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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-28058
VILLAGEWORLD.COM, INC.
(Name of small business issuer in its Charter)
New York 11-3137508
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
620 Johnson Avenue, Bohemia, New York 11716
(Address of principal executive offices) (Zip Code)
(631) 218-0700
(Issuer'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
Class A Redeemable Common Stock Purchase Warrants
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [___]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
The Issuer's revenues for its most recent fiscal year were $1,276,115.
As of March 24, 2000, the aggregate market value of the Issuer's
Common Stock held by non-affiliates of the Issuer (based on the last sale price
of such stock) was approximately $31,215,000. At March 24, 2000, 18,474,290
shares of the Issuer's Common Stock were outstanding. (Assuming the
conversion of all outstanding Class B Preferred Stock the outstanding common
stock at March 24, 2000 would increase to 88,599,266 shares).
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VILLAGEWORLD.COM, INC.
INDEX TO ANNUAL REPORT ON FORM 10-KSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
ITEMS IN FORM 10-KSB
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Facing page
Part I
Item 1. Description of Business ......................................... 3
Item 2. Description of Property ......................................... 5
Item 3. Legal Proceedings ............................................... 6
Item 4. Submissions of Matters to a Vote of Security Holders ............ 6
Part II
Item 5. Market for Common Equity and Related Stockholder Matters ........ 6
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 8
Item 7. Financial Statements and Supplementary Data ..................... 12
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 12
Part III
Item 9. Directors and Executive Officers of the Registrant .............. 13
Item 10. Executive Compensation .......................................... 14
Item 11. Security Ownership of Certain Beneficial Owners and
Management ...................................................... 16
Item 12. Certain Relationships and Related Transactions .................. 17
Part IV
Item 13. Exhibits and Reports on Form 8-K ................................ 19
Signatures ............................................................... 20
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We are an internet service provider and as such provide our subscribers
with access to the world wide web in the same manner as do many other internet
service providers, the largest and most well known of which is America On Line.
We provide our subscribers with the same access to the wealth of information,
communications, services, programs and commerce available on the worldwide web
as are provided by other internet service providers, including the largest
provider. We also sell and install network systems consisting of both computer
hardware and software. We have so far installed hundreds of network systems,
including sixty for school districts, ranging in cost from several thousand
dollars to over $5,000,000. Our revenues have been principally provided from
installing network systems.
We believe that we have created a niche for ourselves as both an installer
of network systems and as an internet service provider, in the services we
provide to school districts and the children, teachers and parents in those
school districts. To date our activities have been primarily in the New York
metropolitan area. To date we have established eleven separate network systems,
each of which is based on a school district or educational institution. Our
target market of potential subscribers for each network system we install for a
school district or educational institution are the schools themselves and
particularly the students, parents, teachers and staff of the schools in the
school district or of the educational institution. Our appeal to those persons
is the availability of directories of teachers, students and administrative
staff allowing more readily available communication with and among such persons
concerning homework assignments and other aspects of their school's activities,
and of other directories such as school calendars which are of interest to our
subscribers. We also prepare with the guidance of those school districts and
educational institutions and make available to our subscribers a large volume of
source material for use by the students in their studies and for their homework
assignments. Such material is more readily available from us than it would be
from other internet service providers because we store such information on our
systems where it can more easily be found by the students and other subscribers.
Our services as an internet provider, and particularly of the directories
and other information about a specific school district or educational
institution, are made known to that district's or institution's students, parent
body, teachers and administrative staff by the school district or educational
institution itself. This is the main way in which our subscribers find out about
us and subscribe for our service. We also secure subscribers by advertising in
the school publications and the local media available in the school district or
the area in which the educational institution is located. As noted above, we
also provide our subscribers with access to the world wide web. We also sell
advertising on each of our school district or educational institution based
networks to local merchants in that community. Such advertising aimed at our
subscribers who are located in the community where the retail establishment is
located, is obviously more effective for such local merchants than advertising
on a network whose subscribers are not so geographically concentrated. We also
provide web hosting services in which we assist those merchants or others to
establish and maintain a web site at which they provide information about their
products, services and themselves.
Special features of our networks are:
- Our subscribers have the option of filtering out adult oriented
material. We have at least 10,000 adult oriented sites that are
automatically blocked by our caching equipment so as to prevent
access to such sites from our subscribers computers where the
subscriber has elected that option. We continually update the list
of such sites mostly based on information initially received from
our subscribers about new sites providing adult oriented material,
and after review by our staff of the material available at that
site.
- When our subscriber requests information from a web site on the
internet, we download the information on
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that web site onto our system's memory and send it to our
subscriber. When the next subscriber attempts to access the same
information, we send it from our memory instead of going onto the
internet and downloading it again. This saves our subscriber time
and reduces their costs in securing such material.
- Using larger bandwidth on which to store material in our memory, and
leasing T-1 and T-3 lines to enable our subscribers faster access on
our network system and on the world wide web.
- Providing our subscribers and our other customers with what we
believe is high quality customer service and support.
The hardware and software equipment and systems we sell and install are
manufactured and supplied by the largest and best known companies, including
Cisco Systems, Sun Microsystems, Microsoft, Oracle, IBM, Digital Equipment,
Compaq Computer and Intel. These and other vendors help train our employees in
the use, installation and maintenance of their products.
We have identified the following strategic initiatives which we are
currently undertaking and plan to pursue in the future:
- Establish similar network systems for other, non-educational groups.
We recently entered into an agreement with a church association with
a membership of thousands of churches throughout the United States,
to enable such church body to be an internet service provider to
their churches and church members, through our internet network, for
which we will receive a portion of the continuing periodic
subscription fees. That church association has advised us that they
plan to start soliciting subscribers in March, 2000.
- Establish and/or maintain network systems for school districts,
educational institutions and other community based groups in other
areas of the United States by establishing strategic relationships
with other companies in those areas who install and/or maintain
network systems, web sites or other computer or network based
systems and programs. We anticipate that even if we do not share in
the revenues generated from the design and installation of those
networks, we will either maintain the network system and receive all
or the bulk of the fees paid by subscribers, or receive franchise
fees for permitting those other companies to use our technology for
installing and operating such community based network systems. We
have filed registrations to conduct such franchising programs in
three states, New York, California and Illinois, and expect to file
in additional states.
- We also serve as a subcontractor providing technical support for the
customers of other internet service providers. We recently entered
into an agreement with Ultrastar Internet Services, LLC under which
we are to provide Ultrastar with dial up and digital subscriber
lines, internet access and technical support for private label
internet services using as the names of the internet service
provider those which Ultrastar is contractually permitted to use,
such as, the New York Yankees, the Baltimore Orioles, David Bowe and
Hanson. Under the terms of our agreement with Ultrastar, we are to
receive a portion of each subscription fee paid by subscribers to
Ultrastar.
- Continue our efforts to attract new community groups who want our
system installed and maintained, and thereby expand our subscriber
base.
At present we have approximately 2,000 paying subscribers to our network
systems. We have 35 employees, of whom four are executive officers of our
company.
We are in the process of winding down and discontinuing the business
previously conducted by our predecessor of operating retail bagel outlets, and
franchising others to operate retail bagel outlets, in different parts of the
United States.
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RECENT DEVELOPMENTS
On January 24, 2000 we signed a contract valued at more than $500,000 to
provide hardware installation and services to the eight schools and over 5,500
students of the Commack Union Free School District. This contract represents the
sixty-second school district in the New York region to employ us for our
networking and internet service provider ("ISP") services.
In February 2000 we entered into an agreement with Bobby Valentine,
manager of the New York Mets', as a celebrity spokesman, for the purpose of
certain promotions of our ISP franchising program.
COMPETITION
There are many companies that provide the same network installation
services that we offer. There are also many internet service providers. Many of
those and other potential competitors are well established, are much larger than
we are and have substantially greater financial and other resources than we
have. Our success will depend on our ability to establish and maintain a
competitive position in these marketplaces, which we may not be able to do.
TRADEMARKS AND SERVICE MARKS
Our service marks "Village World(R)" and "Village Net(R)" are registered
with the United States Patent and Trademark Office. We have filed a trademark
application with the United States Patent and Trademark Office seeking
registration for "VillageWorld.com(TM)".
CORPORATE INFORMATION:
We were incorporated in New York on December 14, 1992 under the name Big
City Bagels, Inc. On July 1, 1999, Village Net, Inc. ("VillageNet") completed
its merger with our predecessor Big City Bagels, Inc. and on December 30, 1999
we changed our name to VillageWorld.com, Inc. Our principal executive offices
are located at 620 Johnson Avenue, Bohemia, New York 11716. Our phone number is
(631) 218-0700 and our fax number is (631) 218-0769. We also maintain an
internet site on the world wide web at www.villageworld.com. Information
contained on our web site is not, and should not be deemed to be, a part of this
Annual Report on Form 10-KSB.
ITEM 2. DESCRIPTION OF PROPERTY
Our principal offices are located in leased facilities at 620 Johnson
Avenue, Suite 1B and Suite 6, Bohemia, New York 11716. The lease term for Suite
1B is from April 1, 1997 through March 31, 2002 and we have an option to renew
such lease for an additional five years. For the use of Suite 1B we pay annual
rent of $33,000 with such rent increasing by 4% per year for the remainder of
the lease term. The lease term for Suite 6 is from April 1, 1999 through March
31, 2002 and we have an option to renew such lease for an additional five years.
For the use of Suite 6 we pay annual rent of $30,000 with such rent increasing
by 5% per year for the remainder of the lease term.
We also lease office space at 3101 West Coast Highway, Suite 311, Newport
Beach, California 92663. We pay annual rent of $22,452 and such lease expires on
December 31, 2000.
ITEM 3. LEGAL PROCEEDINGS
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There are legal proceedings pending against us arising from the business
formerly conducted by us operating and franchising retail bagel outlets. Both
claims together do not exceed $119,000 and are not material claims against us.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of our stockholders held on December 30, 1999, our
stockholders voted to:
(a) amend our certificate of incorporation to increase the number of shares of
our common stock, par value $.001 per share, we are authorized to issue from
25,000,000 shares to 200,000,000 shares. The tabulation of the votes (both in
person and by proxy) was as follows:
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For Against Abstentions
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11,680,383 292,071 14,924
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(b) amend our certificate of incorporation to change our name from Big City
Bagels, Inc. to VillageWorld.com, Inc. The tabulation of the votes (both in
person and by proxy) was as follows:
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For Against Abstentions
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10,519,454 11,000 6,217
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock had been quoted under the symbol "VILN" on the OTC
Bulletin Board. On January 6, 2000 we changed our symbol to "VILW" to reflect
our name change from Big City Bagels, Inc. to VillageWorld.com, Inc. Our Class A
Warrants trade under the symbol "VILWW".
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The following table sets forth the range of high and low bid quotations of
our common stock, as reported by Nasdaq, for the periods indicated. The prices
represent inter-dealer quotations, which do not include retail markups,
markdowns or commissions, and may not represent actual transactions.
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Common Stock Warrants(2)
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Period High Low High Low
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1998(1)
First Quarter 7-1/2 3-3/4 3/8 1/16
Second Quarter 3-3/4 1-1/4 5/32 1/16
Third Quarter 1-1/32 3/8 1/16 1/32
Fourth Quarter 3/8 1/8 0 0
1999
First Quarter 2-31/32 3/16 .01 .001
Second Quarter 2-13/32 7/8 0 0
Third Quarter 1-23/32 21/32 .001 .001
Fourth Quarter 7/8 3/8 0 0
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(1) The prices for our common stock have been adjusted to reflect our
one-for-five reverse stock split effected on June 24, 1998.
(2) Our Class A warrants were delisted from Nasdaq on November 18, 1998
because there were no active market makers registered to trade our Class A
warrants.
On March 24, 2000, the last sale price for our common stock as reported by
the OTC Bulletin Board was $2.63.
SECURITY HOLDERS
At March 24, 2000 there were 18,474,290 shares outstanding and 77 holders
of record of Common Stock, and 481,250 Class A Warrants outstanding and 11
holders of record. The Company believes that there are in excess of 500
beneficial owners of its Common Stock, most of whose shares are held in street
name. This figure of outstanding shares does not include 70,124,976 shares of
our common stock issuable upon conversion (at a rate of 138-to-1) of 508,152
outstanding shares of our Class B preferred stock and does not include our
common stock issuable upon conversion of our Class C preferred stock. Such
figure of outstanding shares also does not include 811,030 shares of common
stock issuable upon the exercise of outstanding warrants and options.
DIVIDEND POLICY
We have not paid, and our board of directors does not presently intend to
declare, any dividends on our common stock in the foreseeable future. We
anticipate that all of our earnings and other resources, if any, will be
retained by us for investment in our business. Even if we wanted to pay any
dividends, the designation of preferences for our Class C preferred stock
prohibits payment of dividends on our common stock so long as the dividends on
such preferred stock are unpaid. As of March 24, 2000, $574.19 of dividends were
paid in the form of our common stock on our Class C preferred stock which had
been converted into our common stock. In the future we expect to accumulate,
rather than pay, the dividends on our outstanding preferred stock. In addition,
we may incur indebtedness in the future, the terms of which may prohibit or
effectively restrict dividend payments.
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RECENT SALES OF UNREGISTERED SECURITIES
On July 1, 1999, pursuant to an exchange of securities the Company became
the legal parent of two companies, ICS, and VillageNet, that were conducting the
business now conducted by the Company, the installation of internet network
systems and as an internet service provider. In that transaction, commonly
referred to a reverse acquisition, the Company issued to the stockholders of ICS
and VillageNet an aggregate of 8,619,466 shares of the Company's common stock
and 508,152 shares of our Class B preferred stock which are convertible at the
holder's options into an aggregate of 70,124,976 additional shares of the
Company's common stock. Such transaction was arranged by Perrin, Holden and
Davenport Capital Corp. ("PHD") who received warrants to purchase 500,000 shares
of the Company's common stock, which were later exchanged by PHD for 360,000
shares of the Company's common stock.
In July 1999, Mark Weinreb entered into a Severance and Consulting
Agreement with the predecessor company. Pursuant to the agreement he was
awarded, pursuant to our 1998 Performance Equity Plan, a grant of 125,000 shares
of our common stock.
In the summer and fall of 1999 PHD arranged for an aggregate of $600,000
to be loaned to the Company. The Company issued notes to the lenders and granted
them warrants to purchase 375,000 shares of common stock at an exercise price of
$0.75 per share.
In December 1999, the Company sold 15,800 shares of its Class C preferred
stock to 19 accredited investors for an aggregate of $1,580,000. Part of such
$1,580,000 raised was used to repay the $600,000 promissory notes referred to
above.
PHD acted as placement agent for which services the Company paid PHD
$158,000, reimbursed PHD for its expenses and issued 94,800 shares of the
Company's common stock to PHD.
In December 1999, the Company issued (a) 360,000 shares of its common
stock to PHD in exchange for the 500,000 warrant (referred to above) held by PHD
to purchase shares of the Company's common stock; (b) 189,359 shares of its
common stock to five persons in exchange for their warrants (referred to above)
to purchase 375,000 shares of the Company's common stock and in lieu of payment
of the accrued interest on the $600,000 of promissory notes held by them, and
(c) 51,455 shares to PHD in exchange for the warrant (referred to above) to
purchase 90,000 shares of the Company's common stock.
All of the foregoing issuances, grants and exchanges were exempt from the
registration requirements of the Securities Act under either Regulation D or
Section 4(2) or Section 3(a)(9).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes thereto. The
discussion of results, causes and trends should not be construed to imply any
conclusion that such results or trends will necessarily continue in the future.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-KSB and in our future filings with the Securities and
Exchange Commission, the words or phrases "will likely result,", "management
expects" or the "the Company expects," "will continue," "is anticipated,"
"estimated", "believe", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Section 21E of the
Securities Exchange Act of 1934, as amended. Readers are cautioned not to place
undue reliance on any such forward-looking statements, each of which speak only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
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historical earnings and those presently anticipated or projected. We have has no
obligation to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
MERGER
On July 1, 1999, Village Net, Inc. ("VillageNet") completed its merger with our
predecessor Big City Bagels, Inc. ("BCB") and Intelligent Computer Solutions,
Inc. ("ICS"). For accounting purposes, the transaction was accounted for as a
reverse acquisition where BCB and ICS are treated as the acquired companies and
VillageNet as the acquiring company, as the shareholders of VillageNet obtained
a majority of the shares of the combined company upon completion of the merger.
Accordingly, VillageNet's financial statements are the historical financial
statements presented. BCB and ICS are included in the financial statements from
the date of the merger, although BCB's discontinued operations through December
31, 1999 were accrued at June 30, 1999 in accordance with generally accepted
accounting principles. The following discussions relate to the historical
financial results of VillageNet for all periods and include the results of ICS
beginning July 1, 1999.
VillageNet, founded in June 1995, is a community-oriented internet service
provider specializing in educational and family-based internet services with a
local emphasis on business advertising and shopping, chat rooms and
parent/student/teacher interaction. It is a subscriber service that offers
solutions to the world closest to home, simplifying and concentrating internet
information for users interested in on-line purchases as well as their local
community's activities, including educational, cultural and consumer affairs.
Our internet provider service is based on the idea that people want to use the
internet as a convenient way to communicate with school districts, local
government and local businesses, taking advantage of the latest technology
available for such user services.
ICS, founded in October 1994, is a systems-integration firm specializing in
network design, implementation and maintenance and providing internet/intranet
messaging and security products and services. Its wide range of services, from
complex installations for the Pentagon and Fortune 500 companies to educational
institutions, has led to rapid growth of the business. ICS also manufactures
several specialized Internet applications in the area of messaging and security.
It plans to offer these products and services nationally.
SELECTED FINANCIAL DATA
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Year Ended December 31,
SUMMARY OF OPERATIONS: 1999 1998
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Total Revenues $ 1,276,115 $ 418,712
Net income (loss) $ (1,234,890) $ 70,418
Basic and diluted income (loss) per common share $ (0.02) $ 0.00
Weighted average common shares outstanding, giving effect
to the conversion of all Class B Preferred Stock outstanding 63,269,036 39,372,221
YEAR-END FINANCIAL POSITION:
Working capital $ 328,904 $ 246
Total assets $ 4,831,695 $ 264,452
Total liabilities $ 1,910,454 $ 381,725
Stockholders' equity (deficit) $ 2,921,241 $ (117,273)
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RESULTS OF OPERATIONS
Revenues for the year ended December 31, 1999 were $1,276,115 compared to
$418,712 for the year ended December 31, 1998 an increase of 205%. This increase
was primarily attributable to the addition of ICS sales of $902,961 for the six
months ended December 31, 1999. Subscription service revenue decreased by
$45,558 for the
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year ended December 31, 1999. This decrease was primarily attributable to a
decline in the number of subscribers, as the Company scaled back on its
advertising and marketing efforts until it raised capital for expansion.
Cost of sales were $952,333, representing 75% of total revenues for the year
ended December 31, 1999, compared to $198,733 or 47% of total revenues for the
year ended December 31, 1998. This increase in cost of sales as a percentage of
sales was primarily attributable to the addition of ICS's computer network
business for the year ended December 31, 1999. Cost of sales of ICS were
$717,170, representing 79% of hardware sales and installation services for the
year ended December 31,1999. Cost of sales of VillageNet were $235,163 and
$198,733, representing 63% and 47% of revenues for subscription services for the
year ended December 31, 1999 and 1998, respectively. VillageNet upgraded its
backbone service and redundancy to ensure its connectivity. These costs
increased without an increase in revenues. This was undertaken to position the
Company for expansion of its internet business.
Selling, general and administrative expenses (SG&A) were $961,061 for the year
ended December 31, 1999, an increase of 712% from $118,361 for the year ended
December 31, 1998. This increase was primarily attributable to the addition of
the SG&A expenses of ICS and us for the year ended December 31, 1999. Of the
total SG&A expenses, $416,520 represents us and $544,541 represents ICS. There
was an increase of $84,996 in professional fees of which $35,793 were
attributable to the merger. Rent increased by $16,262 for office space acquired
in the merger. There was an increase of $27,893 in filing costs from the
previous year.
Interest expense increased by $587,753 during the year ended December 31, 1999,
due to the incorporation of debt financing and bridge loans relating to the
private placement of Class C Preferred Stock. Of such increase, $475,000 of
interest expense was attributable to the like-amount reduction in the stated
principal of the bridge loans in order to recognize the fair value of common
stock purchase warrants issued therewith.
The net loss for the year ended December 31, 1999 was $1,234,890 compared to net
income of $70,418 for the year ended December 31, 1998. The primary reasons for
the increase in the current period loss were: (i) the incorporation of the
results of operations of ICS amounting to $224,646; (ii) and amortization
expense of goodwill of $141,758; (iii) one time in nature, non-recurring costs
related to the merger; (a) interest expense attributable to the bridge loan
financing prior to the Preferred Stock private placement amounting to $569,680;
(b) a severance expense to the former CEO amounting to $178,750.
The Company has identified certain accounting adjustments applicable to its
reporting at September 30, 1999. These adjustments relate to the reporting of
discontinued operations, stock based severance compensation, additional
(inputed) interest expense and goodwill. (See Note O in Notes to Consolidated
Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1999 were $800,561, compared to
$21,897 at December 13, 1998. This increase was primarily attributable to the
Company's receipt of proceeds from the private placement of Preferred Stock.
Accounts receivable increased to $494,820 at December 31, 1999, from $43,454 at
December 31, 1998. This increase was primarily due to the acquisition of
accounts receivable of $469,142 in the merger with ICS.
Inventory increased to $96,791 at December 31, 1999 from $0 at December 31,
1998, due to the acquisition of inventory of $96,791 in the merger with ICS.
Prepaid expenses and other current assets increased to $129,094 at December 31,
1999 from $0 at December 31, 1998, due to the acquisition of prepaid insurance
and other current assets of $82,772 and prepaid taxes of $46,322 in the merger
with ICS.
Fixed assets, net of accumulated depreciation, increased to $325,285 at December
31, 1999 from $141,485 at December 31, 1998, as a result of the purchase of
$139,425 of internet equipment to upgrade and increase the Company's internet
capacity and reliability, and the acquisition of equipment of $94,478 in the
merger.
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Intangible assets, net of accumulated amortization, increased to $2,694,252 at
December 31, 1999 from $916 at December 31, 1998. This increase resulted from
the recognition of $2,835,173 in excess of costs over fair value of net assets
acquired in the purchase of ICS by VillageNet. Amortization expense of $141,837
was recognized for the year ended December 31, 1999.
Security deposits and other assets increased to $13,230 at December 31, 1999
from $0 at December 31, 1998, primarily due to the acquisition of security
deposits of $10,378 in the merger with ICS.
The combination of accounts payable and accrued expenses increased to $411,693
at December 31, 1999 from $24,320 at December 31, 1998. This increase was
primarily due to the assumption of accounts payable and accrued expenses of
$342,135 in the merger with ICS.
Notes and loans payable increased to $767,885 at December 31, 1999 from $306,301
at December 31, 1998. We have obtained $200,000 of bank notes, maturing April
30, 2000 with interest payable monthly at prime plus two percent, to fund
operations. In addition $516,531 of loans were assumed in the merger with ICS,
these loans are subordinated to the bank debt with interest at five percent per
annum.
At December 31, 1999, we had $328,904 of working capital and a current ratio of
1.25 to 1.
Our operating activities used net cash of $720,615 during the year ended
December 31, 1999, as compared to net cash provided by operations of $133,164
for the prior year. This increase in use of cash was primarily due to the
funding of our net loss from continuing operations and pay liabilities
associated with discontinued operations.
Management of the predecessor had decided to discontinue its business as a
franchiser and operator of a commissary that supplies retail stores and
wholesale accounts with bagel products, because we recognized that this
remaining business would not generate sufficient revenues to achieve
profitability.
We will require additional working capital to finance operations as well as to
pay liabilities of the discontinued operations of our former bagel franchise
business. Additionally we plan to expand our internet business through the
franchising of internet service providers and increase our marketing and
advertising to expand its local ISP network.
We have signed a letter of intent with Millenium Development Group, LLC, wherein
they propose to invest $3,000,000 for 3,000,000 shares and 3,000,000 common
stock purchase warrants (See Note P in Notes to Consolidated Financial
Statements).
The Company intends to acquire internet companies currently outsourcing internet
access needs that are compatible with the ISP services offered by the Company.
By then placing these companies on its existing backbone infrastructure, we
expect to add services, attract new internet users and increase revenue through
the elimination of outsourcing costs of the acquired companies.
11
<PAGE> 12
OTHER MATTERS
Year 2000 Compliance
To date we have not incurred any problems relating to dates beyond the year 1999
and to the best of our knowledge we do not anticipate any material problems to
arise.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto are included herewith commencing on
page 22.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 30, 1999, we dismissed our independent accountant, Richard A.
Eisner & Company, LLP ("RAE"). None of RAE's reports on the financial statements
during the past two fiscal years contained an adverse opinion or disclaimer of
opinion, or was modified as to audit scope or accounting principles. The report
issued by RAE on our Form 10-KSB for the year ending December 31, 1998 contained
an explanatory paragraph regarding our ability to continue as a going concern.
During our engagement of RAE, there were no disagreements with RAE on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to RAE's
satisfaction would have caused RAE to make reference to the subject matter of
the disagreement in connection with its report. We requested that RAE furnish us
with a letter addressed to the U.S. Securities and Exchange Commission stating
whether it agrees with the above statements. A copy of that letter was filed
with the SEC.
On December 30, 1999, we engaged Laurence Rothblatt & Company
("Rothblatt"), to serve as our independent accountant and auditor for future
periods. Prior to December 30, 1999, Rothblatt. had served as the independent
auditor for VillageNet, Inc. Except for consultation with matters relating to
VillageNet, Inc., during our two most recent fiscal years and the subsequent
interim period preceding our engagement of Rothblatt, neither we nor anyone on
our behalf had consulted with Rothblatt regarding the application of accounting
principles to a specific or contemplated transaction, or the type of audit
opinion that might be rendered on our financial statements, and no written or
oral advice was provided to us that was an important factor considered by our
board of directors in reaching a decision as to any accounting, auditing or
financial reporting issue.
Our dismissal of RAE and the engagement of Rothblatt was approved and
ratified by our Board of Directors. We do not have an audit committee.
12
<PAGE> 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the members
of our board of directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter J. Keenan 30 Chairman of the Board and President
Robert Appel 27 Chief Executive Officer
Edilberto R. Enriquez 39 Treasurer and Chief Financial Officer
Hector M. Gavilla 56 Director
Moshe Schwartz 30 Director
David A. Levi 23 Secretary and Director
Dr. Steven Levi 30 Director
</TABLE>
Peter J. Keenan has served as president of our company since July 1999
and has also served as the President of Intelligent Computer Solutions, Inc.
("ICS"), which was merged with our company on July 1, 1999. From October 1994
to June 1996, Mr. Keenan was technical director of ICS. Since 1995, Mr.
Keenan also served as technical director of VillageNet, Inc., which was also
merged with our company on July 1, 1999. From September 1991 to October
1994, Mr. Keenan was employed by Advanced Testing Technologies, Inc. ("ATTI")
as a purchasing agent.
Robert Appel has served as CEO of our company since March 2000. From June
1999 - March 2000 Mr. Appel served as an internal management consultant with
Donaldson, Lufkin & Jenrette, Pershing Division. From September 1998 May 1999
Mr. Appel attended New York University, Stern School of Business and received
his masters degree in business administration. From February 1998 August 1998,
Mr. Appel served as a Vice President of Brean Murray & Co. and from 1994 through
1998 he was an assistant portfolio manager for Shufro, Rose & Ehrman.
Edilberto R. Enriquez has been employed as treasurer and chief financial
officer of our company since July 1999 and served as the controller of ICS since
March 1999. From December 1997 to March 1999, Mr. Enriquez was employed as an
accounting manager for IHC Services, Inc., an exporting company. From 1991 to
October 1997, Mr. Enriquez was a senior accountant at Linotype-Hell Company, a
manufacturing company.
Hector M. Gavilla has served as a director of our company since July 1999,
and served as President of ATTI since 1998. Since 1994, Mr. Gavilla has been
vice president and secretary of each of ICS and VillageNet and has served as an
executive officer of the following companies: European Testing Technologies,
Ltd., ATTI Europe, ATTI International Development, Inc., Automated Computer
Systems, Inc. and ICS Systems, Inc. Of these companies, only ATTI Europe and ICS
Systems are actively operating. ICS Systems is a computer software company
specializing in operating systems and electronic drivers for automatic test
equipment.
Moshe Schwartz has been a director of our company since March 2000.
Mr. Schwartz is currently an independent investment banking consultant, from
July 1998 through February 2000 he served as a Vice President at KCSA Public
Relations. Mr. Schwartz received his J.D. in 1995 from the Cardozo School of
Law and from 1995 through 1998 was an Assistant District Attorney in Kings
County, New York.
David A. Levi has been a director of our company since October 1999.
Mr. Levi served as a purchasing agent for ATTI since January 1997. Since May
1998, Mr. Levi served as president of ICS Systems. From 1994 to 1997, Mr.
Levi was a student at the University of Michigan where he received a degree
in history.
13
<PAGE> 14
Dr. Steven Levi has been a director of our company since March 2000.
Dr. Levi received his M.D. in 1995 from Pittsburgh University and is
currently a practicing physician in the field of internal medicine at
Jefferson Memorial Hospital in Philadelphia, PA. From 1995 to 1998 Dr. Levi
served as the Director of new development for ICS Systems. David A. Levi and
Dr. Steven Levi are brothers.
Our board of directors is elected at each annual meeting of our
shareholders. Each director holds office until his successor is duly elected and
qualified or until his or her earlier resignation or removal. Our directors do
not currently receive any fees or other compensation in connection with their
services as directors. We currently have no separate committees of directors,
and all directors participate in matters customarily delegated to an audit
committee, compensation committee and executive committee.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to our Chief Executive
Officer in the year ended December 31, 1999. There are no other executive
officers whose compensation exceeded $100,000 in the year ended December 31,
1999.
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------------------
Year Salary Bonus Other Annual Compensation
Name and Principal Position ($) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter J. Keenan 1999 97,981 -- --
Chairman of the Board and President 1998 109,367 -- --
1997 108,704 -- --
- ------------------------------------------------------------------------------------------------------------------
Mark Weinreb 1999 105,968 -- $22,500
Chairman of the Board, Chief Executive 1998 192,550 -- --
Officer and Secretary (Predecessor Company) 1997 185,696 -- --
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Our Executive Officers, named above, routinely received other benefits
from us, the amounts of which are customary in the industry. We have concluded,
after reasonable inquiry, that the aggregate amounts of such benefits during the
year ended December 31, 1999 did not exceed 10% of the compensation set forth
above as to the named individuals. In 1999 prior to the merger Mark Weinreb
entered into a Severance and Consulting Agreement with the predecessor company.
Pursuant to the agreement we awarded him, pursuant to our 1998 Performance
Equity Plan, a grant of 125,000 shares of our common stock. In addition, we
retained Mr. Weinreb as a consultant beginning July 1, 1999 for a period of 16
weeks, for which we paid a total of $22,500 in consulting fees.
14
<PAGE> 15
The following table summarizes the number of shares and the terms of stock
options granted to the Company's Executive Officers in the year ended December
31, 1999:
OPTION/SHARE GRANTS DURING YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------------------------------------------
Options/ % of Total
Name and Position Shares Options/Shares Granted Exercise Price Market Price on
During Period Granted to Employees in ($/Price) Date of Grant Expiration Date
Fiscal Year ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mark Weinreb
Shares 125,000 100% N/A $1.43 N/A
Options 52,000 87% $0.48-$2.00 $0.9375-$2.00 7/1/2004 -
3/30/2009
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYMENT AGREEMENTS
In August, 1996, Intelligent Computer Solutions, Inc. (ICS), entered into
an employment agreement with Mr. Peter Keenan. The employment agreement provides
for employment on a full-time basis and contains provisions that Mr. Keenan will
not compete or engage in a business competitive with our current or anticipated
business until eighteen months after the termination of his employment
agreement. Pursuant to the employment agreement, we currently pay Mr. Keenan a
base salary of $100,000 per annum.
On March 13, 2000, we entered into a memorandum of understanding with Mr.
Robert Appel, pursuant to which he became our Chief Executive Officer. The
memorandum provides for employment on a full-time basis and contains provisions
that Mr. Appel will not compete or engage in a business competitive with our
current or anticipated business until twelve months after the termination of his
agreement. The memorandum provides for a base salary of $75,000 per annum and we
have granted him a five-year option to purchase 300,000 shares of our common
stock at an exercise price of $.01 per share and vesting rights being
negotiated.
1996 PERFORMANCE EQUITY PLAN
In March 1996, our predecessor adopted a 1996 Performance Equity Plan (the
1996 Plan). The 1996 Plan is administered by our Board of Directors which
determines the persons (other than directors) to whom awards will be granted,
the number of awards to be granted, and the specific terms of each grant subject
to the provisions of the 1996 Plan.
Awards consist of stock options (both non-qualified options and options
intended to qualify as Incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended), a restricted stock awards, deferred stock
awards, stock appreciation rights, and other stock-based awards, as described in
the 1996 Plan.
On March 31 of each calendar year during the term of the 1996 Plan each of
our directors will automatically be awarded ten year options to purchase 2,000
shares of common stock at an exercise price which is the fair market value of
our common stock on such March 31. All of such options will be immediately
exercisable as of the date of grant.
Of the 70,000 shares for which options can be granted under the 1996 Plan,
7,988 shares were issued upon the exercise of options granted, 33,780 shares are
reserved for issuance upon exercise of outstanding options at exercise prices
ranging from $0.9375 to $42.50 per share and 28,232 shares are currently
reserved for options to be granted in the future.
1998 PERFORMANCE EQUITY PLAN
In 1998, our predecessor adopted a 1998 Performance Equity Plan (the "1998
Plan"). The 1998 Plan is
15
<PAGE> 16
administered by our Board of Directors or a committee appointed by our Board.
Options to purchase up to 400,000 shares of our common stock may be granted
under the 1998 Plan. We have already granted options to purchase 100,000 shares
exercisable at $1.00 per share, under the 1998 Plan. In addition 125,000 shares
of common stock were issued to Mark Weinreb in connection with his severance
agreement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 24, 2000,
with respect to the beneficial ownership of our common stock by (i) each of our
current directors (ii) each executive officer, (iii) all of our directors and
executive officers as a group and (iv) each person known by us to own
beneficially more than five per cent (5%) of the outstanding shares of our
common stock.
<TABLE>
<CAPTION>
Name and Address of Beneficial Number of Shares of Number of Shares of Class B Preferred Percent of
Owner (1) Common Stock Stock Beneficially Owned and Number Class
Beneficially Owned (2) of Shares of Common Stock Into which Assuming
it is Convertible (2)(3) Conversion
Class B Stock of Common Stock If
Unconverted Class B Shares are
Converted
<S> <C> <C> <C> <C>
Robert Appel 0 0 0 0%
Edilberto R. Enriquez 0 0 0 0%
Hector M. Gavilla 1,716,198(4) 101,178(4) 13,962,564(4) 17.70%
Hector P. Gavilla 1,454,534 85,750 11,833,500 15.00%
Peter J. Keenan 2,185,651 128,854 17,781,852 22.54%
David A. Levi 489,719 28,871 3,984,198 5.05%
Eli Levi 1,701,575(5) 100,315(5) 13,843,470(5) 17.55%
Roberta Levi 1,701,575(5) 100,315(5) 13,843,470(5) 17.55%
Dr. Steven Levi 489,719 28,871 3,984,198 5.05%
Moshe Schwartz 0 0 0 0%
Directors and Executive Officers 4,881,287(6) 287,774(6) 39,712,812(6) 50.33%
as a group - (seven persons)
</TABLE>
- ---------------
(1) Each such person's address is at the Company's executive offices, 620
Johnson Avenue, Bohemia, New York 11716.
(2) The number of shares of common stock beneficially owned by each person or
entity is determined under the rules promulgated by the SEC. Under such
rules, beneficial ownership includes any shares as to which the person or
entity has sole or shared voting power or investment power and shares
which such person or entity has the right to acquire within sixty days
after March 24, 2000. The inclusion herein of any shares
16
<PAGE> 17
deemed beneficially owned does not constitute an admission by such person
of beneficial ownership of such shares. The information is based upon
information furnished by the persons listed.
(3) The figures set forth in the table include the number of shares of our
common stock issuable upon conversion of each individual's shares of our
Class B preferred stock. The holders of Class B preferred stock have the
right, at their option, to convert such shares into common stock at any
time.
(4) Includes 988,930 shares of common stock owned by Mr. Gavilla and 727,268
shares of common stock held by Mr. Gavilla, as custodian for Alexander F.
Gavilla, Mr. Gavilla's minor son. Such figure also includes 58,302 shares
of Class B preferred stock owned by Mr. Gavilla and 42,876 shares of
Class B preferred stock held by Mr. Gavilla, as custodian for Alexander
F. Gavilla, Mr. Gavilla's minor son. Hector M. Gavilla is the father of
Hector P. Gavilla.
(5) Includes 605,928 shares of common stock and 35,722 shares of Class B
Preferred Stock owned by Roberta Levi, and 605,928 shares of common stock
and 35,722 shares of Class B preferred stock owned by Eli Levi. Eli and
Roberta Levi are husband and wife. Also includes 489,719 shares of common
stock and 28,871 shares of Class B preferred stock held by Roberta Levi,
as custodian for Shari Levi, Mr. and Mrs. Eli Levi's minor daughter. David
Levi and Dr. Steven Levi are sons of Eli and Roberta Levi.
(6) Includes those shares of common stock deemed to be included in the
respective beneficial ownership of Hector M. Gavilla, Peter J. Keenan,
David Levi and Dr. Steven Levi set forth in the table above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our company was founded at the end of 1992 and until the middle of 1999
we operated retail bagel outlets and franchised others to operate retail bagel
outlets under our "Big City Bagels" name. We are in the process of discontinuing
that business. On July 1, 1999, pursuant to an exchange of securities the
Company became the legal parent of two companies, ICS and VillageNet, that were
conducting the business now conducted by us, the installation of internet
network systems and as an internet service provider. Prior to that acquisition,
we had 7,899,225 shares of common stock outstanding. In that transaction,
commonly referred to a reverse acquisition, we issued to the stockholders of ICS
and VillageNet an aggregate of 8,619,466 shares of our common stock and 508,152
shares of our Class B preferred stock which are convertible at the holders'
options into an aggregate of 70,124,976 additional shares of our common stock.
Perrin, Holden and Davenport Capital Corp. ("PHD"), an investment banking firm,
received warrants to purchase 500,000 shares of our common stock at an average
exercise price of $0.6775 per share for its investment banking services which
warrants were exchanged by PHD on December 30,1999 for 360,000 shares of our
common stock.
In the summer and fall of 1999, PHD arranged for an aggregate of $600,000
to be loaned to us, which we needed to finance our operations. We issued notes
to the lenders and granted them warrants to purchase 375,000 shares of our
common stock at an exercise price of $0.75 per share. For its services in
securing such loans, we granted PHD warrants to purchase 90,000 shares of our
common stock, also at the same exercise price of $0.75 per share. On December
30,1999, we issued an aggregate of 189,359 shares of common stock in exchange
for the 375,000 warrants we granted for such $600,000 loan, and in lieu of the
interest then accrued on such notes. On December 30,1999, PHD exchanged the
90,000 warrants we granted to PHD for 51,455 shares of our common stock.
On December 30,1999, PHD acted as placement agent for our sale of 15,800
shares of Class C Preferred Stock (including 6,000 Class C shares in exchange
for the $600,000 loan referred to above). For its services, we paid PHD $158,000
and issued 94,800 shares of our common stock.
In February 2000 we entered into an agreement with Bobby Valentine,
manager of the New York Mets', to serve as our celebrity spokesman and, as such,
granted him a five-year warrant to purchase 70,000 shares of our common stock at
an exercise price of $.01 per share. For its services in arranging the
transaction, we granted PHD a five year warrant to purchase 70,000 shares of our
common stock and MFC Marketing, Inc. a warrant to purchase 80,000 shares of our
common stock, both warrants are exercisable at of $.01 per share. And to one
person for legal services provided in such transaction, a warrant to purchase
2,000 shares exercisable at of $.01 per share.
We have a note payable, dated August 1, 1996, to Advanced Testing
Technologies, Inc. ("ATTI"). ATTI is a company whose stockholders are also
stockholders in our company. The outstanding balance is $208,741,
17
<PAGE> 18
which bears interest at a rate of five percent per annum. Principal and interest
payments are due on a quarterly basis beginning August 1, 1997, equal to ICS's
net profit before taxes. Quarterly payments are $2,000. This note is due and
payable on May 1, 2002. As of December 31, 1999 no payments have been made on
this loan. Interest of $32,089 has accrued on this note. In addition, we have
received from ATTI working capital advances amounting to $359,144 as of December
31, 1999. No interest has been accrued on these advances. These loans have been
subordinated to our bank credit line.
We guarantee a $100,000 loan payable by Mr. Keenan to the former
stockholders of ICS.
18
<PAGE> 19
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits Filed
See Exhibit Index appearing later in this report.
(B) Reports on Form 8-K
None
19
<PAGE> 20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VILLAGEWORLD.COM, INC.
Dated: March 28, 2000
By:/s/ Peter Keenan
----------------
Peter Keenan, Chairman of the Board
and President
In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in capabilities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/Peter Keenan Chairman of the Board and March 28, 2000
- ------------------------------- President
Peter Keenan
/s/ Robert Appel Chief Executive Officer
- -------------------------------
Robert Appel March 28, 2000
/s/Edilberto Enriquez Treasurer and Chief
- ------------------------------- Financial Officer
Edilberto Enriquez March 28, 2000
/s/David Levi Secretary and Director March 28, 2000
- -----------------------------
David Levi
/s/ Hector M. Gavilla Director March 28, 2000
- -----------------------------
Hector M. Gavilla
/s/ Moshe Schwartz Director March 28, 2000
- -----------------------------
Moshe Schwartz
/s/ Dr. Steven Levi Director March 28, 2000
- -------------------
Dr. Steven Levi
</TABLE>
20
<PAGE> 21
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report ................................ 22
Consolidated Balance Sheet as of December 31, 1999 .......... 23
Consolidated Statements of Operations for the years
ended December 31, 1999 and 1998 .......................... 24
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999 and 1998 .......................... 25
Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998 ........................... 26
Notes to Consolidated Financial Statements .................. 27
</TABLE>
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
Board of Directors
VillageWorld.com, Inc.
Bohemia, New York
We have audited the accompanying consolidated balance sheet of VillageWorld.com,
Inc. and subsidiaries as of December 31, 1999 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the two-year period then ended. These consolidated 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 our 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 made 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
VillageWorld.com, Inc. and subsidiaries as of December 31, 1999 and the results
of its operations and its cash flows for each of the years in the two-year
period then ended in conformity with generally accepted accounting principles.
/s/ Laurence Rothblatt & Company
Great Neck, New York
March 22, 2000
22
<PAGE> 23
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 800,561
Accounts receivable 494,820
Inventory 96,791
Refundable income taxes 126,000
Current assets attributable to discontinued operations 21,891
Prepaid expenses and other current assets 129,094
-----------
Total Current Assets 1,669,157
Fixed assets, net of accumulated depreciation 325,285
Intangible assets, net of accumulated amortization 2,694,252
Deferred tax asset 28,400
Other assets attributable to discontinued operations 101,371
Security deposits and other assets 13,230
-----------
TOTAL $ 4,831,695
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 200,000
Accounts payable and accrued expenses 411,693
Deferred income 49,520
Current liabilities attributable to discontinued operations 615,489
Other current liabilities 63,551
-----------
Total Current Liabilities 1,340,253
Loans payable 567,885
Security deposits payable 2,316
-----------
Total Liabilities 1,910,454
-----------
Stockholders' Equity:
Convertible Class B preferred stock; $.001 par value; 1,000,000 shares
authorized; 508,152 shares issued and outstanding 508
Convertible Class C preferred stock; $.001 par value; 25,000 shares
authorized; 15,800 shares issued and outstanding 15,800
Common stock; $.001 par value; 200,000,000 shares authorized; 17,404,584
shares issued 17,405
Additional paid in capital 4,581,815
Accumulated deficit (1,629,663)
Treasury stock (65,279 shares at cost) (64,624)
-----------
Total stockholders' equity 2,921,241
-----------
TOTAL $ 4,831,695
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998
------------ -----------
<S> <C> <C>
REVENUES:
Subscription services $ 373,154 $ 418,712
Hardware sales 665,218 --
Installation services 98,468 --
Other 139,275 --
------------ -----------
Total Revenues 1,276,115 418,712
------------ -----------
COSTS AND EXPENSES:
Cost of sales 952,333 198,733
Selling, general and administrative 961,061 118,361
Amortization of excess of cost over fair value of net assets acquired 141,758 --
Interest expense, including $475,000 attributable to reduction in stated debt
principal arising from issuance of stock purchase warrants 587,753 --
------------ -----------
Total costs and expenses 2,642,905 317,094
------------ -----------
Income (loss) from operations
before income taxes (1,366,790) 101,618
Provision (credit) for income taxes (131,900) 31,200
------------ -----------
Net income (loss) $ (1,234,890) $ 70,418
============ ===========
Net income (loss) attributable to common stockholders $ (1,511,390) $ 70,418
============ ===========
Basic and diluted net income (loss) per common share $ (0.02) $ --
============ ===========
Basic and diluted weighted average common shares outstanding, giving effect to
the conversion to common stock of all Class B Preferred Stock outstanding 63,269,036 39,372,221
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 25
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class B Class C
Preferred Stock Preferred Stock Common Stock
----------------- ----------------------- --------------------------
Shares Amount Shares Amount Shares Amount
------- ------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 -- $ -- -- $ -- 1,000 $ 1,000
Net income -- -- -- -- -- --
------- ------- ---------- --------- ----------- -----------
Balance, December 31, 1998 -- -- -- -- 1,000 1,000
Exchange of VillageNet pre-merger
shares for shares of the Company 254,076 254 4,308,733 3,309
Reverse acquisition of Big City 7,964,504 7,965
Purchase of ICS 254,076 254 4,309,733 4,310
Stock and warrants (converted) issued for services 536,455 537
Private placement 158 15,800
Stock and warrants (converted) issued in
connection with bridge loans and
repayment thereof 284,159 284
Beneficial conversion of preferred stock
Net loss -- -- -- -- -- --
------- ------- ---------- --------- ----------- -----------
Balance, December 31, 1999 508,152 $ 508 158 $ 15,800 17,404,584 $ 17,405
======= ======= ========== ========= =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Additional Treasury Stock
Paid-In ---------------------- Accumulated
Capital Shares Amount Deficit Total
---------- ------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 $ -- -- $ -- $ (188,691) $ (187,691)
Net income -- -- -- 70,418 70,418
---------- ------- -------- ----------- -----------
Balance, December 31, 1998 -- -- -- (118,273) (117,273)
Exchange of VillageNet pre-merger
shares for shares of the Company (3,563) 0
Reverse acquisition of Big City (787,196) (65,279) (64,624) (843,855)
Purchase of ICS 2,572,960 2,577,524
Stock and warrants (converted) issued for services 639,463 640,000
Private placement 1,314,256 1,330,056
Stock and warrants (converted) issued in
connection with bridge loans and
repayment thereof 569,395 569,679
Beneficial conversion of preferred stock 276,500 (276,500) 0
Net loss -- -- -- (1,234,890) (1,234,890)
---------- ------- -------- ----------- -----------
Balance, December 31, 1999 $4,581,815 (65,279) $(64,624) $(1,629,663) $ 2,921,241
========== ======= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 26
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from operations $(1,234,890) $ 70,418
----------- ---------
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization 191,941 21,216
Stock issued in lieu of interest 94,679 --
Interest imputed on bridge loans 475,000 --
Stock issued for services 178,750 --
Deferred taxes 12,800 8,900
(Increase) Decrease in:
Accounts receivable 199,720 (32,664)
Inventory (49,602) --
Refundable income taxes (126,000) --
Current assets attributable to discontinued operations 137,629 --
Prepaid expenses and other current assets (84,289) 22,300
Other assets attributable to discontinued operations 347,290 --
Increase (Decrease) in:
Accounts payable and accrued expenses 61,600 (19,117)
Related party advances(repayments) (28,516) 37,326
Deferred revenue 8,735 24,785
Current liabilities attributable to discontinued operations (942,354) --
Other current liabilities 36,892 --
----------- ---------
Total adjustments 514,275 62,746
----------- ---------
Net cash provided (used) by operating activities (720,615) 133,164
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in merger 139,306 --
Increase in deposits 3,403 201
Purchase of fixed assets (139,426) (65,085)
----------- ---------
Net cash provided (used) by investing activities 3,283 (64,884)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 120,000 --
Private placement, net of issue costs of $249,944 and
bridge loan repayment of $600,000 730,056 --
Proceeds from bridge financing 600,000 --
Proceeds(repayment) of loans payable 45,940 (48,075)
----------- ---------
Net cash provided (used) by financing activities 1,495,996 (48,075)
----------- ---------
NET INCREASE (DECREASE) IN CASH 778,664 20,205
Cash, beginning of period 21,897 1,692
----------- ---------
Cash, end of period $ 800,561 $ 21,897
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 27
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
----------- ----
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES:
Cash paid during the year for:
Interest $ 10,197 $ --
Income taxes 7,004 380
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES:
On July 1, 1999 the Company issued 254,076 shares of Preferred Stock and
12,274,237 shares of Common Stock in a merger
Excess of fair value over net assets acquired in merger $ 2,835,173
Preferred stock (254)
Common stock (12,275)
Additional paid in capital (1,834,617)
Treasury stock 64,624
Accounts receivable 651,086
Inventory 47,189
Current assets attributable to discontinued operations 159,520
Prepaid expenses and other current assets 44,085
Fixed assets 94,478
Other assets attributable to discontinued operations 448,661
Security deposits and other assets 15,736
Note payable - bank (80,000)
Accounts payable and accrued expenses (325,773)
Current liabilities attributable to discontinued operations (1,557,843)
Other current liabilities (26,659)
Loans payable (516,531)
Deferred taxes (6,600)
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 28
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE A - MERGER
VillageWorld.com, Inc. is the successor consolidated entity formed by the
merger on July 1, 1999, of Big City Bagels, Inc. ("Big City"), VillageNet,
Inc. ("VillageNet") and Intelligent Computer Solutions, Inc. ("ICS").
VillageNet was incorporated in New York on June 6, 1995, ICS was incorporated
in New York on October 21, 1994. The Company was incorporated in New York on
December 21, 1992. Subsequent to the merger, Big City, Inc., a publicly held
company, and the legally surviving parent company, changed its name to
VillageWorld.com, Inc.
To effect the merger Big City issued 8,619,466 shares of Common Stock and
508,152 shares of Class B Preferred Stock to the stockholders of VillageNet and
ICS. The transaction was accounted for as an acquisition of Big City and ICS by
VillageNet, as the former shareholders of VillageNet own a majority of the
shares of the combined companies as of the completion of the transaction. In
addition, as Big City is discontinuing its bagel business, the reverse
acquisition of Big City was treated as a purchase with the issuance of common
stock and options to purchase common stock to the pre-merger shareholders and
option holders of Big City in exchange for the net asset deficiency of Big City,
valued at the fair value of the net asset deficiency assumed. The acquisition of
ICS was accounted for as a purchase with the securities issued as consideration
for ICS valued at $2,577,524; such fair value determination by the Company being
in part based on the opinion of an independent appraiser. The financial
statements reflect the operations of VillageNet for the year ended December 31,
1999 and 1998 and ICS for the period July 1, 1999 to December 31, 1999. The
decision to dispose of the bagel operations was made prior to the merger. In
accordance with Accounting Principles Board Opinion No. 30 the results of the
discontinued operations of Big City were accrued at June 30, 1999 (see note
D(8)).
NOTE B - NAME CHANGE
At a stockholders' meeting held December 30, 1999, the stockholders voted to
amend the Certificate of Incorporation, changing the name from Big City Bagels,
Inc. to VillageWorld.com, Inc. ("VWI" or "the Company").
NOTE C - THE COMPANY AND BASIS OF PRESENTATION
The Company is a provider of internet on-line services, offering its subscribers
a wide variety of services including electronic mail, software, computing
support, and easy access of the internet. In addition, the Company provides
small businesses with fully managed services that include internet connections,
remote dial access and Web hosting services. ICS is a full service system
integration firm specializing in high-end computer networking infrastructures,
internet solutions, and Local and Wide Area Network installations.
All significant intercompany balances are eliminated in consolidation.
Prior to the merger, management adopted a plan to discontinue the bagel
operations. The Company is in the process of closing its commissary operations,
which supplies bagel products to franchise stores. The Company is also entering
into separation agreements with existing franchisees' to terminate their prior
franchise agreements. The Company expects to close its bagel operations by the
end of the first quarter in the year 2000 (see Note D(8)).
28
<PAGE> 29
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. INVENTORY:
Inventory is stated at the lower of cost (first-in, first-out) or market.
2. DEPRECIATION:
Fixed assets are stated at cost, less accumulated depreciation. The fair
value of assets acquired in business combinations is recognized as the new
cost basis. Depreciation is provided using the straight-line method over
the estimated useful lives of the respective assets.
3. CASH AND CASH EQUIVALENTS:
The Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
4. 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
the 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 differ from those
estimates.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, notes and loans payable, accrued expenses and
capitalized lease obligations approximate fair value due to their
short-term nature or their underlying terms.
6. STOCK-BASED COMPENSATION:
The Company accounts for stock-based compensation pursuant to Statement of
Financial Accounting Standards No. 123, ("SFAS No. 123"). The provisions
of SFAS No. 123 allow companies to either expense the estimated fair value
of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") but disclose the pro forma effects on
net income (loss) had the fair value of the options been expensed. The
Company has elected to continue to apply APB No. 25 in accounting for its
stock option incentive plans (see Note M).
29
<PAGE> 30
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE D - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
7. EARNINGS (LOSS) PER COMMON SHARE:
The Company calculates earnings (loss) per share pursuant to Statement of
Financial Accounting Standards No. 128 "Earnings Per Share," which
requires the presentation of basic and diluted earnings per share. Basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share include the dilutive
effects of such securities, except when they are anti-dilutive.
In 1999, the net loss is increased by the beneficial conversion feature of
the preferred stock to derive net loss attributable to common
stockholders. Due to the fact that there is neither an economic benefit
for not converting, nor an economic detriment from converting the Class B
Preferred Stock, the per share calculation assumes conversion of all
outstanding Class B Preferred Stock. for both periods presented.
8. DISCONTINUED OPERATIONS:
In 1999, prior to the merger, management of the Company's predecessor
determined to discontinue the bagel operations. In accordance with
Accounting Principle Board Opinion No. 30, losses from such discontinued
operations as well as any future related losses to be incurred on the
ultimate disposition of the remaining assets are accrued/accruable at the
date the decision to discontinue is made. Since the bagel operations were
those of the predecessor, all actual losses incurred and estimated to be
incurred through the disposal of the operations have been accrued as of
June 30, 1999 in order to correctly allocate acquisition costs and values
at such date in accordance with Financial Accounting Standard No. 38.
Accordingly, discontinued operations are not reflected in the accompanying
statement of operations for the year ended December 31, 1999, as they have
been accrued at June 30, 1999, the date immediately prior to the
acquisition of the predecessor company (see Note O re: Fourth Quarter
Adjustments).
NOTE E - PRO FORMA FINANCIAL STATEMENTS
The following summarizes unaudited, pro forma results of operations
assuming that the merger described in Note (A) occurred as of the beginning of
the earliest year presented:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
Net sales (1) $ 2,967,145 $ 6,491,363
Net loss (2) (1,178,375) (145,150)
Net loss per common share (3) (0.01) 0.00
</TABLE>
(1) Included in net sales for the year ended December 31, 1998 are
revenues of approximately $2,280,000 relating to one school contract that
was completed.
(2) The pro-forma results exclude results from discontinued operations for
each of the years then ended.
(3) The net loss per common share gives effect to the conversion to common
stock of all Class B Preferred Stock outstanding.
30
<PAGE> 31
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE F - FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Life
<S> <C> <C>
Furniture and fixtures $ 23,921 5-7 years
Internet equipment 305,183 5 years
Office equipment 78,903 5-7 years
Auto 4,393 5 years
--------
412,400
Less accumulated depreciation and amortization 87,115
--------
$325,285
========
</TABLE>
NOTE G - INTANGIBLE ASSETS
Intangible assets at cost, are amortized using the straight-line method and
consist of the following:
<TABLE>
<CAPTION>
Life
<S> <C> <C>
Goodwill $ 2,835,173 10 years
Trademark costs 1,179 15 years
--------------
2,836,352
Less accumulated amortization 142,100
--------------
$ 2,694,252
==============
</TABLE>
NOTE H - NOTE PAYABLE
The Company has a revolving line of credit with a bank providing for a maximum
borrowing of $200,000. Interest is payable monthly at prime plus two percent,
maturing April 30, 2000. This credit line is secured by the Company's assets and
guaranteed by certain stockholders of the Company.
NOTE I - LOANS PAYABLE
The Company has a note payable, dated August 1,1996, to a related party. The
outstanding balance is $208,741, which bears interest at a rate of five percent
per annum. Principal and interest payments are due on a quarterly basis, equal
to the ICS's pre-tax income. Quarterly payments are $2,000. This note is due and
payable on May 1, 2002. As of December 31, 1999 no payments have been made on
this loan. Interest of $32,089 has accrued on this note. In addition the Company
has received from this same related party working capital advances amounting to
$359,144 as of December 31, 1999. No interest has been accrued on these
advances. These loans have been subordinated to the bank credit line.
31
<PAGE> 32
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE J - COMMITMENTS
1.) Operating leases:
The Company leases office locations under various operating leases which expire
between December 2000 and March 2002. Future minimum rental payments as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
2000 $ 90,800
2001 71,400
2002 11,500
---------
$ 173,700
=========
</TABLE>
Additionally, the Company remains obligated under an operating lease for a store
that was sold by its predecessor to a third party in 1998, in the event that the
acquirer defaults on the lease. The lease expires in October 2005 and requires
monthly payments of $4,666 through October 2001 and $5,086 through October 2005.
At December 31, 1999, the Company has not been informed that the lease is in
default.
Rent expense for the years ended December 31, 1999 and December 31, 1998 was
$35,499 and $18,738, respectively.
2.) Employment agreement:
The Company has an employment agreement with the President of the Company which
provides for compensation at the rate of $50,000 per year. This amount may be
increased annually by the Board of Directors up to a maximum of $125,000 per
year, provided there is an additional employee(s), designated by two members of
the Board, added to the company's payroll who will be paid an annual salary
equal to any excess amount over $50,000 per year paid to the President (see Note
P).
NOTE K - INCOME TAXES
The provision (credit) for income taxes consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Federal $ (143,700) $ 14,000
State (1,000) 8,300
Deferred:
Federal 8,700 6,700
State 4,100 2,400
----------- --------
Total $ (131,900) $ 31,400
=========== ========
</TABLE>
32
<PAGE> 33
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE K - INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
<TABLE>
<S> <C> <C>
Federal statutory rate $(478,800) $ 36,700
Federal statutory rate differential 21,800 (12,500)
State taxes, net of federal benefit (116,100) 7,000
Items providing no carryforward benefit 441,200 0
--------- --------
Total $(131,900) $ 31,200
========= ========
</TABLE>
As of December 31, 1999, the Company has net operating loss carryforwards of
approximately $481,000 for tax purposes, which will be available to offset
future taxable income. If not used, these carryforwards will expire through
2019.
Deferred income taxes reflect the net tax effects of a net operating loss.
Significant components of the Company's deferred tax asset at December 31,
consists of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 481,000 $ 105,300
Loss carry forward utilization 0 (22,300)
Valuation allowance for deferred assets (424,300) (26,300)
--------- ---------
56,700 56,700
Deferred tax liabilities:
Property and equipment (28,300) (8,900)
--------- ---------
Net deferred tax asset $ 28,400 $ 47,800
========= =========
</TABLE>
NOTE L - EMPLOYEE BENEFIT PLAN
The Company has a savings plan that qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Under the plan, participating
employees may defer a portion of their pretax earnings, up to the Internal
Revenue Service annual contribution limit. The Company matches one third of each
employee's contributions to a maximum matching contribution of 2% of the
employee's earnings. The Company's pension expense was $7,640 and $845 for the
years ended December 31, 1999 and 1998, respectively.
33
<PAGE> 34
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE M - COMMON STOCK
1.) Stock options:
Neither VillageNet nor ICS has granted any stock options to its employees. At
July 1, 1999, 33,780 options granted by the Company's predecessor were
outstanding. These options remain outstanding at December 31, 1999 as follows:
(a) 1998 Performance Equity Plan:
The Company's 1998 Performance Equity Plan (the "1998 Plan") provides for the
issuance of up to 400,000 shares of common stock to employees, officers,
directors and consultants. The awards may consist of incentive stock options,
nonqualified options, restricted stock awards, deferred stock awards, stock
appreciation rights and other awards as described in the 1998 Plan. Vesting
periods are determined by the board of directors.
At December 31, 1999, options for 175,000 shares of common stock were available
for future grant under the 1998 Plan.
(b) 1996 Performance Equity Plan:
The Company's 1996 Performance Equity Plan (the "1996 Plan") provides for the
issuance of awards of up to 70,000 shares of common stock to employees,
officers, directors and consultants. The awards, which generally vest over four
years, may consist of incentive stock options, nonqualified options, restricted
stock awards, deferred stock awards, stock appreciation rights and other awards
as described in the 1996 Plan. At December 31, 1999, the Company has reserved
62,012 shares of common stock for issuance under the 1996 Plan.
The following table summarizes information about stock options outstanding and
exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Number Number Expiration
Grant Date Outstanding Exercise Price Exercisable Date
----------- -------------- ----------- ----
<S> <C> <C> <C> <C>
3/31/99 10,000 $ 0.9375 10,000 3/30/09
4/22/98 480 3.125 120 4/21/08
3/31/98 8,000 4.6875 8,000 3/30/08
12/15/97 2,100 10.00 1,050 12/15/07
3/31/96 3,000 20.00 3,000 3/30/06
3/31/97 10,000 26.875 10,000 3/30/07
7/11/96 200 42.30 200 7/10/06
------ ------
33,780 32,370
====== ======
Weighted-average
exercise price $12.04 $12.20
====== ======
</TABLE>
At December 31, 1999, options for 28,232 shares of common stock were available
for future grant under the 1996 Plan.
(c) In May 1999, management of the Company's predecessor made a grant of
50,000 five year options, outside of any of our Performance Equity Plans, to
Mark Weinreb. These options have an exercise price ranging from $0.48 to $1.00.
34
<PAGE> 35
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE M - COMMON STOCK (CONTINUED)
2.) Warrants
As at December 31, 1999, the following warrants were outstanding:
<TABLE>
<CAPTION>
Shares Reserved
For Issuance Exercise Price Expiration Date
------------ -------------- ---------------
<S> <C> <C> <C>
Class A Warrants 481,250 $12.50 May 7, 2000
Placement Agent Warrants 15,000 $25.00 December 30, 2002
Placement Agent Warrants 25,000 $6.5625 December 30, 2002
Other Warrants 4,000 $5.00-$8.75 April 30, 2003
</TABLE>
NOTE N - PREFERRED STOCK
On December 30, 1999, the Company completed a private placement in which it
received net proceeds of $1,330,056 less the repayment of $600,000 of bridge
financing notes owed by the Company, through the sale of 15,800 shares of Class
C preferred stock. In lieu of interest owed on the bridge loans, 189,359 shares
of common stock were issued to the debt holders.
The bridge loan financing which preceded the private placement including
warrants to purchase 375,000 shares of the Company's common stock. These
warrants had a fair value at the time of issuance of $475,000, recognition of
which reduced the stated value of the debt principle to $125,000. When the
bridge loans were repaid from the proceeds of the private placement, the
resulting additional(imputed) interest expense of $475,000 was recognized.
The preferred stock accrues dividends at the rate of 6% per annum, payable in
cash or in shares of common stock at the election of the Company on the date the
preferred stock is converted into shares of common stock. The preferred stock
and dividends accrued are convertible into shares of the Company's common stock
by dividing the $100 purchase price for each Class C Preferred share by the
lower of $1.404, or an amount equal to a discount, ranging from 75% to 82 -1/2%
(depending on the time the holder elects to convert) from the average of the
closing bid prices for the Company's common stock during the five trading days
prior to the holders election to convert. The amount of such discount may be
increased if the Company has not registered, under the Securities Act, the
common stock into which the Class C Preferred shares are convertible, for public
sale by May 26, 2000.
Due to the beneficial conversion feature of the preferred stock, the Company
recorded a charge of $276,500 to retained earnings (accumulated deficit) on
December 31, 1999, with a credit of like amount to additional paid-in capital.
35
<PAGE> 36
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE O - FOURTH QUARTER ADJUSTMENTS (UNAUDITED)
In accordance with Accounting Principles Board Opinion No. 30 and
Financial Accounting Standard No. 38, the loss from discontinued operations
incurred by the Company's predecessor has been accrued at June 30, 1999. Such
loss, in the amount of $965,374 had not been accrued when the Company reported
its second quarter Form 10-QSB. Accordingly under the appropriate reporting no
loss from discontinued operations would have been presented at September 30,
1999. Such amount was previously reported as $531,238.
Certain other items including stock-based severance compensation and a portion
of the additional interest expense related to the bridge loan have also been
corrected. In addition, $461,250 of additional stock-based merger related costs
have been identified and added to goodwill. Lastly the Company has downwardly
revised their estimate of the useful life of goodwill from 15 to ten years.
Had the above accounting been followed at September 30, 1999 the results of
operations for the nine and three months ended September 30, 1999 would have
shown the following (amounts that were reported are shown for comparison):
<TABLE>
<CAPTION>
September 30, 1999 September 30, 1999
As originally reported As corrected
---------------------- ------------
Nine Months Three Months Nine Months Three Months
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Amortization of goodwill $ 39,565 $ 39,565 $ 70,879 $ 70,879
Interest expense 14,020 12,736 106,520 105,236
Other items of continuing operations 922,545 739,101 1,086,528 903,084
--------- --------- ----------- -----------
Total costs and expenses from
continuing operations 976,130 791,402 1,263,927 1,079,199
Loss from discontinued operations (531,238) (531,238) 0 0
--------- --------- ----------- -----------
Net loss $(632,846) $(626,026) $ (389,405) $ (382,585)
========= ========= =========== ===========
Per share data:
Continuing operations $ (0.01) $ (0.01) $ (0.05) $ (0.02)
Discontinued operations (0.06) (0.03) N/A N/A
--------- --------- ----------- -----------
Net loss $ (0.07) $ (0.04) $ (0.05) $ (0.02)
========= ========= =========== ===========
</TABLE>
The per share data above does not give effect to the conversion of the Class B
Preferred Stock.
NOTE P - SUBSEQUENT EVENT (UNAUDITED)
On March 28, 2000, the Company signed a letter of intent with Millenium
Development Group, LLC ("MDG"), an investment group, whereby MDG proposed to
purchase 500,000 shares of the Company's common stock and 500,000 five year
warrants, with an exercise price of $1.90 per share, for $500,000. This
investment in common stock and warrants would be subject to certain restrictions
on the trading of the common stock purchased. In addition, MDG proposed to
purchase for $2,500,000 an additional 2,500,000 shares of common stock with an
equal number of five year warrants, at various exercise levels. This investment
will be subject to a 45 day due diligence period by MDG of the Company, during
which time the Company would agree not to raise capital from any other sources.
36
<PAGE> 37
VILLAGEWORLD.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE P - SUBSEQUENT EVENT (UNAUDITED) (CONTINUED)
In January and February 2000 the Company issued an aggregate of 1,020,120 shares
of its common stock to twelve persons who elected to convert their shares of the
Company Class C preferred stock into common stock. Such shares were converted
based on the conversion formulas in the designation of preferences for the Class
C preferred stock.
In February 2000 the Company issued 11,111 shares of its common stock to an
attorney in payment of $10,000 for legal services rendered by such attorney for
the Company.
In February 2000 the Company granted five-year warrants to four persons to
purchase an aggregate of 152,000 shares of the Company's common stock at an
exercise price of $0.01 per share for the following services:
(1) to one person, for acting as a public spokesman for the Company, a
warrant to purchase 70,000 shares;
(2) To PHD and MFC Marketing, Inc. for arranging the transaction with
the spokesman, warrants to purchase an aggregate of 80,000
shares; and
(3) to one person for legal services provided in such transaction, a
warrant to purchase 2,000 shares.
In March 2000 the Company issued an aggregate of 105,000 shares of its common
stock to three persons in settlement of their claims against the Company arising
from the Company's discontinued bagel franchising operations.
On March 13, 2000, we entered into a memorandum of understanding with Mr. Robert
Appel pursuant to which he became our Chief Executive Officer. The memorandum
provides for employment on a full-time basis and contains provisions that Mr.
Appel will not compete or engage in a business competitive with our current or
anticipated business until twelve months after the termination of his agreement.
The memorandum provides for a base salary of $75,000 per annum and we have
granted him a five-year option to purchase 300,000 shares of our common stock at
an exercise price of $.01 per share and vesting rights being negotiated.
37
<PAGE> 38
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
3.1 Restated Certificate of Incorporation (1)
3.2 Amendment to Certificate of Incorporation filed December
29, 1999 (2)
3.3 Amendment to Certificate of Incorporation filed December
31, 1999 (2)
3.4 Bylaws of the Company (4)
4 Agreement by and between the Company and Ultrastar Internet
Services, LLC (*)
10.4 Employment Agreement by and between the Company and Peter
Keenan (*)
10.5 1996 Performance Equity Plan (1)
10.6 1998 Performance Equity Plan (3)
16 Letter on change in certifying accountants (5)
21 Subsidiaries of the Company (*)
22 Published Report Regarding Matters Submitted to Vote of
Security Holders (6)
23 Consent of Independent Auditors (*)
27 Financial Data Schedule (*)
</TABLE>
----------
(*) Filed herewith
(1) Filed with the Company's Registration Statement on Form SB-2 (No.
333-2154) declared effective on May 7, 1996 and incorporated by reference.
(2) Filed with the Company's Form 8-K filed on December 30,1999 and
incorporated by reference.
(3) Filed with Form S-8 (Reg. No. 333-80373) filed with the Commission on
June 10, 1999 and incorporated by reference.
(4) Filed with the Company's Form 10-KSB (No. 000-28058) on March 31, 1999
and incorporated by reference.
(5) Filed with the Company's Form 8-KA filed on January 14, 2000 and
incorporated by reference.
(6) Filed Definitive Proxy Statement on December 2, 1999 and incorporated
by reference.
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<PAGE> 1
Exhibit 4
This AGREEMENT (the "Agreement") is entered into as of the Commencement
Date by and between Ultrastar Internet Services, LLC ("Ultrastar"), a New Jersey
limited liability company, and Village World.com, Inc. ("Village"), a New York
corporation.
WHEREAS, Village is a provider of certain Internet and other related
Services as defined in Attachment B (as hereinafter defined);
WHEREAS, Ultrastar desires to engage Village to establish and offer the
Services, as described in Attachment B, to Subscribers associated with
Ultrastar.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS.
Except as otherwise defined herein, capitalized terms shall be defined as
provided in Attachment A hereto.
2. MARKETING RESPONSIBILITIES
Village grants Ultrastar a non-exclusive, non-transferable right to market
the Service described in Attachment B. During the term of this Agreement,
Ultrastar shall exercise reasonable efforts to market and promote the Services.
3. SERVICEMARKS.
On each of Ultrastar's client's websites that Village is providing the
Services, Ultrastar shall use best efforts to cause the phrase "In affiliation
with Village" to be displayed in the appropriate credits portion of such
client's website. In addition, Ultrastar shall identify Village as a strategic
partner on its website.
4. ULTRASTAR SERVICE AND TRADEMARK.
4.1 Grant of License. Subject to the limitations set forth herein, Ultrastar
grants to Village a non-exclusive, royalty-free license to use the Trademarks
and Service Marks (collectively the "Marks") of Ultrastar as necessary in order
to identify, consummate transactions with and provide the Services to
Subscribers concerning Services, including placement of Trademarks on marketing
materials and/or on
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the Branded Portal Page, if applicable. Village acknowledges that Ultrastar owns
the goodwill associated with its Marks. Village further agrees that, except to
the extent specifically provided for herein, it shall not have any right to use,
nor acquire by its use or otherwise any right, title, or interest in or to the
Trademarks. All use of the Trademarks by Village pursuant to this agreement
shall inure to the benefit of Ultrastar and Village shall acquire no rights in
the Trademarks by virtue of such use. Village shall not use the Trademarks in
conjunction with any other name, term or mark so as to form a combination mark.
Village will indemnify and hold harmless Ultrastar against any liability or
damages arising from alleged wrongful acts or omissions of Village while using
Ultrastar's name and/or Trademarks in marketing, promoting and consummating
lease transactions or any violation of Village's obligations under this
Agreement.
4.2 Approval. Ultrastar shall have the right to approve all marketing and
promotional material (including press releases) and/or websites using
Ultrastar's Trademarks, which materials shall be submitted to Ultrastar at least
fourteen (14) days prior to actual usage and shall not be disseminated without
Ultrastar's approval.
5. EXPENSES AND TAXES.
All expenses, costs, fees and taxes incurred by Ultrastar in the
performance of its duties and the exercise of its rights hereunder shall be the
sole responsibility of Ultrastar. Village will not incur any expenses on behalf
of Ultrastar unless such expenses are approved in advance by Ultrastar. Should
Subscription Fees become subject to any federal, state and/or local tax in the
future, Village shall have the obligation to collect such taxes and shall have
the right to pass the cost of such taxes to the Subscriber by raising the
Subscription Fee, in an amount not to exceed such taxes plus the reasonable
actual costs to Village of administering such tax.
6. INDEPENDENT CONTRACTOR.
Except as otherwise provided in this Agreement, neither party shall act or
have the power to act for the other party in any respects whatsoever. The
relationship between Village and Ultrastar shall be and shall be deemed to be
that of independent contractors. No agency, partnership, joint venture, or
employment is created as a result of this Agreement. Neither party is authorized
to bind the other in any respect whatsoever.
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7. ULTRASTAR'S REVENUE AND BILLING
7.1 Billing Responsibility. In the event that Ultrastar receives any
amounts from Subscribers to which Village is entitled hereunder, Ultrastar shall
remit such amounts to Village within thirty (30) days of receipt of such
amounts. Ultrastar has no responsibility to pay any Subscriber's fees not paid
by Subscribers.
7.2 Subscription Fee. Ultrastar shall set the Subscription Fee for
Subscribers pursuant to Attachment A. Village shall not have the right to change
the Subscription Fee unless directed to do so by Ultrastar.
7.3 Ultrastar Revenue. Subject to the terms and conditions contained in
this Agreement, Village shall, within thirty (30) days after the end of
Village's monthly billing cycle, forward to Ultrastar, Ultrastar's Net Revenue
Share for that billing cycle as defined in Attachment A. Payment of Ultrastar's
Net Revenue Share will be accompanied by the following information: Subscriber's
first and last name, phone number, e-mail account, Subscriber's product and
Ultrastar's Net Revenue Share.
7.4 Survival of Ultrastar Net Revenue Share. To the extent Subscribers
desire to retain Village's Services, Ultrastar shall be entitled to receive, on
an ongoing basis, Ultrastar's Net Revenue Share for all Subscribers obtained
during the term of this Agreement unless and until the occurrence of one of the
following events: (a) Ultrastar violates Section 9.1(iii), below; OR (b) the
Agreement is terminated because Ultrastar ceases to do business in the normal
course, becomes or is declared insolvent or bankrupt, is the subject of any
proceeding relating to its liquidation or insolvency which is not dismissed
within ninety (90) calendar days, or makes an assignment for the benefit of its
creditors. Ultrastar shall have the right to audit the books and records of
Village for the sole purpose of determining if the Ultrastar's Net Revenue Share
is being properly paid. The cost of any such audit shall be at the Ultrastar's
expense unless such audit should disclose that any such payments were underpaid
by five percent or more, in which event such cost shall be borne by Village.
7.5 Eligible Subscription Fees. Notwithstanding any other provision of
this Agreement, Village is only obligated to pay Ultrastar's Net Revenue Share
on collected Subscription Fees. Any Subscription fees that are refunded or
otherwise returned to Subscribers shall no longer be considered collected and
Village shall have the right to retroactively reduce Ultrastar's Net Revenue
Share, after such refunds have been awarded, to reflect such refunds.
8. VILLAGE RESPONSIBILITIES
8.1 Services. Village shall provide the Services to the Subscribers and
the Members as called for herein for each of the Ultrastar's clients within 15
business days of receiving final clearance from Ultrastar to provide services
for such client. Ultrastar is paying Village the Net Revenue
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Share for all of the Services. If Ultrastar notifies Village that it should
discontinue providing a particular Service (or all of the Services) (which is
its right), (i) Village will do so in cooperation with Ultrastar and the new
vendor, if any, performing such service and will continue to cooperate with any
such new vendor and Ultrastar to maintain state of the art websites and
communities and (ii) the parties will negotiate in good faith an appropriate
reduction in the Net Revenue Share.
8.2 Access and Ownership of Data. During the term of this Agreement
Village shall make available to Ultrastar all information Village has access to
or has collected with respect to the Subscribers ("Subscriber Information").
Ultrastar owns the subscriber information, but grants to Village the license to
use the Subscriber Information during the term to perform its obligations
hereunder and Village shall use such information for no other purpose without
the prior written consent of Ultrastar. Upon Ultrastar's request, Village shall
provide Ultrastar with credit card information of Subscribers. Such credit card
information shall not be disclosed by either party and shall only be used by the
party responsible for billing services for the limited purposes of billing
services requested by the Subscribers pursuant to this Agreement. The parties
shall indemnify, and hold the other party harmless, including reasonable legal
fees, against any third-party claims arising out of or relating to any breach of
the disclosure and use provisions of this paragraph.
8.3 Subscriber Agreements. Services will be provided to Subscribers in
accordance with a Subscriber Agreement. Subscribers' rights to use the Services,
including the related software, shall be as evidenced by such agreements.
8.4 Liability Limitation. Neither Village nor Ultrastar shall be liable to
each other or Subscribers for the inability or failure of Village to provide
Services to any Subscriber or for the discontinuation or modification of any or
all Services due to the actions of any unaffiliated third-party. Village shall
include language in the Subscriber agreement limiting Ultrastar's liability to
Subscribers for any failure to provide the Services.
8.5 Acceptance of Subscribers. Ultrastar acknowledges and agrees that
approval or acceptance of any potential Subscriber shall be in the reasonable
discretion of Village. Village shall have no liability to Ultrastar for, nor
shall Ultrastar's obligations hereunder be affected in any way by, Village'
disapproval or rejection, of any Subscriber or Subscribers, Village's failure to
complete any Subscriber transaction by reason of such disapproval or rejection,
or Village's decision to terminate the provision of Services to any Subscriber.
8.6 Village billing of Ultrastar's Subscribers. Village shall bill and
collect the Subscription Fees from Ultrastar's Subscribers on behalf of
Ultrastar. Village shall, within thirty (30) days after the end of Village's
monthly billing cycle, remit to Ultrastar, the Ultrastar Net Revenue Share for
that billing cycle. For the avoidance of doubt, as between Ultrastar and
Village, the Subscribers are "owned" by Ultrastar and Village is billing on
behalf of Ultrastar and is
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offsetting its fee from such billings for the Services (i.e., all of the
payments made by Subscribers for the Services are Ultrastar's gross revenue).
8.7 Non-Solicitation Village agrees not to solicit Ultrastar's Subscribers
for any product or service without first obtaining the express written consent
of Ultrastar. In addition, Village shall not solicit athletes, sports teams,
sports leagues, musical entertainers (individuals or bands)(collectively,
"Sports/Entertainment Properties") to perform any of the services Ultrastar
delivers to its clients. The immediately preceding sentence shall not apply to
Sports/Entertainment Properties with whom Village on the date hereof is involved
in substantive negotiations. Nor shall such provision apply during any three
month period, after the six month anniversary hereof, in which (i) the aggregate
of Village's Net Revenue Share is less than $50,000 and (ii) Village is making
less than 80% of the Net Revenue Share it received during the prior 3 month
period as a result of Ultrastar preventing Village from providing certain
Services which they had previously provided pursuant hereto.
8.8 Hosting. During the sixty days immediately after the date hereof
Village will host Ultrastar's client's websites on its servers. After such
initial period the parties will negotiate a more permanent Hosting strategy. The
hosting shall be preformed at a cost of $500.00 Per month Flat Bandwidth fee and
$50.00 per month per server for the first sixty days. And $500.00 per month per
megabyte of bandwidth and $1000.00 per month per rack for the period thereafter.
9. REPRESENTATIONS AND WARRANTIES.
9.1 Subscriber Contact. During the term of this Agreement, Village shall
not directly contact any Subscriber that is utilizing the Services for the
purpose of: a) inducing them to switch to a relationship with Village in an
attempt to bypass payment of commissions to Ultrastar, b) inducing them to
terminate the use of the Services for any reason, c) disparaging the reputation
of Ultrastar, or d) interfering with Ultrastar's relationship with the
Subscribers.
9.2 Actions Against Ultrastar and Village. Each of the parties hereto will
hold the other party hereto harmless from and against any and all liability,
loss, costs, damages or expenses (including reasonable attorney fees) in
connection with or arising from the actions or omissions of such party in
connection with such party's obligations under this Agreement.
9.3 Quality of Service. Village represents and warrants that it will
provide Ultrastar with the quality of service that Village is provided by its
network providers. Village further represents that Mega Pop and Level 3 are
currently the primary dial-up network providers, and are contractually obligated
to be Village's network providers for the term of this Agreement and Ultrastar's
clients through this relationship shall have full access to Mega Pop and Level
3's United States network. Village further represents that Covad, Inc. is
currently the primary DSL provider, and is contractually obligated to be
Village's DSL provider for the term of this
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Agreement and Ultrastar's clients through this relationship shall have full
access to Covad, Inc.'s United States network. Village is responsible for the
quality performance of all services required by Ultrastar.
10. CONFIDENTIALITY.
10.1 Proprietary Information. Each of the parties hereto will be exposed
to and will have access to the other party's trade secrets and other
confidential and proprietary information (hereinafter collectively referred to
as, "Proprietary Information"). Such Proprietary Information includes: (i) any
and all versions of proprietary computer software (including source code and
object code) and documentation; (ii) technical information concerning each
party's services, including diagrams, flow charts, drawings, test results,
know-how and processes; (iii) information concerning each party's business,
including the operations or internal structure of each other, cost information,
profits, sales information, accounting and unpublished financial information,
business plans, markets and marketing methods, customer lists and customer
information, potential customer lists and information, purchasing techniques and
advertising strategies, and any method or procedure relating or pertaining to
services or products developed by the other party hereto or contemplated by the
other party hereto to be developed; (iv) any past, present or future research or
marketing information of the other party respecting the business or operations
of the other party hereto or customers or potential customers; (v) information
concerning the other party's personnel; (vi) information submitted by customers
or the other party's vendors, employees or consultants; and (vii) any other
information not generally known to the public which, if used or disclosed, could
reasonably be expected to adversely affect the other party's business, including
the terms of this Agreement. Without limiting anything contained herein, Village
shall also comply with the provisions detailed in Village's System Security and
Customer Confidentiality Statement attached hereto as Attachment C.
10.2 Non-Disclosure. Each party hereto shall keep the other party's
Proprietary Information, whether or not prepared or developed by such party, in
the strictest confidence. Each party hereto will not use or disclose such
information to any person without the other party's written consent.
10.3 Injunction. In the event of a breach or threatened breach by one of
the party's to this Agreement of the provisions of this Section, the other party
shall be entitled to apply for an injunction restraining such party from
disclosing, in whole or in part, said Proprietary Information. Nothing herein
shall be construed as prohibiting either party from pursuing any other remedies
available to such party for any such breach or threatened breach.
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11. LIMITATION OF LIABILITY.
Neither party shall have any liability to the other party or to
Subscribers for failing to provide the Services except for such liability as may
directly result from such party's gross negligence or willful misconduct. Any
representation or warranty from either party to the other party or to a
Subscriber shall be expressed only in a written agreement. EACH OF THE PARTIES
HERETO MAKES NO OTHER WARRANTIES OF ANY NATURE, EXPRESS OR IMPLIED, AND
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE. EACH PARTY AGREES TO RELEASE AND HOLD HARMLESS THE OTHER
PARTY FOR ANY OBLIGATION OR LIABILITY FOR THE LOSS OF USE, LOSS OF TIME,
INCONVENIENCE, COMMERCIAL LOSS OR ANY OTHER INDIRECT, CONSEQUENTIAL, SPECIAL OR
INCIDENTAL DAMAGES AS A RESULT OF THE SERVICES OR THE USE OR SALE THEREOF. Each
party hereto agrees to indemnify and hold the other party harmless from and
against all loss, cost and expense incurred by such other party directly or
indirectly resulting from the extension by such party, its employees or agents,
of representations or warranties to Subscribers not authorized by such other
party or the alteration or modification (or attempted alteration or
modification) of any representation or warranty actually offered in writing by
such other party.
12. EVENTS OF DEFAULT AND REMEDIES.
12.1 Events of Default. The following events, if occurring during the term
of this Agreement, shall constitute Events of Default hereunder: (i) the failure
by either party to perform or observe, in any material respect, any covenant,
obligation, or agreement to be performed or observed by it under this Agreement
unless the breach of such covenant, obligation or agreement has been cured (if
curable) within thirty (30) days after written notice thereof from the other
party; (ii) any representation or warranty made by Ultrastar or Village to
Ultrastar or Village in this Agreement or in any document furnished or to be
furnished by the party in connection herewith shall prove incorrect in any
material respect; (iii) Ultrastar's material violation of any written Village
policy or procedure previously provided to Ultrastar unless the breach of such
covenant, obligation or agreement has been cured (if curable) within thirty (30)
days after written notice thereof from the other party; (iv) Village's material
violation of any written Ultrastar policy or procedure previously provided to
Village unless the breach of such covenant, obligation or agreement has been
cured (if curable) within thirty (30) days after written notice thereof from the
other party or (v) any attempt by Ultrastar or Village to assign or otherwise
transfer any of its respective rights or responsibilities, other than in
accordance with the terms of this Agreement, without the other party's express
written consent.
12.2 Remedies. Upon the occurrence of an Event of Default, the
non-defaulting party shall, in addition to all other remedies it may have under
this Agreement and except as otherwise limited within this Agreement, be
entitled to exercise all of the remedies afforded under applicable law with
respect to a material breach of a contract. Nothing in this Section shall be
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deemed to limit the non-defaulting party to an action for damages or specific
performance with respect to any such Event of Default; no exercise of any right
or remedy by the non-defaulting party shall limit or restrict that party's right
to exercise any other right or remedy available at law or hereunder.
13. TERM AND TERMINATION.
13.1 Term. This Agreement shall be effective as of the date executed by
Village, below, and shall continue in full force and effect for a term of one
(1) year and shall automatically renew for consecutive one (1) year periods
unless either party provides notice of cancellation at least ninety (90) days
prior to the end of any applicable term, unless terminated earlier pursuant to
the terms of this Agreement.
13.2 Immediate Termination. This contract shall be immediately terminable
by either party upon the occurrence of any of the following events: (i) the
insolvency, bankruptcy, receivership or dissolution of Village or Ultrastar; or
(ii) Village has a general failure and is unable to provide the Services for
more than five (5) consecutive days.
13.3 Ultrastar Termination. Ultrastar shall have the right to terminate
this Agreement at any time by providing Village with thirty (30) days prior
written notice of such intent.
13.4 Events of Default. Upon the occurrence of an Event of Default, this
Agreement may be terminated by the non-defaulting party upon thirty (30) days
written notice to the defaulting party; provided the defaulting party has not
cured such default prior to the expiration of such thirty day period.
14. EFFECT OF TERMINATION.
14.1 Use of Marks. Upon termination of this Agreement: (i) Ultrastar shall
cease each and every use of any Village Trademark, regardless of whether or not
Village shall have given Ultrastar prior written approval for such use and all
unused promotional and marketing materials, reflecting the Trademarks and
prepared by or on behalf of Ultrastar in connection with this Agreement shall be
destroyed or returned to Village and shall no longer be used by Ultrastar; and
(ii) Village shall cease each and every use of any Trademark of Ultrastar and
its clients, except any such use that is necessary to continue providing the
Services to existing Subscribers such as the use of a domain and the use of
Ultrastar's logo in a Branded Portal Page if applicable
14.2 Ongoing Right to Revenue. Village shall pay to Ultrastar Ultrastar's
Net Revenue Share for so long as Subscribers obtained during the term of this
Agreement continue to pay Subscription Fees pursuant to the terms of Section 7,
above.
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15. MISCELLANEOUS.
15.1 Survival. The provisions of Sections 8.1, 8.7, 9.1, 9.2, 10, 12, 14
and 15 shall survive the termination, non-renewal or expiration of this
Agreement.
15.2 Force Majeure. In the event that either party is hindered, delayed,
or prevented by Act of God, flood, hurricane or fire, performance of this
Agreement, the obligations of the party shall be suspended and proportionately
abated during the continuance of such condition, and the party so affected shall
not be liable in damages or otherwise for its failure to perform, unless such
condition continues for more than thirty days whereupon the other party hereto
may terminate this Agreement.
15.3 Notice. Any notice required by this Agreement shall be effective and
deemed delivered three (3) business days after posting with the United States
Postal Service when mailed by certified mail, return receipt requested, properly
addressed and with the correct postage, one (1) business day after pick-up by
the courier service when sent by overnight courier, properly addressed and
prepaid or one (1) business day after the date of the sender's electronic
confirmation of receipt when sent by facsimile transmission or electronic mail.
15.4 Severability. In the event that any of the terms of this Agreement
are or become illegal or unenforceable, such terms shall be null and void and
shall be deemed deleted from this Agreement, and all the remaining terms of this
Agreement shall remain in full force and effect.
15.6 Applicable Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of New York, as such laws apply to
contracts made therein and to be fully performed therein by residents thereof.
Each of the parties hereto submits to the jurisdiction of federal and state
courts sitting in New York City, and irrevocably agrees that all actions or
proceedings relating to this agreement may be litigated in such courts, and each
party hereto waives to the fullest extend permitted by law, any objection which
it may have based on improper venue or forum non conveniens to the conduct of
any proceeding in any such court.
15.7 Binding Agreement. This Agreement is for the benefit of the parties
hereto and shall be binding upon and inure to the benefit of their successors,
permitted assigns and surviving entities of any merger, sale, consolidation or
reorganization.
15.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
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15.9 Non-compete; assistance. Village will not compete with Ultrastar in
the entertainment field (including, without limitation sports teams, sports
leagues and individual athletes and music bands, groups or individual artists)
and shall refer any inquiries in this area to Ultrastar.
15.10 Assignment. Neither party shall, directly or indirectly, assign in
whole or in part, any of its rights or obligations hereunder without the prior
written consent of the other party to such assignment, which consent shall not
be unreasonably withheld. Notwithstanding the foregoing, Ultrastar has the right
to Reclaim any or all of the Services (other than raw dial-up) pursuant to
Section 8.1 without the consent of Village.
15.11 Commencement Date. The Commencement Date of this Agreement shall be
the date this Agreement is executed by Village.
15.12 Press Releases. Neither party shall issue any press release with
respect to this Agreement or the subject matter hereof or any of Ultrastar's
clients without the consent of the other party. In the event a press release is
required by law (including securities laws), the obligated party shall be
permitted to comply with such law, provided, however, that the other party is
afforded ample opportunity to review and comment on such press release.
15.13 Waiver of Breach. The waiver by either party of a default or breach
or the failure by either party to claim a default or breach of any provision of
this Agreement by the other party shall not be or be held to be a waiver of any
subsequent default or breach of the same provision or of any other provision of
this Agreement.
15.14 Amendment. This Agreement cannot be amended or supplemented except
by another agreement in writing executed by the parties hereto. The parties
hereto acknowledge that the Internet is a constantly evolving environment and
will therefore negotiate with the other party in good faith with respect to any
suggested amendments to this Agreement.
16. Non-Poaching.
During the Term, and for a period of 12 months after termination neither party
shall hire the other party's employees without the consent of the other party.
17. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
concerning the matters covered herein and supersedes all prior agreements and/or
understandings, between the parties, whether written or oral, concerning the
matters addressed herein; and there are no understandings, agreements,
representations or warrants, express or implied, which are not specified in
writing and signed by the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by there
duly authorized officers as of the date executed below.
VillageWorld.com, Inc. Ultrastar Internet Services, LLC
- ---------------------- ----------------------------
Peter Keenan, Thomas Bubeck
President VP, Business Affairs
Date: Date:
------------ ----------
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ATTACHMENT A
DEFINITIONS
<TABLE>
<S> <C>
Ultrastar. Ultrastar Internet Services, LLC, a New Jersey limited
liability company.
Ultrastar's
Net Revenue
Share Means the aggregate of (i) with respect to Subscribers
receiving the Services (including dial-up/DSL), the aggregate
of all Subscription Fees received by Village, on behalf of
Ultrastar, with respect to such Subscribers, less $9.20 per
month for dial-up subscribers, or less $43.95 per month for
128k ADSL (subscribers or $69.95 per month for 384k ADSL
subscribers, for each such paying Subscriber fee paid (which
is the compensation paid to Village for the Services rendered
hereunder) and (ii) with respect to Members receiving the
Services (excluding dial-up and DSL), the aggregate of all
Subscription Fees received by Village, on behalf of Ultrastar,
with respect to such Members, less $1.00 per month for each
such paying Member (which is the compensation paid to Village
for the Services rendered hereunder).
Representative. Peter J. Keenan or such other person specifically designated
by Village.
Net Revenue Share: Village will offer a wholesale price of $9.20
per dial-up Subscriber per month (for unlimited Internet
access per month), $43.95 for 128K ADSL subscribers per month,
and $69.95 for 384k ADSL subscribers per month, and $1.00 per
Member per month.
Fulfillment: Village will be responsible for the production, duplication
and packaging of all CD's at Ultrastar's expense. At
Ultrastar's option, Ultrastar may produce, duplicate and
package the CD's on its own behalf and furnish them to the
Village call center. Village will provide fulfillment services
using a dedicated private branded 800 number inbound call
center. Village will ship CD's at Ultrastar's expense of $.12
per CD plus postage to potential Ultrastar subscribers within
5-7 days of request.
Hosting: Hosting is defined as all of Ultrastar's hosting needs, of any
kind and nature, including, without limitation, audio and
video streaming and multimedia and shall be performed in
accordance with Attachment D.
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</TABLE>
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Member: Any user (which may include entities in addition to natural
persons) of the Services (other than dial-up) who is obligated
to pay the member Subscription Fees and for whom Village has
been informed of Subscriber's relationship to Ultrastar, by
name or Identification Number.
Member's page: Village will bill Members a set fee for access into the
Member's pages. Village will retain $1.00 per Member per month
for all of the Services on Attachment B.
Services. Internet access services and other related services, products
and software provided or made available to a Subscriber by or
on behalf of Village as fully described in Attachment A and B,
hereto, as amended from time to time pursuant to Section 14 of
this Agreement.
Subscriber. Any user of the Services who is obligated to pay the
Subscription Fees and for whom Village has been informed of
Subscriber's relationship to Ultrastar, by name or
Identification Number. Unless the context otherwise provides,
the phrase "Subscriber" shall include "Members".
Subscriber
Agreement. Agreement between Village and a Subscriber, in
substantially the form attached hereto as Attachment _, which
may be amended from time to time as mutually agreed to by the
parties hereto.
Subscription Fee. The periodic fee determined by Ultrastar, in its sole
discretion, that each Subscriber is required, pursuant to the
terms hereof, to pay each month, and which may be billed
monthly, quarterly or semi-annually, for the Services, payable
by via automatic charge to an appropriate credit card,
electronic check debit, or prepayment unless otherwise agreed
to. Ultrastar will provide Village 30-day prior written
notification relating to any change which necessitates changes
in either of the Subscription Fees.
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ATTACHMENT B
VILLAGE PRODUCT AND SERVICES LIST
TO BE PROVIDED TO SUBSCRIBERS AND MEMBERS, OTHER THAN DIAL-UP WHICH IS
PROVIDED TO SUBSCRIBERS ONLY
SUBSCRIBER/MEMBER SERVICES
o 56 kb V.90 network with more than 900 US Points of Presence, which
Village currently believes covers in excess of 90% of the U.S. population
30% of the Canadian population. If Village's coverage falls below 90% of
the U.S. population, Village shall use best efforts to achieve coverage
in excess of 90%. Canadian dial-up access is also priced to end users for
$14.95 and Ultrastar will have the right to increase its offering as
Village expands its ability to provide dial-up.
o 128k ADSL and 384k ADSL as currently available through Covad, Inc. and as
it expands. Both services require a $99.00 installation fee, but currently
a $99.00 rebate exists from Covad which will be passed on to Subscribers.
Village will also provide DSL modems to Subscribers at a cost of $99.
o 5 email addresses per subscriber
o 5 MB of unread email storage space
o 10 MB of personal Web space
o IE 5.0 and higher for Windows 95, 98, NT 4.0 win 2000
o IE 4.5 and higher for Macintosh 8.0 and higher
o Microsoft Outlook Express email client
o User guide and installation guide.
o Online Registration
o Web based registration and installation without browser download
o Authentication and Billing and customer support for each.
o Network based Proxy filtering
o Customer support to cover all Services including, without limitation:
1. It Village's intention to offer the best customer service in the
industry.
2. Customer service is provided via toll-free phone number, web site,
and Email.
3. Customer service shall be available 7 days, 24 hours a day within 20
days.
4. Response times, including a reporting/tracking system to confirm
such performance:
a. On average, 90% of all calls answered within 300 seconds
b. All Email problems solved within 24 hours
c. On average, less than 10% of calls will go to voice mail
during business hours
d. Call back goal for calls in voice mail is within 1 hour
e. Call back goal for email requests is within 4 hours or next
day if called in late
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<PAGE> 15
f. All calls will be logged
5. Resolution times:
a. Average wait time on hold not to exceed 3 minutes
b. Average call length for technical support generally should not
exceed 15 minutes Goal of 75% of service requests resolved on
the first call
6. Village shall support all of Ultrastar's community tools (currently
provided by Web Crossing and WeTalk Network, Inc), provided Ultrastar
shall, at its sole cost and expense, provide a person to train Village's
customer support staff on the use of such community tools.
o Fully private branded service via 800 number customer portal page and
fulfillment.
o At Ultrastar's option, Village will provide to Ultrastar web-based
bulletin boards, web-based and I.R.C., e-mail, chat groups, news groups,
instant-messaging and other community tools developed by Village or made
available by Village to its other clients of a first rate quality
Additional Charges May apply.
o Unlimited Blanket e-mails to Subscribers
o A reasonable number of dial-up comp accounts per Affinity.
o Unlimited complimentary accounts/passwords to the Member Pages. Such
accounts/passwords may be limited to a 30 day usage period.
o Start-up kit for Subscribers, includes:
o An installation CD featuring a simple, user friendly, and
self-installing process.
o Numerous add-on programs, including: Internet Explorer, Netscape
Navigator, etc.
o MAC and PC Compatible
o Additional space for content provided by Ultrastar.
o Order submission Options
VillageWorld.com, Inc.
15
<PAGE> 16
Attachment C
Village
System Security and Customer Confidentiality Statement
Village recognizes that the Internet represents a powerful resource and tool.
Village also recognizes that the power of the Internet presents security and
confidentiality issues which must be addressed.
o All Internet domain names are to be properly registered.
o Network based Proxy Filtering or other filter is provided to End Users to
ensure Internet content deemed in appropriate for their domain can be
blocked.
o Spamming, the practice of sending unsolicited e-mail to end users, will
not be supported. Domain owners who want to e-mail the end users within
their Internet community must take the necessary steps to ensure those end
users who do not wish to receive unsolicited e-mail are given the
opportunity to indicate that choice and honor it.
o Village, or its contracted suppliers, will NOT sell the end user list of
any domain. Domain owners who want to sell the names, addresses or e-mail
addresses of the end users within their Internet community must take the
necessary steps to ensure those end users who do not wish to be on any
sold list are given the opportunity to indicate that choice and honor it.
o Village, or its contracted suppliers, will NOT place advertising on any
domain's front page or any page whatsoever without the express written
permission of the domain owner. Village, or its contracted suppliers, will
NOT solicit the domain's end users for any product or service without the
express written permission of the domain owner and Ultrastar.
o Village, and its contracted suppliers, will make every effort to maintain
the appropriate level of security and confidentiality required to maintain
the integrity of each domain, including e-mail, and Internet community it
establishes.
o Village, or its contracted suppliers, may contact a domain's end user(s)
to resolve administrative or billing issues such as, but not limited to:
eligible application information, billing credit card issues, network
access clarification, e-mail naming conflicts, etc.
VillageWorld.com, Inc.
15
<PAGE> 17
Attachment D
HOSTING
I. System Availability
All servers and their corresponding services are to have 99.9%
availability at all times other than scheduled outages.
Scheduled Outages
Maintenance outages, if necessary, will be conducted every Monday between
the hours of 2AM and 4AM Eastern Time. Maintenance outages will include,
but are not limited to, the installation of upgrades, service packs, and
routine server or application configuration changes.
Other maintenance outages may be necessary from time to time. Customers
will be notified as least one week in advance of these outages, and
temporary workarounds will be put in place if at all possible.
Unscheduled Outages
While every effort is made to ensure minimal downtime, problems sometimes
do occur. If an emergency outage is required for any reason, Village will
attempt to notify Ultrastar with estimated downtime and repair status.
II. Response Time
Depending upon severity level, the following are the maximum response
times for network, server or service problems.
Severity Levels
1. Severity Level 1 - 15 Minute Response Time
Any interruption to the following services is sufficient
justification for escalation to severity level one.
o DNS
o Network Connectivity
o Radius Authentication
o Mail Server
o Web Server
o 800 Dialup Numbers
VillageWorld.com, Inc.
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<PAGE> 18
Severity Level 1 problems will be resolved as quickly as possible and take
precedence over all other problems.
2. Severity Level 2 - 4 Hour Response Time
Any inability for the client's Web Page to not be accessible by the
World Wide Web community qualifies for escalation to severity level
two
Severity Level 2 problems will be resolved as quickly as possible.
If a Severity Level 2 problem is unresolved after 8 hours, it will
be automatically escalated to Severity 1.
3. Severity Level 3 - 24 Hour Response Time
Any request for routine modifications, upgrades, or additions to
existing servers or services will be treated as severity level
three.
Severity Level 3 issues will be addressed by Account Management, and
time to resolution or implementation will be determined and agreed
upon by Ultrastar and Village.
Escalation Procedures
Upon confirmation and assessment of the severity level of an incident the
customer will contact Village technical support at the following number:
877/ WORLD58.
Upon contacting Village Customer Support, the customer, or their
representative, will immediately be given a Problem ticket number as well
as verbal confirmation of the severity level of the incident.
The customer will be contacted for confirmation of problem resolution
immediately prior to the closing of any open ticket regardless of the severity
level. Only the customer can authorize the closing of an open ticket.
In addition, Ultrastar shall be able to contact the following person in the
event of any problem:
Peter Keenan Phone #: 516-779-7797
Jeff Meltzer Phone #: 516-315-2978
III. Server Configuration
Fault Tolerance
Village will insure that all reasonable steps are taken to insure that
failure of one system or server will not result in cascade malfunctions
affecting other services. For example, Village will see to it that mail
services are not hosted on the same machine as web
VillageWorld.com, Inc.
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<PAGE> 19
services thus insuring that at least partial functionality is maintained
in the event of catastrophic server malfunction.
Redundant Systems
Village will ensure that critical systems are configured and maintained in
a manner that insures uninterrupted operation. Any failure resulting in
loss of redundancy will immediately generate a problem ticket of severity
level 2. Complete failure of any redundant system will be cause for
immediate escalation to severity level 1. Redundant Systems include:
1. DNS - Both primary and secondary DNS servers will be maintained at
all times.
2. Connectivity - Village will ensure that routed traffic destined for
or originating from customer servers will be immediately and
automatically rerouted around any failed network component.
Web Server Performance
Village will ensure that all Village-owned servers maintain certain
performance levels. Depending upon the severity of the problem, if any of
these performance levels are exceeded for a period of over 1 hour, a
problem ticket will be generated, and the customer notified either
verbally or via e-mail. If it is determined that Village-owned servers
exceed performance levels due to excessively high usage on one customer
web-site, that customer may be asked to work with account management to
resolve the issues.
1. Disk Utilization - 70% or less.
2. Average CPU Utilization - 50% or less.
3. Average Memory Utilization - 70% or less.
Hardware Maintenance
Village Equipment Maintenance - Village will ensure that common
replacement parts including hot swappable drives and network cards are
available or obtainable in a sufficiently timely manner to insure that all
turnaround commitments described in Section II are met.
VI. Data Management
Backup Procedures
VillageWorld.com, Inc.
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<PAGE> 20
Full backups of all mission critical data related to Village equipment,
will be performed on a daily basis without interruption to any customer
services. These backups will include, but are not limited to, the
following data:
o Router Configurations
o Radius Data
o User Home Directories
o Web Sites
o Email
Tapes will be rotated every two weeks. A full backup from the 2nd Monday
of each month will be stored offsite by the end of the 2nd Thursday of
each month. Offsite tapes will be stored for two months.
Restoration Procedure
Data will be restored in accordance with the procedures and severity
levels discussed in Section II.
Backup Integrity Checks
Backups will periodically be tested to insure that restoration and
coverage is functioning in accordance with the items listed above.
VII. Network Management
Bandwidth
Village will insure that bandwidth utilization is routinely monitored to
insure compliance with the following statistics:
1. LAN Utilization
Average network utilization for all internal network segments
related to customer servers and services will remain under 30%.
2. WAN Utilization
Backbone connectivity will be maintained in a manner that insures a
committed information rate of not less than 3.072 Mbits/sec and
saturation levels under 70%. Village will continuously monitor all
WAN links to insure
VillageWorld.com, Inc.
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<PAGE> 21
prompt customer notification of any network outage and immediate
escalation to severity level 1.
VIII. Reporting and Capacity Planning
Village maintains various reports to ensure adequate provisioning of
network connectivity, server load and configuration, server performance,
website statistics and problem ticket tracking. These may be available to
customers on an as-needed basis.
Periodically, Village will review customer server and bandwidth
utilization, and make recommendations based upon these reports. Village
will advise the customer if a capacity-planning meeting is necessary. The
customer may also request a capacity-planning meeting based upon their
assessment of future growth.
VillageWorld.com, Inc.
21
<PAGE> 1
EMPLOYMENT AGREEMENT
This Agreement made and entered effective the first day of August,
1996, by and between INTELLIGENT COMPUTER SOLUTIONS, INC. (Hereinafter
referred to as "ICS") and PETER J. KEENAN (hereinafter referred to as
"EMPLOYEE").
W I T N E S S E T H:
WHEREAS, ICS is engaged in the highly competitive business of providing
computer systems integration, including but not limited to LAN and WANS
operation and computer consulting services to governmental and non-governmental
entities throughout the United States; and;
WHEREAS, ICS has expended substantial amounts of money, time and
expertise in developing and maintaining extensive resources and customer
goodwill throughout the United States and has, by virtue of such efforts,
acquired the continued and repetitive business of its clientele, as well as its
personnel; and
WHEREAS, ICS has expended substantial amounts of money, time and effort
in developing and perfecting its techniques, technical expertise and data bases,
business methods, management and financial expertise, customer and business
accounts, personnel resources, and other data, all of which are highly
confidential information and which Employee hereby recognizes and acknowledges
to be valuable, special and unique business and trade secrets belonging to ICS;
and
WHEREAS, ICS has imparted confidential information and desires to be
able to impart additional confidential information to Employee with the
knowledge that such information will be used solely for its benefit and not in
competition with or to the detriment of ICS.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, and other valuable consideration, the receipt and
sufficiency whereof are hereby acknowledged, each of the parties, intending to
be legally bound, hereby agrees as follows:
1. AGREEMENT OF EMPLOYMENT
ICS hereby employs Employee as President commencing on the date of this
agreement and Employee agrees to be so employed, all in accordance with the
terms and provisions of this agreement. Terms of compensation, as well as scope
of duties, job assignment, job position, office assignment, job title,
subsidiary assignment, and divisional assignment, as set forth in this contract
may be revised by mutual consent of the parties from time to time.
<PAGE> 2
2. DUTIES
Employee shall work for ICS as President. The President shall work
closely with the Board of Directors of ICS. Additionally, the President shall:
o Develop corporate strategies for new ICS products
o Assist the corporation in obtaining sales
o Solve technical problems
o Research new ideas
o Hire and train new personnel
o Supervise and direct employees where needed
It is agreed that all checks of ICS over $5,000 shall be signed by
Employee and by either Hector M. Gavilla or Eli Levi, as long as one of them
remains liable on the ICS bank credit line or as long as there is an outstanding
note to either ATTI or to other ICS shareholders. There shall also be a separate
ICS checking account for checks up to $5,000 which can be signed by any one of
those three people.
3. COMPENSATION
Employees shall be compensated at the rate of $50,000 per year as long
as there is any promissory note outstanding from ICS to Advanced Testing
Technologies, Inc. ("ATTI") or from Employee to any other person for the
purchase of his stock in ICS. This amount may be increased annually by the Board
of Directors up to a maximum salary of $125,000 per year, provided that there is
an additional employee(s), designated by Hector Gavilla and Eli Levi, added to
the ICS payroll who will be paid an annual salary equal to any excess amount
over $50,000 per year paid to the Employee. After the aforesaid promissory notes
have been repaid, Employee's compensation package shall be revised.
4. STOCK PURCHASE
It is understood that Employee is purchasing a 51% interest in ICS from
the other existing shareholders and giving a promissory note in payment. The
parties hereto acknowledge an outstanding
loan owed by the Corporation to Advanced Testing Technologies, Inc. as well as
the stock acquisition loan of $100,000 owed by Employee to other shareholders.
It is agreed that Employee will be entitled to vote his shares of stock in the
Corporation as long as neither of these loans is in default.
Employee shall be entitled to sell his shares of stock in ICS; provided,
however, that any indebtedness for his shares has been repaid or will be repaid
out of the sale proceeds, and provided further that any agreement to sell his
shares shall be in writing specifying the terms of sale and the other
shareholders of ICS or ICS shall be given a copy of the agreement and have the
option for 30 days from the date of receipt of the sale agreement to purchase
Employee's shares on the same terms and conditions. If more than one shareholder
desires to purchase Employee's shares, each such shareholder shall be entitled
to purchase Employee's shares on a pro rate basis according to his or her
percentage ownership of ICS.
<PAGE> 3
5. STOCK REDEMPTION
If the Employee dies, becomes disabled, or his employment with ICS
terminates for any reason, he shall sell his shares of stock back to ICS and ICS
shall purchase them within 30 days of such event, at the adjusted book value of
his shares in ICS. The adjusted book value shall be determined in accordance
with this Paragraph by two independent accountants, one chosen by Employee and
one chosen by ICS. If they cannot agree on a valuation, the parties shall submit
any dispute to an arbitrator pursuant to the rules and procedures of the
American Arbitration Association.
At the election of the Corporation, payment for the Shares may be made
in up to eight (8) quarterly installments, provided that interest is paid to
Employees on the unpaid balance at the rate of nine percent (9%) per annum.
Employee shall be deemed disabled when a duly qualified physician appointed by
ICS certifies that Employee is unable to perform substantially all of the duties
previously rendered by him on behalf of the Corporation, and that, in such
physician's opinion, the disability shall continue for at least one year from
the initial date of the disability; but in any event, he shall be deemed
disabled if he is unable to perform all such duties for a continuous period of
one year.
The adjusted book value of the Corporation shall be determined in
accordance with its normal method of accounting, consistently applied, subject
to the following provisions:
A. No allowances of any kind shall be made for goodwill,
trade name, or any similar intangible asset of the Corporation unless
previously recorded on its books.
B. All accounts payable shall be taken at the face amount
thereof, less discounts deductible; and accounts receivable shall be taken at
the value as determined by such accountant based on the aging and history of
collectibility of such accounts.
C. All fixed assets shall be taken at the values on the books
of the Corporation, except that if the Corporation owns any real estate it shall
be valued at market value as determined by a mutually acceptable appraiser, if
possible, or else by the average to two (2) appraisers, one selected by the
seller and one selected by the Corporation.
D. There shall be included the cash surrender value of every
policy of insurance owned by the Corporation as of the valuation date.
E. All marketable securities shall be valued at market
value, rather than book value.
F. Inventories shall be valued at cost.
G. Book value shall mean the book value used for corporate
accounting rather than for tax purposes if different in any respect.
H. Contingent claims of or against the Corporation shall
not be taken into account.
<PAGE> 4
I. All unpaid and accrued taxes shall be deducted as
liabilities. The term "accrued taxes" shall include all unpaid income, property
and gross receipts taxes applicable to the fractional period of the year which
has, as of he valuation date, elapsed since the termination of the prior
calendar year and also all unpaid taxes applicable to prior years, without
consideration in either case of whether the taxes, as of the valuation date, are
or are not recorded as liabilities of the Corporation.
J. The purchase price as finally determined hereunder will be
final and shall not be subject to recomputation or adjustment in the absence of
fraud.
K. All expenses incurred in so determining the purchase price
shall be shared equally by the seller and the Corporation.
Upon the redemption of all of Employee's shares in ICS, all loans,
advances, exchanges and accounts of any nature whatsoever between the
Corporation and the Employee shall become due and payable.
The Corporation shall purchase a term life insurance policy in the face
amount of $500,000 insuring the life of Employee which shall be owned by the
Corporation, and the proceeds thereof shall be payable to the Corporation to be
used for purposes of redeeming Employee's stock.
6. FULL TIME NATURE OF EMPLOYMENT
Employee shall devote his full time, attention, and energies to the
business of ICS and shall not during the term of this agreement be engaged in
any other related business activity without the express approval of the Board of
Directors.
7. BOARD OF DIRECTORS
It is understood and agreed that the Board of Directors of the
Corporation shall be comprised of only three persons, specifically, Hector M.
Gavilla, Eli Levi, and Peter J. Keenan, as long as each of them owns shares of
the Corporation; provided, However, that Keenan's rights to serve as a Director
shall terminate upon written notice from the other Board Members if he is in
default on his stock acquisition loan or if the Corporation is in default on its
loan from Advanced Testing Technologies, Inc. Upon full repayment of those
loans, the Board of Directors shall be increased to four persons and Employee
shall be entitled to appoint a person of his choice to the fourth seat on the
Board.
8. WARRANTY AND INDEMNIFICATION
Employee warrants that, to the best of his knowledge, he is not a party
to any other restrictive agreement limiting his activities in the field and/or
area of his employment by ICS and the Employee will hold ICS harmless from any
and all suits and claims arising out of any breach of such restrictive
agreements or contracts.
<PAGE> 5
9. ACKNOWLEDGMENT OF CONFIDENTIAL NATURE
OF EMPLOYMENT AND GOODWILL INTERESTS OF ICS
Employee acknowledges (a) that ICS will expend considerable time, effort
and expense in training Employee in the methods used by ICS; and (b) that
Employee will be entrusted with confidential knowledge and information as to
ICS's accounts, customer and business patrons, personnel resources, and other
data, as well as confidential knowledge and information concerning the
techniques, technical expertise, business methods, management and financial
expertise of ICS; and will become personally acquainted with and serve as an ICS
representative to the business connections, customers and trade of ICS; and (c)
that Employee will receive such confidential knowledge and be placed in such a
position, that upon leaving ICS's employment for any reason, his engaging
directly or indirectly, either along or in association with any other person of
firm in a similar business to that of ICS, will cause irreparable harm and
financial loss to ICS, its good will, and its organization. Employee, therefore
agrees that he will not while in ICS's employ, directly or indirectly, either
alone or in association with any other person or firm, engage in any activity
whatsoever which is competitive to ICS for himself or in association in any
capacity with any other person or firm engaged in a similar business to ICS's.
10. AGREEMENT NOT TO ENGAGE IN COMPETITIVE BUSINESS
Employee further agrees that in the event of termination of this
Agreement for any reason whatsoever, he will not, for a period of eighteen (18)
months from the date of termination (such period not to include any period(s) of
violation or period(s) of time required for litigation to enforce the covenants
herein)either directly or indirectly, on his own account or as agent,
stockholder, employer, employee or otherwise in conjunction with any other
person or entity, engage in competition in a business similar to that of ICS
located within a seventy-five mile radius of any office to which he was assigned
by ICS within the preceding year, nor will he solicit contracts, accounts,
personnel, or engage in any other competitive activities within said area.
Employee further agrees that regardless of geographic location, he will not,
during such time period service of solicit any customers ICS has done business
with during the preceding year. Employee acknowledges that doing so in any
manner would interfere with, diminish, and otherwise jeopardize and damage the
business and goodwill of ICS.
11. AGREEMENT NOT TO COMPETE FOR ACCOUNTS OR PERSONNEL
Employee further agrees that within said period of eighteen (18) months,
as well as the duration of this Agreement, he will not in any way solicit,
divert, take away or attempt to solicit, divert or take away any staff,
full-time, part-time or temporary personnel, accounts, customers, trade,
business or goodwill from ICS or otherwise compete for accounts or customers who
have been solicited by ICS, and agrees not to influence or attempt to influence
any of ICS's customers or potential customers who have been solicited by ICS not
to do business with ICS.
<PAGE> 6
12.. AGREEMENT NOT TO DIVULGE CONFIDENTIAL INFORMATION
Employee agrees that he will not at any time during his employment with
ICS or within eighteen (18) months after leaving its service, for himself or for
any other company, divulge the name or address or any information concerning any
ICS accounts, customer and business patrons or technical personnel. Employee
further agrees during said period not to disclose any confidential information
or knowledge acquired while in the employ of ICS, said restriction to include
ICS's business methods, techniques, and management, technical, and financial
expertise, as well as its plan with respect to acquisitions and/or future
services to be rendered by ICS or future contracts to be bid on by ICS or
customers to be solicited by ICS.
13. RETURN OF RECORDS AND PAPERS
Employee agrees upon the termination of his employment with ICS for any
reason, whatsoever, to return to an officer of ICS all records, copies of
records, computer records, and papers pertaining to any and all transactions
handled by Employee while associated with ICS, and in the event Employee shall
fail to do so, or in the event Employee shall violate any covenant of this
Agreement, Employee shall forfeit all claims to unpaid compensation without
effecting the right of ICS to compel the return of said records and papers or
ICS's right to enforce any covenant of this Agreement.
14. INJUNCTIVE RELIEF FOR VIOLATION OF COVENANTS
Employee recognizes that irreparable damage will result to ICS in the
event of the violation of any covenant contained herein made by him, and agrees
that in the event of such violation, ICS shall be entitled, in addition to its
other legal or equitable remedies and damages, to temporary and permanent
injunctive relief to restrain against such violation(s) thereof by him and by
all other persons acting for or with him.
15. SPECIFIC PERFORMANCE
Because of the unique character of the shares of stock of the
Corporation, the parties and other shareholders will be irreparably damaged in
the event that this Agreement is not specifically enforced. Should any dispute
arise concerning the sale or disposition of Employee's shares, an injunction may
be issued restraining any sale or disposition pending the determination of such
controversy. In the event of any controversy concerning the right or obligation
to purchase or sell any such shares, such right or obligation shall be
enforceable in a court or equity by a decree or specific performance. Such
remedy shall, however, be cumulative and not exclusive, and shall be in addition
to any other remedy which the parties may have.
16. LEGAL FEES
Each party agrees that in the event of any legal action taken to enforce
the terms of this Agreement, the prevailing party shall be entitled to recover
all costs and reasonable legal fees incurred in such action.
<PAGE> 7
17. DAMAGES
Employee recognizes and acknowledges that because it would be difficult
or impossible to ascertain the actual damages arising from a violation by him of
the covenants herein contained, as liquidated damages for any violation,
Employee agrees (a) to immediately pay to ICS and to any present or former
shareholder of ICS any amount owed for loans or advances, (b) to forfeit all
existing and future rights to compensation hereunder, including but not limited
to, bonuses earned but not yet paid and any fringe benefits, and (c) to pay
damages to ICS in an amount equal to the gross profit, or fifty percent (50%) of
sales, whichever is greater, resulting from business generated by Employee,
either directly or indirectly, on his own account or as an agent, stockholder,
employer, employee, or otherwise, in conjunction with any other person or entity
through soliciting or otherwise competing for accounts or customers of ICS or
accounts or customers who have been solicited by ICS.
18. SIGNATURE OF SPOUSE
It is understood and agreed that due to the fact that Employee is
acquiring a 51% interest in ICS and will be responsible for the day-to-day
activities of the Corporation, for the protection of ICS and the other
shareholders it is appropriate and necessary that Employee's spouse execute this
Agreement to reflect her agreement to be bound by those provisions relating to
confidentiality and the promises not to compete with ICS and the enforcement
thereof. Specifically, those provision include Paragraphs 9 through 17.
19. INTERPRETATION OF AGREEMENT
This contract shall be interpreted and construed according to the laws
of the State of New York.
20. BENEFIT
This Agreement shall be binding upon the parties, their personal
representatives, successors, and assigns.
21. UNDERSTANDING OF PARTIES
This Agreement represents the entire agreement between the parties and
supersedes any and all prior agreements or understandings, oral or written,
between Employee and ICS.
<PAGE> 8
IN WITNESS WHEREOF, we hereunto set our hands and seals effective the date first
above written.
INTELLEGENT COMPUTER SOLUTIONS, INC.
By:
-------------------------------
Attest - Secretary President
----------------------------------
Witness Peter J. Keenan
----------------------------------
Witness Spouse
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Name State of Incorporation Date of Incorporation Status
- ---- ---------------------- --------------------- ------
<S> <C> <C> <C>
Big City NY, Inc. New York November 26, 1997 Wholly-owned by
VillageWorld.com, Inc.
Bagel Partners, Inc. Delaware May 7, 1996 Wholly-owned by
VillageWorld.com, Inc.
Intelligent Computer Solutions, Inc. New York October 21, 1994 Wholly-owned by
VillageWorld.com, Inc.
Village Net, Inc. New York June 6, 1995 Wholly-owned by
VillageWorld.com, Inc.
</TABLE>
39
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
VillageWorld.com, Inc.
We hereby consent to the incorporation by reference in the Form 10-KSB of
VillageWorld.com, Inc. of our report dated March 22, 2000, related to the
financial statements of VillageWorld.com, Inc. appearing in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999.
/s/ Laurence Rothblatt & Company
Great Neck, New York
March 22, 2000
40
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 800,561
<SECURITIES> 0
<RECEIVABLES> 497,320
<ALLOWANCES> 2,500
<INVENTORY> 96,791
<CURRENT-ASSETS> 1,669,157
<PP&E> 412,400
<DEPRECIATION> 87,115
<TOTAL-ASSETS> 4,831,695
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0
16,308
<COMMON> 17,405
<OTHER-SE> 2,887,528
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<SALES> 1,276,115
<TOTAL-REVENUES> 1,276,115
<CGS> 952,333
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<INTEREST-EXPENSE> 587,753
<INCOME-PRETAX> (1,366,790)
<INCOME-TAX> (131,900)
<INCOME-CONTINUING> (1,234,890)
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<CHANGES> 0
<NET-INCOME> (1,234,890)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
