U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to _______________________
Commission file number 0-25276
QUIKBIZ INTERNET GROUP, INC.
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(Name of small business issuer in its charter)
Nevada 88-0320364
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
6801 Powerline Road
Ft. Lauderdale, Florida 33309
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(Address of principal executive offices) (Zip code)
Issuer's telephone number: (954) 970-3553
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.002 par value per share
----------------------------
(Title of class)
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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 [ ] No [x]
The issuer has not filed (i) a report on Form 8-K/A containing the financial
statements required by Item 7 of Form 8-K with respect to the acquisition by the
issuer of QuikLAB Multimedia Centers, Inc. on July 9, 1998; and (ii) a current
report on Form 8-K with respect to the acquisition by the issuer of
substantially all of the assets of Gallaspy & Lobel, Inc. on August 31, 1999.
The issuer intends to file such reports in the near future.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant'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. [ ]
State issuer's revenues for its most recent fiscal year: $2,142,414. (Fiscal
year ended December 31, 1998)
As of March 9, 2000, the aggregate market value of the issuer's common stock
(based on the average of the bid and asked prices on the OTC Bulletin Board)
held by non-affiliates was $5,763,437.59. As of March 13, 2000, there were
14,273,736 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (check one): Yes [ ]; No [x]
<PAGE>
PART I
Item 1. Description of Business.
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QuikBIZ Internet Group, Inc. is a Nevada corporation. It was originally
incorporated in 1984 in Utah under the name Sunwest Industries Inc. In 1994 it
merged with International Training & Education Corp., changed its name to
International Training & Education Corp. and became a Nevada corporation. In
1996 it changed its name to DigiMedia USA, Inc. In May 1997, it merged with
Nitros Franchise Corporation and changed its name to Nitros Franchise
Corporation. In July 1997, it changed its name to Algorhythm Technologies
Corporation. In July 1998, it changed its name to QuikBIZ Internet Group, Inc.
As a result of QuikBIZ's merger with Nitros Franchise Corporation in May
1997 and the change in management that accompanied the merger, QuikBIZ changed
the focus of its business to the acquisition and development of Internet-related
businesses and phased out its prior business, which consisted of developing
computer-based training courses for the law enforcement industry. In November
1997, QuikBIZ acquired A.D.S. Advertising Corp., doing business as The Smith
Agency (now SmithAgency.com, Inc.), and in July 1998, QuikBIZ acquired QuikBIZ
Media Centers, Inc. (formerly QuikLAB Multimedia Centers, Inc.) ("QuikBIZ
Media").
Through its QuikBIZ Mall division and its principal subsidiaries, QuikLAB
and SmithAgency.com, QuikBIZ is developing several complementary
Internet-oriented businesses.
The QuikBIZ Mall. The QuikBIZ Mall is a virtual mall for "business to
business" corporate communications. The QuikBIZ Mall enables businesses to
browse virtual, service-oriented specialty stores and order services on-line.
The services offered through the QuikBIZ Mall currently include Internet
television and radio services, Internet consulting, duplication services,
animation services, advertising services and presentation services. We expect
that duplication services will also be offered in the future. All of our
subsidiaries and business units, as well as certain strategic partners, are
"tenants" in the QuikBIZ Mall. We create each merchant store and purchase
products directly through "drop-ship" vendors. The vendors bill us for products
or services purchased at the Mall and we bill the purchasers. Each store has its
own separate URL and is marketed independently of the Mall. There are presently
11 stores on the Mall: M2 PressWIRE, Media Furnishings, QuikBIZ Media,
Quoteit.com, The Presentation Shop, Pro-Tape Outlet, SmithAgency.com, Cables and
Bits, BizBookStop, Cdsupplies.com and LCD Mart. We own all of the stores except
M2 PressWIRE.
Today, the majority of corporate communication products and services are
offered through traditional marketing channels, including audio/video dealers
and catalog/mail order houses. The QuikBIZ Mall provides much more than the
traditional marketing channels of selling products and service. The site offers
businesses greater product selection, product comparison, discount pricing, one-
stop shopping, easy ordering and fast shipping.
There are presently a limited number of Internet sites focusing
specifically on corporate communication products and services. These Internet
sites fall under three types: manufacturers' websites, dealers' websites, and
business portal websites.
Manufacturers of communication products who have websites generally do not
offer their products directly to the end user through the websites. These
manufacturers use traditional marketing channels such as local audio/visual
dealers, wholesalers and catalog houses to sell their products. Manufacturers
generally use their websites only to disseminate product and dealer information.
Business portals that provide business information generally have limited
offerings of communications products and services. Business portals that offer
some e-commerce products usually just redirect purchasers through hot links to
third-party merchant websites.
Other virtual shopping malls group products and/or virtual stores together
but send consumers to individual merchants' websites to complete the purchase.
Once consumers are redirected to other sites, they generally start to go direct,
bypassing the original referring site.
QuikBIZ deals directly with its suppliers, buying at greatly discounted
prices. Most other virtual malls are middlemen who collect commissions from
banner ads and click-through and re-direct referrals. These types of commissions
are generally low.
QuikBIZ Media. QuikBIZ Media is a retail, business-oriented, multimedia
production facility. It offers a wide variety of audio, video, multimedia and
Internet services and products to businesses, government agencies, non-profit
organizations, schools, universities, religious organizations and consumers.
QuikBIZ Media produces and assists companies in creative content for all types
of corporate communications including sales, training, public relations and
promotion. QuikBIZ Media provides services in the development of Internet and
Intranet sites, interactive media, video and audio production, video and audio
digital encoding, animation, video/audio/CD duplication and media package design
and collateral materials. Most of the services offered through QuikBIZ Media are
done in-house. We offer free pick-up, free delivery and same day service. More
than 70% of QuikBIZ Media's clientele are businesses using electronic media for
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sales, training, public relations, promotion and corporate communications.
QuikBIZ Media also acts as a service bureau, providing services for all formats
of audio/visual and interactive media.
QuikBIZ Media has been operating a multimedia center in Fort Lauderdale,
Florida since 1991. It has developed and tested proprietary systems for
operating retail multimedia centers and plans to open retail multimedia centers
in major cities in the United States during the next three years. QuikBIZ Media
served over 9,000 clients within the last four years. Many businesses compete
with QuikBIZ Media in some aspects of the video, multimedia and Internet
industries. This competition includes traditional video production facilities,
cable companies, television stations, duplication facilities, ISP companies, web
development companies, ad agencies and service bureaus. Most of QuikBIZ Media's
competitors operate from office buildings or warehouses. Some limit their
services to commercial or trade clients only; others are even more specialized.
QuikBIZ Media is different from most of its competition because it operates
in a convenient retail setting, with retail walk-in hours, and caters to
businesses, schools, universities, government agencies, non-profit
organizations, religious organizations and consumers. As a full service, retail
multimedia showroom, QuikBIZ Media's retail shops provide an alternative to
visiting several different, unrelated facilities to complete a multimedia
project. QuikBIZ Media was founded by its President, David Bawarsky, who is the
Chief Executive Officer and Chairman of QuikBIZ.
Quoteit.com. Quoteit.com is an Internet site created and managed by QuikBIZ
Media that enables businesses, government agencies, non-profit organizations,
schools, universities, religious organizations and consumers to shop for media
duplication services on-line. Visitors to the site can name their own price for
any quantity of audio, video, CD-Rom, digital video disc (DVD) and diskette
duplication services. Quoteit then seeks a vendor willing to do the work at the
quoted price. QuikBIZ Media provides the duplication services through its own
facilities and through major duplication/replication companies throughout the
United States. Potential vendors are approved through an application process. If
a vendor is approved, it becomes part of a pool of vendors that we approach with
the consumer's bid price.
SmithAgency.com. SmithAgency.com is a full service agency specializing in
advertising and public relations services. SmithAgency.com has been in business
since 1983.
SmithAgency.com offers a broad range of services to its clients, including
television and radio commercial development and production, print advertisement
development and production, direct marketing, promotions, general image
advertising, design services and Internet site design. The traditional marketing
services offered by SmithAgency.com include the development and planning of the
advertising, including creative design and production of the advertisements,
media research, planning and buying of space and time, and market research.
SmithAgency.com has created a separate division, called Pix'l Creative, to
provide advertising, marketing and public relations services on a per-project
basis. The Pix'l Creative division will operate an e-commerce web site that will
be linked to the QuikBIZ Mall.
Direct marketing and promotions offered by SmithAgency.com include direct
mail, direct response and 800 number services, as well as on-line marketing. The
development and the design of interactive campaigns are part of the promotion
aspect of the agency's business.
General image advertising focuses on the company or organization as a whole
and not on a specific product. This "branding" effort is an important element in
building consumer confidence.
SmithAgency.com represents clients in a wide variety of industries,
including healthcare, automotive, consumer packaged goods, entertainment and the
food industry.
The marketing and communications industry is very competitive and is
expected to remain so. SmithAgency.com's primary competitors are the advertising
firms in the southeastern United States, but SmithAgency.com also faces
competition from small- to mid- size firms in cities around the country.
Competition in the advertising industry is based upon creativity, knowledge of
media, ability to service a client, financial controls and "chemistry" with the
client. Firms that have focused primarily in public relations are beginning to
accept assignments for non-public relations work. The Internet appears to be
giving rise to an influx of competitors who are not necessarily trained in the
traditional aspects of the advertising industry.
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Recent Events
On August 31, 1999, we completed the acquisition of substantially all of
the assets of Gallaspy & Lobel, Inc., an advertising firm based in south Florida
doing business under the name G&L Group. We acquired all of G&L Group's
contracts and pending orders with its existing active clients, as well as all of
G&L Group's accounts receivable relating to its existing active clients. The
accounts receivable we acquired totaled approximately $500,000. In consideration
for G&L Group's assets, we agreed to pay G&L Group $610,000, payable in shares
of our common stock, and we assumed approximately $750,000 of G&L Group's
liabilities. We issued 366,000 shares of common stock to G&L Group on September
1, 1999, valued for purposes of the transaction at $1.25 per share, and we are
obligated to issue another 122,000 shares within one year. In connection with
the acquisition, James Lobel, the president of G&L Group, entered into a three
year employment agreement with us and agreed to become the president of
SmithAgency.com.
Government Regulation
Our Internet-related businesses, including the QuikBiz Mall, are presently
not subject to extensive government regulation. However, because the Internet is
still evolving, new laws or regulations may be implemented in the future that
specifically impact our Internet-related businesses. New laws or regulations may
address issues such as user privacy, freedom of expression, pricing of products
and services, taxation, advertising, intellectual property rights, information,
security and the convergence of traditional communications services with
Internet communications.
The advertising services produced by SmithAgency.com are subject to the
Federal Trade Commission Act and the regulations of the Federal Trade
Commission. The FTC Act proscribes false advertising, misleading and unfair
advertising and similar practices.
Employees
QuikBIZ has two employees, QuikBIZ Media has 17 employees and
SmithAgency.com has 16 employees. None of our employees is represented by a
labor union. We consider our relations with our employees to be good.
Item 2. Properties.
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Our subsidiaries lease the following properties:
<TABLE>
Subsidiary Location Area Monthly Rent Termination Date
---------- -------- ---- ------------ ----------------
<S> <C> <C> <C> <C>
SmithAgency.com 6801 Powerline Road 10,000 square feet $6,500 8/31/2004(1)
Ft. Lauderdale, FL 33309
SmithAgency.com 5310 N.W. 33rd Ave. 2,746 square feet $3,098 1/31/2001(2)
Ste. 212
Ft. Lauderdale, FL 33309
QuikBIZ Media 2121 W. Oakland Park Blvd. 6,700 square feet $7,575 2/01/2006
Suite 8
Ft. Lauderdale, FL 33311
</TABLE>
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(1) SmithAgency.com has an option to renew this lease for an additional
three-year term.
(2) This space has been sublet to a third party.
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Item 3. Legal Proceedings.
-----------------
QuikBIZ Media is a defendant in a lawsuit filed in June 1999 in the Circuit
Court of the Seventeenth Judicial Circuit, in Broward County, Florida. The
plaintiff, Lynda V. McGlawn, is seeking to collect a debt resulting from the
assignment to her by Telephonetics International, Inc. of a debenture of QuikBIZ
Media the amount of $110,000. QuikBIZ Media previously filed a separate action
in the Circuit Court against Telephonetics International, Inc. alleging, among
other things, that QuikBIZ Media was fraudulently induced to execute the
debenture. QuikBIZ Media is currently seeking to have the two lawsuits
consolidated.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
--------------------------------------------------------
Our common stock is quoted on the OTC Electronic Bulletin Board. The
following table sets forth the high and low bid prices of our common stock for
each quarter for the years 1997, 1998 and 1999 and the first quarter of 2000
through March 10, 2000. As of March 13, 2000, there were 420 holders of record
of our common stock. We have never paid any dividends.
The quotations set forth below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Common Stock:
<TABLE>
Year High Low
- ------- ------ -----
($) ($)
<S> <C> <C>
1997
First Quarter .32 .15
Second Quarter (April 1 through May 13) .14 .13
Second Quarter (May 14 through June 30) 1.69 .88
(after a 1-for-7 reverse split)
Third Quarter .88 .25
Fourth Quarter .31 .13
1998
First Quarter .40 .10
Second Quarter .38 .11
Third Quarter .40 .22
Fourth Quarter .69 .38
1999
First Quarter 1.57 .44
Second Quarter 2.00 1.06
Third Quarter 1.81 .63
Fourth Quarter 1.625 .375
2000
First Quarter (through March 10, 2000) 2.1875 1.25
</TABLE>
Dividends.
- ---------
We have not paid any dividends on our common stock during the past two
years. We expect to continue to retain all earnings generated by our operations
for the development and growth of our business, and do not anticipate paying any
cash dividends to our shareholders in the foreseeable future. The payment of
future dividends on the common stock and the rate of such dividends, if any,
will be determined by our Board of Directors in light of our earnings, financial
condition, capital requirements and other factors.
Recent Sales of Unregistered Securities.
- ---------------------------------------
Except as otherwise indicated, we relied upon Section 4(2) of the
Securities Act as the basis for exemption from registration for all of the
following sales because the transactions did not involve public offerings.
In February 1998 we sold an aggregate of 46,000 shares of common stock at a
price of $.10 per shares to two individuals.
In March 1998 we sold 50,000 shares of common stock at a price of $.10 per
share to one individual.
In March 1998 we issued 400,000 shares of common stock in payment of an
outstanding loan of $40,000 to our subsidiary SmithAgency.com, Inc.
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In April 1998 we sold 20,000 shares of common stock at a price of $.10 per
share to one individual.
In April 1998 we issued an aggregate of 1,525,000 shares of common stock to
three individuals in consideration for services to be rendered pursuant to
employment agreements between our subsidiary QBIZ Business Centers, Inc., f/k/a
Capital Network of America, Corp., and such individuals.
In June 1998 we sold 100,000 shares of common stock at a price of $.10 per
share to one individual.
In June 1998 we issued options to purchase an aggregate of 60,000 shares at
a price of $.002 per share to two of our directors as compensation for their
services as directors during 1998.
In July 1998 we issued an aggregate of 1,300,000 shares of common stock to
three individuals in consideration for services to be rendered pursuant to
employment agreements between our subsidiary QBIZ Business Centers, Inc., f/k/a
Capital Networks of America, Corp., and such individuals. 1,000,000 of these
shares were subsequently returned to us.
In July 1998 we issued options to purchase 200,000 shares of common stock
to David Bawarsky, exercisable for five years at a price of $.002 per share, in
connection with our acquisition of QuikBIZ Media Centers, Inc.
In July 1998 we issued warrants to purchase 600,000 shares of common stock
at a price of $.25 per share to M.H. Meyerson & Co., Inc. in consideration for
services to be rendered by Meyerson pursuant to an investment banking agreement
entered into between Meyerson and us as of July 14, 1998. The warrants have a
term of five years.
In August 1998 we issued an aggregate of 240,000 shares of common stock to
two individuals in consideration for services rendered.
In August 1998 we sold 200,000 shares of common stock at a price of $.25
per share to one individual.
In September 1998 we issued 9,868 shares of common stock to Kirk J.
Girrbach pursuant to an agreement under which Mr. Girrbach provided legal
services to us.
In October 1998 we issued 120,000 shares to one individual in consideration
for services rendered and to be rendered pursuant to an employment agreement
between such individual and us.
In November 1998 we issued 200,000 shares to one individual in
consideration for services rendered and to be rendered pursuant to an employment
agreement between SmithAgency.com and such individual.
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Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Overview
We provide businesses with communications services and products, including
Internet, Intranet, Extranet, Web site and electronic media solutions,
advertising, marketing and branding services, and related services. We offer a
comprehensive range of communications solutions designed to improve clients'
business processes. We provide professional services including strategic
consulting, analysis and design, technology development, systems implementation
and integration and audio and visual materials, including audio, video, CD and
DVD-Rom. We also provide advertising, marketing and consulting services in the
areas of strategic corporate and product positioning, corporate identity and
product branding, new media, packaging, collateral systems, direct marketing,
consumer and trade promotions and media placement services.
QuikBIZ is a Nevada corporation. It was originally incorporated in 1984 in
Utah under the name Sunwest Industries Inc. In 1994 it merged with International
Training & Education Corp., changed its name to International Training &
Education Corp. and became a Nevada corporation. In 1996 it changed its name to
DigiMedia USA, Inc. In May 1997 it merged with Nitros Franchise Corporation and
changed its name to Nitros Franchise Corporation. In July 1997 QuikBIZ changed
its name to Algorhythm Technologies Corporation. In July 1998 its name was
changed to QuikBIZ Internet Group, Inc.
As a result of QuikBIZ's merger with Nitros Franchise Corporation in May
1997 and the change in management that accompanied the merger, QuikBIZ changed
the focus of its business to the acquisition and development of Internet-related
businesses. QuikBIZ phased out its prior business, which consisted of developing
computer based training courses for the law enforcement industry. In November
1997, QuikBIZ acquired A.D.S. Advertising Corp., doing business as The Smith
Agency (now SmithAgency.com), and in July 1998 QuikBIZ acquired QuikLAB
Multimedia Centers, Inc.
On July 1, 1998, we completed the acquisition of QuikBIZ Media.
Accordingly, our financial statements have been presented to combine the
consolidated financial statements of QuikBIZ Media and SmithAgency.com for the
periods presented.
Since the reverse merger with Nitros Franchise Corporation in May 1997, our
operations have related primarily to recruiting personnel, raising capital, and
completing the acquisitions of SmithAgency.com (November 1998), QuikBIZ Media
(July 1998) and G & L Group (September 1999). Through December 31, 1998, we have
derived our revenues from two of our wholly-owned subsidiaries: SmithAgency.com
and QuikBIZ Media. Revenues from wholly-owned subsidiaries represented 100% of
our revenues for the year ended December 31, 1998.
QuikBIZ's consolidated financial statements included SmithAgency.com for
the twelve months ended December 31, 1998.
On August 31, 1999, we completed the acquisition of substantially all of
the assets of G&L Group. We acquired all of G&L Group's contracts and pending
orders with its existing active clients, and all of G&L Group's accounts
receivable relating to its existing active clients.
Results of Operations
Our revenues have grown from $140,355 in 1997 to $2,142,414 in 1998 on an
actual basis, but have declined from $2,990,000 in 1997 to $2,952,000 in 1998 on
a pro forma basis giving effect to our acquisitions.
The consolidated December 31, 1998 financial statements included a net loss
of $783,364, of which $410,970, or 52.5%, was non-cash and mainly attributable
to acquisition costs, including goodwill, amortization expense and employee
stock options.
Sources of Revenues and Revenue Recognition
QuikBIZ consolidates the financial statements of acquired entities
beginning on the date QuikBIZ assumes effective control of those entities.
Revenues primarily consist of advertising and multimedia productions. We derive
our revenues from services performed under one of three pricing arrangements:
retainer, time-and-materials and fixed-price.
We bill and recognize revenues from retainer agreements on a monthly basis
while the agreements are in effect. Retainer agreements are generally one year
in length and include a renewal clause. Typically, retainer relationships with
clients result in additional fixed-price and time-and-materials projects.
Retainer fees currently represent a small percentage of our overall revenues,
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although revenues from clients with whom we have retainer relationships
represent a substantial portion of our overall revenues. Consistent with our
focus on long-term relationships, our goal is to increase our number of
retainer-based arrangements.
We bill and recognize revenues from time-and-materials projects on the
basis of costs incurred in the period. We use a standardized estimation and work
plan development process to determine the requirements and estimated price for
each project. This process takes into account the type and overall complexity of
the project, the anticipated number of personnel of various skill sets needed
and their associated billing rates, and the estimated duration of and risks
associated with the project. Management personnel familiar with the production
process evaluate and price all project proposals.
We recognize revenues from fixed-price projects using the
percentage-of-completion method based on the ratio of costs incurred to the
total estimated project costs. Fees are billed to the client over the course of
the project. We estimate the price for fixed-price projects using the same
methodology as time-and-materials projects. All fixed-price proposals must first
be approved by a member of our senior management team.
We report revenue net of reimbursable expenses. Our revenues and earnings
are affected by a number of factors, including:
- - the amount of business developed from existing relationships;
- - our ability to meet the changing needs of the marketplace;
- - employee retention;
- - billing rates;
- - our ability to deliver complex projects on time; and
- - efficient utilization of our employees.
Many of our business initiatives, including our acquisition strategy, are
aimed at enhancing these factors.
Our expenses include direct costs, sales and marketing, general and
administrative, depreciation and amortization of tangible assets, and
amortization of goodwill. Direct costs includes salaries, benefits and incentive
compensation of billable employees and other direct costs associated with
revenue generation. Selling, general and administrative expenses include the
salaries and benefits costs of management and other non-billable employees,
sales and marketing expenses rent, accounting, legal and operational costs.
Depreciation and amortization expenses primarily include depreciation of
technology equipment, furniture and fixtures and leasehold improvements.
Amortization of goodwill expenses include charges for the excess of purchase
price over net tangible book value of acquired companies. Personnel compensation
and facilities costs represent a high percentage of our operating expenses and
are relatively fixed in advance of each quarter.
Acquisition of Internet-Related Professional Services Firms
In addition to organic growth, a key component of our overall growth
strategy is the acquisition of, or investment in, complementary businesses,
technologies, services and products. We have acquired three companies since 1997
and intend to continue acquiring similar businesses.
From July 1, 1997, to March 13, 2000, our staff increased from
approximately 2 to approximately 35 employees.
We evaluate acquisitions based on numerous quantitative and qualitative
factors. Quantitative factors include historical and projected revenues and
profitability, geographic coverage and backlog of projects under contract.
Qualitative factors include strategic and cultural fit, management skills,
customer relationships and technical proficiency. We used our common stock as
the primary consideration. We anticipate that we will use common stock and cash
as the primary form of consideration for future acquisitions.
We strive to integrate all acquired companies into our operating
organization. This integration includes business development, delivery of
services, managerial and administrative support, benefits, purchasing and all
other areas.
All of our acquisitions have been accounted for using the purchase method.
Under the purchase method, the financial data of the acquired entities are
consolidated with our financial results from the effective dates of their
acquisition. For each acquisition, a portion of the purchase price is allocated
to the tangible and identifiable intangible assets acquired and liabilities
assumed based on their respective fair market values on the acquisition date.
The remaining unallocated portion of the purchase price is allocated to
intangible assets, primarily goodwill, and amortized on a straight-line basis
over the estimated period of benefit, which is currently 10 years. We evaluate
the period of benefit on a company-by-company basis. For the year ended December
31, 1998, amortization of goodwill expense was $67,375.
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Comparison of the Fiscal Years 1997 and 1998
The following discussion relates to our actual operating results for the
periods noted. The operating results discussed include the operations of
acquired companies from the effective dates of their acquisitions. Given that
each year includes revenues and expenses from new acquisitions, we believe that
the operating results for 1998 are not directly comparable to the operating
results for 1997.
Revenues. Revenues were $140,355 in 1997 and grew to $2,142,414 in 1998, an
increase of approximately 1,426%. The increase in revenues reflected the
acquisitions of SmithAgency.com in November 1997 and QuikBIZ Media in July 1998.
Direct Costs. Direct salaries and costs were $126,703 in 1997 and grew to
$1,753,877 in 1998, an increase of approximately 1,284%. Direct costs
represented 82% and 90% of revenues in 1998 and 1997, respectively. The increase
in direct costs as a percentage of revenues in 1998 compared to 1997 was
primarily due to acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $127,635 in 1997 and grew to $1,023,831 in 1998, an
increase of approximately 702%. Selling, general and administrative expenses
represented 48% of revenues in 1998 and 91% in 1997. The increase in selling,
general and administrative expenses in absolute dollar terms and as a percentage
of revenues in 1998 compared to 1997 was the result of our acquisitions and
increases in expenses in anticipation of future growth, including rent and other
expenses incurred in offices acquired through our acquisitions of
SmithAgency.com and QuikBIZ Media and the hiring of additional employees.
Amortization of Goodwill. Amortization of goodwill was $11,062 in 1997 and
$67,373 in 1998. The increase in amortization of goodwill was the result of
there being only two months of amortization in 1997 and 12 months of
amortization in 1998.
Depreciation and Amortization. Depreciation and amortization expenses were
$74,687 in 1997 and grew to $121,590 in 1998, an increase of approximately 63%.
Depreciation and amortization expenses represented approximately 6% of revenues
in 1998 and 53% of revenues in 1997. The increases from year to year were
related to the investment in, and related depreciation of, technology equipment,
furniture and fixtures, and leasehold improvements, and the depreciation of the
assets of the companies we acquired.
Liquidity and Capital Resources
Since inception, we have funded our operations and investments in property
and equipment through cash from operations, equity financings, borrowings from
commercial banks and capital leases.
Our cash and cash equivalents were $2,310 at December 31, 1997 and $18,059
at December 31, 1998. Cash used in operating activities of $78,747 in 1997 and
$191,403 in 1998 was augmented by net proceeds from financing activities of
$41,916 in 1997 and $132,837 in 1998 and net cash providing by investing
activities of $7,062 in 1997 and $74,315 in 1998.
On July 9, 1999 we entered into an investment agreement with Swartz Private
Equity LLP to raise up to $20 million through a series of sales of common stock.
The dollar amount of each sale is limited by the trading volume and a minimum
period of time must occur between sales. In order to sell shares to Swartz,
there must be an effective registration statement on file with the SEC covering
the resale of the shares by Swartz and we must meet certain other conditions.
The agreement is for a three-year period ending July 9, 2002.
We have incurred recurring operating losses and negative cash flows from
operating activities and have negative working capital. We believe that our
available equity financing arrangement with Swartz will be sufficient to meet
our working capital and capital expenditure requirements for at least the next
two years. However, there can be no assurance that we will receive financing
from Swartz, that we will not require additional financing within this time
frame or that such additional financing, if needed, will be available on terms
acceptable to us, if at all.
Year 2000 Compliance
The Year 2000 problem is the result of certain computer programs being
written using two digits, rather than four digits, to define the applicable
year. Any computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all. If not corrected, this could result in system failures or
miscalculations that could result in service or other interruptions. To date, we
have not experienced any significant Year 2000 problems.
Testing and compliance monitoring as part of our Year 2000 program will
continue into 2000 to ensure proper leap year operations and that system changes
and additions are Year 2000 compliant.
10
<PAGE>
Forward-looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "plans," "will continue," "is
anticipated," "estimated," "expect," "project" or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
cautions readers not to place undue reliance on any such forward-looking
statements, each of which speaks only as of the date made. Such statements are
subject to certain risks and uncertainties, including but not limited to our
history of losses, our limited operating history, our need for additional
financing, rapid technological change, and an evolving and uncertain market for
on-line commerce, that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the factors described in the
Risk Factors set forth in Exhibit 99 to this report. We undertake no obligation
to release publicly revisions we make to any forward-looking statements to
reflect events or circumstances occurring after the date of such statements. All
written and oral forward-looking statements made after the date of this report
and attributable to us or persons acting on our behalf are expressly qualified
in their entirety by this section.
Item 7. Financial Statements.
--------------------
Report of Gerson, Preston & Company, P.A............................ 12
Report of Want & Ender CPA, P.C................................. 13
Consolidated Balance Sheets, December 31, 1997 and 1998......... 14
Consolidated Statements of Operations, Years Ended December 31,
1997 and 1998............................................... 15
Consolidated Statements of Shareholders' Equity, Years Ended
December 31, 1997 and 1998................................. 16
Consolidated Statements of Cash Flows, Years Ended December 31,
1997 and 1998 ............................................. 17
Notes to the Financial Statements............................. 19
11
<PAGE>
Board of Directors
QuikBIZ Internet Group, Inc. and Subsidiaries
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of QuikBIZ
Internet Group, Inc. and Subsidiaries at December 31, 1998 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of QuikBIZ
Internet Group, Inc. and Subsidiaries at December 31, 1998 and the consolidated
results of their operations and cash flows for the year then ended in conformity
with generally accepted accounting principles.
The financial statements referred to above have been prepared assuming that
QuikBIZ Internet Group, Inc. and Subsidiaries will continue as a going concern.
As more fully described in Note 3, the Company has incurred recurring operating
losses, negative cash flows from operating activities, and has negative working
capital. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans as to these matters are also
described in Note 3. The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
/s/ GERSON, PRESTON & COMPANY, P.A.
September 17, 1999
12
<PAGE>
Want & Ender
CPA, P.C.
Certified Public Accountants
Martin Ender CPA
Stanley Z. Want CPA, CFP
Independent Auditor's Report
To the Shareholders and Board of Directors
QuikBIZ Internet Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of QuikBIZ Internet
Group, Inc. and Subsidiaries at December 31, 1997 and related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of QuikBIZ
Internet Group, Inc. and Subsidiaries at December 31, 1997 and the consolidated
results of operations and cash flows of QuikBIZ Internet Group, Inc. and
Subsidiaries for the year ended, in conformity with generally accepted
accounting principles.
/s/ Want & Ender CPA, P.C.
Want & Ender CPA, P.C.
Certified Public Accountants
New York, NY
September 7, 1999
13
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
Assets
December 31,
-------------------------------------------------------
1997 1998
--------------------------- ---------------------------
Current Assets
Cash $ 2,310 $ 18,059
Accounts receivable 85,857 136,340
Other 37,827 38,969
--------------------------- ---------------------------
Total current assets 125,994 193,368
Property and equipment
Furniture and equipment 45,847 68,647
Leasehold improvements -- 44,862
--------------------------- ---------------------------
45,847 113,509
Less accumulated depreciation 4,819 40,706
--------------------------- ---------------------------
Depreciated cost 41,028 72,803
Intangible assets 1,296,515 595,300
--------------------------- ---------------------------
Total assets $ 1,463,537 $ 861,471
--------------------------- ---------------------------
Liabilities and Shareholders' Equity
December 31,
-------------------------------------------------------
1997 1998
--------------------------- ---------------------------
<S> <C> <C>
Current liabilities
Accounts payable and accrued expenses $ 545,165 $ 483,291
Current maturities of long-term debt 95,845 59,397
--------------------------- ---------------------------
Total current liabilities 641,010 542,688
Long-Term Debt -- 242,685
--------------------------- ---------------------------
Total liabilities 641,010 785,373
Shareholders' equity
Preferred stock; $.001 par value, 3,000 shares
authorized; 261 shares issued and outstanding 10,208 10,208
Common stock; $.002 par value; 25,000,000 shares
authorized; 12,784,372 and 13,090,571 shares
issued and outstanding, respectively 25,569 26,179
Additional paid-in capital 2,547,276 2,692,419
Accumulated deficit (1,609,359) (2,392,723)
Unearned compensation on restricted stock -- (259,985)
Subscription receivable (151,167) --
--------------------------- ---------------------------
Total shareholders' equity 822,527 76,098
--------------------------- ---------------------------
Total liabilities and shareholders' equity $ 1,463,537 $ 861,471
=========================== ===========================
</TABLE>
14
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1997 1998
--------------------------- ---------------------------
<S> <C> <C>
Revenue
Advertising $ 140,355 $ 1,541,454
Multimedia services and products -- 600,960
--------------------------- ---------------------------
Total revenue 140,355 2,142,414
--------------------------- ---------------------------
Operating expenses
Direct costs 126,703 1,753,877
Selling, general and administrative 127,635 1,023,831
Depreciation and amortization 74,687 121,590
--------------------------- ---------------------------
Total operating expenses 329,025 2,899,298
--------------------------- ---------------------------
Loss from operations (188,670) (756,884)
Interest expense 1,608 26,480
--------------------------- ---------------------------
Net loss $ (190,278) $ (783,364)
--------------------------- ---------------------------
Weighted average number of common
shares outstanding 6,841,017 13,067,857
Basic (loss) per common share $ (0.028) $ (0.060)
15
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Unearned
Compensa-
Additional tion on Subscrip-
Preferred Stock Common Stock Paid-in Accumulated Common tion
Shares Amount Shares Amount Capital Deficit Stock Receivable Total
----- -------- ------------ -------- ----------- ------------ -------- ------------- -------
<S> > <C> <C> <C> <C> <C> <C> <C> <C> <C> +
Balance, December 31, 1996 441 $ 17,248 12,056,225 $ 8,077 $ 1,492,044 $ (1,419,081)$ - $ (21,428)$ 76,860
Effect of 1997 7-for-1 reverse
stock split - - (10,333,903) (4,632) 4,632 - - - -
Conversion of preferred stock (180) (7,040) 9,000 18 7,022 - - - -
Acquisitions - - 10,002,667 20,005 894,650 - - - 914,665
Issuance of common stock - - 531,428 1,063 20,227 - - - 21,290
Subscription receivable issued
in exchange for common stock - - 518,955 1,038 128,701 - - (129,739) -
Net loss - - - - - (190,278) - - (190,278)
---- --------- ------------- -------- ------------ ------------ -------- ----------- -----------
Balance, December 31, 1997 261 10,208 12,784,372 25,569 2,547,276 (1,609,359) - (151,167) 822,527
Acquisition - - - - 42,000 - - - 42,000
Issuance of common stock for
compensation - - 2,394,868 4,787 544,578 - (549,365) - -
Trade name returned in
exchange for common stock
and donated stock - - (2,300,000) (4,600) (396,445) - - - (401,045)
Amortization of unearned
compensation on stock - - - - - - 289,380 - 289,380
Issuance of common stock - - 816,000 1,632 104,968 - - - 106,600
Subscription receivable
rescinded in exchange for
return of common stock - - (604,669) (1,209) (149,958) - - 151,167 -
Net loss - - - - - (783,364) - - (783,364)
---- --------- ------------- -------- ------------ ------------ -------- ----------- -----------
Balance, December 31, 1998 261 10,208 13,090,571 26,179 2,692,419 (2,392,723) (259,985) - 76,098
</TABLE>
16
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1997 1998
--------------------------- ---------------------------
<S> <C> <C>
Operating activities
Net (loss) $ (190,278) $ (783,364)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 74,687 121,590
Amortization of unearned compensation - 289,380
Changes in operating assets and liabilities,
net of effects of acquisition:
Decrease (increase) in accounts receivable 33,005 63,240
Decrease (increase) in other current assets 10,103 8,526
(Decrease) increase in accounts payable and
accrued expenses (6,264) 109,225
--------------------------- ---------------------------
Net cash (used in) operating activities (78,747) (191,403)
--------------------------- ---------------------------
Investing activities
Purchases of property and equipment - (1,997)
Cash received from acquisition 7,062 76,312
--------------------------- ---------------------------
Net cash (used in) provided by investing
activities 7,062 74,315
--------------------------- ---------------------------
Financing activities
Proceeds from notes payable, including $15,900
from a director in 1998 - 68,446
Payment on notes payable (3,084) (2,209)
Issuance of common stock 45,000 66,600
--------------------------- ---------------------------
Net cash provided by financing activities 41,916 132,837
--------------------------- ---------------------------
Net increase (decrease) in cash (29,769) 15,749
Cash, beginning of period 32,079 2,310
--------------------------- ---------------------------
Cash, end of period 2,310 18,059
=========================== ===========================
</TABLE>
17
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
continued
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1997 1998
--------------------------- ---------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest $ 1,608 $ 23,480
Supplemental schedule of noncash investing and
financing activities:
Common stock issued in connection with
compensation, net of amortization $ - $ 259,985
Issuance of common stock and options related to
acquisitions $ 914,655 $ 42,000
Subscription receivable issued in exchange for
common stock $ 129,739 $ -
Subscription receivable rescinded in exchange for
return of common stock $ - $ 151,167
Tradename returned in exchange for common stock $ - $ 401,045
Note payable paid with the issuance of common $ - $ 40,000
stock
</TABLE>
18
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Operations
The Company has two reportable segments, both of which sell their products
and services primarily in the Southeastern United States.
One segment provides its clients with Internet site design, television
commercial and radio commercial development and production, print
advertisement development and production, public relations and promotions.
The other segment offers audio, video, multimedia and Internet services and
products. It also produces and assists companies in creative content for
corporate communications including sales, training, public relations and
promotion.
During 1998, the Company changed its name from Algorhythm Technologies
Corporation.
During 1999, the Company commenced development of the QuikBiz Mall, a
virtual mall on the Internet that offers corporate communications products,
services and supplies on-line. Start-up costs with regards to this were
expensed as incurred.
2. Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances have been eliminated in consolidation.
Property and Equipment. Property and equipment are stated at cost and
depreciated, using the straight-line method, over the estimated useful
lives of the assets as follows: three to seven years for furniture and
equipment and the lease term for leasehold improvements.
Intangible Assets. Intangible assets are being amortized on the
straight-line basis over ten years.
Long-Lived Assets. The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
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 amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reported period. Actual results could differ from those estimates.
Fair Value of Financial Instruments. The carrying amount of cash, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of their short duration. The carrying amount of short and long-term
debt approximates fair value because the interest rates are similar to the
interest rates currently available to the Company.
Income Taxes. The Company accounts for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Under SFAS 109, deferred income tax assets and liabilities are
determined based upon differences between financial reporting and tax bases
of assets and liabilities and are measured using currently enacted tax
rates.
Revenue Recognition. Revenue is recognized from sales when a product is
delivered and from services when performed. Revenue is reduced for
estimated customer returns and allowances.
Earnings Per Share. In 1997, the Financial Accounting Standards Board
issued SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires two
presentations of earnings per share - basic and diluted. Basic earnings per
share is computed by dividing income available to common stockholders by
the weighted-average number of common shares for the period. The
computation of diluted earnings per share is similar to basic earnings per
19
<PAGE>
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potentially dilutive common shares, such as options, had been issued.
Diluted earnings per share are not presented because the effects would be
anti-dilutive. The restated loss per share to be reported under SFAS No.
128 does not differ from amounts reported under existing accounting rules
for all periods reported by the Company through June 30, 1999.
Reclassification. Certain prior period amounts have been reclassified to
conform to the current year presentation.
Year 2000. The Company developed and implemented a plan to deal with the
Year 2000 problem and converted its computer systems to be Year 2000
compliant. The conversion efforts were completed by mid 1999. The Year 2000
problem is the result of computer programs being written using two digits
rather than four to define the applicable year. In addition, the Company is
working with its suppliers and customers to ensure their compliance with
Year 2000 issues in order to avoid any interruptions in its business.
3. Going Concern - Uncertainty
As shown in the accompanying financial statements, the Company has incurred
recurring operating losses, negative cash flows from operating activities
and has negative working capital. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
The Company has initiated several actions to generate working capital and
improve operating performance, including private issuances of stock (Notes
7 and 13), generation of additional revenue and entering into an investment
agreement to raise up to $20,000,000 through a series of sales of common
stock (Note 13).
There can be no assurance that the Company will be able to successfully
implement its plans, or if such plans are successfully implemented, that
the Company will achieve its goals.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities
that might result from the outcome of this uncertainty.
4. Intangible Assets
<TABLE>
At December 31,
1997 1998
------------------ -------------------
<S> <C> <C> <C>
Intangible assets
Goodwill, net of accumulated amortization of
$11,062 and $78,435, respectively $ 662,672 $ 595,300
Trade name, net of accumulated amortization of
$21,875 415,625 -
Franchise rights, net of accumulated amortization of
$15,587 218,218 -
------------------ -------------------
Total $ 1,296,515 $ 595,300
----------------- --------------------
</TABLE>
20
<PAGE>
5. Long-Term Debt
<TABLE>
December 31,
1997 - 1998
------------------ ------------------
<S> <C> <C>
Unsecured note payable; interest at prime plus one percent
(9.25% at December 31, 1998); matures October 13, 2000 $- $ 110,000
$150,000 line-of-credit; interest at prime plus one percent
(9.25% at December 31, 1998); collateralized by accounts
receivable, inventory and property and equipment; guar
anteed by a director/shareholder; matures in March 2000 95,845 98,345
Unsecured note payable to shareholder; interest at 12%;
matured and was paid in July 1999 - 50,000
Note payable; interest at 9%; collateralized by accounts receiv-
able, inventory and property and equipment; guaranteed by a
director/shareholder; matures September 5, 2001 - 27,837
Unsecured demand note payable to a director/shareholder;
interest variable (8.75% at December 31, 1998); shareholder
has indicated he will not request payment within the next
twelve months - 15,900
------------------ ------------------
Total $ 95,845 $ 302,082
------------------ -----------------
</TABLE>
The aggregate maturities of long-term debt for the years ended December 31
are as follows:
Year Amount
------------------ ---------------------
1999 $ 59,397
2000 234,472
2001 8,213
---------------------
$ 302,082
---------------------
6. Preferred Stock
The preferred stock calls for the payment of dividends of $120 per share
per annum, when and as declared by the Board of Directors, payable
quarterly. The Board of Directors has not declared any dividends as of
December 31, 1998. Each share of preferred stock is convertible into 71.43
shares of common stock, at the option of the holder. In the event of
liquidation of the Company, the holders of the preferred stock are entitled
to receive $1,000 per share prior to any distribution to the holders of
common stock. The preferred is also callable, at the option of the Company,
at $1,100 per share plus unpaid dividends.
7. Common Stock
In May 1997, the Company's Board of Directors authorized a seven-for-one
reverse stock split. Outstanding shares and per share data contained in
these financial statements have been restated to reflect the impact of the
split.
On July 18, 1997, the Company issued 1,000,000 shares of common stock to
acquire the rights to the name "Algorythm Technologies International, Inc."
During 1998, the Company returned the rights to the use of the name and
2,300,000 shares of common stock were returned to the Company. This
transaction resulted in a reduction to shareholder's equity of $401,045 in
1998.
21
<PAGE>
During 1998, the Company issued 2,394,868 shares of common stock as
compensation to certain key salaried employees. Sale of these shares is
restricted prior to the date of vesting, which ranges from one to two years
from the date of issuance. Shares issued were recorded at their fair market
value on the date of the issuance, with a corresponding charge to
shareholders' equity. The unearned portion is being amortized as
compensation expense on a straight-line basis over the related vesting
period. By December 31, 1998, three officers of one of the Company's
subsidiaries entered into an agreement in principal to terminate their
employment agreements with the Company.
During June 1998, the Company issued options to purchase an aggregate of
60,000 shares at par value to two of its directors as compensation for
their services as directors during 1998. These options were valued at
$10,000 and this expense has been included in selling, general and
administrative expense.
On September 29, 1998, the Company entered into an agreement with two of
its shareholders to return 604,669 shares of common stock issued by the
Company in December 1996 and September 1997. In exchange, the Company
rescinded the debt owed by the two shareholders, in the amount of $151,167.
In addition to options issued in connection with acquisitions (Note 8) and
those issued to directors, the Company issued warrants and options to
purchase the Company's common stock as follows:
During June 1998, the Company issued a warrant to purchase 25,000
shares of common stock at an exercise price of $0.17 per share.
During July 1998, the Company issued 600,000 options for investment
banking services. The options expire in five years and have an
exercise price of $0.25 per share.
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company has determined that, other than the options issued in connection
with acquisitions and to directors, there was only minimal value to the
warrants and options described above at the date of issuance.
8. Acquisitions
On May 14, 1997, the Company entered into an agreement with Nitros
Franchise Corporation ("Nitros") for a tax-free merger. In connection with
this transaction, the Company issued 6,702,667 shares of common stock and
options to purchase 300,000 shares of common stock at $0.15 per share to
the shareholders of Nitros in return for all of their shares. The Company
also issued options to purchase 300,000 shares of common stock at $0.15 per
share to officers of the Company. Of the options so issued, options for
400,000 shares remain exercisable until May 2000, options for 100,000
shares expired in 1998 and options for 100,000 shares were exercised in
February 1999. This transaction was accounted for in a manner similar to a
pooling of interests, accordingly, the Company's consolidated financial
statements have been restated for all periods to the business combination
to include the combined financial results of Nitros. Nitros had no revenues
or expenses prior to the merger.
On November 7, 1997, the Company acquired the outstanding stock of The
Smith Agency. The Company issued 2,300,000 shares of common stock and
200,000 options, at par, exercisable over a period of two years to the
former shareholder of The Smith Agency, for an aggregate purchase price of
$468,000. The acquisition was accounted for by the purchase method of
accounting and accordingly the results of operations of The Smith Agency
for the period from November 7, 1997 are included in the accompanying
consolidated financial statements. Assets acquired and liabilities assumed
have been recorded at their estimated fair values. The excess of the
purchase price over the fair value of the net assets acquired (goodwill)
was approximately $674,000.
On July 1, 1998, the Company acquired the outstanding stock of QuikLAB
Multimedia Centers, Inc. ("QuikLAB"), a company owned by a
director/shareholder of the Company. The acquisition was accounted for as a
purchase and the results of QuikLAB's operations were included in the
Company's 1998 consolidated statements of operations from the date of
acquisition. Consideration was the issuance of 200,000 stock options, at
par, exercisable over a period of two years, valued at $42,000. The Company
is required to issue an additional 2,800,000 stock options, at par,
22
<PAGE>
exercisable over a period of five years from the date of acquisition if
QuikLAB achieves an annual net profit of $200,000 by July, 2001. Franchise
rights were eliminated as part of the combination. The fair value of the
net assets acquired exceeded the purchase price by $87,000 which has been
recorded as a reduction to property and equipment.
The following unaudited proforma consolidated results of operations are
presented as if the business combinations of QuikLAB and The Smith Agency
had been made at the beginning of the periods presented:
Years Ended December 31, 1998 1997
---------------- --------------------
Sales $ 2,952,000 $ 2,990,000
Net loss $ (741,000) $ (136,000)
Net loss per share:
Basic and diluted $ (0.067) $ (0.020)
The unaudited proforma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the combination been in effect on January
1, 1997, or of future results of operations.
9. Leases
The Company has entered into several long-term leases for offices, retail
locations and equipment. At December 31, 1998, future minimum rental
payments required under noncancellable lease obligations during the years
ended December 31 are approximately as follows:
Year Amount
----------- -----------------------
1999 $ 124,000
2000 123,000
2001 106,000
2002 98,000
2003 98,000
Thereafter 210,000
-----------------------
$ 759,000
=======================
Rent expense was $83,000 and $36,000 for the years ended December 31, 1998
and 1997, respectively.
10. Deferred Income Taxes
At December 31, 1998, the Company has available net operating loss
carryforwards of $2,393,000, which will expire through 2013.
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. After consideration of all the evidence, both positive and
negative, management has determined that a valuation allowance is not
necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized.
23
<PAGE>
Significant components of the Company's net deferred income taxes are as
follows:
December 31,
1997 1998
----------------------------
Deferred tax assets:
Net operating loss carryforwards $ 628,000 $ 933,000
Valuation allowance for deferred tax asset
(628,000) (933,000)
------------ -------------
Total $ - $ -
------------ -------------
11. Employment Agreements
The Company has employment agreements with its executive officers and
certain other key employees. The agreements are for periods ranging from
two to five years, provide for performance incentive bonuses and severance
payments under certain circumstances, and provide for minimum annual base
compensation of $396,000 in 1999, $448,000 in 2000, $410,000 in 2001,
$455,000 in 2002 and $350,000 in 2003. If the employment contract with the
Chief Executive Officer were to be canceled or should the employer change
the employee's position without employee's consent, the Company's liability
would be $2,000,000.
12. Segment Information
QuikBIZ Internet Group, Inc. and Subsidiaries organizes its business into
two reportable segments. The reportable segments are strategic business
units that offer different products and services. They are managed
separately because each business requires different technology and
marketing strategies. The accounting policies of the segments are the same
as those described in the significant accounting policies. The Company
evaluates the performance of its operating segments based on operating
earnings of the respective business units.
Two customers accounted for approximately 32% and 24%, respectively, of the
Company's net sales for the year ended December 31, 1998. These same two
customers represented approximately 25% and 7%, respectively, of the
Company's accounts receivable balance at December 31, 1998.
Summarized financial information concerning the Company's reportable
segments is shown in the following table:
<TABLE>
Year Ended Advertising Multimedia
December 31, 1998 Segment Segment Corporate
- ----------------------------------- --------------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Revenues $ 1,541,454 $ 600,960 $ - $ 2,142,414
Segment loss $ (116,982)$ (126,064)$ (540,318)$ (783,364)
Depreciation and amortization $ 18,876 $ 17,010 $ 85,704 $ 121,590
Total assets $ 100,048 $ 261,880 $ 499,543 $ 861,471
</TABLE>
For 1997, the Company operated only the advertising business segment for
approximately two months.
13. Subsequent Events
During May 1999, the Company issued a warrant to purchase 500,000 shares of
common stock at an initial exercise price of $1.4625 per share. The warrant
expires in May 2004.
During the nine months ended September 30, 1999, the Company issued 429,885
shares of common stock for $240,000. The Company also received $15,000 when
one shareholder exercised options for 100,000 shares of common stock.
24
<PAGE>
On July 9, 1999 the Company entered into an investment agreement to raise
up to $20 million through a series of sales of common stock. The dollar
amount of each sale is limited by the trading volume and a minimum period
of time must occur between sales. The agreement is for a three-year period
ending July 9, 2002.
On September 1, 1999, the Company acquired the assets and assumed certain
of the liabilities of an advertising agency for $610,000 payable in the
form of approximately 488,000 shares of restricted common stock, of which
366,000 shares were issued and approximately 122,000 shares are to be
issued. In connection with this transaction, the Company entered into a
three-year employment agreement with the acquiree's president. The
acquisition will be accounted for as a purchase in 1999. The unaudited
sales of the acquired company during 1998 were approximately $4,700,000.
25
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.
-----------------------------------------------------------
On March 22, 1999, the Company filed a report on Form 8-K to report that it
had dismissed its former accountants and hired new accountants. The Company
filed an amendment to such report on Form 8-K/A on January 25, 2000.
26
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
-------------------------------------------------------------
As of March 14, 2000, the Company's directors and executive officers and
their ages and positions are as follows:
Name Age Position
David Bawarsky 44 President, Chief Executive Officer,
Chief Financial Officer and
Treasurer
Kirk J. Girrbach 41 Director
Dr. Bohdan Moroz 61 Director
Andrew D. Smith 41 Director
James Lobel 55 President of SmithAgency.com
David Bawarsky has served as our Chief Executive Officer since May 1997, as
a director since March 1997 and as our President, Chief Financial Officer and
Treasurer since December 1999. He also served as President from May 1997 to
November 1997. Mr. Bawarsky has served as President of our wholly-owned
subsidiary, QuikBIZ Media, since 1991, when he founded QuikBIZ Media. From July
1997 to March 1998, Mr. Bawarsky served as President and a director of
Telephonetics International, Inc., a company engaged in the business of
telephone advertising. Mr. Bawarsky was a consultant to QuikBIZ from 1995 to May
1997. From 1991 to 1997 Mr. Bawarsky was Vice President of Videotape Supply
Company, Inc., a company engaged in the business of manufacturing video tapes.
He was also an independent video consultant from 1990 to 1997.
Kirk J. Girrbach has served as a director since April 1998. He served as
Treasurer from April 1998 to December 1999. Mr. Girrbach is a lawyer and since
1990 has conducted a law practice in Ft. Lauderdale, Florida, concentrating in
the areas of securities, construction, contracts and real estate law. From
November 1991 to May 1997, Mr. Girrbach served as President and director of
QuikBIZ. From December 1985 to November 1994 he was a police officer and
detective with the Ft. Lauderdale Police Department.
Dr. Bohdan Moroz has served as a director since November 1997. Since 1982,
he has been a licensed and practicing psychiatrist at Holy Cross Hospital in Ft.
Lauderdale, Florida. He is a member of the American Medical Association,
Canadian Royal College of Physical Medicine & Rehabilitation, American Congress
of Physical Medicine & Rehabilitation, and the Broward County Medical
Association.
Andrew D. Smith has been a director since November 1997 and was President
from November 1997 until December 1999. Mr. Smith was the President of our
wholly-owned subsidiary, SmithAgency.com, from 1983, when he founded
SmithAgency.com, until August 1999. From 1991 to 1996, Mr. Smith was President
of Videotape Supply Company, Inc., a company engaged in the business of
manufacturing videotapes.
James Lobel has served as President of SmithAgency.com since September 1,
1999. He was the President of G&L Group from 1989, when he founded G&L Group, to
August 31, 1999. He was the Treasurer of Harvey Studios, Inc., an advertising
design firm, from 1983 to 1989. He was selected as a Business Leader in
Advertising & Public Relations by The Daily Business Review in 1994 and was
named "Adman of the Year" in 1998 by the Ft. Lauderdale Ad Club.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities ("ten-percent
stockholders") to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and The Nasdaq Stock Market, Inc. Officers,
directors and ten-percent stockholders also are required to furnish the Company
with copies of all Section 16(a) forms they file. Based on its review of the
copies of such forms furnished to it, and written representations that no other
reports were required, the Company believes that during the Company's fiscal
27
<PAGE>
year ended December 31, 1998, all of its officers, directors and ten-percent
stockholders complied with the Section 16(a) reporting requirements, except that
Kirk J. Girrbach failed to file reports on Form 4 with respect to six
transactions beginning in June 1996. Mr. Girrbach has reported all of these
transactions in a report on Form 5 filed on March 8, 2000.
Item. 10. Executive Compensation.
----------------------
The following table lists the cash remuneration paid or accrued during
1998, 1997 and 1996 to Messrs. Bawarsky and Smith. Except for Messrs. Bawarsky
and Smith, none of our executive officers or former executive officers received
compensation of $100,000 or more from us in 1998.
Summary Compensation Table
<TABLE>
Name and Principal Other Annual Securities Underlying
Position Year Salary($) Bonus($) Compensation($) Options(#)
---------- ---- --------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
David Bawarsky 1998 87,501(1) 0 13,800(2) 200,000
President, Chief Executive 1997 0 0 0 300,000
Officer, Chief Financial 1996 0 0 0 0
Officer and Treasurer
Andrew Smith 1998 100,000 0 0 0
Former President 1997 16,500 0 1,500(3) 200,000
1996 0 0 0 0
</TABLE>
- ----------------
(1) $34,617 of this amount has been deferred and will be paid in the form of
shares of common stock, valued at market price on the date of issue.
(2) Consists of $5,200 life insurance premiums and $8,600 of automobile lease
and insurance payments.
(3) Consists of $1,500 of automobile lease and insurance payments.
The following table shows options to purchase common stock granted to
Messrs. Bawarsky and Smith during 1998.
Option Grants in 1998
<TABLE>
Number of Securities % of Total Options
Underlying Options Granted To Employees
Name Granted(#) In Fiscal Year Exercise Price Expiration Date
---- ----------------- ------------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
David Bawarsky 200,000 100% $.002 6/16/2000
Andrew Smith -0- -0- N/A N/A
</TABLE>
The following table shows the aggregate number of options to purchase
common stock held by Messrs. Bawarsky and Smith, and the value of such options
at December 31, 1998. Neither Mr. Bawarsky nor Mr. Smith exercised any options
in 1998.
28
<PAGE>
1998 Year-End Option Values
<TABLE>
Value of securities underlying unexercised
Number of securities underlying in-the-money options at
unexercised options at December 31, 1998 December 31, 1998(1)
---------------------------------------- ---------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David Bawarsky 500,000 0 $219,600 $0
Andrew Smith 200,000 0 $105,600 $0
</TABLE>
- -------------
(1) Represents the total gain that would be realized if all in-the-money
options held at December 31, 1998 were exercised, determined by multiplying
the number of shares underlying the options by the difference between the
per share option exercise price and $.53, the average of the high and low
bid prices of the common stock on December 31, 1998.
Director Compensation
We granted options to purchase 30,000 shares of common stock at a price of
$.002 per share to each of Kirk J. Girrbach and Dr. Bohdan Moroz in June 1998 as
compensation for their services as directors during 1998. The options were fully
vested upon grant. Directors who were also employees did not receive any
compensation for their services as directors in 1998.
Employment Agreements
QuikLAB has an employment agreement with David Bawarsky, dated June 16,
1998 and expiring June 15, 2003, pursuant to which Mr. Bawarsky serves as
Chairman, President and Chief Executive Officer of QuikLAB. QuikBIZ assumed
QuikLAB's obligations under the employment agreement when QuikBIZ acquired
QuikLAB in July 1998. Mr. Bawarsky's employment agreement provides for a present
base annual salary of $210,000 and a non-accountable expense allowance of
$25,000 per year. The employment agreement also provides a customary benefits
package, including two automobiles and term life insurance, payable to Mr.
Bawarsky's beneficiaries, in the amount of $2,000,000, and term life insurance
on the life of Mr. Bawarsky's wife in the amount of $500,000 payable to Mr.
Bawarsky. Mr. Bawarsky's employment agreement prohibits him from competing with
QuikLAB during the term of the agreement or disclosing confidential information
or trade secrets of QuikBIZ in any unauthorized manner at any time. If QuikBIZ
terminates Mr. Bawarsky's employment or changes his duties without his consent,
QuikBIZ will be obligated to pay Mr. Bawarsky severance pay of $2,000,000. Under
his employment agreement, Mr. Bawarsky is entitled to receive an annual
performance incentive bonus based upon the net profits of QuikLAB, as follows:
Percentage of Net Profits
Net Profits of QuikLAB Payable to Executive
- ---------------------- --------------------
$0 to $149,000 10%
$150,000 to $299,000 15%
$300,000 or greater 20%
SmithAgency.com has an employment agreement with James Lobel, dated August
31, 1999 and expiring August 31, 2002, pursuant to which Mr. Lobel serves as
President of SmithAgency.com. Mr. Lobel's employment agreement provides for a
present base annual salary of $120,000 per year, a non-accountable expense
allowance of $10,000 for the first year of the agreement, $40,000 worth of
common stock of QuikBIZ, and a customary benefits package, including an
automobile. Pursuant to a separate Noncompete/Nondisclosure agreement, Mr. Lobel
is prohibited from competing with SmithAgency.com during the term of the
agreement and for three years after termination of the agreement and from
disclosing confidential information or trade secrets of SmithAgency.com in any
unauthorized manner during such time. Mr. Lobel is entitled to receive a
performance bonus equal to 10% of SmithAgency.com's net profits, subject to a
maximum of $250,000 per year, payable at his option in cash or common stock of
QuikBIZ.
29
<PAGE>
Item. 11. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 14, 2000 by (i) each shareholder known
by us to be the beneficial owner of 5% or more of the outstanding common stock,
(ii) each of our directors and (iii) all directors and executive officers as a
group. Except as otherwise indicated, we believe that the beneficial owners of
the common stock listed below, based on information furnished by such owners,
have sole investment and voting power with respect to such shares, subject to
community property laws where applicable. Shares of common stock issuable upon
exercise of options and warrants that are currently exercisable or exercisable
within 60 days of March 14, 2000 have been included in the table.
<TABLE>
Name and Address of Amount and Nature of Beneficial Percent of
Beneficial Owner Ownership Class
------------------ --------- -----
<S> <C> <C>
David Bawarsky 5,450,887(1) 36.9%
6184 Vista Linda Lane
Boca Raton, Florida 33433
Kirk J. Girrbach 980,828(2) 6.8%
6550 N. Federal Highway
Ft. Lauderdale, Florida 33308
Dr. Bohdan Moroz 497,857(3) 3.5%
250 Compass Drive
Ft. Lauderdale, Florida 33308
Andrew D. Smith 2,335,050(4) 16.4%
20955 Vieto Terrace
Boca Raton, Florida 33433
Anthony J. Ard 1,000,000(5) 7.0%
240 S.E. 28th Avenue
Pompano Beach, Florida
33062
Officers and directors as a 6,929,552(1)(2)(3) 46.4%
group(3 persons)
</TABLE>
- --------------------------
(1) Includes 500,000 shares of common stock issuable upon exercise of
outstanding options. Does not include 25,000 shares of common stock owned
by Mr. Bawarsky's father, Henry Bawarsky. David Bawarsky disclaims
beneficial ownership of the shares held by Henry Bawarsky.
(2) Includes 130,000 shares of common stock issuable upon exercise of
outstanding options. Does not include an aggregate of 218,000 shares of
common stock held by several adult members of Mr. Girrbach's family. Mr.
Girrbach disclaims beneficial ownership of the shares held by such persons.
(3) Includes 30,000 shares of common stock issuable upon exercise of
outstanding options, 25,000 shares held by Dr. Moroz' wife and 11,428
shares held by Dr. Moroz' son.
(4) Does not include 400,000 shares of common stock owned by Mr. Smith's
parents, Howard and Elaine Smith.
Footnotes continued on following page.
30
<PAGE>
(5) Does not include 20,000 shares held by Mr. Ard's brother, Michael Ard.
Anthony J. Ard disclaims beneficial ownership of the shares held by Michael
Ard.
Item. 12. Certain Relationships and Related Transactions.
----------------------------------------------
On February 7, 2000, we issued 200,000 shares of common stock to Kirk J.
Girrbach pursuant to an employment agreement dated April 13, 1998 between Mr.
Girrbach and Capital Network of America, Corp., a subsidiary of QuikBIZ that is
now dormant.
On August 31, 1999, we completed the acquisition of substantially all of
the assets of G&L Group, of which James Lobel was the president and a principal
stockholder. In consideration for G&L Group's assets, we agreed to pay G&L Group
$610,000, payable in shares of our common stock, and we assumed approximately
$750,000 of G&L Group's liabilities. We issued 366,000 shares of common stock to
G&L Group on September 1, 1999, valued for purposes of the transaction at $1.25
per share, and we are obligated to issue another 122,000 shares within one year.
In connection with the acquisition, Mr. Lobel entered into a three year
employment agreement with us and agreed to become the president of
SmithAgency.com.
We entered into an agreement with Kirk J. Girrbach, dated July 15, 1998,
pursuant to which we retained Mr. Girrbach as corporate counsel. Mr. Girrbach is
no longer our counsel. We agreed with Mr. Girrbach that Mr. Girrbach's
compensation (at the rate of $200 per hour) and reimbursement for costs would be
payable in shares of QuikBIZ common stock valued at market price on the date of
grant. On February 3, 2000, we issued an aggregate of 12,130 shares of common
stock to Mr. Girrbach in payment for $8,100 in accrued fees and disbursements.
On July 9, 1998, we acquired QuikBIZ Media from David Bawarsky, our present
Chief Executive Officer and the then sole shareholder of QuikBIZ Media. Pursuant
to the acquisition agreement, the outstanding shares of QuikBIZ Media were
canceled and 500,000 shares of common stock of QuikBIZ Media were issued to us.
In consideration for such shares, we assumed QuikBIZ Media's obligations to Mr.
Bawarsky under his employment agreement with QuikBIZ Media and agreed that if by
July 9, 2001 QuikBIZ Media doubles its $100,000 net profit for 1996, we will
issue options to Mr. Bawarsky to purchase a total of 2,800,000 shares of common
stock, exercisable for five years at a price of $.002 per share. In connection
with our assumption of Mr. Bawarsky's employment agreement, we issued options to
Mr. Bawarsky to purchase 200,000 shares of QuikBIZ common stock, exercisable
until July 9, 2000 at a price of $.002 per share. The acquisition agreement also
provided that Mr. Bawarsky would be entitled to elect to have his annual
performance incentive bonus paid in shares of QuikBIZ common stock. The
acquisition agreement also required that our board of directors consist of two
persons, Mr. Bawarsky and Andrew Smith, and contained our agreement that Mr.
Bawarsky will serve as our Chairman and Chief Executive Officer. Mr. Bawarsky
has waived the provision of the acquisition agreement limiting the board of
directors to two persons.
On June 25, 1998, we borrowed $50,000 from Cella Reyes, the wife of Dr.
Bohdan Moroz, pursuant to a promissory note due June 25, 1999 and bearing
interest at 12% per annum. In consideration for the loan, on June 26, 1998 we
issued warrants to purchase 25,000 shares of common stock at a price of $.17 per
share to Ms. Reyes. The warrants were exercised on June 25, 1999. We repaid the
note in full prior to the maturity date and applied $4,250 of the accrued
interest on the note to the exercise price of the warrants.
On November 7, 1997, we acquired SmithAgency.com from Andrew Smith.
Pursuant to the acquisition agreement, all of the outstanding shares of
SmithAgency.com were canceled, SmithAgency.com issued 6,500 shares of its common
stock to us and we issued 2,300,000 shares of our common stock to Andrew Smith.
Pursuant to the acquisition agreement, we caused SmithAgency.com to enter into
an employment agreement with Mr. Smith and, in connection with such employment
agreement, we issued options to Mr. Smith to purchase 200,000 shares of our
common stock, exercisable until November 7, 1999 at a price of $.002 per share.
These options expired unexercised. The employment agreement was terminated as of
October 28, 1999.
In July 1997, in exchange for 1,000,000 shares of common stock, we acquired
the rights to the name "Algorythm Technologies International Inc." from
Telephonetics International, Inc. David Bawarsky, who was our President and one
of our directors at the time of the transaction, and Alan J. Kvares, who was one
of our directors at the time of the transaction, were the controlling
shareholders and principal officers of Telephonetics International, Inc. We
returned the rights to the name "Algorythm Technologies International, Inc." to
Telephonetics International, Inc. in 1998 and the 1,000,000 shares issued to
Telephonetics International, Inc. were returned to us at that time.
31
<PAGE>
In June 1997 we issued 144,077 shares of common stock to Kirk J. Girrbach
and 144,076 shares of common stock to Gene Farmer for consulting services. Prior
to the merger with Nitros Franchise Corporation, discussed below, Mr. Girrbach
was the President and a director of QuikBIZ and Mr. Farmer was the Executive
Vice President and a Director of QuikBIZ. Mr. Girrbach is currently a director
of QuikBIZ.
In May 1997 QuikBIZ merged with Nitros Franchise Corporation. David
Bawarsky, who was then a director of QuikBIZ, was the president, a director and
the principal shareholder of Nitros Franchise Corporation. Mr. Bawarsky received
2,400,889 shares of common stock in the merger and options to purchase 300,000
shares of common stock at $.15 per share. Kirk J. Girrbach and Gene Farmer each
received options to purchase 100,000 shares of common stock at $.15 per share.
These options were fully vested upon grant and have no expiration date.
Item. 13. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
See exhibit index included elsewhere in this filing.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the fourth quarter
of 1998. On March 22, 1999, the Company filed a report on Form 8-K to report
that it had dismissed its former accountants and hired new accountants (Item 4).
The Company filed an amendment to such report on Form 8-K/A on January 25, 2000.
32
<PAGE>
SIGNATURES
In compliance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
QUIKBIZ INTERNET GROUP, INC.
Dated: March 16, 2000 by: /s/ David B. Bawarsky
------------------------
David B. Bawarsky, Chief
Executive 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.
<TABLE>
<S> <C>
/s/David Bawarsky Dated: March 16, 2000
- -------------------------------------------
David Bawarsky, Chief Executive Officer, Chief Financial Officer (Principal
Financial and Accounting Officer), Treasurer and director
/s/Kirk J. Girrbach Dated: March 16, 2000
- ----------------------------------------------
Kirk J. Girrbach, director
/s/ Bohdan Moroz Dated: March 16, 2000
- --------------------------------------------
Bohdan Moroz, director
Dated: March 16, 2000
- ---------------------------------------------------------
Andrew Smith, director
</TABLE>
33
<PAGE>
Exhibit Index
Exhibit
Number Description
- ---------- -----------
2.1 Acquisition Agreement between the issuer and QuikLAB Multimedia
Centers, Inc. (incorporated by reference from the issuer's Current
Report on Form 8-K filed on July 24, 1998).
2.2 Acquisition Agreement between the issuer and A.D.S. Advertising Corp.
(incorporated by reference from the issuer's Quarterly Report on Form
10- QSB for the period ended September 30, 1997).
2.3 Asset Purchase Agreement, dated as of August 20, 1999, by and between
Gallaspy & Lobel, Inc., the issuer, and James Lobel and Diane C.
Harvey (incorporated by reference from the issuer's registration
statement on Form SB-2 filed on September 27, 1999).
3.1 Issuer's Articles of Incorporation, as amended (incorporated by
reference from the issuer's Quarterly Report on Form 10-QSB for the
period ended March 31, 1998, except for the July 1998 amendment, which
is incorporated by reference from the issuer's Annual Report on Form
10-KSB for the year ended December 31, 1997).
3.2 Issuer's Bylaws (incorporated by reference from the issuer's Quarterly
Report on Form 10-QSB for the period ended March 31, 1998).
3.3 Certificate of Correction to Certificate of Amendment of the Issuer's
Articles of Incorporation (incorporated by reference from the issuer's
Form 10- KSB/A for the year ended December 31, 1997, filed on January
27, 2000).
4.1 Specimen common stock certificate (incorporated by reference from the
issuer's Registration Statement on Form SB-2, File No. 333-87895).
4.2 Form of warrant to purchase common stock issued to Swartz Private
Equity, LLC on May 25, 1999, exercisable to purchase an
aggregate of 500,000 shares of common stock at $1.4625 per share until
May 24, 2004, granted to Swartz in connection with the offering of
securities described in Exhibit 4.3 (incorporated by reference from
the issuer's Registration Statement on Form SB-2, File No. 333-87895).
4.3 Amended and restated investment agreement, dated as of July 9, 1999,
by and between the Registrant and Swartz Private Equity, LLC
(incorporated by reference from the issuer's Registration Statement on
Form SB-2, File No. 333-87895).
4.4 Registration rights agreement, dated as of July 9, 1999, by and
between the Registrant and Swartz Private Equity, LLC, related to the
registration of the common stock to be sold pursuant to Exhibit 4.3
(incorporated by reference from the issuer's Registration Statement on
Form SB-2, File No. 333-87895).
4.5 Form of warrant to purchase common stock to be issued from time to
time in connection with the offering of securities described in
Exhibit 4.3 (incorporated by reference from the issuer's Registration
Statement on Form SB-2, File No. 333-87895).
4.6 Promissory note, dated June 25, 1998, and warrant, issued June 26,
1999, issued by the Registrant to Cella Reyes (incorporated by
reference from the issuer's Registration Statement on Form SB-2, File
No. 333-87895).
34
<PAGE>
Exhibit
10.1 Employment Agreement between QuikBIZ Media Centers, Inc. and David
Bawarsky (incorporated by reference from the issuer's Current Report
on Form 8-K filed on July 24, 1998).
10.2 Employment Agreement between SmithAgency.com, Inc. (formerly A.D.S.
Advertising Corp.) and Andrew Smith, dated October 30, 1997
(incorporated by reference from the issuer's Quarterly Report on Form
10-QSB for the period ended September 30, 1997).
10.3 Retainer Agreement between the issuer and Kirk J. Girrbach, dated
July 15, 1998 (incorporated by reference from the issuer's Quarterly
Report on Form 10-QSB for the period ended September 30, 1998).
10.4 Investment Banking Agreement between the issuer and M.H. Meyerson &
Co., Inc. dated as of July 14, 1998 (incorporated by reference from
issuer's Quarterly Report on Form 10-QSB for the period ended
September 30, 1998).
10.5 Employment Contract for James Lobel, dated August 31, 1999, between
the Registrant and James Lobel (incorporated by reference from the
issuer's Registration Statement on Form SB-2, File No. 333-87895).
10.6 Agreement to Sublease, dated August 31, 1999, by and between James
Lobel, Diane Harvey, Gallaspy & Lobel, Inc., Harvey Studios, Inc. and
the Registrant (incorporated by reference from the issuer's
Registration Statement on Form SB-2, File No. 333-87895).
10.7 Mortgage Deed and Security Agreement, dated August 31, 1999, by James
S. Lobel and Diane C. Harvey to the Registrant (incorporated by
reference from the issuer's Registration Statement on Form SB-2, File
No. 333-87895).
10.8 Office Lease, dated as of January 9, 1996, by and between
Massachusetts Mutual Life Insurance Company and A.D.S. Advertising
Corporation (incorporated by reference from the issuer's registration
statement on Form SB-2, File No. 333-87895).
10.9 Leasing Agreement, dated as of October 1, 1995, by and between Palasan
Properties, Inc. and Video QuickLAB of South Florida, Inc.
(incorporated by reference from the issuer's registration statement on
Form SB-2, File No. 333-87895).
10.10 Employment Agreement between Capital Network of America, Corp. and
Kirk J. Girrbach, dated April 13, 1998 (incorporated by reference from
the Registrant's Quarterly Report on Form 10-QSB for the period ended
March 31, 1998).
21 Subsidiaries of the issuer.
27 Financial Data Schedule.
35
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 18,059
<SECURITIES> 0
<RECEIVABLES> 136,340
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 193,368
<PP&E> 113,509
<DEPRECIATION> 40,706
<TOTAL-ASSETS> 861,471
<CURRENT-LIABILITIES> 542,688
<BONDS> 0
<COMMON> 26,179
0
10,208
<OTHER-SE> 39,711
<TOTAL-LIABILITY-AND-EQUITY> 861,471
<SALES> 2,142,414
<TOTAL-REVENUES> 2,142,414
<CGS> 1,753,877
<TOTAL-COSTS> 1,753,877
<OTHER-EXPENSES> 1,145,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,480
<INCOME-PRETAX> (783,364)
<INCOME-TAX> 0
<INCOME-CONTINUING> (783,364)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (783,364)
<EPS-BASIC> (0.060)
<EPS-DILUTED> (0.060)
</TABLE>
