-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9FAbVPRYEf1VK4TCRL3erx0eOhJ07NROG6XuZlBrG5UVeInK7QHnDRqTEeCASMO OlGwK+u9nZ/Hv4cWMNvHSA== 0000950123-02-003763.txt : 20020416 0000950123-02-003763.hdr.sgml : 20020416 ACCESSION NUMBER: 0000950123-02-003763 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNET ADVISORY CORP CENTRAL INDEX KEY: 0000831489 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 870426358 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16665 FILM NUMBER: 02610588 BUSINESS ADDRESS: STREET 1: 2455 EAST SUNRISE BLVD STREET 2: SUITE 401 CITY: FT LAUDERDALE STATE: FL ZIP: 33304 BUSINESS PHONE: 8885220958 MAIL ADDRESS: STREET 1: 2455 EAST SUNRISE BLVD STREET 2: SUITE 401 CITY: FT LAUDERDALE STATE: FL ZIP: 33304 FORMER COMPANY: FORMER CONFORMED NAME: OLYMPUS MTM CORP DATE OF NAME CHANGE: 19970215 10KSB 1 y59658e10ksb.txt THE INTERNET ADVISORY CORPORATION U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED: DECEMBER 31, 2001 OR | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------ -------------- Commission file number 0-16665 --------------------------------------------------- THE INTERNET ADVISORY CORPORATION - -------------------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Utah 87-0426358 - --------------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 150 East 58th Street, New York, NY 10022 - ---------------------------------------- ---------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number: (212) 421-8480 Securities registered under Section 12(b) of the Exchange Act: None Name of each Exchange on Which Registered: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par value
- -------------------------------------------------------------------------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No | | Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. | | State issuer's revenues for its most recent fiscal year. $300,026 State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of a specified date within the past 60 days. As of April 10, 2002 there were 1,571,676 issued and outstanding shares of our common stock, $.001 par value, held by non-affiliates. The aggregate value of the securities held by non-affiliates on April 10, 2002 was $3,214,077 based on the average closing bid and asked price of our common stock on April 10, 2002, which was $2.045 per share. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 15,279,676 shares as of April 10, 2002. Transitional Small Business Disclosure Format (check one): Yes | | No |X| DOCUMENTS INCORPORATED BY REFERENCE None TABLE OF CONTENTS
ITEM NUMBER AND CAPTION PAGE - ----------------------- ---- Forward-Looking Statements................................................ 3 PART I 1. Description of Business......................................... 3 2. Description of Property......................................... 9 3. Legal Proceedings............................................... 9 4. Submission of Matters to a Vote of Security Holders............. 10 PART II 5. Market for Common Equity and Related Stockholder Matters........ 10 6. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 11 7. Financial Statements............................................ 13 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 27 PART III 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act........... 28 10. Executive Compensation.......................................... 30 11. Security Ownership of Certain Beneficial Owners and Management.. 31 12. Certain Relationships and Related Transactions.................. 33 13. Exhibits, List and Reports on Form 8-K.......................... 35
2 FORWARD-LOOKING STATEMENTS Except for historical information, this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses. Such forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Risk Factors". You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances taking place after the date of this document. PART I ITEM 1. DESCRIPTION OF BUSINESS BUSINESS DEVELOPMENT We were incorporated in the State of Utah on September 21, 1981 under the name Adonis Energy, Inc. ("Adonis"). Adonis was formed for the primary purpose of acquiring and investing in energy resources. On March 10, 1983 Adonis' name was changed to Olympus M.T.M. Corporation ("Olympus"). Olympus failed to achieve success in its business endeavors and consequently, it ceased operations in or before April, 1990. Thereafter, Olympus remained dormant until it succeeded to the business of The Internet Advisory Corporation, a Florida corporation ("TIAC-FL"), pursuant to an Agreement and Plan of Reorganization dated June 22, 1998. TIAC-FL had been incorporated on August 8, 1997 for the purpose of providing Internet access and Web design. Subsequent to the Agreement and Plan of Reorganization, we changed our name to The Internet Advisory Corporation. Pursuant to the Agreement and Plan of Reorganization we issued 6,000,000 shares of our common stock to TIAC-FL's shareholders and assumed the liabilities of TIAC-FL in exchange for the assets of TIAC-FL as at May 31, 1998. At the time of this issuance, we had 1,202,017 shares outstanding. Immediately after this issuance, the former shareholders of TIAC-FL owned 6,000,000 of our then total of 7,202,017 outstanding shares, or 83% of our Company. Upon closing the Agreement and Plan of Reorganization, the Olympus officers and directors resigned and the designees of TIAC-FL were appointed to serve in their place and stead. On December 30, 1999, we entered into a Reorganization Agreement (the "Reorganization Agreement") with Richard K. Goldring, the sole stockholder of Sunrise Web Development, Inc., a Florida corporation ("Sunrise"), whereby we issued 4,000,000 shares of our common stock to Mr. Goldring and his designees in exchange for 100% of the outstanding voting securities of Sunrise. Pursuant to the Reorganization Agreement, Sunrise became a wholly-owned subsidiary of ours. Mr. Goldring owned approximately 10.7% of our outstanding common stock prior to the completion of the Reorganization Agreement and approximately 37.5% of our outstanding common stock following completion. There were 9,345,018 shares of our common stock issued and outstanding prior to the completion of the Reorganization Agreement and 13,345,018 shares of our common stock issued and outstanding after completion. 3 On May 25, 2001, we voluntarily filed for protection under Chapter 11 of the US Bankruptcy Code with the US Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court"). On August 29, 2001 we filed a Plan of Reorganization and Disclosure Statement with the Bankruptcy Court. Under the Plan of Reorganization (the "Plan") we complied with Section 1129 of the Bankruptcy Code as a good faith debtor seeking to reorganize its financial affairs during the term of the Plan in order to pay off or substantially reduce the principal due and owing to all allowed creditors from our ongoing operations. As part of the Plan we expressly rejected all executory contracts and unexpired leases set forth in the Disclosure Statement except for the unexpired contract between us and a bandwidth provider. On November 14, 2001 the Bankruptcy Court entered an Order confirming our Plan. During the period we were in bankruptcy, we continued to provide comprehensive Internet services to our customers emphasizing the small and medium sized business market. Pursuant to the bankruptcy, we discharged an aggregate of $731,419 of debt in exchange for payments in the aggregate amount of $86,861. In addition, we incurred $73,231 of legal fees related to the bankruptcy filing and the Plan. Pursuant to the Plan, the claims of our creditors and other interested parties were divided into six classes. Class 1 consisted of the unsecured claim of the lessor of our Fort Lauderdale, FL business premises with regard to certain rent obligations. Class 2 consisted of unsecured contract claims by certain bandwidth providers. Class 3 consisted of unsecured claims for less than $2,500. Class 4 consisted of other unsecured claims. Class 5 consisted of the equity interest claims by our shareholders. Class 6 consisted of the equity interest claims of our stock option holders. Administrative Expense and Priority Tax Claims were deemed not to be included by any class and were treated separately. Administrative Expense claims consisted primarily of certain unpaid post-petition rent obligations to the lessor of our Fort Lauderdale, FL premises, certain post-petition bandwidth contract obligations and certain professional fees and expenses authorized by the Bankruptcy Court. The Priority Tax Clams consisted of a claim by the Internal Revenue Service (the "IRS") in the amount of approximately $11,680 plus interest and penalties. The Plan, as modified, required certain payments to be made to all parties constituting classes 1-4 and to the IRS for the Priority Tax Claim. All payments have been made in full with respect to Classes 1-4. As of April 1, 2002 all installment payments due on the Priority Tax Claim have been made in a timely fashion. Pursuant to the Priority Tax Claim we are paying the IRS monthly payments of $352.41 over a 5-year period. Class 5 related to our shareholders and their treatment with regard to equity retention. Richard Goldring, our principal shareholder, and all equity holders that chose to make an additional equity contribution to us on or before November 30, 2001 (the "White Knight Electors") constituted the White Knight Class. Richard Goldring contributed $50,000 in exchange for retention of all of his equity interest in the Company. White Knight Electors were entitled to retain all or part of their equity interest in the Company on the basis of capital contributions of $1 per share. There was a sole White Knight Elector who made a capital contribution of $1,000 in exchange for full retention of 1,000 of his common shares. Pursuant to the Plan, all common stockholders other than the White Knight Class became subject to a 50 for 1 reverse stock split. Effective the close of business on January 2, 2002 the partial reverse stock split was effected. Pursuant thereto, all of our issued and outstanding shares of common stock on January 2, 2002, except for an aggregate of 4,401,000 shares held by members of the White Knight Class, were subjected to the reverse split. Immediately prior to the reverse split there were 14,445,018 shares issued and outstanding and immediately subsequent to the reverse split there were 4,601,794 shares issued and outstanding. Class 6 related to our outstanding stock options. Pursuant to the Plan, all of such options were cancelled. The holders thereof received no distributions under the Plan. 4 GENERAL We are a full service Internet company. Web hosting, web designing co-location, end e-commerce constitute our primary services. Our services are designed to enable our customers to capitalize on the latest Web-based technologies quickly and cost effectively without the burden and expense of building, managing and maintaining the infrastructure required to support their desired applications. We own and operate a national network, providing high capacity, reliable Internet data transmission, connecting our customers to the Internet. We utilize multiple T-3 fiber optic lines with high speed servers for the fastest possible Internet access. By aggregating the capacity of data transmission over the Internet and capacity requirements of our operations onto one national network, we have been able to increase our operational control and efficiency, reduce costs, and provide redundancy and higher quality service. In this way, we are able to address some of the most significant challenges that an Internet service provider faces in supporting its customers. We have incurred losses since the inception of our Internet business. Although we had net income during the fiscal year ended December 31, 2001 of $176,728 for financial accounting purposes, this gain was due solely to discharges of debt attributable to our Chapter 11 bankruptcy proceeding. We expect to continue to incur losses until we increase revenue while reducing related costs. To reduce costs, we have significantly reduced our work force and operating expenses, especially our bandwidth charges which previously accounted for as much as 50% of our monthly operating expenses. Our Company and our future prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in an early stage of development, particularly in new and rapidly evolving markets such as the Internet and companies serving the Internet. Such risks for us include, but are not limited to, a constantly evolving business model and the management of both internal and acquisition-based growth. To address these risks, we must among other things, continue to develop the strength and quality of our hosting facility; maximize the value delivered to our clientele; enhance our domain names; respond to competitive developments; acquire financing for any expansion plans, and attract, retain and motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing such risks, and the failure to do so could have a material adverse effect on our business, results of operations and financial condition. PRODUCTS AND SERVICES We are an Internet service provider and web site designer offering web site hosting, e-commerce and co-location services. We provide our customers with access to electronic mail services, public bulletin boards, the buddy list feature, instant message services, public or private "meeting rooms/chat rooms" for interactive conversations and live "auditorium" events. We also offer enhanced value Internet security capabilities and professional consulting services to support a variety of methods or processes designed to resolve our customers' Internet problems. Our services are billed over the course of the engagement on either a time and materials basis or a fixed-price basis. Billable rates vary by the type of services provided and by the geographical region. The pricing, management and execution of each engagement is the sole responsibility of our management. PATENTS, TRADEMARKS AND LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS OR LABOR CONTRACTS We utilize no patents, licenses, franchises, concessions, royalty agreements or labor contracts in connection with the operation of our Internet business. 5 SALES AND MARKETING Our services are sold through the Internet. SUPPLIES AND SUPPLIERS We are not materially dependent on raw materials or supplies in connection with the operation of our business. Any required raw materials or supplies are readily available from several sources in sufficient quantities and are of required quality. SEASONAL ASPECTS We do not experience seasonal variations in our operating results. RESEARCH AND DEVELOPMENT During the fiscal years ended December 31, 2001 and December 31, 2000 we made no expenditures on research and development. CUSTOMERS During the fiscal year ended December 31, 2001 Scores Entertainment, Inc. ("SEI") accounted for an aggregate of approximately $145,000 or approximately 48.3% of our revenues. In May 2002, we entered into a month to month oral consulting agreement with SEI pursuant to which we advise SEI with respect to their Internet business activities. In connection with such agreement, SEI pays us up to $25,000 per month. The loss of SEI as a customer would have a materially adverse effect on our Internet business. EMPLOYEES As of April 8, 2002 we had four employees, including three executive officers and one administrative assistant. We consider our relationship with our employees to be satisfactory. COMPETITION The market for Internet products and services is extremely competitive. We face competition from hundreds of entities, most of which have substantially greater resources and experience than we do. Since there are low barriers to entry into this market, we expect competition to persist and intensify in the future. Our ability to compete depends on our capacity to deliver quality services and to effectively market such services. GOVERNMENT REGULATION, COMPLIANCE WITH ENVIRONMENTAL LAWS Our principal products and services and the operation of our business do not require any governmental approvals or consents other than those applicable to corporations in general. Similarly, we are not materially affected by any existing governmental regulations, including those requiring compliance with environmental laws. Notwithstanding the foregoing, we are aware that the Internet is a rapidly and constantly evolving commercial medium that may subject us to future governmental 6 regulation in several areas including, but not limited to, user privacy, advertising, information security, usage fees and taxation. At the present time, however, it is impossible to predict the type and extent of governmental regulation which we may be subject to in the future. SUBSEQUENT EVENTS Effective the close of trading on January 2, 2002 we effected a partial reverse stock split. Pursuant thereto, all of our shares, except for an aggregate of 4,401,000 shares owned by members of the White Knight Class, were subjected to a 50 for 1 reverse stock split. Following the reverse split there were 4,601,794 shares of our common stock issued and outstanding. For a more detailed discussion of the reverse stock split see "Item 1. Description of Business - Business Development." Effective the close of trading on February 13, 2002, we effected a partial stock dividend pursuant to which all our shareholders, with the exception of Richard Goldring and Interactive Business Concepts Inc., a corporation wholly owned by Mr. Goldring, received 3 additional shares of our common stock for every share owned by them. Immediately prior to the dividend there were 4,616,794 shares of our common stock issued and outstanding and immediately following the stock dividend there were 5,267,176 shares outstanding. On March 11, 2002 we entered into an Acquisition Agreement with Go West Entertainment Inc., a New York corporation ("Go West"), and the shareholders of Go West (the "Go West Shareholders"). The Go West Shareholders are Richard Goldring, Elliot Osher and William Osher. Pursuant to the Acquisition Agreement, we acquired all of the issued and outstanding capital stock of Go West from the Go West Shareholders, making Go West a wholly owned subsidiary of Registrant in exchange for 10,000,000 shares of our restricted common stock (the "Acquisition Shares"). As at April 8, 2002 we have not yet issued the Acquisition Shares to the Go West Shareholders. Go West was formed on May 11, 2001 to establish, own and operate upscale adult entertainment nightclubs. The principal assets of Go West are a twenty year lease (the "Lease") on a building at 533-535 West 27th Street, New York, NY at which Go West intends to open an adult entertainment nightclub during the fourth quarter of 2002 under the name "Scores West" and a license agreement (the "License Agreement") with Heir Holding Co., Inc., a Delaware corporation ("Heir") granting Go West the right to use the "Scores" name in New York City for up to three adult entertainment nightclubs. Heir is the owner of the intellectual property rights respecting the name "Scores" which is a recognized name in the adult entertainment industry owing to the success of "Scores Showroom" a successful and well known adult entertainment nightclub operating at East 60th Street in New York, NY since 1991. Scores Showroom is owned by Scores Entertainment, Inc., a New York corporation ("SEI"). Go West intends to model "Scores West" and all other "Scores" clubs it may operate in the future after Scores Showroom. Scores West will offer topless dancing, a gourmet quality restaurant and bar operations. The License Agreement between Heir and Go West dated August 15, 2001 as amended on March 3, 2002 grants Go West the right and license to use certain Scores trademarks in New York City in connection with the operation of up to three adult entertainment topless dance clubs and the retail sale of commercial merchandise, including tee-shirts, sweatshirts, sweat pants, jackets, baseball hats, key rings 7 and other similar merchandise, from each club location. All merchandise sold pursuant to the License Agreement must be purchased from Heir at Heir's then current wholesale prices. The License Agreement also provides for an annual royalty payment of $520,000 to be paid by Go West to Heir. The term of the License Agreement continues until Go West ceases or discontinues the operation of Scores West. The Lease which is dated October 3, 2001 commences May 1, 2002 or June 1, 2002 as determined by Go West and provides for a 20 year lease term. The Lease provides for a $1,000,000 security deposit, $750,000 of which had been paid to date, and an escalating annual base rental during the term of the Lease starting with an annual base rental of $700,000 during year one (1) and ending with an annual base rental of $1,754,784 during year twenty (20). The Lease contains an option to buy the premises at any time through and including December 31, 2003 at a price of $10,000,000. Go West intends to renovate the structure at its own expense for purposes of operating the premises as "Scores West." 10,000 square feet of the premises, the maximum permitted by New York City law will be utilized by "Scores West." The west side Manhattan location from which "Scores West" will operate was chosen by Go West in recognition of New York City's increasingly restrictive zoning regulations and policies respecting the operation of establishments that provide adult entertainment. Unlike other parts of Manhattan that prohibit adult entertainment businesses from operating altogether or restrict the amount of customer accessible space an establishment can devote to adult uses, the "Scores West" location contains no such zoning restrictions. The Internet Advisory Corporation, Go West, Heir and SEI are affiliated entities. Registrant's president, chief operating officer, director and principal shareholder, Richard Goldring is an officer and director of Go West, an officer, director and shareholder of Heir and the operations manager for Scores Showroom. John Neilson, Registrant's secretary and director is a management consultant for both Go West and SEI. Registrant's treasurer and director, Joseph Erickson is the controller for SEI. Elliot Osher is an officer and director of Go West, and officer, director and shareholder of Heir and the director of club operations for Scores Showroom. William Osher is an officer and director of Go West, an officer, director and shareholder of Heir, and the day manager for Scores Showroom. With regard to our entry into this new field, we plan to leverage the adult entertainment nightclub experience of our management in an owner/operator business model in which we intend to both own and manage clubs. Pursuant thereto, we are engaged in negotiations to manage Scores Showroom. As we shift the focus of our business, we continue to review the ongoing viability of our existing ISP business. On April 1, 2002 we entered into a Collateral Loan Agreement (the "Loan Agreement") with Interauditing Srl, an Italian corporation ("Interauditing"), pursuant to which Interauditing has agreed to provide us with loans in an amount of up to 20% of the Final Market Value (as such term is defined in the Loan Agreement) of certain restricted shares of our common stock issued by us in the name of Interauditing Srl to secure our obligations under the loans (the "Stock"). The loans are payable to us in not more than 2 installments. The first installment consisting of 50% or more of the loan amount is due within 5 days of delivery of the Stock and related loan documents. The second installment is due not more than 10 days after the payment of the first installment. Final Market Value is defined to be the average closing bid price of our common stock for the ten trading days immediately preceding the date we provide Interauditing with the Stock and related loan documents. Notwithstanding the foregoing, if the closing share price on the last trading day of the ten-day trading period is less than the ten-day average closing price, the closing share price on the last trading date shall be deemed to be the Final Market Value. All loans made under the Loan Agreement are subject to a 2% engagement service fee payable to Interauditing. Loans under the Loan Agreement are evidenced by our promissory notes 8 payable to Interauditing and are secured by the Stock. The interest rate on the loans will be set in accordance with LIBOR (six month rate) plus one full percentage point. Interest is payable quarterly in arrears. Except as otherwise provided in the Loan Agreement, the Stock shall be held as collateral by Interauditing at all times there remains principal or interest owing to Interauditing under the promissory notes. Other than as specifically set forth in the Loan Agreement, the Stock may not be sold, hypothecated, assigned, transferred, or otherwise encumbered. In the event we default under the Loan Agreement however, Interauditing may thereafter sell, assign, hypothocate or otherwise dispose of the Stock. Under such circumstances, Interauditing assumes no responsibility for the amount of proceeds it may receive upon such disposition of the Stock. Any proceeds received by Interauditing in excess of the default amount plus reasonable attorney's fees, if any, and related costs of disposition will be returned to us. In the event of a default by us, we have further agreed to take all reasonable steps to register the Stock for resale by Interauditing. A default by us under the Loan Agreement can be expected to have a materially adverse effect on the price of our common stock. The initial term of the loan is 1 year. We have the option, however, to extend the loan for up to 3 additional 1 year periods. Upon payment in full of all interest and principal due under the loan, the Stock will be returned to us for cancellation. During the term of the loan Interauditing will provide a voting proxy with respect to the Stock to a person designated by us. In the event of a default however, the proxy shall be deemed null and void. In connection with the Loan Agreement, on April 9, 2002 we delivered 10,000,000 shares of our restricted common stock to Interauditing. On April 12, 2002 we were notified by Interauditing of an administrative issue relating to the loan that would delay delivery of loan proceeds to us for at least several weeks. As the result thereof, we intend to terminate the Loan Agreement and obtain the return of the Stock. Upon return, the Stock will be cancelled and returned to the status of authorized but unissued shares. ITEM 2. DESCRIPTION OF PROPERTY We currently rent approximately 3,000 square feet of office space at 2455 East Sunrise Boulevard, Fort Lauderdale, FL 33304 at the base rate of $4,795 per month. The lease which commenced in January 1998 expires on February 28, 2003. Pursuant to our Plan of Reorganization, in November, 2001 we reduced the amount of our leased space from approximately 4,674 square feet to our current level. Rental expense under the lease for 1999, 2000 and 2001 was $65,317, $68,443 and $93,906, respectively. Rental expense for 2002 and 2003 under the lease is expected to be a minimum of $49,347 and $8,266, respectively. We also utilize approximately 1,000 square feet of office space at 150 E. 58th Street, New York, NY 10022 on a month to month basis. The space is provided to us rent free by the lease tenant, a corporation owned by John Neilson, one of our officers and director. ITEM 3. LEGAL PROCEEDINGS No material legal proceedings are pending to which we or any of our property is subject, nor to our knowledge are any such proceedings threatened. On March 21, 2001 a judgment in the amount of $12,359.60 was entered against us in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida in favor of Diamondpoint.Com, Inc., a Florida corporation, in connection with a claim of breach of contract. This matter was settled in our Chapter 11 bankruptcy proceeding. 9 Our prior management signed several disputed agreements for Internet based services. These agreements were settled in our Chapter 11 bankruptcy proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year covered by this report. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION. Our common stock is quoted on the OTC Bulletin Board of the National Association of Securities Dealers, Inc. (the "NASD") under the symbol "IACP." Prior to January 3, 2002, the date we effected a partial reverse stock split, our stock was quoted under the symbol "PUNK". The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of our common stock, as derived from quotations provided by Pink Sheets, LLC. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions. These prices do not reflect the reverse stock split which took place subsequent to the reported fiscal quarters.
QUARTER ENDED HIGH BID LOW BID ------------- -------- ------- March 31, 2000 $ 7.125 $ 3.50 June 30, 2000 $ 5.25 $ 0.8125 September 30, 2000 $ 1.625 $ 0.625 December 31, 2000 $ 1.125 $ 0.3125 March 31, 2001 $ 0.70 $ 0.1875 June 30, 2001 $ 0.28125 $ 0.04 September 30, 2001 $ 0.04 $ 0.02 December 31, 2001 $ 0.0225 $ 0.005
HOLDERS As of April 4, 2002, there were approximately 129 record holders of our common stock. DIVIDENDS We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our board of directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. Although there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock, we presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock. 10 RECENT SALES OF UNREGISTERED SECURITIES All sales of our unregistered equity securities during the year ended December 31, 2001 have been previously disclosed in our reports on Form 10Q-SB. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On May 25, 2001, we voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of Florida (the "Bankruptcy Court"). On November 14, 2001, the Bankruptcy Court entered an Order confirming our Plan of Reorganization. Pursuant to the bankruptcy we discharged $731,419 of debt in exchange for payments in the aggregate amount of $86,861. The gain on the discharge in debt was reduced by a $282,224 write down of furniture and equipment to its expected value. In addition, we incurred $73,231 of legal fees directly related to the bankruptcy filing and the Plan of Reorganization. Accordingly, an analysis of our results of operations for the year ended December 31, 2001 and our liquidity and capital resources as at December 31, 2001 should take into account the effects of the bankruptcy. RESULTS OF OPERATIONS During the fiscal years ended December 31, 2001 and December 31, 2000, we had revenues of $300,026 and $573,615, respectively. Our cost of goods sold was $89,290 for fiscal 2001 and $1,383,800 for fiscal 2000. We incurred general and administrative expenses of $403,714 in fiscal 2001 and $1,231,340 in fiscal 2000. Net income in the year ended December 31, 2001 was $176,728, and consisted of income during the period January 1, 2001 through November 14, 2001 (the date the Order confirming the Plan of Reorganization was issued by the Bankruptcy Court) of $264,269 and a net loss during the period November 15, 2001 through December 31, 2001 of $87,901. Net income realized by us during the period January 1, 2001 through November 14, 2001 was attributable solely to discharges of debt in our Chapter 11 bankruptcy proceeding. Net loss in the year ended December 31, 2000 was $2,039,208. We recognize revenues as they are earned, not necessarily as they are collected. Direct costs such as hosting expense, design cost and server expense are classified as cost of goods sold. General and administrative expenses include accounting, advertising, contract labor, bank charges, depreciation, entertainment, equipment rental, insurance, legal, supplies, pay roll taxes, postage, professional fees, telephone and travel. The decrease in revenues from fiscal 2000 to fiscal 2001 was primarily attributable to changes in the manner in which we offered and provided our services and decreased demand for these services. The substantial decrease in cost of goods sold from fiscal 2000 to fiscal 2001 was primarily attributable to the elimination of certain broadband contracts, changes in the manner in which our services were offered and provided, general cost reductions and the effects of the bankruptcy. The substantial decrease in general and administrative expenses from fiscal 2000 to fiscal 2001 is primarily attributable to substantial cost cutting measures, staff reductions, and reduced salary payments to our executive officers. LIQUIDITY AND CAPITAL RESOURCES We have incurred losses since the inception of our Internet business except for the period January 1, 2001 through November 14, 2001. Our net income of $264,269 for this period is attributable to the effects of our bankruptcy. We expect to continue to incur losses until we increase our revenues 11 while reducing costs of good sold and general and administrative expenses. We have been dependent on acquisitions and funding from lenders and investors to conduct operations. As at December 31, 2001 we had an accumulated deficit of $87,901 compared to an accumulated deficit of $3,757,848 at December 31, 2000. The reduction in our accumulated deflect is attributable solely to the bankruptcy. As at December 31, 2001, we had total current assets of $28,626 and total current liabilities of $150,990 or negative working capital of $122,364. At December 31, 2000, we had total current assets of $25,483 and total current liabilities of $840,327 or negative working capital of $814,844. The improvement in our working capital is attributable to the bankruptcy proceeding. During fiscal 2001 we issued no shares of our common stock. During fiscal 2000, we issued 1,100,000 shares for cash and services valued at $500,000. As at December 31, 2001, we had no material commitments for capital expenditures. In the future, we may sell additional equity or debt securities or seek credit facilities to fund acquisition related or other business costs. Sales of additional equity or convertible debt securities would result in additional dilution to our stockholders. We may also need to raise additional funds in order to support expansion, develop new or enhanced services or products, respond to competitive pressures, or take advantage of unanticipated opportunities. 12 ITEM 7. FINANCIAL STATEMENTS Index to Financial Statements
Page ---- Independent Auditor's Report - Radin, Glass & Co., LLP ............................... 14 Consolidated Balance Sheet as of December 31, 2001 ................................... 16 Consolidated Statement of Operations for the period January 1, 2001 to November 14, 2001 (Debtor-In-Possession), for the period November 15, 2001 to December 31, 2001, and for the year ended December 31, 2000 ................... 17 Consolidated Statement of Deficiency in Assets for the years ended December 31, 2001 and December 31, 2000 ....................................... 18 Consolidated Statement of Cash Flows for the period January 1, 2001 to November 14, 2001 (Debtor-In-Possession), for the period November 15, 2001 to December 31, 2001, and for the year ended December 31, 2000 ................... 19 Notes to Consolidated Financial Statements ........................................... 20
13 INDEPENDENT AUDITOR'S REPORT March 24, 2002 To the Board of Directors and Shareholders The Internet Advisory Corporation We have audited the accompanying consolidated balance sheet of The Internet Advisory Corporation as of December 31, 2001, and the related consolidated statement of operations, stockholders' equity and cash flows for each of the periods November 15, 2001 to December 31, 2001 and January 1, 2001 to November 14, 2001 (Debtor-in-Possession) and for the year ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Internet Advisory Corporation as of December 31, 2001 and the results of its operations and its cash flows for each of the periods November 15, 2001 to December 31, 2001 and January 1, 2001 to November 14, 2001 (Debtor-in-Possession) and for the year ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. The Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court on May 25, 2001. On November 14, 2001, the Company emerged from bankruptcy as described in Note 2 to the financial statements. The Company accounted for the reorganization as of November 14, 2001 and adopted "fresh- 14 start reporting." As a result, the statements of operations and cash flows of the Company for the periods November 15, 2001 to December 31, 2001 and January 1, 2001 to November 14, 2001 are not comparable to the statements of operations and cash flows for the year ended December 31, 2000. /s/ Radin Glass & Co., LLP Certified Public Accountants New York, New York 15 THE INTERNET ADVISORY CORPORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 2001 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents 18,626 Notes receivable 10,000 -------- Total Current Assets 28,626 FURNITURE AND EQUIPMENT, Net 48,763 REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS 9,814 SECURITY DEPOSITS 2,667 -------- TOTAL ASSETS $ 89,870 ======== LIABILITIES AND DEFICIENCY IN ASSETS CURRENT LIABILITIES Current portion of prepetition debt $ 14,991 Current portion of prepetition long term debt-related party 6,875 Related party payable 35,000 Accrued expenses 94,124 -------- TOTAL CURRENT LIABILITIES 150,990 PREPETITION LONG TERM DEBT 22,178 DEFICIENCY IN ASSETS Common stock, $.001 par value; 50,000 shares authorized, issued and outstanding 4,601,794 4,602 Additional paid-in capital 0 Accumulated Deficit (87,901) -------- Total Deficiency in assets (83,299) -------- TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 89,870 ========
See notes to consolidated financial statements. 16 THE INTERNET ADVISORY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
November 15 to January 1 to For the year ended December 31, November 14, December 31, 2001 2001 2000 Debtor-in- Possession -------------- ------------- --------------- NET SALES $ 22,028 $ 277,998 $ 573,615 COST OF GOODS SOLD - 89,290 1,383,800 -------------- ------------- --------------- GROSS PROFIT 22,028 188,708 (810,185) GENERAL AND ADMINISTRATIVE EXPENSE 109,928 293,786 1,231,340 REORGANIZATION EXPENSES - 73,231 - -------------- ------------- --------------- NET LOSS FROM OPERATIONS (87,901) (178,309) (2,041,525) OTHER INCOME (EXPENSES): Interest income - - 3,223 Other income - - 4,216 Interest expense - (257) (5,122) -------------- ------------- --------------- TOTAL OTHER INCOME, net - (257) 2,317 -------------- ------------- --------------- NET LOSS BEFORE INCOME TAXES (87,901) (178,566) (2,039,208) PROVISION FOR INCOME TAXES - - - -------------- ------------- --------------- NET LOSS BEFORE EXTRAORDINARY GAIN (87,901) (178,566) (2,039,208) EXTRAORDINARY GAIN ON BANKRUPTCY RESTRUCTURING NET OF $0 IN INCOME TAXES - 443,195 - -------------- ------------- --------------- NET INCOME/(LOSS) $(87,901) $ 264,629 $ (2,039,208) ============== ============= =============== NET INCOME/(LOSS) PER SHARE $ (0.02) $ 0.06 $ (0.44) ============== ============= =============== WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 4,601,794 4,601,794 4,590,880 ============== ============= ===============
See notes to consolidated financial statements. 17 THE INTERNET ADVISORY CORPORATION CONSOLIDATED STATEMENT OF DEFICIENCY IN ASSETS ----------------------------------------------
Common Stock Additional ------------------ Paid-in Accumulated Shares Amount Capital Deficit Total ------ ------ --------- ------------ ----- Balance, December 31, 1999 4,579,880 $4,580 $ 2,720,879 $(1,718,640) $ 1,006,819 --------- ------ ----------- ----------- ----------- Proceeds from the sale of stock 14,000 14 299,986 300,000 Issued stock for services 8,000 8 411,992 412,000 Net loss (2,039,208) (2,039,208) --------- ------ ----------- ----------- ----------- Balance, December 31, 2000 4,601,880 $4,602 $ 3,432,857 $(3,757,848) $ (320,389) --------- ------ ----------- ----------- ----------- Net income (January 1 to November 14) -- -- -- 264,629 264,629 Treasury shares repurchased and cancelled (86) -- (452) -- (452) Bankruptcy restructuring -- -- 51,000 -- 51,000 Reclassification of accumulated deficit as of November 14, 2001 -- -- (3,483,405) 3,493,219 9,814 --------- ------ ----------- ----------- ----------- Balance, November 14, 2001 4,601,794 4,602 -- (0) 4,602 Net loss (November 15 to December 31) -- -- -- (87,901) (87,901) --------- ------ ----------- ----------- ----------- Balance, December 31, 2001 4,601,794 $4,602 $ -- $ (87,901) $ (83,299) ========= ====== =========== =========== ===========
See notes to consolidated financial statements. 18 THE INTERNET ADVISORY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
NOVEMBER 15 TO JANUARY 1 TO FOR THE YEAR ENDED DECEMBER 31, NOVEMBER 14, DECEMBER 31, 2001 2001 2000 DEBTOR-IN- POSSESSION --------------- ------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) $(87,901) $ 264,629 $(2,039,208) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation expense 785 98,675 134,985 Net gain from bankruptcy restructuring -- (443,195) -- Issued equity rights for services -- -- 412,000 Write-off of other asset -- -- 2,600 Accounts receivable -- 4,452 6,977 Notes receivable -- (10,000) -- Prepaid expenses 8,671 (8,671) 4,099 Security deposits (667) -- -- Accounts payable -- -- 20,409 Prepetition debt (23,459) 67,503 -- Accrued expenses 56,765 37,360 530,695 Deferred revenue -- (18,352) 2,788 -------- --------- ----------- CASH FLOW PROVIDED BY (USED IN) BY OPERATING ACTIVITIES (45,806) (7,599) (924,652) -------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Advance to affiliates -- -- 50,000 Purchases of property and equipment -- -- (106,904) -------- --------- ----------- CASH FLOW PROVIDED BY (USED IN) BY INVESTING ACTIVITIES -- -- (56,904) -------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loan -- -- 30,500 Receipt of Sunrise receivable -- -- 615,000 Proceeds from sale of stock -- -- 300,000 Contribution of capital -- 51,000 -- -------- --------- ----------- CASH FLOW PROVIDED BY FINANCING ACTIVITIES -- 51,000 945,500 -------- --------- ----------- NET (DECREASE) IN CASH (45,806) 43,401 (36,056) CASH AT BEGINNING OF YEAR 64,432 21,031 57,087 -------- --------- ----------- CASH AT END OF YEAR $ 18,626 $ 64,432 $ 21,031 ======== ========= =========== SUPPLEMENTAL DISCLOSURE INFORMATION: Cash paid during the year for interest -- -- 770 Cash paid during the year for income taxes -- -- 289 NON-CASH FINANCING ACTIVITIES: Issued stock for assets $ -- $ -- $615,000 EFFECT OF BANKRUPTCY Leasehold improvements and equipment -- 322,580 -- Security deposits -- 12,361 -- Reorganization value in excess of amounts allocable to identifiable assets -- 9,814 -- Accounts payable -- (231,534) -- Accrued expenses -- (558,581) -- Loan payable officer -- (30,500) -- Common stock -- -- -- Paid in capital -- (3,483,405) -- Accumulated deficit -- 3,493,219 --
See notes to consolidated financial statements. 19 THE INTERNET ADVISORY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TWO YEARS ENDED DECEMBER 31, 2001 Note 1. Organization The Internet Advisory Corporation ("IAC" or "Company") is a Utah corporation, formed in August 1997 and is located in Ft. Lauderdale, Florida. The Company offers internet web site programming, web hosting, e-commerce, and internet access to small and medium size companies. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements of the Company include the accounts of IAC and its subsidiary. All significant inter-company transactions have been eliminated. The following information summarizes the more significant of such policies: Note 2. Reorganization and Basis of Presentation On May 25, 2001, the Company filed a petition for relief with the United States Bankruptcy Court, Southern District of Florida, under the provisions of Chapter 11 of the Bankruptcy Code. For the period May 25, 2001 to November 14, 2001, the Company operated as a "Debtor-in-Possession" under such code. As of November 15, 2001, in accordance with AICPA Statements of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," the Company adopted "fresh-start reporting" and has reflected the effects of such adoption in the financial statements for the period November 15, 2001 to December 31, 2001. The assets and liabilities have been adjusted to fair value in accordance with SOP 90-7. In accordance with the Disclosure Statement and Plan of Reorganization ("the Plan") filed on August 29, 2001, the following occurred: all shareholders were allowed to prevent dilution due to a 50 to 1 reverse stock split by contributing a predetermined sum of cash, only two individuals contributed $51,000 to preserve 4,401,000 of certain stock holdings, all stock options outstanding were dissolved, the Company discharged $731,419 of debt in exchange for either a one time payment or payments over five years totaling $86,861. The gain on the discharge in debt was reduced by a $288,224 write down of furniture and equipment to its expected value. In addition, the Company incurred $73,231 of legal fees related to the bankruptcy filing and the Plan. The Company had a reorganization value in excess of amounts allocable to identifiable assets of $9,814. 20 NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES Leasehold Improvements and Equipment Leasehold improvements and equipment are stated at cost. Maintenance and repairs are charged to expenses as incurred. Depreciation is provided for over the estimated useful lives of the individual assets using straight-line methods. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for cash, receivables, and accrued expenses approximate fair value based on the short-term maturity of these instruments. Stock Based Compensation The Company accounts for employee stock options in accordance with APB Opinion No. 25, "Accounting For Stock Issued To Employees" and has adopted the disclosure-only option under SFAS No. 123. Income Taxes The Company utilizes the liability method of accounting for income taxes as set forth in SFAS 109, "Accounting for Income Taxes." Under the liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has a net operating loss carryforward of approximately $2,735,000, which expire in the year 2020. The related deferred tax asset of approximately $930,000 has been offset by a valuation allowance. The Company's net operating loss carryforwards may be limited, pursuant to the Internal Revenue Code Section 382, as to the utilization of such net operating loss carryforwards due to changes in ownership of the Company over the years. Loss Per Share The Company has adopted SFAS 128, "Earnings per Share." Loss per common share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period using the treasury stock method. Common stock equivalents (common stock warrants) were not included in the computation of loss per share for the periods presented because their inclusion is anti-dilutive. Accounting Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and 21 liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reverse Stock Split All per share data, common stock amounts presented and common stock equivalents, have been adjusted retroactively for the 50 to 1 reverse stock split recorded pursuant to the plan. New Accounting Pronouncements In June 2001, the FASB issued SFAS No. 141, "Business Combination", SFAS No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. It also requires that the Company recognize acquired intangible assets apart from goodwill. SFAS No. 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS No. 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. SFAS No. 143 establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost, which will be effective for financial statements issued for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which basically further clarifies SFAS No. 121 and methods of quantifying potential impairments or disposal of assets as well as the related reporting of such impairments or disposals. The adoption of SFAS No. 141, SFAS No. 142, SFAS No. 143, SFAS No. 144 is not expected to have a material effect on the Company's financial position, results of operations and cash flows. Revenue Recognition Revenue is recognized when earned, as products are completed and delivered or services are provided to customers. 22 NOTE 4. FURNITURE AND EQUIPMENT At December 31, 2001, furniture and equipment consist of the following:
2001 ------- Furniture and equipment $50,000 Less: accumulated depreciation 1,237 ------- $48,763 =======
Furniture and equipment are depreciated over 5 years. Depreciation expense for the year ended December 31, 2001 and 2000 was $108,751 and $134,985, respectively. Furniture and equipment have been restated to their fair value pursuant to SOP 90-7. NOTE 5. RELATED-PARTY TRANSACTIONS As part of the acquisition of Sunrise Web Development, Inc., ("Sunrise"), the Company has recorded an amount due from a shareholder at December 31, 1999 of $615,000. This is the remaining balance of the original funding of Sunrise and was collected by the Company in four installments during January and February of 2000. During 2001, the President of the Company contributed $50,000 to capital in order to maintain his number of shares of common stock outstanding subsequent to the 50 to 1 reverse stock split effective in January 2002, pursuant to the Plan. The President advanced $35,000 to the Company to fund legal expenses associated with the bankruptcy. Such payable is non interest bearing and is due on demand. The President is also part of management of another company whereby the Company is rendering services on a month to month basis. Approximately $123,000 was received and recorded as revenues during the period January 1 to November 14, 2001 and $22,000 was received and recorded as revenues during period November 15 to December 31, 2001. The Company has acquired an affiliated entity effective March 11, 2002. The entity is affiliated since it is under common management. See subsequent events footnote. 23 NOTE 6. NOTE RECEIVABLE The Company advanced $10,000 to an individual bearing interest at 10% per annum. The note receivable is due in April 2002. The individual is the President of a company that the Company had a tentative agreement to acquire, while the Company was in bankruptcy. The acquisition transaction was never culminated. NOTE 7. EQUITY TRANSACTIONS a. In December 1999, the Company issued 4,000,000 shares for $385,000 and a receivable of $615,000 from Sunrise Web Development, Inc., which was fully paid by March 2000. b. During 2000, the Company issued 8,000 shares for advertising services. c. In August 2000, the Company issued 14,000 shares pursuant to a private placement for prices ranging from $20.00 to $25.00 per share. d. In March 2001, the Company issued 14,000 options to an officer and employee at an exercise price of $12.50 per share for five years. e. Pursuant to the plan, the Company effectuated a 50 to 1 reverse stock split for certain shareholders. Certain fractional common shares created from the reverse stock split have been repurchased and cancelled. All respective per share date, common stock and common stock equivalents, have been retroactively adjusted. f. In January 2002, the Company issued 15,000 shares of common stock, in lieu of payment of past legal services. g. On February 13, 2002, the Company declared a 4 for 1 stock dividend, totaling 650,382 of additional common shares to be issued. h. In February 2002, the Company agreed to issue an additional 100,000 shares for legal services in lieu of cash. NOTE 8. STOCK OPTION The Company accounts for its stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees", under which no compensation expense is recognized. The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", for disclosure purposes; accordingly, in addition compensation expense is recognized in the results of operations for options granted at below fair market value as required by APB Opinion No. 25. 24 Stock option activity for the two years ended December 31, 2001 is summarized as follows:
Weighted Average Shares Exercise Price ------ -------------- Outstanding at December 31, 1999 -- $ -- Granted 25,400 25.00 Exercised -- -- Expired or cancelled -- -- ------ ------ Outstanding at December 31, 2000 25,400 25.00 Granted 14,000 12.50 Exercised -- -- Expired or cancelled 39,400 20.56 ------ ------ Outstanding at December 31, 2001 -0- -0- ====== ======
Information, at date of issuance, regarding stock option grants for the year ended December 31, 2001:
Weighted Weighted Average Average Exercise Fair Shares Price Value ------ -------- -------- Year Ended December 31, 2001: Exercise price exceeds market price -- $ -- $ -- Exercise price equals market price 14,000 12.50 13.25 Exercise price is less than market price -- -- --
For disclosure purposes in accordance with SFAS No. 123, the fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for stock options granted during the years ended December 31, 2001 and 2000: annual dividends of $0.00, expected volatility of 100% at December 31, 2000, risk-free interest rate of 5.77% and expected life of five years for all grants. If the Company recognized compensation cost for the vested portion of the employee stock options in accordance with SFAS No. 123, the Company's pro-forma net loss and loss per share would have been approximately, $2,709,607 and $(.60) for the year ended December 31, 2000 and $451,419 and $(.09) for the year ended December 31, 2001. The employee stock options were exercisable for five years from the grant date and vested on the day of issuance. As of December 31, 2001, zero of these stock options are outstanding, since the Plan cancelled all such stock options. 25 NOTE 9. INCOME TAXES The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. SFAS 109 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. At December 31, 2001 and 2000, a valuation allowance for the full amount of the deferred tax asset was recorded because of operating losses incurred and the uncertainties as to the amount of taxable income that would be generated in the future years. The provision (benefit) for income taxes differs from the amounts computed by applying the statutory federal income tax rate to income (loss) before provision for income taxes is as follows:
December 31, ----------------------- 2001 2000 ---- ---- Taxes benefit computed at statutory rate $(90,000) $(554,000) Losses for which no tax benefit realized 90,000 554,000 ------- -------- Net income tax benefit $ -0- $ -0- ======= ========
NOTE 10. OPERATING LEASES The Company reduced the office space being leased pursuant to the terms of the Plan. Future lease commitments are as follows: 2002 49,347 2003 8,266 Rent expense for the year ended December 31, 2001 and 2000 was $93,906 and $68,443, respectively. NOTE 11. SUBSEQUENT EVENT On March 11, 2002, the Company entered into an Acquisition Agreement with Go West Entertainment, Inc. Go West and the shareholders of Go West. The President of the Company is also one of three shareholders of Go West. The Company is contractually obligated to issue 10,000,000 shares of its stock for all of the outstanding stock of Go West. The principal assets of Go West are a twenty year lease on a building in New York, New York and a license agreement granting Go West the right to use the "Scores" name in New York City for the opening of up to three adult entertainment clubs. 26 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. 27 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information, as of April 3, 2002, with respect to our directors and executive officers. Directors serve until the next annual meeting of the stockholders; until their successors are elected or appointed and qualified, or until their prior resignation or removal. Officers serve for such terms as determined by our board of directors. Each officer holds office until such officer's successor is elected or appointed and qualified or until such officer's earlier resignation or removal. No family relationships exist between any of our present directors and officers.
Date of Election or Appointment Name Positions Held Age as Director - ---- -------------- --- ----------- Richard K. Goldring President, Chief Executive Officer, Chief 33 December 2000 Financial Officer, Director Joseph A. Erickson Treasurer, Director 46 December 2000 John Neilson Secretary, Director 43 December 2000
The following is a brief account of the business experience of each of our directors and executive officers during the past five years or more. Mr. Goldring has served as an executive officer and director of ours since December 2000. Since 1994 Mr. Goldring has worked for Scores Entertainment, Inc., first as an accountant before being promoted to his current position of operations manager for "Scores Showroom" located on East 60th Street in Manhattan in 1999. Mr. Goldring is also a shareholder, director, president and chief executive officer of HEIR Holding Company, Inc., the owner of the "Scores" trademarks and an officer, director and principal shareholder for Go West Corporation since its inception in May 2001. Mr. Goldring earned a degree in accounting from Brooklyn College in 1992. Joseph Erickson has served as an executive officer and director of ours since December 2000. He has served as the controller for Scores Entertainment Inc. since 1998. Mr. Erickson has been a practicing accountant for more than 20 years and has a master's degree in taxation. John Neilson has served as an executive officer and director of ours since December 2000. He has been an advisor and management consultant to Go West Entertainment since its inception in May 2001 and has held a similar position with Scores Entertainment, Inc. since 1997. Mr. Neilson has held various positions in the nightclub, restaurant and entertainment industry since receiving his degree in Hotel and Restaurant Management in 1977. 28 BOARD OF DIRECTORS Our directors receive no remuneration for acting as such. Directors may however be reimbursed their expenses, if any, for attendance at meetings of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees. No such committees have been appointed to date. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT To the best of our knowledge, for the fiscal year ended December 31, 2001, Section 16(a) filing requirements applicable to our current officers, directors and greater than 10% beneficial owners, Richard Goldring, John Neilson, Joseph Erickson and Interactive Business Concepts Inc. were satisfied except that Form 5 filings for such persons were made on a late basis, in March 2002. To the best of our knowledge, no filings were made by Jeffrey Olweean who, at times during the fiscal year ended December 31, 2001 was a director and principal shareholder of ours, or by Nicole Leigh Van Coller, who at times during the fiscal year ended December 31, 2001 was a principal shareholder of ours. 29 ITEM 10. EXECUTIVE COMPENSATION The following table sets forth information concerning the total compensation paid or accrued by us during the three fiscal years ended December 31, 2001 to (i) all individuals that served as our chief executive officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2001 and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2001 that received annual compensation during the fiscal year ended December 31, 2000 in excess of $100,000. SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation ----------------------------------------------- ---------------------------------------------------- Fiscal Year Restricted Name and Ended Other Options/ Stock LTIP All Other Principal Position December 31, Salary Bonus Compensation SARs Awards Payouts Compensation - ------------------ ------------ ------ ----- ------------ ---- ------ ------- ------------ Richard K. Goldring, 2001 $13,000 0 0 400,0000(1) 0 0 0 Chief Executive 2000 $24,250 0 0 0 0 0 0 Officer, President 1999 0 0 0 0 0 0 0
- ---------- (1) On March 9, 2001 400,000 stock options were granted to Mr. Goldring each exercisable for the purchase of one share of common stock at a price of $.25 per share at any time during a period of five years from the date of grant. These options were cancelled pursuant to our Chapter 11 Bankruptcy Proceeding. The number of options issued and the stated exercise price have not been adjusted to reflect our 50:1 partial reverse stock split effected after the close of trading on January 2, 2002. OPTION/SAR GRANTS IN LAST FISCAL YEAR (Individual Grants)
Number of Securities Percent of Total Exercise Underlying Options/SARs or Base Options/SARs Granted to Employees Price (per Name Granted (#) in Fiscal Year share) Date of Grant Expiration Date - ----------------------- --------------------- ------------------------- -------------- ------------------ ----------------- Richard Goldring 400,000 options (1)(2) 57.14% $.25 03/09/01 03/08/06
- ---------- (1) On March 9, 2001 400,000 stock options were granted to Mr. Goldring each exercisable for the purchase of one share of common stock at a price of $.25 per share at any time during a period of five years from the date of grant. These options were cancelled pursuant to our Chapter 11 Bankruptcy Proceeding. (2) The number of options issued and the stated exercise price have not been adjusted to reflect the 50:1 partial reverse stock split effected after the close of trading on January 2, 2002. STOCK OPTION PLANS The named executive did not participate in any Company stock option plans during the fiscal year ended December 31, 2001. STOCK APPRECIATION RIGHTS The named executive did not receive any stock appreciation rights from us during the fiscal year ended December 31, 2001. 30 AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR END OPTION/SAR VALUES During the fiscal year ended December 31, 2001 there were no exercises of stock options by the named executive. As at December 31, 2001 the named executive owned no stock options. The named executive has never received stock appreciation rights. LONG TERM INCENTIVE PLAN AWARDS We made no long-term incentive plan awards to the named executive officer during the fiscal year ended December 31, 2001. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL ARRANGEMENTS During the fiscal year ended December 10, 2001 we had no employment agreements, compensation plans or arrangements with respect to the named executive officer which would in any way result in payments being made to such executive officer because of his resignation, retirement or other termination of employment with us or our subsidiaries, or because of any change in control or a change in such executive officer's responsibilities following a change in control. COMPENSATION OF DIRECTORS Our directors receive no compensation for serving as such, for serving on committees of the board of directors or for special assignments. During the fiscal year ended December 31, 2001 there were no other arrangements between us and our directors that resulted in our making payments to any of our directors for any services provided to us by them as directors. REPORT ON REPRICING OF OPTIONS/SARS During the fiscal year ended December 31, 2001 we did not adjust or amend the exercise price of stock options or SARs previously awarded to the named executive ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of April 10, 2002 by (i) each person or entity known by us to be the beneficial owner of more than 5% of our common stock, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on such date and all shares of our common stock issuable to such holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by such person at said date which are exercisable within 60 days of such date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse. 31
Name and Address Shares of Common Stock Percentage of Beneficial Owner Beneficially Owned Ownership(3) ------------------- ------------------ ------------ Interactive Business Concepts, Inc. 2,900,000 18.98% 777 Bayshore Drive, #444 Ft. Lauderdale, FL 33304 Richard K. Goldring 3,708,000(1) 24.27% 5 Fox Chase Drive Watchung, NJ 07060 John Neilson 0 0% c/o The Internet Advisory Corp. 150 E. 58th Street New York, NY 10022 Joseph A. Erickson 0 0% 14 Wendy Road Syosset, New York 11791 Interauditing Srl 10,000,000(2) 65.44% Piazza Duca D'Aosta 6 20124 Milano Italy All directors and executive officers 3,708,000(1) 24.27% as a group (3 persons)
- ---------- (1) Includes (i) 2,900,000 shares owned by Interactive Business Concepts, Inc., a corporation owned by Mr. Goldring and (ii) 8,000 shares owned by Irina Goldring, the wife of Richard Goldring. Does not include 3,333,333 shares to be issued to Richard Goldring pursuant to the March 11, 2002 Acquisition Agreement with Go West Entertainment, Inc. (2) Represents restricted shares issued pursuant to an April 1, 2002 Collateral Loan Agreement between us and Interauditing Srl. Interauditing Srl has advised us that they will not be able to make the loans required by the Collateral Loan Agreement in accordance with the time provisions set forth therein. Accordingly, we intend to terminate the Collateral Loan Agreement and obtain the return of the shares. Upon return, the shares will be cancelled and returned to the status of authorized but unissued shares. For a discussion of the terms of the Collateral Loan Agreement see "Item 1 - Description of Business - Subsequent Events." (3) Based upon 15,279,676 shares issued and outstanding. An additional 10,000,000 shares are to be issued pursuant to the March 11, 2002 Acquisition Agreement with Go West Entertainment, Inc. CHANGES IN CONTROL Not Applicable. 32 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On July 13, 2000 our board of directors granted and issued 300,000 stock options to Jeffrey Olweean; 300,000 stock options to Nicole Leigh Van Coller; and 50,000 stock options to Donald E. Snyder. At the time of grant, each of the foregoing persons was serving as an officer and director of our Company. Each of these options was exercisable for one share of our common stock at an exercise price of $.50 per share at any time through and including June 30, 2005. All of these options were terminated pursuant to the Chapter 11 bankruptcy proceeding. The number of options issued and the stated exercise price have not been adjusted to reflect the 50:1 partial reverse stock split effected after the close of trading on January 2, 2002. On November 1, 2000 our board of directors granted and issued 300,000 stock options to Jeffrey Olweean and 300,000 stock options to Nicole Leigh Van Coller. At the time of grant each of the foregoing persons was serving as an officer and director of our Company. Each of these options was exercisable for one share of our common stock at an exercise price of $.50 per share at any time through and including November 1, 2005. All of these options were terminated pursuant to the Chapter 11 bankruptcy proceeding. The number of options issued and the stated exercise price have not been adjusted to reflect the 50:1 partial reverse stock split effected after the close of trading on January 2, 2002. On March 9, 2001 our board of directors granted and issued 400,000 stock options to Richard Goldring and 300,000 stock options to John Neilson. At the time of grant, both Mr. Goldring and Mr. Neilson were serving as officers and directors of our Company. Each option was exercisable for one share of our common stock at an exercise price of $.25 per share at any time through and including March 8, 2006. All of these options were terminated pursuant to the Chapter 11 bankruptcy proceeding. The number of options issued and the stated exercise price have not been adjusted to reflect the 50:1 partial reverse stock split effected after the close of trading on January 2, 2002. During the fiscal year ended December 31, 2000 Richard Goldring periodically made loans to us. As at December 21, 2000 we owed Mr. Goldring an aggregate of $30,500. On such date, we issued a promissory note to Mr. Goldring in the principal amount of $30,500 paying interest at the rate of 10% per year. The note was due and payable on or before December 31, 2001. This loan was settled in the Chapter 11 bankruptcy proceeding. During the fiscal year ended December 31, 2000 we advertised at a cost of $1,500 per month on a radio station owned by The Human Cash Register, Inc., a corporation controlled by Jeffrey Olweean, a former officer and director. In connection with our bankruptcy proceeding and in furtherance of our Plan of Reorganization (the "Plan"), in November, 2001 Richard Goldring contributed $50,000 to help fund the Plan in exchange for the retention of his full equity interest notwithstanding our effectuation of a partial 50:1 reverse stock split. In May 2001, Richard Goldring loaned $35,000 to the Company to fund legal expenses associated with the bankruptcy filing. The loan is non-interest bearing and is payable on demand. In May 2001 we entered into a verbal, month to month, consulting agreement with Scores Entertainment, Inc. ("SEI"), pursuant to which SEI pays us up to $25,000 per month. 33 On March 11, 2002 we entered into an Acquisition Agreement with Go West Entertainment, Inc. and Richard Goldring, Elliot Osher and William Osher, the shareholders of Go West Entertainment, Inc. Pursuant thereto we acquired all of the issued and outstanding capital stock of Go West Entertainment, Inc. in exchange for 10,000,000 shares of our restricted common stock (the "Acquisition Shares"). As at April 8, 2002, we have yet to issue the Acquisition Shares. For a more detailed description of the Acquisition Agreement see "Item 1 - Description of Business - Subsequent Events." 34 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K REPORTS ON FORM 8-K During the fiscal quarter ended December 31, 2001 we filed one Current Report on Form 8-K on November 29, 2001 wherein we reported under Item 3 thereof, that U.S. Bankruptcy Court for the Southern District of Florida had entered an order on November 14, 2001 confirming our Plan of Reorganization under Chapter 11 of the Bankruptcy Code. EXHIBITS The following Exhibits are being filed with this Annual Report on Form 10-KSB:
Exhibit Number Item -------------- ---- 2.1 Acquisition Agreement dated March 11, 2002 among Registrant, Go West Entertainment Inc., and the Shareholders of Go West Entertainment Inc. 10.1 Collateral Loan Agreement dated April 1, 2002 between Registrant and Interauditing Srl. 21 Subsidiaries - As at December 31, 2002 we had one subsidiary, Sunrise Web Development, Inc., a Florida corporation
35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 12, 2001 THE INTERNET ADVISORY CORPORATION By: /s/ Richard K. Goldring --------------------------------- Richard K. Goldring President and Director In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ----------------------------------- ----------------------------- --------------- /s/ Richard K. Goldring President, Chief Executive April 12, 2002 - ----------------------------------- Officer, Chief Financial and Richard K. Goldring Accounting Officer /s/ Joseph A. Erickson Treasurer April 12, 2002 - ----------------------------------- Joseph A. Erickson Board of Directors /s/ Richard K. Goldring Director April 12, 2002 - ----------------------------------- Richard K. Goldring /s/ Joseph A. Erickson Director April 12, 2002 - ----------------------------------- Joseph A. Erickson /s/ John Neilson Director April 12, 2002 - ----------------------------------- John Neilson
36 THE INTERNET ADVISORY CORPORATION EXHIBIT INDEX
Exhibit Number Item Page - -------------- ---- ---- 2.1 Acquisition Agreement dated March 11, 2002 among Registrant, Go West Entertainment Inc., and the Shareholders of Go West Entertainment Inc........................................................ 38 10.1 Collateral Loan Agreement dated April 1, 2002 between Registrant and Interauditing Srl.................................................... 46 21 Subsidiaries - As at December 31, 2002 we had one subsidiary, Sunrise Web Development, Inc., a Florida corporation
37 EX-2.1 3 y59658ex2-1.txt ACQUISITION AGREEMENT EXHIBIT 2.1 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (the "Agreement") is made and entered into this 11th day of March, 2002 by and among The Internet Advisory Corporation, a Utah corporation with its principal place of business at 150 East 58th Street, New York, NY 10022 ("TIAC"); Go West Entertainment, Inc, a New York corporation with its principal place of business at 150 East 58th Street, New York, NY 10022 ("Go West"); and the Go West shareholders listed on Exhibit A attached hereto and made a part hereof (singly and collectively referred to herein as the "Shareholders"). PREAMBLE WHEREAS, Go West has authorized capital stock consisting of 25,000,000 shares of common stock, $.001 par value per share (the "Common Stock") and 5,000,000 shares of preferred stock, $.001 par value per share (the "Preferred Stock") of which 7,500,00 shares of Common Stock are issued and outstanding and owned by the Shareholders; and WHEREAS, TIAC desires to acquire all of the Common Stock owned by the Shareholders, making Go West a wholly owned subsidiary of TIAC, in exchange for ten million (10,000,000) shares of TIAC's common stock, $.001 par value per share, and the Shareholders similarly desire to make such exchange; and WHEREAS, the parties desire that the exchange qualify as a tax free exchange meeting the requirements of Article 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, in consideration of the premises, and of the promises, covenants and conditions contained herein, the parties intending to be legally bound, hereby agree as follows: WITNESSETH: ARTICLE 1 EXCHANGE OF SHARES Subject to the hereinafter described conditions, TIAC hereby agrees to transfer and deliver ten million (10,000,000) shares of its common stock, $.001 par value (the "TIAC Shares"), to the Shareholders in exchange for all of the capital stock of Go West, consisting of seven million five hundred (7,500,000) shares of Common Stock owned by the Shareholders (the "Go West Shares"). ARTICLE 2 CLOSING The exchange of the TIAC Shares for the Go West Shares (the "Share Exchange") shall take place at the offices of Kaplan Gottbetter & Levenson, LLP, 630 Third Avenue, New York, New York 10017, or such other place as the parties may mutually agree (the "Closing"). The Closing shall take place as soon as practicable after the execution of this Agreement, but in all events not later than five (5) business days from the date hereof, unless mutually extended by the parties. The date on which the Closing occurs is referred to herein at the Closing Date. At the Closing: 38 (a) The Shareholders shall tender to TIAC certificates representing all of Go West's authorized, issued and outstanding capital stock, duly executed and in proper form for transfer to TIAC, together with such executed consents, powers of attorney, stock powers and other items as shall be required to convey such stock to TIAC, in compliance with all applicable laws; and (b) TIAC shall tender to the Shareholders, certificates representing an aggregate of ten million (10,000,000) TIAC Shares and such other items as shall be required to convey such stock to the Shareholders in compliance with all applicable laws. ARTICLE 3 EXEMPTION FROM REGISTRATION (a) The Shareholders hereby represent, warrant, covenant and acknowledge that: (1) The TIAC Shares are being issued to them without registration under the provisions of Article 5 of the Securities Act of 1933, as amended (the "Act"), pursuant to exemptions provided pursuant to Article 4(2) thereof; (2) All of the certificates for the TIAC Shares will bear legends restricting their transfer, sale, conveyance or hypothecation, unless such TIAC Shares are either registered under the provisions of Article 5 of the Act and under applicable state securities laws, or an opinion of legal counsel, in form and substance satisfactory to legal counsel to TIAC, is provided certifying that such registration is not required as a result of applicable exemptions therefrom; (3) TIAC's transfer agent shall be instructed not to transfer any of the TIAC Shares unless TIAC advises it that such transfer is in compliance with all applicable laws; (4) The Shareholders are acquiring the TIAC Shares for investment purposes only, and not with a view to further sale or distribution; and (5) Go West, the Shareholders and their advisors have been given and had access to all reports filed by TIAC with the Securities and Exchange Commission and have examined all of TIAC's books, records and financial statements and fully and completely questioned TIAC's officers and directors to their satisfaction as to all matters they deemed pertinent. (b) TIAC hereby represents, warrants, covenants and acknowledges that: (1) The Go West Shares are being transferred without registration under the provisions of Article 5 of the Act pursuant to exemptions provided pursuant to Article 4(2) thereof; (2) The certificates for the Go West Shares will bear legends restricting their transfer, sale, conveyance or hypothecation, unless such Go West Shares are either registered under the provisions of Article 5 of the Act and under applicable state securities laws, or such registration is not required as a result of applicable exemptions therefrom; (3) TIAC shall not transfer any of the Go West Shares except in compliance with all applicable laws; (4) TIAC is acquiring the Go West Shares for investment purposes only and not with a view to further sale or distribution; and 39 (5) TIAC has been given and had access to all books, records and financial statements of Go West and has fully and completely questioned Go West's officers and directors to its satisfaction as to all matters it deemed pertinent. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF GO WEST AND THE SHAREHOLDERS Go West and the Shareholders hereby represent and warrant to TIAC as follows: (a) Go West is a corporation duly organized, validly existing, and in good standing under the laws of the State of New York, and has the legal capacity and all necessary corporate authority to enter into and perform this Agreement and to consummate the transactions contemplated hereby; (b) At the Closing, Go West shall have good and marketable title to all of its assets free and clear of all liens, claims, charges, and any other encumbrances. These assets will include (i) a license agreement with Heir Holding Co. Inc granting Go West the right to use the "Scores" name in New York City for up to three adult entertainment clubs; and (ii) a lease for a facility at 533-535 West 27th Street, New York, NY from which Go West intends to operate an adult entertainment club utilizing the "Scores" name. (c) At the Closing, Go West shall have no liabilities other than those liabilities listed in Exhibit B hereof. (d) The Go West Shares represent all of Go West's issued and outstanding capital stock. At the Closing, Go West shall have no outstanding subscriptions, options, warrants, or other convertible securities that could result in an obligation to issue additional capital stock of Go West; (e) This Agreement has been duly authorized, executed and delivered by Go West and the Shareholders and constitutes a legal, valid and binding obligation of Go West and the Shareholders, enforceable against Go West and the Shareholders in accordance with its terms; (f) The execution and delivery of this Agreement and the performance of the obligations imposed hereunder will not conflict with, or result in a breach by Go West of, any of the terms or provisions of, or constitute a default under the certificate of incorporation or bylaws of Go West, or any material agreement or instrument to which Go West is a party, or by which it or any of its properties or assets are bound, or result in a violation of any order, decree, or judgment of any court or governmental agency having jurisdiction over Go West or Go West's properties, will not conflict with, constitute a default under, or result in the breach of, any contract, agreement, or other instrument to which Go West is a party or is otherwise bound and no consent, authorization or order of, or filing or registration with, any court, governmental, or regulatory authority is required in connection with the execution and delivery of this Agreement and any related agreements or the performance by Go West of its obligations hereunder; (g) There is no litigation or proceeding pending or, to the best knowledge of Go West and the Shareholders, threatened, against Go West, the property of Go West, or any of the Shareholders which would have any effect on the validity or performance of this Agreement; (h) Go West and the Shareholders are aware that the TIAC Shares have not been registered under the Act and may not be transferred or otherwise disposed of unless they are subsequently registered under the Act or an exemption from such registration is available. Additionally, each of the Shareholders has such knowledge and experience in financial and business matters that such Shareholder is capable of evaluating the merits and risks of the purchase of the TIAC Shares and making an informed investment 40 decision with respect thereto, has evaluated the merits and risks of the purchase of the TIAC Shares, and is able to bear the economic risk of purchasing the TIAC Shares; (i) Each of the Shareholders is purchasing the TIAC Shares for its own account for investment purposes and not with a view to "distribute" the TIAC Shares as that term is defined in the Act; (j) Go West and each of the Shareholders have been provided with any and all written information and materials concerning TIAC, and its business which it has requested and has had the opportunity to conduct and has conducted its own due diligence in connection with the purchase set forth herein; (k) Neither TIAC, nor any person acting on behalf of TIAC, has offered, offered to sell, offered for sale or sold the TIAC Shares to the Shareholders by means of any form of general public solicitation or advertising; (l) Go West has filed with the appropriate governmental agencies all tax returns and tax reports required to be filed; all Federal, state and local income, franchise, sales, use, occupation or other taxes due have been fully paid or adequately reserved for; and Go West is not a party to any action or proceeding by any governmental authority for assessment or collection of taxes, nor has any claim for assessments been asserted against Go West; (m) There are presently no contingent liabilities, factual circumstances, threatened or pending litigation, contractually assumed obligations or unasserted possible claims which are known to Go West, which might result in a material adverse change in the future financial condition or operations of Go West; (n) No transactions have been entered into either by or on behalf of Go West, other than in the ordinary course of business nor have any acts been performed (including within the definition of the term performed the failure to perform any required acts) which would adversely affect the good will of Go West, nor will any such transactions be entered into prior to the Closing; (o) Go West does not have any subsidiaries; (p) The Shareholders own the Go West Shares free and clear of all liens, claims, charges, preemptive rights, and any other encumbrances and shall deliver the Go West Shares to TIAC at Closing free and clear of all liens, claims, charges, preemptive rights, and any other encumbrances; (q) Go West shall comply, at Go West's expense, with all Federal, state and local stock transfer tax requirements; and (r) Go West has acquired the right to use the "Scores" name in New York City for up to three adult entertainment clubs pursuant to a license agreement between Go West and Heir Holding Co., Inc., the owner of the Scores trademark. ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF TIAC TIAC hereby represents and warrants to Go West and the Shareholders as follows: (a) TIAC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Utah and has the legal capacity and all necessary corporate authority to carry on its business, 41 to own its properties and assets, and to enter into and perform this Agreement and to consummate the transactions contemplated hereby; (b) This Agreement has been duly authorized, executed and delivered by TIAC and constitutes a legal, valid and binding obligation of TIAC, enforceable against TIAC in accordance with its terms; (c) The execution and delivery of this Agreement and the performance of the obligations imposed hereunder will not conflict with, or result in a breach by TIAC of, any of the terms or provisions of, or constitute a default under the certificate of incorporation or bylaws of TIAC, or any material agreement or instrument to which TIAC is a party, or by which it or any of its properties or assets are bound, or result in a violation of any order, decree, or judgment of any court or governmental agency having jurisdiction over TIAC or TIAC's properties, will not conflict with, constitute a default under, or result in the breach of, any contract, agreement, or other instrument to which TIAC is a party or is otherwise bound and no consent, authorization or order of, or filing or registration with, any court, governmental, or regulatory authority is required in connection with the execution and delivery of this Agreement and any related agreements or the performance by TIAC of its obligations hereunder; (d) There is no litigation or proceeding pending or, to the best knowledge of TIAC, threatened, against TIAC which would have any material effect on the validity or performance of this Agreement; and (e) The TIAC Shares will, when issued, be duly authorized, validly issued, fully paid, and non-assessable. ARTICLE 6 NOTICE All notices, demands or other communications given hereunder shall be in writing and shall be deemed to have been duly given when received if sent by fax or overnight courier, and if mailed shall be deemed to have been given on the first business day after mailing by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: To TIAC: The Internet Advisory Corporation 150 East 58th Street New York, NY 10022 Telephone: (212) 421-8480 Facsimile: (212) 421-8357 With a copy to: Kaplan Gottbetter & Levenson, LLP 630 Third Avenue New York, NY 10017 Telephone: (212) 983-6900 Facsimile: (212) 983-9210 To Go West: Go West Entertainment, Inc. 150 East 58th Street New York, NY 10022 Telephone: (212) 421-8480 Facsimile: (212) 421-8357 To the Shareholders: At the address provided for Go West above. 42 ARTICLE 7 MISCELLANEOUS (a) Each of TIAC, Go West and the Shareholders agrees to take such actions as are reasonably necessary to carry out the intentions of the parties under this Agreement, including but not limited to the prompt execution and delivery of any documents reasonably necessary to carry out and perform the terms or intention of this Agreement. (b) All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs or expenses, unless otherwise agreed. (c) This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws of principles and each party hereby agrees that all performances due and transactions undertaken pursuant to this Agreement shall be deemed to be due or have occurred in New York, and the exclusive venue and place of jurisdiction for any litigation arising from or related to this Agreement shall be the state or federal courts located in the State and County of New York. (d) The headings used in this Agreement are for convenience only, do not form a part of this Agreement, and shall not affect in any way the meaning or interpretation of this Agreement. (e) This Agreement may be executed in one or more counterparts which when taken together shall constitute one agreement. (f) This Agreement is intended for the benefit of the parties hereto and is not for the benefit of, nor may any provisions hereof be enforced by any other person, firm or entity. (g) This Agreement may be amended, modified and supplemented in writing only by the mutual consent of the parties hereto. (h) This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties, and any attempts to do so without the consent of the other parties shall be void and of no effect. (i) In the event any party breaches the terms of this Agreement, the non-breaching parties shall be entitled to the recovery of their attorney's fees and other professional costs and fees incurred in enforcing their rights hereunder. (j) This writing constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter contained herein. Neither party is relying on any representation or statement not contained in this writing. This Agreement supercedes and cancels any prior agreements relating to the subject matter contained herein. 43 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first written above. THE INTERNET ADVISORY CORPORATION By: /s/ John Neilson -------------------------------- Name: John Neilson Title: Vice President and Secretary By: /s/ Joseph Erickson -------------------------------- Name: Joseph Erickson Title: Treasurer GO WEST ENTERTAINMENT, INC. By: /s/ Richard Goldring -------------------------------- Name: Richard Goldring Title: President THE SHAREHOLDERS: /s/ Richard Goldring - ----------------------------------- Name: Richard Goldring /s/ Elliot Osher - ----------------------------------- Name: Elliot Osher /s/ William Osher - ----------------------------------- Name: William Osher 44 EXHIBIT A LIST OF SHAREHOLDERS
NUMBER OF GO WEST SHARES NAME OWNED Richard Goldring 2,500,000 Elliot Osher 2,500,000 William Osher 2,500,000
EXHIBIT B LIST OF GO WEST LIABILITIES AT CLOSING Accounts Payable - $1,270,327 45 EX-10.1 4 y59658ex10-1.txt COLLATERAL LOAN AGREEMENT EXHIBIT 10.1 COLLATERAL LOAN AGREEMENT This Collateral Loan agreement (the "Agreement"), dated this 1st day of April, 2002, is entered into between Interauditing Srl, an Italian Corporation with a principal address at Piazza Duca D'Aosta 6, 20124 Milano, Italy (the "Lender"), and The Internet Advisory Corporation, a Utah corporation with a principal address at 150 East 58th Street, New York, NY 10022 (the "Borrower"). In consideration of the mutual covenants herein contained, and intending to be legally bound hereby, the parties agree as follows: 1. LOAN AND DELIVERY OF COLLATERAL PURSUANT TO PROMISSORY NOTES a. Subject to the terms and conditions hereinafter set forth, the Lender agrees to provide to Borrower a line of credit in an amount of up to 20% ("the Loan Market Value Percentage") of the Final Market Value, as such term is defined in Section 3 hereof (the "Loan Amount" or the "Loan") of certain restricted shares of Borrower's common stock (the "Stock"). The Lender will pay the Loan Amount to Borrower in no more than two (2) installments. 50% or more of the Loan Amount (the "Initial Payment") will be paid to Borrower not more than five (5) days after Borrower shall have delivered the Stock and all other documents required by this Agreement to Lender. The balance of the Loan Amount will be paid to Borrower not more than ten (10) day after the Initial Payment. The Borrower's obligation to repay the Loan Amount shall be evidenced by one or more promissory notes issued in the form of "Exhibit A" attached hereto (the "Promissory Notes.)" The Promissory Notes shall be executed by Borrower and delivered to the Lender via courier upon Borrower receiving notification by Lender that funds are available to advance the Loan Amount. b. To secure its obligations under the Loan, Borrower will issue the Stock in the name of Lender. The Stock will serve to collateralize the Loan and will contain restrictions on assignment and transfer. In connection with such restrictions, the Stock will contain the following legends: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, transferred, pledged, hypothecated or otherwise disposed of in the absence of (i) an effective registration statement for such securities under said Act or (ii) an opinion of company counsel that such registration is not required." Concurrently with the execution of this Agreement, Borrower shall deliver the Stock (in physical certificate form) to the branch office of Credito Italiano Bank (the "Bank") in New York, located at 375 Park Avenue, New York, New York, 10152, for final credit to the Lender's account number 999647 0 at Credito Italiano Milano Cordusio Branch 200 NDG N 13372852. The Stock shall be free and clear from all liens and encumbrances at the time it is deposited, and shall not be subject to other restrictions or limitations, (i.e., shareholder rights, etc.) other than the restrictions related to its status as restricted stock and any other restrictions imposed by this Agreement. 46 c. This Agreement, the Promissory Notes, and the other documents specified above constitute the "Loan Documents". 2. LOAN PROCEEDS AND INSTALLMENT PAYMENTS a. All Loan Amounts payable to Borrower shall be wired directly to Borrower based on wire instructions provided by Borrower, without deduction for any charges, expenses or commissions, except for a 2% engagement service fee (the "Engagement Service Fee") payable to the Lender. Net Loan proceeds shall be immediately available to the Borrower. b. Delivery of the Promissory Notes to Lender shall be a Condition Precedent to delivery of the Loan Amount by the Lender, which will also be subject to confirmation by outside counsel of the Lender as to availability of funds. c. In the event the Lender does not advance to the Borrower the Loan Amount, the Borrower's sole and exclusive remedy shall be to demand an immediate return of the Stock and the Promissory Notes. Lender shall comply within five (5) business days of receipt of said demand in hard copy written form. In the event Lender does not comply in accordance with the time frame set forth above, or any extended time frame granted by Borrower, this Section 2.c. will be deemed null and void and Borrower will be free to seek alternative remedies. 3. DETERMINATION OF MARKET VALUE Upon the execution of this Agreement (said "execution" being deemed to include delivery of a signed copy of this Agreement to the Lender), receipt of the Stock and all Loan Documents required by the Lender, the "Final Market Value" shall be used as the value to determine the Loan Amount. The Loan Amount shall be calculated by multiplying the Final Market Value by the Loan Market Value Percentage specified in Section 1.a. The Final Market Value shall be calculated based on the average closing price for Borrower's common stock as traded on the OTC Bulletin Board, for the ten (10) trading days immediately preceding the date the Stock and the Loan Documents are delivered. However, if the closing share price on the last trading date of this ten-day trading period is less than the ten day average closing price, the closing share price on that last trading date shall be used to determine Final Market Value. Final Market Value is equal to the closing price indicated above multiplied by the number of shares of the Stock delivered to the Lender as specified above. 4. ADJUSTMENT TO LOAN AMOUNT Ninety calendar days after the date (the "Issue Date") of the first Promissory Note provided by Borrower to Lender, the Final Market Value and Loan Amount will be recalculated. The formula used for the recalculation will be the same as that used in Section 3 above, except that the average price will be calculated using the twenty trading days immediately preceding the ninetieth calendar day to calculate the share price. The resulting "Final Market Value" calculated in this manner will be multiplied by the Loan Market Value Percentage noted in Section 1.a. above, and, if the recalculated Loan Amount is 10% or more greater than the original Loan Amount calculated under Section 3, then the difference between the two Loan Amounts will be advanced as a new loan within five (5) business days of the ninetieth calendar day following the Issue Date as noted. However, if the recalculated Loan Amount is not 10% or more greater than the original Loan Amount, no adjustment will be made. 47 5. CONCERNING THE PROMISSORY NOTES Except as otherwise provided in this Agreement, the Stock pledged under this Agreement shall be held as collateral as long as there is any principal or interest outstanding under the Promissory Notes. Upon satisfaction of all principal and interest under the Promissory Notes, the Lender shall promptly deliver to the Borrower the Stock and the Loan Documents, other than the Lender's copy of the Loan Documents. The Lender shall give written notice of any default on the Loan to the Borrower in accordance herewith and Borrower may thereafter have ten (10) business days (the "Cure Period") to cure such default. In the event Borrower fails to cure such default within the Cure Period, Lender may then sell, assign, hypothecate, or otherwise dispose of the Stock as herein provided. The Lender accepts no responsibility for the amount of proceeds obtained through the disposition of the Stock under any lawful means. However, proceeds obtained in excess of the total of the default amount plus reasonable attorney's fees, if any, and costs of disposing of the Stock shall be returned to the Borrower. The Stock shall constitute the entire collateral used to procure the Loan, and the Lender shall be limited to liquidation of the Stock upon an Event of Default as defined in the Promissory Notes. The Lender shall have no recourse to other assets of the Borrower (i.e., this Loan is "non-recourse" as to any other assets of the Borrower.) 6. CLOSING The closing shall take place on the later of the delivery of the Promissory Notes or the Stock to the Lender. 7. SECURITY OF STOCK The Lender accepts full responsibility for the control, handing and return of such Stock to the Borrower. Accordingly, the Lender hereby warrants the following: i) the Stock will not be hypothecated, assigned, transferred, or otherwise encumbered (other than as specified in this document); ii) the Stock will not be used to short sell the Stock while the Stock is on deposit with the Bank; iii) the Stock shall remain on deposit with the Bank in a designated account for the entire period of the Loan; and iv) the Stock will not be used in any manner that is not prescribed other than as provided for in this agreement or the Promissory Note(s). 8. USE OF THE STOCK The Lender shall use the Stock to arrange for a credit facility ("the Investment Credit Facility") in the amount of up to 70% of the Final Market Value of the Stock. In establishing this credit facility, the Lender will use the Stock as collateral but will not remove the Stock from the account into which the Borrower originally deposited it, nor will the Lender allow a change in control of the Stock. The Lender hereby warrants that upon repayment of the Loan Amount, the Stock will be immediately returned to the Borrower without liens or encumbrances. It is thereby intended by both parties that all risks associated with investments made by the Lender utilizing the Investment Credit Facility remain with the Lender and are not passed on to the Borrower. Regarding investments to be made utilizing the Investment Credit Facility, the Lender will make investments deemed by the Lender to possess strong profit potential with minimal risk. It is hereby agreed between the Borrower and the Lender that profits created from the investments made by the Lender shall be shared 70% to the Lender and 30% to the Borrower. It is understood that the Borrower's portion of accumulated profits from these investments will be applied first to the interest 48 owed on the Loan to the Borrower from the Lender and second to the principal outstanding on the Loan. All proceeds due to the benefit of the Borrower will be deposited in an account to be established for the Borrower at Credito Italiano, Milano, Italy. On the first anniversary of this Agreement, the Borrower and the Lender will use their best efforts to agree to an annual payment to be made to the Lender to reduce the outstanding principal on the Loan. At such anniversary date, the Borrower and Lender will renegotiate this Agreement with respect to investment goals and the Lender's investment authority for the second year of this Agreement. This Agreement shall be similarly renegotiated on each anniversary date during the overall term of this Agreement. 9. VOTING PROXY Absent an uncured default, Lender agrees that it shall have no right to vote the stock on any matters put before the shareholders of Borrower for a vote. In connection therewith, Lender agrees that it shall execute and deliver a voting proxy with respect to the Stock in favor of a designee of Borrower. 10. REPRESENTATIONS AND WARRANTIES OF THE BORROWER In order to induce the Lender to provide the Loan according to Promissory Notes in the form of the attached Exhibit A, Borrower makes the following representations and warranties to the Lender; such representations and warranties shall be unaffected by any separate inquiries, credit and/or security investigation made by the Lender prior to or after execution of this Agreement and shall survive the closing of the transactions contemplated hereby: a. Borrower has all requisite power and authority to enter into this Agreement and all other Loan Documents, including, without limitation, the Promissory Notes, and to carry out the transactions contemplated hereby. b. Borrower warrants and represents that it is not now insolvent, bankrupt, or contemplating bankruptcy, that there are no legal claims filed or to its knowledge threatened against Borrower, whether judged with or without merit by the Borrower, and that there are no other impediments to the sale or transfer of the Stock. c. The execution and delivery of this Agreement, the Promissory Notes, and the other Loan Documents and instruments to be executed and delivered by the Borrower are not subject to recall, restriction on voting, use, or other limitations. d. This Agreement, the Promissory Notes, and other Loan Documents, when executed and delivered, will constitute valid binding agreements of the Borrower, enforceable in accordance with their respective terms, except such as may be limited by bankruptcy, insolvency, reorganization, or other laws affecting creditor's rights generally. e. Neither the execution and delivery of this Agreement, the Promissory Notes, or the other Loan Documents and instruments to be executed and delivered by Borrower pursuant hereto, nor the consummation by Borrower of the transaction contemplated hereby, will require any authorization, consent, approval, exemption or any other action by, or notice to, any governmental entity except as specifically provided herein. 49 f. Borrower does not have material tax deficiencies, federal, state, foreign, county, local, or other, that would or could affect the solvency, final status of, or otherwise compromise Borrower in its ability to transfer the Stock. g. To the best of Borrower's knowledge, the information supplied by Borrower to Lender (verbally and in writing) contains no untrue statement of material fact or omits or shall omit a material fact, which would make such statements misleading. All statements and information contained in any certificate, instrument, schedule or document delivered by Borrower shall be deemed representations and warranties made by borrower. h. In connection with the Loan and the issuance of the Stock, Borrower agrees to make all required disclosures to the Securities and Exchange Commission ("SEC") and any other applicable regulatory authorities. Borrower shall indemnify Lender against any penalties, fees, fines, or lawsuites that may arise from Borrower's failure to make proper regulatory disclosures related to the issuance of the Shares. i. In the event of an uncured default on the Loan, as described in Section 5 of this document, Lender will have the immediate right to sell the Shares. In such event, Borrower agrees that it will, as soon thereafter as is practicable, take all reasonable steps to register the Stock for resale by Lender. 11. CONDITION PRECEDENT TO LENDER'S OBLIGATIONS The obligation of the Lender to consummate the transactions contemplated herein is subject to the satisfaction of the following conditions (any one or more of which may be waived by the Lender): a. Borrower will have performed all obligations and complied with all conditions required to be performed or complied with by Borrower at or prior to the Closing. b. The representation and warranties of Borrower made herein shall be true and correct as of the Closing. If any of the conditions contained in this paragraph have not been satisfied (or waived), Lender may cancel and terminate this Agreement. 12. AMENDMENT AND WAIVER This Agreement may be amended, or the terms hereof waived, only in writing and having been executed by all of the parties to this Agreement. 13. NOTICES All notices and other communications hereunder shall be delivered in writing and shall be deemed to have been given if delivered by hand or facsimile transmission or if deposited with a recognized overnight delivery service, with receipt, addressed as follows: If to Borrower at: The Internet Advisory Corporation 150 East 58th Street New York, NY 10002 Attn: Richard Goldring, President 50 With a copy to: Kaplan Gottbetter & Levenson, LLP 630 Third Avenue New York, NY 10017 Attn: Adam S. Gottbetter If to the Lender at: Interauditing Srl Piazza Duca D'Aosta, 6 20124 Milano, Italy Tel: + 39 02 67078369 Fax: + 39 02 66982065 E-mail: cevolo@dadaconsulting.com Or, at such other address as may hereafter be designated by either party by written notice given hereunder. Notices sent by facsimile transmission must show the sender's time of transmission information ("TTI") on such copy. 14. GOVERNING LAW & SITES FOR LITIGATION This Agreement shall be governed by the laws of the State of New York without regard to any provisions or conflict of law. The parties agree that any differences shall be filed and adjudicated in this Governing State. 15. BINDING EFFECT This Agreement binds, and shall inure to the benefit of, the parties and their respective successor and assigns. 16. COUNTERPARTS, FACSIMILE AND SIGNATURES. This Agreement may be signed in any number of counterparts, and such shall be deemed an original together as one and the same document. The parties agree that facsimile signatures which copy shall show the sender's TTI shall be deemed an original. 17. ENTIRE AGREEMENT This Agreement and related Loan Documents constitute the entire agreement of the parties with respect to the subject matter hereto and supersede any prior or contemporaneous understandings or agreements. 18. TIME OF ESSENCE Time is specifically declared to be of the essence in the performance by Borrower and the Lender of their respective duties and responsibilities under this Agreement. 19. CONFIDENTIALITY Whereas the Lender has developed a number of important and sensitive business contacts and relationships, either directly or indirectly, such contacts and relationships are limited to the Lender and/or its designees. Any intentional contact by any executive officer or director of the Borrower, either directly or indirectly, without specific, written, prior permission of the Lender or unless otherwise required in furtherance of this Agreement, shall be viewed as a violation of this Agreement 51 if such contact was initiated for the specific purpose of circumventing this Agreement, and render this Agreement null and void from inception. A minimum of five business days prior to declaring this Agreement null and void pursuant to this Section 19, Lender must supply Borrower with written notice thereof including detailed, incontrovertible proof that supports the assertion being made. Following a termination of this Agreement pursuant to this Section 19, any monies due to the Lender shall be immediately due and payable along with any accrued interest. Failure by the Borrower to make such repayment within five (5) business days shall give the Lender the right, but not the obligation, to liquidate any and all collateral in order to obtain satisfaction of the Promissory Notes. After payment of these outstanding amounts by the Borrower, the Lender's obligation will be limited solely to the return of the Stock along with a notice of cancellation of the Promissory Notes. Should the Lender fail to meet its obligation(s) under this Agreement, this section shall not apply and the Borrower may communicate with any party required in order to secure the return of the Stock. 20. TERMS AND CONDITIONS PURSUANT TO LOAN See Appendix "A", Terms and Conditions Pursuant to Loan. 52 IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties have executed this Agreement as of the day and year first above written. ACCEPTED ON BEHALF OF THE LENDER: By: /s/ Stefano Cevolo ----------------------------------- Dott. Stefano Cevolo Title: Chief Executive Officer -------------------------------- Date: April 1, 2002 --------------------------------- ACCEPTED ON BEHALF OF BORROWER: By: /s/ Richard Goldring ----------------------------------- (Authorized Signature) Title: President -------------------------------- Date: April 1, 2002 --------------------------------- 53 APPENDIX "A" TERMS & CONDITIONS PURSUANT TO LOAN Term - The initial term of the Loan will be 1 year. However, Borrower shall have the option to extend the Loan, in whole or in part, for up to three additional 1 year periods. Accordingly, the maximum Loan term, as extended, shall be 4 years. Borrower shall exercise its right to extend the Loan by advising Lender in writing not less than 30 days prior to the Loan termination date then in effect (the "Loan Extension Notice"). Each extension will be for an additional 1 year period. The Loan Extension Notice delivered by Borrower to Lender may, at Borrower's option, provide for Borrower's replacement of the Stock with one or more new certificates representing the same number or restricted shares of Borrower's common stock as the Stock being replaced. In connection therewith, the parties acknowledge that a simultaneous exchange is contemplated and that they will fully cooperate with on another to effect said exchange. Following replacement, the new certificates shall be treated in the same manner as the Stock. Borrower can further extend the Loan under the same procedures to a maximum period of 4 years. Right to Terminate - The Lender shall reserve the right to terminate as provided in the Loan Agreement. Interest Rate - The interest rate on the Loan will be set in accordance with LIBOR (six month rate) plus one full percentage point (1%). The interest rate may be adjusted once during each 12 month Loan Agreement period. Payments - The provision of interest payments shall be made quarterly in arrears. Late Payments - The Lender shall have the right to charge additional interest on late scheduled quarterly interest payments. Payments shall be deemed late if the agreed quarterly interest is not paid on the due date as stated in the interest payment schedule which shall be issued upon acceptance and draw down of funds by the Borrower. The interest charge on late payments will be calculated at 5% until said interest is paid. This charge shall be invoiced separately. If the Borrower fails to make a scheduled interest payment or separately invoiced late payment within thirty days of the due date, it will be deemed as a default under the Loan Agreement. SCHEDULE OF STOCK(S) The Stock schedule sheet will define the allocated Stock to be used as collateral against the issuance of the Loan. In the event of an application for a Loan to be increased in capital, such application would require a separate or amended Stock schedule sheet. 54 EXHIBIT A SECURED PROMISSORY NOTE USD$ ____________________ (Amount) DATE: __________ FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, __________________ ("Borrower"), promises to pay to ____________________ ("Lender") at _______________________________________________ (Address) or any other place as Lender may from time to time designate in writing, the principal sum of _______________________________________ (USD$__________) (the "Principal Amount"), hereof until this Note is paid in full at the rate of ________________ (__%) per annum. This Note is secured by "Restricted Shares of Stock" of _________________________, (Borrower) on deposit with Credito Italiano Bank at their office in New York, located at 375 Park Avenue, New York, New York, 10152, for final credit to the Lender Account number _____________. Borrower is to pay interest quarterly in arrears, and principal is due ___________ (Date) as stated in the Collateral Loan Agreement. All further terms and conditions of this note are governed by the Collateral Loan Agreement executed by Borrower and Lender on ________________ (Date) The payments shall be made in lawful money of the United States and shall be free from set off, deduction, or counterclaim of any kind. Borrower may prepay this Note in whole or in part on the anniversary date of the note without premium or penalty. Unless Lender shall elect otherwise, any partial pre-payment shall be credited first to accrued interest and then to the Principal Amount outstanding and shall not extend or postpone the due date of any subsequent payment or change the amount of such payment. This Note shall be governed by and construed in accordance with the laws of the State of New York. Should any collection or any other legal actions be taken by Lender to collect on this Note or any portion hereof, Borrower will pay all reasonable costs of collection, including attorneys' fees. By: ____________________________________ (Borrower) (Name) Title:__________________________________ Date: __________________________________ 55 -----END PRIVACY-ENHANCED MESSAGE-----