UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2002
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from March 1, 2002 to December 31, 2002
Commission file number: 000-26073
Immediatek, Inc.
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(Exact name of Registrant as specified in charter)
Nevada 86-0881193
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification)
2435 N. Central Expressway Suite 1200, Richardson, TX 75080
----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 712-7336
--------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class registered: None Name of each exchange on which
registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001
------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405
of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $69,729.
Based on the average if the closing bid and asked prices of the issuer's
common stock on December 31, 2002, the aggregate market value of the voting
stock held by non-affiliates of the registrant on that date was $721,468.
As of December 31, 2002, the issuer had 1,898,600 shares of common
stock outstanding. As of March 27, 2003, the issuer had 20,000,000 shares
of common stock outstanding.
Documents incorporated by reference: See Item 13. Exhibits and Reports
on Form 8-K in Part III.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
1
CONTENTS
CONTENTS
PAGE
PART I
Item 1. Description of Business..................................... 4
Item 2. Description of Property.....................................14
Item 3. Legal Proceedings...........................................14
Item 4. Submission of Matters to a Vote of Security Holders.........14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters....15
Item 6. Management's Discussion and Analysis or Plan of Operation...16
Item 7. Financial Statements........................................19
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................21
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.............................................21
Item 10. Executive Compensation......................................23
Item 11. Security Ownership of Certain Beneficial Owners and
Management...............................................24
Item 12. Certain Relationships and Related Transactions..............25
Item 13. Exhibits and Reports on Form 8-K............................26
Item 14 Control and Procedures......................................27
SIGNATURES ............................................................28
2
Forward-Looking Statements
This report contains forward-looking statements. The forward-looking
statements include all statements that are not statements of historical
fact. The forward-looking statements are often identifiable by their use of
words such as "may," "expect," "believe," "anticipate," "intend," "could,"
"estimate," or "continue," "plans" or the negative or other variations of
those or comparable terms. Our actual results could differ materially from
the anticipated results described in the forward-looking statements. Factors
that could affect our results include, but are not limited to, those
discussed in Item 6, "Management's Discussion and Analysis or Plan of
Operation" and included elsewhere in this report.
3
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
A. BUSINESS DEVELOPMENT
Business Development, Organization and Acquisition Activities
-------------------------------------------------------------
Immediatek, Inc., formerly called ModernGroove Entertainment, Inc., and
originally called Barrington Laboratories, Inc., and, is a developmental stage
company, hereinafter referred to as ("the Company"), was organized by the filing
of Articles of Incorporation with the Secretary of State of the State of Nevada
on August 6, 1998. The Articles of Incorporation of the Company were amended
on December 9, 2002 to officially change the name of the Company to Immediatek,
Inc, and increase the number of authorized shares to five hundred million
(500,000,000) shares of common stock having a par value of $0.001. The
Corporation shall have the authority to issue and five million (5,000,000)
shares of preferred stock at a par value of $0.001.
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., the Canadian
subsidiary, a petition with the Supreme Court of British Columbia to be adjudged
bankrupt, under Canadian Bankruptcy Code, British Columbia, Bankruptcy Division,
Department of Consumer and Corporate Affairs, designated with the Vancouver
Registry as Case No. 225054VA02. The Canadian corporation has ceased operations
in Canada.
Immediatek, Inc. is an Efficient Solutions Provider (ESP) specializing in
cutting-edge software and technology solutions. Management believes the
Company's continued expansion is dependent upon the achievement of profitable
operations in the future, of which there are no guarantees. This expansion
may include the acquisition of assets to help the Company build and expand
its customer base.
1) Principal Products and Principal Markets
OVERVIEW
Immediatek, Inc., is an "Efficient Solutions Provider," or "ESP" company,
located in the Richardson, TX Telecom Corridor. Additionally, Immediatek
has a parallel software development effort.
Immedatek offers IT outsourcing solutions with available 24x7 TekNet OnCall
technicians, and a guaranteed minimum 2-4 hour response time. Immediatek
offers a reduced hourly rate as compared to its competition, based on the
Company's unique processes and low overhead built into the TekNet OnCall
product. Immediatek philosophy is to offer top-quality service at prices
that do not deter any customer from picking up the phone and calling.
Additionally, management takes pride in their fast turnaround and next-day
customer follow-up are customer-oriented services that make Immediatek
stand out.
4
Immediatek has expanded its product offering to include the process automation
and re-engineering expertise of Zach Bair, its President, who founded $12.4
million venture-backed PowerUp Networks in the year 2000, as well as a small
library of widely appealing software products. Immediatek also uses internal
processes and algorithms, which Bair developed to streamline its own operations
and increase profitability while reducing cost.Immediatek uses these techniques
in its TekNet OnCall IT support products, as well as custom solutions.
Since Mr. Bair left PowerUp in 2001, he has been developing ideas surrounding
the TekNet OnCall services, and has focused on building a team and priming
"long term" clients. Immediatek has a two-fold growth plan for 2002/3:
a) create a new market opportunity with the unique TekNetOnCall services,
which are ideal for executive suite companies and hotel chains, among
others; and,
b) grow existing professional services client base based on channel
partners, industry contacts, reputation, and aggressive sales.
Eventually, Immediatek plans to offer software solutions for sale as a result
of internal development and based on its processes.
Market Opportunity
------------------
The home PC service market is currently over $400 billion in size, according
to sources including the Gartner Group. The TekNet OnCall service is a
totally new concept in providing IT support, and is ideal for small to
medium sized companies who can't afford to have a full-time support staff,
as well as individual users To date, there are many companies that offer
outsourcing of these types of services, however, there are no other companies
which management has identified that utilizes the unique pricing models,
offered by the Company.
Therefore, TekNet OnCall is perfect for companies such as executive office
suites, hotels, hi-rise apartment buildings, and other real estate where
there is basically a "captive audience" and an opportunity not only to sell
to the owners/managers of the property, but also on an exclusive basis to
their clients within. Immediatek will offer a single point of contact for
all IT needs including software, hardware, and support, and the owner/
property manager can then simply place the Company's fee into their standard
billing cycle to their clients, and provide themselves with a recommended
markup for their environment. As small companies grow, Immediatek can grow
with them.
Business Strategy
-----------------
The principal goal of the Company's market strategy is to rapidly enter the
market generating sales as soon as possible in order to achieve the revenue
target and to maximize company valuation and demonstrate a leadership
position in IT outsourcing and IT related professional services.
5
Other goals of the go-to-market strategy include:
o Fully utilize management's background in process automation and IT
support to enhance brand image and provide a direct source
of ideas for product development;
o Protect the integrity of Immediatek's customer value proposition
thereby increasing the number of reference sites, unpaid referrals
and follow on business;
o Increase sales using business partners in order to allow Immediatek
to extend its sales footprint without the requirement for a large
investment in a direct sales force;
o Allow Immediatek to focus on its core competence as a solutions
company focused on being the leader in IT outsourcing through the
creation of a new paradigm in performance around time, productivity
and profitability;
The strategy must also acknowledge a number of key issues which include:
o The existence of a market sweet spot-the existence of the need
for services provided with the Company's pricing model, which includes
a flat-fee hourly rate coupled with a "no trip charge" policy.
o Key account customers offer multiple sales opportunities- within
enterprise, there exists various market segments. For example,
opportunities exist to extend beyond the present business
relationship with an internal IT Department, a cost center, to
revenue generating parts of these organizations such as their own
Outsourcing and Software Solutions business.
In conclusion, Immediatek will pursue the following Go-to-Market strategy
which directly addresses its goals, the key issues and embraces the Company's
business philosophy "to think big, start small and scale rapidly".
Market Strategy
---------------
Immediatek will pursue a hybrid channel strategy comprised of the following
channels to market to reach its chosen target markets, namely:
o Signature and Channel Accounts.
o IT Departments in the Enterprise market and companies that
possess professional services arms
o The "small business" users and home users which generally cannot
afford to have an IT person on-staff on a full-time basis, and which
comprise a large portion of the market and are generally passed over
by other IT consulting companies in favor of the large accounts
6
Three channels to market will be created and include the following channel
segments:
o Signature Accounts- Immediatek will directly target and pursue
a handful of large Enterprise customers. These types of customers offer
multiple revenue opportunities and serve to build brand image, drive
referrals and help direct the product evolution path.
o Professional Services and Value Added Resellers-Immediatek will
pursue the IT Department and professional services markets indirectly by
securing reseller agreements with key players in the PC hardware and
software retailers industry. Notably, deals with nationwide superstores
such as Microcenter offers enormous promise.
o Consultancies- Immediatek will also pursue the IT Department
and professional services markets via the consulting community.
This channel will be further segmented into "tier 1" consultancies
including the Big 5 and "tier 2" consultancies. It is further
anticipated that some of these Consultancies will become customers
also as they will likely wish to use the Immediatek's processes and
methodologies.
Sales and Marketing Strategy - Top 3 Priorities
-----------------------------------------------
1. Primary focus will be to support sales team.
o Create excitement within channels and support sales team with
business case to win End-Users
o Position Immediatek as the Industry and price leader in IT
outsourcing through the use of advanced processes, methodologies and
technology.
o Leverage high profile reference accounts (testimonials, video's,
CD's, Customer events) to appeal to and break into mass market
customer base.
2. Focus marketing dollars on winning market share and mind share in the
high growth IT outsourcing and associated customer bases.
3. Drive double edged marketing campaign:
o Deploy push Marketing Program to key channels, OEM Manufacturers,
Retail Outlets, Consultancies and Outsourcing Agents and respective
client lists
o Pull through (viral based) Marketing Program to consumers, user
groups, B2B exchange users and Telco Hotel users.
7
Opportunities: Old Method - IT Outsourcing
-------------------------------------------
In the current IT outsourcing climate, there are some basic understandings
that go along with obtaining an outsourcing solution: 1) it will be costly,
and 2) sometimes you do not know what you pay for. Multiple organizations
within a business are involved, which can cause the entire process to become
mysterious and convoluted. For instance, based on experience with at least
one Fortune 500 company, they were spending over $1.1 million per year on IT
outsourcing solutions, but they could not identify explicitly how the budget
was being spent.
Additionally, a typical PC tech, for instance, can cost anywhere from $75 to
$150 per hour, and most of the time will include a "trip charge" that can be
as much as $65 just for them to show up at the door. Moreover, an end user
will balk at spending this type of money, and rather than call for help,
they will end up spending hours of their own time trying to solve the
problem themselves. Ultimately, they would have ended up spending more
because of their own valuable time.
Large companies, on the other hand, spend this kind of money because this is
simply what they are used to paying. Many consulting companies take
advantage of this because they know that the big companies will pay it.
Companies also feel that since they pay for more then they will get more in
return. Unfortunately, this is a huge myth in the industry and must be
overcome to drive prices down and to stir growth in the overall market.
Immediatek TekNet OnCall
------------------------
The Immediatek TekNet OnCall product can reduce the cost of IT outsourcing
solutions by as much as 30-80% in some cases. By utilizing revolutionary
pricing models and groundbreaking methodologies, TekNet OnCall blows away
the myth of expensive IT support. On the surface, the simplest TekNet
OnCall package is just a low-priced model which is translated from
Immediatek's low overhead. The end-user is charged a flat, market-driven
rate which is substantially lower than the competition, in combination with
no extraneous expenses such as trip charges. The result is that the consumer
(or business partner) is more likely to pick up the phone and less likely to
balk at the pricing.
The TekNet OnCall product is built upon a foundation of not charging the end
user and exorbitant rate and by instilling brand loyalty by outstanding
customer service and follow up. The main thrust of loyalty is driven by
these simple tactics:
o Flat, market-based hourly fee ($75 in Dallas, for instance)
o Guaranteed call-back from a technician within 1/2 hour
o Guaranteed on-site response within 2-4 hours
o Follow-up with the customer the following day to insure satisfaction.
8
These policies when delivered on a consistent basis will insure brand
loyalty and consistently grow the business through reputation and word of
mouth.
Additionally, Immediatek will outsource 24 x 7 telephone support to a
yet-to-be-identified entity, thereby allowing the company to focus on the
OnCall product suite.
RISK FACTORS
------------
a) LIMITED OPERATING HISTORY MAKES POTENTIAL DIFFICULT TO ASSESS.
The Company has limited operating history and must be considered to be
a developmental stage company. Prospective investors should be aware of the
difficulties encountered by such new enterprises, as the Company faces all of
the risks inherent in any new business and especially with a developmental
stage company. These risks include, but are not limited to, competition, the
absence of an operating history, the need for additional working capital, and
the possible inability to adapt to various economic changes inherent in a
market economy. The likelihood of success of the Company must be considered in
light of these problems, expenses that are frequently incurred in the operation
of a new business and the competitive environment in which the Company will
operate.
b) EVENTUAL NEED FOR ADDITIONAL CAPITAL. The Company will need additional
funding to expand its operations. The need for additional funds will be derived
from any future revenues and earnings the Company might generate. Further,
management believes the majority of funding will be received from future private
placement stock offerings pursuant to Regulation "D" Rule 505 or 506. These
future offerings could significantly dilute the value of any previous investor's
investment value.
c) OPERATING LOSSES, NEGATIVE CASH FLOW FROM OPERATIONS LIKELY FOR
FORESEEABLE FUTURE. There is no guarantee that the Company will ever be
able to operate profitably or derive any significant revenues from its
operation. It is important to note that the Company anticipates that it will
incur losses and negative cash flow over the next twelve (12) months. There
is no guarantee that the Company will ever operate profitably or even receive
positive cash flows from full operations.
d) STRONG COMPETITION COULD CUT INTO COMPANY'S MARKET. Competition for
the Company's services is very intense. There is no guarantee that the
Immediatek's customers and potential customers will support Immediatek in the
future. Other companies, with greater financial resources, could duplicate
the software and technology solutions offered by the Company and could find
ways to out perform Immediatek, at the Company's expense.
9
e) RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL AND OTHER CHANGES. The
markets in which Immediatek competes are characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
announcements, introductions and enhancements and changing consumer demands.
The Company may not be able to keep up with these rapid changes. As a result,
the Company's future success will depend on our ability to adapt to rapidly
changing technologies, to adapt our services to evolving industry standards
and to continually improve the performance, features and reliability of our
service in response to competitive service and product offerings and the
evolving demands of the marketplace. In addition, the widespread adoption
of new technologies or other technological changes could require Immediatek
to incur substantial expenditures to modify or adapt its services or
infrastructure.
f) DEPENDENCE ON KEY PERSONNEL COULD LEAD TO PROBLEMS. The Company
currently relies heavily upon the services and expertise of Zach Bair, its
President. Should the Company be deprived of the services of its President
for any reason during this period of initial and expansion, the results would
be devastating to the Company and could lead to its dissolution.
g) PLANS FOR EXPANSION MAY BE UNREALISTIC. The management of Immediatek,
Inc. has confidence in its vision for the Company and believes that the
time is ripe for a firm to develop and expand its software and technology
business. Other companies, pursing the same markets have had such a vision
and have been unsuccessful in their attempts to realize it. Potential
investors should carefully consider the possibility that the Company's
plans to expand may not be realistic and could ultimately prove to be
unworkable.
h) GOVERNMENT REGULATION COULD UNDERMINE THE COMPANY'S PROFITABILITY.
Though the Company plans on obtaining all required federal and state
permits, licenses, and bonds to operate its facilities, there can be no
assurance that the Company's operation and profitability will not be subject
to more restrictive regulation or increased taxation by federal, state, or
local agencies.
i) If the Company is unable to successfully replicate its business model in
NEW MARKETS, ITS FUTURE GROWTH AND OPERATING RESULTS WOULD BE ADVERSELY
AFFECTED. The Company relies heavily on the expertise of Zach Bair, its
President, who has knowledge of the industry. The Company plans to further
develop its market niche through the acquisition of assets and growing its
customer base. It may be difficult to replicate this model in new markets
across the United States. Therefore, Immediatek cannot be sure that
this business model will be successful in other markets. Future operating
results would be adversely affected if the Company is unable to expand its
operations.
10
l) SHARES SUBJECT TO RULE 144. On March 27, 2003, the Company had 19,715,397
of its 20,000,000 Common Shares issued and outstanding that have not been
registered with the Commission or any State securities agency and which are
currently restricted pursuant to Rule 144 promulgated by the Commission
under the 1933 Act. Rule 144 provides, in essence, that a person holding
restricted securities for two years from the date the securities were
purchased from the issuer, or an affiliate of the issuer, and fully paid,
may sell limited quantities of the securities to the public without
registration, provided there shall be certain public information with
respect to the issuer. Pursuant to Rule 144, securities held by non-affiliates
for more than three years may generally be sold without reference to the
current public information or broker transaction requirements, or the volume
limitations. None of the current outstanding restricted shares are available
for resale pursuant to Rule 144. The sale of some or all of the currently
restricted Common Shares could have a material negative impact upon the market
price of the Common Shares if a market for the Common Shares should develop in
the future. (See "PRINCIPAL STOCKHOLDERS")
j) RISKS ASSOCIATED WITH ACQUISITIONS
If appropriate opportunities present themselves, the Company would acquire
businesses, technologies, services or product(s) that the Company believes
are strategic and would help it to expand its operations and/or future
customer base.
Future acquisitions could result in potentially dilutive issuances of
equity securities, the incurrence of debt, contingent liabilities
and/or amortization expenses related to goodwill and other intangible
assets, which could materially adversely affect the Company's
business, results of operations and financial condition. Any future
acquisitions of other businesses, technologies, services or product(s)
might require the Company to obtain additional equity or debt
financing, which might not be available on terms favorable to the
Company, or at all, and such financing, if available, might be
dilutive.
2) Status of Any Announced New Product or Service
The Company acquired key assets of LCD Interactive, Inc., a private corporation
that has developed technology enabling Internet music fans to download standard
MP3 files directly to their CD burners while simultaneously protecting the
artists' copyrights. LCD Interactive, Inc. offers a proprietary "one-click"
CD burning software that protects copyright owners and musicians.
Immediatek had previously formed a strategic alliance with LCD Interactive to
exclusively market and develop the software. Acquisition of the assets,
including the CD burning software and LCD's flagship web site, htpp://www.
twobigtoes.com,, was accomplished through an Asset Purchase Agreement.
11
The Company recently signed agreements to license its catalog of approximately
30,000 MP3 music files to Dallas-based, MDU Service, Inc., for the deployment
of touch-screen kiosks capable of dispensing music CD-Rs in a matter of seconds.
In turn, MDU Service will be utilizing Immediatek's CD burning technology for
deploying and burning the music in the kiosks. MDU Services, Inc. creates
proprietary security software and touch screen kiosks known as Automated
Dispensing Machines (ADMs) for dispensing music CD-Rs instantaneously. ADMs
are tailored for convenience stores and high traffic areas.
These kiosks, otherwise known as Automatic Dispensing Machines ("ADMs") will
change how CDs are burned and how music can be instantly purchased in stores.
The extensive MP3 music catalog is an extensive music catalog to be licensed by
the Company in a fully automated self-dispensing CD machine. The touch-screen
kiosks, which resemble bank ATMs, are to be located throughout the United States
in high traffic areas such as malls, airports and major discount stores. The
kiosks allow the consumer to select music from thousands of musicians and dozens
of genres including rock, alternative, jazz, blues, country, latin, urban,
hip-hop, pop, classical, and others. The consumer can choose individual songs
and create a customized CD-R that is dispensed from the machine only seconds
after the secure credit card transaction is processed.
The Company plans to add hundreds of new MP3 songs each week to its extensive
catalog. These MP3 songs can be downloaded from the Company's centralized
servers to the kiosks each week once online. Each kiosk can dispense up to
3,000 blank CD-Rs before needing to be restocked, and Immediatek will monitor
this from its centralized offices. The uniqueness of the CD burning kiosk can
be viewed as the melding of digital delivery methods of music with the
physical creation of CD-Rs, resulting in the most demanded and universal
legalized music product on the Internet, a fully compatible "downloadable
music CD." The Company announced an initial deal has been struck to deploy
the kiosks at Ft. Lee, VA, a large U.S. military installation that is home to
the Combined Arms Support Command.
3) Customers
The Company is currently in the process of further developing its customer base.
There are no assurances that the Company will be able to offer products or
services that would attract future customers from its competition.
4) Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements, or Labor Contracts
The Company regards substantial elements of its future and underlying
infrastructure and technology as proprietary and attempts to protect them
by relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. The
Company plans to enter into confidentiality agreements with its future
employees and any future consultants. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
12
proprietary information without authorization or to develop similar technology
independently. Legal standards relating to the validity, enforceability and
scope of protection of certain proprietary rights in the software business
may be uncertain, and no assurance can be given as to the future viability or
value of any of the Company's proprietary rights. This can be no assurance
that the steps taken by the Company will prevent misappropriation or
infringement of its proprietary information, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
5) Effect of Existing or Probable Government Regulations and
Environmental Laws
Currently there is no absolute standard of government regulation that would
effect Immediatek's business; however, the issues raised by copyrights,
royalties, and the controversies that have amassed around the exchange of
MP3 files may result in such regulations and must be addressed by any company
seriously considering the future of the industry.
Beyond this issue of copyrights and royalties to artists/distributors, some
government legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of
information. The imposition upon the Company and other online providers of
potential liability for information carried on or disseminated through their
services could require the Company to implement measures to reduce its
exposure to such liability, which may require the Company to expend
substantial resources and/or to discontinue certain service offerings.
The inability to ascertain the effect of government regulation on a
prospective business activity presents a risk to the Company.
6) Impact on Environmental Laws
The Company is not aware of any federal, state or local environmental laws
that would effect is operations.
7) Employees
The Company currently has three employees, which its its President and Chief
Executive Officer. In order to further implement its business plan,
management recognizes that additional staff will be required. This would
include an office assistant and sales agents as required to complete the
work.
(i) The Company's performance is substantially dependent on the performance
of its President, Zach Bair.
13
(ii) The Company does not carry key person life insurance on any of its
personnel. The loss of the services of its executive officers could have a
material adverse effect on the business, results of operations and financial
condition of the Company. The Company's future success also depends on its
eventual ability to attract and retain highly qualified technical and
managerial personnel.
(iii) There can be no assurance that in the future the Company will be able
to attract and retain additional highly qualified technical and managerial
personnel. The inability to attract and retain the technical and managerial
personnel necessary to support the growth of the Company's business, due to,
among other things, a large increase in the wages demanded by such personnel,
could have a material adverse effect upon the Company's business, results of
operations and financial condition.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's corporate headquarters are located at: 2435 N. Central
Expressway Suite 1200, Richardson, TX 75080. Telephone number:
(214) 712-7336.
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, Immediatek, Inc. is not a party to any material legal
proceedings, and none are known to be contemplated against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
14
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(i) Market Information
----------------------
On September 14, 1999, the Company's common stock was initially cleared for
trading on the OTC Bulletin Board system under the symbol BRRT. The Company
subsequently changed its name to ModernGroove Entertainment, Inc., and its
trading symbol to: MODG. On January 7, 2003, the Company changed its name to
Immediatek, Inc. and its trading symbol to IMDK. On February 25, 2002, the
Company initiated a 1 for 250 reverse stock split and changed it trading symbol
to ITEK. A limited market exists for the trading of the Company's common stock.
The table below sets forth the high and low bid prices of our common stock
for each quarter shown, as provided by the Nasdaq Trading and Market
Services Research Unit. Quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
FISCAL 2000 HIGH LOW
-------------------------------- ---- ----
Quarter Ended March 31, 2000 10.25 1.62
Quarter Ended June 30, 2000 3.00 0.75
Quarter Ended September 30, 2000 1.74 0.37
Quarter ended December 31, 2000 2.25 0.47
FISCAL 2001 HIGH LOW
-------------------------------- ---- ----
Quarter Ended March 31, 2001 0.20 0.03
Quarter Ended June 30, 2001 0.55 0.12
Quarter Ended September 30, 2001 0.72 0.28
Quarter ended December 31, 2001 4.38 0.50
FISCAL 2002 HIGH LOW
-------------------------------- ---- ----
Quarter Ended March 31, 2002 0.06 0.04
Quarter Ended June 30, 2002 0.05 0.01
Quarter Ended September 30, 2002 0.09 0.01
Quarter ended December 31, 2002 0.09 0.01
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Holders
-------
The approximate number of holders of record of common stock as of December
31, 2002 was 198.
Dividends
---------
Holders of common stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available
for the payment of dividends. No dividends have been paid on our common
stock, and we do not anticipate paying any dividends on our common stock in
the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
-------
Immediatek, Inc. is an Efficient Solutions Provider (ESP) specializing in
cutting-edge software and technology solutions.
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., the Canadian
subsidiary, a petition with the Supreme Court of British Columbia to be adjudged
bankrupt, under Canadian Bankruptcy Code, British Columbia, Bankruptcy Division,
Department of Consumer and Corporate Affairs, designated with the Vancouver
Registry as Case No. 225054VA02. The Canadian corporation has ceased operations
in Canada.
On September 18, 2002, the Company combined by "reverse-merger" with Immediatek,
Inc., a State of Texas corporation. On November 5, 2002, the Company amended
its Articles of Incorporation to rename the Company Immediatek, Inc.
During the period March 1, 2002 through December 31, 2002, the Company generated
$69,729 in revenues and incurred a net loss of $(476,704), or a loss of $0.25
per share. The majority of this loss was a result of costs of services in
consulting fees paid in common stock. As of December 31, 2002, the Company
had $4,845 in cash reserves and $442 in accounts receivable.
The Company's ability to continue as a going concern is contingent upon the
successful completion of additional financing arrangements, the development
of its software and technology solutions to achieve and maintain profitable
operations. Management plans to raise equity capital to finance the operating
and capital requirements of the Company. Amounts raised will be used to
further development of the Company's products, to provide financing for
marketing and promotion, to secure additional property and equipment and
for other working capital purposes. While the Company is expending its
best efforts to achieve the above plans, there is no assurance that any
such activity will generate funds that will be available for operations.
16
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company's financial statements do not
include any adjustments related to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities
that may be necessary should the Company be unable to continue in
existence. (See "Financial Footnote 3.")
The Company has a limited operating history upon which an evaluation of the
Company, its current business and its prospects can be based. The Company's
prospects must be considered in light of the risks, uncertainties, expenses
and difficulties frequently encountered by companies in their early stages
of development. Such risks include, the company's inability to anticipate and
adapt to a developing market, the failure of the company's infrastructure,
changes in laws that adversely affect the company's business, the ability of
the Company to manage its operations, including the amount and timing of
capital expenditures and other costs relating to the expansion of the
company's operations, the introduction and development of different or more
extensive communities by direct and indirect competitors of the Company,
including those with greater financial, technical and marketing resources,
the inability of the Company to attract, retain and motivate qualified
personnel and general economic conditions.
Results of Operations
---------------------
As a development stage Company, the Company has generated $69,729 in revenues.
From March 1, 2002 through December 31, 2002, the Company experienced net
losses of $(476,704) or a net loss of $(0.25) per share. For the year ended,
the Company incurred costs of services and operating expenses which amounted
to $546,433. As of December 31, 2002, the Company had $4,845 in cash reserves
and $442 in accounts receivable.
Plan of Operation
-----------------
Management does not believe that the Company will be able to generate
significant profit during the coming year, unless the company can build a
strong customer base. Management does not believe the company will generate
any significant profit in the near future, as developmental and marketing and
administrative costs will most likely exceed any anticipated revenues.
Liquidity and Capital Resources
-------------------------------
The Company is authorized to issue 500,000,000 shares of its $0.001 par value
common stock. The Company is authorized to issue 5,000,000 shares of preferred
stock at a par value of $0.001.
17
The Company could be required to secure additional financing to fully
implement its entire business plan. There are no guarantees that such
financing will be available to the Company, or if available, will be on
terms and conditions satisfactory to management.
The Company does not have any preliminary agreements or understandings
between the company and its stockholders/officers and directors with
respect to loans or financing to operate the company. The Company
currently has no arrangements or commitments for accounts and accounts
receivable financing. There can be no assurance that any such financing
can be obtained or, if obtained, that it will be on reasonable terms.
On December 31, 2002, the Company had 430,650,700 shares of its $0.001 par value
common stock issued and outstanding. On January 9, 2003, the Company effected a
250-for-1 reverse stock split resulting in 1,722,600 shares issued and
outstanding. All references to number of shares outstanding have been retro-
actively restated.
On November 12, 2002, the Company acquired all of the outstanding shares of
Immediatek, Inc., a Texas corporation, in exchange for 400,000,000 shares of the
company's $0.001 par value common stock.
On November 18, 2002, the Company issued 151,800 shares of its $0.001 par value
common stock to unrelated individuals for consulting services valued at $303,752
based on the fair market value of the underlying shares.
On November 18, 2002, the Company issued 8,000 shares of its $0.001 par value
common stock to the Company's CEO for services valued at $16,408 based on the
fair market value of the underlying shares.
On December 2, 2002, the Company issued 8,000 shares of its $0.001 par value
common stock to an unrelated individual for consulting services valued at
$50,000 based on the fair market value of the underlying shares.
On December 6, 2002, the Company issued 8,000 shares of its $0.001 par value
common stock to an unrelated individual for consulting services valued at
$50,000 based on the fair market value of the underlying shares.
On March 17, 2003, the Company entered into two separate Asset Purchase
Agreements ("Agreements") with Paul Marin, an individual, and Zach Bair, an
individual and president of the Company, to purchase certain strategic assets.
Pursuant to the terms of the Agreements, the Company issued to Mr. Marin
7,360,000 restricted shares and to Mr. Bair 10,741,397 restricted shares of its
$0.001 par value common stock for a combined total of 18,101,397 shares. The
acquired assets are valued at $7,360 and $10,741 (based on the par value of the
underlying shares) for a combined total of $18,101. The fair market value of
the underlying shares was $0.13 per share on March 17, 2003. The difference
between the par value of $18,101 and the fair market value of $2,353,182, or
$2,335,081, represents compensation expense to Mr. Bair and Mr. Marin.
There have been no other issuances of common and/or preferred stock.
18
ITEM 7. FINANCIAL STATEMENTS.
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(A Development Stage Company)
Balance Sheets
as of
December 31, 2002
and
Statements of Operations,
Changes in Stockholders' Equity, and
Cash Flows
for the period
March 1, 2002
(Date of Inception)
through
December 31, 2002
19
CONTENTS
--------
CONTENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-1
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' (DEFICIT) F-4
STATEMENTS OF CASH FLOW F-5
NOTES TO FINANCIAL STATEMENTS F-6-13
20
BECKSTEAD AND WATTS, LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
3340 Wynn Road, Suite B
Las Vegas, NV 89102
702.257.1984
702.362.0540 (fax)
INDEPENDENT AUDITORS' REPORT
Board of Directors
Immediatek, Inc. (formerly ModernGroove Entertainment, Inc.)
We have audited the Balance Sheets of Immediatek, Inc. (formerly ModernGroove
Entertainment, Inc.) (the "Company") (A Development Stage Company), as of
December 31, 2002, and the related Statements of Operations, Stockholders'
Equity, and Cash Flows for the period March 1, 2002 (Date of Inception) to
December 31, 2002. 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 my audit in accordance with generally accepted auditing
standards in the United States of America. 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 statement presentation. 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 Immediatek, Inc. (formerly
ModernGroove Entertainment, Inc.) (A Development Stage Company) as of
December 31, 2002, and the results of its operations and cash flows for the
period March 1, 2002 (Date of Inception) to December 31, 2002, in conformity
with generally accepted accounting principles in the United States of
America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has had limited operations and have not commenced
planned principal operations. This raises substantial doubt about its
ability to continue as a going concern. Management's plan in regard to
these matters are also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Beckstead and Watts, LLP
-----------------------------
March 28, 2003
F-1
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Balance Sheet
March 1, 2002
(Inception) to
December 31,
2002
------------
Assets
Current assets:
Cash $ 4,845
Accounts receivable 442
------------
Total current assets $ 5,287
============
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable $ 50,639
Note payable 3,692
Shareholder loan 7,500
-----------
Total current liabilities 61,831
Stockholders' (deficit):
Common stock, $0.001 par value, 500,000,000 shares
authorized, 1,898,600 shares issued and outstanding 1,899
Additional paid-in capital 465,585
(Deficit) accumulated during development stage (524,028)
-------------
(56,544)
-------------
$ 5,287
=============
The accompanying notes are an integral part of these financial statements.
F-2
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Statements of Operations
December 31,
------------
2002
------------
Revenue $ 68,729
------------
Expenses:
General and administrative expenses 17,705
Consulting fees 403,752
Consulting fees - related party 16,408
Salaries and wages 55,243
Officer salaries 53,325
------------
Total expenses 546,433
Net (loss) $ (474,704)
============
Weighted average number of common shares
outstanding - basic and fully diluted 1,898,600
============
Net (loss) per share - basic and fully diluted $ (0.25)
============
The accompanying notes are an integral part of these financial statements.
F-3
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Statement of Changes in Shareholders' Equity
(Deficit)
Accumulated
Common Stock Additional During Total
----------------- Paid-in Development Stockholders'
Shares Amount Capital Stage (Deficit)
--------- ------ --------- ----------- -------------
Balance,
March 1, 2002 1,722,600 1,723 45,601 (47,324) (0)
November 18, 2002
Shares issued for
consulting contracts
to unrelated
individuals 151,800 152 303,600 303,752
Shares issued for
consulting contracts
to related
individual 8,200 8 16,400 16,408
December 2, 2002
Shares issued for
consulting contracts
to unrelated
individuals 8,000 8 49,992 50,000
December 6, 2002
Shares issued for
consulting contracts
to unrelated
individuals 8,000 8 49,992 50,000
Net (loss)
For the period ended
Dec 31, 2002 (476,704) (476,704)
--------- ------ --------- ----------- -------------
Balance,
December 31, 2002 1,898,600 $1,899 $ 465,585 $ (524,028) $ (56,544)
========= ====== ========= ============ =============
The accompanying notes are an integral part of these financial statements.
F-4
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Statements of Cash Flow
March 1, 2002
(Inception) to
December 31,
2002
------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (476,704)
Shares issued for services 403,752
Shares issued for services - related party 16,408
Adjustments to reconcile net (loss) to
net cash (used) by operating activities:
(Increase) in accounts receivable (442)
Increase in accounts payable 50,639
--------------
Net cash (used) by operating activities (6,347)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable 3,692
Proceeds from shareholder loan 7,500
------------
Net cash provided by financing activities 11,192
Net (decrease) in cash 4,845
Cash - beginning -
------------
Cash - ending $ 4,845
============
SUPPLEMENTAL DISCLOSURES
Interest paid $ -
==============
Income taxes paid $ -
==============
Number of shares issued for services 167,800
==============
Number of shares issued for services to related party 8,200
==============
The accompanying notes are an integral part of these financial statements.
F-5
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Note 1 - History and organization of the company
The Company was originally organized August 6, 1998, under the laws of the State
of Nevada, as Barrington Laboratories, Inc. On December 18, 2000, the Company
amended its Articles of Incorporation to rename the Company, ModernGroove
Entertainment, Inc. MODG then operated as a software developer of software for
the home television-based entertainment industry. .
On April 12, 2002, the Canadian Imperial Bank of Commerce, Vancouver, British
Columbia filed against ModernGroove Entertainment, Inc., the Canadian
subsidiary, a petition with the Supreme Court of British Columbia to be adjudged
bankrupt, under Canadian Bankruptcy Code, British Columbia, Bankruptcy Division,
Department of Consumer and Corporate Affairs, designated with the Vancouver
Registry as Case No. 225054VA02. The Canadian corporation has ceased operations
in Canada.
On September 18, 2002, the Company combined by "reverse-merger" with Immediatek,
Inc., a State of Texas corporation. On November 5, 2002, the Company amended
its Articles of Incorporation to rename the Company Immediatek, Inc.
Immediatek, Inc. (Texas corp) was organized March 1, 2002 (Date of Inception)
under the laws of the State of Texas, as Immediatek, Inc.
The Company has minimal operations and in accordance with SFAS #7, the Company
is considered a development stage company. The Company is authorized to issue
500,000,000 shares of $0.001 par value common stock
Note 2 - Accounting policies and procedures
Cash and cash equivalents
-------------------------
The Company maintains a cash balance in a non-interest-bearing account that
currently does not exceed federally insured limits. For the purpose of the
statements of cash flows, all highly liquid investments with an original
maturity of three months or less are considered to be cash equivalents. There
are no cash equivalents as of December 31, 2002.
F-6
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Revenue recognition
-------------------
Revenue from proprietary software sales that does not require further commitment
from the company is recognized upon shipment. Consulting revenue is recognized
when the services are rendered. License revenue is recognized ratably over the
term of the license.
The cost of services, consisting of staff payroll, outside services, equipment
rental, communication costs and supplies, is expensed as incurred.
Advertising costs
-----------------
The Company expenses all costs of advertising as incurred. There were no
advertising costs included in general and administrative expenses as of
December 31, 2002.
Use of estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 2002. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
accounts payable. Fair values were assumed to approximate carrying values for
cash and payables because they are short term in nature and their carrying
amounts approximate fair values or they are payable on demand.
Impairment of long-lived assets
-------------------------------
Long-lived assets held and used by the Company are reviewed for possible
impairment whenever events or circumstances indicate the carrying amount of an
asset may not be recoverable or is impaired. No such impairments have been
identified by management at December 31, 2002.
F-7
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Reporting on the costs of start-up activities
---------------------------------------------
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities," which provides guidance on the financial reporting of start-up
costs and organizational costs, requires most costs of start-up activities and
organizational costs to be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. With the adoption of SOP 98-5,
there has been little or no effect on the Company's financial statements.
Loss per share
--------------
Net loss per share is provided in accordance with Statement of Financial
Accounting Standards No. 128 (SFAS #128) "Earnings Per Share". Basic loss per
share is computed by dividing losses available to common stockholders by the
weighted average number of common shares outstanding during the period. As of
December 31, 2002, the Company had no dilutive common stock equivalents, such
as stock options or warrants.
Dividends
---------
The Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception.
Segment reporting
-----------------
The Company follows Statement of Financial Accounting Standards No. 130,
"Disclosures About Segments of an Enterprise and Related Information." The
Company operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.
F-8
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Income taxes
------------
The Company follows Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that
some portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
Recent pronouncements
---------------------
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses financial accounting and
reporting for costs associated with exit or disposal activities and supersedes
EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under EITF No. 94-3, a liability for an exit cost was recognized at the date of
an entity's commitment to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value. The
provisions of SFAS No. 146 will be adopted for exit or disposal activities that
are initiated after December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123." This
Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The adoption of SFAS No. 148 is
not expected to have a material impact on the company's financial position or
results of operations.
In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others", an interpretation of FIN No. 5,
57 and 107, and rescission of FIN No. 34, "Disclosure of Indirect Guarantees of
Indebtedness of Others". FIN 45 elaborates on the disclosures to be made by the
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. It also requires that a guarantor
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002; while, the
provisions of the disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The company
believes that the adoption of such interpretation will not have a material
impact on its financial position or results of operations and will adopt such
interpretation during fiscal year 2003, as required.
F-9
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities", an interpretation of Accounting Research Bulletin No. 51. FIN No. 46
requires that variable interest entities be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or is entitled to receive a majority of the entity's
residual returns or both. FIN No. 46 also requires disclosures about variable
interest entities that companies are not required to consolidate but in which a
company has a significant variable interest. The consolidation requirements of
FIN No. 46 will apply immediately to variable interest entities created after
January 31, 2003. The consolidation requirements will apply to entities
established prior to January 31, 2003 in the first fiscal year or interim period
beginning after June 15, 2003. The disclosure requirements will apply in all
financial statements issued after January 31, 2003. The company will begin to
adopt the provisions of FIN No. 46 during the first quarter of fiscal 2003.
Stock-Based Compensation
------------------------
The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and has adopted the disclosure-only
alternative of SFAS No. 123, "Accounting for Stock-Based Compensation."
Options granted to consultants, independent representatives and other non-
employees are accounted for using the fair value method as prescribed by SFAS
No. 123.
Year end
--------
The Company has adopted December 31 as its fiscal year end.
Note 3 - Going concern
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has not commenced its planned principal
operations and it has not generated any revenues. In order to obtain the
necessary capital, the Company raised funds via private placement offering. If
the securities offering does not provide sufficient capital, some of the
shareholders of the Company have agreed to provide sufficient funds as a loan
over the next twelve-month period. However, the Company is dependent upon its
ability to secure equity and/or debt financing and there are no assurances that
the Company will be successful, without sufficient financing it would be
unlikely for the Company to continue as a going concern.
F-10
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Note 3 - Going concern (Continued)
The officers and directors are involved in other business activities and may, in
the future, become involved in other business opportunities. If a specific
business opportunity becomes available, such persons may face a conflict in
selecting between the Company and their other business interests. The Company
has not formulated a policy for the resolution of such conflicts.
Note 4 - Income taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), which
requires use of the liability method. SFAS No. 109 provides that deferred tax
assets and liabilities are recorded based on the differences between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as temporary differences. Deferred tax assets
and liabilities at the end of each period are determined using the currently
enacted tax rates applied to taxable income in the periods in which the deferred
tax assets and liabilities are expected to be settled or realized.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences are as follows:
U.S federal statutory rate (34.0%)
Valuation reserve 34.0%
-----
Total -%
======
As of December 31, 2002, the Company has a net operating loss carry forward of
approximately $524,000. The related deferred asset has been fully reserved.
Note 5 - Notes payable
During the year ended December 31, 2002, an individual loaned the Company a
total of $3,692. The loan is non-interest bearing and due upon demand.
Note 6 - Shareholder loan
During the year ended December 31, 2002, the sole officer and director loaned
the Company a total of $7,500. The loan is non- interest bearing and due upon
demand.
F-11
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Note 7 - Stockholders' equity
The Company is authorized to issue 500,000,000 shares of its $0.001 par value
common stock.
On December 31, 2002, the Company had 430,650,700 shares of its $0.001 par value
common stock issued and outstanding. On January 9, 2003, the Company effected a
250-for-1 reverse stock split resulting in 1,722,600 shares issued and
outstanding. All references to number of shares outstanding have been retro-
actively restated.
On November 12, 2002, the Company acquired all of the outstanding shares of
Immediatek, Inc., a Texas corporation, in exchange for 400,000,000 shares of the
company's $0.001 par value common stock.
On November 18, 2002, the Company issued 151,800 shares of its $0.001 par value
common stock to unrelated individuals for consulting services valued at $303,752
based on the fair market value of the underlying shares.
On November 18, 2002, the Company issued 8,000 shares of its $0.001 par value
common stock to the Company's CEO for services valued at $16,408 based on the
fair market value of the underlying shares.
On December 2, 2002, the Company issued 8,000 shares of its $0.001 par value
common stock to an unrelated individual for consulting services valued at
$50,000 based on the fair market value of the underlying shares.
On December 6, 2002, the Company issued 8,000 shares of its $0.001 par value
common stock to an unrelated individual for consulting services valued at
$50,000 based on the fair market value of the underlying shares.
There have been no other issuances of common and/or preferred stock.
Note 8 - Warrants and options
As of December 31, 2002, there are no warrants or options outstanding to acquire
any additional shares of common stock.
Note 9 - Related party transactions
During the year ended December 31, 2002, the sole officer and director loaned
the Company a total of $7,500. The loan is non- interest bearing and due upon
demand.
F-12
Immediatek, Inc.
(formerly ModernGroove Entertainment, Inc.)
(a Development Stage Company)
Notes
Note 10 - Subsequent events
On March 17, 2003, the Company entered into two separate Asset Purchase
Agreements ("Agreements") with Paul Marin, an individual, and Zach Bair, an
individual and president of the Company, to purchase certain strategic assets.
Pursuant to the terms of the Agreements, the Company issued to Mr. Marin
7,360,000 restricted shares and to Mr. Bair 10,741,397 restricted shares of its
$0.001 par value common stock for a combined total of 18,101,397 shares. The
acquired assets are valued at $7,360 and $10,741 (based on the par value of the
underlying shares) for a combined total of $18,101. The fair market value of
the underlying shares was $0.13 per share on March 17, 2003. The difference
between the par value of $18,101 and the fair market value of $2,353,182, or
$2,335,081, represents compensation expense to Mr. Bair and Mr. Marin.
F-13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
A. The members of the Board of Directors of the Company serve until the
next annual meeting of stockholders, or until they have been elected by
the shareholders. The officers serve at the pleasure of the Board of
Directors. Information as to the directors and executive officers of the
Company is as follows:
Name Age Title
---------------------------------------------------------------------------
Zach Bair 41 Chairman/CEO/Treasurer/Secretary
Duties, Responsibilities and Experience:
Zach Bair, Chairman of the Board, CEO and Treasurer
---------------------------------------------------
Zach Bair, CEO and Chairman of Immediatek, Inc., is the 40 year old
innovator behind the term "Efficient Solutions Provider" and is a recognized
expert in business process engineering through the use of technology. Bair
has been a professional consultant in the IT industry since 1986, and in
recent years gained notoriety for founding Richardson, Texas software
company PowerUp Networks. Started in 2000 by Bair, PowerUp was based on
complex web-based software and processes he authored during full-time
employment with American Airlines and Sabre, Inc. Two of Bair's other
original web ventures were a Texas-based job website, and a sister website
of TexasComputerJobs.
Before and during his tenure at Sabre, Bair conceived and authored what is
now the flagship product of PowerUp Networks, "Rapid Network Deployment," or
RND. A venture-backed PowerUp Networks of Richardson, TX, was founded by
Bair in the year 2000.
21
After striking a deal with Sabre, who now employs the same product which
they know as "Warped," for "Wide Area Router Production Environment and
Design," Bair set out to find VC funding, and approached HO2 Partners, LLC,
after reading an article about their company in The Dallas Morning News.
Subsequently, Bair met with Charles Humphreyson and Dan Owen, of HO2, and
then with STARTech, the Richardson, Texas-based Startup Accelerator.
Together, along with independent investor Dennis Gorman, both companies
funded Bair in the seed round of financing, which was $600K. Bair then
brought on Alan Shannon, formerly of Read-Rite Corporation, EDS and TI, as
CEO, and Peter Donovan, formerly of Nortel, as Chief Marketing Officer.
Kevin Clark was then enlisted as VP for Development. In less than three
months, the core PowerUp management team, lead by Bair and Shannon, raised
over $12 million in a Series A funding event, the lead investor again being
HO2 partners.
Bair is a U.S. Air Force veteran, and attended Louisiana State University in
Shreveport, LA, and then Stephen F. Austin State University in Nacogdoches,
majoring in English.
Bair has over 17 years professional experience in business and Information
Technology. In 1986, while attending college, Bair sewed his
entrepreneurial seed and started a successful desktop publishing and
advertising firm, which also provided technical consulting, in Nacogdoches,
Texas. Bair relocated to Houston in 1990, after selling the ad agency,
first pursing a hybrid position at the Galveston Daily News as Art Director
& Columnist/Network Administrator, and then pursuing a purely technical
career. This involved primarily providing consulting services to such
Fortune 500 companies as Marathon Oil, Arco Oil & Gas, and MD Anderson
Cancer Center.
Bair moved to Dallas in 1995, and continued to provide consulting services
to companies including Nortel, Sprint, EDS, and Sabre, as well as
entertaining a short tenure as IT Manager for the Dallas City Attorney's
Office.
Bair has many interests outside of being an entrepreneur, such as flying his
own aircraft, and writing/recording rock & pop music. Concurrently with
employment and his computer-related businesses, Bair has successfully
provided management, lead vocals and guitar duties for his band No Control,
as well as producing and distributing three No Control CDs, all of which
have received airplay.
Bair currently resides in Plano, Texas and continues to serve as CEO and
Chairman of Immediatek, Inc.
22
ITEM 10. EXECUTIVE COMPENSATION.
Remuneration of Directors and Executive Officers
As a result of the Company's current limited available cash, the following
compensation was paid to the sole officer/employee for the calendar year
ending December 31, 2002:
Name Title Salary Bonus Common Stock
----------------------------------------------------------------------
Zach Bair President/CEO $53,325 None None
The Company currently does not have employment agreements with its executive
officer.
Compensation of Directors
-------------------------
There were no arrangements pursuant to which any director of the Company was
compensated for the calendar year ended December 31, 2002 for any service
provided as a director. In addition, no such arrangement is contemplated for
the foreseeable future.
23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial
ownership of our outstanding common stock as of March 27, 2003, by each
person known by Benchmark Technology Corporation, to own beneficially more than
5% of the outstanding common stock, by each of our directors and officer and by
all of our directors and officers as a group. Unless otherwise indicated
below, all persons listed below have sole voting and investment power with
respect to their shares of common stock.
Amount
Title Name and Address of shares Percent
of of Beneficial held by of
Class Owner of Shares Position Owner Class(1)
------------------------------------------------------------------------------
Common Zach Bair(2) President/CEO 11,629,597 58.1%
Common Tim DeWitt(3) Shareholder 725,800 3.6%
Common Paul Marin(4) Shareholder 7,360,000 36.8%
-------------------------------------------------
Totals: 19,715,397 98.5%
All Executive Officers and
Directors as a Group
(1 persons) 11,629,597 58.1%
1) Percentages are based on 20,000,000 shares. This number is based on
the current issued and outstanding common shares of 1,898,603 plus the
issuance of 18,101,397 additional pursuant to the Asset Purchase Agreements.
2) Business Address: 2435 N. Central Expressway Suite 1200, Richardson,
Texas 75080.
3) Business Address: 2435 N. Central Expressway Suite 1200, Richardson,
Texas 75080.
4) Business Address: 5201 Belle Chasse Lane, Frisco, Texas 75035
Persons Sharing Ownership of Control of Shares
The following own or share the power to vote five percent (5%) or more of the
Company's securities: Zach Bair, President and Paul Marin, Shareholder.
C. Non-voting Securities and Principal Holders Thereof
The Company has not issued any non-voting securities.
24
D. Options, Warrants and Rights
There are no options, warrants or rights to purchase securities of the
Company.
E. Parents of Issuer
Under the definition of parent, as including any person or business entity
who controls substantially all (more than 80%) of the issuers of common
stock, the Company has no parents.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Through a Board Resolution, the Company hired the professional services of
Beckstead and Watts, LLP, Certified Public Accountants, to perform audited
financials for the Company. Beckstead and Watts, LLP own no stock in the
Company. The company has no formal contracts with its accountant, they are
paid on a fee for service basis through a separate escrow account.
The officer and director of the Company is involved in other business
activities and may, in the future, become involved in other business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the
resolution of such conflicts.
25
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
23 Consent of Beckstead and Watts, LLP
99 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer and Chief Financial Officer).
(b) REPORTS ON FORM 8-K
The Company filed a Current Report dated April 12, 2002, pursuant to Item 1
("Changes in Control of Registrant"); Item 3 ("Bankruptcy or Receivership")
Entitled the bankruptcy of its Canadian operations; Item 6 ("Resignations of
Registrant's Directors"); and, Item 7. ("Exhibits") entitled "Canadian
Bankruptcy Petition" and "Notice of Hearing of Petition."
The Company filed a Current Report dated November 12, 2002, pursuant to Item 1
("Changes in Control of Registrant"); Item 2 ("Acquisition or Disposition of
Assets"); Item 5 ("Other Events"); and, Item 7. ("Exhibits"), entitled Merger
Agreement.
The Company filed a Current Report dated December 9, 2002, pursuant to Item 5
("Other Events"); entitled increase of number of authorized shares and, Item 7.
("Exhibits"), entitled Certificate of Amended Articles.
The Company filed a Current Report dated December 30, 2002, pursuant to Item 5
("Other Events"); entitled cancellation of shares.
The Company filed an amended Current Report dated November 12, 2002, pursuant
to Item 1 ("Changes in Control of Registrant"); Item 2 ("Acquisition or
Disposition of Assets"); Item 5 ("Other Events"); and, Item 7. ("Financial
Statements and Exhibits").
Subsequent Reports:
The Company filed a Current Report dated March 17, 2003, pursuant to Item 1
("Changes in Control of Registrant"); Item 2 ("Acquisition or Disposition of
Assets"); and, Item 7. ("Exhibits"), entitled Asset Purchase Agreements.
26
ITEM 14 - CONTROL AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on an evaluation conducted within 90 days prior to the filing
date of this Annual Report on Form 10- KSB, that the Company's disclosure
controls and procedures have functioned effectively so as to provide those
officers the information necessary whether:
(i) this Annual Report on Form 10-KSB contains any untrue
statement of a material fact or omits to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this
Annual Report on Form 10-KSB, and
(ii) the financial statements, and other financial
information included in this Annual Report on Form 10-KSB,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this
Annual Report on Form 10-KSB.
There have been no significant changes in the Company's internal controls
or in other factors since the date of the Chief Executive Officer's and
Chief Financial Officer's evaluation that could significantly affect these
internal controls, including any corrective actions with regards to
significant deficiencies and material weaknesses.
27
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, caused this report to be signed on its
behalf by the undersigned based upon the best information available pursuant
to Section 12b-25, thereunto duly authorized.
Immediatek, Inc.
-------------------------
(Registrant)
Dated: March 28, 2003 By: /s/ Zach Bair
---------------------------------
Zach Bair
Chairman of the Board
President, Secretary
Chief Executive Officer
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
By: /s/ Zach Bair March 28, 2003
----------------------------------
Zach Bair
Chief Executive Officer and
Chief Financial Officer
28
EXHIBIT 99.1
IMMEDIATEK, INC.
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Zach Bair, Chief Executive Officer and Chief Financial Officer of
Immediatek, Inc. (the "Registrant"), certify that:
1. I have reviewed this Annual Report on Form 10-KSB of the Registrant;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this Annual Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Annual Report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this Annual Report (the "Evaluation Date");
and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit committee
of Registrant's board of directors (or persons performing the equivalent
function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officer and I have indicated in this
Annual Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: March 28, 2003 Signature: /s/ Zach Bair
-------------- -----------------------------
Zach Bair
Chief Executive Officer
Chief Financial Officer