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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 000-24459
SHOPSS.COM, INC.
(Exact name of Small Business Issuer as specified in its charter)
UTAH 59-2159271
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 NEWTOWN ROAD
PLAINVIEW, NY 11803
(Address of principal executive offices) (Zip Code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock $.001 par
value
Indicate by check mark 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 the registrant was required to
file such reports), and (2) has been subject to filing requirements for the past
90 days.
/X/ Yes / / No
Indicate by check mark indicates that 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. /X/
The issuer's revenues for the year ended December 31, 1999 were $2,939,472.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 11, 2000 was approximately $1,178,000.
There were 19,200,000 shares outstanding of registrant's common stock as of
May 11, 2000.
The following documents are incorporated by reference into this report: NONE.
Transitional Small Business Disclosure Format: / / Yes /X/ No
Documents Incorporated by reference: None
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This Annual Report contains certain forward looking statements and
information relating to the Company that are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this registration statement,
the words "anticipate", "believe", "estimate", "expect" and similar expressions,
as they relate to the Company or the Company's management, are intended to
identify forward looking statements. Such statements reflect the current view of
the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Company does not intend to update these
forward looking statements. See "Description of Business", and "Management's
Discussion and Analysis or Plan of Operations."
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Immediately prior to October 27, 1999, Shopss.com, Inc. (the "Company") was
an inactive public company. Effective October 27, 1999 (the "Closing Date"),
pursuant to an Asset Purchase Agreement, the Company purchased from OSCM One
Stop Com, Inc. ("OSCM") the following assets (the "Acquired Assets"): (a) an 80%
ownership interest in CCM Computer Accessories, Inc. ("CCM"); (b) all rights to
the option to purchase the remaining 20% ownership interest in CCM; and (c) all
assets relating to the Shopss.com virtual shopping mall owned by OSCM,
including, all software, websites and related technology, customers and customer
lists, patents, trademarks and trade names. In exchange for the Acquired Assets,
the Company issued to OSCM 12,000,000 shares (representing approximately 60% of
its outstanding shares after giving effect to the transaction) of its Common
Stock. The Company also agreed to assume the liabilities relating to the
Shopss.com business as recorded on the financial statements of OSCM and the
liabilities relating to the option of the stockholders of CCM to require OSCM to
purchase the remaining 20% interest in CCM. Pursuant to a subsequent agreement
in principle (which has not yet been executed) between the Company and OSCM (a)
a clarification was made to the effect that none of the assets relating to the
Shopss.com virtual shopping mall would include any of the assets or liabilities
relating to the virtual shopping mall operated by an OSCM subsidiary in Israel;
(b) any obligation of the Company to pay cash for the Acquired Assets was
extinguished; and (c) the holdings of OSCM in the Company were adjusted by
reducing the number of shares of Common Stock owned by OSCM from 12,000,000
shares to 1,000,000 shares with a warrant in favor of OSCM to purchase up to
3,000,000 additional shares of the Company's Common Stock and (d) the Company
agreed to extinguish all liabilities owed by OSCM to the Company (approximately
$1.6 million through May 12, 2000). Immediately after the closing of the
purchase of the Acquired Assets, the Company effected a forward split of
5.435034 for one.
After the closing of the purchase of the Acquired Assets, the Company
relied on OSCM for a substantial portion of its working capital and provided
OSCM with computers and other equipment. In view of financial difficulties
experienced by OSCM, OSCM was unable to provide working capital and also was
unable to pay the Company for such computer equipment which had been delivered
by OSCM to the Company. As of the date of this Form 10- KSB, the Company is
insolvent and its ability to continue in business will depend on the raising of
additional capital, either in the form of debt or equity, or a combination
thereof. However, no assurance can be given that the Company will be successful
in raising additional capital or remaining in business. Management of the
Company believes that its ability to raise
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any capital will be dependent upon the acquisition of complimentary businesses,
particularly in the internet telephony business. While the Company has
identified several targets, it has been unsuccessful to date in reaching any
agreement. The description of the business set forth below is a description of
the business previously conducted by the Company after the Closing Date.
However, in view of the current financial condition of the Company, the Company
has ceased operations pending resolution of its financial difficulties.
BUSINESS OPERATIONS
The Company has been an electronic commerce and internet services
company that maintains an internet destination (URL) called "shopss" located at
www.shopss.com. The shopss website offers goods and services for sale through
its website. Shopss is a shopping club which offers committed members the
ability to purchase a variety of products and services and have them shipped
from the Shopss fulfillment centers directly to the members.
The Company also has been the distributor of the "Phone-Ominal" long
distance telephone service. This flat rate long distance telephone service was
offered to residential customers only in the US. This service offered unlimited
telephone service for calls throughout the US, Canada and Puerto Rico utilizing
the Voice over Internet (VoIP) technology, a new technology in telephony.
Phone-Ominal was introduced in February 2000 at an introductory rate of $9.95
per month.
From 1992 to 1999, CCM generated the majority of its revenues from PC
manufacture and PC system integration sales and service. The Company has
utilized CCM's PC manufacturing expertise as part of the membership offering for
the Shopss website. The concept was to give members a "tool" they can use to
facilitate on line shopping; not unlike a telephone for TV shopping and to grow
the membership base.
The Company has derived the majority of its revenues from the Web site
sales primarily from the Phone-Ominal telephone services. If the Company is able
to raise sufficient capital to remain in business, management believes that its
future revenues will include the sources mentioned as well as revenue derived
from expanding Phone-ominal and telephony products and by expanding the products
and services offered on the Shopss Internet website. During 1999, the Company
generated revenues of $2,939,472. The Company generated revenues of $1,248,823
in 1998. If the Company is able to raise sufficient capital to remain in
business the Company will also focus on other profitable services such as
designing and hosting other business web sites and offering its eCommerce
development and hosting expertise. The Company presently hosts several web sites
that it has designed and developed.
If the Company is able to raise sufficient capital to remain in business,
the Company's primary mission will be to grow the VoIP telephony network. This
will be achieved by offering the shopss.com members the service at a discounted
rate, adding marketing campaigns to attract new customers, and offer present
customers bonuses for bringing new customers to the service. The Company hopes
to expand its VoIP technology based upon traffic growth.
The Company's secondary mission will be to maintain and expand its
Electronic Commerce services where businesses and consumers go to engage in the
purchase of telephony products as well as goods, services and information. Since
the Company has developed an Ecommerce solution, its business plan is to sell
Ecommerce web site development and hosting to businesses looking to enter the
Ecommerce marketplace.
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INTERNET COMMERCE
The Internet is a world wide series of interconnected electronic and/or
computer networks. Individuals and companies have recently recognized that the
technological capabilities of the Internet provide a medium for not only the
promotion and communication of ideas and concepts, but also for the presentation
and sale of information, goods and services.
Historically, the Internet has been accessible principally through personal
computers. Recently, several companies have announced "Internet appliances"
designed for the purpose of allowing access to the Internet without the need for
a personal computer. Although these products do not permit the full range of
functions provided by personal computers, they do permit many of the features of
the Internet to be viewed on television sets.
The term "Internet commerce" encompasses the use of the Internet for
selling goods and services. The use of the Internet as a marketing and
advertising tool is enhanced by the ability to communicate information through
the Internet to a large number of individuals, businesses and other entities.
INTERNET TELEPHONY
An innovative and rapidly developing industry is the Voice over Internet
(VoIP). This emerging technology in an alternative to traditional long distance
service carriers. The Company's Phone-ominal service offered (and assuming the
successful raising of the necessary working capital, will offer) a cost
effective way to call long distance in the continental United States. Other
products may include long distance calling cards using similar technology.
Assuming sufficient working capital, the Company intends to market these and
other telephony products on its wehsite www.shopss.com.
This technology is implemented by installed VoIP gateways which are pc's
with specialized communication boards and custom software to route the voice
traffic. The Company's initial product was introduced at a flat rate of $9.95
per month. Assuming sufficient working capital, the Company intends to increase
the flat rate to $24.95 - $29.95 with the next upgrade.
HOW ACTIVITY IS TRACKED
There are three different methods to measure Internet activity for a
particular Web site. The first method is to count the number of "hits" on the
site. Hits refers to the total number of files retrieved from a Web page. These
files can either be text documents, executable files (i.e., downloaded
programs), or graphic images. A file is deemed a hit whether it is simply
accessed or actually downloaded. Depending on how much activity is generated, a
single visitor to Shopss.com could result in numerous hits.
The second method of measuring activity on a Web site is to count
"impressions." Impressions usually refer to the total number of banners or pages
imposed into a user's line of sight. Because items creating impressions may
change while a viewer is still viewing a single page, more impressions than
visitors may be generated by a Web page.
A third method of measuring activity is to count the number of "visitors"
to a Web site. Visitors (or accesses to a site) are the total number of people
coming to a particular Web site.
INTERNET SECURITY
One of the largest barriers to a potential customer's willingness to
conduct commerce over the Internet is the perceived ability of unauthorized
persons to access and use personal information about the
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user, such as credit card account numbers, social security numbers and bank
account information. Concerns about the security of the Internet include the
authenticity of the user (i.e., is the user accurately identified), verification
and certification methods of who these users are, and privacy protection for
access to private information transmitted over the Internet. However, recent
advances in this area have greatly reduced the possibility of such unauthorized
access or use. The Company is not aware of any occasion in which a user's credit
card was misappropriated while transacting business on Shopss.com. For a
discussion of the methods of security employed by the Company, see " Shopss.com
Security."
SHOPSS.COM
The Company has maintained an internet web site called Shopss.com located
on the World Wide Web at www.shopss.com. The following is a description of the
site and business plan for the site which the Company hopes to implement if it
can raise sufficient capital. Currently, the site is not operational in view of
the Company's financial difficulties. Upon accessing the Shopss website, an
Internet user is introduced to the home page. The home page provides the users
with various options: sign up as a member, shop in various stores, or purchase
various services offered on the site, such as Phone-Ominal. A link is provided
for direct no hassle Phone-Ominal registration. The products offered are shipped
directly from our fulfillment centers and a link is provided. Products presently
include groceries, computer accessories, perfumes, stationery, toys, etc., but
the new goal is to become a more specialized product site. It is anticipated
that the Company will be able to link directly into its warehouse offering for
our members. Members receive additional Shopss benefits such as free shipping,
various coupon savings bonuses and other club advantages. Members are charged
through the Company's secure credit card system and need not be concerned about
credit card fraud.
The Shopss.com directory lists products and services by categories and
allows users to perform global searches of the entire Shopss.com site. A viewer
who wishes to purchase items offered on Shopss.com need only submit an order
online and enter a credit card number.
In addition to purchasing products, the member had been able to sign up for
the Phone-Ominal VoIP service. This offering increased the Company's membership
group beyond the traditional shopper. With adequate working capital, Company
intends to expand on its telephony product line.
When a member signs up with Shopss, it has been required that the member
accept one email per day from Shopss. The Company currently maintains
approximately 25,000 eMail addresses on this list. The list has been updated
frequently and has been used to notify Shopss.com users to special manufacturer
discounts, Shopss membership discounts and other news on all its offerings both
products and services.
To further increase the membership, the Company intends to offer other
internet appliance solutions together with shopping minimums which the Company
expects to result in increased shopping and an increased membership base.
In the past the Company focused on increasing membership and improving its
website design; focusing on ease of shopping/viewing. Assuming sufficient
working capital, the Company plans on deriving the majority of its revenue by
expanding its products and services and focusing its web design services.
WEB SITE SALES AND MAINTENANCE FEES
A Web site is a business' online presence or electronic store and has two
fundamental roles. First, it is an advertising medium for products and/or
services. Second, it is a medium for engaging in
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Internet commerce by allowing the Company to sell goods and services to Internet
users. The Company has sold specialized design websites and eCommerce solutions.
The Company also has received revenue in the form of fees for setting up a Web
site and from yearly maintenance or hosting fees.
The Company's fee structure is based on the sophistication of the design of
the web site and number of pages hosted. This fee pays for "space" on the
Company's servers and technical support from the Company. During 1999, the
Company expanded its services to eCommerce solutions.
The Company's technology staff has performed billable services such as
design and development work for New York Metro business customers and full
corporate site development. Fees for these services have been billed by the hour
or by the project. This staff works directly with the customer to develop the
web site.
The Company has built its Web sites utilizing various web and graphic tools
available on the open market. Basic Web sites contain text of various fonts and
font sizes as well as simple images. Enhanced sites contain more advanced text,
images, forms and tables that are generated through the use of Java applets (a
small computer application written in the Java language that is downloaded to a
browser), JavaScripting (a language that is interpreted by Web browsers and used
to enhance content that is downloaded to a browser), and similar tools. Fully
customized Web sites contain features similar to those contained in enhanced Web
sites but require several sophisticated design and programming resources. The
Company anticipates that as demand grows for the more sophisticated eCommerce
web sites, it will grow this service if sufficient working capital is available.
SHOPSS.COM SECURITY
The Company's current electronic commerce service includes the use of
secure sockets layer (SSL) protocol. SSL supports a fully DES 40 bit encrypted
session between the Web browser and the Web server. The Company offers
additional security by passing the users' personal information from the Shopss
secure server to the merchants' secured gateway. The Company utilizes Verisigns
secure certificate to provide assurance to the members that the site is secure.
The Verisign certificate also provides the member against economic loss of up to
$25,000 resulting from theft, corruption, or impersonation. For further security
protection all membership databases are located behind a Firebox II firewall.
These security methods provide a high level of encryption protection for users'
credit card numbers, bank account numbers, and other member information. To the
Company's knowledge, it has never experienced any significant problems with
security. However, there can be no assurance that the Company will never
experience such a problem.
TECHNICAL INFRASTRUCTURE
The Company's infrastructure includes 7 Microsoft NT 4.0 servers all
running the latest hot patches and service packs released, providing Microsoft's
highest security levels. To further protect the intranet and internet servers,
the Company utilizes antivirus software. All company administrative functions
including billing and member services rely on this network. Two servers manage
all external Internet communications. All web related servers are Intel based
Xeon and Pentium technology running the latest releases of Microsoft Internet
Information Server (IIS) software version 4.0. All data utilizes hardware and
software level Raid technology. The Company utilizes Ipswitch's Imail software
for all Email functions.
The Company's servers access the internet via multiple T1 lines utilizing
BGP communication technology for T1 backup redundancy. The web servers rely on
the Firebox II hardware for firewall protection against illegal entry.
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The Company's computer room is secured and alarmed and is supported by a
24/7 support system. The system utilizes standard monitoring and notification
software. An APC Matrix battery backup system offers up to 7 hours of available
power in case of electrical outages. The system data is backed up daily via an
Exabyte DAT tape backup system utilizing Veritas software. A weekly master is
kept offsite for Disaster Recovery. Other tapes are kept in a media fireproof
safe.
The Company's management believes that the Company can quickly and
inexpensively upgrade this system as it becomes necessary assuming that adequate
working capital is available.
SALES AND MARKETING
The Company's sales and marketing activities have been conducted in
several ways:
INTERNAL SALES FORCE
The Company has employed several full time salaried salespeople whose
primary responsibility has been to attract end user shoppers through various
organizations such as charities, benevolent associations, unions, etc. These
organizations bring a membership base to the Company for the purpose of shopping
and Phone-Ominal sales.
INDEPENDENT SALES CONSULTANTS
The Company has several reseller agreements, primarily focused on the
reselling of the Phone-Ominal telephony service. These are well established
companies in the business of reselling telephony services.
MARKETING MEDIA
The Company has marketed its web site and telephony products through a mix
of print, radio and Internet advertising media. The advertising is directed at
the consumer inviting them to become members of both the shopping and telephony
products. Assuming adequate working capital, the next approach will be to market
in the B to B (business) arena.
INDUSTRY AND COMPETITIVE CONSIDERATIONS
NATURE OF MARKET. There is a lack of proven business models with respect to
the generation of revenues from the sale of commercial or informational sites on
the Internet. Even if the Company obtains adequate working capital, it is
impossible to predict whether the Company will be successful in establishing
itself as a viable sales outlet, or that consumers will purchase products in
sufficient quantities for the Company to generate positive cash flow. In
addition, Internet users are faced with a multitude of options while online
which involve shopping and other activities. There can be no assurance that a
significant number of Internet users will become comfortable in engaging in
online commerce.
Voice over Internet (VoIp) is a newer technology which may attract more
customers due to the attractive pricing structure. As the Company grows its VoIp
network the costs to run this network will diminish. It is important to keep
this technology upgraded to handle the growing telephony traffic. There are no
proven business models which can predict the growth of this technology.
CHANGING TECHNOLOGY. Internet advertising and commerce is a new,
intensely competitive, rapidly evolving industry which is subject to rapid
technological change. The success of the Company
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will depend, in part, upon the ability of the Company to keep abreast of
technological changes that are evolving with the Internet and electronic
commerce in general.
OTHER TELEPHONY PRODUCTS. An innovative and rapidly developing industry is
the Voice over Internet (VoIP). This emerging technology in an alternative to
traditional long distance service carriers. The Company's Phone-ominal service
has been offered as a cost effective way to call long distance in the United
States, Canada and Puerto Rico. Assuming the availability of adequate working
capital, other products will include long distance calling cards using similar
technology.
OTHER INTERNET MALLS AND SITES. There are many other sites on the Web that
call themselves "Internet shopping malls." However, the Company believes that
the majority of them are small search engines that link to Sites hosted on
another Company's server. These "search engine malls" sell links from their
search engine malls to the other merchant's Web site. They do not typically
provide Web site building services, commerce tools, or online marketing. In
addition, when the user clicks on the link, the mall owner can not usually track
the sale and does not, therefore, benefit from the purchases made or data
collected. From the shopper's standpoint, they do not know who they are buying
from and since each Web site is likely on a different server, the ordering and
security varies. On Shopss.com, every purchase has been made securely and
through a standardized Shopss.com ordering format. Moreover, because Shopss.com
controls all ordering, multiple products can be bought from multiple stores at
the same time. Management believes that this convenience and security in
shopping is essential for robust online commerce.
Other "malls" which are selling merchandise are either shopping malls (for
merchant stores) or shopping clubs where the consumer has purchase power because
of the group numbers or "warehouse clubs" such as Price/Costco, Sam's Club or
BJ'S. The only other malls appear to be large malls such as Amazon. These malls
offer products and services but do not offer the concept of membership and
member benefits.
THE COMPANY'S COMPETITIVE ADVANTAGES
If the Company is able to obtain sufficient working capital to maintain its
operations, the Company believes that it may have certain competitive
advantages:
MEMBERSHIP. Through the Company's merchandizing of its eCommerce web site
as a membership, the Company believes that it has carved out a niche in the
Internet shopping world.
PHONE-OMINAL SALES. The Company's ability to market a telephony product at
an attractive rate may result in a competitive edge in the telephony business.
WEB SITE BUILDING COSTS. The Company can market eCommerce solutions by
utilizing the resources and tools it has acquired in developing its own
eCommerce site. This may result in our ability to amortize the developmental
cost by reselling eCommerce as a product solution at a competitive fee. These
cost savings assist in the funding of the development of additional development
tools.
EMPLOYEES
As of May 1, 2000, the Company and its subsidiaries had a total of 12 full
time employees located at 115 Newtown Road Plainview NY 11803 and a warehouse at
42-44 Cain Drive Plainview, NY 11803. None of the Company's employees are
covered by an ongoing collective bargaining agreement with the Company and the
Company believes that its relationship with its employees is good.
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HISTORY OF THE COMPANY
The Company was incorporated on July 26, 1983 under the laws of the State
of Utah as HJK, Ltd. The purpose of the business was to acquire, operate and
lease natural resource properties and engage in mining, milling, production,
buying and developing natural resource properties. On August 16, 1985, the
Company acquired a 100% interest in AMCI International, Inc. ("AMCI"). AMCI was
engaged in manufacturing and selling quality furniture. The business acquired
was involuntarily dissolved on December 31, 1987. Since that date through
October 27, 1999, the Company was seeking new business opportunities. As stated
above, on October 27, 1999, the Company acquired certain assets from OSCM. Prior
to the Closing Date, OSCM had acquired 80% of the outstanding stock of CCM from
the shareholders of CCM for $800,000 in cash and stock of OSCM. At special
meeting of shareholders held on December 28, 1999, the shareholders authorized
the change of the Company's name to Shopss.com, Inc.
AMCI International, Inc. changed its name to Shopss.com, Inc. at a
stockholders meeting on Dec. 27th, 1999
ITEM 2. DESCRIPTION OF PROPERTIES
The Company maintains all its offices in Plainview, NY. The Company leases
its executive offices at 115 Newtown Road for a total of $2869 per month, which
lease expires in September 2002. The Company has been leasing assembly space at
45 Cain Drive for $1581 per month which it gave up on April 28, 2000. The
Company also leases warehouse space at 42 & 44 Cain Drive at a current rent of
$2,390 per month, which lease expires in March 2003. The Company believes that
it currently has sufficient space to carry on its operations for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various legal proceedings in the ordinary
course of business, but is aware of no legal proceedings which appear at this
time as if they might have a material impact on its financial position, results
of operations or business. However, the Company's advertising of its
"Phone-Ominal" telephony service has been subject to an inquiry by the Council
of Better Business Bureaus to which the Company has responded.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OR SECURITY HOLDERS
At a meeting of shareholders held on December 28, 1999, the Company's
shareholders approved a name change from AMCI International Inc. to Shopss.com,
Inc. as well as a resolution authorizing action to be taken by shareholder
consent.
ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under the
symbol "SHPS." The following table sets forth, on a per share basis, and for the
periods indicated, the high and low sales prices of the Company's common stock
as reported on the OTC Bulletin Board. Such prices reflect prices between
dealers in securities and do not necessarily represent actual transactions. No
dividends have been declared or paid on the Company's common stock, nor does the
Company intend to declare or pay
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any dividends on the Company's common stock in the near future. All sales prices
are set forth taking into effect all stock splits, exclusive of commissions or
discounts of any nature.
<TABLE>
<CAPTION>
Fiscal Year December 31, 1998 Price Range
- ----------------------------- -----------------------
High Low
<S> <C> <C>
Quarter Ended March 31 - -
Quarter Ended June 30 - -
Quarter Ended September 30 - -
Quarter Ended December 31 - -
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year December 31, 1999 Price Range
- ----------------------------- -----------------------
High Low
<S> <C> <C>
Quarter Ended March 31 - -
Quarter Ended June 30 - -
Quarter Ended September 30 - -
Quarter Ended December 31 4.10 .30
</TABLE>
As of May 12, 2000, the number of security holders of record of the
Company's Common Stock was 97.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
The following is a discussion and analysis of the Company's condition as of
May 1, 2000 and the period ended December 31, 1999. It includes the past and
present condition of the Company as well as future expectations. Any statements
regarding the future of the Company are projections and not based on any
guarantees of performance. Accordingly, actual results may differ materially
from those anticipated or expressed in these statements.
OVERVIEW
Immediately prior to October 27, 1999, the Company was an inactive public
company. Effective October 27, 1999 (the "Closing Date"), pursuant to an Asset
Purchase Agreement, the Company purchased from OSCM the following assets: (a) an
80% ownership interest in CCM; (b) all rights to the option to purchase the
remaining 20% ownership interest in CCM; and (c) all assets relating to the
Shopss.com virtual shopping mall owned by OSCM, including, all software,
websites and related technology, customers and customer lists, patents,
trademarks and trade names. In exchange for the Acquired Assets, the Company
issued to OSCM 12,000,000 shares (representing approximately 60% of its
outstanding shares after giving effect to the transaction) of its Common Stock.
The Company also agreed to assume the liabilities relating to the Shopss.com
business as recorded on the financial statements of OSCM and the liabilities
relating to the option of the stockholders of CCM to require OSCM to purchase
the remaining 20% interest in CCM. Pursuant to a subsequent agreement in
principle (which has not yet been signed) between the Company and OSCM (a) a
clarification was made to the effect that none of the assets relating to the
Shopss.com virtual shopping mall would include any of the assets or liabilities
relating to the virtual shopping mall operated by a subsidiary of OSCM in
Israel; (b) any obligation of the Company to pay cash for the Acquired Assets
was extinguished; and (c) the holdings of OSCM in the Company were adjusted by
reducing the number of shares of Common Stock
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owned by OSCM from 12,000,000 shares to 1,000,000 shares with a warrant in favor
of OSCM to purchase up to 3,000,000 additional shares of the Company's Common
Stock and (d) the Company agreed to extinguish all liabilities owed by OSCM to
the Company (approximately $1.6 million). Immediately after the closing of the
purchase of the Acquired Assets, the Company effected a forward split of
5.435034 for one.
After the closing of the purchase of the Acquired Assets, the Company
relied on OSCM for a substantial portion of its working capital and provided
OSCM with computers and other equipment. In view of certain financial
difficulties experienced by OSCM, OSCM was unable to provide working capital and
also was unable to pay the Company for such equipment which had been delivered
by OSCM to the Company. Accordingly, as of the date of this Form 10K-SB, the
Company is insolvent and its ability to continue in business will depend on the
raising of additional capital, either in the form of debt or equity, or a
combination thereof. However, no assurance can be given that the Company will be
successful in raising additional capital or remaining in business. Management of
the Company believes that its ability to raise any capital will be dependent
upon the acquisition of complimentary businesses, particularly in the internet
telephony business. While the Company has identified several targets, it has
been unsuccessful to date in reaching any agreement. The description of the
business set forth below is a description of the business previously conducted
by the Company after the Closing Date. However, in view of the current financial
condition of the Company, the Company has ceased operations pending resolution
of its financial difficulties.
The Company currently presently derives the majority of its revenues from
the Web site sales and the Phone-Ominal telephone services. Assuming the Company
obtains adequate working capital, the Company intends to maintain these sources
of revenues as well as revenue derived from expanding the products and services
offered in the VoIP telephony services and on the Shopss Internet website.
During 1999 the Company generated revenues of $2,939,472. The Company generated
revenues of $1,248,823 in 1998. Depending on the availability of working
capital, the Company is also focusing on other profitable services such as
designing and hosting other business web sites and offering its eCommerce
development and hosting expertise.
RESULTS OF OPERATIONS
Results of prior periods are not necessarily indicative of the results of
operations that can be expected for any future period and do not reflect the
current mix of the Company's operations. Because the Company, was not engaged in
the Website cCommerce business comparisons of historical results of operations
may not be meaningful.
JANUARY 2000 TO PRESENT
The Company was financed by sales on its websites, sales of its telephony
service and financing from Shopss Israel. When Shopss Israel collapsed, the
sources of money became unavailable. This has put Shopss.com, Inc in jeopardy of
survival. As of May 1, 2000 the Company was past due on payroll. It has no
operating funds available. It is past due on its payables and a skeleton staff
is working with no salary to maintain the operations of the Company. The Company
has a meeting on May 10th to meet with it's largest creditors to convert the
debt to equity. There is no assurance at this time that this will be successful.
The Company is presently looking for possibly strategies to survive. These
include, but are not limited to, possible acquisitions with other companies in
the telephony and technology markets, bridge loans, and long term financing.
11
<PAGE>
We have reduced the operating expenses by closing the 45 Cain Drive
warehouse and by reducing the staff to 12 employees from a previous 45
employees. At this time we are unable to purchase and ship merchandise for the
ecommerce site. The telephony service is presently down until funds are
available for a deposit for additional service from the carrier.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Revenues for the fiscal year ended December 31, 1999 were
$2,939,472 compared to $1,248,823 for the fiscal year ended December 31, 1998.
The 235% increase was due primarily to increases in sales of Shopss.com club
memberships and sales of various Web site and other Internet products. 50% of
total revenues for the fiscal year ended December 31, 1999 were a result of
memberships sales and 50% for systems integration sales from the established CCM
customer base. 100% of the sales for the fiscal year ended December 31, 1998
resulted in the sales of systems integration and PC's manufactured by CCM.
COST OF REVENUEs. The direct cost of revenues for the fiscal year ended
December 31, 1999 was $2,436,440 compared to $1,004,117 for the fiscal year
ended December 31, 1998. The 227 % increase was due primarily to increased
productivity in the volume of PCs for membership growth in 1999 and the design
and implementation of Shopss.com Web site.
SELLING EXPENSES. Selling expenses for the fiscal year ended December 31,
1999 were $757,969 compared to $59,746 for the fiscal year ended December 31,
1998. The 1283% increase was primarily due to a large marketing and sales budget
used to target a dramatic increase in the memberships which were first
implemented in August 1999. The Company dramatically increased its Internet,
print and media advertising dollars in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the fiscal year ended December 31, 1999 were $584,262 compared to $164,376
for the fiscal year ended December 31, 1998. The 356% difference was primarily
due to increases in personnel costs and other expenses related to building the
infrastructure.
INTEREST (EXPENSE), NET. Net interest expense for the fiscal year ended
December 31, 1999 was $5,0480 compared to $27,176 for the fiscal year ended
December 31, 1998. The decrease in interest expense was primarily due to a
decrease in interest on notes payable to a stockholder and the termination of
the factor agreement.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has suffered a loss from operations of approximately $800,000
during 1999 and had a working capital deficit of approximately $860,000 as of
December 31, 1999. Subsequent to October 26, 1999, the Company had depended in
substantial part on assistance from OSCM in terms of working capital and had
provided OSCM with computers and other properties. Because of OSCM's financial
difficulty, OSCM has been unable to provide the Company with working capital or
to pay for a substantial amount of computers and other products provided. In
addition, because of issues pertaining to OSCM's shopping mall in Israel, the
Company incurred a substantial amount of chargebacks from its credit card
issuer. As of the date of this Report, the Company is insolvent and has
essentially ceased operations. The Company is actively seeking financing in the
form of equity and/or debt and business opportunities to be placed into the
corporate umbrella of the Company. However, there can be no assurance that such
financing for completion of business opportunities will be successful.
The Company has had discussions with its principal trade creditors pursuant
to which such creditors will convert their claims to shares of Preferred Stock.
Additionally, a shareholder of the Company has agreed in principal to convert to
equity an aggregate amount of $353,600 owed by the Company to such shareholder.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company for the years ended December 31,
1999 and 1998 are filed herewith.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective February 28, 2000, the Company, dismissed Jones, Jensen & Company
("Jones") as the Company's independent accountants, and engaged Radin, Glass &
Co. LLP ("Radin") as the Company's new independent accountants. The dismissal of
Jones and the retention of Radin were approved by the Company's Board of
Directors.
Prior to the engagement of Radin, neither the Company nor anyone on its
behalf consulted with such firm regarding the application of accounting
principles to a specified transaction, either completed or uncompleted, or type
of audit opinion that might be rendered on the Company's financial statements.
Jones audited the Company's financial statements for the year ended
December 31, 1998. Jones' reports for such period did not contain an adverse
opinion or a disclaimer of opinion, nor was the report qualified or modified as
to uncertainty, audit scope or accounting principles, except as to the ability
of the Company to continue as a going concern.
During the period from January 1, 1999 to February 28, 2000 and the year
ended December 31, 1998, there were no disagreements with Jones on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Jones, would have caused such firm to make reference to the subject matter of
the disagreements in connection with its reports on the Company's financial
statements. In addition, there were no such events as described under Item
304(a)(1)(v) of Regulation S-K during the fiscal year ended December 31, 1998
and the subsequent annual and interim periods through February 28, 2000.
The 1998 financial statements included in this filing were not audited
by Jones, since such 1998 financial statements present the financial
statements of the successor entity as a result of a reverse merger. The
successor financial statements for 1998 have been presented as unaudited.
Audited financial statements for 1998 will be filed by amendment.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth the names, ages and positions with the
Company as of the date of this Annual Report of all of the executive officers
and directors of the Company. Also set forth below is information as to the
principal occupation and background for each named person in the table.
<TABLE>
<S> <C> <C>
Gerard M. Conca 59 Chairman and Chief Executive Officer
Michelle C. Miller 43 Executive Vice President and Director
Rami Adler 54 Director
</TABLE>
GERARD M. CONCA. Mr. Conca's career began in the office automation industry
more than three decades ago. He began as a field engineering specialist and
progressed to sales and sales management, marketing and operations management.
He moved into executive management responsibilities when he accepted the
position of Vice President of Sales in 1986, with Datamedic Corporation on Long
Island. In 1992 he founded CCM Computer Accessories with Michelle Miller. As
President and CEO, Mr. Conca grew this new company and positioned it to be
acquired.
MICHELLE C. MILLER. Ms. Miller's professional career started as a contract
programmer in San Jose, California for GE's Nuclear Energy division. She spent
seven years designing and programming systems for nuclear power plants for GE
and then at one of their power plants in Pennsylvania. In 1986, she chose to
become an entrepreneur and join up with a colleague who had a office supply
company. Together, they expanded this business into computer supplies and
accessories and eventually into computer systems. In 1991 at PC Expo, Ms. Miller
met Jerry Conca and together, this sales team started marketing their products
together. In 1992, CCM Computer Accessories was formed as a full service
computer company.
RAMI ADLER. Rami Adler currently serves as the President, Chief Executive
Officer and a Director of OSCM and as a Director of the Company. Mr. Adler has
more than 20 years of management and financial experience. He joined OSCM in
January 1999 when he merged his management consulting company, Radler, Ltd. with
OSCM. Mr. Adler became Chief Executive Officer of OSCM in June 1999. Prior to
forming Radler, Ltd., he served as Director of Finance for Laniado Hospital,
Nethania, Israel for more than 5 years. Previously he served as marketing
manager for Tradtex International Trade Company Ltd., Deputy General Director of
the H. Shiff Hotel chain and Financial Manager and Comptroller of Keter
Publishing. He holds a B.S. in Textile Engineering from the Philadelphia College
of Textiles and Sciences, an MBA from Rekanaty School of Business, Tel Aviv
University and is a CPA.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10 percent of the
Company's common stock to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers, directors, and
greater than 10 percent shareholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Management
believes all such individuals were in compliance with Section 16(a) at December
31, 1999.
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information as to the Company's
Chief Executive Officer and each of the Company's officers who received
compensation in amounts equal to or exceeding $50,000 for any of the years ended
December 31, 1999. No person received any compensation from the Company or its
predecessor in any fiscal year prior to 1999. Figures listed below do not
include automobile and entertainment allowances for certain executive officers
of the Company which total, in the aggregate, $50,000 for the year ended
December 31, 1999.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
<S> <C> <C>
Name of Individual Year Salary
Jerry M. Conca 1999 $75,000*
Michelle C. Miller 1999 $75,000*
</TABLE>
* as of January 1, 2000 annual compensation was raised to $84,000.
EMPLOYMENT AGREEMENTS
GERARD M. CONCA. Pursuant to an employment agreement dated June 29, 1999,
CCM employed Gerard M. Conca as President for a period of three (3) years. At
the end of the initial term, Mr. Conca has the option to renew the Agreement for
a term of one (1) year. Mr. Conca is entitled to receive from CCM compensation
in the amount of Seventy Five Thousand Dollars ($75,000) annually, payable in
accordance with the Company's normal payroll procedures. Mr. Conca is entitled
to receive a car allowance of $750.00 per month and to participate in the
Company's current medical/health care plan or such other plan as may be adopted
by the Company of equal or greater benefit to Mr. Conca.
MICHELLE C. MILLER. Pursuant to an employment agreement dated June 29,
1999, CCM employed Michelle C. Miller as Executive Vice President for a period
of three (3) years. At the end of said initial term, Ms. Miller has the option
to renew for a term of one (1) year. As compensation, Ms. Miller is entitled to
receive Seventy Five Thousand Dollars ($75,000) annually, payable in accordance
with the Company's normal payroll procedures, a car allowance of $750.00 per
month and current medical/health care plan or such other plan as may be adopted
by the Company of equal or greater benefit to Ms. Miller.
DIRECTOR COMPENSATION
Directors do not receive any additional compensation for serving on the
board of directors of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date of March
31, 2000 with respect to the beneficial ownership of our common stock by each of
our directors, each of our executive officers and all of our executive officers
and directors as a group and the percentage of our common stock so owned.
15
<PAGE>
We are not aware of any other beneficial owner of more than 5% of the
outstanding shares of common stock.
As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Exchange Act as consisting of sole
or shared voting power (including the power to vote or direct the vote) and/or
sole or shared investment power (including the power to dispose of or direct the
disposition of) with respect to the security through any contract, arrangement,
understanding, relationship or otherwise, subject to community property laws
where applicable. Each person has sole voting and investment power with respect
to the shares of common stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of common stock, except as
otherwise indicated. The address of those individuals for which an address is
not otherwise indicated is: 115 Newtown Road, Plainview, New York 11803.
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------------------------------------
<S> <C> <C>
Number of Shares Percentage of Total
DIRECTORS AND OFFICERS
<S> <C> <C>
Gerard Conca 500,000(1) 2.6
Michelle Miller 500,000(1) 2.6
Rami Adler 0 0
5% OR MORE BENEFICIAL OWNERSHIP
OSCM One-Stop.com, Inc. 12,033,000(2) 62.67%(2)
</TABLE>
(1) Pursuant to an Agreement dated as of April 3, 2000 among Mr. Conca, Ms.
Miller, OSCM and the Company, the parties agreed that the shares of Common Stock
of the Company would be substituted for shares of Common Stock of OSCM issuable
to Mr. Conca and Ms. Miller in connection with the prior acquisition of CCM by
OSCM.
(2) Pursuant to an agreement in principle (which has not yet been signed), OSCM
has agreed to return to the Company 11,000,000 shares in connection with the
extinguishment of approximately $1,600,000 in liabilities owed by OSCM to the
Company. The Company has agreed to issue a two year warrant to OSCM to acquire
up to 3,000,000 shares of the Company's common stock at $5.00 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since inception, the Company has received non-interest bearing working
capital advances from certain of its officers and employees.
As stated above, the Company has sold to OSCM, its principal shareholder, a
substantial amount of computers and other products. As of May 12, 2000, the
amount outstanding owed by OSCM to the Company was approximately $1,000,000.
Additionally, the Company incurred chargebacks arising from the activities of
OSCM's shopping mall in Israel in the amount of $585,763 through April 30, 2000
against its back account. Pursuant to an agreement dated in principle (which has
not yet been executed) among other things, OSCM agreed to return to the Company
11,000,000 shares out of 12,000,000 shares of the Company's common stock
theretofore owned by OSCM in exchange for the extinguishment of all liabilities
owed by OSCM to the Company through such date. OSCM will receive a warrant to
purchase up to 3,000,000 shares of the common stock of the Company for period of
two years and an exercise price of $5.00 per share.
16
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER TITLE
- ------- -----
3.1 Articles of Incorporation. Incorporation by reference to exhibit 3.1
of the Company's Registration of Securities of Small Business Issuers
on Form 10SB, filed on June 12, 1998.
3.2 Articles of Amendment to the Articles of Incorporation. Incorporated
by reference to exhibit 3.3 of the Company's Registration of
Securities of Small Business Issuers on Form 10SB, filed on June 12,
1998.
3.3 Bylaws. Incorporated by reference to exhibit 3.2 to the Company's
Registration of Securities on Form 10SB, filed on June 12, 1998.
10.1 Asset Purchase Agreement dated as of October 26, 1999 between the
Company and OSCM. Incorporated by reference to Exhibit 2.1 of the
Company's Form 8-K filed on November 5, 1999.
(b) REPORTS FORM 8-K - THREE MONTHS ENDED DECEMBER 31, 1999.
Report filed on November 5, 1999 relating to the purchase of the Acquired
Assets.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Shopss.com, INC.
May 12, 2000
By: /s/ GERARD M. CONCA
---------------------------------------
Gerard M. Conca, Chairman of the Board
and Chief Executive Officer
By: /s/ Michelle C. Miller
---------------------------------------
Michelle C. Miller, Executive Vice President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the date indicated.
Date: May 12, 2000
/s/ GERARD M. CONCA
-------------------------------------------
Gerard M. Conca, Chairman of the Board
and Chief Executive Officer
/s/ MICHELLE C. MILLER
-------------------------------------------
Michelle C. Miller, Executive Vice President
18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
March 16, 2000 and
April 30, 2000 as to
Notes 8 and 15
Stockholders' and Directors
SHOPSS.COM, Inc.
We have audited the accompanying consolidated balance sheet of SHOPSS.COM, Inc.
as of December 31, 1999, and the related consolidated statements of operations,
stockholders' (deficit) and cash flows for the year 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, based on our audit the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of SHOPSS.COM, Inc. as of December 31, 1999, and the results of its
operations and its cash flows for the year ended in conformity with generally
accepted accounting principles.
The following financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has suffered from recurring losses
from operations, including a net loss of $798,645 for the year ended December
31, 1999, and has both a working capital and stockholders' equity deficiency as
of December 31, 1999. These factors raise substantial doubt the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Certified Public Accountants
New York, New York
F-1
<PAGE>
CCM COMPUTER ACCESSORIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999
<S> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents 891
Accounts receivable 93,102
Inventory 121,081
Prepaid expenses 2,397
----------
TOTAL CURRENT ASSETS 217,472
PROPERTY AND EQUIPMENT, net of accumulated 96,872
depreciation of $58,063
ADVANCES RECEIVABLE - OSCM - PARENT CO 526,583
GOODWILL, net of accumulated amortization of $32,560 618,637
OTHER ASSETS 12,781
TOTAL ASSETS 1,472,345
==========
LIABILITIES AND STOCKHOLDERS' EQUITY: --
CURRENT LIABILITIES --
Accounts payable and accrued expenses 979,659
Taxes payable 22,791
Customer deposits 8,691
Leases payable - current portion 20,992
Bank payable 585,763
Notes payable - related party 59,303
----------
TOTAL CURRENT LIABILITIES 1,677,199
LEASES PAYABLE 57,862
STOCKHOLDERS' EQUITY
Common Stock $.001 per value, 50,000,000
shares authorized, 19,997,160 shares
issued and outstanding 19,997
Additional paid-in capital 622,321
Accumulated deficit (905,034)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 1,472,345
==========
</TABLE>
F-2
<PAGE>
SHOPSS.COM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
REVENUES $ 2,939,472 $ 1,248,823
------------
COST OF REVENUES 2,436,440 1,004,117
----------- -----------
GROSS PROFIT 503,032 244,706
GENERAL AND ADMINISTRATIVE EXPENSES 1,342,231 224,122
----------- -------
INCOME (LOSS) FROM OPERATIONS (839,199) 20,584
OTHER INCOME 45,602 -
INTEREST EXPENSE 5,048 27,176
---------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES (798,645) (6,592)
PROVISION FOR INCOME TAXES - (7,347)
---------- --------
NET INCOME (LOSS) $ (798,645) $ 755
========== =========
EARNINGS (LOSS) PER SHARE $ (0.05) $ 0.00
========== ==========
WEIGHTED AVERAGE SHARES USED IN
COMPUTATION 16,998,580 12,000,000
============ ==========
</TABLE>
F-3
<PAGE>
SHOPSS.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------- ---------------
1999 1998
---------------- ---------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $(798,645) $ 755
Adjustments to reconcile net income (loss) to net cash
provided by (used in) continuing operations:
Depreciation 51,303 16,960
Amortization 32,560
Deferred income taxes (10,515)
Gain on sale of equipment 3,530
Changes in assets and liabilities:
Accounts receivable 102,623 (10,081)
Inventory (108,098) (4,581)
Prepaid expenses (2,397) --
Other assets (8,032) (3,762)
Accounts payable and accrued expenses 848,151 32,399
Taxes payable (116,210) 11,431
Customer deposits 8,691 --
--------- --------
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,475 32,606
INVESTING ACTIVITIES
Purchases of property and equipment (132,743) (18,992)
Goodwill (651,197) --
--------- --------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (783,940) (18,992)
FINANCING ACTIVITIES
Advances from factors (34,311) 34,311
Loans receivable from stockholders 18,179 (50,132)
Bank payable 585,763 --
Advances payable - parent company (526,583) --
Notes payable 57,862 --
Notes payable - related party 39,641 (3,811)
Contribution to capital 630,315 --
--------- --------
NET CASH FLOWS USED IN FINANCING ACTIVITIES 770,866 (19,632)
INCREASE (DECREASE) IN CASH 401 (6,018)
CASH AT BEGINNING OF THE PERIOD 490 6,508
--------- --------
========= ========
CASH AT END OF THE PERIOD $ 891 $ 490
========= ========
SUPPLEMENTAL DATA:
Interest paid $ 5,075 $ 27,176
Income taxes paid 380 780
</TABLE>
F-4
<PAGE>
SHOPSS.COM
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Total
-------------------- Additional Stockholders'
Shares Par Value Paid-in Accumulated Equity
Amount $.001 Capital (Deficit) (Deficit)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 12,000,000 12,000 - (107,144) (95,144)
(Unaudited)
NET LOSS 755 755
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 12,000,000 12,000 - (106,389) (94,389)
(Unaudited)
CONTRIBUTED CAPITAL RECORDED 630,318 630,318
FROM ACQUISITION
COMMON SHARES ISSUED FOR
REVERSE MERGER
7,997,160 7,997 (7,997) -
NET LOSS (798,645) (798,645)
-------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 19,997,160 $19,997 $622,321 $(905,034) $(262,716)
===================================================================
</TABLE>
F-5
<PAGE>
SHOPSS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 (UNAUDITED)
NOTE 1. THE COMPANY
FORMATION
SHOPSS.COM Inc. ("SHOPSS" or the "Company") was incorporated in the state of
Utah in July 1983, formerly known as AMCI International, Inc ("AMCI"). Effective
June 30, 1999, the shareholders of the CCM Computer Accessories Inc. ("CCM")
sold 80% of the outstanding stock of CCM for $800,000 in cash and stock to OSCM
- - One Stop.com, a Florida Corporation ("OSCM"). Effective October 27, 1999, OSCM
sold to CCM Computer Accessories, Inc. ("AMCI") its 80% ownership interest in
CCM (collectively the "OSCM Assets") as amended. In exchange for the OSCM
Assets, AMCI issued 12,000,000 shares of its common stock. AMCI also agreed to
assume the liabilities related to OSCM Assets as recorded in the financial
statements of OSCM and the liability related to the option of certain
stockholders of CCM to require OSCM to purchase the remaining 20% interest in
CCM. The acquisition of AMCI has been accounted for as a reverse merger as
discussed herein with the management of CCM controlling and operating the
Company. AMCI changed its name to SHOPSS.COM, Inc. in December 1999.
BUSINESS AND RELATED RISKS
Since inception, the Company has primarily been engaged in the assembly and sale
of personal computers, and the reselling of customized solutions relating to
document imaging and PC networking.
Beginning in July 1999, effective with the OSCM transaction, the Company changed
its focus to e-commerce by developing and marketing its comprehensive, one-stop
shop Web site, named Shopss.com. The Company's marketing initiatives include
offering personal computers in exchange for membership into the Shopss.com
buying program.
The Company's marketing initiatives described above will be successful only if
individuals become members and actively purchase the Company's products. The
Company is subject to the risk that its marketing program will not achieve
consumer acceptance. In addition, a breach of security on the Internet, even if
the Company was not involved, could make consumers unwilling to guarantee orders
online with a credit card.
The market for the products offered on the Shopss.com web-site are intensely
competitive. The Company competes with both traditional distribution channels
and online services. The Company currently or potentially competes with a
variety of companies with respect to each product offered. The Company
potentially faces competition from a number of large online services that have
expertise in developing online commerce and in facilitating internet traffic.
F-6
<PAGE>
The Company is rapidly and significantly expanding its operations and
anticipates that further expansion will be required to realize their growth
strategy and meet the increasing demands to fulfill customer orders. There can
be no assurance that the Company will have or be able to obtain sufficient
working capital to manage its significant growth.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
RECAPITALIZATION
In October 1999, the Company was acquired by AMCI for 60% of the outstanding
common stock of AMCI. AMCI had no significant operations for recent years prior
to the acquisition while being operated as AMCI. Accordingly, the transaction
has been accounted for as a reverse acquisition by CCM. The capital structure of
CCM has been recapitalized to account for the equity structure subsequent to the
acquisition as if CCM had been the issuer of the common stock for all periods
presented.
GOING CONCERN
The company has suffered a loss from operations of approximately $800,000 during
1999 and the Company has a working capital deficit of approximately $860,000 as
of December 31, 1999. In addition, the accompanying financial statements have
been prepared assuming the Company will continue as a going concern. The Company
intends to raise additional financing through debt on equity financing in the
near future to enable the Company to continue operations for at least one year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary. Intercompany items and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company classifies as cash and cash equivalents highly liquid investments
with maturities of less than ninety days.
REVENUE RECOGNITION
Revenue from the sale of products, which primarily represent the assembly and
sale of personal workstations and PC networks, in which no or insignificant
vendor obligations exist and collectibility is probable, is recognized upon
shipment to the customer.
Revenue from services, such as repairs, is recognized as the services are
provided.
INVENTORIES
Inventories, which consists primarily of costs incurred in connection with
specific customer orders, are stated at the lower of cost or market value.
F-7
<PAGE>
COST OF REVENUES
Cost of revenues consist of merchandise sold, inbound and outbound shipping
costs, and direct cost of order fulfillment. Such costs are expensed as
incurred.
FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. Depreciation of
fixed assets is provided on a straight-line basis over their estimated useful
lives ranging from two to seven years.
LONG LIVED ASSETS
Long lived assets are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable through the estimated undiscounted future cash flows from the use of
these assets. When any such impairment exists, the related assets will be
written down to fair value. No such impairment existed through December 31,
1999.
TECHNOLOGY AND DEVELOPMENT
Technology and development expenses are comprised primarily of compensation to
the Company's information systems staff, data communications and other expenses
associated with operating the Company's Web site and depreciation on computer
equipment. Such costs are expensed as incurred.
SALES AND MARKETING
Sales and marketing are comprised primarily of internet, radio and newspaper
advertising, promotional offers and compensation for the Company's sales and
marketing personnel. All sales and marketing expenses are expenses as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. Under this standard, deferred taxes on income are
provided for those items for which the reporting period and methods for income
tax purposes differ from those used for financial statement purposes using the
asset and liability method. Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Standard No. 128,
EARNINGS PER SHARE, SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Basic and
diluted earnings per share has been computed using the weighted average number
of shares of common stock outstanding.
F-8
<PAGE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables. At times, cash
placed with financial institutions may be in excess of FDIC insurance limits.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains allowances to cover potential
or anticipated losses for uncollectible accounts (See Note 7).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Company 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.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash, accounts
receivable, loans payable to (receivable from) stockholders, accounts payable,
and, loans payable to the related party, approximate fair value because of the
short-term nature to these instruments.
GOODWILL
Goodwill arising from a change in ownership on June 17, 1999 is amortized on a
straight-line basis over a ten-year life.
The Company assesses the recoverability of goodwill by determining whether the
amortization over its remaining life can be recovered through projected
undiscounted future cash flows. The amount of impairment, if any, is measured
based on fair value and is charged to operations in the period in which
impairment is determined by management. As of December 31, 1999, the Company's
management has not identified any material impairment of goodwill. See Note 16.
STOCK SPLIT
In October 1999, as part of the merger, the Company effectuated a forward split
of 5.435034 for one. All per share data and stock information has been adjusted
retroactively for this stock split.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company operates as a
single segment and will evaluate additional segment disclosure requirements as
it expands its operations.
F-9
<PAGE>
MINORITY INTEREST
The Company has incurred a significant loss during 1999, resulting in a negative
minority interest balance accordingly no minority interest amounts are shown.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INVESTMENTS
AND HEDGING ACTIVITIES INCOME, which requires the recording of all derivative
instruments as assets or liabilities measured at fair value. Among other
disclosures, SFAS No. 133 requires that all derivatives be recognized and
measured at fair value regardless of the purpose or intent of holding the
derivative.
SFAS No. 133 is effective for financial statements for years beginning after
June 15, 2000. The Company has no derivative investments and does not
participate in hedging activities; therefore, its financial position, results of
operations and disclosures will be unaffected by the adoption of this standard.
NOTE 3. ASSET PURCHASE AGREEMENT
Effective October 27, 1999, pursuant to an asset purchase agreement, OSCM sold
to SHOPSS.COM, Inc. ("SHOPSS"): (a) an 80% ownership interest in CCM; (b) all
rights to the option to purchase the remaining 20% ownership interest in CCM;
and (c) all assets related to OSCM's Shopss.com virtual shopping mall,
including, but not limited to all software, web sites and related technology,
customers and customer lists, parents, trademarks and trade names, etc.
(collectively the "OSCM Assets"). In exchange for the OSCM Assets, SHOPSS issued
12,000,000 shares (approximately 60%) of its common stock. SHOPSS also agreed to
assume the liabilities related to the Shopss.com business as recorded in the
financial statements of OSCM and the liability related to the option of certain
stockholders of CCM to require OSCM to purchase the remaining 20% interest in
CCM. The goodwill of $651,197 arose form the original purchase of CCM by OSCM.
NOTE 4. ADVANCES FROM FACTORS
In July 1998, the Company entered into a Purchase and Sale Agreement ("PSA")
with a commercial factor, which advanced the Company 70% of certain receivables,
as defined. The factor maintained a security interest in the Company's accounts
receivable and advanced monies on a recourse basis. Interest rates ranged from
5% for invoices outstanding thirty days to 9.5% for those outstanding over fifty
days. Under the PSA, the factor reserved the right to charge-back purchased
accounts, at the receivable amount net of unearned interest, not paid within 60
days. The terms of the factoring agreement allowed the Company to maintain
effective control over the receivables and therefore the agreement is recorded
as a secured borrowing in accordance with Statement of Financial Standards No.
125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES.
On July 14, 1999, the Company exercised its right to terminate the PSA. All
outstanding advances and unpaid fees due the factor were paid in full as of or
prior to this date.
F-10
<PAGE>
NOTE 5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
At December 31, 1999, leasehold improvements and equipment consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Leasehold improvements $ 12,657
Furniture & fixtures 21,762
Computer equipment 89,580
Machinery & equipment 30,937
-----------------
154,936
Less: accumulated depreciation 58,063
-----------------
$ 96,873
=================
</TABLE>
Leasehold improvements are depreciated over 31.5 years. Furniture, computers
and machinery are depreciated over 2 to 7 years.
NOTE 6. SALES TAXES PAYABLE
At December 31, 1998 and 1999, the Company's sales taxes payable amounted to
$126,462 and $12,126 respectively. Since inception, the Company has charged and
collected applicable sales tax from its customers. However, these amounts prior
to June 30, 1999 of $126,462 have not yet been forwarded to the appropriate
taxing authority. The Company intends to meet with taxing authorities to
determine and negotiate its final liability for unpaid sales taxes. The sellers
of CCM have assumed the liability including penalties and interest arising from
the failure to remit unpaid sales taxes prior to June 30, 1999, therefore such
liability has been recorded as a contribution to capital.
NOTE 7. RELATED PARTY TRANSACTIONS
LOANS PAYABLE TO (RECEIVABLE FROM) STOCKHOLDERS
Since inception, the Company has received non-interest bearing working capital
advances from certain of its officers and employees, who are also stockholders
of the Company.
Advances from the Company's president for the years ended December 31, 1998 and
1999 were $17,900 and $228,519, respectively. Repayments of these advances for
the years ended December 31, 1998 and 1999 were $36,992 and $265,511,
respectively. As of December 31, 1998 and 1999, loans payable to the Company's
president amounted to $20,320 and $-0-, respectively. In connection with the
sale of the Company's common stock further described in Note 7, loans payable
were forgiven by the Company's President amounting to $173 as of June 30, 1999.
F-11
<PAGE>
Advances from the Company's vice president of operations for the years ended
December 31, 1998 and 1999 were $-0- and $52,700, respectively. Borrowings under
these advances are secured by accounts receivable of the Company. Repayments of
these advances for the years ended December 31, 1998 and 1999 were $29,577 and
$82,277, respectively. As of December 31, 1998 and 1999, loans payable to
(receivable from) the Company's executive vice president amounted to $(17,354)
and $-0-, respectively.
In connection with the sale of the Company's common stock, the Company agreed to
forgive the loans receivable from the Company's vice president of operations
amounting to $31,949 as of June 30, 1999.
In connection with the sale of the Company's common stock on October 1998, the
Company's vice president of sales advanced $4,600 to the Company, of which
$4,433 was repaid in June 1999 . The balance of $167 was forgiven by this
individual.
NOTE 8. ADVANCES RECEIVABLE AND PAYABLE - PARENT COMPANY (OSCM)
OSCM through its subsidiary SHOPSS.COM in Israel was providing similar services
as the Company in Isreal. SHOPSS.COM in Israel collected some monies through
credit cards in 1999, which were cleared through the Company. In January the
Company began getting chargebacks by the bank from such Israeli based sales of
the OSCM subsidiary. The Company was received $585,763 through April 30, 2000 of
such chargebacks against its bank account for customer dissatisfaction issues
due to the Israeli OSCM subsidiary. A payable due to bank has been recorded for
these chargebacks occurring in 2000. A receivable of advances was set up at year
end due from OSCM in the amount of $526,583. A portion of these monies were
repaid in 2000.
NOTE 9. LEASE PAYABLE
In 1999, the Company entered into two five-year lease agreement for office
equipment which qualified as a capital lease. The following represents future
minimum payments for the year ending December 31,
<TABLE>
<S> <C> <C>
2000 $ 28,697
2001 28,697
2002 28,697
2003 28,697
2004 21,918
-------------
Total lease payments 136,706
Imputed interest (49,427)
-------------
Present value of minimum capitalized lease payments 87,279
Current portion 12,172
-------------
Long-term capitalized lease obligations $ 73,446
=============
</TABLE>
NOTE 10. STOCKHOLDERS' EQUITY
In October 1999, the Company acquired certain assets from OSCM, discussed
earlier, in exchange for 2,207,898 of restricted shares of common stock of the
Company amounting to 60%
F-12
<PAGE>
of the post-acquisition outstanding shares of common stock. In conjunction with
the aforementioned acquisition the Company declared a 5.435034 forward split
increasing the post-acquisition outstanding securities to approximately
19.997.160 shares. As part of the acquisition of the OSCM assets $630,318 of
contributed capital was recorded.
NOTE 11. INCOME TAXES
Provisions (benefit) for federal and state income taxes consist of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
Current:
<S> <C> <C>
Federal $ 271,539 $ 2,354
State 19,008 814
-------------------------------------
290,547 3,168
------------------------------------
Deferred:
Federal (271,539) (7,812)
State (19,008) (2,703)
--------------------------------------
(290,547) (10,515)
----------------------------------------
Total $ - 0 - $ (7,347)
======================================
</TABLE>
Differences between the federal statutory rate and the Company's effective tax
rate are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
<S> <C> <C>
Statutory rate (34.0)% (34.0)%
State taxes-net of federal taxes -- 63.9
Utilization of net operating loss carryforward 34.0 (146.5)
Permanent differences -- 5.1
--------- ----------
0% (111.5)%
========= ==========
</TABLE>
NOTE 12. MAJOR CUSTOMERS
Sales to three customers accounted for 25%, 18% and 11% of the Company's net
revenues in 1999 and 68% of net revenues in 1998, respectively. As of
December 31, 1998 and 1999, $150,044 (76.7%) and $14,438 (15.5%), of the
Company's accounts receivable, respectively, were due from one customer.
NOTE 13. LICENSE AGREEMENTS
The Company entered into two license agreements with related parties for the
sole and absolute use of certain Internet domain names. One of the agreements
is with an officer and director of
F-13
<PAGE>
the Company and the other is with a not-for-profit organization whose board
of directors is substantially identical to that of the Company. The term of
the agreements is twenty-five years through December 31, 2023 with an
additional renewal period of twenty-five years thereafter. The agreements
require the Company to pay license fees, which begin at $600 per domain name
and escalate to $2,500 per domain name through the twenty fifth year of the
agreement. Thereafter, the fee increase is based on the Consumer Price Index.
The agreement with the not-for-profit organization also requires the Company
to provide office space, on its premises, for up to four employees of the
not-for-profit organization for up to three years.
NOTE 14. COMMITMENTS AND CONTINGENCIES
LEASES
Future minimum payments under non-cancelable operating leases for office space
with terms of one year or more, consist of the following at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 69,395
2001 64,468
2002 54,332
2003 5,100
</TABLE>
CONTINGENCY
In August 1998, the Company commenced an action against two leasing companies
for restitution of expenditures that were made by the Company to certain
customers after the Company had been notified that funding of these expenditures
had been committed by these leasing companies. One of the leasing companies has
commenced a counter-claim against the Company for an unspecified amount.
Although the ultimate outcome of such action and proceedings cannot be predicted
with certainty at this time, management believes that losses, if any, will not
have a significant impact on the Company's financial position or results of
operations.
EMPLOYMENT CONTRACTS
Effective June 14, 1999, the Company entered into employment agreements with its
president and vice president of operations, both of which expire on June 14,
2002. The employment agreements, which provide for a basic salary and certain
benefits, contain a non compete clause which is in effect for two years
following termination or five years from the date of the agreements, whichever
is longer.
NOTE 15. SUBSEQUENT EVENTS
Through April 30, 2000, the Company received $353,600 from a shareholder. Such
funds were used primarily to fund operations and the bank chargebacks. The funds
are loans due on demand and bear interest at 8% per annum.
F-14
<PAGE>
NOTE 16. SUBSEQUENT EVENTS - (UNAUDITED)
On April 30, 2000, the Company has determined to refocus their business efforts
to further develop the voice over internet telephone business. As a result of
the refocused business direction of the Company, the goodwill of the Company may
have become impaired and may be written off in the second quarter of the year
2000.
On May 12, 2000, the Company signed an agreement with OSCM to cancel
approximately $1,400,000 of indebtedness owed by OSCM to the Company for the
return and cancellation of 11,000,000 shares of common stock and the issuance
of a warrant to purchase up to 3,000,000 shares of common stock of the
Company for $5.00 per share for a period of two years. This new agreement
also made clarifications as to certain terms of the original Asset Purchase
Agreement between OSCM and the Company.
F-15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 891
<SECURITIES> 0
<RECEIVABLES> 93,102
<ALLOWANCES> 0
<INVENTORY> 121,081
<CURRENT-ASSETS> 2,397
<PP&E> 154,939
<DEPRECIATION> (58,063)
<TOTAL-ASSETS> 1,472,345
<CURRENT-LIABILITIES> 1,677,199
<BONDS> 0
0
0
<COMMON> 19,997
<OTHER-SE> (282,713)
<TOTAL-LIABILITY-AND-EQUITY> 1,472,345
<SALES> 0
<TOTAL-REVENUES> 2,939,472
<CGS> 0
<TOTAL-COSTS> 2,436,440
<OTHER-EXPENSES> 1,342,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,048
<INCOME-PRETAX> (798,645)
<INCOME-TAX> 0
<INCOME-CONTINUING> (798,645)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (798,645)
<EPS-BASIC> (0.05)
<EPS-DILUTED> 0
</TABLE>
