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As Filed With the Securities and Exchange Commission on April 10, 2000
Registration Statement No. ___________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eCom eCom.com, inc.
(Name of small business issuer in its charter)
Florida 7940 65-0538051
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Code Number) Identification Number)
organization)
3801 PGA Boulevard, Suite 1001
Palm Beach Gardens, Florida 33410
(561) 622-4395
(Address and telephone number of issuer's principal executive offices)
David J. Panaia
3801 PGA Boulevard, Suite 1001
Palm Beach Gardens, Florida 33410
(561) 622-4395
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to public: As soon as the registration
statement is effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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CALCULATION OF REGISTRATION FEE
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Proposed
Estimated Maximum
Title of Each offering Aggregate Amount of
Class of Securities Amount to be Price Offering Registration
to be Registered Registered(1) Per Unit(2) Price Fee
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Common Stock,
$.0001 par value 4,000,000 $2.25 $9,000,000 $2,376.00
Common Stock(3)
underlying Selling
Shareholder Warrants 320,000 $2.48 $ 793,600 $ 209.51
Common Stock(4)
underlying Selling
Shareholder Warrants 490,000 $2.50 $1,225,000 $ 323.40
TOTAL $2,908.91
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(1) In the event of a stock split, stock dividend or similar transaction
involving the Company's Common Stock, in order to prevent dilution, the number
of shares registered shall automatically be increased to cover the additional
shares in accordance with Rule 416(a) under the Securities Act of 1933, as
amended (the "Securities Act").
(2) In accordance with Rule 457(c), the aggregate offering price of shares of
Common Stock of the Registrant (sometimes referred to herein as the "Company")
is estimated solely for purposes of calculating the registration fees payable
pursuant hereto, as determined in accordance with Rule 457(c), using the
average of the high and low sales price reported by the OTC Bulletin Board for
the Common Stock on April 6, 2000, which was $2.25 per share and, with respect
to shares of Common Stock of the Company issuable upon exercise of outstanding
warrants, the higher of (i) such average sales price or (ii) the exercise
price of such warrants.
(3) Represents shares of Common Stock issuable to Swartz Private Equity, LLC
(the "Selling Shareholder") upon exercise of outstanding warrants issuable to
the Selling Shareholder pursuant to the Amended and Restated Investment
Agreement between the Company and Swartz Private Equity, LLC (the "Investment
Agreement"). Pursuant to the terms of the Investment Agreement, the Company
is required to issue to the Selling Shareholder warrants to purchase a number
of shares of Common Stock equal to 8% of the number of Shares sold to the
Selling Shareholder at exercise prices equal to 110% of the market price of
the Company's Common Stock on the Purchase Period End Date (as defined in the
Investment Agreement). The exercise price is subject to adjustment every six
(6) months and is tied to the average closing bid at the time of adjustment.
(4) Represents shares of Common Stock issuable to Swartz Investments, LLC
(the "Selling Shareholder") upon exercise of outstanding warrants issuable to
the Selling Shareholder pursuant to the Investment Agreement. Pursuant to the
Investment Agreement, the Company issued warrants to purchase up to 490,000
shares of Common Stock at an exercise price of $2.50. The warrants were
issued in April 1999, and the exercise price was based on the average closing
bid for the five days after April 11, 1999. The exercise price is subject to
adjustment every six (6) months and is tied to the average closing bid at the
time of adjustment.
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The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933, or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
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PROSPECTUS
eCom eCom.com, inc.
This Prospectus relates to the resale, from time to time, of up to
4,810,000 shares of Common Stock of eCom eCom.com, inc. ("we," "us" or "eCom")
by Swartz Private Equity, LLC ("Swartz"). This Prospectus has been prepared
for the purpose of registering the shares offered by this Prospectus under the
Securities Act of 1933, as amended, to allow for future sales by Swartz to the
public without restriction. All or a portion of the shares offered by this
Prospectus may be offered for sale, from time to time, by Swartz for its own
benefit, pursuant to this Prospectus, in one or more private or negotiated
transactions, in open market transactions on the OTC Bulletin Board, in
settlement of short sale transactions, in settlement of options transactions,
or otherwise, or by a combination of these methods, at fixed prices that may
be changed, at market prices prevailing at the time of the sale, at prices
related to such market prices, at negotiated prices, or otherwise. See "Plan
of Distribution."
Of the 4,810,000 shares of Common Stock offered hereby:
- up to 4,000,000 shares may be issued to Swartz pursuant to the terms
of an Investment Agreement dated as of May 13, 1999 between us and
Swartz Private Equity, LLC, a Georgia limited liability company; and
- up to an additional 810,000 shares may be issued to Swartz upon
exercise of warrants issuable to Swartz pursuant to the Investment
Agreement. See "The Investment Agreement."
Swartz is an "underwriter" within the meaning of the Securities Act of
1933, as amended, in connection with the sale of the shares of Common Stock
offered hereby. Swartz will pay all commissions, transfer taxes and other
expenses associated with the sale of the shares by it. We will pay the
expenses of the preparation of this Prospectus. We have agreed to indemnify
Swartz against certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended. We will not receive any of the proceeds
from the sale of the shares of Common Stock sold by Swartz. To the extent
that any of the warrants issued or issuable to Swartz are exercised, under
certain conditions, pursuant to a cashless exercise by Swartz, we will not
receive any proceeds from the exercise of such warrants. See "Plan of
Distribution."
Our Common Stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, and is listed on the OTC Bulletin
Board under the symbol "ECEC." On April 6, 2000, the last reported sale price
of the Common Stock was $1.8125 per share. There are 14,310,675 shares
currently issued and outstanding.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE IN ANY
STATE OR JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED.
THIS OFFERING ENTAILS A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION IN THE
BOOK VALUE OF SHARES PURCHASED HEREUNDER (SEE "RISK FACTORS" AND "DILUTION").
THERE IS NO ENDORSEMENT OR APPROVAL BY ANY STATE SECURITIES COMMISSION OF ANY
SECURITIES OFFERED OR THE TERMS OF THIS OFFERING. NO STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR COMPLETENESS OF THIS PROSPECTUS OR
ANY SELLING LITERATURE.
We are currently a reporting company under the Securities Exchange Act of
1934 (the "Exchange Act"). Reports and information filed with the Commission
pursuant to the Exchange Act may be inspected and copied at the Securities and
Exchange Commission's public reference facilities at 450 Fifth Street NW,
Washington, D.C. 20549. Copies of such reports and information can be
obtained from the Commission's Public Reference Section in Washington, D.C. at
prescribed rates. They are also available at the Northeast Regional Office of
the Commission at 7 World Trade Center, Suite 1300, New York, NY 10048 and at
the Midwest Regional Office of the Commission at 500 West Madison Street,
Suite 1400, Chicago, IL 60661-2511. Our fiscal year is June 1 to May 31. We
will provide shareholders with quarterly reports of operations, including
unaudited financial statements. We will provide shareholders with annual
reports of operations, including audited financial statements.
THIS OFFERING IS SPECULATIVE AND ENTAILS A HIGH DEGREE OF RISK (SEE "RISK
FACTORS"). INVESTORS HEREUNDER WILL INCUR SUBSTANTIAL DILUTION OF THE BOOK
VALUE OF THEIR SHARES FROM THE OFFERING PRICE (SEE "DILUTION").
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK AND INVESTORS
SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT (SEE "RISK FACTORS").
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF ECOM AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROSPECTUS SUMMARY
The following is a summary of the pertinent information regarding this
Offering. This summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. The Prospectus should be read in its entirety, as this
summary does not constitute a complete recitation of facts necessary to make
an investment decision.
The Offering
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Securities Offered 4,000,000 shares of Common Stock, plus an
additional 810,000 shares issuable upon exercise
of Warrants held by Swartz.
Offering Price The shares being registered hereunder are being
offered by Swartz from time to time at the then
current market price.
Common Stock to be 18,310,675 shares; does not include 810,000
Outstanding after the shares issuable upon exercise of Warrants
Offering held by Swartz.
Dividend Policy We do not anticipate paying dividends on our
Common Stock in the foreseeable future.
Use of Proceeds The shares offered herein are being sold by
Swartz and as such, we will not receive any of
the proceeds of the Offering. (See "Use of
Proceeds").
Material Risk Factors This Offering involves a high degree of risk,
elements of which include possible lack of
profitability, competition, breach of leasing
agreements, death or incapacity of management
and inadequate insurance coverage. There is a
risk to investors due to the speculative nature
of this investment, historical losses from
operations, a shortage of capital, lack of
dividends, dilution factors, control by present
shareholders and economic conditions in general.
There is a material risk that we may have
insufficient funding to engage in any or all of
the proposed activities (See "Risk Factors" and
"Dilution").
THE COMPANY
eCom eCom.com, inc. provides an e-commerce infrastructure that enables
the small business enterprise to carve its niche in the retail and business to
business Internet economy. eCom eCom B2BPlus provides an affordable, user-
friendly technological platform and professional resources to facilitate web
business development. The eCom eCom SuperHUB gives the web entrepreneur a
comprehensive package of on-line tools to generate, execute and fulfill e-
commerce transactions.
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eCom is the parent of US Amateur Sports Company, which is the parent of
USA Performance Products, Inc. USA Performance Products manufactures and
distributes paintball guns and accessories, and has served as a test model for
our e-commerce business concepts.
We were incorporated on June 14, 1994 in the State of Florida under the
name US Amateur Sports, Inc., but we changed our name in January 1999 to
better reflect our business operations. Our principal offices are located at
3801 PGA Boulevard, Suite 1001, Palm Beach Gardens, Florida 33410, and our
phone number is (561) 622-4395.
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE AND SHOULD BE
CONSIDERED ONLY BY PERSONS ABLE TO LOSE THE ENTIRE AMOUNT INVESTED. You
should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we will face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business could
be harmed. In such case, the trading price of our Common Stock could decline,
and you may lose all or part of your investment.
We have a limited operating history.
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We were incorporated in June 1994. We have only a limited operating
history on which you can base an evaluation of our business and prospects. To
date, substantially all of our revenues have been derived from the sale of
paintguns and paintgun products. We have yet to achieve profitability. There
is no demonstrated public acceptance of the eCom eCom SuperHUB concept or of
our role as a business to consumer or business to business e-commerce enabler.
As an online commerce company in the early stage of development, we face
increased risks, uncertainties, expenses and difficulties. You should
consider an investment in our company in light of these risks, uncertainties,
expenses and difficulties.
We have incurred significant losses and cannot
predict when, if ever, we will make a profit.
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To date, we have incurred significant losses. As of November 30, 1999,
our accumulated deficit was $1,740,684 and our total liabilities exceeded our
total assets by $499,168. During the fiscal year ended May 31, 1999 we
incurred a net loss of $374,085 on total revenues of $228,613, and during the
1998 fiscal year we incurred a net loss of $143,051 on total revenues of
$149,582. For the six months ended November 30, 1999, we incurred a net loss
of $820,677 on total revenues of $451,571. These losses have resulted
primarily from our historical inability to achieve a level of revenues that is
sufficient to cover our general operating expenses. We expect to incur
additional operating losses in the future unless and until we are able to
generate operating revenues sufficient to support expenditures. 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 from operations or that we will attain and then continue to
make a profit in any future period.
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We will need additional funding during the next twelve months.
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We have limited cash resources and need additional capital to pay our
operating costs that are in excess of our revenues, increase production and
sales of paintball products, implement our eCom eCom SuperHUB and B2BPlus
concepts and achieve any subsequent growth of such activities. Based on the
rate of our cash operating expenditures and our current plans, we anticipate
our cash requirements for the next twelve months may be met primarily from the
proceeds to be obtained from puts of our shares to Swartz under the Investment
Agreement. However, our ability to obtain funds under the agreement is
subject to certain conditions. These conditions include the effectiveness of
this registration statement covering the resale of the shares sold under the
Investment Agreement and a limitation on our ability to issue shares based on
the volume of trading in the Common Stock. Although we are planning to
satisfy our future cash requirements from improved product sales, the sale of
Internet e-commerce services and advertising, the sale of additional equity
securities and debt financing, there can be no assurance that any funds
required during the next twelve months or thereafter will be generated from
operations or from any of the other potential sources. The lack of additional
capital could force us to substantially curtail or cease operations, which
would have a material adverse effect on our business. Further, there can be
no assurance that any funds, if available, will be available on attractive
terms or that they will not have a significantly dilutive effect on our
existing shareholders.
Our audited financial statements and those of Star Dot Marketing, Inc. contain
going concern language.
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The auditor's report for our financial statements for our fiscal years
ended May 31, 1999 and 1998 states that because of our net losses and
liquidity problems, there is a concern that we will be unable to continue to
operate. The auditor's report for Star Dot Marketing, Inc., a company
recently acquired by us, also contains the same language.
Our failure to manage future growth could harm us.
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We currently are experiencing a period of significant expansion in our
staffing requirements, facilities and infrastructure and we anticipate that
further expansion will occur. This expansion has placed, and we expect it
will continue to place, a significant strain on our management, operational
and financial resources. The areas that are put under severe strain by our
rate of growth include the following:
- Our current lack of capital. We do not have sufficient capital at
the present time to implement our business plan, to accomplish
acquisitions of operating businesses or useful technologies, or to
fund the growth of our core business. Our inability to obtain
capital on commercially reasonable terms could be extremely
detrimental to our future operations.
- The Websites. We anticipate a need to constantly add new
hardware, update software and add new engineering personnel to
accommodate increased use of our websites. If we are unable to
increase the capacity of our systems at least as fast as the
growth in demand for this capacity, our websites may become
unstable and may cease to operate for periods of time.
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Unscheduled downtime could harm our business and also could
discourage users of our websites and reduce future revenues.
- Customer Support. If we are unable to hire and successfully train
sufficient employees or contractors in the customer support area,
users of our websites may have negative experiences and current and
future revenues could suffer.
- Acquisitions. We must be careful to identify and acquire
businesses and enter into business relationships that are
complimentary to our business plan on terms that are favorable to
us. To the extent that we do not fully understand the intricacies
of any of the businesses that we are able to acquire (or those
businesses with whom we enter into business relationships), it is
possible that we could make mistakes that would be extremely
costly to us.
We will be dependent on key personnel.
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Although current management has had experience in the development and
operation of other businesses, it does not have prior experience in
establishing or operating either an e-commerce or a manufacturing business.
We will need to retain experienced management for these segments of the
business. The loss of the services of any of our executive officers or other
key employees could harm our business. We do not have long-term employment
agreements with any of our key personnel and we do not maintain any "key
person" life insurance policies.
The majority of our employees today have been with us less than one year
and we expect that our rate of hiring will continue at a high pace. Our
future success will depend on our ability to attract, train, retain and
motivate highly skilled technical, managerial, marketing and customer support
personnel. Competition for these personnel is intense and we may be unable to
successfully attract, integrate or retain sufficiently qualified personnel.
Our current and planned personnel, systems, procedures and controls may not be
adequate to support our future operations.
We have traditionally relied on strategic partnerships to fill key
positions. The "partner" then becomes an independent contractor and not an
employee of eCom. The partner may be paid either in cash or in stock of eCom,
or both. Currently, we are understaffed and in order to attract qualified
workers we may have to bring in these workers as employees rather than
partners. If so, we will incur additional costs in the way of health
insurance, unemployment insurance, vacation pay, sick leave and other benefits
generally afforded employees. We cannot guarantee that even if we offer
qualified workers an employment package that we will be able to secure enough
skilled employees to insure the future growth of eCom.
Our stock price has been and may continue to be extremely volatile.
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The trading price of our Common Stock has been and is likely to be
extremely volatile. Our stock price could be subject to wide fluctuations in
response to a variety of factors, including the actual and/or perceived
positive and negative attributes of business arrangements that we enter into
and of businesses that we are able to acquire, variations in our quarterly
operating results, announcements of technological innovations or new services
by us or our competitors, conditions or trends in the Internet and online
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commerce industries, changes in the market valuations of other Internet or
online service companies, developments in Internet regulations, unscheduled
system downtime, additions or departures of key personnel, sales of our Common
Stock or other securities in the open market and other events or factors that
may be beyond our control.
In addition, the trading prices of Internet stocks in general, and ours
in particular, have experienced extreme price and volume fluctuations in
recent months. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies in general
(and ours in particular). The valuations of many Internet stocks, including
ours, are still extraordinarily high, based on conventional valuation
standards such as price to earnings and price to sales ratios. These trading
prices and valuations may not be sustained. Negative changes in the public's
perception of the prospects of Internet or e-commerce companies are likely to
depress our stock price regardless of our results. Other broad market and
industry factors may decrease the market price of our Common Stock, regardless
of our operating performance. Market fluctuations, as well as general
political and economic conditions such as recession or interest rate or
currency rate fluctuations, also may decrease the market price of our Common
Stock. In the past, following declines in the market price of a company's
securities, securities class-action litigation often has been instituted
against the company. Litigation of this type, if instituted, could result in
substantial costs and a diversion of management's attention and resources.
We will need to develop new services, features
and functions in order to expand.
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Right now, we receive substantially all of our revenues from online and
telephone sales of paintball products. We plan to expand our operations by
developing new or complementary services, products or transaction formats or
expanding the breadth and depth of services. We may be unable to expand our
operations in a cost-effective or timely manner. Even if we do expand, we may
not maintain or increase our overall market acceptance. If we launch a new
business or service that is not favorably received by consumers, it could
damage our reputation.
We may pursue strategic relationships with third parties to provide many
of our services. By using third parties to deliver these services, we may be
unable to control the quality of the services, and our ability to address
problems will be reduced if any of these third parties fails to perform
adequately. Expanding our operations also will require significant additional
developmental expense and will strain our management, financial and
operational resources. The lack of market acceptance of any new services
could harm our business.
Acquisitions could result in dilution, operating
difficulties and other harmful consequences.
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On January 21, 2000, we executed an agreement to acquire Star Dot
Marketing, Inc. We are presently performing our due diligence in anticipation
of closing this transaction. See "Business of the Company - Star Dot
Marketing."
We currently do not have any understandings, commitments or agreements
with respect to any other material acquisition. If appropriate opportunities
present themselves, we intend to acquire businesses, technologies, services or
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products that we believe are strategically attractive. Integration of an
acquired company may require significant management resources that would
otherwise be available for ongoing development of our business. Moreover, the
anticipated benefits of any acquisition may not be realized. We may be unable
to identify, negotiate or finance future acquisitions successfully, or to
integrate successfully any acquisitions with our current business. Future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities or amortization
expenses related to goodwill and other intangible assets, any of which could
harm our business. Future acquisitions may require us to obtain additional
equity or debt financing, which may not be available on favorable terms or at
all. Even if available, this financing may be dilutive.
Insurance and potential liability.
- ----------------------------------
We currently maintain property, general liability and product liability
insurance, but our liability coverage is limited to single claims of up to
$1.0 million. A partially or completely uninsured claim against us, if
successful and of sufficient magnitude, could have a material, adverse effect
on eCom.
We are controlled by certain shareholders,
executive officers and directors.
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Upon completion of this Offering, our executive officers and directors
(and their affiliates) will own approximately 24% of our outstanding Common
Stock. As a result, they may have the ability to control our company and
direct our affairs and business, including the election of directors and
approval of significant corporate transactions. This concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of our company and may make some transactions more difficult or
impossible without the support of these shareholders. Any of these events
could decrease the market price of our Common Stock.
Our Articles of Incorporation allow for indemnification of officers,
directors and others and exclude personal liability
for directors for breach of fiduciary duty.
- -------------------------------------------------------------
Our Articles of Incorporation provide for the indemnification of our
officers, directors, employees and agents. Under certain circumstances, they
are indemnified against attorneys' fees and other expenses incurred by them
and judgments rendered against them in any litigation to which they become a
party arising from their association with or activities on our behalf. We may
also bear the expenses of such litigation for any of our officers, directors,
employees or agents, upon their promise to repay such sums if it is ultimately
determined that they are not entitled to indemnification. This
indemnification policy could result in substantial expenditures by us that we
may be unable to recoup even if we are entitled to do so.
Our Articles of Incorporation also exclude personal liability on the part
of our directors to us for monetary damages for breach of fiduciary duty,
except in certain specified circumstances. Accordingly, we would have a much
more limited right of action against our directors than otherwise would be the
case. This exclusionary provision does not affect the liability of any
director under federal or applicable state securities laws.
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A significant number of shares are eligible for sale
and their sale could depress our stock price.
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We have a significant market overhang on our Common Stock because in the
past we have paid many of the people with whom we have done business with
restricted shares of our Common Stock instead of cash. Of the amount of
restricted stock currently outstanding, approximately 500,000 shares are
currently eligible for resale under Securities Act Rule 144 because the people
have held the stock for more than a year. Because these people did not have
to pay cash for their shares and many of them have their own operating
expenses that they need to pay, many of them have been selling their shares
(which we believe has had a depressive effect on the market price of our stock
in recent weeks). It is likely that these people will continue to sell in the
future.
Sales of substantial amounts of our Common Stock (including shares issued
upon the exercise of outstanding options) in the public market after this
Offering could depress the market price of our Common Stock. These sales also
might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. In
addition to the 14,310,675 shares that were issued and outstanding as of March
31, 2000, we have allocated an additional 1,000,000 shares to an incentive
plan (all of which shares have been registered for sale on Form S-8), and we
believe that we will issue an additional 901,000 restricted shares in
transactions that are currently pending. Of this amount, 675,000 shares will
be issued pursuant to the Star Dot Marketing transaction.
You will experience immediate and substantial dilution
in the net tangible book value of the stock you purchase.
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The assumed price at which you will purchase shares is substantially
higher than the net tangible book value per outstanding share of Common Stock.
You will therefore incur immediate and substantial dilution in the net
tangible book value of the shares that you purchase. Additional dilution will
occur upon the exercise of outstanding options.
Our market for business-to-consumer, business-to-business and person-to-person
trading over the Internet is intensely competitive.
- ------------------------------------------------
We currently or potentially compete with many other companies. There are
a considerable number of companies that market web creation, maintenance and
marketing services to other businesses. These other companies include such
well-established competitors as Yahoo! which offers tools for do-it-yourself
website creation. Some offer free e-commerce sites such as Bigstep.com.
Bcentral.com offers business advice and services. VerticalNet is the leader
in industry-specific business hubs. There are many other companies that offer
a site or a service that competes with an individual component of the SuperHUB
and B2BPlus programs. For example, eBay, Amazon.com and numerous smaller
auction sites compete with the auction venue of the SuperHUB. America Online,
Lycos and Microsoft offer business-to-consumer trading services and classified
ad services. Other large companies with strong brand recognition and
experience in online commerce, such as Cendant Corporation, QVC, USA Network
and large newspaper or media companies, also may seek to compete in these
online markets. We are currently not aware of any competitors presently that
focus on the small business segment of the e-commerce market and that provide
the complete package of resources and services offered by our programs.
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However, it is likely that, unknown to us, competitors do currently exist
within this market sector and that, in the future, increased competition will
develop within this market sector. The principal competitive factors in our
market include financial backing, volume of transactions and selection of
goods, community cohesion and interaction, system reliability, customer
service, reliability of delivery and payment by users, brand recognition,
website convenience and accessibility, level of service fees, and quality of
search tools.
Most current and many potential competitors have longer company operating
histories, larger customer bases and greater brand recognition in other
business and Internet markets than we do. Most of these competitors also have
significantly greater financial, marketing, technical and other resources.
Other online trading services may be acquired by, receive investments from or
enter into other commercial relationships with larger, well established and
well financed companies. As a result, some of our competitors with other
revenue sources may be able to devote more resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and devote
substantially more resources to website and systems development than we are
able to. Increased competition may result in reduced operating margins, loss
of market share and diminished value of our brand. Some of our competitors
have offered services for free and others may do this as well. We may be
unable to compete successfully against current and future competitors.
In order to respond to changes in the competitive environment, we may,
from time to time, make pricing, service or marketing decisions or
acquisitions that could harm our business. New technologies may increase the
competitive pressures by enabling our competitors to offer a lower cost
service. Some Web-based applications that direct Internet traffic to certain
websites may channel potential members to trading services that compete with
us.
We do not currently have any established Internet traffic arrangements
with large online services or search engine companies. There can be no
assurance that any such arrangements can be negotiated on commercially
reasonable terms. Even if these arrangements are made, they may not result in
increased usage of our service. In addition, companies that control access to
transactions through network access or Web browsers could promote our
competitors or charge us substantial fees for inclusion.
Our market for our paintball guns and products is competitive.
- --------------------------------------------------------------
There are a substantial number of manufacturers of known production
paintball markers presently in the marketplace, in addition to custom-made
markers. Many may be more established and better funded than we are. Some of
these competitors include Brass Eagle (formerly Daisy Manufacturing), Tippman,
Kingman, WORR Products, Air Design, National Paintball, 888 Paintball and many
other smaller competitors.
We are subject to risks associated with information
disseminated through our Internet service.
- ---------------------------------------------------
We currently provide limited online services and plan to expand further
into this area. The law relating to the liability of online services
companies for information carried on or disseminated through their services is
currently unsettled. Claims could be made against online services companies
under both United States and foreign law for defamation, libel, invasion of
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privacy, negligence, copyright or trademark infringement, or other theories
based on the nature and content of the materials disseminated through their
services. Several private lawsuits seeking to impose liability upon other
online services companies currently are pending. In addition, federal, state
and foreign legislation has been proposed that imposes liability for or
prohibits the transmission over the Internet of certain types of information.
If we become liable for information provided by our members and carried on our
service, we could be directly harmed and we may be forced to implement new
measures to reduce our exposure to this liability. This may require us to
expend substantial resources and/or to discontinue certain service offerings.
In addition, the increased attention focused upon liability issues as a result
of these lawsuits and legislative proposals could harm our reputation or
otherwise impact the growth of our business. As we do not currently carry any
liability insurance which covers this type of exposure, any costs incurred as
a result of this liability or asserted liability could harm our business.
New and existing regulation of the Internet
could harm our planned business activities.
- -------------------------------------------
We are subject to the same federal, state and local laws as other
companies conducting business on the Internet. Today there are relatively few
laws specifically directed towards online services. However, due to the
increasing popularity and use of the Internet and online services, it is
possible that laws and regulations will be adopted with respect to the
Internet or online services. These laws and regulations could cover issues
such as online contracts, user privacy, freedom of expression, pricing, fraud,
content and quality of products and services, taxation, advertising,
intellectual property rights and information security. Applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of these laws were
adopted prior to the advent of the Internet and related technologies and, as a
result, do not contemplate or address the unique issues of the Internet and
related technologies. Those laws that do reference the Internet, such as the
recently passed Digital Millennium Copyright Act, have not yet been
interpreted by the courts and their applicability and reach are therefore
uncertain. In addition, numerous states, including the State of Florida,
where we are located, have regulations regarding how "auctions" may be
conducted and the liability of "auctioneers" in conducting such auctions. No
legal determination has been made with respect to the applicability of the
Florida regulations to our business to date and little precedent exists in
this area. One or more states may attempt to impose these regulations upon us
in the future, which could harm our business.
Several states have proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission also has recently
settled a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues could directly affect the way we do business or could create
uncertainty in the marketplace. This could reduce demand for our services,
increase the cost of doing business as a result of litigation costs or
increased service delivery costs, or otherwise harm our business. In
addition, because our services are accessible worldwide, and we intend to
facilitate sales of goods to members worldwide, foreign jurisdictions may
claim that we are required to comply with their laws. Our failure to comply
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with foreign laws could subject us to penalties ranging from fines to bans on
our ability to offer our services.
In the United States, companies are required to qualify as foreign
corporations in states where they are conducting business. As an Internet
company, it is unclear in which states we are actually conducting business.
We currently are qualified to do business only in Florida. Our failure to
qualify as a foreign corporation in a jurisdiction where we are required to do
so could subject us to taxes and penalties for the failure to qualify and
could result in our inability to enforce contracts in those jurisdictions.
Any new legislation or regulation, or the application of laws or regulations
from jurisdictions whose laws do not currently apply to our business, could
harm our business.
Our proposed Internet business may be harmed by the listing
or sale of illegal items by the users of our websites.
- -----------------------------------------------------------
The law relating to the liability of providers of online services for the
activities of their users on their service is currently unsettled. It is
possible that certain goods, such as firearms, other weapons, adult material,
tobacco products, alcohol and other goods that may be subject to regulation by
local, state or federal authorities, may be listed and traded on our service.
We may be unable to prevent the sale of unlawful goods, or the sale of goods
in an unlawful manner, by users of our service, and we may be subject to civil
or criminal liability for unlawful activities carried out by users through our
service. Any costs incurred as a result of liability or asserted liability
relating to the sale of unlawful goods or the unlawful sale of goods, could
harm our business.
Our proposed Internet business may be harmed by
fraudulent activities on our websites.
- -----------------------------------------------
Our future success in Internet commerce will depend in part upon sellers
reliably delivering and accurately representing their listed goods and buyers
paying the agreed purchase price. We do not intend to take responsibility for
delivery of payment or goods to any user of our service and it is likely that
over the course of time we will receive complaints from members who did not
receive the purchase price or the goods that were to have been exchanged.
While we could suspend the accounts of members who fail to fulfill their
delivery obligations to other members, we do not have the ability to require
anyone to make payments or deliver goods or otherwise make buyers whole. We
do not compensate persons who believe they have been defrauded by our members.
It is also possible that we might receive complaints from buyers as to the
quality of the goods purchased. As we are a new company with relatively
little market recognition at the present time, any negative publicity
generated as a result of fraudulent or deceptive conduct by users of our
service could be extremely harmful. If any of our users demand reimbursement
from us and threaten legal action against us if no reimbursement is made, any
resulting litigation could be costly for us, divert management attention,
result in increased costs of doing business, lead to adverse judgments or
could otherwise harm our business.
We may be subject to intellectual property litigation.
- ------------------------------------------------------
Other third parties may claim in the future that we have infringed their
past, current or future technologies. We expect that participants in our
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markets increasingly will be subject to infringement claims as the number of
services and competitors in our industry segment grows. Any claim like this,
whether meritorious or not, could be time-consuming, result in costly
litigation, cause service upgrade delays or require us to enter into royalty
or licensing agreements. These royalty or licensing agreements might not be
available on acceptable terms or at all. As a result, any claim like this
could harm our business.
The inability to expand our systems may limit our growth.
- ---------------------------------------------------------
We will attempt to generate a high volume of traffic and transactions on
our websites. The satisfactory performance, reliability and availability of
our websites, processing systems and network infrastructure will be critical
to our reputation and our ability to attract and retain large numbers of
users. Our revenues from the Internet commerce business will depend upon our
ability to attract merchants and customers to the websites. As the volume of
traffic on our websites increases, we will need to expand and upgrade our
technology, transaction processing systems and network infrastructure. We may
not be able to accurately project the rate or timing of increases, if any, in
the use of our service or to timely expand and upgrade our systems and
infrastructure to accommodate any increases.
We use internally developed systems to operate our service and for
transaction processing, including billing and collections processing. We must
continually improve these systems in order to accommodate the level of use of
our websites. In addition, we may add new features and functionality to our
services that would result in the need to develop or license additional
technologies. Our inability to add additional software and hardware or to
upgrade our technology, transaction processing systems or network
infrastructure to accommodate increased traffic or transaction volume could
have adverse consequences. These consequences include unanticipated system
disruptions, slower response times, degradation in levels of customer support,
impaired quality of the members' experience on our service and delays in
reporting accurate financial information. Our failure to provide new features
or functionality also could result in these consequences. We may be unable to
effectively upgrade and expand our systems in a timely manner or to integrate
smoothly any newly developed or purchased technologies with our existing
systems. These difficulties could harm or limit our ability to expand our
business.
System failures could harm our business.
- ----------------------------------------
Our future success in the Internet commerce business, and in particular
our ability to facilitate trades successfully and provide high quality
customer service to our members, will depend on the efficient and
uninterrupted operation of our computer and communications hardware and
software systems. The computer web servers for operating our service
currently are at the offices of Advanced Internet Technologies, Inc. (AIT), a
non-affiliated entity located in Fayetteville, North Carolina, and LiteSpeed
Technologies, Ltd. of West Palm Beach, Florida. These systems and operations
are vulnerable to damage or interruption from hurricanes, floods, fires, power
loss, telecommunication failures and similar events. They are also subject to
break-ins, sabotage, intentional acts of vandalism and similar misconduct. We
do not have fully redundant systems, a formal disaster recovery plan or
alternative providers of hosting services, and we do not carry any business
interruption insurance to compensate us for losses that may occur. Despite
any precautions we may take, the occurrence of a natural disaster or other
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unanticipated problems at the AIT or LiteSpeed facilities could result in
interruptions in our services. In addition, the failure by our communications
providers (MCI, Sprint and ATT) to provide our required data communications
capacity could result in interruptions in our service. Any damage to or
failure of our systems could result in interruptions in our service. Such
interruptions would harm our future revenues and profits if our members
believe that our system is unreliable.
Unauthorized break-ins to our service could harm our business.
- --------------------------------------------------------------
Our servers are vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions, which could lead to interruptions, delays,
loss of data or the inability to complete on-line transactions. In addition,
unauthorized persons may improperly access our data.
Our future success is dependent upon the continued growth
of the online commerce market.
- ---------------------------------------------------------
The market for the sale of goods over the Internet is a new and emerging
market. Assuming we are successful in achieving an acceptable level of market
recognition, our future revenues and profits in this market will be
substantially dependent upon the widespread acceptance of the Internet and
online services as a medium for commerce. Rapid growth in the use of and
interest in the Web, the Internet and online services is a recent phenomenon.
This acceptance and use may not continue. Even if the Internet is accepted,
concerns about fraud, privacy and other problems may mean that a sufficiently
broad base of consumers will not adopt the Internet as a medium of commerce.
In particular, our websites requires users to make publicly available their
e-mail addresses and other personal information that some potential users may
be unwilling to provide. These concerns may increase as additional publicity
over privacy issues over the Internet increases. Market acceptance for
recently introduced services and products over the Internet is highly
uncertain, and there are few proven services and products. In order to expand
our member base, we must appeal to and acquire consumers who historically have
used traditional means of commerce to purchase goods.
Our Internet commerce business will be dependent on the
development and maintenance of the Web infrastructure.
- -------------------------------------------------------
The success of our Internet commerce business will in part depend upon
the development and maintenance of the Web infrastructure. This includes
maintenance of a reliable network backbone with the necessary speed, data
capacity and security, as well as timely development of complementary products
such as high speed modems, for providing reliable Web access and services.
Because global commerce and the online exchange of information is new and
evolving, we cannot predict whether the Web will prove to be a viable
commercial marketplace in the long term. If the Web continues to experience
increased numbers of users, increased frequency of use or increased bandwidth
requirements, the Web infrastructure may be unable to support the demands
placed on it. In addition, the performance of the Web may be harmed by
increased users or bandwidth requirements.
The Web has experienced a variety of outages and other delays as a result
of damage to portions of its infrastructure, and it could face outages and
delays in the future. These outages and delays could reduce the level of Web
usage as well as the level of traffic and the processing of e-commerce
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transactions on our service. In addition, the Web could lose its viability
due to delays in the development or adoption of new standards and protocols to
handle increased levels of activity or due to increased governmental
regulation. The infrastructure and complementary products or services
necessary to make the Web a viable commercial marketplace for the long term
may not be developed successfully or in a timely manner. Even if these
products or services are developed, the Web may not become a viable commercial
marketplace for services such as those that we offer.
Our Internet commerce business is subject to online security risks.
- -------------------------------------------------------------------
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. Our security
measures may not prevent security breaches. Our failure to prevent security
breaches could harm our business. Advances in computer capabilities, new
discoveries in the field of cryptography, or other developments may result in
a compromise or breach of the technology used by us to protect customer
transaction data. Any such compromise of our security could harm our
reputation and, therefore, our business. In addition, a party who is able to
circumvent our security measures could misappropriate proprietary information
or cause interruptions in our operations. We may need to expend significant
resources to protect against security breaches or to address problems caused
by breaches. Security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. We do not carry any
insurance to reimburse us for losses caused by security breaches.
We must keep pace with rapid technological change to remain competitive.
- -------------------------------------------------------------------
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards, frequent new service and product
introductions and enhancements and changing customer preferences.
The demands created by these market characteristics are increased by the
emerging nature of the Internet and the apparent need of companies from a
multitude of industries to offer Web-based products and services. Our future
success in the Internet commerce business therefore will depend on our ability
to adapt to rapidly changing technologies, to adapt our services to evolving
industry standards and to continually improve the performance, features and
reliability of our service. Our failure to adapt to such changes would harm
our business. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes
could require substantial expenditures to modify or adapt our services or
infrastructure.
Our business may be subject to sales and other taxes.
- -----------------------------------------------------
We do not collect sales or other similar taxes on goods sold through our
Internet service. One or more states may seek to impose sales tax collection
obligations on companies such as ours that engage in or facilitate online
commerce. Several proposals have been made at the state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. These proposals, if adopted, could substantially impair the growth
of electronic commerce, and could diminish our opportunity to derive financial
benefit from our activities. The U.S. federal government recently enacted
legislation prohibiting states or other local authorities from imposing new
taxes on Internet commerce for a period of three years. This tax moratorium
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will last only for a limited period and does not prohibit states or the
Internal Revenue Service from collecting taxes on our income, if any, or from
collecting taxes that are due under existing tax rules. A successful
assertion by one or more states or any foreign country that we should collect
sales or other taxes on the exchange of merchandise on our system could harm
our business.
No Dividends.
- -------------
To date, we have not paid any dividends on our Common Stock and we do not
intend to declare any dividends in the foreseeable future. Any future profits
will be reinvested in our Company to attempt to expand its business
operations.
Related Party Transactions.
- ---------------------------
Certain transactions to which we are a party and certain matters
affecting us have or will result in a material benefit to certain of our
directors and executive officers, or may create conflicts of interest.
Certain of the proceeds to be obtained from puts of our shares to Swartz under
the Investment Agreement will be paid to affiliates in the form of salaries,
payment for legal fees, and repayment of bridge financing. See "Related Party
Transactions."
BUSINESS OF THE COMPANY
The Company
- -----------
eCom eCom.com, inc. ("eCom") and its direct and indirect wholly-owned
subsidiaries, US Amateur Sports Company ("USASC") and USA Performance
Products, Inc. ("USAPP") combined, are usually referred to as "we", "us" or
"eCom". We are located at 3801 PGA Boulevard, Suite 1001, Palm Beach Gardens,
Florida 33410, and our telephone number is (561) 622-4395.
We provide the e-commerce infrastructure that enables the small business
enterprise to carve its niche in the retail and business to business Internet
economy. Built on this infrastructure, the eCom eCom SuperHUB is an on-line
marketplace with multiple venues designed for business to consumer, business
to business and person to person Internet trading. Our B2BPlus services focus
on website design, maintenance and marketing services for small businesses.
Our mission is to make it possible for start-up, small and home-based
businesses to compete within an e-commerce market that is projected by
Forrester Research to top $1.3 trillion by the year 2003.
We are the parent of US Amateur Sports Company (USASC), which in turn is
the parent of USA Performance Products, Inc. (USAPP). USASC owns the rights
to: (1) the All American Bowl, a high school football all-star game, last
played in 1997, when it was broadcast to over 40 million households; (2) the
ProCard/ComCard, a prepaid phone card concept; and (3) USA SportsNet, a
developmental project. USA SportsNet is planned to be an Internet portal for
access to sports information, products and services with a focus on amateur
athletes and local sports organizations. It currently offers the NAYSI on-
line correspondence course for those who volunteer to coach youth sports.
USAPP manufactures and distributes paintball guns and accessories, and served
as a test model for our e-commerce business concepts.
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We recently executed an agreement to acquire Star Dot Marketing, Inc.
(SDMI) which offers a complete line of guaranteed authentic, hand-signed
sports memorabilia and other sports products. We are currently performing our
due diligence review of SDMI in anticipation of closing this transaction. We
currently estimate that the transaction will close by the end of the first
calendar quarter.
We were incorporated on June 14, 1994 in the State of Florida and were
originally named US Amateur Sports, Inc. ("USAS"). Our initial plans included
the development of a sports complex dedicated to amateur athletes and the
development of a sports training and fitness complex. We were unable to raise
sufficient capital to develop these concepts. However, the marketing program
proposed to promote the business of these concepts included use of the
Internet based on early recognition of the marketing power inherent in this
medium and the low cost of entry. In seeking to capitalize on use of the
Internet, our management proposed to develop the USA SportsNet concept. We
also acquired rights to the Viper M1 paintball marker and related assets with
the intention to market paintball products over the Internet. This led to
formation of the USAPP subsidiary.
Our experience in marketing the Viper M1 over the Internet confirmed our
management's belief that focus on electronic commerce would provide the
greatest opportunity for future development of our business, and on January
27, 1999, we changed our name to eCom eCom.com, inc. in the belief that this
name more accurately reflects the nature of our intended core business,
electronic commerce. US Amateur Sports Company then became a wholly-owned
subsidiary of ECOM, and USA Performance Products, Inc. became a wholly-owned
subsidiary of US Amateur Sports Company. In addition, the assets of the USA
SportsNet business unit were transferred into US Amateur Sports Company.
The purpose of these changes was to provide a structure that would
maximize our ability to pursue certain e-commerce concepts that extend beyond
the amateur sports market.
Investors are warned that our business strategy includes a novel use of
the Internet, and despite the recent success of other Internet-related
companies, there can be no assurance that we will be successful.
Electronic Commerce
- -------------------
The Internet is growing to become a part of everyday life in the world of
commerce. Our strategy is to capitalize on the need to facilitate commerce
through the use of the Internet. This strategic emphasis has caused our
company to evolve into three operating units. The eCom eCom SuperHUB is a
marketplace with multiple venues designed for business to consumer, business
to business and person to person Internet trading. "B2BPlus" is focused on
business to business website design, maintenance and marketing services. A
third unit is comprised of the operations of US Amateur Sports Company and its
subsidiaries.
Although the SuperHUB and B2BPlus are separate operating units, they
provide complementary services designed to facilitate web business
development. B2BPlus is a package of on-line tools and professional resources
that enable the entrepreneur who is not necessarily web-savvy to establish and
promote his business on the Internet. The SuperHUB provides a portal to
funnel traffic to the business within a marketplace that includes an on-line
mall in addition to auction, barter and classified ad venues. The combined
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resources of B2BPlus and the SuperHUB enable us to fulfill our motto, "B2B
from A to Z. No experience needed."
B2BPlus Services
- ----------------
B2BPlus is designed to simplify the process of establishing and operating
a web business by leading the business client through step-by-step
instructions to develop his website and draw customers to his virtual store.
The new site can be hosted on the eCom domain, or we can assist our client to
register a unique domain address (URL) that can be hosted on our server. The
client chooses between our Fast Start Up Program (FSU) or our more
comprehensive e-Connect Program (e-Connect).
FSU is available for business owners who wish to create a web presence
quickly with minimal cost. The following services are provided for an annual
charge of $99:
- Creation of a web page with a unique URL and e-mail address or
with a direct link to the client's existing URL.
- Right to unlimited use of the SuperHUB's auction, classified and
barter venues and a one-year listing in the SuperHUB's searchable
directory.
- Access to the B2BPlus resource page which provides helpful
information such as an advertising guide, state tax information,
travel resources, etc.
For a base fee of $89 per month (with additional charges assessed when
the client opts for certain value-added services), e-Connect combines the
features of FSU with the powerful web-based tools of the iHOST Pro Site
Wizard. The client receives:
- Sophisticated website development tools with customized colors,
graphics and logos.
- Browser-based storefront construction with the ability to add
products individually or import a large number of products from
existing databases.
- Shopping cart and secure credit card transactions with real time
authorization.
- Submission to listings and search engines using key words and key
word searching to facilitate user interaction with the site.
- Use of back-office software for product management and fulfillment
support.
- Graphical site usage reports.
- Editing capability to dynamically manage text, images and page
organization.
After construction of the on-line business has been completed, our client
is eligible to join other merchants in the SuperHUB's on-line mall.
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eCom eCom SuperHUB
- ------------------
The SuperHUB is a marketplace composed of a merchant mall and an auction
site combined with venues for advertising and trading through classified ad
and barter formats. A multi-purpose facility, the SuperHUB serves as a portal
to bring traffic to a site structured to accommodate trade between businesses
(B2B), between businesses and consumers (B2C) and between consumers themselves
(C2C). Trading through the auction, classified and barter sites is free to
all, a feature intended to increase consumer traffic.
Placement in the eCom eCom SuperHUB Merchant Mall is a significant
benefit to new web businesses. The mall currently is an entrance to over
sixty-five stores including prominent merchants such as Disney, Hallmark,
eToys, The Sharper Image and Office Max. (Through our affiliate program, we
receive a percentage of any sales generated when customers patronize
participating mall stores.) The mall provides visitors with a search engine
and a directory for easy navigation. New web businesses receive equal billing
with established retailers when the customer searches the mall. This levels
the "e-commerce playing field" in a way that can never be accomplished in
traditional retail outlets.
Use of the auction, classified and barter sites is an added benefit to
our merchant clients. The auction site allows anyone with a personal computer
to reach potential buyers all over the world to auction off any item to the
highest bidder. To auction an item, the seller selects the product category
in which he would like the item listed. He can then insert scanned or
electronically downloaded photographs of the item plus descriptive text. The
seller may optionally elect enhanced selling features, such as bold item
headings, for a nominal fee. The auction format is then selected, ranging
from the traditional English auction procedure, in which "reserves" (similar
to minimum bids) are allowed, to a Dutch auction format, commonly used for
selling quantities of like items wherein the items are sold for a single
"market" price which is determined using a bid format.
The classified ad and barter venues are bulletin boards with a world-wide
reach, an obvious advantage for the seller who does not wish to restrict the
geographical scope of his market to the area of distribution provided by a
newspaper. With the growing cost of newsprint advertising, these venues
provide an attractive advertising alternative.
Our new website offering the services of B2BPlus and the eCom eCom
SuperHUB was launched at www.ecom.com on February 29, 2000. Preliminary
advertising to promote the FSU program has appeared in PC World magazine and
in the in-flight magazines of several major airlines. We are following up the
leads developed from these advertisements through telemarketing. A major
portion of the capital that may be received from our Investment Agreement with
Swartz Private Equity (See "The Investment Agreement" on page 24.) will be
used to buy advertising space in all media, but we plan to place a heavy
emphasis on television. This effort will be led by our Vice President of
Operations who recently joined us from Paxson Communications following a
twenty-five year career in the television industry.
US Amateur Sports
- -----------------
US Amateur Sports Company (USASC) is a wholly-owned subsidiary of eCom
eCom.com, inc. USASC holds several developmental assets and is the parent to
our wholly-owned subsidiary, USA Performance Products, Inc.
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USA Performance Products
------------------------
USA Performance Products, Inc. (USAPP) was incorporated in the State of
Florida on January 20, 1998 to manufacture and distribute paintball guns and
accessories. Through USAPP we introduced the Viper M1, a durable, mid-priced
paintball gun with high-priced features, and then used the business unit as an
internal test model for our e-commerce concepts.
Paintball is a sport in which each contestant attempts to remove the
other contestants from the game by marking them with a capsule from the
paintball marker while at the same time trying to avoid being removed from the
game himself. The game can be played either indoors or outdoors and, except
for the paintball marker and face mask, it does not require extensive
equipment. There are many different ways to play paintball. In general, a
player uses the marker to "shoot" at other players or at specific targets. It
is most often played as a team event. Some universities have adopted the
sport as a course offering for the teaching of team building skills.
Corporations view the game as an opportunity for employees to increase
leadership and communication skills, to exercise and to have fun. Paintball,
conceived in 1981, is played in over 40 countries and has its own annual World
Cup event.
In 1996, we purchased certain assets of Performance Paintball Products,
Inc. of Riviera Beach, Florida. These assets consist of inventory, property
and equipment, including the tools and dies necessary to manufacture the Viper
M1. The assets also include exclusive rights to the related names and
technology.
We initially subcontracted the manufacture and assembly of the Viper M1
paintball products to a company that proved to lack the capacity to produce
the paintball marker in quantities sufficient to meet demand. In 1998, we
leased approximately 6,000 square feet of commercial space in Riviera Beach,
Florida. The creation of an in-house production capability has allowed us to
grow to meet demand for the marker.
Having demonstrated the ability to manufacture the product in-house, our
advertising was expanded in mid-1999 to increase penetration of this segment
of the paintball market. To date, the majority of Viper M1 sales have been
through our e-commerce program. However, we have also contracted for
advertising in the leading paintball-related magazines and trade journals.
The popularity of paintball has created a market for equipment,
accessories, clothing and protective gear. To respond to this opportunity, we
linked the power of toll-free telecommunications with the global reach of the
Internet. In mid-1999, we implemented the use of the toll-free telephone
number, 1-800-PAINTBALL, and the Internet address, www.800paintball.com, which
leads to USAPP's paintball website. Since the introduction of our plan to use
the advertising advantages inherent in the combination of these two forms of
electronic commerce, paintball sales have posted an average month to month
increase of 35%. Our production is now fully capable of meeting the demand,
and we are expanding our customer service staff. To date, substantially all
of our revenues have come from the sale of paintball products.
Other Assets
- ------------
USA SportsNet is an Internet portal that is intended to enable amateur
athletes and their high school and youth athletic organizations to access
20
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information, products and services to support their sports activities.
Through USA SportsNet, scores, standings, schedules and highlights of local
amateur athletic competitions can be posted free of charge by any community
recreation department, youth league or school. Local organizations can use
the site to sell advertising to raise funds for their programs. This local
information is intended to appear adjacent to features of interest to athletes
everywhere within a sports meeting place that offers a resource never
available before. An online correspondence course provides youth sports
organizations with a convenient and cost-effective means of ensuring that
volunteers are qualified to coach young athletes. Those aspiring athletes
will be able to learn how to throw a curve ball, receive tips from the pros,
find the best deals on sports equipment, and even view film of their own
sports achievements.
Responsibility for posting information of local interest will reside with
local athletic organizations, while portions of the website of interest to all
athletes will be maintained by us. We intend to retain the services of sports
celebrities to promote the concept and to answer the questions posed by young
athletes.
We believe that the USA SportsNet grassroots approach will attract
millions of visitors from a market that we estimate to include approximately
one hundred million amateur athletes, traversing all demographics. We expect
the site to become a popular place for the merchants who are drawn to the
amateur sports market. We then expect to generate revenue from advertising in
addition to the sale of products through the website.
Development of the USA SportsNet concept was deferred in order to focus
on our other electronic commerce concepts. However, the online correspondence
course is presently available and is maintained through an agreement with the
North American Youth Sport Institute.
The All American Bowl is a high school football all-star game, last
played in 1997 when it was broadcast by the Sunshine Network and FOX SportsNet
to over 40 million households. The game showcases the top college football
recruits in the nation and promises to serve as an effective promotional
vehicle for our Internet concepts.
Major sponsors of the 1997 All American Bowl included Coca-Cola, Adidas
and Schutt Sports. We think that the very positive response to the game in
1997 is an indication that this event has the potential to attract sufficient
sponsorship in the future to contribute to Company profitability. However, we
now view the game as a special component of our future marketing programs
rather than as a separate profit center.
ProCard/ComCard is a prepaid telephone card concept with features geared
to the youth market. Designed to be marketed through youth sports
organizations, the ProCard is programmed with speed-dial numbers to quickly
reach family members and other important emergency contacts, such as the
family doctor, in the event of injury. Mailboxes can be speed-dialed to
access emergency medical information such as blood type, allergies and special
medical conditions. The accompanying ComCard is retained by parents to
control the speed-dial numbers programmed into the ProCard. We plan to
incorporate the ProCard/ComCard concept in the programs promoted through the
USA SportsNet.
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Star Dot Marketing
------------------
On February 3, 2000 we entered into a Stock Exchange Agreement with the
shareholders of Star Dot Marketing, Inc. ("SDMI") which provides for the
transfer of all the outstanding Common Stock of SDMI to eCom in exchange for
675,000 shares of our Common Stock. It is currently anticipated that the
transaction will close before the end of April.
SDMI uses the trade name "Treasures of Sports" to offer a complete line
of guaranteed authentic, hand signed sports memorabilia and other sports
products. These products are marketed through joint sales agreements with
professional sports franchises including the San Francisco Giants, Los Angeles
Dodgers, Detroit Tigers, Baltimore Orioles, Golden State Warriors, Detroit
Pistons and Pittsburgh Penguins. SDMI also creates specialty products for
businesses to use as gifts, awards, premiums and employee incentives.
We intend to utilize the same marketing and sales program for SDMI
products as we have developed for our paintball products. This program
includes both a related website as well as a toll-free number.
Competition
- -----------
The explosive growth of the Internet and electronic commerce has created
unparalleled opportunity for the web entrepreneur. With the widespread
recognition of this opportunity, the competition for a share of this huge
developing market is extremely strong. In fact, it is this competitive
atmosphere that gives birth to the concept of the complementary services of
the eCom eCom SuperHUB and B2BPlus. Our mission is to enable start-up, small
and home-based businesses to compete in the e-commerce market.
In providing these services, we currently or potentially compete with
many other companies. There are a considerable number of companies that
market web creation, maintenance and marketing services to other businesses.
These other companies include such well-established competitors as Yahoo!
which offers tools for do-it-yourself website creation. Some offer free e-
commerce sites such as Bigstep.com. Bcentral.com offers business advice and
services. VerticalNet is the leader in industry-specific business hubs.
There are many other companies that offer a site or a service that competes
with an individual component of the SuperHUB and B2BPlus programs. For
example, eBay, Amazon.com and numerous smaller auction sites compete with the
auction venue of the SuperHUB. America Online, Lycos and Microsoft offer
business-to-consumer trading services and classified ad services. Other large
companies with strong brand recognition and experience in online commerce,
such as Cendant Corporation, QVC, USA Network and large newspaper or media
companies, also may seek to compete in these online markets. We are not aware
of any competitors presently that focus on the small business segment of the
e-commerce market and that provide the complete package of resources and
services offered by our programs. However, it is likely that, unknown to us,
competitors do currently exist within this market sector and that, in the
future, increased competition will develop within this market sector.
The principal competitive factors in the e-commerce market include
financial strength, volume of transactions and selection of goods, community
cohesion and interaction, system reliability, customer service, reliability of
delivery and payment by users, brand recognition, website convenience and
accessibility, level of service fees and quality of search tools. All of
these factors must be satisfactorily addressed in order for us to compete
22
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successfully. Because our market includes businesses owned by entrepreneurs
who are not web-savvy, we intend to distinguish our services by providing a
high level of customer service. For example, while some competitors provide
on-line tools for website creation, the aspiring web entrepreneur typically is
left on his own to struggle with the details of implementation. In contrast,
we intend to "hold the hand" of our client merchants to guide them through the
creative process. To build the strong customer service department that will
be needed, to advertise our services and gain brand recognition, and to
promote our site to draw traffic into the SuperHUB will require considerable
financial resources. This need may be met with proceeds from the Investment
Agreement with Swartz Private Equity, LLC, if any. (See "THE INVESTMENT
AGREEMENT" below.)
Within the paintball market, we have established a competitive advantage
by acquiring the toll-free number 1-800-PAINTBALL coupled with the
800paintball.com URL. However, there are a substantial number of known
production paintball markers, in addition to custom-made markers, that are
presently in the marketplace. These compete directly with the Viper M1. Some
of the major competitors include Brass Eagle (formerly Daisy Manufacturing),
Tippman, Kingman, WORR Products and Air Design. We know of three major
distributors that compete with us in the distribution of other paintball
products including National Paintball, 888 Paintball and Pursuit Marketing,
Inc. All of these companies have been established longer than we have, and
some of the companies may be better funded than we are.
In order to respond to changes in the competitive environment, we may,
from time to time, make pricing, service or marketing decisions or
acquisitions that could harm our business. New technologies may increase the
competitive pressures by enabling our competitors to offer a lower cost
service or product. Web-based applications that direct Internet traffic to
certain websites may channel potential visitors to trading services that
compete with ours. Whether we are able to compete successfully will depend on
our ability to anticipate and respond in a timely and appropriate manner to
these changes.
Litigation
- ----------
We are not involved in any litigation and the officers and directors are
aware of no threatened or pending litigation which would have a material,
adverse effect on eCom.
Government Regulation
- ---------------------
Currently, there is no government regulation that materially affects our
business operations.
Property
- --------
We lease approximately 5,720 square feet of office and warehouse space
located at 8125 Monetary Drive, Suite H-4 in Riviera Beach, Florida pursuant
to a written lease agreement with an unaffiliated party. The term of our
lease is from June 15, 1998 to June 30, 2001. Our rent is approximately
$3,000 per month. In addition, we lease approximately 1,500 square feet of
space at 3801 PGA Boulevard, Suite 1001, Palm Beach Gardens, Florida. This
space is leased on a month-to-month basis at a rental rate of approximately
$4,000 per month.
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THE INVESTMENT AGREEMENT
On May 13, 1999, we entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz"). On
April 6, 2000 we signed an Amended and Restated Investment Agreement with
Swartz which took the place of the May 13, 1999 Investment Agreement. Any
reference to the "Investment Agreement" in this Prospectus shall mean the
Amended and Restated Investment Agreement. Pursuant to the terms of the
Investment Agreement, we may, in our sole discretion and subject to certain
restrictions, periodically sell ("Put") shares of eCom's Common Stock for up
to $30,000,000 upon the effective registration of such Put shares and
continuing for a period of thirty-six months thereafter. The Investment
Agreement allows us to choose to sell Common Stock to Swartz at times which we
decide are advantageous. The Investment Agreement is not a debt instrument.
Any Put exercised by us is the sale of Common Stock and not a loan.
PUT RIGHTS. An advance put notice must be delivered to Swartz at least
ten business days prior to the date that we intend to sell the Common Stock to
Swartz. The advance put notice must state the put date as well as the number
of shares of Common Stock that we intend to put to Swartz. The notice may
also state a minimum purchase price per share which cannot be greater than 80%
of the closing bid price of our Common Stock on the date of the advance put
notice.
After the registration statement to which this Prospectus relates is
declared effective, the number of shares Swartz may be required to purchase in
a given Put will be the lesser of the actual number of shares we intend to
sell to Swartz as set forth in the Advance Put Notice and the Individual Put
Limit. The Individual Put Limit is equal to the lesser of (I) 15% of the sum
of the aggregate daily reported trading volumes in the outstanding Common
Stock on our principal market, excluding any block trades of 20,000 or more
shares of Common Stock for all evaluation days in the pricing period; (ii) the
number of Put Shares which, when multiplied by their respective Put Share
Prices, equals the Maximum Put Dollar Amount (the lesser of the maximum put
amount set forth in our Advance Put Notice or $10,000,000); or (iii) 9.9% of
the total amount of our Common Stock that would be outstanding upon completion
of the Put.
PUT PRICE. The purchase price for the Put Shares will be equal to the
lesser of the Market Price for such Put minus $.25 or 92% of the Market Price
(lowest closing bid price for the Common Stock on the principal market during
the twenty day pricing period following the date of the Put Notice), but in no
event can it be less than our designated minimum put share price, if any, as
set forth in the Advance Put Notice.
WARRANTS. At the time of each Put, Swartz will be issued a Purchase
Warrant which will give the holder the right to purchase up to eight percent
(8%) of the number of Put shares issued to Swartz in that Put. Each Purchase
Warrant will be exercisable at a price equal to 110% of the Market Price on
the Purchase Period End Date (as such term is defined in the Investment
Agreement) and will have semi-annual reset provisions. Each Purchase Warrant
will be immediately exercisable and will terminate on a date which is five
years after the date of issuance. The terms of the Purchase Warrants allow
for a non-cash exercise (so long as the shares underlying the warrants are not
registered pursuant to an effective registration statement). The shares
underlying the Commitment Warrants are being registered pursuant to the
registration statement to which this Prospectus relates.
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COMMITMENT WARRANTS. In partial consideration of the Investment
Agreement, we issued warrants to Swartz (the "Commitment Warrants") to
purchase 490,000 shares of our Common Stock. The Commitment Warrants are
currently exercisable at the price of $2.50 per share, which price was
adjusted, pursuant to the Investment Agreement, from the original exercise
price of $13.275. Each Commitment Warrant is immediately exercisable and
terminates five years after the date of issuance (April 18, 2004). The shares
underlying the Commitment Warrants are being registered pursuant to the
registration statement to which this Prospectus relates.
SHORT SALES. Swartz and its affiliates are prohibited from engaging in
short sales of our Common Stock unless they have received a Put Notice and the
amount of shares involved in a short sale do not exceed the number of shares
speficied in the Put Notice.
CANCELLATION OF PUTS. We must cancel a particular put if between the
date of the advance put notice and the last day of the pricing period:
- we discover an undisclosed material fact relevant to Swartz's
investment decision;
- the registration statement registering resales of the Common Shares
becomes ineffective; or
- shares are delisted from the then primary exchange.
The pricing period for that Put shall end as of the preceding business day,
and the Put shall remain effective for the shortened pricing period.
NON-USAGE FEE. If we have not put a minimum of $1,000,000 in aggregate
Put Dollar Amount during any six month period of time during the term of the
Investment Agreement, we, will be required to pay Swartz a non-usage fee equal
to the difference of $100,000 minus 10% of the aggregate Put Dollar Amount of
the Put Shares put to Swartz during such six month period. In the event that
we deliver a termination notice to Swartz or an automatic termination occurs,
we must pay Swartz a termination fee equal to the difference of $200,000 minus
10% of the aggregate Put Dollar Amount of the Put Shares put to Swartz during
all Puts to such date.
SHAREHOLDER APPROVAL. We may issue more than 20% of our outstanding
shares. If we become listed on the Nasdaq Small Cap Market or Nasdaq National
Market, then we must get shareholder approval to issue more than 20% of our
outstanding shares. Since we are currently a bulletin board company, we do not
need shareholder approval.
TERMINATION OF INVESTMENT AGREEMENT. We may also terminate our right to
initiate further puts or terminate the Investment Agreement by providing
Swartz with notice of such intention to terminate; however, any such
termination will not affect any other rights or obligations we have concerning
the Investment Agreement or any related agreement.
RESTRICTIVE COVENANTS. During the term of the Investment Agreement and
for a period of one year thereafter, we are prohibited from certain
transactions. These include the issuance of any debt or equity securities in a
private transaction which are convertible or exercisable into shares of Common
Stock at a price based on the trading price of the Common Stock at any time
after the initial issuance of such securities or with a fixed conversion or
exercise price subject to adjustment. We are also prohibited from entering
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<PAGE>
into any private equity line type agreements similar to the Investment
Agreement without obtaining Swartz's prior written approval.
RIGHT OF FIRST REFUSAL. Swartz has a right of first refusal to purchase
any variable priced securities offered by us in any private transaction which
closes on or prior to six months after the termination of the Investment
Agreement.
SWARTZ'S RIGHT OF INDEMNIFICATION. We are obligated to indemnify Swartz
(including their stockholders, officers, directors, employees and agents) from
all liability and losses resulting from any misrepresentations or breaches we
made in connection with the Investment Agreement, our Registration Rights
Agreement, other related agreements or the registration statement.
USE OF PROCEEDS
The proceeds from the sale of the shares of Common Stock offered hereby
will be received directly by Swartz. We will not receive any proceeds from
the sale of the shares of Common Stock offered hereby. We will receive,
however, proceeds from the sale of our Common Stock to Swartz.
DILUTION
As of November 30, 1999, we had a net tangible book value of ($499,168),
or approximately ($.037) per share, based upon the number of shares of Common
Stock outstanding. "Net tangible book value" represents total tangible assets
reduced by total liabilities. The following table illustrates the per share
dilution to new shareholders:
Dilution to New Shareholders
Estimated offering price $ 2.250
Net tangible book value before Offering $(0.037)
Increase attributable to payments by
new shareholders $ 0.524
Net tangible book value after Offering $ 0.487
Dilution to new shareholders $ 1.763
SELECTED FINANCIAL INFORMATION
The following selected financial information should be read in
conjunction with the financial statements of the Company and the notes thereto
included elsewhere herein.
1996 1997 1998 1999
---- ---- ---- ----
Net Revenues $ 3,448 $ 48,381 $ 149,582 $ 228,613
Income/(loss) from Operations $ (57,112) $(240,018) $(143,051) $(374,085)
Income/(loss) from Operations
Per Share* $ (.010) $ (.040) $ (.019) $ (.031)
Total Assets $ 233,574 $ 176,933 $ 323,561 $ 467,825
Total Liabilities $ 220,122 $ 279,513 $ 388,932 $ 456,259
Stockholders' Equity (Deficit) $ 13,452 $(102,580) $ (65,371) $ 11,566
___________
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* Loss per share was calculated using the weighted average of Common Stock
issued and outstanding. Basic and diluted loss per share are the same. eCom
has issued no securities such as options, warrants or convertible securities
or entered into any contingent stock agreements. Had eCom entered into any
such arrangements, the effect would have been anti-dilutive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the
accompanying consolidated financial statements for the six-month periods ended
November 30, 1999 and 1998 and the Forms 10-KSB for the fiscal years ended May
31, 1999 and 1998.
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
Certain statements in this Prospectus and elsewhere (such as in other
filings by us with the Securities and Exchange Commission ("SEC"), press
releases, presentations by us or our management and oral statements) may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
"should," and variations of these words and similar expressions, are intended
to identify these forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements.
Factors that might cause or contribute to such differences include, among
others, competitive pressures, the growth rate of the paintball industry and
electronic commerce, constantly changing technology and market acceptance of
our products and services. eCom undertakes no obligation to publicly release
the result of any revisions to these forward-looking statements, which may be
made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
Overview
Corporate Restructuring
- -----------------------
On December 17, 1998, our directors voted to change our name from US
Amateur Sports, Inc. to eCom eCom.com, inc. in the belief that the proposed
name more accurately reflected the nature of our core business, electronic
commerce. At a Special Meeting of Shareholders held on January 25, 1999, our
shareholders approved an amendment to our Articles of Incorporation in order
to adopt the new name. At that time, a current report on Form 8-K was filed
with the Securities and Exchange Commission, and the name change became
effective on January 27, 1999.
Also on January 27, 1999, Articles of Incorporation of US Amateur Sports
Company were filed with the State of Florida. US Amateur Sports Company
became a wholly-owned subsidiary of eCom eCom.com, inc., and USA Performance
Products, Inc. became a wholly-owned subsidiary of US Amateur Sports Company.
In addition, the assets of the USA SportsNet business unit were transferred
into US Amateur Sports Company.
The purpose of these changes was to structure eCom to maximize its
ability to pursue certain e-commerce concepts that extend beyond the amateur
sports market.
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Electronic Commerce
- -------------------
Our approach to Internet commerce has caused our company to evolve into
three operating units: eCom eCom B2BPlus, eCom eCom SuperHUB and US Amateur
Sports Company.
The B2BPlus program and the SuperHUB provide complementary services to
support new web entrepreneurs. B2BPlus is a package of on-line tools and
professional resources to help business people who are not web-savvy put their
business on the Internet. Their business then has a home in our SuperHUB.
The SuperHUB is an e-commerce marketplace that funnels traffic to
participating merchants. Visitors shop in an on-line mall in addition to
auction, barter and classified ad sites. The combined resources of B2BPlus
and the SuperHUB enable us to fulfill our motto: "B2B from A to Z. No
experience needed."
eCom eCom B2BPlus
-----------------
The B2BPlus program makes it simple for anyone to engage in e-commerce by
offering cost-effective ways to establish and operate an Internet company.
Most small businesses have limited resources and need a simple, expedient and
inexpensive way to get on the Internet. We offer our clients two options -
Fast Start Up and e-Connect - to get their Internet businesses up and running.
The Fast Start Up program is a quick, economical way for a small business
to establish its presence on the Web. For $99 per year, a web page is created
for the business. The business then is automatically included in our Merchant
Mall and has unlimited use of our classified, barter and auction venues to
advertise and promote their products and services.
The e-Connect program offers a full gamut of e-commerce enabling products
and services. It combines the features of our Fast Start Up program with
other tools needed to compete with larger, more-established companies. These
include web hosting and maintenance, secure payment and order processing,
custom application and online storefront development, marketing, advertising,
technical and administrative support, customer acquisition and order
fulfillment. In addition, clients have access to tips and other information
designed to help them succeed in the e-commerce marketplace. The cost of the
e-Connect program starts at $89 per month.
eCom eCom SuperHUB
------------------
The SuperHUB is an e-commerce marketplace, a shopping portal that brings
sellers and buyers together. Buyers can browse and search for money-saving
deals on merchandise in storefronts located in the Merchant Mall. Merchants
can share mall space and Internet traffic with top brand name affiliates. The
SuperHUB provides four ways to buy and sell merchandise through storefronts,
online auctions, barter and classified ad formats. We believe we are the only
e-commerce shopping portal to offer all of these options.
US Amateur Sports Company
US Amateur Sports Company is a wholly-owned subsidiary of eCom eCom.com,
Inc. US Amateur Sports holds several developmental assets and is parent to
the wholly-owned subsidiary, USA Performance Products, Inc.
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Paintball
---------
USA Performance Products manufactures and distributes paintball guns and
accessories. Manufacturing is limited to production of the Viper M1, a
durable, mid-priced paintball gun with high-price features. After the
introduction of the Viper M1, we used the business unit as an internal test
model for our e-commerce concepts. Paintball magazines provide the primary
venue for advertising within the industry, but our reliance on this medium has
been reduced by the success of our websites. In fact, the success of our web
marketing efforts generated a demand for the Viper M1 product line that
exceeded our manufacturing resources.
During the prior fiscal year, we moved production of the Viper M1 from a
subcontractor to in-house facilities. Although this created a period of
manufacturing down-time, it has allowed us to expand our production
capabilities so that we now are able to satisfy current demand.
During the third quarter of the 1999 fiscal year, we acquired the toll-
free telephone number 1-800-PAINTBALL and the Internet domain name
800paintball.com. The use of these marketing tools enabled us to sell other
manufacturers' products in addition to our own, thus making us a distributor
and significantly expanding the scope of our paintball business. Following
the introduction of these two forms of electronic commerce at the beginning of
the current fiscal year, paintball sales have posted an average month to month
increase of 35%. To date, substantially all of our revenues have come from
the sale of paintball products.
Other Assets
------------
USA SportsNet is an Internet portal intended to enable amateur athletes
and their high school and youth athletic organizations to access information,
products and services to support their sports activities. It will include a
site to post scores, standings, schedules and highlights of local amateur
athletic activities free of charge. We believe that the USA SportsNet concept
will draw heavy traffic from the huge amateur athletic market and the
merchants who cater to this market. We then expect to generate revenue from
advertising in addition to the sale of products through the website.
Development of USA SportsNet was deferred in order to focus on the SuperHUB
and B2B concepts.
The All American Bowl is a high school football all-star game last
played in 1997 when it was broadcast to over 40 million households. The game
showcases the top college football recruits in the nation and promises to
serve as an effective promotional vehicle for our Internet concepts.
ProCard/ComCard is a prepaid telephone card concept with special features
geared to the youth sports market. Along with the All American Bowl, we
believe the card will be a useful tool in our corporate marketing program.
Swartz Agreement
- ----------------
On May 13, 1999, we entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC ("Swartz"). On
April 6, 2000 we signed an Amended and Restated Investment Agreement with
Swartz. Pursuant to the terms of the Investment Agreement, we may, in our
sole discretion and subject to certain restrictions, periodically sell ("Put")
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<PAGE>
shares of eCom's Common Stock for up to $30,000,000 upon the effective
registration of such Put shares and continuing for a period of thirty-six
months thereafter. The Investment Agreement allows us to choose to sell
Common Stock to Swartz at times which we decide are advantageous. The
Investment Agreement is not a debt instrument. Any Put exercised by us is the
sale of Common Stock and not a loan. For more detailed information concerning
the Swartz Agreement, please see "THE INVESTMENT AGREEMENT" on page 24 of this
Prospectus.
Results of Operations for the fiscal year ended May 31, 1999
compared to the fiscal year ended May 31, 1998
- ------------------------------------------------------------
Revenue for the year ended May 31, 1999 was $228,613 compared to $149,582
during the prior year. All current period revenue consisted of sales of
paintball products. Therefore, the 53% increase in sales is attributable to
our paintball operations.
A net loss of $374,085 was posted during the year ended May 31, 1999
compared to a net loss of $143,051 for the prior year period. Cost of sales
increased $47,356 as a result of the growth in sales of the Viper M1. An
increase of $153,078 in sales and marketing expense consisted of expenditures
to promote our Internet presence in addition to increased advertising of the
Viper M1. Product development expense of $34,347 compared to $0 in the prior
year was associated with development of our Internet properties. General and
administrative expenses increased $64,711 as a result of necessary
administrative support for a larger base of operations and expected future
growth. Growth in rent, depreciation, office and other operating expenses was
created by relocation and equipping of our headquarters, while focus on
development of our Internet properties caused professional fees to rise.
Acquisition of Internet properties, including the AclassifiedAD and Swap and
Shop websites, plus purchase of the right to use the toll-free number 1-800-
PAINTBALL resulted in greater expense to amortize these intangible assets.
Results of Operations for the six months ended November 30, 1999
compared to the six months ended November 30, 1998
- ----------------------------------------------------------------
Revenue for the six month period ended November 30, 1999 was $451,571
compared to $53,986 of revenue recorded during the same period of the prior
year. This increase was created by expansion of our paintball business
following acquisition of the 1-800-PAINTBALL telephone number and related
Internet domain name. In addition, prior year sales were stifled by the
inability of our Viper M1 manufacturing subcontractor to produce and the down-
time created by transferring production in-house.
During this start-up period of the 800-PAINTBALL program, we have relied
on other paintball distributors for procurement of paintball products other
than the Viper. With the growth in volume, we are now able to negotiate
directly with manufacturers which will allow us to reduce our cost of sales
and increase gross profit margins. Although our gross profit increased from
$24,825 in the prior period to $40,634 in the current period, this represented
a decline in gross profit margin from 46.0% of sales in the prior period to
9.0% in the current period.
Sales and marketing expense increased by $239,775, primarily as a result
of the implementation of test marketing programs for our e-commerce concepts.
Product development expense of $264,949 incurred in the current period ($0 in
the prior period) resulted from our efforts to develop and refine our e-
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<PAGE>
commerce properties. General and administrative expenses rose $195,509 as the
result of additional salaries, consulting, and professional fees associated
with our company's overall growth. Depreciation and amortization increased
$14,568 due to the addition of computers and related electronic hardware.
Our developmental activities and the related expenditures resulted in a
net loss of $820,677 in the current year-to-date period compared to a loss of
$122,482 in the same period of the prior year.
Liquidity and Capital Resources
- -------------------------------
At May 31, 1999, current assets totaled $296,654 compared to $216,592 at
the prior year end. Accounts receivable increased $11,840 due to the growth
in paintball sales. An increase of $70,738 in inventories consisted of
paintball work-in-process and finished goods inventories. A reduction of
$18,831 in prepaid expense resulted primarily from the expensing of amounts
paid for advertising.
Current liabilities dropped from $272,518 at May 31, 1998 to $236,592 at
the current year end. Accounts payable decreased slightly from $131,704 to
$130,683, but $30,214 of the current portion of notes payable and $4,663 of
the related portion of accrued interest were eliminated from the prior year
balance.
Net cash used by operating activities was $400,150 and $167,275 for the
years ended May 31, 1999 and 1998, respectively. The principal use of cash in
both periods was to fund our net loss from operations. Other significant uses
of cash in the current year provided the increases in inventories and accounts
receivable.
Net cash used by investing activities was $108,882 during the year ended
May 31, 1999 and $34,372 during the prior year. All of the investment cash
used during the prior year purchased property and equipment. During the
current year, $51,220 was used to acquire property and equipment, and $57,662
was used for the acquisition of intangible assets.
Net cash provided by financing activities was $525,347 and $290,379 for
the years ended May 31, 1999 and 1998, respectively. Increased capital
contributions from private sales of restricted stock and the exchange of stock
for services produced current year cash flows of $451,021. Loans from
stockholders, which bear no interest, continued to be a significant source of
capital to fund operations, but these cash flows were offset by reductions in
notes payable.
At November 30, 1999, current assets totaled $361,679 compared to
$296,654 at the end of the prior fiscal year. Increases of $106,586 in
inventories and $65,561 in prepaid advertising offset decreases in cash and
accounts receivable. A $97,675 reduction in cash resulted from our net loss
year-to-date. Current liabilities grew from $236,620 at the prior year-end to
$674,678 at the end of the current period. This growth primarily resulted
from an increase of $430,881 in accounts payable and accrued expenses, an
increase created by the growth in inventories and operating expenses.
Net cash used by operating activities during the six months ended
November 30, 1999 totaled $513,059 compared to $110,343 during the same period
of the prior year. The principal use of cash in both periods was to fund our
net loss from operations.
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Net cash used by investing activities increased from $5,878 in the prior
year period to $70,863 in the current year period due to the addition of
computer hardware and related electronic equipment.
Net cash provided by financing activities consisted of loans from
stockholders, which bear no interest, and capital contributions recorded from
the private sale of restricted stock. These cash flows totaled $486,247 in
the current year period compared to $106,855 in the same period of the prior
year.
We believe that the combination of revenues, loans from stockholders and
capital contributions will be sufficient to fund operations for the next
twelve months. The Investment Agreement with Swartz may provide us with an
equity line to be used to finance the expansion of our business through
acquisitions and internal growth. To the extent that additional funds are
required to support operations or to expand our business, we may sell
additional equity, issue debt or obtain other credit facilities through
financial institutions. Any sale of additional equity securities will result
in dilution to our shareholders. There can be no assurance that additional
financing, if required, will be available to our company in amounts or on
terms that are acceptable.
Provision for Income Taxes
- --------------------------
No provision for federal and state income taxes has been recorded because
our company has incurred net operating losses since inception. Our net
operating loss carry-forwards as of May 31, 1999 total $920,006. These carry-
forwards will be available to offset future taxable income. If not used, the
operating loss carry-forwards will expire from 2010 to 2014. We do not
believe that the realization of the related deferred income tax assets meets
the criteria required by generally accepted accounting principles and,
accordingly, deferred income tax assets have been reduced to $0 as of May 31,
1999.
Market for Common Equity
- ------------------------
Following the change in our name discussed above, our Common Stock symbol
was changed to ECEC and the CUSIP number was changed to 27889U-10-2. The
stock continues to trade on the OTC Bulletin Board, and Equitrade Securities
Corporation of Lake Forest, California continues to serve as the lead market
maker for the stock.
MANAGEMENT
eCom's directors and executive officers as of February 29, 2000 are:
Name Age Position with Company
- ---- --- ---------------------
David J. Panaia 60 President, Treasurer and a Director
Thomas DeRita, Jr. 56 Secretary and a Director
Gerald V. Bergman 53 Director
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Elling J. Myklebust 54 Vice President and Director
David J. Panaia, President, Treasurer and Director, is the founder of
eCom and has served as Director and President since we were incorporated in
June 1994. Mr. Panaia previously founded several other businesses, including
Gold Cross Ambulance Service, Inc. and Gold Cross Medical Services, Inc., and
acquired several other companies which were consolidated into Gold Cross,
Inc., which provided ground and air ambulance service, medical services,
equipment and supplies. After operating for over twenty years, Gold Cross was
sold in 1982. Mr. Panaia then founded Biomedics Corporation, a durable
medical equipment dealer, which he operated until its sale in 1988. Both
corporations were privately owned. From 1988 to 1994, he served as a
political and small business marketing consultant through his own firm,
Sunpoint Industries, Inc. Sunpoint offered political consulting services to
candidates and medical equipment businesses located in the United States. Mr.
Panaia has served in numerous community, business and political capacities.
He will concentrate full time in his duties as the President of eCom.
Gerald V. Bergman has served as a Director of eCom since June 1995. From
June, 1995 through May, 1998 he also served as Chief Financial Officer and
Treasurer. Effective May 31, 1998, Mr. Bergman resigned his position as CFO
and Treasurer. A CPA, Mr. Bergman joined Price Waterhouse & Co. in 1975 where
he was an audit manager. In 1980 he was appointed Director of Corporate
Planning and Analysis of the Red Lobster division of General Mills. In 1984
through 1985 he served as Vice President and Controller of J.L. Mason, Inc., a
homebuilder. Mr. Bergman then became the Chief Financial and Administrative
Officer and a Director of Overseas Service Corporation, an international
manufacturers' representative. He left Overseas Service Corporation in May
1992 to form DBS Associates, a business consulting firm that replaced a third
party rendering financial and administrative services to Overseas Service
Corporation. Mr. Bergman has served as chairman or as a member of numerous
civic and school task forces and committees. Mr. Bergman shall devote only as
much time as necessary in his position as a director of ECOM.
Thomas DeRita, Jr. joined eCom as a Director effective May, 1999.
Currently, Mr. DeRita serves as the President of Resource Group, N.A., Inc., a
public relations firm. From 1992 until 1999, Mr. DeRita served as President
of Stuart Nissan, an automobile dealership located in Stuart, Florida. From
1986 to 1992, Mr. DeRita was employed by Cuillo Enterprises of West Palm
Beach, Florida as its Chief Financial Officer. Cuillo Enterprises is a multi-
automobile dealership holding company. From 1983 to 1986, Mr. DeRita owned
and operated North Chrysler Plymouth Dealership in Houston, Texas. Mr. DeRita
received his associates' BA degree from Johnson & Wales Business School in
1966 and his BA in Business from The University of Rhode Island Extension in
1970. Mr. DeRita shall devote only as much time as necessary in his position
as a director of eCom.
Elling J. Myklebust was elected a Director of eCom on February 17, 2000.
He also serves as our Vice President of Internet Technology. Mr. Myklebust is
the founder and Chief Executive Officer of Lighthouse Communications Group,
LLC, a digital communications services company located in Arvada, Colorado.
Mr. Myklebust has held this position since December 1996. He holds a Bachelor
of Science degree in Civil Engineering from the University of Colorado and a
Masters degree in Environmental Policy and Management from the University of
Denver. Mr. Myklebust has held responsible positions in operations
management, strategic planning, business development, purchasing and materials
management, human resource management, project management, computer systems
operations and engineering, and holds registrations as a Registered
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Professional Engineer in five states. Active in civic affairs, he has served
as chairman or co-chairman of numerous Colorado gubernatorial task forces and
Denver committees. Mr. Myklebust shall concentrate full time on his duties at
eCom.
EXECUTIVE COMPENSATION
The following table provides information regarding the executive
compensation of eCom's executive officers for the fiscal years ended 1999,
1998 and 1997. No other executive officer received compensation in excess of
$100,000 during such periods.
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Underlying All
Annual Restricted Options/ Other
Name and Principal Compen- Stock SARs LTIP Compen-
Position Year Salary Bonus sation Award(s) (Number) Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David J. Panaia 1999 -0- -0- -0- -0- -0- -0- -0-
CEO, President, 1998 -0- -0- -0- -0- -0- -0- -0-
Treasurer 1997 -0- -0- -0- -0- -0- -0- -0-
Guy T. Lindley 1999 -0- -0- -0- -0- -0- -0- -0-
Secretary and 1998 -0- -0- -0- -0- -0- -0- -0-
CFO 1997 -0- -0- -0- -0- -0- -0- -0-
Gerald V. Bergman 1999 -0- -0- -0- -0- -0- -0- -0-
CFO 1998 -0- -0- -0- -0- -0- -0- -0-
1997 -0- -0- -0- -0- -0- -0- -0-
Thomas J. Thomas 1999 -0- -0- -0- -0- -0- -0- -0-
Secretary 1998 -0- -0- -0- 12,421 -0- -0- -0-
1997 -0- -0- -0- 1,557 -0- -0- -0-
</TABLE>
None of eCom's executive officers has an employment agreement or stock
option arrangement with eCom. It is intended that the directors be
compensated at the rate of $4,000 per year, plus $100.00 per meeting attended
and reasonable travel expenses if cash flow permits. To date, none of the
officers or directors has received a salary or other cash compensation. When
cash flow permits, it is anticipated that the officers will be compensated in
accordance with appropriate employment contracts.
DESCRIPTION OF INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Our bylaws provide for indemnification of officers, directors or eCom
agents against legal expenses, judgments, fines, settlements and other amounts
reasonably incurred by such persons after having been made or threatened to be
made a party to legal action. Payment of such amounts may also be made in
advance if expenses are likely to be incurred by officers, directors or agents
in defense of any such action.
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The extent, amount and eligibility for the indemnification provided will
be determined by the Board of Directors. These indemnifications will be made
by a majority vote of a quorum of directors, including any director who is a
party to such action, suit, or proceeding or by the shareholders by a majority
vote of a quorum of shareholders including any shareholder who is a party to
such action, suit or proceeding. We are further authorized by the bylaws to
purchase insurance for indemnification of any person as provided by the bylaws
and to the extent provided by Florida law.
Florida Statutes Section 607.0850 authorizes indemnification of officers,
directors, employees and agents in instances constituting: (1) certain
violations of criminal law which the person did not know were illegal, or (2)
actions taken in good faith by persons which were intended to be in the best
interests of the corporation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of eCom pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by eCom of expenses incurred or paid by a director,
officer or controlling person of eCom in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by eCom is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
RELATED PARTY TRANSACTIONS
Certain transactions to which we are a party and certain matters
affecting us have or will result in a material benefit to certain of our
directors and executive officers, or may create conflicts of interest, as
follows:
Linda Bergman was the sole owner of a privately-held business called
Amateur Athletes of America. She is also the wife of Gerald V. Bergman, who
is a Director and our former Chief Financial Officer. On November 23, 1996,
we issued an aggregate of 500,000 shares for cancellation of debt to Linda
Bergman and Gerald Bergman in the amount of $16,333. The Bergmans directed
that 460,000 shares be issued directly to Linda Bergman, and that each of
their four children be issued 10,000 shares.
Mr. Brody Brockman is the son-in-law of Gerald V. Bergman and is an
employee of US Amateur Sports Company. 25,000 shares were issued to Mr.
Brockman on November 23, 1996 as compensation for sales and shipping services.
Mr. Thomas J. Thomas is a Florida attorney who performed legal services
for us and also served as our Secretary and a Director. On May 31, 1997, we
issued 50,000 shares to Mr. Thomas as compensation for his legal services
performed prior to that date.
On August 12, 1997, we extended a promissory note in favor of Statex
Corporation in the amount of $100,000. The loan bears interest at the rate of
35
<PAGE>
prime plus 6% and is due and payable in full in September 2000. Derek Panaia,
son of David Panaia, is the sole shareholder of Statex Corporation.
On February 6, 1998, we issued 5,000 shares to Angela Bergman as
compensation for her performing secretarial, receptionist and other services
for us. Angela Bergman is the daughter of Gerald V. Bergman and Linda
Bergman.
On February 6, 1998, we issued 5,000 shares to Mr. Brody Brockman as
compensation for his performing sales and shipping services for us. Mr. Brody
Brockman and Angela Bergman were recently married (June 12, 1999).
On February 27, 1998 we acquired certain assets of Amateur Athletes of
America, Inc. in a tax-free exchange of assets for stock. We acquired all
rights to the ProCard and ComCard plus certain Internet-based sports equipment
exchange concepts in exchange for 1,000,000 shares of Common Stock. The
ProCard and ComCard are prepaid telephone cards with unique emergency medical
features which are marketed through youth athletic organizations. A portion
of the stock was used for payment of a note held by Amateur Athletes of
America. Amateur Athletes of America, Inc. was a private corporation owned by
Linda C. Bergman, wife of Gerald V. Bergman, former corporate Chief Financial
Officer and a member of our Board of Directors.
On February 6, 1998, we issued 1,500,000 shares to Axis Enterprises
pursuant to an agreement with Axis Enterprises to provide management services
for USA Performance Products, Inc. and to provide financial assistance to us.
On February 6, 1998, we issued an additional 150,000 shares to Thomas J.
Thomas as compensation for legal services performed by him prior to that date.
On February 6, 1998, we issued 327,900 shares to David Panaia (the
Company's Chief Executive Officer, President and a Director) in cancellation
of indebtedness in the amount of $6,148.
On April 16, 1998, we issued 100,000 shares to Bonnie Panaia as
compensation for accounting and other services and issued an additional
400,000 shares to her as compensation for her services in connection with the
preparation of the infrastructure of our billing and online e-commerce
systems. Bonnie Panaia is the daughter of David Panaia, our Chief Executive
Officer, President and a Director.
On April 16, 1998, we issued 25,000 shares to Doug Panaia as compensation
for performing manual labor for us prior to that date. Doug Panaia is the
brother of David Panaia, our Chief Executive Officer, President and a
Director.
On April 16, 1998, we issued 150,000 shares as compensation for
engineering services performed by Jack Enterline for the Company prior to that
date. Mr. Enterline requested that the shares be issued in the name of his
wife, Karen. At the time these services were performed, Mr. Enterline served
as one of our Directors.
On April 16, 1998, we issued 200,000 shares to Gerald V. Bergman (our
Chief Financial Officer at that time) in cancellation of indebtedness in the
amount of $12,810.
On April 16, 1998, we issued 200,000 shares to David Panaia (our Chief
Executive Officer, President and a Director) in cancellation of indebtedness
in the amount of $12,810.
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<PAGE>
On April 16, 1998, we issued an additional 150,000 shares to Thomas J.
Thomas as compensation for legal services performed by him prior to that date.
On January 22, 1999, we issued 60,000 shares to Angela Bergman as
compensation for her performing secretarial, receptionist and other services
for us. Angela Bergman is the daughter of Gerald V. Bergman and Linda
Bergman.
On January 22, 1999, we issued 30,000 shares to Mr. Brody Brockman as
compensation for his performing sales and shipping services.
On March 4, 1999, we issued an additional 62,000 shares to Axis
Enterprises in a privately-negotiated transaction in cancellation of
indebtedness to Axis in the amount of $11,780.
On May 16, 1999, we issued 100,000 shares to Resource Group, NA, Inc. for
promotional services performed for us. Thomas DeRita, a member of our Board
of Directors, is a shareholder in Resource Group, N.A., Inc.
On May 16, 1999, we issued 100,000 shares to Lighthouse Communications
Group, LLC for Internet development services. Elling Myklebust, a member of
our Board of Directors and our Vice President-Internet Technology since
February 2000, owns Lighthouse Communications Group, LLC.
On December 22, 1999, we issued 25,000 shares to Elling Myklebust for
Internet development services. Elling Myklebust became a director on February
17, 2000.
On December 22, 1999, we issued 10,010 shares to Christen Myklebust for
Internet development services. Christen Myklebust is the son of Elling
Myklebust.
On December 22, 1999, we issued an additional 1,000 shares to Brodie
Brockman for performing sales and shipping services.
On January 2, 2000, we issued options to our outside legal counsel,
Stanley F. Freedman and Sharon M. Link, to purchase up to 25,000 shares each
of our Common Stock at an initial exercise price of $1.00 per share as
additional compensation for performing legal services in connection with the
preparation and filing of our Exchange Act reports for the years 1996, 1997,
1998 and 1999.
Except as described above, no director, officer or principal
securityholder of eCom has or has had a direct or indirect material interest
in any transaction to which we are or were a party. We believe that the terms
of each of the transactions described above were no less favorable to us than
could have been obtained from third parties. However, it should be noted that
all stock issuances to affiliates are made at 95% discount from the then
market value of our Common Stock. In addition, in the future we will not enter
into additional transactions with directors, officers or principal
shareholders unless the terms thereof are no less favorable to us than could
be obtained from third parties.
PRINCIPAL HOLDERS OF COMMON SHARES
As of the date of this Prospectus, we have a total of 50,000,000 shares
of Common Stock authorized at a par value of $.0001, and there are 14,310,675
shares of Common Stock outstanding. The following table sets forth
information, as of such date, with respect to the beneficial ownership of our
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<PAGE>
Common Stock by (a) each person known by us to be the beneficial owner of more
than 5% of our outstanding Common Stock, (b) the directors and officers of
eCom, and (c) the directors and officers of eCom as a group.
Number of % of Shares
Name and Address Shares Owned Outstanding
---------------- ------------ -----------
David J. Panaia (1) 2,212,400 16.05
10 Wyndham Lane
Palm Beach Gardens, FL
Gerald V. Bergman (2) 1,854,300 13.45
10692 Hidden Lake Circle
Palm Beach Gardens, FL
Thomas DeRita, Jr. 103,800 *
5770 Whirlaway Road
Palm Beach Gardens, FL
Elling J. Myklebust 150,000 1.09
1600 Jackson Street
Golden, Colorado 80401
Axis Enterprises, Ltd. 1,042,030 7.56
P. O. Box N1201
Nassau, Bahamas
All Officers and
Directors as a Group-4 5,362,530 38.91
persons
___________________________
* Less than one percent
(1) David J. Panaia, an officer and director of the Company, is the
beneficial owner of 400,000 shares held in the name of the Panaia Family Trust
and 50,000 shares held in the name of Barbara Panaia, wife of David Panaia.
(2) Gerald V. Bergman, a director of the Company, is the beneficial owner of
1,460,000 shares held in the name of Linda Bergman, wife of Gerald Bergman,
and 10,000 shares held by each of three of Mr. Bergman's children.
(3) Thomas DeRita, a director of the Company, is the beneficial owner of
65,000 shares held in the name of Barbara DeRita, wife of Thomas DeRita.
(4) Elling Myklebust, a director of the Company, is the beneficial owner of
100,000 shares held in the name of Lighthouse Communications Group, LLC, a
company in which Mr. Myklebust has voting/beneficial control.
DESCRIPTION OF SECURITIES
eCom is authorized to issue 50,000,000 shares of Common Stock with a par
value of $.0001. Of these shares, 13,782,350 are issued and outstanding.
All issued shares of Common Stock are fully paid and non-assessable. All
shares of Common Stock have one equal non-cumulative vote on all corporate
matters which are the proper subjects of such votes. All shares participate
equally in any dividends or liquidation distributions. There are no pre-
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<PAGE>
<PAGE>
emptive rights relative to the issuance of additional Common Stock. No
dividends have ever been paid, and none will be paid for the foreseeable
future.
The Swartz Warrants are exercisable at any time beginning on the date of
issuance thereof and ending on a date five years later. The shares of Common
Stock underlying the Swartz Warrants, when issued upon exercise in whole or in
part, will be fully paid and nonassessable, and we will pay any transfer tax
incurred as a result of the issuance of the Common Stock to the holder upon
its exercise.
Each of the Swartz Warrants contains provisions that protect the holder
against dilution by adjustment of the exercise price. Such adjustments will
occur in the event, among others, of a merger, stock split or reverse stock
split, stock dividend or recapitalization. We are not required to issue
fractional shares upon the exercise of any Registered Shareholder Warrants.
The Swartz Warrants may be exercised upon surrender on or before the
expiration date of the relevant Swartz Warrant at the offices of eCom, with an
exercise form completed and executed, accompanied by payment of the exercise
price for the number of shares with respect to which the Swartz Warrant is
being exercised. Each Swartz Purchase Warrant may be exercisable at a price
equal to 110% of the market price on the Purchase Period End Date (as such
term is defined in the Investment Agreement) and will have semi-annual reset
provisions. Each Swartz Committment Warrant shall be intially exercisable at
$2.50. Payment of the Exercise Price may be made by either payment in cash,
bank or cashier's check or wire transfer, or a cashless exercise as that term
is defined in the Swartz Warrants.
For the life of each of the Swartz Warrants, the holder thereof has the
opportunity to profit from a rise in the market price of the Common Stock
without assuming the risk of ownership of the shares of Common Stock issuable
upon the exercise of a Swartz Warrant. The Swartz Warrantholder may be
expected to exercise the Swartz Warrant at a time when we would, in all
likelihood, be able to obtain any needed capital by an offering of Common
Stock on terms more favorable than those provided for by the Swartz Warrants.
Furthermore, the terms on which we could obtain additional capital during the
life of the Swartz Warrants may be adversely affected.
Transfer Agent. We have retained the services of Florida Atlantic Stock
Transfer, Inc. ("FAST") to serve as our transfer agent.
SWARTZ PRIVATE EQUITY, LLC
The following table sets forth certain information as of March 31, 2000,
with respect to Swartz Private Equity, LLC ("Swartz"). We will not receive
any of the proceeds from the sale of the shares by Swartz.
Number Number
of Shares Maximum Number of Shares
Beneficially of Shares to be Beneficially
Owned Prior to Sold Pursuant to Owned After
Offering (1) This Prospectus Offering (2)
Name of Selling ------------------ ------------------- ------------
Shareholder Number Percent Number Percent
- ------------------------------------------------------------------------------
Swartz 4,810,000(3) 25%(3) 4,810,000(3) 25%(3) -0-
Private Capital, LLC
Atlanta, GA 30350
- -----------------------
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<PAGE>
(1) Except as otherwise indicated below, beneficial ownership for purposes of
this table is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Except as
indicated by footnote, Swartz has sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by it.
Includes (solely for purposes of this Prospectus) up to an aggregate of
4,000,000 shares of Common Stock that may be acquired by Swartz in connection
with the issuance and sale of shares of Common Stock to Swartz pursuant to the
Investment Agreement, 490,000 shares of Common Stock issuable upon exercise of
Warrants issued to Swartz and currently exercisable at an exercise price of
$2.50 and up to 320,000 shares of Common Stock issuable upon the exercise of
warrants that may be issued to Swartz, which shares would not be deemed
beneficially owned within the meaning of Sections 13(d) and 13(g) of the
Exchange Act prior to their acquisition by Swartz. See "The Investment
Agreement." Based on an aggregate of 14,310,675 shares of Common Stock issued
and outstanding as of March 31, 2000.
(2) Assumes that all of the Shares are sold pursuant to this Prospectus.
(3) As of the date of this Prospectus, Swartz owns no outstanding shares of
Common Stock of eCom. This number includes 490,000 shares of Common Stock
issuable upon exercise of outstanding warrants which are currently
exercisable, which represents less than 3% of the issued and outstanding
Common Stock of eCom as of March 31, 2000. Also includes (solely for purposes
of this Prospectus) up to an aggregate of 4,000,000 shares of Common Stock
that may be acquired by Swartz pursuant to the Investment Agreement (including
up to 320,000 shares of Common Stock issuable upon the exercise of warrants
that may be issued to Swartz), which shares would not be deemed beneficially
owned within the meaning of Sections 13(d) and 13(g) of the Exchange Act prior
to their acquisition by Swartz. See "The Investment Agreement."
Swartz has not had any material relationship with eCom or any of our
affiliates within the past three years other than as a result of the ownership
of securities of ECom, through the placement by Swartz or its affiliates of
securities of ECom or as a result of the negotiation and the execution of the
Investment Agreement and the Registration Rights Agreement. The natural
person controlling Swartz is Eric Swartz.
The shares of Common Stock offered hereby by Swartz were or will be
acquired pursuant to the Investment Agreement or upon exercise of the Swartz
Warrants. Under the Investment Agreement and the Registration Rights
Agreement, we agreed to register the shares of Common Stock offered hereby
under the Securities Act, for resale by Swartz to permit their resale by
Swartz from time to time to the public without restriction. We will prepare
and file such amendments and supplements to the registration statement as may
be necessary in accordance with the rules and regulations of the Securities
Act to keep it effective until the earlier to occur of (i) the date as of
which all of the shares of Common Stock may be resold in a public transaction
without volume limitations or other material restrictions without registration
under the Securities Act, including without limitation, pursuant to Rule 144
under the Securities Act, or (ii) the date as of which all of the shares of
Common Stock offered hereby have been resold.
We have agreed to pay the expenses incurred (other than broker discounts
and commissions, if any) in connection with this Prospectus.
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<PAGE>
PLAN OF DISTRIBUTION
We have been advised by Swartz that all or a portion of the shares of
Common Stock offered by this Prospectus may be offered for sale, from time to
time, by Swartz in one or more private or negotiated transactions, in open
market transactions on the OTC Bulletin Board, in settlement of short sale
transactions, in settlement of option transactions, or otherwise, or a
combination of these methods, at prices and terms then obtainable, at fixed
prices, at prices then prevailing at the time of sale, at prices related to
such prevailing prices, or at negotiated prices or otherwise. Swartz may
effect these transactions by selling the shares of Common Stock offered hereby
directly to one or more purchasers or to or through other broker-dealers or
agents including: (a) in a block trade in which the broker or dealer so
engaged will attempt to sell the shares as agent, but may position and resell
a portion of the block as principal to facilitate the transaction; (b) in
purchases by another broker or dealer and resale by such broker or dealer as a
principal for its account pursuant to this Prospectus; (c) in ordinary
brokerage transactions; and (d) in transactions in which the broker solicits
purchasers. The compensation to a particular underwriter, broker-dealer or
agent may be in excess of customary commissions.
To our knowledge, Swartz has made no arrangement with any brokerage firm
for the sale of the shares of Common Stock offered hereby. We have been
advised by Swartz that it presently intends to dispose of the shares of Common
Stock offered hereby through its own account established at another broker-
dealer, or through other broker-dealers in ordinary brokerage transactions at
market prices prevailing at the time of the sale. However, depending on
market conditions and other factors, Swartz may also dispose of the shares
through one or more of the other methods described above. Concurrently with
sales under this Prospectus, Swartz may effect other sales of the shares of
Common Stock offered hereby under Rule 144 or other exempt resale
transactions. There can be no assurance that Swartz will sell any or all of
the shares of Common Stock offered hereby.
Swartz is an "underwriter" within the meaning of the Securities Act, in
connection with the sale of the shares offered hereby. Any other
broker-dealers or agents who act in connection with the sale of the shares may
also be deemed to be underwriters. Profits on any resale of the shares by
Swartz and any discounts, commissions or concessions received by any such
broker-dealers or agents may be deemed to be underwriting discounts and
commissions under the Securities Act.
Any broker-dealer participating in such transactions as agent may receive
commissions from Swartz (and, if they act as agent for the purchaser of such
shares, from such purchaser). Broker-dealers may agree with Swartz to sell a
specified number of shares of Common Stock offered hereby at a stipulated
price per share and, to the extent such a broker-dealer is unable to do so
acting as agent for Swartz, to purchase as principal any unsold shares of
Common Stock at the price required to fulfill the broker-dealer commitment to
Swartz. Broker-dealers who acquire shares of Common Stock offered hereby as
principal may thereafter resell such shares from time to time in transactions
(which may involve crosses and block transactions and which may involve sales
to and through other broker-dealers, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise at market prices prevailing at the time of sale or at negotiated
prices, and in connection with such resales may pay to or receive from the
purchasers of such shares commissions computed as described above. To the
extent required under the Securities Act, a supplemental prospectus will be
filed, disclosing (a) the name of any such broker-dealers; (b) the number of
41
<PAGE>
shares of Common Stock involved; (c) the price at which such shares are to be
sold; (d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable; (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by
reference in this Prospectus, as supplemented; and (f) other facts material to
the transaction.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares of Common Stock offered hereby may not
simultaneously engage in market making activities with respect to the shares
for a period beginning when such person becomes a distribution participant and
ending upon such person's completion of participation in the distribution,
including stabilization activities in the Common Stock to effect covering
transactions, to impose penalty bids or to effect passive market making bids.
In addition to and without limiting the foregoing, in connection with
transactions in the shares of Common Stock offered hereby, eCom and Swartz may
be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rule 10b-5 thereof and,
insofar as eCom and Swartz are distribution participants, Regulation M and
Rules 100, 101, 102, 103, 104 and 105 thereof. All of the foregoing may
affect the marketability of the shares of Common Stock offered hereby.
Swartz has agreed that it will not create or increase a net short
position with respect to the Common Stock, provided however, that Swartz may
enter into any short sale or other hedging or similar arrangement it deems
appropriate with respect to put shares after it receives a put notice, so long
as such sales or arrangements do not involve more than the number of put
shares in the put notice. Swartz has further agreed that it will not engage
in any trading practice or activity for the purpose of manipulating the price
of the Common Stock or otherwise engage in any trading practice or activity
that violates the rules and regulations of the SEC.
Swartz will pay all commissions, transfer taxes and other expenses
associated with the sales of shares of Common Stock by Swartz. The shares
offered hereby are being registered pursuant to contractual obligations of
eCom, and we have agreed to pay the expenses of the preparation of this
Prospectus. We have also agreed to indemnify Swartz against certain
liabilities, including, without limitation, liabilities arising under the
Securities Act.
We may not receive any proceeds from the exercise of the Swartz Warrants,
if the warrants are exercised pursuant to a cashless exercise by Swartz. We
will not receive any of the proceeds from the sale of the shares of Common
Stock offered hereby by Swartz.
In order to comply with the securities laws of certain states, if
applicable, the shares of Common Stock offered hereby may be sold in these
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the shares of Common Stock offered hereby may not
be sold unless such shares have been registered or qualified for sale in these
states or an exemption from registration or qualification is available and
complied with.
The Common Stock of eCom is currently traded on the OTC Bulletin Board
under the symbol "ECEC."
42
<PAGE>
EXPERTS AND COUNSEL
The audited financial statements of eCom eCom.com, Inc. in this
Prospectus have been audited by Hafer & Gilmer, P.A., 21 Royal Palm Way, Palm
Beach, Florida 33480, independent certified public accountants, to the extent
and for the periods set forth in their report thereon and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The audited financial statements of Star Dot Marketing, Inc. in this
Prospectus have been audited by Hood & Strong, LLP, 101 California St., San
Francisco, CA 94111, independent certified public accountants, to the extent
and for the periods set forth in their report thereon and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The law firm of Krys, Boyle, Freedman & Sawyer, P.C., 600 17th Street,
Suite 2700S, Denver, Colorado 80202 represented us in connection with certain
legal matters regarding the Offering, including the preparation of this
Prospectus.
On January 2, 2000, we issued options to our outside legal counsel,
Stanley F. Freedman and Sharon M. Link (attorneys with the law firm of Krys,
Boyle, Freedman & Sawyer, P.C.), to purchase up to 25,000 shares each of our
Common Stock at an initial exercise price of $1.00 per share as additional
compensation for performing legal services in connection with the preparation
and filing of our Exchange Act reports for the years 1996, 1997, 1998 and
1999. The options expire on January 2, 2005.
Each of the experts named above has consented to being named in this
Prospectus and to inclusion within this Prospectus of information provided in
its report.
ADDITIONAL INFORMATION
eCom has filed with the SEC a registration statement on Form S-1 (herein,
together with all amendments and exhibits, referred to as the "Registration
statement") under the Securities Act relating to the Shares being offered
pursuant to this Prospectus. For further information pertaining to the shares
of Common Stock to which this Prospectus relates, reference is made to such
Registration statement. This Prospectus constitutes the Prospectus of eCom
filed as a part of the Registration statement and it does not contain all
information set forth in the Registration statement, certain portions of which
have been omitted in accordance with the rules and regulations of the SEC. In
addition, we are subject to the informational requirements of the Exchange Act
and, in accordance therewith, we file reports, proxy statements and other
information with the SEC relating to our business, financial statements and
other matters. Reports and proxy and information statements filed pursuant to
Section 14(a) and 14(c) of the Exchange Act and other information filed with
the SEC as well as copies of the Registration statement can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's Midwest Regional Office at 500 West Madison Street, Chicago, Illinois
60606 and Northeast Regional Office at 7 World Trade Center, New York, New
York 10048. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such
material may also be obtained electronically by visiting the SEC's website on
43
<PAGE>
the Internet at http://www.sec.gov. The Common Stock of eCom is traded on the
OTC Bulletin Board under the symbol "ECEC."
Our fiscal year is June 1 to May 31. We will provide shareholders with
quarterly reports of operations, including unaudited financial statements. We
will provide shareholders with annual reports of operations, including audited
financial statements.
44
CONTENTS
Page
eCom eCom.com, Inc. Financial Statements
- ----------------------------------------
Report of Independent Auditors ................................ F-2
Consoslidated Balance Sheets for fiscal years ended
May 31, 1999 and 1998 ....................................... F-3
Audited Consolidated Statements of Operations for the fiscal
years ended May 31, 1999 and 1998 ........................... F-4
Audited Consolidated Statements of Stockholders' Equity for
the fiscal years ended May 31, 1999 and 1998 ................ F-5
Audited Statements of Cash Flows for the fiscal years ended
May 31, 1999 and 1998 ....................................... F-6
Notes To Consolidated Financial Statements .................... F-7
Unaudited Consolidated Balance Sheet for the six months
ended November 30, 1999 ..................................... F-13
Unaudited Consolidated Statements of Operations for the
six month periods ended November 30, 1999 and 1998 .......... F-14
Unaudited Consolidated Statements of Cash Flow for the
six month periods ended November 30, 1999 and 1998 .......... F-15
Notes to Consolidated Financial Statements for the six
month periods ended November 30, 1999 and 1998 .............. F-16
Star Dot Marketing, Inc. Financial Statements
- ---------------------------------------------
Independent Auditors' Report .................................. F-17
Balance Sheet for fiscal years ended May 31, 1999 and 1998 .... F-18
Statement of Operations for fiscal years ended May 31,
1999 and 1998 ............................................... F-19
Statement of Stockholders' Deficit for fiscal years ended
May 31, 1999 and 1998 ....................................... F-20
Statement of Cash Flows for fiscal years ended May 31,
1999 and 1998 ............................................... F-21
Notes to Financial Statements ................................. F-22
Pro Forma Financial Statements
- ------------------------------
Proforma Consolidated Balance Sheets for fiscal years
ended May 31, 1999 and 1998 and six months ended
November 30, 1999 ........................................... F-25
Proforma Consolidated Statements of Operations for fiscal
years ended May 31, 1999 and 1998 and six months
ended November 30, 1999 ..................................... F-28
Notes to Proforma Financial Statements ........................ F-31
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and
Stockholders of eCom eCom.com, Inc.
We have audited the consolidated balance sheets of eCom eCom.com, Inc. as of
May 31, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of eCom eCom.com, Inc. as of May
31, 1999 and 1998, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements the Company has incurred net losses since its inception and has
experienced liquidity problems. Those conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans in regard to those matters are described in Note N. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Hafer & Gilmer
Hafer & Gilmer
August 24, 1999
F-2
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND 1998
May 31, 1999 May 31, 1998
------------ ------------
Assets
Current assets
Cash and cash equivalents $ 105,857 $ 89,542
Accounts receivable 19,155 7,315
Inventories 155,893 85,155
Prepaid expense 15,749 34,580
---------- ----------
Total current assets 296,654 216,592
Property and equipment 97,263 70,980
Intangible assets 67,135 25,309
Deferred charges 0 2,818
Other assets 6,773 7,862
---------- ----------
Total assets $ 467,825 $ 323,561
========== ==========
Liabilities
Current liabilities
Accounts payable and accrued expenses $ 130,683 $ 131,704
Current portion of notes payable 100,000 130,214
Current portion of accrued interest 5,937 10,600
---------- ----------
Total current liabilities 236,620 272,518
Loans from stockholders 212,344 101,600
Notes payable, less current portion 7,295 13,500
Accrued interest, less current portion 0 1,314
---------- ----------
Total liabilities 456,259 388,932
---------- ----------
Stockholders' equity
Common stock, $.0001 par value:
Authorized - 50,000,000 shares;
Issued - 12,883,600 shares in 1999
and 11,894,600 shares in 1998 1,288 1,189
Additional paid-in capital 935,284 484,361
Accumulated deficit (920,006) (545,921)
Less treasury stock - at cost 2,000
shares at May 31, 1999 (5,000) (5,000)
---------- ----------
Total stockholders' equity 11,566 (65,371)
---------- ----------
Total liabilities and stockholders' equity $ 467,825 $ 323,561
========== ==========
See notes to financial statements.
F-3
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 1999 AND 1998
Year Ended Year Ended
May 31, 1999 May 31,1998
------------ -----------
Revenues
Net sales $ 228,613 $ 149,582
Cost of sales 148,344 100,988
---------- ----------
Total revenues 80,269 48,594
Other operating expenses
Sales and marketing 176,376 23,298
Product redevelopment 34,347 0
General and administrative 187,166 122,455
Depreciation and amortization 43,591 28,378
---------- ----------
Total operating expenses 441,480 174,131
---------- ----------
Loss from operations (361,211) (125,537)
Interest expense 12,874 17,514
---------- ----------
Net loss $ (374,085) $ (143,051)
========== ==========
Net loss per common share $ (.03) $ (.02)
========= ==========
Weighted average shares outstanding 12,233,142 7,430,045
See notes to financial statements.
F-4
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1999 AND 1998
Number of Addi- Total
Shares tional Accumu- Stock
Issued and Paid-in lated Treasury holders'
Outstanding Amount Capital Deficit Stock Equity
----------- ------ --------- ----------- -------- ---------
Balance at
May 31, 1997 6,000,600 $ 600 $ 299,690 $ (402,870) $ - $(102,580)
Purchase of
Treasury stock (2,000) - - - (5,000) (5,000)
Issuance of
common stock 5,894,000 589 184,671 - - 185,260
Net loss, year
ended May 31,
1998 - - - (143,051) - (143,051)
---------- ------ --------- ----------- ------- ---------
Balance,
May 31, 1998 11,892,600 1,189 484,361 (545,921) (5,000) (65,371)
Issuance of
common stock 989,000 99 450,923 - - 451,022
Net loss, year
ended May 31,
1999 - - - (374,085) - (374,085)
---------- ------ --------- ----------- ------- ---------
Balance May 31,
1999 12,881,600 $1,288 $ 935,284 $ (920,006) $(5,000) $ 11,566
========== ====== ========= =========== ======= =========
See notes to financial statements.
F-5
<PAGE>
ECOM ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1999 AND 1998
Year Ended Year Ended
May 31,1999 May 31,1998
----------- -----------
Cash flows from operating activities
Net loss $ (374,085) $ (143,051)
Reconciling adjustments:
Amortization 18,654 12,092
Depreciation 24,937 16,286
(Increase) in receivables (11,840) (4,251)
(Increase) in inventories (70,738) (7,209)
Decrease (increase) in prepaid expenses 18,831 (32,580)
Decrease (increase) in other assets 1,089 (7,862)
Increase (decrease) in accounts payable (1,021) 52,243
Increase (decrease) in accrued expenses 0 (40,000)
(Decrease) in accrued interest (5,977) (12,943)
---------- ----------
(26,065) (24,224)
Net cash used by operating activities (400,150) (167,275)
---------- ----------
Cash Flows From Investing Activities
Acquisition of property and equipment (51,220) (34,372)
Acquisition of intangible assets (57,662) 0
---------- ----------
Net cash used by investing activities (108,882) (34,372)
Cash Flows From Financing Activities
Capital contributions 451,021 180,260
Notes payable (36,419) 74,519
Loans from stockholders 110,745 35,600
---------- ----------
Net cash provided by financing activities 525,347 290,379
---------- ----------
Net increase in cash 16,315 88,732
Cash balance, beginning of period 89,542 810
---------- ----------
Cash balance, end of period $ 105,857 $ 89,542
========== ==========
See notes to financial statements.
F-6
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The Company maintains its accounts on the accrual basis of accounting. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Consolidation
- -------------
The consolidated financial statements of the Company include the accounts of
USA Performance Products, Inc. The Company formed USA Performance Products,
Inc. as a separate wholly-owned subsidiary on January 20, 1998 and transferred
all assets related to the manufacture and sale of the Viper M1 paintball
marker and accessories to this new corporation. See note L.
Revenue Recognition
- -------------------
Revenues are derived primarily from the sale of paintball markers and
accessories and this revenue is recognized at the time title is transferred
which is normally on shipment of the goods. With respect to the Company's
sporting events operations, revenue is recognized at the time the underlying
event is held.
Depreciation
- ------------
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is computed using the straight-line
method.
Amortization
- ------------
Intangible assets consisting of rights to technology and associated trademarks
are amortized using the straight-line method over five years.
Inventories
- -----------
Inventories are stated at the lower of cost or market using the first in first
out method. See Note C.
NOTE B: CASH EQUIVALENTS
Cash equivalents consist of cash credits received in connection with the sale
of All American Bowl Sponsorship Promotional Packages to Itex Corporation.
These cash credits will be used for the purchase of products and/or services
provided by other Itex clients.
F-7
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE C: INVENTORIES
Inventories consist of merchandise acquired for sale by the Company's USA
SportsNet business unit in addition to paintball markers and accessories.
Inventories are carried at cost which is considered to be less than market
value.
NOTE D: PREPAID EXPENSE
Prepaid expense includes amounts paid for commercial insurance and
advertising.
NOTE E: PROPERTY AND EQUIPMENT
The following is a summary of property and equipment recorded in the financial
statements at cost less depreciation as of May 31, 1999 and 1998:
May 31, 1999 May 31, 1998
------------ ------------
Computer hardware $ 60,858 $ 32,245
Computer software 28,584 10,564
Furniture, fixtures and equipment 22,948 21,072
Tools, dies and fixtures 54,928 52,217
--------- ---------
Total cost 167,318 116,098
Less: accumulated depreciation 70,055 (45,118)
--------- ---------
Total net property and equipment $ 97,263 $ 70,980
========= =========
The useful lives assigned to property and equipment to compute depreciation
are:
Computer hardware 5 years
Computer software 5 years
Furniture, fixtures and equipment 7 years
Tools, dies and fixtures 5 years
F-8
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE F: INTANGIBLE ASSETS
During the year ended May 31, 1996, the Company acquired the assets of
Performance Paintball Products, Inc. Included in the purchase were exclusive
rights to use of the Viper name and related technology used in the manufacture
of the Viper M1 paintball marker. The total cost of these rights are valued
at $54,134 less accumulated amortization of $32,639 and $22,146 at May 31,
1999 and 1998, respectively.
During 1999, the Company acquired the rights to the toll free telephone
number, 800-724-6822, and marketed as 1 800 PAINTBALL. The Company paid
$20,000 in cash and 100,000 shares of the Company's common stock. This asset
is reflected in the balance sheet at a gross cost of $40,000 less accumulated
amortization of $5,000 and $0, as of May 31, 1999 and 1998, respectively.
This asset is amortized over a 5 year life. Also during 1999, the Company
acquired two internet websites. AclassifiedAd and Swapandshop for $11,200.
This asset is being amortized over 5 years and accumulated amortization was
$560 and $0 as of May 31, 1999 and 1998, respectively.
NOTE G: OTHER ASSETS
Other assets consist primarily of deposits. In 1998, this included an advance
to an officer of the company which was fully liquidated in 1999.
NOTE H: NOTES PAYABLE AND LOANS FROM STOCKHOLDERS
The Company's notes payable consist of the following as of May 31,:
1999 1998
--------- ---------
Stratex Corporation (due September 2000,
interest at prime plus 6%, secured) $ 100,000 $ 100,000
MME (due on demand, interest at 12.25%
per annum, unsecured) 7,295 13,500
Other (due September 98, unsecured,
non-interest bearing) 0 30,214
Security for the Stratex loan consists of the rights to the Viper M1 paintball
marker including its names and technology used in its manufacture.
Loans from Stockholders consist of advances provided to the Company by the
Chief Executive officer and such loans are unsecured and no interest is
charged on such advances.
F-9
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE I: COMMITMENTS AND CONTINGENCIES
The Company leases its manufacturing and office facilities under an operating
lease which expires June 30, 2001. Rent expense approximated $32,800 and
$22,800 for the years ended May 31, 1999 and 1998, respectively. Future
minimum operating lease payments as of May 31, 1999 are:
Year ended May 31, Total
------------------ ----------
2000 $ 38,160
2001 41,976
----------
Total minimum lease payments $ 80,136
==========
From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. The
Company is not currently a party to any legal proceedings, the adverse outcome
of which, individually or in the aggregate, would have a material adverse
effect on the Company's financial position or results of operations.
NOTE J: ISSUANCE OF COMMON STOCK
During the year, the Board of Directors authorized the issuance of 5,999,400
shares of common stock. These newly-issued shares were designated to pay for
certain management, financial, marketing and other business related services,
to allow certain creditors of the Company to trade their debt for equity and
to effect a tax-free acquisition of the assets of Amateur Athletes of America,
Inc. 11,894,600 shares were issued as of May 31, 1998. 2,000 shares were
purchased for the treasury. During the year ended May 31, 1999, the Board of
Directors authorized the issuance of 989,000 shares of Common Stock. These
issuances primarily were to allow certain creditors of the Company to trade
their debt for equity and to pay for management, financial, marketing and
other business related services.
NOTE K: RELATED PARTY TRANSACTIONS
In January 1998, the Company's Board of Directors approved an agreement with
Axis Enterprises, Ltd., a Bahamian corporation of Nassau, Bahamas, to retain
Axis for a period of three years to provide certain financing, marketing and
management services in support of the Company's subsidiary, USA Performance
Products, Inc. In exchange for performance of these services, Axis was
granted 1,500,000 shares of common stock. The final marketing and management
agreement was executed in April 1998. In 1999, the Company issued 150,000
shares of common stock in cancellation of indebtedness of $111,780.
Derek D. Panaia, son of David J. Panaia, CEO of the Company, was retained as a
consultant to provide management oversight of USA Performance Products. In
connection with this agreement, Derek Panaia was granted 400,000 shares of
common stock in return for his services.
F-10
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE K: RELATED PARTY TRANSACTIONS (CONT'D)
Stratex Corporation has a loan to the Company in the amount of $100,000 (see
Note H). Stratex Corporation is owned by Derek D. Panaia, son of David J.
Panaia, Chief Executive Officer of the Company.
On February 27, 1998, the Company acquired certain assets of Amateur Athletes
of America, Inc. in a tax-free exchange of assets for stock. The Company
acquired all rights to the ProCard and ComCard plus certain Internet-based
sports equipment exchange concepts in exchange for one million shares of
common stock. The ProCard and ComCard are prepaid telephone cards with unique
medical features which are marketed through youth athletic organizations. A
portion of the stock was used for payment of a note held by Amateur Athletes
of America. Amateur Athletes of America, Inc. was a private corporation owned
by Linda C. Bergman, wife of Gerald V. Bergman, former Treasurer and a member
of the Company's Board of Directors.
In May 1999, the Company issued 100,000 shares to Resource Group, Inc. in
exchange for promotional and related consulting services. Resource Group,
Inc. is a public relations and promotional firm of which a member of the
Board, Mr. Thomas DeRita, is a principal.
NOTE L: BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that offer
different products and services. The Company has three reportable segments:
paintball products, sports events, and Internet commerce. The paintball
segment produces a mid-priced paintball marker. The event segment has produced
the All American Bowl, a national high school football all-star game. The
Internet segment develops and operates internet websites including the ECEC
Trading Club.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. There have been no intersegment
sales or transfers. Revenues from sale of the Company's paintball products
over the Internet are reported within the paintball segment. Internet
revenues for 1998 consist principally of advertising sold through barter
transactions.
Following is a summary of segment information:
Sports Internet All
Paintball Events Commerce Others(a) Totals
--------- --------- --------- --------- ---------
May 31, 1999
- ------------
Revenues $ 228,613 $ - $ - $ - $ 228,613
Interest expense 12,874 - - - 12,874
Depreciation 10,915 - - 14,022 24,937
Amortization 10,493 - - 8,161 18,654
Segment profit (loss) (114,357) (8,230) (120,501) (130,997) (374,085)
Segment assets 177,293 0 60,048 230,484 467,825
F-11
<PAGE>
ECOM ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)
MAY 31, 1999 AND 1998
NOTE L: BUSINESS SEGMENTS (CONT'D)
Sports Internet All
Paintball Events Commerce Others(a) Totals
--------- --------- --------- --------- ---------
May 31, 1998
- ------------
Revenues $ 52,139 $ 17,289 $ 80,000 $ - $ 149,582
Interest expense 14,310 - - 3,204 17,514
Depreciation 10,063 - - 6,223 16,286
Amortization 9,492 - - 2,600 12,092
Segment profit (loss) (64,723) (64,894) 58,400 (71,834) (143,051)
Segment assets 76,676 - 80,123 166,762 323,561
(a) Includes amounts not allocated to operating segments.
NOTE M: RECOVERABILITY OF ASSETS AND GOING CONCERN
The Company's financial statements have been presented on the basis that it is
a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company's continued existence is dependent upon its ability to secure
financing or its ability to generate sufficient cash flows through operations
to meet its operating costs and repay current obligations as they come due.
In April of 1999, the Company entered into a financing agreement with a third
party whereby the Company may sell to the third party and that third party
must buy a number of the Company's shares of common stock, subject to
restrictions (the "Put Option"). The more salient of the restrictions under
the Put Option includes that the Company must first register the shares which
may be subject to the put and the number of the shares which may be put to the
third party in any 30 day period is dependent upon the Company's share price
as determined on the OTC Bulletin Board and volume of trading activity. The
Company can make no assurances that it will be successful in registering the
subject shares or that the market in the Company's stock will remain adequate
to allow the Company to raise necessary funds through the use of the Put
Option.
NOTE N: INCOME TAXES
No provision for federal and state income taxes has been recorded because our
company has incurred net operating losses since inception. Our net operating
loss carry-forwards as of May 31, 1999 total $920,006. These carry-forwards
will be available to offset future taxable income and expire beginning in
2010. We do not believe that the realization of the related net deferred tax
asset meets the criteria required by generally accepted accounting principles
and, accordingly, the deferred income tax asset arising from such loss
carryforwards have been fully reserved.
F-12
<PAGE>
ECOM.ECOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1999 AND MAY 31, 1999
November 30, 1999 May 31, 1999
----------------- ------------
Assets (Unaudited)
Current Assets
Cash $ 8,182 $ 105,857
Accounts receivable 9,708 19,155
Inventories 262,479 155,893
Prepaid expense 81,310 15,749
---------- ---------
Total current assets 361,679 296,654
Property and equipment 146,615 97,263
Intangible assets 56,602 67,135
Other assets 6,556 6,773
---------- ---------
Total assets $ 571,452 $ 467,825
========== =========
Liabilities
Current liabilities
Accounts payable and accrued expenses $ 561,564 $ 130,683
Current portion of notes payable 100,000 100,000
Current portion of accrued interest 13,114 5,937
---------- ---------
Total current liabilities 674,678 236,620
Loan from stockholders 388,647 212,344
Notes payable, less current portion 7,295 7,295
---------- ---------
Total liabilities 1,070,620 456,259
---------- ---------
Stockholders' equity
Common stock, $.0001 par value:
Authorized 50,000,000 shares;
Issued 13,458,600 shares at
November 30, 1999 and 12,883,600
shares at May 31, 1999 1,346 1,288
Additional paid-in capital 1,245,170 935,284
Accumulated deficit (1,740,684) (920,006)
Less treasury stock at cost,
2,000 shares (5,000) (5,000)
---------- ---------
Total stockholders' equity (499,168) 11,566
---------- ---------
Total liabilities and stockholders'
equity $ 571,452 $ 467,825
========== =========
See notes to financial statements.
F-13
<PAGE>
ECOM.ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six-Month Periods Ended November 30, 1999 and 1998
(Unaudited)
Six Months Six Months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Net sales $ 451,571 $ 53,986
Cost of sales 410,937 29,161
----------- -----------
Gross profit 40,634 24,825
----------- -----------
Other operating expenses
Sales and marketing 282,330 42,555
Product development 264,949 0
General and administrative 274,594 79,085
Depreciation and amortization 32,260 17,692
----------- -----------
Total operating expenses 854,133 139,332
Loss from operations (813,499) (114,507)
Interest Expense 7,178 7,975
----------- -----------
Net loss $ (820,677) $ (122,482)
============ ===========
Net loss per common share (primary
and diluted) $ (.063) $ (.010)
============ ===========
Weighted average shares outstanding 13,027,350 11,934,600
============ ===========
See notes to financial statements
F-14
<PAGE>
ECOM.ECOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Month Periods Ended November 30, 1999 and 1998
(Unaudited)
Six Months Six Months
Ended Ended
November 30, 1999 November 30, 1998
----------------- -----------------
Cash flows from operating activities
Net loss $(820,677) $(122,482)
Reconciling adjustments:
Depreciation and amortization 32,260 17,692
(Increase) Decrease in:
Accounts receivable 9,447 (21,153)
Inventories (106,586) (1,005)
Prepaid expense (65,561) 13,239
Other assets 0 (7,261)
Increase (Decrease) in:
Accounts payable and accrued expenses 430,881 2,653
Accrued interest 7,177 7,974
--------- ---------
Net cash used by operating activities (513,059) (110,343)
--------- ---------
Cash flows from investing activities
Acquisition of property and equipment (70,863) (5,878)
Acquisition of intangible assets 0 0
--------- ---------
Net cash used by investing activities (70,863) (5,878)
--------- ---------
Cash flows from financing activities
Capital contributions 309,944 45,777
Notes payable 0 (4,317)
Loans from stockholders 176,303 65,395
--------- ---------
Net cash provided by financing
activities 486,247 106,855
--------- ---------
Net increase (decrease) in cash (97,675) (9,366)
Cash balance, beginning of period 105,857 89,542
--------- ---------
Cash balance, end of period $ 8,182 $ 80,176
========= =========
See notes to financial statements.
F-15
<PAGE>
ECOM.ECOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1999 and 1998
(Unaudited)
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended November 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending May 31, 2000. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Form 10-KSB for the year ended May 31, 1999.
NOTE 2 - BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that offer
different products and services. The Company currently has two reportable
segments: paintball products and Internet commerce. The paintball segment
produces a mid-priced paintball marker and distributes related accessories.
The Internet segment develops and operates Internet web sites including the
Trading Club. There have been no intersegment sales or transfers. Revenues
from sales of the Company's paintball products over the Internet are reported
within the paintball segment. Internet revenues consist of the sale of
products through the electronic Trading Club's auction web site.
Following is a summary of segment information:
Six Months Ended November 30, 1999
Total Paintball Internet All Other(a)
------- --------- ---------- ------------
Revenues 451,571 448,603 2,968 -
Interest 7,178 7,178 - -
Depreciation
and Amortiza-
tion 32,260 15,092 13,707 3,461
Profit (Loss) (820,677) (2,832) (595,198) (222,647)
Assets 571,452 379,696 137,456 54,300
Six Months Ended November 30, 1998
Total Paintball Internet All Other(a)
------- --------- ---------- ------------
Revenues 53,986 53,986 - -
Interest 7,975 7,146 - 829
Depreciation
and Amortiza-
tion 17,692 12,530 - 5,162
Profit (Loss) (122,482) (22,418) - (100,064)
Assets 318,561 (112,832) - (205,729)
(a) Includes amounts not allocated to operating segments.
F-16
<PAGE>
Independent Auditors' Report
THE BOARD OF DIRECTORS
STAR DOT MARKETING, INC.
San Francisco, California
We have audited the accompanying balance sheet of STAR DOT MARKETING, INC.
(the "Company") as of May 31, 1999 and 1998 and the related statements of
operations, stockholders' deficit and cash flows for the years then ended.
These financial statements are the responsibility of the Board's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant esti
mates made by management, as well as evaluating the overall financial state
ment 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 financial position of Star Dot Marketing, Inc. as
of May 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from operations and has a net capital deficiency that raises
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 7. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Hood & Strong LLP
September 10, 1999
F-17
<PAGE>
Star Dot Marketing, Inc.
Balance Sheet
May 31, 1999 1998
- ------- ---------- ----------
Assets
Current Assets:
Cash $ 3,345 $ 9,850
Accounts receivable, net of
allowance for doubtful accounts
of $8,000 in 1999 and $7,000 in 1998 64,194 89,878
Inventories 215,031 266,678
Prepaid expenses and other assets 11,219 13,333
----------- -----------
Total current assets 293,789 379,739
Property and Equipment, net 8,343 21,749
----------- -----------
$ 302,132 $ 401,488
=========== ===========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable $ 49,671 $ 56,236
Accrued interest payable 94,931 27,727
Accrued commissions 13,756 14,757
Due to stockholders 248,496 1,181,969
----------- -----------
Total current liabilities 406,854 1,280,689
----------- -----------
Stockholders' Deficit:
Common stock, no par value,
2,000,000 shares authorized;
issued and outstanding -
409,091 in 1999 and
100,000 in 1998 1,230,000 210,000
Additional paid in capital 40,000 40,000
Accumulated deficit (1,374,722) (1,129,201)
----------- -----------
Total stockholders' deficit (104,722) (879,201)
----------- -----------
$ 302,132 $ 401,488
============ ===========
The accompanying notes are an integral part of this statement.
F-18
<PAGE>
Star Dot Marketing, Inc.
Statement of Operations
For the Years Ended May 31, 1999 1998
- --------------------------- ----------- -----------
Net Sales $ 542,003 $ 599,218
Cost of Goods Sold 233,682 306,922
----------- -----------
Gross profit 308,321 292,296
----------- -----------
General and Administrative Expenses:
Salary and related benefits 271,910 258,277
Commission expense 114,409 112,686
Other operating expenses 101,194 208,221
----------- -----------
487,513 579,184
Other Income (Expense), net (65,529) (25,236)
----------- -----------
Loss Before Provision for State Income Taxes (244,721) (312,124)
Provision for State Income Taxes 800 800
----------- -----------
Net Loss $ (245,521) $ (312,924)
=========== ===========
The accompanying notes are an integral part of this statement.
F-19
<PAGE>
Star Dot Marketing, Inc.
Statement of Stockholders' Deficit
<TABLE>
<CAPTION>
For the Years Ended May 31, 1999 and 1998
- -----------------------------------------
Common Stock Additional Total
------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
<S> <C> <C> <C> <C> <C>
Balance - May 31, 1997 100,000 $ 210,000 $ 40,000 $ (816,277) $ (566,277)
Net Loss for the Year
Ended May 31, 1998 (312,924) (312,924)
------- ---------- -------- ----------- ----------
Balance - May 31, 1998 100,000 210,000 40,000 (1,129,201) (879,201)
Common Stock Issued 309,091 1,020,000 1,020,000
Net Loss for the Year
Ended May 31, 1999 (245,521) (245,521)
------- ---------- -------- ----------- ----------
Balance - May 31, 1999 409,091 $1,230,000 $ 40,000 $(1,374,722) $ (104,722)
======= ========== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-20
<PAGE>
Star Marketing, Inc.
Statement of Cash Flows
Years Ended May 31, 1999 1998
- ------------------- ---------- ---------
Cash Flows from Operating Activities:
Net loss $ (245,521) $(312,924)
---------- ---------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 14,713 13,964
Allowance for doubtful accounts 1,000 7,000
Loss on disposition of equipment 433
Changes in assets and liabilities:
Decrease (increase) in account receivables 24,684 (55,006)
Decease (increase) in inventories 51,647 (3,518)
Decrease (increase) in prepaid expenses
and other assets 2,114 (874)
Increase in accounts payable and accrued expenses 59,638 31,342
---------- ---------
Total adjustments 154,229 (7,092)
---------- ---------
Net cash used by operating activities (91,292) (320,016)
---------- ---------
Cash Flows from Investing Activities:
Purchase of equipment (1,740) (8,368)
---------- ---------
Cash Flows from Financing Activities:
Borrowings from stockholders 86,527 333,200
---------- ---------
Net (Decrease) Increase in Cash (6,505) 4,816
Cash - Beginning of year 9,850 5,034
---------- ---------
Cash - End of year $ 3,345 $ 9,850
========== =========
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 800 $ 800
========== =========
Non-Cash Transaction
Conversion of due to stockholders to common stock $1,020,000
==========
The accompanying notes are an integral part of this statement.
F-21
<PAGE>
Star Dot Marketing, Inc.
Notes to Financial Statements
Note 1- Nature of Operations:
Star Dot Marketing, Inc (the Company) is engaged in the business of selling
sports-related memorabilia. The Company has agreements with retailers,
primarily major league franchises, who sell the Company's goods on a
consignment basis. These agreements are cancelable with a thirty day written
notice. The Company also, on a smaller scale, sells its merchandise on a
direct basis.
Note 2 - Summary of Significant Accounting Policies:
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reported period. Actual
results could differ from those estimates.
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
Cash:
----
Cash consists of deposits in banks and other financial institutions
having original maturities of less than ninety days.
Allowance for Doubtful Accounts:
-------------------------------
It is the policy of management to review the outstanding accounts
receivable at year end, as well as the bad debt write offs experienced in
the past, and establish an allowance for doubtful accounts for
uncollectible amounts.
Inventories:
-----------
Inventories are stated at the lower of cost or market. Cost is computed
by the first-in, first-out (FIFO) method.
Depreciation and Amortization Methods:
-------------------------------------
Property and equipment are stated at cost. Depreciation and amortization
are computed principally on the straight-line method over the estimated
useful lives of the assets which are generally 3 years.
F-22
<PAGE>
Star Dot Marketing, Inc.
Notes to Financial Statements
(Continued)
Note 2 - Summary of Significant Accounting Policies (Continued):
Income Taxes:
------------
The Company has elected to be taxed as an S Corporation on its federal
and California income tax returns. As an S corporation, the Company is
generally not subject to federal income tax and is subject to California
income tax at a reduced rate. Accordingly, the provision for income
taxes reflects only the California income tax.
Note 3 - Property and Equipment:
At May 31, 1999 and 1998, property and equipment is as follows:
1999 1998
Computer equipment $ 34,086 $ 45,335
Office equipment 2,048 2,048
-----------------------------------------------------
36,134 47,383
Accumulated depreciation 27,791 25,634
-----------------------------------------------------
$ 8,343 $ 21 749
-----------------------------------------------------
Depreciation expense amounted to $14,713 and $13,964 for the years ended May
31, 1999 and 1998, respectively.
Note 4 - Commitments:
The Company leases office space under a non-cancelable lease agreement which
terminated at July 31, 1999. The leasing of this office space is now on a
month to month basis. The monthly rental amount is $2,595.
Note 5- Due to Stockholders:
Over the past several years certain stockholders have made advances to the
Company. These advances are unsecured, bear interest at an annual rate of
5.63% and are due on demand. Effective May 31, 1999 the Company converted
$1,020,000 of advances due to stockholders to contributed capital. 309,091
shares of common stock were issued by the Company to the stockholders.
F-23
<PAGE>
Star Dot Marketing, Inc.
Notes to Financial Statements
(Continued)
Note 6 - Concentration of Risk:
Financial Instruments which potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivables. Credit
risk is substantially mitigated by the Company's historically short collection
periods.
The Company currently makes approximately 50% of its merchandise sales to one
company. As of May 31, 1999 and 1998, accounts receivable from this Company
totaled approximately $8,500 and $18,000, respectively.
Note 7 - Subsequent Event:
As of the report date, the Company's stockholders are in negotiations to sell
all of their shares of common stock to an unaffiliated company. Under the
terms of the purchase agreement, the individual stockholders are to receive
shares of common stock issued by the unaffiliated company in exchange for all
the common stock of the Company. In addition, any remaining debt to the
stockholders will need to be settled prior to finalization of this purchase
agreement. To that extent, the stockholders expect to convert this debt into
additional equity.
F-24
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
May 31, 1999
<TABLE>
<CAPTION>
eCom eCom SDMI Eliminations
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 105,857 $ 3,345 $ - $ 109,202
Accounts receivable 19,155 64,194 - 83,349
Inventories 155,893 215,031 - 370,924
Prepaid expense and other current assets 15,749 11,219 - 26,968
Property and equipment 97,263 8,343 - 105,606
Intangible assets 67,135 - - 67,135
Deferred charges - - - -
Other assets 6,773 - - 6,773
----------- ----------- ----------- -----------
Total Assets $ 467,825 $ 302,132 $ - $ 769,957
=========== =========== =========== ===========
LIABILITIES
Accounts payable and accrued expenses $ 130,683 $ 63,427 $ - $ 194,110
Current portion of accrued interest 5,937 94,931 94,931 5,937
Current portion of loans from stockholders - 248,496 248,496 -
Current portion of notes payable 100,000 - - 100,000
Accrued interest, less current portion - - - -
Loans from stockholders, less current portion 212,344 - - 212,344
Notes payable, less current portion 7,295 - - 7,295
----------- ----------- ---------- -----------
Total Liabilities 456,259 406,854 343,427 519,686
----------- ----------- ---------- -----------
STOCKHOLDERS' EQUITY
Common stock 1,288 1,230,000 1,229,932 1,356
Additional paid-in capital 935,284 40,000 (1,478,428) 2,453,712
Accumulated deficit (920,006) (1,374,722) (94,931) (2,199,797)
Treasury stock (5,000) - - (5,000)
----------- ----------- ---------- -----------
Total Stockholders' Equity 11,566 (104,722) (343,427) 250,271
----------- ----------- ---------- -----------
Total Liabilities and Stockholders' Equity $ 467,825 $ 302,132 $ - $ 769,957
=========== =========== ========== ===========
</TABLE>
F-25
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
May 31, 1998
<TABLE>
<CAPTION>
eCom eCom SDMI Eliminations
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 89,542 $ 9,850 $ - $ 99,392
Accounts receivable 7,315 89,878 - 97,193
Inventories 85,155 266,678 - 351,833
Prepaid expense and other current assets 34,580 13,333 - 47,913
Property and equipment 70,980 21,749 - 92,729
Intangible assets 25,309 - - 25,309
Deferred charges 2,818 - - 2,818
Other assets 7,862 - - 7,862
----------- ----------- ----------- -----------
Total Assets $ 323,561 $ 401,488 $ - $ 725,049
=========== =========== =========== ===========
LIABILITIES
Accounts payable and accrued expenses $ 131,704 $ 70,993 $ - $ 202,697
Current portion of accrued interest 10,600 27,727 27,727 10,600
Current portion of loans from stockholders - 1,181,969 1,181,969 -
Current portion of notes payable 130,214 - - 130,214
Accrued interest, less current portion 1,314 - - 1,314
Loans from stockholders, less current portion 101,600 - - 101,600
Notes payable, less current portion 13,500 - - 13,500
----------- ----------- ----------- -----------
Total Liabilities 388,932 1,280,689 1,209,696 459,925
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock 1,189 210,000 209,932 1,257
Additional paid-in capital 484,361 40,000 (1,391,901) 1 ,916,262
Accumulated deficit (545,921) (1,129,201) (27,727) (1,647,395)
Treasury stock (5,000) - - (5,000)
----------- ----------- ----------- -----------
Total Stockholders' Equity (65,371) (879,201) (1,209,696) 265,124
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 323,561 $ 401,488 $ - $ 725,049
=========== =========== =========== ===========
</TABLE>
F-26
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED BALANCE SHEET
November 30, 1999
<TABLE>
<CAPTION>
eCom eCom SDMI Eliminations
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 8,182 $ 5,942 $ - $ 14,124
Accounts receivable 9,708 33,321 - 43,029
Inventories 262,479 214,300 - 476,779
Prepaid expense and other current assets 81,310 3,254 - 84,564
Property and equipment 146,615 4,427 - 151,042
Intangible assets 56,602 - - 56,602
Other assets 6,556 7,000 - 13,556
----------- ----------- ----------- -----------
Total Assets $ 571,452 $ 268,244 $ - $ 839,696
=========== =========== =========== ===========
LIABILITIES
Accounts payable and accrued expenses $ 561,564 $ 51,058 $ - $ 612,622
Current portion of accrued interest 13,114 - - 13,114
Current portion of loans from stockholders - 10,000 - 10,000
Current portion of notes payable 100,000 - - 100,000
Accrued interest, less current portion - - - -
Loans from stockholders, less current portion 388,647 - - 388,647
Notes payable, less current portion 7,295 - - 7,295
----------- ----------- ----------- -----------
Total Liabilities 1,070,620 61,058 - 1,131,678
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock 1,346 1,659,927 1,659,859 1,414
Additional paid-in capital 1,245,170 40,000 (1,564,928) 2,850,098
Accumulated deficit (1,740,684) (1,492,741) (94,931) (3,138,494)
Treasury stock (5,000) - - (5,000)
----------- ----------- ----------- -----------
Total Stockholders' Equity (499,168) 207,186 - (291,982)
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity $ 571,452 $ 268,244 $ - $ 839,696
=========== =========== =========== ===========
</TABLE>
F-27
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended May 31, 1999
<TABLE>
<CAPTION>
eCom eCom SDMI Eliminations
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 228,613 $ 542,003 $ - $ 770,616
Cost of Sales 148,344 233,682 - 382,026
----------- ----------- ----------- -----------
Gross Profit 80,269 308,321 - 388,590
----------- ----------- ----------- -----------
Operating Expenses
Sales and marketing 176,376 114,409 - 290,785
Product development 34,347 - - 34,347
General and administrative 187,166 356,716 - 543,882
Depreciation and amortization 43,591 14,713 - 58,304
----------- ----------- ----------- -----------
Total Operating Expenses 441,480 485,838 - 927,318
----------- ----------- ----------- -----------
Loss From Operations (361,211) (177,517) - (538,728)
Interest Expense 12,874 67,204 67,204 12,874
----------- ----------- ----------- -----------
Loss Before Taxes (374,085) (244,721) (67,204) (551,602)
State Income Taxes - 800 - 800
----------- ----------- ----------- -----------
Net Loss $ (374,085) $ (245,521) $ (67,204) $ (552,402)
=========== =========== =========== ===========
Net Loss Per Common Share (0.03) (0.04)
Weighted Average Shares outstanding 12,233,142 12,908,142
</TABLE>
F-28
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended May 31, 1998
<TABLE>
<CAPTION>
eCom eCom SDMI Eliminations
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 149,582 $ 599,218 $ - $ 748,800
Cost of Sales 100,988 306,922 - 407,910
----------- ----------- ----------- -----------
Gross Profit 48,594 292,296 - 340,890
----------- ----------- ----------- -----------
Operating Expenses
Sales and marketing 23,298 112,686 - 135,984
Product development - - - -
General and administrative 122,455 450,043 - 572,498
Depreciation and amortization 28,378 13,964 - 42,342
----------- ----------- ----------- -----------
Total Operating Expenses 174,131 576,693 - 750,824
----------- ----------- ----------- -----------
Loss From Operations (125,537) (284,397) - (409,934)
Interest Expense 17,514 27,727 27,727 17,514
----------- ----------- ----------- -----------
Loss Before Taxes (143,051) (312,124) (27,727) (427,448)
State Income Taxes - 800 - 800
----------- ----------- ----------- -----------
Net Loss $ (143,051) $ (312,924) $ (27,727) $ (428,248)
=========== =========== =========== ===========
Net Loss Per Common Share (0.02) (0.05)
Weighted Average Shares outstanding 7,430,045 8,105,045
</TABLE>
F-29
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended November 30, 1999
<TABLE>
<CAPTION>
eCom eCom SDMI Eliminations
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales $ 451,571 $ 212,249 $ - $ 663,820
Cost of Sales 410,937 87,040 - 497,977
----------- ----------- ----------- -----------
Gross Profit 40,634 125,209 - 165,843
----------- ----------- ----------- -----------
Operating Expenses
Sales and marketing 282,330 47,446 - 329,776
Product development 264,949 - - 264,949
General and administrative 274,594 193,872 - 468,466
Depreciation and amortization 32,260 3,914 - 36,174
----------- ----------- ----------- -----------
Total Operating Expenses 854,133 245,232 - 1,099,365
----------- ----------- ----------- -----------
Loss From Operations (813,499) (120,023) - (933,522)
Interest Expense 7,178 - - 7,178
----------- ----------- ----------- -----------
Loss Before Taxes (820,677) (120,023) - (940,700)
State Income Taxes - - - -
----------- ----------- ----------- -----------
Net Loss $ (820,677) $ (120,023) $ - $ (940,700)
=========== =========== =========== ===========
Net Loss Per Common Share (0.06) (0.07)
Weighted Average Shares outstanding 13,027,350 13,702,350
</TABLE>
F-30
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS COMBINATION
The Company is negotiating the purchase of Star Dot Marketing, Inc. (SDMI).
The transaction is expected to be recorded as a pooling of interest. The
Company will exchange 675,000 shares of its $.0001 par value common stock for
all of the outstanding shares of SDMI.
SDMI is a turn-key provider of a complete line of guaranteed authentic, hand-
signed sports memorabilia and other related sports products. SDMI specializes
in product design and creation, with a particular emphasis on presentation
concepts, including unique layouts, customized display cases, personalized
engraving and matting and framing. Products are marketed and sold
domestically and internationally under the trademarks and trade names
"Treasures of Sports" and "Treasures of the Diamond."
SDMI's primary distribution and sales strategy to date has centered on the
development of joint sales agreements with professional sports franchises.
Key pro team clients include the San Francisco Giants, Los Angeles Dodgers,
Detroit Tigers and Baltimore Orioles of Major League Baseball and the Golden
State Warrior and Detroit Pistons of the National Basketball Association.
SDMI has also forged a vital client relationship with ARAMARK, one of the
nation's largest sports arena and stadium concessionaires, offering product
for sale at Oriole Park at Camden Yards - home field of the Baltimore Orioles
- - and at the Pittsburgh Civic Arena - home ice for the Pittsburgh Penguins.
SDMI offers the same range of products through the national service
organization, Les Concierges, and wholesales to a limited but growing number
of local and regional retailers.
Most recently, SDMI began creating specialty products for corporations and
businesses to use as corporate gifts, awards, premiums and employee
incentives. Products signed by the world's greatest athletes are merged into
unique design and display concepts and can be made to incorporate company
names, logos and slogans to create "branded impressions" that are treasured by
recipients and proudly displayed in the home or office.
SDMI works directly with professional athletes, their respective agents and
select number of promoters to obtain only guaranteed authentic signatures and
products. All products are backed by a money-back guarantee.
SDMI has created a unique product marketing and tracking system to ensure the
authenticity and integrity of each and every product it offers and is hopeful
to introduce and process and the technology supporting it within the calendar
year 2000.
F-31
<PAGE>
eCOMeCOM.COM, INC. AND SUBSIDIARY, STAR DOT MARKETING, INC.
PROFORMA CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 2 - BASIS OF PRESENTATION
The Company's unaudited proforma consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
proforma financial information and pursuant to the instructions to Form S-1
and Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments,
consisting of normal recurring accrual adjustments, considered necessary for a
fair presentation have been included. Proforma operating results for the six
month period ended November 30, 1999 and for the years ended May 31, 1999 and
1998 are not necessarily indicative of the results that may be expected for
the year ended May 31, 2000.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended May 31, 1999.
F-32
<PAGE>
Back Cover Page
No person is authorized in connection with the Offering made hereby to give
any information or to make any representation not contained in this Prospectus
and, if given or made, such information and representation must not be relied
upon as having been authorized by eCom or its officers. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any of
the securities offered hereby to any person or by anyone in any jurisdiction
in which it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implications that information contained herein is
correct as of any date subsequent to the date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary ................................ 3
Risk Factors ...................................... 4
Business of the Company ........................... 16
The Investment Agreement .......................... 24
Use of Proceeds ................................... 26
Dilution .......................................... 26
Selected Financial Information .................... 26
Management's Discussion and Analysis ............... 27
Management ........................................ 32
Executive Compensation ............................ 34
Description of Indemnification of
Officers and Directors ......................... 34
Related Party Transactions ........................ 35
Principal Holders of Common Shares ................ 37
Description of Securities ......................... 38
Plan of Distribution .............................. 41
Experts and Counsel ............................... 43
Additional Information ............................ 43
Financial Statements .............................. F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses of the Offering are estimated as follows:
Attorneys Fees $ 20,000
Accountants Fees $ 10,000
Registration Fees $ 2,909
Printing $ 10,000
Advertising $ 0
Other Expenses $ 1,500
--------
TOTAL $ 44,409
========
Item 14. Indemnification of Directors and Officers.
The Company's by-laws provide for indemnification of officers, directors
or Company agents against legal expenses, judgments, fines, settlements and
other amounts reasonably incurred by such person after having been made or
threatened to be made a party to legal action. Payment of such amounts may
also be made in advance if expenses are likely to be incurred by officers,
directors or agents in defense of any such action.
The extent, amount and eligibility for the indemnification provided will
be determined by the Board of Directors. These indemnifications will be made
by a majority vote of a quorum of directors, including any director who is a
party to such action, suit, or proceeding or by the shareholders by a majority
vote of a quorum of shareholders including any shareholder who is a party to
such action, suit or proceeding.
The corporation is further authorized by the Bylaws to purchase insurance
for indemnification of any person as provided by the Bylaws and to the extent
provided by Florida law.
Florida Statutes Section 607.0850 authorizes indemnification of officers,
directors, employees and agents in instances constituting: (1) certain
violations of criminal law which the person did not know were illegal, or (2)
actions taken in good faith by persons which were intended to be in the best
interests of the corporation.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
II-1
<PAGE>
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 15. Unregistered Securities Issued or Sold Within One Year.
eCom eCom.com, inc. issued 7,465,500 unregistered common shares of its
stock during the past three years. The Company issued such shares to the
following persons in the amounts shown in the table below for the
consideration as noted:
Date Holder Number of Shares Consideration
- ---- ------ ---------------- -------------
2/6/98 Employees
and Independent 2,099,400 Services rendered
Contractors
Private investor 1,000,000 Purchase of Assets
4/16/98 Employees
and Independent 1,810,000 Services rendered
Contractors
6/18/98 Independent
Contractors 40,000 Services rendered
7/29/98 Private Investor 250,000 $120,500
Independent
Contractors 5,000 Services rendered
12/14/98 Private Party 100,000 Marketing rights
Independent
Contractors 10,000 Services rendered
1/12/99 Private Investor 300,000 $20,000
Private party 80,000 Toll free phone number
1/22/99 Employees
and Independent 90,000 Services rendered
Contractors
2/17/99 Employees 25,000 Services rendered
Private investor 150,000 $75,000
3/4/99 Private investor 234,000 $89,780
Private investor 25,000 Services rendered
II-2
<PAGE>
5/18/99 Employees
and Independent 200,000 Services rendered
Contractors
Amex 45,000 Exchange for debt
12/22/99 Landlord 17,600 Office rent
Employees
and Independent 35,000 Professional fees
Contractors
Private investor 625,000 $480,000
1/27/00 Employees and
Independent 21,000 Services rendered
Contractors
Independent
Vendor 80,000 Software license
3/16/00 Independent
Vendor 23,500 Product Advertising
Employees and
Independent 200,000 Services rendered
Contractors
The Issuer claims exemption from registration of these securities under
the Securities Act of 1933 by reason of Section 4 (2) thereof. The Issuer
also claims exemption from registration in the State of Florida by reason of
Florida Statutes, Section 517.061.
II-3
<PAGE>
Item 16. Index to Exhibits.
Exhibit
No. Description
- ------- -----------
3.0 Articles of Incorporation (1)
3.1 By-laws (1)
5.0 Opinion of Krys, Boyle, Freedman & Sawyer, P.C.*
10.1 Investment Agreement between the registrant and Swartz
Private Capital, LLC (2)
10.2 Amended and Restated Investment Agreement between the
registrant and Swartz Private Capital, LLC (3)
10.3 Stock Exchange Agreement between the registrant and
Star Dot Marketing, Inc. (4)
10.4 Amended and Restated Investment Agreement between the
registrant and Swartz Private Capital, Inc. *
21 Subsidiaries of the registrant*
23.1 Consent of Hafer & Gilmer, CPA*
23.2 Consent of Hood & Strong LLP, CPA*
23.3 Consent of Krys Boyle Golz Freedman & Sawyer, P.C. **
________________________
(1) Included as an Exhibit to the Form SB-1 Registration Statement filed
on September 6, 1995.
(2) Included as an Exhibit to the Form 8-K filed on May 26, 1999.
(3) Included as an Exhibit to the Form 10-KSB for the fiscal year ended
May 31, 1999.
(4) Included as an Exhibit to the Form 8-K filed on February 17, 2000.
* Filed herewith
** Contained in the legal opinion filed as Exhibit 5 herewith
Item 17. Undertakings.
The Company on behalf of itself hereby undertakes and commits as follows:
A. 1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any Prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) Reflect in the Prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement.
II-4
<PAGE>
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
3. To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
C. The Issuer will, for determining any liabilities under the Securities
Act, treat the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Issuer under Rule 424 (b) (1), or (4) or 497
(h), under the Securities Act (Sections 230.424(b)(1),4 or 230.497(h)) as part
of this Registration Statement as of the time the Commission declared it
effective.
The Issuer will also, for determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of Prospectus as
a new Registration Statement for the securities offered in the Registration
Statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palm Beach Gardens and
State of Florida on the 28th day of March, 2000.
ECOM ECOM.COM, INC.
By: /s/ David J. Panaia
David J. Panaia, Chairman of the
Board, Chief Executive Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signatures Title Date
/s/David J. Panaia Chief Executive 3/28/00
David J. Panaia Officer, Chairman
of the Board, Treasurer
and Director
/s/ Thomas DeRita, Jr. Secretary and 3/28/00
Thomas DeRita, Jr. Director
/s/ Gerald V. Bergman Director 3/28/00
Gerald V. Bergman*
/s/ Elling J. Myklebust Director 3/28/00
Elling J. Myklebust
ECOM ECOM.COM, INC.
AMENDED AND RESTATED INVESTMENT AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY MAY NOT
BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE FEDERAL AND STATE
SECURITIES LAWS.
THIS INVESTMENT AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED HEREIN
BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. THE
INVESTOR MUST RELY ON ITS OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT J.
SEE ADDITIONAL LEGENDS AT SECTIONS 4.7.
THIS AMENDED AND RESTATED INVESTMENT AGREEMENT (this "Agreement" or
"Investment Agreement") is dated as of the 13th day of May, 1999, by and
between eCom eCom.com, Inc., a corporation duly organized and existing under
the laws of the State of Florida (the "Company"), and Swartz Private Equity,
LLC ("Investor"), and amends and restates that certain Investment Agreement
between the Company and the Investor dated May 13, 1999.
RECITALS:
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue to the Investor, and the
Investor shall purchase from the Company, from time to time as provided
herein, shares of the Company's Common Stock as part of an offering of Common
Stock by the Company to Investor, for a maximum aggregate offering amount of
Thirty Million Dollars ($30,000,000) (the "Maximum Offering Amount"); and
WHEREAS, the solicitation of this Investment Agreement and, if accepted
by the Company, the offer and sale of the Common Stock are being made in
reliance upon the provisions of Section 4(2) promulgated under the Act,
Regulation D promulgated under the Act and/or upon such other exemption from
the registration requirements of the Act as may be available with respect to
any or all of the purchases of Common Stock to be made hereunder.
TERMS:
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement (including the
recitals above), the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
<PAGE>
"20% Approval" shall have the meaning set forth in Section 5.26.
"Accredited Investor" shall have the meaning set forth in Section 3.1.
"Act" shall mean the Securities Act of 1933, as amended.
"Advance Put Notice" shall have the meaning set forth in Section
2.3.1(a), the form of which is attached hereto as Exhibit E.
"Advance Put Notice Confirmation" shall have the meaning set forth in
Section 2.3.1(a), the form of which is attached hereto as Exhibit F.
"Advance Put Notice Date" shall have the meaning set forth in Section
2.3.1(a).
"Affiliate" shall have the meaning as set forth Section 6.5.
"Aggregate Issued Shares" equals the aggregate number of shares of Common
Stock issued to Investor pursuant to the terms of this Agreement or the
Registration Rights Agreement as of a given date, including Put Shares and
Warrant Shares.
"Agreed Upon Procedures Report" shall have the meaning set forth in
Section 2.6.3(b).
"Agreement" shall mean this Investment Agreement.
"Automatic Termination" shall have the meaning set forth in Section
2.3.2.
"Bring Down Cold Comfort Letters" shall have the meaning set forth in
Section 2.3.6(b).
"Business Day" shall mean any day during which the Principal Market is
open for trading.
"Calendar Month" shall mean the period of time beginning on the numeric
day in question in a calendar month and for Calendar Months thereafter,
beginning on the earlier of (i) the same numeric day of the next calendar
month or (ii) the last day of the next calendar month. Each Calendar Month
shall end on the day immediately preceding the beginning of the next
succeeding Calendar Month.
"Cap Amount" shall have the meaning set forth in Section 2.3.11.
"Capital Raising Limitations" shall have the meaning set forth in Section
6.6.1.
"Capitalization Schedule" shall have the meaning set forth in Section
3.2.4, attached hereto as Exhibit K.
"Closing" shall mean one of (i) the Investment Commitment Closing and
(ii) each closing of a purchase and sale of Common Stock pursuant to Section
2.
"Closing Bid Price" means, for any security as of any date, the last
closing bid price for such security on the O.T.C. Bulletin Board, or, if the
O.T.C. Bulletin Board is not the principal securities exchange or trading
market for such security, the last closing bid price of such security on the
principal securities exchange or trading market where such security is listed
or traded as reported by such principal securities exchange or trading market,
<PAGE>
or if the foregoing do not apply, the last closing bid price of such security
in the over-the-counter market on the electronic bulletin board for such
security, or, if no closing bid price is reported for such security, the
average of the bid prices of any market makers for such security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing
Bid Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as mutually determined by the Company and the Investor
in this Offering. If the Company and the Investor in this Offering are unable
to agree upon the fair market value of the Common Stock, then such dispute
shall be resolved by an investment banking firm mutually acceptable to the
Company and the Investor in this offering and any fees and costs associated
therewith shall be paid by the Company.
"Commitment Evaluation Period" shall have the meaning set forth in
Section 2.7.
"Commitment Warrants" shall have the meaning set forth in Section 2.7.
"Commitment Warrant Exercise Price" shall have the meaning set forth in
Section 2.7.
"Common Shares" shall mean the shares of Common Stock of the Company.
"Common Stock" shall mean the common stock of the Company.
"Company" shall mean eCom eCom.com, Inc., a corporation duly organized
and existing under the laws of the State of Florida.
"Company Designated Maximum Put Dollar Amount" shall have the meaning set
forth in Section 2.3.1(a).
"Company Designated Minimum Put Share Price" shall have the meaning set
forth in Section 2.3.1(a).
"Company Termination" shall have the meaning set forth in Section 2.3.14.
"Conditions to Investor's Obligations" shall have the meaning as set
forth in Section 2.2.4.
"Delisting Event" shall mean any time during the term of this Investment
Agreement, that the Company's Common Stock is not quoted or listed on, and
actively trading on, the O.T.C. Bulletin Board, the Nasdaq Small Cap Market,
the Nasdaq National Market, the American Stock Exchange, or the New York Stock
Exchange or is suspended or delisted with respect to the trading of the shares
of Common Stock on such market or exchange.
"Disclosure Documents" shall have the meaning as set forth in Section
3.2.4.
"Due Diligence Review" shall have the meaning as set forth in Section 2.6
"Effective Date" shall have the meaning set forth in Section 2.3.1.
"Evaluation Day" shall have the meaning set forth in Section 2.3.7(b).
"Equity Securities" shall have the meaning set forth in Section 6.6.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
"Extended Put Period" shall mean the period of time between the Advanced
Put Notice Date until the Pricing Period End Date.
"Impermissible Put Cancellation" shall have the meaning set forth in
Section 2.3.1(e).
"Indemnified Liabilities" shall have the meaning set forth in Section 9.
"Indemnities" shall have the meaning set forth in Section 9.
"Indemnitor" shall have the meaning set forth in Section 9.
"Individual Put Limit" shall have the meaning set forth in Section 2.3.1
(b).
"Ineffective Period" shall mean any period of time that the Registration
Statement or any Supplemental Registration Statement (each as defined in the
Registration Rights Agreement) becomes ineffective or unavailable for use for
the sale or resale, as applicable, of any or all of the Registrable Securities
(as defined in the Registration Rights Agreement) for any reason (or in the
event the prospectus under either of the above is not current and deliverable)
during any time period required under the Registration Rights Agreement.
"Intended Put Share Amount" shall have the meaning set forth in Section
2.3.1(a).
"Investment Commitment Closing" shall have the meaning set forth in
Section 2.2.3.
"Investment Agreement" shall mean this Investment Agreement.
"Investment Commitment Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit
B, or such other form as agreed upon by the parties, as to the Investment
Commitment Closing.
"Investment Date" shall mean the date of the Investment Commitment
Closing.
"Investor" shall have the meaning set forth in the preamble hereto.
"Key Employee" shall have the meaning set forth in Section 5.18, as set
forth in Exhibit N.
"Late Payment Amount" shall have the meaning set forth in Section 2.3.8.
"Legend" shall have the meaning set forth in Section 4.7.
"Major Transaction" shall mean and shall be deemed to have occurred at
such time upon any of the following events:
(i) a consolidation, merger or other business combination or event
or transaction following which the holders of Common Stock of the Company
immediately preceding such consolidation, merger, combination or event either
(i) no longer hold a majority of the shares of Common Stock of the Company or
(ii) no longer have the ability to elect the board of directors of the Company
(a "Change of Control"); provided, however, that if the other entity involved
in such consolidation, merger, combination or event is a publicly traded
company with "Substantially Similar Trading Characteristics" (as defined
below) as the Company and the holders of Common Stock are to receive solely
Common Stock or no consideration (if the Company is the surviving entity) or
solely common stock of such other entity (if such other entity is the
<PAGE>
surviving entity), such transaction shall not be deemed to be a Major
Transaction (provided the surviving entity, if other than the Company, shall
have agreed to assume all obligations of the Company under this Agreement and
the Registration Rights Agreement). For purposes hereof, an entity shall have
Substantially Similar Trading Characteristics as the Company if the average
daily dollar trading volume of the common stock of such entity is equal to or
in excess of $200,000 for the 90th through the 31st day prior to the public
announcement of such transaction;
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the holders of
outstanding shares of Common Stock, such that following such purchase, tender
or exchange offer a Change of Control shall have occurred.
"Market Price" shall equal the lowest Closing Bid Price for the Common
Stock on the Principal Market during the Pricing Period for the applicable
Put.
"Material Facts" shall have the meaning set forth in Section 2.3.6(a).
"Maximum Put Dollar Amount" shall mean the lesser of (i) the Company
Designated Maximum Put Dollar Amount, if any, specified by the Company in a
Put Notice, and (ii) $10 million.
"Maximum Offering Amount" shall mean Thirty Million Dollars
($30,000,000).
"Nasdaq 20% Rule" shall have the meaning set forth in Section 2.3.11.
"NASD" shall have the meaning set forth in Section 6.10.
"NYSE" shall have the meaning set forth in Section 6.10.
"Numeric Day" shall mean the numerical day of the month of the Investment
Date or the last day of the calendar month in question, whichever is less.
"Offering" shall mean the Company's offering of common stock and warrants
issued under this Investment Agreement.
"Officer's Certificate" shall mean a certificate, signed by an officer of
the Company, to the effect that the representations and warranties of the
Company in this Agreement required to be true for the applicable Closing are
true and correct in all material respects and all of the conditions and
limitations set forth in this Agreement for the applicable Closing are
satisfied.
"Opinion of Counsel" shall mean, as applicable, the Investment Commitment
Opinion of Counsel, the Put Opinion of Counsel, the Registration Opinion and
the Purchase Warrant Opinion of Counsel.
"Payment Due Date" shall have the meaning set forth in Section 2.3.8.
"Pricing Period" shall have the meaning set forth in Section 2.3.7(b).
"Pricing Period End Date" shall mean the last Business Day of any Pricing
Period.
"Principal Market" shall mean the O.T.C. Bulletin Board, the Nasdaq Small
Cap Market, the Nasdaq National Market, the American Stock Exchange or the New
<PAGE>
York Stock Exchange, whichever is at the time the principal trading exchange
or market for the Common Stock.
"Proceeding" shall have the meaning as set forth Section 5.1.
"Purchase" shall have the meaning set forth in Section 2.3.7(a).
"Purchase Warrant" shall have the meaning set forth in Section 2.4.2.
"Purchase Warrant Exercise Price" shall have the meaning set forth in
Section 2.4.2.
"Purchase Warrant Opinion of Counsel" shall mean an opinion from
Company's independent counsel, substantially in the form attached as Exhibit
O, or such other form as agreed upon by the parties, as to the issuance of
Purchase Warrants to the Investor.
"Put" shall have the meaning set forth in Section 2.3.1(d).
"Put Cancellation" shall have the meaning set forth in Section 2.3.13(a).
"Put Cancellation Notice Confirmation" shall have the meaning set forth
in Section 2.3.13(c), the form of which is attached hereto as Exhibit S.
"Put Cancellation Date" shall have the meaning set forth in Section
2.3.13(a).
"Put Cancellation Notice" shall have the meaning set forth in Section
2.3.13(a), the form of which is attached hereto as Exhibit Q.
"Put Closing" shall have the meaning set forth in Section 2.3.8.
"Put Closing Date" shall have the meaning set forth in Section 2.3.8.
"Put Date" shall mean the date that is specified by the Company in any
Put Notice for which the Company intends to exercise a Put under Section
2.3.1, unless the Put Date is postponed pursuant to the terms hereof, in which
case the "Put Date" is such postponed date.
"Put Dollar Amount" shall be determined by multiplying the Put Share
Amount by the Put Share Price with respect to such Put Shares, subject to the
limitations herein.
"Put Notice" shall have the meaning set forth in Section 2.3.1(d), the
form of which is attached hereto as Exhibit G.
"Put Notice Confirmation" shall have the meaning set forth in Section
2.3.1(d), the form of which is attached hereto as Exhibit H.
"Put Opinion of Counsel" shall mean an opinion from Company's independent
counsel, in the form attached as Exhibit I, or such other form as agreed upon
by the parties, as to any Put Closing.
"Put Share Amount" shall have the meaning as set forth Section 2.3.1(b).
"Put Share Price" shall have the meaning set forth in Section 2.3.1(c).
"Put Shares" shall mean shares of Common Stock that are purchased by the
Investor pursuant to a Put.
<PAGE>
"Registrable Securities" shall have the meaning as set forth in the
Registration Rights Agreement.
"Registration Opinion" shall have the meaning set forth in Section
2.3.6(a).
"Registration Opinion Deadline" shall have the meaning set forth in
Section 2.3.6(a).
"Registration Rights Agreement" shall mean that certain registration
rights agreement entered into by the Company and Investor on even date
herewith, in the form attached hereto as Exhibit A, or such other form as
agreed upon by the parties.
"Registration Statement" shall have the meaning as set forth in the
Registration Rights Agreement.
"Regulation D" shall mean Regulation D promulgated under the Securities
Act of 1933, as amended.
"Reporting Issuer" shall have the meaning set forth in Section 6.2.
"Required Put Documents" shall have the meaning set forth in Section
2.3.5.
"Risk Factors" shall have the meaning set forth in Section 3.2.4,
attached hereto as Exhibit J.
"Schedule of Exceptions" shall have the meaning set forth in Section 5,
and is attached hereto as Exhibit C.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall mean this Investment Agreement, together with the
Common Stock of the Company, the Warrants and the Warrant Shares issuable
pursuant to this Investment Agreement.
"Semi-Annual Non-Usage Fee" shall have the meaning set forth in Section
2.7.
"Share Authorization Increase Approval" shall have the meaning set forth
in Section 5.26.
"Six Month Anniversary" shall mean the date that is the same Numeric Day
of the sixth (6th) calendar month after the Investment Date, and the date that
is the same Numeric Day of each sixth (6th) calendar month thereafter,
provided that if such date is not a Business Day, the next Business Day
thereafter.
"Stockholder 20% Approval" shall have the meaning set forth in Section
6.12.
"Supplemental Registration Statement" shall have the meaning set forth in
the Registration Rights Agreement.
"Term" shall mean the term of this Agreement, which shall be a period of
time beginning on the date of this Agreement and ending on the Termination
Date.
<PAGE>
"Termination Date" shall mean the earlier of (i) the date that is three
(3) years after the Effective Date, or (ii) the date that is thirty (30)
Business Days after the later of (a) the Put Closing Date on which the sum of
the aggregate Put Share Price for all Put Shares equal the Maximum Offering
Amount, (b) the date that the Company has delivered a Termination Notice to
the Investor, (c) the date of an Automatic Termination, and (d) the date that
all of the Warrants have been exercised. Notwithstanding the above, if no
Registration Statement has been declared effective by the date that is one (1)
year after the date of this Agreement, the Termination Date shall be the date
that is one (1) year after the date of this Agreement.
"Termination Fee" shall have the meaning set forth in Section 2.7.
"Termination Notice" shall have the meaning as set forth in Section
2.3.14.
"Third Party Report" shall have the meaning set forth in Section 3.2.4.
"Transaction Documents" shall have the meaning set forth in Section 9.
"Transfer Agent Instructions" shall mean the Company's instructions to
its transfer agent, substantially in the form attached as Exhibit T, or such
other form as agreed upon by the parties.
"Trigger Price" shall have the meaning set forth in Section 2.3.7(b).
"Truncated Pricing Period" shall have the meaning set forth in Section
2.3.7(b).
"Truncated Put Share Amount" shall have the meaning set forth in Section
2.3.13(b).
"Unlegended Share Certificates" shall mean a certificate or certificates,
or electronically delivered shares, as appropriate (in denominations as
instructed by Investor) representing the shares of Common Stock to which the
Investor is then entitled to receive, registered in the name of Investor or
its nominee (as instructed by Investor), not containing a restrictive legend
and not subject to any stop transfer order, including but not limited to the
Put Shares for the applicable Put and Warrant Shares.
"Use of Proceeds Schedule" shall have the meaning as set forth in Section
3.2.4, attached hereto as Exhibit L.
"Warrant Shares" shall mean the Common Stock issuable upon exercise of
the Warrants.
"Warrants" shall mean the Commitment Warrants and the Purchase Warrants.
2. Purchase and Sale of Common Stock.
2.1 Offer to Subscribe.
Subject to the terms and conditions herein and the satisfaction of
the conditions to closing set forth in Sections 2.2 and 2.3 below, Investor
hereby agrees to purchase such amounts of Common Stock and accompanying
Warrants as the Company may, in its sole and absolute discretion, from time to
time elect to issue and sell to Investor according to one or more Puts
pursuant to Section 2.3 below.
<PAGE>
2.2 Investment Commitment.
2.2.1 [Intentionally Left Blank].
2.2.2 [Intentionally Left Blank].
2.2.3 Investment Commitment Closing. The closing of this
Agreement (the "Investment Commitment Closing") shall be deemed to occur when
this Agreement and the Registration Rights Agreement have been executed by
both Investor and the Company, the Transfer Agent Instructions have been
executed by both the Company and the Transfer Agent, and the other Conditions
to Investor's Obligations set forth in Section 2.2.4 below have been met.
2.2.4 Conditions to Investor's Obligations. As a prerequisite
to the Investment Commitment Closing and the Investor's obligations hereunder,
all of the following (the "Conditions to Investor's Obligations") shall have
been satisfied prior to or concurrently with the Company's execution and
delivery of this Agreement:
(a) the following documents shall have been delivered to the Investor:
(i) the Registration Rights Agreement, (executed by the Company and Investor),
(ii) the Investment Commitment Opinion of Counsel (signed by the Company's
counsel), (iii) the Transfer Agent Instructions (executed by the Company and
the Transfer Agent), and (iv) a Secretary's Certificate as to (A) the
resolutions of the Company's board of directors authorizing this transaction,
(B) the Company's Certificate of Incorporation, and (C) the Company's Bylaws;
(b) this Investment Agreement, accepted by the Company, shall have been
received by the Investor;
(c) [Intentionally Left Blank];
(d) the Company's Common Stock shall be quoted for trading and actually
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market, the American Stock Exchange or the New York Stock Exchange;
(e) other than continuing losses described in the Risk Factors set
forth in the Disclosure Documents (provided for in Section 3.2.4), as of the
Closing there have been no material adverse changes in the Company's business
prospects or financial condition since the date of the last balance sheet
included in the Disclosure Documents, including but not limited to incurring
material liabilities; and
(f) the representations and warranties of the Company in this Agreement
shall be true and correct in all material respects and the conditions to
Investor's obligations set forth in this Section 2.2.4 shall have been
satisfied as of such Closing; and the Company shall deliver an Officer's
Certificate, signed by an officer of the Company, to such effect to the
Investor.
2.3 Puts of Common Shares to the Investor.
2.3.1 Procedure to Exercise a Put. Subject to the Individual
Put Limit, the Maximum Offering Amount and the Cap Amount (if applicable), and
the other conditions and limitations set forth in this Agreement, at any time
beginning on the date on which the Registration Statement is declared
effective by the SEC (the "Effective Date"), the Company may, in its sole and
absolute discretion, elect to exercise one or more Puts according to the
following procedure, provided that each subsequent Put Date after the first
Put Date shall be no sooner than twenty (20) Business Days following the
preceding Put Date:
<PAGE>
(a) Delivery of Advance Put Notice. At least ten (10)
Business Days but not more than twenty (20) Business Days prior to any
intended Put Date (unless otherwise agreed in writing by the Investor), the
Company shall deliver advance written notice (the "Advance Put Notice," the
form of which is attached hereto as Exhibit E, the date of such Advance Put
Notice being the "Advance Put Notice Date") to Investor stating the Put Date
for which the Company shall, subject to the limitations and restrictions
contained herein, exercise a Put and stating the number of shares of Common
Stock (subject to the Individual Put Limit and the Maximum Put Dollar Amount)
which the Company intends to sell to the Investor for the Put (the "Intended
Put Share Amount").
The Company may, at its option, also designate in an Advance Put Notice
(i) a maximum dollar amount of Common Stock, not to exceed $10,000,000, which
it shall sell to Investor during the Put (the "Company Designated Maximum Put
Dollar Amount") and/or (ii) a minimum purchase price per Put Share at which
the Investor may purchase Shares pursuant to such Put Notice (a "Company
Designated Minimum Put Share Price"). The Company Designated Minimum Put
Share Price, if applicable, shall be no greater than 80% of the Closing Bid
Price of the Company's common stock on the Advance Put Notice Date.
Notwithstanding the above, if at the time of delivery of an Advance Put
Notice, more than two (2) Calendar Months have passed since the previous Put
Date, such Advance Put Notice shall provide at least twenty (20) Business Days
notice of the intended Put Date, unless waived in writing by the Investor. In
order to effect delivery of the Advance Put Notice, the Company shall (i) send
the Advance Put Notice by facsimile on such date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on such date to a courier for overnight delivery to the Investor
(or two (2) day delivery in the case of an Investor residing outside of the
U.S.). Upon receipt by the Investor of a facsimile copy of the Advance Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile,
a confirmation of receipt (the "Advance Put Notice Confirmation," the form of
which is attached hereto as Exhibit F) of the Advance Put Notice to the
Company specifying that the Advance Put Notice has been received and affirming
the intended Put Date and the Intended Put Share Amount.
(b) Put Share Amount. The "Put Share Amount" is the number
of shares of Common Stock that the Investor shall be obligated to purchase in
a given Put, and shall equal the lesser of (i) the Intended Put Share Amount,
and (ii) the Individual Put Limit. The "Individual Put Limit" shall equal the
lesser of (i) 15% of the sum of the aggregate daily reported trading volumes
in the outstanding Common Stock on the Company's Principal Market, excluding
any block trades of 20,000 or more shares of Common Stock, for all Evaluation
Days (as defined below) in the Pricing Period, (ii) the number of Put Shares
which, when multiplied by their respective Put Share Prices, equals the
Maximum Put Dollar Amount, and (iii) 9.9% of the total amount of the Company's
Common Stock that would be outstanding upon completion of the Put.
(c) Put Share Price. The purchase price for the Put
Shares (the "Put Share Price") shall equal the lesser of (i) the Market Price
for such Put, minus $.25, or (ii) 92% of the Market Price for such Put, but
shall in no event be less than the Company Designated Minimum Put Share Price
for such Put, if applicable.
(d) Delivery of Put Notice. After delivery of an Advance
Put Notice, on the Put Date specified in the Advance Put Notice, the Company
shall deliver written notice (the "Put Notice," the form of which is attached
hereto as Exhibit G) to Investor stating (i) the Put Date, (ii) the Intended
Put Share Amount as specified in the Advance Put Notice (such exercise a
"Put"), (iii) the Company Designated Maximum Put Dollar Amount (if
<PAGE>
applicable), and (iv) the Company Designated Minimum Put Share Price (if
applicable). In order to effect delivery of the Put Notice, the Company shall
(i) send the Put Notice by facsimile on the Put Date so that such notice is
received by the Investor by 6:00 p.m., New York, NY time, and (ii) surrender
such notice on the Put Date to a courier for overnight delivery to the
Investor (or two (2) day delivery in the case of an Investor residing outside
of the U.S.). Upon receipt by the Investor of a facsimile copy of the Put
Notice, the Investor shall, within two (2) Business Days, send, via facsimile,
a confirmation of receipt (the "Put Notice Confirmation," the form of which is
attached hereto as Exhibit H) of the Put Notice to Company specifying that the
Put Notice has been received and affirming the Put Date and the Intended Put
Share Amount.
(e) Delivery of Required Put Documents. On or before the
Put Date for such Put, the Company shall deliver the Required Put Documents
(as defined in Section 2.3.5 below) to the Investor (or to an agent of
Investor, if Investor so directs). Unless otherwise specified by the
Investor, the Put Shares of Common Stock shall be transmitted electronically
pursuant to such electronic delivery system as the Investor shall request;
otherwise delivery shall be by physical certificates. If the Company has not
delivered all of the Required Put Documents to the Investor on or before the
Put Date, the Put shall be automatically cancelled, unless the Investor
agrees to delay the Put Date by up to three (3) Business Days, in which case
the Pricing Period begins on the Business Day following such new Put Date. If
the Company has not delivered all of the Required Put Documents to the
Investor on or before the Put Date (or new Put Date, if applicable), and the
Investor has not agreed in writing to delay the Put Date, the Put is
automatically canceled (an "Impermissible Put Cancellation") and, unless the
Put was otherwise canceled in accordance with the terms of Section 2.3.13, the
Company shall pay the Investor $5,000 for its reasonable due diligence
expenses incurred in preparation for the canceled Put and the Company may
deliver an Advance Put Notice for the subsequent Put no sooner than ten (10)
Business Days after the date that such Put was canceled, unless otherwise
agreed by the Investor.
2.3.2 Termination of Right to Put. The Company's right to
require the Investor to purchase any subsequent Put Shares shall terminate
permanently (each, an "Automatic Termination") upon the occurrence of any of
the following:
(a) the Company shall not exercise a Put or any Put
thereafter if, at any time, either the Company or any director or executive
officer of the Company has engaged in a transaction or conduct related to the
Company that gives rise to (i) a Securities and Exchange Commission
enforcement action, or (ii) a civil judgment or criminal conviction for fraud
or misrepresentation, or for any other offense that, if prosecuted criminally,
would constitute a felony under applicable law;
(b) the Company shall not exercise a Put or any Put
thereafter, on any date after a cumulative time period or series of time
periods, including both Ineffective Periods and Delisting Events, that lasts
for an aggregate of four (4) months;
(c) the Company shall not exercise a Put or any Put
thereafter if at any time the Company has filed for and/or is subject to any
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors instituted by or against the Company or any subsidiary of the Company;
provided that in the event that an involuntary bankruptcy petition is filed
against the Company, the Company shall have sixty (60) days to obtain
dismissal of such petition before such Put prohibition shall initiate;
<PAGE>
(d) the Company shall not exercise a Put after the sooner
of (i) the date that is three (3) years after the Effective Date, or (ii) the
Put Closing Date on which the aggregate of the Put Dollar Amounts for all Puts
equal the Maximum Offering Amount; and
(e) the Company shall not exercise a Put after the Company
has breached any covenant in Section 2.7, Section 6, or Section 9 hereof.
2.3.3 Put Limitations. The Company's right to exercise a Put
shall be limited as follows:
(a) [Intentionally Left Blank].
(b) notwithstanding the amount of any Put, the Investor
shall not be obligated to purchase any additional Put Shares once the
aggregate Put Dollar Amount paid by Investor equals the Maximum Offering
Amount;
(c) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has announced
a subdivision or combination, including a reverse split, of its Common Stock
or has subdivided or combined its Common Stock during the Extended Put Period;
(d) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has paid a
dividend of its Common Stock or has made any other distribution of its Common
Stock during the Extended Put Period;
(e) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which the Company has made,
during the Extended Put Period, a distribution of all or any portion of its
assets or evidences of indebtedness to the holders of its Common Stock;
(f) the Investor shall not be obligated to acquire and pay
for the Put Shares with respect to any Put for which a Major Transaction has
occurred during the Extended Put Period;
2.3.4 Conditions Precedent to the Right of the Company to
Deliver an Advance Put Notice or a Put Notice and the Obligation of the
Investor to Purchase Put Shares. The right of the Company to deliver an
Advance Put Notice or a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is
subject to the satisfaction, on (i) the date of delivery of such Advance Put
Notice or Put Notice and (ii) the applicable Put Closing Date, of each of the
following conditions:
(a) the Company's Common Stock shall be quoted for and actively
trading on the O.T.C. Bulletin Board, the Nasdaq Small Cap Market, the Nasdaq
National Market or the New York Stock Exchange and the Put Shares shall be so
quoted, and to the Company's knowledge there is no notice of any suspension or
delisting with respect to the trading of the shares of Common Stock on such
market or exchange;
(b) the Company shall have satisfied any and all obligations
pursuant to the Registration Rights Agreement, including, but not limited to,
the filing of the Registration Statement with the SEC with respect to the
resale of all Registrable Securities and the requirement that the Registration
Statement shall have been declared effective by the SEC for the resale of all
Registrable Securities and the Company shall have satisfied and shall be in
compliance with any and all obligations pursuant to this Agreement and the
Warrants;
<PAGE>
(c) [Intentionally Left Blank].
(d) the representations and warranties of the Company are true
and correct in all material respects as if made on such date and the
conditions to Investors obligations set forth in this Section 2.3.4 are
satisfied as of such Closing, and the Company shall deliver a certificate,
signed by an officer of the Company, to such effect to the Investor;
(e) the Company shall have reserved for issuance a sufficient
number of Common Shares for the purpose of enabling the Company to satisfy any
obligation to issue Common Shares pursuant to any Put and to effect exercise
of the Warrants;
(f) the Registration Statement is not subject to an Ineffective
Period as defined in the Registration Rights Agreement, the prospectus
included therein is current and deliverable, and to the Companys knowledge
there is no notice of any investigation or inquiry concerning any stop order
with respect to the Registration Statement; and
(g) if the Aggregate Issued Shares after the Closing of the Put
would exceed the Cap Amount, the Company shall have obtained the Stockholder
20% Approval as specified in Section 6.12.
2.3.5 Documents Required to be Delivered on the Put Date as
Conditions to Closing of any Put. The Closing of any Put and Investors
obligations hereunder shall additionally be conditioned upon the delivery to
the Investor of each of the following (the "Required Put Documents") on or
before the applicable Put Date:
(a) a number of Unlegended Share Certificates (or
electronically delivered shares, as appropriate) equal to the Intended Put
Share Amount, in denominations of not more than 50,000 shares per certificate;
(b) the following documents: Put Opinion of Counsel,
Officer's Certificate, Put Notice, any required Registration Opinion, and any
report or disclosure required under Section 2.3.6 or Section 2.6;
(c) current Risk Factors; and
(d) all documents, instruments and other writings required
to be delivered on or before the Put Date pursuant to any provision of this
Agreement in order to implement and effect the transactions contemplated
herein.
2.3.6 Accountants Letter and Registration Opinion.
(a) The Company shall have caused to be delivered to the
Investor, (i) whenever required by Section 2.3.6(b) or by Section 2.6.3, and
(ii) on the date that is three (3) Business Days prior to each Put Date (the
"Registration Opinion Deadline"), an opinion of the Company's independent
counsel, in substantially the form of Exhibit R (the "Registration Opinion"),
addressed to the Investor stating, inter alia, that no facts ("Material
Facts") have come to such counsel's attention that have caused it to believe
that the Registration Statement is subject to an Ineffective Period or to
believe that the Registration Statement, any Supplemental Registration
Statement (as each may be amended, if applicable), and any related
prospectuses, contains an untrue statement of material fact or omits a
material fact required to make the statements contained therein, in light of
the circumstances under which they were made, not misleading. If a
Registration Opinion cannot be delivered by the Company's independent counsel
to the Investor on the Registration Opinion Deadline due to the existence of
<PAGE>
Material Facts or an Ineffective Period, the Company shall promptly notify the
Investor and as promptly as possible amend each of the Registration Statement
and any Supplemental Registration Statement, as applicable, and any related
prospectus or cause such Ineffective Period to terminate, as the case may be,
and deliver such Registration Opinion and updated prospectus as soon as
possible thereafter. If at any time after a Put Notice shall have been
delivered to Investor but before the related Pricing Period End Date, the
Company acquires knowledge of such Material Facts or any Ineffective Period
occurs, the Company shall promptly notify the Investor and shall deliver a Put
Cancellation Notice to the Investor pursuant to Section 2.3.13 by facsimile
and overnight courier by the end of that Business Day.
(b) (i) the Company shall engage its independent
auditors to perform the procedures in accordance with the provisions of
Statement on Auditing Standards No. 71, as amended, as agreed to by the
parties hereto, and reports thereon (the "Bring Down Cold Comfort Letters") as
shall have been reasonably requested by the Investor with respect to certain
financial information contained in the Registration Statement and shall have
delivered to the Investor such a report addressed to the Investor, on the date
that is three (3) Business Days prior to each Put Date.
(ii) in the event that the Investor shall have requested
delivery of an "Agreed Upon Procedures Report" pursuant to Section 2.6.3, the
Company shall engage its independent auditors to perform certain agreed upon
procedures and report thereon as shall have been reasonably requested by the
Investor with respect to certain financial information of the Company and the
Company shall deliver to the Investor a copy of such report addressed to the
Investor. In the event that the report required by this Section 2.3.6(b)
cannot be delivered by the Company's independent auditors, the Company shall,
if necessary, promptly revise the Registration Statement and the Company shall
not deliver a Put Notice until such report is delivered.
2.3.7 Mechanics of Purchase of Put Shares.
(a) Investors Obligation and Right to Purchase Shares.
Subject to the conditions set forth in this Agreement, following the
Investor's receipt of a validly delivered Put Notice, the Investor shall be
required to purchase (each a "Purchase") from the Company a number of Put
Shares equal to the Put Share Amount, in the manner described below.
(b) Pricing Period. For purposes hereof, the "Pricing
Period" shall mean, unless otherwise shortened under the terms of this
Agreement, the period beginning on the Business Day immediately following the
Put Date and ending on and including the date which is 20 Business Days after
such Put Date; provided that, if a Put Cancellation Notice has been delivered
to the Investor after the Put Date, the Pricing Period for such Put shall end
at on the close of trading on the last full trading day on the Principal
Market that ends prior to the moment of initial delivery of the Put
Cancellation Notice (a "Truncated Pricing Period") to the Investor.
For purposes of this Agreement:
"Trigger Price" for any Pricing Period shall mean the greater of (i)
the Company Designated Minimum Put Share Price, plus $.25, or (ii) the Company
Designated Minimum Put Share Price divided by .92.
An "Evaluation Day" shall mean each Business Day during a Pricing
Period where the lowest intra-day trading price of the Common Stock is greater
than or equal to the Trigger Price.
<PAGE>
2.3.8 Mechanics of Put Closing. Each of the Company and the
Investor shall deliver all documents, instruments and writings required to be
delivered by either of them pursuant to this Agreement at or prior to each
Closing. Subject to such delivery and the satisfaction of the conditions set
forth in Sections 2.3.4 and 2.3.5, the closing of the purchase by the Investor
of Shares shall occur by 5:00 PM, New York City Time, on the date which is
five (5) Business Days following the applicable Pricing Period End Date (or
such other time or later date as is mutually agreed to by the Company and the
Investor) (the "Payment Due Date") at the offices of Investor. On or before
each Payment Due Date, the Investor shall deliver to the Company, in the
manner specified in Section 8 below, the Put Dollar Amount to be paid for
such Put Shares, determined as aforesaid. The closing (each a "Put Closing")
for each Put shall occur on the date that both (i) the Company has delivered
to the Investor all Required Put Documents, and (ii) the Investor has
delivered to the Company such Put Dollar Amount and any Late Payment Amount,
if applicable (each a "Put Closing Date").
If the Investor does not deliver to the Company the Put Dollar Amount for
such Put Closing on or before the Payment Due Date, then the Investor shall
pay to the Company, in addition to the Put Dollar Amount, an amount (the "Late
Payment Amount") at a rate of X% per month, accruing daily, multiplied by such
Put Dollar Amount, where "X" equals one percent (1%) for the first month
following the date in question, and increases by an additional one percent
(1%) for each month that passes after the date in question, up to a maximum of
five percent (5%) per month; provided, however, that in no event shall the
amount of interest that shall become due and payable hereunder exceed the
maximum amount permissible under applicable law.
2.3.9 [Intentionally Left Blank].
2.3.10 Limitation on Short Sales. The Investor and its
Affiliates shall not engage in short sales of the Company's Common Stock;
provided, however, that the Investor may enter into any short exempt sale or
any short sale or other hedging or similar arrangement it deems appropriate
with respect to Put Shares after it receives a Put Notice with respect to such
Put Shares so long as such sales or arrangements do not involve more than the
number of such Put Shares specified in the Put Notice.
2.3.11 Cap Amount. If the Company becomes listed on the Nasdaq
Small Cap Market or the Nasdaq National Market, then, unless the Company has
obtained Stockholder 20% Approval as set forth in Section 6.12 or unless
otherwise permitted by Nasdaq, in no event shall the Aggregate Issued Shares
exceed the maximum number of shares of Common Stock (the "Cap Amount") that
the Company can, without stockholder approval, so issue pursuant to Nasdaq
Rule 4460(i)(1)(d)(ii) (or any other applicable Nasdaq Rules or any successor
rule) (the "Nasdaq 20% Rule").
2.3.12 [Intentionally Left Blank]
2.3.13 Put Cancellation.
(a) Mechanics of Put Cancellation. If at any time during
a Pricing Period the Company discovers the existence of Material Facts or any
Ineffective Period or Delisting Event occurs, the Company shall cancel the Put
(a "Put Cancellation"), by delivering written notice to the Investor (the "Put
Cancellation Notice"), attached as Exhibit Q, by facsimile and overnight
courier. The "Put Cancellation Date" shall be the date that the Put
Cancellation Notice is first received by the Investor, if such notice is
received by the Investor by 6:00 p.m., New York, NY time, and shall be the
following date, if such notice is received by the Investor after 6:00 p.m.,
New York, NY time.
<PAGE>
(b) Effect of Put Cancellation. Anytime a Put
Cancellation Notice is delivered to Investor after the Put Date, the Put shall
remain effective with respect to a number of Put Shares (the "Truncated Put
Share Amount")equal to the Put Share Amount for the Truncated Pricing Period.
(c) Put Cancellation Notice Confirmation. Upon receipt
by the Investor of a facsimile copy of the Put Cancellation Notice, the
Investor shall promptly send, via facsimile, a confirmation of receipt (the
"Put Cancellation Notice Confirmation," a form of which is attached as Exhibit
S) of the Put Cancellation Notice to the Company specifying that the Put
Cancellation Notice has been received and affirming the Put Cancellation Date.
2.3.14 Investment Agreement Cancellation. The Company may
terminate (a "Company Termination") its right to initiate future Puts by
providing written notice ("Termination Notice") to the Investor, by facsimile
and overnight courier, at any time other than during an Extended Put Period,
provided that such termination shall have no effect on the parties other
rights and obligations under this Agreement, the Registration Rights Agreement
or the Warrants. Notwithstanding the above, any cancellation occurring during
an Extended Put Period is governed by Section 2.3.13.
2.3.15 Return of Excess Common Shares. In the event that the
number of Shares purchased by the Investor pursuant to its obligations
hereunder is less than the Intended Put Share Amount, the Investor shall
promptly return to the Company any shares of Common Stock in the Investors
possession that are not being purchased by the Investor.
2.4 Warrants.
2.4.1 [Intentionally Omitted].
2.4.2 Purchase Warrants. Within five (5) Business Days of the
end of each Pricing Period, the Company shall issue and deliver to the
Investor a warrant ("Purchase Warrant"), in the form attached hereto as
Exhibit D, or such other form as agreed upon by the parties, to purchase a
number of shares of Common Stock equal to 8% of the number of Put Shares
issued to Investor in that Put. Each Purchase Warrant shall be exerciseable
at a price (the "Purchase Warrant Exercise Price") which shall initially equal
110% of the Market Price on the Pricing Period End Date, and shall have semi-
annual reset provisions. Each Purchase Warrant shall be immediately
exercisable at the Purchase Warrant Exercise Price, and shall have a term
beginning on the date of issuance and ending on the date that is five (5)
years thereafter. The Warrant Shares shall be registered for resale pursuant
to the Registration Rights Agreement. Concurrently with the issuance and
delivery of the Purchase Warrant to the Investor, the Company shall deliver to
the Investor a Purchase Warrant Opinion of Counsel (signed by the Companys
independent counsel).
2.5 [Intentionally Left Blank].
2.6 Due Diligence Review. The Company shall make available for
inspection and review by the Investor (the "Due Diligence Review"), advisors
to and representatives of the Investor (who may or may not be affiliated with
the Investor and who are reasonably acceptable to the Company), any
underwriter participating in any disposition of Common Stock on behalf of the
Investor pursuant to the Registration Statement, any Supplemental Registration
Statement, or amendments or supplements thereto or any blue sky, NASD or other
filing, all financial and other records, all SEC Documents and other filings
with the SEC, and all other corporate documents and properties of the Company
as may be reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such information
<PAGE>
reasonably requested by the Investor or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made
or submitted by any of them), prior to and from time to time after the filing
and effectiveness of the Registration Statement for the sole purpose of
enabling the Investor and such representatives, advisors and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
2.6.1 Treatment of Nonpublic Information. The Company
shall not disclose nonpublic information to the Investor or to its advisors or
representatives unless prior to disclosure of such information the Company
identifies such information as being nonpublic information and provides the
Investor and such advisors and representatives with the opportunity to accept
or refuse to accept such nonpublic information for review. The Company may, as
a condition to disclosing any nonpublic information hereunder, require the
Investor and its advisors and representatives to enter into a confidentiality
agreement (including an agreement with such advisors and representatives
prohibiting them from trading in Common Stock during such period of time as
they are in possession of nonpublic information) in form reasonably
satisfactory to the Company and the Investor.
Nothing herein shall require the Company to disclose nonpublic
information to the Investor or its advisors or representatives, and the
Company represents that it does not disseminate nonpublic information to any
investors who purchase stock in the Company in a public offering, to money
managers or to securities analysts, provided, however, that notwithstanding
anything herein to the contrary, the Company will, as hereinabove provided,
immediately notify the advisors and representatives of the Investor and, if
any, underwriters, of any event or the existence of any circumstance (without
any obligation to disclose the specific event or circumstance) of which it
becomes aware, constituting nonpublic information (whether or not requested of
the Company specifically or generally during the course of due diligence by
and such persons or entities), which, if not disclosed in the Prospectus
included in the Registration Statement, would cause such Prospectus to include
a material misstatement or to omit a material fact required to be stated
therein in order to make the statements therein, in light of the circumstances
in which they were made, not misleading. Nothing contained in this Section
2.6 shall be construed to mean that such persons or entities other than the
Investor (without the written consent of the Investor prior to disclosure of
such information) may not obtain nonpublic information in the course of
conducting due diligence in accordance with the terms of this Agreement;
provided, however, that in no event shall the Investor's advisors or
representatives disclose to the Investor the nature of the specific event or
circumstances constituting any nonpublic information discovered by such
advisors or representatives in the course of their due diligence without the
written consent of the Investor prior to disclosure of such information.
2.6.2 Disclosure of Misstatements and Omissions. The
Investor's advisors or representatives shall make complete disclosure to the
Investor's counsel of all events or circumstances constituting nonpublic
information discovered by such advisors or representatives in the course of
their due diligence upon which such advisors or representatives form the
opinion that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the
Registration Statement or necessary to make the statements contained therein,
in the light of the circumstances in which they were made, not misleading.
Upon receipt of such disclosure, the Investor's counsel shall consult with the
Company's independent counsel in order to address the concern raised as to the
existence of a material misstatement or omission and to discuss appropriate
<PAGE>
disclosure with respect thereto; provided, however, that such consultation
shall not constitute the advice of the Company's independent counsel to the
Investor as to the accuracy of the Registration Statement and related
Prospectus.
2.6.3 Procedure if Material Facts are Reasonably Believed to
be Untrue or are Omitted. In the event after such consultation the Investor
or the Investor's counsel reasonably believes that the Registration Statement
contains an untrue statement or a material fact or omits a material fact
required to be stated in the Registration Statement or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading,
(a) the Company shall file with the SEC an amendment
to the Registration Statement responsive to such alleged untrue statement or
omission and provide the Investor, as promptly as practicable, with copies of
the Registration Statement and related Prospectus, as so amended, or
(b) if the Company disputes the existence of any such
material misstatement or omission, (i) the Company's independent counsel shall
provide the Investor's counsel with a Registration Opinion and (ii) in the
event the dispute relates to the adequacy of financial disclosure and the
Investor shall reasonably request, the Company's independent auditors shall
provide to the Company a letter ("Agreed Upon Procedures Report") outlining
the performance of such "agreed upon procedures" as shall be reasonably
requested by the Investor and the Company shall provide the Investor with a
copy of such letter.
2.7 Commitment Payments. In partial consideration hereof,
following the execution of the Letter of Agreement dated on or about April 19,
1999 between the Company and the Investor, the Company issued and delivered to
Investor or its designated assignees, warrants (the "Commitment Warrants") in
the form attached hereto as Exhibit U, or such other form as agreed upon by
the parties, to purchase 490,000 shares of Common Stock. The Commitment
Warrants shall be exerciseable at a price (the "Commitment Warrant Exercise
Price") which shall initially equal the average Closing Bid Price for the five
(5) trading days immediately preceding April 19, 1999 ("Initial Exercise
Price"), and shall have semi-annual reset provisions. Each Commitment Warrant
shall be immediately exercisable at the Commitment Warrant Exercise Price, and
shall have a term beginning on the date of issuance and ending on date that is
five (5) years thereafter. The Warrant Shares shall be registered for resale
pursuant to the Registration Rights Agreement. Concurrently with the issuance
and delivery of the Commitment Warrant to the Investor, the Company shall
deliver to the Investor a Commitment Warrant Opinion of Counsel (signed by the
Companys independent counsel).
On the last Business Day of each six (6) Calendar Month period following
the Effective Date (each such period a "Commitment Evaluation Period"), if the
Company has not Put at least $1,000,000 in aggregate Put Dollar Amount during
that Commitment Evaluation Period, the Company, in consideration of Investors
commitment costs, including, but not limited to, due diligence expenses, shall
pay to the Investor an amount (the "Semi-Annual Non-Usage Fee ") equal to the
difference of (i) $100,000, minus (ii) 10% of the aggregate Put Dollar Amount
of the Put Shares put to Investor during that Commitment Evaluation Period.
In the event that the Company delivers a Termination Notice to the Investor or
Automatic Termination occurs, the Company shall pay to the Investor (the
"Termination Fee") the greater of (i) the Semi-Annual Non-Usage Fee for the
applicable Commitment Evaluation Period, or (ii) the difference of (x)
$200,000, minus (y) 10% of the aggregate Put Dollar Amount of the Put Shares
put to Investor during all Puts to date, and the Company shall not be required
to pay the Semi-Annual Non-Usage Fee thereafter.
<PAGE>
Each Semi Annual Non-Usage Fee or Termination Fee is payable within five
(5) business days of the date it accrued, in cash or in registered,
unlegended, freely tradable Common Stock of the Company. Where such payment
is made in shares of Common Stock, each share of Common Stock shall be valued
at the lesser of (i) the average Closing Bid Price for the five (5) Business
Days preceding the date that such Semi-Annual Non-Usage Fee is due, or (ii)
the average Closing Bid Price for the five (5) Business Days preceding the
date that such shares are delivered to Investor. The Company shall not be
required to deliver any payments to Investor under this subsection until
Investor has paid all Put Dollar Amounts that are then due.
3. Representations, Warranties and Covenants of Investor. Investor
hereby represents and warrants to and agrees with the Company as follows:
3.1 Accredited Investor. Investor is an accredited investor
("Accredited Investor"), as defined in Rule 501 of Regulation D, and has
checked the applicable box set forth in Section 12 of this Agreement.
3.2 Investment Experience; Access to Information; Independent
Investigation.
3.2.1 Access to Information. Investor or Investor's
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the terms and conditions of this Offering, the
Company and its business and prospects, and to obtain any additional
information which Investor or Investors professional advisor deems necessary
to verify the accuracy and completeness of the information received.
3.2.2 Reliance on Own Advisors. Investor has relied
completely on the advice of, or has consulted with, Investor's own personal
tax, investment, legal or other advisors and has not relied on the Company or
any of its affiliates, officers, directors, attorneys, accountants or any
affiliates of any thereof and each other person, if any, who controls any of
the foregoing, within the meaning of Section 15 of the Act for any tax or
legal advice (other than reliance on information in the Disclosure Documents
as defined in Section 3.2.4 below and on the Opinion of Counsel). The
foregoing, however, does not limit or modify Investor's right to rely upon
covenants, representations and warranties of the Company in this Agreement.
3.2.3 Capability to Evaluate. Investor has such knowledge and
experience in financial and business matters so as to enable such Investor to
utilize the information made available to it in connection with the Offering
in order to evaluate the merits and risks of the prospective investment, which
are substantial, including without limitation those set forth in the
Disclosure Documents (as defined in Section 3.2.4 below).
3.2.4 Disclosure Documents. Investor, in making Investor's
investment decision to subscribe for the Investment Agreement hereunder,
represents that (a) Investor has received and had an opportunity to review (i)
the Company's quarterly report on Form 10-QSB for the quarter ended February
28, 1999, (ii) the Company's report on Form 8-K filed on January 25, 1999
(iii) the Risk Factors, attached as Exhibit J, (the "Risk Factors") (iv) the
Capitalization Schedule, attached as Exhibit K, (the "Capitalization
Schedule") and (v) the Use of Proceeds Schedule, attached as Exhibit L, (the
"Use of Proceeds Schedule"); (b) Investor has read, reviewed, and relied
solely on the documents described in (a) above, the Companys representations
and warranties and other information in this Agreement, including the
exhibits, documents prepared by the Company which have been specifically
provided to Investor in connection with this Offering (the documents described
in this Section 3.2.4 (a) and (b) are collectively referred to as the
<PAGE>
"Disclosure Documents"), and an independent investigation made by Investor and
Investor's representatives, if any; (c) Investor has, prior to the date of
this Agreement, been given an opportunity to review material contracts and
documents of the Company which have been filed as exhibits to the Company's
filings under the Act and the Exchange Act and has had an opportunity to ask
questions of and receive answers from the Company's officers and directors;
and (d) is not relying on any oral representation of the Company or any other
person, nor any written representation or assurance from the Company other
than those contained in the Disclosure Documents or incorporated herein or
therein. The foregoing, however, does not limit or modify Investors right to
rely upon covenants, representations and warranties of the Company in Sections
5 and 6 of this Agreement. Investor acknowledges and agrees that the Company
has no responsibility for, does not ratify, and is under no responsibility
whatsoever to comment upon or correct any reports, analyses or other comments
made about the Company by any third parties, including, but not limited to,
analysts research reports or comments (collectively, "Third Party Reports"),
and Investor has not relied upon any Third Party Reports in making the
decision to invest.
3.2.5 Investment Experience; Fend for Self. Investor has
substantial experience in investing in securities and it has made investments
in securities other than those of the Company. Investor acknowledges that
Investor is able to fend for Investor's self in the transaction contemplated
by this Agreement, that Investor has the ability to bear the economic risk of
Investors investment pursuant to this Agreement and that Investor is an
"Accredited Investor" by virtue of the fact that Investor meets the investor
qualification standards set forth in Section 3.1 above. Investor has not been
organized for the purpose of investing in securities of the Company, although
such investment is consistent with Investors purposes.
3.3 Exempt Offering Under Regulation D.
3.3.1 [Intentionally Left Blank].
3.3.2 No General Solicitation. The Investment Agreement was
not offered to Investor through, and Investor is not aware of, any form of
general solicitation or general advertising, including, without limitation,
(i) any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
and (ii) any seminar or meeting whose attendees have been invited by any
general solicitation or general advertising.
3.3.3 Restricted Securities. Investor understands that the
Investment Agreement is, the Common Stock and Warrants issued at each Put
Closing will be, and the Warrant Shares will be, characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction exempt from the registration
requirements of the federal securities laws and that under such laws and
applicable regulations such securities may not be transferred or resold
without registration under the Act or pursuant to an exemption therefrom. In
this connection, Investor represents that Investor is familiar with Rule 144
under the Act, as presently in effect, and understands the resale limitations
imposed thereby and by the Act.
3.3.4 Disposition. Without in any way limiting the
representations set forth above, Investor agrees that until the Securities are
sold pursuant to an effective Registration Statement or an exemption from
registration, they will remain in the name of Investor and will not be
transferred to or assigned to any broker, dealer or depositary. Investor
further agrees not to sell, transfer, assign, or pledge the Securities (except
<PAGE>
for any bona fide pledge arrangement to the extent that such pledge does not
require registration under the Act or unless an exemption from such
registration is available and provided further that if such pledge is realized
upon, any transfer to the pledgee shall comply with the requirements set forth
herein), or to otherwise dispose of all or any portion of the Securities
unless and until:
(a) There is then in effect a registration statement
under the Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such registration
statement and in compliance with applicable prospectus delivery requirements;
or
(b) (i) Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a statement of
the circumstances surrounding the proposed disposition to the extent relevant
for determination of the availability of an exemption from registration, and
(ii) if reasonably requested by the Company, Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of the Securities under
the Act or state securities laws. It is agreed that the Company will not
require the Investor to provide opinions of counsel for transactions made
pursuant to Rule 144 provided that Investor and Investors broker, if
necessary, provide the Company with the necessary representations for counsel
to the Company to issue an opinion with respect to such transaction.
The Investor is entering into this Agreement for its own account and
the Investor has no present arrangement (whether or not legally binding) at
any time to sell the Common Stock to or through any person or entity;
provided, however, that by making the representations herein, the Investor
does not agree to hold the Common Stock for any minimum or other specific term
and reserves the right to dispose of the Common Stock at any time in
accordance with federal and state securities laws applicable to such
disposition.
3.4 Due Authorization.
3.4.1 Authority. The person executing this Investment
Agreement, if executing this Agreement in a representative or fiduciary
capacity, has full power and authority to execute and deliver this Agreement
and each other document included herein for which a signature is required in
such capacity and on behalf of the subscribing individual, partnership, trust,
estate, corporation or other entity for whom or which Investor is executing
this Agreement. Investor has reached the age of majority (if an individual)
according to the laws of the state in which he or she resides.
3.4.2 Due Authorization. If Investor is a corporation,
Investor is duly and validly organized, validly existing and in good tax and
corporate standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by Investor and to execute and deliver this Agreement.
3.4.3 Partnerships. If Investor is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners of Investor (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Agreement has made due inquiry to determine the
truthfulness of the representations and warranties made hereby.
<PAGE>
3.4.4 Representatives. If Investor is purchasing in a
representative or fiduciary capacity, the representations and warranties shall
be deemed to have been made on behalf of the person or persons for whom
Investor is so purchasing.
4. Acknowledgments Investor is aware that:
4.1 Risks of Investment. Investor recognizes that an investment in
the Company involves substantial risks, including the potential loss of
Investor's entire investment herein. Investor recognizes that the Disclosure
Documents, this Agreement and the exhibits hereto do not purport to contain
all the information, which would be contained in a registration statement
under the Act;
4.2 No Government Approval. No federal or state agency has passed
upon the Securities, recommended or endorsed the Offering, or made any finding
or determination as to the fairness of this transaction;
4.3 No Registration, Restrictions on Transfer. As of the date of
this Agreement, the Securities and any component thereof have not been
registered under the Act or any applicable state securities laws by reason of
exemptions from the registration requirements of the Act and such laws, and
may not be sold, pledged (except for any limited pledge in connection with a
margin account of Investor to the extent that such pledge does not require
registration under the Act or unless an exemption from such registration is
available and provided further that if such pledge is realized upon, any
transfer to the pledgee shall comply with the requirements set forth herein),
assigned or otherwise disposed of in the absence of an effective registration
of the Securities and any component thereof under the Act or unless an
exemption from such registration is available;
4.4 Restrictions on Transfer. Investor may not attempt to sell,
transfer, assign, pledge or otherwise dispose of all or any portion of the
Securities or any component thereof in the absence of either an effective
registration statement or an exemption from the registration requirements of
the Act and applicable state securities laws;
4.5 No Assurances of Registration. There can be no assurance that
any registration statement will become effective at the scheduled time, or
ever, or remain effective when required, and Investor acknowledges that it
may be required to bear the economic risk of Investor's investment for an
indefinite period of time;
4.6 Exempt Transaction. Investor understands that the Securities
are being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the
representations, warranties, agreements, acknowledgments and understandings
set forth herein are being relied upon by the Company in determining the
applicability of such exemptions and the suitability of Investor to acquire
such Securities.
4.7 Legends. The certificates representing the Put Shares shall
not bear a Restrictive Legend. The certificates representing the Warrant
Shares shall not bear a Restrictive Legend unless they are issued at a time
when the Registration Statement is not effective for resale. It is understood
that the certificates evidencing any Warrant Shares issued at a time when the
Registration Statement is not effective for resale, subject to legend removal
under the terms of Section 6.9 below, shall bear the following legend (the
"Legend"):
<PAGE>
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or applicable state securities laws,
nor the securities laws of any other jurisdiction. They may not be sold
or transferred in the absence of an effective registration statement
under those securities laws or pursuant to an exemption therefrom."
5. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to Investor (which shall be
true at the signing of this Agreement, and as of any such later date as
contemplated hereunder) and agrees with Investor that, except as set forth in
the "Schedule of Exceptions" attached hereto as Exhibit C:
5.1 Organization, Good Standing, and Qualification. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company and its
subsidiaries taken as a whole. The Company is not the subject of any pending,
threatened or, to its knowledge, contemplated investigation or administrative
or legal proceeding (a "Proceeding") by the Internal Revenue Service, the
taxing authorities of any state or local jurisdiction, or the Securities and
Exchange Commission, The National Association of Securities Dealers, Inc., The
Nasdaq Stock Market, Inc. or any state securities commission, or any other
governmental entity, which have not been disclosed in the Disclosure
Documents. None of the disclosed Proceedings, if any, will have a material
adverse effect upon the Company or the market for the Common Stock. The
Company has the following subsidiaries: U.S. Amateur Co., a Florida
corporation and U.S.A. Performance Products, Inc., a Florida corporation.
5.2 Corporate Condition. The Company's condition is, in all
material respects, as described in the Disclosure Documents (as further set
forth in any subsequently filed Disclosure Documents, if applicable), except
for changes in the ordinary course of business and normal year-end adjustments
that are not, in the aggregate, materially adverse to the Company. Except for
continuing losses, there have been no material adverse changes to the
Companys business, financial condition, or prospects since the dates of such
Disclosure Documents. The financial statements as contained in the 10-KSB and
10-QSB have been prepared in accordance with generally accepted accounting
principles, consistently applied (except as otherwise permitted by Regulation
S-X of the Exchange Act), subject, in the case of unaudited interim financial
statements, to customary year end adjustments and the absence of certain
footnotes, and fairly present the financial condition of the Company as of the
dates of the balance sheets included therein and the consolidated results of
its operations and cash flows for the periods then ended,. Without limiting
the foregoing, there are no material liabilities, contingent or actual, that
are not disclosed in the Disclosure Documents (other than liabilities incurred
by the Company in the ordinary course of its business, consistent with its
past practice, after the period covered by the Disclosure Documents). The
Company has paid all material taxes that are due, except for taxes that it
reasonably disputes. There is no material claim, litigation, or
administrative proceeding pending or, to the best of the Companys knowledge,
threatened against the Company, except as disclosed in the Disclosure
Documents. This Agreement and the Disclosure Documents do not contain any
untrue statement of a material fact and do not omit to state any material fact
required to be stated therein or herein necessary to make the statements
contained therein or herein not misleading in the light of the circumstances
under which they were made. No event or circumstance exists relating to the
Company which, under applicable law, requires public disclosure but which has
not been so publicly announced or disclosed.
<PAGE>
5.3 Authorization. All corporate action on the part of the Company
by its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations
of the Company hereunder and the authorization, issuance and delivery of the
Common Stock being sold hereunder and the issuance (and/or the reservation for
issuance) of the Warrants and the Warrant Shares have been taken, and this
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their
terms, except insofar as the enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, or other similar laws affecting
creditors rights generally or by principles governing the availability of
equitable remedies. The Company has obtained all consents and approvals
required for it to execute, deliver and perform each agreement referenced in
the previous sentence.
5.4 Valid Issuance of Common Stock. The Common Stock and the
Warrants, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of Investor in this
Agreement, will be issued in compliance with all applicable U.S. federal and
state securities laws. The Warrant Shares, when issued in accordance with the
terms of the Warrants, shall be duly and validly issued and outstanding, fully
paid and nonassessable, and based in part on the representations and
warranties of Investor, will be issued in compliance with all applicable U.S.
federal and state securities laws. The Put Shares, the Warrants and the
Warrant Shares will be issued free of any preemptive rights.
5.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the date of the Agreement,
or of any material provision of any material instrument or material contract
to which it is a party or by which it is bound or of any provision of any
federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, which would have a material adverse
effect on the Company's business or prospects, or on the performance of its
obligations under this Agreement or the Registration Rights Agreement. The
execution, delivery and performance of this Agreement and the other agreements
entered into in conjunction with the Offering and the consummation of the
transactions contemplated hereby and thereby will not (a) result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company, which would have a
material adverse effect on the Companys business or prospects, or on the
performance of its obligations under this Agreement, the Registration Rights
Agreement, (b) violate the Companys Certificate of Incorporation or By-Laws
or (c) violate any statute, rule or governmental regulation applicable to the
Company which violation would have a material adverse effect on the Company's
business or prospects.
5.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act, has a class of securities registered under
Section 12 of the Exchange Act, and has filed all reports required by the
Exchange Act since the date the Company first became subject to such reporting
obligations. The Company undertakes to furnish Investor with copies of such
reports as may be reasonably requested by Investor prior to consummation of
this Offering and thereafter, to make such reports available, for the full
term of this Agreement, including any extensions thereof, and for as long as
Investor holds the Securities. The Common Stock is duly quoted on the O.T.C.
Bulletin Board. The Company is not in violation of the listing requirements
of the O.T.C. Bulletin Board and reasonably anticipates that the Common Stock
<PAGE>
will continue to be quoted by the O.T.C. Bulletin Board for the foreseeable
future. The Company has filed all reports required under the Exchange Act.
The Company has not furnished to the Investor any material nonpublic
information concerning the Company.
5.7 Capitalization. The capitalization of the Company as of May
13, 1999, is, and the capitalization as of the Closing, subject to exercise of
any outstanding warrants and/or exercise of any outstanding stock options,
after taking into account the offering of the Securities contemplated by this
Agreement and all other share issuances occurring prior to this Offering, will
be, as set forth in the Capitalization Schedule as set forth in Exhibit K.
There are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Securities. Except
as disclosed in the Capitalization Schedule, as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe
for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries, and (ii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
its or their securities under the Act (except the Registration Rights
Agreement).
5.8 Intellectual Property. The Company has valid, unrestricted and
exclusive ownership of or rights to use the patents, trademarks, trademark
registrations, trade names, copyrights, know-how, technology and other
intellectual property necessary to the conduct of its business. Exhibit M
lists all patents, trademarks, trademark registrations, trade names and
copyrights of the Company. The Company has granted such licenses or has
assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth in Exhibit M. The
Company has been granted licenses, know-how, technology and/or other
intellectual property necessary to the conduct of its business as set forth in
Exhibit M. To the best of the Companys knowledge after due inquiry, the
Company is not infringing on the intellectual property rights of any third
party, nor is any third party infringing on the Companys intellectual
property rights. There are no restrictions in any agreements, licenses,
franchises, or other instruments that preclude the Company from engaging in
its business as presently conducted.
5.9 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth on the Use of Proceeds Schedule set
forth as Exhibit L hereto. These purposes and amounts are estimates and are
subject to change without notice to any Investor.
5.10 No Rights of Participation. Other than Swartz Private Equity,
LLC, no person or entity, including, but not limited to, current or former
stockholders of the Company, underwriters, brokers, agents or other third
parties, has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the financing
contemplated by this Agreement which has not been waived.
5.11 Company Acknowledgment. The Company hereby acknowledges that
Investor may elect to hold the Securities for various periods of time, as
permitted by the terms of this Agreement, the Warrants, and other agreements
contemplated hereby, and the Company further acknowledges that Investor has
made no representations or warranties, either written or oral, as to how long
<PAGE>
<PAGE>
the Securities will be held by Investor or regarding Investors trading
history or investment strategies.
5.12 No Advance Regulatory Approval. The Company acknowledges that
this Investment Agreement, the transaction contemplated hereby and the
Registration Statement contemplated hereby have not been approved by the SEC,
or any other regulatory body and there is no guarantee that this Investment
Agreement, the transaction contemplated hereby and the Registration Statement
contemplated hereby will ever be approved by the SEC or any other regulatory
body. The Company is relying on its own analysis and is not relying on any
representation by Investor that either this Investment Agreement, the
transaction contemplated hereby or the Registration Statement contemplated
hereby has been or will be approved by the SEC or other appropriate regulatory
body.
5.13 Underwriter's Fees and Rights of First Refusal. The Company
is not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Investor in connection with this Offering.
5.14 Availability of Suitable Form for Registration. The Company
is currently eligible and agrees to maintain its eligibility to register the
resale of its Common Stock on a registration statement on a suitable form
under the Act.
5.15 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any of the Company's securities or
solicited any offers to buy any security under circumstances that would
prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under Regulation D of the
Act or would require the issuance of any other securities to be integrated
with this Offering under the Rules of Nasdaq. The Company has not engaged in
any form of general solicitation or advertising in connection with the
offering of the Common Stock or the Warrants.
5.16 [Intentionally Left Blank].
5.17 Foreign Corrupt Practices. Neither the Company, nor any of
its subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any subsidiary has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee.
5.18 Key Employees. Each "Key Employee" (as defined in Exhibit N)
is currently serving the Company in the capacity disclosed in Exhibit N. No
Key Employee, to the best knowledge of the Company and its subsidiaries, is,
or is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each Key Employee does
not subject the Company or any of its subsidiaries to any liability with
respect to any of the foregoing matters. No Key Employee has, to the best
knowledge of the Company and its subsidiaries, any intention to terminate his
employment with, or services to, the Company or any of its subsidiaries.
<PAGE>
5.19 Representations Correct. The foregoing representations,
warranties and agreements are true, correct and complete in all material
respects, and shall survive any Put Closing and the issuance of the shares of
Common Stock thereby.
5.20 Tax Status. The Company has made or filed all federal and
state income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that
the Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and as set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.
5.21 Transactions With Affiliates. Except as set forth in the
Disclosure Documents, none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company (other than
for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to
the knowledge of the Company, any corporation, partnership, trust or other
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee or partner.
5.22 Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under Florida law which is or could become
applicable to the Investor as a result of the transactions contemplated by
this Agreement, including, without limitation, the issuance of the Common
Stock, any exercise of the Warrants and ownership of the Common Shares and
Warrant Shares. The Company has not adopted and will not adopt any "poison
pill" provision that will be applicable to Investor as a result of
transactions contemplated by this Agreement.
5.23 Other Agreements. The Company has not, directly or
indirectly, made any agreements with the Investor under a subscription in the
form of this Agreement for the purchase of Common Stock, relating to the terms
or conditions of the transactions contemplated hereby or thereby except as
expressly set forth herein, respectively, or in exhibits hereto or thereto.
5.24 Major Transactions. There are no other Major Transactions
currently pending or contemplated by the Company.
5.25 Financings. There are no other financings currently
pending or contemplated by the Company.
5.26 Shareholder Authorization. The Company shall, at its next
annual shareholder meeting following its listing on either the Nasdaq Small
Cap Market or the Nasdaq National Market, or at a special meeting to be held
as soon as practicable thereafter, use its best efforts to obtain approval of
its shareholders to (i) authorize the issuance of the full number of shares of
Common Stock which would be issuable under this Agreement and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
<PAGE>
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to
the Companys ability to issue shares of Common Stock in excess of the Cap
Amount (such approvals being the "20% Approval") and (ii) the increase in the
number of authorized shares of Common Stock of the Company (the "Share
Authorization Increase Approval") such that at least 4,000,000 shares can be
reserved for this Offering. In connection with such shareholder vote, the
Company shall use its best efforts to cause all officers and directors of the
Company to promptly enter into irrevocable agreements to vote all of their
shares in favor of eliminating such prohibitions. As soon as practicable
after the 20% Approval and the Share Authorization Increase Approval, the
Company agrees to use its best efforts to reserve 4,000,000 shares of Common
Stock for issuance under this Agreement.
5.27 Acknowledgment of Limitations on Put Amounts. The Company
understands and acknowledges that the amounts available under this Investment
Agreement are limited, among other things, based upon the liquidity of the
Companys Common Stock traded on its Principal Market.
6. Covenants of the Company
6.1 Independent Auditors. The Company shall, until at least the
Termination Date, maintain as its independent auditors an accounting firm
authorized to practice before the SEC.
6.2 Corporate Existence and Taxes. The Company shall, until at
least the Termination Date, maintain its corporate existence in good standing
and remain a "Reporting Issuer" (defined as a Company which files periodic
reports under the Exchange Act) (provided, however, that the foregoing
covenant shall not prevent the Company from entering into any merger or
corporate reorganization as long as the surviving entity in such transaction,
if not the Company, assumes the Company's obligations with respect to the
Common Stock and has Common Stock listed for trading on a stock exchange or on
Nasdaq and is a Reporting Issuer) and shall pay all its taxes when due except
for taxes which the Company disputes.
6.3 Registration Rights. The Company will enter into a
registration rights agreement covering the resale of the Common Shares and the
Warrant Shares substantially in the form of the Registration Rights Agreement
attached as Exhibit A.
6.4 [Intentionally Omitted].
6.5 Asset Transfers. The Company shall not (i) transfer, sell,
convey or otherwise dispose of any of its material assets to any Subsidiary
except for a proper business purpose or (ii) transfer, sell, convey or
otherwise dispose of any of its material assets to any Affiliate, as defined
below, during the Term of this Agreement. For purposes hereof, "Affiliate"
shall mean any officer of the Company, director of the Company or owner of
twenty percent (20%) or more of the Common Stock or other securities of the
Company.
6.6 Capital Raising Limitations; Rights of First Refusal.
6.6.1 Capital Raising Limitations. During the period from the
date of this Agreement until the earlier of (i) the date that is one year
after the Termination Date, or (ii) (a) in the case of a Company Termination,
the date that is one (1) year after the date of such Company Termination, or
(b) in the case of an Automatic Termination that is not waived by the
<PAGE>
Investor, the date that is six (6) months after the date of such Automatic
Termination, the Company shall not issue or sell, or agree to issue or sell,
for cash in private capital raising transactions (the following to be
collectively referred to herein as, the "Equity Securities"), either (i)
Common Stock or any other equity securities, (ii) any debt or equity
securities which are convertible into, exercisable or exchangeable for, or
carry the right to receive additional shares of Common Stock or other equity
securities, or (iii) any securities of the Company pursuant to an equity line
structure or format similar in nature to this Offering, without obtaining the
prior written approval of the Investor of the Offering (the limitations
referred to in this subsection 6.6.1 are collectively referred to as the
"Capital Raising Limitations").
6.6.2 Investor's Right of First Refusal. For any private
capital raising transactions of Equity Securities or equity line structured
investments which close after the date hereof and on or prior to the date that
is six (6) months after the Termination Date of this Agreement, not including
any warrants issued in conjunction with this Investment Agreement, the Company
agrees to deliver to Investor, at least ten (10) days prior to the closing of
such transaction, written notice describing the proposed transaction,
including the terms and conditions thereof, and providing the Investor and its
affiliates an option during the ten (10) day period following delivery of such
notice to purchase the securities being offered in such transaction on the
same terms as contemplated by such transaction.
6.6.3 Exceptions to the Capital Raising Limitation and Rights
of First Refusal. Notwithstanding the above, the Capital Raising Limitations
and the Rights of First Refusal shall not apply to any transaction involving
issuances of securities in connection with a merger, consolidation,
acquisition or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity
capital), or in connection with the disposition or acquisition of a business,
product or license by the Company or exercise of options by employees,
consultants or directors. The Capital Raising Limitations also shall not
apply to (a) the issuance of securities upon exercise or conversion of the
Company's options, warrants or other convertible securities outstanding as of
the date hereof, (b) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or
restricted stock plan for the benefit of the Company's employees, directors or
consultants, or (c) the issuance of debt securities, with no equity feature,
incurred solely for working capital purposes.
6.6.4 Effect of Payment Default by Investor. The Capital
Raising Limitations and the Investor's Right of First Refusal shall not apply
so long as the payment of the required Put Dollar Amount for any Put Shares is
more than ten (10) Business Days past due and remains unpaid for five (5)
additional Business Days after the Company notifies the Investor in writing
that it intends to effect a transaction that would trigger either the Capital
Raising Limitations or the Investors Right of First Refusal.
6.7 Financial 10-K Statements, Etc. and Current Reports on Form
8-K. The Company shall deliver to the Investor copies of its annual reports
on Form 10-K, and quarterly reports on Form 10-Q and shall deliver to the
Investor current reports on Form 8-K within two (2) days of filing for the
Term of this Agreement.
6.8 Opinion of Counsel. Investor shall, concurrent with the
purchase of the Common Stock and accompanying Warrants pursuant to this
Agreement, receive an opinion letter from the Company's legal counsel, in the
form attached as Exhibit B or in such form as agreed upon by the parties, as
<PAGE>
to the Investment Commitment Closing and in the form attached as Exhibit I or
in such form as agreed upon by the parties, as to any Put Closing.
6.9 Removal of Legend. If the certificates representing any
Securities are issued with a restrictive Legend in accordance with the terms
of this Agreement, the Legend shall be removed and the Company shall issue a
certificate without such Legend to the holder of any Security upon which it is
stamped, and a certificate for a security shall be originally issued without
the Legend, if (a) the sale of such Security is registered under the Act, or
(b) such holder provides the Company with an opinion of counsel, in form,
substance and scope customary for opinions of counsel in comparable
transactions (the reasonable cost of which shall be borne by the Investor), to
the effect that a public sale or transfer of such Security may be made without
registration under the Act, or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144.
Each Investor agrees to sell all Securities, including those represented by a
certificate(s) from which the Legend has been removed, or which were
originally issued without the Legend, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale or in
compliance with an exemption from the registration requirements of the Act.
6.10 Listing. Subject to the remainder of this Section 6.10, the
Company shall ensure that its shares of Common Stock (including all Warrant
Shares) are quoted and available for trading on the O.T.C. Bulletin Board.
Thereafter, the Company shall (i) use its best efforts to continue the listing
and trading of its Common Stock on the O.T.C. Bulletin Board or to become
eligible for and listed and available for trading on the Nasdaq Small Cap
Market, the NMS, or the New York Stock Exchange ("NYSE"); and (ii) comply in
all material respects with the Companys reporting, filing and other
obligations under the By-Laws or rules of the National Association of
Securities Dealers ("NASD") and such exchanges, as applicable.
6.11 The Companys Instructions to Transfer Agent. The Company
will instruct the Transfer Agent of the Common Stock, by delivering
instructions in the form of Exhibit T hereto, to issue certificates,
registered in the name of each Investor or its nominee, for the Put Shares and
Warrant Shares in such amounts as specified from time to time by the Company
upon any exercise by the Company of a Put and/or exercise of the Warrants by
the holder thereof. Such certificates shall not bear a Legend unless issuance
with a Legend is permitted by the terms of this Agreement and Legend removal
is not permitted by Section 6.9 hereof and the Company shall cause the
Transfer Agent to issue such certificates without a Legend. Nothing in this
Section shall affect in any way Investors obligations and agreement set forth
in Sections 3.3.3 or 3.3.4 hereof to resell the Securities pursuant to an
effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. If (a) an Investor provides the
Company with an opinion of counsel, which opinion of counsel shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions, to the effect that the Securities to be sold or transferred may
be sold or transferred pursuant to an exemption from registration or (b)
pursuant to Rule 144, an Investor transfers Securities to an affiliate which
is an accredited investor, the Company shall permit the transfer, and, in the
case of Put Shares and Warrant Shares, promptly instruct its transfer agent to
issue one or more certificates in such name and in such denomination as
specified by such Investor. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to an Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of
its obligations under this Section 6.11 will be inadequate and agrees, in the
event of a breach or threatened breach by the Company of the provisions of
<PAGE>
this Section 6.11, that an Investor shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6.12 Stockholder 20% Approval. Prior to the closing of any Put
that would cause the Aggregate Issued Shares to exceed the Cap Amount, the
Company shall obtain approval of its stockholders to authorize (i) the
issuance of the full number of shares of Common Stock which would be issuable
pursuant to this Agreement but for the Cap Amount and eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or any of its securities with respect to
the Companys ability to issue shares of Common Stock in excess of the Cap
Amount (such approvals being the "Stockholder 20% Approval").
6.13 Press Release. The Company agrees that the Investor shall
have the right to review and comment upon any press release issued by the
Company in connection with the Offering which approval shall not be
unreasonably withheld by Investor.
6.14 Change in Law or Policy. In the event of a change in law, or
policy of the SEC, as evidenced by a No-Action letter or other written
statements of the SEC or the NASD which causes the Investor to be unable to
perform its obligations hereunder, this Agreement shall be automatically
terminated and no further Commitment Fees shall be due.
7. Investor Covenant/Miscellaneous.
7.1 Representations and Warranties Survive the Closing;
Severability. Investor's and the Company's representations and warranties
shall survive the Investment Date and any Put Closing contemplated by this
Agreement notwithstanding any due diligence investigation made by or on behalf
of the party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, or is altered by a term required by the
Securities Exchange Commission to be included in the Registration Statement,
this Agreement shall continue in full force and effect without said provision;
provided that if the removal of such provision materially changes the economic
benefit of this Agreement to either party, this Agreement shall terminate.
7.2 Successors and Assigns. This Agreement shall not be assignable
without the Company's written consent. If assigned, the terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Investor may assign
Investors rights hereunder, in connection with any private sale of the Common
Stock of such Investor, so long as, as a condition precedent to such transfer,
the transferee executes an acknowledgment agreeing to be bound by the
applicable provisions of this Agreement in a form acceptable to the Company
and provides an original copy of such acknowledgment to the Company.
7.3 Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
<PAGE>
7.4 Titles and Subtitles; Gender. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. The use in this Agreement of a
masculine, feminine or neither pronoun shall be deemed to include a reference
to the others.
7.5 Written Notices, Etc. Any notice, demand or request required
or permitted to be given by the Company or Investor pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when delivered
personally, or by facsimile or upon receipt if by overnight or two (2) day
courier, addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Agreement or such other
address as a party may request by notifying the other in writing; provided,
however, that in order for any notice to be effective as to the Investor such
notice shall be delivered and sent, as specified herein, to all the addresses
and facsimile telephone numbers of the Investor set forth at the end of this
Agreement or such other address and/or facsimile telephone number as Investor
may request in writing.
7.6 Expenses. Except as set forth in the Registration Rights
Agreement, each of the Company and Investor shall pay all costs and expenses
that it respectively incurs, with respect to the negotiation, execution,
delivery and performance of this Agreement.
7.7 Entire Agreement; Written Amendments Required. This Agreement,
including the Exhibits attached hereto, the Common Stock certificates, the
Warrants, the Registration Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants, whether oral, written, or otherwise,
except as specifically set forth herein or therein. Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
7.8 Actions at Law or Equity; Jurisdiction and Venue. The parties
acknowledge that any and all actions, whether at law or at equity, and whether
or not said actions are based upon this Agreement between the parties hereto,
shall be filed in any state or federal court sitting in Atlanta, Georgia.
Georgia law shall govern both the proceeding as well as the interpretation and
construction of the Transaction Documents and the transaction as a whole. In
any litigation between the parties hereto, the prevailing party, as found by
the court, shall be entitled to an award of all attorneys fees and costs of
court. Should the court refuse to find a prevailing party, each party shall
bear its own legal fees and costs.
8. Subscription and Wiring Instructions; Irrevocability.
8.1 Subscription
(a) Wire transfer of Subscription Funds. Investor shall
deliver Put Dollar Amounts (as payment towards any Put Share Price) by wire
transfer, to the Company pursuant to a wire instruction letter to be provided
by the Company, and signed by the Company.
(b) Irrevocable Subscription. Investor hereby acknowledges and
agrees, subject to the provisions of any applicable laws providing for the
refund of subscription amounts submitted by Investor, that this Agreement is
irrevocable and that Investor is not entitled to cancel, terminate or revoke
<PAGE>
this Agreement or any other agreements executed by such Investor and delivered
pursuant hereto, and that this Agreement and such other agreements shall
survive the death or disability of such Investor and shall be binding upon and
inure to the benefit of the parties and their heirs, executors,
administrators, successors, legal representatives and assigns. If the
Securities subscribed for are to be owned by more than one person, the
obligations of all such owners under this Agreement shall be joint and
several, and the agreements, representations, warranties and acknowledgments
herein contained shall be deemed to be made by and be binding upon each such
person and his heirs, executors, administrators, successors, legal
representatives and assigns.
8.2 Acceptance of Subscription. Ownership of the number of
securities purchased hereby will pass to Investor upon the Warrant Closing or
any Put Closing.
8.3 [Intentionally Omitted]
9. Indemnification.
In consideration of the Investor's execution and delivery of the
Investment Agreement, the Registration Rights Agreement and the Warrants (the
"Transaction Documents") and acquiring the Securities thereunder and in
addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless
Investor and all of its stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing persons agents,
members, partners or other representatives (including, without limitation,
those retained in connection with the transactions contemplated by this
Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys fees and
disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a
result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the
Transaction Documents or any other certificate, instrument or documents
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim, derivative or otherwise, by any stockholder of
the Company based on a breach or alleged breach by the Company or any of its
officers or directors of their fiduciary or other obligations to the
stockholders of the Company.
The Investor shall defend, protect, indemnify and hold harmless Company
and all of its stockholders, officers, directors, employees and direct or
indirect investors and any of the foregoing persons agents, members, partners
or other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any
such Indemnitee is a party to the action for which indemnification hereunder
is sought), and including reasonable attorneys fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Investor in the Transaction Documents,
or (b) any breach of any covenant, agreement or obligation of the Investor
<PAGE>
contained in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby.
To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which
it would be required to make if such foregoing undertaking was enforceable
which is permissible under applicable law.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought,
such Indemnified Party will, if a claim in respect thereof is to be made
against the other party (hereinafter "Indemnitor") under this Section 9,
deliver to the Indemnitor a written notice of the commencement thereof and the
Indemnitor shall have the right to participate in and to assume the defense
thereof with counsel reasonably selected by the Indemnitor, provided, however,
that an Indemnified Party shall have the right to retain its own counsel, with
the reasonably incurred fees and expenses of such counsel to be paid by the
Indemnitor, if representation of such Indemnified Party by the counsel
retained by the Indemnitor would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the Indemnitor within a reasonable time of the commencement
of any such action, if prejudicial to the Indemnitors ability to defend such
action, shall relieve the Indemnitor of any liability to the Indemnified Party
under this Section 9, but the omission to so deliver written notice to the
Indemnitor will not relieve it of any liability that it may have to any
Indemnified Party other than under this Section 9 to the extent it is
prejudicial.
10. [Intentionally Left Blank].
[INTENTIONALLY LEFT BLANK]
<PAGE>
11. [Intentionally Left Blank].
12. Accredited Investor. Investor is an "accredited investor"
because (check all applicable boxes):
(a) [ ] it is an organization described in Section 501(c)(3) of
the Internal Revenue Code, or a corporation, limited duration company, limited
liability company, business trust, or partnership not formed for the specific
purpose of acquiring the securities offered, with total assets in excess of
$5,000,000.
(b) [ ] any trust, with total assets in excess of $5,000,000,
not formed for the specific purpose of acquiring the securities offered, whose
purchase is directed by a sophisticated person who has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the prospective investment.
(c) [ ] a natural person, who
[ ] is a director, executive officer or general partner of
the issuer of the securities being offered or sold or a director, executive
officer or general partner of a general partner of that issuer.
[ ] has an individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeding $1,000,000.
[ ] had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(d) [ ] an entity each equity owner of which is an entity
described in a - b above or is an individual who could check one (1) of the
last three (3) boxes under subparagraph (c) above.
(e) [ ] other [specify]
_____________________________________________________
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor does represent and certify
under penalty of perjury that the foregoing statements are true and correct
and that Investor by the following signature(s) executed this Agreement.
Dated this _____ day of May, 1999.
________________________________ ________________________________________
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
________________________________ SECURITY DELIVERY INSTRUCTIONS:
Name: Please Print Please type or print address where your
security is to be delivered
________________________________ ATTN: __________________________________
Title/Representative Capacity
(if applicable)
________________________________ ________________________________________
Name of Company You Represent Street Address
(if applicable)
________________________________ ________________________________________
Place of Execution of this City, State or Province, Country,
Agreement Offshore Postal Code
NOTICE DELIVERY INSTRUCTIONS: WITH A COPY DELIVERED TO:
Please print address where any Please print address where Copy is to
Notice is to be delivered be delivered
ATTN: ____________________________ ATTN: _______________________________
__________________________________ _____________________________________
Street Address Street Address
__________________________________ _____________________________________
City, State or Province, Country, City, State or Country, Offshore
Offshore Postal Code Postal Code
Telephone: _______________________ Telephone: __________________________
Facsimile: _______________________ Facsimile: __________________________
Facsimile: _______________________ Facsimile: __________________________
THIS AGREEMENT IS ACCEPTED BY THE COMPANY IN THE AMOUNT THE MAXIMUM OFFERING
AMOUNT ON THE ____ DAY OF MAY 1999.
ECOM ECOM.COM, INC.
By:
David Panaia, CEO
Address:
ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
<PAGE>
ADVANCE PUT NOTICE
ECOM ECOM.COM, INC. (the "Company") hereby intends, subject to the Individual
Put Limit (as defined in the Investment Agreement), to elect to exercise a Put
to sell the number of shares of Common Stock of the Company specified below,
to _____________________________, the Investor, as of the Intended Put Date
written below, all pursuant to that certain Investment Agreement (the
"Investment Agreement") by and between the Company and Swartz Private Equity,
LLC dated on or about May 13, 1999.
Date of Advance Put Notice: ___________________
Intended Put Date :___________________________
Intended Put Share Amount: __________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
ECOM ECOM.COM, INC.
By: _________________________________
David Panaia, CEO
Address:
ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
<PAGE>
CONFIRMATION of ADVANCE PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
ECOM ECOM.COM, INC.s (the "Company") Advance Put Notice on the Advance Put
Date written below, and its intention to elect to exercise a Put to sell
shares of common stock ("Intended Put Share Amount") of the Company to the
Investor, as of the intended Put Date written below, all pursuant to that
certain Investment Agreement (the "Investment Agreement") by and between the
Company and Swartz Private Equity, LLC dated on or about May 13, 1999.
Date of Confirmation: ____________________
Date of Advance Put Notice: _______________
Intended Put Date: ________________________
Intended Put Share Amount: ________________
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
INVESTOR(S)
___________________________________
Investor's Name
By: ________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ___________________________________
<PAGE>
PUT NOTICE
ECOM ECOM.COM, INC. (the "Company") hereby elects to exercise a Put to sell
shares of common stock ("Common Stock") of the Company to
_____________________________, the Investor, as of the Put Date, at the Put
Share Price and for the number of Put Shares written below, all pursuant to
that certain Investment Agreement (the "Investment Agreement") by and between
the Company and Swartz Private Equity, LLC dated on or about May 13, 1999.
Put Date :_________________
Intended Put Share Amount (from Advance Put
Notice):_________________ Common Shares
Company Designation Maximum Put Dollar Amount (Optional):
________________________________________.
Company Designation Minimum Put Share Price (Optional):
________________________________________.
Note: Capitalized terms shall have the meanings ascribed to them in this
Investment Agreement.
ECOM ECOM.COM, INC.
By: _________________________________
David Panaia, CEO
Address: ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
<PAGE>
CONFIRMATION of PUT NOTICE
_________________________________, the Investor, hereby confirms receipt of
eCom eCom.com, Inc. (the "Company") Put Notice and election to exercise a Put
to sell ___________________________ shares of common stock ("Common Stock") of
the Company to Investor, as of the Put Date, all pursuant to that certain
Investment Agreement (the "Investment Agreement") by and between the Company
and Swartz Private Equity, LLC dated on or about May 13, 1999.
Date of this Confirmation: ________________
Put Date :_________________
Number of Put Shares of
Common Stock to be Issued: _____________
Volume Evaluation Period: _____ Business Days
Pricing Period: _____ Business Days
INVESTOR(S)
___________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
<PAGE>
PUT CANCELLATION NOTICE
ECOM ECOM.COM, INC. (the "Company") hereby cancels the Put specified below,
pursuant to that certain Investment Agreement (the "Investment Agreement") by
and between the Company and Swartz Private Equity, LLC dated on or about May
13, 1999, as of the close of trading on the date specified below (the
"Cancellation Date," which date must be on or after the date that this notice
is delivered to the Investor), provided that such cancellation shall not apply
to the number of shares of Common Stock equal to the Truncated Put Share
Amount (as defined in the Investment Agreement).
Cancellation Date: _____________________
Put Date of Put Being Canceled: __________
Number of Shares Put on Put Date: _________
Reason for Cancellation (check one):
[ ] Material Facts, Ineffective Registration
Period.
[ ] Delisting Event
The Company understands that, by canceling this Put, it must give twenty (20)
Business Days advance written notice to the Investor before effecting the next
Put.
ECOM ECOM.COM, INC.
By: ____________________________________
David Panaia, CEO
Address:
ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
<PAGE>
PUT CANCELLATION NOTICE CONFIRMATION
The undersigned Investor to that certain Investment Agreement (the "Investment
Agreement") by and between the Company, and Swartz Private Equity, LLC dated
on or about May 13, 1999, hereby confirms receipt of ECom eCom.com, Inc.s
(the "Company") Put Cancellation Notice, and confirms the following:
Date of this Confirmation: ________________
Put Cancellation Date : ___________________
INVESTOR(S)
___________________________________
Investor's Name
By: _________________________________
(Signature)
Address: ____________________________________
____________________________________
____________________________________
Telephone No.: ___________________________________
Facsimile No.: ____________________________________
<PAGE>
ACKNOWLEDGEMENT
With respect to the Investment Agreement entered into as of May 13, 1999,
by and among eCom eCom.com, Inc., a corporation duly incorporated and existing
under the laws of the State of Florida (the "Company") and Swartz Private
Equity, LLC (hereinafter referred to as "Swartz"), as amended, the Company
hereby agrees and acknowledges the following:
The Company acknowledges that the Investor may sell the Put Shares
at any time, and from time to time, after the Put Date for such
shares, and that such sales may occur during a Pricing Period or
Pricing Periods and may have the effect of reducing the Purchase
Price.
IN WITNESS WHEREOF, the undersigned have executed this Acknowledgement as
of the 13th day of May, 1999.
ECOM ECOM.COM, INC.
By:
David Panaia, CEO
Address: ECOM ECOM.COM, INC.
8125 Monetary Drive, Suite H4
Riviera Beach, FL 33404
Telephone (561) 622-4395
Facsimile: (561) 841-7422
SWARTZ PRIVATE EQUITY, LLC
By:
Eric S. Swartz, Manager
Address: 1080 Holcomb Bridge Road
Bldg. 200, Suite 285
Roswell, GA 30076
Telephone: (770) 640-8130
Facsimile: (770) 640-7150
April 10, 2000
eCom eCom.com, Inc.
Suite 1001
3801 PGA Boulevard
Palm Beach Gardens, Florida 33410
Dear Board of Directors:
We have acted as counsel to ecom ecom.com, inc., a Florida corporation
(the "Company"), in connection with the preparation and filing with the
Securities and Exchange Commission of a Registration Statement on Form S-1
(the "Registration Statement"), pursuant to which the Company is registering
under the Securities Act of 1933, as amended, a total of 4,810,000 shares (the
"Shares") of its common stock, $.0001 par value (the "Common Stock") for
resale to the public. The Shares are to be sold by the selling shareholder
identified in the Registration Statement (the "Selling Shareholder"). This
opinion is being rendered in connection with the filing of the Registration
Statement. All capitalized terms used herein and not otherwise defined shall
have the respective meanings given to them in the Registration Statement.
In connection with this opinion, we have examined the Company's Articles
of Incorporation and Bylaws, both as currently in effect; such other records
of the corporate proceedings of the Company and certificates of the Company's
officers as we have deemed relevant; and the Registration Statement and the
exhibits thereto.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies.
Based upon the foregoing and subject to the limitations set forth below,
we are of the opinion that the Shares have been duly and validly authorized by
the Company and will be, when issued in accordance with the Company's Amended
and Restated Investment Agreement with the Selling Shareholder and the
Warrants made a part thereof, validly issued and fully paid and non-
assessable.
Our opinion is limited to the laws of the State of Colorado, and we
express no opinion with respect to the laws of any other jurisdiction. No
opinion is expressed herein with respect to the qualification of the Shares
under the securities or blue sky laws of any state or any foreign
jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We hereby further consent to the reference to us
under the caption "Legal Matters" in the prospectus included in the
Registration Statement.
Very truly yours,
KRYS BOYLE FREEDMAN & SAWYER, P.C.
By: /s/ Stanley F. Freedman, P.C.
Stanley F. Freedman, P.C.
US AMATEUR SPORTS, INC.
SUBSIDIARIES
as of March 31, 2000
State of Name Under Which
Subsidiary Name and Address Incorporation Business is Conducted
- --------------------------- ------------- ---------------------
US Amateur Sports Company Florida US Amateur Sports Company
USA Performance Products, Inc. Florida USA Performance Products
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
Ecom Ecom.com, Inc.
We consent to the inclusion of our audited financial statements for the years
ended May 31, 1998 and May 31, 1999 in the S-1 Registration Statement
currently being filed with the Securities and Exchange Commission.
/s/ Hafer & Gilmer
Hafer & Gilmer CPA's
March 24, 2000
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors
Star Dot Marketing, Inc.
We consent to the inclusion of our audited financial statements of Star Dot
Marketing, Inc. as of and for the years ended May 31, 1999 and May 31, 1998
in the S-1 Registration Statement currently being filed by Ecom Ecom.com, Inc.
with the Securities and Exchange Commission.
/s/ Hood & Strong LLP
Hood & Strong LLP, CPA's
April 6, 2000
