EXHIBIT 3: MyFavoriteShoe.com, inc. UNAUDITED STATEMENT OF FINANCIAL CONDITION
Accountants' Report
To MyFavoriteShoe.com, Inc.:
We have compiled the accompanying balance sheets of MyFavoriteShoe.com, Inc. as
of March 31, 2000 and December 31, 1999, and the related statements of income,
stockholders' equity, cash flows for the three months ended March 31, 2000 and
for the period from inception (March 4, 1999) to December 31, 1999, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements that
is the representation of management. We have not audited or reviewed the
accompanying financial statements and, accordingly, do not express an opinion or
any other form of assurance on them.
As discussed in Note B, certain conditions indicate that the company may be
unable to continue as a going concern. The accompanying financial statements do
not include any adjustments that might be necessary should the company be unable
to continue as a going concern.
Tauber & Balser, P.C.
Atlanta, Georgia
August 7, 2000
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<PAGE>
BALANCE SHEET
<TABLE>
<CAPTION>
MYFAVORITESHOE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2000 AND DECEMBER 31, 1999
(Unaudited)
At At
March 31, December 31,
2000 1999
---------------- ----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 103,342 $ -
Inventory 402,094 91,219
---------
TOTAL CURRENT ASSETS 505,436 91,219
PROPERTY AND EQUIPMENT, net 446,409 197,927
OTHER ASSETS
Lease deposits 79,864 71,451
----------- ---------
TOTAL ASSETS $ 1,031,709 $ 360,597
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Cash overdraft $ - $ 5,022
Accounts payable and accrued expenses 1,248,199 565,114
Loan payable, related party 124,000 -
Deferred sublease revenue 121,165 -
----------- ---------
TOTAL CURRENT LIABILITIES 1,493,364 570,136
----------- ---------
STOCKHOLDERS' DEFICIT
Common stock, $.0000001 par, 500,000,000 shares
authorized, 12,100,000 and 10,800,000 shares
issued and outstanding 1 1
Additional paid-in capital 1,497,511 755,107
Deficit accumulated during the development stage (1,959,167) (964,647)
----------- ---------
TOTAL STOCKHOLDERS' DEFICIT (461,655) (209,539)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,031,709 $ 360,597
=========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
STATEMENT OF OPERATIONS
MYFAVORITESHOE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND FOR THE
PERIOD FROM INCEPTION (MARCH 4, 1999) TO DECEMBER 31, 1999
(Unaudited)
March 31, December 31,
2000 1999
---------------- ----------------
REVENUE $ 17,706 $ -
COST OF GOODS SOLD 9,952 -
----------- ------------
Gross margin 7,754 -
OPERATING EXPENSES 1,002,274 964,647
----------- ------------
NET LOSS $ (994,520) $ (964,647)
=========== ============
WEIGHTED AVERAGE COMMON SHARES
USED IN COMPUTING BASIC AND
DILUTED LOSS PER SHARE 12,100,000 10,800,000
=========== ============
BASIC AND DILUTED LOSS PER
COMMON SHARE $ (.08) $ (.09)
=========== ============
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY
MYFAVORITESHOE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE PERIOD FROM INCEPTION (MARCH 4, 1999) TO
DECEMBER 31, 1999 AND
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
Deficit
Accumulated Total
Common Stock Issued Additional During the Stockholders'/
Paid-in Development Members'
Shares Amounts Capital Stage Equity/(Deficit)
------------- --------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, March 4, 1999 - $ - $ - $ - $ -
Issuance of common stock, net
of issuance costs 10,800,000 1 755,107 - 755,107
Net loss - - (964,647) (964,647)
---------- ---- ---------- ----------- ---------
Balance, December 31, 1999 10,800,000 1 755,107 (964,647) (209,539)
Issuance of common stock, net
of issuance costs 1,300,000 - 742,403 - 742,403
Net loss - - - (994,520) (994,520)
---------- ---- ---------- ----------- ---------
Balance, March 31, 2000 12,100,000 $ 1 $1,497,510 $(1,959,167) $(461,655)
========== ==== ========== =========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
STATEMENTS OF CASH FLOWS
MYFAVORITESHOE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND FOR THE
PERIOD FROM INCEPTION (MARCH 4, 1999) TO DECEMBER 31, 1999
(Unaudited)
March 31, December 31,
2000 1999
------------- --------------
CASH FLOWS FORM OPERATING ACTIVITIES:
Net loss $ (994,520) $(964,647)
---------- ---------
Adjustments:
Depreciation 5,656 15,264
Changes:
Accounts receivable (305,410) (90,108)
Cash overdraft - (5,022)
Other assets (13,878) (72,562)
Accounts payable and accrued expenses 683,084 565,115
Deferred revenue 121,167 -
---------- ---------
Total adjustments 484,963 397,423
---------- ---------
Net cash used in operating activities (503,901) (551,960)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (259,160) (203,148)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of related party loan 124,000 -
Proceeds from stockholder contributions, net 742,403 755,108
---------- ---------
Net cash provided by financing activities 866,403 755,108
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 103,342 -
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD - -
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 103,342 $ -
========== =========
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MYFAVORITESHOE.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2000 AND DECEMBER 31, 1999
NOTE A - FORMATION AND ORGANIZATION
MyFavoriteShoe.com, Inc. (the "Company"), a Delaware corporation, was formed
March 4, 1999. The Company is a consumer web site offering its customers a wide
selection of footwear.
As of March 31, 2000, the Company was still to be considered in the development
stage since its activities for the year were primarily developmental in nature,
with no significant revenues to date.
NOTE B - CURRENT OPERATIONS AND CAPITALIZATION ISSUES
The Company started Internet operations in February 2000 and product sales have
been insignificant. The Company's minimal operating history makes it difficult
to predict future operating results. The Company's expense levels are based, in
part, on its expectations as to future revenues. If revenue levels are below
expectations, or if the Company is unable or unwilling to reduce expenses
proportionately, operating results will be adversely affected. There is no
assurance that the Company will be profitable. The Company's prospects must be
considered in light of the risks, expenses, and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving e-commerce markets. If the Company is
unable to develop and introduce new products or product enhancements in a timely
manner or if a new release of its services and products does not achieve market
acceptance, the Company's business, operating results, and financial condition
will be materially adversely affected.
The Company's success will depend upon management's ability to obtain contracts
with customers; establish independent associates; continue product development;
respond to competitive developments; create and expand its sales, marketing, and
implementation forces; enter into sales agency agreements; and attract, train,
and retain management and marketing personnel on a timely basis. The Company's
growth will also require the Company to implement financial and management
controls and reporting systems and procedures. The failure to do so could have a
material adverse effect on the Company's business, operating results, and
financial condition.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The Company endeavors to adhere to the most conservative generally accepted
accounting principles and Security Exchange Commission guidelines as are
practicable. As a general rule, the Company believes that Internet companies
engaging in transactions that are similar to transactions entered into by
traditional companies should follow the already established accounting models
for those transactions.
REVENUE RECOGNITION
Product sales over the Internet are equivalent to sales of products at retail
stores and are accounted for as sales when the products are delivered. The
Company follows the Gross Sales concept versus the commission concept because
the Company is the owner of the merchandise sold to customers and not merely an
agent for another business.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks, and short-term
investments with original maturities of 90 days or less to be cash equivalents.
INVENTORY
Inventory is stated at the lower of cost (determined on a first-in, first-out
basis) or market, and consists of shoes and apparel accessories purchased for
resale.
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USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the 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 reported period. Actual
results could differ from those estimates.
PROPERTY AND EQUIPMENT
The Company depreciates its property and equipment using the straight-line
method over the estimated useful lives of three years. Leased equipment is
depreciated over the life of the lease.
Property and equipment balances as of March 31, 2000 and December 31, 1999 were
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ----------------
<S> <C> <C>
Computer and telephone equipment $ - $ 20,426
Software 188,927 183,157
Leasehold improvements 278,402 -
-------- --------
467,329 203,583
Accumulated depreciation (20,920) (5,656)
-------- --------
Property and equipment, net $446,409 $197,927
======== ========
</TABLE>
COSTS OF DEVELOPING THE WEB SITE
The Company expenses all costs except for the cost of external off-the-shelf
software.
ADVERTISING EXPENSE
Many Internet companies enter into advertising barter transactions with each
other, in which they exchange rights to place advertisements on each other's web
sites. There is diversity in practice in accounting for these transactions. The
Company accounts for all related expenses as a cost of doing business with the
value of the transaction being the actual cash liability for the service. The
Company records the exchange rights also based on cash received as an offset to
the related operating cost.
SHIPPING AND HANDLING COSTS
Shipping and handling costs are netted against the related customer charges and
the net result is shown as a period operating cost.
INCOME TAXES
Since inception, the Company incurred losses of $1,959,167, which will be
available to offset future income taxes for federal and state income taxes
through 2019. The Company does not have any certainty of this future offset and
accordingly has made no provision on its books. The Company has recorded a
valuation allowance to reflect the uncertainty of the ultimate utilization of
the deferred tax asset as follows:
Deferred tax asset $ 786,300
Less valuation allowance (786,300)
---------
Net deferred tax asset $ -
==========
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
(SFAS No. 128), EARNINGS PER Share, which established new standards for
computing and presenting earnings per share. SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earning per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of stock options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
All loss per share amounts have been presented to conform to the SFAS No. 128
presentation. Stock options and warrants have not been included in the
computation of diluted loss per share as the computation would not be dilutive.
NOTE D - RELATED PARTY LOAN
In February 2000, the Company entered into a loan agreement with a stockholder
to borrow $124,000. The loan bears interest at 9% and is due February 2001.
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<PAGE>
NOTE E - LEASE OBLIGATIONS AND SUBLEASE
The Company conducts its operations in facilities under operating lease
agreements which extend through March 2003. It has a lease for office space in
Seattle, WA with a term through March 2005. The Company also entered into three
leases for computer equipment. The following is a schedule of the future minimum
obligations under the operating leases that have initial or remaining
noncancelable lease terms in excess of one year at March 31, 2000:
2000 $889,474
2001 $984,559
2002 $943,973
2003 $443,130
2004 $278,862
Total $3,539,997
In March 2000, the Company entered into an arrangement in which it has sublet a
portion of its office space. A deposit of $15,146 is being held by the company
and 8 months rent of $121,164 was prepaid by the subtenant. The prepayment is
reflected as Deferred Revenue on the balance sheet. The term of the sublease is
18 months.
NOTE F - STOCK OPTIONS
The Company applies the intrinsic-value based method in accounting for stock
options for employees as prescribed by Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees.". It also applies the fair value
method for stock options and warrants issued to non-employees. Accordingly,
compensation expense is recognized for employees only when options are granted
with a discounted exercise price. The exercise price for all of the Company's
stock options and warrants issued equaled or exceeded the market price of the
underlying stock on the grant date. In addition, for options and warrants issued
to non-employees, other consideration was paid or received by the recipient for
each of the instances when options or warrants were granted. Accordingly, no
compensation expense was recognized.
The following table is a summary of the Company's outstanding stock options and
warrants:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Granted & outstanding at beginning of the period 3,382,560 0
Granted & outstanding at the end of the period 11,407,625 3,382,560
Range of exercise prices $0.001 - $1.40 $0.001 - $1.40
Weighted average price $0.01 $1.00
Weighted average term (years) 3.01 3.02
All of the options outstanding are fully vested as of March 31, 2000.
</TABLE>
NOTE G - SUBSEQUENT EVENTS
On May 15, 2000, zebramart.com, inc., a Nevada corporation ("zebramart"), and
Coacqsub, Inc. ("Coacqsub"), a Georgia corporation and a wholly owned subsidiary
of zebramart, entered into an agreement and plan of merger with
MyFavoriteShoe.com, Inc., a Delaware corporation ("MyFavoriteShoe"). Pursuant to
the merger agreement, on May 24, 2000, Coacqsub merged with and into
MyFavoriteShoe, and MyFavoriteShoe became a wholly-owned subsidiary of
zebramart. The transaction was accounted for as a pooling of interest. As
consideration for the merger, each outstanding common share of MyFavoriteShoe
was converted into the right to receive 2.699367 shares of zebramart common
stock. The total merger consideration equaled 63,636,364 shares of zebramart
common stock. In addition, zebramart assumed the outstanding options to purchase
MyFavoriteShoe common shares held by employees of MyFavoriteShoe at the
indicated conversion rate, subject to the appropriate vesting schedule. The
merger consideration and employee options were collectively valued at
$21,000,000, which was to be paid in common stock valued at $.33 per share.
The Conversion Factor was calculated assuming that 187,702,342 shares of common
stock were acquired by zebramart and that the number of shares issuable under
zebramart existing stock option plans were reduced to 35,000,000. To the extent
that this does not occur within 90 business days of the closing, a proportional
amount of additional shares of zebramart stock (not to exceed 20% of outstanding
common stock) will be issued as additional merger consideration.
10
<PAGE>
The following is summarized pro forma operating data which gives effect to the
merger as if it had occurred on January 1, 1999:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
Current Assets $ 984,925 $ 3,546,239
Long Term Assets 2,220,124 638,941
Total Assets 3,205,049 4,185,179
Current Liabilities 1,638,075 854,322
Other Liabilities 19,863 23,196
Stockholders Equity 1,547,111 3,307,661
Total Liabilities and Stockholders Equity 3,205,049 4,185,179
Revenue 22,546 -
Net Loss 2,566,164 1,108,979
Basic & Diluted Loss Per Common Share $ 0.01 $ 0.01
Total Shares Outstanding 410,290,318 410,290,318
</TABLE>
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