U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number O-28690
SHOPNET.COM, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 13-3871821
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
</TABLE>
14 East 60th Street, Suite 402, New York, New York 10022
------------------------------------------------------------------
(Address of Principal Executive Offices)
(212) 688-9223
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address, and Former Fiscal Year,
if Changed Since Last Report)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date: Common Stock, $.001 par value:
5,372,971 shares outstanding as of November 18, 1999.
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets at September 30, 1999 (unaudited) and December 31, 1998. 3
Consolidated Statements of Operations (unaudited) for the
Three and Nine Months Ended September 30, 1999 4-5 1998. 4-5
Consolidated Statement of Stockholders' Equity (unaudited)
for the Nine Months Ended September 30, 1999. 6
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended September 30, 1999 and 1998. 7
Notes to Consolidated Financial Statements. 8-14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15-21
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 22
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 22
Item 3. DEFAULTS UPON SENIOR SECURITIES 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
Item 5. OTHER INFORMATION 22
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 22
Signatures 23
</TABLE>
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
Current assets:
<S> <C> <C>
Cash ....................................................................... $ 260,338 $ 159,526
Cash - restricted .......................................................... 1,150,000 1,150,000
Accounts receivable ........................................................ 11,600 53,228
Prepaid expenses ........................................................... 139,384 52,668
Inventory .................................................................. 1,459,072 2,663,003
Advances to officer ........................................................ 18,000 18,000
Deferred tax asset ......................................................... 55,000 55,000
----------- -----------
Total current assets ....................................................... 3,093,394 4,151,425
----------- -----------
Furniture, computer equipment and leasehold improvements, net .................. 74,865 78,875
----------- -----------
Advances to officer - non-current portion ...................................... 22,000 22,000
Film production and distribution costs, net .................................... 1,901,881 1,901,222
Organizational costs, net ...................................................... 31,250 50,000
Costs in excess of net assets of business acquired, net ........................ 851,427 904,641
Investments in joint venture and affiliate ..................................... 212,500 1,177,270
Deferred tax asset-non current ................................................. 173,658 173,658
Other assets ................................................................... 20,135 20,635
----------- -----------
Total assets ................................................................... $ 6,381,110 $ 8,479,726
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ...................................... $ 502,497 $ 610,406
Due to factor .............................................................. 1,509,333 2,063,554
Capital lease obligations .................................................. 11,996 13,589
Due to affiliate ........................................................... 250,000
Deferred tax liability ..................................................... 50,159 50,159
----------- -----------
Total current liabilities ............................................. 2,323,985 2,737,708
----------- -----------
Capital lease obligations, net of current portion .......................... 37,988 43,683
----------- -----------
Total liabilities .............................................................. 2,361,973 2,781,391
----------- -----------
Commitments and contingencies (Note 6) ......................................... -- --
Stockholders' equity:
Common stock - $.001 par value, 20,000,000 shares authorized,
5,372,971 shares issued and outstanding ................................... 5,374 5,374
Additional paid-in capital ................................................. 6,319,666 6,307,416
Accumulated deficit ........................................................ (2,305,903) (614,455)
----------- -----------
Total stockholders' equity ............................................ 4,019,137 5,698,335
----------- -----------
Total liabilities and stockholders' equity ..................................... $ 6,381,110 $ 8,479,726
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
----------- -------------
<S> <C> <C>
Net sales ............................................................ $ 72,604 $ --
Cost of sales ........................................................ 49,016 --
----------- -----------
Gross profit ......................................................... 23,588 --
----------- -----------
Expenses:
Selling, general and administrative expenses ..................... 500,274 632,572
Amortization of costs in excess of net assets of business acquired 17,738 17,738
----------- -----------
Total expenses ....................................................... 518,012 650,310
----------- -----------
(Loss) before other income (expense)
and provision for income taxes ...................................... (494,424) (650,310)
----------- -----------
Other income (expense):
Equity in loss of affiliate ...................................... (121,733) --
Rental income .................................................... 3,700 --
Interest and finance expense ..................................... (38,733) (25,404)
Interes income 13,806 24,623
----------- -----------
Total other income (expense) ................................ (142,960) (781)
----------- -----------
(Loss) before provision for
income taxes ........................................................ (637,384) (651,091)
(Benefit) for income taxes ........................................... -- --
----------- -----------
Net (Loss) ........................................................... $ (637,384) $ (651,091)
=========== ===========
Basic:
Net (Loss) ....................................................... $ (.12) $ (.12)
=========== ===========
Weighted average number of
common shares outstanding ........................................... 5,372,971 5,372,971
=========== ===========
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998
------------------- ---------------------
<S> <C> <C>
Net sales $ 3,687,691 $ 4,092,491
Cost of sales 2,624,367 2,646,279
------------------- --------------------
Gross profit 1,063,324 1,446,212
------------------- --------------------
Expenses:
Selling, general and administrative expenses 1,587,368 1,856,237
Amortization of costs in excess of net assets of business acquired 53,214 53,214
------------------- --------------------
Total expenses 1,640,582 1,909,451
------------------- --------------------
(Loss) before other income (expense)
and provision for income taxes (577,258) (463,239)
-------------------- ---------------------
Other income (expense):
Equity in loss of affiliate (994,305) -
Rental income 8,200 -
Cancellation of stock issued in lieu of compensation - 62,500
Interest and finance expense (170,139) (216,286)
Interest income 42,054 71,236
------------------- --------------------
Total other income (expense) (1,114,190) (82,550)
-------------------- ---------------------
(Loss) before provision for
income taxes (1,691,448) (545,789)
Provision for income taxes - (19,200)
------------------- ---------------------
Net (Loss) $ (1,691,448) $ (564,989)
==================== =====================
Basic:
Net (Loss) $ (.31) $ (.12)
=================== ==================
Weighted average number of
common shares outstanding 5,372,971 4,855,368
=================== ====================
</TABLE>
See notes to consolidated financial statements (unaudited).
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1998 5,372,971 $ 5,374 $ 6,307,416 $ (614,455) $ 5,698,335
Issuance of Stock Options - - 12,250 - 12,250
Net Loss for the nine months
ended September 30, 1999 - - - (1,691,448) (1,691,448)
------------- ------------- ------------- -------------- --------------
Balances at September 30, 1999 5,372,971 $ 5,374 $ 6,319,666 $ (2,305,903) $ 4,019,137
============= ============= ============= ============== =============
</TABLE>
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 1 ORGANIZATION
Shopnet.com, Inc. (the "Company") was incorporated in
the State of Delaware on December 1, 1995 under the name of
Hollywood Productions, Inc. On May 10, 1999, the Company
filed an amendment to its Articles of Incorporation to
change its name to Shopnet.com, Inc. In accordance with the
name change, the Company also changed its Nasdaq symbols
from "FILM" and "FILMW" to "SPNT" and "SPNTW," respectively.
On May 12, 1999, the Company incorporated a wholly-owned
subsidiary, Hollywood Productions, Inc., to which the
Company shall assign its film production business and act,
thereafter, as a holding company. The accompanying unaudited
financial statements include the accounts of the Company and
its wholly-owned subsidiaries (herein referred to as the
"Company" except where otherwise required for clarity),
Breaking Waves, Inc. ("Breaking Waves") and (newly formed)
Hollywood Productions, Inc. ("Hollywood"), after elimination
of all significant intercompany transactions and accounts.
The Company, directly and through Breaking Waves, has
investments in a joint venture and an affiliate which are
accounted for under the equity method.
The accompanying unaudited financial statements have
been prepared in accordance with generally accepted
accounting principles for interim financial information and
with instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete
financial statements. In the opinion of management, the
interim financial statements include all adjustments
necessary in order to make the financial statements not
misleading. The results of operations for the nine months
ended are not necessarily indicative of the results to be
expected for the full year. For further information, refer
to the Company's audited financial statements and footnotes
thereto at December 31, 1998, included in the Company's
Annual Report on Form 10-KSB as filed with the Securities
and Exchange Commission.
NOTE 2 ACQUISITION OF BREAKING WAVES, INC.
Pursuant to a stock purchase agreement dated May 31,
1996 (the "Agreement"), on September 24, 1996, the Company
issued 100,000 shares of Common Stock in exchange for all of
the issued and outstanding capital stock of Breaking Waves.
The transaction was accounted for using the purchase method
of accounting. As a result of the transaction, excess of
cost over net assets acquired, totaling $1,064,283, was
recorded and is being amortized over the useful lives of the
related assets, which is fifteen years. Amortization expense
totaled $17,738 for the three months ended September 30,
1999 and 1998, respectively.
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 3 INVESTMENT IN JOINT VENTURE AND AFFILIATE
a) Investment in Joint Venture
Pursuant to a co-production agreement dated April 17,
1998, the Company has invested $212,500 through September
30, 1999 for a 50% interest in Battle Studies Productions,
LLC ("Battle Studies") a limited liability company. North
Folk Films, Inc. ("NFF"), an unrelated party, also invested
a total of $212,500 for the remaining 50% interest in Battle
Studies. Battle Studies will be treated as a joint venture
in order to co-produce motion pictures and to finance the
costs of production and distribution of such motion
pictures. The joint venture retains all rights to the motion
pictures, the screenplays, and all ancillary rights attached
thereto. As of September 30, 1999, Battle Studies had
completed filming its first motion picture which is expected
to be shown at film festivals.
The Company accounts for the investment in Battle
Studies on the equity method. Accordingly, as of September
30, 1999, the Company only recorded its initial $212,500
investment in the joint venture since no operations have yet
commenced.
b) Investment in Affiliate
On November 24, 1998, pursuant to a sales agreement
(the "Sales Agreement") entered into during September 1998
by and between Breaking Waves and Play Co. Toys &
Entertainment Corp. ("Play Co.," a toy retailer and publicly
traded company whose Chairman of the Board is also the
President of the Company and Breaking Waves), Breaking Waves
purchased 1,400,000 unregistered shares of Play Co. common
stock, representing 25.4% of the then issued and outstanding
common stock, for a total of $504,000 comprised of $300,000
in cash and by shipping $204,000 of merchandise to Play Co.
As of September 30, 1999, as a result of Play Co.'s issuance
of additional common stock, Breaking Waves' percentage was
reduced to 25.2%.
Breaking Waves accounts for its investment under the
equity method. For the three months ended September 30,
1999, Breaking Waves recorded $121,733 and $-0- respectively
of equity loss for its proportionate share in Play Co.'s
loss.
Play Co.'s operations are highly seasonal with
approximately 30-40% of its sales historically falling
within the last three months of the calendar year.
<PAGE>
NOTE 4 DUE TO FACTOR
On August 20, 1997, Breaking Waves entered into a
factoring and revolving inventory loan and security
agreement (as amended December 9, 1998) with Heller
Financial, Inc. ("Heller") to sell its interest in all
present and future receivables without recourse. Breaking
Waves submits all sales offers to Heller for credit approval
prior to shipment, and pays Heller a factoring commission of
0.85% of the first $5,000,000 of receivables sold and 0.65%
of receivables sold in excess of $5,000,000 for each year.
Heller retains from the amount payable to Breaking Waves a
reserve for possible obligations such as customer disputes
and possible credit losses on unapproved receivables.
Breaking Waves may take advances of up to 85% of the
receivable, with interest at the rate of 1 3/4% over prime.
NOTE 4 DUE TO FACTOR (continued)
In connection with the factoring agreement, the Company
agreed to maintain $1,150,000 of cash in a segregated
account in order to collateralize standby letters of credit.
Interest expense related to this agreement totaled $38,733
and $25,404, respectively, for the three months ended
September 30, 1999 and 1998. Heller has a continuing
interest in Breaking Wave's inventory as collateral for the
advances. As of September 30, 1999, the net advances to
Breaking Waves from the factor amounted to $1,509,333.
NOTE 5 CAPITAL LEASE OBLIGATIONS
During 1998, the Company acquired computer equipment
and proprietary software for its subsidiary, Breaking Waves,
pursuant to the following terms and conditions:
a) On August 13, 1998, the Company acquired various
computer and related components for $28,583 by entering into
a capital lease obligation with interest at approximately
9.2% per annum, requiring 48 monthly payments of principal
and interest of $713. The lease is secured by the related
computer equipment.
b) On September 13, 1998, the Company acquired
proprietary software for $32,923 by entering into a capital
lease obligation with interest at approximately 10.9% per
annum, requiring 48 monthly payments of principal and
interest of $850. The lease is secured by the related
software.
At December 31, 1998, the aggregate future minimum
lease payments due pursuant to the above capital lease
obligations are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
<S> <C>
1999 $ 10,619
2000 18,757
2001 18,757
2002 13,355
-----------------
Total minimal lease payments 61,488
Less: amounting representing interest 9,698
Present value of net minimum lease payments $ 51,790
=========
</TABLE>
At December 31, 1998, equipment and software under
capital leases is carried at a book value of $59,115.
<PAGE>
SHOPNET.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
NOTE 6 COMMITMENTS AND CONTINGENCIES
a) Lease commitments
The Company and Breaking Waves have entered into lease
agreements for administrative offices. The Company leases
its administrative office pursuant to a 5 year lease
expiring November 30, 2001 at a base annual rent amounting
to approximately $70,000. Breaking Waves leased
administrative offices through approximately January 1998
pursuant to a lease requiring annual payments of
approximately $64,000. Breaking Waves cancelled such lease
and simultaneously entered into a new lease for additional
space with the same landlord requiring annual payments of
$71,600 expiring December 2004. Lastly, Breaking Waves
leases an offsite office for one of its designers on a month
to month basis with annual payments approximating $11,000.
The Company's and Breaking Waves' approximate future
minimum rentals under non-cancelable operating leases in
effect on September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
<S> <C> <C>
1999 $ 141,257
2000 141,257
2001 135,452
2002 71,600
2003 71,600
Thereafter 71,600
-----------------
$ 632,766
===================
</TABLE>
Rent expense for the three months ended September 30,
1999 and 1998 amounted to approximately $40,761 and $37,421
respectively.
b) Significant vendors and customers
Breaking Waves purchases approximately 90% of its
inventory from two vendors in Indonesia. For the three
months ended September 30, 1999, Breaking Waves had one
customer which comprised 87% of net sales.
c) Seasonality
Breaking Waves' business is considered seasonal with a
large portion of its revenues and profits being derived
between November and March. Each year from April through
October, Breaking Waves engages in the process of designing
and manufacturing the following season's swimwear lines,
during which time its incurs the majority of its production
costs with limited revenues.
<PAGE>
NOTE 6 COMMITMENTS AND CONTINGENCIES (continued)
d) License agreements
i) On October 16, 1995, Breaking Waves entered into a
license agreement with Beach Patrol, Inc. ("Beach") for the
exclusive use of certain trademarks in the United States.
The agreement covered a term of January 1, 1996 to June 30,
1998 and contained a provision for an additional three year
extension, at the option of Breaking Waves, through and
until June 30, 2001. Breaking Waves has exercised this
option, thereby so extending the agreement. The agreement
calls for minimum annual royalties of $75,000 to $200,000
over the life of the agreement with options based on sales
levels from $1,000,000 for the first year to $4,000,000 in
the sixth year. The Company recorded royalties and
advertising under this agreement totaling $43,750 and
$37,500 during the three months ended September 30, 1999 and
1998, respectively.
ii) On October 31, 1996, Breaking Waves entered into a
license agreement with North-South Books, Inc. ("N-S") for
the exclusive use of certain art work and text in the making
of swimsuits and accessories in the United States and
Canada. The agreement expired on March 1, 1999. The Company
did not record any royalties under this agreement during the
three months ended September 30, 1999 and 1998.
iii)On October 17, 1997, Breaking Waves entered into a
license agreement with Kawasaki Motors Corp., U.S.A. ("KMC")
with an effective date of July 1, 1997 for the exclusive use
of certain trademarks in the making of swimwear in the
United States. The fee for the exclusive use of certain
trademarks is five percent (5%) of net sales. The agreement
expired on May 31, 1999. The Company did not record any
royalties under this agreement during the three months ended
September 30, 1999 and 1998.
e) Co-production and property purchase agreements
Pursuant to co-production and property purchase
agreements dated March 15, 1996, as amended, the Company
acquired the rights to co-produce a motion picture and to
finance the costs of production and distribution of such
motion picture with the co-producer agreeing to finance
$100,000 of the costs of production. The Company retains all
rights to the motion picture, the screenplay, and all
ancillary rights attached thereto. The motion picture was
completed during the latter part of 1996 and, accordingly,
the Company commenced the marketing and distribution
process.
As of September 30, 1999, the Company invested
$2,065,273 for the co-production and distribution of such
motion picture whereas the co-producers have invested
$100,000. For the three months ended September 30, 1999 and
1998, no revenue associated with the motion picture was
generated.
<PAGE>
NOTE 6 COMMITMENTS AND CONTINGENCIES (continued)
f) Employment agreements
On November 27, 1996, the Company entered into two
employment agreements (as amended) with two key employees of
Breaking Waves. Such employees are responsible for the
designing, marketing and sales of Breaking Waves. The
employment agreements are for a term of three years with
annual salaries of $60,000 and $130,000 for 1998 (as
amended), respectively, and for $110,000 each for 1997. One
of the employment agreements was further amended effective
January 1, 1999 with an annual salary increase from $60,000
to $70,000. In addition to the salaries, the Company agreed
to issue on each of November 27, 1996, 1997, and 1998,
shares of common stock in the amount equal to the fair
market value of $25,000 (before amendment) on the date of
each issuance, to each employee subject to a vesting
schedule. In connection with the decrease in salary from
originally $110,000 per year to $70,000 per year for one of
the key employees, the Company reduced the value of shares
to be issued thereof to $13,636 for 1998. Such common stock
has not yet been issued.
g) Year 2000
The Company has addressed and will continue to address
the year 2000 issue to ensure the reliability of its
operational system. The Company has made and will continue
to make certain investments in its software systems and
applications to ensure that it is Year 2000 compliant. These
expenditures, which are expensed as incurred, are not
expected to be material. The Company is also working with
its suppliers and customers to ensure their compliance with
Year 2000 issues in order to avoid any interruptions in its
business.
NOTE 7 RELATED PARTIES TRANSACTIONS
a) For the three months ended September 30, 1999 and
1998, $12,000 and $12,000, respectively of financial
consulting fees were paid to an affiliate of the Company's
President.
b) During October 1996, pursuant to two promissory
notes, the Company loaned two of its officers a total of
$87,000 bearing interest at six and one-half percent (6
1/2%) payable over three years. During January 1997, the
balance of one of the notes amounting to $30,130 was
forgiven as part of a severance package for a previous
officer. As of September 30, 1999, the remaining note
amounted to $37,000, of which $15,000 has been classified as
current and $22,000 classified as non-current.
As of September 30, 1999, the Company's President was
advanced additional funds totaling $3,000 which are
non-interest bearing and due on demand and are classified as
current.
c) During April 1999, the Company granted its President
and Vice President approximately 50,000 stock options. The
options are exercisable at 85% of the closing bid price on
April 16, 1999. In accordance with such grant of options,
the Company recorded $12,250 as compensation expense.
<PAGE>
NOTE 7 RELATED PARTIES TRANSACTIONS (continued)
d) During the quarter ended September 30, 1999,
pursuant to a promissory note, Shopnet borrowed a total of
$50,000 from Play Co. at an interest rate of 9 % per annum.
Such note is due March 29, 2000. During the quarter ended
September 30, 1999, pursuant to a promissory note, Breaking
Waves borrowed a total of $200,000 from Play Co. at an
interest rate of 9 % per annum. Such note is due March 29,
2000.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
*CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Statements contained in this report which are not historical facts may be
considered forward looking information with respect to plans, projections, or
future performance of the Company as defined under the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. The words "anticipate," "believe," "estimate," "expect,"
"objective," and "think" or similar expressions used herein are intended to
identify forward-looking statements. The forward-looking statements are based on
the Company's current views and assumptions and involve risks and uncertainties
that include, among other things, the effects of the Company's business, actions
of competitors, changes in laws and regulations, including accounting standards,
employee relations, customer demand, prices of purchased raw material and parts,
domestic economic conditions, including housing starts and changes in consumer
disposable income, and foreign economic conditions, including currency rate
fluctuations. Some or all of the facts are beyond the Company's control.
General
Shopnet.com, Inc. ("Shopnet") was incorporated in the State of Delaware on
December 1, 1995 as Hollywood Productions, Inc. On May 10, 1999, the Company
filed an amendment to its Articles of Incorporation effecting a change in its
name to its current one. On May 12, 1999, Shopnet incorporated a wholly-owned
subsidiary, Hollywood Productions, Inc. ("Hollywood"), to which it assigned its
film production business thereby rendering Shopnet a holding company for
Hollywood and another wholly-owned subsidiary, Breaking Waves, Inc. ("Breaking
Waves"). Shopnet and its subsidiaries are referred to hereinafter as the
"Company" except where otherwise required for clarity. Shopnet was formed
initially for the purpose of acquiring screen plays and producing motion
pictures. In September 1996, in connection with the completion of its Initial
Public Offering ("IPO"), it acquired all of the capital stock of Breaking Waves.
Breaking Waves designs, manufactures, and distributes private and brand name
label children's swimwear.
The consolidated financial statements at September 30, 1999 include the
accounts of Shopnet and its subsidiaries, Breaking Waves and Hollywood (herein
referred to as the "Companies"), after elimination of all significant
intercompany transactions and accounts. As of September 30, 1999, the
consolidated financial statements include the accounts of Shopnet and Breaking
Waves.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related footnotes which provide
additional information concerning the Company's financial activities and
condition. Since Shopnet and its subsidiaries operate in different industries,
the discussion and analysis is presented by segment in order to be more
meaningful. During the quarters ended June 30 and September 30, 1999, Hollywood
pursued various avenues in marketing its Dirty Laundry and Machiavelli Rises
motion pictures.
Three months ended September 30, 1999 as compared to the three months ended
Sept. 30, 1998
<PAGE>
Breaking Waves
For the three months ended September 30, 1999 and 1998, Breaking Waves
generated net sales of $72,604 and $-0-, respectively, with a cost of sales
amounting to $49,016 and $-0-, respectively. The gross profit for the three
months ended September 30, 1999 amounted to $23,588, or 32%.
Total expenses during the three months ended September 30, 1999 and 1998
amounted to $344,011 and $528,357, respectively which represents a decrease of
$184,346, or approximately 34%.
The decrease in expenses is primarily attributable to Breaking Waves'
discontinuation of its Jet Ski line in the latter part of 1998.
Breaking Waves acquired, in November 1998, an approximate 25% interest in
Play Co. Toys & Entertainment Corp. ("Play Co.") by paying $300,000 in cash and
by shipping $204,000 in merchandise. In connection with the $504,000 investment
in Play Co., then representing 25.4% ownership thereof, Breaking Waves
recognized $121,733 of equity loss in Play Co. for the quarter ended September
30, 1999. Play Co.'s operations are highly seasonal with approximately 30-40% of
its net sales historically falling within the last three months of the calendar
year. As a result of Play Co.'s issuance of additional common stock, Breaking
Waves' percentage was reduced to 25.2%.
Interest expense in connection with its factoring agreement amounted to
$38,733 and $25,404 for the three months ended September 30, 1999 and 1998
respectively.
Breaking Waves generated a net loss of $481,901 inclusive of a $121,733
equity loss pick up from Play Co. for the three months ended September 30, 1999.
Shopnet.com
For the three months ended September 30, 1999 and 1998, Shopnet generated
minimal revenue comprised of interest from its money market and minimal sublet
rental income from its corporate office. In addition, its newly formed
wholly-owned subsidiary, Hollywood, did not generate any motion picture revenue,
although it expects to generate revenue within the next twelve months.
The Company's total selling, general, and administrative expense amounted
to approximately $174,001 and $121,953 for the three months ended September 30,
1999 and 1998, respectively. The increase in expenses amounting to $52,048 is
primarily attributable to additional consulting fees, travel and entertainment,
general office expenses, rent, and advertising.
Nine months ended September 30, 1999 as compared to the nine months ended
Sept. 30, 1998
<PAGE>
Breaking Waves
For the nine months ended September 30, 1999 and 1998, Breaking Waves
generated net sales of $3,687,691 and $3,972,280, respectively, with a cost of
sales amounting to $2,624,367 and $2,524,253, respectively. The gross profit for
the nine months ended September 30, 1999 amounted to $1,063,324, or 29%, as
compared to the nine months ended September 30, 1998 during which it amounted to
$1,448,027, or 36%. Sales for the nine months ended September 30, 1999 decreased
by $284,589 when compared to the nine months ended September 30, 1998. The
decrease in sales is primarily a result in the timing of orders by customers
between periods.
The decrease in gross profit of approximately 7% is primarily a result of
Breaking Waves' sale of its discontinued Jet Ski line at cost or slightly below
cost in order to make room for new merchandise.
Total expenses during the nine months ended September 30, 1999 and 1998
amounted to $1,145,510 and $1,535,089 respectively. The decrease in Breaking
Waves' expenses, amounting to approximately $389,579, is directly associated
with Breaking Waves' discontinuation of its Jet Ski line during the latter part
of 1998.
Breaking Waves acquired, in November 1998, an approximate 25% interest in
Play Co. by paying $300,000 in cash and by shipping $204,000 in merchandise. In
connection with the $504,000 investment in Play Co., then representing 25.4%
ownership thereof, Breaking Waves recognized $994,305 of equity loss in Play Co.
for the nine months ended September 30, 1999. Play Co.'s operations are highly
seasonal with approximately 30-40% of its net sales historically falling within
the last three months of the calendar year. As a result of Play Co.'s issuance
of additional common stock, Breaking Waves' percentage was reduced to 25.2%.
Interest expense in connection with its factoring agreement amounted to
$170,139 and $216,218 for the nine months ended September 30, 1999 and 1998
respectively.
Breaking Waves generated a net loss of $1,247,430 and $114,996
respectively, for the nine months ended September 30, 1999 and 1998. The
increase in loss amounting to approximately $1,132,434 is primarily a result of
the $999,305 equity loss pick up from Play Co.'s investment along with the
decrease in sales and related gross profits.
<PAGE>
Shopnet.com
For the nine months ended September 30, 1999 and 1998, the Company
generated sales from its motion picture "Dirty Laundry" amounting to $0 and
$120,000, respectively. Although sales have been minimal since completion of the
motion picture, the Company expects an increase in sales within the next twelve
months, and thereafter, as a result of a potential new television, video, and
cable television sales agreement.
Shopnet's total expense amounted to $495,072 and $374,361 for the nine
months ended September 30, 1999 and 1998, respectively.
The increase in expenses amounting to $120,711 is primarily attributable to
travel & entertainment, advertising, rent, general office expenses, and
consulting expenses.
The Company generated a consolidated net loss of $1,691,448 for the nine
months ended September 30,1999 after recording a $994,305 loss in Play Co's
operations. The Company generated a consolidated net loss of $564,989 for the
nine months ended September 30, 1998.
Liquidity and Capital Resources
At September 30, 1999, the Companies have a consolidated working capital
amounting to $769,409. The Companies anticipate that their current available
cash will be sufficient for the next twelve months, and they do not anticipate
any cash shortfalls.
The Company considers highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents. Included in cash
are certificates of deposit of approximately $1,159,000. The Company maintains
cash deposits in accounts which are in excess of Federal Deposit Insurance
Corporation limits by approximately $1,059,000. The Company believes that such
risk is minimal. The Company maintains a letter of credit with a financial
institution as a condition of its factoring agreement. The financial institution
requires the Company to maintain $1,150,000 on deposit as collateral for the
letter of credit. Accordingly, such cash is designated as restricted.
Investment in Joint Venture
Pursuant to a co-production agreement dated April 17, 1998, the Company has
invested $212,500 through September 30, 1999 for a 50% interest in Battle
Studies Productions, LLC ("Battle Studies") a limited liability company. North
Folk Films, Inc. ("NFF"), an unrelated party, also invested a total of $212,500
for the remaining 50% interest in Battle Studies. Battle Studies will be treated
as a joint venture in order to co-produce motion pictures and to finance the
costs of production and distribution of such motion pictures. The joint venture
retains all rights to the motion pictures, the screenplays, and all ancillary
rights attached thereto. As of September 30, 1999, Battle Studies had completed
filming its first motion picture which has been and is expected to continue to
be shown at film festivals.
The Company accounts for the investment in Battle Studies on the equity
method. Accordingly, as of June 30, 1999, the Company only recorded its initial
$212,500 investment in the joint venture since no operations have yet commenced.
<PAGE>
Factoring Arrangements
On August 20, 1997, Breaking Waves entered into a factoring and revolving
inventory loan and security agreement (which was subsequently amended in
December 1998) with Heller Financial, Inc. ("Heller") pursuant to which Heller
agreed to (i) purchase all of Breaking Waves' accounts receivables, (ii) provide
advances against such accounts receivables, (iii) provide a revolving loan, and
(iv) guarantee letters of credit in excess of $1,500,000 as well as provide
certain other services. The Company is a guarantor of Breaking Waves'
obligations to Heller. The Company maintains a letter of credit with a financial
institution in support of and as a condition to its factoring agreement. The
financial institution requires the Company to maintain $1,150,000 on deposit as
collateral for such letter of credit. Breaking Waves may take advances of up to
85% of the purchase price of its eligible accounts receivable.
The factoring agreement provides (i) factoring commissions of (a) 0.85% on
the first $5 million in accounts sold and assigned to Heller during each year
and (b) 0.65% on all accounts in excess of $5 million sold and assigned to
Heller during each year, but in no event less than $3 per invoice; and (ii) on
accounts bearing terms greater than 90 days, an increase in commission by 0.25%
for each 30 days or part thereof that the terms exceed 60 days. Heller has a
continuing interest in Breaking Wave s inventory as collateral for the advances.
As of September 30, 1999, the net advances to Breaking Waves from the factor
amounted to $1,509,333.
Capital Lease Obligations
During 1998, Shopnet acquired computer equipment and proprietary software
for its subsidiary, Breaking Waves, pursuant to the terms and conditions set
forth herein.
On August 13, 1998, the Company acquired various computer and related
components for $28,583 by entering into a capital lease obligation with interest
at approximately 9.2% per annum, requiring 48 monthly payments of principal and
interest of $713. The lease is secured by the related computer equipment.
On September 13, 1998, the Company acquired proprietary software for
$32,923 by entering into a capital lease obligation with interest at
approximately 10.9% per annum, requiring 48 monthly payments of principal and
interest of $850. The lease is secured by the related software.
Lease Commitments
Shopnet and Breaking Waves have entered into lease agreements for
administrative offices. The Company leases its administrative office pursuant to
a 5 year lease expiring November 30, 2001 at a base annual rent amounting to
approximately $70,000. Breaking Waves leased administrative offices through
approximately January 1998 pursuant to a lease requiring annual payments of
approximately $64,000. Breaking Waves amended such lease and rented additional
space at an annual rental of $71,600 expiring December 2004. Breaking Waves also
leases an offsite office for one of its designers on a month to month basis with
annual payments approximating $11,000.
<PAGE>
License Agreements
On October 16, 1995, Breaking Waves entered into a license agreement with
Beach Patrol, Inc. ("Beach") to use the trademark "Daffy Waterwear" ("Daffy").
Beach supplies prints and designs used under this agreement for the Daffy line.
Pursuant to the licensing agreement, Breaking Waves was given the right to use
those designs for a children's line under the "Daffy Waterwear" label from
January 1, 1996 to June 30, 1998. Thereafter, the agreement provided for a three
year extension, at the option of Breaking Waves, through and until June 30,
2001. Breaking Waves has exercised this option, thereby so extending the
agreement. For its right to use the trademark, Breaking Waves agreed to pay
Beach, subject to certain variables, the greater of 5% of net sales or as
follows: (i) during the first six months, an aggregate of $75,000, (ii) during
the next twelve months, an aggregate of $85,000, (iii) during the final twelve
months, an aggregate of $100,000, and (iv) during each of the final three years
of the agreement, an aggregate of $150,000, $175,000, and $200,000,
respectively.
Breaking Waves is currently negotiating a second agreement with Beach for
the marketing and manufacturing of girls' swimwear under the "Esprit for Girls"
label. Breaking Waves expects to execute the agreement by calendar year end.
On October 31, 1996, Breaking Waves entered into a license agreement with
North-South Books, Inc. ("N-S") for the exclusive use of certain art work and
text in the making of swimsuits and accessories in the United States and Canada.
The agreement expired on March 1, 1999.
Internet Sales
In March 1999, Breaking Waves launched an online wholesale children's
swimwear website at www.breakingwaves.com. The website is designed to complement
the company's wholesale distribution efforts by providing retailers instant
access to more than 200 styles of Breaking Waves swimwear. The entire line of
Breaking Waves swimwear, including products marketed under the "Breaking Waves,"
"All Waves," "Daffy Waterwear," and "Jet Ski" brands, is available for online
purchase by retailers. The Breaking Waves website is being hosted by Mindspring
and incorporates e-commerce features from Cybercash and Mercantec, Inc.
Additionally, a second website was set up (www.smallwavesswimwear.com) which
features discounted styles, closeouts, over-runs, and manufacturers' specials at
highly discounted prices directly to consumers.
Management believes that these websites will fill the needs of existing and
potential customers. Through the Internet, retailers can purchase merchandise
online in a matter of minutes, at their own convenience, instead of having to
wait for a printed wholesale catalog. Management believes that the advantages
and efficiencies created by the websites will assist Breaking Waves in
increasing brand awareness as well as market share. Marketing strategies for
"driving" retailers to the site include co op trade advertisements, tradeshow
exposure, direct mail, and including the site address on all corporate
collateral and product labels.
<PAGE>
Year 2000
The Companies have addressed and will continue to address the year 2000
issue to ensure the reliability of their operational systems. The Companies have
made and will continue to make certain investments in their software systems and
applications to ensure that they are Year 2000 compliant. These expenditures,
which are expensed as incurred, are not expected to be material . The Companies
are also working with their suppliers and customers to ensure their compliance
with Year 2000 issues in order to avoid any interruptions in its business.
Loans to/from Play Co.
Pursuant to certain unsecured promissory notes, the Company loaned a total
of $300,000 to Play Co. between February 1999 and June 1999 bearing interest at
9% per annum. Play Co. agreed to repay such notes with monthly installments by
August 1999. As of June 30, 1999 the notes receivables amounted to $225,000
which as of August 18, 1999 have been fully repaid.
During the quarter ended September 30, 1999, pursuant to a promissory note,
Shopnet borrowed a total of $50,000 from Play Co. at an interest rate of 9% per
annum. Such note is due March 29, 2000. During the quarter ended September 30,
1999, pursuant to a promissory note, Breaking Waves borrowed a total of $200,000
from Play Co. at an interest rate of 9% per annum. Such note is due March 29,
2000.
Stock Options Granted
During April 1999, the Company granted its President and Vice President
approximately 50,000 stock options. The options are exercisable at 85% of the
closing bid price on April 16, 1999. In accordance with the grant of options,
the Company recorded $12,250 as compensation expense.
<PAGE>
PART II
Item 1. Legal Proceedings:
The Company is not a party to any material litigation and is not aware of
any threatened litigation that would have a material adverse effect on its
business. Neither the Company's officers, directors, affiliates, nor owners of
record or beneficially of more than five percent of any class of the Company's
Common Stock is a party to any material proceeding adverse to the Company or has
a material interest in any such proceeding adverse to the Company.
Item 2. Changes in Securities and Use of Proceeds: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are filed herewith:
10.32 Option Agreement - Robb Peck McCooey Clearing Corporation
27.1 Financial Data Schedule
During the quarter ended September 30, 1999, no reports on Form 8-K were filed
with the Securities and Exchange Commission.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 19th day of November 1999.
SHOPNET.COM ,INC.
By: /s/ Harold Rashbaum
Harold Rashbaum
President and Chief Executive Officer
By: /s/ Robert DiMilia
Robert DiMilia
Vice President and Secretary
Exhibit 10.32
Option Agreement
AGREEMENT dated September 1, 1999, between Shopnet.com, Inc. (the
"Company"), a Delaware corporation with its principal offices at 14 East 60th
Street, Suite 402, New York, New York 10022, and Robb Peck McCooey Clearing
Corporation ("Optionee"), a Delaware corporation having its principal place of
business at .
R E C I T A L S
WHEREAS, Optionee has been retained as a consultant to the Company pursuant
to the terms and conditions of a consulting agreement (the "Consulting
Agreement") dated as of the date hereof, with respect to services commenced as
of the date hereof; and
WHEREAS, the Company has agreed to issue to Optionee and/or such
designee(s) as Optionee authorizes, an option (the "Option"), exercisable until
August 31, 2000, to purchase an aggregate of 400,000 shares of the Company's
common stock (the "Common Stock"), par value $0.001 per share, as follows:
100,000 shares at an exercise price of $2.50; 100,000 shares at an exercise
price at $3.00 per share; 100,000 shares at an exercise price of $3.50 per
share; and 100,000 shares at an exercise price of $4.00 per share.
NOW, THEREFORE, in consideration of the covenants, mutual promises
contained herein, and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties agree as follows:
1. Grant of Option. The Optionee is hereby granted the right to purchase,
until 5:30 p.m., New York time, on August 31, 2000, up to an aggregate of
400,000 shares of the Company's Common Stock as follows: 100,000 shares at an
exercise price of $2.50; 100,000 shares at an exercise price at $3.00 per share;
100,000 shares at an exercise price of $3.50 per share; and 100,000 shares at an
exercise price of $4.00 per share; all as may be adjusted pursuant to Paragraph
10.
2. Option Certificates. The option certificate (the "Option Certificate")
to be delivered pursuant to this Agreement shall be in the form set forth in
Exhibit "A" attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions, and other variations as required or
permitted by this Agreement.
3. Exercise of Option. The Option is exercisable at the exercise prices as
provided in Paragraph 1 above, upon surrender at the Company's principal offices
of the appropriate Option Certificate with a Form of Election to Purchase (in
the form set forth in Exhibit "B" attached hereto and made a part hereof) duly
executed, together with payment of the exercise price in United States currency
or by certified or official bank check, for the shares of Common Stock being
purchased, whereby the Optionee shall be entitled to receive a certificate for
the shares of Common Stock purchased. The purchase rights represented by the
Option Certificate are exercisable at the option of the Optionee thereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all of the shares purchasable under the Option
Certificate, the Company shall cancel the Option Certificate upon the surrender
thereof and shall execute and deliver a new Option Certificate of like tenor for
the balance of the securities purchasable thereunder.
4. Issuance of Certificates. Upon exercise of the Option, the issuance of
the certificates for the Common Stock shall be made forthwith (and in any event
within five (5) business days thereafter) without charge to the Optionee
including, without limitation, any tax which may be payable in respect of the
issuance thereof; however, the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the Optionee, and
the Company shall not be required to issue or deliver such certificates unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
<PAGE>
5. Restriction on Transfer of the Option. The Optionee covenants and agrees
that the shares upon exercise of the Option are being acquired as an investment
and not with a view to the distribution thereof; and that the shares upon
exercise of the Option may not be sold, transferred, assigned, hypothecated, or
otherwise disposed of, in whole or in part, except pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Act") or
pursuant to an exemption therefrom. Optionee may transfer this Option in whole
or part so long as the assignee, prior to any assignment, executes and delivers
to the Company a duly executed agreement whereby the assignee agrees to be bound
by all terms and conditions of this Agreement.
6. Registration.
a. If, during the term of the Option, the Company proposes to register any
of its securities under the Act (other than in connection with a merger or
acquisition), the Company will give written notice by registered mail, at least
thirty (30) days prior to the filing of such registration statement, to Optionee
of its intention to do so. If Optionee notifies the Company within twenty (20)
days after receipt of such notice of Optionee's desire to register its
securities in the proposed registration statement, the Company shall afford
Optionee the opportunity to have the shares registered for resale under same. If
Optionee fails to so notify the Company of its desire to be included in the
registration statement, Optionee waives its right to be included in that
registration statement but does not lose its right to be included in a
subsequent registration statement.
b. Subject to paragraph 6(a), if, during the term of the Option, at least
fifty (50%) percent of the holders identified herein (to wit, Optionee and
Messrs. Rosenblum, Stefansky, Freifeld, and Calicchia) demand registration of
the shares underlying their Option, the Company shall prepare and file the
appropriate registration statement within thirty (30) days of such demand or as
soon thereafter as reasonably practicable.
c. Notwithstanding the provisions of subparagraphs a and b above, the
Company shall have the right at any time to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof if (i) the exercise price is greater than the 30 day
closing average for the Company's Common Stock or (ii) the Company engages an
Underwriter to raise capital for the Company and such Underwriter does not
desire to include the shares underlying the Option in a registration statement
for such raise of capital. In the case of (ii) above the demand right shall be
automatically waived by the Optionee until 90 days after the completion of the
underwritten offering, or the termination of the offering.
d. Prior to the registration (either demand or piggyback) of the shares
underlying the Option, Optionee shall execute and deliver to the Company a
selling securityholder questionnaire and a representation letter. In addition,
the Company and Optionee shall cross indemnify each other against misstatements
and omissions in such registration statement.
7. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon
exercise of the Option; nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock.
8. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance of shares upon exercise of the Option, such number
of shares as are issuable upon exercise of the Option. The Company covenants and
agrees that, upon exercise of the Option, and payment therefor, pursuant to
Paragraph 3 herein, all shares of Common Stock issuable upon such exercise shall
be duly and validly issued, fully paid, and non-assessable and shall not be
subject to the preemptive rights of any stockholder. - 9. Optionee not a
Stockholder. Nothing contained in this Agreement shall be construed as
conferring upon the Optionee the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of Directors or any other matter, or as having any rights whatsoever as
a stockholder of the Company.
<PAGE>
10. Adjustments to the Exercise Price and the Number of Securities.
a. Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the exercise price
shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
b. Adjustment in Number of Securities. Upon each adjustment of the exercise
price pursuant to the provisions of this paragraph, the number of shares of
Common Stock underlying the Option shall be adjusted to the nearest full amount
by multiplying a number equal to the exercise price in effect immediately prior
to such adjustment by the number of shares of Common Stock underlying same
issuable upon exercise of the Option immediately prior to such adjustment and
dividing the product so obtained by the adjusted exercise prices.
c. In case of any consolidation of the Company with, or merger of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding Common Stock), the corporation formed by such consolidation
or merger shall execute and deliver to the Optionee a supplemental option
agreement providing that the Optionee shall have the right thereafter (until the
expiration of such Option) to receive, upon exercise of such Option, the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation or merger, by a holder of the number of shares of Common
Stock of the Company for which such Option might have been exercised immediately
prior to such consolidation or merger. Such supplemental option agreement shall
provide for adjustments which shall be identical to the adjustments provided in
subparagraphs a and b above.
d. No Adjustment of Exercise Price in Certain Cases. No adjustment of the
exercise price shall be made if the amount of such adjustment shall be less than
ten cents ($0.10) per share, provided, however, that in such case, any
adjustment that otherwise would be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least twenty cents ($0.20) per share.
11. Notices. All notices requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered or mailed by registered or certified mail, return receipt requested:
a. If to the registered Optionee, to the address of such Optionee as shown
on the books of the Company; or b. If to the Company, to the address set forth
herein; or c. To such other address as the Company and/or the Optionee may
designate by written notice to the other party.
12. Successors. All the covenants and provisions of this Agreement shall be
binding upon and shall inure to the benefit of the Company, the Optionee, and
their respective successors and assigns hereunder.
13. Termination. This Agreement shall terminate at 5:30 p.m., New York
time, on August 31, 2000.
14. Governing Law: Submission to Jurisdiction. This Agreement and each
Option Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be construed in
accordance with the laws of such State without giving effect to the rules of
said State governing the conflicts of laws. The Company and the Optionee hereby
agree that any action, proceeding, or claim against it arising out of, or
relating in any way to, this Agreement shall be brought and enforced in the
courts of the State of New York or of the United States of America District
Court having jurisdiction over the New York County area, and each party
irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive.
The Company and the Optionee hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon either of the Company or the Optionee (at the option of the party
bringing such action, proceeding, or claim) may be served by transmitting a copy
thereof, by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth herein. Such mailing shall be
deemed personal service and shall be legal and binding upon the party so served
in any action, proceeding, or claim. The Company and the Optionee agree that the
prevailing party in any such action or proceeding shall be entitled to recover
from the other party all of its reasonable legal costs and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
<PAGE>
15. Entire Agreement: Modification. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
16. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
17. Captions. The caption headings of the Paragraphs of this Agreement are
for convenience of reference only and are not intended to be, nor should they be
construed as, a part of this Agreement; accordingly, same shall be given no
substantive effect.
18. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
registered Optionee of the Option Certificate or Common Stock underlying same
any legal or equitable right, remedy, or claim under this Agreement, and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Optionee.
19. Counterparts. This Agreement may be executed in any number of
counterparts, and each of such counterparts shall, for all purposes, be deemed
to be an original, and such counterparts shall, together, constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
Optionee: Company:
Robb Peck McCooey Clearing Corp. Shopnet.com, Inc.
By: By: _______________________
-------------------------------------------
Name: Harold Rashbaum
Title: President
EIN:
</TABLE>
<PAGE>
EXHIBIT "A"
The Option Represented By This Certificate And The Shares Of Common Stock
Issuable Upon Exercise Thereof May Not Be Offered Or Sold Except Pursuant To (I)
An Effective Registration Statement Under The Securities Act Of 1933; (II) To
The Extent Applicable, Rule 144 Under Such Act (Or Any Similar Rule Under Such
Act Relating To The Disposition Of Securities); Or (III) An Opinion Of Counsel,
If Such Opinion Shall Be Reasonably Satisfactory To Counsel For The Issuer, That
An Exemption From Registration Under Such Act Is Available.
The Transfer Or Exchange Of The Option Represented By This Certificate Is
Restricted In Accordance With The Option Agreement Referred To Herein.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, August 31, 2000
OPTION CERTIFICATE
This Option Certificate certifies that Robb Peck McCooey Clearing
Corporation ("Optionee"), or registered assigns, is the registered holder of an
Option to purchase up to fully-paid and non-assessable shares of common stock,
par value $0.001 per share ("Common Stock"), of Shopnet.com, Inc. (the
"Company"), until 5:30 p.m., New York time, on August 31, 2000 (the "Expiration
Date"), at an exercise price of $____ per share, upon surrender of this Option
Certificate and payment of the exercise price at an office or agency of the
Company, but subject to the conditions set forth herein and in the Option
Agreement dated September 1, 1999 between the Company and Optionee. Payment of
the exercise price shall be made by (i) bank or certified check, (ii) promissory
note, or (iii) a combination of (i) and (ii) to the order of the Company,
subject to approval by the Company
No Option may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time the Option evidenced hereby, unless exercised
prior thereto, shall expire and become void.
The Option evidenced by this Option Certificate is granted pursuant to the
Option Agreement, which agreement is hereby incorporated by reference and made a
part of this instrument and is hereby referred to for a description of the
rights, limitation of rights, obligations, duties, and immunities thereunder of
the Optionee.
Upon due presentment for registration of transfer of this Option
Certificate at an office or agency of the Company, a new Option Certificate or
Option Certificates of like tenor and evidencing in the aggregate a like number
of shares of Common Stock underlying the Option shall be issued to the
transferee(s) in exchange for this Option Certificate, subject to the
limitations provided herein and in the Option Agreement, without any charge
except for any tax or other governmental charge imposed in connection with such
transfer.
Upon the exercise of less than all of the shares underlying the Option
evidenced by this Certificate, the Company shall forthwith issue to the holder
hereof a new Option Certificate representing such numbered shares underlying the
unexercised portion of the Option.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Option Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Option Certificate which are defined in the Option
Agreement shall have the meanings assigned to them in the Option Agreement.
IN WITNESS WHEREOF, the Company has caused this Option Certificate to be
duly executed under its corporate seal.
<TABLE>
<CAPTION>
<S> <C>
Dated as of __________________ Shopnet.com, Inc.
By: Harold Rashbaum, President
</TABLE>
<PAGE>
EXHIBIT "B"
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Option Certificate, to purchase shares of Common Stock ,
underlying the Option, and herewith tenders in payment for such securities a
certified or official bank check payable to the order of Shopnet.com, Inc. in
the amount of $ , all in accordance with the terms hereof. The undersigned
requests that a certificates for such securities be registered in the name of
- ------------------------- --------- whose address is and that such Certificate
be delivered to whose address is . -------------------------------
Dated:
Signature
(Signature must conform in all respects to name of
holder as specified on the face of the Option Certificate.)
Insert Social Security or Other
Identifying Number of Optionee)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
Balance Sheet, Statement of Operations, Statement of Cash Flows and Notes
thereto incorporated in Part I, Item 2 of this Form 10-QSB and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> sep-30-1998
<CASH> 1,410,338
<SECURITIES> 0
<RECEIVABLES> 11,600
<ALLOWANCES> 0
<INVENTORY> 1,459,072
<CURRENT-ASSETS> 3,093,394
<PP&E> 74,865
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,381,110
<CURRENT-LIABILITIES> 2,323,985
<BONDS> 0
0
0
<COMMON> 5,374
<OTHER-SE> 4,013,763
<TOTAL-LIABILITY-AND-EQUITY> 6,381,110
<SALES> 72,604
<TOTAL-REVENUES> 0
<CGS> 49,016
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 514,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,733
<INCOME-PRETAX> (637,384)
<INCOME-TAX> 0
<INCOME-CONTINUING> (637,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (637,384)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
