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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(X) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE
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ACT OF 1934
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For the fiscal year ended October 31, 1999 Commission File Number: 000-27107
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THE BIGHUB.COM, INC.
(Small Business Issuer in its Charter)
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Florida 65-0580634
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(State or other jurisdiction of (I.R.S. Employer
- ------------------------------- Identification No.)
incorporation or organization)
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2939 Mossrock, Suite 100, San Antonio, TX 78230
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (210) 979-9228
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Securities registered under Section 12(b) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
NONE N/A
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Securities registered under Section 12(g) of the Exchange Act:
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(Title of each class)
Common Stock, par value $.001
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES(x) NO( )
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of 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)
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State issuer's revenues for its most recent fiscal year: $35,914.
State the aggregate market value of the voting stock held by non-affiliates of
the issuer (based upon 9,264,726 shares held by non-affiliates and the closing
price of $3.1875 per share for Common Stock in the over-the-counter market as of
December 31, 1999): $29,531,314.
Number of shares of the issuer's common stock, par value $.001, outstanding as
of December 31, 1999: 16,105,976 shares.
Number of shares of the issuer's preferred stock, par value $.001, outstanding
as of December 31, 1999: None.
DOCUMENTS INCORPORATED BY REFERENCE: None.
Transitional Small Business Disclosure Format YES ( ) NO (X)
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PART I
Item 1. DESCRIPTION OF BUSINESS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information contained herein (as
well as information included in oral statements or other written statements made
or to be made by The BigHub.com) contains statements that are forward-looking,
such as statements relating to anticipated future revenues and expenses of the
Company and the success of current and planned product offerings. Such forward-
looking information involves important risks and uncertainties that could
significantly affect anticipated results in the future, and accordingly, such
results may differ materially from those expressed in any forward-looking
statements made by or on behalf of The BigHub.com, Inc. The potential risks and
uncertainties include, among others, limited operating history, competitive and
economic factors of the marketplace including acceptance of the Company's
proprietary search engine and licensed e-commerce technology and content
products, the continued growth and acceptance of the Internet, Year 2000 issues,
and the state of the economy.
General
The BigHub.com, Inc. (the "Company" or "The BigHub.com") was organized
as a Florida corporation in February 1995, under its original name, Coordinated
Healthcare, Inc. In October 1995, pursuant to the terms of an Agreement and Plan
of Merger, Optima Medical Group of Hialeah, Inc. and Optima Medical Group of No.
Miami, Inc. were merged into the Company. Following the merger to August 1998,
the Company was a physician management company that operated primary care
medical clinics in South Florida. During this time the Company affiliated with
physicians in order to provide a full-range of high-quality, cost effective
physician services. In July 1998, the last of the Company's medical clinics was
sold in consideration for the purchaser's assumption of substantially all of the
Company's liabilities. The other medical clinic had been sold in November 1997.
The Company's prior management decided to dispose of its last medical clinic and
terminate its physician management operations because (i) competition in South
Florida was too well established, (ii) the Company was experiencing continued
operating losses and (iii) the chances of the Company becoming profitable was
not likely. Additionally, management determined that there were e-commerce
opportunities on the Internet with low costs to entry.
On July 29, 1998, the Company amended its Articles of Incorporation to
change its name to iSleuth.com, Inc. Following its name change, on August 7,
1998, the Company acquired one hundred percent (100%) of the issued and
outstanding common stock of Maverick Communications Corp., a Florida corporation
(the "Subsidiary" or "MCC"), from I-Commerce Group, Inc. (formerly known as SJI
Group, Inc.). MCC's only substantive asset was an option to purchase an Internet
meta-search engine that was executed shortly after the acquisition. The
Company's total purchase price for MCC and the exercise of MCC's option to
acquire the search engine was $567,140 and was comprised of 1,700,000 shares of
the Company's voting common stock, valued at $255,000 (estimated at $0.15 a
share per the current private placement memorandum outstanding on the date of
issuance), and 1,000,000 shares of the Company's preferred stock, valued at
$150,000, and the assumption of liabilities in the amount of $162,140. The
acquisition was accounted for as a purchase and, accordingly, the operating
results pertaining to MCC subsequent to the date of the acquisition have been
included in the Company's consolidated operating results. The total purchase
price was fully allocated to the search engine. The value was subsequently
written down in fiscal 1999. Following the assignment of the option to the
Company, MCC has been an inactive subsidiary. The meta-search engine was not in
use on the Internet prior to its acquisition by the Company.
On April 29, 1999, the Company changed its name to The BigHub.com, Inc.
and began to build a new management team. As discussed more fully below, the
Company is now in the process of upgrading its search engine intellectual
property and related Internet site to become a compelling destination Portal
alternative on the Internet. The meta-search engine technology as originally
purchased by the Company enabled consumers to search multiple sites
concurrently, but returned the results in a serial fashion. For instance, Yahoo,
InfoSeek, AltaVista, Excite, WebCrawler, Hotbot and Lycos could all be searched
to locate "books." The results for Yahoo would be returned, followed by
AltaVista and the remaining search engines.
With respect to the Company's current upgrading efforts, the most
significant enhancement to the search engine
<PAGE>
"MegaSearch" is the ability to return summarized results. The Company is
enhancing the search engine to summarize the top results from each search engine
and return a single set of results. Additionally, any results duplicated on
multiple search engines would be consolidated into a single response. This
enhancement makes it simpler for the consumer to locate information quickly and
effectively.
Another enhancement is to implement the capability to store a consumer's
profile for their favorite search engines. Consumers will then be able to search
their preferred search engines without having to make the selection each time.
Additionally, a further enhancement will be the ability to search the
fastest three search engines for a response. The Company has often found the
performance of some of the top search engines to be sluggish depending on the
time of day and load. The Company's search engine will continually track
performance and availability of the search engines in order to provide optimal
overall performance to our consumers.
The Company intends to host a array of affiliated shopping alternatives
covering many categories of general and special merchandise as well as consumer
credit and consumer insurance. The goal of the Company is to use Internet
marketing and its proprietary search engine to engage Internet users and
demonstrate to them the advantages of using the The BigHub.com, Inc. either as
their search engine of choice or their "home page" of choice.
The Meta-Search Engine
There are generally two types of Internet search engines: the standard
search engine and the meta-search engine. The standard search engine features a
large proprietary database that contains a large index of key words and the
corresponding Web site locations where those keywords can be found throughout
the millions of Web sites accessible via the Internet. An Internet user can
access a standard search engine software Web site via the Internet and can issue
a keyword search to the search engine's software. The search engine software
then searches its database for the keyword and returns to the Internet user a
list of Web site locations where the keyword can be found. These search engines
are a great tool to easily locate and research information from among the
millions of Web sites currently linked to the Internet. The standard search
engine features a proprietary database or index of keywords and corresponding
Internet Web site locations. These databases are constantly enhanced and
enlarged by so-called web-crawler software. This is software that continuously
accesses and reviews Web sites for the location of keywords. These additional
keywords and locations are then added to the database, thus increasing the
search capabilities of that particular standard search engine.
A meta-search engine is different from a standard search engine because it
does not contain its own database of keywords and corresponding locations.
Rather, the meta-search engine taps into the power of several standard search
engines. A meta-search engine is a software program that accepts keyword search
inquiries from Internet users via the Internet and re-issues those search
inquiries, again via the Internet, to several of the popular standard Internet
search engines. The search responses received from the standard search engines
are compiled by the meta-search engine software and reported back to the
original Internet user-inquirer. The Company believes that the ability to
quickly and easily search several standard search engines at once is a
compelling and attractive alternative to the Internet user.
There are several best in class standard search engines available on the
Internet today. Unfortunately, with the explosion of new sites on the web, it is
impossible for each of them to crawl and index all the pages and information
that is currently available. Using the Company's MegaSearch engine the consumer
is able to take the best from all search engines and review them in both a
serial or summarized fashion.
Additionally, major standard search engines experience both performance and
availability problems. A recent example is with AltaVista when they announced
their free Internet Service Provider ("ISP") services. The AltaVista search
engine was down for several hours. During this time the Company's MegaSearch
engine was still running strong. It just indicated that AltaVista was
temporarily down.
Performance issues are much more common with standard search engines on a
daily basis. In the high-speed world of the Internet, consumers want information
immediately. If they're unable to obtain it, they simply move on to the next
site. The MegaSearch engine acts as a buffer to provide the best information to
the consumer on a continual basis even when source search engines are
experiencing performance problems or are unavailable.
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By aggregating the search results from all the top search engines to
provide a comprehensive set of results, the Company's MegaSearch engine will
find more search responses than the standard search engine. As indicated above,
it is difficult, if not impossible, for the top search engines to keep their
entire database updated on a daily basis. Using MegaSearch, a consumer has
access to the most up-to-date information from all the top search engines with
one single search. Although a consumer could run the search on each individual
search engine separately, this would take much more time and the results would
not be summarized nor would duplicates be eliminated.
<PAGE>
In addition to the MegaSearch capabilities, the Company's search engine is
the only meta-search engine available today with over 2,600 categorized
specialty search engines. A consumer can navigate through 19 categories of
specialty searches ranging from Arts and Humanities, Business and Computers to
Society and Culture, Sports and Travel. A keyword search capability is also
available in order to locate a specific specialty search.
The Company's MegaSearch, combined with the categorized specialty searches,
is a unique one-two combination of searches that the Company believes is not
offered anywhere else on the Internet, which is the Company's key differentiator
and should make it attractive to consumers.
Business Expansion; Capital Growth
The Company is aggressively pursuing the spiral branding advantage of the
"Big" company affiliates, upgrading its search engine, and improving the overall
community value of its Web site. The Company will capitalize on the "spiral
branding" technique, as the meta-search engine, the Company's "Big" affiliates,
such as The BigStore.com and Biomerica, Inc. (d/b/a on the Internet as the
BigRX.com), will drive additional customer traffic to the Company's web. Among
the "Big" Web sites, the Company will develop a search syndication network
whereby a network of Web sites will have integrated The BigHub search engine
service into their sites as well as links on other sites that will direct
consumer traffic to the Company's site. Ultimately, the Company desires to
create a single closed and gated community that meets virtually all of the
merchandise, service, and content needs of its customers. The term "single
gated and closed community" as used by the Company means that a customer can
give their name, address and credit card information just once and be able to
purchase products from any of the "Big" affiliates. This structure will be
considerably easier to use and the customer should feel safer at the same time
because they will only be giving their personal information one time.
The Company anticipates generating revenue from several sources, including
advertising, community features and services, and affiliated retail and consumer
companies operating under the group brand of the "Big" and Private Labeling,
where the Company provides an entity with a turnkey solution for internet e-
commerce for business to consumer and business to e-commerce clients. This will
include all front end and back end transaction processing as well as access to
an e-commerce content of up to approximately 5,000,000 SKU's through an
exclusive worldwide master license agreement with The BigStore.com, Inc.
Current affiliated companies include The BigStore.com, Inc. and Biomerica, Inc.
(d/b/a The BigRx.com), and the Company is presently negotiating an affiliation
with The BigBallot, Inc. Each entity's affiliation with the Company is pursuant
to a strategic marketing agreement, or similar contractual arrangement, with a
term ranging from three (3) to five (5) years, and customary renewal provisions.
Initially, each "Big" affiliate will pay a negotiated annual fee to the Company,
in the form of either cash or a grant of securities, to be an affiliated company
branded under the "Big" label. Each "Big" affiliate will be promoted throughout
The BigHub.com web site. The Company believes that the key benefits to belonging
to the "Big" network will be the ability to leverage branding, marketing and
user/customer information. In addition, the Company is developing new technology
which will enable it to provide customers with a universal shopping cart which
will allow customers to shop across all affiliate web sites in one purchase
transaction. Further, affiliates will be able to leverage certain customer
information that is gathered from all affiliate web sites which will allow
affiliates to sell precision-targeted advertising. All "Big" affiliates will be
identified on the Company's web site through the use of banners and links.
Prior to April 30, 1999, the Company had spent approximately $250,000 for
the development of the meta-search engine. The Company anticipates that it will
incur significant expenditures (approximately $6,000,000) to enhance its meta-
search engine technology and develop additional technologies.
In July, 1999, the Company concluded a private placement of its common
stock in an offering exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Act"), under Section 4(2) of the Act and Rule 506
of Regulation D. The Company raised $1,500,000 in connection with this offering
from the sale of common stock to three (3) accredited investors at a price of
$5.28 per share, which represents the closing price of the Company's common
stock as reported on the OTC Bulletin Board on June 3, 1999, the date such
purchasers subscribed to purchase the shares of common stock.
<PAGE>
Lack of Profitability, Potential Losses
From its inception in February 1995, through October 31, 1999, the Company
has experienced aggregate losses of $4,748,984. Further, a key element of the
Company's strategy consists of an aggressive marketing plan for its proprietary
meta-search engine and destination Portal on the Internet. This strategy may
result in continued net losses for the Company during this transition and
expansion phase due to costs associated with technology development and the
anticipated marketing costs for the promotion of the Company's proprietary
search engine and destination Portal in its market area. Results of operations
in the future will be influenced by numerous factors including, among others,
expansion, the Company's ability to drive traffic to its Web site, to attract
"Big" affiliates, provide superior customer service and retain qualified
personnel. The Company may incur problems, delays, expenses and difficulties
during this stage, many of which may be beyond the Company's control. These
include, but are not limited to, unanticipated regulatory compliance, marketing
problems and intense competition that may exceed current estimates. There is no
assurance that the Company will ever operate profitably.
Management of Growth
In order to maximize potential growth in the Company's market
opportunities, the Company believes that it must expand rapidly and
significantly upon its entrance into the market place. This impetus for
expansion will place a significant strain on the Company's management,
operational and financial resources. In order to manage growth, the Company
must implement and continually improve its operational and financial systems,
expand operations, attract and retain superior management and train, manage and
expand its employee base. The Company cannot guarantee that it will
effectively manage the rapid expansion of its operations, that its systems,
procedures or controls will adequately support its operations or that the
Company's management will successfully implement its business plan. If the
Company cannot effectively manage its growth, its business, financial condition
and results of operations could suffer a material adverse effect.
The Company expects that it will require additional equity and/or debt
financing prior to becoming cash self-sufficient. The Company cannot give
assurance that it will successfully negotiate or obtain additional financing, or
that it will obtain financing on terms favorable or acceptable to it. The
Company does not have any commitments for additional financing. The Company's
ability to obtain additional capital depends on market conditions, the global
economy and other factors outside its control. If the Company does not obtain
adequate financing or such financing is not available on acceptable terms, the
Company's ability to finance its expansion, develop or enhance products or
services or respond to competitive pressures would be significantly limited.
The Company's failure to secure necessary financing could have a material
adverse effect on its business, prospects, financial condition and results of
operations.
Competition
The online commerce market for search engines, portals and Internet Service
Providers ("ISP's") is rapidly evolving and intensely competitive. The
Company's current or potential competitors include:
. AOL, Yahoo, Excite, MSN, AltaVista and others.
. Meta-search engines such as Byte Search, Cyber 411, Debriefing, DogPile and
Meta Crawler
. Online portals that have specialized consumer retail and consumer service
offerings, C/net's Computer Shopper, Imall, NetMarket and others.
The Company believes that the principal competitive factors in the online
commerce market are:
. Accessibility;
. Brand recognition;
. Brand selection;
. Personalized services;
. Consumer service;
. Convenience;
<PAGE>
. Quality of editorial and other site content; and
. Reliability
Many of the Company's competitors have operating histories, large customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources. Certain of the Company's competitors have the financial
resources to devote greater resources to marketing and promotional campaigns and
to devote substantially more resources to Web site and systems development.
Increased competition may result in reduced operating margins and a diminished
brand franchise. The Company cannot assure potential investors that the Company
will compete successfully against future competitors.
Intellectual Property and Proprietary Rights
The Company's success depends substantially upon its proprietary
technology, including its meta-search engine, related site software and database
technology. The Company will rely on a combination of trademark, copyright and
trade secret laws, as well as confidentiality agreements and technical measures
to protect its proprietary rights. Much of the Company's proprietary information
may not be patentable, and the Company does not currently possess any patents.
The Company currently has registered copyrights covering the Internet Sleuth
meta-search engine. The Company has applied to register its "The BigHub.com"
trademark and logo and will apply to register certain other trademarks in the
United States and/or foreign jurisdictions.
Employees
As of December 31, 1999, the Company employed 11 full-time employees. We
also engage the services of various outside consultants including The
BigStore.com, Inc. (See Part III, Item 12 "Certain Relationships and Related
Transactions" herein)
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently has two (2) business offices. The Company's
principal executive office resides in San Antonio, Texas, where the Company is
being provided office space free of charge by a corporation controlled by the
Company's Chairman of the Board. The Company also has a regional office in
Newport Beach, California, where it is subleasing space from The BigStore.com,
Inc., an affiliated entity, which has a common director and certain common
officers and shareholders. The Lease is month to month at a rental of $6,800
per month. The premises are in good condition and adequately insured. The
Company plans to open a regional office in the New York City area. Sales and
marketing functions will be the primary purpose of the regional offices.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, the Company is not a party to any material pending
legal proceeding and is not aware of any threatened legal proceeding, with the
exception of a lawsuit threatened by TomCo Holdings, Inc., a former consultant
to the Company which has asserted a claim for consulting fees allegedly payable
by the Company. The Company believes the claims of TomCo Holdings, Inc. are
without merit and intends to vigorously contest them.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter market. The
following sets forth the range of high and low bid quotations for the periods
indicated as reported by Nasdaq Trading and Market Services. Such quotations
reflect prices between dealers without retail mark-up, markdown or commission
and may not represent actual transactions and is quoted on the OTC Bulletin
Board under the symbol BHUB. The stock is thinly traded and transactions in the
stock are sporadic and infrequent.
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<CAPTION>
Quarter Ended High Bid Low Bid
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<S> <C> <C>
October 31, 1999 $ 7.63 $2.56
July 31, 1999 $16.88 $4.81
April 30, 1999 $10.13 $5.25
January 31, 1999 $21.25 $0.88
October 31, 1998 $ 9.25 $0.05
July 31, 1998 $ 0.75 $0.03
April 30, 1998 $ 1.56 $0.19
January 31, 1998 $ 2.56 $0.50
</TABLE>
There was no trading activity report for the Company's Common Stock prior
to the fiscal quarter ended January 31, 1998.
As of December 31, 1999, there were approximately 84 holders of record of
the Company's Common Stock.
The Company has never paid a cash dividend on its Common Stock nor does the
Company anticipate paying cash dividends on its Common Stock in the near future.
It is the present policy of the Company not to pay cash dividends on the Common
Stock but to retain earnings, if any, to fund growth and expansion. Any payment
of cash dividends on the Common Stock in the future will be dependent upon the
Company's financial condition, results of operations, current and anticipated
cash requirements, plan for expansion, as well as other factors the Board of
Directors deems relevant.
The following provides information concerning all sales of securities
within the last fiscal year that were not registered under the Securities Act of
1933, as amended (the "Securities Act"):
1. In December 1998, concurrent with the creation of Class A Special
Preferred Stock, the Company issued to one accredited investor 7,750,000 shares
of the Class A Special Preferred Stock in exchange for such investor's
conversion of 5,000,000 shares of Preferred Stock and the creation of a
$1,000,000 line of credit with the Company's then principal shareholder. The
fair market value of the common stock and the preferred stock on the date of
exchange was $0.15 based on the July 1998 Private Placement. The shares were
issued in a private, unsolicited transaction pursuant to an exemption from
registration under Section 4(2) of the Securities Act.
2. In December 1998, the Company issued an aggregate of 500,000 shares of
the Class A Special Preferred Stock to two sophisticated investors in exchange
for professional accounting and administrative services. Management estimated
fair market value at $0.15 per share based on the July 1998 Private Placement.
The shares were issued in a private, unsolicited transaction pursuant an
exemption from registration under Section 4(2) of the Securities Act.
3. In December 1998, the Company completed a private placement of its
Common Stock pursuant to Rule 504 of Regulation D as promulgated by the
Securities and Exchange Commission under the Securities Act. The Company issued
a total of 1,600,000 shares of Common Stock to four (4) investors in
consideration for the cancellation of $442,827 of outstanding indebtedness to
the investors. The investors had purchased the obligations from the original
lender.
<PAGE>
4. In January 1999, the Company issued an aggregate of 192,000 shares of
Common Stock at a price of $0.15 per share to 9 individuals in exchange for
cash. The shares of Common Stock sold in this transaction represent the balance
of shares from the Company's July 1998 private placement. The issuance was
exempt from registration under either Rule 504 or Rule 701.
5. In April 1999, the Company offered to redeem both its outstanding
shares of Preferred Stock and outstanding shares of Class A Special Preferred
Stock, with each share being redeemed for one share of Common Stock. All
1,000,000 outstanding shares of Preferred Stock and 2,062,500 outstanding shares
of Class A Special Preferred Stock were redeemed. In connection with the
redemption, the Company issued 3,062,500 shares of Common Stock. The shares of
Common Stock were issued in a private, unsolicited transaction pursuant to an
exemption from registration under Section 4(2) of the Securities Act.
6. In June 1999, in order to reduce the voting control attendant to the
Class A Special Preferred Stock, the Company negotiated the redemption of the
remaining 6,187,500 outstanding shares of Class A Special Preferred Stock. In
connection with the redemption, each outstanding share of Class A Special
Preferred Stock was redeemed for 1.3232 shares of Common Stock, with a total of
8,187,501 shares of Common Stock being issued in connection with the redemption.
The shares of Common Stock were issued in a private, unsolicited transaction
pursuant to an exemption from registration under Section 4(2) of the Securities
Act.
7. During the fiscal year ended October 31, 1999, the Company issued
61,000 shares of its Common Stock at $0.15 per share to three (3) sophisticated
investors in exchange for consulting services rendered in a private, unsolicited
transaction pursuant to an exemption from registration under Section 4(2) of the
Securities Act.
8. In June 1999, the Company issued 284,090 shares of its Common Stock at
$5.28 per share in exchange for cash to three (3) accredited investors pursuant
to Rule 506 of Regulation D, as promulgated by the Securities and Exchange
Commission under the Securities Act.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
The following discussion is based upon, and should be read in conjunction
with, the audited financial statements of the Company as at and for the years
ended October 31, 1999 and 1998, together with the notes thereto.
During the periods presented, the Company disposed of Coordinated
Healthcare, Inc. and underwent a restructuring of its core business to Internet
e-commerce. Accordingly, the Company believes that the following presentation
of comparative results of operations, while required, is not meaningful. In
addition, the Company believes that historical results are not indicative of
future results.
This Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements.
Results of Operations
Fiscal Year Ended October 31, 1999 Compared With the Fiscal Year Ended
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October 31, 1998 (as restated).
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For the year ended October 31, 1999, the Company had revenues of $35,914
and reported a loss from continuing operations before discontinued operations
and extraordinary gain on forgiveness of debt of ($4,023,451), or ($0.59) per
share. This compares to a restated loss before discontinued operations and
extraordinary gain on forgiveness of debt of ($223,668), or ($0.32) per share
for 1998, on revenues of $6,292. Operating expenses increased in the year ended
October 31, 1999 to $3,570,729 from $223,577 in the year ended October 31, 1998
(as restated), an increase of $3,347,152.
<PAGE>
During the fiscal year ended October 31, 1999, general and administrative
expenses increased by $2,948,579 to $3,146,982 from the $198,403 reported in the
prior fiscal year (as restated). This change resulted from the increase in the
overall business development activities of the Company including upgrading its
search engine and web site and developing new sources of revenue, in contrast to
the prior year's activities which were centered around the restructuring of the
Company's core business to Internet e-commerce.
Depreciation expense increased by $169,966 to $195,140 in fiscal 1999
compared to $25,174 in 1998 (as restated). This increase is primarily
attributable to the depreciation over a full fiscal year of the search engine
and website compared with approximately two months of search engine and website
depreciation recorded in fiscal 1998 because of the acquisition date of the
search engine and website.
Interest expense increased by $447,388 to $453,563 in fiscal 1999 (1998 as
restated: $6,175) primarily as a result of interest expense imputed as a result
of the redemption of 5,000,000 shares of the Company's Preferred Stock for
7,750,000 shares of the Company's Class A Special Preferred Stock.
Included in the net loss of ($504,361), or ($0.72) per share, for the year
ended October 31, 1998 (as restated) was a net loss from discontinued operations
of ($280,723) (See Part I, Item 1 "Description of Business; General").
Liquidity and Capital Resources
During the fiscal year ended October 31, 1999, the Company's net cash
position increased by $87,214. Although the Company generated $2,478,800 from
financing activities, the Company's operating and investing activities used net
cash of $2,391,586. These activities contributed to a net working capital
deficit as of October 31, 1999 of ($3,039,196).
During fiscal 1998, the Company, in connection with the acquisition of all
the common stock of MCC, acquired an Internet search engine and web site for a
total purchase price of $567,140. The purchase price was comprised of 1,700,000
shares of the Company's voting common stock, valued at $255,000, (estimated at
$0.15 per share, based on the current private placement memorandum outstanding
on the date of issuance) and 1,000,000 shares of the Company's preferred stock,
valued at $150,000, and the assumption of liabilities in the amount of $162,140.
The acquisition was accounted for as a purchase and, accordingly, the operating
results pertaining to MCC subsequent to the date of the acquisition were
included in the Company's operating results for the year ended October 31, 1998.
At the time the Company completed its acquisition of the Search Engine and
began operating the Search Engine on the Internet at www.isleuth.com, there were
only about four (4) other meta-type search engines on the Internet. During the
course of the ensuing months, the Company entered into various agreements to add
content to and sell advertising on its web page. As the Company's financial
statements for the year ended October 31, 1998 indicate, revenue generated by
the Company during such time period was minimal.
During the period from September 1998 to May 1999, while the Search Engine
continued to operate on the Internet, the Company did little to enhance, modify
or upgrade the underlying technology. As is typical with the Internet and with
technology in general, that which is a quality product or technology one day
could be replaced by better, faster and more technologically advanced products
or technologies only months later. The Company's new management found this to
be the case when it joined the Company in May 1999. While the Search Engine
technology was adequate in September 1998, because the Company had not taken any
substantial steps to upgrade or modify the technology, management determined
that the Search Engine was no longer a competitive product on the Internet nor
was it as attractive to the consumer.
Management, acting upon its concern regarding the recorded value of the
search engine and web site, consulted with a regional independent accounting
firm with respect to its interim financial statements and the accounting firm
also questioned the valuation of the Search Engine.
As a result, the Company performed an analysis of the search engine and
website in accordance with Statement
<PAGE>
of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") in order to
determine if the Company had a long-term asset impairment issue. The following
is the Company's review and conclusion with respect to certain of the SFAS 121
factors.
1. A significant decrease in the asset's market value. Based on this factor,
--------------------------------------------------
the Company has determined that some degree of asset impairment was likely due
to the fact that at the time of the initial purchase and valuation of the Search
Engine, only about four other comparable meta-search engines existed. As of May
31, 1999, there were approximately 20 meta-search engines that were as or more
technologically advanced than the Company's Search Engine. Furthermore, in order
to be as technologically advanced as the top existing search engines such as
goto.com and dogpile.com, the Company believes that it will need to incur a
- -------- -----------
minimum of $1.5 million in additional development costs in the near term and up
to $6.4 million before the Company even becomes profitable.
2. A significant change in the way an asset is used. Prior to May 31, 1999 the
-------------------------------------------------
Search Engine had been used by the Company under the name The Internet Sleuth (a
name which the Company completely abandoned when it changed its corporate name
from I-Sleuth.com to the BigHub.com) solely to generate revenue from banner ads,
based on the number of visitors to the Company's web site. By contrast, the
Company as part of its new business and Internet strategy views banner ads as
less than 3% of its projected revenue stream. Banner ads can no longer be
relied on as a reliable revenue source due to the existence and use of software
packages that block them from appearing on the user's screens thereby allowing
web pages to load more quickly. The Company now anticipates that a majority of
its revenues will come from affiliate fees and click-throughs. The Company
envisions that the consumer will use the Search Engine as a tool to locate
products and services and match buyers and sellers of such products and
services. As the Search Engine becomes a more powerful tool for consumers,
affiliated entities and sponsors will benefit from the increased traffic on the
Company's web site.
3. A current period or history of operating or cash flow losses that implies
-------------------------------------------------------------------------
continuing losses associated with an asset used to generate revenue. The
- --------------------------------------------------------------------
Company incurred losses of approximately $900,000 from the date of acquisition
of the Search Engine through April 30, 1999. Furthermore, an estimated
additional $6.4 million will have been spent on Search Engine enhancements and
web site development before the Search Engine contributes to a profitable
quarter
Based upon the above, the Company retained an independent appraiser to
determine, among other things, the fair market value of the Company as of May
31, 1999.
In accordance with SFAS 121, the Company recorded an impairment loss on its
Internet search engine and web site based in part on the valuation of the
Company, performed by an independent appraiser. During the year ended October
31, 1999, management of the Company determined that $228,607 of the Internet
search engine and web site had been impaired. Accordingly, the Company charged
this amount to operations in the current year. No additional impairment has
been determined by management as of October 31, 1999.
During the year ended October 31, 1999, the Company sold 284,090 shares of
common stock in private placement transactions for net proceeds to the Company
of $1.5 million. During the past six months, the Company has relied heavily
on funds borrowed from a principal shareholder, with $780,000 having been
supplied in this manner as of December 31, 1999. The Company may be required to
borrow additional funds from this shareholder or other sources. There cannot be
any assurances that funds will continue to be available from this shareholder or
any other source.
Because the Company has incurred cumulative losses from inception through
October 31, 1999 of $4,748,984, had a working capital deficit of approximately
$3,039,196 as of October 31, 1999 and because of the lack of profitable
operational history in internet services, the Company's auditors, in their
report on the financial statements of the Company as of October 31, 1999,
expressed doubt as to the Company's ability to continue as a going concern which
contemplates, among other things, the realization of assets and satisfaction of
liabilities in the normal course of business. The Company intends to obtain
additional debt and equity financing for marketing, software development and the
funding of operations as well as the generating of income from strategic
alliances and sales of products and services. Management believes these
funding sources will be sufficient to fund its capital expenditures, working
capital requirements and other cash requirements through October 31, 2000. As
of the date of this report, the Company is attempting to raise additional funds
with a private placement to accredited investors. The Company seeks to raise
<PAGE>
approximately $3.0 million from such a placement, which we anticipate would be
adequate funding for the next four months and for preparation of an anticipated
secondary public offering. At present, the Company is managing the private
placement. There is no assurance the Company will be able to obtain sufficient
additional funds when needed, or that such funds, if available, will be
obtainable on terms satisfactory to the Company.
Risk Factors That May Affect Future Results.
LIMITED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY OR POSITIVE CASH
FLOWS. The Company has historically generated only limited revenues.
Accordingly, the Company has a limited operating history upon which to evaluate
its current business. In addition, the Company's business model is evolving and
relies substantially upon private labeling, the sale of advertising on the Web
and the collection of fees under affiliate agreements. The Company and its
present affiliates are Web companies and part of a developing industry. Many
companies in the new and rapidly evolving Web industry have demonstrated that
they require considerable cash expenditures before achieving positive cash
flows, and display a trend of operating losses for one to three years from
inception. Accordingly, the Company's business must be considered in light of
the risks, expenses and problems frequently encountered by companies in their
early stages of development, particularly companies in new and rapidly evolving
markets such as Web advertising and e-commerce.
<PAGE>
Specifically, such risks include, without limitation:
. the inability of the Company to derive sufficient revenues from the co-
branded services of its web sites and the additional costs the Company
expects to incur in order to perform its obligations under agreements
with its affiliates;
. the inability of the Company to expand its international operations,
particularly in light of the Company's limited operating experience in
the international market;
. the failure by the Company to continue to develop and extend the
BigHub.com and related brands;
. the inability of the Company to develop or acquire content for its
services;
. the inability of the Company's affiliates to generate commerce-related
revenues;
. the failure of the Company to anticipate and adapt to a developing
market;
. the introduction and development of equal or superior services or
products by competitors, particularly in light of the fact that
Microsoft and Netscape, operators of two of the most heavily-trafficked
Web sites, offer competitive services;
. government regulation;
. the inability of the Company to identify, attract, retain and motivate
qualified personnel;
. and general economic conditions.
The Company may not be able to succeed in addressing such risks.
ACQUISITIONS MAY AFFECT THE COMPANY'S BUSINESS. The Company has in the
past acquired, and may in the future acquire, businesses, technologies,
services, product lines, content databases, or access to content databases.
Acquisitions involve a number of special risks, including, among other things:
. the difficulty of assimilating the technologies, operations and
personnel of acquired companies with those of the Company;
. the potential disruption of the Company's business;
. the diversion of resources, the incurrence of acquisition-related
expenses, the write-off or amortization of intangible assets, the
assumption of unknown liabilities;
. and the inability to maintain uniform standards, controls, procedures
and policies and the impairment of relationships with employees and
strategic partners as a result of such acquisitions or the integration
of new personnel.
Any failure to successfully address these acquisition-related risks may
have a material adverse affect on the Company's business.
THE COMPANY DEPENDS ON SPONSORSHIP AGREEMENTS FOR REVENUES. The Company
anticipates deriving a portion of its revenues from third parties to provide
sponsored services and placements on the Company's Web sites. These
sponsorships typically last for a longer period of time than traditional banner
advertisement
<PAGE>
purchases. If these sponsorship arrangements do not meet the advertisers'
expectations as to new customers or increased sales or brand awareness, the
sponsors may not renew their arrangements with the Company. If the Company does
not renew its existing sponsorships or obtain new sponsors, for any reason, its
business could be adversely affected. The Company may also grant exclusivity
provisions to certain of its sponsors. These provisions may prevent the Company
from accepting additional sponsors or advertisers with respect to all or a
portion of its web sites.
A SUBSTANTIAL PORTION OF THE COMPANY'S REVENUE WILL BE DERIVED FROM PRIVATE
LABELING AGREEMENTS. Private Labeling is where the Company provides to another
business a complete website and e-commerce solution for the business to consumer
and business to business sectors. This will include all front end and back end
processing as well as access to an e-commerce content of up to approximately
5,000,000 SKU's. There will be a setup fee that the Company anticipates will
range from $25,000 to $100,000, as well as monthly processing fees and in some
instances revenue sharing on products sold. The target market will be companies
that have annual volume of at least $25.0 million.
THE COMPANY'S BUSINESS DEPENDS ON THE CONTINUED GROWTH IN INTERNET USE.
The Company and its business may be adversely affected if usage of the Internet
or other online services does not continue to grow. This growth could be
hindered by a number of factors including: the adequacy of the Internet's
infrastructure to meet increased usage demands; privacy and security concerns;
and availability of cost-effective service. Any of these issues could cause the
Internet's performance or level of usage to decline.
RISKS ASSOCIATED WITH DEVELOPING WEB ADVERTISING MARKETS. The Web as an
advertising medium has not been available for a sufficient period of time to
gauge its effectiveness as compared with traditional advertising media.
Therefore the Web is an unproven medium for advertising-supported services.
Accordingly, the Company's future operating results will depend substantially
upon the increased use of the Web for information, publication, distribution and
commerce and the emergence of the Web as an effective advertising medium.
The Company's ability to generate significant advertising revenues will
also depend on, among other things, the development of a large base of users of
the Company's services possessing demographic characteristics attractive to
advertisers, the ability of the Company to accurately measure its user base and
the ability of the Company to develop or acquire effective advertising delivery
and measurement systems. Many of the Company's advertisers have only limited
experience with the Web as an advertising medium, have not yet devoted a
significant portion of their advertising expenditures to Web-based advertising,
and may not find such advertising to be effective for promoting their products
and services relative to traditional print and broadcast media. The adoption of
Web advertising, particularly by those entities that have historically relied
upon traditional media for advertising, requires the acceptance of a new way of
conducting business and exchanging information. Entities that already have
invested substantial resources in other methods of conducting business may be
reluctant to adopt a new strategy that may limit or compete with their existing
efforts. The market for Web advertising may not continue to emerge or become
sustainable. If the market fails to develop or develops more slowly than
expected, the Company's business may be materially and adversely affected. No
standards have been widely accepted for the measurement of the effectiveness of
Web-based advertising, and there can be no assurance that such standards will
develop sufficiently to support the Web as an effective advertising medium.
Advertisers may not continue to accept the Company's or other third-party
measurements of impressions, and such measurements may contain errors. In such
event, the Company's advertising revenues may be materially adversely affected,
which may have a material adverse affect on the Company's business.
In addition, there is intense competition in the sale of advertising on the
Web, resulting in a wide range of rates quoted and a variety of pricing models.
This makes it difficult to project future levels of advertising revenues and
rates. It is also difficult to predict which pricing models will be adopted by
the industry or advertisers. For example, advertising rates based on the number
of "click-throughs", or user requests for additional information made by
clicking on the advertisement from the Company's network to the advertiser's Web
pages, instead of rates based solely on the number of impressions displayed on
users' computer screens, would materially adversely affect the Company's
revenues. As a result of these risks, the Company may not succeed in generating
significant future advertising revenues from Web-based advertising. The failure
to do so may have a material adverse affect on the Company's business.
<PAGE>
Advertisers may also determine that banner advertising, is not an effective
or attractive advertising medium. The Company may not be able to effectively
transition to any other forms of Web advertising should they develop and achieve
market acceptance. Moreover, "filter" software programs that limit or prevent
advertising from being delivered to a Web user's computer are available.
Widespread adoption of such software by users may have a material adverse affect
upon the commercial viability of Web advertising.
RISK OF CAPACITY CONSTRAINTS OR SYSTEM FAILURES. The Company is dependent
on its ability to generate a high volume of traffic to the Company's web sites.
Accordingly, the performance of the Company's web sites is critical to the
Company's reputation, its ability to attract advertisers and to achieve market
acceptance of the Company's web sites. Any system failure that causes
interruptions in the availability of or that increases response time of the
Company's services could reduce user satisfaction and traffic to the Company's
web sites and, if sustained or repeated, would reduce the attractiveness of the
Company's web sites to advertisers and consumers. An increase in the volume of
searches conducted through the Company's web sites could strain the capacity of
the software or hardware deployed by the Company, which could lead to slower
response time or system failures. In addition, as the amount of Web pages and
traffic on the Company's services increases, there can be no assurance that the
Company's web sites will be able to scale proportionately. The Company is also
dependent upon timely feeds and downloads of information from content providers
and is dependent upon providers of Web browsers and on Internet and online
service providers and other Web site operators, which have experienced
significant outages in the past, for access to its network. In the past, Web
consumers have experienced outages, delays and other difficulties due to system
failures unrelated to the Company's systems and services. Additional
difficulties may also materially and adversely affect consumer and advertiser
satisfaction. To the extent that the capacity constraints described above are
not effectively addressed by the Company, such constraints may have a material
adverse affect on the Company's business.
Substantially all of the Company's communications hardware and certain of
its computer hardware operations are located at leased facilities in Newport
Beach, California, an area susceptible to earthquakes. The Company has
experienced system failures or outages from time to time in the past, which have
disrupted the operation of the Company's web sites. A system failure at this
location may adversely affect the performance of the Company's web sites. These
systems are also vulnerable to damage from fire, floods, earthquakes, power
loss, telecommunications failures, break-ins and similar events. In the event
that the Company seeks to replicate its systems at other locations, it would
face a number of technical challenges, particularly with respect to database
replication and the need to constantly update distributed databases, the Company
may not be able to successfully address these challenges. Although the Company
carries property insurance, it does not carry business interruption insurance.
In addition, the low coverage limits on the property insurance are likely to be
inadequate to compensate the Company for all losses that may occur. The
Company's servers are also vulnerable to computer viruses, physical or
electronic break-ins and similar disruptive problems. Computer viruses, break-
ins or other problems caused by third parties could lead to interruptions,
delays or cessations in service to users of the Company's web sites. The
occurrence of any of these risks may have a material adverse affect on the
Company's business.
Year 2000 Compliance.
---------------------
To the fullest extent permitted by law, the following discussion is a "Year
---------------------------------------------------------------------------
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
- ------------------------------------------------------------------------------
Readiness Disclosure Act 105 p.l. 271. Compliance with the Year 2000
- ----------------------------------------------------------------------
Information and Readiness Disclosure Act does not preclude claims for violations
- --------------------------------------------------------------------------------
of federal securities laws.
- --------------------------
The Year 2000 problem is the result of computer programs being written to
recognize two digits rather than four to define the applicable year. This causes
computer programs to interpret a date using "00" as the year 1900 rather than
the year 2000, which could result in computer failures and miscalculations. The
effects of this issue will vary from system to system and may adversely affect
an entity's operations and its ability to prepare financial statements.
All systems and applications at TheBigHub.com are Year 2000 compliant. This
includes both servers and desktop systems and applications. The overall
infrastructure of TheBigHub.com was built starting in May 1999. We undertook
specific steps to ensure that all systems and applications acquired are Year
2000 compliant. The MetaSearch technology acquired from Isleuth was completely
reengineered and is also Year 2000 compliant. However, there can be no
assurance that the Year 2000 problem will not affect the Company by causing
disruptions in the business operations of
<PAGE>
persons with whom the Company does business, such as customers or suppliers.
Year 2000 problems could have a material adverse effect on the Company.
If the necessary providers of power, communications and other such
providers of important services are not fully prepared for the year 2000, the
Year 2000 could have a material impact on the Company. We have no way of knowing
how the Year 2000 will affect Internet functions.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Exhibit 99.1, "The BigHub.com, Inc. and Subsidiary Consolidated Financial
Statements" is incorporated herein by this reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On November 5, 1999, the Company dismissed Reel & Swafford, P.L.L.C. (the
"Former Auditor") as its independent auditor. The Former Auditor's audit
reports on the Company's financial statements for the years ended October 31,
1998 and 1997, were included in the Company's Form 10-SB, which was filed on
August 20, 1999. Neither of the audit reports contained an adverse opinion or
disclaimer of opinion, or was modified as to uncertainty, audit scope, or
accounting principals.
The decision to dismiss the Former Auditor was approved by the Company's
Board of Directors.
The Company's decision to dismiss the Former Auditor resulted from
management's disagreement with the Former Auditor over the valuation of the
Company's search engine technology and Internet Web Site (the "Search Engine and
Web Site"). The Company completed the acquisition of the Search Engine and Web
Site in September, 1998, at which time management, in accordance with generally
accepted accounting principles, valued the Search Engine and Web Site at
$5,971,584. The recorded value of the Search Engine and Web Site was audited by
the Former Auditor in connection with their audit of the Company's financial
statements for the year ended October 31, 1998, and the Former Auditor issued an
unqualified opinion with respect to such financial statements, which included
the Search Engine and Web Site recorded as an asset at the aforementioned value.
In May, 1999, a new management team joined the Company. During the ensuing
months, certain factors led the Company's management to question the recorded
value of the Search Engine and Web Site and its current net realizable value.
Consequently, the Company conducted a revised valuation and impairment analysis
pursuant to Statement of Financial Accounting Standards No. 121 ("SFAS 121").
Based on updated information as to the fair value of the stock exchanged, the
asset should have been recorded at $567,140, and based in part on an independent
appraisal of the Company's assets, management determined that the value of the
Search Engine and Web Site should be written down as of the Company's most
recent fiscal year ended October 31, 1999. The effect on the Company's
financial statements for the year ended October 31, 1999 would be a reduction of
$228,607 in the adjusted recorded value of the Search Engine and Web Site and a
corresponding reduction in the Company's recorded shareholders' equity. During
this process, the Company consulted with another independent accounting firm
which agreed in theory with the Company's approach to valuing the Search Engine
and Web Site.
Since a restatement of the valuation of the Search Engine and Web Site as
of such date would require the Company's financial statements for the year ended
October 31, 1998 to be restated, the Company discussed the matter with the
Former Auditor. During its initial discussions with the Company regarding
restating the October 31, 1998 financial statements, the Former Auditor informed
the Company that it would not restate the October 31, 1998 financial statements
because it believed that the Search Engine and Web Site were properly recorded
and properly stated at their current net realizable values under SFAS 121 and,
therefore, that the October 31, 1998 financial statements were presented fairly
in accordance with generally accepted accounting principles.
Upon further discussions, the Company determined that its disagreement with
the Former Auditor was not going
<PAGE>
to be resolved, as each party felt that its position was in accordance with
generally accepted accounting principles. Consequently, following the approval
of its Board of Directors, the Company informed the Former Auditor by letter
dated November 5, 1999, that the Company was dismissing the Former Auditor.
On November 8, 1999, the Company engaged Corbin & Wertz as its new
independent auditor (the "New Auditor") to audit the Company's financial
statements for the years ended October 31, 1999 and 1998. The appointment of
the New Auditor was approved by the Company's Board of Directors. Prior to its
decision to dismiss its Former Auditor, the Company consulted with the New
Auditor with respect to its approach to the valuation of the Search Engine and
Web Site, as discussed above. The New Auditor provided oral advice that the
Company's approach to valuing the Search Engine and Web Site was in theory
compliant with generally accepted accounting principles. The Company has asked
the Former Auditor to respond fully to any inquiries proffered by the New
Auditor regarding the subject matter of the Former Auditor's disagreement with
the Company over the valuation of the Search Engine and Web Site.
<PAGE>
PART II
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS
Management
The Company is assembling a team of managers and entrepreneurs with
experience in the areas of e-commerce, and e-tailing and a shared commitment to
its future growth and success.
The following table sets forth the names, ages, and positions of the
executive management team of The BigHub.com.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Name Position Age
<S> <C> <C>
Frank W. Denny Chief Executive Officer/Chairman of the Board/Director 65
Chet Howard Senior V. P., Finance/Chief Financial Officer/Secretary 56
Mark Doumani Executive Vice President, Business Development 33
David Burrows Chief Technology Officer 41
Rod Perth Director 56
Roger Riddell Director 53
</TABLE>
Executive Management
Frank W. Denny, Chief Executive Officer/Chairman of the Board/Director. Mr.
Denny joined The BigHub.com in April 1999 as its Chairman of the Board and a
member of the Board of Directors. Effective January 1, 2000, he became its
Chief Executive Officer. Mr. Denny had served as the President, Chief Executive
Officer and Chairman of the Board of Shopping.com, a leading U.S. Internet
retail site that was purchased by Compaq Corporation in 1999. He is also the
President and CEO of Cibolo Group, a private marketing and consulting group
headquartered in San Antonio, Texas, and has served in those offices since 1991.
Cibolo Group is engaged in the sale, marketing and manufacture of general hard
line retail merchandise and provides consulting services, specializing in retail
concept development and implementation as well as mergers and acquisitions.
Prior to this time, Mr. Denny was a Founder, Chairman of the Board, President
and CEO of Builders Square, one of the largest retail home improvement warehouse
operations in the United States. Prior to Builders Square, Mr. Denny was
President of W.R. Grace Home Centers, a chain of home centers operating over 300
stores nationally. Mr. Denny was an officer of the Home Center Institute and a
charter member of the National Home Center Congress and Exposition. He was also
a founder of the Do It Yourself Research Institute based in Indianapolis,
Indiana.
Chet Howard, Senior Vice President, Finance/Chief Financial Officer/Secretary.
Mr. Howard joined The BigHub.com in June 1999 as its Chief Financial Officer.
In July 1999, Mr. Howard was also elected Secretary. Mr. Howard brings to The
BigHub.com a wide range of experience in accounting, corporate finance and
management. Over the years he has held a variety of senior financial and
executive positions with companies engaged in retail, Internet services and
product distribution and merchandising. From May 1997 to May 1999, Mr. Howard
was the Chief Financial Officer of U.S.A. Service Systems, Inc., a merchandising
company. From April 1995 to May 1997, Mr. Howard owned and operated his own
consulting company which provided financial advice to small emerging companies.
In addition, from June 1993 to March 1995, Mr. Howard was the Chief Financial
Officer of Chilean-based Inter-Americas Communications Corp., considered one of
the first competitive Internet access providers. In 1986, Mr. Howard co-founded
Sports Authority, one of the nation's leading sporting goods retail chains.
Mark Doumani, ExecutiveVice President of Business Development. Mr. Doumani
joined The BigHub.com in June 1999. Mr. Doumani has over 10 years experience in
the start-up and management of small to large-sized business ventures. Prior to
joining the Company, from July 1998 to June 1999, Mr. Doumani was an executive
producer for Tyrone Productions, LLC, which produced the feature film "Tyrone".
From April 1996 to July 1998, Mr. Doumani
<PAGE>
served as President and Executive Vice President of Travelmax International,
Inc., as part of the strategic reorganization team. Travelmax specializes in the
sale of travel and Internet-related products with sales of $40 million to $50
million. From 1995 to 1998, Mr. Doumani was the President of Mondo Diamond
Entertainment, a small entertainment company which owned cartoon animated
properties. In 1992, Mr. Doumani co-founded True Light Films, an animation
production company once selected by Animation Magazine's Who's Who in animation
production. Mr. Doumani served from 1992 to 1995 as the President and a director
of True Light Films. In 1995, Mr. Doumani developed an Internet education and
Web site know as NetMax 2000. This product continues to have success in the
marketplace, with first-year sales exceeding $1 million. Mr. Doumani was also a
co-founder of and, from 1989 to 1994, the Vice-President of Operations at
Doumani Development Corporation, a family-owned real estate development company
specializing in hotels, shopping centers and custom estates. He was responsible
for property acquisition, drafting agreements, and sales and marketing. He
completed his undergraduate studies at the University of California, Los
Angeles, and received his Juris Doctor from Western State University. Mr.
Doumani is the managing partner of Doumani & Grandon, a California-based law
firm and a member of the California and American Bar Association.
David Burrows, Chief Technology Officer. Mr. Burrows joined The BigHub.com in
April 1999. From 1995 to the date he joined The BigHub.com, Mr. Burrows served
as Director of IS Infrastructure Services for The Orange County Register. He
managed a staff of 60, responsible for the overall systems management of 70
computing platforms with 10 disparate operating systems, as well as desktop and
network engineering, computer operations and support desk. From 1989 to 1995,
Mr. Burrows served as Director, IS Infrastructure Services for FHP, Inc,
managing a staff responsible for the overall support and systems management of
10 computing platforms. Mr. Burrows holds extensive experience with over 24
years in multi-vendor, multi-platform environments.
Rod Perth, Director. Mr. Perth joined The BigHub.com in May 1999. Mr. Perth
also serves as President of Entertainment of Jim Henson Television Group
Worldwide, a division of Jim Henson T.V., a position he has held since May 1999.
From October 1994 to July 1998, Mr. Perth was President, Entertainment, USA
Networks. He successfully led all programming efforts for both the USA Network,
and the Sci-Fi Channel. His efforts to move USA from a cable network largely
dependent on re-run programming, to a network that developed many original
dramatic series as well as movies and mini-series, allowed USA to regain its
position as the number one basic cable network. He joined USA after a
productive 28 year career at CBS Television, where he rose through the ranks by
starting in the mail-room, and eventually becoming Senior Vice-President, Late
Night and including Marvel Entertainment, Non-Network Programs. Mr. Perth is on
several corporate and civic boards, and he was named "Man of the Year" by The
Alliance for Children, in 1996.
Roger Riddell, Director. Mr. Riddell joined The BigHub.com in May 1999. For
the past 25 years, Mr. Riddell has been the President of RNF Holding Co., and
has an extensive background in marketing, advertising, and broadcasting. RNF's
client list includes many top U.S. Companies such as Burger King, Arby's
Restaurants, Virgin Megastores, Corbett Canyon Wine, Hollywood Park and Los
Alamitos Racetracks, Lamps Plus, California Jeep Dealers Association and
Mandalay Bay Hotel. Mr. Riddell formed International Film Marketing in 1981, a
Beverly Hills-based film production and distribution company. Since its
inception, International Film Marketing has distributed over 40 films both in
the U.S. and internationally. His films include Academy Award Nominee "On Any
Sunday" and "The Endless Summer."
Dependence on Key Management
The Company's performance depends substantially on the continued services
and performance of its senior management and other key personnel. The Company's
performance also depends on its ability to retain and motivate its other
qualified officers and key employees.
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the named executive officers for each of the Company's last three (3) fiscal
years ended October 31.
Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying LTIP All other
Principal Year Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Position ($) ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patrick J. 1999 $102,522 $0 $0 $0 -0- $0 $0
DeMicco,
Director, CEO
and President
(1)
- ------------------------------------------------------------------------------------------------------------------------------------
J. Douglas 1999 $ 82,500 $100,000 $0 $0 -0- $0 $4,000 (3)
Martinez,
Chief
Operating
Officer (2)
- ------------------------------------------------------------------------------------------------------------------------------------
John Bennett, 1999 $0 $0 $0 $0 -0- $0 $0
Director, CEO 1998 $0 $0 $0 -0- $0 $0
and President
(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas Taule, 1999 * $0 $0 $0 -0- $0 $0
Director, CEO 1998 * $0 $0 $0 -0- $0 $0
and Secretary 1997 $ 37,000 $0 $0 $0 -0- $0 $0
(4), (5)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
(1) Mr. De Micco willingly tendered his resignation as the Company's President,
Chief Executive Officer, and a Director on November 1, 1999.
(2) Mr. Martinez willingly tendered his resignation as the Company's Chief
Operating Officer on December 10, 1999.
(3) Represents amounts paid by the Company for Mr. Martinez's housing between
July and October, 1999.
(4) Messrs. Bennett and T. Taule willingly tendered their resignations in May,
1999, in connection with the restructuring of the Company's management at
the direction of the Company's controlling shareholders. The restructuring
of the Company's management was an integral step in the Company's launching
of its new Internet strategy.
(5) Mr. T. Taule served as the Company's President and Chief Executive Officer
during fiscal year 1997.
* Denotes that annual compensation for such fiscal year was less than
$100,000.
See "Employment Agreements" below for a description of the compensation and
other benefits to be paid to the Company's current executive officers.
Directors of the Company who are also employees do not receive cash
compensation for their services as directors or members of committees of the
Board of Directors, but are reimbursed for their reasonable expenses incurred in
connections with attending meetings of the Board of Directors or management
committees. Non-employee directors are expected to be paid a fee of $5,000 per
Board meeting attended and may be granted options to purchase shares of the
Company's Common Stock, and reimbursement for expenses.
<PAGE>
Stock Option Grants
During the fiscal year ended October 31, 1998, the Company did not grant any
stock options to directors, executive officers or employees. In June 1999, the
Company's Board of Directors and shareholders adopted and approved the Company's
1999 Stock Incentive Plan (the "Plan"). The Company has initially reserved
1,500,000 shares of common stock under the Plan for grants to employees,
directors and consultants. The shares reserved under the Plan shall
automatically be increased on January 1 of each year, commencing on January 1,
2000, by the lesser of 300,000 shares or 1.5% of the Company's outstanding
common stock on such date. As of October 31, 1999, the Company had granted
options to purchase 472,500 shares of the Company's common stock under the
Plan. Of the options granted to date, the Company has granted to David Burrows,
Chief Technical Officer, an incentive stock option to purchase 56,817 shares of
the Company's common stock at an exercise price of $5.28 per share, the fair
market value of the Company's common stock on the date of grant. On the same
date, the Company also granted to Mr. Burrows a non-statutory stock option to
purchase 43,183 shares of the Company's common stock at an exercise price of
$4.48 per share. On the same date, the Company granted to each of its two (2)
non-employee directors, Messrs. Perth and Riddell, a non-statutory stock option
to purchase 75,000 shares of the Company's common stock at an exercise price of
$4.48 per share. Each of the foregoing options vests over a period of three (3)
years with one-third vesting on the first anniversary of the date of grant and
the remaining two-thirds vesting pro rata each month over a period of twenty-
four months. The options have a term of ten (10) years and expire in June 2009.
Employment Agreements
Frank W. Denny has a three (3) year employment agreement ("Term") with the
Company to perform the duties of Chief Executive Officer at an annual salary of
$240,000 ("Base Salary") per year. In addition to the Base Salary, Mr. Denny is
eligible for an annual incentive bonus ("Incentive Bonus") in an amount not to
exceed one hundred percent (100%) of the Base Salary. The Incentive Bonus is a
formula based plan tied to execution of the Company's planned profit. The
Company will also pay Mr. Denny an auto allowance of $1,500 per month and
provide all other benefits of employment provided to the other employees of the
Company holding comparable positions within the Company, including but not
limited to, paid vacation, paid health insurance for Mr. Denny, his spouse and
dependents, paid life insurance to a maximum of Base Salary, paid mobile
telephone expense for business use, and participation in retirement and
investment programs as instituted by the Company. If Mr. Denny is terminated
without cause he would receive a severance payment equal to (i) the greater of
(a) the remaining Base Salary payable through the remaining Term, or (b) twenty-
four (24) months Base Salary, plus (ii) a pro rata portion of any Incentive
Compensation earned for the year in which termination occurs prorated to the
date of termination plus (iii) any unreimbursed expenses accruing to the date of
termination. The Company will also continue Mr. Denny's benefits through the
remainder of the Term.
The Company has also entered into employment agreements with Messrs.
Doumani and Howard. Mr. Doumani has a two (2) year employment agreement with
the Company, commencing June 1999, to perform the duties of ExecutiveVice
President of Business Development at an initial Base Salary of $200,000 per
year. In addition to the Base Salary, Mr. Doumani is eligible for an annual
incentive bonus ("Incentive Bonus") in an amount not to exceed one hundred
percent (100%) of the Base Salary. The Incentive Bonus a formula based plan
tied to the execution of the Company's planned profit. The Company will also pay
Mr. Doumani an auto allowance of $1,500 per month and provide all other benefits
of employment provided to the other employees of the Company holding comparable
positions within the Company, including but not limited to, paid vacation, paid
health insurance for Mr. Doumani, his spouse and dependents, paid life insurance
to a maximum of Base Salary, paid mobile telephone expense for business use, and
participation in retirement and investment programs as instituted by the
Company. If Mr. Doumani is terminated without cause he would receive a severance
payment equal to (i) the greater of (a) the remaining Base Salary payable
through the remaining Term, or (b) twenty-four (24) months Base Salary, plus
(ii) a pro rata portion of any Incentive Compensation earned for the year in
which termination occurs prorated to the date of termination plus (iii) any
unreimbursed expenses accruing to the date of termination. The Company will also
continue Mr. Doumani's benefits through the remainder of the Term.
Mr. Howard's employment agreement provides for a two (2) year term,
commencing in June, 1999, pursuant to which Mr. Howard has agreed to perform the
duties of Senior Vice President and Chief Financial Officer at an initial base
salary of $175,000 (the "Base Salary"). In addition to the Base Salary, Mr.
Howard is eligible for an annual incentive bonus ("Incentive Bonus") in an
amount not to exceed one hundred percent (100%) of the Base Salary. The
Incentive Bonus is a formula based plan tied to the execution of the Company's
planned profit. The
<PAGE>
Company will also pay Mr. Howard an auto allowance of $1,000 per month and
provide all other benefits provided to the other employees of the Company
holding comparable positions within the Company, including but not limited to,
paid vacation, paid health insurance for Mr. Howard, his spouse and dependents,
paid life insurance to a maximum of Base Salary, paid mobile telephone expense
for business use, and participation in retirement and investment programs as
instituted by the Company. If Mr. Howard is terminated without cause he would
receive a severance payment equal to (i) the greater of (a) the remaining Base
Salary payable through the remaining term or (b) eighteen (18) months Base
Salary, plus (ii) a pro rata portion of any Incentive Compensation earned for
the year in which termination occurs prorated to the date of termination plus
(iii) any unreimbursed expenses accruing to the date of termination. The Company
will also continue Mr. Howard's benefits through the remainder of the Term.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the date hereof with
respect to the beneficial ownership of the Company's voting securities by (i)
each person known by the Company to own beneficial 5% or more of its voting
securities (ii) each director and officer of the Company and (iii) all directors
and officers as a group.
<TABLE>
<CAPTION>
Type of Security Shares Beneficially Percentage Beneficially
Owned Owned Owned (1)
---------------- -------------------- ------------------------
<S> <C> <C> <C>
Name and Address of Beneficial Owner (2)
- ----------------------------------------------------
Stilden Company O, D................................ Common Stock 5,941,250 (2) (3) 36.89%
2939 Mossrock, Suite 100
San Antonio, TX 78230
Yucatan Holding Company............................. Common Stock 1,794,700 (4) 11.14%
3003 Keller Bend Road
Knoxville, TN 37922
I-Commerce Group, Inc............................... Common Stock 1,076,814 (5) 6.69%
6312 Baum Drive
Knoxville, TN 37919
Frampton Investments, LLC........................... Common Stock 1,100,000 (6) 6.83%
P.O. Box 8
Huntington Beach, CA 92648
Hare Investments, LLC............................... Common Stock 1,100,000 (7) 6.83%
PMB 327
3504 Earle E. Morris Jr. Hwy
Greenville, SC 29611
Techlabs, Inc....................................... Common Stock 1,000,000 (8) 6.21%
3415 Galt Ocean Drive
Fort Lauderdale, FL 33308
Chet Howard O ...................................... Common Stock 400,000 (9) 2.48%
1005 Skyline Drive
Laguna Beach, CA 92651
Mark Doumani O...................................... Common Stock 400,000 (10) 2.48%
10050 Highcliff Drive
Santa Ana, CA 92705
Roger Riddell D .................................... Common Stock 50,000 *
9940 Santa Monica Blvd., #710
Beverly Hills, CA 90210
Rod Perth D ........................................ Common Stock 50,000 *
5358 Melrose Ave.,
Suite 300W
Hollywood, CA 90038
David Burrows O..................................... Common Stock 0 *
113 Aspen Lane
Costa Mesa, CA 92627-1360
All Directors and Officers as a Group (6 Persons)... Common Stock 6,841,250 42.48%
</TABLE>
* Indicates less than one percent (1%).
(1) Beneficial ownership is determined in accordance with the applicable rules
under the 1934 Act, including any shares of Common Stock as to which a
person has sole or shared voting or investment power. Additionally, in
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable, or become
exercisable within 60 days from the date hereof, are deemed outstanding.
However, such shares are not deemed outstanding for purposes of computing
the percentage ownership of any other person. Percentage ownership is
based on 16,105,976 shares of Common Stock outstanding.
(2) Stilden Company is controlled by Frank W. Denny, the Company's CEO and
Chairman of the Board.
(3) Includes 3,877,500 shares of Common Stock over which Stilden Company has
voting power pursuant to several irrevocable proxies granted by certain
members of management and other shareholders. The proxies generally are
effective for periods of one (1) to three (3) years from the date of grant.
(4) Jayne Dorrough is deemed to be the beneficial owner of the shares owned by
Yucatan Holding Company by virtue of her status as its sole director,
officer and shareholder. Yucatan Holding Company has granted an irrevocable
proxy to vote the 1,794,700 shares to Stilden Company, which proxy will
expire no later than April 30, 2002.
(5) J.D. Jenkins is deemed to be the beneficial owner of the shares owned by I-
Commerce Group, Inc., by virtue of his status as its Chairman and Chief
Executive Officer.
(6) Carol Monnot is deemed to be the beneficial owner of the shares owned by
Frampton Investments, LLC, by virtue of her status as its sole manager.
(7) Barbara Hauck is deemed to be the beneficial owner of the shares owned by
Hare Investments, LLC, by virtue of her status as its sole manager.
(8) John Bennett and Thomas Taule are deemed to be the beneficial owners of the
shares owned by Techlabs, Inc., by virtue of their status as its President
and Chairman of the Board, respectively.
(9) Mr. Howard has granted an irrevocable proxy to vote the 400,000 shares to
Stilden Company, which proxy will expire no later than June 8, 2001.
(10) Mr. Doumani has granted an irrevocable proxy to vote the 400,000 shares to
Stilden Company, which proxy will expire no later than June 8, 2001.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a sublease agreement with The BigStore.com, Inc.,
an affiliated entity, which has a common Chief Technology Officer, Mr. David
Burrows. The Lease is month to month at a rental of $6,800 per month.
The sublease arrangement may be terminated by either party upon 30 days'
prior notice. The Company is required to maintain insurance in accordance with
the terms of the underlying lease and name The BigStore.com as an additional
insured on such policies. Further, the Company is required to indemnify The
BigStore.com from all claims and damages arising out of the Company's use of the
subleased property.
In November 1999, the Company entered into a "Back-end Processing
Technology" License Agreement ("License") with The BigStore.com, Inc. for a
five-year term with an automatic three-year renewal. Pursuant to the agreement,
The BigStore.com granted the Company an exclusive worldwide master License to
use and sub-license the BigStore's e-commerce technology. In connection with
the Licenses, the Company agreed to pay The BigStore.com seventy-five percent
(75%) of the aggregate cash collected from the sub-licensing of the technology
to third parties.
The Company has also entered into an affiliate agreement with The
BigStore.com, pursuant to which the Company has agreed to provide strategic
placement of advertising and marketing for The BigStore.com on the Company's
website. As of December 31, 1999, the Company has not received any payments nor
recorded any revenue related to this agreement.
In April 1999, the Company entered into a three-year consulting agreement
with Stilden Company. Pursuant to the agreement, the Company shall pay Stilden
Company $41,500 per month for consulting services. Additionally, the Company
shall provide the lead consultant with full health and life insurance benefits
during the term of the agreement. Stilden Company is controlled by Frank W.
Denny, the Company's Chairman of the Board. As of December 31, 1999, the
Company had paid Stilden Company $40,000 due under this agreement. As of
January 1, 2000 the agreement was terminated when Mr. Denny accepted the
position of Chief Executive Officer of the Company.
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger between Optima
Medical Group of Hileah, Inc. and Optima Medical
Group of No. Miami, Inc. and Coordinated
HealthCare, Inc., dated October 16, 1995.***
2.2 Articles of Merger of Optima Medical Group of
Hileah, Inc., Optima Medical Group of No. Miami,
Inc. and Coordinated HealthCare, Inc. dated
October 16, 1995.***
2.3 Agreement for Purchase and Sale of Assets by
and between Coordinated Healthcare, Inc. and
ALF Realty I, Inc. dated July 15, 1998.***
2.4 Agreement and Plan of Reorganization by and
between Happy Landings, Inc. and Isleuth.com, Inc.
dated September 3, 1998.***
3.1 Articles of Incorporation of Coordinated Healthcare
Inc., filed February 16, 1995.***
3.2 Articles of Amendment to Articles of Incorporation
of Coordinated HealthCare, Inc. authorizing 5,000,000
shares of Common Stock at a par value of $0.001
per share, filed January 17,1996.***
3.3 Articles of Amendment to Articles of Incorporation
of Coordinated HealthCare, Inc., authorizing 20,000,000
shares of Common Stock at a par value of $0.001
per share, filed June 24, 1996.***
3.4 Articles of Amendment to Articles of Incorporation
of Coordinated HealthCare, Inc. authorizing 25,000,000
shares of Common Stock at a par value of $0.001 per
share and 10,000 shares of Preferred Stock
at a par value of $0.001 per share, filed
July 29, 1998.**
3.5 Articles of Amendment to Articles of Incorporation
of Coordinated HealthCare, Inc., changing the name of
Coordinated Healthcare, Inc. to Isleuth.com, Inc.,
filed July 29, 1998.***
<PAGE>
3.6 Articles of Amendment to Articles of Incorporation of
Isleuth.com, Inc. authorizing 25,000,000 shares of
Special Preferred Stock at a par value of $0.001 per
share, filed October 15, 1998.***
3.7 Articles of Amendment to Articles of
Incorporation of Isleuth.com, Inc. designating
12,500,000 shares of the Special Preferred Stock
as Class A Special Preferred Stock at a par value
of $0.001 per share, filed December 28, 1998.***
3.8 Articles of Amendment to Articles of
Incorporation Isleuth.com, Inc., changing
the name of Isleuth.com, Inc. to The
BigHub.com, Inc., filed April 29, 1999. ***
3.9 Articles of Amendment to Articles of Incorporation
of The BigHub.com, Inc., authorizing 50,000,000
shares of Common Stock of a par value of
$0.001 per share and 25,000,000 shares of Preferred
Stock at a par value of $0.001 per share, filed
October 18, 1999.*
3.10 Bylaws of the registrant.***
10.1 Option Agreement by and between
Happy Landings, Inc. and Maverick Communication
Corp. dated August 3, 1998.***
10.2 Stock Purchase Agreement by and between
SJI Group, Inc. and Isleuth.com, Inc. dated
August 7, 1998.***
10.3 Employment Agreement by and between The
BigHub.com, Inc. and Patrick J. DeMicco
Dated July 9, 1999.***
10.4 Employment Agreement by and between The
BigHub.com, Inc. and Douglas Martinez
dated June 28, 1999.***
10.5 Employment Agreement by and between The
BigHub.com, Inc. and Chet Howard dated
June 14, 1999.***
10.6 Employment Agreement by and between The
BigHub.com, Inc. and Mark Doumani dated
June 30, 1999.***
<PAGE>
10.7 Sublease Agreement dated June 1, 1999 between
The BigStore.com, Inc., a Delaware corporation
and The BigHub.com, Inc. a Florida corporation.**
10.8 Comarketing Agreement dated July 6,1999 between
Deal-Time and the BigHub.com, Inc.**
10.9 Strategic Marketing Agreement entered into as of
September 2, 1999 by and between the BigHub.com, Inc.
And Biomerica, Inc. (The BigRX.com).***
10.10 Affiliate Agreement dated September 1, 1999 by and
between The BigHub.com, Inc. and the BigStore.com,
Inc.***
10.11 Consulting Agreement dated June 7, 1999 by and between
The BigHub.com, Inc. and Stilden Co., Inc. *
10.12 Licensing Agreement dated October 29, 1999 by and
between The BigHub.com, Inc. and Pricenet USA, Inc.*
10.13 Licensing Agreement dated November 12, 1999 by and
between The BigHub.com, Inc. and The BigStore.com,
Inc.*
10.14 Sublicensing Agreement dated January 20, 2000 by and
between TheBigHub.com, Inc. and Starting Point, Inc.*
16.1 Letter from Reel & Swafford, LLC to the Securities and
Exchange Commission dated November 22, 1999.*
21.1 Subsidiaries of The BigHub.com, Inc.*
27.1 Financial Data Schedule*
99.1 The BigHub.com, Inc. and Subsidiary Consolidated
Financial Statements For The Fiscal Years Ended October
31, 1999 and 1998 and Independent Auditors' Report*
- -----------------------
* Filed herewith.
** Filed with Amendment No. 1 to the Form 10-SB of The BigHub.com, Inc. filed
on October 1, 1999.
*** Filed with the Form 10-SB of The BigHub.com, Inc. filed on August 20, 1999.
(b) Reports on Form 8-K
-------------------
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE BIGHUB.COM, INC.
(Registrant)
Date: January 27, 2000
By: /s/ Chet Howard
------------------------------------
Chet Howard, Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:
/s/ Frank W. Denny Date: January 27, 2000
- ----------------------------------------------
Frank W. Denny
Chief Executive Officer, Chairman of the Board
/s/ Chet Howard Date: January 27, 2000
- ----------------------------------------------
Chet Howard
Senior Vice President, Chief Financial Officer,
Secretary
/s/ Rod Perth Date: January 27, 2000
- ----------------------------------------------
Rod Perth
Director
/s/ Roger Riddell Date: January 27, 2000
- ----------------------------------------------
Roger Riddell
Director
<PAGE>
Exhibit 3.9
ARTICLES OF AMENDMENT
FOR
THE BIGHUB.COM.INC.
Pursuant to Florida Statutes, the following is submitted:
1. The Articles of Incorporation and Articles of Amendment are amended by
striking therefrom Article III, in its entirety, and inserting in place thereof
the following:
"ARTICLE III - CAPITAL STOCK
----------------------------
This Corporation is authorized to issue two classes of capital stock
designated "Common Stock" and "Preferred Stock" respectively. The number of
shares of Common Stock authorized to be issued is fifty million (50,000,000) and
shall have a par value of $0.001 per share. The number of shares of Preferred
Stock authorized to be issued is twenty-five million (25,000,000) and shall have
a par value of $0.001 per share.
The Preferred Stock may be divided into such number of series as the Board
of Directors may determine. The Board of Directors is authorized to determine
and alter the rights, preferences, privileges and restrictions granted to and
imposed upon any wholly unissued series of Preferred Stock, and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series."
The foregoing amendment was adopted by the unanimous written consent of the
Directors of the Corporation, pursuant to Florida Statutes, on the 15th day of
October, 1999. The foregoing amendment was adopted by the written consent of a
majority of the outstanding common shares of the Corporation voting as a single
group. There currently are no shares of the Preferred Stock or Special Preferred
Stock of the Corporation outstanding.
(SIGNATURE PAGE FOLLOWS)
<PAGE>
IN WITNESS WHEREOF, the undersigned Chairman of the Board and Secretary of
this corporation have executed these Articles of Amendment this 15th day of
October, 1999.
/s/ Frank W. Denny
-------------------------
Frank W. Denny
Chairman of the Board
/s/ Chet Howard
------------------------
Chet Howard
Secretary
<PAGE>
STATE OF CALIFORNIA )
)ss:
COUNTY OF ORANGE )
The foregoing instrument was acknowledged before me the day and year last
above written by Frank W. Denny, Chairman of the Board of the above-named
Florida corporation, on behalf of the corporation.
Kelly J. Woodward
------------------------------------
Notary Public, State of California
My Commission expires: [SEAL APPEARS HERE]
STATE OF CALIFORNIA )
)ss:
COUNTY OF ORANGE )
The foregoing instrument was acknowledged before me the day and year last
above written by Chet Howard, Secretary of the above-named Florida corporation,
on behalf of the corporation.
Kelly J. Woodward
------------------------------------
Notary Public, State of California
My Commission expires: [SEAL APPEARS HERE]
<PAGE>
Exhibit 10.11
CONSULTING AGREEMENT
--------------------
This consulting agreement is made on June 7, 1999 between Stilden Co. Inc.
(SCI), a Texas corporation, and The BigHub.com (TBH) a Florida Corporation.
Stilden Co. Inc. desires to be a consultant to The BigHub.com and The BigHub.com
desires to have Stilden Co. Inc. consult with them.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
Term
The term of this agreement shall be for a period of three years commencing May
1, 1999 and ending on March 31, 2002. The contract will automatically be renewed
in one-year increments unless either party terminates via giving written notice,
by January 31st each year starting with January 31, 2002.
ARTICLE II
Services
SCI shall perform all duties as may from time to time be assigned by the Board
of Directors. SCI shall devote adequate business time to the duties hereunder
and shall, to the best of their ability, perform such duties in a manner, which
will faithfully and diligently further the business and interests of the
Company.
ARTICLE III
Fees
SCI shall receive a $40,000 monthly base fee, and a $1,500 monthly car
allowance. The company will provide the lead consultant as designated by SCI,
with paid health, dental, vision and life insurance during the term of this
agreement. SCI will be eligible for the formula bonus plan as approved the Board
of Directors, in which SCI will have the opportunity to earn 100% of their base
compensation in bonus. SCI will also be eligible for discretionary bonus as
dictated and approved by the Board of Directors.
<PAGE>
Stock Options
SCI shall be granted stock options at the discretion of the composition
committee and/or the Board of Directors at their discretion. The number of
stock options granted annually shall equal or be greater than any grants to any
other employee, officer or director on an annual basis. All stock options shall
be immediately vested except as specifically agreed to by the Board of Directors
and SCI.
ARTICLE IV
Non-Disclosure and Secrecy
SCI agrees that, during the term of this Agreement, and at all times thereafter,
they will keep all TBH information in strictest confidence and will not himself
either directly or indirectly use or allow to be used for its benefit, or the
benefit of others, disseminate or disclose any Confidential Information or Trade
Secrets (as such terms are defined below) used and/or obtained in providing the
Services hereunder, except to parties to this Agreement, regardless of whether
the Confidential information of Trade Secrets have been conceived or developed,
in whole or in part by SCI. SCI acknowledges and agrees that the terms
"Confidential Information" and "Trade Secrets" as used in this Agreement include
without limitation, the whole or any portion or phase of any design, process,
service, procedure, formula, improvement, customer list, information with
respect to customer requirements and practices, marketing research and
developments information, statistical data, sources, of merchandise, technical
information, computer models, and all other information concerning the industry
and business in which the TBH concept operates and which is of value in the
operation of TBH business, or is otherwise understood to be, of a confidential
character and which has not been published or otherwise understood to be, or a
confidential character and which has not been published or otherwise become a
matter of general public knowledge. SCI agrees that all Trade Secrets and
Confidential Information are and shall be the property of TBH regardless of
whether conceived or developed by SCI pursuant to the Services.
SCI acknowledges and agrees that any and all Trade Secrets, Confidential
Information, computer programs, documentation and other copyrightable or
trademark materials that SCI is required to prepare or work on as part of SCI'S
duties hereunder shall be the property of TBH and to that end, SCI hereby
irrevocably assigns, transfers, sets over and conveys to TBH all of SCI's
rights, title and interest in and to all such information, including, without
limitation, SCI'S copyrights or rights of
2
<PAGE>
trademark. SCI's irrevocable assignment hereunder shall be deemed to have been
coupled with an interest.
Upon termination or earlier expiration of this Agreement SCI shall surrender to
TBH, at any time of such expiration or termination of this Agreement or upon
demand by TBH at any time all material of a confidential and secret nature,
including without limitation, the Confidential Information and Trade Secrets,
and any other documents of a proprietary nature as may then be in SCI (a)
possession or control.
ARTICLE V
Acceleration
In the event that the number of members of the Board of Directors of the Company
equal to the majority of the Board as of the Effective Date hereof are replaced
by other members or if the Company is a party to a merger or sale. SCI shall
have the right to accelerate payment of all fees due over the full term of the
contract by giving 30 days written notice to the Company.
ARTICLE VI
Miscellaneous
1. Injunctive Relief SCI acknowledges and agrees that any breach of
-----------------
obligations to be performed by and pursuant to Article IV is likely to result in
irreparable harm to TBH and SCI therefore consents and agrees that if it
violates any such obligations, TBH shall be entitled, among and in addition to
any other rights and remedies available under this Agreement or otherwise, to
temporary and permanent injunctive relief to prevent SCI from committing or
continuing a breach of such obligations.
2. Entire Agreement This agreement constitutes the whole Agreement between
----------------
the parties hereto and there are no other terms other than those contained
herein. This Agreement supersedes my prior contract or understanding related to
retaining SCI.
3. Amendment No variation of this Agreement shall be deemed valid unless in
---------
writing and signed by the parties hereto.
3
<PAGE>
4. Governing Law This agreement shall be construed and enforced in
-------------
accordance with the laws of Texas.
5. Severability Each provision of this Agreement is intended to be severable
------------
from the other so that if any provision or term hereof is illegal or invalid for
any reason whatsoever, such illegality or invalidity shall not effect the
validity of the remaining provisions and terms hereof.
6. Indemnity and Hold Harmless TBH agrees to indemnify and does not hold
---------------------------
harmless SCI from and against any and all liabilities, claims, demands, damages,
costs and expenses (including attorney's fees) resulting from, arising our of,
or occasioned by any TBH business related activity or the duties provided by SCI
hereunder.
7. Assignment This Agreement may not be assigned by SCI to any other person
----------
or party without TBH prior written consent which may be withheld in TBH's sole
discretion. Notwithstanding the forgoing, TBH may assign this Agreement to any
successor corporation or an affiliated company or subsidiary. In the case of
assignment by TBH, Assignee shall assume, in writing all TBH obligations.
8. Representation and Warranty Each Consultant hereby agrees that any
---------------------------
documents produced with respect to the Services and/or the Concept shall be
marked "Confidential" and "Property of The Big Store.Com" whether these
documents are produced by SCI or by a vendor chosen by SCI.
9. Captions Captions used in this Agreement are used for convenience only
--------
and are not intended to, nor are they to be construed to, have any substantive
meaning or control in the construction of the Agreement.
10. Notices Any Notice given by one party to any other party hereunder shall
-------
be delivered to the party at the address indicated below that party's signature
to this Agreement. Such notice shall be given to U.S. Mail, certified, and shall
be deemed delivered on the date of actual receipt or the date of first refusal
to accept delivery.
11. Representation by Counsel Each party agrees and acknowledges that it has
-------------------------
had the opportunity to consult with independent legal, tax and financial counsel
of each party's choice in order to be advised with respect to the effect of the
Agreement.
4
<PAGE>
12. Construction Any issues with respect to construction or interpretation of
------------
this Agreement are to be resolved without resort to the presumption that any
ambiguities in this Agreement should be construed against the drafter.
/s/ Frank W. Denny /s/ Patrick DeMicco
- --------------------------- ------------------------
Frank W. Denny Patrick DeMicco
President President/CEO
Stilden Co. Inc. The BigHub.com
5
<PAGE>
EXHIBIT 10.12
LICENSING AGREEMENT
This LICENSING AGREEMENT ("Agreement") is made this 29th day of November,
1999, by and between The BigHub.com, Inc., a Florida corporation ("Licensor"),
and PriceNet USA, Inc., a Nevada corporation ("Licensee").
RECITALS
--------
WHEREAS, Licensor owns and operates a web site on the Internet at
www.thebighub.com which, among other things, is an advanced portal and contains
a megasearch engine and specialty search engine.
WHEREAS, Licensor is the owner of the technology underlying the megasearch
engine and specialty search engine (collectively, the "Megasearch Technology")
and Licensor is the Exclusive Domestic Marketer of TheBigStore Private Label
Product.
WHEREAS, Licensor and Licensee wish to outline the terms and conditions
pursuant to which the Licensee is authorized, during the term of this Agreement,
to make use of the Megasearch Technology and all content (the "Content") on
Licensor's web page (the "Web Page") through the development and creation of a
private label web page.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of License. Subject to the terms and conditions of this Agreement,
-----------------
the Licensor hereby grants to Licensee a perpetual, nonexclusive right and
license to use its Megasearch Technology and Content on a private label
basis in connection with a web page to be operated by Licensee on the
Internet (the "License"). In this regard, the License shall apply solely to
that Content which is available on Licensor's Web Page at the time of
entering into this Agreement and which the Licensor has the right to
sublicense. Licensor shall no obligation to license to Licensee any new
Content added to the Web Page following the date hereof. In the event that
Licensee should desire to license any new Content, the parties shall
negotiate in good faith the terms of such license. The Content which is
currently available for licensing to Licensee is Horoscope, Lottery, Yellow
Pages, White Pages, Maps, Weather, Stocks, Ski Reports, and News.
2. Licensor's Representations and Obligations
------------------------------------------
2.1 Representation of Licensor. The Licensor represents and warrants to
the Licensee that:
(a) the Licensor is the owner of the Megasearch Technology;
(b) the Licensor has the right to develop, sell, distribute and put
into use the Megasearch Technology; and
<PAGE>
(c) The Megasearch Technology does not, to the knowledge of Licensor,
infringe any patent, copyright, trademark, trade secret or other
intellectual property rights, or similar rights of any third
party.
2.2 Disclaimer. Except as expressly provided herein, the Licensor makes
----------
no representations or warranties, either express or implied, with respect to the
Megasearch Technology or Content. Without limiting the generality of the
foregoing, the Licensor specifically disclaims any implied warranty or
representation that the use of the Megasearch Technology or Content will provide
to Licensee any particular result or will be suitable for Licensee's purposes.
2.3 Limitation of Liability. Notwithstanding anything to the contrary
-----------------------
contained herein, the limit of Licensor's liability (whether in contract, tort,
negligence, strict liability in tort or by statute or otherwise) to License or
to any third party concerning performance or non-performance under this
Agreement, or in any manner related to this Agreement, for any and all claims
shall not in the aggregate exceed the monetary amounts previously paid by
Licensee to Licensor pursuant to this Agreement. IN NO EVENT SHALL LICENSOR BE
LIABLE FOR CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL OR PUNITIVE LOSS,
DAMAGES OR EXPENSES (INCLUDING LOST PROFITS OR SAVINGS) EVEN IF IT HAS BEEN
ADVISED OF THE POSSIBILITY THEREOF.
3. Term and Termination.
--------------------
3.1 The term of this Agreement shall commence as of the Effective Date and
continue for a period of (Five) years (the "Initial Term") unless sooner
terminated as provided below. Upon expiration of the Initial Term and any
Additional Term (as defined below), the Agreement shall be automatically
extended for additional periods of one (1) year (each an "Additional Term"),
unless not less than sixty (60) days prior to the expiration of such Initial
Term or Additional Term one party shall have delivered to the other party a
written notice of its intent not to extend this Agreement. Within sixty (60)
days prior to the expiration of the Initial Term and each Additional Term, the
parties agree to negotiate the terms of such Additional Term, which negotiations
shall take into consideration the current market rate for such services
(including anticipated services). The Initial Term and each Additional Term are
collectively referred to herein as the "Term."
3.2 Licensor and Licensee may mutually agree in writing to terminate this
Agreement at any time.
3.3 Either party may terminate this Agreement immediately if:
(a) The other party has breached a material term of this Agreement
and, after written notice and a reasonable opportunity, not to exceed fifteen
(15) days, the other party fails to cure such breach; or
(b) The other party has committed any act or omission that materially
injures the reputation of the other party.
2
<PAGE>
3.4 This Agreement shall automatically terminate upon the occurrence of
any of the following events:
(a) The bankruptcy or insolvency of either party; or
(b) The liquidation or dissolution of either party; or
(c) A "Change of Control" of Licensee. Change of Control shall mean
(1) any merger, consolidation or sale of Licensee where more than
50% of combined voting power of the surviving entity changes, or
(2) the sale transfer or other disposition of substantially all
of Licensee's assets.
3.5 Upon any termination of this Agreement, each party shall promptly
deliver to the other party all Confidential Information (defined below) and
property belonging to the other party that is in its possession or under its
control, and neither party shall retain copies or reproductions of such
Confidential Information.
4. Compensation. As compensation for using the Megasearch Technology and
------------
Content, Private Label Marketing Fees, and for the Licensor developing and
creating a private label web page, Licensee shall pay to Licensor a fee equal to
Twenty-Five Dollars ($25) for each Internet Mall Operator (IMO) product sold by
PriceNet after the back-end services and fulfillment for the (IMO) becomes
available Online. All Fees payable within Ten days following the end of the
month sales.
4.2 A monthly maintenance fee of Five Dollars ($_5.00__) for every IMO
currently using The BigStore Private Label mall, which shall be payable on the
first day of each month following commencement of the private label Back-end
Processing Services and at the IMO annual renewal date respectively.
5. Independent Contractor Relationship. This Agreement shall in no way be
-----------------------------------
construed to constitute either party as a partner, joint venturer, agent, or
employee of the other party, and neither party shall act or attempt to act or
represent itself, directly or by implication, as a partner, joint venturer,
agent or employee of the other party. Neither party nor any of its respective
employees shall have any authority to enter into contracts, make commitments or
otherwise bind the other party to any obligations without the other party's
prior written consent.
6. Confidentiality; Non-Circumvention and Non-Competition.
------------------------------------------------------
(a) Each party acknowledges and agrees that it will have access to or be
provided with confidential information of the other party during the term of
this Agreement. As used herein, the term "Confidential Information" shall mean
any and all proprietary or confidential information of a party, including,
without limitation such party's business plan, business presentation or related
proprietary and financial information as well as other confidential or
proprietary information of such party regarding the such party's business,
plans, financial results and statements, markets, projected activities,
customers and results of operations, requirements
3
<PAGE>
and sources, contracts, means, methods and processes of providing services,
copyrights, patents, trademarks, trade secrets, and financial information.
(b) Each party agrees to keep the Confidential Information of the other
party in the strictest confidence, and agrees that it will not, directly or
indirectly, publish or disclose, or authorize the publication or disclosure of,
or assist any third party in publishing or disclosing, any Confidential
Information to anyone other than its employees or consultants, but only to the
extent necessary for the fulfillment of its obligations under this Agreement and
subject in each such case to the such party using its best efforts to ensure
that the persons to whom Confidential Information is disclosed keep such
information confidential and do not use such Confidential Information except for
the purposes for which the disclosure is made. Each party agrees to comply with
the other party's policies and regulations, as may be reasonably established
from time to time, for the protection of its Confidential Information.
(c) Each party's confidentiality obligations shall continue with respect
to each item of Confidential Information, including after the termination of
this Agreement, for a period of five (5) years or until such time as such party
can show that any such item of Confidential Information (i) has legally and
properly entered the public domain through a source other than its own and
through no fault of its own, (ii) has legally and properly been received from an
unrelated third party through no breach of any agreement with the other party
and without an obligation to keep it confidential, (iii) was known to such party
or was in such party's possession, without any obligation to keep it
confidential, prior to the receipt of such item of Confidential Information from
the other party, or (iv) was independently developed by one party without
reference to Confidential Information received hereunder.
(d) Each party acknowledges that the other party's Confidential
Information is of a special, unique and extraordinary character and for that
reason the other party will be irreparably damaged in the event that the
confidentiality, non-circumvention or non-competition obligations imposed upon
it, as set forth herein, are not specifically enforced. Accordingly, each party
agrees that the other party shall be entitled, at its election, to institute and
prosecute proceedings against it, as set forth herein, in any court of competent
jurisdiction, either at law or equity, to: (i) obtain damages for breach of the
obligations hereunder; (ii) enforce specific performance of said obligations, or
both. Such remedies are cumulative and not exclusive and shall be in addition to
any and all other remedies which the other party may have, at law or in equity,
in the event the a party breaches any of its obligations hereunder. The parties
hereto confirm that the covenants in this Agreement are expressly deemed to
cover acts of negligence and any inadvertent disclosure or violation of the
terms herein.
7. Ownership of Proprietary Information. Licensee hereby acknowledges and
------------------------------------
agrees that the Megasearch Technology is the sole and exclusive property of
Licensor and that Licensee has no, and shall not obtain any by virtue of this
Agreement, right, title or interest in or to any of the Megasearch Technology.
8. Indemnification. Each party (the "Indemnifying Party") agrees to defend,
---------------
indemnify and hold harmless the other party and its directors, officers,
employees, shareholders, assigns and agents (the "Indemnified Party") from and
against any and all damages, liabilities, losses, claims, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees) which
4
<PAGE>
may be asserted against or sustained or incurred by any of the Indemnified Party
as a result of, arising out of or relating to (i) any material breach or default
by the Indemnifying Party of any of the terms or provisions of this Agreement,
including without limitation, any use or misuse of the Megasearch Technology, or
any negligence or errors or omissions on the party of a party in the performance
of its duties or obligations hereunder, or (ii) any litigation involving the
Indemnifying Party not relating to this Agreement where the Indemnified Party
has been made a party to such litigation by virtue of the parties' strategic
relationship.
9. Force Majeure. Subject to the limitations of this Agreement and except as
-------------
specifically provided in this Agreement to the contrary, neither of the parties
hereto shall be liable for defaults, delays or non-performance of any covenant,
agreement, work, service, or other act required under this Agreement to be
performed by such party, or for any damages, including, without limitation, any
incidental or consequential damages, arising out of the failure to perform any
of its obligations, by reason of any circumstance or condition beyond its
control, including, without limitation, default of third-party vendors,
suppliers or service providers, failure of power or other utilities, strikes,
lockouts and other labor disputes or other industrial disturbances, unavoidable
accidents, acts of terrorism, sabotage, embargoes, blockades, injunction or
other administrative order, governmental law or regulations (including changes
in United States foreign policy) which prevent or substantially interfere with
the required performance, condemnations, riots, insurrections, martial law,
conflicts (declared or undeclared), civil commotion or disorders and any adverse
change in political, economic or social conditions, fire, explosion, flood,
earthquakes and other casualty, acts of God, or any other cause beyond the
control of such party (each, a "Force Majeure Event"). In the event of any such
Force Majeure Event, the performance of any covenant, agreement, obligation,
work or service, or other act of the party affected by such Force Majeure Event
under this Agreement shall be excused for the period of delay and the period for
the performance of the same shall be extended by such period. Each of the
parties hereto shall take all reasonable steps to resume performance hereunder
with the least possible delay.
10. Miscellaneous.
-------------
10.1 Entire Agreement. Except as otherwise provided herein, this
----------------
Agreement constitutes the entire agreement between the parties, and all prior
negotiations, representations, or agreements between the parties, whether oral
or written, are merged into this Agreement. This Agreement may only be modified
by an agreement in writing executed by the parties hereto.
10.2 Binding Effect, Assignment. This Agreement shall inure to the
--------------------------
benefit of and be binding upon the parties and their respective successors in
interest and assigns. Licensee may not assign this Agreement without the prior
written consent of the Licensor.
10.3 Notices. All notices, requests, demands, and other communications
-------
provided for hereunder shall be in writing (or by telex or facsimile
transmission) and shall be deemed to have been duly given:
(i) On the date of service if delivered in person or by telex or
facsimile transmission (with the telex or facsimile confirmation
of transmission
5
<PAGE>
receipt acting as confirmation of service when
sent and provided that telexed or telecopies notices are also
mailed by first class, certified or registered mail, postage
prepaid); or
(ii) In seventy-two (72) hours after mailing by first class,
registered or certified mail, postage prepaid, and properly
addressed as follows:
The BigHub.com, Inc.: PriceNet USA, Inc.:
--------------------- -------------------
2939 Moss Rock ____________________________________
Suite 100 ____________________________________
San Antonio, Texas 78230 ____________________________________
Facsimile: (210) 979-6336 Facsimile:__________________________
Attn: Frank Denny, Chairman Attn:_______________________________
or to such other address as the party affected may designate in a written notice
in compliance with this Section.
10.4 Arbitration. Except for matters covered by Section 6(d) above, all
-----------
disputes arising out of or in connection with this Agreement shall be finally
settled under the Rules of American Arbitration Association ("AAA") by one or
more arbitrators appointed in accordance with said Rules. The place of
arbitration shall be Orange County, California. The parties hereby renounce any
right of recourse that they may have before the court of any jurisdiction except
to obtain preliminary or injunctive relief or enforce an award of the
arbitrator.
If any award rendered by AAA in accordance with this arbitration clause
would not be capable of being executed in the jurisdiction of a party against
whom a claim for payment is made or where that party resides or carries on
business, neither the award nor the said arbitration clause shall bar a party
hereto from taking action before the courts that have jurisdiction over such
other party.
10.5 Attorney Fees. In the event that any party shall bring an action or
-------------
arbitration in connection with the performance, breach or interpretation hereof,
then the prevailing party in such action, as determined by the court or other
body having jurisdiction, shall be entitled to recover from the losing party in
such action, as determined by the court or other body having jurisdiction, all
reasonable costs and expenses of litigation or arbitration, including reasonable
attorneys fees, court costs, costs of investigation and other costs reasonably
related to such proceeding, in such amounts as may be determined in the
discretion of the court or other body having jurisdiction.
10.6. Section Headings. The various section headings are inserted for
----------------
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement or any section hereof.
6
<PAGE>
10.7 Severability. In the event that any provisions, or portions thereof,
------------
of this Agreement are held to be unenforceable or invalid by any court of
competent jurisdiction, the validity and enforceability of the remaining
provisions, or portions thereof, shall not be affected thereby.
10.8 Counterparts. The parties hereto may execute this Amendment
------------
simultaneously, in any number of counterparts or by annexing signature pages
hereto, or on facsimile copies, each of which shall be deemed an original, but
all of which together shall constitute one and the same document.
11. Access to Information. PriceNet hereby agrees to provide access to BigHub
---------------------
and its authorized representatives (e.g., its auditors) during normal
business hours to PriceNet's accounting books and records in order to verify the
accuracy of fees paid to BigHub. In the event that BigHub discovers an
underpayment of fees for any three month period in excess of ten percent (10%),
then, in addition to promptly paying to BigHub the amount of such underpayment,
PriceNet shall reimburse BigHub for its reasonable costs incurred in conducting
such audit.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first above written.
The BigHub.com, Inc. PriceNet USA, Inc.
By: /s/ Doug Martinez By: /s/ Jerry Bellah
----------------------------- -------------------------------
Name: Doug Martinez Name: Jerry Bellah
-------------------------------
Title: Chief Operating Officer Title: President
------------------------------
7
<PAGE>
EXHIBIT 10.13
TheBigHub.com/TheBigStore.com Licensing Agreement
THIS AGREEMENT is entered into as of the 12th day of November, 1999 (the
"Effective Date"), by and between The BigHub.com, Inc., a Florida corporation
(the "BigHub"), and The BigStore.com, Inc., a Delaware corporation ("Company"),
with reference to the following facts:
WHEREAS, the BigHub is the marketing company for the Big affiliate
companies, owns and operates a web site on the Internet at www.thebighub.com
which, among other things, is an advanced portal and contains a metasearch
engine.
WHEREAS, Company will be an innovative Internet-based retailer, which will
market a broad range of consumer merchandise and services at wholesale prices to
both consumer and business customers worldwide.
WHEREAS, Company has developed certain proprietary e-commerce technology
which Company will provide on a private label basis to third parties by way of
this Agreement. ("Back-end Processing Technology License").
WHEREAS, Company desires to grant the BigHub an exclusive Worldwide Master
License to the Back-end Processing Technology on a private label basis only.
WHEREAS, the parties desire to enter into this Agreement to more clearly
define their respective duties and responsibilities.
NOW, THEREFORE, in consideration of the covenants, agreements and
considerations herein contained, the Company and BigHub agree as follows:
1. Master License. The Company hereby grants to the BigHub a Master License
to the Back-end Processing Technology on a private label basis during the Term
hereof, and appoints the BigHub as its Exclusive Worldwide Master Licensor of
the Back-end Processing Technology on a private label basis. In this regard,
BigHub shall have the exclusive worldwide right to sub-license to third parties
the Back-end Processing Technology to create private labeling E-commerce
opportunities, (collectively, the "License"). The Company and BigHub agree that
the License shall commence on the Effective Date of this Agreement.
(a) No Price Restriction. BigHub will determine the cost to all
third party private label sub-licensees for the Back-end processing Technology
with the approval of the Company whereby approval may not be unreasonably
withheld.
2. Compensation. In consideration for the License, BigHub agrees that,
commencing with the Effective Date and continuing through the Term, it shall pay
to Company a fee equal to seventy five percent (75%) of the aggregate cash
consideration paid to the BigHub pursuant to each sub-license private label
agreement. The fee earned each month by the Company shall be due and payable by
the BigHub by the fifteenth (15th) day of the following month.
1
<PAGE>
3. Books and Records BigHub hereby agrees to maintain adequate books and
records and provide access to Company and its authorized representatives (e.g.,
its auditors) during normal business hours to the BigHub's accounting records,
and other books and records, to the extent necessary for the Company to verify
amounts paid to it by the BigHub.
4. Representations and Warranties. Each party to this Agreement represents and
warrants to the other party that:
(a) such party has the full corporate right, power and authority to
enter into this Agreement and to perform the acts required of it hereunder;
(b) the execution of this Agreement by such party, and the
performance by such party of its obligations and duties hereunder, do not and
will not violate such party's charter documents or any agreement to which such
party is a party or by which it is otherwise bound; and
(c) when executed and delivered by such party, this Agreement will
constitute the legal, valid and binding obligation of such party, enforceable
against such party in accordance with its terms.
5. Term and Termination.
(a) The term of this Agreement shall commence on the date that the
Services start and shall, unless sooner terminated as provided below or as
otherwise agreed, remain effective for an initial term of three (5) years (the
"Initial Term"). After the Initial Term, this Agreement shall automatically be
extended for successive three-year periods (each an "Extension Term"), unless
otherwise terminated by either party by giving written notice to the other party
of its intent not to extend not less than sixty (60) days prior to the end of
the Initial Term or any Extension Term then in effect. As used herein, the
"Term" shall mean the Initial Term and any Extension Term(s). The compensation
to be paid to the Company for each Extension Term shall be at the current rate,
unless prior to the commencement of each Extension Term, the parties negotiate
new compensation hereunder in good faith.
(b) Notwithstanding the foregoing, this Agreement may be terminated
at any time by either party, effective immediately upon notice, if the other
party: (i) becomes insolvent; (ii) files a petition in bankruptcy; (iii) makes
an assignment for the benefit of its creditors; or (iv) breaches its obligations
of confidentiality set forth in Section 5 below. Either party may terminate this
Agreement, effective upon thirty (30) days notice, in the event that the other
party breaches any of its representations, warranties, covenants or agreements
contained herein which breach is not remedied within thirty (30) days following
written notice to such party. The provisions in Sections 5 and 6 shall survive
any termination or expiration of this Agreement.
Upon any termination of this Agreement, each party shall promptly
deliver to the other party all Confidential Information (defined below) and
property belonging to the other party that is in its possession or under its
control, and neither party shall retain copies or reproductions of such
Confidential Information.
2
<PAGE>
6. Confidentiality and Non-Circumvention.
(a) Each party acknowledges and agrees that it will have access to or
be provided with confidential information of the other party during the term of
this Agreement. As used herein, the term "Confidential Information" shall mean
any and all proprietary or confidential information of a party, including,
without limitation such party's business plan, business presentation or related
proprietary and financial information as well as other confidential or
proprietary information of such party regarding such party's business, plans,
financial results and statements, markets, projected activities, customers and
results of operations, requirements and sources, contracts, means, methods and
processes of providing services, copyrights, patents, trademarks, trade secrets,
and financial information.
(b) Each party agrees to keep the Confidential Information of the
other party in the strictest confidence, and agrees that it will not, directly
or indirectly, publish or disclose, or authorize the publication or disclosure
of, or assist any third party in publishing or disclosing, any Confidential
Information to anyone other than its employees or consultants, but only to the
extent necessary for the fulfillment of its obligations under this Agreement and
subject in each such case to the such party using its best efforts to ensure
that the persons to whom Confidential Information is disclosed keep such
information confidential and do not use such Confidential Information except for
the purposes for which the disclosure is made. Each party agrees to comply with
the other party's policies and regulations, as may be reasonably established
from time to time, for the protection of its Confidential Information.
(c) Each party's confidentiality obligations shall continue with
respect to each item of Confidential Information, including after the
termination of this Agreement, until such time as such party can show that any
such item of Confidential Information (i) has legally and properly entered the
public domain through a source other than its own and through no fault of its
own, (ii) has legally and properly been received from an unrelated third party
through no breach of any agreement with the other party and without an
obligation to keep it confidential, or (iii) was known to such party or was in
such party's possession prior to the receipt of such item of Confidential
Information from the other party.
(d) Each party acknowledges that the other party's Confidential
Information is of a special, unique and extraordinary character and for that
reason the other party will be irreparably damaged in the event that the
confidentiality or non-circumvention obligations imposed upon it, as set forth
herein, are not specifically enforced. Accordingly, each party agrees that the
other party shall be entitled, at its election, to institute and prosecute
proceedings against it, as set forth herein, in any court of competent
jurisdiction, either at law or equity, to: (a) obtain damages for breach of the
obligations hereunder; (b) enforce specific performance of said obligations, or
both. Such remedies are cumulative and not exclusive and shall be in addition
to any and all other remedies which the other party may have, at law or in
equity, in the event the a party breaches any of its obligations hereunder. The
parties hereto confirm that the covenants in this Agreement are expressly deemed
to cover acts of negligence and any inadvertent disclosure or violation of the
terms herein.
3
<PAGE>
7. Independent Contractor Relationship. This Agreement shall in no way be
construed to constitute either party as a partner, joint venturer, agent, or
employee of the other party, and neither party shall act or attempt to act or
represent itself, directly or by implication, as a partner, joint venturer,
agent or employee of the other party.
8. Miscellaneous.
(a) This Agreement contains the complete and exclusive agreement
between the parties with respect to the subject matter hereof, superseding and
replacing any and all prior agreements, communications, and understandings, both
written and oral, regarding such subject matter. This Agreement may only be
modified, or any rights under it waived, by a written document executed by both
parties.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective successors and assigns.
(c) This Agreement will be governed by and construed in accordance
with the laws of the State of California, without reference to conflicts of laws
rules, and without regard to its location of execution or performance.
(d) If any provision of this Agreement is found invalid or
unenforceable, that provision will be enforced to the maximum extent
permissible, and the other provisions of this Agreement will remain in force.
(e) All notices, requests and other communications called for by this
Agreement shall be deemed to have given upon receipt if made by mail, courier or
personal delivery, or immediately if made by telecopy or electronic (confirmed
by concurrent written notice sent first-class U.S. mail, postage prepaid):
The BigHub.com, Inc.: The BigStore, Inc.:
------------------- ------------------
2939 Moss Rock 3388 Via Lido
Suite 100 Newport Beach, California 92663
San Antonio, Texas 78230 Facsimile: 949-566-6135
Facsimile: (210) 979-6336 Attn: Tracy Nolan, President
Attn: Frank Denny, Chairman
or to such other addresses as either party shall specify to the other. Notice
by any other means shall be deemed made when actually received by the party to
which notice is provided.
(f) Except for matters covered by Section 5 above, all disputes
arising out of or in connection with this Agreement shall be finally settled
under the Rules of American Arbitration Association ("AAA") by one or more
arbitrators appointed in accordance with said Rules. The place of arbitration
shall be Orange County, California. The parties hereby renounce any right of
recourse which they may have before the court of any jurisdiction except to
obtain preliminary or injunctive relief or enforce an award of the arbitrator.
4
<PAGE>
If any award rendered by AAA in accordance with this arbitration
clause would not be capable of being executed in the jurisdiction of a party
against whom a claim for payment is made or where that party resides or carries
on business, neither the award nor the said arbitration clause shall bar a party
hereto from taking action before the courts that have jurisdiction over such
other party.
(g) In the event that any party shall bring an action or arbitration
in connection with the performance, breach or interpretation hereof, then the
prevailing party in such action, as determined by the court or other body having
jurisdiction, shall be entitled to recover from the losing party in such action,
as determined by the court or other body having jurisdiction, all reasonable
costs and expenses of litigation or arbitration, including reasonable attorneys'
fees, court costs, costs of investigation and other costs reasonably related to
such proceeding, in such amounts as may be determined in the discretion of the
court or other body having jurisdiction.
(h) The various section headings are inserted for purposes of
convenience only and shall not affect the meaning or interpretation of this
Agreement or any section hereof.
(i) No failure of either party to exercise or enforce any of its
rights under this Agreement will act as a waiver of such rights.
(j) This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute a single instrument. Execution and
delivery of this Agreement may be evidenced by facsimile transmission.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
THE BIGHUB.COM, INC. THE BIGSTORE.COM, INC.
By: /s/ Chet Howard By: /s/ Tracy Nolan
-------------------------- --------------------------------
Chet Howard, CFO Tracy Nolan, COO
5
<PAGE>
Exhibit 10.14
SUBLICENSING AGREEMENT
This SUBLICENSING AGREEMENT ("Agreement") is made this __ day of January,
2000, (the "Effective Date") by and between The BigHub.com, Inc., a Florida
corporation ("Company") and Interplanner.com Inc., a Florida corporation
("Interplanner.com Inc."), with reference to the following recitals.
WHEREAS, Interplanner.com Inc., is a technology company engaged in
providing services that include personalized web pages, e-mail and electronic
commerce.
WHEREAS, The BigStore.com, Inc. ("BigStore") has developed an
infrastructure, which includes certain proprietary technology which enables
BigStore, among other things, to be able to process e-commerce transactions on
the Internet in an efficient and effective manner and to track customer orders
from the time the order is placed through delivery to the consumer's designated
ship to address ("Back-end Processing Technology"); and
WHEREAS, Company licenses the Back-end Processing Technology from the
BigStore pursuant to the terms and conditions of an Exclusive Master Licensing
Agreement dated November 12 1999.
WHEREAS, Interplanner.com Inc., desires to sublicense the Back-end
Processing Technology from Company upon the terms and conditions set forth
below; and
WHEREAS the parties desire to enter into this Agreement to more clearly
define their respective duties and responsibilities.
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Sublicense. Subject to the terms and conditions of this
-------------------
Agreement, the Company hereby grants to Interplanner.com Inc., a
perpetual, non-exclusive, worldwide right and sublicense to use the
Back-end Processing Technology to be operated by Interplanner.com
Inc., on the Internet in connection with a Interplanner.com Inc.,
mall (the "Sublicense"). The Sublicense will be a turnkey sublicense
of a total backend e-commerce solution which will include transaction
processing, credit/debit card validation, fraud detection, order
tracking, transaction accounting, reporting and records retention,
vendor communications and management, customer profiles, maintenance,
and such other capabilities as may be necessary in order to operate a
complete e-commerce business. The parties agree that during the term
of this Agreement the Company shall operate the mall to be established
by Interplanner.com Inc., which shall incorporate the Backend
Processing Technology being sublicensed herein.
<PAGE>
Notwithstanding the foregoing, the parties agree that Interplanner.com
Inc., shall be solely responsible for providing and maintaining all
applicable and necessary web servers necessary to facilitate all e-commerce
transactions contemplated herein and on the Interplanner.com Inc., Inc.'s
mall web site. Interplanner.com Inc. further agrees not to use the services
of any other e-commerce provider that directly competes with and/or is
substantially similar to the service provided herein during the term of
this agreement.
2. Company's Representations and Obligations
----------------------------------------
2.1 Representation of Company. The Company represents and warrants to
Interplanner.com Inc., that:
(a) The Company licenses the Back-end Processing Technology from The
BigStore;
(b) The Company has the right to sublicense the Back-end Processing
Technology; and
(c) The Back-end Processing Technology does not, to the knowledge of
Company, infringe any on patent, copyright, trademark, trade secret or
other intellectual property rights, or similar rights of any third
party.
2.2 Disclaimer. Except as expressly provided herein, the Company makes no
----------
representations or warranties, either express or implied, with respect to the
Back-end Processing Technology. Without limiting the generality of the
foregoing, the Company specifically disclaims any implied warranty or
representation that the use of the Back-end Processing Technology or will
provide to Interplanner.com Inc., any particular result or will be suitable for
Interplanner.com Inc., Inc.'s purposes.
3. Terms and Termination
---------------------
3.1 The term of this Agreement shall commence as of the Effective Date and
continue for a period of five (5) year(s) (the "Initial Term"), unless sooner
terminated as provided below. Within sixty (60) days prior to the expiration of
the Initial Term, the parties agree to negotiate the terms of any Additional
Term(s), which negotiations shall take into consideration the value of the
services provided and compensation paid to date, the services being provided to
and compensation being paid by affiliated companies, and the current market rate
for such services (including anticipated services). The Initial Term and each
Additional Term are collectively referred to herein as the "Term."
3.3 Notwithstanding Section 3.2 above, Interplanner.com Inc., may
terminate this agreement at any time by delivering thirty (30) days written
notice to the Company, but will be subject to the following early termination
fees:
(a) Eighty thousand dollars ($80,000) where termination is within
twelve (12) months of the Effective Date;
<PAGE>
(b) Sixty thousand dollars ($60,000) where termination is within
thirteen (13) to twenty four (24) months of the Effective Date;
(c) Forty thousand dollars ($40,000) where termination is within
twenty five (25) to thirty six (36) months of the Effective Date;
(d) Twenty thousand dollars ($20,000) where termination is within
thirty seven (37) to forty eight (48) months of the Effective Date;
(e) Ten thousand dollars ($10,000) where termination is within forty
nine (49) to sixty (60) months of the Effective Date.
3.4 Either party may terminate this Agreement immediately if:
(a) The other party has breached a material term of this Agreement
and, after written notice and a reasonable opportunity, not to exceed fifteen
(15) days, the other party fails to cure such breach; or
(b) The other party has committed any act or omission that materially
injures the reputation of the other party.
3.5 This Agreement shall automatically terminate upon the occurrence of
any of the following events:
(a) The bankruptcy or insolvency of either party; or
(b) The liquidation or dissolution of either party.
3.6 Upon any termination of this Agreement, each party shall promptly
deliver to the other party all Confidential Information (defined below) and
property belonging to the other party that is in its possession or under its
control, and neither party shall retain copies or reproductions of such
Confidential Information.
4. Compensation. As compensation for the Back-end Processing Services and
------------
Order Processing to be rendered by the Company under this Agreement,
Interplanner.com Inc., agrees to pay to the Company the following:
4.2 In consideration for the Sublicense, the parties agree that all Net
Sales Revenue generated from the Interplanner.com Inc., mall shall be
paid to the Company, from which, within 5 days following the end of
each month, the Company shall pay to Interplanner.com Inc., an amount
equal to six percent (6%) of the Net Sales, defined as gross sales,
less refunds, cancellations, and return costs.
4.3 Set-up fee $ 0
4.4 Monthly maintenance fee $ 0
<PAGE>
4.5 At any time after the first ninety (90) days from the Effective
Date of this Agreement and where Interplanner.com Inc., can
satisfactorily establish to the Company that Interplanner.com Inc.,
has in place the necessary vendor credit, customer support, merchant
accounts, credit lines, and other capabilities necessary to operate
an e-commerce web site, as determined by the Company in its sole
discretion, which consent to satisfaction shall not be unreasonably
withheld, the parties agree that Starting Point, Inc., Inc. shall
thereafter be entitled to all Net Sales Revenue, as previously
defined in Section 4.2 above, generated from the sales in the
Starting Point, Inc., Inc. mall. Thereafter, Interplanner.com Inc.,
shall be obligated to pay to the Company, within five (5) days
following the end of each month, an amount equal to six percent (6%)
of Net Sales Revenue and Section 4.2 above shall no longer be of
force and effect.
5. Independent Contractor Relationship. This Agreement shall in no way be
-----------------------------------
construed to constitute either party as a partner, joint venturer, agent, or
employee of the other party, and neither party shall act or attempt to act or
represent itself, directly or by implication, as a partner, joint venturer,
agent or employee of the other party. Neither party nor any of its respective
employees shall have any authority to enter into contracts, make commitments or
otherwise bind the other party to any obligations without the other party's
prior written consent.
6. Confidentiality
---------------
(a) Each party acknowledges and agrees that it will have access to or be
provided with confidential information of the other party during the term of
this Agreement. As used herein, the term "Confidential Information" shall mean
any and all proprietary or confidential information of a party, including,
without limitation such party's business plan, business presentation or related
proprietary and financial information as well as other confidential or
proprietary information of such party regarding that party's business, plans,
financial results and statements, markets, projected activities, customers and
results of operations, requirements and sources, contracts, means, methods and
processes of providing services, copyrights, patents, trademarks, trade secrets,
and financial information. Interplanner.com Inc. will not have access to the
computer source code that runs Company's proprietary systems, i.e., The Back-end
Processing Technology.
(b) Each party agrees to keep the Confidential Information of the other
party in the strictest confidence, and agrees that it will not, directly or
indirectly, publish or disclose, or authorize the publication or disclosure of,
or assist any third party in publishing or disclosing, any Confidential
Information to anyone other than its employees or consultants, but only to the
extent necessary for the fulfillment of its obligations under this Agreement and
subject in each case to the party using its best efforts to ensure that persons
to whom Confidential Information is disclosed keep such information confidential
and do not use Confidential Information except for the purposes for which the
disclosure is made. Each party agrees to comply with the other party's policies
and regulations, as may be reasonably established from time to time, for the
protection of its Confidential Information.
<PAGE>
(c) Each party's confidentiality obligations shall continue with respect
to each item of Confidential Information, including after the termination of
this Agreement, for a period of five (5) years or until such time as such party
can show that any such item of Confidential Information (i) has legally and
properly entered the public domain through a source other than its own and
through no fault of its own, (ii) has legally and properly been received from an
unrelated third party through no breach of any agreement with the other party
and without an obligation to keep it confidential, (iii) was known to such party
or was in such party's possession, without any obligation to keep it
confidential, prior to the receipt of such item of Confidential Information from
the other party, or (iv) was independently developed by one party without
reference to Confidential Information received hereunder.
(d) Each party acknowledges that the other party's Confidential
Information is of a special, unique and extraordinary character and for that
reason the other party will be irreparably damaged in the event that the
confidentiality obligations imposed herein are not specifically enforced.
Accordingly, each party agrees that the other party shall be entitled, at its
election, to institute and prosecute proceedings against it, as set forth
herein, in any court of competent jurisdiction, either at law or equity, to: (i)
obtain damages for breach of the obligations hereunder; (ii) enforce specific
performance of said obligations, or both. Such remedies are cumulative and not
exclusive and shall be in addition to any and all other remedies which the other
party may have, at law or in equity, in the event the party breaches any of
its obligations hereunder. The parties hereto confirm that the covenants in this
Agreement are expressly deemed to cover acts of negligence and any inadvertent
disclosure or violation of the terms herein.
7. Ownership of Proprietary Information. Interplanner.com Inc., hereby
------------------------------------
acknowledges and agrees that the Back-end Processing Technology is the sole and
exclusive property of BigStore and that Interplanner.com Inc., has no, and shall
not obtain by virtue of this Agreement, right, title or interest in or to any of
the Back-end Processing Technology.
8. Limitation of Liability. Notwithstanding anything to the contrary
-----------------------
contained herein, the limit of each party's liability (whether in contract,
tort, negligence, strict liability in tort or by statute or otherwise) to the
other or to any third party concerning performance or non-performance under this
Agreement, or in any manner related to this Agreement, for any and all claims
shall not in the aggregate exceed the monetary amounts previously paid by that
party to the other party pursuant to this Agreement. IN NO EVENT SHALL EITHER
PARTY BE LIABLE FOR CONSEQUENTIAL, INDIRECT, SPECIAL, INCIDENTAL OR PUNITIVE
LOSS, DAMAGES OR EXPENSES (INCLUDING LOST PROFITS OR SAVINGS) EVEN WHERE THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF.
9. Indemnification. Each party (the "Indemnifying Party") agrees to defend,
---------------
indemnify and hold harmless the other party and its directors, officers,
employees, shareholders, assigns and agents (the "Indemnified Party") from and
against any and all damages, liabilities, losses, claims, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees) which may
be asserted against or sustained or incurred by any of the Indemnified Party as
a result of,
<PAGE>
arising out of or relating to (i) any material breach or default by the
Indemnifying Party of any of the terms or provisions of this Agreement,
including without limitation, any use or misuse of the Back-end Processing
Technology, or any negligence or errors or omissions on the party of a party in
the performance of its duties or obligations hereunder, or (ii) any litigation
involving the Indemnifying Party not relating to this Agreement where the
Indemnified Party has been made a party to such litigation by virtue of the
parties' strategic relationship, including but not limited to third party claims
of intellectual property infringement. In addition, Interplanner.com Inc.,
specifically agrees to defend, indemnify and hold harmless the Company and
BigStore from an against any and all damages, liabilities, losses, claims,
demands, costs and expenses (including reasonable attorneys' fees) resulting
from, arising out of, or relating to any misrepresentation, misstatement or
omission by Interplanner.com Inc., with respect to the Back-end Processing
Services, Order Processing Services, including, without limitation, the
capabilities of such services.
10. Force Majeure. Subject to the limitations of this Agreement and except as
-------------
specifically provided in this Agreement to the contrary, neither of the parties
hereto shall be liable for defaults, delays or non-performance of any covenant,
agreement, work, service, or other act required under this Agreement to be
performed by such party, or for any damages, including, without limitation, any
incidental or consequential damages, arising out of the failure to perform any
of its obligations, by reason of any circumstance or condition beyond its
control, including, without limitation, default of third-party vendors,
suppliers or service providers, failure of power or other utilities, strikes,
lockouts and other labor disputes or other industrial disturbances, unavoidable
accidents, acts of terrorism, sabotage, embargoes, blockades, injunction or
other administrative order, governmental law or regulations (including changes
in United States foreign policy) which prevent or substantially interfere with
the required performance, condemnations, riots, insurrections, martial law,
conflicts (declared or undeclared), civil commotion or disorders and any
adverse change in political, economic or social conditions, fire, explosion,
flood, earthquakes and other casualty, acts of God, or any other cause beyond
the control of such party (each, a "Force Majeure Event"). In the event of any
such Force Majeure Event, the performance of any covenant, agreement,
obligation, work or service, or other act of the party affected by such Force
Majeure Event under this Agreement shall be excused for the period of delay and
the period for the performance of the same shall be extended by such period.
Each of the parties hereto shall take all reasonable steps to resume performance
hereunder with the least possible delay.
11. Access to Information. Interplanner.com Inc., hereby agrees to provide
---------------------
access to Company and its authorized representatives (e.g., its auditors) during
normal business hours to Interplanner.com Inc.'s accounting books and records in
order to verify the accuracy of fees paid to the Company not more than once per
year. In the event that the Company discovers an underpayment of fees for any
thee-month period in excess of ten percent (10%), then, in addition to promptly
paying to the Company the amount of such underpayment, Interplanner.com Inc.,
shall reimburse the Company for its reasonable costs incurred in conducting such
audit.
<PAGE>
12. Miscellaneous.
-------------
12.1 Entire Agreement. Except as otherwise provided herein, this
----------------
Agreement constitutes the entire agreement between the parties, and all prior
negotiations, representations, or agreements between the parties, whether oral
or written, are merged into this Agreement. This Agreement may only be an
agreement in writing executed by the parties hereto.
12.2 Binding Effect, Assignment. This Agreement shall inure to the
--------------------------
benefit of and be binding upon the parties and their respective successors and
assigns. Interplanner.com Inc. may not assign this Agreement without the prior
consent of the Company.
12.3 Notices. All notices, requests, demands, and other communications
-------
provided for hereunder shall be in writing (or by telex or facsimile
transmission) and shall be deemed to have been duly given:
(i) On the date of service if delivered in person or by telex or
facsimile transmission (with the telex or facsimile
confirmation of transmission receipt acting as confirmation of
service when sent and provided that telexed or telecopies notices
are also mailed by first class, certified or registered mail,
postage prepaid); or
(ii) In seventy-two (72) hours after mailing by first class,
registered or certified mail, postage prepaid, and properly
addressed as follows:
The BigHub, Inc. Interplanner.com Inc.:
---------------- ----------------------
2939 Moss Rock 3435 Galt Ocean Dr.
San Antonio, Texas 78230 Fort Lauderdale, Florida 33308
Telephone: 945-630-0027
Facsimile: 210-979-6336 Facsimile: 954-630-9133
Attn:____________________ Attn:__________________________
Or at such other address as the party affected may designate in a written notice
in compliance with this Section.
12.4 Arbitration. Except for the matters covered by Section 6(d) above,
-----------
all disputes arising out of or in connection with this Agreement shall be
finally settled under the Rules of American Arbitration Association ("AAA") by
one or more arbitrators appointed in accordance with said Rules. The place of
arbitration shall be Orange County, California. The parties hereby renounce any
right of recourse that they may have before the court of any jurisdiction except
to obtain preliminary or injunctive relief or enforce an award of the
arbitrator.
<PAGE>
If any award rendered by AAA in accordance with this arbitration clause
would not be capable of being executed in the jurisdiction of a party against
whom a claim for payments made or where that party resides or carries on
business, neither the award nor the said arbitration clause shall bar a party
hereto from taking action before the courts that have jurisdiction over such
other party.
12.5 Attorney Fees. In the event that any party shall bring an action or
-------------
arbitration in connection with the performance, breach or interpretation hereof,
then the prevailing party in such action, as determined by the court or other
body have jurisdiction tion, shall be entitled to recover from the losing party
in such action, as determined by the court or other body having jurisdiction all
reasonably costs and expenses of litigation or arbitration, including reasonable
attorneys fees, court costs and other costs reasonably related to such
proceeding, in such amounts as may be determined in the discretion of the court
or other body having jurisdiction.
12.6 Section Headings. The various section headings are inserted for
----------------
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement or any section hereof.
12.7 Severability. In the event that any provisions, or portions thereof,
------------
of this Agreement are held to be unenforceable or invalid by any court of
competent jurisdiction, the validity and enforceability of the remaning
provisions, or portions thereof, shall not be affected thereby.
12.8 Counterparts. The parties hereto may execute this Amendment
simultaneously, in any number of counterparts or by annexing signature pages
hereto, or on facsimile copies, each of which shall be deemed an original, but
all of which together shall constitute one and the same documents.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first above written.
The BigHub.com, Inc Starting Point, Inc.
By: /s/ Frank W. Denny By: /s/ Mitch Petchenik
-------------------------- ---------------------
Name: Frank W. Denny Name: Mitch Petchenik
------------------------ -------------------
Title: President CEO Title: V.P. Business Development
<PAGE>
EXHIBIT 16.1
[LETTERHEAD OF REEL & SWAFFORD, PLLC]
November 22, 1999
US Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549
RE: The Bighub.com, Inc. (Commission File Number 000-27107)
We have read Form 8K dated November 5, 1999, and received by us November 11,
1999, of the above referenced registrant related to the change of auditors
whereby the client-auditor relationship between registrant and Reel & Swafford,
PLLC has ceased.
This is to advise you that Reel & Swafford, PLLC has no matters of disagreement
with respect to the statements made in the aforementioned Form 8K of the
registrant except for the following with respect to Item 4:
First paragraph - Reel & Swafford, PLLC were notified of their dismissal on
November 11, 1999.
Fourth and Fifth paragraphs - we are unable to agree or disagree with
paragraph four because we have not seen a independent appraisal of "the
Company's assets" as of a date that would give rise to an adjustment to the
historical financial statements as of October 31, 1998. Nor have we been
provided adequate support and documentation to form a conclusion whether a
subsequent write-down under SFAS 121 is appropriate.
Second, Sixth and Seventh paragraphs - these paragraphs discuss meetings
and discussions to which we were not privy. Accordingly, we are unable to
agree or disagree with those statements.
Reel & Swafford, PLLC
Certified Public Accountants
cc: The Bighub.com, Inc.
Attention: Chet Howard, CFO
<PAGE>
Exhibit 21.1
Subsidiaries of The BigHub.com, Inc.
Maverick Communications Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE COMPANY AS AT AND FOR THE FISCAL YEARS ENDED OCTOBER
31, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> OCT-31-1999 OCT-31-1998
<PERIOD-START> NOV-01-1998 NOV-01-1997
<PERIOD-END> OCT-31-1999 OCT-31-1998
<CASH> 87,858 0
<SECURITIES> 0 0
<RECEIVABLES> 5,133 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 92,991 0
<PP&E> 1,722,540 0
<DEPRECIATION> (220,314) 0
<TOTAL-ASSETS> 1,597,017 0
<CURRENT-LIABILITIES> 3,132,187 0
<BONDS> 0 0
0 0
0 0
<COMMON> 16,106 0
<OTHER-SE> (1,551,276) 0
<TOTAL-LIABILITY-AND-EQUITY> 1,597,017 0
<SALES> 0 0
<TOTAL-REVENUES> 35,914 6,292
<CGS> 0 0
<TOTAL-COSTS> 6,757 178
<OTHER-EXPENSES> 3,599,045 223,577
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 453,563 6,175
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,023,451) (223,638)
<DISCONTINUED> 0 (280,723)
<EXTRAORDINARY> 67,000 0
<CHANGES> 0 0
<NET-INCOME> (3,956,451) (504,361)
<EPS-BASIC> (0.58) (0.72)
<EPS-DILUTED> (0.58) (0.72)
</TABLE>
<PAGE>
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
The BigHub.com, Inc. and subsidiary
We have audited the accompanying consolidated balance sheet of The BigHub.com,
Inc. and subsidiary (the "Company") as of October 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the two years in the period then ended (as restated - see Note
2). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates 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 financial position of the Company as of
October 31, 1999, and the results of their operations and their cash flows for
each of the two years in the period then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As reflected in the attached
consolidated financial statements, the Company has incurred total losses of
$4,460,812 (as restated - see Note 2) over the last two fiscal years, and has
working capital deficit of approximately $3,039,196 at October 31, 1999. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. As discussed in Note 1, the ability of the Company to continue in
existence is dependent primarily upon obtaining additional debt and equity
financing for marketing, software development and the funding of operations as
well as the generating of income from strategic alliances and sales of products
and services. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be unable
to continue as a going concern.
CORBIN & WERTZ
Irvine, California
December 23, 1999
F-1
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Consolidated Balance Sheet
October 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 87,858
Accounts receivable 5,133
----------------
Total current assets 92,991
Property and equipment, net 1,502,226
Other assets 1,800
----------------
$ 1,597,017
================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable $ 1,199,503
Accrued liabilities 197,512
Related party payables 785,172
Notes payable to related parties 950,000
----------------
Total current liabilities 3,132,187
----------------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, 25,000,000 shares authorized, $0.001 par value,
no shares outstanding -
Common stock, 50,000,000 shares authorized, $0.001 par value,
16,105,976 shares outstanding 16,106
Additional paid-in capital 4,232,628
Accumulated deficit (5,783,904)
----------------
Total stockholders' deficit (1,535,170)
----------------
$ 1,597,017
================
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
F-2
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
October 31,
Year Ended 1998
October 31, (As restated -
31, 1999 See Note 2)
-------------------- --------------------
<S> <C> <C>
Net sales $ 35,914 $ 6,292
Cost of sales 6,757 178
--------------- ----------------
Gross profit 29,157 6,114
--------------- ----------------
Operating expenses:
General and administrative 3,146,982 198,403
Depreciation 195,140 25,174
Asset impairment write-down 228,607 -
--------------- ----------------
Total operating expenses 3,570,729 223,577
--------------- ----------------
Loss from operations (3,541,572) (217,463)
--------------- ----------------
Other income (expense)
Interest expense (453,563) (6,175)
Other expense (28,316) -
--------------- ----------------
(481,879) (6,175)
--------------- ----------------
Loss from continuing operations before discontinued
operations and extraordinary gain (4,023,451) (223,638)
Discontinued operations:
Loss from operation of discontinued healthcare
business - (357,069)
Gain on disposal healthcare business - 76,346
--------------- ----------------
Loss before extraordinary item (4,023,451) (504,361)
Extraordinary item - Gain on forgiveness of debt 67,000 -
--------------- ----------------
Net loss $ $ (3,956,451) $ (504,361)
=============== ================
Net loss available to common shareholders per common share:
Loss from continuing operations $ (0.59) $ (0.32)
Discontinued operations - (0.40)
Extraordinary item 0.01 -
--------------- ----------------
$ (0.58) $ (0.72)
=============== ================
Weighted average number of common shares
outstanding 7,307,582 701,165
=============== ================
</TABLE>
See independent auditors' report and
accompanying note to consolidated financial statements
F-3
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Statements of Stockholders' Equity (Deficit)
For The Years Ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
Class A Special Preferred Stock Preferred Stock
-------------------------------- -----------------------------------
Shares Amount Shares Amount
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance, November 1, 1997 - $ - - $ -
Directors shares cancelled in exchange for
indemnification - - - -
Shares issued for cash in exercise of
warrants - - - -
Shares issued in connection with the 1998
private placement - - - -
Note receivable from stockholder related to
1998 private placement - - - -
Shares issued in connection with acquisition
of subsidiary and exercise of option to
purchase search engine (as restated -
see Note 2) - - 1,000,000 1,000
Common shares converted to preferred
shares - - 5,000,000 5,000
Beneficial conversion recorded as common
stock dividend in connection with common
shares converted to preferred shares - - - -
Issuance of common shares for services
rendered (as restated - see Note 2) - - - -
Net loss (as restated - see Note 2) - - - -
----------- ------------ ------------- -------------
Balance, October 31, 1998 (as restated -
see Note 2) - - 6,000,000 6,000
Conversion of notes payable to stockholders
to common shares - - - -
Preferred shares converted to Class A
special preferred shares 7,750,000 7,750 (5,000,000) (5,000)
Beneficial conversion recorded as interest
expense in connection with preferred
shares converted to Class A special
preferred shares - - - -
<CAPTION>
Common Stock Additional
-------------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
--------------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, November 1, 1997 302,500 $ 302 $ 101,910 $ (288,172) $ (185,960)
Directors shares cancelled in exchange for
indemnification (191,333) (191) 191 - -
Shares issued for cash in exercise of
warrants 6,885 7 103,193 - 103,200
Shares issued in connection with the 1998
private placement 976,000 976 145,424 - 146,400
Note receivable from stockholder related to
1998 private placement - - (15,000) - (15,000)
Shares issued in connection with acquisition
of subsidiary and exercise of option to
purchase search engine (as restated -
see Note 2) 1,700,000 1,700 402,300 - 405,000
Common shares converted to preferred
shares (100,000) (100) (4,900) - -
Beneficial conversion recorded as common
stock dividend in connection with common
shares converted to preferred shares - - 735,000 (735,000) -
Issuance of common shares for services
rendered (as restated - see Note 2) 24,833 25 3,700 - 3,725
Net loss (as restated - see Note 2) - - - (504,361) (504,361)
------------ ----------- ------------- ------------ -----------
Balance, October 31, 1998 (as restated -
see Note 2) 2,718,885 2,719 1,471,818 (1,527,533) (46,996)
Conversion of notes payable to stockholders
to common shares 1,600,000 1,600 441,227 - 442,827
Preferred shares converted to Class A
special preferred shares - - (2,750) - -
Beneficial conversion recorded as interest
expense in connection with preferred
shares converted to Class A special
preferred shares - - 412,500 - 412,500
</TABLE>
F-4
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Statements of Stockholders' Equity (Deficit) - Continued
For The Years Ended October 31, 1999 and 1998
<TABLE>
<CAPTION>
Class A Special Preferred Stock Preferred Stock
-------------------------------- -----------------------------------
Shares Amount Shares Amount
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
Issuance of Class A special preferred shares
for services rendered 500,000 500 - -
Shares issued in connection with the 1998
private placement - - - -
Common shares redeemed for preferred
shares - - (1,000,000) (1,000)
Class A special preferred shares redeemed
for common shares (8,250,000) (8,250) - -
Beneficial conversion recorded as preferred
stock dividend in connection with Class A
special preferred shares redeemed for common
shares - - - -
Issuance of common shares for services
rendered - - - -
Shares issued in connection with 1999
private placement - - - -
Net loss - - - -
----------- ------------ ------------ ------------
Balance, October 31, 1999 - $ - - $ -
=========== ============ =========== ============
<CAPTION>
Common Stock Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ ------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Issuance of Class A special preferred shares
for services rendered - - 74,500 - 75,000
Shares issued in connection with the 1998
private placement 192,000 192 28,608 - 28,800
Common shares redeemed for preferred
shares 1,000,000 1,000 - - -
Class A special preferred shares redeemed
for common shares 10,250,001 10,250 (2,000) - -
Beneficial conversion recorded as preferred
stock dividend in connection with Class A
special preferred shares redeemed for common
shares - - 299,920 (299,920) -
Issuance of common shares for services
rendered 61,000 61 9,089 - 9,150
Shares issued in connection with 1999
private placement 284,090 284 1,499,716 - 1,500,000
Net loss - - - (3,956,451) (3,956,451)
------------ ----------- ------------- ------------- ------------
Balance, October 31, 1999 16,105,976 $ 16,106 $ 4,232,628 $ (5,783,904) $ (1,535,170)
============ =========== ============= ============= ============
</TABLE>
See independent auditors' report and
accompanying notes to consolidated financial statements
F-5
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
October 31,
Year Ended 1998
October 31, (As restated -
1999 See Note 2)
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,956,451) $ (504,361)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 195,140 25,174
Value of shares issued for consulting services 84,150 3,725
Interest imputed on conversion of preferred
share to Class A special preferred shares 412,500 -
Impairment of property and equipment 228,607 -
Extraordinary item - Gain on forgiveness of debt (67,000) -
Gain on disposal of health care business - (76,346)
Loss on disposal of property and equipment - 13,662
Changes in operating assets and liabilities:
Accounts receivable (5,133) -
Related party payables 785,172 -
Accounts payable and accrued liabilities 1,312,992 116,079
--------------- ----------------
Net cash used in operating activities (1,010,023) (422,067)
--------------- ----------------
Cash flows used in investing activities:
Purchases of property and equipment (1,381,563) (63,343)
--------------- ----------------
Cash flows from financing activities:
Proceeds from sale of common stock 1,528,800 131,400
Proceeds from exercise of warrants - 103,200
Proceeds from notes payable to related parties 950,000 250,002
--------------- ----------------
Net cash provided by investing activities 2,478,800 484,602
--------------- ----------------
Net change in cash 87,214 (808)
Cash at beginning of year 644 1,452
--------------- ----------------
Cash at end of year $ 87,858 $ 644
=============== ================
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ - $ 19,300
=============== ================
Cash paid during the year for income taxes $ - $ -
=============== ================
</TABLE>
See notes to consolidated financial statements for non-cash investing and
financing activities.
See independent auditors' report and
accompanying notes to consolidated financial statement
F-6
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements
For The Years Ended October 31, 1999 and 1998
NOTE 1 - GENERAL
- ----------------
Organization
- -------------
The BigHub.com, Inc. (the "Company") (a Florida corporation) was incorporated in
February 1995, under its original name, Coordinated Healthcare, Inc. ("CHI"). In
July 1998, CHI changed its name to iSleuth.com, Inc. In August 1998, the Company
acquired a 100% interest in Maverick Communications Corporation ("MCC"),
headquartered in Knoxville, Tennessee. MCC's only substantive asset was an
option to acquire an internet search engine, which was exercised shortly after
the acquisition (see Note 2). The operations of the Company prior to the August
1998 acquisition reflect principally the day-to-day operations of medical
clinics in the South Florida area through July 1998, when the last of the two
clinics was sold. In May 1999, the Company changed its name to The BigHub.com,
Inc.
NOTE 2 - BASIS OF PRESENTATION
- ------------------------------
Restatement of 1998 Financial Statements
- ----------------------------------------
Subsequent to the issuance of its 1998 audited financial statements, the Company
determined that several transactions were incorrectly recorded on those
financial statements. As a result, the following restatements were made:
The estimated fair value of the Company's stock exchanged for the
acquisition of MCC and for the exercise of MCC's option to acquire the
search engine (see below) was incorrectly calculated. Based on the
updated information as to the fair value of the stock issued (estimated
to be equivalent to the PPLO price of $0.15 per share - see Note 5),
the fair value of these transactions has been restated to $567,140
instead of the previously recorded $5,971,584. Also, the estimated
useful life of the search engine was reduced from seven years to three
years to more closely reflect the assumed future effects of technology
advancements on the value of this asset. As a result of these
restatements, depreciation was restated for the year ended October 31,
1998 to $25,174 from the previously recorded $66,636.
The tax benefit of $445,000 was incorrectly recorded for the year ended
October 31, 1998 based on updated information available to Company
management as to the uncertain realizability of this benefit. As a
result, the value of this benefit was restated to $0.
F-7
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION, continued
- -----------------------------------------
The expense related to common shares issued for services rendered was
incorrectly calculated. Based on the updated information as to the fair
value of the stock issued (estimated to be equivalent to the PPLO price
of $0.15 per share - see Note 5), the fair value of this stock has been
restated to $3,725 instead of the previously recorded $352,666.
Certain capitalized costs were improperly recorded as of October 31,
1998. As a result, additional expenses of $10,977 were recorded for the
year ended October 31, 1998.
Overall, the net loss was restated to $504,361 from the previously reported net
loss of $438,787, and loss per share was restated to $0.72 from the previously
reported $0.22.
Acquisition of MCC
- ------------------
The Company's total purchase price for MCC and the exercise of MCC's option to
acquire the search engine was $567,140 and was comprised of 1,700,000 shares of
the Company's voting common stock, valued at $255,000 (valued at $0.15 per share
based on the current PPLO on the date of issuance - see Note 5), and 1,000,000
shares of the Company's preferred stock, valued at $150,000 (valued at $0.15 per
share based on 1-to-1 convertibility to common shares), and the assumption of
liabilities in the amount of $162,140. The acquisition was accounted for as a
purchase and, accordingly, the operating results pertaining to MCC subsequent to
the date of the acquisition have been included in the Company's consolidated
operating results. The total purchase price was fully allocated to the search
engine. The value was subsequently written down in fiscal 1999 (see below).
Since MCC's operations from November 1, 1997 through the date of acquisition
were insignificant, a pro forma consolidated statement of operations for the
year ended October 31, 1998 is not presented here.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
MCC, its wholly owned subsidiary. All material intercompany transactions have
been eliminated.
F-8
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION, continued
- -----------------------------------------
Going Concern
- -------------
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company's losses over the last two fiscal years of $4,460,812, its
negative working capital of $3,039,196 as of October 31, 1999 and lack of
profitable operational history in internet services, among other matters, raise
substantial doubt about its ability to continue as a going concern. The Company
intends to obtain additional debt and equity financing for marketing, software
development and the funding of operations as well as to generate income from
strategic alliances and sales of products and services. Management believes
these funding sources will be sufficient to fund its capital expenditures,
working capital requirements and other cash requirements through October 31,
2000. There is no assurance the Company will be able to obtain sufficient
additional funds when needed, or that such funds, if available, will be
obtainable on terms satisfactory to the Company.
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 reported period.
Actual results could materially differ from those estimates.
Risks and Uncertainties
- -----------------------
The Company is in a new industry subject to the substantial business risks and
uncertainties inherent to such an entity, including the potential risk of
business failure.
Year 2000
- ---------
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company and its business partners will not be fully
determinable until the Year 2000 and thereafter. If Year 2000 modifications are
not properly completed either by the Company or entities with which the Company
conducts business, the Company's revenues and financial condition could be
adversely impacted.
F-9
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION, continued
- -----------------------------------------
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets,
ranging from three to five years. Depreciation expense for the years ended
October 31, 1999 and 1998 was $195,140 and $25,714, respectively. Maintenance
and repairs are charged to expense as incurred. Significant renewals and
betterments are capitalized. At the time of retirement or other disposition of
property and equipment, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in operations.
New Accounting Pronouncements
- -----------------------------
The Company has adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use." In fiscal
1999, the Company capitalized external costs to acquire and customize software
and internet website and search engine of approximately $1,375,000 for internal
use as required under SOP 98-1 (see Note 3).
Impairment of Long-Lived Assets
- -------------------------------
Management of the Company assesses the impairment of long-lived assets by
comparing the future undiscounted net cash flows (without interest charges) from
the use and ultimate disposition of such assets with their carrying amounts. The
amount of impairment, if any, is measured based on fair value and is charged to
operations in the period in which such impairment is determined by management.
Based upon the lack of revenues generated by the internet search engine and
continuous losses from operations, the Company questioned the value of the
search engine. During 1999, the Company had an independent appraiser value the
search engine, and based in part on this valuation and estimated future
nondiscounted cash flows, the Company recorded an impairment loss of its
internet search engine. Accordingly, the Company charged an impairment loss of
$228,607 to operations for fiscal 1999. No additional impairment has been
determined by management as of October 31, 1999.
F-10
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION, continued
- -----------------------------------------
Income Taxes
- ------------
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." Under SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided for significant deferred tax assets when it is more likely than not
that such assets will not be recovered.
Stock Based Compensation
- ------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation," which defines a fair value based method of accounting for stock
based compensation. However, SFAS 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting method of APB 25 must make pro forma
disclosures of net income (loss), as if the fair value method of accounting
defined in SFAS 123 had been applied. The Company has elected to account for its
stock-based compensation to employees under APB 25.
Revenue Recognition
- -------------------
Sales of goods and services and the related cost of sales are recognized when
orders are received and goods are shipped or services are delivered. Sales for
internet advertising are recorded when earned. Accounts receivable are
periodically reviewed by management to assess collectibility. As of October 31,
1999 and 1998, the Company has recorded no reserve against accounts receivable
as a result of management's review.
Advertising
- -----------
The Company expenses all advertising as incurred. Amounts incurred for
advertising expense for the years ended October 31, 1999 and 1998 were $846,735
and $0, respectively.
F-11
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION, continued
- -----------------------------------------
Earnings Per Share
- ------------------
The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share." Under SFAS 128, basic earnings per share is
computed by dividing income available to common stockholders by the
weighted-average number of common shares assumed to be outstanding during the
period of computation. Diluted earnings per share is computed similar to basic
earnings 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. Pro forma per share data has been computed using the weighted average
number of common shares outstanding during the period. Because the Company has
incurred net losses, basic and diluted loss per share are the same since
additional potential common shares would be anti-dilutive.
Comprehensive Income
- --------------------
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income." SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements as is effective for fiscal years
beginning after December 15, 1997. SFAS 130 had no effect on the Company's
financial statements as it had no comprehensive income components.
Segment Information
- -------------------
The Company has adopted Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." SFAS 131 changes the way public companies report information about
segments of their business in their annual financial statements and requires
them to report selected segment information in their quarterly reports issued to
stockholders. It also requires entity-wide disclosures about the products and
services an entity provides, the material countries in which it holds assets and
reports revenues and its major customers. As the Company is currently in the
start-up phase in a new industry, it does not yet have any reportable segments.
Reverse Stock Split
- -------------------
Effective August 10, 1998, the Company's Board of Directors approved a reverse
stock split of twenty-to-one. In addition, the Company amended its articles of
incorporation to authorize up to 50,000,000 shares of common stock with a par
value of $.001 per share. All references throughout these financial statements
to number of shares, per share amounts, stock option data and market prices of
the Company's common stock have been restated to reflect the reverse stock
split.
F-12
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 2 - BASIS OF PRESENTATION, continued
- -----------------------------------------
Fair Value of Financial Instruments
- -----------------------------------
The Company has adopted Statement of Financial Accounting Standards No. 107
("SFAS 107"), "Disclosures About Fair Value of Financial Instruments." SFAS 107
requires disclosure of fair value information about financial instruments when
it is practicable to estimate that value. The carrying amount of the Company's
cash, accounts receivable, accounts payable and accrued liabilities approximates
their estimated fair values due to the short-term maturities of those financial
instruments. The fair value of the related party payables and notes payable to
related parties are not determinable as these transactions are with related
parties.
Recent Accounting Pronouncements
- --------------------------------
The FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities on the balance sheet at their fair value. This
statement, as amended by SFAS 137, is effective for financial statements for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
does not expect the adoption of this standard to have a material impact on its
results of operations, financial position or cash flows as it currently does not
engage in any derivative or hedging activities.
Reclassifications
- -----------------
Certain amounts have been reclassified in the 1998 consolidated financial
statements to conform to the 1999 presentation.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consist of the following at October 31, 1999:
Internet website and search engine, net of impairment write-down $ 1,193,424
Internal-use software 519,604
Furniture and equipment 9,512
-----------
1,722,540
Less accumulated depreciation and amortization (220,314)
-----------
$ 1,502,226
===========
F-13
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 4 - INCOME TAXES
- ---------------------
The tax effects of temporary differences that give rise to deferred taxes at
October 31, 1999 are as follows:
Deferred tax asset:
Net operating loss carryforward $ 1,726,000
Expense recognized for impairment write-down 98,000
----------------
Total gross deferred tax assets 1,824,000
Less valuation allowance (1,824,000)
----------------
Net deferred tax asset $ -
================
The valuation allowance increased by approximately $1,606,000 and $204,000
during the years ended October 31, 1999 and 1998, respectively.
No current provision for income taxes for the years ended October 31, 1999 and
1998 is required, except for minimum state taxes of $800. The income tax
provision differs from the amount computed by applying the U.S. Federal income
tax rate of 34% to loss before income taxes as follows for the years ended
October 31:
1999 1998
-------------- ------------
Computed tax benefit at federal statutory rate $ (1,345,000) $ (171,000)
State income tax benefit, net of federal effect (261,000) (33,000)
Increase in valuation allowance 1,606,000 204,000
Other 800 800
------------ ------------
$ 800 $ 800
============ ============
As of October 31, 1999, the Company had net operating loss carryforwards of
approximately $4,520,370 and $2,260,188 for federal and state income tax
reporting purposes, which expire in 2019 and 2007, respectively.
F-14
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------
Preferred Stock
- ---------------
In October 1999, the Company amended its Articles of Incorporation to authorize
up to 25,000,000 shares of $.001 par value preferred stock. In July 1998, the
Company amended its articles of incorporation to authorize up to 10,000,000
shares of $.001 par value preferred stock. The preferred stock's participation
rights as a class in any dividends or liquidation proceeds are limited to one
percent. Each share of preferred stock receives one vote in stockholder voting
matters. At the option of the Company, the preferred stock may be redeemed into
the Company's common shares at an exchange rate of one share of common stock for
each share of preferred stock.
Special Preferred Stock
- -----------------------
In December 1998, the Company amended its articles of incorporation to authorize
up to 25,000,000 shares of $0.001 par value special preferred stock. Of these
25,000,000 authorized shares, 12,500,000 were designated as Class A special
preferred stock. The Class A special preferred stock is to receive no preference
in dividend distributions or in the event of liquidation.
Each share of Class A special preferred stock shall receive two votes in
stockholder voting. At the option of the Company, the special preferred stock
may be redeemed into the Company's common stock at an exchange rate of one share
of common stock for each share of special preferred stock. In October 1999, the
Company amended its Articles of Incorporation to cancel the special preferred
stock.
Equity Transactions
- -------------------
In November 1997, the Company entered into an indemnification agreement with its
previous officers and directors in exchange for the cancellation of 191,333
shares of the officers' and directors' common stock. No benefit was recorded as
the value of the indemnification was not determinable.
In February, 1998, the Company issued 6,855 shares of common stock for $103,200
cash for the exercise of outstanding warrants from a prior offering.
Additionally, the remaining outstanding warrants from the prior offering of
40,615 shares expired in June 1998.
In July 1998, the Company commenced a private placement limited offering
("PPLO") to sell up to 1,000,000 shares of its common stock at a share price of
$0.15 (the "1998 Private Placement"). Provisions of the PPLO included an
anti-dilution clause which pre-empted the effects of the subsequent reverse
stock split (see Note 1). In fiscal 1998, 976,000 shares were sold for $131,400
(net of a note receivable of $15,000). In fiscal 1999, an additional 192,000
shares were sold for $28,800.
F-15
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT), continued
- --------------------------------------------------
In connection with the acquisition and exercise of the related option discussed
in Note 1, in August and September 1998, the Company issued 1,700,000 shares of
its common stock and 1,000,000 shares of its preferred stock valued at $405,000
(based on a value of $0.15 per share from the PPLO).
In August 1998, the Company entered into an agreement with a stockholder in
which the Company converted 100,000 shares of the Company's common stock for
5,000,000 shares of the Company's preferred stock. In connection with this
conversion, the Company incurred a beneficial conversion of $735,000, which was
recorded as common stock dividends in the accompanying consolidated balance
sheet. The fair market value of the common stock and preferred stock on the date
of conversion was $0.15 per share based on the PPLO.
Common shares issued for services during the year ended October 31, 1998 totaled
24,833 at a value of $3,725 (based on a value of $0.15 per share from the PPLO).
In December 1998, the Company converted a related party note payable in the
amount of $442,827 into 1,600,000 shares of the Company's common stock ($0.28
per share exchange price exceeds the fair value per share of $0.15 per share
from the PPLO).
In December 1998, the Company entered into an agreement with a stockholder in
which the Company converted 5,000,000 shares of the Company's preferred stock
for 7,750,000 shares of the Company's Class A special preferred stock. Pursuant
to the agreement, the Company gained access to a $1,000,000 line of credit
through the stockholder which the Company never utilized. During 1999, the
stockholder cancelled the Company's access to the line of credit. In connection
with this transaction, the Company incurred a beneficial conversion of $412,500,
which was record as additional interest expense in the accompanying consolidated
statement operations. The fair market value of the common stock on the date of
conversion was determined to be $0.15 per share based on the Company's PPLO.
In December 1998, the Company issued 500,000 shares of the Company's Class A
special preferred stock for services rendered (based on a value of $0.15 per
share from the PPLO).
In April 1999, the Company redeemed 1,000,000 shares of preferred stock for an
equivalent number of shares of common stock according to the terms of the
Company's preferred stock.
F-16
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT), continued
- --------------------------------------------------
In April 1999, the Company redeemed 2,062,500 shares of the Company's Class A
special preferred stock for 2,062,500 shares of the Company's common stock
according to the terms of the Class A special preferred stock. In June 1999, the
Company entered into an agreement with a stockholder in which the Company
redeemed the remaining 6,187,500 shares of the Company's Class A special
preferred stock for 8,187,300 shares of the Company's common stock. In
connection with this redemption, the Company incurred a beneficial conversion of
$299,920, which was recorded as preferred stock dividends in the accompanying
consolidated balance sheet (based on a value of $0.15 per share from the PPLO).
In fiscal 1999, the Company issued 61,000 shares of its common stock for
services valued at $9,150, based on the value of $0.15 per share from the PPLO.
In July 1999, pursuant to a private placement memorandum (the "1999 Private
Placement") in which the Company may sell up to 1,313,629 shares of its common
stock at a price of $5.28 per share, the Company sold 284,090 shares of common
stock for $1,500,000 in cash.
Stock Options
- -------------
During 1999, the Company adopted a stock option plan (the "Plan"). Under the
Plan, incentive stock options and nonqualified options may be granted to
officers, employers and outside consultants of the Company for the purchase of
up to 1,500,000 of the Company's common stock. Additionally, non-plan options
may also be granted. Expiration dates for the grants may not exceed 10 years
from the date of grant. The exercise price of the incentive stock options shall
not be less than 100% of the fair market value of the Company's common stock, as
determined by either the price the stock is being traded publicly, or by a price
determined by the compensation committee, at the date of grant. The exercise
price of the nonqualified stock options shall not be less than 85% of the fair
market value of the Company's common stock.
During 1999, the Company issued options to purchase 272,500 shares of the
Company's common stock at an exercise price ranging from $2.75 to $6.34 per
share to Company employees. The options vest 33% each year from the date of
grant and are exercisable through October 2009. Under APB 25, no compensation
expense will be recorded related to these options.
F-17
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT), continued
- --------------------------------------------------
From time to time, the Company issues options to purchase common stock pursuant
to various agreements. Under the terms of various agreements with outside
consultants, the Company issued options to purchase 200,000 shares of the
Company's common stock at an exercise price of $4.48 per share (the estimated
fair market value on the date of grant ranged from $5.28 to $5.875 per share
based on the quoted exchange price). The options vest over a three-year period
from the date of grant and are exercisable through June 2009. Under SFAS 123,
total consulting expense to be recognized over the vesting period is $782,500,
of which none was recognized at October 31, 1999.
The following is a summary of the stock options activity for the years ended
October 31, 1999 and 1998:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------------------ --------------------
<S> <C> <C>
Balance, November 1, 1997 and October 31, 1998 - -
Granted 472,500 4.57
Exercised - -
Expired - -
--------------- ---------------
Balance, October 31, 1999 472,500 $ 4.57
=============== ==============
Exercisable, October 31, 1999 - $ -
=============== ===============
Weighted average fair value of options granted
in 1999 $ 3.60
===============
</TABLE>
452,500 of the options outstanding at October 31, 1999 have exercise prices of
$4.00 to $6.34 with a weighted average exercise price of $4.65 and a weighted
average remaining contractual life of 9.67 years. The remaining 20,000 options
have an exercise price of $2.75, with a weighted average exercise price of $2.75
and a weighted average remaining contractual life of 10 years.
The fair value for each option was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions: (i) fair
value equal to the quoted exchange price on the date of grant; (ii) risk-free
interest rate of 6.25%; (iii) dividend yield of 0%; (iv) expected life of the
options of 3 years; and (v) volatility of 110%.
F-18
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIT), continued
- --------------------------------------------------
Had compensation cost for the Company's 1999 options been determined consistent
with SFAS 123, the Company's net loss and net loss per share for the period
ended October 31, 1999 and 1998 would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- --------------------------------------
As Reported Pro Forma As Reported Pro Forma
------------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Net loss $ (3,956,451) $ (3,956,451) $ (504,361) $ (504,361)
=============== ============= =============== ==============
Basic and diluted loss per
share $ (0.58) $ (0.58) $ (0.72) $ (0.72)
=============== ============= =============== ==============
</TABLE>
Warrants
- --------
From time to time, the Company issues warrants pursuant to various consulting
agreements. As indicated above, all warrants were either exercised or expired
during fiscal 1998 and no new warrants were issued in fiscal 1999 or 1998.
NOTE 6 - EARNINGS PER SHARE
- ---------------------------
Basic and diluted loss per common share is computed as follows:
<TABLE>
<CAPTION>
1999 1998
------------------- --------------------
<S> <C> <C>
Numerator for basic and diluted loss per common share:
Loss from continuing operations $ (4,023,451) $ (223,638)
Preferred dividends (299,920) -
--------------- ----------------
Loss from continuing operations available to
common shareholder (4,323,371) (223,638)
Discontinued operations - (280,723)
Extraordinary item 67,000 -
--------------- ----------------
Net loss $ (4,256,371) $ (504,361)
=============== ================
Denominator for basic and diluted loss per common share:
Weighted average common shares outstanding 7,307,582 701,165
=============== ================
</TABLE>
F-19
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 6 - EARNINGS PER SHARE, continued
- --------------------------------------
<TABLE>
<S> <C> <C>
Basic and diluted loss available to common shareholder
per common share:
Loss from continuing operations $ (0.59) $ (0.32)
Discontinued operations - (0.40)
Extraordinary item 0.01 -
-------------- --------------
Net loss $ (0.58) $ (0.72)
============== ==============
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Notes Payable to Related Parties
- --------------------------------
During the year ended October 31, 1999, the Company borrowed $950,000 for
working capital purposes from two stockholders and an affiliate. The notes bear
interest of 10% per annum and are due on the earlier of the closing of the first
tranche of the Company's future private placement or April 2000. Interest
expense related to these notes totaled $5,125 during fiscal 1999.
During the year ended October 31, 1998, the Company borrowed funds for working
capital purposes from its principal stockholder. As of October 31, 1998, the
Company owed the stockholder $442,727 related to these borrowings. Such notes
were assignable without the Company's consent, accrued interest at 10% per annum
with principal and interest due on demand. Interest expense during 1998 related
to these borrowings totaled $4,500. In December 1998, the Company converted
these borrowings to 1,600,000 common shares (see Note 5).
Also included in due to related parties at October 31, 1998 was a $67,000 note
payable to a minority stockholder of the Company. The unsecured note, bearing
interest at 10%, was convertible into shares of the Company's restricted common
tock at $2.69 per share (50% of the post-split opening price). Related interest
expense during 1998 totaled $1,675. During 1999, the Company entered into a
mutual release agreement with the noteholder and a related party whereby a
promissory note payable totaling $67,000 was forgiven. The Company recorded the
resulting gain as an extraordinary item in the accompanying consolidated
statements of operations.
Operating Lease
- ---------------
The Company sub-leases its facilities from an affiliate on a month-to-month
basis. Pursuant to the sub-lease agreement, the monthly lease amount was $4,661
for June and July 1999, and $6,800 per month thereafter. Total rent expense for
the years ended October 31, 1999 and 1998 was $29,722 and $0, respectively.
F-20
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 7 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
Affiliate Agreement
- -------------------
The Company has three-year Affiliate Agreement with an affiliate in which the
Company provides strategic placement of advertising and marketing internet
banners on the Company's web site. Upon the launch of the affiliate's web site,
the affiliate shall pay the Company a monthly fee of $50,000 for the first year,
$100,000 for the second year, and $125,000 for the third year. At October 1999,
the Company has not received any payments nor recorded any revenue related to
this agreement, as the affiliate's website has not yet been launched.
Consulting Agreement
- --------------------
In April 1999, the Company entered into a three-year consulting agreement with a
related party. Pursuant to the agreement, the Company shall pay the related
party $41,500 per month for consulting services. Additionally the Company shall
provide the lead consultant with full health and life insurance benefits during
the term of the agreement. The aggregate minimum annual commitment for future
payments at October 31, 1999 was $1,245,000. During the year ended October 31,
1999, the Company incurred $290,500 under this agreement which is included in
related party payables at October 31, 1999 (see below).
Strategic Marketing Agreement
- -----------------------------
The Company has entered into a five-year Strategic Marketing Agreement
("Marketing Agreement") with an affiliate in which the Company provides
strategic placement of advertising and marketing internet banners on the
Company's web site. In connection with the Marketing Agreement, the Company
received a common stock warrant to purchase 250,000 shares of the affiliate's
restricted common stock with an exercise price of $5.00 per share (equal to the
exchange price of the affiliated common stock on the date of grant). The Company
will not record any revenue related to this warrant until the warrant is
exercised.
Co-Marketing Agreement
- ----------------------
The Company has a Co-Marketing Agreement with an affiliate whereby the Company
and the affiliate will co-brand the Company's web site. In connection with the
agreement, the Company and the affiliate will pay each other fees in an amount
equal to 50% of each other's net revenues. The Company shall receive 60% of net
revenues received from advertising activities. At October 31, 1999, no revenues
or expenses have been generated under this agreement, as the websites have not
yet been launched.
F-21
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 7 - RELATED PARTY TRANSACTIONS, continued
- ----------------------------------------------
License Agreement
- -----------------
In November 1999, the Company entered into a Back-end Processing Technology
License Agreement ("License") with an affiliate for a five-year term with an
automatic three-year renewal. Pursuant to the License, the Company agrees to pay
the affiliate 75% of the aggregate cash collected from the sub-leasing of the
License to third parties. No amounts were recorded under the agreement through
October 31, 1999.
Related Party Payables
- ----------------------
Related party payables includes a $394,672 payable to an affiliate for services
performed by the affiliate for the development of the Company's search engine
and website. The Company has capitalized $340,482 charged by the affiliate for
development costs incurred to date and has expensed $88,564 charged by the
affiliate. Estimated future costs to be incurred for the development of the
search engine as of October 31, 1999 are $5,145,000.
In addition, related party payables include a payable to a stockholder in the
amount of $100,000 for expenses paid by the stockholder on behalf of the Company
and a $290,500 payable to a related party pursuant to a consulting agreement
(see above).
NOTE 8 - DISCONTINUED OPERATIONS
- --------------------------------
In November 1997, management elected to discontinue its managed health care
operations consisting of two medical clinics. The first clinic was sold in
November 1997, and the second clinic was sold in July 1998. The Company used
November 1, 1997 as the measurement date for the disposals. The clinics were
disposed of by permitting a former officer and stockholder to assume
substantially all of the Company's then existing indebtedness. The obligations
assumed are nonrecourse to the Company.
The components of the discontinued operations are as follows:
Gain on sale of segment:
Sale proceeds $ -
Less book value of assets at November 1997 (302,705)
Add liabilities assumed by buyer 379,051
----------
$ 76,346
==========
F-22
<PAGE>
The BigHub.com, Inc. and Subsidiary
(formerly known as iSleuth.com, Inc.)
Notes To Consolidated Financial Statements - Continued
For The Years Ended October 31, 1999 and 1998
NOTE 8 - DISCONTINUED OPERATIONS, continued
- -------------------------------------------
Loss from operations of discontinued operations from measurement
date to disposal date:
Revenues $ 262,867
Expenses (619,936)
----------------
$ (357,069)
================
NOTE 9 - COMMITMENTS
- --------------------
Employment Agreement
- --------------------
The Company has various employment agreement with officers and employees which
provide for an annual base salaries ranging from $175,000 to $275,000 and expire
on various dates through July 2002.
Litigation
- ----------
In the ordinary course of business, there are claims and lawsuits brought by or
against the Company. In the opinion of management, the ultimate outcome of these
matters will not materially affect the Company's operations or financial
position.
F-23
