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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: May 31, 2000
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Commission File Number 33-96638-A
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ecom.ecom.com, inc.
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(Name of Small Business Issuer as specified in its charter)
Florida 65-0538051
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3801 PGA Boulevard, Suite 1000
Palm Beach, Florida 33410
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (561) 622-4395
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. __
Registrant's revenues for its most recent fiscal year were $3,332,858.
As of May 31, 2000, there were 14,885,675 shares of the registrant's $.0001
par value common stock issued and outstanding.
Transitional Small Business Disclosure Format Used (Check one) Yes No X
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Business of the Company .............................. 4
Item 2. Properties ........................................... 12
Item 3. Legal Proceedings .................................... 12
Item 4. Submission of Matters to a Vote of Security Holders .. 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters .................................. 13
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 13
Item 7. Financial Statements ................................. 20
Item 8. Disagreements on Accounting and Financial Disclosures. 21
PART III
Item 9. Directors and Executive Officers of the Registrant ... 22
Item 10. Executive Compensation ............................... 25
Item 11. Security Ownership of Certain Beneficial
Owners and Management ................................ 26
Item 12. Certain Relationships and Related Transactions ....... 26
Item 13. Exhibits, Financial Statements and
Reports on Form 8-K .................................. 29
Additional Information* .............................. 31
Signatures ........................................... 32
* This document incorporates into a single document the requirements of
the Securities and Exchange Commission for the Annual Report to Stockholders
and the Form 10-KSB.
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Special Note Regarding Forward-Looking Statements
Certain statements in this report and elsewhere (such as in other filings by
the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company or its 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. The Company's 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 the Company's products and services. The Company 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.
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PART I
ITEM 1. BUSINESS OF THE COMPANY
eCom eCom.com, Inc. ("ECOM") and its direct and indirect wholly-owned
subsidiaries, US Amateur Sports Company ("USASC"), USA Performance Products,
Inc. ("USAPP") and Star Dot Marketing, Inc. ("SDMI"), 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.
ECOM is 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; 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.
ECOM also is the parent of Star Dot Marketing, Inc. (SDMI) which was
acquired on May 31, 2000 through the exchange of 675,000 shares of ECOM common
stock for all of the outstanding stock of SDMI. SDMI offers a complete line
of guaranteed authentic, hand-signed sports memorabilia and other sports
products.
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.
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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. 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. "B2B Plus" 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 B2B Plus are separate operating units, they
provide complementary services designed to facilitate web business
development. B2B Plus 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.
In many cases, our clients require customized services that are not
included in our basic B2B Plus program. In such cases, these services can be
provided under negotiated contracts. For example, such customized services
are being provided under agreements with our client, eWebPEO.com ("EWEB"),
that were signed in March and April 2000. ECOM entered into two one-year
consulting agreements with EWEB. The first agreement directs ECOM to provide
its skill, experience, background and expertise to assist EWEB with the
implementation of its Internet presence through the design, development and
creation of web pages, maintenance of Internet sites, web hosting services,
e-commerce programming, Internet technology consulting, data management,
Internet training, establishing a brand identity and presence, and the
development and implementation of an effective Internet marketing campaign.
The second agreement is similar, but it directs ECOM to design and create a
specialized on-line data base. As compensation for the services provided
under the agreements, ECOM has received a total of $150,000 in cash which was
recorded as unearned revenue at May 31, 2000 and will receive a total of 1.5
million shares of EWEB's $.0001 par value common stock.
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The combined Internet venture resources of B2B Plus, the SuperHUB and our
customized services enable us to fulfill our motto, "B2B from A to Z. No
experience needed."
B2B Plus Services
B2B Plus 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 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 B2B Plus 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.
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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.
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 B2B Plus and the ECOM ECOM
SuperHUB was launched at www.ecomecom.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. A major portion of the
capital received from our investment agreement with Swartz Private Equity (See
"Swartz Agreement" in Part II, Item 6.) will be used to buy advertising space
in all media, but we plan to place a heavy emphasis on television. However,
this advertising support will be secondary to the development of a national
sales organization to sell our services the way television and radio sell
advertising. This effort will be led by Charles Hansen who has been named
ECOM's Chief Executive Officer following more than twenty-five years of
experience in media and the television industry.
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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.
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. Use of the advertising advantages
inherent in the combination of these two forms of electronic commerce has led
to an increase in paintball sales from $228,613 in the year ended May 31, 1999
to $2,862,266 in the current year ended May 31, 2000.
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Other US Amateur Sports Assets
USA SportsNet is an Internet portal that is intended to enable amateur
athletes and their high school and youth athletic organizations to access
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
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control the speed-dial numbers programmed into the ProCard. We plan to
incorporate the ProCard/ComCard concept in the programs promoted through USA
SportsNet.
Star Dot Marketing
On January 21, 2000 we entered into a Stock Exchange Agreement with the
shareholders of Star Dot Marketing, Inc. ("SDMI") which provided for the
transfer of all the outstanding Common Stock of SDMI to ECOM in exchange for
675,000 shares of our Common Stock. The acquisition was closed on May 31,
2000.
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 use the same marketing and sales program for SDMI products
as we have successfully used for our paintball products. This program
includes both a related website and a toll-free telephone 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 B2B Plus. 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 B2B Plus 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, in the future,
increased competition will develop within this market sector.
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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
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, to build a
national sales organization and to promote our site to draw traffic into the
SuperHUB will require considerable financial resources. To address this need,
we entered into an Investment Agreement with Swartz Private Equity, LLC. (See
"SWARTZ AGREEMENT" in Part II, Item 6.)
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.
Competition within the sports memorabilia sector is intense. Some of the
primary competitors within the market, such as Upper Deck Authenticated,
Athlon Sports and Steiner, are larger, have been established longer and are
better funded than Star Dot Marketing. We will continue to grow by expanding
our present pro team accounts and by adding new pro team clients. In
addition, we plan to apply the same e-commerce concepts to Star Dot that have
been successful in driving the growth of our paintball business. These
concepts include the adoption of a toll-free telephone number with a
corresponding website address that is memorable to give Star Dot an
advertising advantage.
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.
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ITEM 2. PROPERTIES
We do not own any real property.
USA Performance Products, Inc. leases approximately 5,720 square feet of
office and warehouse space located at 8125 Monetary Drive, Suite H-4, Riviera
Beach, Florida. This space provides facilities for the manufacture and
warehousing of our paintball products. We expect that we will require
additional space to accommodate the growth of our paintball business by the
expiration of the current lease on June 30, 2001. Our rent in the final year
of this three-year lease is $3,300 per month.
The corporate offices of eCom eCom.com, Inc. are housed in 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 $4,200 per month.
Star Dot Marketing, Inc. maintains office and warehouse facilities in
approximately 1,550 square feet of space located at 133 Kearny Street, Suite
300, San Francisco, California. The month-to-month lease of this space
provides for a monthly rental payment of $2,595. However, the landlord has
proposed an increase in the monthly rental amount to $4,216 effective
September 1, 2000, with an increase to $4,991 on January 1, 2001. Although
Star Dot Marketing's present location is advantageous for servicing the venues
provided by the San Francisco Giants, Star Dot's single largest
revenue-producer, we are evaluating the cost effectiveness of maintaining a
presence at this location.
All of our office and warehouse facilities are leased pursuant to written
agreements with unaffiliated parties.
We maintain inventories that consist principally of paintball-related
merchandise and sports-related memorabilia. We own tools, dies and fixtures
for the manufacture of paintball products. Other properties consist of
computer hardware and software and furniture, fixtures and equipment.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any litigation and the officers and directors are
aware of no threatened or pending litigation that would have a material,
adverse effect on ECOM.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its annual shareholders' meeting held on February 17, 2000, the
shareholders of the Company voted to appoint Wieseneck, Andres & Co., P.A. as
the Company's independent accountants replacing the Company's prior
independent accountants, Hafer & Gilmer, P.A. who were dismissed as of such
date. The decision to elect a new accounting firm was recommended by the
Company's Board of Directors in order to access the resources provided by an
accounting firm with a more extensive practice servicing publicly held
companies. The following directors were elected to serve one-year terms:
David J. Panaia, Gerald V. Bergman, Thomas DeRita, Jr. and Elling J.
Myklebust.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
(a) Market for Common Equity
The Company's common stock is traded on the Over the Counter Bulletin
Board under the symbol "ECEC". The CUSIP number is 27889U-10-2. Equitrade
Securities Corporation of Lake Forest, California is the lead market maker for
the stock.
The following is a table of the high and low bid prices of the Company's
stock for each of the four quarters of the fiscal year ended May 31, 2000:
Quarter Ended High Low
5/2000 $5.375 $1.500
2/2000 6.593 .937
11/1999 3.000 .968
8/1999 6.437 2.000
These quotations reflect interdealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(b) Security Holders
The Company has approximately 5,000 shareholders of record.
(c) Dividends
There have been no cash dividends declared or paid since the inception of
the Company, and no cash dividends are contemplated to be paid in the
foreseeable future. The Company may consider a potential dividend in the
future in either common stock or the stock of future operating subsidiaries.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS AND PLAN OF OPERATION
Overview
The year ended May 31, 2000 was marked by the transition of our Company
into a period of significant revenue generation. The year was also
characterized by the continued evolution of our e-commerce concepts and
related properties. The application of these concepts to our paintball
business boosted our revenues and proved the validity of our approach to
building a successful on-line business. On-line trading venues created after
the restructuring of our Company last year were enhanced by additional
e-commerce tools this year. They were then molded into comprehensive
e-commerce programs made available to small businesses who need a simplified,
cost-effective way to expand to the Internet.
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This continued evolution resulted in the formation of three operating
units: eCom eCom B2B Plus, eCom eCom SuperHUB and US Amateur Sports Company.
To this we added through acquisition a business that specializes in sports
memorabilia, Star Dot Marketing, Inc. We believe that we are structured for
significant growth in revenues by continuing to strengthen paintball sales, by
building Star Dot's business using the same e-commerce concepts that have made
our paintball business grow so rapidly, and by promoting the services of B2B
Plus and the Super HUB.
Electronic Commerce
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.
In many cases, our clients will require customized services that are not
included in the basic B2B Plus program. In such cases, we provide these
services under negotiated contracts such as our agreements with eWebPEO.com,
Inc. (See "eWebPEO.com" below.) The combined resources of B2Bplus, the
SuperHUB and our customized services 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. In March 2000, we entered into a
partnership with iTool.com that allows us to license iTool software to provide
the infrastructure for B2B Plus. The addition of this software to our on-line
services enables us to 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.
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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 such
as Disney, Hallmark, eToys, The Sharper Image and Office Max. New web
businesses receive equal billing with established retailers when the customer
searches the mall. 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.
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 grown from $228,613 in fiscal
1999 to $2,862,266 in the current year. To date, substantially all of our
revenues exclusive of those generated by Star Dot Marketing have come from the
sale of paintball products.
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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.
Star Dot Marketing
ECOM entered into a stock exchange agreement with Star Dot Marketing,
Inc.(SDMI) on January 21, 2000 which was subsequently closed on May 31, 2000.
The agreement gave the stockholders of SDMI 675,000 shares of ECOM's
restricted common stock in return for all of the outstanding stock of SDMI.
The transaction was accounted for as a pooling of interest, so the financial
statements at May 31, 2000 and 1999 reflect the combined assets, liabilities,
stockholders' equity and operations of both companies.
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 under the trademarks and trade names "Treasures of Sports" and "Treasures
of the Diamond."
Guaranteed authentic signatures and products are procured directly from
professional athletes and their agents. All products are backed by a
money-back guarantee. SDMI also creates specialty products for businesses to
use as corporate gifts, awards, premiums and employee incentives by merging
the memorabilia into unique display concepts.
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 Warriors and Detroit Pistons of the National Basketball Association.
SDMI also has a client relationship with ARAMARK, one of the nation's largest
sports arena and stadium concessionaires, offering product for sale at Camden
Yards, home field of the Baltimore Orioles, and at the Pittsburgh Civic Arena,
home ice for the Pittsburgh Penguins.
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Although we expect that SDMI will be able to expand its sales through
existing outlets and new professional sports venues, we acquired SDMI with the
intention of using the same marketing and sales program for SDMI products that
we developed for our paintball products. This includes the development of an
SDMI website with an Internet address that corresponds to an easily-remembered
toll-free telephone number.
eWebPEO.com
During March and April 2000, ECOM entered into two one-year consulting
agreements with eWebPEO.com, Inc.("EWEB"). The first agreement directs ECOM
to provide its skill, experience, background and expertise to assist EWEB with
the implementation of its Internet presence through the design, development
and creation of web pages, maintenance of Internet sites, web hosting
services, e-commerce programming, Internet technology consulting, data
management, Internet training, establishing a brand identity and presence, and
the development and implementation of an effective Internet marketing
campaign. The second agreement is similar, but it directs ECOM to design and
create a specialized data base for maintenance of human resource and employee
benefit information peculiar to the Professional Employer Organization (PEO)
industry.
PEO's relieve business clients from the administrative burdens of payroll
processing, workers compensation, employee benefits administration and other
worker-related functions through a co-employment arrangement. EWEB intends to
provide an on-line marketplace that matches PEO's with prospective business
clients in a competitive environment.
As compensation for the services provided under the agreements, ECOM has
received a total of $150,000 in cash which was recorded as unearned revenue at
May 31, 2000 and will receive a total of 1.5 million shares of EWEB's $.0001
par value common stock.
Swartz Agreement
On May 13, 1999, we entered into an Investment Agreement and a
Registration Rights Agreement with Swartz Private Equity, LLC. In July 1999
we signed an Amended and Restated Investment Agreement with Swartz. Pursuant
to the terms of the Investment Agreement, we may, at 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 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.
On April 10, 2000, we filed a registration statement on Form S-1 with the
Securities and Exchange Commission. The registration statement was declared
effective by the Commission on April 28, 2000 which allows ECOM to exercise
its rights under the Investment Agreement. Additional details regarding the
Investment Agreement can be obtained by review of the registration statement.
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Comparison of Results of Operations
Year Ended May 31, 2000 vs. Year Ended May 31, 1999
Revenue for the year ended May 31, 2000 was $3,332,858 compared to
$770,616 of revenue recorded during the same period of the prior year. These
numbers include the accounts of Star Dot Marketing, Inc.(SDMI), the
acquisition of which was treated as a pooling of interest. If we had not
included the results of SDMI's operations, our revenue for the year ended May
31, 2000 would have been $2,865,825 compared to prior year revenues of
$228,613.
This increase in revenues is attributable to the growth in our paintball
business. During the prior period, production of the Viper M1 paintball
marker was stifled by the inability of our primary subcontractor to assemble
the markers in sufficient quantities to satisfy demand. With production
transferred to in-house facilities, this problem was solved, allowing us to
meet a demand that is accelerating as a result of our advertising efforts.
The most significant factor in paintball sales growth has been the success of
our advertising stemming from use of the 1-800-paintball toll-free telephone
number acquired early in 1999. Our advertising copy promotes use of the
number in addition to use of our web site at www.800paintball.com. This has
enabled us to become a distributor of a broad range of paintball markers,
equipment and accessories. Our share of the expanding paintball market grew
steadily throughout the year. This was reflected in paintball sales of
$1,486,609 during the 4th quarter alone, which represented 52% of total
current year paintball sales.
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 have begun negotiations
directly with manufacturers which will allow us to reduce our cost of sales
and increase gross profit margins. Although our gross profit on paintball
sales increased from $80,269 in the prior year to $208,217 in the current
year, this represented a decline in gross profit margin from 35% of prior year
sales to 7% in the current year.
During the 4th quarter of the current year, our new e-commerce programs,
the eCom eCom SuperHUB and eCom eCom B2B Plus, achieved an initial impact on
our operating results. This was primarily reflected in the contracts with
eWebPEO.com, Inc. for which we were paid $150,000 that was recorded on the
balance sheet as unearned revenue. No amount has been recorded to recognize
our right under the contracts to receive 1.5 million shares of eWebPEO.com
common stock. Our management expects that significant revenues from our
e-commerce programs will be developed through contracts similar to the
agreement with eWebPEO.com plus promotion of the SuperHUB and B2B Plus
programs through advertising and a national sales force. The success of these
promotional efforts will be dependent on the amount of funding available from
our financing activities, including the sale of securities to Swartz Private
Equity, LLC.
Exclusive of SDMI, sales and marketing expenses in the current year have
increased by $639,191, or 362%, over the prior year, primarily as a result of
the implementation of test marketing for our e-commerce programs plus the
addition of personnel for customer service to support the sale of paintball
products. Product development expense grew by $597,099 over a prior year
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amount of $34,347 as a result of our efforts to develop and refine our
e-commerce properties and work performed to develop a new, lower-cost
paintball marker. General and administrative expenses increased $865,961, or
463%, as the result of additional payroll, consulting fees, professional fees
and office expense associated with our Company's overall growth. Depreciation
and amortization expense has risen by $25,208, or 57%, primarily as the result
of the addition of computers and related electronic hardware.
Our developmental activities and the related expenditures resulted in a
net loss, excluding SDMI, of $2,375,578 in the current year compared to a loss
of $374,085 in the prior year.
SDMI revenues declined in the year ended May 31, 2000 to $467,033 from
$542,003 in the prior year, a 14% decrease that resulted from the prior
owners' restriction on capital infusions to inventory in anticipation of the
acquisition by ECOM. Gross profit declined from $308,321 to $271,916 which
was consistent with the sales decrease. Gross profit in the current year
represented 58% of sales compared to 57% in the prior year. From year to
year, combined operating and interest expenses declined from $553,042 to
$530,186, a 4% decrease that helped to offset the gross profit reduction. As
a result, the current year net loss was $257,847 which was 5% higher than the
prior year loss of $245,521.
No provision for federal and state income taxes has been recorded because
the Company has incurred net operating losses since inception. Our net
operating loss carry-forwards as of May 31, 2000 total $2,300,000. These
carry-forwards will be available to offset future taxable income. If not
used, the operating loss carry-forwards will expire from 2010 to 2015. 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,
2000.
Liquidity and Capital Resources
At May 31, 2000, current assets totaled $1,141,009 compared to $590,443
at the prior year end. Increases in all current asset categories reflected
the overall growth of our business. However, of the $550,566 increase, a
growth in inventory balances accounted for $398,459 which consisted
principally of increases in stock on hand to support the demand for
800-paintball products. Similarly, the growth in our paintball business was
the primary cause of a $73,610 increase in accounts receivable. Increases in
cash and prepaid license fees, insurance and advertising accounted for the
remainder of the growth in current assets.
Current liabilities grew from $514,618 at the prior year end to
$2,148,724 at the end of the current period. The current balance includes
$187,562 of unearned revenue compared to $0 in the prior year. $150,000 of
unearned revenue was related to cash received for work performed for
eWebPEO.com as discussed above, and the balance consisted of cash received for
paintball products that had not been shipped by year end. The majority of the
remaining increase in current liabilities was created by growth in accounts
payable of $1,056,682 and an increase in the current portion of long term debt
of $456,393. The latter amount consisted of additional loans from
stockholders. The need for this additional debt was created by the growth in
inventories and operating expenses.
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Net cash used in operating activities was $996,052 and $491,442 for the
years ended May 31, 2000 and 1999, respectively. The principal use of cash in
both periods was to fund our net loss from operations and to acquire
additional inventory.
Net cash used in investing activities was $65,084 during the current year
compared to $110,622 in the prior year period. All of the investment cash
used in the current year was used for the purchase of equipment. During the
prior year, $52,960 was used to acquire property and equipment, and $57,662
was used for the acquisition of intangible assets.
Net cash provided by financing activities increased to $1,091,336 in the
current year from $611,874 in the prior year. The primary sources of capital
to fund operations in both years were loans and contributions from
stockholders and proceeds from private sales of restricted stock.
The Company continues to be reliant on the combination of revenues, loans
from stockholders and capital contributions to fund operations. As discussed
above, our registration statement pertaining to the equity line of credit
established with Swartz Private Equity, LLC was declared effective by the
Securities and Exchange Commission. However, the amount of common stock we
can require Swartz to purchase is tied to the market for our common stock.
Consequently, if market volume and price decline, so does the amount of common
stock we can put to Swartz. 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 the Company in amounts or on
terms that are acceptable. Until the Company obtains sufficient funds
necessary to capitalize the growth of its existing operations, expenditures
required to increase revenues, including advertising and promotion of both its
e-commerce programs and paintball products, will be substantially limited.
Should the Company be unable to obtain continued funding, its operations may
be adversely affected.
Year 2000 Issue
The two-digit coding of dates in many currently installed computer
systems and software products has had no effect on our operations, and we do
not believe that this issue will result in any effect on our Company's
financial condition or results of operations.
ITEM 7. FINANCIAL STATEMENTS
The audited consolidated balance sheet of the Company for its years ended
May 31, 2000 and 1999 and related consolidated statements of operations,
stockholders' equity and cash flows for the years ended May 31, 2000 and 1999
are included, following Item 13, in sequentially numbered pages numbered F-1
through F-6. The page numbers for the financial statement categories are as
follows:
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Index Page
Report of Independent Auditors F-1
Consolidated Balance Sheets as of May 31, 2000 and 1999 F-4
Consolidated Statements of Operations
for the Years Ended May 31, 2000 and 1999 F-5
Consolidated Statement of Stockholders' Equity
for the Years Ended May 31, 2000 and 1999 F-6
Consolidated Statements of Cash Flows
for the Years Ended May 31, 2000 and 1999 F-7
Notes to Consolidated Financial Statements F-9
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED
The following sets forth the names and ages of all of the Directors and
Executive Officers of ECOM, positions held by such persons, length of service,
when first elected or appointed and term of office.
First Term of
Name Age Position Appointed Office
David J. Panaia 60 Chairman, President, June 1994 (1),(2)
Chief Executive Officer,
Treasurer and Director
Thomas DeRita, Jr. 56 Secretary and Director May 1999 (1),(2)
Elling J. Myklebust 54 Vice President February (1),(2)
and Director 2000
Gerald V. Bergman 53 Director June 1995 (2),(3)
Charles W. Hansen 51 President and Chief July 2000 (1),(4)
Executive Officer
(1) Officers serve at the pleasure of the Company's Board of Directors.
(2) Each of these Directors was elected to serve until the next Annual
Meeting of Shareholders. We currently intend to hold our next annual
meeting during November 2000.
(3) Mr. Bergman resigned from the position of Director effective June 30,
2000.
(4) Mr. Hansen joined ECOM in March 2000 as Vice President Operations and was
promoted to President and Chief Executive Officer in July 2000.
Our Board of Directors sets corporate policies that are implemented by
the Company's management. In the event that the Board of Directors determines
that a member faces a conflict of interest, for any reason, it is expected
that the subject director will abstain from voting on the matter that raised
the issue.
David J. Panaia, Chairman, Treasurer and Director, served as Chairman,
Director and Chief Executive Officer from our incorporation in June 1994 until
the position of Chief Executive Officer was assumed by Charles Hansen in July
2000. From June 1998 through the present, he has also acted as Treasurer.
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
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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 concentrates full
time to his duties as the Chairman 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
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.
Gerald V. Bergman served as a Director of ECOM from June 1995 until June
30, 2000 when he resigned to pursue other ventures. 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.
Charles W. Hansen, III was appointed President and Chief Executive
Officer on July 21, 2000. He had joined ECOM as Vice President Operations on
March 6, 2000. From June 1998 to March 2000 Mr. Hansen served as Vice
President General Manager of the PAX TV Networks flagship station in West Palm
Beach, Florida. He devoted his time from November 1997 to June 1998 to
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managing his own investments. From February 1994 to November 1997 he served
as President/CEO of Dahms Hansen Anderson, a video production company serving
clients such as Disney, Weight Watchers and the world's highest volume Lexus
dealer. From 1992 to 1993 Mr. Hansen served as Vice President General Manager
of WNPL TV, an independent TV station in southwest Florida. From 1984 to 1992
he was National Sales Manager and General Sales Manager of WPTV TV, an NBC
affiliate in West Palm Beach, Florida.
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.
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. The Company at this time has no insurance coverage
for officers and directors and has not expended any funds to obtain such
insurance policies to insure or indemnify directors or officers against any
liabilities that may occur. Management reserves the right to obtain such
insurance.
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.
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ITEM 10. EXECUTIVE COMPENSATION
The following table provides information regarding the executive
compensation of persons serving as ECOM's executive officers during the fiscal
years ended 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
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 2000 0 0 0 0 0 0 0
Chairman, CEO 1999 0 0 0 0 0 0 0
And Treasurer 1998 0 0 0 0 0 0 0
Guy T. Lindley 2000 0 0 0 0 0 0 0
Secretary and 1999 0 0 0 0 0 0 0
CFO 1998 0 0 0 0 0 0 0
Gerald V. Bergman 2000 0 0 0 0 0 0 0
Treasurer and 1999 0 0 0 0 0 0 0
CFO 1998 0 0 0 0 0 0 0
Thomas J. Thomas 2000 0 0 0 0 0 0 0
Secretary 1999 0 0 0 0 0 0 0
1998 0 0 0 12,421 0 0 0
Thomas DeRita, Jr. 2000 0 0 0 0 0 0 0
Secretary 1999 0 0 0 0 0 0 0
1998 0 0 0 0 0 0 0
</TABLE>
None of ECOM's executive officers had 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. Through May 31, 2000,
none of the officers or directors received a salary or other cash
compensation. On July 21, 2000, Charles W. Hansen, III was appointed
President and Chief Executive Officer. Mr. Hansen has an employment agreement
under which he is compensated with an annual salary of $100,000 plus
participation in a stock incentive plan. Upon commencement of employment as
Vice President Operations in March 2000, Mr. Hansen was awarded 100,000 shares
of restricted stock. When cash flow permits, it is anticipated that other
officers will be compensated in accordance with appropriate employment
contracts.
25
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this report, we have a total of 50,000,000 shares of
Common Stock authorized at a par value of $.0001, and there are 14,885,675
shares of Common Stock outstanding. The following table sets forth
information, as of such date, with respect to the beneficial ownership of our
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) 2,203,900 14.81
10 Wyndham Lane
Palm Beach Gardens, FL
Gerald V. Bergman (2) 1,839,300 12.36
10692 Hidden Lake Circle
Palm Beach Gardens, FL
Thomas DeRita, Jr. (3) 103,800 *
5770 Whirlaway Road
Palm Beach Gardens, FL
Elling J. Myklebust 175,000 1.18
1600 Jackson Street
Golden, Colorado 80401
Axis Enterprises, Ltd. 751,190 5.05
P. O. Box N1201
Nassau, Bahamas
All Officers and
Directors as a Group-4 4,322,000 29.03
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 41,500 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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:
26
<PAGE>
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 was 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 Stratex
Corporation in the amount of $100,000. The loan bears interest at the rate of
prime plus 6% and is due and payable in full in September 2000. Derek Panaia,
son of David Panaia, is the sole shareholder of Stratex Corporation.
On February 6, 1998, we issued 5,000 shares to Angela Brockman as
compensation for her performing secretarial, receptionist and other services
for us. Angela Brockman is the daughter of Gerald V. Bergman and Linda
Bergman.
On February 6, 1998, we issued 5,000 shares to Brody Brockman as
compensation for his performing sales and shipping services for us. Brody
Brockman is the son-in-law of Gerald Bergman.
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.
27
<PAGE>
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.
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 Brockman as
compensation for her performing secretarial, receptionist and other services
for us. Angela Brockman is the daughter of Gerald Bergman and Linda Bergman.
On January 22, 1999, we issued 30,000 shares to 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.
28
<PAGE>
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.
On March 16, 2000, we issued an additional 10,000 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, NA, Inc.
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 restricted 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.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Index to financial statements and financial statement schedules
The audited balance sheets of the Company as of May 31, 2000 and 1999 and
the related statements of operations, stockholders' equity and cash flows for
the years ended May 31, 2000 and 1999 follow in sequentially numbered pages
F-1 through F-14. The page numbers for the financial statement categories are
as follows:
Page Description
F-1 Report of Independent Auditors - May 31, 2000 and 1999
F-4 Balance Sheets as of May 31, 2000 and 1999
F-5 Statements of Operations for the Years Ended May 31, 2000 and
1999
F-6 Statement of Stockholders' Equity for the Years Ended May 31,
2000 and 1999
F-7 Statements of Cash Flows for the Years Ended May 31, 2000 and
1999
F-9 Notes to Financial Statements
(b) 8-K Reports
On January 21, 2000 a Form 8-K was filed with the Securities and Exchange
Commission reporting in Item 5, "Other Events", that we had entered into a
Stock Exchange Agreement with the shareholders of Star Dot Marketing, Inc.
On February 17, 2000 a Form 8-K was filed with the Securities and
Exchange Commission reporting in Item 4, "Change in Registrant's Certifying
Accountant".
29
<PAGE>
On June 13, 2000 a Form 8-K was filed with the Securities and Exchange
Commission reporting in Item 2, "Acquisition of Assets", that we had acquired
all of the outstanding shares of Star Dot Marketing, Inc. on May 31, 2000.
(c) Exhibits:
9.1 Articles of Incorporation (1)
9.2 By-laws (1)
9.3 Agreement for acquisition of assets of Performance Paintball
Products, Inc. (1)
9.4 Agreement of acquisition of rights to All American Bowl (2)
9.5 Personal services agreement with All American Bowl Executive
Director (2)
9.6 Promissory Note to Stratex Corporation dated August 12, 1997 (3)
9.7 Marketing and Management Agreement between Axis Enterprises,
Ltd. and Registrant dated January 10, 1998 (3)
9.8 Agreement for acquisition of assets of Amateur Athletes of
America,Inc. (3)
9.9 Lease Agreement between Ryco Properties, Inc. and Registrant
dated May 4, 1998 (3)
9.10 Investment Agreement between Swartz Private Capital LLC and the
Registrant dated May 13, 1999 (4)
9.11 Registration Rights Agreement between Swartz Private Capital LLC
and the Registrant dated May 13, 1999 (4)
9.12 Side Agreement (4)
9.13 Amended and Restated Investment Agreement between Swartz Private
Capital LLC and the Registrant dated July 1999 (5)
9.14 Memorandum dated September 13, 1999 from Swartz Private Capital
LLC extending date to file registration statement (5)
9.15 First Stock Incentive Plan (5)
9.16 Occupancy Agreement between Chimney Rock Services, LLC and
Registrant dated September 15, 1999
9.17 License Agreement between iTool.com and Registrant dated
December 20, 1999
9.18 Stock Exchange Agreement between the shareholders of Star Dot
Marketing, Inc. and Registrant dated January 21, 2000 (6)
9.19 Service Agreement between eWebPEO.com, Inc. and Registrant dated
March 25, 2000
9.20 Consulting and Compensation Agreement between eWebPEO.com, Inc.
and Registrant dated April 16, 2000
10 Statement of Computation of Earnings per Share
21 Subsidiaries of the Company
23 Consent of Hafer & Gilmer
27 Financial Data Schedule
_______________________________
(1) Incorporated by reference to the Company's original registration
Statement on Form 10 SB-1, Registration 33-96638-A, filed on September 6,
1995.
(2) Incorporated by reference to Form 10-KSB for the year ended May 31,
1997.
(3) Incorporated by reference to Form 10-KSB for the year ended May 31,
1998.
30
<PAGE>
(4) Incorporated by reference to Form 8-K filed with the Commission on
May 26,1999.
(5) Incorporated by reference to Form 10-KSB for the year ended May 31,
1999.
(6) Incorporated by reference to Form 8-K dated January 21, 2000.
ADDITIONAL INFORMATION
Corporate Headquarters
3801 PGA Boulevard, Suite 1001, Palm Beach Gardens, Florida 33410
Telephone Number: (561) 622-4395; Fax Number: (561) 624-1127
Internet Address http://www.ecomecom.com;
E-mail Address [email protected]
Independent Public Accountants
Wieseneck, Andres & Company, P.A.
Certified Public Accountants
772 U.S. Highway 1, Suite 200
North Palm Beach, Florida 33408
Transfer Agent
Florida Atlantic Stock Transfer, Inc.
5701 North Pine Island Road, Suite 310B
Tamarac, Florida 33321
Exhibits to Form 10-KSB will be provided to shareholders of the
Registrant upon written request addressed to eCom eCom.com, Inc., 3801 PGA
Boulevard, Palm Beach Gardens, Florida 33410. Any exhibits furnished are
subject to a reasonable photocopying charge.
The Securities and Exchange Commission has not approved or disapproved of
this Form 10-KSB and Annual Report to Shareholders nor has it passed upon its
accuracy or adequacy.
31
<PAGE>
Wieseneck, Andres & Company, P.A.
Certified Public Accountants
772 U.S. Highway 1, Suite 200
North Palm Beach, Florida 33408
(561) 626-0400
Thomas B. Andres, C.P.A.*, C.V.A. FAX (561) 626-3453
Paul M. Wieseneck, C.P.A.
*Regulated by the State of Florida
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
eCom eCom.com, Inc.
We have audited the accompanying consolidated balance sheets of eCom eCom.com,
Inc. and subsidiaries as of May 31, 2000 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. The financial
statements of eCom eCom.com, Inc. as of May 31, 1999, were audited by other
auditors whose report dated August 24, 1999, expressed an unqualified opinion
on those statements.
The consolidated financial statements as of May 31, 1999, and for the year
then ended have been restated to reflect the pooling of interests with Star
Dot Marketing, Inc. as described in Note D to the consolidated financial
statements. We did not audit the May 31, 1999 financial statements of Star
Dot Marketing, Inc., which statements reflect total assets of $302,132 as of
May 31, 1999, and total revenues of $542,003 for the year then ended. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for Star
Dot Marketing, Inc. as of May 31, 1999, and for the year then ended, is based
solely on the report of the other auditors.
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 consolidated 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, based on our audits and the report of other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of eCom eCom.com,
Inc. and subsidiaries as of May 31, 2000 and 1999, and the results of their
operations and their cash flows for the year 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 discussed in Note P to the
financial statements, the Company's current liabilities exceed current assets
by $1 million and the Company has incurred net operating losses since
inception. These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are
also described in Note P. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Wieseneck, Andres & Company, P.A.
Wieseneck, Andres & Company, P.A.
August 18, 2000
F-1
<PAGE>
HAFER & GILMER
Certified Public Accountants
251 Royal Palm Way, Suite 302
Palm Beach, Florida 33480-4310
Telephone: (561) 655-8700
Facsimile: (561) 655-6964
Report of Independent Accountants
Board of Directors
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, stockholders equity 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 M. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Hafer & Gilmer
August 24, 1999
F-2
<PAGE>
HOOD & STRONG, LLP
Certified Public Accountants
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
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the 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.
/s/ Hood & Strong, LLP
September 19, 1999
F-3
<PAGE>
eCOM eCOM.COM, INC.
CONSOLIDATED BALANCE SHEETS
MAY 31, 2000 AND 1999
2000 1999
----------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 139,402 $ 109,202
Accounts receivable, net of allowance for
doubtful accounts of $6,500 and $8,000 156,959 83,349
Inventories 769,383 370,924
Prepaid expenses 61,326 26,968
Other current assets 13,939 -
----------- -----------
Total Current Assets 1,141,009 590,443
----------- -----------
Property and Equipment, net 180,900 105,606
----------- -----------
Other Assets
Intangible assets, net 46,069 67,135
Other assets 11,942 6,773
----------- -----------
Total Other Assets $ 58,011 73,908
----------- -----------
Total Assets $ 1,379,920 $ 769,957
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,237,036 $ 180,354
Accrued expenses 21,977 13,756
Unearned revenue 187,562 -
Current portion of long term debt 676,033 219,640
Interest accrued on current portion 26,116 100,868
----------- -----------
Total Current Liabilities 2,148,724 514,618
Notes Payable, Net of Current Portion 308,000 348,495
----------- -----------
Total Liabilities 2,456,724 863,113
----------- -----------
Stockholders' Equity
Common stock, $.0001 par value, 50 million
shares authorized, 14,885,675 and
13,708,600 shares issued and out-
standing including 2000 shares held in
treasury. 1,489 1,366
Paid-in capital 3,854,861 2,205,206
Accumulated deficit (4,928,154) (2,294,728)
Treasury stock (5,000) (5,000)
----------- -----------
Total Stockholders' Deficit (1,076,804) (93,156)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,379,920 $ 769,957
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
eCOM eCOM.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
2000 1999
----------- -----------
Revenues
Net Sales $ 3,332,858 $ 770,616
Cost of Sales (2,853,007) (382,026)
----------- -----------
Gross Profit 479,851 388,590
----------- -----------
Other Operating Expenses
Sales and marketing 1,032,729 290,785
Product development 631,446 34,347
General and administrative 1,354,057 545,557
Depreciation and amortization 75,288 58,304
----------- -----------
Total Operating Expenses 3,093,520 928,993
----------- -----------
Loss From Operations (2,613,669) (540,403)
Other Income (Expense)
Interest Income 423 -
Interest Expense (20,179) (78,403)
----------- -----------
Net Other Expenses (19,756) (78,403)
----------- -----------
Loss Prior to Provision For Income Taxes (2,633,425) (618,806)
Provision for Income Taxes - 800
----------- -----------
Net Loss $(2,633,425) $ (619,606)
=========== ===========
Net Loss Per Common Share $ (0.19) $ (0.05)
Weighted Average Shares outstanding 13,783,000 12,908,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
eCOM eCOM.COM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
<TABLE>
<CAPTION>
Additional Accumu- Total
Number of At Paid-In lated Treasury Stockholders'
Shares Par Value Capital Deficit Stock Deficiency
---------- --------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1998 11,894,600 $ 1,189 $ 484,361 $ (545,921) $(5,000) $ (65,371)
Issuance of Common
Stock 1,089,000 109 450,913 - - 451,022
Star Dot Marketing
Pooling of Interest 675,000 68 1,269,932 (1,129,201) - 140,799
Net Loss - - - (619,606) - (619,606)
---------- --------- ---------- ----------- ------- -----------
Balance, May 31, 1999 13,658,600 1,366 2,205,206 (2,294,728) (5,000) (93,156)
Issuance of Common
Stock 1,227,075 123 1,649,655 - - 1,649,778
Net Loss - - - (2,633,426) - (2,633,426)
---------- --------- ---------- ----------- ------- -----------
Balance, May 31, 2000 14,885,675 $ 1,489 $3,854,861 $(4,928,154) $(5,000) $(1,076,804)
========== ========= ========== =========== ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
eCOM eCOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
2000 1999
----------- -----------
Cash Flows From Operating Activities
Net Loss $(2,633,425) $ (619,606)
Adjustments to reconcile net loss to net
cash used in operating activities - -
Add noncash items
Depreciation and amortization 75,288 58,304
Issuance of common stock for services rendered 909,906 1,000
Bad debts 1,396 433
Cash was increased by
Decrease in accounts receivable - 12,844
Decrease in prepaid expenses and other assets - 22,034
Increase in accounts payable 1,056,683 58,617
Increase in unearned revenues 187,562 -
Increase in accrued expenses 8,221 -
Cash was decreased by
Increase in accounts receivable (73,610) -
Increase in prepaid assets (34,358) -
Increase in inventory (398,459) (19,091)
Increase in other current assets (13,939) -
Increase in other assets (5,169) -
Decrease in accrued interest payable (74,752) (5,977)
----------- -----------
Net Cash Flows Used in Operating Activities (994,656) (491,442)
----------- -----------
Cash Flows From Investing Activities
Purchase of equipment (67,324) (52,960)
Acquisition of intangible assets 2,240 (57,662)
----------- -----------
Net Cash Flows Used in Investing Activities (65,084) (110,622)
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
eCOM eCOM.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED MAY 31, 2000 AND 1999
2000 1999
----------- -----------
Cash Flows From Financing Activities
Proceeds from sale of common stock
and additional stockholder contributions 674,042 451,021
Repayment of note (7,295) (36,419)
Proceeds of loans from stockholders 639,190 197,272
Repayment of loans to stockholders (215,997) -
----------- -----------
Net Cash Flows Provided by Financing
Activities 1,089,940 611,874
----------- -----------
Net Increase in Cash 30,200 9,810
Cash and Cash Equivalents at Beginning of Year 109,202 99,392
----------- -----------
Cash and Cash Equivalents at End of Year $ 139,402 $ 109,202
=========== ===========
Supplemental Disclosures
Cash Received and Paid During the Year for:
Interest Income 423 -
Interest expense 94,931 17,176
Income taxes 800 800
Non-Cash Transactions
Conversion of Loans Payable Stockholders'
to Common Stock - 1,020,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
eCOM eCOM.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF OPERATIONS
eCom eCom.com, Inc. (the Company) was incorporated in the State of Florida on
June 14, 1994. The Company 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. The Company was incorporated under the name US
Amateur Sports, Inc. but changed its name in January 1999 to better reflect
its business operations.
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
e-commerce business concepts. US Amateur Sports Company (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.
On January 21, 2000 the Company entered into a Stock Exchange Agreement with
the shareholders of Star Dot Marketing, Inc ("SDMI"), which provided for the
transfer of all the outstanding common stock of SDMI to eCom eCom.com, Inc. in
exchange for 675,000 shares of common stock. The transaction were closed on
May 31, 2000. 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. The Company plans to expand the business of SDMI through
application of its e-commerce concepts.
NOTE B - 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.
F-9
<PAGE>
Consolidation
The consolidated financial statements of the Company include the accounts of
USA Performance Products, Inc. and Star Dot Marketing, 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.
Star Dot Marketing, Inc. is a wholly owned subsidiary, which was acquired on
May 31, 2000. The transaction consisted of an exchange of 675,000 shares of
the Company's common stock for all of the outstanding stock of SDMI and was
recorded as a pooling of interest (See Note D).
Revenue Recognition
Revenue from the sale of paintball markers and accessories and sports related
memorabilia is recognized at the time title is transferred which is normally
on shipment of the goods. Revenue received from contracts for web site
development services is recorded as unearned revenue until development of the
related web site is complete and accepted by the client.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Depreciation
Property and equipment is recorded at cost and 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.
NOTE C - CASH EQUIVALENTS
Cash equivalents recorded at May 31, 1999 consisted of cash credits received
in connection with the sale of advertising and promotional packages to Itex
Corporation. These cash credits were used during the current year for the
purchase of advertising provided by other Itex clients.
F-10
<PAGE>
NOTE D - BUSINESS COMBINATION
The Company entered into a Stock Exchange Agreement with Star Dot Marketing,
Inc. (SDMI), a California Corporation, on January 21, 2000 whereby the
stockholders of SDMI would receive 675,000 shares of common stock of the
Company in exchange for all of the outstanding shares of SDMI. The
transaction has been accounted for as a pooling of interest. The transaction
qualifies as a tax-free reorganization pursuant to Section 368(a)(1)(B) of the
Internal Revenue Code and related Treasury Regulations. The financial
statements at May 31, 2000 and 1999 reflect the combined assets, liabilities,
stockholders' equity and operations of both companies. In accordance with the
terms of the merger, the principal stockholders of SDMI, effective May 1999,
converted approximately $1 million of advances to paid in capital. In
addition, an additional 309,000 shares of SDMI were issued to the stockholders
of Star Dot Marketing, Inc.
NOTE E - INVENTORIES
Inventories consist principally of paintball markers and paintball accessories
and sports-related memorabilia. Inventories are carried at cost, which is
considered to be less than market value. An inventory reserve of $66,000 was
recorded at May 31, 2000 to account for slow-moving inventory, which may have
to be sold at less than cost.
NOTE F - PREPAID EXPENSES
Prepaid expenses consist principally of amounts paid for commercial insurance
and advertising.
NOTE G - 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, 2000 and 1999:
May 31, 2000 May 31, 1999
------------ ------------
Computer hardware $ 173,661 $ 83,246
Computer software 42,979 38,179
Furniture, fixtures and
equipment 53,904 31,504
Tools, dies and fixtures 57,401 54,928
Leasehold improvements 2,048 2,048
------------ ------------
Total Cost 329,993 209,905
Leasehold Accumulated
Depreciation 149,093 104,299
------------ ------------
Total Net Property and
Equipment $ 180,900 $ 105,606
============ ============
F-11
<PAGE>
The useful lives assigned to property and equipment to compute depreciation
is:
Computer Hardware 5 years
Computer Software 5 years
Furniture, fixtures and equipment 7 years
Tools, dies and fixtures 5 years
NOTE H - INTANGIBLE ASSETS
In May 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 rights are valued at $54,134 and are amortized over
sixty months. Accumulated amortization at May 31, 2000 and 1999 is $43,467
and $32,640 respectively.
In January 1999, the Company acquired the rights to use of the toll free
telephone number, 1-800-724-6822, which has been 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 $13,000 and $5,000 as of May 31, 2000
and 1999, respectively. The asset is amortized over a five-year life. In
February 1999, the Company acquired two Internet websites, AclassifiedAd and
Swapandshop, for a total cost of $11,200. These assets are also amortized
over five years. Accumulated amortization was $2,800 and $560 as of May 31,
2000 and 1999, respectively.
NOTE I - OTHER ASSETS
Other assets consist primarily of security deposits on the lease of its office
facilities and utility deposits.
NOTE J - LONG-TERM DEBT
Long-term debt at May 31, 2000 and 1999 consisted of:
The long-term notes and loans payable mature as follows:
2000 1999
-------- --------
A note payable dated August 12, 1997 with interest
at Wall Street Journal prime plus six percent (6%)
payable monthly. The note is collateralized by
tangible and intangible property related to the
Viper M1 Paintball Marker and is renewed annually
and currently matures on September 1, 2001.
Interest accrued for the year ending May 31, 2000
was $14,573. Total accrued interest payable on
this note payable is $20,510. $100,000 $100,000
A noninterest bearing, noncollateralized loan
from an offshore corporation that is due on
demand. 184,220 134,220
A 12.25% noncollateralized loan due on demand.
The loan was paid in full in March 2000. - 7,295
F-12
<PAGE>
Three noninterest bearing, noncollateralized
loans due on demand from stockholders. 491,813 78,125
The stockholders of Star Dot Marketing, Inc.
over the past several years had made advances
to SDMI. The advances were noncollateralized,
bore interest at an annual rate of 5.63% and
were due on demand. The advances were converted
to an 8% noncollateralized note payable on the
date the pooling of interest took place. The
loan matures January 2002. Interest accrued on
the note payable through May 31, 2000 is $5,606.
At any time prior to due date, the stockholder,
at his sole discretion, can elect to cancel the
entire note payable in exchange for an equal
number of shares (one dollar is equal to one
share). 208,000 248,495
-------- --------
Total Long-Term Debt 984,033 568,135
Less Current Portion 676,033 219,640
-------- --------
Net Long-term Debt $308,000 $348,495
======== ========
The long-term notes and loans payable mature as follows:
Year Ending May 31, 2001 $676,033
Year Ending May 31, 2002 308,000
--------
$984,033
========
NOTE K - UNEARNED REVENUE
The Company entered into two similar one year consulting and compensation
agreements with eWebPEO.com, Inc. (eWeb) in March and April of 2000 for
$100,000 and $50,000 and a total of 1.5 million shares of eWeb's $.0001 par
value common stock. The Company shall provide its skill, experience,
background and expertise to assist eWeb with the implementation of the eWeb
Internet web presence through the design, development and creation of web
pages, maintenance of Internet sites, web hosting services, e-commerce
programming, Internet technology consulting, data management, Internet
training, Internet marketing, establishing brand identity and presence, and
the development and implementation of an effective Internet marketing
campaign. eWeb is engage in the business of marketing professional employer
products on behalf of Professional Employer Organizations (PEO's) and securing
clients for those PEO's. Either party may terminate the agreement after 30
days prior written notice. The non-refundable, but yet unearned cash portion
of the agreement has been received by the Company. The 1.5 million shares of
common stock have not been received.
F-13
<PAGE>
NOTE L - COMMITMENTS AND CONTINGENCIES
The Company leases office facilities on a month-to-month basis for $4,240 per
month. In addition, 17,600 shares of common stock of the Company were issued
to the lessor for fixing the base rental through September 15, 2000. The
Company also leases its sports memorabilia facility on a month-to-month basis
for $2,595 a month. The Company leases its manufacturing facility under an
operating lease, which expires June 30, 2001. Future minimum lease payments
as of May 31, 2000 are:
May 31, 2001 $41,817
May 31, 2002 3,498
-------
Total Minimum Lease Payments $45,315
=======
The Company authorized, on April 2, 1999, the issuance of 50,000 free trading
shares of the Company to be issued to two consultants (25,000 each) for
consulting and Internet services plus $104,000 cash to be paid weekly in
amounts of $1,000 each.
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 M - STOCKHOLDERS' DEFICIT
The restated Stockholders' Deficit at May 31, 1999 for the combination
recognized as a pooling of interest is as follows:
<TABLE>
<CAPTION>
Total
Common Paid In Accumulated Treasury Stockholders'
Stock Capital Deficit Stock Equity
---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
eCom eCom.com, Inc.
50,000 shares of $.0001 par value
stock authorized, 13,708,600 issued
and outstanding including 2,000 shares
held in Treasury $ 1,303 $ 935,269 $ (920,006) $(5,000) $ 11,566
Star Dot Marketing, Inc.
2,000,000 shares of no par value
stock authorized, 409,091 shares
issued and outstanding 1,230,000 40,000 (1,374,722) - (104,722)
---------- ---------- ----------- -------- -----------
Combined Stockholders' Equity
at May 31, 1999 1,231,303 975,269 (2,294,728) (5,000) (93,156)
Adjustment for retroactive pooling
of interest - 675,000 shares of
eCom eCom.com, Inc. common stock
issued 68 (68) - - -
Reclassification of Paid in Capital (1,230,000) 1,230,000 - - -
---------- ---------- ----------- -------- -----------
Total Stockholders' Deficit at
May 31, 1999 $ 1,371 $2,205,201 $(2,294,728) $(5,000) $ (93,156)
========== ========== =========== ======== ===========
</TABLE>
F-14
<PAGE>
NOTE N - RELATED PARTY TRANSACTIONS
On January 10, 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 on April 8, 1998. In 1999, the Company
issued 150,000 shares of common stock in cancellation of indebtedness of
$111,780. The Company is currently indebted to Axis for $184,220.
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.
Stratex Corporation has a loan to the Company in the amount of $100,000.
Stratex is owned by Derek D. Panaia, son of David J. Panaia, CEO of the
Company.
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 De Rita, is a principal.
NOTE O - BUSINESS SEGMENTS
The Company's reportable segments are strategic business units that offer
different products and services. The Company has four reportable segments:
paintball products, sports events, Internet commerce and sports memorabilia.
The paintball segment manufactures and distributes paintball guns and
accessories. The events segment has produced the All American Bowl, a
national high school football all-star game. The Internet segment provides an
e-commerce infrastructure to enable small businesses to expand to the
Internet. The sports memorabilia segment acquires various signed sports
related items from individuals in the various professional leagues for resale.
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 sales of the Company's paintball products
over the Internet are reported within the paintball segment.
F-15
<PAGE>
The following is a summary of segment activity:
<TABLE>
<CAPTION>
Sports Internet Sports All
Paintball Events Commerce Memorabilia Others(a) Totals
---------- ------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
May 31, 2000
------------
Revenues $2,862,266 $ - $ 3,559 $467,033 $ - $ 3,332,858
Interest expense 14,574 - - 5,605 - 20,179
Depreciation 15,999 - 26,824 6,489 4,909 54,221
Amortization 21,067 - - - - 21,067
Segment loss (314,770) - (1,721,142) (257,845) (339,668) (2,633,425)
Segment assets 834,259 - 174,304 371,357 - 1,379,920
May 31, 2000
------------
Revenues $ 228,613 $ - $ - $542,003 $ - $ 770,616
Interest expense 12,874 - - 65,529 - 78,403
Depreciation 10,915 - - 14,713 14,022 39,650
Amortization 10,493 - - - 8,161 18,654
Segment loss (114,357) (8,230) (120,501) (245,521) (130,997) (619,606)
Segment assets 177,293 - 60,048 302,132 230,484 769,967
</TABLE>
(a) Includes amounts not allocated to operating segments.
NOTE P - RECOVERABILITY OF ASSETS AND GOING CONCERN
These financial statements are presented on the basis that the Company is a
going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The accompanying financial statements show that current
liabilities exceed current assets by $1,007,715 at May 31, 2000 and that the
Company has incurred net operating losses since inception.
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. On April 10, 2000 the Company filed a
registration statement on Form S-1 with the Securities and Exchange
Commission. The registration statement was declared effective by the
Commission on April 28, 2000, which allows the Company to exercise its rights
under the agreement (See Note S). However, the Company can make no assurances
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.
F-16
<PAGE>
NOTE Q - CONCENTRATION OF RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of trade accounts receivable. The Company
generates approximately 60% of its sports memorabilia sales to one
organization. At May 31, 2000, the accounts receivable from this organization
represents approximately 28% of the Company's total accounts receivable.
NOTE R - INCOME TAXES
No provision for federal and state income taxes has been recorded because the
Company has incurred net operating losses since inception. The Company's net
operating loss carry-forward as of May 31, 2000 totals approximately $2.3
million. These carry-forwards will be available to offset future taxable
income and expire, beginning in 2010. The Company does 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 carry forward has been fully reserved.
NOTE S - PRIVATE EQUITY LINE
The Company entered into an agreement for a Private Equity Line of Common
Stock pursuant to Regulation D with Swartz Private Equity, LLC for $30 million
with a $20 million option commencing on the effective date of a Registration
Statement covering the Put shares and ending thirty-six (36) months
thereafter. Swartz shall purchase eCom Common Stock at a per share purchase
price equal to 92% of the "Market Price" in effect on the date of sale to
Swartz, subject to a Floor Price specified by eCom. The sale to Swartz shall
occur, on dates during the Purchase Period specified by Swartz, during the 20
business days following each Put Notice (the purchase period). eCom, at its
option, may select a Floor Price for any specified Put below which eCom will
not sell shares to Swartz under that Put.
The dollar amount sold to Swartz in each Put, may be up to $10 million but
shall not exceed 15% of the aggregate dollar volume of the Common Stock traded
on the company's primary exchange during the 20 day Purchase period beginning
on the business day following the Put Date for such Put, excluding any days
where 92% of the low trade price would be less than the Floor Price, unless
otherwise agreed by Swartz; provided that the Purchase Period shall be
extended by one business day for each Excluded Day, up to a maximum extension
of 5 business days.
For each Put, Swartz shall receive an amount of warrants equal to 8% of the
number of shares purchased under the Equity Line at an Exercise Price equal to
110% of the Closing Bid Price on the Put Date. Warrants shall have piggyback
registration rights and reset provisions.
As compensation to enter in to the Equity Line Commitment, Swartz shall
receive a warrant convertible into 490,000 shares of eCom Common Stock. The
Commitment Warrants' exercise price shall equal the average closing bid price
for the 5 trading days prior to execution of this Equity Line Letter of
Intent. Warrants shall have a 5-year term, piggyback registration rights and
reset provisions.
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
eCom eCom.com, inc.
September 13, 2000 By /s/ David J. Panaia
David J. Panaia, Chairman and Treasurer
September 13, 2000 By /s/ Charles W. Hansen, III
Charles W. Hansen, III, Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
eCom eCom.com, inc.
September 13, 2000 By /s/ David J. Panaia
David J. Panaia, Director
September 13, 2000 By /s/ Thomas DeRita
Thomas DeRita, Jr., Director
September 13, 2000 By /s/ Elling J. Myklebust
Elling J. Myklebust, Director
