SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 2000
COMMISSION FILE NUMBER 000-26799
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) of The Securities
Exchange Act of 1934 For the transition period from _____________ to
_____________
UBRANDIT.COM
(Exact name of Registrant as specified in its charter)
NEVADA 87-0381646
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6405 MIRA MESA BLVD., SUITE 100, SAN DIEGO, CA 92121
(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 November 30, 2000, was $9,900,425 based
on the number of shares outstanding on such date and the last sale price for the
common stock on such date of $0.9375 per share as reported on the American Stock
Exchange.
The number of shares of Common Stock issued and outstanding as of
November 30, 2000 was 12,167,333.
UBRANDIT.COM
INDEX TO ANNUAL REPORT ON FORM 10-K
PAGE
PART I.......................................................................................................1
ITEM 1 - BUSINESS...................................................................................2
ITEM 2 - PROPERTIES................................................................................14
ITEM 3 - LEGAL PROCEEDINGS.........................................................................15
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.........................................16
PART II.....................................................................................................17
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.....................17
ITEM 6 - SELECTED FINANCIAL DATA...................................................................18
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OF OPERATIONS.............20
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...............................24
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................25
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE......26
PART III....................................................................................................27
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................................27
ITEM 11 - EXECUTIVE COMPENSATION...................................................................31
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................36
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........................................37
PART IV.....................................................................................................39
ITEM 14 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.......................39
PART I
DEFINED TERMS
This Annual Report on Form 10-K (this "Annual 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.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical fact, including statements regarding industry prospects and future
results of operations or financial position, made in this Annual Report on Form
10-K are forward looking. We use words such as "anticipates," "believes,"
"expects," "future" and "intends" and similar expressions to identify
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. The Company's actual results
may differ significantly from management's expectations. The following
discussion includes forward-looking statements regarding expectations of future
profitability of our business, gross margin, improvement in operating loss and
sales, all of which are inherently difficult to predict. Actual results could
differ significantly for a variety of reasons, including the accessibility to
additional capital, the rate of growth and consumer acceptance of the Internet
and online commerce, the amount that the Company invests in new business
opportunities and the timing of those investments, customer spending patterns,
the mix of products sold to customers, the mix of revenues derived from product
sales as compared to services, and risks of fulfillment throughput and
productivity. These risks and uncertainties, as well as other risks and
uncertainties, could cause the Company's actual results to differ significantly
from management's expectations
-1-
ITEM 1 - BUSINESS
- -----------------
OVERVIEW
Ubrandit.com, a Nevada corporation (together with its subsidiaries, the
"Company" or "Ubrandit"), is an 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 costly to
develop in-house. The Company has initially focused on providing brandable
turnkey systems in the areas of financial information, e-commerce and Internet
Service Provider, ISP.
The Company offers online products and services through its on line
e-commerce and financial services destination sites. The Company offers four
primary products and services:
o Junglejeff.com - Became operational for branding in September
1999, www.junglejeff.com is one of the Company's e-commerce
sites that offers over 1,000,000 titles of books, music CDs
and tapes, and movie videos and DVDs to online purchasers.
o Stockstudy.com - Became operational for branding in March
1999, www.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.
o Clicksmart.com - Acquired in April 2000, www.clicksmart.com is
one of the Company's e-commerce sites that provides specialty
interest books and videos to online purchasers and toll-free
telephone purchasers.
o Ubrandit ISP - Formed in April 2000, Ubrandit ISP provides
businesses, affinity groups and individuals, with a brandable
Internet service provider, or ISP, portal service. Ubrandit
ISP enables clients to offer Internet access through their own
brand and identity. Ubrandit ISP operates Bigramp.com, which
is a demonstration site for potential clients' brandable ISPs.
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 changed
its name a second time to Ubrandit.com. The Company raised operating capital
through the sale of equity securities, which the Company used to recruit and
organize management, and to finance the initial costs associated with corporate
strategic planning and development. Other than the combined operations of the
Company noted above, the Company has not conducted significant operations as of
the date of filing of this Annual Report. The Company's principal corporate
offices are located at 6405 Mira Mesa Boulevard, Suite 100, San Diego, CA 92121.
Its telephone number is (858) 350-9566.
RECENT DEVELOPMENTS
ACQUISITION OF CLICKSMART.COM. In the third fiscal quarter of 2000,
Ubrandit.com acquired ClickSmart.com, an Internet content and services company.
ClickSmart.com specializes in special interest video and book eCommerce, direct
response print marketing, database management, and order processing/fulfillment
services to hundreds of leading magazine publishers and content Web sites.
Management believes that the combination of the two companies presents many
opportunities for enhanced product offerings and online traffic integration and
expansion.
-2-
PROPOSED ACQUISITION OF MINDTRONICS CORPORATION. In November 2000, the
Company entered into a definitive Agreement and Plan of Merger with Mindtronics
Corporation, under which the Company expects to acquire all of the outstanding
shares of capital stock of Mindtronics in exchange for 12,500,000 shares of the
Company's Common Stock. Mindtronics is a development stage technology
development company that has proprietary technology and products relating to the
Internet, including a Internet search engine, software for coordinating
communications among network computers and others. The acquisition is subject to
the approval of the stockholders and the satisfaction of a number of other
conditions. The Company can provide no guarantee or assurances that it will
complete the acquisition as planned or that, if completed, the Company will be
able to integrate successfully its operations with the operations of
Mindtronics. With respect to the planned acquisition of Mindtronics Corporation,
the Company's Chairman of the Board of Directors and Chief Operating Officer
owns 1,000,000 shares (approximately 10% as of September 30, 2000) of
Mindronics' common stock.
BRANDABLE WEB SITE BUSINESS
The Company's primarily business of developing brandable Web sites
commenced with its acquisition of Global Investors Guide in March 1999. Global
Investors Guide developed www.stockstudy.com. which 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. The branding technology developed by Global
Investors Guide and by its former personnel now employed by Ubrandit.com has
become the principal technologies of the Company. The Company has continued the
development of the branding and private labeling technology.
BUSINESS OBJECTIVES. The Company's business strategy is to offer
brandable Web modules to other Web sites. The Company generates revenues through
advertising, sales and sponsorship payments on its brandable e-commerce site and
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 Company's key objectives for the
brandable Web site business are:
(1) Market and sell its existing brandable Web sites;
(2) Continually improve and update the content on these sites;
(3) Upgrade branding technology and support systems to permit
large-scale branding of sites;
(4) Increase revenue generated by the advertising space available
on both the Company's Web site and branded sites; and
(5) Increase the number of 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.
-3-
The Company's current focus is on providing branded turnkey systems for
three segments of the Internet, financial information, e-commerce and brandable
ISP packages. 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 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 intensive. 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
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. The
Company believes it will be able to remain competitive by offering more
variations of brandable sites to its branding affiliates. See "--Competition."
CLICKSMART.COM. ClickSmart.com, Inc., a wholly owned subsidiary of
Ubrandit.com, provides toll free telephone ordering and eCommerce solutions for
thousands of companies nationwide that want to provide their customers with
convenient shopping and ordering of books, videos, and other media products.
Among these companies are major magazine groups such as Hearst Publications and
Readers Digest as well as non-profit organizations such as Children's Television
Workshop and Science Service. ClickSmart.com provides a similar ordering service
for well-known magazines by providing toll free order taking of books and other
media items reviewed or mentioned in those magazines along with a ClickSmart.com
toll free order number.
PLAN OF OPERATION
The Company has financed its research and development and initial
marketing activities through the sale of equity securities to its stockholders
in private transactions. At September 30, 2000, the Company had approximately
$3,700,000 in cash. At the current cash burn rate, after deducting all costs
associated with the proposed acquisition of Mindtronics Corporation, the Company
anticipates that such funds will be sufficient to continue operations through
September 30, 2001 at historic levels of cash usage. However, we expect that
additional funds will be necessary for the Company to fully implement its
business plan and strategies, as described in this Annual Report. Thereafter,
the Company will depend on the receipt of additional debt or equity capital to
sustain operations and fund future growth and product development. Without
additional capital, there is substantial uncertainty about the ability of the
Company to implement its business plan.
The Company commenced providing branding services to approved clients
in September 1999. The Company has entered into branding affiliate agreements
with more than 6,500 sites through the date of the filing of this Annual Report.
Additional sites are expected to commence generating revenue as the marketing
program progresses. To date, the Company has not generated sufficient revenue
from the sites to sustain its costs of operation.
-4-
The Company has determined to continue its business strategy of
acquiring Internet related businesses, particularly those with proprietary
technology and software. As a result, the Board of directors of the Company has
approved the execution of an Agreement and Plan of Merger with Mindtronics
Corp., a development-stage company that has proprietary technology, including
Internet search engine technology, time synchronization software for network
computers and others. If consummated, the Company anticipates that the products
and technology developed, and being developed by Mindtronics will become its
primary business focus. The operation of the brandable Website business will,
however, continue as described below.
The Company's principal focus for the brandable Web site business will
be to market and sell its existing brandable Web sites and to increase the
revenue generated thereby. The Company also plans, as part of its ongoing
development efforts, to increase the amount of content and the quality of the
content on all of its sites. The Company is researching the development of
subsites for computer products and auction based e-commerce. The Company also
plans 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 Web site 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 increase the database of public companies available on
Stockstudy.com. 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 Stockstudy.com by
increasing both the number and variety of newsletters 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 intends to differentiate its product line from other
similar sites by providing a broad range of 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 Stockstudy.com. The Company
also will rely on the input of its branded site users to include information
that customers demand.
During fiscal year 2000, the Company purchased additional computer
equipment, including 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 for the foreseeable future. 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 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.
Ubrandit ISP, a wholly owned subsidiary of Ubrandit.com, is a private
labeled virtual Internet Service Provider program, which the Company plans to
market to small and medium size businesses. Under the Ubrandit ISP program,
businesses and affinity groups have immediate entry into the Internet access
business arena via their own "custom brands" and have the opportunity to
generate ongoing revenue. For an initial, one-time base setup fee of $12,500,
branding clients are able to offer both full service dialup and broadband
Internet access services to their customer base via their own brand name and
identity with no mention of Ubrandit.com or Ubrandit ISP.
PRODUCTS AND SERVICES
The Company offers a diverse suite of sophisticated Web sites with the
purpose of "branding" the sites to clients as "sticky" solutions. As the word
would imply, stickiness means finding ways of keeping Web users glued to a
particular Web site. Three major sites have been completed: www.stockstudy.com,
www.bigramp.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, stockstudy.com and bigramp.com.
-5-
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 eventually will 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 or Bigramp.com. This
transparency is critical because users will not be tempted to bypass the
clients' site. Additionally, the Company is able to run a variety of
e-mail-based promotions designed to drive traffic back to our clients' sites.
JUNGLEJEFF.COM. Launched in June 1999, JungleJeff.com is an 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 1999. 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 were made
available to them. The Company plans through JungleJeff.com to offer client
companies an affiliate revenue sharing program. An affiliate site is able to
customize their store to highlight certain categories and items, according to
their respective needs.
During the first two fiscal quarters of the 2000 fiscal year, the
Company expanded its relationships with media companies and enrolled a number of
media properties in its Junglejeff.com branding program. The Company entered
into multi-year arrangements with Communications Corporation of America and
White Knight broadcasting, under which the Company incorporates over 20 media
properties to the Junglejeff.com branding program.
The Company also entered into an arrangement with Citadel
Communications Corp., under which the Web properties of 183 Citadel radio
stations will utilize JungleJeff.com. The agreement with Citadel provides that
all of Citadel's 183 radio station Web properties will be integrated with
Junglejeff.com. Ubrandit earns revenue on all sales generated by Citadel's
branded e-stores.
At September 30, 2000, a total of 6,665 clients had joined the
Junglejeff.com branded affiliate program.
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 Internet. 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 a license to use and
display information from Baker & Taylor's extensive database of products on the
Company's web sites. 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.
-6-
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 also contracts 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) allow
purchasers to view video, book, or music jackets and pricing, biographic
synopsis, and other information about the products that are offered for sale.
Since the Company relies exclusively on the drop shipment program run by its
distributors, the Company does 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. The Company refunds shipping costs only if the
return is due to an error on the part of the Company.
UBRANDIT ISP. In April 2000, the Company formed Ubrandit ISP as a new
wholly-owned subsidiary to expand into the ISP business sector. Operating out of
the Company's offices in Salt Lake City, Utah, Ubrandit ISP provides "private
labeled" entry into the ISP sector for businesses and affinity groups of
virtually any size and scope. The Company operates the destination site
Bigramp.com to show customers the functionality of their branded ISP. For a
one-time base setup fee of $12,500, a Ubrandit ISP client is able to operate as
a complete Internet access provider via its own unique brand and identity. In
addition to the setup fee, Ubrandit.com has the ability to earn revenue on the
monthly Internet access services provided to the client for resale to end
consumers. The ISP program is exclusively private labeled to each individual
client and delivered "turnkey" and "ready for marketing" enabling the client to
offer a premier Internet access service to customers in more than 2,800 US and
Canadian cities.
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 has developed
a fully automated Investor Reporting ("IR") package request system for
Stockstudy.com. 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.
-7-
CLICKSMART.COM. ClickSmart.com, Inc., a wholly owned subsidiary of
Ubrandit.com, is an Internet services company that provides special interest
video and book eCommerce and direct response print marketing, database
management, and order processing and fulfillment services to hundreds of leading
magazine publishers and content Web sites. The Company's proprietary database is
segmented into hundreds of hard-to-find, how-to, and educational book and video
categories and subcategories including sports, music, academic studies, test
preparation, children's learning, travel, home improvement, cooking, crafts and
hobbies, boating, gardening, among others.
REVENUE SOURCES
In fiscal year 2000, the Company's primary sources of revenue were from
e-commerce sales, primarily from books sales by Clicksmart.com (approximately
$566,000) and books, music CDs, videos, DVDs and other products at
Junglejeff.com (approximately $273,000). The Company generated minimal revenue
from ISP services (approximately $15,000) and from list rentals (approximately
$14,000).
To date, the Company has not earned any revenue from advertising. The
Company does control the advertising space on its destination and branded sites.
MARKETING
Ubrandit.com intends to market its branded e-commerce, ISP, and
financial information platforms through direct, in-house channels. The Company
also expects to advertise its products through the utilization of banner
advertisements on its existing and future branding partners. The Company does
not expect to allocate any significant funds toward the outside marketing of its
branding platforms over the next 12 months. Assuming the Company completes the
proposed acquisition of Mindtronics, the Company intends to allocate significant
funds toward the outside marketing of the Mindtronics product base.
The Company will initially market its products through multiple media
advertising campaigns, including Web-based advertisements, targeted mailings,
and print and radio advertisements. The Company's small marketing budget will
not permit national or regional radio or television promotional campaigns. If
the Company is able to raise additional capital, a portion of the proceeds would
be used 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 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.
-8-
PROPRIETARY TECHNOLOGY AND RESEARCH AND DEVELOPMENT
The Company does not have any patent on its Internet processes. The
Company has various proprietary technologies used in its business. The Company
expects that once its proprietary processes become readily available in the
marketplace, 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 also applied for Trademark protection for its
name and logo. The Company also applied for a service mark with the U.S. Patent
and Trademark Office on the mark "ubrandit" and "ubrandit.com" with and without
the distinctive fonts and color scheme. The Company also 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.
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 competes against Company's with far greater
financial and management resources, longer operating history and more
established name recognition.
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. Portals offer a broad range of content and
services, including both affiliate e-commerce programs and financial
information. Certain e-commerce sites provide third-party sites with affiliate
programs similar to the branding affiliate programs that the Company offers.
Larger sites also may 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.
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.
EMPLOYEES
At December 25, 2000 the Company had 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.
-9-
RISK FACTORS
The Company and business enterprise are subject to a high degree of
risk and uncertainty. This Annual 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.
GOING CONCERN
The Company has suffered substantial recurring losses from operations,
expects to incur additional losses, and has entered into a definitive agreement
to acquire a development-stage company with a history of substantial operating
losses and to which the Company has agreed to advance $750,000.00. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern.
OUR ACQUISITION STRATEGY MAY RESULT IN A SIGNIFICANT CHANGE IN BUSINESS
STRATEGY.
The Company continues its strategy of acquiring Internet related
businesses. The Company's current business of marketing branded Web sites has a
number of uncertainties, including whether additional capital is available from
the capital markets, whether profitability can be achieved and sustained and
whether the Company can create a protectable market niche without proprietary
intellectual property. As a result of such uncertainties, the Company has
determined to identify and pursue other potential acquisitions to expand its
product offerings. The Company has entered into an Agreement and Plan of Merger
with Mindtronics, Corp. pursuant to which Mindtronics would become a wholly
owned subsidiary of the Company. See "Acquisition of Mindtronics Corp."
Consummation of the merger is conditioned upon satisfaction of numerous
conditions precedent, including shareholder approval by the company's
shareholders. If consummated, the business strategy of the Company will focus
primarily on the technology and products developed by Mindtronics. Such a
substantial change in business strategy will effectively be a new business
operation, and will have all risks inherent in such new businesses.
THE MARKETPLACE MAY NOT ACCEPT OUR PRODUCTS AND SERVICES.
We introduced our initial branding services in September 1999 and
others throughout fiscal year 2000. Such products have been marketed and sold
for a very limited time. To date, market acceptance has been limited and we have
been unable to sell such products and services at a profit. Therefore, we are
unable to provide any assurances or guarantees 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.
THE COMPANY HAS A LIMITED OPERATING HISTORY AND WE ARE UNCERTAIN IF THE
COMPANY WILL EVER BECOME PROFITABLE.
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. From inception in
December 1997 until September 1999, the Company's principal business activities
were 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 fiscal year 2000, the Company launched
its first products. Such products have resulted in limited gross revenues of
$303,623 in fiscal year 2000. The Company also consummated an acquisition in
fiscal year 2000, Clicksmart.com. The limited revenues from this acquired
company totaled $566,000 in fiscal year 2000. In each year since its inception,
the Company has experienced substantial losses from operations. At September
30, 2000, we had an accumulated deficit of $(3,451,695). The 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, the Company will ever become profitable.
-10-
THE COMPANY'S CAPITAL IS LIMITED AND WE MAY NEED ADDITIONAL CAPITAL TO
IMPLEMENT OUR BUSINESS PLAN AND CONTINUE OPERATIONS.
The Company has limited operating capital and currently has no access
to credit facilities. We estimate that we currently have sufficient funds to
continue operations through September 30, 2001 at currently projected levels of
operational expense. However, we expect that additional funds may be necessary
for the Company to implement its business plan, as described in this Annual
Report. The Company's continued operations therefore may depend on its ability
to raise additional funds through bank borrowings or equity or debt financings.
There is no assurance that the Company will be able to obtain the 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.
THE COMPANY'S SUCCESS STILL DEPENDS ON ITS ABILITY TO ATTRACT AND
RETAIN QUALIFIED TECHNICAL AND MANAGEMENT PERSONNEL.
At present, the Company employs 23 full-time personnel plus various
consultants in management, sales, programming, legal, and editorial
responsibilities. We do not have employment agreements with any employee. The
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.
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. The 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 THE COMPANY'S SECURITIES IS LIMITED AND MAY NOT PROVIDE
ADEQUATE LIQUIDITY.
The Company's Common Stock is currently traded on the American Stock
Exchange. We are unable to provide any assurance or guarantee that trading on
the American Stock Exchange will provide adequate liquidity or that a trading
market will be sustained. Holders of the 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 the Company's securities as pledged collateral.
Our Stock may be delisted from the American Stock Exchange if we fail
to comply with applicable listing requirements. Under the rules of the American
Stock Exchange, the exchange may delist from trading any stock that trades below
$1.00 for more than 30 consecutive trading days. Our inability to maintain our
listing on the American Stock Exchange, could have an adverse effect on the
market for our common stock and the ability of our stockholders to sell their
shares.
-11-
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON
MARKETABILITY OF SECURITIES.
The SEC has in place regulations relating to the marketability of
securities, 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 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, before 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.
-12-
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
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 ON 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 on 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.
-13-
ITEM 2 - PROPERTIES
- -------------------
The Company subleases approximately 9,800 square feet of general use
office space in San Diego, California as its primary corporate office. The term
of the sublease is until March 2002. The current monthly rent expense
approximates $13,000.00. These offices are sufficient for the Company to conduct
its current operations. On site the Company has a secure facility for housing
one of the Company's eight high capacity Internet servers. The other seven
servers are housed at a secure location operated by CONNECTNET, a local Internet
service provider located in San Diego. The Company believes that its current
configuration of server computers and purchased bandwidth are capable of
handling the expected high volume Internet traffic during peak user hours. In
addition, the Company's systems have been designed to be scalable to meet growth
beyond the expected use of the system.
-14-
ITEM 3 - LEGAL PROCEEDINGS
- --------------------------
No material legal proceedings to which the Company is a party are
pending nor are any known to be contemplated and the Company knows of no legal
proceedings pending or threatened, or judgments entered against any director or
officer of the Company in his capacity as such.
-15-
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
- ----------------------------------------------------------
On September 26, 2000, the Company held its Annual Meeting of
Stockholders. At the meeting, stockholders considered and voted on the following
matters:
(i) election of directors;
(ii) a proposal to amend the Company's 1999 Stock Option and Incentive
Plan (the "1999 Stock Plan") to increase the number of shares of the Company's
Common Stock reserved for issuance under the 1999 Stock Plan from 2,500,000
shares to 4,750,000 shares; and
(iii) the appointment of BDO Seidman, LLP, as the Company's independent
auditors.
Each individual nominated for election to the Board of Directors was
elected to office. Each of the other described proposals was approved. The
following is a tabular summary of the voting results from the Annual Meeting:
(1) Election of Directors
---------------------
VOTES FOR WITHOLD TOTAL VOTED
----- --- ------- -----------
Jeffrey Phillips Shares 7,572,919 46,355 7,619,274
% of outstanding shares 62.24% 0.38% 62.62%
% of shares voted 99.39% 0.61% 100.00%
Roger C. Royce Shares 7,572,419 46,855 7,619,274
% of outstanding shares 62.24% 0.39% 62.62%
% of shares voted 99.39% 0.61% 100.00%
David Pollei Shares 7,573,062 46,212 7,619,274
% of outstanding shares 62.24% 0.38% 62.62%
% of shares voted 99.39% 0.61% 100.00%
Gregory V. Gibson Shares 7,573,844 45,430 7,619,274
% of outstanding shares 62.25% 0.37% 62.62%
% of shares voted 99.40% 0.60% 100.00%
Steven K. Radowicz Shares 7,571,437 47,837 7,619,274
% of outstanding shares 62.23% 0.39% 62.62%
% of shares voted 99.37% 0.63% 100.00%
James W. Truher Shares 7,566,637 52,637 7,619,274
% of outstanding shares 62.19% 0.43% 62.62%
% of shares voted 99.31% 0.69% 100.00%
(2) Amendment to 1999 Stock Plan to Increase Shares
-----------------------------------------------
FOR AGAINST ABSTAIN NOT VOTED TOTAL VOTED
--- ------- ------- --------- -----------
Shares 3,810,866 347,497 50,613 3,749,381 4,208,976
% of outstanding shares 31.32% 2.86% 0.42% 30.81% 34.59%
% of shares voted 90.54% 8.26% 1.20% 100%
(3) Appointment of BDO Seidman
--------------------------
FOR AGAINST ABSTAIN NOT VOTED TOTAL VOTED
--- ------- ------- --------- -----------
Shares 7,556,187 28,337 34,750 7,619,274
% of outstanding shares 62.10% 0.23% 0.29% 62.62%
% of shares voted 99.17% 0.37% 0.46% 100.00%
-16-
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- ------------------------------------------------------------------------------
The Company's common stock, par value $.001 (the "Common Stock") is
listed and trades on the American Stock Exchange under the symbol "UBI". Before
March 21, 2000, the Common Stock traded over the counter and was quoted on the
OTC Electronic Bulletin Board. The following table sets forth the high and low
bid prices for the Common Stock as reported on the American Stock Exchange and
the OTC Bulletin Board system for the quarters traded during the nine months
ended September 30, 1999, and the fiscal year ended September 30, 2000. The OTC
market quotations reflect inter-dealer prices without retail markups, markdowns
or commission and may not necessarily represent actual transactions.
FISCAL YEAR ENDED SEPTEMBER 30, 1999
------------------------------------
March 31, 1999 June 30, 1999 September 30, 1999
-------------- ------------- ------------------
High.............. $ 3.625 $ 11.625 $ 7.625
Low............... $ 0.375 $ 3.750 $ 4.250
FISCAL YEAR ENDED SEPTEMBER 30, 2000
December 31, 1999 March 31, 2000 June 30, 2000 September 30, 2000
----------------- -------------- ------------- ------------------
High.............. $ 6.125 $ 7.000 $ 7.000 $ 4.625
Low............... $ 2.875 $ 3.000 $ 2.438 $ 1.875
At September 30, 2000, the Company had approximately 6,000 beneficial
holders of its Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividend on its Common Stock since
its incorporation and anticipates that, for the foreseeable future, it will
continue to retain earnings, if any, for use in its business. Any determination
to pay cash dividends in the future will be at the discretion of the Company's
Board of Directors and will depend on the Company's' results of operation,
financial condition and other factors deemed relevant at that time by the Board
of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
No securities were issued during the fourth quarter of the year ended
September 30, 2000.
-17-
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, 2000. This table should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Annual Report.
Short-term Debt $ 35,243
Long-term Debt $ 30,544
Total Stockholders equity $ 5,540,805
SUMMARY OF SELECTED QUARTERLY FINANCIAL DATA - UBRANDIT
For the Quarters Ended
September 30, 2000 June 30, 2000 March 31, 2000 December 31, 1999
------------------ ------------- -------------- -----------------
Revenue $ 395,841 $ 356,471 $ 84,600 $ 32,711
Net Loss $ (732,819) $ (637,208) $ (634,768) $ (399,055)
Earnings (loss per share -
basic and diluted $ (0.07) $ (0.05) $ (0.05) $ (0.03)
For the Quarters Ended
September 30, 1999 June 30, 1999 March 31, 1999
------------------ ------------- --------------
Revenue $ 15,040 $ 18,567 $ 2,049
Net Loss $ (413,914) $ (557,807) $ (76,031)
Earnings (loss) per share -
basic and diluted $ (0.04) $ (0.06) $ (0.01)
-18-
SUMMARY OF HISTORICAL FINANCIAL DATA -- UBRANDIT
The following table sets forth certain historical financial data for
Ubrandit.com for the fiscal year ended September 30, 2000, the nine months ended
September 30, 1999, and the fiscal year ended December 31, 1998, 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 Annual Report.
Nine Months Ended
Fiscal Year Ended September 30, Fiscal Year Ended
September 30, 2000 1999(restated) December 31, 1998
------------------ -------------- -----------------
INCOME STATEMENT DATA
Revenue $ 869,623 $ 35,656 $ -
Cost of sales $ 1,100,405 $ 567,286 $ -
Operating expenses $ 2,398,389 $ 547,095 $ 93
Loss from operations $ (2,629,121) $ (1,078,725) $ (93)
Other income (expense), net $ 225,321 $ 30,973 $ -
Net loss $ (2,403,850) $ (1,047,752) $ (93)
Earnings (loss) per share -
basic and diluted $ (0.20) $ (0.11) $ (0.00)
September 30, 2000 September 30, 1999 December 31, 1998
------------------ ------------------ -----------------
BALANCE SHEET DATA
Total current assets $ 3,879,890 $ 5,704,834 $ 44,187
Total assets $ 5,965,327 $ 6,907,655 $ 44,507
Total current liabilities $ 393,978 $ 77,641 $ 400
Total liabilities $ 424,522 $ 86,500 $ 400
Total shareholders equity $ 5,540,805 $ 6,821,155 $ 44,107
-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OF
OPERATIONS
- --------------------------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. This
Act provides a "safe harbor" for forward-looking statements to encourage
companies to provide prospective information about themselves so long as they
identify these statements as forward looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than statements of
historical fact, including statements regarding industry prospects and future
results of operations or financial position, made in this Annual Report on Form
10-K are forward looking. We use words such as "anticipates," "believes,"
"expects," "future" and "intends" and similar expressions to identify
forward-looking statements. Forward-looking statements reflect management's
current expectations and are inherently uncertain. The Company's actual results
may differ significantly from management's expectations. This following
discussion includes forward-looking statements regarding expectations of future
profitability of our business, gross margin, improvement in operating loss and
sales, all of which are inherently difficult to predict. Actual results could
differ significantly for a variety of reasons, including the accessibility to
additional capital, the rate of growth and consumer acceptance of the Internet
and online commerce, the amount that the Company invests in new business
opportunities and the timing of those investments, customer spending patterns,
the mix of products sold to customers, the mix of revenues derived from product
sales as compared to services, and risks of fulfillment throughput and
productivity. These risks and uncertainties, as well as other risks and
uncertainties, could cause the Company's actual results to differ significantly
from management's expectations
OVERVIEW
Management points out that when comparing the financial numbers from
these two time periods, it should be noted that the recently ended period is a
full twelve-month fiscal year, whereas the comparative period is comprised of a
nine-month period. Hence most of the line items will possibly reflect an
increase at least partially due to the longer time period which will not be
discussed below. During the fiscal year ended September 30, 2000, the Company
continued to develop its products and launch new programs, reaching several
significant milestones. The newly developed brandable e-commerce site had
tremendous growth in both the number of branded partners and in sales volume.
The Internet service provider division, UbranditISP, was established in the
second quarter with the first sales being made near the end of the third
quarter. Also in the second quarter, the Company commenced the branding of the
financial website, Stockstudy.com. In May 2000 Clicksmart.com, Inc., based in
New Jersey, was acquired for 300,000 shares of the Company's common stock and
cash equaling $196,000. The Company continued to deficit spend with the building
of and organizational costs of the various divisions. The Company expects both
revenues and gross profit to increase moving forward.
TWELVE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
REVENUES FROM SALES
The Company's revenues for the twelve months ended September 30, 2000
were $869,623 as compared to $35,656 for the nine months ended September 30,
1999, an increase of 2,339%. In fiscal year 2000, the Company's primary sources
of revenue were from e-commerce sales, primarily from books sales by
Clicksmart.com (approximately $566,000) and books, music CDs, videos, DVDs and
other products at Junglejeff.com (approximately $273,000). The Company generated
minimal revenue from ISP services (approximately $15,000) and from list rentals
(approximately $14,000).
-20-
GROSS MARGIN
The Company recorded a gross margin loss of $230,782 for the 12 months
ended September 30, 2000 as compared to a gross margin loss of $531,630 for the
nine months ended September 30, 1999. The decrease in gross margin loss was
primarily due to an increase in the Company's overall business and significant
revenues from newly acquired Clicksmart.com, Inc. which carries higher gross
margins. The gross margin profit for Clicksmart.com totaled $98,046 for the year
ended September 30, 2000 and the gross margin loss for the Ubrandit e-commerce
group totaled $(330,304) for the year ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased by 345% to
$2,032,420 for the twelve months ended September 30, 2000 from $456,575 for the
nine months ended September 30, 1999. The increase was primarily due to the
Company's continued growth and expansion, including increased marketing expenses
totaling $170,709, increased payroll costs totaling $641,162, increased
accounting and legal fees in connection with public company expenses totaling
$153,212 and other expenses associated with running the newly formed ISP
division.
DEPRECIATION AND AMORTIZATION EXPENSE
For the twelve months ended September 30, 2000, depreciation and
amortization costs were $365,969, as compared to $90,520 for the nine months
ended September 30, 1999. The increase was due to amortization of goodwill
recorded from the acquisitions of Global Investors Guide, Inc. and
Clicksmart.com, Inc.
INTEREST INCOME
Interest income for the twelve months ended September 30, 2000
increased to $233,349 as compared to interest income of $32,366 for the nine
months ended September 30, 1999. The increase in interest income was due to
interest earned on increased cash balances received from equity offerings.
NET LOSS
Net Loss for the twelve months ended September 30, 2000 was $2,403,850
or 276% of revenues as compared to $1,047,752 or approximately 2,939% of
revenues for the nine months ended September 30, 1999. The increase in net loss
was primarily due to the Company's overall expansion and increased operating
expenses. Net loss as a percentage of revenues decreased by 2,663% primarily due
to the additional revenues from newly acquired Clicksmart.com, Inc. which
carries higher gross margins.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO 12 MONTHS ENDED DECEMBER 31,
1998
Management believes 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.
REVENUES FROM SALES
The Company's revenues for the nine months ended September 30, 1999
were $35,656 as compared to nil for the twelve months ended December 31, 1998.
Approximately 66% 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 JungleJeff web site.
GROSS MARGIN
The Company recorded a gross margin loss of $531,630 for the nine
months ended September 30, 1999 as compared to a gross margin loss of nil for
the twelve months ended December 31, 1998. The loss was due to the low sales
volume and related high costs of maintaining the branded websites.
-21-
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses increased to $456,575 for
the nine months ended September 30, 1999 as compared to $13 for the twelve
months ended December 31, 1998. The increase was primarily due to increases in
research and development costs, administrative payroll, accounting and legal
fees associated with a public company, rent expense, and other business fees.
DEPRECIATION AND AMORTIZATION EXPENSE
For the nine months ended September 30, 1999, depreciation and
amortization costs were $90,520, as compared to $80 for the twelve months ended
December 31, 1998. The increase was due to amortization of core technology and
goodwill recorded from the acquisition of Global Investors Guide, and
depreciation of fixed assets.
INTEREST INCOME
Interest income increased to $32,366 for the nine months ended
September 30, 1999 as compared to nil for the twelve months ended December 31,
1998. The increase in interest income was due to interest earned on increased
cash balances received from equity offerings.
NET LOSS
Net Loss for the nine months ended September 30, 1999 was $1,047,752 or
2,939% of revenues as compared to $93 for the twelve months ended December 31,
1998. The increase was primarily due to the Company's expansion and development
of websites as well as increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES AND HISTORICAL RESULTS OF CASH FLOW
HISTORICAL RESULTS OF CASH FLOWS
At September 30, 2000, our cash balance approximated $3,701,000,
compared to $5,614,000 at September 30, 1999. The $1,913,000 decrease in cash is
discussed below.
Net cash used in operating activities amounted to $1,810,000 for fiscal
2000. This was primarily attributable to the net loss for the year of
$2,404,000, partially offset by non-cash charges related to depreciation and
amortization totaling $366,000, as well as $206,000 of cash provided by changes
in operating assets and liabilities. Cash provided by changes in operating
assets and liabilities is primarily a function of an increase in accounts
payable and accrued liabilities.
Net cash used in investing activities amounted to $323,000 for fiscal
2000. This was primarily attributable to purchases of fixed assets of $128,000
and cash paid for the acquisition of a business of $196,000.
Net cash provided by financing activities amounted to $221,000 for
fiscal 2000. This was primarily attributable to the proceeds from the exercise
of stock options totaling $186,000 and the collection of a stock subscription
receivable totaling $51,000, partially offset by the payments on capital leases
totaling $16,000.
GOING CONCERN
The company has suffered substantial recurring losses from operations,
expects to incur additional losses, and has entered into a definitive agreement
to acquire a development-stage company, Mindtronics Corporation, with a history
of substantial operating losses and to which the Company has agreed to advance
$750,000. These factors, among others, raise substantial doubt as to the
Company's ability to continue as a going concern.
-22-
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, our sole source of liquidity consisted of
$3,701,000 of cash. We currently do not have access to any other sources of
funding, including debt and equity financing facilities. As of September 30,
2000, our principal commitments consisted of our operating obligations and our
amount outstanding under operating and capital leases.
We believe that current cash will not be sufficient to meet our
anticipated operating cash needs for the next 12 months commencing January 1,
2001. The Company has limited operating capital and no current access to credit
facilities. We estimate that we currently have sufficient funds to continue
operations through September 30, 2001 at currently projected levels of
operational expense. However, we expect that additional funds may be necessary
for the Company to implement its business plan, as described in this Annual
Report, and to consummate its proposed acquisition of Mindtronics Corporation.
The Company's continued operations therefore may depend on 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 the 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.
PROPOSED ACQUISITION
In November 2000, the Company entered into a definitive Agreement and
Plan of Merger with Mindtronics Corporation, under which the Company will
acquire all of the outstanding shares of capital stock of Mindtronics in
exchange for 12,500,000 shares of the Company's Common Stock. Mindtronics is a
development-stage technology development company that has proprietary technology
and products relating to the Internet, including a Internet search engine,
software for coordinating communications among network computers and others. The
agreement requires the Company to loan Mindtronics Corporation $750,000 prior to
the consummation of the acquisition. The acquisition is subject to the approval
of the stockholders and the satisfaction of a number of other conditions. The
Company can provide no guarantee or assurance that it will complete the
acquisition as planned or that, if completed, the Company will be able to
integrate successfully its operations with the operations of Mindtronics. With
respect to the planned acquisition of Mindtronics Corporation, the Company's
Chairman of the Board of Directors and Chief Operating Officer owns 1,000,000
shares (approximately 10% as of September 30, 2000) of Mindronics' common stock.
-23-
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
We do not have any financial instruments that are subject to market
risk.
-24-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements and corresponding notes thereto
called for by this item appear at the end of this document and are reflected in
pages F-1 through F-21.
-25-
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Effective May 26, 2000, the Company terminated its relationship with
its former Independent Certified Public Accountants, Stark Tinter & Associates,
LLC, upon the recommendation of the Senior Management and Board of Directors of
the Company. The report of Stark Tinter & Associates, LLC on the consolidated
financial statements of the Company as of September 30, 1999 and December 31,
1998, and for the nine-month period ended September 30, 1999 and for the year
ended December 30, 1998 contained no modifications or qualifications. There were
no disagreements with Stark Tinter & Associates, LLC on any matter of accounting
principles or practices, financial statement disclosure. or auditing scope or
procedure.
-26-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions of the Company's directors and executive
officers on September 30, 2000 are listed below:
NAME AGE POSITION
Jeffery Phillips 33 President, Chief Executive Officer, Director
Roger C. Royce 61 Chairman of the Board, Chief Operating Officer
David C. Pollei 58 Vice President Marketing, Director
Gregory V. Gibson 50 Vice President, Legal, Secretary, Director
Steven K. Radowicz 32 Director
James W. Truher 66 Director
Joseph W. Larkin 49 Vice President Administration/Operations; President
of Ubrandit ISP
JEFFERY PHILLIPS,
PRESIDENT, CHIEF EXECUTIVE OFFICER, AND DIRECTOR
Mr. Phillips was appointed as the Company's President, Chief Executive
Officer and Chairman of the Board in January 1999. From 1997 to March 1999, Mr.
Phillips was the President of Global Investors Guide of San Diego, CA. Global
Investors Guide maintains a financial research site and performs contract
programming for companies in the financial and e-commerce markets. As President,
Mr. Phillips was in charge of budgeting, project planning and management, and
development of specialty tools as per the clients' needs. He was also
responsible for exploring and implementing the newest technology into Global
Investors Guide's Web sites pertaining to the financial Internet market. During
the past five years Mr. Phillips also was a marketing consultant to public
relations firms and the owner of LPC Communications, an advertising agency, and
Market Publishing, Inc., a fulfillment and order processing company. From 1994
to 1997, before joining Global Investors Guide, Mr. Phillips was President of
Arboc Marketing, an independent marketing company located in Santa Barbara, CA.
As President of Arboc, Mr. Phillips was responsible for designing and
implementing marketing budgets for over one hundred small- and medium-sized
businesses, including health organizations, banks, retail outlets and
manufacturing enterprises. The company also handled political campaigns in the
state of California in the capacity of campaign management, marketing, and
public relations. Mr. Phillips received his Bachelor of Arts in Economics from
the University of California, Santa Barbara.
-27-
ROGER C. ROYCE,
CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF OPERATING OFFICER
Mr. Royce joined the Company in March 1999 as its Chief Operating
Officer and as a member of the Board of Directors. Mr. Royce is currently a
member of the Audit Committee. From 1997 to 1999, before his association with
the Company, Mr. Royce was Chairman and CEO of Fortune Financial Systems, Inc.,
a diversified education and training company. From 1994 to 1997, before joining
Fortune Financial, he held executive positions (including President and CEO)
with the Academic Excellence Institute, Inc., an accelerated learning and
distribution company, and its successor. Also from March 1993 until the present
Mr. Royce has served as Chairman and CEO of Westban Financial, Inc., a financial
and management consulting company. His other experiences include: President and
CEO of Motel 6, Inc., a national lodging chain (from 1982 to 1986); President of
Fotomat Labs, Inc., and Corporate Sr. Vice President and Managing Operations
Director for Fotomat Corporation, a national conglomerate holding company with a
retail chain of photographic processing/camera stores (from 1968 to 1982); and
President of Woodfin Suites Hotels, Inc., a national hotel management and
franchise company that was the founding franchisee for the Marriott Residence
Inns chain (from 1986 to 1989). Mr. Royce holds a BA and MBA from California
Western University and has completed additional postgraduate studies at UCLA and
Harvard.
GREGORY V. GIBSON,
VICE PRESIDENT LEGAL, DIRECTOR
Mr. Gibson joined the Company as Vice President Legal and Secretary in
the first quarter of 1999. Mr. Gibson is an attorney specializing in securities
and securities broker dealerships for over 20 years. Presently, Mr. Gibson is
member of the law firm Gibson, Haglund and Paulsen and Vice President Legal for
Pennaco Energy, Inc. a Denver based public Oil and Gas Company. From 1993 to
1996, before his present affiliations Mr. Gibson was corporate counsel for three
years to Global Resource Investment Limited, a southern California based broker
dealer specializing in resource and foreign publicly traded securities. Before
working at Global Mr. Gibson practiced securities and international law with the
law firms of Gibson and Haglund and Gibson, Ogden and Johnson. Mr. Gibson
attended Claremont Men's College and Brigham Young University for undergraduate
studies and received his juris doctorate degree from Pepperdine University
School of Law.
STEVEN K. RADOWICZ,
DIRECTOR
Mr. Radowicz has been a director of the Company since March 1999. Mr.
Radowicz, an independent director of the Company and a member of the Audit and
Compensation Committees, is the managing partner and owner of Apquip Company
LLC, located in Monterey, California. Apquip manufactures equipment for the wood
products industry and services a worldwide clientele. Mr. Radowicz joined Apquip
as a sales engineer in 1991 and in 1996 became Vice President of Sales. From
1997 to the present, Mr. Radowicz has been Apquip's Chief Executive Officer.
While at Apquip, Mr. Radowicz has been responsible for establishing a network of
dealers and representation for the Company worldwide. Mr. Radowicz received a
Bachelor of Arts degree in business economics from the University of California
at Santa Barbara in 1990.
DAVID C. POLLEI
VICE PRESIDENT MARKETING, DIRECTOR
Mr. Pollei began his association with the Company in August 1999 as a
marketing consultant and joined the Company as Vice President Marketing and a
member of the Board of Directors in October 1999. From 1996 to 1999, before
joining the Company, Mr. Pollei was an independent media consultant with various
media and Internet company clients. Before this, from the beginning of 1995 to
1996, Mr. Pollei was President of SISNA, Inc., a Salt Lake City based Internet
Service Provider. From 1980 to 1982, he was a Vice President at ABC Radio where
he pioneered the first satellite-delivered radio network. Mr. Pollei also served
in a presidential capacity for a number of companies, including the California
Political News Syndicate (1989), and WaveShift, a new media company providing
interactive media and software (from 1992 to 1993). Mr. Pollei's analyses as an
industry expert and consultant has been featured in the WALL STREET JOURNAL,
BARRON'S, BILLBOARD, GANNETT, ELECTRONIC MEDIA. Mr. Pollei received a double
bachelor of arts degree in International Relations and French from Brigham Young
University and serves on the board of directors of a number of civic and
non-profit organizations.
-28-
JAMES W. TRUHER,
DIRECTOR
Mr. Truher joined the Company in February of 2000 as an independent
member of the Board of Directors and a member of the Audit and Compensation
Committees. The stockholders of the Company ratified Mr. Truher's appointment to
the Board of Directors in September 2000. During the last five years Mr. Truher
has been an independent telecommunication consultant and currently is a member
of the Board of Directors of Superwire.com and Meridian Holdings, Inc. Also
during the last five years, from October 1995 to April 1996, Mr. Truher was
Chairman of Xecom Corp., a telephone service company. Mr. Truher was an area
Vice President with AT&T and held senior management positions in the cable and
telephone networks with such companies and associations as Selec Tel (founder),
Polaris, Intelecom, the Bell System (at AT&T), Pacific Telephone, and the
Society of Television Engineers (past President). Mr. Truher graduated from
Stanford University with a degree in engineering.
JOSEPH W. LARKIN,
VICE PRESIDENT ADMINISTRATION/OPERATIONS
Mr. Larkin was appointed the Company's Vice President
Administrations/Operations and as President of Ubrandit ISP, the Company's
wholly owned internet service provider, in June of 2000. Immediately before
joining the Company Mr. Larkin was a strategic planning and executive
development independent consultant. From 1997 to the beginning of 1999 Mr.
Larkin was Vice President Planning and Development for Fortune Financial Systems
Salt Lake based marketing company. From 1993 to 1997, he was Vice President
Planning and Analysis for Freecom Communications, a Salt Lake based marketing
firm. Before joining the Company, Mr. Larkin served in executive capacities such
as Senior Vice President of Strategic Planning & Acquisitions, Vice President of
Corporate Development, Vice President of Human Resources, and Vice President of
Marketing for companies such as Nothrop Aviation, and TSN, Inc., among others.
Additionally, Mr. Larkin served as a Principal and President of the Consulting
firm, The Hendrix Information Group, which specialized in Strategic Planning in
the media industry and whose client list included Bonneville Corporation,
American Red Cross, Security Pacific National Bank, Los Angeles County, Utah
Department of Education, Bank of A. Levi, The United Way, Kiro Radio & TV, among
others. Mr. Larkin has B.A. and M.A. degrees from Brigham Young University and
is a Ph.D. candidate at the University of Southern California.
EMPLOYMENT AGREEMENTS
The Company anticipates entering into employment agreements with its
officers in the near future, the terms of which are undecided at the present
time. The Company has not as of yet entered into any employment agreement with
its officers or other employees.
In connection with the acquisition of Clicksmart.com, effective as of
May 4, 2000, the Company entered into an employment agreement with Mr. Peter
Heumiller. Mr. Heumiller served as the President of Clicksmart.com before the
acquisition. The agreement provides for an initial term of three years subject
to prior termination as provided in the agreement. Under the employment
agreement Mr. Heumiller will continue to serve as the President of
Clicksmart.com at an annual salary of $95,000 per year. The Company may
terminate Mr. Heumiller's employment for cause, disability or the employee's
material breach of the agreement.
COMMITTEES OF THE BOARD
The Audit Committee was formed on March 8, 2000, after the end of the
Company's last completed fiscal year. As a result, the Audit Committee neither
reviewed nor discussed with management or with the Company's auditors the
audited financial statements included in the Company's last filed Annual Report.
The written charter for the Audit Committee was previously filed on August 22,
2000, as an attachment to the Company's definitive proxy statement.
-29-
The Audit Committee consists of Messrs. Royce, Radowicz and Truher.
Although Mr. Royce is not an independent member of the Audit Committee by virtue
of his capacity as an executive officer of the Company (as independence is
defined under the listing standards adopted by the American Stock Exchange), the
Board of Directors determined that his extensive management experience and
insight would enhance the composition of the Audit Committee.
The Audit Committee reviews the financial statements and independent
auditors' report, including recommendations for the independent auditors
regarding internal controls and other matters.
The Company formed the Compensation Committee in the fourth quarter of
fiscal 2000. The Compensation Committee consists of Messrs. Radowicz and Truher,
both of whom are independent members of the Compensation Committee. The
Compensation Committee's Report on Compensation is set forth below.
The Company does not currently have a standing nominating committee.
DIRECTORS COMPENSATION
Directors of the Company do not receive cash compensation for their
services as members of the Board of Directors but are reimbursed for their
reasonable expenses incurred in connection with attending meetings of the Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules of the Securities and Exchange Commission (the
"Commission") thereunder require the Company's executive officers, directors and
greater than 10% stockholders to file reports of ownership and changes in
ownership of the Common Stock with the Commission. Based on a review of such
reports, the Company has determined that all reports required by Section 16(a)
of the Exchange Act to be filed by its executive officers and directors during
the last fiscal year were filed on time.
CERTAIN LEGAL PROCEEDINGS
To the knowledge of management, during the fiscal year ended September
30, 2000, and to the date of this Annual Report, no material legal proceeding to
which the Company is a party is pending nor is any known to be contemplated, and
the Company knows of no legal proceedings pending or threatened, or judgements
entered against a director or officer of the Company in his capacity.
FAMILY RELATIONSHIPS
No family relationships exists among the directors and executive
officers.
-30-
ITEM 11 - EXECUTIVE COMPENSATION
- --------------------------------
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid to those persons
who were at the end of the last completed fiscal year the Company's Chief
Executive Officer and other highly compensated executive officers for services
rendered in all capacities to the Company for the fiscal years ended September
30, 1999 and 2000.
SUMMARY COMPENSATION TABLE
Compensation
------------------------------------------------------------
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Annual Bonus Compensation Stock Option/ Pay-outs Compen-
Position (1) Year Salary($) ($) ($) Awards ($) SARS (#) ($) sation ($)
-------- --------- --- --- ---------- -------- -----------
Jeffery Phillips, 1999 (3) 96,000 -0- -0- -0- 400,000 (4) -0- -0-
CEO and Director (2) 2000 (3) 96,000 -0- -0- -0- 200,000 (7) -0- -0-
Roger C. Royce, 1999 (3) 120,000 -0- -0- -0- 425,000 (5) -0- -0-
Chief Operating 2000 (3) 120,000 -0- -0- -0- 150,000 (7) -0- -0-
Officer and Chairman
Gregory v. Gibson, 1999 (3) 96,000 (6) -0- -0- -0- 125,000 (4) -0- -0-
Vice President, Legal 2000 (3) 96,000 (6) -0- -0- -0- 75,000 (7) -0- -0-
and Director
- ----------------
(1) All other compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such
perquisites and other personal benefits constituted the lesser of
$50,000 or 10% of the total annual salary and bonus of the named
executive for such year.
(2) Mr. Phillips was the President and CEO of Global Investors Guide before
its acquisition by the Company.
(3) Compensation determined on an annualized basis for the twelve months
following the acquisition of Global Investors Guide in March 1999.
(4) Includes shares of Common Stock underlying options that are exercisable
at $.50 per share. See "Certain Relationships and Related
Transactions."
(5) Includes 75,000 shares of Common Stock underlying options that are
exercisable at $1.50 per share, and 350,000 shares of Common Stock
underlying options exercisable at $3.35 per share. See "Certain
Relationships and Related Transactions."
(6) Represents amounts paid as legal fees to Mr. Gibson's law firm.
(7) Includes shares of Common Stock underlying options that are exercisable
at $3.75 per share. See "Certain Relationships and Related
Transaction."
The Company has no retirement, pension, profit sharing or medical
reimbursement plans exclusively covering its officers and directors, and does
not contemplate implementing any such plans at this time.
Directors of the Company who are also employees do not receive cash
compensation for their services as directors or members of committees of the
Board of Directors, but are reimbursed for their reasonable expenses in
connection with attending meetings of the Board of Directors or management
committees. Non-employee directors are expected to be paid a fee per Board
meeting attended, and reimbursement for expenses.
-31-
1999 STOCK OPTION AND INCENTIVE PLAN
The 1999 Stock Plan was adopted by the Board of Directors on January
25, 1999, and first approved by the Company's stockholders in March 1999. The
purpose of the 1999 Stock Plan is to assist the Company in the recruitment,
retention and motivation of employees and of independent contractors who are in
a position to make material contributions to the Company's progress. The 1999
Stock Plan offers a significant incentive to the employees and independent
contractors of the Company by enabling such individuals to acquire the Common
Stock, thereby increasing their proprietary interest in the growth and success
of the Company. Pursuant to the approval of the stockholders at the last Annual
Meeting of stockholders, the 1999 Stock Plan was amended to increase the number
of shares reserved for issuance under the 1999 Stock Plan from 2,500,000 shares
to 4,750,000 shares. See Item 4. Submission of Matters to Vote of Security
Holders.
The 1999 Stock Plan provides for the direct award or sale of shares of
Common Stock and for the grant of both incentive stock options ("ISO") to
purchase Common Stock intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options ("NSO") to purchase Common Stock that do not qualify
for such treatment under the Code. All employees (including officers) of the
Company or any subsidiary and any independent contractor who performs services
for the Company or a subsidiary are eligible to purchase shares of Common Stock
and to receive awards of shares or grants of NSOs. Only employees are eligible
to receive grants of ISOs. At September 30, 2000, 30 employees were eligible to
be considered for the grant of options under the Stock Plan.
A total of 4,750,000 shares of Common Stock are reserved for issuance
under the 1999 Stock Plan. If any option granted under the 1999 Stock Plan
expires or terminates for any reason without having been exercised in full, then
the unpurchased shares subject to that option will once again be available for
additional option grants. At September 30, 2000, options under the 1999 Stock
Plan to purchase an aggregate of 2,356,000 shares of Common Stock were
outstanding, which were exercisable at exercise prices ranging from $.50 to
$6.75 per share. The Company has granted an additional 135,000 options
subsequent to September 30, 2000. Of these options, 7,500 vest immediately,
7,500 vest six months from date of grant, 20,000 vest one year from date of
grant and 100,000 vest ratable over a 30-month period. The options have exercise
prices ranging from $0.50 to $3.00, with an average exercise price of $1.85.
Based on the closing price of $1.9375 of the Common Stock on September 29, 2000,
the market value of the shares underlying options outstanding at September 30,
2000, is approximately $4,564,750. A total of 2,265,000 shares of Common Stock
are available for future issuance under the 1999 Stock Plan as of September 30,
2000.
The Company has not made any determination with respect to future
awards under the 1999 Stock Plan, and any allocation of such awards will be made
only in accordance with the provisions of the 1999 Stock Plan, including the
additional shares of stock that the stockholders are being asked to approve. The
Company believes that the granting of options is necessary to attract the
highest quality personnel as well as to reward and thereby retain existing key
personnel. Moreover, the attraction and retention of such personnel is essential
to the continued progress of the Company, which ultimately is in the interests
of the Company's stockholders.
At September 30, 2000, the below-identified persons or groups held
options to purchase shares of Common Stock under the 1999 Stock Plan as follows:
(i) the Chief Executive Officer and other executive officers named under
"Executive Compensation - Summary Compensation Table:" Jeffery Phillips (Chief
Executive Officer, President and a director), 600,000 shares; Gregory v. Gibson
(Vice President, Legal, Secretary and a director), 200,000 shares; Roger C.
Royce (Chief Operating Officer and Chairman of the Board), 575,000 shares; (ii)
all current executive officers of the Company as a group: 1,582,500 shares;
(iii) all current directors who are not executive officers as a group: 97,500
shares; (iv) all employees of the Company, including all current officers who
are not executive officers, as a group: 644,500. See "Certain Transactions and
Related Transactions". At September 30, 2000, the Company had granted to certain
consultants options and warrants to purchase a total of 149,000 shares of the
Company's Common Stock (including certain options issued to current directors
and executive officers of the Company who were engaged as consultants on the
dates on which such options were granted.)
-32-
ADMINISTRATION
The 1999 Stock Plan is administered by the Compensation Committee.
Subject to the limitations set forth in the 1999 Stock Plan, the Board of
Directors has the authority to determine, among other things, to whom options
will be granted and shares will be sold, the number of shares, the term during
which an option may be exercised and the rate at which the options may be
exercised and the shares may vest.
TERMS OF OPTIONS AND OF SHARES OFFERED FOR SALE
The maximum term of each option that may be granted under the 1999
Stock Plan is 10 years. Stock options granted under the 1999 Stock Plan must be
exercised by the optionee before the earlier of the expiration of such option or
the date 90 days after termination of the optionee's employment, except that the
period may be extended on certain events including death and termination of
employment due to disability.
The exercise price under each option will be established by the Board
of Directors; however, the exercise price of an ISO cannot be lower than the
fair market value of the Common Stock on the date of grant and the exercise
price of a NSO may not be less than the par value per share of the Common Stock.
The exercise price must be paid in full at the time of exercise. Under the 1999
Stock Plan, the exercise price is payable in cash or, in certain circumstances,
Common Stock, cancellation of indebtedness or by promissory note.
The terms of any sale of shares of Common Stock under the 1999 Stock
Plan will be set forth in a common stock purchase agreement to be entered into
between the Company and each purchaser. The Board of Directors will determine
the terms and conditions of such stock purchase agreements, which need not be
identical. The purchase price for shares of Common Stock sold under the 1999
Stock Plan may not be less than the par value of such shares. The purchase price
may be paid, at the Board of Director's discretion, with a full-recourse
promissory note secured by the shares, except that the par value of the shares
must be paid in cash. Shares may also be awarded under the Stock Plan in
consideration of services rendered before the award, without a cash payment by
the recipient.
Options may have such terms and be exercisable in such manner and at
such times as the Board of Directors may determine. Common Stock transferred
pursuant to the 1999 Stock Plan (including shares acquired upon the exercise of
certain options) may be subject to repurchase by the Company in the event that
any applicable vesting conditions are not satisfied. A holder of shares
transferred under the 1999 Stock Plan has the same voting, dividend and other
rights as the Company's other stockholders.
AMENDMENT AND TERMINATION
The 1999 Stock Plan may be amended at any time by the Board of
Directors, subject to applicable laws. Unless sooner terminated by the Board of
Directors, the 1999 Stock Plan will terminate on January 25, 2009, and,
following such date, no further options may be granted or stock sold pursuant to
such plan except upon the exercise of options granted before the termination
date.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a subdivision of the outstanding Common Stock or a
combination or consolidation of the outstanding Common Stock (by
reclassification or otherwise) into a lesser number of shares, a spin-off or a
similar occurrence, a declaration of a dividend payable in Common Stock or, if
in an amount that has a material effect on the price of the shares, in cash, or
in the event of a merger or other reorganization, outstanding options will be
subject to the agreement of merger or reorganization the Board of Directors will
make adjustments in the number and/or exercise price of options and/or the
number of shares available under the 1999 Stock Plan, as appropriate.
-33-
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS UNDER THE 1999 STOCK
PLAN
Neither the optionee nor the Company will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and the Company will receive no deduction when an ISO is exercised.
Upon exercising a NSO, the optionee generally must recognize ordinary income
equal to the "spread" between the exercise price and the fair market value of
Common Stock on the date of exercise; the Company will be entitled to a
deduction for the same amount. In the case of an employee, the option spread at
the time a NSO is exercised is subject to income tax withholding, but the
optionee generally may elect to satisfy the withholding tax obligation by having
shares of Common Stock withheld from those purchased under the NSO. The tax
treatment of a disposition of option shares acquired under the 1999 Stock Plan
depends on how long the shares have been held and on whether such shares were
acquired by exercising an ISO or by exercising a NSO. The Company will not be
entitled to a deduction in connection with a disposition of option shares,
except in the case of a disposition of shares acquired under an ISO before the
applicable ISO holding periods have been satisfied.
The above description of tax consequences is based upon federal tax
laws and regulations and does not purport to be a complete description of the
federal income tax aspects of the 1999 Stock Plan.
INDIVIDUAL GRANTS
During the fiscal year ended September 30, options and warrants to
purchase 943,500 shares were granted to certain executive officers, directors,
employees and consultants for exercise prices ranging from $2.75 to $4.50 per
share pursuant to the vesting schedules of their respective agreements. All such
options were granted under the Plan. The following tables set forth certain
information at September 30, 2000, and for the fiscal year then ended with
respect to stock options granted to and exercised by the individuals named in
the Summary Compensation Table above.
OPTION GRANTS IN FISCAL YEAR 2000
POTENTIAL REALIZABLE VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(4)
--------------------------------------------------------- -----------------------
NUMBER OF % OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR (1) ($/SH)(2) DATE(3) 5%($) 10%($)
- ---- ---------- --------------- --------- ------- ----- ------
Jeffery Phillips 200,000 23.8% $3.75 3/11/06 $ 207,211 $ 457,883
Roger C. Royce 150,000 17.8% 3.75 3/11/06 155,408 343,412
Gregory v. Gibson 75,000 8.9% 3.75 3/11/06 77,704 171,706
- ------------
(1) Based on options granted to certain directors, executive officers and
employees to purchase 841,000 shares of the Company's Common Stock, but
not including options granted to certain consultants to purchase
102,500 additional shares of Common Stock.
(2) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(3) The options have a term of five years commencing from the date on which
they were granted, subject to earlier termination in certain events
related to termination of employment.
(4) The 5% and 10% assumed rates of appreciation are suggested by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of the future Common Stock price.
There can be no assurance that any of the values reflected in the table
will be achieved.
-34-
OPTION EXERCISES DURING LAST FISCAL YEAR
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND 2000 YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 2000(#) SEPTEMBER 30, 2000($)(2)
--------------------- ------------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- --------------- ------------- -------------
Jeffery Phillips -- $ -- 400,000/200,000 $575,000/$0
Roger C. Royce -- -- 308,334/266,666 $32,813/$0
Gregory v. Gibson -- -- 125,000/75,000 $179,688/$0
- ------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) Calculated on the basis of the fair market value of the underlying
securities at September 29, 2000 ($1.9375 per share) minus the exercise
price.
-35-
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table sets forth certain information as to the beneficial
ownership of the capital stock of the Company at September 30, 2000, by: (i)
each person known to the Company to beneficially own more than five percent (5%)
of the capital stock of the Company; (ii) each of the Company's directors who
owns shares; (iii) each of the Company's executive officers named under
"Executive Compensation -- Summary Compensation Table"; and (iv) all executive
officers and directors as a group. Unless otherwise indicated in the footnotes
below, the address of each stockholder is 6405 Mira Mesa Boulevard, Suite 100,
San Diego, CA 92121.
NUMBER OF SHARES
BENEFICIALLY APPROXIMATE
NAME (1) OWNED (2) PERCENTAGE OWNED
Jeffery Phillips (3)................................. 2,006,880 16.0%
Roger C. Royce (4)................................... 308,334 2.5%
David Pollei (5)..................................... 57,500 *
Gregory v. Gibson (6)................................ 125,000 1.0%
Steven K. Radowicz (7)............................... 25,000 *
James W. Truher (8).................................. 47,500 *
All Named Executive Officers and Directors as a...... 2,520,214 19.6%
group (6 individuals)
- ----------------
* Less than one percent (1%)
(1) Unless otherwise noted, the Company believes that all shares are
beneficially owned and that all persons named in the table have sole
voting and investment power with respect to all shares owned by them.
(2) Beneficial ownership is determined in accordance with the applicable
rules under the Exchange Act. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable, or become exercisable within 60 days
from the date hereof, are deemed outstanding. However, such shares are
not deemed outstanding for purposes of computing the percentage
ownership of any other person. Percentage ownership is based on
12,167,333 shares of Common Stock outstanding at September 30, 2000.
(3) Includes 400,000 shares issuable upon exercise of stock options
exercisable at an exercise price of $.50 per share.
(4) Includes 75,000 shares issuable upon exercise of options exercisable at
an exercise price of $1.50 per share, and 233,334 shares issuable upon
exercise of options exercisable at an exercise price of $3.35 per
share.
(5) Includes 7,500 shares issuable upon exercise of options exercisable at
an exercise price of $4.69 per share and 50,000 shares issuable upon
exercise of options exercisable at an exercise price of $4.00 per
share.
(6) Includes 125,000 shares issuable upon the exercise of options
exercisable at an exercise price of $.50 per share.
(7) Includes 25,000 shares issuable upon the exercise of options
exercisable at a price of $1.50 per share.
(8) Includes 7,500 shares issuable upon the exercise of options exercisable
at an exercise price of $4.69 per share and 40,000 shares issuable upon
the exercise of options exercisable at an exercise price of $3.50 per
share.
-36-
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
In connection with the acquisition of Global Investors Guide in March
1999, all of the shares of Global Investors Guide were purchased from officers
and a director of that company in exchange for restricted shares of the
Company's Common Stock (the "exchange shares") on a pro rata basis. Mr.
Phillips, President and director of that company, received 1,606,880 exchange
shares, and Messrs. Fagan, Cullivan, Childers, and Arterburn, all executive
officers of that company, received 54,780 shares each for an aggregate of
1,826,000 exchange shares. The Company received computer equipment, services and
cash in exchange for a $100,000 amount due to a company 100% owned by Mr.
Phillips, an executive officer and director of Ubrandit.com. The aggregate
$100,000 amount due resulted from $50,000 advanced to the Company, office space
provided the Company at $1,000 a month for 12 months, receptionist, secretarial,
and clerical support services provided to the Company at $2,000 per month for 12
months, and the sale of following office equipment: copier, postage machine,
shredder, address labeler, computer printer, two fax machines, and three
computers. Such office equipment was sold to the Company for $14,000, which was
purchased by Mr. Phillip's company within the preceding eighteen months for
approximately $23,000. The entire amount due was converted to 200,000 shares of
the Company's Common Stock, which were issued to such company. Mr. Phillips
subsequently sold all of his interest in such company, which is now owned by an
unrelated party.
Mr. Gibson an executive officer and director, provides legal services
to the Company through his law firm Gibson, Haglund and Paulsen. For the nine
month period ended September 30, 1999, Mr. Gibson's law firm had received
$66,000 for legal services rendered. For the year ended September 30, 2000, Mr.
Gibson's law firm had received $96,000 for legal services rendered.
Before his appointment as officer of the Company, Mr. Pollei provided
services to the Company as a consultant. During the last fiscal year and through
the month of April 2000, Mr. Pollei received consulting fees of $44,500.
Beginning in May 2000, Mr. Pollei was retained as a full-time employee and
receives a monthly salary of $6,750.
During the fiscal year ended September 30, 1999, Mr. Phillips received
options to purchase 400,000 shares of Common Stock. See "Executive Compensation
- - Summary Compensation Table." In March 2000, Mr. Phillips received options to
purchase 200,000 additional shares of Common Stock. The options granted to Mr.
Phillips during the current fiscal year vest on March 11, 2001, and are
exercisable at an exercise price of $3.75 per share.
During the fiscal year ended September 30, 1999, Mr. Royce received
options to purchase 425,000 shares of Common Stock. See "Executive Compensation
- - Summary Compensation Table." In March 2000, Mr. Royce received options to
purchase 150,000 additional shares of Common Stock. The options granted to Mr.
Royce during the current fiscal year vest on March 11, 2001, and are exercisable
at an exercise price of $3.75 per share.
During the fiscal year ended September 30, 1999, Mr. Gibson received
options to purchase 125,000 shares of Common Stock. See "Executive Compensation
- - Summary Compensation Table." In March, Mr. Gibson received options to purchase
75,000 additional shares of Common Stock. These second set of options granted to
Mr. Gibson during the current fiscal year are exercisable at an exercise price
of $3.75 per share.
On August 5, 1999, Mr. Pollei received options to purchase 7,500 shares
of Common Stock at an exercise price of $4.69 per share, which were exercisable
immediately at the date of grant. On October 19, 1999, Mr. Pollei received a
second set of options to purchase 50,000 shares of Common Stock at an exercise
price of $4.00 per share, of which options to purchase 30,000 shares are
exercisable currently. Options to purchase the remaining 20,000 shares vest on
October 19, 2000. In March 2000, Mr. Pollei received options to purchase 100,000
additional shares of Common Stock at an exercise price of $3.75 per share. The
options granted to Mr. Pollei during the current fiscal year vest on March 11,
2001.
On August 5, 1999, the Company granted to Mr. Truher, one of the
Company's directors and a director nominee, options to purchase 7,500 shares of
Common Stock at an exercise price of $4.69 per share. These options are
exercisable immediately. In February 2000, the Company granted to Mr. Truher
options to purchase 40,000 additional shares of Common Stock. These second set
of options granted to Mr. Truher vest on February 24, 2001, and are exercisable
at $3.50 per share.
-37-
On March 5, 1999, the Company granted to Mr. Radowicz options to
purchase 25,000 shares of Common Stock, which are exercisable immediately at
$1.50 per share. On March 11, 2000, Mr. Radowicz received options to purchase
25,000 additional shares of Common Stock. These second set of options granted to
Mr. Radowicz vest on March 11, 2001, and are exercisable at an exercise price of
$3.75 per share.
In connection with the employment of Mr. Joseph Larkin in March 2000,
we granted to Mr. Larkin options to purchase 50,000 shares of Common Stock at an
exercise price of $3.75 per share. Such options vest one year from the grant
date.
All options granted to directors and officers through the date of
filing of this Annual Report are exercisable for a period of five years after
the date on which they vest.
With respect to the planned acquisition of Mindtronics Corporation, the
Company's Chairman of the Board of Directors and Chief Operating Officer owns
1,000,000 shares (approximately 10% as of September 30, 2000) of Mindronics'
common stock.
-38-
PART IV
ITEM 14 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------------------
a. The following documents are filed as part of this report.
1. Consolidated Financial Statements
See "Index to Consolidated Financial
Statements"--Item 8.
2. Exhibits
See "Exhibit Index."
b. Reports on Form 8-K. No reports on Form 8-K were filed during
the last quarter of the fiscal year ended September 30, 2000.
-39-
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 3, 2001
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 Officer, January 3, 2001
- -------------------- and Director
Jeffrey Phillips
/s/ Roger C. Royce Chairman of the Board of Directors January 3, 2001
- ------------------ and Chief Operating Officer
Roger C. Royce
/s/ Gregory V. Gibson Vice President, Legal, Director January 3, 2001
- --------------------
Gregory v. Gibson
/s/ Mark Cullivan Controller January 3, 2001
- -----------------
Mark Cullivan
/s/ James W. Truher Director January 3, 2001
- -------------------
James S. Truher
-40-
EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------
2.1 Agreement and Plan of Reorganization for the Acquisition of all of the
Outstanding Shares of Common Stock of Global Investors Guide by
Ubrandit.com (1)
2.1.1 Agreement and Plan of Merger by and among Ubrandit.com, Inc., Ubrandit
Acquisition Corp. and Mindtronics Corporation dated December 4, 2000.
(7)
3.1 Ubrandit.com Articles of Incorporation and amendments (1)
3.2 Ubrandit.com By-laws (1)
3.3 Registrant's Restated Bylaws (4)
4.1 Specimen of Common Stock Certificate (4)
10.1 1999 Stock Option and Incentive Plan (1)
10.2 Form of Incentive Stock Option Agreement (3)
10.3 Form of Non-Statutory Stock Option Agreement (3)
10.4 Information Distribution Agreement with S&P Comstock dated as of
January 16, 1998 (1)
10.5 Database License Agreement with Baker & Taylor, Inc. dated as of
January 1, 1999 (2)
10.6 Computer Software License Agreement with Townsend Analytics, dated
April 21, 1998 (1)
10.7 License Agreement with Muze Inc. [undated] (1)
10.8 Agreement with Communications Corporations of America, dated April 3,
2000 (5)
10.9 Agreement with White Knight broadcasting, dated April 20, 2000 (5)
10.10 Agreement with Clicksmart.com, Inc., dated effective May 4, 2000 (6)
10.11 Agreement with Citadel Broadcasting Company, dated July 1, 2000 (6)
11.1 Statement of Computation of per share earnings (reference is made to
the Statement of Operations included in the Financial Statements filed
herewith).
21.1 Subsidiary of Registrant Global Investment Guide, Inc. Articles of
Incorporation (1)
21.2 Subsidiary of Registrant Global Investment Guide, Inc. Bylaws (1)
99.1 Press release dated December 5, 2000, announcing the acquisition of
Mindtronics Corporation. (7)
- ------------------
(1) Previously filed with the Securities and Exchange Commission on the
Company's Registration Statement on Form 10 filed on July 22, 1999.
(2) Previously filed with the Securities and Exchange Commission on
Amendment No. 1 to the Company's Registration Statement on Form 10
filed on October 5, 1999.
-41-
(3) Previously filed with the Securities and Exchange Commission on
Amendment No. 4 to the Company's Registration Statement on Form 10
filed on January 5, 2000.
(4) Previously filed with the Securities and Exchange Commission on the
Company's Registration Statement on Form 8-A on February 10, 2000.
(5) Previously filed with the Securities and Exchange Commission on the
Company's Registration Statement on Form 10-Q/A on March 31, 2000
(6) Previously filed with the Securities and Exchange Commission on the
Company's Registration Statement on Form 10-Q/A filed June 30, 2000
(7) Previously filed with the Securities and Exchange Commission on the
Company's Current Report on Form 8-K, which was filed on December 5,
2000.
-42-
UBRANDIT.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Certified Public Accountants (BDO Seidman, LLP) F-2
Report of Independent Auditors (Stark Tinter & Associates, LLC) F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9 - F-21
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Ubrandit.com, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Ubrandit.com,
Inc. and Subsidiaries (the "Company") as of September 30, 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ubrandit.com, Inc. and Subsidiaries as of September 30, 2000, and the
consolidated results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 2 and 8
to the consolidated financial statements, the Company has suffered substantial
recurring losses from operations, expects to incur additional losses, and has
entered into a definitive agreement to acquire a development-stage company with
a history of substantial operating losses and to which the Company has agreed to
advance $750,000. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ BDO SEIDMAN, LLP
Costa Mesa, California
November 14, 2000, except for
Note 8 as to which the date
is December 22, 2000
F-2
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Ubrandit.com, Inc.
We have audited the accompanying consolidated balance sheet of Ubrandit.com,
Inc. as of September 30, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the nine month period ended
September 30, 1999 and the year ended December 31, 1998. 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 consolidated financial position of Ubrandit.com, Inc.
as of September 30, 1999, and the results of its operations and its cash flows
for the nine months ended September 30, 1999 and the year ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Stark Tinter & Associates, LLC
Englewood, Colorado
November 5, 1999
F-3
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,700,864 $ 5,613,922
Accounts receivable 9,294 7,290
Subscription receivable -- 51,000
Other receivables 5,675 --
Prepaid expenses 86,190 20,750
Inventory, net of reserve of $7,500 (2000) 27,493 --
Deposits 50,374 11,872
------------ ------------
Total current assets 3,879,890 5,704,834
Other assets (Notes 3 and 4):
Property and equipment, net of accumulated depreciation of
$136,230 (2000) and $38,580 (1999) 403,337 150,567
Core technology, net of accumulated amortization of $113,210
(2000) and $18,210 (1999) 361,790 456,790
Goodwill, net of accumulated amortization of $225,053 (2000)
and $52,845 (1999) 1,320,310 594,354
Other -- 1,110
------------ ------------
$ 5,965,327 $ 6,907,655
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 177,814 $ 45,581
Accrued expenses 45,314 3,257
Current portion of leases payable (Note 7) 35,243 5,129
Customer deposits 39,434 --
Accrued compensation 62,690 16,067
Payroll taxes payable 33,483 7,607
------------ ------------
Total current liabilities 393,978 77,641
Leases payable, net of current portion (Note 7) 30,544 8,859
------------ ------------
Total liabilities 424,522 86,500
------------ ------------
Commitments and contingencies (Notes 7 and 8)
Shareholders' equity (Note 5):
Common stock, $0.001 par value. Authorized 25,000,000 shares;
issued and outstanding 12,167,333 (2000) and 11,738,333
(1999) shares 12,167 11,738
Additional paid in capital 8,980,333 7,857,262
Accumulated deficit (3,451,695) (1,047,845)
------------ ------------
Total shareholders' equity 5,540,805 6,821,155
------------ ------------
$ 5,965,327 $ 6,907,655
============ ============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-4
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- -------------
Revenues from sales $ 869,623 $ 35,656 $ --
Cost of sales 1,100,405 567,286 (--)
------------- ------------- -------------
Gross margin (230,782) (531,630) --
Operating expenses:
Sales, general and administrative 2,032,420 456,575 13
Depreciation and amortization 365,969 90,520 80
------------- ------------- -------------
Loss from operations (2,629,171) (1,078,725) (93)
Other income (expense):
Interest income 233,349 32,366 --
Interest expense (8,028) (1,393) --
------------- ------------- -------------
Net loss $ (2,403,850) $ (1,047,752) $ (93)
============= ============= =============
Per share information:
Weighted average shares outstanding -
basic and diluted 11,912,141 9,353,151 777,041
============= ============= =============
Net loss per common share - basic and diluted $ (0.20) $ (0.11) $ (0.00)
============= ============= =============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-5
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 40,000 $ 40 $ 360 $ -- $ 400
(see Note 5)
Stock issued for cash at $0.01 per
share net of issuance cost 860,000 860 4,540 -- 5,400
Stock issued for cash at $0.01 per
share net of issuance cost 4,140,000 4,140 34,260 -- 38,400
Net loss -- -- -- (93) (93)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 5,040,000 5,040 39,160 (93) 44,107
(see Note 5)
Stock issued for cash at $0.50 per
share, net of issuance costs 1,890,000 1,890 935,110 -- 937,000
Stock issued in a business
combination (Note 3) 1,826,000 1,826 911,174 -- 913,000
Stock issued as repayment for debt
and accrued interest 300,000 300 163,951 -- 164,251
Stock issued to a related party as
repayment for advance 200,000 200 361,800 -- 362,000
Stock issued for cash at $1.00 per
share, net of issuance costs 1,000,000 1,000 989,000 -- 990,000
Stock issued 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
Warrants issued for services
rendered -- -- 47,090 -- 47,090
Net loss -- -- -- (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 Note 5)
Stock issued upon exercise of
options 129,000 129 185,871 -- 186,000
Stock issued in connection with
acquisition (Note 3) 300,000 300 937,200 -- 937,500
Net loss -- -- -- (2,403,850) (2,403,850)
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2000 12,167,333 $ 12,167 $ 8,980,333 $(3,451,695) $ 5,540,805
============ ============ ============ ============ ============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-6
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,403,850) $(1,047,752) $ (93)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 365,969 90,520 --
Write-off of inventory 13,848 -- --
Provision for inventory obsolescence 7,500 -- --
Compensation expense related to debt conversion - 262,000 --
Compensation related to warrants - 47,090 --
Changes in operating assets and liabilities,
net of business acquisitions:
Accounts and other receivables (7,679) 823 --
Prepaid expenses (65,440) (21,600) (320)
Inventory 699 -- --
Deposits (7,755) (11,872) --
Accounts payable 132,233 28,060 --
Accrued expenses 42,057 4,058 400
Customer deposits 39,434 -- --
Accrued compensation 46,623 16,067 --
Payroll taxes payable 25,876 7,607 --
------------ ------------ ------------
Net cash used in operating activities (1,810,485) (624,999) (13)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (127,583) (109,283) --
Cash acquired in business combination - 18,660 --
Payments for business acquisition (195,792) -- --
------------ ------------ ------------
Net cash used in investing activities (323,375) (90,623) --
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (16,198) (2,102) --
Net proceeds from issuance of common stock, net
of issuance costs - 6,338,459 43,800
Subscription receivable 51,000 (51,000) --
Proceeds from exercise of stock options 186,000 -- --
------------ ------------ ------------
Net cash provided by financing activities 220,802 6,285,357 43,800
------------ ------------ ------------
Net increase (decrease) in cash (1,913,058) 5,569,735 43,787
CASH AND CASH EQUIVALENTS, beginning of period 5,613,922 44,187 400
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ending of period $ 3,700,864 $ 5,613,922 $ 44,187
============ ============ ============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-7
UBRANDIT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Nine months
Year ended ended Year ended
September 30, September 30, December 31,
2000 1999 1998
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 8,028 $ 1,393 $ --
============= ============= =============
Income taxes $ -- $ -- $ --
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Net tangible assets (liabilities) acquired
in business combination $ 235,127 $ (209,198) $ --
============= ============= =============
Issuance of common stock in business
acquisition $ 937,500 $ 913,000 $ --
============= ============= =============
Core technology recorded in business
combination $ -- $ 475,000 $ --
============= ============= =============
Goodwill recorded in business
combination $ 898,165 $ 647,198 $ --
============= ============= =============
Issuance of stock in repayment of
convertible debt $ -- $ (164,251) $ --
============= ============= =============
Issuance of stock in repayment of
related party advances $ -- $ (100,000) $ --
============= ============= =============
Property and equipment acquired under
capital leases $ 67,997 $ -- $ --
============= ============= =============
See reports of independent certified public accountants, and accompanying notes
to consolidated financial statements.
F-8
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Ubrandit.com ("Ubrandit" or 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. The name was again changed to Ubrandit.com on February 18,
1999. The Company's primary concentrations are in providing of "branded"
financial and e-commerce Web-based systems. The Company's branded
e-commerce system provides online access to books, CDs and videos. The
Company's financial system provides online access to stock quotes,
personal portfolio management, mutual fund data, news releases, investor
reports and exclusive editorial content. The Company also owns
Clicksmart.com, Inc., through which it also provides specialty books,
CDs and videos through mail order and online services.
FISCAL YEARS
Beginning with the period September 30, 1999, the Company changed its
fiscal year from December 31 to September 30. Accordingly, the
accompanying financial statements include the audited financial
statements for the year ended December 31, 1998, the nine months ended
September 30, 1999, and year ended September 30, 2000.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
statements of Ubrandit.com and its wholly owned subsidiaries, including
Ubrandit ISP.com, Inc., JungleJeff.com, Inc., Global Investors Guide,
and Clicksmart.com, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue from product sales when the products are
received by the customers. For all product sales transactions with its
customers, the Company acts as a principal, takes title to all products
sold upon shipment, bears credit risk, and bears inventory risk for
returned products that are not successfully returned to suppliers,
although these risks are mitigated through arrangements with credit card
issuers, shippers and suppliers.
The Company realizes mailing list revenue for Global Investors Guide 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of all highly liquid investments with
an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first out) or
market (net realizable value).
F-9
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND CORE TECHNOLOGY
Goodwill represents the excess of the purchase price over net assets
acquired through business combinations accounted for as a purchase and
is amortized on a straight-line basis over its estimated useful life of
five to seven years (see Note 3).
Core technology is carried at cost and is amortized on a straight-line
basis over its estimated useful life of five years (see Note 3).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed principally
using the straight-line method over the estimated useful lives of the
assets (or lease term, if shorter), which range from 3 to 7 years.
Maintenance and repairs are expensed as incurred while renewals and
betterments are capitalized.
LONG-LIVED ASSETS
The Company reviews the carrying amount of its long-lived assets and
identifiable intangible assets for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized
based on the differences between financial statement and income tax
bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, to reduce deferred tax
assets to the amount expected to be realized. The provision for income
taxes represents the tax payable for the period and the change during
the period in deferred tax assets and liabilities.
SEGMENT REPORTING
The Company follows Statement of Financial Accounting Standards No. 130,
"Disclosures About Segments of an Enterprise and Related Information."
The Company operates as a single segment and will evaluate additional
segment disclosure requirements as it expands its operations.
F-10
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is
recognized for its employee stock option plans, unless the exercise
price of options granted is less than fair market value on the date of
grant. The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
EARNINGS (LOSS) PER SHARE AND SHARES OUTSTANDING
Earnings (loss) per share is calculated pursuant to Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). Basic earnings (loss) per share includes no dilution and is
computed by dividing income (loss) available to common shareholders by
the weighted average number of shares outstanding during the period.
Diluted earnings (loss) per share reflects the potential dilution that
could occur from common shares issuable through stock options, warrants
and other convertible securities. Basic and diluted EPS are the same as
the effect of common stock equivalents on earnings (loss) per share is
antidilutive for all periods presented. Common stock equivalents
excluded from the calculation of earnings (loss) per share total
2,376,000 and 1,571,000 at September 30, 2000 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires all entities to disclose
the fair value of financial instruments, both assets and liabilities
recognized and not recognized on the balance sheet, for which it is
practicable to estimate fair value. This statement defines fair value of
a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of
September 30, 2000 and 1999, the fair value of all financial instruments
approximated carrying value.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") during Fiscal 2000. SFAS
130 established new rules for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. The adoption of SFAS 130 had no effect on the accompanying
consolidated financial statements, because the Company had no other
components of comprehensive income for all periods presented.
ADVERTISING
Advertising costs are expenses as incurred. Advertising costs totaling
$46,331 and $0 for the year ended September 30, 2000 and the nine-month
period ended September 30, 1999, respectively.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research and development are expensed as incurred.
F-11
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RELATED PARTY TRANSACTION
A board member of the Company also provides legal services to the
Company. The fees paid to said board member's law firm totaled $96,000
and $66,000 for the year ended September 30, 2000 and the nine-month
period ended September 30, 1999, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from
those estimates.
AMERICAN STOCK EXCHANGE LISTING
The Company's common stock may be delisted from the American Stock
Exchange if it fails to comply with applicable listing requirements.
Under the rules of the American Stock Exchange, among others, the
exchange may delist from trading any stock that trades below $1.00 for
more than 30 consecutive trading days. The Company's inability to
maintain its listing on the American Stock Exchange, could have an
adverse effect on the market for its common stock and the ability of its
stockholders to sell their shares.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to
concentration of credit risk, consist primarily of cash and accounts
receivable. The Company places its cash with high quality financial
institutions. The cash balances are approximately $3,500,000 and
$5,300,000 at September 30, 2000 and 1999, respectively, in excess of
the amounts insured by the Federal Deposit Insurance Corporation.
The Company extends credit to its customers based upon an evaluation of
the customer's financial condition and credit history and generally does
not require collateral. Credit losses are provided for in the financial
statements and consistently have been within management's expectations.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivatives
and Hedging Activities" ("SFAS No. 133"), which establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collective referred
to as derivatives), and for hedging activities. SFAS No 133, as amended
by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company currently does not engage in,
nor does it expect to engage in, derivative or hedging activities and,
accordingly, the Company anticipates there will be no impact to its
consolidated financial statements.
F-12
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
("SAB 101"). SAB 101 summarizes certain areas of the Staff's views in
applying generally accepted accounting principles to revenue recognition
in financial statements. The Company believes that its current revenue
recognition policies comply with SAB 101.
In July 2000, the EITF reached a consensus on EITF Issue 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent." This
consensus provides guidance concerning under what circumstances a
company should report revenue based on (a) the gross amount billed to a
customer because it has earned revenue from the sale of the goods or
services or (b) the net amount retained (that is, the amount billed to
the customer less the amount paid to a supplier) because it has earned a
commission or fee. Application of the provisions of this consensus did
not change the Company's existing accounting policies.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to be consistent with the 2000 presentation.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. The Company has
suffered substantial recurring losses from operations, expects to incur
additional losses, and has entered into a definitive agreement to
acquire a development-stage company with a history of substantial
operating losses and to which the Company has agreed to advance
$750,000. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
The Company has taken certain actions in an effort to become profitable
and improve cash flow from operations in the future. These actions
include seeking new revenue opportunities and additional financing
sources. In addition, the Company has entered into a plan of merger with
Mindtronics Corporation (see Note 8). Management continues to implement
plans to increase revenues, reduce existing cost structures, improve
operating efficiencies, and strengthen the Company's operating
infrastructure. There can be no assurances that management will be
successful in the implementation of its plans.
3. ACQUISITIONS
On March 11, 1999 the Company entered into an Agreement and Plan of
Exchange with a 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 as the sale of approximately
2,000,000 shares one month prior to the merger at $0.50 per share is the
best indicator of value
F-13
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
3. ACQUISITIONS (CONTINUED)
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, goodwill $647,198.
Management determined the goodwill fair value by reference to the
present value of estimated future cash inflows of the acquired assets,
and believes the valuation to be reasonable, 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:
Nine months ended Year ended
September 30, December 31,
1999 1998
------------------------ -----------------
Total revenues $ 66,342 $ 361,678
Net loss $ (1,175,184) $ (149,676)
Basic and diluted loss per share $ (0.12) $ (0.06)
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.
Effective April 30, 2000, the Company acquired certain assets of
Clicksmart.com, Inc. pursuant to the terms of an Asset Purchase
Agreement. The purchase price of the acquisition included the issuance
of 300,000 shares of the Company's common stock, with a fair market
value of $937,500, and a cash payment of $195,792. The acquisition has
been accounted for using the purchase method of accounting and the
assets acquired were recorded at their estimated fair values at the date
of the acquisition. The cost in excess of the net assets acquired was
$898,165, which is being amortized on a straight-line basis over the
estimated useful life of seven years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the business combination had
occurred at the beginning of the respective periods presented below.
Year ended Nine months ended
September 30, September 30,
2000 1999
-------------------- -------------------
Total revenues $ 1,873,946 $ 550,382
Net loss $ (2,548,223) $ (1,239,508)
Basic and diluted loss per share $ (0.21) $ (0.13)
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.
F-14
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, September 30,
2000 1999
-------------------- -------------------
Computer equipment $ 400,025 $ 128,622
Office furniture and equipment 55,455 44,434
Assets held under capital lease obligations 84,087 16,091
-------------------- -------------------
539,567 189,147
Less accumulated depreciation and amortization (136,230) (38,580)
-------------------- -------------------
$ 403,337 $ 150,567
==================== ===================
Included in accumulated depreciation and amortization is $18,178 and
$2,235 of amortization related to assets held under capital lease
obligations as of September 30, 2000 and 1999, respectively.
5. SHAREHOLDERS' EQUITY
COMMON STOCK
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 $5,400, pursuant to a Regulation D 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 $38,400, pursuant to a
Regulation D 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 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 3).
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 approximately $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 $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 in 1999. The Company issued the shares in April 1999.
F-15
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
5. SHAREHOLDERS' EQUITY (CONTINUED)
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 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 the year ended September 30, 2000, employees exercised 10,000
options at $0.75 per share and 119,000 options at $1.50 per share.
During the year ended September 30, 2000, the Company issued 300,000
shares valued at $937,500 in connection with an acquisition (see Note
3).
STOCK OPTIONS
In March 1999, the Company adopted the 1999 Stock Option Plan (the
"Plan"). The Plan is administered by a committee appointed by the Board
of Directors (the "Committee") which determines the recipients and the
terms of the options granted. The Plan provides that options granted may
be either incentive stock options or non-statutory stock. Options may be
granted to eligible employees, directors, consultants, vendors,
customers, and others to purchase shares of the Company's common stock
at a price generally not less than 110% of the fair market value of the
common stock on the date of grant for incentive stock options and not
less than 85% for non-statutory stock options. The Plan provides for the
granting of options for up to 2,500,000 shares of the Company's common
stock. During 2000, the plan was revised to increase the number of
options available for grant to 4,750,000. Options may expire up to five
years from the date of grant, subject to termination of employment.
The Company accounts for stock-based compensation for non-employees
using the fair value of the option award on the measurement date.
Compensation for non-employee stock options are recorded in the period
earned.
A summary of stock option activity is as follows:
Weighted
Average
Number of Price Per Aggregate Exercise
Shares Share Price Price
------------- -------------- ------------- -------------
Balance, December 31, 1998 -- $ -- $ -- $ --
Options granted 1,551,500 0.50-6.75 2,434,225 1.57
------------- -------------- ------------- -------------
Balance, September 30, 1999 1,551,500 0.50-6.75 2,434,225 1.57
Options granted 943,500 2.75-4.50 3,500,775 3.71
Options exercised (129,000) 0.75-1.50 (186,000) (1.44)
Options forfeited/cancelled (10,000) 4.93 (49,300) (4.93)
------------- -------------- ------------- -------------
Balance, September 30, 2000 2,356,000 $ 0.50-6.75 $ 5,699,700 $ 2.42
============= ============== ============= =============
F-16
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
5. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information with respect to stock options
outstanding at September 30, 2000:
Options Outstanding Options Exercisable
----------------------------------------------------- -------------------------------
Weighted
Number Average Number Weighted
Outstanding at Remaining Exercisable at Average
Exercise September 30, Contractual September 30, Exercise
Prices 2000 Life 2000 Price
---------------- ------------------- -------------- ---------------- -----------
$.50 775,000 3.3 775,000 $ .50
$1.50 231,000 4.3 231,000 1.50
$2.75 47,500 5.7 - -
$3.03-$3.75 1,181,000 5.2 238,334 3.34
$4.00-$4.93 107,500 4.7 87,500 4.40
$6.75 14,000 4.5 14,000 6.75
---------------- ------------------- -------------- ---------------- -----------
$.50-$6.75 2,356,000 4.5 1,345,834 $ 1.49
================ =================== ============== ================ ===========
If the Company had elected the fair value method of accounting for
stock-based compensation, compensation cost would be accrued at the
estimated fair value of all stock option grants over the service period,
regardless of later changes in stock prices and price volatility. The
fair value at date of grant for options granted during the year ended
September 30, 2000, the nine months ended September 30, 1999 and the
year ended December 31, 1998 has been estimated based on a Black-Scholes
valuation model with the following assumptions: no dividend yield;
expected volatility of 25% to 82% in 2000 and 110% to 118% in 1999,
based on historical results; risk-free interest rates of 6.5% in 2000
and 4.8% in 1999; and average expected lives of 2.5 years in 2000 and 5
years in 1999.
The weighted average fair value of the options granted during the
periods was $1.11 per share in 2000 and $1.11 per share in 1999.
The following table sets forth the net loss and loss per share amounts
for the periods presented as if the Company had elected the fair value
method of accounting for stock options:
Nine Months
Ended
Year Ended September 30,
September 30, 1999
2000 (restated)
------------------ -----------------
NET LOSS
As reported $ (2,403,850) $ (1,047,752)
================== =================
Pro forma $ (3,716,351) $ (1,818,157)
================== =================
BASIC AND DILUTED LOSS PER SHARE
As reported $ (0.20) $ (0.11)
================== =================
Pro forma $ (0.32) $ (0.19)
================== =================
F-17
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
5. SHAREHOLDERS' EQUITY (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options
have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its stock options.
Additional incremental compensation expense includes the excess of fair
values of options granted during the period over any compensation
amounts recorded for options whose exercise prices were less than the
market value at date of grant, and for any expense recorded for
non-employee grants.
All such incremental compensation is amortized over the related vesting
period, or expensed immediately if fully vested. The above calculations
include the effects of all grants in the periods presented. Because
options often vest over several years and additional awards are made
each year, the results shown above may not be representative of the
effects on net income (loss) in future years.
The Company accounts for stock-based compensation for employees under
the "intrinsic value" method. Under this method, no compensation expense
is recorded for these plans and arrangements for current employees whose
grants provide for exercise prices at or above the market price on the
date of grant. Compensation expense for employees is recorded based on
intrinsic value (excess of market price over exercise price on
measurement date) which is accounted for as unearned compensation and is
reflected as a separate component of shareholders' equity until earned.
All options awarded to employees during the years ended September 30,
2000 and 1999, were granted with exercise prices which equaled or
exceeded the market price of the common stock at the date of grant.
WARRANTS
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 of
4.8%, no dividend yield, expected volatility of 110% and average
expected life of 1.5 years.
6. INCOME TAXES
The provision for income taxes for the year ended September 30, 2000,
the nine months ended September 30, 1999, and year ended December 31,
1998 is comprised of the minimum current state income tax. Differences
between the statutory and effective tax rates are primarily due to
valuation allowances recorded to offset deferred tax benefits associated
with net operating losses.
F-18
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and amounts used for income tax purposes.
Components of the Company's deferred tax assets and liabilities are
comprised primarily of the future tax benefit of the Company's net
operating loss carryforward of approximately $1.1 million at September
30, 2000. Such deferred tax asset is offset by a valuation allowance
equal to the total net deferred tax asset balance.
As of September 30, 2000, the Company has a federal net operating loss
carryforward of approximately $2.8 million, expiring through 2020, and a
state net operating loss carryforward of approximately $1.8 million,
expiring through 2005.
The utilization of the net operating loss carryforwards could be limited
due to restrictions imposed under federal and state laws upon a change
in ownership. The amount of the limitation, if any, has not been
determined at this time. A valuation allowance is provided when it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. As a result of the Company's continued losses and
uncertainties surrounding the realization of the net operating loss
carryforwards, management has determined that the realization of
deferred tax assets is not more likely than not. Accordingly, a
valuation allowance equal to the net deferred tax asset amount has been
recorded as of September 30, 2000 and 1999.
7. COMMITMENTS AND CONTINGENCIES
LEASES
During 2000, the Company entered into an agreement to lease a new
corporate facility. The lease has an initial term of eighteen months.
The Company has also acquired certain equipment under capital leases
which are payable in various scheduled monthly installments through
March 2003.
Future minimum lease payments are as follows:
Operating
YEARS ENDING SEPTEMBER 30, Leases Capital Leases
--------------------------------------------------------- --------------- -----------------
2001 $ 154,454 $ 43,307
2002 80,049 26,524
2003 -- 8,851
--------------- -----------------
Total minimum lease payments $ 234,503 78,682
===============
Amount representing interest ranging from 16% to 19% (12,895)
----------------
65,787
Present value of future minimum capital lease
obligations, current portion (35,243)
-----------------
$ 30,544
=================
F-19
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense for the periods ended September 30, 2000, September
30, 1999 and December 31, 1998 were $134,231, $56,167 and $0,
respectively.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with the President of Clicksmart
which provides for a specified salary plus incentive compensation and
other benefits through May 2002.
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.
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.
The Company's subsidiary Global entered into a License Agreement with an
unrelated company on January 19, 1999. The Agreement grants a
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 are expensed as incurred.
In March 1999, the Company entered into a distribution and fulfillment
agreement with a third party company to provide and ship the books, CDs
and videos ordered on its branded e-commerce site. The agreement is for
a term of one year, and is automatically renewed for five one-year
successive periods. The Company incurred $273,155 and $9,250 with
respect to purchases of product pursuant to this agreement during the
year ended September 30, 2000 and the nine-month period ended September
30, 1999, respectively.
8. SUBSEQUENT EVENTS
On December 4, 2000, the Company entered into an agreement and plan of
merger with Mindtronics Corporation (the "Merger Agreement").
Mindtronics is a Utah based corporation in which the Company's Chairman
of the Board and COO owns 1 million shares (approximately 10% as of
September 30, 2000) of Mindtronics common stock.
Pursuant to the Merger Agreement, the Company will exchange 12,500,000
shares of the Company's common stock for all the outstanding shares of
Mindtronics capital stock. Consummation of the merger is subject to
numerous conditions, including, but not limited to, approval by the
Company's shareholders, completion of due diligence and other customary
F-20
UBRANDIT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999, AND DECEMBER 31, 1998
8. SUBSEQUENT EVENTS (CONTINUED)
conditions. The Company anticipates that the merger, if approved, will
be consummated early in the first quarter of 2001. In connection with
the Merger Agreement, the Company has agreed to advance Mindtronics
$750,000, of which $268,000 has been advanced to Mindtronics through
December 22, 2000.
As of December 22, 2000, the Company's cash position has decreased from
$3,700,864 to $2,812,698. The reduction of cash is due to cash advanced
to Mindtronics and funding of the Company's operations.
The Company has granted an additional 135,000 options subsequent to
September 30, 2000. Of these options, 7,500 vest immediately, 7,500 vest
six months from date of grant, 20,000 vest one year from date of grant
and 100,000 vest ratable over a 30-month period. The options have
exercise prices ranging from $0.50 to $3.00, with an average exercise
price of $1.85.
F-21