<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 30, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-27107
---------
THE BIGHUB.COM, INC.
(Exact name of small business issuer as specified in its charter)
Florida 65-0580634
------------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2939 Mossrock, Suite 275, San Antonio, TX 78230
-----------------------------------------------
(Address of principal executive offices)
(210) 979-9228
--------------
Registrant's telephone number, including area code
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No ___.
-
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
There were 21,685,521 shares of common stock outstanding at May 15,
-------------------------------------------------------------------
2000.
------
Transitional Small Business Disclosure Format (check one): Yes
---------------------------------------------------------------------
No X.
------
<PAGE>
THE BIGHUB.COM, INC.
Form 10-QSB
For the Quarterly Period ended April 30, 2000
Table of Contents
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial information
Item 1. Financial Statements
Condensed consolidated balance sheets - April 30, 2000 (unaudited) and October 31, 1999 1
Condensed consolidated statements of operations and comprehensive operations -
fiscal three and six months ended April 30, 2000 and 1999 (unaudited) 2
Condensed consolidated statements of cash flows - fiscal six months ended April 30, 2000
and 1999 (unaudited) 3
Notes to condensed consolidated financial statements - April 30, 2000 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 4
Part II. Other information
Item 1. Legal Proceedings 11
Item 2 . Changes in Securities and Use of Proceeds 11
Item 3 . Defaults Upon Senior Securities 11
Item 4 . Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
The financial statements included herein have been prepared by The BigHub.com,
Inc. (the "Company" or the "Registrant"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC"). As
contemplated by the SEC under Rule 10-01 of Regulation S-X (as amended by
Regulation S-B), the accompanying financial statements have been condensed and
therefore do not contain all disclosures required by generally accepted
accounting principles. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. All dollar amounts
referenced in this document are denominated in United States dollars. The
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the fiscal year ended October 31, 1999 as filed with the SEC
(file number 000-27107).
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, October 31,
2000 1999
(Unaudited) (Audited)
------------ ------------
Assets
Current assets:
Cash $ 302,458 $ 87,858
Marketable securities 421,875 --
Accounts receivable 101,043 5,133
Notes receivable from related parties 1,323,738 --
------------ ------------
Total current assets 2,149,114 92,991
Property and equipment, net 1,097,537 1,502,226
Other assets 1,800 1,800
------------ ------------
$ 3,248,451 $ 1,597,017
============ ============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable $ 499,350 $ 1,199,503
Accrued liabilities 505,897 197,512
Related party payables 82,457 785,172
Unearned revenue from related parties 373,465 --
Notes payable to related parties 215,000 950,000
------------ ------------
Total current liabilities 1,676,169 3,132,187
------------ ------------
Stockholders' equity (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, 20,605,976 and 16,105,976
shares outstanding, respectively 20,606 16,106
Additional paid-in capital 10,764,303 4,232,628
Accumulated deficit (8,634,502) (5,783,904)
Accumulated other comprehensive loss (578,125) --
------------ ------------
Total stockholders' equity (deficit) 1,572,282 (1,535,170)
------------ ------------
$ 3,248,451 $ 1,597,017
============ ============
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net sales $ 183,349 $ 7,198 $ 439,597 $ 10,116
Cost of sales 164,556 700 271,847 3,087
------------ ---------- ------------ ----------
Gross profit 18,793 6,498 167,750 7,029
------------ ---------- ------------ ----------
Operating expenses:
General and administrative 1,413,352 59,135 2,707,757 162,262
Depreciation 116,563 48,785 269,195 97,570
------------ ---------- ------------ ----------
Total operating expenses 1,529,915 107,920 2,976,952 259,832
------------ ---------- ------------ ----------
Loss from operations (1,511,122) (101,422) (2,809,202) (252,803)
------------ ---------- ------------ ----------
Other income (expense):
Interest expense (7,457) - (41,396) (412,500)
Other expense - - - -
------------ ---------- ------------ ----------
(7,457) - (41,396) (412,500)
------------ ---------- ------------ ----------
Loss before extraordinary item (1,518,579) (101,422) (2,850,598) (665,303)
Extraordinary item - gain on forgiveness of debt - - - 67,000
------------ ---------- ------------ ----------
Net loss (1,518,579) (101,422) (2,850,598) (598,303)
Other comprehensive income - unrealized loss on
marketable securities available for sale,
net of tax of -$0- (609,375) - (578,125) -
------------ ---------- ------------ ----------
Comprehensive loss $ (2,127,954) $ (101,422) $ (3,428,723) $ (598,303)
============ ========== ============ ==========
Net loss per common share:
Loss before extraordinary item $ (0.09) $ (0.02) $ (0.17) $ (0.16)
Extraordinary item - gain on forgiveness of
debt - - - 0.02
------------ ---------- ------------ ----------
Loss per common share $ (0.09) (0.02) $ (0.17) (0.14)
============ ========== ============ ==========
Weighted average number of common shares
outstanding 17,758,754 5,021,302 16,932,365 4,224,760
============ ========== ============ ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30, April 30,
2000 1999
------------ -----------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (2,850,598) $ (598,303)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 269,195 97,570
Value of shares issued for consulting services - 75,000
Interest imputed on conversion of preferred
shares to Class A special preferred shares - 412,500
Extraordinary item - Gain on forgiveness of debt - (67,000)
Changes in operating assets and liabilities
Accounts receivable (95,910) (756)
Notes receivable (1,323,738) -
Related party payables (129,250) 41,500
Accounts payable and accrued liabilities (391,768) 11,903
Unearned revenue (200,000) -
------------ -----------
Net cash used in operating activities (4,722,069) (27,586)
------------ -----------
Cash flows used in investing activities:
Acquisition of property and equipment (297,935) -
------------ -----------
Cash flows from financing activities:
Proceeds from sale of common stock 5,450,000 28,800
Proceeds from notes payable to related parties 865,000 -
Repayment of notes payable to related parties (1,080,396) -
------------ -----------
Net cash provided by financing activities 5,234,604 28,800
------------ -----------
Net change in cash 214,600 1,214
Cash at beginning of fiscal period 87,858 644
------------ -----------
Cash at end of fiscal period $ 302,458 $ 1,858
============ ===========
Supplemental disclosure of cash flow information -
Cash paid during the six fiscal months for interest $ - $ -
============ ===========
Cash paid during the six fiscal months for income taxes $ - $ -
============ ===========
Supplemental disclosure of non-cash financing and investing activity:
During the six fiscal months ended April 30, 2000, the Company's largest
shareholder contributed marketable securities with a value of $1,000,000
(See Note 2).
During the six fiscal months ended April 30, 2000, the Company exchanged
software with a net book value of $433,429 for a reduction in notes
payable to related-parties of $519,604, with the resulting $86,175
difference recorded to additional paid-in capital.
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
1. Summary of significant accounting policies
------------------------------------------
Management's representation
The management of the BigHub.com, Inc. (the "Company") without audit has
prepared the financial statements included herein. Certain information and
note disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been omitted.
In the opinion of the management of the Company, all adjustments considered
necessary for fair presentation of the financial statements have been
included and were of a normal recurring nature, and the accompanying
financial statements present fairly the financial position of the Company
as of April 30, 2000, the results of operations for the fiscal quarters
ended April 30, 2000 and 1999 and the results of operations and cash flows
for the fiscal six months ended April 30, 2000 and 1999.
It is suggested that these financial statements be read in conjunction with
the Company's audited financial statements and notes for the years ended
October 31, 1999 and 1998 filed with the Company's annual report on Form
10-KSB. The interim results are not necessarily indicative of the results
for a full year.
Change in Fiscal Year End
Effective November 1, 1999, the Company changed its reporting period from a
fiscal year ending on October 31 to a fiscal year ending on the last Sunday
of October.
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. The
effect of SFAS 130 is reflected in these financial statements.
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
Earnings Per Share
Basic net income per common share is computed by dividing the net income
available to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Incremental common
shares issuable upon the exercise of stock options and warrants, are
included in the computation of diluted net loss per common share to the
extent such shares are dilutive. As the Company has a loss for the periods
presented, all options and warrants are antidilutive and are therefore not
included in the per share computation.
Segment Information
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
which requires public companies to report selected segment information in
their quarterly reports. 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. The
Company currently operates in one segment as disclosed in the accompanying
statement of operations.
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.
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
In March 2000, the Emerging Issues Task Force reached a consensus on Issue
No. 00-2, "Accounting for Web Site Development Costs" ("EITF 00-2") to be
applicable to all web site development costs incurred for the quarter
beginning after June 30, 2000. The consensus states that for specific web
site development costs, the accounting for such costs should be accounted
for under AICPA Statement of Position 98-1 (SOP 98-1), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." The
Company has not yet addressed whether the adoption of EITF 00-2 will have a
material effect on its financial statements.
2. Marketable Securities
---------------------
In January 2000, a significant shareholder of the Company contributed
additional paid-in capital consisting of 250,000 shares of the common stock
of Techlabs, Inc. ("Techlabs"), valued at $1,000,000 on that date. The
common stock of Techlabs trades on the over-the-counter bulletin board
under the stock symbol TKLB. No cash or equity consideration was paid to
the stockholder or to any party and no liabilities exist for future
consideration in connection with the contribution.
The Company has treated the stock as available for sale under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
At the end of each reporting period, the Company assesses the fair value of
its marketable securities and records adjustments as appropriate. As of
April 30, 2000 the Company determined the fair value of the Techlabs common
stock to be $421,875 and, accordingly, reported an unrealized loss of
$609,375 as other comprehensive loss for the fiscal quarter and a
cumulative unrealized loss of $578,125 as of April 30, 2000.
3. Stockholders' Equity (Deficit)
------------------------------
Equity Transactions - Common Stock
During February and March 2000, the Company issued 3,000,000 shares of its
common stock in exchange for aggregate cash proceeds of $6,000,000. The
shares were sold to several accredited investors in private, unsolicited
transactions pursuant to Rule 506 of Regulation D, as promulgated by the
Securities and Exchange Commission under the Securities Act of 1933, as
amended. In
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
addition, the placement agent received placement fees in the aggregate
amount of $550,000 (which are netted against the proceeds received) and
warrants to purchase 875,000 shares of the Company's common stock
exercisable at a price of $2.00 per share at any time through March 6,
2005. In addition, various consultants related to this financing received
1,500,000 shares of common stock as compensation for their services, which
are included as additional shares issued in connection with this
transaction.
Stock Options
The following is a summary of the stock options activity for the six fiscal
months ended April 30, 2000:
Balance, October 31, 1999 472,500
Granted --
Canceled (92,500)
-------
Balance, April 30, 2000 380,000
=======
Exercisable, April 30, 2000 --
=======
Warrants
From time to time, the Company issues warrants pursuant to various
consulting agreements. All warrants were either exercised or expired
during fiscal 1998 and no new warrants were issued in the fiscal six months
ended April 30, 2000, except the warrant issued in connection with the
financing transaction described above.
4. Related Party Transactions
--------------------------
Notes Receivable from Related Parties
Notes receivable at April 30, 2000 is comprised of approximately $1,323,738
due from three affiliates. These notes bear interest of 10% per annum and
are due between June 22, 2000 and August 13, 2000 or upon closing of the
first tranche of the makers' private placement, whichever is sooner.
Unearned Revenue
Unearned revenue is comprised of prepaid monthly fees pursuant to an
Affiliate Agreement (see below) that provides for $573,465 owed by the
Company to the affiliate to be offset against the first year fees due to
the Company by the affiliate for providing
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
advertising and marketing for the affiliate. The amount of $573,465
represents the net present value of the $50,000 per month fee over twelve
months at a discount rate of 10%. As of April 30, 2000, $373,465 of
unearned revenue remained to be amortized. For the three and six month
periods ended April 30, 2000, the Company recorded related-party revenue of
$100,000 and $200,000, respectively, under this arrangement, comprising 55%
and 46%, respectively, of total revenues recognized.
Related Party Payables
Related party payables include $82,457 payable to an affiliate for services
performed by the affiliate for the development of the Company's search
engine and web site. In addition, related party payables include an
$80,000 payable to a related party pursuant to a consulting agreement (see
below).
Notes Payable to Related Parties
During the six fiscal months ended April 30, 2000, the Company borrowed an
aggregate of $865,000 for working capital purposes from two affiliates and
a stockholder. 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 May 16, 2000. Interest expense related to all notes payable
to related parties totaled $12,837 during the fiscal quarter.
On January 31, 2000, the Company exchanged software with a net book value
of $433,429 with a related party for a $519,604 reduction in notes payable
to the related party. The difference of $86,175 has been recorded to
additional paid-in capital in the fiscal quarter ended April 30, 2000.
During the fiscal quarter ended April 30, 2000, the Company repaid
$1,080,396 of notes payable plus accrued interest.
As of April 30, 2000, an aggregate of $215,000 in notes payable to related
parties remained outstanding. These notes bear interest of 10% per annum
and are due between September 14, 2000 and October 12, 2000.
Operating Lease
The Company sub-leases additional
<PAGE>
facilities from an affiliate on a month-to-month basis for a monthly lease
amount of $6,800.
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
Affiliate Agreement
The Company has a three-year Affiliate Agreement with an affiliate pursuant
to which the Company provides strategic placement of advertising and
marketing internet banners on the Company's web site in consideration for a
monthly fee payable to the Company. The monthly fee is $50,000 in the first
year, $100,000 in the second year, and $125,000 in the third year. For the
six month period ended April 30, 2000, the Company had recorded revenue of
$200,000 related to this agreement (see above).
Consulting Agreement
In April 1999, the Company entered into a three-year consulting agreement
with a related party. Pursuant to the agreement, which was subsequently
amended, the Company agreed to pay the related party $21,500 per month for
consulting services and to provide the lead consultant with full health and
life insurance benefits during the term of the agreement. As of January 1,
2000, the agreement was terminated. As of April 30, 2000, the Company owed
$80,000 under this agreement, which is included in related party payables
(see above).
6. Subsequent Events.
------------------
Acquisition of Next Generation Media Corporation
On May 1, 2000, the Company purchased approximately 69% of the issued and
outstanding capital stock of Next Generation Media Corporation ("NexGen")
(52% on a fully diluted basis), from an aggregate of 28 shareholders of
NexGen.
BigHub purchased the shares of NexGen common stock using shares of BigHub
common stock as consideration. The NexGen common stock was valued at $1.70
per share, while BigHub's common stock was valued at $5.00 per share. The
securities purchased from NexGen consisted of a total of 3,175,100 shares
of NexGen common stock, options to purchase 164,915 shares of NexGen common
stock, with an exercise price of $0.16 per share, and options to purchase
300,000 shares of NexGen common stock, with an exercise price of $0.50.
The total number of BigHub shares paid as consideration for the NexGen
securities was 1,079,545, which were valued under the transaction at an
aggregate price of $5,397,725. In addition, BigHub gave two of the NexGen
shareholders, Joel Sens and Gerard R. Bernier, options to purchase an
aggregate of 300,000
<PAGE>
THE BIGHUB.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2000
(Unaudited)
shares of BigHub's common stock at an exercise price of $1.25 per share
and options to purchase an aggregate of 400,000 shares of BigHub's common
stock at an exercise price of $5.50 per share, as additional consideration
in the transaction.
In conjunction with the transactions between BigHub and the selling
shareholders described above, NexGen received a working capital loan in the
amount of $500,000 from BigHub and agreed to include two appointees of
BigHub on its five member Board of Directors.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
--------------
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 Company 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 Company. 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.
Introduction
The following discussion is based upon, and should be read in conjunction
with, the audited financial statements of the Company as of and for the fiscal
years ended October 31, 1999 and 1998, together with the notes thereto, and the
unaudited financial statements of the Company as of April 30, 2000 and for the
fiscal three and six months ended April 30, 2000 and 1999.
During 1999, the Company 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-QSB 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 Quarter Ended April 30, 2000 Compared with the Fiscal Quarter Ended April
--------------------------------------------------------------------------------
30, 1999
--------
Sales for the fiscal quarter ended April 30, 2000 increased $176,151 to
$183,349 over the $7,198 recorded during the comparative prior year quarter and
was comprised primarily of private label and affiliate fee revenue in contrast
with the banner advertising revenue reported in fiscal 1999. Included in sales
for the April 30, 2000 fiscal quarter is $100,000 from a related party. Cost of
sales in the second fiscal quarter of 2000 increased $163,856 to $164,556 as
compared with the $700 reported in the fiscal quarter ended April 30, 1999.
During the fiscal quarter ended April 30, 2000, general and administrative
expenses increased by $1,354,217 to $1,413,352 from the $59,135 reported in the
comparative prior year quarter. 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 quarter's activities which were centered around the restructuring
of the Company's core business to Internet e-commerce.
Depreciation expense increased by $67,778 to $116,563 in the fiscal quarter
ended April 30, 2000 compared to $48,785 reported in the comparative prior year
quarter. This increase resulted from the increase in value of the Company's
search engine and website as a result of improvements capitalized in the second
half of 1999.
As a result of the foregoing, for the fiscal quarter ended April 30, 2000,
the Company reported a net loss of ($1,518,579), or ($0.09) per share. This
compares to a net loss of ($101,422), or ($0.02) per share for the comparative
prior year quarter.
Fiscal Six Months Ended April 30, 2000 Compared with the Fiscal Six Months Ended
--------------------------------------------------------------------------------
April 30, 1999
--------------
Sales for the fiscal six months ended April 30, 2000 increased $429,481 to
$439,597 over the $10,116 recorded during the comparative prior year period and
was comprised primarily of private label and affiliate fee revenue in contrast
with the banner advertising revenue reported in fiscal 1999. Included in sales
for the April 30,
<PAGE>
2000 fiscal six months is $200,000 from a related party. Cost of sales in the
second fiscal six months of 2000 increased $268,760 to $271,847 as compared with
the $3,087 reported in the fiscal six months ended April 30, 1999.
During the fiscal six months ended April 30, 2000, general and
administrative expenses increased by $2,545,495 to $2,707,757 from the $162,262
reported in the comparative prior year period. 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 period's activities which were centered around the
restructuring of the Company's core business to Internet e-commerce.
Depreciation expense increased by $171,625 to $269,195 in the fiscal six
months ended April 30, 2000 compared to $97,570 reported in the comparative
prior year period. This increase resulted from the increase in value of the
Company's search engine and website as a result of improvements capitalized in
the second half of 1999.
Interest expense decreased by $371,104 to $41,396 in the fiscal six months
ended April 30, 2000 compared to $412,500 reported in the comparative prior year
period. Non-cash interest expense in 1999 was incurred in connection with
certain equity transactions as set forth in the Company's annual report on Form
10-KSB for the fiscal year ended October 31, 1999. In contrast, interest
expense in 2000 was incurred in connection with notes payable to related
parties.
As a result of the foregoing, for the fiscal six months ended April 30,
2000, the Company reported a net loss of ($2,850,598), or ($0.17) per share.
This compares to a net loss of ($598,303), or ($0.14) per share for the
comparative prior year period.
Liquidity and Capital Resources
During the fiscal quarter ended April 30, 2000, the Company's net cash
position increased by $214,600. The Company generated $5,234,604 from financing
activities, while operating and investing activities used net cash of
$5,020,004. These activities contributed to a $472,946 surplus in working
capital as of April 30, 2000.
During fiscal 1999 and the first six fiscal months of 2000, the Company has
relied heavily on funds borrowed from two affiliates and a stockholder who
supplied $865,000 for the six fiscal months ended April 30, 2000. As of April
30, 2000, all but $215,000 of such funds had been repaid. The Company may be
required to borrow additional funds from these parties or other sources. There
cannot be any assurances that funds will continue to be available from either of
these parties or any other source.
During February and March 2000, the Company issued 3,000,000 shares of its
common stock in exchange for aggregate cash proceeds of $6,000,000. The shares
were sold to several accredited investors in private, unsolicited transactions
pursuant to Rule 506 of Regulation D, as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
placement agent received placement fees in the aggregate amount of $550,000 and
warrants to purchase 875,000 shares of the Company's common stock exercisable at
a price of $2.00 per share at any time through March 6, 2005. In addition,
various consultants related to this financing received 1,500,000 shares of
common stock as compensation for their services, which are included as
additional shares issued in connection with this transaction.
Because the Company had incurred cumulative losses over the last two fiscal
years of $4,460,812, 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. In addition, the Company incurred a net loss of $3,342,548
for the six fiscal months ended April 30, 2000. 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.
<PAGE>
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.
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.
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 e-commerce
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;
<PAGE>
. 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 and 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.
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 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
<PAGE>
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.
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 Santa Ana,
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
<PAGE>
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 the Company are Year 2000 compliant. This
includes both servers and desktop systems and applications. The overall
infrastructure of Company 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 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.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
As of the date hereof, the Company (or its property) is not a party to
any pending legal proceeding and is not aware of any such legal proceeding being
contemplated by a governmental authority.
Item 2. Changes in Securities and Use of Proceeds
--------------------------------------------------
During February and March 2000, the Company issued 3,000,000 shares of its
common stock in exchange for aggregate cash proceeds of $6,000,000. The shares
were sold to several accredited investors in private, unsolicited transactions
pursuant to Rule 506 of Regulation D, as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended. In addition,
the placement agent received placement fees in the aggregate amount of $550,000
(which are netted against the proceeds received) and warrants to purchase
875,000 shares of the Company's common stock exercisable at a price of $2.00 per
share at any time through March 6, 2005. In addition, various consultants
related to this financing received 1,500,000 shares of common stock as
compensation for their services, which are included as additional shares issued
in connection with this transaction.
Item 3. Defaults Upon Senior Securities
----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held an Annual Meeting of Stockholders on March 24, 2000 in San
Antonio, TX. Two proposals were submitted as described in the Company's Proxy
Statement dated February 22, 2000. Proposal No. 1 was to elect four directors,
Frank W. Denny, Rod Perth, Roger Riddell, and Michael Skellern, for a term of
one year. Proposal No. 2 was to ratify, confirm and approve the selection of
Corbin & Wertz as the independent certified public accountants of the Company
for fiscal year 2000. Both proposals were voted upon and approved by a majority
of the outstanding shares entitled to vote.
The following table indicates the number of votes cast for, against, or
withheld, as well as the number of abstentions, for each of the proposals.
Proposal For Withhold Against Abstain
--------------------------------------------------------------------------------
1. Election of four Directors to serve
for a term of 1 year
Frank W. Denny 12,302,170 23,800 -- --
Roger Riddell 12,302,170 23,800 -- --
Rod Perth 12,302,170 23,800 -- --
Michael Skellern 12,302,170 23,800 -- --
--------------------------------------------------------------------------------
2. To ratify, confirm and approve the
selection of Corbin & Wertz as the
independent certified public
accountants of the Corporation for
fiscal year 2000 12,319,070 -- 2,600 4,300
--------------------------------------------------------------------------------
Item 5. Other Information
-------------------------
Effective November 1, 1999, the Company changed its reporting period from a
fiscal year ending on October 31 to a fiscal year ending on the last Sunday of
October.
<PAGE>
Item 6. 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 E-Commerce Services and Sublicense Agreement dated
February 25, 2000 by and between the Company and
QuePasa.com, Inc.*****
10.2 Direct-Link Advertising Agreement dated March 6, 2000
by and between the Company and The BigFNI.com,
Inc.*****
10.3 Agreement dated February 4, 2000 by and between the
Company and GoTo.com, Inc.*
10.4 Search Results Agreement dated March 29, 2000 by and
between the Company and FindWhat.com, Inc.*
10.5 Stock Purchase Agreement, dated March 16, 2000, by and
among The BigHub.com, Inc., Next Generation Media
Corporation, the "Preferred Shareholders" and the
"Common Shareholders." ******
10.6 Stock Purchase Agreement, dated March 16, 2000, by and
among The BigHub.com, Inc., Next Generation Media
Corporation, Gerard R. Bernier, and Joel Sens.******
10.7 Registration Rights Agreement, dated March 16, 2000, by
and among The BigHub.com, Inc. and Investors.******
27.1 Financial Data Schedule*
_____________________________
* Filed herewith.
** Filed with the Form 10-KSB of The BigHub.com, Inc. filed on January 27,
2000
*** 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
***** Filed with the Form 10-QSB of The BigHub.com, Inc. filed on March 14,
2000
****** Filed with the Form 8-K of The BigHub.com, Inc. filed on May 15, 2000
(b) Reports on Form 8-K
Date Filed Subject
---------- -------
2/3/00 Private placement of 2,500,000 shares of common stock
5/1/00 Acquisition of 52% of Next Generation Media Corp.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The BigHub.com, Inc.
By: /s/ Chet Howard
----------------
Chet Howard, Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
Date: June 9, 2000
