U. S. Securities and Exchange Commission
Washington, D. C. 20549
AMENDMENT NO. 2 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
ELECTRONIC MEDIA CENTRAL CORPORATION
(Name of Small Business Issuer in its charter)
California 000-32345 33-0795854
- ------------------------------- ------------- ----------------------
(State or other jurisdiction of (SEC File No.) (I.R.S Employer
incorporation or organization) Identification Number)
3303 Harbor Boulevard, K-5, Costa Mesa, CA 92626
------------------------------------------------
(Address of principal executive offices)
310-318-2244
-------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of Class)
TABLE OF CONTENTS
Page
Preliminary Statement ................................................... 1
Description of Business.................................................. 1
Business Development ............................................ 1
Business of Electronic Media Central Corporation ................ 2
Products ................................................. 3
Supplies and Sub-Contractors ............................. 3
Distribution Methods ..................................... 3
Competition .............................................. 4
Advertising and Promotion ................................ 4
Dependence on Major Customers, Management and Suppliers... 4
Patents, Trademarks and Licenses ......................... 5
Government Approval and Regulations ...................... 5
Research and Development ................................. 5
Cost of Compliance with Environmental Laws ............... 5
Seasonality .............................................. 5
Employees ................................................ 5
New Products and Services ................................ 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................. 6
Results of Operations ........................................... 6
Sales .................................................... 6
Gross Margin ............................................. 7
Selling, General and Administrative Expenses ............. 7
Net Profit (Loss) ........................................ 7
Balance Sheet Items ...................................... 7
Liquidity and Outlook .................................... 8
Costs of Filing Periodic Reports ......................... 8
Properties .............................................................. 9
Security Ownership of Certain Beneficial Owners and
Management ...................................................... 9
Changes in Control ....................................... 9
Directors, Executive Officers and Control Persons ....................... 9
Executive Compensation .................................................. 11
Certain Relationships and Related Transactions .......................... 11
Description of Securities ............................................... 13
Common Stock .................................................... 13
Voting Rights ............................................ 13
Dividend Rights .......................................... 14
Liquidation Rights ....................................... 14
Preemptive Rights ........................................ 14
Registrar and Transfer Agents ............................ 14
Dissenters' Rights ....................................... 14
Market for Common Stock and Related Stockholder Matters ................. 14
Holders ......................................................... 14
Dividends ....................................................... 14
Legal Proceedings ....................................................... 14
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ................................ 15
Recent Sales of Unregistered Securities ................................. 15
ii
Indemnification of Directors and Officers ............................... 15
Financial Statements .................................................... 17
Index to Exhibits ....................................................... 18
Signatures .............................................................. 18
iii
PRELIMINARY STATEMENT
Electronic Media Central Corporation (the "Company") is filing this
registration statement on a voluntary basis under Section 12(g) of the
Securities Exchange Act of 1934. Our common stock does not trade in the
over-the-counter market or any other stock market. The effectiveness of this
registration statement subjects Electronic Media Central Corporation to the
periodic reporting requirements imposed by Section 13(a) of the Securities
Exchange Act.
We will electronically file with the Commission the following periodic
reports:
o Annual reports on Form 10-KSB;
o Quarterly reports on Form 10-QSB;
o Periodic reports on Form 8-K;
o Annual proxy statements to be sent to our shareholders with the
notices of our annual shareholders' meetings.
In addition to the above reports to be filed with the Commission, we will
prepare and send to our shareholders an annual report that will include audited
financial statements.
The public may read and copy any materials we file with the Commission
at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Also, the Commission
maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that
electronically file reports with the Commission.
DESCRIPTION OF BUSINESS
Business Development
Electronic Media Central Corporation was incorporated on March 12, 1998
in the State of California. We commenced sales distribution operations in late
1996 first as a division of Internet Infinity, Inc. and on April 1, 1998 as a
100 percent wholly owned subsidiary of Internet Infinity, Inc. Internet
Infinity, Inc. supplied us with management support to launch our sales
distribution activities. No funds have been raised for us since our inception;
all operations have been funded from our sales revenue. We conduct our business
from our sales headquarters office in Costa Mesa, California. We first had
revenues from operations in 1996 as a division and in 1998 as a corporate
subsidiary of Internet Infinity, Inc.
Our initial business focus in late 1996 was on distributing electronic
media duplication and packaging services for an unaffiliated company, Video
Magnetics, LLC. In February 1997, as the result of L&M Media, Inc. acquiring
Video Magnetics, LLC, these services were supplied by the affiliated company,
L&M Media, Inc. which for over 10 years has been 98 percent owned by George Paul
Morris, our chief executive officer and a director, with his wife, Dawn Morris,
the controlling shareholders of both Internet Infinity, Inc. and our company.
L&M Media is currently supplying its products and services to us through its
wholly-owned subsidiary, Apple Media Corporation.
The 70-year-old owner of Video Magnetics had primarily sold, to small
local companies, videotape duplication services, CD-ROM duplication services,
videotape packaging supplies and used videotape duplication equipment. In
December 1996, he said he wanted to get rid of the business and retire as soon
as possible. He advised us that he believed a new owner would not want to
continue the distribution arrangement Video Magnetics had with Electronic Media
Central Corporation. We agreed. A new owner would probably want the customers
back that had been given to Electronic Media Central by Video Magnetics through
the initial distribution arrangement of our company with Video Magnetics. A new
owner of Video Magnetics would most likely want to take charge of all sales
arrangements to grow sales and profits, since the 70-year-old owner of Video
Magnetics wanted to retire.
1
Therefore, the only way to guarantee our right to distribute the
products and retain the existing customer base that came from Video Magnetics
was to acquire Video Magnetics. Accordingly, George Morris, our chief executive
officer and a director, with his wife, Dawn Morris, the controlling shareholders
of both Internet Infinity, Inc. and our company, through another company, L&M
Media, Inc., in which they have had a 98-percent ownership, bought the business
assets of Video Magnetics, LLC.
If the Morrises had not acquired Video Magnetics, the sales to existing
Video Magnetics customers that had been turned over by Video Magnetics to our
company and the availability of Video Magnetics' low-cost, in-house
manufacturing facilities would probably have been lost to any other new owner of
Video Magnetics. Our company was totally dependent on Video Magnetics for its
initial customers and for all products and services to sell. The duplication of
videotapes for a customer was a new business for our company, and without Video
Magnetics; we didn't have any products to sell.
George Morris and L&M Media, with its subsidiary Apple Media
Corporation, purchased Video Magnetics' business assets including $200,000 of
equipment in February 1997 for $295,000 with $35,000 cash down and $260,000 in
10 percent notes to be paid over five years. Apple Media Corporation is a wholly
owned subsidiary of L&M Media, Inc. which is 98 percent-owned by George and Dawn
Morris, the controlling shareholders, officers and directors of our company.
As the result of a mediation process in June 1998 between George Morris
and the prior owner of Video Magnetics, George Morris agreed to reduce the sales
price of Video Magnetic including equipment to L&M Media to $150,000 with a note
guaranteed by George Morris to the previous owner of Video Magnetics. The
Morrises and L&M Media are responsible to pay the prior owner of Video Magnetics
$3,125 per month with 10 percent interest until fully paid on or before May
2003. The amount outstanding from Apple Media Corporation for the purchase of
Video Magnetics' assets at the end March 31, 2001 is $79,117.95 Our company is
not a party to or responsible in any way for the note. L&M Media, Inc. is 98
percent owned by George and Dawn Morris, the controlling shareholders, officers
and directors of our company.
On December 1, 1998, Apple Media Corporation, a wholly owned subsidiary
of L&M Media, Inc., assumed all responsibility for business operations of the
former Video Magnetics, Inc. Apple Media focuses on the manufacturing and
duplication of video, CD and related products. Apple Media Corporation, as a
wholly owned subsidiary of L&M Media, Inc. is indirectly 98-percent-owned by
George and Dawn Morris, since George and Dawn Morris own 98 percent of L&M
Media, Inc.
Apple Media Corporation is the only supplier of products and services to
Electronic Media Central Corporation. It provides video packaging supplies,
duplication of video, CD and DVD Media on credit terms as needed by Internet
Infinity and its subsidiaries
Apple Media Corporation, as a wholly owned subsidiary of L&M Media,
Inc., sources new suppliers of electronic media materials and components at the
annual industry "Replitech Exposition" and through the industry trade
publication, "Tape & Disk Business." In addition, it continuously checks
supplier prices and requests price competition between suppliers.
Finally, we have created a web site to sell our duplication products and
services. The funding to create these sites came from the operating profit of
the company and from loans of approximately $50,000 from George Morris, the
president of both Internet Infinity and our company. Our company currently has
an operational and functional Internet web site at (www.iiemc.com). The company
strategy is to use the site for prospecting and referral of existing customers,
not for e-commerce transactions. At the present time, no significant sales can
be attributed to the Internet web site.
Business of Electronic Media Central Corporation
Electronic Media Central
o distributes electronic media duplication services;
2
Products
--------
We have three principal products and services:
o electronic media duplication and packaging services for -
o compact disks ("CD"),
o digital video disk ("DVD"); and
o videocassette tape;
Our company's sales of electronic media duplication and packaging
services are primarily the duplication and packaging of a customer's
pre-recorded video programs. The customer's programs are principally used for
education, promotion and documentation of the customer's products or services.
Our company provides services to create multiple copies of a customer's material
on video tape, compact Disks "CD" and DVD formats with related packaging. The
main target markets for our services are business, religious, government and
other non-profit organizations. Our company does not provide services to the
adult entertainment industry.
We charge a customer for electronic media duplication and packaging
services service by quoting a price per piece duplicated to the customer. The
price is based on the number of pieces duplicated, the length of the customer's
program and the specific packaging requirements. The greater the number of
pieces a customer orders at one time, the lower the price per piece. A longer
customer program will cost more per piece. Packaging costs vary by exact design
and the amount of printing and labor involved per the customer specifications.
Suppliers and Sub-Contractors
----------------------------
Our duplication services orders are manufactured and fulfilled through
an affiliated company, Apple Media Corporation, at a cost of 80 percent of the
total invoice amount billed by us to a customer, including shipping. Apple Media
Corporation is a wholly owned subsidiary of L&M Media, Inc., which is
98-percent-owned by George and Dawn Morris, the controlling shareholders,
officers and directors of our company. Apple Media is solely responsible for
equipment leases, raw materials and components, manufacturing, sub-contractors,
packaging and shipping labor, management and physical plant overhead. We are
responsible for sales force compensation, direct sales and accounting clerical
support and executive management out of our 20 percent of the invoice discount
amount. In addition, Apple Media Corporation also provides, at a cost of $625 a
month - or $7,500 for the twelve-month fiscal year ended March 31, 2000 office
facilities, telephone, and utilities to our sales and management staff. This
$7,500 is included as part of the 20 percent discount on purchases from Apple
Media Corporation and therefore has no net cost to our Company. This arrangement
for office space, utilities and telephone may be terminated by either party
without cause or consequence upon 30 days written notice.
Our Company has agreed to purchase all of its videotape duplication
services exclusively from Apple Media Corporation that is a wholly owned
subsidiary of L&M Media, Inc., which is 98-percent-owned by George and Dawn
Morris, the controlling shareholders, officers and directors of our company.
Distribution Methods
--------------------
We distribute our products through in-house employee sales persons
working the telephone, fax, mail and the Internet. Shipments are made throughout
the United States with a majority in California.
Our sales representative employees are paid a salary plus an incentive
bonus based on the sales volume and gross profit generated each month. The sales
representatives are responsible for managing their own account orders and
customer service.
3
Competition
-----------
The electronic media duplication industry is highly competitive. Large
competitors such as Technicolor Corporation dominate the large volume market
from the movie studios and advertising premium business. Numerous small regional
competitors such as our company serve the smaller regional business and
nonprofit organization markets. The principal markets for our products and
services are local, small, commercial and non-profit organizations. The typical
size of our target customers is under 100 employees. Of the core 200 top
customers for the fiscal year ending March 31, 2001, 129 have made a repeat
order.
There are twenty local/regional video duplicators listed in the latest
March 2000 "OC/SD Film & Video News" for the Orange County and San Diego
California area. Our company ranks third in terms of number of VHS machines
available for duplication. No sales numbers or other capacity information is
available for these private companies.
We compete with both price and customer services. Electronic Media
Central is located close to very competitive suppliers near the Pacific Coast
ports of entry for video materials from China and Korea, and it is constantly
shopping for the best price from competing suppliers. This allows us to compete
better on price to our customers. Our management is constantly shopping the
market for better supplier products, services and prices concerning duplication,
shipping, packaging and materials that allow us to offer more value to our
customers. This shopping for better supply relationships is done through and
along with Apple Media Corporation, since lower costs and better suppliers to
Apple Media facilitates better prices and quality to our company and then to the
final customers of our company to meet competition. However, we are
contractually prohibited from shopping for better relationships except through
and along with Apple Media. In addition, we monitor offers from competitors on
the Internet, through direct mail and through comparison-shopping to remain
competitive. With our competitive prices and our offering special delivery
service in Southern California, special design consultation and fast order
fulfillment, customers are willing to leave their masters with us for convenient
repeat orders. We have the flexibility to handle many special duplication orders
and situations at little or no extra charge to the customer. Special services
can include conversion from one master format, such as one-inch videotape to a
beta master, before duplicating VHS copies. Our sales and management personnel
are able to provide advice and assistance to a customer as it prepares its job
for duplication with us. Special situations include handling special orders
requiring faster turnaround time than normal delivery. We strive to maintain a
high level of customer service to be competitive.
Advertising and Promotion
-------------------------
Our advertising and promotion is primarily electronic-media focused. We
engage in telephone and fax campaigns to prospect for new customers in the
electronic duplication business. In addition, we use direct mail to prospect for
new customers.
Dependence on Major Customers, Management and Suppliers
-------------------------------------------------------
We are not dependent on any single major customer. However, as of the
twelve months ended December 31, 2000 approximately 36.7 percent of our sales
come from our top three customers. Sales made in an aggregate amount equal to 10
percent or more of our consolidated revenues include the customers: Royal
Olivetti USA, GBG, Inc. and Lightning Dubs. The loss of such customers would
have a material adverse effect on our company.
Dependence on Management
We are dependent on the continued employment of George Paul Morris our
chief executive officer and a director, and his wife, Dawn Morris, the
controlling shareholders of both Internet Infinity, Inc, and our company. This
dependence will continue until the company hires another chief executive officer
and additional management. We are looking for replacement management that has
the experience and ability to increase the company sales since neither George
Morris nor Dawn Morris are able to provide enough effort and leadership to grow
the company sales. However, we cannot guarantee when or if such replacement
management can be found.
4
Dependence on Supplier
We are dependent on Apple Media as the sole supplier of all services and
products we resell and distribute and we are contractually prohibited from
shopping for better relationships except through and along with Apple Media.
Apple Media Corporation is a wholly owned subsidiary of L&M Media, Inc. which is
98 percent-owned by George and Dawn Morris, the controlling shareholders,
officers and directors of our company.
Conflict of Interest
There is a conflict of interest with the dependence of our company on
Apple Media Corporation as the sole supplier to our company. The exclusive
supplier arrangement between our Company and Apple Media Corporation may limit
the opportunities with competitive suppliers. Apple Media Corporation is a
wholly owned subsidiary of L&M Media, Inc. which is 98 percent-owned by George
and Dawn Morris, the controlling shareholders, officers and directors of our
company. The arrangement is the Apple Media Corporation will supply our company
with all products and services that we sell at a 20 percent discount or 80
percent cost of goods to our company based on our invoice to a customer.
Patents, Trademarks and Licenses
--------------------------------
We have no proprietary patents, trademarks or licenses.
Government Approval and Regulations
-----------------------------------
We need no governmental approval for the design and marketing of our
electronic media. We are not aware of any proposed governmental regulations that
would affect our operations.
Research and Development
------------------------
We have budgeted approximately $10,000 in fiscal year 2001 for the
continued development of our Internet web site, www.iiemc.com.
Cost of Compliance with Environmental Laws
------------------------------------------
There are no environmental laws that impact any of our operations.
Seasonality
-----------
Our sales are almost evenly distributed across the year, but there are
slight variations, with the fall and winter exceeding the spring and summers
seasons for a variety of factors including vacation, school and holiday cycles.
Employees
---------
We employ seven full-time persons and one part-time person. We employ
three full time sales representatives and no part-time sales representatives.
New Products & Services
-----------------------
We are in the process of researching a new sales strategy for the sales
of Digital Video Disk ("DVD") and the business card mini-CD by the company. On
the supply side, we have identified companies that will transfer videotape
programs to CD or DVD and will replicate the CD or DVD as a subcontractor for
us. On the selling side, our sales persons are planning to contact all of their
existing customers to offer the transfer service and the CD or DVD replication.
It is too early in the research process for us to forecast any level of success
in the sales of these digital products at this time. However, with our current
research, we see the increase of DVD movies offered in stores like Blockbuster
and the increase in the DVD machines offered in stores like Circuit City.
However, expected competition and market unknowns may not permit the company to
succeed in the DVD duplication market.
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations
The following table presents, as a percentage of sales, certain selected
financial data for the two fiscal years ended March 31, 1999 and March 31, 2000
and for the nine-month periods ended December 31, 1999 and December 31, 2000:
Year Ended 3-31 9 months Ended 12-31
1999 2000 1999 2000
------------------- ---------------------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 79.5 79.9 80.0 79.3
----- ------ ------ ------
Gross margin 20.5 20.1 20.0 20.7
Selling, general and
administrative
expenses 13.8 11.0 8.4 14.3
Other income (expenses):
Amortization and
interest .3 - .6
----- ------ ------ ------
Net income before
income taxes 6.7 9.4 11.6 7.0
Sales
-----
Sales increased from $1,192,629 in the fiscal year ended March 31, 1999
to $1,374,976 in the fiscal year ended March 31, 2000, an increase of 15.3
percent. These changes were due, we believe, to an increased effort by the sales
representatives and the resulting increase in the number of customers for our
products. The industry growth for electronic media duplication has helped our
sales. This trend should continue with the proliferation of CD drives in
computers, digital videodisc ("DVD") players and large installed base of
videocassette recorders. In addition, a new management focus on digital
videodisc sales is expected to continue with the management's commitment of
additional resources. We are also expanding our prospecting efforts for sales of
duplication services and accessory products such as packaging materials.
Sales Breakout for CD
Most of our services relate to the duplication and packaging of
videotapes. The percentage of total sales for CDs and Videotapes by quarter for
the 12 months ended December 31, 2000 is:
CDs Videotapes
Jan - Mar 2000 4.0% 96.0%
Apr - Jun 2000 2.8% 97.2%
Jul - Sep 2000 10.3% 89.7%
Oct -Dec 2000 12.0% 88.0%
There were no DVD sales during the 12 months ended December 31, 2000
Interim results. Sales decreased 25.7 percent from $1,081,347 in
---------------
the nine-month period ended December 31, 1999 to $859,935 in the nine-month
period ended December 31, 2000. The decrease is due to a reduction in orders
from our existing customers.
6
Gross Margin
------------
Gross margin increased from $244,492, or 20.5 percent of sales, in
fiscal year 1999 to $276,354, or 20.1 percent of sales, in fiscal year 2000, an
increase of 13.0 percent. The decrease in gross margin as a percent of sales is
primarily attributed to small increases in the cost of materials and services
from suppliers.
Interim results. Gross margin decreased from $215,869, or 20.0
---------------
percent of sales, in the nine-month period ended December 31, 1999 to $178,062,
or 20.7 percent of sales, in the nine-month period ended December 31, 2000. The
17.5 percent decrease in dollar gross margin for the nine months ended December
31, 2000 from the nine months ended December 31, 1999 is primarily attributed to
a decrease in sales and an increase in the cost of materials and services from
suppliers.
Selling, General and Administrative Expense
-------------------------------------------
Selling, general and administrative expenses decreased from $164,029, or
13.8 percent of sales in fiscal year 1999, to $151,003, or 11.0 percent of sales
in fiscal year 2000, an improvement of 2.8 percent. This decrease in selling,
general and administrative expenses as a percent of sales is primarily
attributable to both higher sales volumes for 2000 over 1999 and a slight
decrease in selling general and administrative expenses. We believe the
reduction in the amount of these expenses is due to better operating efficiency.
Interim results. Selling, general and administrative expenses
---------------
increased from $90,261, or 8.4 percent of sales, in the nine-month period ended
December 31, 1999 to $123,354, or 14.3 percent of sales, in the nine-month
period ended December 31, 2000. This increase in selling, general and
administrative expenses and as a percent of sales is attributable to additional
expenditures to increase sales. Major expense increase from the nine-month
period ended December 31, 1999 to the nine months ended December 31, 2000 were
$9,490 for commissions, $7,034 for insurance, $6,075 for rent and utilities,
$4,880 for payroll and payroll taxes, $3,330 for legal and accounting and $1,990
for office expense.
Net Profit
----------
We had a net profit from operations, after a $21,000 provision for
income taxes, in the fiscal year ended March 31, 1999 of $59,463. In the fiscal
year ended March 31, 2000 we had a net profit from operations, after a $41,800
provision for income taxes, of $87,346. This profit of 6.3 percent of sales for
fiscal year 2000 is primarily due to the 15.3 percent increase in sales over
fiscal year 1999 while operating expenses decreased by 7.9 percent from such
expense in fiscal year 1999.
Interim results. We had net income from operations, after an
----------------
$8,000 provision for income tax, of $117,608 in the nine-month period ended
December 31, 1999 and net income from operations of $14,193, after a provision
for income taxes, of $10,000, in the nine-month period-ended December 31, 2000.
The lower net income is attributed to a higher cost of goods and increased
operating expenses for the nine months ended December 31, 2000 over the nine
months ended December 31, 1999.
Balance Sheet Items
-------------------
Net income from operations of $87,346 for the fiscal year ended March
31, 2000 increased the retained earnings from $59,563 to $146,810. Our cash
position decreased from $54,671 for the fiscal year ended March 31, 1999 to
$20,221 for the fiscal year ended March 31, 2000. Accounts receivable from
non-affiliates increased from $91,792 at the end of fiscal year 1999 to $112,794
at the end of fiscal year 2000. An increase of the average collection period in
our days sales in accounts receivable to 30 days for the fiscal year ended March
31, 2000 from 28 days for the fiscal year ended March 31, 1999 is attributed, we
believe, to the slowing economic conditions.
Interim balance sheet items. Net income from operations of
------------------------------
$14,193 for the nine-month period ended December 31, 2000, increased the
retained earnings from $146,809 on March 31, 2000 to $161,002 on December 31,
2000. Our cash position decreased from $14,032 at December 31, 1999 by $7,813 to
$6,219 at December 31, 2000. Accounts receivable from non-affiliates decreased
from $284,212 at the end of the first nine months of 1999 to $118,714 for the
nine-month period ended December 31, 2000. The $173,311 decrease in the combined
balance of cash and accounts receivable from non-affiliates of $298,244 for the
nine months ended December 31, 1999 to $124,933 for this combined balance for
the nine months ended December 31, 2000 is attributed to reduction in sales by
existing customers.
7
Liquidity and Outlook
---------------------
We have been able to stay in operation only (1) from the services
provided by Apple Media Corporation, a wholly-owned subsidiary of L&M Media,
Inc., a supplier of electronic media duplication services which is under the
control of George and Dawn Morris, the controlling shareholders and principal
officers of our company, and (2) from the cash flow generated by our company.
George and Dawn Morris personally acquired Video Magnetics, an insolvent
electronic media duplication company, with their personal cash and proceeded to
turn around the situation for the benefit of our company and its sales growth.
Since early 1997, sales from electronic duplication services have continued to
grow.
Our management believes that we will generate sufficient cash flow to
support operations during the twelve months ended March 31, 2001. Sales
continue, and we continue to generate net profits and positive cash flow from
operations.
The slowdown in the United States economy will probably cause a reduction
in our company's sales and profits. In addition, almost all of our customers are
located in California, therefore, the energy problems in the State will also
probably cause a reduction in our company's sales and profits. However, without
prior experience in working under these conditions, there is no way to forecast
the exact amount of the reductions for either of these conditions.
Our management believes that we will generate sufficient profits from
operations to support the long-term liquidity of the company. By out-sourcing
products and services, our company does not have any large demands for capital
equipment and growth in accounts receivables can be funded by increases in
credit lines from the suppliers of Apple Media Corporation, the sole supplier of
our company at this time and by George Morris, the President of the company.
Apple Media Corporation, as a wholly owned subsidiary of L&M Media, Inc. is
indirectly 98-percent-owned by George and Dawn Morris, since George and Dawn
Morris own 98 percent of L&M Media, Inc.
The payment record of our existing customers created a $6,300 bad debt
losses for the fiscal year ended March 31, 1999 and $11,970 bad debt losses for
the fiscal year ended March 31, 2000. Managment believes that this $5,670
increase in bad debt losses reflects a general slowing in the United States
economy. Management believes the risk of non-payment in the future can be
controlled. Also, accounts receivable are insured against loss by CNA Insurance
to further protect Electronic Media Central from a major loss.
As of December 31, 2000, the directors of EMC and L&M Media agreed to
offset the $116,770 note receivable, owed to EMC by L&M Media, against a payable
of $81,120 owed by EMC to L&M Media. This left a note receivable from L&M Media
of only $35,650, which does not represent a majority of EMC's assets and the
$35,650 was written off as a bad debt on December 31, 2000. Accordingly, no
audited financial statements of the obligors of the notes are presented. See the
last paragraph of Note 4 to Financial Statements.
Costs of Filing Periodic Reports
--------------------------------
The filing of this Form 10-SB registration statement subjects Electronic
Media Central to certain requirements of the Exchange Act of 1934. These
requirements include the filing of an annual report of Electronic Media Central,
which must include audited financial statements, quarterly reports, which must
include unaudited interim financial statements; and periodic reports of certain
material events of which investors should be made aware. Legal and accounting
expertise is required to prepare these statements, and the services of our
securities law attorney and auditor must be paid for in cash. Should cash not be
available to pay for these legal and auditor's services, we will have to borrow
these needed funds from sources not yet identified.
8
PROPERTIES
Apple Media Corporation ("AMC"), controlled by George and Dawn Morris,
provides us with approximately 600 square feet of office space in Costa Mesa,
California. George Paul Morris, our chief executive officer, provides us with
approximately 300 square feet of office space in Redondo Beach, California. Both
locations with telephone and utilities are at a cost of $675 per month total to
us. The space provided is part of our distributorship arrangement with AMC, and
AMC may terminate the arrangement at any time upon 30 days notice. There is a
large amount of office space available for less than $2.00 a square foot within
three miles of the existing office. Electronic Media Central reserves the right
to move at any time.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of December 31, 2000, the number of
shares of common stock of Electronic Media Central beneficially owned by each
officer and director of Electronic Media Central, individually and as a group,
and by each owner of more than five percent of the common stock.
Percent of
Number Outstanding
Name and Address of Shares Shares
Internet Infinity, Inc. 10,000,000 100
3303 Harbor Boulevard, K-5
Costa Mesa, CA 92626
Dawn Morris, Vice President 10,000,000(1) 100
663 the Village
Redondo Beach, CA 90277
George Paul Morris, Chairman/CEO 10,000,000(1) 100
663 the Village
Redondo Beach, CA 90277
Officers and Directors
as a group (2 persons) 10,000,000 100
------------------------
(1) These shares are beneficially owned by this officer by virtue of the
officer's also being an officer and director of Internet Infinity, Inc.,
the record owner of all the outstanding shares of Electronic Media
Central Corporation.
Changes in Control
There are no arrangements, which may result in a change in control of
Electronic Media Central Corporation.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
Electronic Media Central directors, officers and significant employees
occupying executive officer positions, their ages as of December 31, 2000, the
directors' terms of office and the period each director has served are set forth
in the following table:
9
Person Positions and Officers Since Expires
- ------ ---------------------- ----- -------
George Paul Morris, 62 Chairman of the Board of Directors - Acting 1998 2002
President/CEO
Vice President Marketing
Roger Casas, 51 Director 1998 2002
Vice President Operations
Dawn Morris, 45 Member of the Board of Directors 1996 2002
Vice President Internet Sales
Shirlene Bradshaw, 61 Member of the Board & Business Manager 1999 2002
GEORGE PAUL MORRIS, Ph.D. Dr. Morris has been the full time Chairman of
-------------------------
the Board of Directors, principal shareholder, Vice President or Acting
President/Chief Executive Officer and Secretary of Electronic Media Central
since Electronic Media Central was formed in 1998. George Paul Morris has also
been the Chairman and Vice President of Apple Realty, Inc. doing business as
Hollywood Riviera Studios since 1974 and the Chairman of the Board of Directors
of L&M Media, Inc. since 1990. Dr. Morris is also the Founder and has been the
President, Chairman of the Board of Directors and principal of Morris Financial,
Inc., a NASD member broker-dealer firm, since its inception in 1987. He has been
active in designing, negotiation and acquiring all equipment, facilities and
systems for manufacturing, accounting and operations of Electronic Media Central
and its affiliates. Dr. Morris earned a Bachelor of Business Administration and
Masters of Business Administration from the University of Toledo, and a Ph.D.
(Doctorate) in Marketing and Finance and Educational Psychology from the
University of Texas in 1969. Prior to founding Electronic Media Central
Corporation and its affiliates, Dr. Morris had 20 years of academic experience
as a professor of Management, Marketing, Finance and Real Estate at the
University of Southern California (1969 - 1971) and the California State
University (1971 - 1999). During this period Dr. Morris served as Department
Chairman for the Management and Marketing Departments. Morris has since retired
from full time teaching at the University. Dr. Morris was the West Coast
Regional Director of the American Society for Training and Development, a
Director of the South Bay Business Roundtable and a speaker on a number of
topics relating to business, training and education. Morris has created or been
directly involved in the design, writing and development of numerous Internet
web sites for Electronic Media Central Corporation. Mr. Morris is the spouse of
Dawn Morris, who is a director and the Vice President for Internet Sales.
ROGER CASAS. Mr. Casas has been a Member of the Board of Directors since
-----------
1999 and has handled the responsibility of the Vice President of Operations
since Electronic Media Central was formed in 1998. Roger has managed production,
personnel, helped coordinate marketing efforts and managed packaging, printing
and shipping on a daily basis. Prior to joining Electronic Media Central
Corporation, Mr. Casas was a computer software marketing manager at More Media,
a provider of consumer special interest video training programs to retailers,
from 1987 to 1998 and a Financial Consultant for Stonehill Financial in Bel Air,
California, from 1986 to 1987 an Account Executive for Shearson Lehman Brothers
in Rolling Hills, California from 1984 to 1986 and Dean Witter Reynolds in
Torrance, California from 1982 to 1984, and the owner and operator of the
Hillside restaurant from 1978 to 1982 in Torrance, California. Mr. Casas earned
a Bachelor of Science in Business Administration, from Ashland University in
Ashland, Oregon, along with a Bachelor of Art in Marketing and Psychology. Mr.
Casas holds Series 22 and 7 licenses with the National Association of Securities
Dealers, Inc. and is a registered representative with Morris Financial.
DAWN MORRIS. Ms. Morris has been the President, Vice President, a
------------
principal shareholder and a Director of Electronic Media Central since it was
formed in 1998. She has also been the Vice President of L&M Media, Inc. since
1990, now an affiliate of Electronic Media Central. Ms. Morris has also been the
Manager of Corporate Finance/Mergers and Acquisitions and a registered
representative with Morris Financial, Inc., a NASD member broker-dealer firm,
since 1994. She has been responsible for the development of educational and
computer training video programs, some of which have been produced in CD-ROM and
other multimedia versions. Ms. Morris has produced finance and investment as
well as commercial and infomercial programs. Prior to joining the predecessor
company in 1984, Ms. Morris was a Senior Account Representative in the Office
Products Division of Xerox Corporation, and a Sales Manager at Joseph Magnin
Stores. Ms Morris earned a Bachelor of Business Administration in Marketing from
California State University and studied television production and directing at
UCLA and California State University. Dawn Morris was nominated for Woman
Graduate of the Year in the California State University System. Ms. Morris is
the spouse of George Paul Morris, the Acting President, Chief Executive Officer
and the Vice President for Marketing.
10
SHIRLENE BRADSHAW. Ms. Bradshaw has been a Member of the Board of
------------------
Directors since 1999 and the Electronic Media Central Business Manager since
1998. She has managed accounting, including receivable and payable processing,
and has helped coordinate the supplier relationship with the Apple Media
Corporation supplier. She was the Business Manager for More Media, a provider of
consumer special interest video training programs to retailers and a predecessor
company of Internet Infinity, Inc. for over six years from 1992 to 1998. She had
extensive experience in office management and accounting before joining
Electronic Media Central Corporation.
EXECUTIVE COMPENSATION
No executive officer of the company has received total compensation in
any of the last three years that exceeds $100,000. The table below sets forth
all compensation awarded to, earned by, or paid to George Paul Morris, the
president of the company during the last three fiscal years:
Long Term Compensation
----------------------
Awards
------
Annual Compensation Securities
- ---------------------------------- ----------
Underlying Payouts
---------- -------------
Other Annual Restricted Options/ LTIP All Other
------------ ---------- ------- ---- ---------
Year Salary Bonus Compensation Stock Awards SARS Payouts Compensation
- ---- ------ ----- ------------ ------------ ---- ------- ------------
2000 30,999 0 0 0 0 0 0
1999 37,700 0 0 0 0 0 0
1998 38,400 0 0 0 0 0 0
Stock Options
There have been no stock options granted to the officers and directors
of Electronic Media Central, nor have there been any other forms of compensation
paid to the officers and directors of the company
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our company is under the control of George and Dawn Morris, husband and
wife, who own 76.5 percent of the economic interest of Electronic Media Central
Corporation. The basis of their control, and the relationship of all affiliates
of Internet Infinity, are depicted in the following chart:
1. George and Dawn Morris
----------------------
a. They own 98 percent of L&M Media, Inc.
--------------
i. L&M Media, Inc. owns 100 percent of Apple Media
-----------
Corporation
-----------
A. Apple Media Corporation owns 45.3 percent of
Internet Infinity, Inc.
----------------------
1. Internet Infinity, Inc. owns 100 percent of
--------------------------------------------
Electronic Media Central Corporation.
------------------------------------
b. They own 100 percent of Apple Realty, Inc., d/b/a
----------------------------
Hollywood Riviera Studios
-------------------------
i. Apple Realty, Inc. owns 10.3 percent of Internet
--------
Infinity, Inc.
-------------
11
A. Internet Infinity, Inc. owns 100 percent of
--------------------------------------------
Electronic Media Central Corporation
------------------------------------
c. They own 21.8 percent of Internet Infinity, Inc.
----------------------
i. Internet Infinity, Inc. owns 100 percent of
Electronic Media Central Corp.
-----------------------------
A. Electronic Media Central Corporation owns
100 percent of Morris & Associates, Inc.
------------------------
Summary
.98 x .453 = .444
1.00 x .103 = .103
.218 = .218
----
George and Dawn Morris
own the economic
equivalent of .765 of Electronic Media Central Corporation, Inc.
We buy all of our duplication services from Apple Media Corporation
("AMC"), a manufacturing company under the control of and owned by George and
Dawn Morris, directors, executive officers and major shareholders of Electronic
Media Central Corporation. Due to a lack of working capital available to
Electronic Media Central Corporation, George and Dawn Morris acquired the
predecessor to AMC, known as Video Magnetic, LLC, in order that it would
continue to provide a sales distribution opportunity for Electronic Media
Central Corporation. Electronic Media Central Corporation had earlier
established a distribution arrangement with Video Magnetics, LLC in 1996. When
the previous owner indicated he would sell Video Magnetics and terminate the
distribution arrangement with our company, the Morrises bought Video Magnetics
to maintain the product source. Video Magnetics was an insolvent company at the
time of the Morris' acquisition. However, the successor company to Video
Magnetics, Apple Media Corporation, is solvent. George and Dawn Morris finally
settled the purchase transaction for Video Magnetics through mediation and are
paying the purchase notes over the next three years.
Electronic Media Central takes title to the products it purchases from
Apple Media Corporation, which is 98 percent owned by George Morris, president
of Electronic Media Central, just as it did under the original distributorship
agreement with independently owned Video Magnetics, LLC. Electronic Media
Central plans to take title to products under other independent distributorship
agreements with new suppliers. This distributorship model for taking title is
planned for other, future distributorship arrangements.
Electronic Media Central Corporation and L&M Media, Inc. Operating Structure
- ----------------------------------------------------------------------------
Under this distributorship arrangement, Electronic Media Central is
responsible for the collection of accounts receivable and must collect them or
take a bad debt loss. However, Electronic Media Central accounts receivable are
indemnified against loss by CNA insurance after a $10,000 annual loss
deductible. As is standard business practice with a drop-ship arrangement,
Electronic Media Central does not carry an inventory. By these means the
management of Electronic Media Central attempts to minimize the risk of loss
from inventory, accounts receivable and technology obsolescence.
The process for taking orders, shipping, billing and collection is as
follows: When Electronic Media Central sells products and services to an
independent customer, we first determine the sales credit terms that will be
given to the customer based on a credit worthiness review. If the order will be
shipped on an open account basis and is over approximately $5,000, we contact
our accounts receivable insurance company, CNA, for credit insurance approval.
After credit terms and freight are determined by Electronic Media Central, we
issue a purchase order to Apple Media Corporation, which is 98 percent owned by
George Morris, the president of Electronic Media Central, for the products and
services ordered including shipping. Apple Media sources materials, components
and subcontractor services, manufactures or assembles and drop ships the order
to the Electronic Media Central Corporation customer. Electronic Media Central
invoices the customer for the products and services delivered and credits its
sales account and debits the accounts receivable account in the Electronic Media
Central general ledger at the time of shipment and invoicing. Electronic Media
Central is responsible for collecting the accounts receivable from the
customers. Apple Media grants a 20 percent wholesale trade discount to
Electronic Media Central on the order amount and charges Electronic Media
Central at the time of shipping. Electronic Media Central is solely responsible
for the payment of its accounts payable to Apple Media, Inc. The CNA accounts
receivable loss insurance does not cover losses under $5,000 and the policy has
a $10,000 deductible.
12
The major risk for Electronic Media Central is the non-payment of
accounts receivable from an order. Electronic Media Central remains responsible
for payment of the wholesale cost of the order to Apple Media even if a customer
doesn't pay. Electronic Media Central is not required to maintain an inventory
and products are manufactured to order. However, the absence of an Electronic
Media Central materials inventory and the control of any inventory by a supplier
to Electronic Media Central have operated to reduce our control over the
shipping priority of orders.
Notes receivable from L&M Media, Inc. - related company
- -------------------------------------------------------
A note receivable of $114,536 was due from L&M Media, Inc., at the end
of the fiscal year March 31, 2000, payable at $36,526 per year, plus interest at
6 percent per annum. Monthly installments of $3,000 are due beginning June 30,
2000. L&M Media, Inc. is 98 percent owned by George Morris, the President of our
company. L&M Media, Inc. owns 45.3 percent of the outstanding stock ofInternet
Infinity, Inc. During 2000, all payments made were deposited in Morris &
Associates' bank account. Morris & Associates, Inc. is a wholly owned subsidiary
of Internet Infinity, Inc., the owner of 100 percent of our company's shares.
Notes payable to Apple Media, Inc. - related company
- ----------------------------------------------------
An accounts payable of $93,498 was due to Apple Media Corporation at the
end of fiscal year March 31, 2000. As of the end of the fiscal year March 31,
Apple Media Corporation became a wholly owned subsidiary of L&M Media, Inc.,
which is 98 percent owned by George Morris, the President of our company.
Electronic Media Central Corporation and Internet Infinity, Inc.
- ---------------------------------------------------------------
Electronic Media Central Corporation has been a wholly owned subsidiary
of Internet Infinity, Inc., since incorporating our business in 1998. Our
company operates independently of Internet Infinity but shares in common the
office facilities and officers and directors George Paul Morris, Dawn Morris,
Roger Casas and Shirlene Bradshaw.
Our company files consolidated federal and state income tax returns with
its parent company, Internet Infinity, Inc. In accordance with the
intercorporate tax allocation policy, our company pays to or receives from the
parent company amounts equivalent to federal and state income tax charges or
credits based on separate company taxable income or loss using the statutory
rates.
DESCRIPTION OF SECURITIES
Electronic Media Central is authorized to issue forty million shares of
common stock ($0.001 par value) and ten million shares preferred stock at
($0.001 par value). The presently outstanding 10,000,000 shares of common stock
are fully paid and non-assessable. There are no shares of preferred stock
outstanding.
Common Stock
Voting Rights
-------------
Holders of shares of common stock have one vote per share on all matters
submitted to a vote of the shareholders. Shares of common stock do not have
cumulative voting rights, which means that the holders of a majority of the
shareholders votes eligible to vote and voting for the election of the board of
directors can elect all members of the board of directors.
13
Dividend Rights
---------------
Holders of record of shares of common stock receive dividends when and
if declared by the board of directors out of funds of Electronic Media Central
Corporation legally available therefore.
Liquidation Rights
------------------
Upon any liquidation, dissolution or winding up of Electronic Media
Central Corporation, holders of shares of Common Stock receive pro rata all of
the assets of Electronic Media Central Corporation available for distribution to
shareholders after distributions are made to the holders of Electronic Media
Central Corporation's preferred stock.
Preemptive Rights
-----------------
Holders of common stock do not have any preemptive rights to subscribe
for or to purchase any stock, obligations or other securities of Electronic
Media Central Corporation.
Registrar and Transfer Agent
----------------------------
Our registrar and transfer agent will be the Corporate Secretary Agency
at 3303 Harbor Boulevard, K-5, Costa Mesa, California 92626.
Dissenters' Rights
------------------
Under current California law, a shareholder is afforded dissenters'
rights, which, if properly exercised, may require Electronic Media Central to
purchase his shares. Dissenters' rights commonly arise in extraordinary
transactions such as mergers, consolidations, reorganizations, substantial asset
sales, liquidating distributions, and certain amendments to the Electronic Media
Central Certificate of Incorporation.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Electronic Media Central Common Stock is not quoted on any stock trading
market and there is no market for the shares of Electronic Media Central at this
time.
On December 31, 2000 there were 1,000 shares of common stock
outstanding. There are no stock options issued or outstanding. No shares are
subject to securities convertible into such shares of stock.
Holders
As of December 31, 2000 Internet Infinity was the sole holder of record
of our common stock.
Dividends
We have paid no cash dividends to our stockholders and do not plan to
pay dividends on our common stock in the foreseeable future. We currently intend
to retain any earnings to finance future growth. There are no restrictions that
limit our ability to pay dividends on common equity or that are likely to do so
in the future.
LEGAL PROCEEDINGS
Neither Electronic Media Central nor its property is a party to any
pending legal proceeding or any known proceeding that a governmental authority
is contemplating.
14
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On August 25, 1999 George Brenner resigned as our independent
accountant. He resigned for the reason that, as a sole practitioner, he could
not obtain adequate and price competitive professional liability insurance. He
continues to assist Electronic Media Central in the preparation of accounting
books and records for our Auditors.
None of his reports on our financial condition for the last two years
contained an adverse opinion or disclaimer of opinion or was modified as to
uncertainty, audit scope, or accounting principles. There were no disagreements
with Mr. Brenner, whether or not resolved, on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedure which, if not resolved to Mr. Brenner's satisfaction, would have
caused him to make reference to the subject matter of the disagreements in
connection with his reports.
On September 29, 1999 the company engaged Caldwell, Becker, Dervin,
Petrick & Co., L.L.P., of Woodland Hills, California as its principal accountant
to audit its financial statements.
RECENT SALES OF UNREGISTERED SECURITIES
On April 1, 1998 the company sold 1,000 shares of its common stock at
$0.001 a share to Internet Infinity, Inc. for $1.00 in reliance upon the
exemption from registration provided by Regulation D, Rule 506 of the Securities
and Exchange Commission and Section 4(2) of the Securities Act. No underwriters
were used to effect the sales. This was the initial issuance of capital stock of
the company.
On December 22, 2000, the company issued an additional 9,999,000 shares
of its common stock to Internet Infinity, Inc. in exchange for a $9,999
unsecured note receivable.
The purchaser of the shares is affiliated with the issuer by reason of
both companies being under the common control of George and Dawn Morris. The
purchaser is fully aware of all material facts concerning the issuer by reason
of this common control.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under California corporation law, a corporation is authorized to
indemnify officers, directors, employees and agents who are made or threatened
to be made parties to any civil, criminal, administrative or investigative suit
or proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful.
In the case of any action or suit by or in the right of the corporation
against such persons, the corporation is authorized to provide similar
indemnification, provided that, should any such persons be adjudged to be liable
for negligence or misconduct in the performance of duties to the corporation,
the court conducting the proceeding must determine that such persons are
nevertheless fairly and reasonably entitled to indemnification. To the extent
any such persons are successful on the merits in defense of any such action,
suit or proceeding, California law provides that they shall be indemnified
against reasonable expenses, including attorney fees.
A corporation is authorized to advance anticipated expenses for such
suits or proceedings upon an undertaking by the person to whom such advance is
made to repay such advances if it is ultimately determined that such person is
not entitled to be indemnified by the corporation.
15
Indemnification and payment of expenses provided by California law are
not deemed exclusive of any other rights by which an officer, director, employee
or agent may seek indemnification or payment of expenses or may be entitled to
under any by-law, agreement, or vote of shareholders or disinterested directors.
In such regard, a California corporation is empowered to, and may, purchase and
maintain liability insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation. As a result of such corporation
law, Electronic Media Central may, at some future time, be legally obligated to
pay judgments (including amounts paid in settlement) and expenses in regard to
civil or criminal suits or proceedings brought against one or more of its
officers, directors, employees or agents.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Electronic Media Central pursuant to the foregoing provisions or otherwise,
Electronic Media Central has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
16
FINANCIAL STATEMENTS
There appear below the following financial statements of Electronic Media
Central Corporation:
Independent Auditors' Report ........................................... F-1
Consolidated Balance Sheet at March 31, 2000............................ F-2
Consolidated Statements of Operations for the Years Ended
March 31, 2000 and March 31, 1999 ................................. F-3
Statements of Changes in Stockholders' Equity
for the Years Ended March 31, 2000 and
March 31, 1999 .................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2000 and March 31, 1999 ................................. F-5
Notes to Consolidated Financial Statements
March 31, 2000 .................................................... F-6
Independent Accountants' Report ........................................ F-10
Consolidated Balance Sheet (unaudited)
at December 31, 2000 ............................................. F-11
Consolidated Statement of Operations (unaudited)
for the Six Months Ended December 31, 2000
and December 31, 1999 ............................................. F-12
Consolidated Statement of Cash Flows (unaudited)
for the Six Months Ended December 31, 2000
and December 31, 1999 ............................................. F-13
Notes to Consolidated Financial Statements (unaudited)
December 31, 2000 ................................................ F-14
17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Electronic Media Central Corporation
We have audited the accompanying balance sheets of Electronic Media Central
Corporation (a California Corporation) as of March 31, 2000 and 1999, and the
related statements of operations, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Electronic Media Central
Corporation as of March 31, 2000 and 1999, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Caldwell, Becker, Dervin, Petrick & Co., L.L.P.
CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P.
Woodland Hills, California
January 11, 2001, except for Notes 2 and 4, as to which the date is March 26,
2001.
F-1
ELECTRONIC MEDIA CENTRAL CORPORATION
BALANCE SHEET
MARCH 31, 2000 AND 1999
ASSETS
2000 1999
--------- ---------
CURRENT ASSETS
Cash $ 20,221 $ 54,671
Accounts receivable, net of allowance for
Doubtful accounts of $6,300 and $6,300 112,794 91,792
Receivable from officer - current (Note 3) 16,077 4,803
--------- ---------
Total Current Assets 149,092 151,266
--------- ---------
OTHER ASSETS
Note receivable - related company-
non-current (Note 4b) 114,536 58,448
--------- ---------
Total Other Assets 114,536 58,448
--------- ---------
Total Assets $ 263,628 $ 209,714
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,604 $ 595
Accounts payable - related company (Note 4d) 93,498 131,744
Accrued payroll 3,212 4,127
Due to related company (Note 4c) 2,000 2,000
--------- ---------
Total Current Liabilities 100,314 138,466
--------- ---------
LONG-TERM LIABILITIES
Note payable to affiliate (Note 4a) 16,504 11,784
--------- ---------
Total Long-Term Liabilities 16,504 11,784
--------- ---------
Total Liabilities 116,818 150,250
--------- ---------
STOCKHOLDERS' EQUITY (Page F-4)
Preferred stock, par value $.001;
authorized 10,000,000 shares; issued
and outstanding 0 shares -- --
Common stock, par value $.001;
authorized 40,000,000 shares; issued
and outstanding 1,000 shares 1 1
Retained earnings 146,809 59,463
--------- ---------
Total Stockholders' Equity 146,810 59,464
--------- ---------
Total Liabilities and Stockholders' Equity $ 263,628 $ 209,714
========= =========
The Accompanying Notes are an Integral Part of the Financial Statements
F-2
ELECTRONIC MEDIA CENTRAL CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
---------- -----------
REVENUE (NET) $1,374,976 $1,192,629
COST OF SALES 1,098,622 948,137
---------- -----------
Gross Profit 276,354 244,492
OPERATING EXPENSES 151,003 164,029
---------- ----------
Net Income Before Other Income 125,351 80,463
OTHER INCOME
Interest income 3,795 --
---------- -----------
Net Income Before Income Taxes 129,146 80,463
(PROVISION) FOR INCOME TAXES (Note 6)
Current (800) --
Deferred (41,000) (21,000)
---------- -----------
Net Income $ 87,346 $ 59,463
========== ===========
Basic net income per share (Note 7) $ 87.35 $ 59.47
========== ===========
Diluted net income per share (Note 7) $ 87.35 $ 59.47
========== ===========
The Accompanying Notes are an Integral Part of the Financial Statements
F-3
ELECTRONIC MEDIA CENTRAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
Preferred Stock Common Stock Total
---------------- ---------------- Retained Stockholders'
Shares Amount Shares Amount Earnings Equity
------ ------ ------ ------ -------- -------------
Balance
April 1, 1998 -- $ -- -- $ -- $ -- $ --
Initial stock issued
To parent corporation -- -- 1,000 1 -- 1
Net Income at
March 31, 1999 -- -- -- -- 59,463 59,463
------ ------ ------ ------ -------- -------------
Balance
March 31, 1999 -- -- 1,000 1 59,463 59,464
Net Income at
March 31, 2000 -- -- -- -- 87,346 87,346
------ ------ ------ ------ -------- -------------
Balance
March 31, 2000 -- $ -- 1,000 $ 1 $146,809 $ 146,810
====== ====== ====== ====== ======== =============
The Accompanying Notes are an Ingegral Part of the Financial Statements
F-4
ELECTRONIC MEDIA CENTRAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
2000 1999
--------- ---------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 87,346 $ 59,463
Adjustment to reconcile net income to cash provided
(used) by operating activities:
(Increase) in accounts receivable (21,002) (98,092)
Increase in allowance for doubtful accounts -- 6,300
Increase (decrease) in accrued payroll (915) 4,127
Increase in accounts payable and accrued expenses 1,009 595
Increase (decrease) in accounts payable - related (38,246) 131,744
--------- ---------
Net Cash Flows Provided by Operating 28,192 104,137
--------- ---------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Note receivable from related company (56,088) (58,448)
Receivable from officer (11,274) (4,803)
--------- ---------
Net Cash Flows (Used) by Investing (67,362) (63,251)
--------- ---------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Note payable to affiliate 4,720 11,784
Increase in accounts payable - related company -- 2,000
Common stock issued -- 1
--------- ---------
Net Cash Flows Provided by Financing 4,720 13,785
--------- ---------
NET INCREASE IN CASH (34,450) 54,671
CASH - BEGINNING OF THE YEAR 54,671 --
--------- ---------
CASH - END OF THE YEAR $ 20,221 $ 54,671
========= =========
ADDITIONAL DISCLOSURES:
Interest paid $ -- $ --
========= =========
Taxes paid $ -- $ --
========= =========
The Accompanying Notes are an Integral Part of the Financial Statements
F-5
ELECTRONIC MEDIA CENTRAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - ORGANIZATION AND PRESENTATION
Organization
On April 1, 1998, Electronic Media Central Corporation (EMC) was incorporated in
California. Electronic Media Central Corporation (formerly a division of
Internet Infinity, Inc.) is owned 100% by Internet Infinity, Inc. (III).
Previously, EMC has reported and filed as part of III's consolidated financial
statements. EMC is engaged in the sale of blank electronic media such as
videotapes and the duplication, replication and packaging of DVD's, CD's,
videotapes, and audiotapes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash and cash
equivalents to include cash on hand, bank balances and short-term investments
with a maturity of three months or less.
Accounts Receivable
The Company uses the allowance method to account for uncollectible accounts
receivable. Accounts receivable are presented net of an allowance for doubtful
accounts of $6,300 and $6,300 at March 31, 2000, and March 31, 1999,
respectively.
Long-Lived Assets
In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." In accordance with SFAS No. 121, long-lived assets
held and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicated that the carrying amount of an asset may not
be fully recoverable. For purposes of evaluating the recoverability of
long-lived assets, the estimated future cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow value is required. If an impairment were to
exist, it would be measured as the excess of the carrying amount of the asset
over the discounted cash flow value of the asset. The carrying amount of the
asset is its cost less any accumulated depreciation or amortization.
Consolidated Tax Returns
The Company files consolidated federal and state income tax returns with its
parent company. In accordance with the intercorporate tax allocation policy, the
Company pays to or receives from the parent company, amounts equivalent to
federal and state income tax charges or credits based on separate company
taxable income or loss using the statutory rates.
F-6
ELECTRONIC MEDIA CENTRAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Income Tax Accounts
Deferred tax provisions/benefits are calculated for certain transactions and
events because of differing treatments under generally accepted accounting
principles and the currently enacted tax laws of the federal government. The
results of these differences on a cumulative basis, known as temporary
differences, result in the recognition and measurement of deferred tax assets
and liabilities in the accompanying balance sheet. The liability method (FASB
109) is used to account for these temporary differences.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Accordingly,
actual results could differ from those estimates.
Year 2000 Compliance
Management does not believe any material year 2000 problems with the Company's
vendors, service providers, or other third parties will affect the Company's
financial information.
Revenue Recognition
Income and expenses are recorded on the accrual basis of accounting. Revenue is
recognized from sales when a product is shipped and collection is probable and
the fee is fixed and determinable. Expenses are recognized when incurred.
Adoption of SAB 101 has had no effect on the way the Company recognizes revenue.
The Company has not had to change their accounting policies to comply with SAB
101.
Segment Reporting
The Company is a single segment reporting entity. At the current time, all sales
and related expenses are from the sale of blank electronic media such as
videotapes and the duplication, replication and packaging of DVD's, CD's,
videotapes and audiotapes.
Earnings Per Share of Common Stock
The Company adopted SFAS No. 128 "Earnings Per Share" in the fourth quarter of
the fiscal year 1998. SFAS No. 128 is intended to simplify the earnings per
share computations and make them more comparable from company to company. All
prior year earnings per share amounts have been recalculated in accordance with
the earnings per share requirements under SFAS No. 128; however, such
recalculation did not result in any change to the Company's previously reported
earnings per share for all years presented.
NOTE 3 - RECEIVABLE FROM OFFICER
The receivable is from George Morris, the Company's President. There are no
specific terms of repayment.
F-7
ELECTRONIC MEDIA CENTRAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 4 - RELATED COMPANY TRANSACTIONS
2000 1999
----------- -----------
a) Note payable to affiliate:
The Company shares its office and warehouse
spaces with its affiliate, Morris and Associates
(M&A). The Company and M&A are owned 100% by
Internet Infinity, Inc. (III). Note payable to
affiliate represents the net amount from expenses
paid on M&A's behalf by the Company, and
intercompany charges for the tax benefit received
by the Company from the parents' net operating
loss (See Note 2 and Note 8). There are no specific
terms of repayment. $ (16,504) $ (11,784)
=========== ===========
b) Note receivable - related company:
Note receivable from L&M Media, Inc., payable at
$36,526 per year, plus interest at 6% per annum.
Monthly installments of $3,000, due beginning
June 30, 2000. L&M Media, Inc. is 98% owned by
George Morris, President of the Company. L&M
Media, Inc. owns 45.3% of the outstanding stock
of III. During 2000, all payments made were
deposited in M&A's bank account. $ 114,536 $ 58,448
=========== ===========
c) Due to related company:
Loan payable to Morris Financial, without interest.
Loan was paid subsequent to year-end. Morris
Financial is owned 100% by George Morris. $ (2,000) $ (2,000)
=========== ===========
d) Accounts payable - related company:
Trade accounts payable to Apple Media Corporation
(AMC). AMC is owned 98% by George Morris. As
of the fiscal year ended March 31, 1999, AMC
became a subsidiary of L&M Media, Inc. The
Company's President owned 98% of L&M Media
(See Note 5). $ (93,498) $ (131,744)
=========== ===========
The Company utilizes office space, telephone and utilities provided by Apple
Media Corporation (AMC). George Morris, the Company's President, owns 98% of
AMC. An estimate of the monthly values for office space, telephone and
utilities, of $675 has been expensed, with an offsetting credit against the
accounts payable of AMC (see "d", above). For the years ended, March 31, 2000
and 1999, the total of $8,100 was recorded for the above expenses.
The note receivable (see "b", above), of $114,536, is from L&M Media, which is
98% owned by George Morris, President of EMC. EMC owes $93,498 to AMC (see "d",
above). L&M Media owns AMC 100%. As of December 31, 2000, the Board of Directors
of EMC and George Morris have agreed to offset the receivable of $114,536
against the payable of $93,498, leaving a receivable from L&M Media of $21,038.
NOTE 5 - CONCENTRATION OF CREDIT RISK
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of businesses comprising the Company's
geographically dispersed customer base. For the fiscal year ended March 31,
2000, revenue from two customers represents 30% of the Company's total revenue,
and 46% of the Company's outstanding accounts receivable.
F-8
ELECTRONIC MEDIA CENTRAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 5 - CONCENTRATION OF CREDIT RISK (CONTINUED)
The Company's only supplier of products is Apple Media Corporation (AMC). The
Company's cost for the product is 80% of the selling price. AMC is owned 98% by
George Morris. Subsequent to March 31, 2000 and 1999, AMC became a subsidiary of
L&M Media, Inc., which is also owned 98% by George Morris.
NOTE 6 - (PROVISION) FOR INCOME TAXES
The components of the (provision) for income taxes are as follows:
2000 1999
----------- ----------
Current:
Federal $ -- $ --
State (800) --
----------- ----------
(800) --
----------- ----------
Deferred (Provision):
Federal (29,584) (13,887)
State (11,416) (7,113)
----------- -----------
(41,000) (21,000)
----------- -----------
Total (Provision) for Income Taxes $ (41,800) $ (21,000)
=========== ===========
NOTE 7 - NET INCOME PER SHARE
Following is a reconciliation of net income and weighted average common shares
outstanding for purposes of calculating basic and diluted net income per share:
2000 1999
----------- -----------
Basic net income per share $ 87,346 $ 59,463
=========== ===========
Weighted average common shares outstanding 1,000 1,000
----------- -----------
Basic net income (loss) per share $ 87.35 $ 59.47
=========== ===========
Weighted average common shares outstanding 1,000 1,000
Dilutive stock options -- --
----------- -----------
Weighted average common shares outstanding for
purposes of computing diluted net income
per share 1,000 1,000
=========== ===========
Diluted net income per share $ 87.35 $ 59.47
=========== ===========
NOTE 8 - DEFERRED INCOME TAXES
A deferred tax provision of $41,000 and $21,000 results from income recognized
by the Company for the year ended March 31, 2000 and 1999, respectively. In
accordance with the intercorporate tax allocation policy (See Note 2), the
Company has recorded the aforementioned amounts as `due to an affiliate' for the
years ended March 31, 2000 and 1999.
F-9
INDEPENDENT ACCOUNTANTS' REPORT
March 26, 2001
To The Board of Directors and Stockholders of
Electronic Media Central Corporation
Costa Mesa, California
We have reviewed the accompanying condensed balance sheets of Electronic Media
Central Corporation as of December 31, 2000, and the related condensed
statements of operations and cash flows for the three and nine-months then
ended. These financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed financial statements for them to be in conformity with
generally accepted accounting principles.
The financial statements as of December 31, 1999 and for the three and
nine-months then ended, have not been reviewed by us, and accordingly, we
express no opinion or other form of assurance on them.
/s/ Caldwell, Becker, Dervin, Petrick & Co., L.L.P.
CALDWELL, BECKER, DERVIN, PETRICK & CO., L.L.P.
Woodland Hills, California
F-10
ELECTRONIC MEDIA CENTRAL CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(UNAUDITED)
ASSETS
2000 1999
--------- ---------
CURRENT ASSETS
Cash $ 6,219 $ 14,032
Accounts receivable, net of allowance for doubtful
accounts of $6,300 and $6,300, respectively 118,714 284,212
Receivable from officer - current 8,431 18,028
--------- ---------
Total Current Assets 133,364 316,272
--------- ---------
OTHER ASSETS
Note receivable from affiliate 40,429 25,521
Note receivable - related company - non-current;
net of allowance of $35,650 and $0, respectively -- 108,948
--------- ---------
Total Other Assets 40,429 134,469
--------- ---------
Total Assets $ 173,793 $ 450,741
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 10,196 $ 22,060
Accrued payroll 2,594 4,127
Accounts payable - related companies -- 247,482
--------- ---------
Total Current Liabilities 12,790 237,669
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.001; authorized
shares; issued and outstanding 0 shares -- --
Common stock, par value $.001; authorized 40,000,000
shares; issued and outstanding 10,000,000 and 1,000
shares, respectively 10,000 1
Unpaid stock subscription (9,999) --
Retained earnings 161,002 177,071
--------- ---------
Total Stockholders' Equity 161,003 177,072
--------- ---------
Total Liabilities and Stockholders' Equity $ 173,793 $ 450,741
========= =========
See the Accompanying Selected Information to Unaudited Financial Statements
F-11
ELECTRONIC MEDIA CENTRAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three-Months For the Nine-Months
Ended December 31, Ended December 31,
-------------------- -------------------------
2000 1999 2000 1999
--------- --------- ----------- -----------
REVENUE 243,770 470,863 $ 859,935 $ 1,081,347
COST OF SALES
(AFFILIATED COMPANY) 193,339 384,190 681,873 865,478
-------- --------- ----------- -----------
Gross Profit 50,431 86,673 178,062 215,869
OPERATING EXPENSES 39,684 18,840 123,354 90,261
-------- --------- ----------- -----------
Net Income
Other Income and
Provision 10,747 67,833 54,708 125,608
OTHER INCOME (EXPENSE)
Interest income 1,787 -- 5,135 --
Bad debt (35,650) -- (35,650) --
-------- --------- ----------- -----------
Net Income (Loss)
Before Income Taxes (23,116) 67,833 24,193 125,608
(PROVISION) FOR INCOME
TAXES - DEFERRED -- -- (10,000) (8,000)
-------- --------- ----------- -----------
Net Income (Loss) $ (23,116) $ 67,833 $ 14,193 $ 117,608
======== ========= =========== ===========
BASIC NET INCOME PER SHARE:
Basic $ (23.12) $ 67.83 $ 14.19 $ 117.61
======== ========= =========== ===========
Diluted $ (23.12) $ 67.83 $ 14.19 $ 117.61
======== ========= =========== ===========
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING:
Basic 1,000 1,000 1,000 1,000
======== ========= =========== ===========
Diluted 1,000 1,000 1,000 1,000
======== ========= =========== ===========
See the Accompanying Selected Information to Unaudited Financial Statements
F-12
ELECTRONIC MEDIA CENTRAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months For the Nine Months
Ended December 31, Ended December 31,
-------------------- --------------------
2000 1999 2000 1999
-------- --------- -------- --------
CASH FLOWS PROVIDED (USED)
BY OPERATING ACTIVITIES:
Net income (loss) $ (23,116) $ 67,833 $ 14,193 $ 117,608
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
(Increase) decrease in
accounts receivable 25,608 (168,795) (5,920) (192,420)
Increase in current liabilities
and accrued expenses 269 14,427 7,974 21,465
Increase in trade accounts
payable - related party 6,489 119,815 -- 113,463
-------- --------- -------- --------
Net Cash Flows Provided
by Operating Activities 9,250 33,280 16,247 60,116
-------- --------- -------- --------
CASH FLOWS PROVIDED (USED)
BY INESTING ACTIVIES:
(Increase) in receivable from affiliate (32,251) (19,781) (58,933) (37,030)
(Increase) decrease in officer's loan 3,351 (18,028) 7,646 (13,225)
Increase in note receivable reserve 21,038 -- 21,038 --
(Increase) decrease in note
receivable - related party 448 (18,898) -- (50,500)
-------- --------- --------- ---------
Net Cash Flows (Used)
by Investing Activities (7,414) (56,707) (30,249) (100,755)
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 1,836 (23,427) (14,002) (40,639)
CASH AT THE BEGINNING OF THE
PERIOD 4,383 37,459 20,221 54,671
-------- --------- --------- ---------
CASH AT THE END OF THE PERIOD $ 6,219 $ 14,032 $ 6,219 $ 14,032
======== ========= ========= =========
ADDITIONAL DISCLOSURES:
Income taxes paid $ -- $ -- $ 800 $ 800
======== ========= ========= =========
See the Accompanying Selected Information to Unaudited Financial Statements
F-13
ELECTRONIC MEDIA CENTRAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(UNAUDITED)
NOTE 1 - ORGANIZATION AND PRESENTATION
Organization
On April 1, 1998, Electronic Media Central Corporation (EMC) was incorporated in
California. Electronic Media Central Corporation (formerly a division of
Internet Infinity, Inc.) is owned 100% by Internet Infinity, Inc. (III).
Previously, EMC reported and filed as part of III's consolidated financial
statements. EMC is engaged in the sale of blank electronic media such as
videotapes and the duplication, replication and packaging of DVD's, CD's,
videotapes, and audiotapes.
NOTE 2 - MANAGEMENT'S STATEMENT
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (all of which are normal and recurring in nature)
necessary to present fairly the financial position of Electronic Media Central
Corporation (the Company) at December 31, 2000 and 1999, and the results of
operations and the cash flows for the three and nine-months ended December 31,
2000 and 1999.
The notes to the Financial Statements, which are incorporated by reference into
Form 10-SB, for the years ended March 31, 2000 and 1999, should be read in
conjunction with these Condensed Financial Statements.
NOTE 3 - RECLASSIFICATION
Certain prior year balances have been reclassified to conform to the current
years' presentation.
NOTE 4 - CONSOLIDATED TAX RETURNS
The Company files consolidated federal and state income tax returns with its
parent company. In accordance with the intercorporate tax allocation policy, the
Company pays to or receives from the parent company amounts equivalent to
federal and state income tax charges or credits based on separate company
taxable income or loss using the statutory rates.
NOTE 5 - DEFERRED INCOME TAXES
A deferred tax liability of $10,000 and $8,000 results from income recognized by
the Company for the nine months ended December 31, 2000 and 1999, respectively.
In accordance with the intercorporate tax allocation policy (See Note 4), the
Company has recorded the aforementioned amounts as `due to an affiliate' for the
nine-months ended December 31, 2000 and 1999, and are included in the other
asset section of the balance sheet as an offset against 'note receivable from
affiliate.'
F-14
ELECTRONIC MEDIA CENTRAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
(UNAUDITED)
NOTE 6 - STOCKHOLDERS' EQUITY
The following is an analysis of activities in the Stockholders' Equity for the
nine-months ended December 31, 2000:
Preferred Stock Common Stock Unpaid Total
---------------- ----------------- Stock Stockholders'
Shares Amount Shares Amount Subscription Earnings Equity
------ ------ ------ ------ ------------ -------- ------------
Balance at
March 31, 1998 -- $ -- -- $ -- $ -- $ -- $ --
Initial stock
issued to parent
corpration -- -- 1,000 1 -- -- 1
Net income at
March 31, 1999 -- -- -- -- -- 59,463 59,463
------ ------ --------- --------- -------------- --------- ------------
Balance at
March 31, 1999 -- -- 1,000 1 -- 59,463 59,464
Net income at
March 31, 2000 -- -- -- -- -- 87,346 87,346
------ ------ --------- --------- -------------- --------- ------------
Balance at
March 31, 2000 -- -- 1,000 1 -- 146,809 146,810
Common stock
issued -- -- 9,999,000 9,999 (9,999) -- --
Net income at
December 31, 2000 -- -- -- -- -- 14,193 14,193
------ ------ --------- --------- -------------- --------- ------------
Balance at
December 31, 2000 -- $ -- 10,000,000 $ 10,000 $ (9,999) $161,002 $161,003
====== ====== ========== ========= ============== ========= ============
NOTE 7 - STOCK OF SUBSIDIARY
Electronic Media Central Corporation issued 9,999,000 shares of common stock at
$.001 per share to Internet Infinity, Inc. (parent) in exchange for a $9,999
unsecured note receivable. The $9,999 is shown in the equity section as unpaid
stock subscription.
NOTE 8 - RELATED PARTY TRANSACTIONS
As of December 31, 2000 certain loans and notes receivable have been combined
with loans and notes payable to Companies that are commonly owned 98% by George
Morris.
An excess receivable of $35,060 resulting from this combining has been reserved
for as a possible asset impairment.
F-15
EXHIBITS
Index to Exhibits
Exhibit No. Description
---------- -----------
2 - Articles of Incorporation of Electronic Media Central
Corporation*
2.1 - Bylaws of Electronic Media Central Corporation*
10 - Distribution Agreement Between Electronic Media Central
and L&M Media, Inc., dba Apple Media**
16 - Resignation of George Brenner, C.P.A., as independent
accountant for Electronic Media Central**
*Previously filed with Form 10-SB, Commission file number 000-32345;
incorporated herein.
**Previously filed with Amendment No. 1 to Form 10-SB, Commission file
number 000-32345; incorporated herein.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Electronic Media Central Corporation
Date: May 7, 2001 By /s/ George Paul Morris
---------------------------------
George Paul Morris, Chief Executive Officer
FULLER, TUBB, POMEROY & STOKES
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
201 ROBERT S. KERR AVENUE, SUITE 1000
OKLAHOMA CITY, OK 73102
G. M. FULLER (1920-1999) TELEPHONE 405-235-2575
JERRY TUBB FACSIMILE 405-232-8384
DAVID POMEROY
TERRY STOKES
-----
OF COUNSEL:
MICHAEL A. BICKFORD
THOMAS J. KENAN
ROLAND TAGUE
BRADLEY D. AVEY
May 10, 2001
Elaine Wolff, Senior Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W., Mail Stop 0409
Washington, DC 20549-0409
ATTENTION ANDREW J. BRADY
Dear Ms. Wolff:
Re: Electronic Media Central Corporation
Registration Statement on Form 10-SB, filed February 13, 2001
Registration No. 0-32345
With regard to Electronic Media Central Corporation's Amendment No. 2 to
Form 10-SB filed herewith, the following numbered paragraphs are keyed to the
comments in your letter of May 2, 2001:
General
- -------
1. The registrant confirms that all required filings have been filed
since the effectiveness of the Form 10-SB.
Item 1. Description of Business
- --------------------------------
Business Development, page 1
----------------------------
2. The seventh paragraph under this heading has been expanded to
disclose the remaining $79,117.95 outstanding balance on purchase price of Video
Magnetics as of March 31, 2001.
3. Apple Media Corporation and Video Magnetics agreed, through mediation
supervised by a retired judge, that the balance of the original $260,000 note
balance would be reduced to $150,000 plus 10% annual interest paid at the rate
of $3,125 or more per month, commencing July 1998. In addition, George Morris
had to personally guarantee the payment of the note. The basis for the reduction
was alleged misrepresentations by the former owner of Video Magnetics concerning
the value of accounts receivable, accounts payable and other assets sold.
4. A new second paragraph under this heading has been added to explain
that the registrant has agreed to purchase all of its videotape duplication
services exclusively from L&M Media, Inc.
5. The first paragraph under this heading has been revised to include
termination provisions for office, utilities and telephone expense allowances.
Competition, page 4
- -------------------
6. The "Dependence on Supplier" paragraph has been expanded to state
clearly that the registrant is contractually prohibited from shopping for better
relationships except through and along with Apple Media.
Dependence on Major Customers, page 4.
7. The paragraph under this heading on page 4 is expanded to identify
sales to customers made in an aggregate amount equal to 10 percent or more of
the registrant's consolidated revenues and to state that the loss of such
customers would have a material adverse effect on the company.
Dependence on Management, page 4
- --------------------------------
8. The reason for looking for new management is now explained in this
paragraph.
Item 2. MD&A
- -------------
9. The tabular disclosure under the heading "Sales Breakout for CD" has
been revised to include a column noting the percentage of sales of videotapes.
Item 7. Certain Relationships and Related Transactions, page 11
- ----------------------------------------------------------------
10. The paragraph under this heading has been expanded to include the
information presented in Note 4 to the Financial Statements.
Financial Statements
- --------------------
11. Note 5 to the Financial Statements has been revised to add
disclosure regarding the composition of the note receivable from affiliate
balances.
If you have any questions that might be properly handled by conversing
with the undersigned, please do so at my telephone number 405-235-2575, fax
number 405-232-8384, or e-mail at kenan@ftpslaw.com.
Sincerely,
/s/ Thomas J. Kenan
Thomas J. Kenan
e-mail: kenan@ftpslaw.com
cc: George P. Morris
Laurence R. Becker, C.P.A.