------
(Address of principal executive offices) (Zip Code)
(650) 596-9300
--------------
(Registrants telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such report(s)
and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 44,682,650 common shares, par value
$.01 per share, outstanding at August 8, 2000.
Transitional Small Business Disclosure Format (Check One) YES ___ NO X
---
Page 1 of 26 total pages on this document.
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial statements:
Independent accountants' report 1
Condensed consolidated balance sheet - September 30, 2000 2
Condensed consolidated statements of operations -
three and nine months ended September 30, 2000 and 1999 3
Condensed consolidated statement of shareholders' equity -
nine months ended September 30, 2000 4
Condensed consolidated statements of cash flows -
nine months ended September 30, 2000 and 1999 5-6
Notes to condensed consolidated financial statements 7-14
Item 2. Management's discussion and analysis 15-21
PART II. OTHER INFORMATION
Item 1. Legal proceedings 22
Item 2. Changes in securities and use of proceeds 22
Item 3. Defaults upon senior securities 22
Item 4. Submission of matters to a vote of security holders 22
Item 5. Other Information 22
Item 6. Exhibits and reports on Form 8-K 23
Signatures 24
</TABLE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
Board of Directors
ImaginOn, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
ImaginOn, Inc. and subsidiaries as of September 30, 2000, the related condensed
consolidated statements of operations for the three-month and nine-month periods
then ended, and the condensed consolidated statements of shareholders' equity
and cash flows for the nine-month period then ended. These condensed
consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
November 7, 2000
1
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
ASSETS
------
Current assets:
Cash $ 410,259
Accounts receivable, less allowance for
doubtful accounts of $19,400 105,670
Inventories 32,295
Prepaid expenses and other 49,088
------------
Total current assets 597,312
------------
Furniture and equipment, net of accumulated
depreciation of $296,441 159,970
Intangible and other assets, net of accumulated
amortization of $1,257,258 1,441,787
------------
1,601,757
------------
$ 2,199,069
============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 625,034
Accrued expenses 810,447
Deposits and other 10,500
------------
Total liabilities (all current) 1,445,981
------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding
Common stock, $0.01 par value; 100,000,000 shares
authorized; 44,682,650 shares issued
and outstanding 446,826
Warrants and options 1,704,479
Capital in excess of par 14,918,863
Accumulated deficit (16,317,080)
------------
Total shareholders' equity 753,088
------------
$ 2,199,069
============
See notes to condensed consolidated financial statements.
2
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 167,058 $ 168,721 $ 383,603 $ 259,783
Cost of revenues 74,070 37,834 178,650 98,539
----------- ----------- ----------- -----------
Gross profit 92,988 130,887 204,953 161,244
----------- ----------- ----------- -----------
Operating expenses:
Research and development 412,564 206,906 990,555 818,581
Sales and marketing 758,268 719,999 2,594,788 2,076,463
General and administrative 863,008 884,562 2,968,571 2,173,001
----------- ----------- ----------- -----------
2,033,840 1,811,467 6,553,914 5,068,045
----------- ----------- ----------- -----------
Loss from operations (1,940,852) (1,680,580) (6,348,961) (4,906,801)
----------- ----------- ----------- -----------
Other income (expenses):
Interest expense (9,027) (10,515) (905)
Interest income 13,840 48,755 121,484 87,686
Other 48,814 (1,196) 49,614 (34,070)
----------- ----------- ----------- -----------
53,627 47,559 160,583 52,711
----------- ----------- ----------- -----------
Net loss (1,887,225) (1,633,021) (6,188,378) (4,854,090)
Series F preferred stock dividend (36,667)
Series F redemption premium (200,000)
Amortization of discount on preferred
stock (127,659) (1,209,929)
----------- ----------- ----------- -----------
Net loss applicable to common
shareholders $(1,887,225) $(1,760,680) $(6,425,045) $(6,064,019)
=========== =========== =========== ===========
Basic and diluted loss per
common share $ (.04) $ (.04) $ (.14) $ (.16)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 44,677,116 41,186,568 44,625,154 37,786,268
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Series F convertible
preferred stock Common stock
-------------------- ----------------------
Capital Total
Warrants in excess Accumulated shareholders'
Shares Amount Shares Amount and options of par deficit equity
------ ----------- ---------- ---------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 2000 2,000 $ 1,865,000 44,124,178 $ 441,241 $ 1,641,579 $14,485,996 $(10,128,702) $ 8,305,114
Issuance of common stock
and warrants, net of
issuance costs of $50,000 374,672 3,747 271,700 674,553 950,000
Redemption of Series F preferred
stock
(including cumulative
dividends of $194,000 and
redemption premium of
$200,000) (2,000) (1,865,000) (529,000) (2,394,000)
Exercise of stock options 147,100 1,471 (208,800) 215,530 8,201
Issuance of common stock to
employees 36,700 367 71,784 72,151
Net loss (6,188,378) (6,188,378)
------ ----------- ---------- ---------- ----------- ----------- ------------ -------------
Balances, September 30, 2000 - $ - 44,682,650 $ 446,826 $ 1,704,479 $14,918,863 $(16,317,080) $ 753,088
====== =========== ========== ========== =========== =========== ============ =============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(6,188,378) $(4,854,090)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 758,185 418,491
Provision for bad debts 17,000 6,000
Expense incurred upon issuance
of common stock 72,151 677,821
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Increase in accounts receivable (63,299) (127,257)
Increase in inventories (10,791) (35,183)
Decrease in prepaid expenses and other 544 (85,935)
Decrease in other assets 22,837
Increase in accounts payable 23,351 30,626
Increase in accrued expenses 372,968 50,999
Increase in deposits and other 10,500
----------- -----------
Total adjustments 1,203,446 935,562
----------- -----------
Net cash used in operating activities (4,984,932) (3,918,528)
----------- -----------
Cash flows from investing activities:
Cash paid on business acquisitions, net of
cash acquired (337,485)
Capital expenditures (128,704) (59,666)
----------- -----------
Net cash used in investing activities (128,704) (397,151)
----------- -----------
Cash flows from financing activities:
Dividends on Series F preferred stock (194,000)
Redemption of Series F preferred stock (2,200,000)
Proceeds from notes payable and advances 1,200,000 3,099,550
Payments on note payable (1,200,000)
Redemption of preferred stock and warrants (3,095,846)
Proceeds from collection of receivable from
sale of common stock 2,000,000
Proceeds from issuance of common stock and
warrants, net 958,201 7,666,584
----------- -----------
Net cash provided by financing activities 564,201 7,670,288
----------- -----------
</TABLE>
(Continued)
5
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net (decrease) increase in cash (4,549,435) 3,354,609
Cash, beginning 4,959,694 10,874
----------- -----------
Cash, ending $ 410,259 $ 3,365,483
=========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 6,926 $ -
=========== ===========
Cash paid for taxes $ - $ -
=========== ===========
Supplemental disclosure of non-cash investing and
financing activities:
Purchase of Network Specialists, Inc.,
Net of cash acquired:
Fair value of assets acquired $ 115,000
Intangible assets 1,600,000
Liabilities assumed (100,000)
Fair value of assets exchanged (1,402,000)
-----------
Cash paid, net of cash acquired $ 213,000
===========
Purchase of Imagine Digital Productions 1, Inc.,
net of cash acquired:
Fair value of assets acquired $ 27,000
Intangible assets 1,010,000
Liabilities assumed (45,000)
Fair value of assets exchanged (867,000)
-----------
Cash paid, net of cash acquired $ 125,000
===========
Conversion of warrants for shares of
common stock $ 885
===========
Common stock issued in connection with the merger
between the Company and ImaginOn.com, Inc. $ 4,699,121
===========
</TABLE>
See notes to condensed consolidated financial
statements.
6
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. Basis of presentation:
The condensed consolidated financial statements of ImaginOn, Inc. and
subsidiaries (the "Company") for the nine-month periods ended September 30,
2000 and September 30, 1999 have been prepared by the Company without audit
by the Company's independent auditors. In the opinion of the Company's
management, all adjustments necessary to present fairly the financial
position, results of operations, and cash flows of the Company as of
September 30, 2000, and for the three and nine- month periods ended
September 30, 2000 and 1999, have been made. Those adjustments consist only
of normal and recurring adjustments.
Certain information and note disclosures normally included in the Company's
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
December 31, 1999 Annual Report on Form 10-KSB, filed with the Securities
and Exchange Commission. The results of operations for the three and nine-
month periods ended September 30, 2000, are not necessarily indicative of
the operating results to be expected for the full year.
On January 20, 1999, the Company, formerly known as California Pro Sports,
Inc., completed a merger with Imaginon.com, Inc. ("ImaginOn.com") of San
Carlos, California, a privately held company formed in March 1996. At
closing, ImaginOn.com's shareholders received approximately 60% of the
outstanding post-merger common stock of the Company (20,206,115 shares) in
exchange for their ImaginOn.com common stock. The transaction was recorded
as an acquisition of ImaginOn, Inc. by ImaginOn.com and a recapitalization
of ImaginOn.com.
The accompanying condensed consolidated financial statements include the
accounts of ImaginOn, Inc. and its wholly-owned subsidiaries, including
INOW, since March 8, 1999, and ImaginOn Digital Productions, Inc., since
July 1, 1999 (Note 2). In July 2000, the Company formed a new wholly-owned
subsidiary, Wireless Web Data, Inc., to develop software for wireless Web
data servers that will allow cellular phone and portable computer device
users to interface with the Internet. Intercompany transactions have been
eliminated in consolidation.
7
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. Basis of presentation (continued):
Prior to the fourth quarter of 1999, the Company considered itself to be a
development stage company, and was engaged primarily in research and
development activities, raising capital, acquiring businesses, and
recruiting personnel. In the fourth quarter of 1999, the Company began
selling its broadband Internet television software system, which it
developed in conjunction with technologies and resources obtained in part
through its business acquisitions. The Company also completed a $6,000,000
private placement of its common stock and warrants. As a result of these
events, beginning in the fourth quarter of 1999, the Company no longer
considers itself to be a development stage company.
2. Business acquisitions and intangible assets:
On March 8, 1999, the Company acquired Network Specialists, Inc., a San
Francisco, California Internet service provider company, through its
subsidiary INOW, for cash of $213,000 (net of cash acquired) and 260,000
shares of the Company's common stock valued at approximately $1,402,000.
Effective July 1, 1999, the Company acquired Imagine Digital Productions I,
Inc. ("IDP"), a multi-media production studio and publishing company,
through its subsidiary ImaginOn Digital Productions, Inc., for cash of
$125,000, a $200,000 payable (paid in October 1999), and 305,000 shares of
the Company's common stock valued at approximately $667,000. The Company
agreed to issue, as contingent consideration, up to 105,000 shares of the
Company's common stock on June 30, 2000, subject to IDP's satisfaction of
certain performance criteria, as defined. These criteria were not
satisfied as of June 30, 2000, and therefore no contingent consideration
was issued.
Each acquisition was accounted for as a purchase, and the results of
operations of INOW and IDP are included in the Company's consolidated
statements of operations from the date of each acquisition. The total
purchase price of each acquisition was allocated to the assets and
liabilities acquired based on their estimated fair values, including total
goodwill of approximately $2,610,000.
2. Business acquisitions and intangible assets (continued):
8
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Management assesses the carrying value of intangible and other long-lived
assets, including goodwill, for impairment when circumstances warrant such
a review, primarily by comparing current and projected sales, operating
income and cash flows on an undiscounted basis, with the related
amortization expense. Based on its review, management does not believe
that any impairment has occurred as of September 30, 2000.
3. Note payable:
In June 2000, the Company borrowed $300,000 in exchange for a 10%, short-
term note payable to a bank, collateralized by a certificate of deposit.
In July 2000, the Company borrowed an additional $900,000 under this loan
agreement. Principal and accrued interest totaling $1,206,926 were paid in
August 2000.
4. Commitments and contingencies:
Leases:
The Company leases office space under various non-cancelable operating lease
agreements. In April 2000, the Company entered into an agreement to lease
additional office space. Additional future minimum lease payments under
this new lease agreement will be between $30,000 and $61,000 per year,
through 2007.
Litigation:
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse impact
either individually or in the aggregate on consolidated results of
operations, financial position or cash flows of the Company.
9
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
5. Shareholders' equity:
Common stock:
On December 30, 1999, the Company issued 1,873,360 shares of common stock
and warrants to purchase an additional 749,344 shares of common stock for
a total of $5,000,000. The Company received $3,000,000 on December 30,
1999, and received the remaining $2,000,000 on January 3, 2000. In
connection with this transaction, the Company incurred $280,000 of
issuance costs which were paid in January 2000, and which were accrued as
a liability at December 31, 1999.
In January 2000, the Company issued 374,672 shares of common stock and
warrants to purchase an additional 149,869 shares of common stock for a
total of $1,000,000, of which $271,700 was allocated to warrants. The
warrants are exercisable through March 2002 at $3.34 per share. In
connection with this transaction, the Company incurred issuance costs of
$50,000.
During the nine months ended September 30, 2000, the Company issued 36,700
shares of the Company's common stock to employees, valued at $72,151 based
upon the quoted market price of the Company's common stock at the dates of
issue. This amount has been recorded as expense in the accompanying
consolidated statement of operations.
During the nine months ended September 30, 2000, the Company's shareholders
approved an increase in the number of common shares authorized from
50,000,000 to 100,000,000 shares.
Series D/E preferred stock:
In January 1999, prior to the merger, the Company completed private
placements whereby the Company received net proceeds of $2,570,000, for
the sale of 1,500 shares each of Series D and E convertible preferred
stock (the "Series D/E Stock") at a price of $1,000 per share. The Series
D/E Stock was convertible at the option of the holder at any time after 90
days from the closing date into a number of shares of common stock equal
to the lower of $1,000 divided by 75% of the average closing bid price of
the common stock for the five trading days immediately prior to the
conversion date, or 120% of the market price on the day of closing.
5. Shareholders' equity (continued):
10
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
Series D/E preferred stock (continued):
The conversion feature was "in the money" at the date of issue (a
"beneficial conversion feature"). The Company allocated $1,000,000 of the
proceeds, equal to the intrinsic value of the beneficial conversion
feature to capital in excess of par. At September 30, 1999, the entire
amount had been amortized to preferred stock for the period beginning from
the date of issuance.
In April 1999, 490 shares of Series E preferred stock were converted into
165,410 shares of common stock. The remaining 250 shares of Series D/E
were redeemed in May 1999 at 120% of face value plus unpaid dividends for
a total redemption of approximately $3,042,000.
Series F convertible preferred stock:
In May 1999, the Company issued 4,000 shares of 12% Series F convertible
preferred stock (the "Series F Stock") for $3,650,000 (net of offering
costs) at a price of $1,000 per share. The Series F Stock was convertible
at the option of the holder at any time after 180 days from the closing
date into a number of shares of common stock equal to the lower of 125% of
the five day average closing bid price of the Company's common stock
immediately preceding the closing date, or 94% of the low five-day average
closing bid price of the Company's common stock for the 22 consecutive
trading days prior to the trading day on which the notice of conversion
was sent by the preferred shareholders. The conversion feature was "in the
money" at the date of issue (a "beneficial conversion feature"), and as a
result, the Company allocated $255,319 of the proceeds, equal to the
intrinsic value of the beneficial conversion feature to capital in excess
of par. At September 30, 1999, $209,929 had been amortized to preferred
stock for the period beginning from the date of issuance.
In December 1999, 2000 shares of the Series F Stock were converted into
858,851 shares of the Company's common stock. In February 2000, the
Company, at its option, redeemed the remaining 2,000 shares of Series F
Stock for $2,394,000, which included dividends of $194,000 ($157,333
accumulated as of December 31, 1999) and a redemption preference of
$200,000.
11
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
6. Business segment information:
During the periods ended September 30, 2000 and September 30, 1999, segment
results were as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
----------- ----------- ----------- -----------
Computer software products:
ImaginOn.com
Revenues $ 69,250 $ 7,235 $ 148,704 $ 13,199
Segment loss (1,835,566) (1,329,857) (5,985,343) (4,370,612)
IDP:
Revenues 8,012 12,719 8,102
Segment loss (23,297) (252,478) (61,104) (252,478)
Internet Service:
INOW:
Revenues 97,808 153,474 222,180 238,482
Segment loss (41,638) (49,036) (153,157) (108,990)
Corporate:
Segment income (loss) 13,276 (1,650) 11,226 (122,010)
Net loss, all segments
and corporate (1,887,225) (1,633,021) (6,188,378) (4,854,090)
</TABLE>
6. Business segment information (continued):
12
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
As of September 30, 2000, total assets by segment were as follows:
Computer software products:
ImaginOn.com $1,905,726
IDP 29,845
----------
1,935,571
Internet service:
INOW 106,721
Corporate 156,777
----------
$2,199,069
==========
There are no differences in the basis of segmentation or in the basis of
measurement of segment loss since the Company's last annual report.
7. Equity Financing:
In September 2000, the Company signed a non-binding letter of intent with
third-party investors for a multi-stage, $12 million equity financing, in
which the Company agreed to issue up to $3 million of Series G, 8%,
cumulative convertible preferred stock (the "Series G Preferred Stock")
and up to $9 million of the Company's common stock.
13
<PAGE>
IMAGINON, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
7. Equity Financing (continued):
The Series G Preferred Stock has a par value of $0.01 per share, a stated
value of $100,000 per share, and is convertible into shares of the
Company's common stock at the lower of $0.60 per share, or 80% of the
market price of the Company's common stock on the conversion date, subject
to a minimum conversion price limit of $0.10 per share. The Series G
Preferred Stock is convertible, at any time, for five years from the issue
date. Shares of Series G Preferred Stock that have not been converted
within five years of the original issue date are to be redeemed by the
Company at a price equal to the stated value of the shares plus
accumulated unpaid dividends. Dividends are cumulative at 8% per year and
are payable semiannually.
The Series G Preferred Stock is subject to a mandatory redemption provision
upon the triggering of certain events, as defined, including failure to
register shares of common stock underlying the Series G Preferred Stock
within 120 days of the issue date. The Series G Preferred Stock also has
a liquidation preference equal to stated value of the Series G Preferred
Stock.
In October 2000, the Company issued15 shares of Series G Preferred Stock for
$1.2 million cash (net of $100,000 of offering costs and in satisfaction
of a $200,000 payable to the investor). The Company also issued 7 shares
of Series G Preferred Stock valued at $700,000 to another investor in
exchange for $233,000 cash and satisfaction of a $467,000 payable.
14
<PAGE>
PART 1 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING STATEMENTS
This report may contain certain "Forward-Looking Statements" as such term is
defined in the private securities litigation reform act of 1995 or by the
Securities and Exchange Commission in its rules, regulations and releases, which
represents ImaginOn, Inc. expectations or beliefs, including but not limited to,
statements concerning ImaginOn, Inc. operations, economic performance, financial
condition, growth and acquisition strategies, investments, and operational
plans. For this purpose, any statements contained from here on that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the generality of the foregoing, words such as "may", "will",
"expect", "believe", "anticipate", "intent", "could", "estimate", "might" or
"continue" or the negative or other variations or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, certain of which are beyond
ImaginOn, Inc.'s control, and actual results may differ materially depending on
a variety of important factors, including uncertainty related to acquisitions,
governmental regulation, managing and maintaining growth, volatility of stock
price and any other factors discussed in this and other ImaginOn, Inc. filings
with the Securities and Exchange Commission.
OVERVIEW AND RECENT DEVELOPMENTS
ImaginOn, Inc. (the "Company" or "ImaginOn") is a publicly held company with
common stock currently trading on the NASDAQ SmallCap Market under the symbol
"IMON". ImaginOn operates in three segments: ImaginOn, Inc. and IDP, which both
develop, produce and market computer software products, and INOW, an Internet
service provider.
ImaginOn designs, manufactures and sells: (i) consumer software products for the
CD/DVD-ROM market and (ii) a research tool for Internet users. ImaginOn's
proprietary technology, called "Transformational Database Processing and
Playback" ("TDPP"), enables the creation of new business and consumer products
that provide user-friendly and entertaining access to multimedia databases.
ImaginOn's founders were granted a U.S. patent on May 18, 1999 for its "TDPP"
technology. The Company has brought its first three products, WebZinger,
WorldCities 2000 and sellONstream, to market. These products are trademarked and
are protected under U. S. Patent and U.S. Patent Pending issued to the founders
of ImaginOn which they have assigned to the Company. As of September 30, 2000,
ImaginOn employed 30 employees, plus 6 consultants compared to a total of 40
employees including consultants on September 30, 1999. This decrease was
primarily due to changes in operations relating to the ImaginOn's Digital
Production subsidiary, originally located in Colorado.
On March 8, 1999, Network Specialists, Inc. ("Network") was merged with and into
INOW, a California corporation and subsidiary of ImaginOn ("INOW"). INOW is an
Internet Service Provider ("ISP") that offers PPP (both dial up and dedicated)
ISDN Dial-up, ISDN for LAN, Frame Relay, and Full and Fractional Leased T1.
Additional services include World Wide Web server co-locations and space rental,
secure transaction servers, World Wide Web page authoring, domain name service,
consulting services such as needs/cost analysis and hardware and software sales.
INOW currently covers all of the Bay Area with plans to serve select
metropolitan cities within the United States. INOW's prime target market are the
thousands of small commercial offices, home offices, and small and medium-sized
businesses in Northern California. INOW offers DSL or Digital Subscriber Line
that describes a group of technologies that delivers high-speed connections over
existing telephone copper wiring. The two wire copper phone line from a
telephone company's central office to a
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<PAGE>
customer's premise is often referred to as "the last mile". This "last mile" of
copper wiring has long been the bottleneck to providing fast data services to
homes and businesses. DSL utilizes a new line-coding scheme that allows very
high-speed, affordable connections over this last mile for the first time. DSL
connections are "always on" or "always connected". This means that users do not
need to dial up each time they want a connection to the network. Another benefit
of having a "dedicated connection" is the fact that busy signals and dropped
connections are not an issue with the Internet service. With INOW's SDSL
(Symmetric DSL) Service, a corporate LAN will have bandwidth of up to 1.530 Mbps
to the Internet for both uploads and downloads. This is not the case with ADSL
(Asymmetric DSL), which is limited to 384 kbps for uploads. At the click of an
icon, INOW DSL Service gives a dedicated connection to destination without
having to wait for the call to be set up or get annoying busy signals.
Beginning in January 2000, ImaginOn focused upon its information technology on
developing and marketing broadband Internet television systems to businesses and
institutions. ImaginOn's Internet television system, ImOn.comTV(TM), is a
licensed turnkey package that enables any Website to present interactive
television within a standard browser window on any suitably connected computer.
The ImOn.comTV interactive virtual console offers its users video on demand,
video that branches under user command, automated Web searching, and many
additional features, customized for each licensee.
During the third quarter 2000, in order to initiate a presence of ImaginOn's
ImOn.comTV interactive Internet television to multiple markets, the Company
began new installations of this product to a broad range of clients. While some
clients were charged at the full list price of the ImOn.comTV stations, others
were charged at less than full-list price. Some of these sales were made for
strategic key marketing positions rather than for income. The Company's
clientele is made up of magazine publishers, colleges, communication companies
and sports franchises. ImOn.comTV offers a complete turnkey product that turns
any existing Website into an interactive TV station on the broadband Internet.
ImaginOn has implemented a seven-channel sales and marketing strategy targeting
broadcast, education, e-commerce, publishing, corporate training, telemedicine,
and adult entertainment.
In the third quarter 2000, ImaginOn to aggressively marketed and presented its
Interactive Internet Television, ImOn.comTV, also referred to as "television
station in a box" at conferences such as Syllabus 2000, one of the education
industry's largest gathering of teachers, administrators, and consultants in San
Jose, California. The Company also attended the European Market Debut at IBC
2000, Europe's single largest broadcasters' conference in Amsterdam, and
introduced ImOn.comTV to a pan-European audience and began building a strong
network of distributors in the major markets. ImaginOn, Inc. served as a Silver
Sponsor of this year's Intel Developer Forum where ImaginOn demonstrated the
corporate training, educational and e-commerce applications of its ImOn.comTV.
The Intel Developer Forum is the industry's premiere technical conference that
attracted hundreds of developers, designers, media, and analysts from around the
world.
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<PAGE>
In July 2000, ImaginOn, Inc. formed a new wholly-owned subsidiary, Wireless Web
Data, Inc. (WWDI). WWDI plans to purchase assets, a patent license and know-how
from ImaginOn, Inc. WWDI was formed to develop and commercialize a new
application of ImaginOn technology targeted at wireless Web data acquisition,
formatting and delivery. The server and client software to be developed by WWDI
will enable new services such as instant Web searches on any digital cell phone.
The first new development by WWDI will be the Wireless Data Engine. The storage
and forward capability of this system will allow users to initiate an Internet
or Intranet data request from their desktop PC and see or hear the results at a
later time on their phone or other portable device.
ImaginOn's technology will be utilized by WWDI to develop software for wireless
Web data servers to allow cellular phone and portable computing device users to
request any type of data, including text, audio and video, and receive it
properly formatted for their individual device. Data such as stock quotes,
weather information, maps, MP3 audio files and video clips will be available to
portable handheld device users by using the WWDI system.
ImaginOn's ISP subsidiary, INOW, moved into the wireless networking area and now
offers a Lucent Technologies Orinoco(R) line of wireless networking products.
INOW was approved by Lucent Technologies, Inc. to re-sell Lucent's Orinoco(R)
line of wireless networking products, and is already working with the San
Francisco School District, providing products and installation support in
classrooms. Since INOW has an initial base of high bandwidth DSL customers, it
is expanding the range of products the company offers to its customers. The
products offered at the INOW site are state of the art Internet and intranet
networking components. INOW will continue to expand its offerings via new
reseller agreements with select manufacturers for specialty products. As a value
added reseller, INOW's customer service and support is enhanced by direct
training by manufacturer of those products.
ImOn.comTV, WebZinger, ImaginAuthor and sellONstream are trademarks of ImaginOn
and are protected under U.S. patents.
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<PAGE>
COMPETITION
In the Internet Service Provider industry segment, ImaginOn competes with
numerous companies, large and small, that offer similar services. ImaginOn's
competitive advantage in this area is derived from its relationship to IMON.com.
In the Internet portal industry segment, IMON.com competes with many larger,
better-known portals. IMON.com's advantages will be based on its unique
proprietary technology that implements interactive video and media-intensive
data mining.
In the high bandwidth interactive streaming video authoring and playback
software business, ImaginOn does not yet have a direct competitor. Several
companies offer components that can be used to implement portions of a networked
system, but no other company offers a complete turnkey solution like ImaginOn.
Within the Internet "search engine" marketplace, there are at least two dozen
products aimed at Web users for the purpose of searching the Internet. All of
these search engines are primarily list generators; leaving the actual data
evaluation and retrieval to the user. The few search engines that offer media
retrieval provide little control or formatting of the output. Positioned as a
"Research Engine", WebZinger actually retrieves rich media assets from the Web.
In the Internet television systems industry segment, there is currently no
direct competition. In the high bandwidth interactive streaming video authoring
and playback software business, there are no direct competitors as of this time.
Numerous companies offer some portion of the services or capabilities of
ImOn.comTV, but there are no other single vendor integrated solutions.
ImaginOn's competitive advantage in this field is derived from the company's
unique proprietary technology that integrates interactive video playback with
media-intensive data mining. ImaginOn anticipates that revenues will be
generated by ISP services, license agreements, memberships, advertising and
commissions stemming from video e-commerce sales.
New products created with ImaginOn tools are characterized by seamless real-time
access to video, audio, graphics, text, HTML and 3D objects from multiple remote
or local databases. ImaginOn will license tool sets to businesses for building
e-commerce, data mining, interactive entertainment and training applications.
In WWDI's industry, there are at least two dozen search engines freely
accessible to anyone with a computer and Web browser. WWDI is fundamentally
different from all of them because it is built from unique patented software
technology developed by ImaginOn. Nonetheless, the competition dominates the
marketplace today. In the rapidly evolving wireless Web arena, at least six
potential competitors have announced that they will soon have products
available. Given the size of the potential marketplace, there may be a dozen
entrants by the end of the year 2000.
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<PAGE>
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed
consolidated financial statements and notes.
The following table sets forth condensed consolidated operating results of the
Company for the three and nine-month periods ended September 30, 2000 compared
to September 30, 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $ 167,058 $ 168,721 $ 383,603 $ 259,783
Cost of revenues 74,070 37,834 178,650 98,539
Gross profit 92,988 130,887 204,953 161,244
Research and development 412,564 206,906 990,555 818,581
Sales and marketing 758,268 719,999 2,594,788 2,076,463
General administrative 863,008 884,562 2,968,571 2,173,001
Net loss (1,887,225) (1,633,021) (6,188,378) (4,854,090)
Net loss applicable to
common shareholders (1,887,225) (1,760,680) (6,425,045) (6,064,019)
</TABLE>
NET REVENUES
Consolidated net revenues were $167,058 and $383,603 for the three-month and
nine-month periods ended June 30, 2000, respectively, which represent a 1%
decrease and a 48% increase when compared with the corresponding periods in
1999. In the third quarter of 2000 an increase in software technology license
fees, CD royalty payments and ImOn.com TV product revenues essentially offset a
decline in revenues from INOW as compared to third quarter of 1999. For the
nine-months ended September 30, 2000, increases in ImOn.com TV revenues,
technology, license fees and wireless devices and components resold through INOW
offset a decrease in INOW subscriber revenues as compared to the nine-month
period in 1999.
COST OF REVENUES
Cost of revenues was $74,070, or 44% of net revenues for the three months ended
September 30, 2000 compared to $37,834, or 22% of net revenues for the three
months ended September 30, 1999. For the nine months ended September 30, 2000,
cost of revenues was $178,650, or 47% of net revenues compared to $98,539, or
38% of net revenues for the corresponding period of 1999. The increase in cost
of revenues as a percentage of total revenues in the three and nine-months ended
September 30, 2000 compared to the same periods ended June 30, 1999, was
primarily attributable to the ImOn.ComTV Internet TV packages and ImaginOn's
software technology license. These costs of revenues consist of the expenses
associated with the production and usage of Imon.comTV and the Company's other
online media properties, including fees for bandwidth, co-location, Internet
connection charges and hardware servers and computer related equipment. Costs
also include Website maintenance and services, host computer and network
equipment costs, and providing customer technical support and certain
installation, materials, packaging, and labor in producing ImaginOn products.
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<PAGE>
GROSS PROFIT
Consolidated gross profit for the three months ended September 30, 2000
decreased to $92,988 as compared to $130,887 for the three months ended
September 30, 1999. The decrease was primarily a result of a decline in the
number of subscribers and associated revenue and gross profit at INOW in 2000
compared to 1999. For the nine months ended September 30, 2000, gross profit
increased to $204,953 from $161,244 for the nine months ended September 30,
1999. Increases in gross profit from ImOn.com TV sales, technology license fees
and CD royalty payments offset a decline in gross profit from INOW subscribers
during the current nine-month period when compared to the same period in 1999.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three months ended September 30, 2000
increased to $412,564, compared to $206,906 for the three months ended September
30, 1999. During this year's third quarter, 70% of research and development
expenses were due to payroll for engineers, outside consultants, and video
production staff, 16% was for other related ImOn.comTV project expenses, and the
remaining 14% was for office rent, utilities, communications, computer equipment
and supplies. For the nine months ended September 30, 2000, expenses increased
to $990,555 compared to $818,581 for the nine months ended September 30, 1999.
The increase compared to last year was primarily due to additional employee
staffing and compensation increases.
SALES AND MARKETING EXPENSES
For the three months ended September 30, 2000, sales and marketing expenses
increased to $758,268 compared to $719,999 for the three months ended September
30, 1999. During this year's third quarter, nearly 81% was attributable to the
marketing, advertising, sales promotions and materials, trade shows and
presentations, and public relations of ImaginOn's ImOn.com TV product, 14% was
for employee payroll (which included employer taxes), and consultants, and the
remaining 5% was for general office supplies, rent, utilities, communications
and computer equipment, travel and accommodations. For the nine months ended
September 30, 2000, expenses increased to $2,594,788 compared to $2,076,463 for
the nine months ended September 30, 1999. This increase compared to last year
was primarily attributable to hiring additional sales and sales-support staff,
as well as sales and marketing activities in connection with the ImOn.comTV
product.
GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended September 30, 2000, general and administrative
expenses decreased slightly to $863,008 compared to the three months ended
September 30, 1999 of $884,562. Out of this total, during this year's third
quarter, 24% was for professional legal and independent accounting and audit
services as well as corporate filings and reporting, 33% was for employee
payroll (which included employer taxes), 25% represented goodwill amortization
related to the two acquisitions for INOW and IDP during last year. The remaining
18% was for rent, utilities, communications, computer equipment and supplies,
general office supplies, furniture, depreciation, bad debts, public relations
and business wires, and travel and accommodations, and for general liability and
directors and officers insurance. For the nine months ended September 30, 2000,
expenses increased to $2,968,571 compared to $2,173,000 for the nine months
ended September 30, 1999. This increase was primarily attributable to the
goodwill amortization related to the acquisition of INOW and IDP and increased
payroll due to more
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<PAGE>
employees as well as expanded growth of the Company from the prior year.
OTHER INCOME (EXPENSE)
For the three months ended September 30, 2000, interest expense increased to
$9,027 for bank interest charges, compared to zero in the three months ended
September 30, 1999. Other income for the three months ended September 30, 2000,
decreased to $48,814 compared to an expense of $1,196 for the three months
ended in September 30, 1999. This change from expense to income is due to
royalty payments received during the quarter ended September 31, 2000. For the
nine months ended September 30, 2000 interest expense increase to $10,515
compared to $905 for the nine months ended September 30, 1999. This was
primarily due to extra financing the short term note payable that was repaid
during third quarter 2000. For the nine months ended September 30, 2000,
interest income increased to $121,484 compared to $87,686 for the nine months
ended in September 30, 1999. This increase was due to availability of funds for
interest earned from money market and CD deposits primarily from the private
placements received early this year.
LIQUIDITY AND CAPITAL RESOURCES
ImaginOn's working capital decreased from approximately $6 million at December
31, 1999 to a working capital deficiency of $849,000 at September 30, 2000.
This was primarily due to the redemption of the remaining outstanding shares of
its Series F convertible preferred stock, plus accrued dividends, for $2,394,000
during the first quarter, 2000. The preferred stock and accrued dividends were
convertible into approximately 684,000 shares of ImaginOn common stock, which
would have represented 1.5 percent of the shares outstanding on that date.
Cash decreased due to the use of cash on hand in meeting the capital
expenditures for the three primary categories of General and Administrative,
Sales and Marketing, and Research and Development.
Between June and August 2000, the Company borrowed approximately $1,200,000 from
a bank, collateralized by a certificate of deposit, in order to avoid early
withdrawal penalties prior to the CD's maturity date. After the maturity date on
August 10, 2000, the loan was repaid in full with proceeds from the CD.
ImaginOn expects to continue using its working capital to finance ongoing
operations and to fund marketing programs of its products and services. The
Company anticipates that cash on hand, cash provided by operating and financing
activities, and cash available from the capital markets will be sufficient to
fund its operations for the next twelve months.
In September 2000, the Company signed a non-binding letter of intent with third-
party investors for a multi-stage, $12 million equity financing, in which the
Company agreed to issue up to $3 million of Series G, 8%, cumulative convertible
preferred stock (the "Series G Preferred Stock") and up to $9 million of the
Company's common stock.
The Series G Preferred Stock has a par value of $0.01 per share, a stated value
of $100,000 per share, and is convertible into shares of the Company's common
stock at the lower of $0.60 per share, or 80% of the market price of the
Company's common stock on the conversion date, subject to a minimum conversion
price limit of $0.10 per share. The Series G Preferred Stock is convertible, at
any time, for five years from the issue date. Shares of Series G Preferred Stock
that have not been converted within five years of the original issue date are to
be redeemed by the Company at a price equal to the stated value of the shares
plus accumulated unpaid dividends. Dividends are cumulative at 8% per year and
are payable semiannually.
The Series G Preferred Stock is subject to a mandatory redemption provision upon
the triggering of certain events, as defined, including failure to register
shares of common stock underlying the Series G Preferred Stock within 120 days
of the issue date. The Series G Preferred Stock also has a liquidation
preference equal to stated value of the Series G Preferred Stock.
In October 2000, the Company issued15 shares of Series G Preferred Stock for
$1.2 million cash (net of $100,000 of offering costs and in satisfaction of a
$200,000 payable to the investor). The Company also issued 7 shares of Series G
Preferred Stock valued at $700,000 to another investor in exchange for $233,000
cash and satisfaction of a $467,000 payable.
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<PAGE>
Part II Other Information
Part II - Item 1 Legal Proceedings
On January 20, 2000, ImaginOn was served a complaint by a corporation named
ImOn Inc. in the U.S. District Court for the Southern District of New York
alleging violation of common law trademark (as opposed to trademark granted by
the federal government under statute), and two other claims under the New York
General Business Law alleging "Deceptive Acts" and "Unfair Competition and
Trademark Infringement." ImaginOn's intellectual property law firm had
previously discussed this firm's claim with one of the three attorneys who have
represented the plaintiff, ImOn, Inc., which was incorporated last summer.
Plaintiff claims to own the "Imon.net" Internet domain and a common law
trademark for the word "Imon" as it related to Internet commerce. ImaginOn,
Inc., Imon, Inc. and at least one other company have filed trademark
applications with the Federal Office of Patents and Trademarks. ImaginOn has
vigorously defended itself in this action and believes it will be resolved in
its favor. On January 31, 2000, plaintiff filed a motion for a preliminary
injunction and the court issued a Show Cause Order for a March 2, 2000 hearing
to determine if an injunction should be issued prohibiting us from using the
term "ImOn" in commerce. After a two day hearing, the Judge denied the motion
for a preliminary injunction, holding that the plaintiff failed on every element
requisite for the injunction, including likelihood of prevailing at trial. In
addition, due to errors in the plaintiff's federal trademark application, it was
excluded from evidence for the purposes of the motion. ImaginOn filed a
counterclaim under the newly enacted Federal "Trademark Cyberpiracy Prevention"
Act, which provides for award of attorneys' fees and liquidated damages of up to
$100,000. On July 28, 2000, ImaginOn was informed by plaintiff that it would
cease all operations and become dormant as of July 31, 2000. ImaginOn is
currently negotiating a settlement with representatives of the default plaintiff
which would result in the plantiff assigning all alleged trademark and internet
domain rights to ImaginOn in return for dismissal of the case by mutual consent.
Part II - Item 2 Changes in Securities and Use of Proceeds
Changes in Securities
None.
Use of Proceeds
Not applicable.
Part II - Item 3 Defaults Upon Senior Securities
None.
Part II - Item 4 Submission of Matters to a Vote of Security Holders
None.
Part II - Item 5 Other Information
Not applicable.
22
<PAGE>
Part II - Item 6 Exhibits & Reports on Form 8-K
Exhibits
3(i).1 Certificate of Incorporation of the Registrant. (Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-85108 as filed with the
Securities and Exchange Commission "SEC" on October 13, 1994 (the
"1994 Registration Statement").)
3(i).2 Amendment to Certificate of Incorporation of the Registrant dated
July 22, 1998. (Incorporated by reference to Exhibit 3(i).5 of the
Registrant's registration statement on Form S-3A, Registration No.
333-71989 as filed with the Securities and Exchange Commission on
March 17, 1999 (the "1999 Form S-3/A.").)
3(i).3 Amendment to Certificate of Incorporation of the Registrant dated
December 17, 1998. (Incorporated by reference to Exhibit 3(i).6 of
the 1999 Form S-3/A.)
3(ii).1 Bylaws as currently in effect. (Incorporated by reference to
Exhibit 3.2 to the 1994 Registration Statement.)
4.1 Specimen of Common Stock certificate. (Incorporated by reference to
Exhibit 4.1 to Amendment No. 4 to the 1994 Registration Statement,
filed with the SEC on December 22, 1994 (" 1994 Amendment #4).)
4.2 Certificate of Designations, Preferences and Rights of Series G 8%
Convertible Preferred Stock dated August 3, 2000.
4.3 Amended Certificate of Designations, Preferences and Rights of Series
G 8% Convertible Preferred Stock dated August 16, 2000.
4.4 Amended Certificate of Designations, Preferences and Rights of Series
G 8% Convertible Preferred Stock dated October 16, 2000.
4.5 Amended Certificate of Designations, Preferences and Rights of Series
G 8% Convertible Preferred Stock dated October 17, 2000.
10.1 Purchase Agreement dated October 2000 between the Registrant and the
Series G 8% Convertible Preferred Stock investors.
10.2 Registration Rights Agreement dated October 2000 between the
Registrant and the Series G 8% Convertible Preferred Stock investors.
11.1 Computation of Net Income (Loss) Per Share
27 Financial Data Schedule
Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
and has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Carlos, State of California, on
November 14, 2000.
IMAGINON, INC.
By:/s/ David M. Schwartz
----------------------
David M. Schwartz,
Chairman, Chief Executive Officer
and President
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ David M. Schwartz Chief Executive Officer November 14, 2000
--------------------- And Director
David M. Schwartz
Chief Financial Officer November 14, 2000
/s/ James A. Newcomb and Director
--------------------
James A. Newcomb
</TABLE>
24
