<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
( ) For the transition period from __________ to __________
Commission file number: 000-29822
THEHEALTHCHANNEL.COM, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0728140
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
3101 W. Coast Highway, Suite 175
Newport Beach, California 92663
(949) 631-8317 -telephone
(949) 631-2544 - facsimile
(Address of principal executive offices)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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
----- -----
The issuer had 75,019,565 shares of its no par value Common Stock
issued and outstanding as of November 15, 1999.
Transitional Small Business Disclosure Format (check one)
Yes No X
----- -----
<PAGE>
THEHEALTHCHANNEL.COM, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Financial Statements 1
Comparative Unaudited Balance Sheet as of September 30, 1999
and June 30, 1999 4
Comparative Unaudited Statements of Operations for the
Three Months Ended September 30, 1999 and for the
Period from May 1, 1999 (Inception) to September 30, 1999 5
Comparative Unaudited Statements of Cash Flows for the
Three Months Ended September 30, 1999, and for the Period from
May 1, 1999 (Inception) to September 30, 1999 6
Notes to the Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 14
(b) Reports on Form 8-K 14
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Comparative Unaudited Balance Sheet as of September 30, 1999 and June
30, 1999
Comparative Unaudited Statements of Operations for the Three Months
Ended September 30, 1999 and for the Period from May 1, 1999
(Inception) to September 30, 1999
Comparative Unaudited Statements of Cash Flows for the Three Months
Ended September 30, 1999, and for the Period from May 1, 1999
(Inception) to September 30, 1999
Notes to the Unaudited Consolidated Financial Statements
1
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THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND
FOR THE PERIOD FROM MAY 1, 1999 (INCEPTION)
TO SEPTEMBER 30, 1999
2
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THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
JUNE 30, 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Operations 5
Statements of Cash Flows 6 - 7
Notes to Financial Statements 8 - 11
</TABLE>
3
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THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JUNE 30, 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1999 1999
--------------- ----------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 131,059 $ -
Prepaid expenses 8,000 -
--------------- ----------------
Total current assets 139,059 -
FURNITURE AND EQUIPMENT, net 562,285 581,674
--------------- ----------------
TOTAL ASSETS $ 701,344 $ 581,674
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 83,081 $ -
Accrued marketing 414,482 -
Accrued professional fees 114,500 -
Accrued salaries 48,000 -
--------------- ----------------
Total current liabilities 660,063 -
--------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value
110,000,000 shares authorized
107,049,558 (unaudited) and 106,819,558 shares issued
and outstanding 107,050 106,820
Paid-in capital 618,409 478,639
Deficit accumulated during the development stage (684,178) (3,785)
--------------- ----------------
Total stockholders' equity 41,281 581,674
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 701,344 $ 581,674
=============== ================
</TABLE>
4
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<TABLE>
<CAPTION>
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 1, 1999 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------
For the
Period from
For the May 1,
Three Months 1999
Ended (Inception) to
September 30, September 30,
1999 1999
--------------- ----------------
<S> <C> <C>
REVENUE $ - $ -
COST OF GOODS SOLD - -
--------------- ----------------
GROSS PROFIT - -
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 680,684 684,469
--------------- ----------------
LOSS FROM OPERATIONS (680,684) (684,469)
OTHER INCOME (EXPENSE)
Interest income 291 291
--------------- ----------------
NET LOSS $ (680,393) $ (684,178)
============== ================
BASIC LOSS PER SHARE $ (0.01) $ (0.01)
============== ================
WEIGHTED-AVERAGE SHARES OUTSTANDING 106,839,812 106,831,817
============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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<TABLE>
<CAPTION>
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 1, 1999 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------
For the
Period from
For the May 1,
Three Months 1999
Ended (Inception) to
September 30, September 30,
1999 1999
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (680,393) $ (684,178)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation 19,389 19,389
Decrease in
Accounts receivable - 3,336
Loans receivable - officers - 41,952
Inventories - 76,982
Prepaid expenses (8,000) (5,525)
Decrease in
Accounts payable 83,081 52,295
Accrued expenses - (7,294)
Accrued marketing 414,482 414,482
Accrued professional fees 114,500 114,500
Accrued salaries 48,000 48,000
--------------- ----------------
Net cash provided by (used in) operating activities (8,941) 73,939
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of furniture and equipment - 33,743
Other assets - 27,571
--------------- ----------------
Net cash provided by investing activities - 61,314
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Paid in capital - (1,985,687)
Subscription receivable - 60,000
Proceeds from sale of common stock 140,000 473,540
Deficit accumulated during the development stage - 1,425,402
--------------- ----------------
Net cash provided by (used in) financing activities 140,000 (26,745)
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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<TABLE>
<CAPTION>
THEHEALTHCHANNEL.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AND
FOR THE PERIOD FROM MAY 1, 1999 (INCEPTION) TO SEPTEMBER 30, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------------
For the
Period from
For the May 1,
Three Months 1999
Ended (Inception) to
September 30, September 30,
1999 1999
--------------- ----------------
<S> <C> <C>
Net increase in cash $ 131,059 $ 108,508
CASH, BEGINNING OF PERIOD - 22,551
--------------- ----------------
CASH, END OF PERIOD $ 131,059 $ 131,059
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
NOTE 1 - BUSINESS ACTIVITY
thehealthchannel.com, Inc., formerly known as Innovative Tracking
Solutions Corporation, (the "Company") was incorporated in Delaware. It
operates a consumer-based health supersite
(http://www.thehealthchannel.com).
NOTE 2 - SIGNIFICANT TRANSACTIONS
On April 16, 1999, the Company transferred all of its assets and
liabilities based on majority stockholder approval to a newly formed
private company. The Company's plan of operations following the
transfer of assets and liabilities was to seek and complete a merger or
acquisition transaction with a small- or medium-sized enterprise which
desired to become or remain a public corporation.
On July 28, 1999, the Company completed the following:
1. found an appropriate acquisition candidate and, pursuant to its
bylaws and general Delaware corporate law, the Company acquired
assets from Biologix International, Ltd., consisting primarily of
the thehealthchannel.com website and related technology in
exchange for the 1,185,243 shares of the Company's common stock
held by the public. The value of the 885,868 free trading shares
issued by the Company is based on the Company's closing stock
price of $0.531 on the date of the acquisition, July 28, 1999,
and the value of the 299,375 restricted shares issued is based on
a discount of 30% from the Company's closing stock price on the
date of the acquisition.
2. increased the number of authorized shares of common stock to
110,000,000.
3. implemented a forward stock split of 28.22-to-1 of all
outstanding shares of the Company's common stock outstanding as
of July 29, 1999.
In connection with this change of control, the Company's name was
changed to thehealthchannel.com, Inc. on July 28, 1999. The acquisition
closed on July 28, 1999.
8
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NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
normal, recurring adjustments considered necessary for a fair
presentation have been included. The financial statements should be
read in conjunction with the audited financial statements included in
the Company's Amended Current Report on Form 8-K/A for the period from
May 1, 1999 (inception) to June 30, 1999. The results of operations for
the three months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended June
30, 2000.
REVENUE AND EXPENSE RECOGNITION
Revenue is recognized when the earning process is complete. Expenses
are recognized as incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. The Company provides for
depreciation using the straight-line method over an estimated useful
life of five years. Expenditures for maintenance and repairs are
charged to operations as incurred while renewals and betterments are
capitalized. Gains or losses on the sale of furniture and equipment are
reflected in the statements of operations.
BASIC NET LOSS PER SHARE
Basic loss per share is computed by dividing loss available to common
stockholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive. Because the Company has incurred a net
loss, basic and diluted loss per share are the same.
9
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NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of the
assets to future net cash flows expected to be generated by the assets.
If the assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
exceeds the fair value of the assets. To date, no impairment has
occurred.
DEVELOPMENT STAGE ENTERPRISE
The Company is a development stage company as defined in Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is devoting substantially
all of its present efforts to establish a new business, and its planned
principal operations have not yet commenced. All losses accumulated
since inception have been considered as part of the Company's
development stage activities.
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
--------------- ----------------
<S> <C> <C>
(unaudited)
Purchased technology $ 581,674 $ 581,674
Less accumulated depreciation 19,389 -
--------------- ----------------
TOTAL $ 562,285 $ 581,674
=============== ================
</TABLE>
NOTE 5 - STOCKHOLDERS' EQUITY (UNAUDITED)
During the three months ended September 30, 1999, the Company issued
180,000 restricted shares of the Company's common stock and 180,000
warrants to purchase restricted shares of the Company's common stock
with an exercise price of $0.75 for proceeds of $135,000. The shares
issued and the shares issuable upon exercise of the warrants have
piggyback registration rights in the event the Company files a
Registration Statement with the Securities and Exchange Commission. The
warrants vest immediately and expire two years from the date of
issuance.
10
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NOTE 5 - STOCKHOLDERS' EQUITY (UNAUDITED) (CONTINUED)
During the three months ended September 30, 1999, the Company issued
50,000 restricted shares of the Company's common stock for proceeds of
$5,000. The shares issued have piggyback registration rights in the
event the Company files a Registration Statement with the Securities
and Exchange Commission.
11
<PAGE>
PART I - FINANCIAL INFORMATION CONTINUED
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE COMPANY
thehealthchannel.com, Inc., formerly known as Innovative Tracking
Solutions Corporation (the "Company") was incorporated in Delaware on
September 6, 1996. It operates a consumer-based health supersite
(http://www.thehealthchannel.com).
On April 16, 1999, the Company transferred all of its assets and
liabilities based on majority stockholder approval to a newly formed private
company. The Company's plan of operations following the transfer of assets
and liabilities was to seek and complete a merger or acquisition transaction
with a small or medium-sized enterprise which desired to become or remain a
public corporation.
On July 28, 1999, the Company was successful in finding an
appropriate acquisition candidate and, pursuant to its bylaws and general
Delaware corporate law, the Company acquired certain assets of Biologix
International, Ltd., consisting primarily of thehealthchannel.com website and
related technology in exchange for the controlling interests of the Company.
Restricted common shares, representing the majority controlling interests
held by the directors of the Company, were transferred.
In connection with this change of control, the Company's name was
changed to thehealthchannel.com, Inc. on July 28, 1999. The Acquisition
closed on July 28, 1999 (the "Acquisition").
With headquarters at 5000 Birch Street, Suite 4000, Newport Beach,
California, thehealthchannel.com is a comprehensive health information
Internet portal that offers a one-step access point for consumers and
professions who want to explore a broad array of health topics. The portal
currently indexes more than 2.8 million other Internet health and
health-related sites, has direct links with more than 1,700 online
health-care information service centers, provides detailed coverage of some
700 medical conditions, and is nearly 1 million web pages in size. Consumers
may access a global library of health-care information while searching for
products and services. The site offers a complete Internet portal for
state-of-the-art continuing medical education for professionals. It is also
linked to more than 3 million URLs through various other strategic alliances,
such as Infoseek.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999.
REVENUE
The Company is a development stage company and had no revenues for
the three months ended September 30, 1999
12
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company incurred costs of approximately $405,000 for the three
months ended September 30, 1999 for launching its advertising campaign in
support of its health-care web site. In addition, it expended approximately
$160,000 in connection with the development of the web site.
LOSS FROM OPERATIONS
The Company incurred a loss from operations of $680,684 for the
three months ended September 30, 1999.
OTHER INCOME
The Company earned $291 in interest income for the three months
ended September 30, 1999.
NET LOSS
The Company had a net loss of $680,393 or $(0.01) per share.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily funded its capital
requirements through private equity infusions. The Company is currently
conducting a private offering to accredited investors only of units, each
unit consisting of one share of the Company's Common Stock and one Warrant
exercisable for a term of two years (the "Units"). The Company originally
priced this offering at $0.75 per Unit with a $0.75 exercise price on the
Warrants. However, the price of the Company's publicly traded stock dropped
precipitously since the beginning of this private offering and the Company is
now offering the Units at $0.45 with a $0.45 exercise price on the Warrants.
The Company will raise of a maximum of $5,000,000 under this private
offering. This private offering is exempt from the registration requirements
of the Securities Act of 1933, as amended (the "Act") pursuant to Section
4(2) of the Act.
At September 30, 1999, the Company had outstanding current
liabilities of $660,063 consisting of accounts payable $83,081, accrued
marketing $414,482, accrued professional fees $114,500, and accrued officers
salaries $48,000. All officers of the Company have agreed to defer their
compensation until such time as the Company has the financial ability to pay
compensation. The Company anticipates satisfying its current liabilities in
the ordinary course of business from revenues and accounts receivable.
Over the next 12 months, the Company plans to upgrade its management
information system, telecommunications system and office equipment to
accommodate anticipated growth plans. However, the Company will not perform
any upgrades until its management believes it has sufficient revenues to
accommodate such upgrades.
The Company does not believe that inflation has had a significant
impact on its operations since inception of the Company.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the best knowledge of management, there are no litigation matters
pending or threatened against the Company which are not in the ordinary course
of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
(10) 24/7 Media Inc. Network Affiliation Agreement, dated
September 9, 1999
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K:
On August 13, 1999, the Company filed a report on Form 8-K
disclosing the Acquisition described in Part 1, Item 2, the Company.
On October 12, 1999, the Company filed a report on Form 8-K/A
to submit the financial information required for the Acquisition.
14
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
THEHEALTHCHANNEL.COM, INC.
Date: November 17, 1999 /s/ DONALD SHEA
-------------------------------------
Donald Shea, President
Date: November 17, 1999 /s/ THOMAS LONERGAN
-------------------------------------
Thomas Lonergan, Chief Operating Officer,
Vice President, Secretary, and Chief
Financial Officer
15
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EXHIBIT 10
24/7 MEDIA INC. NETWORK AFFILIATION
AGREEMENT
DATED SEPTEMBER 9, 1999
<PAGE>
24/7 MEDIA INC.
NETWORK AFFILIATION
AGREEMENT
WHEREAS, the undersigned (hereinafter the "Network Affiliate") is
the operator and owner of the Internet Web site(s) (the "Web Site") specified
on the signature pages hereto;
WHEREAS, 24/7 Media, Inc. ("24/7"), a Delaware corporation with an
address at 1250 Broadway, 27th floor, New York, NY 10001, operates a network
of Internet Web sites (the "24/7 Network") for which it solicits advertisers,
advertising agencies, buying services or others ("Advertisers") regarding the
placement of advertising banners and similar devices and sponsorships
("Advertising") for display on pages, screens, and other segments or spaces
on Web site reasonably suitable for the display of advertising and to which
the Tags (as defined in Section 2(A) below) can be affixed as provided herein
(the "Pages");
WHEREAS, Network Affiliate and 24/7 wish to include the Web Site in
the 24/7 Network;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
it is agreed as follows:
1. AFFILIATION.
The Network Affiliate hereby grants to 24/7 the worldwide exclusive
right to sell all Advertising on the Web Site.
2. OBLIGATIONS OF 24/7.
In furtherance of the foregoing, 24/7 covenants and agrees:
A. to provide the Network Affiliate, during the term of this
Agreement (the "Term") and only for use in the performance of this Agreement,
with unique tags in HTML/Java or other appropriate languages (the "Tags")
which shall be affixed appropriately by Network Affiliate to the Web Site's
Pages to enable 24/7 to serve Advertising to those Pages;
B. to utilize its best efforts to sell to Advertisers Advertising on
the Web Site's Pages, (including sales of the Web Site as a single site,
through multi-site packages and through the 24/7 Network package, at such
prices as 24/7 shall deem appropriate);
C. to serve Advertising to the Web Site's Pages;
D. to provide the Network Affiliate with notice, via on-line
posting, of new Advertising that has been solicited by 24/7 to be displayed
on the Web Site's Pages, and to use its best efforts
1
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to honor any decision by Network Affiliate to decline any Advertising, in
accordance with the provisions in 3(D) below;
E. to provide the Network Affiliate with real-time access to records
that will allow it to monitor the volume of paid Advertising delivered to the
Web Site's Pages and the revenue produced (subject to billing corrections and
adjustments) thereby; all such records, including data, statistical
information or other traffic analysis, produced or provided by 24/7 shall be
the joint property of 24/7 and Network Affiliate;
F. to deliver to the Network Affiliate a monthly statement showing
revenues earned by Network Affiliate during the calendar month and any sum(s)
due the Network Affiliate on account thereof pursuant to Section 4 hereof; and
G. to maintain suitable and qualified personnel in administrative,
sales and technical positions necessary for 24/7 to perform effectively the
terms of this Agreement.
3. OBLIGATIONS OF NETWORK AFFILIATE.
The Network Affiliate covenants and agrees:
A. to use its best efforts to continue and maintain the Web Site and
the Web Site's Pages in a manner consistent with the intent and purpose of
the Web Site;
B. to insert the Tags on each of the Web Site's Pages and only on
such Pages in such a manner as to assure that the Advertising to be affixed
to said Tag is fully and clearly visible on the first Web Site Page viewed
when that Page is viewed at a 640 x 480 pixel resolution;
C. to insert a button with the 24/7 logo on the Web Site's Home Page
directing potential advertisers to the 24/7 web site.
D. to notify 24/7 within one business day from the time of notice of
any new Advertising is given of the Network Affiliate's rejection of any new
Advertising. Failure to provide timely notice of rejection of the new
Advertising shall be deemed acceptance thereof, until such time as Network
Affiliate notifies 24/7 of Network Affiliate's rejection thereof at which
time 24/7 will use its best efforts to remove the Advertising;
E. to furnish 24/7 with all subscribership, viewership, inventory,
and usage reports, reviews and audience studies, deliveries, census
requirements, and any other information regarding the Web Site and the Web
Site's Pages as is reasonably available to the Network Affiliate and
appropriate for use by 24/7 for the sale of Advertising; and
F. not to engage, contract with, license or permit any person, firm
or entity (including the Network Affiliate and its employees) other than 24/7
and its employees to sell, or represent the
2
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Network Affiliate for the sale of, Advertising on the Web Site and to refer
all advertising inquiries to 24/7.
4. PAYMENTS.
A. Advertisers shall be directed to pay all cash and other
consideration generated from the sale of Advertising by 24/7 during the term
of this Agreement and for a period of six months following the termination of
this Agreement (except for sponsorships, with respect to which payments shall
be made to 24/7 and a percentage shall be retained by 24/7 for the duration
of the sponsorship regardless of the date of termination of this Agreement).
24/7 shall retain a percentage of such Payment (reduced by those advertising
agency commissions actually retained by agencies or paid by 24/7 to agencies)
with respect to the sale of Advertising on the Web Site in accordance with
the following chart, and shall pay to the Network Affiliate the remainder of
the Payment received by 24/7 for the sale of Advertising on the Web:
<TABLE>
<CAPTION>
Number of Impressions Percentage Retained by 24/7
Delivered in Preceding Month for Current Month
<S> <C>
999,999 to 2,000,000 50%
2,000,000 to 2,999,999 45%
3,000,000 to 4,999,999 40%
5,000,000 to 14,999,999 35%
15,000,000+ 30%
</TABLE>
Network Affiliate represents and warrants that the number of impressions
served in the month preceding the Effective Date was _____________, and thus,
subject to verification of monthly ad impressions, the initial percentage to
be retained by 24/7 is _____%. The percentage retained by 24/7 shall be
lowered effective upon Network Affiliate's notifying 24/7 that the number of
impressions delivered in the preceding month requires the percentage retain
to be adjusted.
B. The Network Affiliate may elect to have 24/7 serve promotional or
barter advertisements not sold by 24/7, for which Network Affiliate will pay
24/7 a serving fee of $2.50 cost per thousand ("CPM"); such promotional and
barter advertisements shall not exceed thirty percent (30%) of the Pages.
C. In the event any Advertiser remits any payment for Advertising
sold by 24/7 directly to the Network Affiliate rather than to 24/7, the
Network Affiliate agrees to make prompt payment to 24/7 of any and all such
payments.
D. Network Affiliate will be obligated to compensate 24/7 on any
business contracted by 24/7 Media prior to termination date.
3
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E. Network Affiliate acknowledges that 24/7 has an ownership
interest in the "clicktobuy.com" e-commerce service (the "Service") and that
the Service includes the placement of banners on the 24/7 Network, generally
on a "cost per transaction" basis and on terms no more favorable to
clicktobuy.com than would be made available to a party not affiliated with
24/7.
F. Network Affiliate also acknowledges that 24/7 owns and operates
the Profilz database of demographic profiles (the "Database "). Network
Affiliates understands and agrees that the Payment in respect of Advertising
sold that employs the Database shall be calculated by subtracting from gross
revenue a fee for use of the Database, which fee shall be disclosed to
Network Affiliate prior to implementation and shall reasonably reflect 24/7's
cost of developing and operating the Database. Network Affiliate shall have
the option not to accept Advertising that employs the Database.
5. INTELLECTUAL PROPERTY. All hardware, software, programs, codes, trade
names, technology, intellectual property, licenses, patents, trademarks,
copyrights, trade secrets, know-how, and processes (collectively, the "24/7
Technology") used by 24/7 under this Agreement shall remain the sole property
of 24/7. Network Affiliate shall have no rights, title or interest in the
24/7 Technology. All hardware, software, programs, codes, trade names,
technology, intellectual property, licenses, patents, trademarks, copyrights,
trade secrets, know-how, and processes (collectively, the "Network Affiliate
Technology") used by Network Affiliate under this Agreement shall remain the
sole property of Network Affiliate. 24/7 shall have no rights, title or
interest in the Network Affiliate Technology. Upon the expiration or
termination of this Agreement, each party shall promptly return all
information, documents, manuals and other materials belonging to the other
party except as otherwise provided in this Agreement.
6. CONFIDENTIALITY. 24/7 and Network Affiliate covenant to each other that
neither party shall disclose to any third party (other than its employees and
directors, in their capacity as such, and the employees and directors of any
affiliate on a need to know basis so long as they are bound by the terms of
this Agreement) any information regarding the terms and provisions of this
Agreement or any non-public confidential information which has been
identified as such by the other Party hereto except (i) to the extent
necessary to comply with any law or valid order of a court of competent
jurisdiction (or any regulatory or administrative tribunal), in which event
the party so complying shall so notify the others as promptly as practicable
(and, if possible, prior to making any disclosure) and shall seek
confidential treatment of such information, if available; (ii) as part of its
normal reporting or review procedure to its auditors or its attorneys, as the
case may be, so long as they are notified of the provisions of this
Agreement; (iii) in order to enforce its rights pursuant to this Agreement;
(iv) in connection with any filing with any governmental body or as otherwise
required by law, including the federal securities laws and any applicable
rules and regulations of any stock exchange or quotation system; and (v) in a
confidential disclosure made in connection with a contemplated financing,
merger, consolidation or sale of capital stock of 24/7 or the Network
Affiliate. Information which is or should be reasonably understood to be
confidential or proprietary includes, but is not limited to, information
about the 24/7 Network, sales, cost and other unpublished
4
<PAGE>
financial information, product and business plans, projections, marketing
data, and sponsors but shall not include information (a) already lawfully
known to or independently developed by a party, (b) disclosed in published
materials, (c) generally known to the public, (d) lawfully obtained from any
third party or (e) required to be disclosed by law.
7. TERM.
A. The term of this Agreement (the "Term") shall commence on the
Effective Date and shall continue for at least one year from the Effective
Date. Either party may terminate the Agreement by giving notice no earlier
than eight months after the Effective Date. Termination will be effective
four (4) months after the date on which written notice is given, as
determined under the provisions of Section 13 below, to the other party.
B. Notwithstanding Section A. above, this Agreement may be
terminated by either party on 60 days' prior written notice to the other
party upon the occurrence of a material breach by the other party of any
covenant, duty or undertaking herein, which material breach continues without
cure for a period of 30 days after written notice of such breach from the
non-breaching party to the breaching party.
C. Notwithstanding Section A. or B. above, this Agreement may be
terminated by 24/7 on written notice to the Network Affiliate upon the
occurrence of a material breach by Network Affiliate of its covenants under
Section 8 of this Agreement, which material breach continues without cure for
a period of more than 48 hours after written notice of such breach from 24/7
to Network Affiliate of such breach, or which material breach occurs on more
than two occasions.
D. Notwithstanding Section A. or B. above, this Agreement may be
terminated by 24/7 on 30 days' prior written notice to the Network Affiliate
if the number of Pages in any three consecutive months is less than one
million or if the average click through rate for any three-month period is
less than 0.25%.
8. CONTENT OF WEB SITE. Network Affiliate covenants and agrees not to include
or provide via the Web Site or the Web Site's Pages any material that is or
may be considered: (i) libelous, pornographic, obscene, or defamatory under
any federal or state law; (ii) an infringement of any third party's
intellectual property rights (including copyright, patent, trademark, trade
secret or other proprietary rights); or (iii) an infringement on any third
party's rights of publicity or privacy. Network Affiliate further covenants
and agrees, with respect to the operation of its Web Site and its Pages, to
comply with all laws, statutes, ordinances, and regulations.
9. INDEMNIFICATION. Network Affiliate shall indemnify and hold harmless 24/7,
its advertisers and other suppliers and any related third parties, against
and in respect of any and all third party claims, suits, actions, proceedings
(formal and informal), investigations, judgments, deficiencies, damages,
settlements, liabilities, and legal and other expenses (including reasonable
legal fees and
5
<PAGE>
expenses of attorneys chosen by 24/7) as and when incurred, arising out of or
based upon any act or omission or alleged act or alleged omission by Network
Affiliate in connection with the acceptance of, or the performance or
non-performance by Network Affiliate of, any of its duties under this
Agreement or arising from the breach by Network Affiliate of its warranties,
representations or covenants contained in this Agreement. 24/7 shall
indemnify and hold harmless the Network Affiliate, against and in respect of
any and all third party claims, suits, actions, proceedings (formal and
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, and legal and other expenses (including reasonable legal fees
and expenses of attorneys chosen by Network Affiliate) as and when incurred,
arising out of or based upon any act or omission or alleged act or alleged
omission by 24/7 in connection with the acceptance of, or the performance or
non-performance by 24/7 of, any of its duties under this Agreement or arising
from the breach by 24/7 of its warranties, representations or covenants
contained in this Agreement.
10. NO POACHING. Network Affiliate agrees that, during the Term and for a
period of one year from the end of the Term, neither it nor its affiliates
will solicit or recruit the services of any 24/7 employees, or hire any such
employees.
11. NO WAIVER. This Agreement shall not be waived, modified, assigned or
transferred except by a written consent to that effect signed by Network
Affiliate and 24/7. Network Affiliate agrees that if it assigns or transfers
this Agreement, it shall cause such successor, assignee, or transferee to
assume all of the Network Affiliate's obligations hereunder. Any assignment,
transfer, or assumption shall not relieve the Network Affiliate of liability
hereunder.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
made and performed therein, without regard to principles of conflicts of laws.
13. NOTICES. All notices required or permitted to be given hereunder shall be
in writing and either hand-delivered, telecopied, mailed by certified first
class mail, postage prepaid, or sent via electronic mail to the other party
or parties hereto at the address(es) set forth below. A notice shall be
deemed given when delivered personally, when the telecopied notice is
transmitted by the sender, three business days after mailing by certified
first class mail, or on the delivery date if delivered by electronic mail.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements of the Parties with respect to the
transactions set forth herein and, except as otherwise expressly provided
herein, is not intended to confer upon any other person any rights or
remedies hereunder.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original and all of which together shall constitute
one and the same document.
16. FORCE MAJEURE. Neither party shall be held liable or responsible to the
other party nor be
6
<PAGE>
deemed to have defaulted under or breached this Agreement for failure or
delay in fulfilling or performing any term of this Agreement when such
failure or delay is caused by or results from causes beyond the reasonable
control of the affected party, including but not limited to fire, floods,
failure of communications systems or networks, embargoes, war, acts of war
(whether war is declared or not), insurrections, riots, civil commotion,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions
or delays in acting by any governmental authority or the other party;
provided, however, that the party so affected shall use reasonable commercial
efforts to avoid or remove such causes of nonperformance, and shall continue
performance hereunder with reasonable dispatch whenever such causes are
removed. Either party shall provide the other party with prompt written
notice of any delay or failure to perform that occurs by reason of force
majeure. The parties shall mutually seek a resolution of the delay or the
failure to perform as noted above.
17. SEVERABILITY. Should one or more provisions of this Agreement be or
become invalid, the parties hereto shall substitute, by mutual consent, valid
provisions for such invalid provisions which valid provisions in their
economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement
shall not affect the validity of this Agreement as a whole, unless the
invalid provisions are of such essential importance to this Agreement that it
is to be reasonably assumed that the parties would not have entered into this
Agreement without the invalid provisions.
18. DISPUTE RESOLUTION. Any controversy or claim arising out of or relating
to the Agreement, or the breach thereof, shall be settled exclusively
by arbitration. Such arbitration shall be conducted before a single
arbitrator in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. If arbitration is
commenced by 24/7, it shall take place in the city in the continental
United States in which the principal U.S.A. corporate offices of
Network Affiliate are located. If Network Affiliate has no corporate
offices in the U.S.A. or if arbitration is commenced by Network
Affiliate, then arbitration shall take place in New York, New York.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction, and the parties irrevocably consent to the jurisdiction
of such courts for that purpose. The parties waive personal service in
connection with any such arbitration; any process or other papers under
this provision may be served outside the home state of Network
Affiliate or New York by registered mail, return receipt requested, or
by personal service, provided a reasonable time for appearance or
response is allowed. All decisions of the arbitrator shall be final and
binding on the parties. The parties shall equally divide all costs of
the American Arbitration Association and the arbitrator. Each party
shall bear its own legal fees in any dispute. The arbitrator may grant
injunctive or other relief.
19. INDEPENDENT CONTRACTORS. 24/7 Media and Network Affiliate shall each
act as independent contractors. Neither party shall exercise control over the
activities and operations of the other party. 24/7 Media and Network
Affiliate shall each conduct all of its business in its own name and as it
deems fit, provided it is not in derogation of the other's interests. Neither
party shall engage in any
7
<PAGE>
conduct inconsistent with its status as an independent contractor, have
authority to bind the other with respect to any agreement or other commitment
with any third party, nor enter into any commitment on behalf of the other,
except as expressly provided for by this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement this
9th day of September, 1999 (the "Effective Date").
24/7 MEDIA, INC.
By: /s/ Bruce L. MacDonald
-------------------------------------
Name: Bruce L. McDonald
Title: Director, Business Development
E-mail address: [email protected]
NETWORK AFFILIATE:
Name of Web Site: thehealthchannel.com
-------------------------------------
Web Site URL: www.thehealthchannel.com
-------------------------------------
Corporate Name of Web Site owner: thehealthchannel.com, inc.
-------------------------------------
Address: 5000 Birch Street, Suite 4000, Newport Beach, CA 92660
-------------------------------------------------------
Address: 7 Benjamin Place, Locust Valley, NY 11560
------------------------------------------------------
By: /s/ Donald J. Shea
-------------------------------------
Name: Donald J. Shea
Title: President
E-mail address: [email protected]
-------------------------------------
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOR THE
COMPANY'S FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 5-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999
<PERIOD-START> MAY-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 131,059 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 139,059 0
<PP&E> 581,674 0
<DEPRECIATION> (19,389) 0
<TOTAL-ASSETS> 701,344 0
<CURRENT-LIABILITIES> 660,063 0
<BONDS> 0 0
0 0
0 0
<COMMON> 107,050 0
<OTHER-SE> (65,769) 0
<TOTAL-LIABILITY-AND-EQUITY> 701,344 0
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 684,469 680,684
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (684,178) (680,393)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (684,178) (680,393)
<EPS-BASIC> (0.01) (0.01)
<EPS-DILUTED> (0.01) (0.01)
</TABLE>
