THIS DOCUMENT IS A COPY OF THE FORM 10-KSB FILED ON MARCH 31, 2000
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] 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.
-------------------------------
(Name of small business issuer in its charter)
Nevada 88-0320364
---------- --------------
(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)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
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: $4,488,363. (Fiscal
year ended December 31, 1999)
As of March 24, 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 $7,879,130. As of March 27, 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.
-----------------------
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, QuikBIZ
Media and SmithAgency.com, QuikBIZ is developing several complementary
Internet-oriented businesses.
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 thereafter. 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.
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, duplication services, advertising services and
presentation services. 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 12 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, LCD Mart and
QuikBIZ Express. 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.
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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
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.
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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.
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 8/31/20041
Ft. Lauderdale, FL 33309
SmithAgency.com 5310 N.W. 33rd Ave. 2,746 square feet $3,098 1/31/20012
Ste. 212
Ft. Lauderdale, FL 33309
QuikBIZ Media 2121 W. Oakland Park Blvd. 6,700 square feet $7,789 2/01/2006
Suite 8
Ft. Lauderdale, FL 33311
</TABLE>
- ------------------------------------
(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.
Item 3. Legal Proceedings.
-----------------
QuikBIZ Media is a defendant in a lawsuit filed in June 1999 in the Circuit
Court of the 17th 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.
On March 24, 2000, we commenced an action in the Circuit Court of the 17th
Judicial Circuit, in Broward County, Florida against Andrew D. Smith, a
principal shareholder and former officer of QuikBIZ and former officer and
employee of SmithAgency, Charles Robb, a former employee of SmithAgency.com, and
Random House, Inc. Our complaint alleges that Messrs. Smith and Robb breached
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their employment and non-competition agreements with SmithAgency and violated
their fiduciary duties to SmithAgency by wrongfully taking confidential
information relating to an advertising campaign developed for one of our clients
and put that information into a manuscript for publication as a book by Random
House, Inc. Our complaint further alleges that Messrs. Smith and Robb created a
competing advertising agency after their employment with SmithAgency was
terminated, in violation of their noncompetition agreements. We are seeking
damages from Messrs. Smith and Robb and an injunction against further violation
of their agreements. We are also seeking an injunction against Random House,
Inc. to prevent Random House, Inc. from paying any of the proceeds of the book
to Messrs. Smith and Robb.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None
5
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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 1998 and 1999 and the first quarter of 2000 through
March 27, 2000. As of March 27, 2000, there were approximately 420 holders of
record of our common stock.
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:
Year High Low
- ---- ----- ----
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 27, 2000) 1.813 1.00
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 September 1999 we issued 366,000 shares of common stock to Gallaspy &
Lobel, Inc. in consideration for substantially all of the assets of Gallaspy &
Lobel, Inc.
In December 1999 we issued 50,000 shares of common stock to an individual
in consideration for certain consulting services to be provided by such
individual.
In February 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, and we issued 12,310 shares of common stock to Mr. Girrbach in
payment of $8,100 of accrued legal fees and disbursements.
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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.
On August 31, 1999, we completed our acquisition of substantially all of
the assets of G&L Group and combined its operations with those of
SmithAgency.com. Accordingly, our financial statements have been presented to
combine the consolidated financial statements of G&L Group 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,
completing the acquisitions of SmithAgency.com (November 1998), QuikBIZ Media
(July 1998) and G&L Group (September 1999) and developing our e-commerce
Internet sites. 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, 1999.
Results of Operations
Our revenues have grown from $2,142,414 in 1998 to $4,488,363 in 1999 on an
actual basis, but have declined from $7,458,000 in 1998 to $6,366,000 in 1999 on
a pro forma basis giving effect to our acquisitions.
The consolidated December 31, 1999 financial statements included a net loss
of $789,427, of which $381,661, or approximately 48%, 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,
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;
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- - 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.
To date, we have grown the size and scale of our business organically by
attracting new clients, attracting new professional staff and expanding the
range and complexity of the services we offer. We intend to continue to strive
for organic growth.
Acquisition of 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 to pursue opportunities to acquire similar businesses.
We believe our acquisitions have supported our growth and enhanced the
quality of services we offer our clients. Our acquisitions have allowed us to
rapidly build our base of professionals in the context of a tight labor market
for experienced technical and creative professionals. From July 1, 1997, to
December 31, 1999, our staff increased from 2 to approximately 37 employees. Our
broadening Internet coverage has allowed us to better meet the needs of our
national clients and to attract new clients who seek integrated services across
diverse geographic areas. We have also been able to expand our service offerings
through the acquisition of companies with complementary products and skill sets.
Additionally, we expect to achieve cost synergies by consolidating management
and back-office operations and sharing technical infrastructure.
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 years ended
December 31, 1999 and 1998, amortization of goodwill expense was $81,061 and
$67,372, respectively. We expect to incur additional acquisition-related
amortization expenses as a result of our acquisition program.
Comparison of the Fiscal Years 1998 and 1999
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 1999 are not directly comparable to the operating
results for 1998.
8
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Revenues. Revenues were $2,142,414 in 1998 and grew to $4,488,363 in 1999,
an increase of approximately 110%. The increase in revenues reflected the
acquisition of G&L Group in August 1999.
Direct Costs. Direct salaries and costs were $1,753,877 in 1998 and grew to
$3,650,115 in 1999, an increase of approximately 108%. Direct costs represented
approximately 81% and 82% of revenues in 1999 and 1998, respectively. The
increase in direct costs as a percentage of revenues in 1999 compared to 1998
was primarily due to acquisitions. In the future, we expect direct costs to
increase in absolute dollar terms but to decrease as a percentage of revenues
due to improved economies of scale, the utilization of billable professionals
and our increase in revenues pertaining to our e-commerce Internet sites.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1,023,831 in 1998 and grew to $1,483,283 in 1999,
an increase of approximately 45%. Selling, general and administrative expenses
represented approximately 33% of revenues in 1999 and 48% of revenues in 1998.
The increase in selling, general and administrative expenses in absolute dollar
terms and the decrease in such expenses as a percentage of revenues in 1999
compared to 1998 was the result of our acquisitions. In the future, we expect
general and administrative expenses to increase in absolute dollars but to
decrease as a percentage of revenues due to improved economies of scale,
increased efficiency of billable staff and higher overall revenues.
Amortization of Goodwill. Amortization of goodwill was $67,372 in 1998 and
grew to $81,061 in 1999. Amortization of goodwill represented 2% of revenues in
1999 and 3% of revenues in 1998. The increase in amortization of goodwill was
due to the goodwill resulting from the two acquisitions completed during 1998.
We expect amortization of goodwill to increase in absolute dollar terms as we
acquire additional companies.
Depreciation and Amortization. Depreciation and amortization expenses were
$121,590 in 1998 and grew to $124,767 in 1999, an increase of approximately 3%.
Depreciation and amortization expenses represented approximately 3% of revenues
in 1999 and 6% of revenues in 1998. 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 $35,957 at December 31, 1999 and $18,059
at December 31, 1998. Cash used in operating activities of $191,403 in 1998 and
$256,658 in 1999 was augmented by net proceeds from financing activities of
$132,837 in 1998 and $291,901 in 1999 and net cash provided by investing
activities of $74,315 in 1998, but reduced by cash used in investing activities
of $17,345 in 1999.
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.
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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.
10
<PAGE>
Item 7. Financial Statements.
--------------------
Report of Gerson, Preston & Company, P.A..................... 12
Consolidated Balance Sheets, December 31, 1998 and 1999...... 13
Consolidated Statements of Operations, Years Ended
December 31, 1998 and 1999................................. 14
Consolidated Statements of Shareholders' Equity, Years
Ended December 31, 1998 and 1999........................... 15
Consolidated Statements of Cash Flows, Years Ended
December 31, 1998 and 1999................................ 16
Notes to the Consolidated Financial Statements.............. 18
11
<PAGE>
Board of Directors
QuikBIZ Internet Group, Inc. and Subsidiaries
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of QuikBIZ
Internet Group, Inc. and Subsidiaries at December 31, 1998 and 1999 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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 1999 and the
consolidated results of their operations and cash flows for the years 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.
Certified Public Accountants
March 30, 2000
12
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
<TABLE>
December 31,
-------------------------------------------------------
1998 1999
--------------------------- ---------------------------
<S> <C> <C>
Current Assets
Cash $ 18,059 $ 35,957
Accounts receivable 136,340 620,501
Other
38,969 26,786
--------------------------- ---------------------------
Total current assets 193,368 683,244
Property and equipment
Furniture and equipment 68,647 176,937
Leasehold improvements 44,862 44,862
--------------------------- ---------------------------
113,509 221,799
Less accumulated depreciation 40,706 73,880
--------------------------- ---------------------------
Depreciated cost 72,803 147,919
Other assets
Goodwill, net of accumulated amortization of
$78,435 and $159,496, respectively 595,300 924,894
Note receivable from shareholder - 151,586
--------------------------- ---------------------------
Total assets 861,471 1,907,643
--------------------------- ---------------------------
Liabilities and Shareholders' Equity
December 31,
-------------------------------------------------------
1998 1999
--------------------------- ---------------------------
Current liabilities
Accounts payable and accrued expenses $ 483,291 $ 1,461,580
Current maturities of long-term debt 59,397 337,909
--------------------------- ---------------------------
Total current liabilities 542,688 1,799,489
Long-Term Debt 242,685 7,769
--------------------------- ---------------------------
Total liabilities 785,373 1,807,258
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; 13,090,571 and 14,061,426 shares
issued and outstanding, respectively 26,179 28,121
Additional paid-in capital 2,692,419 3,358,227
Accumulated deficit (2,392,723) (3,182,150)
Unearned compensation on restricted stock (259,985) (114,021)
--------------------------- ---------------------------
Total shareholders' equity 76,098 100,385
--------------------------- ---------------------------
Total liabilities and shareholders' equity $ 861,471 $ 1,907,643
========================== ==========================
</TABLE>
13
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1998 1999
--------------------------- ---------------------------
<S> <C> <C>
Revenue $ 2,142,414 $ 4,488,363
Operating expenses
Direct costs 1,753,877 3,650,115
Selling, general and administrative 1,023,831 1,483,283
Depreciation and amortization 121,590 124,767
--------------------------- ---------------------------
Total operating expenses 2,899,298 5,258,165
--------------------------- ---------------------------
Loss from operations (756,884) (769,802)
Interest expense 26,480 19,625
--------------------------- ---------------------------
Net loss $ (783,364) $ (789,427)
--------------------------- ---------------------------
Weighted average number of common
shares outstanding 13,067,857 13,590,236
Basic (loss) per common share $ (0.060) $ (0.058)
</TABLE>
14
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
Unearned
Additional Compensation Subscrip-
Preferred Stock Common Stock Paid-in Accumulated on Common tion
Shares Amount Shares Amount Capital Deficit Stock Receivable Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Acquisition - - 366,000 732 365,268 - - - 366,000
Issuance of common stock - - 604,855 1,210 300,540 - - - 301,750
Amortization of unearned
compensation on common
stock - - - - - - 145,964 - 145,964
Net loss - - - - - (789,364) - - (789,364)
---- ------- ---------- ---------- ----------- ------------ --------- ----------- ---------
Balance,
December 31, 1999 261 $ 10,208 14,061,426 $ 28,121 $ 3,358,227 $ (3,182,150)$ (114,021)$ - $100,385
</TABLE>
15
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1998 1999
--------------------------- ---------------------------
<S> <C> <C>
Operating activities
Net loss $ (783,364) $ (789,427)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 121,590 124,767
Bad debts 49,521 72,584
Amortization of unearned compensation 289,380 145,964
Non-cash consulting expense - 42,500
Amortization of note receivable - (4,154)
Changes in operating assets and liabilities,
net of effects of acquisition:
Decrease (increase) in accounts receivable 13,719 122,212
Decrease in other current assets 8,526 1,651
Increase in accounts payable and
accrued expenses 109,225 271,669
--------------------------- ---------------------------
Net cash (used in) operating activities (191,403) (256,658)
--------------------------- ---------------------------
Investing activities
Purchases of property and equipment (1,997) (17,345)
Cash received from acquisition 76,312 -
--------------------------- ---------------------------
Net cash provided by (used in) investing
activities 74,315 (17,345)
--------------------------- ---------------------------
Financing activities
Proceeds from notes payable, including $15,900
and $10,100 from a shareholder in 1998 and 1999,
respectively 68,446 110,488
Payment on notes payable, including $50,000 to a
shareholder in 1999 (2,209) (77,837)
Issuance of common stock 66,600 259,250
--------------------------- ---------------------------
Net cash provided by financing activities 132,837 291,901
--------------------------- ---------------------------
Net increase in cash 15,749 17,898
Cash, beginning of year
2,310 18,059
--------------------------- ---------------------------
Cash, end of year $ 18,059 $ 35,957
=========================== ===========================
</TABLE>
16
<PAGE>
QuikBIZ Internet Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
continued
<TABLE>
Years Ended December 31,
-------------------------------------------------------
1998 1999
--------------------------- ---------------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest $ 23,480 $ 19,625
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 $ 42,000 $ 366,000
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 $ -
Common stock issued for consulting services $ - $ 42,500
</TABLE>
17
<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 and
radio commercial development and production, print advertising development,
public relations and promotions.
The other segment offers audio, video, multimedia and Internet design
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 offering corporate communications products,
services and supplies from the Company and other vendors on-line. Start-up
costs with regard 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.
Goodwill. Goodwill represents the excess of the purchase price over the
fair value of acquired companies and is being amortized on the
straight-line basis over 10 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 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. 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.
Revenue Recognition. Revenue is recognized when services are performed.
Revenue is reduced for estimated customer returns and allowances.
Earnings Per Share. 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
18
<PAGE>
similar to basic earnings per share, except that the denominator is
increased to include the number of additional common shares that would have
been outstanding if the potentially dilutive common shares, such as
options, had been issued. Diluted earnings per share are not presented
because the effects would be anti-dilutive.
3. Going Concern - Uncertainty
As shown in the accompanying financial statements, the Company has incurred
recurring operating losses and 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 (Note
7), generation of additional revenue through business acquisitions and
development of new services and entering into an investment agreement to
raise up to $20,000,000 through a series of sales of common stock (Note 7).
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. Note Receivable
Note receivable from a shareholder relates to an acquisition which occurred
during 1999. The note is non-interest bearing until August 31, 2002.
At August 31, 2002, the note begins accruing interest at the prime rate and
principal and interest payments are due monthly for the next five years.
Discounted cash flows were used to estimate the fair value at December 31,
1999 at a rate of 8.5%. The note is due in principal payments as follows:
2002 $ 8,200
2003 26,000
2004 28,525
Thereafter 88,861
-------------------
$ 151,586
===================
19
<PAGE>
5. Long-Term Debt
<TABLE>
December 31,
1998 1999
------------------ ------------------
<S> <C> <C>
$200,000 line of credit; interest variable (8.75% at December 31,
1999); collateralized by accounts receivable and property and
equipment; guaranteed by a director/shareholder; matures in
April 2000 $ 98,345 $ 198,733
Unsecured note payable to a former shareholder; interest variable
(9.25% at December 31, 1999); matures in October 2000 110,000 110,000
Unsecured demand notes payable to shareholders; interest
variable (8.75% at December 31, 1999) 65,900 26,000
Note payable; interest at 13.3%; collateralized by equipment;
matures in December, 2002 - 10,945
Note payable; interest at 9%; collateralized by accounts
receivable, inventory and property and equipment 27,837 -
Long-term debt 302,082 345,678
Less current maturities 59,397 337,909
Long-term debt net of current maturities $ 242,685 $ 7,769
================== =================
</TABLE>
The aggregate maturities of long-term debt for the years ended December 31
are as follows:
Year Amount
---- ---------------
2000 $ 337,909
2001 3,626
2002 4,143
---------------
$ 345,678
===============
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, 1999. 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, the holders of the preferred stock are entitled to receive
$1,000 per share prior to distributions 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
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
1,000,000 shares of common stock were returned to the Company. In
conjunction with this transaction, a shareholder donated 1,300,000 shares
of common stock to the Company. These transactions resulted in a reduction
to shareholder's equity of $401,045 in 1998.
During 1998, the Company issued 2,394,868 shares of common stock as
compensation to certain 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.
20
<PAGE>
During 1998, the Company issued options to purchase an aggregate of 60,000
shares, at par, 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 for the return of 604,669 shares of common stock issued by
the Company in 1996 and 1997. In exchange, the Company rescinded the debt
owed by the two shareholders, in the amount of $151,167.
During 1999, the Company issued 429,855 shares of common stock for
$240,000; issued 50,000 shares of common stock valued at $42,500 for
consulting services; and received $15,000 when a shareholder exercised
options for 100,000 shares of common stock.
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 $.17 per share. The
warrant was exercised in June 1999.
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 $.25 per share.
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.
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.
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.
Common stock activity for 1999 was as follows:
<TABLE>
Additional
Paid-in
Shares Amount Capital Total
----------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash 429,855 $ 860 $239,140 $240,000
Issuance of common stock for 50,000 100 42,400 42,500
consulting services
Options exercised 100,000 200 14,800 15,000
Warrant exercised 25,000 50 4,200 4,250
---------------------------------------------------------------------
Total 604,855 $ 1,210 $ 300,540 $ 301,750
</TABLE>
- -
8. Acquisitions
On July 1, 1998, the Company acquired the outstanding stock of QuikBIZ
Media Centers, Inc. ("QuikBIZ Media"), a company owned by a
director/shareholder of the Company. The acquisition was accounted for as a
purchase and the results of QuikBIZ Media's operations were included in the
Company's 1998 consolidated statements of operations from the date of
acquisition.
21
<PAGE>
Consideration was the issuance of 200,000 stock options, at par,
exercisable over a period of two years, valued at $42,000. The Company will
issue an additional 2,800,000 stock options, at par, exercisable over a
period of five years from the date of acquisition if QuikBIZ Media 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.
On September 1, 1999, the Company acquired the assets and assumed certain
of the liabilities of Gallaspy & Lobel, Inc. ("G&L Group"). Consideration
was the issuance of 366,000 shares of restricted common stock with an
additional 122,000 shares, to be adjusted up or down based upon certain
provisions in the agreement, to be issued one year from the closing. The
acquisition was valued at $488,000. The acquisition was accounted for by
the purchase method of accounting and accordingly the results of operations
of G&L Group for the period from September 1, 1999 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 $411,000. In connection with this transaction,
the Company entered into a three-year employment agreement with the
acquiree's president and subleased the office space occupied by the
acquiree from the acquiree's owners, including its president.
The following unaudited proforma consolidated results of operations are
presented as if the business combinations of QuikBIZ Media and G&L Group
had been made at the beginning of the periods presented:
Years Ended December 31 1998 1999
--------------------------------------
Sales $ 7,458,000 $ 6,366,000
Net loss $ 434,000 $ 900,000
Net loss per share:
Basic and diluted $ (0.033) $ (0.066)
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, 1998, or of future results of operations.
9. Leases
The Company has entered into several long-term leases for offices
(including one with the owners of a shareholder), retail locations and
equipment. At December 31, 1999, future minimum rental payments required
under noncancellable lease obligations during the years ended December 31
are approximately as follows:
Year Amount
--------- -------------
2000 $ 215,000
2001 191,000
2002 174,000
2003 174,000
2004 151,000
Thereafter 111,000
--------------
$ 1,016,000
==============
Rent expense was $83,000 and $155,000 (including $26,000 to the owners of
a shareholder) for 1998 and 1999, respectively.
10. Deferred Income Taxes
At December 31, 1999, the Company has available net operating loss
carryforwards of $3,183,000, which will expire through 2014.
22
<PAGE>
After consideration of all the evidence, both positive and negative,
management has determined that a full valuation allowance is necessary to
reduce the deferred tax assets to the amount that will more likely than not
be realized.
Accordingly, components of the Company's net deferred income taxes are as
follows:
at December 31,
1998 1999
----------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 933,000 $ 1,242,000
Valuation allowance for deferred tax asset (933,000) (1,242,000)
----------- ------------
Total $ - $ -
----------- ------------
11. Employment Agreements
The Company has employment agreements with its executive officers and
certain other key employees. The agreements are for remaining periods
ranging from three to four years, provide for performance incentive bonuses
and severance payments under certain circumstances, and provide for minimum
annual base compensation of $550,000 in 2000, $614,000 in 2001, $649,000 in
2002 and $255,000 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 (Note 1). They are managed
separately as 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.
Three customers accounted for approximately 16%, 13% and 11%, respectively,
of the Company's net sales for the year ended December 31, 1999. These same
three customers represented approximately 2%, 2% and 20%, respectively, of
the Company's accounts receivable balance at December 31, 1999.
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 Total
- ------------------------------- ------------------- --------------- ---------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues $ 1,541,454 $ 600,960 $ - $ 2,142,414
Segment income (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>
23
<PAGE>
<TABLE>
Year Ended Advertising Multimedia
December 31, 1998 Segment Segment Corporate Total
- ------------------------------- ------------------- --------------- ---------------- ---------------------------
<S> <C> <C> <C> <C>
Revenues $ 3,122,735 $ 1,365,628 $ - $ 4,488,363
Segment income (loss) $ (68,554) $ 39,764 $ (760,637) $ (789,427)
Depreciation and amortization $ 10,941 $ 16,900 $ 96,926 $ 124,767
Total assets $ 604,316 $ 404,185 $ 899,142 $ 1,907,643
</TABLE>
13. Subsequent Events
In February 2000, the Company issued 212,130 shares of common stock to a
director and former officer; 12,130 shares for services rendered and
200,000 shares pursuant to an employment agreement.
24
<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.
25
<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 62 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.
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
year ended December 31, 1999, 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 with respect to his previously unreported
transactions and Dr. Bohdan Moroz failed to file reports on Forms 4 and 5 with
respect to five transactions beginnning in June 1998. Mr. Girrbach filed a
report on Form 5 with respect to his previously unreported transactions on March
8, 2000, and Dr. Moroz will file a report on Form 5 shortly with respect to the
transactions that he failed to report.
26
<PAGE>
Item 10. Executive Compensation.
----------------------
The following table lists the cash remuneration paid or accrued during
1999, 1998 and 1997 to Mr. Bawarsky and Andrew Smith, our former President.
Except for Messrs. Bawarsky and Smith, none of our executive officers or former
executive officers received compensation of $100,000 or more from us in 1999.
<TABLE>
Summary Compensation Table
Name and Principal Other Annual Securities Underlying
Position Year Salary($) Bonus($) Compensation($) Options(#)
---------- ---- --------- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
David Bawarsky 1999 91,346 0 16,438(1) 0
President, Chief Executive 1998 87,501(2) 0 13,800(3) 200,000
Officer, Chief Financial 1997 0 0 0 300,000
Officer and Treasurer
Andrew Smith 1999 78,717 0 7,792(4) 0
Former President 1998 100,000 0 0 0
1997 16,500 0 1,500(5) 200,000
</TABLE>
- ----------------
(1) Consists of $5,200 of life insurance premiums and $11,238 of automobile
and insurance payments.
(2) $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.
(3) Consists of $5,200 of life insurance premiums and $8,600 of automobile
lease and insurance payments.
(4) Consists of $3,578 of automobile lease and insurance payments.
(5) Consists of $1,500 of automobile lease and insurance payments.
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, 1999. Neither Mr. Bawarsky nor Mr. Smith exercised any options
in 1999.
<TABLE>
1999 Year-End Option Values
Value of securities underlying unexercised
Number of securities underlying in-the-money options at
Name unexercised options at December 31, 1998 December 31, 1998(1)
---- ---------------------------------------- ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David Bawarsky 500,000 0 $999,000 $0
Andrew Smith 0 0 $0 $0
</TABLE>
- -------------
(1) Represents the total gain that would be realized if all in-the-money
options held at December 31, 1999 were exercised, determined by multiplying
the number of shares underlying the options by the difference between the
per share option exercise price and $2.00, the closing price of the common
stock on December 31, 1999.
27
<PAGE>
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
QuikBIZ Media 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 QuikBIZ Media. QuikBIZ
assumed QuikBIZ Media's obligations under the employment agreement when QuikBIZ
acquired QuikBIZ Media 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 QuikBIZ Media 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 QuikBIZ Media, as follows:
Percentage of Net Profits
Net Profits of QuikBIZ Media 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.
28
<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 28, 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 28, 2000 have been included in the table.
Name and Address of Amount and Nature of Beneficial Percent of
Beneficial Owner Ownership Class
------------------ --------- -----
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 782,143(3) 5.5%
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 7,213,858(1)(2)(3) 48.3%
group(3 persons)
- --------------------------
(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 1,429
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.
(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.
29
<PAGE>
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. In addition, we subleased the office space occupied by G&L
Group from G&L Group's owners, including Mr. Lobel. We are presently using this
office space for our principal executive offices.
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.
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.
30
<PAGE>
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 1999. 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.
31
<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 30, 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 30, 2000
- -------------------------------------------
David Bawarsky, Chief Executive Officer, Chief Financial Officer (Principal
Financial and Accounting Officer), Treasurer and director
Dated: March __, 2000
- ----------------------------------------------
Kirk J. Girrbach, director
/s/ Bohdan Moroz Dated: March 30, 2000
- --------------------------------------------
Bohdan Moroz, director
</TABLE>
32
<PAGE>
Exhibit Index
<TABLE>
Exhibit
Number Description
- ---------- -------------
<S> <C>
2.1 Acquisition Agreement between the registrant and QuikLAB Multimedia
Centers, Inc. (incorporated by reference from the registrant's Current Report
on Form 8-K filed on July 24, 1998).
2.2 Acquisition Agreement between the registrant and A.D.S. Advertising Corp.
(incorporated by reference from the registrant'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 registrant, and James Lobel and Diane C. Harvey
(incorporated by reference from the registrant's registration statement on
Form SB-2 filed on September 27, 1999).
3.1 Registrant's Articles of Incorporation, as amended (incorporated by reference
from the registrant'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 registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
3.2 Registrant's Bylaws (incorporated by reference from the registrant'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 registrant's
Articles of Incorporation (incorporated by reference from the registrant'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
registrant'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 registrant'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 registrant'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 registrant'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 registrant's registration statement on
Form SB-2, File No. 333-87895).
</TABLE>
33
<PAGE>
<TABLE>
Exhibit
Number Description
- -------- ------------
<S> <C>
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
registrant's registration statement on Form SB-2, File No. 333-87895).
10.1 Employment Agreement between QuikBIZ Media Centers, Inc. and David
Bawarsky (incorporated by reference from the registrant'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 registrant'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 registrant'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
registrant'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 registrant'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 registrant'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 registrant'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 registrant'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 registrant'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 registrant (incorporated by referenced from the registrant's
registration statement on Form SB-2, File No. 333-87835).
27 Financial Data Schedule.
99 Risk Factors
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,957
<SECURITIES> 0
<RECEIVABLES> 620,501
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 683,244
<PP&E> 221,799
<DEPRECIATION> 73,880
<TOTAL-ASSETS> 1,907,643
<CURRENT-LIABILITIES> 1,799,489
<BONDS> 0
<COMMON> 28,121
0
10,208
<OTHER-SE> 62,056
<TOTAL-LIABILITY-AND-EQUITY> 1,907,643
<SALES> 4,488,363
<TOTAL-REVENUES> 4,488,363
<CGS> 3,650,115
<TOTAL-COSTS> 3,650,115
<OTHER-EXPENSES> 1,608,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,625
<INCOME-PRETAX> (789,427)
<INCOME-TAX> 0
<INCOME-CONTINUING> (789,427)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (789,427)
<EPS-BASIC> (0.058)
<EPS-DILUTED> (0.058)
</TABLE>
EXHIBIT 99
Risk Factors
An investment in our common stock is very risky and you should be able to
bear a complete loss of your investment. Before purchasing any of our common
stock, you should carefully consider the following risk factors, among others.
We have incurred significant losses and expect to continue to do so.
To date, we have incurred significant losses. At December 31, 1999, our
accumulated deficit was $3,182,150 and our working capital deficit was $349,320.
For the year ended December 31, 1999, we incurred a net loss of $789,427 and for
the year ended December 31, 1998, we incurred a net loss of $783,364. These
losses have resulted primarily from:
o significant costs associated with the acquisition of Nitros Franchise
Corporation and SmithAgency.com in 1997, QuikBIZ Media in 1998 and G&L
Group in 1999.
o significant costs associated with the development of the QuikBIZ Mall
and Quoteit.com.
We expect to continue to incur operating losses in the future. There is no
assurance that sales of our products and services will ever generate sufficient
revenues to fund our continuing operations, that we will generate positive cash
flow or that we will attain or sustain profitability.
We have a limited operating history.
Although QuikBIZ was incorporated in 1984, it had no significant business
operations until May 1997. David Bawarsky, our Chief Executive Officer, has been
with us only since May 1997. Because of our limited operating history, you have
limited information on which to assess our ability to realize operating revenues
or profits in the future.
We will require additional financing.
Lack of sufficient funding could force us to curtail substantially or cease
our operations, which would have a material adverse effect on our business. In
July 1999 we entered into an investment agreement ("Investment Agreement") with
Swartz Private Equity, LLP ("Swartz") to raise up to $20 million through a
series of sales of our common stock. Based on our potential rate of cash
operating expenditures and our current plans, we anticipate our cash
requirements for the next 12 months may need to come primarily from the proceeds
of the Investment Agreement. However, our ability to raise funds under the
Investment Agreement is subject to certain conditions. These conditions include
the continuing effectiveness of a registration statement covering the resale of
the shares sold under the Investment Agreement and a limitation on the number of
shares we may issue based on the volume of trading in the common stock. We
anticipate that our future cash requirements may be fulfilled by improved sales
of products and services, the sale of additional equity securities, debt
financing and/or the sale or licensing of certain of our technologies. However,
there can be no assurance that any future funds required in excess of the
proceeds of the Investment Agreement will be generated from operations or from
the aforementioned or other potential sources. There can also be no assurance
that the required funds, if available, will be available on attractive terms or
that the terms under which they are raised will not significantly dilute the
interests of our existing shareholders.
The market for online commerce is still developing and is subject to a high
degree of uncertainty.
The market for online commerce is rapidly evolving and is subject to a high
level of uncertainty. Our success will depend to a substantial extent on the
willingness of the public to use online services as a method to purchase
corporate communications products and media duplication services. Although
members of management have considerable business experience, this is a new
venture and members of management have limited experience in the operation and
management of an Internet-based business.
The market in which we compete is subject to rapid technological change.
Technology in the Internet industry changes rapidly, and our products and
services, as well as the skills of our employees, could become obsolete quickly.
Our success will depend, in part, on our ability to improve our existing
services, develop new services and solutions that address the increasingly
sophisticated and varied needs of our current and prospective clients, and
respond to technological advances, emerging industry standards and practices and
competitive service offerings.
<PAGE>
We could lose money on projects for which we set a fixed price.
We currently bill for most of our services on a "time and materials" basis.
However, we intend to increase the percentage of our work that is billed at a
fixed price and the percentage of revenues from these fixed-price engagements.
If we fail to estimate accurately the resources and time required for a project,
to meet client expectations about the services to be performed, or to complete
projects within budget, we will have cost overruns and, in some cases,
penalties, which could have a material adverse effect on our business, financial
condition and results of operations.
We rely upon key strategic relationships.
We have established a number of strategic relationships with leading
hardware and software companies, some of which can be terminated on short notice
by the parties. These relationships are not supported by written agreements. The
loss of any one of these strategic relationships could deprive us of the
opportunity to gain early access to leading-edge technology, market products
cooperatively with the hardware or software company, cross-sell additional
services and gain enhanced access to vendor training and support, which could
have a material adverse effect on our business, financial condition and results
of operations.
Intense competition from existing and new entities may adversely affect our
revenues and profitability.
We compete with advertising, video production and media duplication
companies, many of whom are developing or can be expected to develop Internet
strategies similar to ours. Many of our competitors have significantly greater
financial, technical, marketing and other resources than we do. Some of our
competitors also offer a wider range of services than we offer and have greater
name recognition and a larger customer base. These competitors may be able to
respond more quickly to new or changing opportunities, technologies and customer
requirements and may be able to undertake more extensive promotional activities,
offer more attractive terms to customers, and adopt more aggressive pricing
policies. We cannot assure you that we will be able to compete effectively with
current or future competitors or that the competitive pressures faced by us will
not harm our business.
Protection of our intellectual property is limited and there is a risk of claims
for infringement.
We regard our copyrights, trademarks, trade secrets (including our
methodologies, practices and tools), as important to our success. If others
infringe or misappropriate our copyrights, trademarks or similar proprietary
rights, our business could be hurt. In addition, although we do not believe that
we are infringing the intellectual property rights of others, other parties
might assert infringement claims against us. Such claims, even if not true,
could result in significant legal and other costs and be a distraction to
management. Protection of intellectual property rights in many foreign countries
is weaker and less reliable than in the United States, so if our business
expands into foreign countries, risks associated with intellectual property will
increase.
We depend on David Bawarsky and James Lobel and the loss of either of their
services could harm our business.
We place substantial reliance upon the efforts and abilities of David
Bawarsky, our Chief Executive Officer, and James Lobel, the President of
SmithAgency.com. The loss of the services of either of them could have a
material adverse effect on our business, operations, revenues or prospects. We
presently have employment agreements with each of them. Mr. Bawarsky's
employment agreement expires on June 15, 2003. Mr. Lobel's employment agreement
expires on October 30, 2002. We have no assurance, however, that upon the
expiration of their respective employment agreements they will remain in our
employ. We do not maintain and we do not intend to obtain key man insurance on
the lives of Messrs. Bawarsky and Lobel.
We may be subject to government regulation in the future that could adversely
affect our business.
Our Internet-related business, and the Internet industry generally, is
presently not subject to extensive government regulation. However, because the
Internet is still evolving, new laws or regulations may be implemented that
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specifically impact our business. 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. There can be no assurance that in the future, as the Internet
market develops, regulation of certain activities on the Internet will not be
implemented and that such regulation will not adversely impact our business and
operations.
Our stock price is volatile.
The market price of our common stock has been and is likely to continue to
be volatile and could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements of technological innovations or
new products by us or our competitors, changes in financial estimates by
securities analysts, overall equity market conditions or other events or
factors. Because our stock is more volatile than the market as a whole, our
stock is likely to be disproportionately harmed by factors that significantly
harm the market, such as economic turmoil and military or political conflict,
even if those factors do not relate to our business. In the past, securities
class action litigation has often been brought against companies following
periods of volatility in the market price of their securities. If securities
class action litigation is brought against us it could result in substantial
costs and a diversion of management's attention and resources, which would hurt
our business.
Trading in our common stock on the OTC Bulletin Board may be limited.
Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board
is not an exchange and, because trading of securities on the OTC Bulletin Board
is often more sporadic than the trading of securities listed on an exchange or
Nasdaq, you may have difficulty reselling any of the shares that you purchase
from the selling shareholders.
Our common stock is subject to penny stock regulation.
Our common stock is subject to regulations of the Securities and Exchange
Commission relating to the market for penny stocks. These regulations generally
require that a disclosure schedule explaining the penny stock market and the
risks associated therewith be delivered to purchasers of penny stocks and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. The
regulations applicable to penny stocks may severely affect the market liquidity
for our securities and could limit your ability to sell your securities in the
secondary market.
A significant percentage of our common stock is held by our directors and
executive officers, who can significantly influence all actions that require a
vote of our shareholders.
Our directors and executive officers currently own approximately 50% of our
outstanding common stock. Accordingly, management is in a position to influence
significantly the election of our directors and all other matters that are put
to a vote of our shareholders.
The exercise of options and warrants may adversely affect our stock price and
your percentage of ownership.
If all of the warrants that may be issued to Swartz under the Investment
Agreement are issued, there will be outstanding options and warrants to purchase
2,778,643 shares of common stock and preferred stock convertible into 18,643
shares of common stock, assuming that we issue a total of 1,000,000 warrants to
Swartz under the Investment Agreement. The number of warrants that may be issued
to Swartz under the Investment Agreement will fluctuate depending on the price
at which we put shares to Swartz, which in turn will depend on the market price
at the time of the puts. In the future, we may grant more warrants or options
under stock option plans or otherwise. The exercise or conversion of stock
options, warrants or other convertible securities that are presently outstanding
or that may be granted in the future will dilute the percentage ownership of our
other shareholders.
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