SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
AMENDMENT NO. 3 TO
FORM 10-K
(Mark One)
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended:
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from January 1, 1999 to September 30, 1999
COMMISSION FILE NUMBER 000-26799
--------------------------
UBRANDIT.COM
(Exact name of Registrant as specified in its charter)
NEVADA 87-0381646
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12626 HIGH BLUFF DRIVE, SUITE 200, SAN DIEGO, CA 92130
(Address of principal executive offices) (Zip Code)
(858) 350-9566
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant as of December 31, 1999, was $47,956,998 based
on the number of shares outstanding on such date and the last sale price for the
common stock on such date of $4.875 per share as reported on the NASDAQ--OTC
Bulletin Board.
The number of shares of Common Stock issued and outstanding as of
December 31, 1999: 11,738,333.
EXPLANATORY NOTE
This Transition Report on Form 10-K/A ("Form 10-K/A") is being filed as
Amendment No. 1 to the Registrant's Transition Report on Form 10-K for the nine-
month period ended September 30, 1999 filed with the Securities and Exchange
Commission on January 14, 2000, and amended on January 14, 2000, ("Form 10-K"),
for the purpose of making amendments to Item 1 of Part I and Items 6,7 and 8 of
Part II of Ubrandit.com's Form 10-K.
Ubrandit.com
Form 10K/A
For the transition period ended September 30, 1999
Index
Part I
Item 1. Business....................................................... 1
Part II
Item 6. Selected Financial Data........................................ 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 26
Item 8. Financial Statements and Supplementary Data.................... 34
Defined Terms
This Transition Report on Form 10-K (this "Transition Report") includes
a number of capitalized terms that are commonly used in the Internet industry.
Such capitalized terms have the definitions assigned to them in the text below
and under the heading entitled "Certain Definitions," which appears at the end
of this Transition Report.
Forward Looking Statements
This Transition Report contains certain forward-looking statements that
involve risks and uncertainties. Our company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of a variety of factors that may or may not be within our control,
including, without limitation, the risks set forth under Item 1. Business in the
section entitled "Risk Factors". Ubrandit.com undertakes no obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of this Transition Report.
ITEM 1. BUSINESS
Overview
Ubrandit.com, a Nevada corporation (together with its subsidiary, the
"Company" or "Ubrandit"), is a development-stage enterprise engaged in the
development of specialty Web sites and other online related services and
products. Our primary focus is the "branding" (private labeling) of our
destination financial and e-commerce sites on the World Wide Web to the existing
Web sites of companies desiring to drive traffic and encourage repeat visitors
to their respective sites. "Private labeling" or "branding" means that when the
Company creates content for a client's Web site, the content (or Web pages) will
contain the client company's name, logo, and navigation buttons, and will not
include information about Ubrandit.com. We believe that branded content provides
more credibility to a client's Web site than a linked component, which directs
all of the credit to the company that created the content. The Company believes
that its specialty Web sites will be less costly than in-house developed Web
sites. While in-house developed Web sites may better reflect the content desired
by the developer, the Company attempts to provide desirable content and offers
other advantages. The Company offers e-commerce and customized "sticky" content
solutions to customers at affordable prices. These solutions are usually too
costly to develop in-house. The Company will initially focus on providing
brandable turnkey systems for two of the fastest growing segments of the World
Wide Web, financial information and e-commerce.
The Company offers online products and services through its on line
e-commerce and financial services destination sites. In June of this year the
Company launched its initial e-commerce site, JungleJeff.com, located at
www.junglejeff.com. This comprehensive e-commerce site offers over 1,000,000
titles of books, music CDs and tapes, and movie videos and DVDs to online
purchasers. The Company has commenced initial testing of its branding technology
and has established branding beta test sites for the junglejeff.com e-commerce
site. Through the date of this Transition Report, over 2,000 individual web
sites have gone thorough the branding process. In September of 1999, the Company
concluded its beta testing and began allowing web sites to brand junglejeff.com
pursuant to an automated signup process at the Company's Ubrandit.com web site.
1
The Company provides online financial information through its wholly-owned
subsidiary, Global Investors Guide, Inc., a California corporation ("Global
Investors Guide"). Global Investors Guide is an early stage start-up company,
which provides financial information services via a World Wide Web site located
at www.stockstudy.com. Stockstudy.com is a comprehensive financial site that
provides Web users with an extensive array of valuable features, including:
stock quotes, personal portfolio management, mutual fund data, news releases,
and exclusive editorial content. In addition to the financial services provided
by Stockstudy.com, the Company has also launched two additional financial sites
since its acquisition of Global Investors Guide, Irpackages.com at the Internet
address www.irpackage.com and Newsletterz.com located at www.newsletterz.com.
The IRpackages.com site features a fully automated investor relations package
request system developed by the Company whereby users of the Web site can
request investor relations packages from over 5,900 public companies.
Newsletterz.com is a financial newsletter-marketing program that promotes a
growing number of financial publications from various investment categories. The
Company expects to offer branding of its financial services web sites in the
first calendar quarter of 2000.
We have derived a majority of our revenue from several customers, which
currently sell sponsorships or rent Company's mail database. For the quarter
ended September 30, 1999, Carnegie Marketing, Inc. accounted for approximately
64% of revenues of the Company. For the six months ended June 30, 1999, Carnegie
Marketing, Inc., accounted for approximately 94% of our revenues. For the year
ended September 30, 1998, Interactive Market Communications, a company based in
the United Kingdom, accounted for approximately 54% of the revenues of Global
Investors Guide. In the future, we anticipate that we will not depend on any one
or a small number of customers for a significant portion of revenue, as
additional customers and sources of revenue are added.
The Company was incorporated on December 19, 1997, in the State of
Nevada under the name of Mount Merlot Estates, Inc. In January 1999, the Company
changed its name to Virtual Brand, Inc. In February 1999, the Company changes
its name a second time to Ubrandit.com. The Company has sold equity shares to
raise capital, recruit and organize management, and to commence corporate
strategic planning and development. Other than the combined operations of Global
Investors Guide, the Company has not conducted any significant operations as of
the date of this Transition Report. The Company's principal corporate offices
are located at 12626 High Bluff Drive, Suite 200, San Diego, CA 92130. Its
telephone number is (858) 350-9566.
Risk Factors
Our company and business enterprise are subject to a high degree of
risk and uncertainty. This Transition Report contains forward-looking statements
based on current expectations. Any statements herein that are not statements of
historical fact may be deemed forward-looking. Actual results may differ
significantly from such forward-looking statements. The material risks expected
to affect results are discussed below. Additional risks and uncertainties that
are presently not known to us or that we deem immaterial may also impair our
business operations and financial condition.
We have only recently introduced our branding services and we are
unable to guarantee that the marketplace will accept our products and services.
2
As discussed elsewhere in this Transition Report, we are not fully
operational and we have only in September of 1999 completed beta testing of our
e-commerce site and introduced our branding services. Therefore, we are unable
to provide any assurance or guarantee that the marketplace will accept our
branding services and related online products, or that we will be able to sell
such services and products at a profit.
Our company has a limited operating history and we are uncertain if our
company will ever become profitable.
Other than revenues generated through our combined operations of Global
Investors Guide, we have not as of yet generated any significant revenues from
operations and we are unable to provide any assurance or guarantee that we will
be able to generate any substantial revenues in the future. Since its inception
in December 1997, our company's principal business activities have been limited
to organizational matters, research and development activities, the acquisition
and creation of Web site content and the introduction of its e-commerce sites.
In each year since its inception, our company has experienced losses from
operations. At September 30, 1999, we had an accumulated deficit of $1,047,845.
Our company therefore has no significant operating history on which to evaluate
its future prospects and ability to implement its business plan and objectives.
We expect our operating losses to continue in the near future as our
development, marketing and sales activities, and operations continue. We are
uncertain as to when, or if, our company will ever become profitable.
Our capital is limited and we may need additional capital to implement
our business plan and continue operations.
Our company has limited operating capital and limited access to credit
facilities. We estimate that we currently have sufficient funds to continue
operations for approximately 36 months at currently projected levels of
operational expense. However, we expect that additional funds will be necessary
for our company to implement its business plan, as described in this Transition
Report. Our company's continued operations therefore will depend upon its
ability to raise additional funds through bank borrowings or equity or debt
financing. There is no assurance that the Company will be able to obtain
additional funding when needed, or that such funding, if available, can be
obtained on terms acceptable to the Company. If the Company cannot obtain needed
funds, it may be forced to curtail or cease its activities.
Our company's success still depends on its ability to attract and
retain qualified technical and management personnel.
At present, our company employs twelve full-time personnel plus various
consultants in management, sales, programming, legal, and editorial
responsibilities. We do not have employment agreements with any employee. Our
company's success will depend, in part, upon its ability to attract and retain
qualified employees, technical consultants and management personnel. We are
unable to provide any assurance or guarantee that we will be able to attract,
integrate or retain sufficiently qualified personnel. Our inability to retain
additional qualified personnel in the future could harm our business. We do not
maintain life insurance on the life of any employee.
3
We face a number of risks associated with the transition to the year
2000.
Before the rollover of the year from 1999 to 2000, many of the world's
computer systems and programs used two-digit fields to designate a year, which
meant that two-digit date systems would recognize the year 2000 as 1900 or not
at all. In order to identify the year 2000 correctly, a four-digit cod field is
required to be what is commonly termed "Year 2000 compliant." Our business may
suffer if the systems we depend on to conduct day-to-day operations are not Year
2000 compliant. The potential areas of exposure include electronic data exchange
systems operated by third parties with which we may transact business and
computers, software, telecommunication systems and other equipment that we may
use or depend on.
Our systems may fail or experience a slow down.
Our facilities will house a variety of hardware and software computer
systems. Our operations depend on our ability to protect these systems against
damage from fire, earthquakes, power loss, telecommunications failures,
break-ins and similar events. Additionally, computer viruses, electronic
break-ins or other similar disruptive problems could harm our operations. A
disaster or malfunction that disables our facility could cause an interruption
in the production and distribution of our products and services, or limit the
quantity or timeliness of updates to our productions. Our insurance policies may
not adequately compensate us for any losses that may occur due to any failures
or interruptions in our systems. We do not presently have a formal disaster
recovery plan. Although we have safety measures and contingency plans for
certain emergencies, we do not expect to develop a formal disaster recover plan
in the foreseeable future.
The market for online services is intensely competitive.
E-commerce and the market for online services are intensely competitive
industries. Our company will compete against established companies with
significantly greater financial, marketing, personnel, and other resources than
the Company. Such competition could have a material adverse effect on the
Company's profitability.
The market for our company's securities is limited and may not provide
adequate liquidity.
The Company's Common Stock is currently traded on the OTC Electronic
Bulletin Board. We are unable to provide any assurance or guarantee that the OTC
Bulletin Board will provide adequate liquidity or that a trading market will be
sustained. Holders of our company's stock may be unable to sell shares purchased
should they desire to do so. Furthermore, it is unlikely that a lending
institution will accept our company's securities as pledged collateral.
"Penny stock" regulations may impose certain restrictions on
marketability of securities.
The SEC adopted regulations which generally define "penny stock" to be
an equity security that has a market price of less than $5.00 per share. The
Company's Common Stock may be subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000, or annual incomes exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
4
such securities and have received the purchaser's prior written consent to the
transaction. Additionally, for any transaction, other than exempt transactions,
involving a penny stock, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's Common Stock and
may affect the ability to sell the Company's Common Stock in the secondary
market.
Our market and business technology is rapidly changing.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our Web sites and Internet
storefronts. Internet e-commerce and other Internet-based industries are
currently characterized by rapid technological change, changes in customer
requirements and preferences, frequent new product and service introductions
embodying new technologies, and the emergence of new industry standards and
practices that could render our existing Web sites, Internet storefronts and
enabling technologies obsolete. If we are unable, for technical, legal,
financial or other reasons, to adapt quickly to changing market conditions and
customer requirements, our business, financial condition and results of
operations would be materially adversely affected.
Security breaches and credit card fraud could harm our business.
A significant barrier to online commerce and communications is the
secure transmission of confidential information over public networks. We rely on
licensed third party encryption and authentication technology to provide the
security and authentication necessary to effect secure transmission of
confidential information, such as customer credit card numbers. Our servers run
on a Microsoft Windows NT platform and employ IIS 4.0 software which includes
encryption technology. Information is verified and authenticated by Verisign,
Inc. Advances in computer capabilities, new discoveries in the field of
cryptolography, or other events or developments may result in a compromise or
breach of the algorithms we use to protect our customers, transaction data or
our software vendors and products. Someone who is able to circumvent our
security measures could misappropriate proprietary information to cause
interruptions in our operations. We may be required to expend significant
capital and other resources to protect against such security breaches or
alleviate problems caused by such breaches. Such expenditures could have a
material adverse effect on our business, results of operations and financial
condition.
Because we store and transmit proprietary information, a breach of our
security could damage our reputation and expose us to potential liability from
litigation and reimbursement of losses. We are unable to provide any assurance
that our security measures will prevent a future security breach or that, should
a security breach occur, it will not have a material adverse effect on our
business, results of operations and financial condition. In addition, we may
incur losses, as have other retailers who accept credit card payments without
5
obtaining a signature, from orders placed using fraudulent or stolen credit card
information, despite obtaining approvals from financial institutions. Under
current commercial banking and credit card practices, we are liable for
fraudulent credit card transactions. We are unable to provide any assurance that
our security measures will always be successful and, as a result, could suffer
from significant losses in the future which could have a material adverse effect
on our business, results of operations and financial condition.
Our operations significantly depend upon maintenance and continued
improvement of the Internet's infrastructure.
The Internet has experienced, and is expected to continue to
experience, significant growth in the number of users and amount of traffic. Our
success will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a reliable
network backbone with the necessary speed, bandwidth, data capacity and
security. Improvement of the Internet's infrastructure will also require the
timely development of complementary products, such as high-speed modems, to
provide reliable Internet access and services.
The Internet has experienced a variety of outages and other delays as a
result of damage to portions of its infrastructure and could face similar
outages and delays in the future. Outages and delays are likely to affect the
level of Internet usage, the level of traffic on our Web site and the number of
purchases on our Web site. In addition, the Internet could lose its viability as
a mode of commerce due to delays in the development or adoption of new standards
to handle increased levels of activity or due to increased government
regulation. The adoption of new standards or government regulation may also
require us to incur substantial compliance costs.
We may be exposed to liability for content retrieved from our Web
sites.
Our exposure to liability from providing content on the Internet is
currently uncertain. Due to third party use of information and content
downloaded from our Web sites, we may be subject to claims for defamation,
negligence, copyright, trademark or patent infringement or other theories based
on the nature and content of online materials. Our exposure to any related
liability could have a material adverse effect on our business, financial
condition and results of operations. We do not maintain insurance specifically
covering such claims. Liability or alleged liability could further harm our
business by diverting the attention and resources of our management and by
damaging our reputation in our industry and with our customers.
Our industry may be subject to increased government regulation.
As commerce conducted on the Internet and online services continue to
evolve, federal, state or foreign agencies may adopt regulations or impose new
taxes intended to cover our business operations. These agencies may seek to
regulate areas including user privacy, pricing, content and consumer protection
standards for our products and services. Compliance with additional regulation
could hinder our growth or prove to be prohibitively expensive. It is also
possible that the introduction of additional regulations could expose companies
involved in Internet commerce, or the provision of content over the Internet, to
significant liability. If enacted, these government regulations could materially
adversely affect the viability of the Internet commerce and online services,
generally, as well as our business, financial condition and results of
operations.
6
Acquisition of Global Investors Guide
On March 11, 1999, the Company entered into an Agreement and Plan of
Reorganization for the Acquisition of All the Outstanding Shares of Common Stock
of Global Investors Guide. Said shares were purchased in a related party
transaction from the shareholders of Global Investors Guide in exchange for
1,826,000 shares of the Company's common stock. Before the acquisition, Mr. Jeff
Phillips, the Company's President, CEO and Director, was the principal majority
stockholder of Global Investors Guide. In February, 1999, in contemplation of
the acquisition, Mr. Phillips was elected to the Board of Directors of the
Company and granted options to purchase 400,000 shares of Company Common Stock
at a price of $0.50 per share. Such price was determined by contemporaneous
sales of Common Stock to unaffiliated third parties. Mr. Phillips abstained from
voting on the acquisition in his capacity as director; Mr. Phillips was not a
shareholder of the Company and did not vote on the acquisition in such capacity.
The estimated value of the transaction was $913,000, as determined in accordance
with generally accepted accounting principles. Such purchase price represented
$475,000 of core technology and $647,198 of goodwill (the amount of the purchase
price plus assumed liabilities in excess of assets). Although the Company
believes that such transaction was not on terms less favorable than those
available from an unrelated third party, no fairness opinion was obtained.
Global Investors Guide became a wholly owned subsidiary of the Company. The
acquisition was treated as a purchase for accounting purposes and accordingly,
the Company recorded the acquired assets less liabilities assumed at cost. The
difference between the cost of Global Investors Guide and the sum of the fair
values of the assets less liabilities assumed was recorded as core technology
and goodwill. See Note 9 to Financial Statements Dated September 30, 1999.
Global Investors Guide is a progressive Internet company that provides financial
information services via a Web site located at www.stockstudy.com. Headquartered
in Del Mar, California, Global Investors Guide employed eight full-time
personnel plus various consultants in management, sales, programming, legal, and
editorial responsibilities at the time of acquisition. The Web site
stockstudy.com provides online investors with targeted content, including, but
not limited to: stock quotes, personal portfolio management, charting, mutual
fund data, news releases, public company Web site listings, an automated
investor relations package request system, and financial editorial content. At
the time of acquisition, Global Investors Guide, in conjunction with major
industry partners was developing a comprehensive online e-commerce destination
site designed to directly compete for present market share. This site has since
developed into junglejeff.com, the Company's book, music, video, e-commerce site
discussed in detail below. Prior to its acquisition by the Company, Global
Investors Guide was developing a "branding" technology for future release with
the sales of its private-labeled sites to follow after completion and adequate
testing. This branding technology has become one of the principal technologies
of the Company as set forth below. The Company hired all the key employees of
Global Investors Guide and has continued the development of the branding and
private labeling technology. Global Investors Guide is the first significant
acquisition of Company.
7
Business Strategy
The Company's business strategy is to build a Company that offers
brandable Web modules to other Web sites. The Company is focused on creating
value for its stockholders through revenues created by advertising, sales, and
sponsorship payments on its brandable e-commerce site and its soon to be
brandable destination financial sites on the World Wide Web. The Company expects
that companies with existing Web sites desiring to drive traffic and encourage
repeat visitors to their respective sites will brand the Ubrandit.com's
destination sites thereby increasing Ubrandit.com's e- commerce sales, the value
of its advertising space, and sponsorship revenue. The key components of the
Company's business strategy include the following:
(1) develop destination Web sites in the areas of finance stock
quotes, company and financial information and reports)
entertainment (books, videos, and music ).
(2) its existing financial sites Stockstudy.com,.com and
Irpackages.com to brandable sites and improve the content on
these sites.
(3) development of its e-commerce site, Junglejeff.com. to upgrade
branding technology and support systems to large-scale
branding of sites. Increase and the content of the site.
(4) its brandable sites and the advertising space and available on
its main sites and branded sites.
(5) developing and increasing the customers utilizing the custom
Web site design and programming.
The Company's principal business objective is to provide "private
labeled" and "branded" financial and e-commerce Web-based systems to the
Internet. "Private Labeling" or "branding" means that when the Company creates
content for a client's Web site, the content (or Web pages) will contain the
client company's name, logo, and navigation buttons, and will include very
minimal information about Ubrandit.com. or its affiliates. The goal of one of
the Company's branded sites is to have it appear to be part of the client's Web
site and to have the Web user believe that he or she has not left the clients
site when accessing the content available on the private labeled site. The
Company believes that the content provided by branded sites will provide Web
users with significant incentives to visit and remain at the client's Web site
enabling the client to have an increased Web presence. Branded content is
different than content assessable by "linking". Usually linking occurs when a
Web user accesses a link and is sent to a different and distinct site where the
company that created the content is located. After visiting the different site
the Web user has little incentive to return to the originating site where the
link was found when desiring to access that specific content again.
Through the development of completely brandable systems for financial
information and e-commerce, the Company believes that it has found a niche
within the Internet industry that has yet to have been fully exploited. To date
the Company knows of no Internet company has positioned itself as the leader in
this niche area. The Company believes that there will be significant demand for
branded systems. These branded systems will allow the Company to reach more
users than the traditional internet business model. The Company anticipates that
it will obtain a larger number of users at a lower cost by letting the branded
sites do the advertising. The model allows the Company to increase its internet
presence rapidly without any of the traditional costs of advertising a single
destination site address. The Company believes that the key to becoming
profitable is reducing its average cost of acquiring new net users and
subscribers.
8
The Company has completed numerous Web sites to be offered as branded
solutions, including stockstudy.com, newsletterz.com and irpackages.com. The
Company is currently running beta tests with selected initial users on its
e-commerce site, junglejeff.com. The branding technology must still undergo
further technology development and beta testing. The cost of the remaining
technology development is anticipated to be approximately $50,000. The estimated
completion date for branding technology development is the first calendar
quarter of Year 2000. The Company completed beta testing of branded sites for
junglejeff.com in September of 1999. Beta test results by approximately 800 free
users indicated no significant problems with the Website. No significant loss of
customers was experienced. As a result of user comments, the Company upgraded
certain tool features available on the Website to make use easier for customers.
The Company discovered the most significant barrier to broader customer use was
the customers' inability to market and sell its own Website. The Company intends
to prepare materials to assist customers in such marketing efforts.
We expect to commence branding beta sites for the financial destination
sites in the fourth calendar quarter of this year and to complete beta testing
of the financial sites by the end of the first quarter of the next calendar
year. The Company does not anticipate any security authorization concerns since
it is employing currently operational technology from reputable industry
sources. Upon completion of development and testing, the Company anticipates a
marketing budget of approximately $300,000.
The Company's current focus is on providing branded turnkey systems for
two significant segments of the World Wide Web, financial information and
e-commerce. Through technology developed by Global Investors Guide and through
the development of and purchase of other Web content, it is the Company's plan
to develop valuable "sticky" technology (content and systems which hold traffic
at Web sites) that will enable the generation of income through commission-based
programs and advertisement. All sales are paid by credit card. The Company has
engaged Bank of America as the credit card facilitator and Cybercash, Inc. as
the third party credit card authorization agent.
The Company currently has more than 2,000 sites which have commenced
the branding process. All these sites branded the Company's destination site
junglejeff.com. Since October of 1999, the numbers of page views on the
Company's Web sites were approximately as follows: stockstudy.com -- 5,769 per
day; junglejeff.com -- 380 per day; irpackages.com -- 225 per day; and
newsletterz.com -- 157 per day. The Company is not actively seeking advertising
sponsors until final beta testing has been completed and no advertisers are
currently under agreement.
The barriers of entry into developing an internet business are
relatively minor. The costs to obtain and maintain traffic to sustain this
business can be significant. The development of a Web site requires a relatively
small cost in time and capital for a simple design. More complex sites,
including especially e-commerce solutions, are much more time consuming and
capital intense. However, without exposure, usually through advertising, even
the most costly site will have few visitors and generate limited revenue. Many
established sites in their respective niche markets have very substantial
advertising/marketing budgets which make it extremely difficult for newly
9
created sites to compete unless they also have substantial marketing and
advertising resources to draw on. The Company believes that its branding model
provides an effective new way of gaining exposure. By allowing other sites to
brand its site, the Company expects to achieve substantial market exposure much
faster, at a lower cost to enable it to compete with the traditional,
well-capitalized internet businesses. Ubrandit.com believes that its branding
model will allow it to enter areas of internet businesses in which it otherwise
could not compete. The Company expects that in the future other sites will
choose to begin branding their site's content as this concept gains popularity.
Ubrandit.com principal sites are in the financial area and the e-commerce
internet business areas. The Company believes that it is essential to its
success that the Company continue to offer additional content and Web sites in
the future, as more companies follow Ubrandit.com's branding business model.
Such sites may be acquired from the developers or developed by Ubrandit.com. By
offering more brandable site variations to our branding affiliates the Company
believes that it will be able to remain competitive.
Plan of Operation
The Company has financed its research and development activities
through the sale of equity securities to its stockholders in private
transactions. At September 30, 1999, the Company had approximately $5,613,922 in
cash. At the current expense rate, the Company anticipates that such funds will
be sufficient to continue operations for approximately 36 months at historic
levels of operational expense. However, we expect that additional funds will be
necessary for our company to fully implement its business plan and strategies,
as described in this Transition Report. Thereafter, the Company will be
dependent upon the receipt of additional capital to sustain operations. Without
additional capital, there is substantial uncertainty about the ability of the
Company to achieve its business plan.
The Company commenced providing branding services to approved clients
in September of 1999. The Company has entered into branding affiliate agreements
with more than 2,000 sites. Additional sites are expected to commence generating
revenue as the marketing program progresses. To date, no material revenue has
been generated from the sites.
The Company's principal focus over the remainder of this fiscal year
and for the first six months of fiscal 2000 will be to complete the development
of its branding technology. The Company uses outside programmers and computer
technicians as well as Company employees in its research and development
efforts. The Company also plans, as part of its development efforts, to increase
the amount of content and the quality of the content on all of its sites. This
will involve extensive programming to increase the ease of use of the Web sites
and the overall presentation of the sites so that users of the site will find a
hassle free, friendly and exciting environment. The Company believes that such
improvements will increase Web traffic and the length of time that users are on
its affiliated sites thereby, which will increase the potential for higher
advertising revenues. The Company expects to increase the number of programmers
employed to four over the next year and to continue its outsourcing of
programmers. It is expected that two more outsourcing firms will be added to the
Company's research and development outsourcing program over the next year. The
Company plans to control costs by extensively utilizing outsourcing in the
future. It is possible that the Company may encounter opportunities to acquire
10
strategic Internet related entities and/or content providers for the purpose of
consolidation or expansion of its current operations. Any such acquisition would
be outside the scope of our management's currently anticipated workload. The
Company may be required to raise additional capital and recruit additional
qualified management personnel to lead and supervise these efforts. In the event
that the Company decides to make an acquisition, these operational and other
issues will be addressed as part of the acquisition evaluation.
The Company also plans to increase the "stickiness" of its sites by the
acquisition of more and improved content to the existing sites. With regards to
the e-commerce site, Junglejeff.com, this would mean the acquisition of more
products to sell. The Company has a contract with Baker and Taylor, Inc., a
Delaware corporation ("Baker & Taylor"), to provide music, book, and video
products through a drop shipment program. Pursuant to the program, products
purchased on a retail Web site are drop shipped to the customer on an "as
available" basis. No specific inventory has been designated as belonging to the
Company and the Company only purchases the inventory as it fulfills orders. The
Company has also contracted with Muze Inc., a New York corporation ("Muze"), to
provide the book, music, and video data base feeds. The Company is researching
the development of subsites for computer products and auction based e-commerce.
The Company plans also to enter into other strategic alliances with product
providers such as those providing the book, music , and video products to offer
a larger number and greater variety of products. The Company believes that the
prices for goods and services in its agreements with its suppliers are
comparable to those available to other Web-based retailers. The Company's cost
to expand marketing exposure by Website branding is expected to result in lower
costs of sales. As a result, the Company anticipates that its branded sites will
compete on a price basis with other Web-based retailers.
The Company expects to increase the information available on its
financial sites and significantly increase the database of public companies
available on irpackages.com. The Company intends to allocate additional capital
to recruit and train additional qualified personnel to implement this expansion
strategy. The Company plans to continue to increase the variety of available
quotes (to include commodities and foreign securities), portfolio management,
charting, and company information available on the site stockstudy.com. This
will be done through additional programming and development of the site and by
the purchase of additional data feeds from data providers. The Company also
plans to increase the attractiveness of newsletterz.com by increasing both the
number and variety of news letters available on the site. The Company does not,
and does not intend to develop proprietary content, except that the Company has
engaged one staff writer to provide a morning and evening summary analysis of
the stock market. All other content is licensed or purchased from third parties.
The Company has allocated additional personnel to market the service to the
newsletter community. There are currently 41 newsletters available on
newsletterz.com. Neither the Company nor any affiliate of the Company publishes
or has any interest in any of the newsletters. Currently the newsletters on the
site cover a broad range of financial interests, ranging from: small cap stocks,
blue chip stocks, mutual funds, foreign securities, drip investing, commodities,
ADR's, and personal finance.
11
The Company intends to differentiate its product line from other
similar sites by providing a broad range of content and by continually updating
the content. For example, while many financial sites contain newsletters or
similar information, few sites offer as many newsletters from such a broad
topical range as newsletterz.com. Such an approach is in contrast to other
financial sites (DLJDirect, E*Trade) which offer only their own research. The
Company will also rely upon the input of its branded site users to include
information that customers demand.
Through the first six (6) months of the next fiscal year, the Company
plans to purchase approximately $200,000 in additional computer equipment which
will include servers, hubs, routers, Internet connectivity lines, and work
stations. The Company expects that this equipment will be capable of servicing
the projected number of users on the Company's e-commerce sites and content
sites over this period. The Company's computer systems are scalable and if the
number of Internet users accessing the sites exceed expectations more funds will
be allocated to the purchase of additional servers and connectivity lines. The
Company expects that the present office space that it is leasing will be
adequate to accommodate the growth of the Company through the end of the next
fiscal year. The Company uses off-site server providers in secure server
locations to house most of its Internet server computers and expects to continue
this practice in the foreseeable future.
The Company expects to hire four additional programmers and computer
technicians during the remainder of this year and the first half of the next
fiscal year and expects to extensively employ outside computer consultants on a
project by project basis. The Company will be hiring approximately twelve people
to work in a newly formed marketing department. This new department will market
the services and products of the Company including: selling advertising on the
Company's sites and associates sites, marketing the associates program to the
Companies and institutions that have Web sites that could benefit from a branded
e-commerce or financial site, and selling custom programming to Web Sites. The
Company also expects to hire an additional ten technicians to support the
operations of the e-commerce site, and an additional five persons for general
administrative purposes.
Principal Markets
The Company initially will focus on two principal markets on the World
Wide Web: the market for financial services and information (stock quotes,
personal portfolio management, charting, mutual fund data, news releases,
automated investor relations package request system, and financial editorial
content) and the market for entertainment products and services (books, videos,
and music).
The Company expects to generate the majority of its revenue through 1)
revenues derived from the sale of products via e-commerce through the Company's
main sites (junglejeff.com and stockstudy.com) and through the client's sites,
2) the sale of advertisement space (on main sites and on client sites), 3) fees
Charged for custom Web site design and programming, and 4) fees charged for
graphic customization of the branded content on individual associate sites. For
a description of the Company's main Web site, see "The Company's Brandable
Sticky Solutions" below.
12
Marketing
The Company plans to implement a marketing campaign over the next 12
months. The Company expects to finance the bulk of its marketing expenses
through the future sale of its equity securities. The Company has allocated
approximately $300,000 to finance the cost of marketing its destination Web
sites and related products over the next six months.
The Company will initially market its products through multiple media
advertising campaigns, including Web-based advertisements, targeted mailings,
and print and radio advertisements. Such a minimal marketing budget will not
permit national or regional radio or television promotional campaigns. If the
Company is able to raise additional capital, the principal use of proceeds would
be to expand its marketing efforts. The Company will also benefit as its client
base grows since the Company plans to control the advertising space on its
branded sites. The Company expects advertising exposure to increase as the
Company develops more branded sites.
Each branded affiliate (i.e., a customer who purchases and uses a
branded Web site) enters into an agreement with the Company pursuant to which
the Company determines the advertising placed on the Web site. The Company
recognizes that its selection of advertisers will be important to branded
affiliates and will endeavor where possible to select advertisers that will not
directly compete with the business of the branded affiliate. If branded
affiliates are displeased with the Company's selection of advertisers, they may
choose to terminate the agreement. Upon such termination, the Company terminates
the customer's access to the branded Web site.
The Company anticipates that the cost of its branded sites will consist
of a customization fee of approximately $10.00 to $125.00 per site , depending
on the degree of customization requested by the customer. Websites currently
branding junglejeff.com may receive a commission equal to five percent of net
receipts (less returns, customary deductions and chargebacks, and certain
costs). The Company may, during its introductory phase, offer branded sites as a
promotion, either free or at reduced rates.
The potential customers of the Company are significant since many Web
sites are constantly searching for new "sticky" content to differentiate
themselves from their competition and to encourage repeat visits by their users.
The Company believes that its products will appeal to virtually every type of
Web site that provides content and will represent very significant savings to
these sites over the development of similar sticky solutions by their own
programmers.
Initial Marketing Prospects
The Company has targeted several different types of Internet sites for
its initial marketing effort over the next 12 months. The Company believes that
these sites would significantly benefit from branding its sticky financial
information and e-commerce systems and therefore be most receptive to its
marketing efforts. The Company plans to hire twelve additional sales and service
personnel to service these new accounts.
Portal Sites (an example of some very large portal sites are Excite,
Yahoo!, and Netscape's Netcenter) are continuously adding and searching for new
sticky content to help ensure that they are able to keep users glued onsite. The
Company believes that its brandable products could significantly assist portals
that want to add powerful sticky content without providing links to the
competition. Though some very large sites may already have agreements with
sticky content providers, the Company will market to other portals which are as
yet unaffiliated with financial information or e-commerce systems or sites that
wish to upgrade their present systems to the sophistication of a branded system.
13
The Company believes that many financial sites will be able to benefit
from the Company's products. For example, many financial information sites
provide services such as stock quotes and personal portfolio management, but
lose users to other sites when it comes to other important features such as
financial editorial content and e-commerce capabilities. Such e-commerce
capabilities include the sale of books, cassettes, CDs, videos and DVDs that are
available on junglejeff.com and the investment research anticipated to be
available for sale on stockstudy.com upon completion. The Company could also
market to such sites its newsletterz.com and irpackages.com sites. The Company
expects to fulfill these needs when its branding technology is completed. The
Company will not offer or sell any form of securities, mutual funds or other
financial instruments.
Many radio station Web sites currently do not offer their users an
online music CD store. The Company believes that this is a market with
significant potential for exposure to the Company's branded e-commerce stores
and the sale of music products. The Company expects that its future radio
station partners will be able to customize their stores in order to appeal to
the music preferences of the station's listeners. For its marketing effort over
the next twelve months the Company has compiled a data base of radio and
television stations, daily weekly newspapers, and magazines and plans to promote
its products to these companies as soon as the Company's e-commerce site is
available for branding. The Company expects to generate low or no cost
advertising from radio stations that sign up for its branded sites; stations
stand to benefit when their listeners visit their Web sites. The Company plans
to give its partners the opportunity to earn commissions from sales of music CDS
and other merchandise that listeners purchase from the radio station's branded
store.
The Company will also be marketing its sticky e-commerce and financial
sites to Community Sites. Community Sites (some examples of some very large
community sites are Geocities and the Mining Company) create "fraternities" of
users by providing Community-building features such as personal Web pages,
networking opportunities, and free e-mail services. A typical Community Site
organizes its site's features in ways that entice users into visiting various
areas of the site on a regular basis. When successful, the site's users become
accustomed to frequenting the site for specific information and interaction with
users of similar interests. The Company's products cover topics with such
wide-range appeal (from the financial markets to entertainment products) that
the Company believes that its branded sites will represent significant
additional assets to Community Sites.
The Company believes that one of the key benefits of its e-commerce
site is that it will be highly customizable to the partner when all of the
technology is completed. The Company believes this will be appealing to a wide
selection of sites such as sports, travel, automotive and health related sites
where the site could tailor its branded e- commerce store to increase the time a
user spends on his site and the users repeat visits. For example a partner sport
related site could select and showcase specific sports books, videos, and DVDs
relating to its site.
14
Sticky Technology
The Company believes that "stickiness" is one of the most important
trends on today's Internet. As the word would imply, stickiness means finding
ways of keeping Web users glued to a particular Web site.
While a Web user may utilize a Web site for a specific purpose, such as
the purchasing of computer hardware, the moment the need arises for something
else, such as a stock quote or book purchase, the user is off to another site if
the current site does not provide the desired content. The key to stickiness is
providing users with so much useful content that they are able to find virtually
everything they need onsite.
The Company has taken that model one step further by developing
integrated systems that when completed will provide the client company's Web
site with an array of important content that will be branded with the client
company's name, logo, and color scheme - not those of Ubrandit.com.
The Company has developed a diverse suite of sophisticated Web sites
with the purpose of "branding" the sites to clients as sticky solutions. Four
major sites have been completed: www.stockstudy.com, www.irpackage.com,
www.newsletterz.com and www.junglejeff.com. The Company's destination Web sites
have been designed to reflect the latest in sticky technologies. The Company is
now branding junglejeff.com and expects to be able to brand its financial sites
to clients during the first quarter of the 2000 calendar year. Branding
Technology
The Company uses the terms "branding" and "private labeling"
interchangeably. The goal of the Company's proprietary branding technology, is
to provide private labeled content to client sites whereby the content will
appear to belong exclusively to the client company. This will be achieved by
incorporating the client company's name, logo, Web-color scheme, and navigation
into the content. The Company's destination Web sites have been designed to be
"transparent" in the way client sites access the branded content. The branding
content is designed so that the user will not notice the change in content
provider when they leave the client's site and enter the Company's branded
content. This is unlike the traditional "affiliate" model or "linking"
arrangement where the user is typically transferred directly to the main site of
the company that created the content. The Company believes that the lack of
transparency in the traditional affiliate model and linking arrangement is a
major shortcoming. In many cases the user will eventually just bypass the
affiliate site in favor of going directly to the content provider. The Company's
systems have been designed so that the user will not be aware of the Company's
destination sites, JungleJeff.com, StockStudy.com, Irpackages.com, or
newsletterz.com. This is key in that then users will not be tempted to bypass
the clients site and also it will enable the Company to run a variety of
e-mail-based promotions designed to drive traffic back to our clients' sites.
The Company is currently branding its destination site junglejeff.com, and
expects to commence branding its destination financial sites in the first
calendar quarter of 2000.
The Company's Brandable Sticky Solutions
15
Stockstudy.com
Located on the Internet at www.stockstudy.com, stockstudy.com is a
comprehensive financial site that provides Web users with an extensive array of
sticky features including: stock quotes, personal portfolio management, mutual
fund data, news releases, and exclusive editorial content. Quotes are provided
on a minimum of 15 minutes delay per each exchange requirement. Quotes are being
continually updated by a constant feed from the data providers as trades take
place. Articles and newsletters are being updated on a daily basis. The Morning
and Evening Bell commentary is updated twice daily. The public information on
companies is being updated constantly by data feeds as the public databases are
changed and updated. The Company plans to add several new features to the site
during the first calendar quarter of 2000, including data feeds that provide
additional news sources and editorial comment.
Upon completion of its branding technology the Company expects to be
able to brand stockstudy.com to Web sites that either do not have a finance
center or wish to upgrade their finance center - a customer base that includes a
significant portion of Web sites on the Internet. There are thousands of sites
that currently "link" to other sites for finance content. The Company believes
that a significant number of these sites would take advantage of a cost
effective and sophisticated private labeled finance center if it was made
available to them. It is the goal of the Company's private labeled finance
center to appear as part of the client's Web site - not as a link to another
company's financial content. With enhanced content the Web user will have more
of an incentive to visit and remain at a client's site.
Newsletterz.com
Located on the Internet at www.newsletterz.com, Newsletterz.com is a
unique financial newsletter-marketing program that promotes a growing number of
publications from various investment categories. Investors can sample dozens of
respected financial publications and read daily market commentary from the
editors. Newsletterz.com currently represents 41 newsletters all of which are
unaffiliated. The Company is continually researching possible additions to the
newsletters it represents.
When the Company's branding technology is complete, Newsletterz.com
will provide clients with an opportunity to earn revenue from the sale of trial
subscriptions. The Company anticipates that the branding technology will be
completed by the first calendar quarter of 2000. Users of the site will be able
to purchase long-term and trial subscriptions directly from the site. The
Company does not intend to charge its customers for use of newsletterz.com,
except incidental customization charges. The Company plans to generate revenues
from the sale of trial subscriptions by a client's site shared with the client.
It is expected that newsletterz.com will be available as a stand-alone brandable
product and also as an integrated part of stockstudy.com.
IR Packages.com
IR packages.com is located on the Internet at www.irpackages.com. The
"IR" in IRpackages.com stands for "Investor Relations." Investor relations
packages are a resource that many investors require when evaluating the
investment merits of a company. A typical IR package includes the company's
corporate profile, recent press releases, recent public filings, and other
pertinent company information. As of December 20, 1999, information was
available on approximately 7,000 companies.
16
While many free sites provide information regarding public companies,
the Company believes that irpackages.com offers several advantages over other
sites.
o Phone numbers, addresses, e-mails and other contact
information about companies is easier to access.
o irpackages.com stores the user's name and address and
transmits this automatically
The Company currently does not intend to charge a fee to use this site.
The Company has developed a fully automated IR package request system.
Users simply utilize the site's search engine to find the company they are
interested in receiving an IR package from, and click "send." The system
automatically sends an e-mail to the IR department of the selected company with
the user's contact information and request. The IR department of the specific
company then makes a determination on the disposition of the request. As
previously stated, IR packages.com already includes in its data base
approximately 7,000 publicly traded companies.
IR Packages.com is an integrated part of the Company's stockstudy.com
and it is expected that the site will also be available as a separate brandable
product.
JungleJeff.com
Launched on June 8, 1999, JungleJeff.com is a large e-commerce site
that currently features over 1,000,000 book, music, video, and DVD titles. The
site is located on the Web at www.junglejeff.com. The Company began branding
JungleJeff.com in September of 1999, following the completion of its beta
testing. It is expected that other product lines (such as computer software and
hardware and consumer electronics) will be added over time following the
completion of this branding technology. The Company is able to brand
JungleJeff.com to Web sites that either do not have an entertainment presence or
wish to upgrade their entertainment presence, a customer base that potentially
encompasses a significant portion of Web sites on the Internet. As is the case
with finance centers, there are thousands of Web sites that currently link to
other sites for their entertainment presence via associates programs (associate
sites earn commissions through the generation of sales). The Company believes
that a significant number of these sites may take advantage of a cost effective
and sophisticated private labeled entertainment e-commerce site if it was made
available to them. The Company plans through JungleJeff.com to offer client
companies an affiliate revenue sharing program. It is anticipated that an
affiliate site, when all the technology is complete, will be able to customize
their store to highlight certain categories and items, according to their
respective needs.
The products that are sold through Junglejeff.com, similar to other
e-commerce sites, are purchased from large music and book distributors and
resold to buyers purchasing on the Web. Currently the Company has a contract
with Baker & Taylor, Inc., a major industry distributor, to provide its music,
book, and video products through a drop shipment program. Under the terms of its
agreement with Baker & Taylor, the Company has acquired a license to use and
display information from Baker & Taylor's extensive database of products on the
17
Company's websites for a term of 12 months the right to use and display
information from the Baker & Taylor database is included in the wholesale price
of the products purchased by the Company's brandable store, junglejeff.com.
pursuant to the program, products purchased on a retail Web site are drop
shipped to the customer on an as available basis. No specific inventory has been
designated as belonging to the Company and the Company only purchases the
inventory as it fulfills orders.
The Company's License Agreement with Muze Inc., a New York corporation,
provides that Muze grants to the Company a non-exclusive, nontransferable,
limited right to use the data and software provided by Muze. The License
Agreement is for a term of one year and requires the Company to make payments of
a minimum monthly fee of $3,500 or a greater fee calculated on a fixed price per
unit sold. The Company may only use the data at specified sites and may not
assign, sell or otherwise use the data except as provided in the agreement. Muze
agrees to indemnify the Company against infringement of the intellectual
property rights of third parties, subject to certain exceptions and
requirements. The Company agrees to indemnify Muze against claims arising out of
content not provided by Muze, breach of the License Agreement and illegal or
unauthorized use of the data.
The Company has also contracted with Baker & Taylor and Muze Inc., to
provide the book, music, and video data base feeds. These data feeds that appear
on the Company's destination sites (and the Company's branded sites) when the
technology is completed, allow purchasers to view video, book, or music jackets
and pricing, biographic synopsis, and other information about the products that
are being sold. Since the Company will rely exclusively on the drop shipment
program run by its distributors, the Company will not keep an inventory of its
products. Since the Company will not keep its own inventory, products will only
be available to the Web purchaser if they are currently in stock or as they
become available to the Company's distributors. The Company's system updates
distributor's inventory on a weekly basis. Products are purchased exclusively by
credit card and the Company processes said credit card purchases through
CyberCash, Inc. of Reston, Virginia, a provider of secure electronic payment
solutions. The Company insures secure Internet transactions by the use of
VeriSign, of Mountain View, California, a provider of Public Key Infrastructure
(PKI) and digital credit solutions used by Web sites to conduct communications
and transactions over the Internet. Products are purchased from distributors on
an as available basis. If the product is not available within 15 days then the
purchaser will be notified by e-mail and have the opportunity to cancel the
order. The Company has a return policy that a customer may return any unused
item for a full refund provided that the customer returns it to the Company in
its original condition within 15 days following receipt of order. Shipping costs
are only refunded if the return in due to an error on the part of the Company.
Revenue Sources
The Company has in previous years generated revenue from list rentals,
sponsorship advertising, and design of Web sites. The Company anticipates these
sources will not to be as significant in the future due to the in Company's
change in planning. As stated previously in this section the main focus of the
Company is on new areas of revenue generation, specifically, e-commerce, selling
Web site advertising, and graphic customization. Though not a primary focus, the
Company will also continue its Web site development and to seek sponsorship
advertising.
18
E-commerce
The Company recently launched Jungle-Jeff.com on June 8, 1999, and
began branding the site in September of 1999. No significant revenues have been
earned by the site and there are no material backorders. The Company expects to
earn revenues on items (books, music CDS, Videos, DVDs, etc.) sold via its
e-commerce site JungleJeff.com. The Company plans to earn revenues on items sold
through partnered versions of the site upon the completion of the Company's
branding technology. The Company anticipates offering discounts on items sold
through JungleJeff.com and through branded versions of the site. The Company
pays a commission of up to five percent (5%) of its net receipts (less returns,
customary deductions and chargebacks, and certain costs), to partners on sales
generated by their branded sites.
The Company's other source of revenue generation from e-commerce is
through the sale of financial newsletter trial subscriptions from StockStudy.com
and Newsletterz.com. The Company has made arrangements with newsletter providers
to retain all revenue obtained from trial subscriptions, which range from one to
three months, depending upon the newsletter. After the end of the trial
subscription period, all revenues from the newsletters are paid directly to the
publisher and the Company does not receive any further income therefrom. The
Company does not pay any fees or charges to the publishers. Through November 30,
1999, the Company had received $1,990.05 of gross revenue from trial
subscriptions. (Newsletterz.com is an integrated part of StockStudy.com and is
expected to also be available to partners as a separate brandable product upon
completion of the Company's branding technology.) The Company plans to pay its
partner sites a commission on all trial subscription revenue generated by their
branded sites.
Advertising
To date, the Company has not earned any significant revenue from
advertising. Currently the layouts of the Company's branded and destination
sites allow for one large banner ad and up to two smaller banner ads per page.
The Company plans to follow the generally accepted guidelines for advertising
fees on the World Wide Web. Ad fees are generally calculated through a
combination of the following two criteria: 1) The number of page views received
(each time a banner ad has the opportunity of being seen by a user counts as one
page view); and 2) The popularity of the host site (and the popularity of
specific pages of the host site). Typically, Web sites charge advertisers by CPM
(cost per thousand) page views. The Company plans to follow this general model.
The Company plans to charge fees that are commensurate with these
criteria. As mentioned above, the Company currently plans on controlling the
advertising space on its destination and branded sites. Therefore, the value of
the Company's advertising space should increase as the size of the Company's
partner base grows.
The Company will not establish the rates to be charged on a CPM basis
until the branding technology has been commercially launched and when sites are
able to easily brand the Company's destination sites. After the rollout of the
Company's branding and marketing program, the Company will evaluate page-view
penetration into certain industry group and will establish advertising fees
accordingly. Though the Company is still evaluating pricing options it
anticipates that the cost of branding to be approximately $10.00 to $125.00
depending upon the extent of customization. The Company may also run some
introductory phrase promotions depending upon marketing and market conditions.
19
Graphic Customization
The Company plans to charge a fee to partners who wish to customize and
have their official corporate logo integrated into their branded Web-content.
Depending on the level of customization required, the Company plans to charge a
fee accordingly. Though no assurances can be given, management believes that the
amount of revenue from this area could be significant if a large percentage of
partners opt for graphic customization.
Web Site Development
In addition to providing private labeled Web-content to partner sites,
the Company plans to continue and expand its custom Web site design and
programming for clients who wish to upgrade their existing Web presence.
The Company is not dependent on any large customer but conversely is
dependent upon various individual Web sites deciding to have the Company's
branded content appear on their respective Web sites. The Company believes that
the e-commerce and financial sites are suited for large corporate Web sites or
small individual sites. Since the Web sites will be able to customize the
branded content with regards to the color, logo, and highlighted content, the
branded content should be readily able to integrate into the look and feel of a
specific site whether it be a large car company or a small independent service
provider. It is in the Company's best interest to make their sites readily
brandable so that there is maximum exposure to the products sold by its
e-commerce sites and the advertisement space available on its e-commerce and
financial sites. The Company's Websites contain advertising space pre-sold and
controlled by the Company. Thus, the Company's advertisers may be competitors of
the Websites of its branding customers. To date, such potential conflict has not
resulted in any loss of existing customers, but may discourage users in the
future. The Company expects that its e-commerce business will be seasonal in the
same respect that any retail business is seasonal, with greater sales expected
in the holiday seasons.
Proprietary Technology and Research and Development
The Company does not have any patents on any of its Internet processes.
The Company does have various technologies that it has developed which are
proprietary. The Company expects that upon delivery of said proprietary
processes and technology to the market place that competitors will attempt and
possibly may successfully replicate certain advantageous processes developed by
the Company's that are part of its branding technology. The Company has applied
for Trademark protection with regards to its name and logo. The Company has
applied for a service mark with the U.S. Patent and Trademark division of the
federal government on the mark "ubrandit" and "ubrandit.com" with and with out
the distinctive fonts and color scheme. The Company has secured the names of its
present sites with InterNIC and Network Solutions, Inc. and intends to renew the
registration in approximately two years when renewals are due. The current
business strategy of the Company focusing on the development and branding of its
destination Web sites has resulted in the Company expending significant amounts
of its resources on research and development. The Company estimates that during
the past two years it has spent approximately $312,000 on Company sponsored
research and development. The dollar amount spent on research activities
sponsored by customers is not a material amount.
20
Competition
The Internet market is extremely competitive, new, and dynamic. The
Company will be competing with companies that have far greater resources than
that of the Company. The Company, a startup company, will be competing against
Company's with far greater experience and better funding. Though the competition
is formidable management believes that because of the dynamics and huge breadth
of Web e-commerce that there are certain areas of e-commerce where the Company
can compete effectively. Through the development of private labeled systems for
financial information and e-commerce, the Company believes that it has found a
niche within the Internet industry that has yet to be fully exploited. To date,
the Company believes that no Internet company has positioned itself as the
leader in this niche area.
It is management's opinion that when the Company's branding technology
is completed its value as a content provider to the Web sites of its partners
will stem from several distinct areas, including: the appeal of brandable
content, the turnkey nature of its content, the Company's planned no-cost (or
nominal fee charged for graphic customization) to participate model, the ability
for a partner to customize their e-commerce store to reflect the unique nature
of their business, and the expected breadth of the Company's products.
It is management's opinion that content providers represent the major
competition to the Company as they are vying for similar relationships with
third-party Internet marketers. The Company's major competitors generally fall
into the following two categories (1) e-commerce sites, such as Amazon.com and
BarnesandNoble.com, and (2) financial information providers, such as CBS
Marketwatch and PC Quote, Inc. E-commerce sites provide third-party sites with
affiliate programs similar to the branding affiliate programs that the Company
offers. Larger sites may also keep an inventory of certain books and music and
thus may be able to deliver products that are not available to the Company
through its distributors. Also some of the larger sites may be able to deliver
certain products out of inventory on a more timely basis than the Company.
Financial information providers provide third-party sites with comprehensive
financial information (stock quotes, market news, etc.) much like
stockstudy.com. Many of the larger sites have the advantages of "tie ins" with
radio, print, and television media that give them significantly greater exposure
than that available to the Company primarily dependent upon exposure through the
Web.
While the Company intends to competitively price its products and
services, the Company intends to compete primarily on other factors, including
content, ease of use and customer retention. The Company believes that its
branding program has certain advantages not offered by the "affiliate programs"
offered by other e-commerce providers. Generally affiliate programs work similar
to the following. Destination Web sites will advertise a number of books, CDS,
or videos from one of the large e-commerce sites offering the products, such as
books that pertain to the destination Web site's business. When a visitor to the
site takes an interest in a book (by "clicking" a link or picture of the book's
jacket cover), the user is instantly transferred to the e-commerce Web site.
21
That model has been generally very successful for these e-commerce Web
sites. The e-commerce site generates additional traffic and sells more
merchandise, users enjoy the shopping and browsing experience that the
e-commerce content provides, and the affiliate site hopefully generates more
repeat users and gets a commission on certain sales the e-commerce site makes
from its users.
The Company's program will be different providing partners with a
series of Web sites, any of which can be customized and "private labeled" to the
partner's existing site. By incorporating the partner company's logo and color
scheme, the Company will be able to add sophisticated sticky content with the
general "touch and feel" of the client's own Web site. Customers who click on
the Company's branded content will technically be transported to the Company's
servers; however, the change should be transparent to the customer. The
transition should be such that the Web site visitor would be unaware that he has
left the partner's site. The Company believes that the lack of transparency in
the traditional affiliate model is a major shortcoming because in many cases the
user may eventually just bypass the affiliate site in favor of going directly to
the content provider. Also once the user becomes a customer of the content
provider many times the content provider markets directly to the user bypassing
the affiliate site that directed the business. It is the present intention of
the Company to redirect traffic back to the Company's branded sites with certain
marketing campaigns which the Company believes will increase the "sticky" nature
of the branded sites.
The Company has determined that the most effective way to market its
products will be through multiple media advertising campaigns, including
Web-based advertisements, targeted mailings, and print and radio advertisements.
The Company has done some limited testing of e-mail based advertising that
targets webmasters. The Company intends to continue with this marketing
strategy. The Company has targeted several different types of Internet sites for
its initial marketing effort over the next 12 months. The Company believes that
these sites would significantly benefit from branding its sticky financial
information and e-commerce systems and therefore be most receptive to its
marketing efforts. Some of the sites targeted are portal sites and financial
sites. Advertising will emphasize how the Company's brandable sticky content
could significantly assist portals without providing links to the competition.
Likewise advertising to financial sites will emphasis the complete nature of the
Company's branding sticky content. Many financial information sites provide
services such as stock quotes and personal portfolio management, but lose users
to other sites when it comes to other important features such as financial
editorial content and e-commerce capabilities. The Company also will target
radio stations with a multimedia approach and a selective canvassing campaign.
Many radio station Web sites currently do not offer their users an online music
CD store. The Company will also benefit as its client base grows since the
Company plans to control the advertising space on its branded sites. As more
sites are branded the Company expects that there will be some decreases in
advertising expenditures. See "Marketing" and "Initial Marketing Prospects"
above.
Governmental Regulation
The Company will be subject to regulation by state, federal, local
authorities, with regards to content, copyright and Federal Trade Commission
regulations. No assurance can be given that unforeseen regulations will not be
adopted by the governmental authorities prohibiting the Company from conducting
business as planned or once in business limiting the success of said business
operations through the expense of complying with new regulations.
22
Employees
The Company currently has 12 full-time personnel plus various
consultants in management, sales, Internet and technology computer application,
programming, legal, and editorial responsibilities. The Company relies
significantly on outsourcing of its computer programming and other consulting
needs and plans to control costs by extensively utilizing outsourcing in the
future. Management of the Company expects to hire additional employees as
needed.
Further reference is made to the Company's Consolidated Financial
Statements, and the notes included therein and to the section entitled,
"Management Discussion and Analysis of Financial Condition and Results of
Operation" included in Item 7 with regards to the Company's business and
planning.
23
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF CERTAIN INFORMATION
CAPITALIZATION
The following table sets forth the capitalization of Ubrandit.com and
subsidiary at September 30, 1999. This table should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Transition Report.
Short-term Debt $ 5,129
Long-term Debt $ 8,859
Total Stockholders equity $6,821,155
SUMMARY OF HISTORICAL FINANCIAL DATA -- UBRANDIT
The following table sets forth certain historical financial data for
Ubrandit.com for the period December 19, 1997 (date of inception of
Ubrandit.com) to December 31, 1997, and the fiscal year ended, December 31,
1998, and the nine months ended September 30, 1999, which have been derived from
the audited financial statements of Ubrandit.com. The Company was incorporated
and first began operations on December 19, 1997. Historical financial data may
not be indicative of the Company's future performance. This information should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere in this Transition Report.
24
For the period
December 19, 1997
(Inception of Fiscal Year Nine Months
Ubrandit.com) Ended Ended
To December 31, December 31, September 30,
1997 1998 1999
----------------- ----------------- -----------------
INCOME STATEMENT DATA
Revenue $ -- $ -- $ 35,656
Operating expenses 93 1,114,381
Operating income (loss) -- (1,078,725)
Other (income) net -- -- 30,973
Income (loss) before income taxes -- (1,047,752)
Income taxes -- -- --
Net income (loss) -- (1,047,752)
Earnings per share - basic and diluted (0.00) -- (0.11)
BALANCE SHEET DATA
Total current assets $ 800 $ 44,507 $ 5,704,834
Total Assets $ 800 $ 44,507 $ 6,907,655
Total current liabilities $ 400 $ 400 $ 77,641
Total liabilities $ 400 $ 400 $ 86,500
Total Stockholders equity $ 400 $ 44,107 $ 6,821,155
25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND OF OPERATIONS
MANAGEMENT DISCUSSION AND ANALYSIS
General
Since its inception, the main activity of the Company, an early stage
startup Company, has been organizational. The Company has sold equity shares to
raise capital, recruited and organized management, has commenced corporate
strategic planning, and has engaged in the limited development of destination
Web sites and the branding and private labeling of systems for the Company. The
Company has conducted no significant operations to date. The Company very
recently launched its brandable book, music, video store on September 20, 1999,
and expects to launch its brandable financial and other related financial sites
in the second quarter of the fiscal year ending September 30, 2000. While the
Company expects to generate revenue from advertising, e-commerce sales, and
custom programming during the next fiscal year, management expects that the
Company will continue to operate at a loss for the foreseeable future. On March
11, 1999, the Company purchased all of the then-outstanding shares of common
stock of Global Investors Guide, which became a wholly owned subsidiary of the
Company. Global Investors Guide is an Internet development company with a
limited operating history. At September 30, 1999, the Company owned
approximately $189,147 in tangible property, not including depreciation of
approximately $38,580.
Certain Balance Sheet Items
In comparing the balance sheet at September 30, 1999, to the balance
sheet at December 31, 1998, current assets increased from $44.2 thousand to
$5.705 million. The increase was principally due to cash received from private
equity financings pursuant to Rule 504 of Regulation D promulgated under the
Securities Act of 1933. Total assets increased from $44.5 thousand at December
31, 1998, to $6.908 million at September 30, 1999. The increase was primarily
due to the increase in cash as noted above, an increase in property and
equipment (primarily computer hardware and software), net of accumulated
depreciation and an increase in core technology and goodwill, net of accumulated
amortization. Current liabilities increased from $400 at December 31, 1998, to
$77.6 thousand at September 30, 1999. This increase was due to increases in
accounts payable, accrued expenses and payroll taxes payable resulting from
operating activities.
Recent Events
The Company's most recent audited financial statements are for the
nine months ended September 30, 1999.
Stockholders Equity
Also, in August of 1999 the Company sold a total of 1,482,333 shares of
Common Stock at $3.00 per share to certain non-U.S. persons, as defined under
Regulation S of the Securities Act of 1933. The shares were sold in private
transactions in reliance on the exemption available under Regulation S. This
offering is reflected in the notes to the Company's Financial Statements dated
September 30, 1999. See Note 6. Stockholders Equity to the Company's
Consolidated Financial Statements for the nine months ended September 30, 1999,
included elsewhere in this Transition Report.
26
Results of Operations
Nine months ended September 30, 1999 compared to the year ended December 31,
1998.
We believe that a comparison of the Company's results of operation for
the nine months ended September 30, 1999 to those for the year ended December
31, 1998 is not meaningful, as the Company did not commence operations until the
acquisition of Global Investors Guide in March of 1999,
Consolidated revenue for the nine months ended September 30, 1999 was
$35,656, as compared to revenue of nil for the year ending December 31, 1998.
Approximately 66.0% of the revenue for the nine months ended September 30, 1999,
was generated by renting of mailing lists following the acquisition of Global
Investors Guide and the remaining portion was generated from newly commenced
product sales on the Jungle Jeff web site.
Direct operating expenses were $567,286 for the nine months ended
September 30, 1999, as compared to no such expenses for the previous year. The
increase in direct operating expenses was due primarily to an increase of
$520,000 of payroll costs associated with development of web sites and $34,000
of costs associated with the purchase of data feeds for junglejeff.com and
miscellaneous operating expenses of $13,000. The $520,000 in payroll costs
included compensation expense for related party debt converted in the amount of
$262,000.
Sales, general and administrative expenses increased from $13 for the
year ended December 31, 1998 to $456,575 for the nine months ended September 30,
1999. The increase was primarily due to the following factors: increased
research and development costs of $55,914, administrative payroll of $39,000,
accounting and legal fees of associated and filings with the Securities and
Exchange Commission of $108,000, rent expense of $56,000, business fees of
$20,000, expense of $53,000 to facilitate fair and timely dissemination of press
releases, compensation expense of $37,000 relating to warrants issued to Fusion
Media, office expense of $49,000, Internet service providers expense of $26,000
and travel expenses of $9,000.
For the nine months ended September 30, 1999, depreciation and
amortization costs were $90,520, as compared to $80 for the year ended December
31, 1998. The increase was due to amortization of core technology and goodwill
recorded from the acquisition of Global Investors Guide on March 11, 1999, and
depreciation of the certain fixed assets.
In sum, revenue less operating expenses resulted in an operating loss
of $1,078,725 for the nine months ended September 30, 1999, as compared to an
operating loss of $93 for the year ended December 31, 1998.
Interest expense for the nine months ended September 30, 1999 was
$1,393, as compared to $0 for the year ended December 31, 1998. This expense
related to the convertible debt recorded from the acquisition of Global
Investors Guide on March 11, 1999, and the interest on the capital lease
obligation.
For the nine months ended September 30, 1999, interest income increased
to $32,366 as compared to no interest income for the year ended December 31,
1998. The increase in interest income was due to interest earned on cash
balances received from the equity offerings.
27
Year ended December 31, 1998, compared to year ended December 31, 1997.
The Company had no operations prior to its acquisition of Global
Investors Guide in March 1999, and did not generate any revenue for the period
from December 19, 1997 (inception) to December 31, 1997, for the fiscal year
ended December 31, 1998.
The Company incurred no expenses during the partial fiscal year ended
December 31, 1997 as compared to expenses of $93 incurred in the fiscal year
ended December 31, 1998. The expenses incurred in 1998 consisted of amortization
and office expense's relating to the Company's organization.
Liquidity and Capital Resources.
At present, only limited revenues are being produced by the Company.
The Company's main source of funds has been the sale of the Company's Equity
securities. The Company has issued 9,412,333 shares of its Common Stock for
approximately $6,382,659, including the most recent offering and after deduction
of offering expenses, has exchanged 1,826,000 shares of its Common Stock for all
the outstanding shares of Global Investors Guide. In connection with the
acquisition of Global Investors Guide, the Company recorded $262,000 in
compensation expense. The Company also converted $264,251 in debt to 500,000
shares issued to two creditors of the Company. The Company had $5,613,922 in
cash on September 30, 1999, the date of its audited financial as set forth in
the Company's financial statements set forth under Item 8. Financial Statements
and Supplemental Data. Since June 30, 1999, the Company has raised approximately
$4,446,999 in cash, less offering expenses of $35,540, by the sale of Common
Stock in a Regulation S offering. The Company currently is using these funds
mainly to develop and market the Company's destination Web sites and its
co-branding and private label technology and to fund certain ongoing general and
administrative expenses plus consulting expense with the total of such expenses.
The Company is generating revenue on a limited basis from its e-commerce
destination site junglejeff.com and its branded book, music and video store web
sites. The Company expects to generate material revenue from operations
beginning in the first quarter of the next calendar year, following the rollout
of the completed branding technology and the commencement of the Company's
marketing campaign. Further, if revenues from branding, advertising, sponsorship
fees, and custom programming are realized said revenues will be subject to all
of the risks set forth under Item 1. Business in the section entitled "Risk
Factors" and no profits may be realized from said revenues. The main source of
funds at the present is the sale of the Company's equity securities. Such
reserves are expected to fund operations at projected rates for a period of 36
months following the filing date of this Transition Report. Thereafter, the
Company will be dependent upon revenue from operations. If revenue from
operations is insufficient to support expenses, additional equity or debt
financing will be required to meet capital needs. The Company does not have any
commitments for additional capital. One possible source of funding includes
loans by financial institutions with the Company's computer equipment as
collateral. However, the collateral value of Company's tangible property is
limited. The Company has no material contractual commitments for capital
expenditure at present.
Summary Of Historical Financial Data - Predecessor -- Global Investors Guide
The following table sets forth certain historical data for Global
Investors Guide for the period December 3, 1996 (date of inception) to September
30, 1997, and the fiscal year ended September 30, 1998, which have been derived
from the audited financial statements of Global Investors Guide. Global
Investors Guide was incorporated and first began operations on December 3, 1996.
Historical financial data may not be indicative of the Company's future
performance. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and notes thereto included elsewhere in this Transition
Report. Historical earnings per share and dividend data have not been presented,
as Global Investors Guide was not a publicly-held company during the periods
presented below.
28
GIG
- ---
Selected Financial Data
- -----------------------
For the period
December 3, 1996 Year ended
to September 30 September 30,
1997 1998
---------------- -------------
INCOME STATEMENT DATA
Revenue 86,390 341,887
Operating expenses 78,027 443,861
Operating income (loss) 8,363 (101,974)
Other (expenses) net -- (13,063)
Income (loss) before income taxes 8,363 (115,037)
Income taxes 1,576 --
Net income (loss) 6,787 (115,037)
Earnings per share
Basic and diluted 6.79 (115.04)
BALANCE SHEET DATA
Total current assets 10,439 62,649
Total assets 13,327 93,909
Total current liabilities 4,714 200,333
Total liabilities 4,714 200,333
Total stockholders equity (deficit) 8,613 (106,424)
Certain Balance Sheet Items
In comparing the balance sheet at September 30, 1998, to the balance
sheet at September 30, 1997, current assets increased from $10,439 to $62,649.
The increase was principally due to cash and accounts receivable received from
operations. Total assets increased from $13,327 to $93,909 on the September 30,
1998 balance sheet compared to the balance sheet at September 30, 1997. The
increase was primarily due to the increase in cash and accounts receivable as
noted above and an increase in property and equipment (primarily computer
hardware and software), net of accumulated depreciation. Current liabilities
increased from $4,714 to $200,333 on the September 30, 1998 balance sheet as
compared to the balance sheet at September 30, 1997. This increase was due to
increases in due to related party, convertible debt, and accrued interest. The
due to related party increased as a result of a transaction with a related third
party whereby, Global Investors Guide received computer equipment, services and
cash. Convertible debt and accrued interest increased as a result of debt
incurred from an unrelated third party and interest on said debt.
Results of Operations
Nine months ended September 30, 1998, compared to the period from
December 3, 1996 to September 30, 1997.
Consolidated revenue increased 296% to $341,887 for the fiscal year
ended September 30, 1998, as compared to consolidated revenue of $86,390 for the
period ending September 30, 1997. The increase in revenues was principally due
to the additional revenues that the Company was able to generate from its
expanded sale of sponsorships and advertising, custom programming and design,
and subscriptions.
29
Direct operating expenses increased 181% to $154,310 for the fiscal
year ended September 30, 1998, as compared to $54,176 for the period ended
September 30, 1997. Such increase was due to the following factors: an increase
in research and development of $3,000, an increase in payroll of $88,000 and an
increase in name list rental of $15,000. All of these changes are associated
with the Company's change in business focus during the latter part of the fiscal
year ended September 30, 1998.
Sales, general and administrative expenses increased approximately
1,090% to $279,011 for the fiscal year ended September 30, 1998, as compared to
$23,456 for the period ended September 30, 1997. The increase was due primarily
to an increase of rent of $19,000, printing costs of $83,000, administrative
payroll of $20,000 and computer software costs of $30,000 and office expenses of
$100,000.
Net losses from operations increased to $101,974 for the fiscal year
ended September 30, 1998, as compared to net operating income of $8,363 for the
fiscal year ended September 30, 1997. The increase in net losses during the
fiscal year ended September 30, 1998, was due to the decline in revenue and
increase in costs relating to the Company's implementation of its new business
plan.
Year 2000 Compliance; Year 2000 Readiness Disclosure
To the fullest extent permitted by law, the following discussion is a
"Year 2000 Readiness Disclosure" within the meaning of the Year 2000 Information
and Readiness Disclosure Act 105 P.L. 271. Such Act does not protect the Company
from violations arising under the Federal Securities laws.
Background
Before the rollover of the year from 1999 to 2000, many of the world's
computer systems and programs used two-digit date fields to designate a year,
which meant that two-digit date systems would recognize the year 2000 as 1900 or
not at all. Because the activities of many businesses are affected by dates or
are date-related, the inability of these systems or programs to use such date
information correctly could have resulted in system failures or disruptions and
led to disruptions of business operations in the United States and
internationally (the "Year 2000 Problem"). In the case of the Company, such
disruptions would include, among other things, an inability to process
transactions, send invoices, or engage in similar routine business activities.
Although the transition to the Year 2000 did not have any significant
impact on the Company or its reporting systems and operations, the Company will
continue to assess the impact of the Year 2000 Problem on its systems and those
of third-party service providers. Issues relating to the Year 2000 Problem arise
in a number of different contexts in which the Company and its operating
subsidiary use or access computer programming. In its operations, the Company
uses both third-party and internally developed software programs and relies on
customary telecommunications services, as well as building and property
logistical services, including, without limitation, embedded computer-controlled
systems. The Company generally will also rely heavily upon suppliers, as well as
data processing, transmission and other services provided by third-party service
providers, including, without limitation, Internet access, online content,
product distribution and delivery, and information services.
30
The Company and its operating subsidiary will rely on independent
internal local access network (LAN) computer systems. In addition, the Company
and its subsidiaries lease their office space from third parties and may conduct
business through multiple locations in major cities. Although the operating
subsidiary will, for the most part, conduct business independently, it will
substantially use similar third-party software and have common relationships and
dependencies with third party service providers.
Assessing the Impact of the Year 2000 Problem on the Company's Operations
Before the rollover of the two-digit year to 00, the Company reviewed
its computer systems and programs, including information technology ("IT") and
non-IT systems, and determined that they were in compliance with the
requirements of the Year 2000. The Year 2000 problem, however, is pervasive and
complex as virtually every computer operation could be affected in some way by
the rollover of the two digit year to 00. The Company relies on a variety of
third party vendors and service providers in the daily operation of its web
sites. The Company relies on third party data providers in connection with the
operation of its financial and e-commerce sites, as well as third party
financial service providers for credit card transactions and encryption
technology. The Company also relies on third party fulfillment providers for all
shipping and handling of products sold through its affiliated e-commerce
destination sites. All such third party providers depend upon computing systems
and software, and are susceptible to Year 2000 related problems. Also many of
the data feeds that third party service and data providers use to deliver data
and content to the Company are generated through various financial markets that
are also reliant on computer technology and software. If a significant number of
these computers fail to function correctly, the Company may not be able to
display correct financial information or product related data on its web sites,
or correctly process or deliver any orders from its destination or branded
sites. Although the Company could incur substantial costs in connection with the
failure of third-party computing systems and software, such costs are not
sufficiently certain to estimate at this time.
To date, the Company has incurred over $50,000 in expenses to purchase
Year 2000 compliant servers and software. All NT based servers have been
upgraded to Microsoft service PAC 5, which is Year 2000 compliant. The Company
estimates that it will incur approximately $10,000 in staffing and related
general and administrative expenses to make existing hardware and software Year
2000 compliant. As of the date of this Transition Report, the Company does not
expect to incur additional expenses for Year 2000 remediation. The Company
anticipates that the most reasonably likely worst case scenario is that many of
the Company's in for active providers will be unable to distribute the financial
data and product information that forms a basis for the Company's web sites. As
a result, users of the branded sites will be unable to access normally available
data. The Company cannot predict how long such disruption in service could
continue. If the financial data providers are not functional, the Company
anticipates that the financial data and product data providers could be replaced
so long as the disruption is not caused by technical problems at the New York
Stock Exchange, NASDAQ and other exchanges. If the data providers for book and
music products experience Year 2000 technical disruption, the Company will
experience significant delays in replacing such data providers because only
several comprehensive data providers exist.
31
Contingency Planning
The Company has not developed any plan to address contingencies arising
from the inability of third-party service providers to become Year 2000
compliant in a timely manner. Consequently, no assurance can be given that the
potential failure of third-party systems will not increase the Company's
operating costs or create uncertainties that may have an adverse effect on the
Company's operating results or financial condition.
The Company does not at this time have any plans to develop a
comprehensive contingency plan with respect to the possible failure of computing
systems or interruptions relating to the rollover of the two-digit year to 00.
The Company limited its contingency planning to identifying alternative
third-party providers that would be available if the Company's current providers
are unable to perform in a timely manner. The Company expects to complete its
planning and search for alternative third-party vendors and service providers by
the end of the first quarter of this calendar year.
Recent Accounting Pronouncements
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined if it will early adopt and what the effect of SFAS No. 133 will
be on the earnings and financial position of the Company.
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions" was issued in December 1998 and addresses software
revenue recognition as it applies to certain multiple-element arrangements. SOP
98-9 also amends SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2", to extend the deferral of application of certain passages of SOP 97-2
through fiscal years beginning on or before March 15, 1999. All other provisions
of SOP 98-9 are effective for transactions entered into in fiscal years
beginning after March 15, 1999. The Company will comply with the requirements of
this SOP as they become effective and this is not expected to have a material
effect on the Company's revenues and earnings.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any financial instruments that are subject to market
risk.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Ubrandit.com and subsidiary
As of and for the Period from
December 19, 1997 (Inception)
To December 31, 1997;
As of and for the year ended
December 31, 1998 and as of
and for the nine months ended
September 30, 1999
Ubrandit.com and subsidiary
Table of Contents
Page
----
Report of Independent Auditors 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Changes in Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-17
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Ubrandit.com
Del Mar, California
We have audited the accompanying consolidated balance sheets of Ubrandit.com as
of December 31, 1998 and September 30, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from December 19, 1997 (inception) to December 31, 1997; the year ended December
31, 1998 and the nine months ended September 30, 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 Ubrandit.com as of December 31,
1998 and September 30, 1999, and the results of its operations, and its cash
flows for the period December 19, 1997 (inception) to December 31, 1997; the
year ended December 31, 1998 and the nine months ended September 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Stark Tinter & Associates, LLC
Englewood, Colorado
November 5, 1999
1
Ubrandit.com and subsidiary
Consolidated Balance Sheets
December 31, September 30,
1998 1999
(restated)
--------------- ---------------
ASSETS
Current assets
Cash $ 44,187 $ 5,613,922
Accounts receivable 7,290
Subscription receivable 51,000
Prepaid expenses 20,750
Deposits 11,872
--------------- ---------------
Total current assets 44,187 5,704,834
Other assets:
Property and equipment - net of
accumulated depreciation 150,567
Core technology - net of accumulated
amortization 456,790
Goodwill - net of accumulated amortization 594,354
Organizational costs - net of accumulated
amortization 320 1,110
--------------- ---------------
$ 44,507 $ 6,907,655
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ - $ 45,581
Accrued expenses 400 19,324
Current portion of leases payable 5,129
Payroll taxes payable 7,607
--------------- ---------------
Total current liabilities 400 77,641
Other liabilities:
Leases payable, net of current portion 8,859
Stockholders' equity
Common stock, $0.001 par value,
25,000,000 shares authorized;
5,040,000 and 11,738,333
shares issued and outstanding 5,040 11,738
Additional paid in capital 39,160 7,857,262
Accumulated deficit (93) (1,047,845)
--------------- ---------------
Total stockholders' equity 44,107 6,821,155
--------------- ---------------
$ 44,507 $ 6,907,655
=============== ===============
See accompanying notes to consolidated financial statements.
2
Ubrandit.com and subsidiary
Consolidated Statements of Operations
For the period
December 19, 1997 Year Nine months
(Inception) ended ended
to December 31, December 31, September 30,
1997 1998 1999
(restated)
---------------- ---------------- ----------------
Revenue $ - $ - $ 35,656
---------------- ---------------- ----------------
Expenses:
Direct operating 567,286
Sales, general and administrative - 13 456,575
Depreciation and amortization - 80 90,520
---------------- ---------------- ----------------
Total operating expenses - 93 1,114,381
---------------- ---------------- ----------------
Operating (loss) - (93) (1,078,725)
Other income (expense):
Interest income 32,366
Interest expense (1,393)
---------------- ---------------- ----------------
- - 30,973
---------------- ---------------- ----------------
Net (loss) $ - $ (93) $ (1,047,752)
================ ================ ================
Per share information:
Weighted average shares
outstanding - basic and diluted 71 777,041 9,353,151
================ ================ ================
Net (loss) per common share - basic
and diluted $ - $ (0.00) $ (0.11)
================ ================ ================
See accompanying notes to consolidated financial statements.
3
Ubrandit.com and subsidiary
Consolidated Statement of Stockholders' Equity
For the Period from December 19, 1997 (Inception) to September 30, 1999
(restated)
Common Stock Additional
------------------------------ Paid in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 19, 1997 - $ - $ - $ - $ -
Issuance of stock for cash
at $0.01 per share 40,000 40 360 400
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 40,000 40 360 - 400
Issuance of stock for cash
at $0.01 per share net
of issuance cost 860,000 860 4,540 5,400
Issuance of stock for cash
at $0.01 per share net
of issuance cost 4,140,000 4,140 34,260 - 38,400
Net loss for the year (93) (93)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 5,040,000 5,040 39,160 (93) 44,107
Issuance of stock for cash
at $0.50 per share net
of issuance costs 1,890,000 1,890 935,110 - 937,000
Issuance of stock in a
business combination 1,826,000 1,826 911,174 - 913,000
Issuance of stock as repayment for
debt and accrued interest 300,000 300 163,951 - 164,251
Issuance of stock to a related
party as repayment for advance 200,000 200 361,800 - 362,000
Issuance of stock for cash
at $1.00 per share net
of issuance costs 1,000,000 1,000 989,000 990,000
Issuance of stock for cash and
subscription receivable at $3.00
per share net of issuance costs 1,482,333 1,482 4,409,977 - 4,411,459
Issuance of stock warrants for
services rendered 47,090 47,090
Net loss for the period - - - (1,047,752) (1,047,752)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 11,738,333 $ 11,738 $ 7,857,262 $(1,047,845) $ 6,821,155
============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
Ubrandit.com and subsidiary
Consolidated Statements of Cash Flows
For the period
December 19, 1997 Year Nine months
(Inception) ended ended
to December 31, December 31, September 30,
1997 1998 1999
(restated)
---------------- -------------- --------------
Cash flows from operating activities:
Net (loss) $ - $ (93) $ (1,047,752)
---------------- -------------- --------------
Adjustments to reconcile net (loss)
to net cash provided by
(used in) operating activities:
Depreciation and amortization - 90,520
Compensation expense related to
debt conversion 262,000
Compensation related to warrants 47,090
Changes in assets and liabilities:
Decrease in accounts receivable 823
(Increase) in subscription receivable (51,000)
(Increase) in prepaid expenses - (20,600)
(Increase) in deposits - (11,872)
(Increase) in organizational costs (400) (1,000)
Increase in accounts payable - 28,060
Increase in accrued expenses 400 19,324
Increase in payroll taxes payable - 7,607
Increase in accrued interest 801
---------------- -------------- --------------
Total adjustments - - 371,753
---------------- -------------- --------------
Net cash (used in) operating
activities - (93) (675,999)
---------------- -------------- --------------
Cash flows from investing activities:
Purchase of fixed assets (109,283)
Cash acquired in business combination 18,660
---------------- -------------- --------------
Net cash (used in) investing activities - - (90,623)
---------------- -------------- --------------
Cash flows from financing activities:
Repayments of capital lease obligations (2,102)
Net proceeds from issuance of common
stock, net of issuance costs 400 43,800 6,338,459
---------------- -------------- --------------
Net cash provided by financing activities 400 43,800 6,336,357
---------------- -------------- --------------
Net increase in cash
400 43,707 5,569,735
Cash, beginning
- 400 44,187
---------------- -------------- --------------
Cash, ending
$ 400 $ 44,107 $ 5,613,922
================ ============== ==============
Non-cash transactions
Net liabilities acquired in
business combination $ - $ - $ (209,198)
================ ============== ==============
Issuance of common stock in business
acquisition - - $ (913,000)
================ ============== ==============
Core technology recorded in business
combination - - $ 475,000
================ ============== ==============
Goodwill recorded in business combination - - $ 628,538
================ ============== ==============
Issuance of stock in repayment of
convertible debt - - $ (164,251)
================ ============== ==============
Issuance of stock in repayment of
related party advances - - $ (100,000)
================ ============== ==============
See accompanying notes to consolidated financial statements.
5
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on December 19, 1997 in the State of Nevada under
the name of Mount Merlot Estates, Inc. On January 14, 1999 the Company's name
was changed to Virtual Brand, Inc. and amended Articles of Incorporation were
filed. The name was again changed to Ubrandit.com on February 18, 1999 and a
second set of amended articles of Incorporation was filed with the State of
Nevada. The Company's primary concentrations are in providing of "branded"
financial and e-commerce Web-based systems to the internet in order to earn both
advertising and sponsorship revenue.
On March 11, 1999 the Company acquired Global Investors Guide ("Global") a
related Corporation. The Company acquired all of the net liabilities of Global
through the issuance of 1,826,000 shares of its common stock in exchange for all
of the outstanding shares of Global's common stock. The transaction has been
accounted for as a purchase and accordingly, the Company recorded the acquired
assets less liabilities assumed at its cost. A difference between the cost of
Global and the sum of the fair values of the assets acquired less liabilities
assumed was recorded as goodwill. (see Note 9).
The Company has elected to change its year-end from December 31 to September 30.
Principles of consolidation
The accompanying financial statements include the accounts of the Company and
its wholly owned subsidiary. Intercompany transactions and balances have been
eliminated in consolidation.
Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management to
make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are being depreciated by the straight-line and
accelerated methods over lives ranging from three to seven years. The
depreciation methods are designed to expense the cost of the assets over their
estimated useful lives.
6
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangibles
Core technology,which includes capitalized product and website development costs
incurred in the application development stage, is amortized under the
straight-line method over five years. In determining and periodically
reassessing the estimated useful life over which core technology will be
amortized, management has considered the effects of obsolescence, technology,
competition and other economic factors. Amortization of core technology begins
when it is ready for its intended use. Core technology is ready for its intended
use after all substantial testing is completed. Amortization of core technology
expensed to operations for the nine months ended September 30, 1999 was $18,210.
Goodwill and Organization costs are amortized under the straight-line method
over five years. Amortization of goodwill and organization costs expensed to
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999 were $80 and $53,115, respectively.
Product and website development costs incurred in developing the Company's
website are accounted for in accordance with SOP 98-1. Product and website
development costs include amounts incurred by the Company to develop, enhance,
manage, monitor and operate the Company's website. Product development costs,
preliminary project and past implementation product costs are expensed as
incurred.
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, 1998 and
September 30, 1999. The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These financial
instruments include cash, accounts receivable and accounts payable and accrued
expenses. Fair values were assumed to approximate carrying values for these
financial instruments because they are short term in nature and their carrying
amounts approximate fair values or they are receivable or payable on demand. The
fair value of long-term debt is based on current rates at which the Company
could borrow funds with similar remaining maturities.
Net income per common share
The Company follows Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). Basic earnings per common share ("EPS")
calculations are determined by dividing net income by the weighted average
number of shares of common stock outstanding during the year. Diluted earnings
per common share calculations are determined by dividing net income by the
weighted average number of common shares and dilutive common share equivalents
outstanding. During the periods presented common stock equivalents were not
considered as their effect would be anti dilutive.
7
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive income
The Company follows Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. For all periods presented, there were no
differences between reported net income and comprehensive income.
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.
Impairment of long-lived assets
The Company periodically reviews the carrying amount of property, plant and
equipment and its identifiable intangible assets to determine whether current
events or circumstances warrant adjustments to such carrying amounts. As
goodwill was acquired in a business combination accounted for using the purchase
method, the goodwill is included as part of the asset grouping in determining
recoverability. If goodwill is identified with assets that are subject to an
impairment loss, the carrying amount of the identified goodwill shall be
eliminated before making any reduction of the carrying amounts of long-lived
assets and identifiable intangibles. If an impairment adjustment is deemed
necessary, such loss is measured by the amount that the carrying value of such
assets exceeds their fair value. Considerable management judgement is necessary
to estimate the fair value of assets, accordingly, actual results could vary
significantly from such estimates. Assets to be disposed of are carried at the
lower of their financial statement carrying amount or fair value less costs to
sell.
Revenue Recognition
The Company recognizes product revenues, sales of books, music and videos,
completed on their jungle jeff web site and other branded sites, upon shipment
and billing to the customer. Allowances are established to recognize the risk of
sales returns from customers.
The Company realizes and records mailing list revenue on the date the customer
uses the mailing list. The rental is limited to a one-time use for each customer
at the time the list is rented.
8
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Sales commissions expense
The Company pays five percent commissions of product revenues to branded web
sites. The sales commissions expense for the nine months ended September 30,
1999 is immaterial.
Research and Development Costs
Research and development costs are charged to operations when incurred and are
included in operating expenses. The amounts charged to operations for the period
ended December 31, 1998 and the nine months ended September 30, 1999 were
approximately $0 and $55,914, respectively.
Stock-Based Compensation.
During 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The provisions of SFAS No. 123 allow companies to either expense
the estimated fair value of stock options or to continue to follow the intrinsic
value method set forth in APB Opinion 25, "Accounting for Stock Issued to
Employees" ("APB 25") but disclose the pro forma effects on net income (loss)
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its stock option incentive plans.
Effective July 1, 1998, the Company adopted Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which requires that certain costs for the development of internal
use software should be capitalized, including the costs of coding, software
configuration, upgrades and enhancements. The adoption of this pronouncement did
not have a material effect on the Company's financial results.
Recent Pronouncements.
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined if it will early adopt and what the effect of SFAS No. 133 will
be on the earnings and financial position of the Company.
9
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions" was issued in December 1998 and addresses software
revenue recognition as it applies to certain multiple-element arrangements. SOP
98-9 also amends SOP 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2", to extend the deferral of application of certain passages of SOP 97-2
through fiscal years beginning on or before March 15, 1999. All other provisions
of SOP 98-9 are effective for transactions entered into in fiscal years
beginning after March 15, 1999. The Company will comply with the requirements of
this SOP as they become effective and this is not expected to have a material
effect on the Company's revenues and earnings.
Note 2. CONCENTRATIONS OF CREDIT RISK
The Company's funds are deposited in a federally insured institution which
insures deposits up to $100,000. As of September 30, 1999 the funds under
deposit exceed this insured amount by $5,298,826.
The Company derived sixty-four percent of its revenues from the rental of
customer mailing lists to one customer for the nine months ended September 30,
1999. The Company anticipates these concentrations will not be significant in
the future as revenue will be derived from other sources.
Note 3. PROPERTY AND EQUIPMENT, CORE TECHNOLOGY AND GOODWILL
The following is a summary of property and equipment as of September 30, 1999,
at cost, less accumulated depreciation:
Computer equipment $ 128,622
Office furniture and equipment 60,525
----------
Total property & equipment 189,147
Less accumulated depreciation (38,580)
----------
Net property and equipment $ 150,567
==========
For the nine months ended September 30, 1999, the amount for depreciation
expense charged to operations was $19,255.
The following is a summary of core technology as of September 30, 1999, at cost
less accumulated amortization:
Core technology $ 475,000
Accumulated amortization 18,210
----------
Net core technology $ 456,790
==========
For the nine months ended September 30, 1999, the amount for amortization
expense charged to operations was $18,210.
10
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 3. PROPERTY AND EQUIPMENT, CORE TECHNOLOGY AND GOODWILL (continued)
The following is a summary of goodwill as of September 30, 1999, at cost, less
accumulated amortization:
Goodwill $ 647,198
Accumulated amortization 52,844
----------
Net Goodwill $ 594,354
==========
For the nine months ended September 30, 1999, the amount for amortization
expense charged to operations was $52,844.
Note 4. LICENSE AGREEMENTS
On February 2, 1998 the Company's subsidiary Global entered into an Information
Distribution License agreement with an unrelated company. The Agreement grants a
nonexclusive, nontransferable right and license to distribute electronically, a
stock quote data feed. Under the terms of the three-year agreement Global paid a
one-time installation fee of $1,230 in January 1998. In addition the contract
requires Global to pay a monthly fee of $970 plus redistribution fees based on
the number of months the data feed is used. The installation fee and the monthly
fees are expensed as incurred. During the year ended December 31, 1998 and the
nine months ended September 30, 1999 the Company paid fees of $0 and $13,820,
respectively. All other fees were paid by Global prior to the business
combination. As of September 30, 1999 there is an amount due of $1,700.
Additionally, the Company's subsidiary Global entered into a Computer Software
License Agreement on April 21, 1998. The agreement grants Global the right to
use "NT-TASRV" operating system and provides monthly service and support of this
system. Under the terms of the contract Global paid an initial license fee of
$1,025 and pays a monthly fee of $1,025. The installation fee and the monthly
fees are expensed as incurred. For the year ended December 31, 1998 and the nine
months ended September 30, 1999 the Company had paid $0 and $6,150,
respectively, in fees.
In addition, the Company's subsidiary Global entered into a License Agreement
with an unrelated company on January 19, 1999. The Agreement grants
non-exclusive, non-transferable, limited right to use data feeds for music,
video, books and an encyclopedia of popular music. Under the terms of the
one-year agreement, Global will pay the greater of a minimum monthly fee of
$3,500 or a calculated fee based on a fixed price per unit sold. These fees will
be expensed as incurred. For the nine months ended September 30, the Company has
paid $13,000 in fees. As of September 30, 1999 there is an amount due of $7,000.
Note 5. LEASE OBLIGATIONS
Capital Lease
The Company leases certain equipment under a capital lease expiring in 2002. The
assets and liabilities under capital leases are recorded at the lower of the
present value of the minimum lease payments or the fair value of the assets. The
assets are amortized over their estimated productive lives. Amortization of
assets under capital leases is included in depreciation expense.
11
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 5. LEASE OBLIGATIONS (continued)
Future minimum lease payments under non-cancelable capital leases having terms
in excess of one year are as follows:
Years ended September 30:
2000 $ 6,446
2001 6,446
2002 3,223
---------
Total future minimum lease payments 16,115
Less amount representing interest 2,127
---------
Present value of minimum lease payments 13,988
Less current portion 5,129
---------
Capital lease obligations, less current portion $ 8,859
=========
The interest rate on the capitalized lease was 11%.
Included in fixed assets under capital leases as of September 30,1999:
Office furniture and equipment $ 16,090
Less accumulated amortization 2,235
----------
$ 13,855
==========
Operating Lease
The Company leases office space under an operating lease, which expires in April
2000.
Minimum future rental payments under this non-cancelable operating lease which
has a remaining term of seven months is $66,780 at September 30, 2000. Rent
expense was $56,167 for the nine months ended September 30, 1999.
Note 6. STOCKHOLDERS' EQUITY
During December 1997 and February 1998, 40,000 and 860,000, shares of stock were
issued to various investors at $0.01 per share for cash of $400 and $8,600,
pursuant to a Regulation D, Rule 504 offering. Issuance costs were $3,200.
During December 1998, 4,140,000 shares of stock were issued to various investors
at $0.01 per share for cash of $41,400, pursuant to a Regulation D, Rule 504
offering. Issuance costs were $3,000.
During February 1999, 1,890,000 shares of stock were issued to various investors
at $0.50 per share for cash of $945,000, pursuant to a Regulation D, Rule 504
offering. Issuance costs were $8,000.
On March 11, 1999 1,826,000 shares of stock were issued in conjunction with the
acquisition of Global (see Note 9).
12
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 6. STOCKHOLDERS' EQUITY (continued)
During March 1999 the Company converted $150,000 of debt and $14,251 of accrued
interest due to an unrelated party into 300,000 shares of stock at a value of
$164,251. The stock was valued at $0.50 per share, the fair value of the
Company's common stock as of January 1999 (the date of the commitment with the
unrelated party). The per share price of $0.50 was the price of shares sold in
the Company's private offering nearest to January 1999. The Company issued the
shares in April 1999.
During March 1999 the Company converted an amount due to a related party of
$100,000 into 200,000 shares of stock at a value of $362,000. The stock was
valued at $1.81 per share, the closing price of the Company's common stock on
the date of the conversion. The difference of $262,000 between the amount due of
$100,000 and value assigned to the shares of stock of $362,000 was recorded as
compensation expense to the President of the Company. The Company issued the
shares in April 1999.
During April 1999, 1,000,000 shares of stock were issued to various investors at
$1.00 per share for cash of $1,000,000, pursuant to a Regulation D, Rule 506
offering. Issuance costs were $10,000.
During August 1999, 1,482,333 shares of stock were issued to various investors
at $3.00 per share for cash of $4,446,999 pursuant to a Regulation S offering.
Issuance costs were $35,540.
During July 1999 the company issued warrants to purchase 20,000 shares of the
Company's common stock to an unrelated third party in consideration of
consulting services rendered. These warrants are exercisable at $4.56 per share,
which was fair market value at date of issuance. One half of the warrants vest
one year from date of grant and the balance vest eighteen months after date of
grant. The warrants expire in June 2004. In accordance with SFAS No. 123 these
warrants were recorded as compensation expense as of the date of issuance. The
weighted average fair value of the warrants was $2.36 per warrant for calculated
compensation expense of $47,090. The following weighted average assumptions were
used for grant:
Risk-free interest rate 4.8%
Dividend yields 0.0%
Volatility factors of expected market price of
The Company's shares of common stock 1.10
Weighted average expected life of the warrants 1.5 years
Note 7. CORRECTION OF AN ERROR
The accompanying financial statements for the nine months ended September 30,
1999 have been restated to correct an error for the recording of the fair value
of the conversion of debt and accrued interest to an unrelated party. The
adjustment was made in order to reflect a lesser stock price used to value
conversion of debt. The effect of the restatement was to decrease the net loss
for the nine months ended September 30, 1999 by $378,749 ($0.04 per share).
Retained earnings has been adjusted for the effects of the restatement.
13
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 7. CORRECTION OF AN ERROR (continued)
The accompanying financial statements for the nine months ended September 30,
1999 have been restated to correct an error for the recording of the fair value
of the conversion of an amount due to a related party. The adjustment was made
in order to reflect a greater stock price used to value conversion of the amount
due and record compensation expense to the related party. The effect of the
restatement was to increase the net loss for the nine months ended September 30,
1999 by $262,000 ($0.03 per share). Retained earnings has been adjusted for the
effects of the restatement.
The accompanying financial statements for the nine months ended September 30,
1999 have been restated to correct an error for the recording of the goodwill
acquired in the acquisition of Global Investors Guide for impairment loss. The
adjustment was made in order to allocate a portion of the excess estimated fair
value of the net liabilities assumed over the value of the shares issued to a
core technology intangible asset. The effect of the restatement was to decrease
the net loss for the nine months ended September 30, 1999 by $475,000 ($0.05)
per share). Retained earnings has been adjusted for the effects of the
restatement.
The accompanying financial statements for the nine months ended September 30,
1999 have been restated to correct an error for the recording of amortization or
core technology acquired in the acquisition of Global Investors Guide. The
adjustment was made in order to amortize core technology deemed ready for its
intended use. The effect of the restatement was to increase the net loss for the
nine months ended September 30, 1999 by $18,210 ($0.00) per share). Retained
earnings has been adjusted for the effects of the restatement.
Note 8. STOCK OPTION PLAN
The Company adopted an incentive stock option plan on March 11, 1999. Under the
plan, the Company may grant up to 2,500,000 in options for the purchase of
common stock. The exercise price of each option shall not be less than eighty
five percent (85%) of the fair market value of the common stock at the date of
grant. The maximum term of the options is five years. Of the 1,201,500 options
granted 822,500 are fully vested and the remainder vest within one year from the
date of grant.
Pursuant to the terms of an employment contract the Company issued 350,000 stock
purchase options to an officer of the Company. Of the 350,000 options granted,
one third vested in September 1999, one third will vest in March 2000 and the
remaining one third will vest in March, 2001.
The Company applies APB Opinion 25 in accounting for its stock compensation
plan. No compensation cost has been recognized for the nine months ending
September 30, 1999. In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
requires the disclosure of the compensation cost for stock-based incentives
granted after January 1, 1995 based on the fair value at grant date for awards.
Applying SFAS No. 123 would result in pro forma net (loss) and (loss) per share
amounts as follows:
14
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 8. STOCK OPTION PLAN (Continued)
Year ended Nine months ended
December 31, 1998 September 30, 1999
--------------------- -------------------
Pro forma Net loss ($93) ($2,767,501)
Pro forma loss per share - basic
and diluted ($0.00) ($0.30)
The weighted-average fair value of options granted during 1999 was $1.11.
The fair value of each option is estimated on the date of grant using an
option-pricing model with the following weighted-average assumptions used for
grant: risk-free interest rate of 4.8%, dividend yield of 0%; volatility factors
of the expected market price of the Company's shares of Common Stock of 1.17;
and a weighted average expected life of the option of 5 years.
Following is a summary of the status of the options during the nine months ended
September 30, 1999:
Incentive Stock Option Plan Others
--------------------------------- ------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------------ ------------ ------------ ------------
Outstanding at January 1, 1999 - - - -
Granted 1,201,500 $ 1.06 350,000 $ 3.35
Exercised - - - -
Forfeited - - - -
------------ ------------ ------------ ------------
Outstanding at
September 30, 1999 1,201,500 $ 0.91 350,000 $ 3.35
============ ============ ============ ============
Options exercisable at
September 30, 1999 822,500 $ 0.55 - -
============ ============ ============ ============
Outstanding Options Exercisable Options
------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life Price Number Price
- ----------- ------ -------------- -------------- ------ --------
Incentive Stock Option Plan:
$0.50-$0.75 785,000 4.3 years $0.50 785,000 $0.50
$1.50-$1.50 350,000 5.4 years $1.50 56,250 $1.50
$4.31-$5.13 52,500 5.9 years $4.83 - -
$6.75-$6.75 14,000 5.6 years $6.75 - -
Others:
$3.35-$4.31 350,000 5 years $3.35 - -
15
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 9. ACQUISITION
On March 11, 1999 the Company entered into an Agreement and Plan of Exchange
with a related corporation, Global Investors Guide. As of March 11, 1999 Global
became a wholly owned subsidiary of the Company. The acquisition was accounted
for as a purchase in which the Company acquired all of the net liabilities of
Global and all of the outstanding shares of Global's common stock. In the
transaction the Company issued 1,826,000 shares of common stock, at a price per
share of $0.50, for a value of $913,000. A price of $0.50 per share was used to
value the stock issued in the acquisition transaction. The sale of approximately
2,000,000 shares one month prior to the merger is the best indicator of value of
the stock. The excess estimated fair value of the net liabilities assumed over
the value of the shares issued was $1,122,198 and was allocated as follows: core
technology $475,000 and goodwill $647,198. Management determined the goodwill
fair value by reference to the present value of the estimated future cash
inflows of the acquired assets, and believes the valuation to be reaonable,
appropriate and not impaired. The goodwill is being amortized using the
straight-line method over five years. Management also believes the value
allocated to core technology, the difference between the excess estimated fair
value of the net liabilities assumed over the value of the shares issued less
the goodwill, is reasonable, appropriate and not impaired.
The following unaudited pro forma summary presents the consolidated results of
operations of the Company as if the business combination had occurred on January
1, 1998 and January 1, 1999, respectively:
Year ended Nine months ended,
----------- ------------------
December 31, September 30,
----------- -------------
1998 1999
---- ----
Total revenues $361,678 $66,342
Earnings before taxes ($149,676) ($1,175,184)
Net earnings ($149,676) ($1,175,184)
Earnings per share ($0.06) ($0.12)
The pro forma results of operations do not purport to be indicative of the
results which would actually have been obtained had the merger occurred on the
dates indicated or which may be obtained in the future.
Note 10. 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.
16
Ubrandit.com and Subsidiary
Notes to Consolidated Financial Statements
Note 10. INCOME TAXES (Continued)
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.
The Company has a Federal net operating loss carryforward of approximately
$1,621,000, which will expire in the year 2014. The tax benefit of this net
operating loss of approximately $405,000 has been offset by a full allowance for
realization. This carryforward may be limited upon the consummation of a
business combination under Section 381 of the Internal Revenue Code.
The provision for income taxes for the periods presented has been computed in
accordance with Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes. There are no material differences between financial
statement income and taxable income.
The amounts shown for income taxes in the statements of operations differ from
amounts that would be derived from computing income taxes at federal statutory
rates. The following is a reconciliation of those differences.
Tax at federal statutory rate 34% 34%
Net operating loss (34) (34)
---- ----
-% -%
==== ====
Note 11. YEAR 2000
The Company has assessed its exposure to date sensitive computer software
programs that may not be operative subsequent to 1999 and has implemented a
requisite course of action to minimize Year 2000 risk and ensure that neither
significant costs nor disruption of normal business operations are encountered.
However, because there is no guarantee that all systems of outside vendors or
other entities on which the Company's operations rely will be 2000 compliant,
the Company remains susceptible to consequences of the Year 2000 issue.
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Ubrandit.com
By: /S/ Jeffrey Phillips
------------------------------
Jeffrey Phillips, President
And Chief Executive Officer
Dated: January 26, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s Jeffrey Phillips
- ---------------------- President, Chief Executive January 26, 2000
Jeffrey Phillips Chairman of the Board
/s/ Roger C. Royce
- ---------------------- Chief Operating Officer, January 26, 2000
Roger C. Royce Director
/s/ Gregory V. Gibson
- ---------------------- Vice President, Legal, January 26, 2000
Gregory V. Gibson Director
/s/ Mark Cullivan
- ---------------------- Vice President, Operations January 26, 2000
Mark Cullivan